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, 1997
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 10, 1997, 6,474,314 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, 1997 and
December 31, 1996 3
Consolidated statements of
income for the three and nine
months ended September 30,
1997 and 1996 4
Consolidated statements of cash
flows for the nine months ended
September 30, 1997 and 1996 5
Notes to financial statements 6 - 7
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 7 - 10
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Lumisys Incorporated
Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
1997 1996
------------- ------------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $21,389 $18,438
Accounts receivable, net of
allowances of $331 and $296 3,584 3,199
Inventories, net 3,123 3,053
Deferred tax assets 1,429 1,429
Other current assets 158 453
------------- ------------
Total current assets 29,683 26,572
Property and equipment, net 391 345
Other assets 43 173
------------- ------------
$30,117 $27,090
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,251 $ 823
Accrued expenses 2,548 1,604
------------- ------------
Total current liabilities 3,799 2,427
------------- ------------
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; 6,474
and 6,240 shares issued and
outstanding 6 6
Additional paid-in capital 23,498 23,887
Retained earnings 2,836 918
Notes receivable from stockholders --- (114)
Deferred compensation related to
stock options (22) (34)
------------- ------------
Total stockholders' equity 26,318 24,663
------------- ------------
$30,117 $27,090
============= ============
The accompanying notes are an integral part of these financial
statements.
Lumisys Incorporated
Consolidated Statements of Income
(Unaudited)
Three months ended Nine months ended
------------------ -------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1997 1996 1997 1996
--------- --------- --------- ---------
(In thousands) (In thousands)
Sales $ 6,032 $ 5,933 $17,161 $16,915
Cost of sales 2,630 2,684 7,601 7,795
--------- --------- --------- ---------
Gross profit 3,402 3,249 9,560 9,120
--------- --------- --------- ---------
Operating expenses:
Sales and marketing 616 463 1,877 1,408
Research and development 1,147 1,064 3,396 3,099
General and administrative 533 621 1,551 1,828
Litigation 350 --- 350 ---
--------- --------- --------- ---------
Total operating expenses 2,646 2,148 7,174 6,335
--------- --------- --------- ---------
Income from operations 756 1,101 2,386 2,785
Interest income 255 238 757 668
--------- --------- --------- ---------
Income before income taxes 1,011 1,339 3,143 3,453
Provision for income taxes 395 522 1,225 1,019
--------- --------- --------- ---------
Net income $ 616 $ 817 $ 1,918 $ 2,434
========= ========= ========= =========
Net income per share $ 0.09 $ 0.12 $ 0.29 $ 0.36
========= ========= ========= =========
Shares used to compute net
income per share 6,688 6,805 6,703 6,829
========= ========= ========= =========
The accompanying notes are an integral part of these financial
statements.
Lumisys Incorporated
Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended
--------------------
Sept. 30, Sept. 30,
1997 1996
---------- ---------
(In thousands)
Cash flows from operating activities:
Net income $ 1,918 $ 2,434
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 148 174
Deferred income taxes --- 482
Interest on notes receivable from stockholders --- (7)
Changes in assets and liabilities
(net of effects of Imagraph and XRS
acquisitions):
Accounts receivable (385) (708)
Inventories (70) (647)
Other assets 425 320
Accounts payable 428 (566)
Accrued expenses 944 442
---------- ---------
Net cash provided by operating activities 3,408 1,924
---------- ---------
Cash flows from investing activities:
Proceeds from sale of short-term investments --- 3,934
Purchases of property and equipment (182) (124)
---------- ---------
Net cash provided by (used in)
investing activities (182) 3,810
---------- ---------
Cash flows from financing activities:
Proceeds from sale of common stock, net 174 86
Payment on notes receivable from stockholders 114 184
Purchase of treasury stock (563) ---
---------- ---------
Net cash provided by (used in)
financing activities (275) 270
---------- ---------
Net increase in cash and cash equivalents 2,951 6,004
Cash and cash equivalents at
beginning of period 18,438 11,426
---------- ---------
Cash and cash equivalents at end of period $21,389 $17,430
========== =========
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 572 $ 620
The accompanying notes are an integral part of these financial
statements.
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, 1996, 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, 1997, and the
consolidated statements of income for the three and nine months
ended September 30, 1997 and 1996, and the consolidated
statements of cash flows for the nine months ended September 30,
1997 and 1996, 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, 1997, are not necessarily indicative of the results
to be expected for the entire fiscal year ending December 31,
1997.
Note 2 - Composition of Certain Financial Statement Amounts
September 30, December 31,
1997 1996
------------- ------------
(In thousands)
Inventories:
Raw materials $ 2,569 $ 2,607
Work-in-process 743 422
Finished goods 926 959
------------- ------------
4,238 3,988
Less: inventory reserves (1,115) (935)
------------- ------------
$ 3,123 $ 3,053
============= ============
Accrued expenses:
Payroll and related benefits $ 729 $ 670
Warranty 465 471
Accrued income taxes 772 204
Litigation 350 ---
Other 232 259
------------- ------------
$ 2,548 $ 1,604
============= ============
Note 3 - Recently Issued Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS 128"). SFAS 128, which is
effective for the Company's fiscal year ending December 31, 1997,
redefines earnings per share under generally accepted accounting
principles. Under the new standard, primary earnings per share
is replaced by basic earnings per share, and fully diluted
earnings per share is replaced by diluted earnings per share. If
the Company had adopted this Statement for the three and nine
month periods ended September 30, 1997 and September 30, 1996,
the Company's earnings per share would have been as follows:
Three months ended Nine months ended
------------------- ------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1997 1996 1997 1996
--------- --------- --------- ---------
Earnings per share:
Basic $ 0.10 $ 0.13 $ 0.30 $ 0.39
Diluted $ 0.09 $ 0.12 $ 0.29 $ 0.36
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive
Income." SFAS 130 establishes standards for the reporting of
comprehensive income and its components in a full set of general-
purpose financial statements for fiscal years beginning after
December 15, 1997. Reclassifiaction of financial statements for
earlier periods for comparative purposes is required. The
Company will adopt SFAS 130 for the year ending December 31,
1998.
In June 1997, the FASB issued SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information." This
statement establishes standards for the way companies report
information about operating segments in annual financial
statements. It also establishes standards for related
disclosures about products and services, geographic areas, and
major customers. The Company has not yet determined the impact,
if any, of adopting this new standard. The disclosures
prescribed by SFAS 131 are effective for fiscal years beginning
after December 15, 1997.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
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 1996 Annual Report on Form 10-K and
other documents filed by the Company with the Securities and
Exchange Commission.
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.
Results of Operations
Total sales for the three months ended September 30, 1997
increased 1.7% to $6.0 million from $5.9 million for the three
months ended September 30, 1996. Total sales for the nine months
ended September 30, 1997 increased 1.8% to $17.2 million from
$16.9 million for the nine months ended September 30, 1996. The
increase for the three and nine month periods is due to an
increase in board products.
Gross profit for the three months ended September 30, 1997
increased 6.3% to $3.4 million from $3.2 million for the
corresponding period of 1996. Gross margin increased in the three
month period ended September 30, 1997 to 56.4% from 54.8% in the
same period of 1996 primarily due to a more favorable product
mix. Gross profit for the nine months ended September 30, 1997
increased 5.5% to $9.6 million from $9.1 million for the nine
months ended September 30, 1996. Gross margin increased in the
nine month period to 55.7% from 53.9% primarily due to stable
prices for systems and continued product cost control.
Sales and marketing expenses increased 33.0% in the three months
ended September 30, 1997 to $616,000 from $463,000 in the same
period of 1996. As a percentage of sales, these expenses
increased to 10.2% in the three months ended September 30, 1997
from 7.8% in the same period of 1996. Sales and marketing
expenses increased 33.3% to $1.9 million for the nine months
ended September 30, 1997 from $1.4 million for the same period of
1996. As a percentage of sales, these expenses increased to 10.9%
in the nine months ended September 30, 1997 from 8.3% in the
same period of 1996. The increase in absolute dollars for the
nine month period was primarily due to the increase in the
Company's sales and marketing to explore new product ideas and
expand our overseas activity. The Company expects sales and
marketing expenses to increase in absolute dollars as the Company
grows.
Research and development expenses increased 7.8% in the three
months ended September 30, 1997 to $1.15 million from $1.06
million in the same quarter of 1996. As a percentage of sales,
research and development expenses increased to 19.0% in the three
months ended September 30, 1997 from 17.9% in the same quarter of
1996. For the nine months ended September 30, 1997, research and
development expenses increased 9.6% to $3.4 from $3.1 for the
nine months ended September 30, 1996. As a percentage of sales,
research and development expenses increased to 19.8% in the nine
months ended September 30, 1997 from 18.3% in the same period of
1996. The increases for both the three and nine month periods
were primarily due to increased engineering personnel expenses as
a result of the continuing development of the computed
radiography reader. 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 decreased 14.2% in the three
months ended September 30, 1997 to $533,000 from $621,000 in the
same quarter of 1996. As a percentage of sales, these expenses
decreased in the three months ended September 30, 1997 to 8.8%
from 10.5% in the same quarter of 1996. General and
administrative expenses decreased 15.2% in the nine months ended
September 30, 1997 to $1.6 from $1.8 in the same period of 1996.
As a percentage of sales, general and administrative expenses
decreased to 9.0% in the nine months ended September 30, 1997
from 10.8% in the same quarter of 1996. The decrease is due in
part to lower acquisition related charges in the first half of
1997 and to the reorganization of Imagraph which resulted in a
decrease in administrative personnel.
Litigation expenses represent a non-recurring charge in the third
quarter of 1997 of $350,000 relating to defense costs not
expected to be covered by the Company's insurance policy for the
class action complaints filed in Superior Court of the State of
California, County of Santa Clara and the U.S. District Court for
the Northern District of California.
The Company recognized a provision for income taxes of $395,000
in the three months ended September 30, 1997 compared to a
provision for income taxes of $522,000 in the same period of
1996. The Company recognized a provision for income taxes of
$1,225,000 in the nine months ended September 30, 1997 compared
to a net provision for income taxes of $1,019,000 in the same
period of 1996. The net provision for taxes in nine months ended
September 30, 1996 reflected the recognition of $315,000 of
deferred tax assets. The Company has provided a partial
valuation allowance against the balance of the deferred tax
assets remaining as of September 30, 1997. The Company expects
to continue to be subject to an effective tax rate of
approximately 39% for the remainder of 1997.
Liquidity and Capital Resources
The Company has financed its activities primarily from net cash
provided by operations which provided $3.4 million in the nine
months ended September 30, 1997 and $1.9 million in the same
period of 1996.
At September 30, 1997, the Company's working capital was $25.9
million. The Company's cash and cash equivalents increased by
$3.0 million in the nine months ended September 30, 1997 to $21.4
million at September 30, 1997 compared with $18.4 million of cash
and cash equivalents at December 31, 1996. The increase is
primarily due to net income for the period adjusted for increases
in accrued expenses, primarily associated with accrued legal
expense and accrued income tax, and increased accounts payable
and other assets.
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.
Recent Developments
The Company entered into an Agreement and Plan of Merger and
Reorganization on September 28, 1997 (the "Reorganization
Agreement") among Lumisys, SAC Acquisition Corporation, a wholly-
owned subsidiary of Lumisys ("Merger Sub"), and CompuRAD, Inc.
("CompuRAD"). Pursuant to the Reorganization Agreement, Merger
Sub will be merged with and into CompuRAD, and CompuRAD will
become a wholly-owned subsidiary of Lumisys (the "Merger"). In
the Merger, each outstanding share of CompuRAD common stock will
be converted into the right to receive 0.928 shares of Lumisys
common stock, and outstanding options to purchase CompuRAD common
stock will be converted into options to purchase Lumisys common
stock on the same basis.
CompuRAD is a leading provider of software that enables
healthcare clinicians to access medical images and clinical
information at any point of car. CompuRAD pioneered the use of
personal computer software in the point-to-point, on call
teleradiology market, with the introduction of its PC
Teleradiology product. In response to the increasing acceptance
of teleradiology and increasing demand for multi-user and multi-
access off-site teleradiology systems, CompuRAD introduced its
iNET product line in late 1994. In 1997, CompuRAD introduced
ClinicalWare, an Internet/Intranet software solution which
provides secure electronic access through a Web browser to
clinical information systems at any point of care.
Part 2 - OTHER INFORMATION
Item 1. Legal Proceedings
On July 9 and July 10, 1997, two class action complaints were
filed by the law firm of Milberg, Weiss, Bershad, Hynes & Lerach
in Superior Court of the State of California, County of Santa
Clara and the U.S. District Court for the Northern District of
California, on behalf of certain plaintiffs against the Company,
several of its current and former officers and directors and its
underwriters. The complaints allege that the defendants made
material misstatements, and failed to disclose information,
concerning the Company's actual and expected performance and
results, which statements and omissions are alleged to have
artificially inflated the value of the Company's stock. The
complaints further allege that upon disclosure of accurate
information concerning the Company's performance, the stock price
lost substantial value causing financial injury to shareholders.
The complaints do not specify the amount of damages sought. The
Company and other defendants vigorously deny all allegations of
wrongdoing, and intend to aggressively defend themselves in this
matter. There can be no assurance that the Company will prevail
in this action or that the plaintiffs will not recover damages.
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:
The Company filed a Report on Form 8-K on October 6, 1997
describing the Agreement and Plan of Merger and
Reorganization among the Company, CompuRAD, Inc. and a
wholly-owned subsidiary of the Company, SAC Acquisition
Corporation.
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 12, 1997 By: /s/ Stephen J. Weiss
----------------- --------------------
Stephen J. Weiss
President, Chief
Executive Officer
November 12, 1997 /s/ Craig L. Klosterman
----------------- -----------------------
Craig L. Klosterman
Chief Operating and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LUMISYS
INCORPORATED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 1997 AND
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 21389 21389
<SECURITIES> 0 0
<RECEIVABLES> 3915 3915
<ALLOWANCES> (331) (331)
<INVENTORY> 3123 3123
<CURRENT-ASSETS> 29683 29683
<PP&E> 1247 1247
<DEPRECIATION> (856) (856)
<TOTAL-ASSETS> 30117 30117
<CURRENT-LIABILITIES> 3799 3799
<BONDS> 0 0
0 0
0 0
<COMMON> 6 6
<OTHER-SE> 26312 26312
<TOTAL-LIABILITY-AND-EQUITY> 30117 30117
<SALES> 6032 17161
<TOTAL-REVENUES> 6032 17161
<CGS> 2630 7601
<TOTAL-COSTS> 2630 7601
<OTHER-EXPENSES> 2646 7174
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (255) (757)
<INCOME-PRETAX> 1011 3143
<INCOME-TAX> 395 1225
<INCOME-CONTINUING> 616 1918
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 616 1918
<EPS-PRIMARY> .09 .29
<EPS-DILUTED> .09 .29
</TABLE>
