UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C. 20549

                                  FORM 10-K

(Mark One)
/X/	Annual Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934

          For the fiscal year ended December 31, 1997

/  /	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 or other jurisdiction of		 (I.R.S. Employer Identification
incorporation or organization)                                     Number)
                         ______________________________

                              225 Humboldt Court
                             Sunnyvale, CA  94089
                               (408)-733-6565
               (address, including zip code and telephone number,
                    including area code, of registrant's
                         principal executive offices)
                         ______________________________

     Securities registered pursuant to Section 12(b) of the Act:  None

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

                             Title of each Class
                             -------------------
                          Common, $0.001 par value

Indicate by check mark whether the registrant (1) has filed all reports
required to 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. /X/ Yes   /   /  No

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.  /  /

As of March 27, 1998, there were issued and outstanding 10,072,543 shares of
Common Stock; the aggregate market value of the shares of such stock held by
nonaffiliates of the registrant was $43,437,842 as of the same date, assuming
solely for purposes of this calculation that all directors and executive
officers of the Registrant are "affiliates".  This determination of affiliate
status is not necessarily a conclusive determination for other purposes.

Documents Incorporated By Reference
Portions of Lumisys Incorporated Proxy Statement for its Annual Stockholders
Meeting to be held on June 9, 1998 (Part III)

Item 1     BUSINESS

GENERAL

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 in
the sections entitled "Risk Factors" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and those discussed in other
reports filed with the Securities and Exchange Commission.

Lumisys Incorporated ("Lumisys" or the "Company") designs, manufactures and
markets a family of precision digitizers that convert medical images on film or
video into digital format.  Once in digital form, the medical images can be
stored, transmitted, viewed, enhanced, manipulated and printed at any PC or
workstation within a medical network.  The Company currently offers a
comprehensive family of products for digitizing medical film images under the
Lumiscan label and video images under the Imascan label.  These digitizers
process images from all commercially available medical imaging modalities,
including x-ray, computed tomography ("CT"), magnetic resonance imaging
("MRI"), ultrasound and nuclear medicine.  The Company is the leading supplier
of laser-based film digitizers, with sales of approximately 4,000 Lumiscan
units since its first product was introduced in 1990, and has recently
introduced a CCD-based digitizer.  The Company also offers high quality board-
level digitization and compression products for the capture of video images,
which have applications in medical imaging as well as in scientific and
industrial inspection and multimedia imaging.

In 1996, the Company introduced a computed radiography ("CR") system for use in
the industrial inspection market.  The CR system reads images from reusable
phosphor plates of pipes, valves, aircraft parts and other structural objects.

Lumisys intends to maintain and enhance its market leadership by leveraging its
reputation for high quality, reliable and cost-effective products, broadening
its product lines through internal product development, acquiring complementary
businesses or technologies and penetrating new geographic markets.  The Company
sells its products primarily to OEMs and VARs, who then integrate the Company's
products into teleradiology and Picture Archiving and Communication Systems
("PACS") networks.  Lumisys has established close working relationships with
the leading suppliers of these systems including Agfa, Imation Corp. ("Imation",
formerly part of 3M), E-Med, GE, Kodak, Philips and Sterling Diagnostics.

In November 1997, Lumisys merged with CompuRAD, a leading provider of software
that enables healthcare clinicians to access medical images and clinical
information at any point of care.  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.

The software group presently has licensed its products to hospitals,
clinics, other healthcare facilities and physician groups.  Customers include
New York University Medical Center, Alliant Health Systems, Symphony Mobilex
and The Nursing Home Group plus many other leading healthcare facilities and
organizations.  As part of a restructuring of the software division, the
Company will no longer sell through a direct sales force.  The Company intends
to leverage its existing OEM and VAR relationships and will sell its software
products primarily to its existing and new OEM and VAR customers.  The current
software customers include Konica Medical and National Imaging Resources, a
nationwide consortium of X-ray dealers.

INDUSTRY BACKGROUND

The use of medical film images to diagnose and treat diseases and injuries has
been an important medical tool since the invention of x-ray technology and the
emergence of radiology as a medical specialty.  Today, radiologists review and
interpret images from a variety of imaging modalities, including x-rays, CT,
MRI, ultrasound and nuclear medicine.  These modalities are used in a range of
different applications requiring specialized equipment to produce images on
film or video displays.  Medical imaging has reduced the need for exploratory
surgical procedures and has enabled clinicians to make faster and more precise
diagnoses and prescribe more targeted courses of treatment.  Medical imaging is
used in all stages of the patient management cycle, from screening to
diagnosis, treatment and post-treatment assessment.  In 1992, according to an
industry source, approximately $1 billion of medical film was consumed in the
United States as a result of radiographic and fluoroscopic studies performed,
CT scans, MRI scans and nuclear medicine examinations.

The healthcare industry in the United States continues to change dramatically
in response to the escalating costs associated with medical products and
services.  An increased emphasis on lowering costs and optimizing resources has
encouraged the healthcare industry to evolve toward managed regional healthcare
systems.  These changes in the healthcare industry are having a profound impact
on the practice of radiology.  In the past, radiologists were located in a
medical facility close to the patient where they performed examinations and
interacted face-to-face with the local clinician and the patient.  As
reimbursement for radiological interpretations have declined, radiologists are
under pressure to increase the number of interpretations and compete for
business over much larger geographic areas.  In addition, with the development
of advanced medical imaging technologies, radiologists have been able to sub-
specialize, becoming, for example, neuroradiologists, mammographers, orthopedic
radiologists, angiographers or pediatric radiologists.  The evolution toward
managed regional healthcare systems and increasing radiologist specialization
have resulted in a need to develop equipment and systems capable of
transmitting medical images rapidly to and from remote locations.

Concurrent with these changes in radiology, the computing and
telecommunications industries have experienced rapid growth and technological
advancements.  Today, high-quality medical images can be transmitted over
broadband communications networks.  Recent trends in the healthcare market to
lower costs and optimize resources combined with the rapid growth of digital
communications networks have accelerated the acceptance of teleradiology, the
practice of radiology from remote locations.  In teleradiology, medical images
at the point of care are digitized and transmitted to central locations for
interpretation, bringing the patient's information to the radiologist faster
and at significantly lower cost than the traditional method of transporting the
patient from the point-of-care facility to the diagnostic facility.

In addition, the digitization and transmission of medical images has enabled
the formation of large scale image storage and management networks known as
PACS.  PACS combine teleradiology and medical information systems to facilitate
(i) the management of medical images from various imaging modalities, (ii) the
storage and retrieval of the images in large electronic archives, (iii) the
manipulation and enhancement of such images for display at any time and at any
workstation in the network and (iv) the integration of radiological information
into existing patient management systems and hospital information systems.
PACS, typically found in large regional hospitals and university research
centers, minimize the risk of loss of the master image and reduce the overall
costs of providing efficient radiology services.  It is estimated that
approximately 10% of all medical films are lost and an additional 10% to 15%
are misplaced or misfiled, creating the need to take expensive duplicate
images, delaying the delivery of quality medical care and resulting in
increased medical costs.

Increased adoption of teleradiology and PACS is currently occurring among
healthcare providers in response to pressures to create a more efficient
healthcare delivery system in the United States, Canada, Western Europe, Japan
and Australia.  In addition, many countries in South America and Asia are
focusing on providing better healthcare and are investing in CT, MRI and other
modern imaging modalities.  The Company believes that these countries present
potential opportunities for the implementation of teleradiology systems.

STRATEGY

Lumisys is a leading suppler of digitizers for medical film and video images
and has established a reputation for delivering high-quality, reliable and
cost-effective products.  The Company intends to leverage this reputation by
broadening its product line, exploiting new market opportunities and
penetrating new geographic markets.  The Company's strategy includes the
following key elements:

Apply Core Technological Competencies to Develop New Products.  Lumisys has
developed expertise in electro-optics, image processing, circuit design,
computing, software and communications for image digitization.  The Company's
strategy is to provide increased functionality, application-specific software
and additional components to enhance its core product line and address emerging
market needs.

Acquire Complementary Products and Technology.  The Company intends to continue
to identify and acquire complementary businesses, products and technologies
that offer Lumisys the ability to introduce new products, add core
technological competencies and leverage existing strengths to provide better
solutions for its target markets.  In 1997, the Company acquired CompuRAD to
add core technical competencies in software development and to leverage its
existing strong OEM and VAR relationships in the medical imaging market.  In
1995, the Company acquired X-Ray Scanner Corporation ("XRS") to accelerate its
development of a lower cost CCD-based film digitizer line and acquired Imagraph
Corporation ("Imagraph") to add core technical competencies in video image
digitization and compression.

Exploit Market Opportunities Through Strong OEM Relationships.  The Company has
established strong relationships with the key suppliers of medical image
management products and systems.  These relationships provide the Company with
insight into emerging customer requirements, which allows the Company to
position its current products appropriately and to allocate more effectively
its product development resources.  In addition, as OEM customers increasingly
outsource parts and components for their systems, Lumisys intends to take
advantage of its strong OEM relationships and its reputation for high-quality
products to remain the supplier of choice with an expanding product line.

Penetrate New Geographic Markets.  The Company believes that significant
opportunities exist for international expansion, primarily in Canada, Western
Europe, Japan and Australia.  In addition, many countries in South America and
Asia are focusing on providing better healthcare and are investing in CT, MRI
and other modern imaging modalities.  The Company believes that these countries
present potential opportunities for the implementation of teleradiology
systems.  The Company intends to identify specific market dynamics in these
foreign countries and design targeted products and systems for their medical
imaging needs.  The Company's development of a lower cost CCD-based film
digitizer was the first step toward addressing some of the needs of these
markets.

PRODUCTS AND APPLICATIONS

The Company offers an integrated suite of hardware and software products for
digitizing, networking, archiving, routing and displaying medical images in a
PACS and teleradiology environment. The company offers laser and CCD X-ray film
digitizers, video frame digitizers, and software to enable health care
organizations to capture, store, distribute and display medical images over
LANs and WANs.

Digitizer Products. Lumisys digitizers enable the conversion of large format
transparency medical films into digital format so that they may be networked
into PACS and teleradiology systems. The digitized film may be networked on a
LAN or transmitted over telephone line, dedicated high-speed communication
lines and may be compressed to reduce transmission time. The Lumiscan family
consists of a full line of laser-based digitizers, incorporatinglasers,
precision optics, computer-controlled galvanometers and micropositioners,
special purpose light detectors and analog as well as digital electronic
circuitry.  The Lumiscan product line also includes a CCD-based film digitizer
that incorporates a proprietary light source and a high quality CCD detector.
All Lumiscan digitizers include sophisticated proprietary control software as
well as internally developed input/output and driver software.

The Lumiscan 50 and 75, introduced in 1993 and 1994, respectively, utilize a
common housing and are light weight, tabletop units. The Lumiscan 75 is a
table-top digitizer designed for diagnostic resolution in PACS and
teleradiology applications.  The Lumiscan 85 is very high resolution digitizer
designed specifically to capture information from mammograms, pediatric x-rays
and in non-destructive test applications.  The Lumiscan 85 offers very high
resolution allowing it to capture the wide dynamic range and requisite image
information contained in these images, which are generally smaller and require
a higher optical density to diagnose effectively. The Lumiscan 50 is a lower
resolution version of the Lumiscan 75 product that is used primarily in non-
diagnostic applications.

The Lumiscan 100, 150 and 200 utilize larger housings than the Lumiscan 50, 75
and 85.  These models are being displaced by the smaller and less expensive
desktop models.  The Lumiscan 100 was the Company's first product introduced in
1990.  The Lumiscan 150 was introduced in 1992.  The Lumiscan 200, introduced
in 1991 and is equipped with a film feeder capable of automatically digitizing
up to 70 sheets of film, increasing operator productivity in high-volume PACS
environments.

In 1996, The Company began shipping the Lumiscan 20 tabletop film digitizer,
which is based on CCD technology.  The Lumiscan 20 is a less expensive film
digitizer designed for use in less demanding applications and environments,
where price is a more important factor than resolution.  The Company designed
the Lumiscan 20 to be cost-competitive, and to exhibit superior image quality
over other CCD-based products offered by its competitors; the product may be
purchased with an optional film feeder.

In addition, the Lumiscan product line includes a CR system that incorporates
much of the same technology and manufacturing techniques as the other
digitizers.  CR, however, uses storage phosphor plates to capture an x-ray
image instead of film. The image is derived by reading the stored image on the
phosphor plate  with a laser light source.

The Company introduced the Lumiscan 110 CR system in 1996.  The CR system was
designed specifically to capture information from storage phosphors rather than
film.  These digitizers are being used for filmless radiography applications in
the non-destructive test ("NDT") market.  Inspection of pipes, valves, aircraft
parts and other structural objects can be accomplished without the use of
conventional silver halide emulsion radiographic films.  These digitizers are
similar in size and weight to the other Lumisys tabletop digitizers.

Board Products.  Lumisys develops, manufactures and markets high-quality,
board-level digitization and compression products for the capture of video
images.  These digital images can be reproduced on workstations and displays,
transmitted over networks, recorded into archives and accurately reprinted.
These products have applications in medical imaging as well as in scientific
and industrial inspection and multimedia imaging.  They incorporate
programmable gate-arrays, embedded signal processors, proprietary software and
double-sided, surface-mounted technology.  Additionally, the Company's
proprietary Auto-Sync software automatically adjusts to accommodate the wide
variety of video signals to be digitized.  This capability allows the Company's
OEM and System Integrator customers to install these products without having to
develop extensive video installation  expertise or to acquire special test
equipment.

The HI*DEF Plus is a standard PC-compatible board that digitizes analog video
images at up to 140 MHz sampling rates with continuous Auto-Sync locking
circuitry to maintain image fidelity at optimum signal-to-noise ratios.  This
product is primarily used to digitize gray-scale video from CT, MRI, ultrasound
and nuclear medicine cameras in medical applications as well as from high
resolution video cameras used for industrial inspection and quality control
applications.

The Company also offers the Imascan line of monochrome and color video frame
grabbers with SVGA display capabilities on a single board.  These PCI boards
have applications in medical ultrasound imaging as well as graphic arts,
desktop video and the teleconference markets.  Imascan Precision is the most
recent addition to this family and integrates the most advanced features
offered by this product line.

Software Products.  Through the 1997 acquisition of CompuRAD, Lumisys has
expanded its product line and capabilities to include a full range of software
designed to enable healthcare organizations to capture, store, distribute and
display medical images over LANs and WANs.  The iNET product line supports on-
call, off-site and in-hospital applications and it runs in either a point-to-
point or networked configuration.  iNET allows users to capture, store,
distribute and display medical images and provides PACS and teleradiology
across diverse clinical environments.  The iNET product line includes capture
products, server products and workstation products.  The capture products
include: (a) DI-1000, and DI-2000 software which integrate the Company's film
and CR digitizers into a PACS and teleradiology environment; (DI-2000 is
DICOM 3.0 software designed to control both Lumiscan digitizers and CR
digitizers.  It is planned for release during the second quarter of 1998.)
(b) FG-1000 software which integrates the Company's video frame-grabber boards
into a PACS and teleradiology environment; and (c) Gammacon software which
integrates legacy and DICOM gamma cameras in Nuclear Medicine to PACS and
teleradiology environments. The server products include: (a) IS-2000, a network
server, which routes, compresses, archives DICOM images to local RAID and
transmits medical images in a PACS and teleradiology network; (b) the IA-2000,
which is a scaleable, DICOM medical image archive supporting magneto-optical
disk and digital linear tape storage in configurations ranging from .5 to 100
Terabytes; and (c) GammaServe, a networking and communication server for the
Nuclear Medicine environment.  The workstations include (a) IV-1000 and IV-2000
which enable PACS and teleradiology  viewing on Windows NT and '95 PCs, ranging
from commodity displays to multi-monitor 5 Megapixel displays, and (b)
GammaView which enables PACS and teleradiology viewing of specialized Nuclear
Medicine images on Windows NT and '95.

RESEARCH AND DEVELOPMENT

Lumisys devotes significant resources to research and development activities to
design new products and product enhancements and identify new applications for
existing products.  The Company has developed expertise in electro-optics,
image processing, circuit design, computing, software and communications for
image digitization, which the Company believes it can leverage to introduce new
products and product enhancements.  The Company's engineers work closely with
its OEM and System Integrator customers to assist in the integration of the
Company's products with those of the OEMs and System Integrators and to
identify new applications for the Company's products.  Occasionally, the
Company receives funding from certain OEM and VAR customers to develop
specialized applications.

For the years 1997, 1996 and 1995, the Company's research and development
expenditures were approximately $6.6 million, $5.5 million and $3.5 million
(not including a charge of $1.4 million for acquisition of in-process research
and development), respectively.  These amounts represented 22.2%, 19.2% and
16.4% of total revenues in the respective periods.  In 1997, research and
development resources were used primarily for the continuing development of the
computed radiography reader for the medical market and the design and
development of new software and updates and enhancement of existing software.
The software development program is focused on improving access to medical
images and clinical information.  Updates and enhancements of its existing
software include efforts to improve connectivity, compression algorithms and
user interface design.

As of December 31, 1997, the Company had 53 employees engaged in research and
development activities.

SALES AND MARKETING

The Company sells its film digitizers primarily to OEM and System Integrator
customers who integrate these products into teleradiology and PACS networks.
The Company also sells its film digitizers to a few end users, primarily
university and medical research groups.  The Company's video image digitizers
are sold to many of these same customers as well as to dealers, distributors
and resellers for medical, multimedia, scientific and industrial applications.
In 1997, the software division sold its software directly to end users through
direct sales representatives.  The Company has discontinued its direct sales
efforts and will sell indirectly through OEMs and System Integrators.  The
current software customers include Konica Medical and National Imaging
Resources, a nationwide consortium of X-ray dealers.

The Company markets its products primarily through an internal sales
organization.  In addition, the Company exhibits its products at major trade
shows and supports the OEMs, System Integrators, dealers, distributors and
resellers with product literature and application notes for reference and
distribution.  The Company maintains a staff of eighteen sales and marketing
personnel, with three individuals responsible for film digitizer products, six
individuals responsible for video image digitizers, nine individuals
responsible for software products and one individual responsible for new
business development.  All of the sales personnel are supported by a technical
support organization and the engineering staff is available to support the
Company's customers when appropriate.  The Company devotes a substantial
portion of its marketing efforts to developing, monitoring and enhancing its
relationships with existing customers and to identifying and cultivating new
customers entering the market.  The loss of one or more customers or a change
in their buying pattern could have a material effect on the Company's business
and results of operations.

The Company emphasizes customer service and support by developing quality
products, encouraging customer feedback through extensive contacts with key OEM
and System Integrators, maintaining accurate documentation of technical support
requests and providing customers with telephone support.  The technical support
staff conducts a film digitizer service training course for OEM and System
Integrators personnel on a regular basis, providing the Company's customers
with the expertise needed to install and support the Company's products.  The
Company provides a limited one-year parts and factory repair warranty to its
customers.

MANUFACTURING

The Company's manufacturing activities consist primarily of assembling and
testing components and subassemblies acquired from qualified vendors as well as
assembling, aligning, system testing and performing quality assurance
inspection of the end product.  The Company's film digitizer facility operates
under the FDA GMP and QSR guidelines and is a registered medical device
manufacturer.

The Company purchases industry-standard parts and components for the assembly
of its products, generally from multiple vendors.  Although the Company relies
on single-source suppliers for certain components, such as lasers,
photomultiplier tubes and certain electronic components primarily to control
price and quality, the Company believes that alternate sources of supply are
available from other vendors for such components and has qualified second
source suppliers for some, but not all, single-sourced parts.  The Company
maintains good relationships with its vendors and, to date, has not experienced
any material supply problems.

The Company's backlog at December 31, 1997 was approximately $5.8 million
compared with $4.6 million at December 31, 1996.  The Company includes in its
backlog only orders for which a customer purchase order has been received and a
delivery date within six months is anticipated.

COMPETITION

Competition in the United States laser-based film digitizer market has not been
significant.  A new company, CLS entered the market in 1996 with a product
similar to the laser-based film digitizers offered by Lumisys. To date, the
Company is unaware of any sales made by CLS. In addition, several Japanese
competitors such as Konica, Nishimoto Sangyo and Abe Sekkei offer competitive
products on an international basis and may decide in the future to devote
additional resources to marketing competitive products in the United States.
In addition, General Scanning Inc. is expected to introduce a laser-based film
digitizer during 1998.  The markets for medical film digitizers incorporating
CCD's are highly competitive.  Lumisys faces competition from companies such as
Vidar Systems Inc., Canon Inc., Hell Linotype and Howtek in the CCD-based film
digitizer market.  There can be no assurance that Lumisys' competitors will
not develop enhancements to, or future generations of, competitive products
that will offer superior price or performance features that render Lumisys'
products less competitive or obsolete.

In addition, large domestic companies, such as Kodak, Imation, Sterling and GE,
and European companies, such as Siemens, Philips and Agfa, have the technical
and financial ability to design and market digitizer products competitive with
Lumisys' products, and some of them have in the past produced and marketed such
products.  While most of these companies currently purchase products from
Lumisys, Lumisys believes that it will be required to continue to improve the
price and performance characteristics of its products to retain their business
especially in view of the fact that these customers are not contractually
required to purchase their digitizers exclusively or at all from Lumisys.  All
of these companies have significantly greater financial, marketing and
manufacturing resources than Lumisys and would be significant competitors if
they decided to enter this market.

The markets for medical video image digitizers are also highly competitive.
Competitors in the video digitizer market are Precision Digital Images Corp.,
Epix, Inc. and Matrox Electronic Systems Ltd.

Competition in the markets for PACS and teleradiology software products  and
services is intense and is expected to increase. The Company's principal
competitors in the PACS and teleradiology software market are ISG, Applicare
Medical Imaging B.V.,  Mitra Imaging Inc.,  and Access Radiology Corporation.
Furthermore, other major healthcare information and equipment companies not
presently offering competing products may enter the Company's markets.  There
can be no assurances that the Company will be able to compete successfully
against current and future competitors or that competitive pressures faced by
the Company will not have a materially adverse effect on its business,
financial condition or results of operations.

As a result of the substantial investment required by an OEM or System
Integrators to integrate capital equipment into a product line, or to integrate
components and subsystems into a product design, the Company believes that once
an OEM or System Integrators has selected certain capital equipment or certain
components or subsystems from a particular vendor, the customer generally
relies upon that vendor to provide equipment for the specific product line or
product application and may seek to rely upon that vendor to meet other
component or subsystem requirements.  Accordingly, the Company may be at a
competitive advantage or disadvantage with respect to a particular customer
depending on whether that customer utilizes the Company's or a competitor's
component or subsystem.

PATENTS AND INTELLECTUAL PROPERTY

The Company believes that the success of its business depends more on the
technical competence and creativity of its employees and successful business
execution than on patents, trademarks and copyrights.  Although the Company has
obtained several patents it generally does not rely primarily on patent
protection with respect to its products.  As of January 31, 1997, the Company
held or had a license to eleven United States patents, expiring between 2010
and 2014.

Competitors in the United States and foreign countries, many of which have
substantially greater resources and have made substantial investments in
competing technologies, may have applied for or obtained, or may in the future
apply for and obtain, patents that may prevent, limit or interfere with the
Company's ability to make and sell some of its products.  Although the Company
believes that its products do not infringe the patents or other proprietary
rights of third parties, there can be no assurance that third parties will not
assert infringement claims against the Company or that such claims will not be
successful.

The Company also relies upon a combination of trade secrets, copyright and
trademark laws, nondisclosure and other contractual provisions to protect its
confidential and proprietary information.  The Company routinely enters into
confidentiality agreements with its employees, consultants and customers who
have access to the Company's confidential or proprietary information.  It is
not clear, however, that these agreements will provide meaningful protection of
the Company's trade secrets, know-how or other proprietary information in the
event of any unauthorized use, misappropriation or disclosure of such trade
secrets, know-how or other proprietary information.

GOVERNMENT REGULATION

The manufacturing and marketing of the Company's digitizer, video board and
software products are subject to extensive government regulation in the United
States and in other countries, and the process of obtaining and maintaining
required regulatory approvals is lengthy, expensive and uncertain.  All of the
Company's laser-based film digitizers, the CCD-based film digitizer and
software products that are commercially available have received marketing
clearance from the FDA via a 510(k) filing.

International sales of the Company's products may be subject to regulation in
various countries.  The regulatory review process varies from country to
country.  In Europe, the Company will be required to obtain certifications
necessary to enable the "CE" mark to be affixed to software products by mid
1998 to continue commercial sales in member countries of the European Union.
The CE mark is an international symbol of quality and complies with applicable
European medical device directives. The Company has not yet obtained this CE
certification.  The Company is currently working towards this certification,
but such approval by mid-1998 is not assured.   To date, the Company's revenue
has not been adversely impacted by an inability to obtain domestic or foreign
marketing clearances.

The Company is also required to register as a Class II medical device
manufacturer with the FDA and state agencies, such as the California Department
of Health Services ("CDHS").  As such, the Company may be inspected on a
routine basis by both the FDA and the CDHS for compliance with the FDA's GMP,
QSR and other applicable regulations.  These regulations require that the
Company manufacture its products and maintain its documents in a prescribed
manner with respect to manufacturing, reporting of product malfunctions and
other matters.  The Company was inspected by the FDA in 1996 and was found to
be compliant with the FDA's GMP regulations but has not been inspected by CDHS
to date.

RISK FACTORS

Except for the historical information contained herein, the discussion in this
Form 10-K for the year ended December 31, 1997 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 in the sections entitled "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and those discussed in other documents filed by the Company with
the Securities and Exchange Commission.

SIGNIFICANT FLUCTUATIONS IN OPERATING RESULTS.  There can be no assurance that
the Company will be profitable on a quarterly or annual basis in the future.
The Company has experienced quarterly fluctuations in operating results caused
by various factors, including the timing of orders by major customers, customer
inventory levels, shifts in product mix, the incurrence of acquisition-related
costs and general conditions in the healthcare industry which have reduced
capital equipment budgets and delayed or reduced the adoption of teleradiology,
and expects that these fluctuations will continue.

The Company typically does not obtain long-term volume purchase contracts from
its customers, and a substantial portion of the Company's backlog is scheduled
for delivery within 90 days or less.  Customers may cancel orders and change
volume levels or delivery times without penalty.  Quarterly sales and operating
results therefore depend on the volume and timing of the backlog as well as
bookings received during the quarter.  A significant portion of the Company's
operating expenses are fixed, and planned expenditures are based primarily on
sales forecasts and product development programs.  If sales do not meet the
Company's expectations in any given period, the materially adverse impact on
operating results may be magnified by the Company's inability to adjust
operating expenses sufficiently or quickly enough to compensate for such a
shortfall.  Furthermore, the Company's gross margins may decrease in the future
due to increasing sales of lower margin products and volume discounts.  Results
of operations in any period should not be considered indicative of the results
to be expected for any future period.  Fluctuations in operating results may
also result in fluctuations in the price of the Company's Common Stock.  See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business - Manufacturing."

DEPENDENCE ON EMERGING PACS AND TELERADIOLOGY MARKET; UNCERTAINTY OF MARKET
ACCEPTANCE.  The Company's success is dependent on market acceptance of its new
and existing products.  Substantially all of the Company's revenues are derived
from the sales of medical image digitizers for the PACS and teleradiology
medical markets.  Although development of the PACS and teleradiology market has
been predicted for the last ten to fifteen years, the market for the Company's
products is still relatively undeveloped and may not experience material
expansion in the near future, if at all.  Furthermore, there can be no
assurance that sales of new products will achieve significant market acceptance
in the future.  In addition, third party payers, such as governmental programs
and private insurance plans, can indirectly affect the pricing or the relative
attractiveness of the Company's products by regulating the maximum amount of
reimbursement that they will provide for the taking, storing and interpretation
of medical images.  A decrease in the reimbursement amounts for radiological
procedures may decrease the amount which physicians, clinics and hospitals are
able to charge patients for such services.  As a result, adoption of
teleradiology and PACS may slow as capital investment budgets are reduced,
thereby significantly reducing the demand for the Company's products.  See
"Business - Products and Applications" and "-Third Party Reimbursement."

NEW PRODUCT DEVELOPMENT IN SOFTWARE PRODUCTS; UNCERTAINTY OF MARKET ACCEPTANCE.
The market for PACS and teleradiology software is in the early stages of
development.  Since this market is new, and because current and future
competitors are likely to introduce competing software, it is difficult to
predict the rate at which the market will grow, if at all, or the rate at which
net or increased competition will result in market saturation. If the market
for such software fails to grow or grows more slowly than anticipated, the
Company's business, financial condition and results of operations would be
materially adversely effected.  The Company expects that the sales cycle for
PACS and teleradiology software through the OEM and System Integrator sales
channels will be longer than that for its other existing hardware products.
Accordingly, the Company's quarterly revenues and operating results may be
subject to greater fluctuation as the Company begins to market and sell PACS
and teleradiology software through these new channels.  Additionally, the
Company has limited experience in marketing, installing and supporting its
software through these sales channels, and there can be no assurance that the
Company can obtain the necessary resources to market, install and support its
PACS and teleradiology software in an efficient, cost-effective and competitive
manner.  The failure of PACS and teleradiology software to achieve market
acceptance for any reason could have a material adverse effect on the Company's
business, financial condition and results of operations.

SIGNIFICANT RISKS ASSOCIATED WITH ACQUISITIONS. The integration of any
acquisitions will require special attention from management, which may
temporarily distract its attention from the day-to-day business of the Company.
Any acquisitions will also require integration of the companyies' product
offerings and coordination of research and development and sales and marketing
activities.  Furthermore, as a result of acquisitions, the Company may enter
markets in which it has no or little direct prior experience.  There can also
be no assurance that the Company will be able to retain key technical personnel
of an acquired company or recruit new management personnel for the acquired
businesses, or that the Company will, or may in the future, realize any
benefits as a result of such acquisitions.  Acquisitions by the Company may
result in potentially dilutive issuances of equity securities, the incurrence
of debt, one-time acquisition charges and amortization expenses related to
goodwill and intangible assets, each of which could be significant and could
materially adversely affect the Company's financial condition and results of
operations.  In addition, the Company believes that it may be required to
expand and enhance its financial and management controls, reporting systems and
procedures as it integrates acquisitions.  There can be no assurance that the
Company will be able to do so effectively, and failure to do so when necessary
would have a material adverse effect upon the Company's business and results of
operations.  See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

NEW PRODUCT DEVELOPMENT IN IMAGE DIGITIZERS; RAPID TECHNOLOGICAL CHANGE;
PRODUCT DEVELOPMENT. The market for the Company's products is characterized by
rapid technological advances, changes in customer requirements and frequent new
product introductions and enhancements.  The Company's future success will
depend upon its ability to enhance its current products, to develop and
introduce new products that keep pace with technological developments and to
respond to evolving customer requirements.  Any failure by the Company to
anticipate or respond adequately to technological developments by its
competitors or to changes in customer requirements, or any significant delays
in product development or introduction, could result in a loss of
competitiveness or revenues.  In the past, the Company has experienced delays
in the development and introduction of new products and product enhancements,
and there can be no assurance that the Company will not experience such delays
in the future.  In addition, new product introductions or enhancements by the
Company's competitors or the use of other technologies that do not depend on
film digitization could cause a decline in sales or loss of market acceptance
of the Company's products.  In particular, computed radiography ("CR") systems
are currently available and have been sold for medical applications for over
ten years with limited acceptance.  In addition, several companies have
announced developments leveraging the technology used in flat panel displays,
digital radiography ("DR"), to produce high-resolution, two dimensional image
sensor arrays that make it possible for x-ray images to be captured digitally
without film or chemical processing.  While this emerging technology is
expensive, there can be no assurance that future advances in this technology or
other technologies will not produce systems better positioned for the
marketplace that will therefore reduce the digitizer market to the then
installed base of imaging systems.  There can be no assurance that the Company
will be successful in developing and marketing new products or product
enhancements on a timely or cost-effective basis, and such failure could have a
material adverse effect on the Company's business and results of operations.
See "Business - Products and Applications" and "- Research and Development."

RISKS ASSOCIATED WITH SOFTWARE PRODUCTS.  Software and systems as complex as
those offered by the Company frequently contain undetected errors or failures
when first introduced or when new versions are released.  The Company has in
the past discovered bugs and system errors in certain of its software
enhancements, both before and after initial shipment.  There can be no
assurance that, despite testing by the Company, errors will not occur in the
Company's products resulting in loss of, or delay in, the Company's business,
financial condition and results of operations.  Peripherals and hardware from
third party manufacturers also may contain defects and incompatibilities which
could adversely affect market acceptance of the Company's software products.

LONG SALES CYCLES.  The OEM and System Integrator sales cycle for PACS and
teleradiology systems is lengthy.  The sales cycle of the Company's products is
subject to delays associated with changes or the anticipation of changes in the
regulatory environment affecting healthcare enterprises, changes in the
customer's strategic system initiatives, competing information systems projects
within the customer organization, consolidation in the healthcare industry in
general, the highly sophisticated nature of the Company's software and
competition in the PACS and teleradiology markets in general.  The time
required from initial contact to purchase order typically ranges from one to
six months, and the time from purchase order to delivery and recognition of
revenue typically ranges from one to six months.  During the sales process, the
Company expends substantial time, effort and funds preparing a contract
proposal, demonstrating the software and negotiating the purchase order.  For
these and other reasons, the Company cannot predict when or if the sales
process with a prospective customer will result in a purchase order.

COMPETITION. Competition in the United States laser-based film digitizer market
has not been significant.  A new company, CLS entered the market in 1996 with a
product similar to the laser-based film digitizers offered by Lumisys. To date,
the Company is unaware of any sales made by CLS. Several Japanese competitors
such as Konica, Nishimoto Sangyo and Abe Sekkei offer competitive products on
an international basis and may decide in the future to devote additional
resources to marketing competitive products in the United States.   In
addition, General Scanning Inc. is expected to introduce a laser-based film
digitizer during 1998.. The markets for medical film digitizers incorporating
charge-coupled devices ("CCDs") are highly competitive.  The Company faces
competition from companies such as Vidar Systems Inc., Canon Inc., Vision Ten
Inc., Hell Linotype and Howtek in the CCD-based film digitizer market. There
can be no assurance that the Company's competitors will not develop
enhancements to, or future generations of, competitive products that will offer
superior price or performance features that render the Company's products less
competitive or obsolete.

In addition, large domestic companies, such as Kodak, Imation, Sterling
Diagnostics ("Sterling", formerly the medical group of E.I. DuPont de Nemours
and Company) and General Electric Co. ("GE"), and European companies, such as
Siemens, Philips Electronics N.V. ("Philips") and Agfa, have the technical
and financial ability to design and market digitizer products competitive
with the Company's products, and some of them have in the past produced and
marketed such products.  While most of these companies currently purchase
products from the Company, the Company believes that it will be required to
continue to improve the price and performance characteristics of its products
to retain their business especially in view of the fact that these customers
are not contractually required to purchase their digitizers exclusively or at
all from the Company.  All of these companies have significantly greater
financial, marketing and manufacturing resources than the Company and would
be significant competitors if they decided to enter this market.

The markets for medical video image digitizers are also highly competitive.
Competitors in the video digitizer market are Precision Digital Images Corp.,
Epix, Inc. and Matrox Electronic Systems Ltd.

Competition in the OEM markets for PACS and teleradiology software products and
services is also intense and is expected to increase.  The Company's principal
competitors in the PACS and teleradiology software market are ISG, Applicare
Medical Imaging B.V.,  Mitra Imaging Inc.,  and Access Radiology Corporation.
Furthermore, other major healthcare information and equipment companies not
presently offering competing products may enter the Company's markets.
Increased competition could result in price reduction, reduced gross margins
and loss of market share, any of which could materially adversely effect the
Company's business, financial condition and results of operations.  In
addition, many of the Company's competitors and potential competitors have
significantly greater financial, technical, product development, marketing and
other resources and market recognition than the Company in the
Internet/Intranet clinical information systems area.  Many of the Company's
competitors also currently have, or may develop or acquire, substantial
installed customer bases in the healthcare industry.  As a result of these
factors, the Company's competitors may be able to respond more quickly to new
or emerging technologies and changes in customer requirements or to devote
greater resources to the development, promotion and sale of their products than
the Company.  There can be no assurances that the Company will be able to
compete successfully against current and future competitors or that competitive
pressures faced by the Company will not have a materially adverse effect on its
business, financial condition or results of operations.  See "Business -
Competition."

PROPRIETARY RIGHTS.  The Company relies on a combination of trade secrets,
copyright and trademark laws, nondisclosure and other contractual provisions to
protect its proprietary rights.  The Company currently has no blocking patents
covering its technology and it has not registered any of its trademarks.  There
can be no assurance that measures taken by the Company to protect its
intellectual property will be adequate or that the Company's competitors will
not independently develop systems and services that are substantially
equivalent or superior to those of the Company.  Substantial litigation
regarding intellectual property rights exists in the software industry, and the
Company expects that software products may be increasingly subject to third-
party infringement claims as the number of competitors in the Company's
industry segment grows and the functionality of systems overlap.  Although the
Company believes that its systems and applications do not infringe upon the
proprietary rights of third-parties, there can be no assurance that third-
parties will not assert infringement claims against the Company in the future,
that the Company would prevail in any such dispute or that a license or similar
agreement will be available on reasonable terms in the event of an unfavorable
ruling on any such claim.  In addition, any such claim may require the Company
to incur substantial litigation expenses or subject the Company to significant
liabilities and could have a material adverse effect on the Company's business,
financial condition and results of operations.

CUSTOMER CONCENTRATION; RELIANCE ON OEMS.  A significant portion of the
Company's net sales is derived from a small number of customers.  In 1995,
1996, and 1997, there were no companies that accounted individually for more
than 10% of the Company's revenues.  Large customers accounted for a
significant portion of the Company's backlog at December 31, 1997.  The Company
expects to continue to depend upon its principal customers for a significant
portion of its sales, although there can be no assurance that the Company's
principal customers will continue to purchase products and services from the
Company at current levels, if at all.  The loss of one or more major customers
or a change in their buying patterns could have a material adverse effect on
the Company's business and results of operations.  See "Business - Sales and
Marketing" and "- Manufacturing."

SINGLE-SOURCE SUPPLIERS.  The Company purchases industry-standard parts and
components for the assembly of its products, generally from multiple vendors.
Although the Company relies on single-source suppliers for certain components,
such as lasers, photomultiplier tubes and certain electronic components
primarily to control price and quality, the Company believes that alternate
sources of supply are available from other vendors for such components and has
qualified second source suppliers for some, but not all, single-sourced parts.
The Company maintains good relationships with its vendors and, to date, has not
experienced any material supply problems.  While the Company seeks to maintain
an adequate inventory of single-sourced components there can be no assurance
that such inventories will be sufficient or that delays in part or component
deliveries will not occur in the future, which could result in delays or
reductions in product shipments.  Furthermore, even if currently single-sourced
components could be replaced by other qualified parts, product redesign and
testing could be costly and time consuming.  These factors could have a
material adverse effect on the Company's business, financial condition and
results of operations.

GOVERNMENT REGULATION.  The manufacturing and marketing of the Company's
digitizer, video board, and software products are subject to extensive
government regulation in the United States and in other countries, and the
process of obtaining and maintaining required regulatory approvals is lengthy,
expensive and uncertain.  If a medical device manufacturer can establish that a
newly developed device is "substantially equivalent" to a device that was
legally marketed prior to May 1976, the date on which the Medical Device
Amendments of 1976 were enacted, or to a device the FDA found to be
substantially equivalent to a legally marketed pre-1976 device, the
manufacturer may seek marketing clearance from the FDA to market the device by
filing a 510(k) premarket notification.  The 510(k) premarket notification must
be supported by appropriate data establishing the claim of substantial
equivalence to the satisfaction of the FDA.  Receipt of 510(k) clearance
normally takes at least three months, but may take much longer and may require
the submission of clinical safety and efficacy data to the FDA.  All of the
Company's laser-based film digitizers, the CCD-based film digitizer and
software products that are commercially available have received 510(k)
clearance.  There can be no assurance that 510(k) clearance for any future
product or any modification of an existing product will be granted, or that the
process will not be unduly lengthy.  In the future, the FDA may require
manufacturers of certain medical devices to engage in a more thorough and time
consuming approval process than the 510(k) process, which could have a material
adverse effect on the Company's business and results of operations.

The Company is also required to register as a Class II medical device
manufacturer with the FDA and state agencies, such as the California Department
of Health Services ("CDHS").  As such, the Company may be inspected on a
routine basis by both the FDA and the CDHS for compliance with the FDA's GMP,
QSR and other applicable regulations.  These regulations require that the
Company manufacture its products and maintain its documents in a prescribed
manner with respect to manufacturing, reporting of product malfunctions and
other matters.  If the FDA believes that a company is not in compliance with
federal regulatory requirements, it can institute proceedings to detain or
seize products, issue a recall, prohibit marketing and sales of the company's
products and assess civil and criminal penalties against the company, its
officers or its employees.  Failure to comply with the regulatory requirements
could have a material adverse effect on the Company's business and results of
operations.  The Company was inspected by the FDA in 1996 and was found to be
compliant with the FDA's GMP regulations but has not been inspected by CDHS to
date.

The Company also relies on 510(k) pre-market notification for its current
internally developed products.  Additionally, the Company relies on 510(k)
clearance and the finding by the FDA of substantial equivalence for the Image
Management System (now marketed as IA-2000) technology acquired from Star
Technologies, Inc. in July 1997.  The Company believes that its success depends
upon commercial sales of new versions of its PACS and teleradiology software
which may be subject to clearance or approval from the FDA and its foreign
counterparts.  There can be no assurance that a similar 510(k) clearance for
any future product or enhancement of an existing product will be granted or
that the process will not be lengthy.  If the Company  cannot establish that a
product is "substantially equivalent" to certain legally marketed devices, the
510(k) clearance procedure may be unavailable and the Company may be required
to utilize the longer and more expensive PMA process.  Failure to receive or
delays in receipt of FDA clearances or approvals, including the need for
additional data as a prerequisite to clearance or approval, could have a
material adverse effect on the Company's business, financial condition and
results of operations.

Sales of the Company's products outside the United States are subject to
foreign regulatory requirements that vary from country to country. Additional
approvals from foreign regulatory authorities may be required, and there can be
no assurance that the Company will be able to obtain foreign approvals on a
timely basis or at all, or that it will not be required to incur significant
costs in obtaining or maintaining its foreign regulatory approvals.  In Europe,
the Company will be required to obtain certifications necessary to enable the
"CE" mark to be affixed to the Company's products by mid 1998 to continue
commercial sales in member countries of the European Union.  The CE mark is an
international symbol of quality and complies with applicable European medical
device directives.  The Company has not yet obtained this CE certification.
The Company is currently working towards this certification, but such approval
by mid-1998 is not assured. Failure to comply with foreign regulatory
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations.

LITIGATION.  On July 9, 1997 and July 10, 1997, two class action complaints
were filed in the Superior Court of the State of California, County of Santa
Clara, and the U.S. District Court for the Northern District of California,
respectively, against the Company, several of its current and former officers
and directors, and its underwriters.  The complaints are brought on behalf of
all persons who purchased the Company's Common Stock during the putative class
period, November 15, 1995 to July 11, 1996.  The complaints allege that, during
the class period, defendants made material misstatements and omitted to
disclose material information concerning the Company's actual and expected
performance and results, causing the price of the Company's Common Stock to be
artificially inflated. The federal complaint alleges claims under Sections
10(b) and 20(a) of the Exchange Act, and SEC Rule 10b-5 promulgated thereunder;
the state complaint alleges claims under California state law.  Neither the
federal nor the state complaint specifies the amount of damages sought.  The
Company and the other defendants vigorously deny all allegations of wrongdoing,
and intend to defend themselves aggressively.  On January 9, 1998, the Santa
Clara Superior Court dismissed the State complaint in part with prejudice and in
part with leave to amend.  Plaintiff has filed an amended complaint in State
court and on March 23, 1998, defendants filed a demurer to the amended
complaint.  On March 6, 1998, the federal court dismissed the federal complaint
with leave to amend.  There can be no assurance that the Company will prevail
in these actions or that the plaintiffs will not recover damages.


THIRD-PARTY REIMBURSEMENT.  Third-party payers, such as governmental programs
and private insurance plans, can indirectly affect the pricing or the relative
attractiveness of the Company's products by regulating the maximum amount of
reimbursement that they will provide for the taking, storing and interpretation
of medical images.  In recent years, healthcare costs have risen substantially,
and third-party payers have come under increasing pressure to reduce such
costs.  In this regard, extensive studies undertaken by the Clinton
Administration, even though not successfully translated into regulatory action,
have stimulated widespread analysis and reaction in the private sector focused
on healthcare cost reductions, which may involve reductions in reimbursement
rates in radiology.  A decrease in the reimbursement amounts for radiological
procedures may decrease the amount which physicians, clinics and hospitals are
able to charge patients for such services.  As a result, adoption of
teleradiology and PACS may slow as capital investment budgets are reduced, and
the demand for the Company's products could be significantly reduced.

PRODUCT LIABILITY AND INSURANCE.  The manufacture and sale of medical products
entails significant risk of product liability claims.  While the Company
believes that its current insurance coverage is appropriate, there can be no
assurance that such coverage is adequate to protect the Company from any
liabilities it might incur in connection with the sale of the Company's
products.  In addition, the Company may require increased product liability
coverage as additional products are commercialized.  Such insurance is
expensive and in the future may not be available on acceptable terms, if at
all.  A successful product liability claim or series of claims brought against
the Company in excess of its insurance coverage could have a material adverse
effect on the Company's business and results of operations.

VOLATILITY OF STOCK PRICES.  The market price of the Company's Common Stock has
been and may continue to be volatile.  This volatility may result from a number
of factors, including fluctuations in the Company's quarterly revenues and net
income, announcements of technical innovations or new commercial products by
the Company or its competitors, and conditions in the market for medical image
digitizers and the teleradiology and health care industry and for PACS and
teleradiology products and healthcare information systems and services.  Also,
the stock market has experienced and continues to experience extreme price and
volume fluctuations which have affected the market prices of securities,
particularly those of medical technology companies, and which often have been
unrelated to the operating performance of the companies. These broad market
fluctuations, as well as general economic and political conditions, may
adversely affect the market price of the Company's Common Stock in future
periods.

Item 2.     PROPERTIES

The Company's principal facilities are located in Sunnyvale, California;
Chelmsford, Massachusetts and Tucson, Arizona.  Corporate headquarters are
located in the Sunnyvale facility, an approximately 25,000 square foot facility
leased through December 2000.  The Chelmsford facility, which houses the
Imagraph subsidiary, is located in an approximately 20,000 square foot building
leased through June 2002.  The Tucson facility, which houses the software
division, is located in an approximately 20,0000 square foot building leased
through September 2001.  The Company believes that its existing facilities are
adequate for its current needs but may require more space as its business
expands.

Item 3.     LEGAL PROCEEDINGS

On July 9, 1997 and July 10, 1997, two class action complaints were filed in
the Superior Court of the State of California, County of Santa Clara, and the
U.S. District Court for the Northern District of California, respectively,
against the Company, several of its current and former officers and directors,
and its underwriters.  The complaints are brought on behalf of all persons who
purchased the Company's Common Stock during the putative class period, November
15, 1995 to July 11, 1996.  The complaints allege that, during the class
period, defendants made material misstatements and omitted to disclose material
information concerning the Company's actual and expected performance and
results, causing the price of the Company's Common Stock to be artificially
inflated. The federal complaint alleges claims under Sections 10(b) and 20(a)
of the Exchange Act, and SEC Rule 10b-5 promulgated thereunder; the state
complaint alleges claims under California state law.  Neither the federal nor
the state complaint specifies the amount of damages sought.  The Company and
the other defendants vigorously deny all allegations of wrongdoing and intend
to defend themselves aggressively.  On January 9, 1998, the Santa Clara
Superior Court dismissed the State complaint in part with prejudice and in part
with leave to amend.  Plaintiff has filed an amended complaint in State court
and on March 23, 1998, defendants filed a demurer to the amended complaint.  On
March 6, 1998, the federal court dismissed the federal complaint with leave to
amend.  There can be no assurance that the Company will prevail in these actions
or that the plaintiffs will not recover damages.

On July 18, 1997, a third-party filed a complaint in Santa Clara Superior Court
against the Company and one of its officers.  The complaint contains causes of
action for liable, defamation, negligent infliction of emotional distress and
punitive damages.  The Company and the other defendant vigorously deny all
allegations of wrongdoing and intend to defend the themselves aggressively.

Item 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

A Special Meeting (the "Special Meeting") of the Stockholders of Lumisys
Incorporated was held on November 25, 1997.  The total number of shares of the
Company's common stock, $.001 par value per share, outstanding as of  October
31, 1997, the record date of the Special Meeting, was 6,474,314.  Management of
the Company solicited proxies pursuant to Section 14 of the Securities Exchange
Act of 1934, as amended, and Regulation 14A promulgated thereunder for the
Special Meeting.  The proposal to approve the issuance of shares of Lumisys
common stock, $0.001 par value per share ("Lumisys Common Stock"), pursuant to
an Agreement and Plan of Merger and Reorganization, dated as of September 28,
1997 (the "Reorganization Agreement"), by and among Lumisys, SAC Acquisition
Corporation, a Delaware corporation and a wholly owned subsidiary of Lumisys
("Merger Sub"), and CompuRAD, Inc., a Delaware corporation ("CompuRAD") was
approved.  The proposal was approved by a vote of 2,357,437 votes "FOR",
468,171 votes "AGAINST" and 49,237 votes "WITHHELD".

PART II.

Item 5.     MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
            STOCKHOLDER MATTERS

The Company's Common Stock commenced trading on the Nasdaq National Market on
November 15, 1995, under the symbol LUMI.  As of March 27, 1998, there were
approximately 209 shareholders of record.

The following table sets forth for the periods indicated, the high and low
closing sale prices of the Company's Common Stock.

                                  High       Low
  Fiscal 1997  Fourth Quarter    $ 7.63    $ 4.19
               Third Quarter     $ 8.25    $ 6.50
               Second Quarter    $ 7.88    $ 5.88
               First Quarter     $10.13    $ 6.88
  Fiscal 1996  Fourth Quarter    $12.25    $ 9.38
               Third Quarter     $15.50    $ 8.38
               Second Quarter	   $28.63    $13.63
               First Quarter     $22.63    $10.00

Lumisys has never paid dividends on its Common Stock and does not anticipate
paying cash dividends in the future.

Item 6.	SELECTED FINANCIAL DATA

The following selected consolidated financial data should by read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and the
Notes thereto included elsewhere in this report.

                                          Year ended December 31,
                              --------------------------------------------
                                1997     1996     1995     1994     1993
                              -------- -------  -------  -------  -------
                                  (in thousands, except per share data)
Consolidated Statement of
 Operations Data:
Sales                         $29,709  $28,686  $21,337  $10,131  $ 7,083
Cost of sales                  13,206   13,032   10,717    4,807    3,215
                              -------- -------  -------  -------  -------
 Gross profit                  16,503   15,654   10,620    5,324    3,868
                              -------- -------  -------  -------  -------
Operating expenses:
  Sales and marketing           4,506    3,093    2,250    1,148    1,121
  Research and development      6,620    5,545    3,713    2,029    1,396
  General and administrative    4,459    3,518    2,389      859      736
  Merger and related costs      4,159      ---      ---      ---      ---
  Acquired in-process research
   and development                ---      ---    1,442      ---      ---
                              -------- -------  -------  -------  -------
   Total operating expenses    19,744   12,156    9,794    4,036    3,253
                              -------- -------  -------  -------  -------
Income (loss) from
 operations (1)                (3,241)   3,498      826    1,288      615
Interest income, net            1,117      979      213       86       40
                              -------- -------  -------  -------  -------
Income (loss) before income
 taxes                         (2,124)   4,477    1,039    1,374      655
Provision (benefit) for
 income taxes                   1,225    1,662     (762)      95       10
                              -------- -------  -------  -------  -------
Net income (loss) (2)         $(3,349) $ 2,815  $ 1,801  $ 1,279  $   645
                              ======== =======  =======  =======  =======
Net income (loss) per
 share (2)(3):
  Basic                       $ (0.33) $  0.29  $  0.27  $  0.42  $  0.24
  Diluted                     $ (0.33) $  0.29  $  0.25  $  0.21  $  0.11
Weighted average shares used
 to compute net income (loss)
 per share (3):
  Basic                        10,080    9,598    6,714    3,011    2,730
  Diluted                      10,080    9,760    7,236    6,124    5,875

                                               December 31,
                              -------------------------------------------
                                1997     1996     1995     1994     1993
                              -------  -------  -------  -------  -------
                                               (in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and
  short-term investments      $24,529  $22,490  $15,396  $ 3,641  $ 2,330
Working capital                27,373   28,768   18,497    4,347    2,860
Total assets                   34,418   33,241   23,321    6,214    4,226
Long-term obligations             130      118      642      630      619
Mandatorily redeemable
  convertible preferred stock     ---      ---      ---    9,730    9,634
Accumulated deficit            (4,407)  (1,058)  (3,873)  (5,674)  (6,855)
Stockholders' equity (deficit) 27,849   29,706   18,518   (5,635)  (6,821)
--------------------------------
(1) In November 1997, the Company recorded a one-time charge of $4,159,000
    related to the merger with CompuRAD and in March 1995, the Company
    recorded a one-time charge of $1,442,000 related to acquired in-process
    research and development.  See Note 3 of Notes to Consolidated Financial
    Statements.
(2) Excludes accretion of mandatorily redeemable convertible preferred stock.
(3) See Note 1 of Notes to Consolidated Financial Statements for a description
    of the shares used in calculating net income (loss) per share.

Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

OVERVIEW

Lumisys designs, manufactures and markets an integrated suite of hardware and
software products for digitizing, networking, archiving, routing and displaying
medical images in a PACS and teleradiology environment.  The Company offers
laser and CCD x-ray film digitizers, video frame digitizers, and software to
enable health care organizations to capture, store, distribute and display
medical images over LANs and WANs.

In November 1997, the Company merged with CompuRAD to add core technical
competencies in software development, in a transaction accounted for as a
pooling-of-interests.  The Company recorded an aggregate charge of $4.2
million for merger and related costs.  In 1995, the Company acquired XRS to
accelerate the development of a CCD-based film digitizer line and Imagraph to
add core technical competencies in video image digitization,in transactions
recorded under the purchase method of accounting.  The Company recorded a
write-off aggregating $1.4 million for acquired in-process research and
development associated with the 1995 acquisitions.

Except for the historical information contained herein, the following
discussion contains forward-looking statements that involved 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 in
the sections entitled "Risk Factors" and "Business," and those discussed in the
other documents filed by the Company with the Securities and Exchange
Commission.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain statement of
operations data as a percentage of sales:

                                          Year ended December 31,
                                      -------------------------------
                                        1997         1996      1995
                                      ---------  ---------  ---------
Sales                                    100.0%     100.0%     100.0%
Cost of sales                             44.5       45.4       50.2
                                      ---------  ---------  ---------
   Gross profit                           55.5       54.6       49.8
                                      ---------  ---------  ---------
Operating expenses:
 Sales and marketing                      15.2       10.8       10.6
 Research and development                 22.3       19.3       17.4
 General and administrative               15.0       12.3       11.1
 Merger and related costs                 14.0        ---        ---
 Acquired in-process research
  and development                          ---        ---        6.8
                                      ---------  ---------  ---------
   Total operating expenses               66.5       42.4       45.9
                                      ---------  ---------  ---------
Income (loss) from operations            (11.0)      12.2        3.9
Interest income, net                       3.8        3.4        1.0
                                      ---------  ---------  ---------
Income (loss) before income taxes         (7.2)      15.6        4.9
Provision (benefit ) for income taxes      4.1        5.8       (3.5)
                                      ---------  ---------  ---------
Net income (loss)                        (11.3)       9.8        8.4
                                      =========  ========= =========

FISCAL 1997 COMPARED WITH FISCAL 1996

SALES.  Sales increased 3.6% in 1997 to $29.7 million from $28.7 million in
1996. Sales of film digitizers and PACS and teleradiology software products
were essentially flat in 1997 compared to 1996 while sales volume of the board
products increased in 1997.  No customers accounted for more than 10% of the
Company's sales in either 1997 or 1996. The Company typically does not obtain
long-term volume purchase contracts from its customers, and a substantial
portion of the Company's backlog is scheduled for delivery within 90 days or
less.  Customers may cancel orders and change volume levels or delivery times
without penalty.  Sales and operating results therefore depend on the volume
and timing of the backlog as well as bookings received during the period.  A
significant portion of the Company's operating expenses are fixed, and planned
expenditures are based primarily on sales forecasts and product development
programs.  If sales do not meet the Company's expectations in any given period,
the adverse impact on operating results may be magnified by the Company's
inability to adjust operating expenses sufficiently or quickly enough to
compensate for such a shortfall.

GROSS PROFIT.  Gross profit increased 5.4% in 1997 to $16.5 million from $15.7
million in 1996.  Gross margin increased from 54.6% to 55.5% primarily due to
increased gross margin in the digitizer system products.

SALES AND MARKETING.  Sales and marketing expenses increased in 1997 to $4.5
million from $3.1 million in 1996, primarily due to increased compensation
associated with a larger sales force associated with the software products and
greater marketing and advertising expenses.  As a percentage of sales, these
expenses increased to 15.2% in 1997 from 10.8% in 1996.  Prior to the
acquisition of CompuRAD in November of 1997, software sales were focused on
both direct end-user customers as well as VAR and OEM customers.  The sales and
service resources required for direct end-user customers are much higher than
those required for sales to OEMs and System Integrators, which generally provide
sales and field support for the products.  The Company has changed the software
product strategy after acquiring CompuRAD and intends to focus on supplying
software components to OEMs and System Integrators.   As a result of this
strategic change, sales and marketing expenses are expected to decline as a
percentage of sales due to a restructuring of the software sales and service
force.

RESEARCH AND DEVELOPMENT.  Research and development expenses increased in 1997
to $6.6 million from $5.5 million in 1996, primarily due to increased
engineering projects.  As a percentage of sales, research and development
expenses increased to 22.3% in 1997 from 19.3% in 1996.  This increase is due
to the increases in engineering expenses as a result of increased software
development.  The Company believes that advanced technology 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.  General and administrative expenses increased in
1997 to $4.1 million from $3.2 million in 1996.  As a percentage of sales,
these expenses increased to 15.0% in 1997 from 12.3% in 1996. The increase was
primarily due to the on-going costs associated with increased personnel, legal
and other professional service expenses associated with CompuRAD's first full
year as a public company.  As a result of combining operations these
expenses are expected to decrease in the future as a percentage of sales.

PROVISION (BENEFIT) FOR INCOME TAXES.  The Company recorded a current provision
for income taxes of $1.2 million in 1997.  In 1996, the Company recorded a
current provision for income taxes of $2.0, which was partially offset by a
deferred benefit of $315,000, resulting in a net provision of $1.7 million for
the year.  The 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 has provided a partial valuation
allowance against the balance of the deferred tax assets.  At December 31,
1997, the Company had net operating loss carryforwards available to reduce
income taxes for federal and state income tax purposes of approximately $3.2
million and $2.0 million, respectively; such carryforwards expire through 2012
but are substantially limited per year.  See Note 4 of Notes to Consolidated
Financial Statements.  The Company expects to be subject to an effective tax
rate of approximately 39% in 1998, absent changes in any applicable statutory
tax rate.


FISCAL 1996 COMPARED WITH FISCAL 1995

SALES.  Sales increased 34.4% in 1996 to $28.7 million from $21.3 million in
1995.  This increase was due in part to new products launched in 1996 and late
1995.  The new products  included the Lumiscan 20, a CCD-based film digitizer
developed with technology obtained in the XRS acquisition, the Lumiscan 110, a
CR system used in industrial inspection, the Lumiscan 85, a high end digitizer
targeted for mammography and non-destructive test applications and the software
products for image acquisition, servers and workstations.  The remaining
increase in sales is a result of growth in demand for PACS and teleradiology
networks.  No customers accounted for more than 10% of the Company's sales in
either 1996 or 1995.

GROSS PROFIT.  Gross profit increased 47.4% in 1996 to $15.7 million from $10.6
million in 1995.  Gross margin increased from 49.8% to 54.6% primarily due to
increased sales which improved absorption of manufacturing overhead.

SALES AND MARKETING.  Sales and marketing expenses increased 37.5% in 1996 to
$3.1 million from $2.3 million in 1995, primarily due to the increase in the
Company's software sales and marketing personnel.  As a percentage of sales,
these expenses increased to 10.8% in 1996 from 10.6% in 1995.

RESEARCH AND DEVELOPMENT.  Research and development expenses increased 7.5% in
1996 to $5.5 million from $5.2 million in 1995.  As a percentage of sales,
research and development expenses decreased to 19.3% in 1996 from 24.2% in 1995
due to the increase in sales.

GENERAL AND ADMINISTRATIVE.  General and administrative expenses increased
47.3% in 1996 to $3.5 million from $2.4 million in 1995.  The increase was
primarily due to the on-going costs associated with increased personnel
expenses as a result of being a public company and growth in the software
operations.  As a percentage of sales, these expenses increased to 12.3% in
1996 from 11.1% in 1995.

YEAR 2000 ISSUE

The rapid approach of Year 2000 presents significant issues for many computer
systems, since much of the software in use today may not accurately process
data beyond 1999.  The Company has recently implemented new information systems
and accordingly does not anticipate any internal Year 2000 issue from its own
information systems, databases or programs.  However, the Company could be
adversely impacted by Year 2000 issues faced by major distributors, suppliers,
customers, vendors and financial service organizations with which the Company
interacts.  The Company is currently taking steps to address the impact, if
any, of the Year 2000 issue on the operations of the Company.  There can be no
assurances that such a review will detect all potential failures of the
Company's and/or third-party's computer systems.  A significant failure of the
Company's or a third-party's computer system could have a material adverse
effect on the Company's business, financial condition and results of
operations.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations activities primarily from net cash
provided by operations, which contributed approximately $0.9 million in 1997,
$0.5 million in 1996 and $1.9 million in 1995.  Net cash used in investing
activities included $2.3 million used in 1995 to acquire XRS and Imagraph.
On November 14, 1995, the Company successfully completed an initial public
offering, raising $12.2 million, net of underwriting discounts and expenses.
On August 28, 1996 CompuRAD completed an initial public offering, raising
$5.1 million, net of underwriting discounts and expenses.  Cash provided by
financing activities is net of approximately $563,000 in 1997 for the purchase
of treasury stock.

At December 31, 1997, the Company had cash, cash equivalents and short-term
investments of approximately $24.5 million and working capital of approximately
$27.4 million.  The Company believes that its existing cash, cash equivalents,
short term investments and funds to be generated by operations will satisfy the
Company's cash flow requirements through at least 1998.  Thereafter, if cash
generated from operations is insufficient to satisfy the Company's projected
requirements, the Company may be required to sell additional equity or debt
securities or obtain bank or other credit facilities.  There can be no
assurance that the Company will be able to sell such securities or obtain such
credit facilities on acceptable terms in the future, if at all.  The sale of
additional equity or debt securities could result in additional dilution to the
Company's stockholders.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130 ("SFAS 130"), "Reporting Comprehensive Income."  SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
in a financial statement that is displayed with the same prominence as other
financial statements for the periods beginning after December 15, 1997.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from nonowner sources, including unrealized gains and losses an
available-for-sale securities.  Reclassification of financial statements for
earlier periods for comparative purposes is required.  The Company will adopt
SFAS 130 beginning in 1998 and does not expect such adoption to have a material
effect on the consolidated financial statements.

In June 1997, the FASB issued SFAS No. 131 ("SFAS 131"), "Disclosure 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 for periods beginning after December 15, 1997.  It
also establishes standards for related disclosures about products and services,
geographic areas, and major customers.  It is not expected that adoption of
SFAS 131 will have a material impact to the Company's consolidated financial
statements.

In October, 1997, the American Institute of Certified Public Accountants issued
Statement of Position No. 97-2 ("SOP 97-2"), "Software Revenue Recognition",
which the Company currently intends to adopt for transactions entered into
after January 1, 1998.  SOP 97-2 provides guidance on recognizing revenue on
software transactions and supersedes SOP 91-1.  The Company believes that the
adoption of SOP 97-2 will not have a significant impact on its current
licensing or revenue recognition practices.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Quarterly supplementary data is included as part of Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."  The
Company's consolidated financial statements required by this item are set forth
below.

                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements:                                 Page

      Report of Independent Accountants                              22

      Consolidated Balance Sheets at December 31, 1997 and 1996      23

      Consolidated Statements of Operations for the three years
       ended December 31, 1997                                       24

      Consolidated Statements of Cash Flows for the three years
       ended December 31, 1997                                       25

     	Consolidated Statements of Stockholders' Equity (Deficit)
       for the three years ended December 31, 1997                   26

      Notes to Consolidated Financial Statements                     27

Financial Statement Schedule for the three years
 ended December 31, 1997:

      Schedule II - Valuation and Qualifying Accounts                41

All other financial statement schedules are omitted because the information
called for is not present in amounts sufficient to require submission of the
schedules or because the information is shown either in the financial
statements or the notes thereto.

                    REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Lumisys Incorporated

In our opinion, the accompanying consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Lumisys Incorporated and its subsidiaries at December 31, 1997
and 1996 and the results of their operations and their cash flows for each of
the three years in the period ended December 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 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

San Jose, California
January 29, 1998

                         LUMISYS  INCORPORATED

                      CONSOLIDATED BALANCE SHEETS
               (in thousands, except per share amounts)

                                                  December 31,
                                          -----------------------------
                                              1997            1996
                                         ------------     -------------

                               ASSETS
Current assets:
  Cash and cash equivalents                 $  7,522        $ 22,490
  Short-term investments                      17,007             ---
  Accounts receivable, net of
   allowances of $657 and $376                 4,622           4,370
  Inventories (Note 2)                         2,892           3,367
  Deferred tax assets                          1,453           1,429
  Other current assets                           316             529
                                         ------------     -------------
   Total current assets                       33,812          32,185
Property and equipment, net (Note 2)             606             883
Other assets                                     ---             173
                                         ------------     -------------
                                            $ 34,418        $ 33,241
                                         ============     =============

                       LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
 Accounts payable                           $  1,355       $   1,129
 Accrued expenses (Note 2)                     2,967           2,288
 Merger and related costs                      2,117             ---
                                         ------------     -------------
  Total current liabilities                    6,439           3,417
                                         ------------     -------------

Note payable to related party                    130             118
                                         ------------     -------------
Commitments and contingencies (Note 7)

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; 10,370
  and 9,994 shares issued and outstanding         10              10
 Additional paid-in capital                   32,265          30,902
 Accumulated deficit                          (4,407)         (1,058)
 Notes receivable from stockholders              ---            (114)
 Deferred compensation related to
  stock options                                  (19)            (34)
                                         ------------     -------------
   Total stockholders' equity                 27,849          29,706
                                         ------------     -------------
                                            $ 34,418        $ 33,241
                                         ============     =============


The accompanying notes are an integral part of these financial statements.

                           LUMISYS  INCORPORATED

                   CONSOLIDATED STATEMENTS OF OPERATIONS
                  (in thousands, except per share amounts)


                                               Year ended December 31,
                                          -------------------------------
                                               1997      1996       1995
                                          ---------- ---------- ---------
Sales                                      $ 29,709   $ 28,686  $ 21,337
Cost of sales                                13,206     13,032    10,713
                                         ---------- ---------- ---------
   Gross profit                              16,503     15,654    10,620
                                         ---------- ---------- ---------
Operating expenses:
 Sales and marketing                          4,506      3,093     2,250
 Research and development                     6,620      5,545     3,713
 General and administrative                   4,459      3,518     2,389
 Merger and related costs                     4,159        ---       ---
 Acquired in-process research and development   ---        ---     1,442
                                         ---------- ---------- ---------
   Total operating expenses                  19,744     12,156     9,794
                                         ---------- ---------- ---------
Income (loss) from operations                (3,241)     3,498       826
Interest income, net                          1,117        979       213
                                         ---------- ---------- ---------
Income (loss) before income taxes            (2,124)     4,477     1,039
Provision (benefit) for income taxes          1,225      1,662      (762)
                                         ---------- ---------- ---------
Net income (loss)                          $ (3,349)  $  2,815  $  1,801
                                         ========== ========== =========
Net income (loss) per share (Note 1):
  Basic                                    $  (0.33)  $   0.29  $   0.27
                                         ========== ========== =========
  Diluted                                  $  (0.33)  $   0.29  $   0.25
                                         ========== ========== =========

Weighted average shares used to
 compute net income (loss) per
 share (Note 1):
  Basic                                      10,080      9,598     6,714
                                         ========== ========== =========
  Diluted                                    10,080      9,760     7,236
                                         ========== ========== =========

      The accompanying notes are an integral part of these financial
                                  statements.

                          LUMISYS  INCORPORATED

                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)
                                               Year ended December 31,
                                         -------------------------------
                                             1997       1996      1995
                                         ---------- ---------- ---------
Cash flows from operating activities
 Net income (loss)                        $ (3,349)  $  2,815  $  1,801
 Adjustments to reconcile net income (loss)
  to net cash provided by operating
  activities:
   Depreciation and amortization               244        250       441
   Non-cash merger costs                       360        ---       ---
   Provision for doubtful accounts             281        127       165
   Provision for obsolete inventories          215        102       375
   Deferred income taxes                       (24)      (315)   (1,114)
   Deferred compensation related to
    stock options                               15        404       133
   Other                                        12         (8)      (14)
   In-process acquired research
    and development                            ---        ---     1,442
   Changes in assets and liabilities
    (net of effects of Imagraph and
    XRS acquisitions):
    Accounts receivable                       (533)    (2,196)     (587)
    Inventories                                260       (137)   (1,856)
    Other current assets                       213       (230)     (185)
    Other assets                               173        227      (100)
    Accounts payable                           226       (722)      763
    Merger and related costs                 2,117        ---       ---
    Accrued expenses                           679        194       662
                                        ---------- ---------- ---------
Net cash provided by operating activities      889        511     1,926
                                        ---------- ---------- ---------
Cash flows from investing activities:
 Sales (purchases) of short-term
  investments, net                         (17,007)     3,934    (3,934)
 Purchases of property and equipment          (327)      (853)     (140)
 Purchase of Imagraph                          ---        ---    (1,800)
 Purchase of XRS                               ---        ---      (200)
 Purchase of minority interest in
  affiliated company                           ---        ---      (300)
                                        ---------- ---------- ---------
Net cash provided by (used in)
 investing activities                      (17,334)     3,081    (6,374)
                                        ---------- ---------- ---------
Cash flows from financing activities:
 Proceeds from sale of common stock,
  including stock option tax benefit         1,926      7,245    12,270
 Purchase of treasury stock                   (563)       ---       ---
 Payment on notes receivable from
  stockholders                                 114        191       ---
 Proceeds from note payable                    ---        250       ---
 Principal payments on note payable            ---       (250)      ---
                                        ---------- ---------- ---------
Net cash provided by financing activities    1,477      7,436    12,270
                                        ---------- ---------- ---------
Net increase (decrease) in cash equivalents(14,968)    11,028     7,822
Cash and cash equivalents at beginning
 of period                                  22,490     11,462     3,640
                                        ---------- ---------- ---------
Cash and cash equivalents at end of period$  7,522   $ 22,490  $ 11,462
                                        ========== ========== =========

Supplemental disclosures of cash flow information:
 Cash paid for income taxes               $    912   $    951  $    251

Supplemental schedule of noncash investing
 and financing activities:
  Series C mandatorily redeemable
   convertible preferred stock issued
   for purchase of Imagraph                    ---        ---       200
  Deferred compensation related to
   stock options reversed for
   terminated employees                        ---         69       ---
  Common stock issued for purchase
   of Star Tech.                               588        ---       ---
   The accompanying notes are an integral part of these financial
                               statements.
TABLE
                           LUMISYS  INCORPORATED

             CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                              (in thousands)
<TABLE>       <C>    <C>    <C>       <C>       <C>          <C>           <C>
                                                 Notes       Deferred      Total
               Common Stock   Add'l             Receivable   Compensation  Stockholders'
              -------------  Paid-in Accumulated   from       Related to     Equity
              Shares Amount  Capital   Deficit  Stockholders Stock Options (Deficit)
              ------ ------ --------- ---------- ----------- ------------- -----------
Balance at
 December 31,
 1994          3,121 $   3  $    319   $ (5,674)  $    (283)   $     ---    $ (5,635)
Exercise of
 stock options 1,077     1        36        ---         ---          ---          37
Deferred
 compensation
 related to
 stock options   ---   ---       173        ---         ---         (173)        ---
Interest on note
 receivable from
 stockholder     ---   ---       ---        ---         (14)         ---         (14)
Conversion of
 mandatorily
 redeemable
 convertible
 preferred
 stock         2,275     2     9,928        ---         ---          ---        9,930
Issuance of
 common stock
 in initial
 public
 offering      1,750     2	    12,208        ---         ---          ---       12,210
Other             46   ---       156        ---         ---           33          189
Net income       ---   ---       ---      1,801         ---          ---        1,801
              ------ ------ --------- ---------- ----------- ------------- -----------
Balance at
 December 31,
 1995          8,269     8    22,820     (3,873)       (297)        (140)      18,518
Exercise of
 stock options   547     1       188        ---         ---          ---          189
Tax benefit for
 disqualified
 dispositions
 and exercise of
 non-qualified
 stock options   ---   ---     1,026        ---         ---          ---        1,026
Interest on notes
 receivable from
 stockholders    ---   ---       ---        ---          (8)         ---           (8)
Payments on notes
receivable from
 stockholders    ---   ---       ---        ---         191          ---          191
Issuance of
 common stock
 under employee
 stock purchase
 plan             28   ---       177        ---         ---          ---          177
Shares canceled
 in connection
 with acquisition
 of XRS           (4)  ---       (16)       ---         ---          ---          (16)
Proceeds of
 initial public
 offering of
 CompuRAD      1,067     1     5,966        ---         ---          ---        5,967
Conversion of
 debt into
 common stock     87   ---       541        ---         ---          ---          541
Other            ---   ---       200        ---         ---          106          306
Net income       ---   ---       ---      2,815         ---          ---        2,815
              ------ ------ --------- ---------- ----------- ------------- -----------
Balance at
 December 31,
 1996          9,994    10    30,902     (1,058)       (114)         (34)      29,706
Exercise of
 stock options   346   ---       145        ---         ---          ---          145
Tax benefit
 for disqualified
 dispositions and
 exercise of
 non-qualified
 stock options   ---   ---     1,080        ---         ---          ---        1,080
Payments on notes
 receivable from
 stockholders    ---   ---       ---        ---         114          ---          114
Issuance of
 common stock
 in connection
 with purchase of
 Star Technologies,
 Inc.             93   ---       588        ---         ---          ---          588
Buy back of
 common stock    (90)  ---      (563)       ---         ---          ---         (563)
Issuance of
 common stock
 under employee
 stock purchase
 plan             27   ---       113        ---         ---          ---          113
Other            ---   ---       ---        ---         ---           15           15
Net loss         ---   ---       ---     (3,349)        ---          ---       (3,349)
              ------ ------ --------- ---------- ----------- ------------- -----------
Balance at
 December 31,
 1997         10,370 $   10 $ 32,265  $  (4,407)  $     ---    $     (19)   $  27,849
              ====== ====== ========  ==========  =========    =========    =========
</TABLE>
     The accompanying notes are an integral part of these financial statements.

                           LUMISYS  INCORPORATED

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Lumisys Incorporated ("Lumisys" or the "Company") designs, manufactures and
markets an integrated suite of hardware and software products for digitizing,
networking, archiving, routing and displaying medical images in a Picture
Archiving and Communication Systems ("PACS") and teleradiology environment.
The Company offers laser and CCD X-ray film digitizers, video frame digitizers,
and software to enable healthcare organizations to capture, store, distribute
and display medical images over LANs and WANs.  The Company commenced
operations on February 4, 1987, and operates in one industry segment.

On November 25, 1997, the Company merged with CompuRAD, Inc. ("CompuRAD") and
was accounted for as a pooling-of-interests (see Note 3).  Accordingly, the
consolidated historical financial statements for all periods presented combine
the financial results of Lumisys and CompuRAD.

MANAGEMENT ESTIMATES AND ASSUMPTIONS

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
reported amounts of sales and expenses during the reporting period.  Actual
results could differ from those estimates.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries.  All significant intercompany transactions and
balances have been eliminated.

REVENUE RECOGNITION

Revenues for hardware products are recognized when products are shipped.
Revenues for software products and systems including hardware, software and
installation are recognized after shipment and acceptance by the customer.
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.  Sales to international customers, primarily located in
Europe, represented, 12%, 9% and 8% of total sales in 1997, 1996 and 1995,
respectively.  All transactions are denominated in U.S. dollars.

In October, 1997, the American Institute of Certified Public Accountants issued
Statement of Position No. 97-2 ("SOP 97-2"), "Software Revenue Recognition",
which the Company currently intends to adopt for transactions entered into after
January 1, 1998.  SOP 97-2 provides guidance on recognizing revenue on software
transactions and supersedes SOP 91-1.  The Company believes that the adoption
of SOP 97-2 will not have a significant impact on its current licensing or
revenue recognition practices.

CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

The Company considers all debt instruments with maturities of three months or
less when purchased to be cash equivalents.  The Company generally invests its
available cash in commercial paper and money market funds with several
financial institutions.

The Company has categorized its short-term investments as available-for-sale.
Unrealized gains or losses are recorded directly in stockholders' equity and
have been insignificant for all periods presented.  As of  December 31, 1997,
short-term investments consisted of marketable debt securities and its carrying
value approximated cost.  As of December 31, 1996, the Company did not have any
short-term investments.

INVENTORIES

Inventories are stated at the lower of cost, determined using the first-in,
first-out method, or market, and reserves are provided for obsolete, slow-
moving or unsaleable inventory.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost.  Depreciation is provided using the
straight-line method over the estimated useful lives of the respective assets,
generally three years.  Leasehold improvements are amortized using the
straight-line method over the lesser of the remaining lease terms or the
estimated useful lives of the related assets.

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred.

SOFTWARE DEVELOPMENT COSTS

Software development costs are included in research and development and are
expensed as incurred.  Statement of Financial Accounting Standards No. 86
("SFAS 86") requires the capitalization of certain software development costs
once technological feasibility is established.  The capitalized cost is then
amortized on a straight-line basis over the estimated product life, or on the
ratio of current sales to total projected product sales, whichever method
results in greater amortization.  To date, the period between achieving
technological feasibility, which the Company defines as the completion of a
working model, and the general availability of such software has been short and
software development costs qualifying for capitalization have been
insignificant.

WARRANTY

Upon product shipment, the Company provides for the estimated cost that may be
incurred under its product warranties.

INCOME TAXES

A deferred income tax asset or liability is established for the expected future
consequences resulting from differences between the financial reporting and
income tax bases of assets and liabilities and from net operating loss and tax
credit carryforwards.  Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts, based on available evidence, which
are expected to be realized.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash, cash equivalents,
short term investments and accounts receivable.  The Company limits the amount
of cash invested with any one financial institution.  The Company's trade
accounts receivable are derived primarily from sales in the United States,
Europe and the Far East.  The Company's credit policy is to require prepayment
of 50% of the purchase order prior to shipment on domestic sales and prepayment
of 100% or a letter of credit on foreign sales.  Prepayments are generally made
less than one week prior to shipment.  The Company's prepayment policy has not
resulted in significant unearned revenue balances at the reported balance sheet
dates.  The Company performs ongoing credit evaluations of its customers'
financial condition and may modify its sales terms in certain circumstances
based on these reviews.  The Company maintains reserves for potential credit
losses.  Such losses have been insignificant for all periods presented.

In each of the years ended December 31, 1997, 1996 and 1995, no customers
represented more than 10% of total sales of the Company.

STOCK COMPENSATION

The Company accounts for employee stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees."  In January 1996, the Company adopted the disclosure requirements of
SFAS No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation" (see Note
5).

NET INCOME (LOSS) PER SHARE

The Company adopted SFAS No. 128 ("SFAS 128"), "Earnings Per Share."  SFAS 128
requires the presentation of basic and diluted earnings per share for companies
with potentially dilutive securities, such as options.  All historical earnings
per share information has been restated as required by SFAS 128.

Basic earnings per share is computed by dividing income (loss) available to
common shareholders by the weighted-average common shares outstanding for the
period.  Diluted earnings per share reflects the weighted-average common shares
outstanding plus the potential effect of dilutive securities which are
convertible to common shares such as options, warrants, convertible debt and
preferred stock.

The following is a reconciliation between the components of the basic and
diluted net income (loss) per share calculations for the periods presented
below (in thousands):

                                      Year ended December 31,
                                     1997       1996       1995
                                    ------     ------     ------

Net income (loss)                 $ (3,349)   $ 2,815    $ 1,801
                                  ========    =======    =======

Weighted average shares
 outstanding - basic                10,080      9,598      6,714

Effect of dilutive securities:
 Potential common stock
  Stock options and warrants           ---        162        522
                                  --------    -------    -------
Weighted average shares
 outstanding - diluted              10,080      9,760      7,236
                                  ========    =======    =======

Due to the net loss in 1997, all potential common stock outstanding is
considered anti-dilutive and is excluded from the calculation of dilutive net
income (loss) per share.  Potential common stock outstanding as of December 31,
1997 includes options to purchase 784,134 shares of common stock at an average
exercise price of $3.79.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT

In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130 ("SFAS 130"), "Reporting Comprehensive Income."  SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
in a financial statement that is displayed with the same prominence as other
financial statements for the periods beginning after December 15, 1997.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from nonowner sources, including unrealized gains and losses on
available-for-sale securities.  Reclassification of financial statements for
earlier periods for comparative purposes is required.  The Company will adopt
SFAS 130 beginning in 1998 and does not expect such adoption to have a material
effect on its consolidated financial statements.

In June 1997, the FASB issued SFAS No. 131 ("SFAS 131"), "Disclosure 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 for periods beginning after December 15, 1997.  It
also establishes standards for related disclosures about products and services,
geographic areas, and major customers.  It is not expected that adoption of
SFAS 131 will have a material impact to the Company's consolidated financial
statements.

NOTE 2 - COMPOSITION OF CERTAIN FINANCIAL STATEMENT AMOUNTS

                                         December 31,
                                    ---------------------
                                        1997      1996
                                    ---------- ----------
                                       (in thousands)
        Inventories:
          Raw materials               $ 2,363   $ 2,607
          Work-in-process                 586       422
          Finished goods                1,093     1,273
                                    ---------- ----------
                                        4,042     4,302
          Less: inventory reserves     (1,150)     (935)
                                    ---------- ----------
                                      $ 2,892   $ 3,367
                                    ========== ==========

        Property and equipment:
          Machinery and equipment     $ 1,485   $ 1,561
          Furniture and fixture            64       344
          Leasehold improvements           45        39
                                    ---------- ----------
                                        1,594     1,944
          Less:  accumulated
          depreciation and amortization  (988)   (1,061)
                                    ---------- ----------
                                      $   606   $   883
                                    ========== ==========

        Accrued expenses:
         Payroll and related
          benefits                    $ 1,122   $   720
         Warranty                         465       471
         Accrued professional fees        401       165
         Unearned revenue                 979       188
         Other                            ---       744
                                    ---------- ----------
                                      $ 2,967   $ 2,288
                                    ========== ==========

NOTE 3 - MERGER AND ACQUISITIONS

COMPURAD

On November 25, 1997, the Company merged with CompuRAD, a provider of software
that enables healthcare clinicians to access medical images and clinical
information at any point of care.  Under the terms of the merger agreement,
CompuRAD stockholders received 0.928 of a share of the Company's common stock
for each outstanding share of CompuRAD common stock, resulting in the Company
issuing approximately 3.7 million shares, valued at approximately $23.4 million
based upon the closing price of the Company's common stock on November 25, 1997.
Additionally, outstanding options to acquire CompuRAD common stock were replaced
with options to acquire approximately 379,000 shares of the Company's common
stock.  The transaction has been accounted for using the pooling-of-interests
method of accounting and, therefore, all periods have been restated to include
the operations of CompuRAD as if the companies had been consolidated for all
periods presented.

In connection with the merger, the Company recorded merger and related costs
during the fourth quarter totaling $4.2 million.  Included in this charge were
provisions for merger transaction costs of $1.5 million, asset write-downs of
$1.3 million, employee severance and termination benefits of $0.4 million,
costs to combine and integrate operations of $0.8 million and other merger
related costs of $0.2 million.  Of the $2.9 million in merger and related costs
which were accrued at the time of the merger, approximately $0.8 million has
been incurred at December 31, 1997.

Revenues and net income (loss) for the separate companies through the date of
acquisition included in the Company's consolidated statements of operations are
as follows (in thousands):

                              Period ended      Year ended December 31,
                            November 25, 1997       1996        1995
                            -----------------    ---------     --------
      Revenues:
       Lumisys Incorporated      $ 23,927         $ 23,022     $ 17,662
       CompuRAD Inc.                6,886            6,914        3,908
       Intercompany eliminations   (1,104)          (1,250)        (233)
                                 ---------        ---------    ---------
        Total                    $ 29,709         $ 28,686     $ 21,337
                                 =========        =========    =========
      Net income (loss):
       Lumisys Incorporated      $  3,785         $  3,439     $  2,593
       CompuRAD Inc.               (2,975)            (624)        (792)
       Merger and related costs    (4,159)             ---          ---
                                 ---------        ---------    ---------
        Total                    $ (3,349)        $  2,815     $  1,801
                                 =========        =========    =========
IMAGRAPH CORPORATION

On March 31, 1995, the Company purchased all the outstanding shares of Imagraph
Corporation ("Imagraph"), a developer and manufacturer of advanced graphics
controllers and frame grabbers, in exchange for $1,800,000 in cash and 36,845
shares of Series C mandatorily redeemable convertible Preferred Stock.  The
transaction was accounted for as a purchase; accordingly, the purchase price
was allocated to the assets acquired and liabilities assumed based upon their
estimated fair market values at the date of the acquisition.  The in-process
research and development represents the estimated current fair market value,
using a risk-adjusted income approach, of specifically identified technologies
which had not reached technological feasibility and had no alternative future
uses.  The purchased technology met the technological feasibility criteria for
capitalization and estimated current fair market value was determined using a
risk-adjusted income approach.  The results of Imagraph are included in the
Company's operations commencing from the date of acquisition.  The allocation
of the purchase price, which is based principally on an independent appraisal,
is as follows (in thousands):

                Accounts receivable                  $  855
                Inventories                             940
                Property and equipment		                 49
                In-process research and development     877
                Purchased technology                    120
                Other assets                             45
                Accounts payable assumed               (717)
                Other liabilities assumed              (169)
                                                     ------
                 Total purchase price                $2,000
                                                     ======

The total purchase price is derived as follows:

               Cash payment                          $1,800
               Issuance of Series C mandatorily
                redeemable convertible
                preferred stock                         200
                                                     ------
                                                     $2,000
                                                     ======

The following pro forma information reflects the results of operations for the
years ended December 31, 1995 as if the acquisition of Imagraph had occurred as
of January 1, 1995, and after giving effect to certain adjustments.  These pro
forma results have been prepared for comparative purposes only and do not
purport to be indicative of what operating results would have been had the
acquisition actually taken place as of January 1, 1995, or what operating
results may occur in the future.

                          December 31, 1995
                         -------------------
               (in thousands, except per share amounts)

               Sales                             $22,731
                                                 =======

               Net income                        $ 1,932
                                                 =======

               Net income per share - basic      $  0.29
                                                 =======

               Net income per share - diluted    $  0.27
                                                 =======

               Weighted average shares used to
                compute net income per
                share (Note 1):
                                      Basic        6,714
                                                 =======
                                      Diluted      7,236
                                                 =======

X-RAY SCANNER CORPORATION

On March 2, 1995, the Company purchased all the outstanding shares of X-ray
Scanner Corporation ("XRS"), a developer and manufacturer of medical film
scanning digitizers, in exchange for $200,000 in cash, 15,058 shares of the
Company's Common Stock and $10,000 in acquisition expenses.  The transaction
was accounted for using the purchase method; accordingly, the purchase price
was allocated to the assets acquired and liabilities assumed based upon their
estimated fair market values at the date of acquisition.  The in-process
research and development represents the estimated current fair market value,
using a risk-adjusted income approach, of specifically identified technologies
which had not reached technological feasibility and had no alternative future
uses.  The results of XRS are included in the Company's operations commencing
from the date of acquisition.  Prior years results of XRS are not material in
relation to the results of operations of the Company.  The allocation of the
purchase price is as follows (in thousands):

        In-process research and development   $  565
        Other assets                              25
        Accounts payable assumed                (150)
        Other liabilities assumed               (212)
                                              ------
        Total purchase price                  $  228
                                              ======

The total purchase price is derived as follows:

            Cash payment                $200
            Issuance of Common Stock      18
            Other expenses                10
                                       -----
                                        $228
                                       =====

NOTE 4 - INCOME TAXES

The provision (benefit) for income taxes consists of the following (in
thousands):

                                            Year ended December 31,
                                         ----------------------------
                                           1997      1996      1995
                                         --------  --------  --------
             Current:
              Federal                    $ 1,016   $ 1,619   $   126
              State                          233       358       226
                                         --------  --------  --------
                                           1,249     1,977       352
                                         --------  --------  --------
             Deferred:
              Federal                        (24)     (365)     (751)
              State                          ---        50      (363)
                                         --------  --------  --------
                                             (24)     (315)   (1,114)
                                         --------  --------  --------
                                         $ 1,225   $ 1,662   $  (762)
                                         ========  ========  ========

During 1997, income taxes payable were reduced by approximately $1.1 million in
connection with the exercise of non-qualified stock options.

The provision (benefit) reconciles to the amount computed by multiplying income
(loss) before tax by the U.S. statutory rate (34%) as follows (in thousands):

                                           Year ended December 31,
                                        ------------------------------
                                          1997       1996       1995
                                        --------   --------   --------
Provision (benefit) at statutory rate    $ (722)    $ 1,522    $   353
Utilization of net operating loss
 carryforward for 1997                      ---         ---       (940)
Decrease in valuation allowance             ---         (62)    (1,114)
CompuRAD pre-acquisition net operating
 loss carryforwards                       1,190         ---        ---
Nondeductible acquired research and
 development                                ---         ---        490
State taxes, net of federal benefit        (127)        269         62
Nondeductible acquisition costs             860         ---        ---
Nondeductible S corporation loss            ---         (66)       357
Other                                        24          (1)        30
                                        --------   --------   --------
                                        $ 1,225     $ 1,662    $  (762)
                                        ========   ========   ========

Deferred tax assets consist of the following (in thousands):

                                            December 31,
                                       ---------------------
                                           1997      1996
                                       ---------- ----------
 Net operating loss carryforwards       $ 1,248    $   303
 Tax credit carryforwards                    98        160
 Nondeductible accruals                   2,017      1,167
 Depreciation and amortization              136        502
                                       ---------- ----------
                                          3,499      2,132
 Deferred tax assets valuation allowance (2,046)      (703)
                                       ---------- ----------
 Net deferred tax assets                $ 1,453    $ 1,429
                                       ========== ==========

Management believes that the available objective evidence, including the recent
acquisitions made by the Company and the necessary expenditures for research
and development and for marketing in the high technology segment it pursues,
creates uncertainty regarding the attainment of sufficient profitability to
realize the deferred tax assets and therefore a partial valuation allowance has
been recorded.

At December 31, 1997, the Company had net operating loss carry-forwards, as the
result of the acquisition of Imagraph and the merger with CompuRAD, available
to reduce income taxes for federal and state income tax purposes of
approximately $3.2 million and $2.0 million, respectively; such carry-forwards
expire through 2012.  As a result of an ownership change and consolidated return
rules, the utilization of such carryforwards is limited.

NOTE 5 - COMMON STOCK AND STOCK PLANS

CERTAIN EQUITY TRANSACTIONS

In conjunction with an initial public offering of the Company's Common Stock
(the "Offering") in 1995, all outstanding shares of mandatorily redeemable
convertible Preferred Stock automatically converted into Common Stock upon the
closing of the Offering.

In September and October 1995, the Company's Board of Directors authorized, and
the stockholders approved, the reincorporation of the Company in Delaware and
the associated exchange of four shares of Common Stock and four shares of
mandatorily redeemable convertible Preferred Stock into one share of each
corresponding class and series of stock of the Delaware successor (resulting in
a one-for-four reverse stock split of the Company's Common and Preferred
Stock).  All applicable share and per share amounts of Common and Preferred
Stock have been retroactively adjusted to reflect this reverse stock split.
Effective upon the closing of the Offering, the Company was authorized to issue
25,000,000 shares of Common Stock and 5,000,000 shares of undesignated
Preferred Stock and the Board of Directors have the authority to issue the
undesignated Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof.

STOCK PLANS

The Company initially reserved 45,000 shares of Common Stock for issuance under
its 1987 Stock Option Plan (the "1987 Plan").  During 1990, the Board of
Directors authorized an additional 580,000 shares to be reserved for issuance
and during each of the years ended December 31, 1992, 1994 and 1995, the Board
of Directors authorized an additional 250,000 shares to be reserved for
issuance.  The 1987 Plan provides for the grant of incentive stock options and
nonstatutory stock options (designated "Supplemental Stock").  Incentive stock
options are available for employees, officers and employee directors and are
granted at exercise prices which are not less than 100% of fair market value on
the date of the grant.  Supplemental Stock is available for employees,
officers, consultants and directors and is granted at exercise prices not less
than 85% of fair market value on the date of grant.  All options are to have a
term not greater than ten years from the date of grant.  The Board shall
determine the number of shares for which an option can be granted.  Options
granted generally vest 25 percent after one year and then ratably at 6.25
percent per quarter over a three year period.  In 1995 the Board granted
options for 299,838 shares of Common Stock.

In September 1995, the Board of Directors determined that no additional options
would be granted under the 1987 Plan and adopted the 1995 Stock Option Plan
(the "1995 Plan") under which an aggregate of 350,000 shares of Common Stock
have been reserved for issuance upon exercise of options granted to employees,
officers and employee directors of and consultants to the Company.  The 1995
Plan will terminate in September 2005, unless terminated earlier by the Board
of Directors.  In each of the years 1997, 1996 and 1995 the Board granted
options for 42,550, 153,225 and 75,400 shares of Common Stock, respectively.

The 1995 Plan provides for the grant of both incentive stock options and
nonstatutory stock options (designated "Supplemental Stock").  The maximum term
of options granted under the 1995 Plan is ten years.  The exercise price of
incentive stock options granted under the 1995 Plan must equal at least the
fair value of the Company's Common Stock on the date of grant.  The exercise
price of Supplemental Stock options under the Plan must equal at least 85% of
the fair market value of the Company's Common Stock on the date of grant.  The
exercise price of options granted to any person who at the time of grant owns
stock possessing more than 10% of the total combined voting power of all
classes of stock must be at least 110% of the fair market value of such stock
on the date of grant and the terms of these options cannot exceed five years.
The Board shall determine the number of shares for which an option can be
granted.  Options granted under the 1995 Plan will generally vest 25 percent
after one year and then ratably at 6.25 percent per quarter over a three year
period.

Under certain events, the Company has the right to repurchase, at the original
issue price, a declining percentage of certain of the common shares issued to
employees under written agreements with such employees.  The Company's right to
repurchase such stock declines on a percentage basis based on the length of the
employees' continuous employment with the Company.  At December 31, 1997, 71
shares of Common Stock were subject to repurchase by the Company.

The Company has recorded compensation expense for the difference between the
grant price and the deemed fair market value of the Company's Common Stock for
options granted in March 1995.  Such compensation expense was approximately
$15,000, $37,000 and $33,000 for the years ended December 31, 1997, 1996 and
1995, respectively.  During 1996, forfeited options resulted in a reduction of
$69,000 from the maximum aggregated compensation expense to approximately
$104,000 over the vesting period of four years.

In August 1995, the Board adopted the 1995 Non-Employee Directors Stock Option
Plan (the "Directors Plan"), which provided for the automatic grant of options
to purchase shares of Common Stock to non-employee directors of the Company.
The Directors Plan will be administered by the Board.

The maximum number of shares of Common Stock that may be issued pursuant to
options granted under the Directors Plan is 112,500.  Pursuant to the terms of
the Directors Plan, each person who is elected as a director of the Company or
a compensated Chairman of the Board (a "Non-Employee Director") will
automatically be granted an option to purchase 18,750 shares of Common Stock on
the date of his or her election to the Board.  On the date of adoption of the
Directors Plan, each person who was then a Non-Employee Director of the Company
and who had not received within the one-year period prior to adoption of the
Directors Plan either an option grant or other right to purchase shares of
Common Stock, was granted an option to purchase 18,750 shares of Common Stock
under the Directors Plan.  Thereafter, each Non-Employee Director will
automatically be granted an option to purchase an additional 18,750 shares of
Common Stock under the Directors Plan on the date any and all previous options
or stock purchases by such person either under the Directors Plan or otherwise
become fully vested.  Options granted under the Directors Plan will vest 25
percent after one year and then ratably at 6.25 percent per quarter thereafter
over a three year period.

No options granted under the Directors Plan may be exercised later than ten
years from the date of grant.  The exercise price of options under the
Directors Plan must be equal to the fair market value of the Common Stock on
the date of grant.  Options granted under the Directors Plan are generally
nontransferable.  The Directors Plan will terminate August 2005 unless
terminated earlier by the Board.

Pursuant to the Directors Plan, in May and November 1997 each of two Non-
Employee Directors were granted options to purchase 18,750 shares of Common
Stock at exercises prices of $6.63 and $6.31 per share, respectively.  No
options were granted pursuant to the Directors Plan in 1996 and in August 1995,
each of two Non-Employee Directors were granted options to purchase 18,750
shares of Common Stock at exercises prices of $6.00 per share.

In November 1997, in connection with the acquisition of CompuRAD, the Company
assumed the stock option plans of CompuRAD.  The options for shares outstanding
were converted to options to purchase 379,017 shares of Common Stock of the
Company.  CompuRAD had a non-qualified stock option plan under which options
for 69,600 and 851,208 shares of common stock were granted in 1996 and 1995,
respectively.  In July 1996, the Board of Directors of CompuRAD adopted the
1996 Stock Plan (the "1996 Plan"), reserving 371,200 shares for issuance
thereunder.  Under the 1996 Plan, options for 322,429 and 0 shares of common
stock were granted in 1997 and 1996, respectively.  No additional options will
be granted under the CompuRAD plans.

A summary of the Company's stock option activity is presented below (in
thousands, except per share amounts):

                                          Year Ended December 31,
                               -----------------------------------------------
                                   1997            1996           1995
                                  ------          ------         ------
                                     Weighted        Weighted        Weighted
                                     Average         Average         Average
                                     Exercise        Exercise        Exercise
                               Shares Price   Shares  Price   Shares  Price
                               ------ ------  ------  ------  ------  ------
Outstanding beginning of period  835  $ 3.07   1,163  $ 1.64    987   $ 0.27
Granted                          402    6.38     223    6.61  1,316     1.29
Exercised                       (312)   0.26    (409)   0.44 (1,076)    0.04
Forfeited                       (141)   2.36    (142)   4.50    (64)    0.20
                               ------         ------          ------
Outstanding at period end        784    5.21     835    3.07   1,163    1.64
                               ======         ======          ======
Options vested at period end     291    3.86     303    1.22     219    0.59
                               ======         ======          ======
Weighted average grant date fair
 value of such options granted
 during the year                      $ 4.82          $ 5.09          $ 2.06
                                      ======          ======          ======

The following table summarizes information about fixed stock options
outstanding at December 31, 1997 (in thousands, except per share amounts):

                       Options Outstanding                Options Vested
               --------------------------------------- ---------------------
                            Weighted-
                             Average
   Range of                 Remaining      Weighted-             Weighted-
   Exercise       Number   Contractual      Average    Number     Average
    Prices     Outstanding    Life      Exercise Price Vested Exercise Price
-------------- ----------- -----------  -------------- ------ --------------
$0.26 to $1.20      224    6.37 years     $ 0.86         133       $ 0.80
 4.00 to  6.00      210    8.71		           5.68          60         5.71
 6.06 to  7.88      215    9.45		           6.57          40         6.80
 8.00 to 11.13      135    8.71		           9.52          41         9.40
                 --------                               -----
                    784    8.24           $ 5.21         274       $ 3.86
                 ========                               =====

Employee Stock Purchase Plan

In September 1995, the Company's Board of Directors approved the 1995 Employee
Stock Purchase Plan (the "Purchase Plan") and reserved 150,000 shares of Common
Stock for issuance to eligible employees.  The Purchase Plan permits eligible
employees to purchase Common Stock through periodic payroll deductions of up to
10% of their annual compensation.  Each offering period will have a duration of
12 months and shares of Common Stock will be purchased for each participant at
semi-annual intervals during each offering period.  The price at which the
Common Stock is purchased under the Purchase Plan is equal to 85 percent of the
lower of the fair value on the commencement date of each offering period or the
semi-annual purchase date.  As of December 31, 1997, 52,263 shares had been
issued under the Purchase Plan.

FAIR VALUE DISCLOSURE

At December 31, 1997, the Company has three stock-based compensation plans, as
described above.  The Company has elected to continue to apply APB Opinion 25
and related Interpretations in accounting for its plans.  Accordingly, no
compensation cost has been recognized for its fixed stock option plans and its
stock purchase plan.  Had compensation cost for the Company's three stock-based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the method of SFAS 123, the
Company's net income (loss) and net income (loss) per share would have been
reduced to the pro forma amounts indicated below (in thousands, except per
share amounts):

                                                   Year ended December 31,
                                                   -----------------------
                                                     1997     1996   1995
                                                   ------- ------- -------
Net income (loss) per share            As reported $(3,349) $ 2,815 $1,801
                                       Pro forma    (3,966)   2,573  1,722

Net income (loss) per share - basic    As reported $ (0.33) $  0.29 $ 0.27
                                       Pro forma     (0.39)    0.27   0.26

Net income (loss) per share - diluted  As reported $ (0.33) $  0.29 $ 0.25
                                       Pro forma     (0.39)    0.26   0.24

The fair value of each option is estimated on the date of grant using the
Black-Scholes option-valuation model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995, respectively:  dividend
yield of 0 percent for all years; expected volatility of 66.0, 57.8 and 59.8
percent, risk-free interest rates of 6.27, 6.01 and 6.26 percent; and expected
lives of 6 years for 1997 and 3 years for non-officer/director and 5 years for
officers and directors for 1996 and 1995.

The fair value of the employees' purchase rights under the Purchase Plan, which
is described above, was estimated using the Black-Scholes option-valuation
model with the following assumptions for 1997, 1996 and 1995, respectively:
dividend yield of 0 percent for all years; an expected life of 1 year for all
years; expected volatility of 66, 59 and 56 percent; and risk-free interest
rates of 5.66, 5.52 and 5.96 percent.  The weighted-average fair value of
purchase rights granted in 1997 was $3.95 per share and in both 1996 and 1995
was $2.74 per share.

WARRANT

Warrants for the purchase of 92,800 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.

NOTE 6 - RELATED PARTY TRANSACTIONS

During May 1994, the Company made loans totaling $275,000 to certain executives
and directors pursuant to the Company's 1987 Stock Option Plan.  The loans were
secured by 458,500 shares of the Company's Common Stock.  The loans bear
interest at the lesser of 4.94 percent per annum or the maximum rate
permissible by law.  Accrued interest is payable annually in arrears.  The
loans were due and paid in full on May 31, 1997.  Notes receivable in the
amount of $114,000 deducted from stockholders' equity at December 31, 1996,
include loan balances plus accrued interest.

During 1995, the Company made a loan totaling $125,000 to an employee of the
Company.  The loan bears interest at 7.96 percent per annum and is payable at a
rate of $25,000 plus accrued interest annually commencing March 1, 1996.  In
addition, the Company has entered into a non-competition agreement with the
same employee at a rate of $25,000 per year over a five year period commencing
March 1, 1995.

The	Company's president was, and certain of the Company's stockholders are,
stockholders of Arizona State Radiology ("ASR").  Certain technology was
transferred to CompuRAD at 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 consolidated financial statements as if it had
occurred on January 1, 1993, called for CompuRAD to pay ASR a settlement
consisting of common stock, a note payable, 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 consolidated balance sheets.  CompuRAD issued 86,749 and 32,226
shares of stock to ASR in November 1996 and September 1997 in full settlement of
the deferred payment.  The note payable consists of a $250,000 unsecured, non-
interest bearing note 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.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

The Company leases its facilities under noncancelable operating leases which
expire at various dates through June 30, 2002.  Future minimum lease
commitments are as follows (in thousands):

                      Year ending
                      December 31,
                      -----------
                          1998       $  691
                          1999          690
                          2000          699
                          2001          446
                          2002          130
                                     ------
                                     $2,656
                                     ======

Total rent expense was approximately $608,000, $485,000 and $358,000 for 1997,
1996 and 1995, respectively.

On July 9, 1997 and July 10, 1997, two class action complaints were filed in
the Superior Court of the State of California, County of Santa Clara, and the
U.S. District Court for the Northern District of California, respectively,
against the Company, several of its current and former officers and directors,
and its underwriters.  The complaints are brought on behalf of all persons who
purchased the Company's Common Stock during the putative class period, November
15, 1995 to July 11, 1996.  The complaints allege that, during the class
period, defendants made material misstatements and omitted to disclose material
information concerning the Company's actual and expected performance and
results, causing the price of the Company's Common Stock to be artificially
inflated. The federal complaint alleges claims under Sections 10(b) and 20(a)
of the Exchange Act, and SEC Rule 10b-5 promulgated thereunder; the state
complaint alleges claims under California state law.  Neither the federal nor
the state complaint specifies the amount of damages sought.  The Company and
the other defendants vigorously deny all allegations of wrongdoing and intend
to defend themselves aggressively.  On January 9, 1998, the Santa Clara
Superior Court dismissed the State complaint in part with prejudice and in part
with leave to amend.  Plaintiff has filed an amended complaint in State court
and on March 23, 1998, defendants filed a demurer to the amended complaint.  On
March 6, 1998, the federal court dismissed the federal complaint with leave to
amend.  There can be no assurance that the Company will prevail in these actions
or that the plaintiffs will not recover damages.

On July 18, 1997, a third-party filed a complaint in Santa Clara Superior Court
against the Company and one of its officers.  The complaint contains causes of
action for liable, defamation, negligent infliction of emotional distress and
punitive damages.  The Company and the other defendant vigorously deny all
allegations of wrongdoing and intend to defend themselves aggressively.

Schedule II:  VALUATION AND QUALIFYING ACCOUNTS

                                  Balance at                     Balance at
                                   beginning                         end
                                    of year  Additions Deductions  of year
                                  ---------- --------- ---------- ---------
Year ended December 31, 1995:
  Allowance for doubtful accounts   $  84      $ 172    $  (7)      $  249
  Inventory reserves                $ 521      $ 402    $ (90)      $  833
Year ended December 31, 1996:
  Allowance for doubtful accounts   $ 249      $ 130    $  (3)      $  376
  Inventory reserves                $ 833      $ 434    $(332)      $  935
Year ended December 31, 1997:
  Allowance for doubtful accounts   $ 376      $ 580    $(299)      $  657
  Inventory reserves                $ 935      $ 228    $ (13)      $1,150

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE
None.

PART III

Item 10.  Directors and Executive Officers of the Registrant

The information contained in Lumisys Incorporated's Proxy Statement dated April
23, 1998 with respect to directors of the Company, is incorporated herein by
reference in response to this item.

The executive officers of the Company and their ages as of December 31, 1997
are as follows:

      Name           Age           Position
-------------------- ---  ------------------------------------------------
Stephen J. Weiss      59  Chief Executive Officer and Director
Phillip Berman        44  President and Director
Craig L. Klosterman   43  Chief Operating and Chief Financial Officer
John M. Burgess       53  Vice President, Sales
Cary Cole             31  Vice President, Marketing
Linden J. Livoni      49  Vice President, Engineering
Kuldip K. Ahluwalia   41  Vice President, International Sales and Business
                           Development
Mark Mariotti         36  Vice President, General Manager, Imagraph
Dean MacIntosh        38  Vice President, Finance

Stephen J. Weiss has served as a member of the Company's Board of Directors,
President and Chief Executive Officer since joining the Company in January
1990.  Prior to that time, Mr. Weiss was a founder of Virtual Imaging, a
medical imaging company, where he last held the position of President.  From
1971 to 1985, Mr. Weiss was an Executive Vice President of ADAC Laboratories, a
medical imaging company.

Phillip Berman, M.D., has served as a member of the Company's Board of
Directors and President since joining the Company in November 1997 as a result
of the acquisition of CompuRAD.  Dr. Berman founded CompuRAD and served as
Chairman, President and Chief Executive Officer of CompuRAD since 1992.  After
practicing medicine in New York, Dr. Berman founded Arizona State Radiology,
P.C., a radiology practice in Tucson, Arizona in 1988.  Dr. Berman served as
President of ASR until 1995 and as Chairman of Radiology of St. Mary's Hospital
in Tucson through 1992.

Craig L. Klosterman has served as the Chief Financial Officer since February
1993 and also as the Company's Chief Operating Officer since October 1994.  Mr.
Klosterman also served as Vice President, Operations for the Company from
January 1994 through October 1994.  From 1988 to 1992, he worked at Voysys
Corporation, a telephone communications company, where he last held the
position of Vice President of Finance and from 1987 through 1988 he served as
controller of Silicon Solutions Corporation, a subsidiary of Zycad Corporation,
a computer-aided engineering company.

Cary Cole has served as Vice President of Marketing since joining the Company
in November 1997 as a result of the acquisition of CompuRAD.  Mr. Cole joined
CommpuRAD as a consultant in 1992 and served ad Vice President, Sales and
Marketing and Director of from 1993 through 1997.  He was President of Student
Financial Resources Corporation and Educational Programs and Services
Corporation from 1990 to 1992.

John M. Burgess has served as the Company's Vice President of Sales since May
1990.  From 1986 to 1990, Mr. Burgess served as Vice President, Sales and
Marketing for Diasonics, a medical imaging company.  Prior to joining
Diasonics, Mr. Burgess served as an Executive Vice President of ADAC
Laboratories.

Linden J. Livoni has served as the Company's Vice President of Engineering
since January 1992.  Prior to that time, Mr. Livoni spent six years as Director
of Engineering at Greyhawk Systems, Inc., a high-resolution display company.
Previously, Mr. Livoni served as Director of Engineering for the Digital
Radiography Division of Diasonics.

Kuldip K. Ahluwalia has served as the Company's Vice President of Marketing and
Business Development since December 1996.  From 1994 through 1996, Mr.
Ahluwalia served as Marketing Manager for Toshiba America Medical Systems, a
medical imaging company.  Prior to joining Toshiba, Mr. Ahluwalia held various
sales and marketing positions with General Electric Medical Systems.

Dean MacIntosh has served as Lumisys' Vice President, Finance since February,
1997, and as Controller since joining Lumisys in August 1995.  From 1987 to
1995, Ms. MacIntosh worked at SSE Telecom, Inc., a satellite communications
company where she last held the position of Vice President, Administration and
Corporate Controller.

Mark Mariotti has served as Vice President of Lumisys and General Manager of
the Imagraph division of Lumisys since February 1997 and as Vice President of
Finance and Operations of the Imagraph division of Lumisys since joining
Lumisys in March 1995.  From July 1988 to March 1995, Mr. Mariotti held several
postions at Imagraph, including Vice President of Finance and Operations and
Controller.  Prior to joining Imagraph, Mr. Mariotti held senior financial and
accounting positions with Charles River Data Systems and Honeywell.

Item 11.  EXECUTIVE COMPENSATION

The information contained in Lumisys Incorporated's Proxy Statement dated April
23, 1998 with respect to executive compensation and transactions, is
incorporated herein by reference in response to this item.

Item 12.	Security Ownership of Certain Beneficial Owners and Management

The information contained in Lumisys Incorporated's Proxy Statement dated April
23, 1998 with respect to security ownership of certain beneficial owners and
management, is incorporated herein by reference in response to this item.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information contained in Lumisys Incorporated's Proxy Statement dated April
23, 1998, with respect to certain transactions, is incorporated herein by
reference in response to this item.



PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K
   (1)    Financial Statements - See Item 8 of this report
   (2)    Financial Statement Schedules - See Item 8 of this report
   (3)    Index to Exhibits
Exhibit
Number   Description of Document
-------  -----------------------------------------------------------------
  2.1     Form of Agreement and Plan of Merger between Lumisys Incorporated
          ("Lumisys California") and Lumisys Merger Corporation ("Lumisys
          Delaware") (1)
  2.2     Form of Agreement and Plan of Merger and Reorganization dated as of
          September 28, 1997, among Lumisys Incorporated, SAC Acquisition
          Corporation and CompuRAD, Inc. (3)
  3.1     Amended and Restated Certificate of Incorporation of Lumisys
          Delaware(2)
  3.2     Certificate of Incorporation of the Company, filed with the Delaware
          Secretary of State on November 17, 1995 (2)
  3.3     Bylaws of Lumisys Delaware (1)
  3.4     Certificate of Amendment to Amended and Restated Certificate of
          Incorporation of Lumisys Delaware, filed with the Delaware Secretary
          of State on October 26, 1995 (1)
  4.1     Reference is made to Exhibits 3.1 through 3.3
  4.2     Specimen stock certificate (1)
 10.1     Form of Indemnity Agreement entered into between the Company and its
          directors and officers (1)
*10.2     The Company's 1987 Stock Option Plan (the "1987 Plan") (1)
*10.3     Form of Incentive Stock Option under the 1987 Plan (1)
*10.4     Form of Supplemental Stock Option under the 1987 Plan (1)
*10.5     Form of Early Exercise Agreement under the 1987 Plan (1)
*10.6     The Company's 1995 Stock Option Plan (the "1995 Plan") (1)
*10.7     Form of Incentive Stock Option under the 1995 Plan (1)
*10.8     Form of Supplemental Stock Option under the 1995 Plan (1)
*10.9     Form of Early Exercise Agreement under the 1995 Plan (1)
*10.10    The Company's 1995 Employee Stock Purchase Plan (1)
*10.11    The Company's 1995 Non-Employee Directors' Stock Option Plan (1)
 10.12    Stock Purchase Agreement dated as of March 31, 1995 among the
          Company, Imagraph Corporation and Microfield Graphics, Inc. (1)
 10.13    The Company's Amended and Restated Information and Registration
          Rights Agreement dated as of April 26, 1991, as amended (1)
 10.14    Registration Rights Granted to Nicholas K. Sheridon, dated December
          15, 1987 between the Company and Nicholas K. Sheridon (1)
 10.16    Lease, dated January 1, 1993 between Teachers Realty Corporation and
          Imagraph Corporation (1)
 10.17    Industrial Real Estate Lease, dated October 12, 1995, by and between
          the Company and APT-Cabot California, Inc. (1)
 21.1     Subsidiaries of the Company (1)
 23.1     Consent of Price Waterhouse LLP
 27.0     Financial data schedule
---------------------------------------------------
(1) Incorporated by reference to the exhibit bearing the same number in the
    Company's Form S-1 Registration Statement declared effective November 14,
    1995 (File No. 33-97230).
(2) Incorporated by reference to the exhibit bearing the same number in the
    Company's Form 10-K for the year ended December 31, 1995.
(3) Incorporated by reference to the exhibit bearing the same number in the
    Company's Form 8-K filed on October 6, 1997 (File No. 033-97230).
 *  Management contract or compensatory plan or arrangement.

(b)  Reports on Form 8-K filed in the fourth quarter of 1997
     On October 6, 1997 and December 10, 1997, the Company filed reports on
     Form 8-K regarding the acquisition of CompuRAD.
(d)  Financial statement schedules - The response to this portion of Item 14
     is submitted as a separate section of this report.

                                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.

                                          LUMISYS INCORPORATED


Dated: March 31, 1998                     By:/s/ Douglas G. DeVivo
                                             ------------------------
                                             Douglas G. DeVivo, Ph.D.
                                             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

/s/ Douglas G. DeVivo         Chief Executive Officer     March 31, 1998
----------------------------  and Chairman of the Board
    Douglas G. DeVivo, Ph.D.  (Principal Executive Officer)

/s/ Phillip Berman            President and Director      March 31, 1998
----------------------------
    Phillip Berman, M.D.


/s/ Craig L. Klosterman        Chief Operating and Chief  March 31, 1998
----------------------------   Financial Officer
    Craig L. Klosterman        (Principal Financial Officer)


/s/ C. Richard Kramlich        Director                   March 31, 1998
----------------------------
    C. Richard Kramlich


/s/ Matthew D. Miller          Director                   March 31, 1998
----------------------------
    Matthew D. Miller, Ph.D.


/s/ Austin Vanchieri           Director                   March 31, 1998
----------------------------
    Austin Vanchieri


/s/ David Lapan                Director                   March 31, 1998
----------------------------
    David Lapan, M.D.