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, 1998

/  /  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 Class
                          Common Stock, $0.001 par value

Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange 
Act of 1934 during the preceding 12 months (or for such shorter period 
that the registrant was required to file such reports), and (2) has been 
subject to such filing requirements for the past 90 days. /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.  /X /

As of March 12, 1999, there were issued and outstanding 9,579,390 shares 
of Common Stock; the aggregate market value of the shares of such stock 
held by nonaffiliates of the registrant was $24,110,505 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 17, 1999 are incorporated by 
reference into Part III of this report.




PART I.

Item 1  Business

General

Except for the historical information contained herein, the following 
discussion contains forward-looking statements that involve risks and 
uncertainties.  These statements relate to the Company's future plans, 
objectives, expectations and intentions.  These statements may be 
identified by the use of words such as "expects," "anticipates," 
"intends," "plans" and similar expressions.  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 computed radiography ("CR") systems that scan medical or 
industrial images from a reusable phosphor plate and 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 within a medical 
imaging network.  The Company currently offers a comprehensive family of 
products for digitizing medical images under the Lumiscan label and 
video images under the Imascan label.  These CR and film 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 5,000 Lumiscan units since its first product was 
introduced in 1990.  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 1998, the Company introduced a CR system for use in the medical 
market.  The medical CR system utilized many of the design features of 
the CR system the Company developed for use in the industrial inspection 
market in 1996.  The CR system reads medical or industrial images from 
reusable phosphor plates, replacing the need for film and film 
processing.  The Company's CR system is a low cost, small system and is 
particularly suited for low volume environments.

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 original equipment manufacturers ("OEMs") and value added 
resellers ("VARs"), who then integrate the Company's products into 
teleradiology and Picture Archiving and Communication Systems ("PACS") 
and mini-PACS networks.  Lumisys has established close working 
relationships with the leading suppliers of these systems including 
Access Radiology, Agfa, GE, Kodak and Philips.

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.

As part of a restructuring of the software group, the Company no longer 
sells through a direct sales force. The Company currently sells its 
software products exclusively to its existing OEM and VAR customers. In 
1998, the Company began bundling digitizer software with its family of 
laser and Charge Coupled Device ("CCD") film digitizers and CR software 
with its new ACR-2000 product.

Industry Background

The use of medical 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 diagnostic radiology as a medical 
specialty.  Today, radiologists review and interpret images from a 
variety of imaging modalities, including coventional, plain-film 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.

The healthcare industry in the United States continues to change 
dramatically in response to the escalating costs associated with medical 
products and services.  Continuing 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 and utilization has 
increased, 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 and displaying 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.  Trends in the 
healthcare market to lower costs and optimize resources combined with 
the rapid growth of digital communications networks 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, local area networks 
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, PACS  and more recently mini-PACS 
has occurred 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 and 
imaging networks.

Strategy

Lumisys is a leading suppler of CR systems and 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  filmless medical imaging 
appliances, consisting of PC-based hardware with standards-based 
application-specific software in order to enhance its core product line 
and address emerging market needs.  In 1998, the Company introduced a CR 
system for use in the medical market utilizing its core technical 
competencies.

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 
and services, 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.  The acquisition of 
CompuRAD allowed the development of application software for the CR 
system in 1998 that reduced the Company's reliance on OEMs and VARs to 
provide the software component of the system.   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 services.  These relationships 
provide the Company with insight into emerging customer requirements, 
which allows the Company to position its current products and services 
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, Latin America, Japan and Australia.  The Company 
believes that these regions present potential opportunities for the 
implementation of teleradiology and mini-PACS 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.  The Company's CR product, which is much less expensive 
than other CR market offerings is also particularly well suited for the 
international market.  

Products and Applications

The Company designs, manufactures and markets Desktop CR systems, laser 
and CCD X-ray film digitizers, video frame digitizers, and application 
software to enable health care organizations to capture, store, 
distribute and display medical images over LANs and WANs.

Computerized Radiography. Lumisys CR systems scan medical and industrial 
images from a reusable phosphor plate and 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 scanned images and 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 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 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.  In 1998 the Lumiscan 110 CR system was 
replaced by the ACR2000.

The ACR2000 is a medical grade CR system utilizing housings common with 
the light weight, tabletop x-ray film digitizers. The CR system 
incorporates much of the same technology and manufacturing techniques as 
the film digitizers.  The ACR2000, however, digitizes images from re-
usable storage phosphor plates in order to capture a x-ray image 
electronically instead of on film. The image is derived by reading the 
stored image on the phosphor plate with a laser light source.  The 
ACR2000 is a mechanically simple system and is suited to low volume 
medical imaging environments such as emergency rooms, operating rooms, 
remote clinics and mobile applications. The ACR2000 is delivered to OEMs 
and System Integrators with application specific software running on 
Windows NT, or as a component reader.

Digitizer Products. The Lumiscan digitizer family consists of a full 
line of laser-based digitizers, incorporating lasers, precision optics, 
computer-controlled galvanometers and micropositioners, special purpose 
light detectors and analog as well as digital electronic circuitry.  The 
Lumiscan digitizer product line also includes a CCD-based film digitizer 
that incorporates a proprietary light source and a high quality CCD 
detector.  All Lumiscan systems, including the ACR2000 include 
sophisticated proprietary control software, input/output and driver 
software, and Windows NT application specific 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, mini-PACS and teleradiology applications. The Lumiscan 50 is a 
lower resolution version of the Lumiscan 75 product that is used 
primarily in non-diagnostic 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 85 is also suitable for various 
Computer Assited Diagnosis applications in mammography and other 
specialties.  

The Lumiscan 20, introduced in 1996, is a less expensive film digitizer 
designed for use in less exacting applications and environments, where 
price is a more important factor than resolution and dynamic range.  The 
Lumiscan 20 is cost-competitive, but exhibits superior image quality 
over other CCD-based products offered by the Company's competitors.

All of the table-top film digitizer models may be purchased with a 
single sheet film feeder, an optional six sheet feeder or a multi-sheet 
film feeder.  The multi-sheet film feeder, introduced in 1998 allows the 
tabletop models to offer the same increase in operator productivity that 
was previously only available on the Lumiscan 200.

The Lumiscan 100, 150 and 200 models utilize larger housings than the 
Lumiscan 50, 75 and 85.  These models have been displaced by the smaller 
and less expensive tabletop 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, was equipped with a film 
feeder capable of automatically digitizing up to 70 sheets of film which 
increased operator productivity in high-volume PACS environments.

Board Products.  Lumisys develops, manufactures and markets high-
quality, board-level digitization 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 applications.  They 
incorporate programmable gate-arrays, embedded signal processors, 
proprietary software and 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 family of products are standard PC-compatible boards that 
digitize 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 family 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 Imascan family of products are 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.

The I-Series, are high accuracy, high performance image capture boards 
with advanced capabilities targeted at demanding applications for 
machine vision and scientific imaging.  This family combines image 
precision, high throughput and competitive pricing for video capture 
boards.

Software Products.  In 1998 the Company expanded its product line and 
capabilities with the purchase of the HLimage++ software product. 
HLimage++ is an object oriented software package targeted at the machine 
vision and scientific imaging industries.  HLimage++ combines three 
software packages into one, featuring a graphical user interface based 
application, a point & click scripting environment, and a complete 
object-oriented programming interface.  These three levels of 
functionality allow HLimage++ to address the needs of end users, systems 
integrators and OEMs in the machine vision and scientific imaging 
markets.  Through the 1997 acquisition of CompuRAD, Lumisys expanded its 
product line to include software designed to enable healthcare 
organizations to capture, store, distribute and display medical images 
over LANs and WANs.  The Company's products support on-call, off-site 
and in-hospital applications and run on DICOM networks.  The product 
line includes capture products and workstation products.  The capture 
products are bundled with and integrate the Company's film and CR 
digitizers into a PACS and teleradiology environment.  The Company 
offers workstation software which enable PACS and teleradiology viewing 
on Windows NT and '95 PCs, ranging from commodity displays to multi-
monitor 5 Megapixel displays.  In addition, the Company offers software 
which integrates legacy and DICOM gamma cameras in Nuclear Medicine to 
PACS and teleradiology environments and viewing software which enables 
PACS and teleradiology viewing of specialized Nuclear Medicine images on 
Windows NT and '95 as well as a networking and communication server for 
the Nuclear Medicine environment. 

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 1998, 1997 and 1996, the Company's research and 
development expenditures were approximately $5.8 million, $6.6 million 
and $5.5 million, respectively.  These amounts represented 23.7%, 22.3% 
and 19.3% of total revenues in the respective periods.  In 1998, 
research and development resources were used primarily for the 
continuing development of the CR reader for the medical market, the 
redesign of the Company's video capture boards 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, 1998, the Company had 40 employees engaged in 
research and development activities.

Sales and Marketing

The Company sells its CR and film digitizers primarily to OEM, VAR 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 discontinued its direct sales 
efforts in 1998 and sells only indirectly through OEMs, VARs and System 
Integrators.  

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 
fourteen sales and marketing personnel, with three individuals 
responsible for film digitizer products, three individuals responsible 
for CR digitizer products and eight individuals responsible for video 
image digitizers and related software.  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 and providing customers 
with telephone support.  The technical support staff conducts a CR and 
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 CR and 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, 1998 was approximately $3.3 
million compared with $5.8 million at December 31, 1997.  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 CR market is well established and includes Fuji, Agfa 
and Kodak.  Furthermore, other healthcare and non-healthcare equipment 
companies not presently offering competing products may enter the CR 
market.  The competitive factors are primarily price and product 
performance.  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 CR 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.

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 and in 1998, General Scanning introduced a laser-based film 
digitizer. To date, the Company is unaware of any sales made by CLS or 
General Scanning. 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.  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 companies, such as Kodak, Sterling, Fuji, GE, 
Siemens, Philips and Agfa, have the technical and financial ability to 
design and market CR and digitizer products competitive with Lumisys' 
products, and some of them have in the past produced and marketed such 
products.  While many 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 and machine vision 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 
software products support the Company's CR and film digitizers and do 
not generate significant income as stand-alone products.  By bundling 
software with the CR and film digitizers the Company allows its OEM and 
VAR customers to utilize either the Company's software or at their 
discretion, their own or competing software.  The principal providers of 
software in the PACS and teleradiology market are ISG, Applicare Medical 
Imaging B.V., Mitra Imaging Inc., and Access Radiology Corporation. The 
success of the Company's software does not have a direct impact on the 
Company's financial condition or results of operations but rather adds 
additional value to the Company's CR and digitizer products.  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.
  
Competition in the machine vision and scientific markets for frame 
grabbers and software is well established and includes Matrox, Imaging 
Technologies and Integral Technologies.  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 machine vision and 
scientific imaging areas.  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.  

As a result of the substantial investment required by an OEM or System 
Integrator 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 Integrator 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, 1999, 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, the CR 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 is required to obtain 
certifications necessary to enable the "CE" mark to be affixed to 
software products sold commercially in member countries of the European 
Union.  The CE mark is an international symbol of quality and complies 
with applicable European medical device directives.  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's software facility was inspected by the FDA in 1999 and was 
found to be compliant with the FDA's GMP regulations.  The Company's 
believes its CR and film digitizer facility will be inspected by the FDA  
in 1999.  

Risk Factors

Except for the historical information contained herein, the discussion 
in this Form 10-K for the year ended December 31, 1998 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 
section entitled "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, mergers and 
acquisitions by the Company's customers, shifts in product mix, the 
incurrence of acquisition-related costs by the Company and general 
conditions in the healthcare industry which have reduced capital 
equipment budgets and delayed or reduced the adoption of teleradiology, 
Picture Archiving and Communications Systems ("PACS") and mini-PACS 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.  

Uncertainty of Market Acceptance.  The Company's success is dependent on 
market acceptance of its new and existing products.  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.  

New Product Development in Hardware and Software Products; Uncertainty 
of Market Acceptance.  The market for PACS and teleradiology software is 
uncertain.  Current and future competitors are likely to introduce 
competing hardware and software, making it difficult to predict the rate 
at which the market will grow, if at all, or the rate at which new or 
increased competition will result in market saturation. If the market 
for such software and hardware fails to grow or grows more slowly than 
anticipated, the Company's business, financial condition and results of 
operations would be materially adversely affected.  The Company expects 
that the sales cycle for PACS and teleradiology software and new 
computed radiography ("CR") hardware 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 
and CR hardware through these new channels.  Additionally, the Company 
has limited experience in marketing, installing and supporting its 
software and CR hardware 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 and CR 
hardware 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 
companies' 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.  

New Product Development; Rapid Technological Change; Risk in Delays of 
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 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, known as digital 
radiography ("DR"), 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.  

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 the 
Company's products 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 such as, but not limited to, the year 2000 compliance 
issues, 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 CR market is well established and 
includes Fuji, Agfa and Kodak.  Furthermore, other healthcare and non-
healthcare equipment companies not presently offering competing products 
may enter the CR market.  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 CR 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.  

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 and in 1998, General Scanning introduced a laser-based film 
digitizer. To date, the Company is unaware of any sales made by CLS or 
General Scanning. 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.  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 companies, such as Kodak, Sterling, Fuji, GE, 
Siemens, Philips and Agfa, have the technical and financial ability to 
design and market CR and digitizer products competitive with Lumisys' 
products, and some of them have in the past produced and marketed such 
products.  While many 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 
software products support the Company's CR and film digitizers and do 
not generate significant income as stand-alone products.  By bundling 
software with the CR and film digitizers the Company allows its OEM and 
VAR customers to utilize either the Company's software or at their 
discretion, their own or competing software.  The principal providers of  
software in the PACS and teleradiology market are ISG, Applicare Medical 
Imaging B.V., Mitra Imaging Inc., and Access Radiology Corporation. The 
success of the Company's software does not have a direct impact on the 
Company's financial condition or results of operations but rather adds 
additional value to the Company's CR and digitizer products.  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.

Competition in the machine vision and scientific markets for frame 
grabbers and software is well established and includes Matrox, Imaging 
Technologies and Integral Technologies.  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 machine vision and 
scientific imaging areas.  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.  

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 industry, and the Company 
expects that its 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.  Although no company currently 
represents more than 10% of the Company's revenues, a significant 
portion of the Company's net sales is derived from a small number of 
customers.  Large customers also accounted for a significant portion of 
the Company's backlog at December 31, 1998.  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. 

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, CR product, 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, CR product 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 Good Manufacturing Practices ("GMP"), Quality Standard 
Regulations ("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 Sunnyvale facility of the 
Company was inspected by the CDHS and the FDA in 1996 and was found to 
be compliant with both the CDHS's and FDA's GMP regulations.  In the 
second quarter of 1998 the Tucson facility of the Company was inspected 
by the FDA and was found to have some items not in compliance with the 
FDA's GMP regulations.  The Company took corrective action on the FDA's 
observations and was re-inspected at the Tucson facility in the first 
quarter of 1999 and found to be in compliance with the FDA's GMP 
regulations. 

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.  Starting in mid 1998, the Company has 
been required to obtain certifications necessary to enable the "CE" mark 
to be affixed to the Company's products 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 information 
device equipment directives.  The Company has obtained this CE 
certification.  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 securities class 
action lawsuits were filed, the first in the Superior Court of the State 
of California, County of Santa Clara, and the second in the United 
States District Court for the Northern District of California, 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 between November 15, 
1995 and July 11, 1996.  The complaints allege that defendants made 
material false statements and omitted to disclose material information 
concerning the Company's actual and expected performance, causing the 
price of the Company's stock to be artificially inflated.  The federal 
complaint alleges claims under Sections 10(b) and 20(a) of the 
Securities Exchange Act of 1934; the state complaint alleges claims 
under California's securities statutes.  Neither complaint specifies the 
amount of damages sought.  The Company and the other defendants deny all 
allegations of wrongdoing.  

On January 9, 1998, the court dismissed the state court complaint with 
leave to amend.  On May 26, 1998, the state court dismissed plaintiff's 
first amended complaint with leave to amend.  On December 2, 1998, the 
state court granted in part and denied in part defendants' motion to 
dismiss plaintiff's second amended complaint.  The court granted the 
motion as to seven of the individual defendants, and denied the motion 
as to the Company and two of the individual defendants.  The Company and 
the two remaining individual defendants have filed an answer to the 
second amended complaint.   There can be no assurance that the Company 
will prevail in this action or that the plaintiffs will not recover 
damages.

With respect to the federal lawsuit, the court granted defendants' 
motion to dismiss plaintiff's complaint with leave to amend on March 31, 
1998.  Plaintiff filed an amended complaint and defendants have moved to 
dismiss the amended complaint.  Discovery has been stayed in the federal 
case until the court rules on defendants' motion.  There can be no 
assurance that the Company will prevail in this action 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, PACS and mini-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.

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.  

Certain software products currently installed at customer sites will 
require upgrade or other remediation to become year 2000 compliant.  The 
Company believes that it is not legally responsible for costs incurred 
by its customers to achieve their year 2000 compliance.  However, the 
Company is taking steps to identify affected customers, raise customer 
awareness related to noncompliance of the Company's older products, and 
assist the customer base to assess their risks.  The Company may see 
increasing customer satisfaction costs related to these actions over the 
next few years.  The potential impact on the Company's business, 
financial condition and results of operations is not known at this time.

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 20,000 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 securities class action lawsuits 
were filed in the Superior Court of the State of California, County of 
Santa Clara, and the United States District Court for the Northern 
District of California 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 between November 15, 1995 and July 11, 1996.  The complaints 
allege that defendants made material false statements and omitted to 
disclose material information concerning the Company's actual and 
expected performance, causing the price of the Company's stock to be 
artificially inflated.  The federal complaint alleges claims under 
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934; the 
state complaint alleges claims under California's securities statutes.  
Neither complaint specifies the amount of damages sought.  The Company 
and the other defendants deny all allegations of wrongdoing.  

On January 9, 1998, the court dismissed the state court complaint with 
leave to amend.  On May 26, 1998, the state court dismissed plaintiff's 
first amended complaint with leave to amend.  On December 2, 1998, the 
state court granted in part and denied in part defendants' motion to 
dismiss plaintiff's second amended complaint.  The court granted the 
motion as to seven of the individual defendants, and denied the motion 
as to the Company and two of the individual defendants.  The Company and 
the two remaining individual defendants have filed an answer to the 
second amended complaint.   There can be no assurance that the Company 
will prevail in this action or that the plaintiffs will not recover 
damages.

With respect to the federal lawsuit, the court granted defendants' 
motion to dismiss plaintiff's complaint with leave to amend on March 31, 
1998.  Plaintiff filed an amended complaint and defendants have moved to 
dismiss the amended complaint.  Discovery has been stayed in the federal 
case until the court rules on defendants' motion.  There can be no 
assurance that the Company will prevail in this action or that the 
plaintiffs will not recover damages.  

Item 4.  Submission of Matters to a Vote of Securities Holders

None.

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 12, 
1999, there were approximately 194 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 1998   Fourth Quarter     $ 4.81      $ 2.91
                    Third Quarter      $ 4.19      $ 2.88
                    Second Quarter     $ 5.44      $ 3.44
                    First Quarter      $ 5.75      $ 3.78
      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

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 be 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,
                            -------------------------------------------
                              1998     1997    1996      1995    1994	
                            -------  -------  -------  -------  -------
                               (in thousands, except per share data)
Consolidated Statement of Operations Data:
Sales                       $24,546  $29,709  $28,686  $21,337  $10,131
Cost of sales                11,468   13,206   13,032   10,717    4,807	
                            -------  -------  -------  -------  -------
  Gross profit               13,078   16,503   15,654   10,620    5,324	
                            -------  -------  -------  -------  -------
Operating expenses:
 Sales and marketing          3,612    4,506    3,093    2,250    1,148
 Research and development     5,824    6,620    5,545    3,713    2,029
 General and administrative   3,457    4,459    3,518    2,389      859	
 Merger and related costs       ---    4,159      ---      ---      ---	
 Acquired in-process 		
  research and development      ---      ---      ---    1,442      ---	
                            -------  -------  -------  -------  -------
  Total operating expenses   12,893   19,744   12,156    9,794    4,036	
                            -------  -------  -------  -------  -------
Income (loss) from 
 operations(1)                  185   (3,241)   3,498      826    1,288	
Interest income, net            933    1,117      979      213       86	
                            -------  -------  -------  -------  -------
Income (loss) before 
 income taxes                 1,118   (2,124)   4,477    1,039    1,374	
Provision (benefit) for 
 income taxes                   436    1,225    1,662     (762)      95	
                            -------  -------  -------  -------  -------
Net income (loss) (2)       $   682  $(3,349) $ 2,815  $ 1,801  $ 1,279	
                            =======  =======  =======  =======  =======  
Net income (loss) per 
 share (2)(3):
  Basic                     $  0.07  $ (0.33) $  0.29  $  0.27  $  0.42	
  Diluted                   $  0.07  $ (0.33) $  0.29  $  0.25  $  0.21	
Weighted average shares 
 used to compute net 
 income (loss) per share (3):
  Basic                       9,913   10,080    9,598    6,714    3,011	
  Diluted                    10,074   10,080    9,760    7,236    6,124

                                      December 31, 
                            -------------------------------------------
                              1998     1997    1996      1995    1994	
                            -------  -------  -------  -------  -------
                                            (in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and
  short-term investments    $17,658  $24,529  $22,490  $15,396  $ 3,641	
Working capital              22,642   27,373   28,768   18,497    4,347	
Total assets                 30,606   34,418   33,241   23,321    6,214	
Long-term obligations           146      130      118      642      630
Mandatorily redeemable
 convertible preferred stock    ---      ---      ---      ---    9,730	
Accumulated deficit          (3,725)  (4,407)  (1,058)  (3,873)  (5,674)
Stockholders' equity 
 (deficit)                   25,168   27,849   29,706   18,518   (5,635)
--------------------------------
(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. 
(2)  Excludes accretion of mandatorily redeemable convertible preferred stock 
in 1994.
(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, mini-PACS and 
teleradiology environment.  The Company offers CR digitizers, 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 1998, the Company purchased a software product, HLimage ++, 
to support the Company's video frame digitizers in the machine vision 
and scientific markets.  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.

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 section entitled "Business" and 
especially -Risk Factors, 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, 
                                     -----------------------
                                      1998     1997     1996	
                                     -----    -----    -----
Sales                                100.0%   100.0%   100.0%
Cost of sales                         46.7     44.5     45.4
                                     -----    -----    -----
    Gross profit                      53.3     55.5     54.6	
                                     -----    -----    -----
Operating expenses:
  Sales and marketing                 14.7     15.2     10.8	
Research and development              23.7     22.3     19.3	
General and administrative            14.1     15.0     12.3	
Merger and related costs               ---     14.0      ---
                                     -----    -----    -----
    Total operating expenses          52.5     66.5     42.4
                                     -----    -----    -----
Income (loss) from operations          0.8    (11.0)    12.2	
Interest income, net                   3.8      3.8      3.4	
                                     -----    -----    -----
Income (loss) before income taxes      4.6     (7.2)    15.6	
Provision for income taxes             1.8      4.1      5.8	
                                     -----    -----    -----
Net income (loss)                      2.8%   (11.3)%    9.8%	
                                     =====    =====    =====

Fiscal 1998 Compared with Fiscal 1997

Sales.  Sales decreased 17.4% in 1998 to $24.5 million from $29.7 
million in 1997. The decrease was due to the continued softening of the 
domestic digitizer business, the consolidation among domestic OEM 
customers and lower software sales as compared to 1997. This was 
partially offset by an increase in international digitizer sales.  In 
the fourth quarter 1998, the Company began shipping a computed 
radiography ("CR") system for the medical market, the ACR-2000. No 
customers accounted for more than 10% of the Company's sales in either 
1998 or 1997. 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 decreased 20.8% in 1998 to $13.1 million 
from $16.5 million in 1997.  Gross margin decreased to 53.3% from 55.5% 
primarily due to increased manufacturing overhead costs related to the 
introduction of the ACR-2000 and lower software sales which have a 
higher gross profit than hardware sales.

Sales and marketing.  Sales and marketing expenses decreased in 1998 to 
$3.6 million from $4.5 million in 1997, primarily due to the 
restructuring of the sales and marketing force following the acquisition 
of CompuRAD. The Company has changed the software product strategy from 
targeting both direct end-user customers as well as VAR and OEM 
customers to focus on supplying software components to OEMs and system 
integrators only.  As a percentage of sales, these expenses decreased to 
14.7% in 1998 from 15.2% in 1997. 

Research and development.  Research and development expenses decreased 
in 1998 to $5.8 million from $6.6 million in 1997, primarily due to 
restructuring following the acquisition of CompuRad. In addition, the 
ACR-2000 project was completed and transferred to manufacturing.  As a 
percentage of sales, research and development expenses remained fairly 
consistent, increasing slightly to 23.7% in 1998 from 22.3% in 1997. The 
Company expects its research and development expenditures to decrease as 
a percent of revenue since the initial CR and video film digitizer 
development efforts are near completion and follow-on development efforts 
will be less expensive than the initial development projects.  The 
development of a new product will require additional research and 
development resources and therefore the research and development 
expenses will increase when the next new product is identified.

General and administrative.  General and administrative expenses 
decreased in 1998 to $3.5 million from $4.5 million in 1997.  As a 
percentage of sales, these expenses decreased to 14.1% in 1998 from 
15.0% in 1997. The decrease was primarily due to restructuring following 
the acquisition of CompuRad.

Provision (benefit) for income taxes.  The Company recorded a total 
provision for income taxes of $436,000 and $1.2 million in 1998 and 
1997, respectively. At December 31, 1998, the Company had net operating 
loss carryforwards available to reduce income taxes for federal and 
state income tax purposes of approximately $3.3 million and $1.3 
million, respectively; such carryforwards expire through 2017 but are 
substantially limited per year.  See the Notes to Consolidated Financial 
Statements.  The Company expects to be subject to an effective tax rate 
of approximately 39% in 1999, absent changes in any applicable statutory 
tax rate.

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. 

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 for 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. 

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. 

General and administrative.  General and administrative expenses 
increased in 1997 to $4.6 million from $3.5 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.

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 million, 
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. 

Liquidity and Capital Resources

The Company has financed its operations activities primarily from net 
cash provided by operations. In 1998, one-time payments for expenses 
related to the acquisition of CompuRad resulted in a reduction in cash 
reserves of $1.0 million compared to positive cash operating results 
of $900,000 in 1997 and $500,00 in 1996.  The Company had cash 
expenditures of $2.0 million related to the purchase of a software 
product, HLImage ++ in 1998.  In 1998 and 1997, the Company executed 
a stock repurchase plan resulting in cash expenditures of $3.6 million 
and $600,000 in 1998 and 1997, respectively, for the purchase of its 
stock.  In addition, the Company has raised $300,000, $1.9 million and 
$7.2 million, in 1998, 1997, and 1996, respectively, upon the issuance 
of Common Stock, including an initial public offering completed by 
CompuRAD on August 28, 1996 which raised $5.1 million, net of underwriting 
discounts and expenses.

At December 31, 1998, the Company had cash, cash equivalents and short-
term investments of approximately $17.7 million and working capital of 
approximately $22.6 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 1999.  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.

Impact of the Year 2000

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.  

Certain software products currently installed at customer sites will 
require upgrade or other remediation to become year 2000 compliant.  The 
Company believes that it is not legally responsible for costs incurred 
by its customers to achieve their year 2000 compliance.  However, the 
Company is taking steps to identify affected customers, raise customer 
awareness related to noncompliance of the Company's older products, and 
assist the customer base to assess their risks.  The Company may see 
increasing customer satisfaction costs related to these actions over the 
next few years.  The potential impact on the Company's business, 
financial condition and results of operations is not known at this time.

Costs to address the Company's Year 2000 Issues.  Although the company will 
continue to prioritize resources to address Year 2000 issues, those resources 
are allocated within the normal software development and infrastructure and 
facilities improvement processes of the Company.  Subsequently, no complete 
estimate of the expected total cost of this effort can be made at this time.  
The costs related to Y2K have been immaterial to date.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

Lumisys has an investment portfolio of fixed income securities that are 
classified as "available-for-sale securities."  These securities, like 
all fixed income instruments, are subject to interest rate risk and will 
fall in value if market interest rates increase.  Lumisys attempts to 
limit this exposure by investing primarily in short-term securities.

From time to time, Lumisys makes certain capital equipment or other 
purchases denominated in foreign currencies.  As a result, Lumisys' cash 
flows and earnings are exposed to fluctuations in interest rates and 
foreign currency exchange rates.  Lumisys attempts to limit these 
exposures through operational strategies and generally has not hedged 
currency exposures.



Item 8.  Financial Statements and Supplementary Data

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                            23
	
    Consolidated Balance Sheets at December 31, 1998 and 1997    24
	
    Consolidated Statements of Operations for the three 
     years ended December 31, 1998                               25
	
    Consolidated Statements of Stockholders' Equity for 
     the three years ended December 31, 1998                     26

    Consolidated Statements of Cash Flows for the 
     three years ended December 31, 1998                         27
	
    Notes to Consolidated Financial Statements                   28

Financial Statement Schedule for the three years 
 ended December 31, 1998:
	
    Schedule II - Valuation and Qualifying Accounts              40

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 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, 1998 and 1997, and the results of their operations and their 
cash flows for each of the three years in the period ended December 31, 
1998, 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.


PricewaterhouseCoopers LLP

San Jose, California
January 28, 1999



                            LUMISYS  INCORPORATED

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

                                                        December 31,
                                                      -----------------
                                                       1998      1997
                                                      -------   -------
	
                                    ASSETS
Current assets:
  Cash and cash equivalents                           $10,651   $ 7,522	
  Short-term investments                                7,007    17,007	
  Accounts receivable, net of allowances 
    of $717 and $657                                    4,206     4,622	
  Inventories                                           4,046     2,892	
  Deferred tax assets                                   1,453     1,453	
  Purchased software, net                                 571       316
                                                      -------   -------
    Total current assets                               27,934    33,812	
Property and equipment, net                               753       606
Purchased software, net                                 1,919       ---
                                                      -------   -------
                                                      $30,606   $34,418	
                                                      =======   =======
                   LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                    $ 1,601   $ 1,355	
  Accrued expenses                                      2,791     2,967	
  Merger and related costs                                900     2,117	
                                                      -------   -------
    Total current liabilities                           5,292     6,439	
                                                      -------   -------

Note payable to related party                             146       130
                                                      -------   -------
Commitments and contingencies (Note 8)

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; 9,597 and 10,370 shares issued and 
   outstanding, respectively                               10        10
  Additional paid-in capital                           28,887    32,265
  Accumulated deficit                                  (3,725)   (4,407)
  Deferred compensation                                    (4)      (19)
                                                      -------   -------
    Total stockholders' equity                         25,168    27,849
                                                      -------   -------
                                                      $30,606   $34,418
                                                      =======   =======
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, 
                                    -------------------------
                                      1998     1997     1996	
                                    -------  -------  -------
	
Sales                               $24,546  $29,709  $28,686	
Cost of sales                        11,468   13,206   13,032	
                                    -------  -------  -------
    Gross profit                     13,078   16,503   15,654	
                                    -------  -------  -------
Operating expenses:
  Sales and marketing                 3,612    4,506    3,093	
  Research and development            5,824    6,620    5,545	
  General and administrative          3,457    4,459    3,518	
  Merger and related costs              ---    4,159      ---	
                                    -------  -------  -------
    Total operating expenses         12,893   19,744   12,156	
                                    -------  -------  -------
Income (loss) from operations           185   (3,241)   3,498	
Interest income, net                    933    1,117      979	
                                    -------  -------  -------
Income (loss) before income taxes     1,118   (2,124)   4,477	
Provision for income taxes              436    1,225    1,662	
                                    -------  -------  -------
Net income (loss)                   $   682  $(3,349) $ 2,815	
                                    =======  =======  =======
Net income (loss) per share:
   Basic                            $  0.07  $ (0.33) $  0.29	
                                    =======  =======  =======
   Diluted                          $  0.07  $ (0.33) $  0.29	
                                    =======  =======  =======

Weighted average shares used to 
  compute net income (loss) 
  per share:
   Basic	                          9,913   10,080    9,598	
                                    =======  =======  =======
   Diluted                           10,074   10,080    9,760	
                                    =======  =======  =======
The accompanying notes are an integral part of these financial 
statements.



                            LUMISYS  INCORPORATED

             CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                               (in thousands)

                                                 Notes                 Total
	            Common Stock Additional           Receivable  Deferred    Stock-
	            ------------- Paid-in  Accumulated   From     Compens-   holders'
	            Shares Amount Capital    Deficit  Stockholders  ation     Equity
             ------ ------ -------   ------- ------------ ------------ -------
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 
  depositions and  
  exercise of 
  non-qualified 
  stock option  ---    ---    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  
  depositions and 
  exercise of 
  non-qualified 
  stock option  ---    ---    1,080     ---        ---          ---     1,080
 Payments on notes 
  receivable from 
  stockholders  ---    ---      ---     ---        114          ---       114
 Issuance of 
  Common stock 
  in connection 
  with purchase of 
  Star Techno-
  logies, 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
 Exercise of stock 
  Options       116    ---      110     ---        ---          ---       110
 Buy back of 
  common stock (928)   ---   (3,634)    ---        ---          ---    (3,634)
 Issuance of 
  common stock 
  under employee 
  stock purchase 
  plan           39    ---      146     ---        ---          ---       146
 Other          ---    ---      ---     ---        ---           15        15
 Net income     ---    ---      ---     682        ---          ---       682
              ------ ------ ------- ------- ------------ ------------ -------
Balance at 
 December 31,
 1998         9,597  $  10  $28,887 $(3,725)  $    ---       $   (4)  $25,168
              ====== ====== ======= ======= ============ ============ =======

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

                           LUMISYS  INCORPORATED

                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (in thousands)

                                                 Year ended December 31, 
                                                ------------------------
                                                 1998     1997     1996	
                                                -------  -------  ------
Cash flows from operating activities:
  Net income (loss)                            $  682  $(3,349) $ 2,815
  Adjustments to reconcile net income (loss)
   to net cash provided by operating activities:
    Depreciation and amortization                 410      244      250
    Non-cash merger costs                         ---      360      ---
    Provision for doubtful accounts                60      281      127
    Provision for obsolete inventories            (59)     215      102
    Deferred income taxes                         ---      (24)    (315)
    Amortization of deferred compensation          15       15      404
     Changes in assets and liabilities:
     Accounts receivable                          356     (533)  (2,196)
     Inventories                               (1,095)     260     (137)
     Other current assets                        (255)     213     (230)
     Other assets                                 ---      173      227
     Accounts payable                             246      226     (722)
     Merger and related costs                  (1,217)   2,117      ---
     Accrued expenses and other                  (160)     691      186
                                              -------  -------  -------
Net cash provided by (used in) 
 operating activities                          (1,017)     889      511
                                              -------  -------  -------
Cash flows from investing activities:
  Sales (purchases) of short-term 
   investments, net                            10,000  (17,007)   3,934
  Purchases of property and equipment            (476)    (327)    (853)
  Purchase of software                         (2,000)     ---      ---
                                              -------  -------  -------
Net cash provided by (used in) investing 
 activities                                     7,524  (17,334)   3,081
                                              -------  -------  -------
Cash flows from financing activities:
  Proceeds from sale of common stock              256    1,926    7,245 
  Purchase of treasury stock                   (3,634)    (563)     ---
  Payment on notes receivable from stockholders   ---      114      191
  Proceeds from note payable                      ---      ---      250
  Principal payments on note payable              ---      ---     (250)
                                              -------  -------  -------
Net cash provided by (used in) financing 
 Activities                                    (3,378)   1,477    7,436
                                              -------  -------  -------
Net increase (decrease) in cash 
 and cash equivalents                           3,129  (14,968)  11,028
Cash and cash equivalents at beginning of 
 Period                                         7,522   22,490   11,462
                                              -------  -------  -------
Cash and cash equivalents at end of period    $10,651  $ 7,522  $22,490
                                              =======  =======  =======


Supplemental disclosures of cash flow information:
  Cash paid for income taxes                  $    90  $   912  $   951	
Supplemental schedule of noncash investing and financing activities:
  Common stock issued for purchase of Star Tech.  ---      588      ---
	
The accompanying notes are an integral part of these financial 
statements.


NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Lumisys Incorporated ("Lumisys" or the "Company") designs, manufactures 
and markets computed radiography ("CR") systems that scan medical or 
industrial images from a reusable phosphor plate and 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 within a medical 
imaging network.  The Company currently offers a comprehensive family of 
products for digitizing medical images under the Lumiscan label and 
video images under the Imascan label.  These CR and film digitizers 
process images from all commercially available medical imaging 
modalities, including x-ray, computed tomography ("CT"), magnetic 
resonance imaging ("MRI"), ultrasound and nuclear medicine.  In November 1998,
the Company purchased a software product, HLImage++, to support the Company's
video digitizers in the machine vision and scientific market.  

On November 25, 1997, the Company merged with CompuRAD, Inc. 
("CompuRAD").  Such merger was accounted for as a pooling-of-interests 
(see Note 3).  Accordingly, the consolidated historical financial 
statements for all periods prior to the merger 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. 

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, 1998 and 1997, short-term investments consisted of 
marketable debt securities and its carrying value approximated cost. 

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.  

The Company capitalizes purchased software for resale and performs an 
ongoing assessment of the recoverability of these costs which requires 
considerable judgement by management with respect to certain external 
factors, including but not limited to, anticipated future gross revenue, 
estimated economic life and changes in software and hardware technology.  
For the year ended December 31, 1998, the Company purchased $2.0 million 
in software.  The purchased software is being amortized over a four year 
period.

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, 1998, 1997 and 1996, no 
customers represented more than 10% of total sales of the Company.

Net Income (Loss) Per Share

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, 
                                              -------------------------
                                               1998     1997     1996	
                                              -------  -------  -------

Net income (loss)                              $  682  $(3,349) $ 2,815	
                                               ======  =======  =======
Weighted average shares outstanding - basic     9,913   10,080    9,598	

Effect of dilutive securities:
    Potential common stock,
     stock options and warrants                   161      ---      162	
                                              -------  -------  -------
Weighted average shares outstanding - diluted  10,074   10,080    9,760	
                                               ======  =======  =======

In 1998 and 1996, respectively, 291,000 and 0 shares of potential Common 
Stock are considered anti-dilutive and are excluded from the calculation 
of dilutive net income (loss) per share.  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.

Comprehensive Income

Effective January 1, 1998, the Company has adopted the disclosure 
requirements of SFAS No. 130, "Reporting Comprehensive 
Income" ("SFAS 130").  SFAS 130 establishes standards for the reporting 
of comprehensive income and its components in a full set of general-
purpose financial statements.  Comprehensive income is comprised of net 
income (loss) and other comprehensive earnings such as unrealized gains or 
losses on available-for-sale short-term investments.  The Company's 
unrealized gains and losses on available-for-sale short-term investments 
have been insignificant for all periods presented.

Segment Reporting

Effective January 1, 1998, the Company has adopted the disclosure 
requirements of SFAS No. 131, "Disclosure about Segments of an 
Enterprise and Related Information," ("SFAS 131").  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.  See Note 4.

Recent Accounting Pronouncement

In April 1998, the American Institute of Certified Public Accountants issued 
Statement of Position 98-1 "Accounting for the Costs of Computer Software 
Developed or Obtained for Internal Use" ("SOP 98-1").  SOP 98-1 provides 
guidance on capitalization of the costs incurred for computer software developed
or obtained for internal use.  It also provides guidance for determining whether
computer software is internal-use software and on accounting for the proceeds 
of computer software originally developed or obtained for internal use and 
then subsequently sold to the public.  The Company has not yet determined the 
impact, if any, of adopting this statement.  The disclosures prescribed by 
SOP 98-1 will be effective for the company's consolidated financial statements 
for the fiscal year ending December 31, 1999.

NOTE 2 - COMPOSITION OF CERTAIN FINANCIAL STATEMENT AMOUNTS

                                                        December 31,
                                                      -----------------
                                                       1998      1997
                                                      -------   -------
                                                        (in thousands)
         Inventories:	
            Raw materials                             $ 3,649   $ 2,363	
            Work-in-process                             1,031       586	
            Finished goods                                457     1,093	
                                                      -------   -------
                                                        5,137     4,042
            Less:  inventory reserves                  (1,091)   (1,150)
	
                                                      -------   -------
                                                      $ 4,046   $ 2,892	
                                                      =======   =======
	
         Property and equipment:
            Machinery and equipment                   $ 1,846   $ 1,485	
            Furniture and fixture                         178        64
            Leasehold improvements                         45        45
                                                      -------   -------
                                                        2,069     1,594	
            Less:  accumulated depreciation 
                   and amortization                    (1,316)     (988)
	
                                                      -------   -------
                                                      $   753   $   606	
                                                      =======   =======

         Accrued expenses:
            Payroll and related benefits              $ 1,066   $ 1,122	
            Warranty                                      468       465
            Accrued professional fees                     129       401
            Unearned revenue                              599       979
            Income taxes                                  354       ---
            Other                                         175       ---
                                                      -------   -------
                                                      $ 2,791   $ 2,967
                                                      =======   =======

NOTE 3 - MERGER

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 in 1997 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 
$400,000, costs to combine and integrate operations of $800,000 and other 
merger related costs of $200,000.  Of the $2.9 million in merger and 
related costs which were accrued at the time of the merger, 
approximately $2.0 million has been incurred at December 31, 1998.

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):

                                                    Year ended
                                  Period ended      December 31,
                               November 25, 1997       1996	
                               -----------------    -----------
   Revenues:	
     Lumisys Incorporated           $23,927           $23,022	
     CompuRAD Inc.                    6,886             6,914	
     Intercompany eliminations       (1,104)           (1,250)	
                                    -------           -------
       Total                        $29,709           $28,686	
                                    =======           =======

   Net income (loss):
     Lumisys Incorporated           $ 3,785           $ 3,439	
     CompuRAD Inc.                   (2,975)             (624)	
     Merger and related costs        (4,159)              ---	
                                    -------           -------
       Total                        $(3,349)          $ 2,815	
                                    =======           =======


NOTE 4- SEGMENT INFORMATION

The Company organizes its business into two reportable segments: the 
Lumisys Sunnyvale/Tucson ("Sunnyvale") division and the Imagraph 
division ("Imagraph").  Sunnyvale manufactures and markets an integrated 
suite of hardware and software products for digitizing medical images. 
Imagraph manufactures and markets a full line of precision frame-grabber 
boards and a software package for machine vision and scientific 
applications.

The segments' accounting policies are the same as those described in the 
summary of significant accounting policies. The Company evaluates 
performance based on net income or loss before income taxes. Wholesale 
prices are used to report intersegment sales.  Sunnyvale's total assets 
include the initial investment in Imagraph and amounts receivable from 
Imagraph, which are eliminated in consolidation.

The Company's reportable business segments are strategic business units 
that offer different products. Each segment is managed separately 
because they require different technologies and market to distinct 
classes of customers.

                                                 Elimination
                             Sunnyvale Imagraph of intercompany    Total
                             --------- -------- ---------------    -----
1996
   Revenues                   $23,226  $ 5,460         ---       $28,686
   Income (loss) before taxes $ 4,645  $  (168)        ---       $ 4,477
   Total assets               $33,750  $ 2,159     $(2,668)      $33,241
1997
   Revenues                   $23,614  $ 6,220     $  (125)      $29,709
   Income (loss) before taxes $(2,331) $   207         ---       $(2,124)
   Total assets               $34,421  $ 2,620     $(2,623)      $34,418
1998
   Revenues                   $19,381  $ 5,383     $  (218)      $24,546
   Income (loss) before taxes $ 1,464  $  (346)        ---       $ 1,118
   Total assets               $30,716  $ 5,001     $(5,111)      $30,606

Sales to international customers, primarily located in Europe, represented, 
17%, 12% and 9% of total sales in 1998, 1997 and 1996, respectively.  All 
transactions are denominated in U.S. dollars.
	
NOTE 5 - STOCKHOLDER'S EQUITY

Accounting for Stock Issued to Employees

The Company has elected to follow Accounting Principles Board Opinion 
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related 
interpretations in accounting for its employee stock options because, as 
discussed below, the alternative fair value accounting provided for 
under SFAS No. 123 "Accounting for Stock-Based Compensation" ("SFAS 
123"), requires use of option valuation models that were not developed 
for use in valuing employee stock options. Under APB 25, because the 
exercise price of the Company's employee stock options equals the market 
price of the underlying stock on the date of grant, no compensation 
expense is recognized.

Stock Plans

The Company maintains five stock option plans summarized below.  
Effective March 12 1998, the Company offered non-officer employees 
holding outstanding options the opportunity to exchange each option 
share for one option share priced at $4.16, the closing price on that 
date. All other terms remained unchanged. As a result of the offer, 
285,636 options were exchanged which are included in the 1998 grant 
information and the table below.

The 1987 Stock Option Plan

The 1987 Stock Option Plan (the "1987 Plan") provides for the issuance 
of Common Stock and granting of options for Common Stock to employees, 
officers, directors and consultants of the Company.  From inception of 
the 1987 Plan through 1995, the Company reserved 1,375,000 shares of 
Common Stock for issuance under the Plan. 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 or its delegate shall determine the number of shares 
for which an option can be granted.  Options granted generally vest 25% 
after one year and then ratably at 6.25% per quarter over a three year 
period. In September 1995, the Board of Directors determined that no 
additional options would be granted under the 1987 Plan.

The 1995 Stock Option Plan

In September 1995, the Board of Directors adopted the 1995 Stock Option 
Plan (the "1995 Plan") under which an aggregate of 900,000 shares of 
Common Stock have been reserved for issuance upon exercise of options 
granted to employees, officers, employee directors and consultants of 
the Company.  

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 or its delegate shall determine the number of 
shares for which an option can be granted.  Options granted under the 
1995 Plan will generally vest 25% after one year and then ratably at 6.25% 
per quarter over a three year period. The 1995 Plan will terminate in 
September 2005, unless terminated earlier by the Board.  In each of the 
years 1998, 1997 and 1996 the Board granted options for 714,650, 42,550 
and 153,225 shares of Common Stock, respectively.

1995 Non-Employee Directors Stock Option Plan

In August 1995, the Board adopted the 1995 Non-Employee Directors Stock 
Option Plan (the "Directors Plan") and amended it in March 1998, 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 262,500.  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 50,000 
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 50,000 shares of Common Stock under the 
Directors Plan.  Thereafter, each Non-Employee Director will 
automatically be granted an option to purchase an additional 50,000 
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% after one year and then ratably at 6.25% 
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.  In 1998 and 1997, options 
were granted under the plan for 212,892 and 56,250 shares of Common 
Stock, respectively. No options were granted in 1996.

The CompuRAD Plans

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 shares of common stock were 
granted in 1996.  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 
shares of common stock were granted in 1997.  No additional options will 
be granted under the CompuRAD plans.

The 1998 Non-Officer Stock Option Plan

In March 1998, the Board adopted the 1998 Non-Officer Stock Option Plan 
(the "1998 Plan"). The 1998 Plan provides for the grant of nonstatutory 
stock options to non-officer employees and consultants of the Company.  
550,000 share have been reserved for issuance under the 1998 Plan. The 
maximum term of options granted under the 1998 Plan is ten years.  The 
exercise price of incentive stock options granted under the 1998 Plan 
must equal at least 85% of the fair market value of the Company's Common 
Stock on the date of grant. The Board or its delegate shall determine 
the number of shares for which an option can be granted.  Options 
granted under the 1998 Plan will generally vest 25% after one year and 
then ratably at 6.25% per quarter over a three year period. Under the 
1998 Plan, options for 567,019 shares were granted in 1998.

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

                                          Year Ended December 31,
                                   -----------------------------------
                                   1998           1997            1996
                                   ----           ----            ----
                                 Weighted       Weighted        Weighted
                                  Average        Average         Average
                                 Exercise       Exercise        Exercise
                              Shares Price   Shares Price   Shares Price
                              ------ ------  ------ -----   ------ -----
Outstanding beginning of period  784 $ 5.21    835  $3.07    1,163 $1.64
Granted                        1,780   3.97    402   6.38      223  6.61
Exercised                       (116)  0.92   (312)  0.26     (409) 0.44
Canceled                        (566)  5.79   (141)  2.36     (142) 4.50
                              ------  ------  -----  -----  ------  ----
Outstanding at period end      1,882   4.13    784   5.21      835  3.07
                              ======  ======  =====  =====  ======  ====
Options vested at period end     574   4.08    291   3.86      303  1.22
                              ======  ======  =====  =====  ======  ====
Weighted average grant date fair 
  value of such options granted 
  during the year                    $ 4.00         $4.82          $5.09
								

The following table summarizes information about fixed stock options 
outstanding at December 31, 1998 (in thousands, except per share 
amounts):

                    Options Outstanding               Options Vested
                -------------------------------  -----------------------
                                          Weighted-   
                Number  Weighted-Average  Average            Weighted-  
   Range of      Out-         Remaining   Exercise Number    Average
Exercise Prices standing  Contractual Life  Price  Vested Exercise Price
--------------- -------- ---------------- -------- ------ --------------
$0.60 to $3.25     301       8.13 years    $ 2.37    104      $ 0.77 
 3.88 to  3.88     786       9.20            3.88    210        3.88
 4.00 to  4.31     529       9.02            4.23    131        4.16
 4.50 to  9.88     266       8.00            6.63    129        6.98
                 --------                           ------
                  1,882       8.81         $ 4.12    574      $ 4.08
                 ========                           ======

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% 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, 1998, 91,157 shares 
had been issued under the Purchase Plan.

Pro Forma Information

Pro forma information regarding net income and net (loss) per share is 
required by FASB 123 and has been determined as if the Company had 
accounted for options granted under its stock option plans, including 
the Purchase Plan under the fair value method of FASB 123. 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 1998, 1997 and 1996, respectively:  
dividend yield of 0% for all years; expected volatility of 66.0%, 66.0% 
and 57.8%, risk-free interest rates of 5.20%, 6.27% and 6.01%; and 
expected lives of 4, 6 and 3 years for non-officer/director and 4, 5, 
and 5 years for officers and directors.

The fair value of the employees' purchase rights under the Purchase Plan 
was estimated using the Black-Scholes option-valuation model with the 
following assumptions for 1998, 1997 and 1996, respectively:  dividend 
yield of 0% for all years; an expected life of 1 year for all years; 
expected volatility of 66%, 66% and 59%; and risk-free interest rates of 
5.20%, 5.66% and 5.52%.  The weighted-average fair value of purchase 
rights granted was $3.44, $3.95, and $2.74 per share for 1998, 1997, and 
1996, respectively. 


                                                 Year ended December 31, 
                                               -------------------------
                                                1998     1997     1996	
                                               -------  -------  -------

Net income (loss)                     
                                 As reported   $  682   $(3,349)  $2,815
                                 Pro forma     $ (750)  $(3,966)  $2,573

Net income (loss) per share - basic	  
                                 As reported   $ 0.07   $ (0.33)  $ 0.29
                                 Pro forma     $(0.08)  $ (0.39)  $ 0.27

Net income (loss) per share - diluted 
                                 As reported   $ 0.07   $ (0.33)  $ 0.29
                                 Pro forma     $(0.08)  $ (0.39)  $ 0.26

Warrant

Warrants for the purchase of 92,800 shares of Common Stock were 
outstanding at December 31 1998, 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.

Shares reserved

The Company has reserved shares of Common Stock for potential future 
issuance consisting of (i). 92,800 issuable upon exercise of warrants; 
and (ii). 2,071,345 issuable upon exercise of options under the employee 
stock option plans, the Director plan or the Purchase Plan.

NOTE 6 - INCOME TAXES

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

                                           Year ended December 31, 
                                          -------------------------
                                           1998     1997     1996	
                                          -------  -------  -------
               Current:
                 Federal                   $ 338    $1,016   $1,619	
                 State                        98       233      358	
                                          -------  -------  -------
                                             436     1,249    1,977	
                                          -------  -------  -------
              Deferred:
                Federal                      ---       (24)    (365)	
                State                        ---       ---       50
                                          -------  -------  -------
                                             ---       (24)    (315)	
                                          -------  -------  -------
			                                        $ 436    $1,225   $1,662	
                                          =======  =======  =======

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, 
                                          -------------------------
                                           1998     1997     1996	
                                          -------  -------  -------
Provision (benefit) at statutory rate       $376    $ (722)  $1,522	
Decrease in valuation allowance              ---       ---      (62)	
CompuRAD pre-acquisition net operating 
 Loss carryforward for 1997                  ---     1,190      ---	
State taxes, net of federal benefit           65      (127)     269	
Nondeductible acquisition costs              ---       860      ---	
Nondeductible S corporation loss             ---       ---      (66)	
Other                                         (5)       24       (1)
                                          -------  -------  -------
                                            $436    $1,225  $ 1,662	
                                          =======  =======  =======


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

                                                     December 31,
                                                ----------------------
                                                   1998        1997
                                                ----------  ----------
     Net operating loss carryforwards             $1,174       $1,248
     Tax credit carryforwards                        310           98	
     Nondeductible accruals                          906        2,017	
     Depreciation and amortization                    56          136	
                                                --------      -------
                                                   2,446        3,499	
     Deferred tax assets valuation allowance        (993)      (2,046)	
                                                --------      -------
     Net deferred tax assets                      $1,453       $1,453	
                                                ========      =======

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, 1998, 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 $3.3 million and $1.3 million, 
respectively; such carry-forwards expire through 2017.  As a result of 
an ownership change and consolidated return rules, the annual 
utilization of such carryforwards is limited.

NOTE 7 - RELATED PARTY TRANSACTIONS

During 1995, the Company made a loan totaling $125,000 to an employee of 
the Company.  The loan bears interest at 7.96% 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.  In 1998, the employee was 
terminated. The terms of the note and non-competition agreement remain 
the same.

In November 1998, the Company loaned an officer and director of the 
Company $100,000, secured by common stock of the Company. The loan bears 
interest at the rate of 4.47% per annum.  Principal and accrued interest 
are due and payable November 1999.  If employment is terminated, the 
principal and accrued interest are payable immediately after such 
termination.

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 in 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 8 - 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,
                            --------------
                                 1999         $  843
                                 2000            841
                                 2001            550
                                 2002            155
                                             -------
                                              $2,389
                                             =======

Total rent expense was approximately $872,000, $608,000 and $485,000 for 
1998, 1997 and 1996, respectively.

Legal Proceedings

On July 9, 1997 and July 10, 1997, two class action complaints were 
filed, the first in the Superior Court of the State of California, 
County of Santa Clara, and the second in 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, 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
Year ended December 31, 1998:
  Allowance for doubtful accounts $  657   $  60       $ ---      $  717
  Inventory reserves              $1,150   $ 136       $(195)     $1,091


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	

(a) The information required by this Item concerning the Company's 
directors is incorporated by reference to the Company's Proxy Statement 
related to the 1999 Annual Meeting of Stockholders to be filed with the 
Securities and Exchange Commission within 120 days after the Company's 
fiscal year end ( the "1999 Proxy Statement").

(b) The executive officers of the Company and their ages as of February 
28, 1998 are as follows:

     Name        Age                Position
---------------  ---    ------------------------------------------
Phillip Berman    45     Chief Executive Officer and Director
Dean MacIntosh    40     Vice President and Chief Financial Officer
John M. Burgess   56     Vice President, Sales 
Mark Mariotti     36     Vice President, General Manager, Imagraph
Duncan Moffat     38     Vice President, Operations


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.  In August 1998, Dr. Berman was 
appointed Chief Executive Officer. 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. 

Dean MacIntosh was appointed as Lumisys' Chief Financial Officer in 
August 1998. Ms. MacIntosh has served as Vice President, Finance since 
February, 1997, and joined Lumisys as Controller 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.

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.

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.

Duncan Moffat joined the Company as Vice President of Operations in July 
1998.  From 1995 to 1998, Mr. Moffat served as Director of Manufacturing 
for Lucas Decco, an industrial computer manufacturer. From 1993 to 1995, 
Mr. Moffat served as a Project Manager for Lucas Control Systems.

Item 11.  Executive Compensation

The information required by this Item is incorporated by reference to 
the information under the caption "Compensation of Executive Officers" 
in the Company's 1999 Proxy Statement.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

The information required by this Item is incorporated by reference to 
the information under the caption "Security Ownership of Certain Beneficial 
Owners and Management" in the Company's 1999 Proxy Statement.

Item 13.  Certain Relationships and Related Transactions

The information required by this Item is incorporated by reference to 
the information under the caption "Certain Transactions" in the 
Company's 1999 Proxy Statement.

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
-------   --------------------------
  2.2     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)
 10.15    Lease, dated January 1, 1993 between Teachers Realty 
          Corporation and Imagraph Corporation (1)
 10.16    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 
 23.1     Consent of PricewaterhouseCoopers 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 1998
     None.	
(d)  Financial statement schedules - The response to this portion of 
Item 14 is submitted in item 8 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 in 
Sunnyvale, California on March 30, 1998:

                                         LUMISYS INCORPORATED


Dated:  March 30, 1999                   By/s/ Phillip Berman
                                           -----------------------
                                           Phillip Berman, M.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/ Phillip Berman       Chief Executive Officer          March 30, 1999
-----------------------   and Director
Phillip Berman, M.D.

/s/Bala S. Manian        Chairman of the Board            March 30, 1999
-----------------------   of Directors
Bala S. Manian, Ph.D

/s/ Dean MacIntosh       Vice President and Chief         March 30, 1999
-----------------------   Officer (Principal Financial
Dean MacIntosh	        and Accounting  Officer)

/s/ Douglas DeVivo       Director                         March 30, 1999
-----------------------
Douglas G. DeVivo, Ph.D.

/s/ C. Richard Kramlich  Director                         March 30, 1999
-----------------------
C. Richard Kramlich

/s/ David Lapan          Director                         March 30, 1999
-----------------------
David Lapan, M.D.

/s/ Craig Klosterman     Director                         March 30, 1999
-----------------------
Craig L. Klosterman

/s/ Austin Vanchieri     Director                         March 30, 1999
-----------------------
Austin E. Vanchieri


EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY

LUMISYS, INCORPORATED
12/31/98

        NAME                        STATE OF INCORPORATION
X-RAY SCANNER CORPORATION                CALIFORNIA
COMPURAD, INC.                            DELAWARE
IMAGRAPH CORPORATION                       OREGON




EXHIBIT 23.1  Consent of Independent Accountants

We hereby consent to the incorporation by reference in the Registration 
Statements on Form S-8 (No. 333-30117, 333-42199, 33-80253, 333-73019 and 
333-73017) of Lumisys Incoporated of our report dated January 22, 1999 
appearing on Page 23 of this Annual Report on Form 10-K.

PricewaterhouseCoopers LLP


San Jose, California
March 30, 1999