SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 25, 1997
LUMISYS INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-26832 77-0133232
(Commission File No.) (IRS Employer Identification No.)
225 Humboldt Court
Sunnyvale, CA 94089
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (408) 733-6565
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
THIS CURRENT REPORT ON FORM 8-K (THE "REPORT") CONTAINS FORWARD LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING RISKS THAT THE
INTEGRATION OF THE OPERATIONS, TECHNOLOGIES, PRODUCTS AND EMPLOYEES OF LUMISYS
INCORPORATED, A DELAWARE CORPORATION ("LUMISYS"), AND COMPURAD, INC., A
DELAWARE CORPORATION ("COMPURAD"), MIGHT NOT OCCUR AS ANTICIPATED; THAT THE
SYNERGIES EXPECTED TO RESULT FROM THE MERGER DESCRIBED BELOW MIGHT NOT OCCUR
AS ANTICIPATED; THAT MANAGEMENT'S ATTENTION MIGHT BE DIVERTED FROM DAY-TO-DAY
BUSINESS ACTIVITIES; AND THAT GREATER THAN NORMAL EMPLOYEE TURNOVER MIGHT
OCCUR. IN ADDITION, THERE ARE NORMAL RISKS AND UNCERTAINTIES ASSOCIATED WITH
LUMISYS' BUSINESS, INCLUDING THE TIMELY DEVELOPMENT, ACCEPTANCE AND PRICING OF
NEW PRODUCTS AND THE IMPACT OF COMPETITIVE CONDITIONS. ACTUAL RESULTS AND
DEVELOPMENTS MAY DIFFER MATERIALLY FROM THOSE DESCRIBED IN THIS REPORT. FOR
MORE INFORMATION ABOUT LUMISYS AND RISKS RELATING TO INVESTING IN LUMISYS,
REFER TO LUMISYS'S MOST RECENT REPORTS ON FORM 10-K AND FORM 10-Q, AND THE
RECENT REGISTRATION STATEMENT ON FORM S-4 RELATED TO THE MERGER DESCRIBED
BELOW, AS FILED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION") ON NOVEMBER 4, 1997.
On September 28, 1997, SAC Acquisition Corporation ("Merger Sub"), which was a
wholly owned subsidiary of Lumisys, was merged with and into CompuRAD,
pursuant to an Agreement and Plan of Merger and Reorganization (the
"Agreement") dated as of September 28, 1997 among Lumisys, Merger Sub and
CompuRAD. The terms of the Agreement were determined through arms' length
negotiations between Lumisys and CompuRAD.
The merger of Merger Sub with and into CompuRAD (the "Merger") became
effective at the time of the filing of a Certificate of Merger with the
Delaware Secretary of State on November 25, 1997 (the "Effective Time"). At
the Effective Time: (i) Merger Sub ceased to exist; (ii) CompuRAD, as the
surviving corporation in the Merger, became a wholly owned subsidiary of
Lumisys; and (iii) subject to the provisions of the Agreement relating to the
payment of cash in lieu of fractional shares, each share of CompuRAD Common
Stock, par value $0.01 per share ("CompuRAD Common Stock"), outstanding
immediately prior to the Effective Time (except for any such shares held by
CompuRAD as treasury stock and any such shares held by Lumisys or any
subsidiary of Lumisys or CompuRAD, which shares, if any, were canceled) was
converted into the right to receive nine hundred twenty-eight thousandths
(0.928) of a share of Common Stock, $0.001 par value per share, of Lumisys
("Lumisys Common Stock").
In addition, pursuant to the Agreement, at the Effective Time, all rights with
respect to CompuRAD Common Stock under CompuRAD stock options then
outstanding, were converted into and became rights with respect to Lumisys
Common Stock, and Lumisys assumed each such outstanding CompuRAD stock option
in accordance with the terms of the stock option plan under which it was
issued and the stock option agreement by which it is evidenced. By virtue of
the assumption by Lumisys of such CompuRAD stock options, from and after the
Effective Time: (i) each CompuRAD stock option assumed by Lumisys may be
exercised solely for Lumisys Common Stock; (ii) the number of shares of
Lumisys Common Stock subject to each such CompuRAD stock option is equal to
the number of shares of CompuRAD Common Stock subject to such CompuRAD stock
option immediately prior to the Effective Time multiplied by 0.928 (the
exchange ratio in the Merger), rounded down to the nearest whole share (with
cash, less the applicable exercise price, being payable for any fraction of a
share); and (iii) the per share exercise price under each such CompuRAD stock
option was adjusted by dividing the per share exercise price under such
CompuRAD stock option by 0.928 and rounding up to the nearest cent.
In addition, pursuant to the Agreement, at the Effective Time, all rights with
respect to CompuRAD warrants then outstanding, were converted into and became
rights with respect to Lumisys Common Stock, and Lumisys assumed each such
outstanding CompuRAD warrant in accordance with the terms of such warrants.
By virtue of the assumption by Lumisys of such CompuRAD warrants, from and
after the Effective Time: (i) each CompuRAD warrant assumed by Lumisys may be
exercised solely for Lumisys Common Stock; (ii) the number of shares of
Lumisys Common Stock subject to each such CompuRAD warrant is equal to the
number of shares of CompuRAD Common Stock subject to such CompuRAD warrant
immediately prior to the Effective Time multiplied by 0.928 (the exchange
ratio in the Merger), rounded down to the nearest whole share (with cash, less
the applicable exercise price, being payable for any fraction of a share); and
(iii) the per share exercise price under each such CompuRAD warrant was
adjusted by dividing the per share exercise price under such CompuRAD warrant
by 0.928 and rounding up to the nearest cent.
The former stockholders of CompuRAD are receiving approximately 3,722,110
shares of Lumisys Common Stock pursuant to the Merger. In addition,
approximately 401,760 shares of Lumisys Common Stock may be issued in
connection with the exercise of the CompuRAD stock options assumed by Lumisys
and approximately 92,800 shares may be issued in connection with the exercise
of the CompuRAD warrants assumed by Lumisys.
The Merger is intended to be a tax-free reorganization under the Internal
Revenue Code of 1986, as amended, and is expected to be accounted for as a
pooling of interests. A copy of the press release announcing the consummation
of the Merger is attached hereto as Exhibit 99.1.
CompuRAD is a leading provider of Teleradiology and PACS software products
designed to capture, distribute, manage, store and view radiology images to
enable faster patient diagnosis and treatment. CompuRAD also offers an
innovative Clinical Data Repository and Access product called ClinicalWare
which combines Internet/Intranet and Object technologies.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of the Business Acquired
(1) The required financial statements with respect to the
acquired business referred to in Item 2 of this Report are incorporated by
reference from pages F-19 through F-30 of the Proxy Statement/Prospectus dated
November 4, 1997 included in Lumisys' Registration Statement on Form S-4
(No. 333-39395), as filed with the Commission on November 4, 1997 and are
hereby incorporated by reference.
(b) Pro Forma Financial Information
(1) The required pro forma financial information with respect
to the acquired business referred to in Item 2 of this Report are incorporated
by reference from pages 65 through 67 of the Proxy Statement/Prospectus dated
November 4, 1997 included in Lumisys' Registration Statement on Form S-4
(No. 333-39395), as filed with the Commission on November 4, 1997 and are
hereby incorporated by reference.
(c) Exhibits
Exhibit No. Description
- ----------- ------------
2 Agreement and Plan of Merger and Reorganization dated as of
September 28, 1997, among Lumisys Incorporated ("Lumisys"),
a Delaware corporation, SAC Acquisition Corporation, a
Delaware corporation, and CompuRAD, Inc., a Delaware
corporation (incorporated by reference to Lumisys' Current
Report on Form 8-K filed with the Securities and Exchange
Commission (the "Commission") on October 6, 1997)
23.1 Consent of Ernst & Young LLP
99.1 Press Release of Lumisys dated November 25, 1997
99.2 Pages F-19 through F-30 of the Proxy Statement/Prospectus
dated November 4, 1997, included in Lumisys' Registration
Statement on Form S-4 (No. 333-39395) as filed with the
Commission on November 4, 1997
99.3 Pages 65 through 67 of the Proxy Statement/Prospectus dated
November 4, 1997 included in Lumisys' Registration
Statement on Form S-4 (No. 333-39395) as filed with the
Commission on November 4, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this Report to be signed on its behalf
by the undersigned hereunto duly authorized.
Lumisys Incorporated
Dated: December 9, 1997 By: /s/ Stephen J. Weiss
-----------------------------
Stephen J. Weiss
Chief Executive Officer
EXHIBIT INDEX
Exhibit No. Description
- ----------- ------------
2 Agreement and Plan of Merger and Reorganization dated as of
September 28, 1997, among Lumisys Incorporated ("Lumisys"),
a Delaware corporation, SAC Acquisition Corporation, a
Delaware corporation, and CompuRAD, Inc., a Delaware
corporation (incorporated by reference to Lumisys' Current
Report on Form 8-K filed with the Securities and Exchange
Commission (the "Commission") on October 6, 1997)
23.1 Consent of Price Waterhouse LLP
99.1 Press Release of Lumisys dated November 25, 1997
99.2 Pages F-19 through F-30 of the Proxy Statement/Prospectus
dated November 4, 1997, included in Lumisys' Registration
Statement on Form S-4 (No. 333-39395) as filed with the
Commission on November 4, 1997
99.3 Pages 65 through 67 of the Proxy Statement/Prospectus dated
November 4, 1997 included in Lumisys' Registration Statement
on Form S-4 (No. 333-39395) as filed with the Commission on
November 4, 1997
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Form 8-K of our report
dated January 31, 1997 on the consolidated financial statements of CompuRAD,
Inc. included in the Joint Proxy Statement of Lumisys Incorporated and
CompuRAD, Inc. which is made a part of the Registration Statement on Form S-4,
(File No. 333-39395) and Prospectus of Lumisys Incorporated for the
registration of its shares of common stock.
Ernst & Young LLP
Tuscon, Arizona
December 9, 1997
EXHIBIT 99.1
LUMISYS COMPLETES ACQUISITION OF COMPURAD
November 25, 1997 6:38 PM EST
SUNNYVALE, Calif., November 25/PRNewswire/ -- Lumisys Incorporated (Nasdaq:
LUMI) announced that it completed the acquisition of CompuRAD, Inc. (Nasdaq:
COMD), a leading provider of Teleradiology and PACS software. The
acquisition, which was approved by both groups of stockholders today, based on
the terms previously disclosed will create a worldwide leading supplier of
Medical image management components.
Steve Weiss, Lumisys' Chief Executive Officer, commented "With the completion
of this acquisition ,we will begin offering our customers radiology imaging
software components, along with and integrated into our proven image
digitization products," Weiss added, "With our strong OEM customer base and
comprehensive line of products, we are now well positioned to be a world wide
leading supplier of the components and appliances necessary for the radiology
industry to make the transition from conventional film to electronic imaging."
"We are very excited to be part of the Lumisys family," said Phillip Berman,
MD, previously President and Chief Executive Officer of CompuRAD, and now
President of Lumisys. Dr. Berman added, "We think this combination will
create long term value for stockholders, OEM and VAR customers, employees, and
the radiology community in general."
Lumisys is a leading supplier of Teleradiology and PACS components. Lumisys
designs, manufactures and markets a family of precision digitizers that
convert medical images on film or video into digital format. Lumisys'
digitizers process images from all commercially available medical imaging
modalities, including X-Ray, CT, MRI, ultrasound and Nuclear Medicine.
Lumisys' video digitization and compression products also have applications in
scientific and industrial inspection, broadcast video and multimedia imaging
markets. Lumisys also is a leading provider of Teleradiology and PACS
software products designed to capture, distribute, manage, store and view
radiology images to enable faster patient diagnosis and treatment. Additional
information on Lumisys in available at www.lumisys.com.
This press release contains forward looking statements that involve risks and
uncertainties. Such risks and uncertainties include risks that integration of
operations, technologies and products of the combined companies night not
occur as anticipated; that management's attention might be diverted from day
to day business activities; and that greater than normal employee turnover
might occur. In addition, there are normal risks and uncertainties associated
with Lumisys' and CompuRAD's business, including the timely development,
acceptance and pricing of now products and the impact of competitive
conditions as well as the other risks detailed in the Registration Statement
on Form S-4 filed by Lumisys on November 4, 1997.
Exhibit 99.2
REPORT OF ERNST YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
CompuRAD, Inc.
We have audited the accompanying balance sheets of CompuRAD, Inc., as of
December 31, 1996 and 1995, and the related statements of operations, changes
in stockholders' equity (deficit), and cash flows for each of the three years
in the period ended December 31, 1996, and for the six months ended June 30,
1996. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CompuRAD, Inc., as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, and
for the six months ended June 30, 1996 in conformity with generally accepted
accounting principles.
/s/ Ernest & Young LLP
Tucson, Arizona
January 31, 1997
COMPURAD, INC.
BALANCE SHEETS
ASSETS
December 31, June 30,
---------------------- ---------
1996 1995 1997
---------- ---------- ---------
(unaudited)
Current assets:
Cash and cash equivalents $4,051,968 $ 36,024 $1,702,469
Accounts receivable, net of $140,000
and $80,000 allowance at June 30, 1997
and December 31, 1996, respectively 1,423,910 143,873 2,735,566
Inventories 313,724 328,425 659,720
Prepaid expenses and other 75,789 4,689 196,523
Total current assets 5,865,391 513,011 5,294,278
Property and equipment, net 538,018 100,637 654,697
Total assets $6,403,409 $ 613,648 $5,948,975
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 558,290 $ 578,978 $ 872,783
Accrued expenses 456,428 95,864 331,942
Customer deposits and unearned revenue 227,329 528,967 359,803
Total current liabilities 1,242,047 1,203,809 1,564,528
Note payable to related party (Note 2) 117,969 99,969 121,935
Other liabilities to related party (Note 6) -- 541,676 --
Stockholders' equity (deficit) (Note 3):
Preferred stock, $.01 par value; 5,000,000
shares authorized; none issued or
outstanding -- -- --
Common stock, $.01 par value; 20,000,000
shares authorized, 3,860,710, 3,857,260
and 2,186,100 shares issued and out-
standing at June 30, 1997, December 31,
1996 and 1995, respectively 6,551,967 25,966 6,551,972
Stock subscriptions receivable -- (6,250) --
Paid in capital -- stock-based
compensation and expenses 467,500 100,000 473,500
Accumulated deficit (1,976,074) (1,351,522)(2,762,960)
Total stockholders' equity (deficit) 5,043,393 (1,231,806) 4,262,512
Total liabilities and stockholders'
equity (deficit) $6,403,409 $ 613,648 $5,948,975
COMPURAD, INC.
STATEMENTS OF OPERATIONS
Years Ended December 31, Six Months Ended June 30,
-------------------------------- ------------------------
1996 1995 1994 1997 1996
---------- ---------- ---------- ----------- -----------
(unaudited)
Net revenues $6,914,453 $3,907,558 $1,521,884 $4,682,420 $3,180,345
Cost of revenues 3,776,829 2,721,726 963,017 2,458,621 1,879,181
Gross profit 3,137,624 1,185,832 558,867 2,223,799 1,301,164
Operating expenses:
Selling and
marketing 1,144,449 643,951 297,052 1,111,836 440,828
Research and
development 1,399,635 563,859 330,052 1,074,961 498,975
General and
administrative 913,249 456,994 147,326 880,391 353,556
Amortization of
intangible asset -- 203,333 203,334 -- --
Stock-based
compensation and
expenses (Note 3) 367,500 100,000 -- 6,000 361,500
Loss from operations (687,209) (782,305) (418,897) (849,389) (353,695)
Other income
(expense) 62,657 (10,208) (8,793) 62,503 (7,211)
Net loss $ (624,552)$ (792,513)$ (427,690) $ (786,886) $ (360,906)
Net loss per
common share $ (0.21)$ (0.38)$ (0.25) $ (0.20) $ (0.14)
Shares used in
computing net
loss per common
share 2,920,956 2,080,595 1,700,433 3,858,980 2,605,406
COMPURAD, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Stock Paid in
Sub- Capital
Common Stock scriptions Deferred Accumu-
-------------------- Rec- Compen- lated
Shares Amount eivable sation Deficit Total
--------- ---------- -------- --------- ----------- -----------
Balance at
January 1,
1994 1,063,500 $ 11,090 $(6,250) -- $ (131,319) $ (126,479)
Net loss -- -- -- -- (427,690) (427,690)
--------- ---------- -------- --------- ----------- -----------
Balance at
December 31,
1994 1,063,500 11,090 (6,250) -- (559,009) (554,169)
Exercise of
common stock
options 1,122,600 14,876 -- -- -- 14,876
Stock-based
compensation
and expenses
(Note 3) -- -- -- 100,000 -- 100,000
Net loss -- -- -- -- (792,513) (792,513)
--------- ---------- -------- --------- ----------- -----------
Balance at
December 31,
1995 2,186,100 25,966 (6,250) 100,000 (1,351,522) (1,231,806)
Proceeds of
initial public
offering, net
of offering
costs of
$933,000 1,150,000 5,967,000 -- -- -- 5,967,000
Conversion of
debt into
common stock 93,480 541,676 -- -- -- 541,676
Exercise of
common stock
options and
common stock
award 427,680 17,325 -- -- -- 17,325
Collection of
stock sub-
scriptions
receivable -- -- 6,250 -- -- 6,250
Stock-based
compensation
and expenses
(Note 3) -- -- -- 367,500 -- 367,500
Net loss -- -- -- -- (624,552) (624,552)
--------- ---------- -------- --------- ----------- -----------
Balance at
December 31,
1996 3,857,260 6,551,967 -- 467,500 (1,976,074) 5,043,393
Exercise of
common stock
options and
common stock
award
(unaudited) 3,450 5 -- -- -- 5
Stock-based
compensation
and expenses
(unaudited)
(Note 3) -- -- -- 6,000 -- 6,000
Net loss
(unaudited) -- -- -- -- (786,886) (786,886)
--------- ---------- -------- --------- ----------- -----------
Balance at
June 30, 1997
(unaudited) 3,860,710 $6,551,972 $ -- $473,500 $(2,762,960) $4,262,512
COMPURAD, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, Six Months Ended June 30,
---------------------------------- ------------------------
1996 1995 1994 1997 1996
---------- ---------- ---------- ----------- -----------
Operating Activities:
Net loss $ (624,552) $ (792,513) $ (427,690) $ (786,886) $(360,906)
Adjustments to
reconcile net
loss to net cash
(used in) provided
by operating activities:
Depreciation and
amortization 74,609 242,618 229,185 113,990 25,270
Stock-based
compensations and
expenses 367,500 100,000 -- 6,000 361,500
Provision for
bad debt 80,000 -- -- 60,000 --
Changes in
operating assets
and liabilities:
Accounts
receivable (1,360,037) (31,457) 4,128 (1,371,656) (549,939)
Inventories 14,701 (199,577) (101,918) (345,996) 79,303
Prepaid expenses
and other (71,100) (4,689) -- (120,734) (877)
Accounts payable
and accrued
expenses 339,876 349,131 197,955 193,973 250,312
Customer deposits
and unearned
revenue (301,638) 382,097 79,391 132,474 13,133
---------- ---------- ---------- ----------- -----------
Net cash (used in)
provided by oper-
ating activities (1,480,641) 45,610 (18,949) (2,118,835) (182,204)
Investing
Activities:
Purchases of
property and
equipment (493,990) (31,969) (27,887) (230,669) (26,542)
---------- ---------- ---------- ----------- -----------
Net cash used
in investing
activities (493,990) (31,969) (27,887) (230,669) (26,542)
Financing
Activities:
Proceeds from
note payable 250,000 -- -- -- 250,000
Principal payments
on note payable (250,000) -- -- -- (1,545)
Proceeds from
issuance of
common stock 5,990,575 14,876 -- 5 16,044
---------- ---------- ---------- ----------- -----------
Net cash provided
by financing
activities 5,990,575 14,876 -- 5 264,499
Net increase
(decrease)
in cash 4,015,944 28,517 (46,836) (2,349,499) 55,753
Cash and cash
equivalents,
beginning of
period 36,024 7,507 54,343 4,051,968 36,024
Cash and cash
equivalents,
end of period $4,051,968 $ 36,024 $ 7,507 $1,702,469 $ 91,777
COMPURAD, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
(Information For The Period Ended June 30, 1997 Is Unaudited)
1. Business And Significant Accounting Policies
Description Of Business
CompuRAD, Inc. ("the Company") develops, manufactures and markets computer
software which captures, stores, distributes and displays electronic medical
images and other types of clinical information and distributes this
information i) between hospitals and physicians, offices and homes; ii)
between clinicians and healthcare delivery systems; and iii) between various
departments within hospitals and clinics. The Company currently operates
primarily in North America and in only one business segment, the medical
software industry.
Interim Financial Information
The financial statements at June 30, 1997 and for the six months ended June
30, 1997 are unaudited, but include all adjustments (consisting only of normal
recurring adjustments) that management considers necessary for a fair
presentation of the financial information set forth herein, in accordance with
generally accepted accounting principles. The results for the six months ended
June 30, 1997 are not necessarily indicative of the results for the entire
year.
Cash And Cash Equivalents
Cash equivalents include investments (primarily money market accounts and
overnight reverse repurchase agreements) with maturities of three months or
less from the date of purchase. On December 31, 1996, the Company purchased $4
million of U.S. Government Securities from Bank One, Arizona (the "Bank")
under an agreement to resell such securities. The Company did not take
possession of the securities, which were instead held in the Company's
safekeeping account at the Bank. The amortized cost of this investment
approximates the market value.
Inventories
The Company values its inventories at the lower of cost or market. Cost is
computed on a first-in, first-out basis. Substantially all inventories are
comprised of finished computer hardware goods purchased from other computer
manufacturers. The Company does not modify any such computer hardware, but
integrates its software into the customer's ordered system.
Property And Equipment
Property and equipment are stated at cost and consist primarily of computer
equipment and office furniture. Depreciation is computed on the straight-line
method over the estimated useful lives of the related assets, which range from
three to seven years. Accumulated depreciation was $223,825, $109,835 and
$53,226 at June 30, 1997, December 31, 1996 and 1995, respectively.
Impairment Of Assets
Impairment is recognized in operating results if a permanent decline in value
occurs. The Company will measure possible impairment of its intangible and
tangible assets periodically, by comparing the cash flows generated by those
assets to their carrying values. The Company will periodically evaluate the
useful lives assigned to the various categories of intangible and tangible
assets considering such factors as (i) demand, obsolescence, competition,
market share, and other economic factors; (ii) legal and regulatory
provisions; and (iii) the periods expected to be benefitted.
COMPURAD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
(information For The Period Ended June 30, 1997 Is Unaudited)
Software Development Costs
Under Statement of Financial Accounting Standards No. 86, Accounting for The
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed, once
technological feasibility is established related to software development costs
for new products or for enhancements to existing products which extend the
product's useful life, such costs are capitalized up until the time the
product or enhancement is available for release to customers, after which the
capitalized costs are amortized over the estimated life of the products. There
have been no new products or enhancements for which technological feasibility
has been established at June 30, 1997. Through June 30, 1997, all software
development costs have been charged to expense.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. This
method gives consideration to the future tax consequences associated with
temporary differences between the carrying amounts of assets and liabilities
for financial statement purposes and the amounts used for income tax purposes.
Stock Based Compensation
The Company accounts for stock option grants in accordance with APB Opinion
No. 25, Accounting for Stock Issued to Employees ("APB 25"), and intends to
continue to do so.
Revenue Recognition
Revenue from the sale of hardware and software is recognized when the product
has been shipped, and related costs of installation are accrued upon shipment.
Revenue from maintenance, service, and support agreements is recognized over
the term of the agreement, which in most instances is one year. Revenue from
post-contract customer support is recognized in the period the customer
support services are provided. At the request of certain customers, the
Company acquires computer hardware for purposes of configuration with its
software products. The Company expects that this service of acquiring hardware
for resale will be phased out in the next several years.
Credit Risk
The Company's products are sold exclusively to entities and individuals in the
healthcare industry. The Company has not experienced significant bad debts in
the past. The Company generally requires customer deposits on orders of up to
50% to mitigate its credit risk. One customer represented 22% and 31% of net
revenues in 1996 and 1995, respectively and 24% and 22% of net revenues for
the six months ended June 30, 1997 and 1996, respectively. No individual
customer represented more than 10% of net revenues in 1994.
Fair Value Of Financial Instruments
The Company's cash, accounts receivable, and notes payable represent financial
instruments as defined by Statement of Financial Accounting Standards No. 107,
Disclosures About Fair Value of Financial Instruments. The carrying value of
these financial instruments is a reasonable approximation of fair value.
Use Of Estimates
The preparation of financial statements in accordance 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 reporting period.
Actual results could differ from those estimates.
Loss Per Common Share
Loss per common share is computed using the weighted average number of shares
of common stock outstanding, except as noted below. Common equivalent shares
from stock options are excluded from the computation when their effect is
antidilutive, except that, pursuant to the Securities and Exchange Commission
Staff Accounting Bulletins and Staff Policy, common shares, warrants, and
options issued during the period commencing 12 months prior to the initial
filing of the initial public offering at prices below the anticipated public
offering price are presumed to have been in contemplation of the public
offering and have been included in the calculation for periods prior to the
initial public offering, determined using the treasury stock method.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share ("SFAS No. 128"),
which is required to be adopted on December 31, 1997. At that time, the
Company will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. Due to the Company's net losses for the
periods presented, the impact of SFAS No. 128 will not be material.
2. Notes Payable
Note Payable To Related Party
Note payable to related party consists of a $250,000 unsecured, non-interest
bearing note to Arizona State Radiology ("ASR") (see Note 6), which is payable
on December 31, 2002. Original issue discount has been recorded to establish
the effective interest rate of the note to 14% per annum. Unamortized original
issue discount totaled $128,065, $132,031 and $150,031 at June 30, 1997,
December 31, 1996 and 1995, respectively. Interest expense totaled $18,000,
$12,272 and $10,768 for the years ended December 31, 1996, 1995 and 1994,
respectively and $3,966 and $9,000 for the six months ended June 30, 1997 and
1996, respectively.
Note Payable To Bank
On May 6, 1996, the Company received a $250,000 loan and issued a note payable
to a bank which was repaid September 1996. The note was co-signed by a
relative of a Company director and officer, who received options to purchase
75,000 shares of the Company's common stock at $0.007 per share as
consideration for such co-signature. The Company has recognized a charge of
$187,500, based on an estimated fair market value of $2.50 per share, in
connection with such option grant. The note was paid in full upon completion
of the Company's initial public offering.
3. Common Stock
In January 1996, the Company merged with and into CompuMed Teleradiology, a
Delaware corporation. As a result of the merger, a new class of preferred
stock was authorized, and the par value of the Company's stock was changed
from no par to $.01 per share.
On August 28, 1996, the Company completed an initial public offering, selling
1,000,000 shares of common stock at $6.00 per share. The net proceeds to the
Company were $5,130,000. In connection with the initial public offering, there
was a 150-for-1 stock split. All share and per share amounts have been
retroactively restated to reflect the stock split. On October 1, 1996, the
Company's underwriters exercised a portion of their overallotment option. The
underwriters purchased an additional 150,000 shares of Common Stock from the
Company, resulting in additional net proceeds of $837,000 to the Company.
Warrants for the purchase of 100,000 shares of Common Stock were outstanding
at December 31, 1996, with exercise prices of $7.20 per share. These warrants
are currently exercisable, will terminate in August 2001, and may be exercised
on a net basis.
Stock Based Compensation And Expenses
The Company established a non-qualified stock option plan ("the 1994 Plan")
effective October 27, 1994. The exercise price of the options, as well as the
vesting period, are established by the Company's Board of Directors. The
Company does not intend to grant further options under the 1994 Plan. A
summary of activity under the 1994 Plan is as follows:
Weighted
Exercise Average
Price Per Exercise
Shares Share Price
----------- ----------- ---------
Balance at October 27, 1994
(inception of Plan) -- $ -- $ --
Granted 637,500 0.050 0.050
Exercised -- -- --
Canceled -- -- --
----------- ----------- ---------
Balance at December 31, 1994 637,500 0.050 0.050
Granted 917,250 0.000 0.000
Exercised (1,122,600) 0.000-0.050 0.020
Canceled (54,750) 0.000 0.00
----------- ----------- ---------
Balance at December 31, 1995 377,400 0.00-0.050 0.025
Granted 75,000 0.007 0.007
Exercised (277,680) 0.000-7.435 0.036
Canceled (3,450) 0.000 0.00
----------- ----------- ---------
Balance at December 31, 1996 171,270 0.000-7.435 0.0005
Granted -- -- --
Exercised (3,450) 0.007 0.007
Canceled (8,250) 0.00 0.00
----------- ----------- ---------
Balance at June 30, 1997 159,570 $ 0.007 $ 0.007
=========== =========== =========
Options exercisable at June 30, 1997 30,810
===========
All options granted in 1995 had an exercise price of less than $0.005 per
share. The Company recognized stock-based compensation and expenses of
$367,500 and $100,000 for the year ended December 31, 1996 and 1995,
respectively, and $6,000 and $361,500 for the six months ended June 30, 1997
and 1996, respectively, for the difference between the exercise price of stock
options and common stock awards granted in October 1995, March 1996, and April
1996, and the fair value of the Company's common stock, as estimated by its
Board of Directors. Stock-based compensation and expenses are amortized to
expense over the vesting periods of the underlying awards.
The Company has elected to follow APB 25 and related interpretations in
accounting for its stock options because, as discussed below, the alternative
fair value accounting provided for under Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("Statement 123"),
requires use of option valuation models that were not developed for use in
valuing stock options.
Pro forma information regarding net income or loss is required by Statement
123, and has been determined as if the Company had accounted for its stock
options under the fair value method of that Statement. For pro forma
disclosure purposes, the fair value for these options was estimated at the
date of grant using the Minimum Value method, as all options were granted
prior to the Company's initial public offering. The following assumptions were
used for 1996 and 1995:
Years Ended December 31,
------------------------
1996 1995
------------- ----------
Contractual term of the award 15 years 15 years
Expected life of award 2 years 2 years
Fair value of stock at grant date $1.00-7.44 $0.39
Option exercise price $-- $--
Risk-free interest rate 6% 6%
Option valuation models require the input of highly subjective assumptions
including the expected exercise life of an award. Because the Company's stock
options have characteristics significantly different from traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its stock
options. For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting periods. The
Company's pro forma net loss under Statement 123 is not materially different
from historical results.
The weighted-average fair value of options granted was $1.50 per share and
$0.19 per share in 1996 and 1995, respectively.
Employee Stock Purchase Plan
In July 1996, the Board of Directors authorized the 1996 Employee Stock
Purchase Plan ("1996 Purchase Plan"). A total of 100,000 shares are reserved
for issuance under the 1996 Purchase Plan. The 1996 Purchase Plan permits
eligible employees to purchase common stock through payroll deductions,
subject to certain limitations. The price at which stock is purchased under
the 1996 Purchase Plan is equal to 85% of the fair market value of the common
stock on the first day of the applicable offering period or the last day of
the applicable offering period, whichever is lower. No shares have been issued
under the 1996 Purchase Plan.
1996 Stock Option Plan
In July 1996, the Board of Directors adopted the 1996 Stock Plan ("the 1996
Plan"), reserving 400,000 shares for issuance thereunder. Under the 1996 Plan,
options and stock purchase rights may be granted to the Company's employees,
directors and consultants. Only employees may receive incentive stock options,
which are intended to qualify for certain tax treatment; nonemployees,
including nonemployee directors, may receive nonstatutory stock options, which
do not qualify for such treatment. No options have been granted to
nonemployees. The exercise price of incentive stock options under the 1996
Plan must be at least equal to the fair market value of the common stock on
the date of grant and, with the exception of the Company's officers whose
options vest at the date of grant, the options generally vest on a cumulative
annual basis over a five year period and expire ten years from the date of
grant unless terminated sooner pursuant to the provisions of the 1996 Plan. A
summary of activity under the 1996 Plan is as follows:
Weighted
Exercise Average
Price Per Exercise
Shares Share Price
----------- ----------- ---------
Balance at July 15, 1996
(inception of Plan) -- $ -- $ --
Granted -- -- --
Exercised -- -- --
Canceled -- -- --
----------- ----------- ---------
Balance at December 31, 1996 -- -- --
Granted 150,640 5.125-6.60 5.89
Exercised -- -- --
Canceled (44,750) 5.125-6.00 5.84
----------- ----------- ---------
Balance at June 30, 1997 105,890 $5.125-6.60 $ 5.92
=========== =========== =========
Options exercisable at June 30, 1997 34,500
===========
4. Income Taxes
The Company was a subchapter S corporation for income tax purposes prior to
its initial public offering, and all tax attributes of the Company flowed
through to its stockholders. At the date of the offering, deferred taxes were
established for the difference in the financial reporting and tax basis of the
Company's assets and liabilities.
The Company's deferred tax assets at June 30, 1997 and December 31, 1996
approximate $640,000 and $322,000, respectively. The deferred tax assets at
each such date were fully offset by a valuation allowance due to uncertainties
regarding recoverability.
5. Operating Leases
In August 1996, the Company entered into a lease arrangement for a new
facility to conduct its corporate operations. The Company is responsible for
monthly rental payments and certain monthly operating and maintenance expenses
of the facility. The lease expires in 2001. The future minimum rental payments
under this operating lease arrangement are as follows:
1997 $193,001
1998 204,702
1999 208,755
2000 217,104
2001 167,661
--------
$991,223
========
Rent expense totaled $44,196, $39,513 and $31,949 for the years ended December
31, 1996, 1995 and 1994, respectively and $101,385 and $32,307 for the six
months ended June 30, 1997 and 1996, respectively.
6. Related Party Transactions
The Company's president was, and certain of the Company's stockholders are,
stockholders of ASR. Certain technology was transferred to the Company shortly
after its inception by ASR. The terms and amount to be paid to ASR for such
technology were subject to negotiations between the parties, which were
finalized in July 1996. The final settlement, which is reflected in the
accompanying financial statements if it had occurred on January 1, 1993,
called for the Company to pay ASR a settlement consisting of common stock, a
note payable (see Note 2), and a deferred payment of $541,676 due either in
cash or stock. The technology was valued at $610,000, based on the value of
consideration given, and was amortized over a three year period beginning
January 1, 1993. The technology is fully amortized on the accompanying balance
sheets. The Company issued 93,480 shares of stock to ASR in November 1996 in
compensation of the deferred payment. Subsequently, ASR requested mediation
with the Company related to the number of shares tendered. Should mediation be
unsuccessful, ASR could file litigation against the Company. While the outcome
of such litigation is uncertain, the Company believes it has meritorious
defenses to the claims and intends to conduct a vigorous defense.
7. Subsequent Events
On July 30, 1997, the Company purchased certain technology from Star
Technologies, Inc., a Delaware corporation, for 100,000 restricted shares of
the Company's Common Stock and future royalties on software sales.
On August 28, 1997, the Company entered into an agreement to acquire certain
assets from Medical Imaging Technology Associates, Inc. for 17,500 shares of
common stock, effective April 1998.
On September 28, 1997, the Company entered into an Agreement and Plan of
Merger and Reorganization with Lumisys, Inc. ("Lumisys"), subject to the
approval of both stockholder groups. In the merger, each outstanding share of
the Company's outstanding common stock will be converted into the right to
receive 0.928 shares of Lumisys' common stock. In addition, outstanding
options and warrants to purchase the Company's common stock will be converted
into corresponding rights to purchase Lumisys' common stock on the same basis.
There is no assurance that the merger will be successfully completed.
EXHIBIT 99.3
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements give
effect to the merger of Lumisys and CompuRAD to be accounted for as a pooling
of interests. The unaudited pro forma combined condensed balance sheet
presents the combined financial position of Lumisys and CompuRAD assuming that
the proposed merger had occurred as of June 30, 1997. The unaudited pro forma
combined condensed statements of operations give effect to the proposed merger
of Lumisys by combining the results of operations for the six months ended
June 30, 1997 and 1996 and for the years ended December 31, 1996, 1995 and
1994. These unaudited pro forma combined condensed financial statements are
based on and should be read in conjunction with the historical financial
statements and notes thereto of Lumisys and CompuRAD, which are included
elsewhere in this Joint Proxy Statement/Prospectus.
Six Months Ended
----------------
June 30, Year Ended December 31,
---------------- -------------------------
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
Sales $15,094 $13,785 $28,966 $21,337 $10,131
Cost of revenues 6,711 6,613 13,312 10,713 4,807
------- ------- ------- ------- -------
Gross profit 8,383 7,172 15,654 10,620 5,324
------- ------- ------- ------- -------
Operating expenses:
Research and development 3,324 2,534 5,545 3,510 1,826
Sales and marketing 2,376 1,379 3,093 2,250 1,148
General and administrative 1,898 1,567 3,151 2,289 859
Amortization of intangible asset -- -- -- 203 203
Acquired in-process R&D -- -- -- 1,442 --
Stock-based compensation and expense 6 361 367 100 --
------- ------- ------- ------- -------
Total operating expenses 7,604 5,841 12,156 9,794 4,036
------- ------- ------- ------- -------
Income from operations 779 1,331 3,498 826 1,288
Other income, net 564 422 979 213 86
------- ------- ------- ------- -------
Income before provision for income
taxes 1,343 1,753 4,477 1,039 1,374
Provision (benefit) for income taxes 830 497 1,662 (762) 95
------- ------- ------- ------- -------
Net income $ 513 $ 1,256 $ 2,815 $ 1,801 $ 1,279
======= ======= ======= ======= =======
Accretion of mandatorily redeemable
convertible preferred stock -- -- -- -- 96
Net income attributable to common
stock $ 513 $ 1,256 $ 2,815 $ 1,801 $ 1,183
======= ======= ======= ======= =======
Net income per share $ 0.05 $ 0.14 $ 0.30 $ 0.25 $ 0.19
======= ======= ======= ======= =======
Shares used in per share
calculations 10,291 9,258 9,540 7,236 6,576
======= ======= ======= ======= =======
See accompanying notes to pro forma combined condensed financial statements.
LUMISYS AND COMPURAD
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
ASSETS
Lumisys CompuRAD Pro Forma
June 30, June 30, ---------------------
1997 1997 Adjustments Combined
-------- -------- ------------ ---------
(in thousands)
Current Assets:
Cash and cash equivalents $19,822 $ 1,702 $(1,500) $20,024
Accounts receivable, net 3,462 2,736 (245) 5,953
Inventories 3,487 660 -- 4,147
Deferred tax assets 1,429 -- -- 1,429
Other current assets 322 196 -- 518
Total current assets 28,522 5,294 -- 32,071
Property and equipment, net 343 655 -- 998
Other assets 57 -- -- 57
$28,922 $ 5,949 $(1,745) $33,126
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,243 $ 873 $ (245) $ 1,871
Accrued expenses 1,996 332 800 3,128
Deferred revenue -- 360 -- 360
Total current liabilities 3,239 1,565 555 5,359
Note payable to related party -- 122 -- 122
Stockholders' equity:
Preferred stock -- -- -- --
Common stock 6 6,552 (6,548) 10
Additional paid-in capital 23,485 473 6,548 30,506
Retained earnings (deficit) 2,218 (2,763) (2,300) (2,845)
Deferred compensation relating
to stock options (26) -- -- (26)
Total stockholders' equity 25,683 4,262 -- 27,645
$28,922 $ 5,949 $(1,745) $33,126
See accompanying notes to pro forma combined condensed financial statements.
LUMISYS AND COMPURAD
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
1. Periods Covered
The unaudited pro forma combined condensed balance sheet presents the combined
financial position of Lumisys and CompuRAD as of June 30, 1997 assuming that
the proposed Merger had occurred as of June 30, 1997. Such pro forma
information is based upon the historical consolidated balance sheet data of
Lumisys and historical balance sheet of CompuRAD as of that date. The
unaudited pro forma combined condensed statement of operations gives effect to
the proposed merger of Lumisys and CompuRAD by combining the results of
operations of Lumisys and CompuRAD for the three years ended December 31, 1996
and the six months ended June 30, 1997 and 1996, respectively, on a pooling of
interest basis.
2. Pro Forma Net Income Per Share
The unaudited pro forma combined net income per share is based upon the
weighted average number of common stock and common stock equivalent shares
outstanding of Lumisys and CompuRAD for each period using an exchange ratio of
one share of Lumisys Common Stock for each .928 shares of CompuRAD Common
Stock.
3. Conforming Adjustments And Intercompany Transactions
Sales from Lumisys to CompuRAD were $717,000 and $377,000 for the six months
ended June 30, 1997 and June 30, 1996, and $970,000, $233,000 and $198,000 for
fiscal 1996, 1995 and 1995, respectively. There were no sales from CompuRAD to
Lumisys during any periods presented.
Accounts receivable representing sales from Lumisys to CompuRAD were $245,000
at June 30, 1997.
4. Transaction Costs And Restructuring Expenses
Total costs associated with the Merger are expected to be approximately $1.5
million. This amount is a preliminary estimate only and is, therefore, subject
to change. Such costs include approximately $1.5 million of transaction costs.
In addition, Lumisys will incur other costs of approximately $800,000.
Transaction costs to be incurred by Lumisys and CompuRAD include fees to
financial advisors and for legal and accounting expenses and other related
expenses.
These costs of the Merger will be expensed in the period in which the
transaction is consummated. Accordingly, the unaudited pro forma combined
statement of operations does not reflect such costs and expenses. The
unaudited pro forma combined condensed balance sheet gives effect to such
expenses as is if they had been incurred as of June 30, 1997.
(..continued)
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