UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark One)

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2000

or

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number:			0-26832

Lumisys Incorporated

(Exact name of registrant as specified in its charter)



|Delaware                                             | 77-0133232                          
|---------------------------------------------------- | ------------------------------------
|(State of incorporation)                             | (I.R.S. Employer Identification No.)
|225 Humboldt Court, Sunnyvale, CA                    | 94089                               
|(Address of principal executive offices)             | (Zip Code)                          
|(408) 733-6565                                      
|(Registrant's telephone number, including area code)

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

|Yes / X / | No / /
|--------- | ------

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

As of May 1, 2000, 9,250,805 shares of the registrant's Common Stock, $.001 par value, were outstanding.













Lumisys Incorporated

Index



|                              |         |                                                                                                                |   
|----------------------------- | ------- | -------------------------------------------------------------------------------------------------------------- | --
|Part I. FINANCIAL INFORMATION
|                              | Item 1. | Financial Statements:                                                                                          |   
|                              |         | Condensed Consolidated Balance Sheets at March 31, 2000 and December 31, 1999 (unaudited)                      | 3 
|                              |         | Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2000 and 1999 (unaudited) | 4 
|                              |         | Condensed Consolidated Statements of Cash Flow for the Three Months Ended March 31, 2000 and 1999 (unaudited)  | 5 
|                              |         | Notes to Condensed Consolidated Financial Statements (unaudited)                                               | 6 
|                              | Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations                          | 9 
|                              | Item 3. | Quantitative and Qualitative Disclosures About Market Risk                                                     | 18
|Part II. OTHER INFORMATION   
|                              | Item 1. | Legal Proceedings                                                                                              | 18
|                              | Item 2. | Changes in Securities and Use of Proceeds                                                                      | 18
|                              | Item 3. | Defaults Upon Senior Securities                                                                                | 18
|                              | Item 4. | Submission of Matters to a Vote of Security Holders                                                            | 18
|                              | Item 5. | Other information                                                                                              | 18
|                              | Item 6. | Exhibits and Reports on Form 8-K                                                                               | 18
|SIGNATURES                    | 19     



Part I - FINANCIAL INFORMATION

Item 1. Financial Statements

Lumisys Incorporated

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands)

|                                    |                                                                                                                       |                            | March 31, | December 31,
|----------------------------------- | --------------------------------------------------------------------------------------------------------------------- | -------------------------- | --------- | ------------
|                                    |                                                                                                                       |                            | 2000      |             
|                                   
|ASSETS                             
|Current assets:                    
|                                    | Cash and cash equivalents                                                                                             |                            | $9,950    |             
|                                    | Short-term investments                                                                                                |                            | 5,429     |             
|                                    | Accounts receivable, net of allowances of $1,620 and $1,871                                                           |                            | 2,658     |             
|                                    | Inventories                                                                                                           |                            | 2,889     |             
|                                    | Deferred tax asset                                                                                                    |                            | 1,453     |             
|                                    | Other current assets                                                                                                  |                            | 991       |             
|                                    |                                                                                                                       | Total current assets       | 23,370    |             
|Property and equipment, net         |                                                                                                                       | 663                        |           | 569         
|                                    |                                                                                                                       |                            | $24,033   |             
|                                    |                                                                                                                       |                            |           |             
|LIABILITES AND STOCKHOLDERS' EQUITY
|Current liabilities:               
|                                    | Accounts payable                                                                                                      |                            | $940      |             
|                                    | Accrued expenses                                                                                                      |                            | 3,123     |             
|                                    | Merger and related costs                                                                                              |                            | 531       |             
|                                    |                                                                                                                       | Total current liabilities  | 4,594     |             
|                                   
|Note payable to related party       |                                                                                                                       | 169                        |           | 164         
|                                    |                                                                                                                       |                            |           |             
|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; 9,251 and 9,240 shares issued and outstanding, respectively | 9                          |           | 9           
|                                    | Additional paid-in capital                                                                                            |                            | 27,682    |             
|                                    | Accumulated deficit                                                                                                   |                            | (8,421)   |             
|                                    |                                                                                                                       | Total stockholders' equity | 19,270    |             
|                                    |                                                                                                                       |                            | $24,033   |             

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



Lumisys Incorporated

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share amounts)



|                                                             |                                             |                          | Three Months Ended
|------------------------------------------------------------ | ------------------------------------------- | ------------------------ | ------------------
|                                                             |                                             |                          | March 31,         
|                                                             |                                             |                          | 2000              
|                                                             |                                             |                          |                   
|Revenues                                                     |                                             | $5,152                   |                   
|Cost of revenues                                             |                                             | 2,880                    |                   
|                                                             | Gross profit                                |                          | 2,272             
|                                                             |                                             |                          |                   
|Operating expenses:                                          |                                             |                          |                   
|                                                             | Production, content and other website costs |                          | 346               
|                                                             | Sales and marketing                         |                          | 1,278             
|                                                             | Research and development                    |                          | 687               
|                                                             | General and administrative                  |                          | 571               
|                                                             |                                             | Total operating expenses |                   
|Income (loss) from operations                                |                                             | (610)                    |                   
|Interest income, net                                         |                                             | 213                      |                   
|Income (loss) from continuing operations before income taxes |                                             | (397)                    |                   
|Provision for income taxes                                   |                                             | ---                      |                   
|Income (loss) from continuing operations                     |                                             | (397)                    |                   
|Discontinued operations, net of income taxes                 |                                             | ---                      |                   
|Net income (loss)                                            |                                             | $(397)                   |                   
|                                                             |                                             |                          |                   
|Net income (loss) from continuing operations per share:      |                                             |                          |                   
|                                                             | Basic                                       |                          | $(0.04)           
|                                                             | Diluted                                     |                          | $(0.04)           
|                                                             |                                             |                          |                   
|Net income (loss) per share                                  |                                             |                          |                   
|                                                             | Basic                                       |                          | $(0.04)           
|                                                             | Diluted                                     |                          | $(0.04)           
|                                                             |                                             |                          |                   
|Shares used to compute net income (loss) per share:          |                                             |                          |                   
|                                                             | Basic                                       |                          | 9,241             
|                                                             | Diluted                                     |                          | 9,241             





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

Lumisys Incorporated

Condensed Consolidated Statements of Cash Flow

(Unaudited)

(In thousands)



|                                                    |                                                                                      |           | Three Months Ended
|--------------------------------------------------- | ------------------------------------------------------------------------------------ | --------- | ------------------
|                                                    |                                                                                      | March 31, | March 31,         
|                                                    |                                                                                      |           | 2000              
|Cash flow from operating activities:                |                                                                                      |           |                   
|                                                    | Net income (loss)                                                                    |           | $(397)            
|                                                    | Adjustments to reconcile net income (loss) to net cash used in operating activities: |           |                   
|                                                    | Depreciation and amortization                                                        |           | 122               
|                                                    | Other                                                                                |           | ---               
|                                                    | Changes in assets and liabilities:                                                   |           |                   
|                                                    | Accounts receivable                                                                  |           | (590)             
|                                                    | Inventories                                                                          |           | (304)             
|                                                    | Other assets                                                                         |           | 3                 
|                                                    | Accounts payable                                                                     |           | 430               
|                                                    | Merger and related costs                                                             |           | (11)              
|                                                    | Accrued expenses                                                                     |           | (23)              
|Net cash used in operating activities               |                                                                                      | (770)     |                   
|Cash flows from investing activities:               |                                                                                      |           |                   
|                                                    | Sales of short-term investments, net                                                 |           | 4,536             
|                                                    | Purchases of property and equipment                                                  |           | (216)             
|                                                    |                                                                                      |           |                   
|Net cash provided by investing activities           |                                                                                      | 4,320     |                   
|Cash flows from financing activities:               |                                                                                      |           |                   
|                                                    | Proceeds from sales of common stock                                                  |           | 7                 
|                                                    | Purchase of treasury stock                                                           |           | ---               
|                                                    |                                                                                      |           |                   
|Net cash provided by (used in) financing activities |                                                                                      | 7         |                   
|Net increase in cash and cash equivalents           |                                                                                      | 3,557     |                   
|Cash and cash equivalents at beginning of period    |                                                                                      | 6,393     |                   
|                                                    |                                                                                      |           |                   
|Cash and cash equivalents at end of period          |                                                                                      | $9,950    |                   





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

Lumisys Incorporated

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1 - Basis of Presentation

The condensed consolidated financial statements of Lumisys Incorporated (the "Company") presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q and do
not include all of the information and note disclosures required by generally accepted accounting principles. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 1999
included in the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

The condensed consolidated balance sheets as of March 31, 2000 and December 31, 1999, the condensed consolidated statements of operations for the three months ended March 31, 2000 and 1999, and the condensed consolidated statements of
cash flow for the three months ended March 31, 2000 and 1999 are unaudited but, in the opinion of management of the Company, include all adjustments (consisting of normal, recurring adjustments) necessary for a fair presentation of the results for these
interim periods.

The prior period financial statements have been restated to present a discontinued operation as a separate line item in the accompanying consolidated statement of operations (see Note 7).

The results of operations for the three months ended March 31, 2000 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2000 or any future period.

Note 2- Summary of Significant Accounting Policies

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. All
transactions are denominated in U.S. dollars.

AuntMinnie.com, a subsidiary of the Company, derives revenues principally from the sale of banner and sponsorship advertisements and ecommerce. Duration of the Company's banner advertising commitments can range from one week to one
year. Sponsorship advertising contracts have longer terms (ranging from three months to one year) than standard banner advertising contracts and also involve more integration with AuntMinnie.com services, such as the placement of buttons that provide
users with direct links to the advertiser's website. Advertising revenues on both banner and sponsorship contracts are recognized ratably over the period in which the advertisement is displayed, provided that no significant Company obligations remain at
the end of a period and collection of the resulting receivable is probable. In addition, AuntMinnie.com will receive revenues from electronic commerce transactions. These revenues will be recognized by the Company upon notification from the advertiser of
revenues earned by AuntMinnie.com. Revenues from barter transactions are recognized during the period in which the advertisements are displayed in AuntMinnie.com properties. Barter transactions are recorded at the fair value of the goods or services
provided or received, whichever is more readily determinable in the circumstances.

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 "Accounting for the Cost of Computer Software to Be Sold, Leased, or Otherwise
Marketed" ("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.

Website Development Costs

The Company accounts for website development costs in accordance with the AICPA Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Website development costs consist of
external and internal costs incurred to purchase and implement the web site software and significant enhancements used in the Company's business. These costs are capitalized and amortized using the straight-line method over the estimated useful life of
the asset. Amortization expense for the three months ended March 31, 2000 was not significant.

Internal and external costs of developing website content are expensed as incurred and are included in production, content and other website costs in the accompanying consolidated statements of operations.

Note 3 - Net Income (Loss) Per Share

Basic earnings per share is computed by dividing income available to common stockholders 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):

|                                                    | Three Months Ended | 
|--------------------------------------------------- | ------------------ | 
|                                                    | March 31,          | 
|                                                    | 2000               | 
|Net income (loss) from continuing operations        | $(397)             | 
|Net income (loss)                                   | $(397)             | 
|Shares used to compute net income (loss) per share: |                    | 
|Weighted average shares outstanding - basic         | 9,241              | 
|Potential common stock, stock options and warrants  | ---                | 
|Weighted average shares outstanding - diluted       | 9,241              | 

For the three months ended March 31, 2000 and 1999, 1,965,063 and 1,667,087 shares, respectively, of potential common stock are considered anti-dilutive and are excluded from the calculation of diluted net income (loss)
from continuing operations per share.



Note 4 - Comprehensive Income

Comprehensive income is comprised of net income 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.



Note 5 - Composition of Certain Financial Statement Amounts





|                  | March 31,                          | December 31,
|----------------- | ---------------------------------- | ------------
|                  |                                    | 2000        
|Inventories:      |                                    |             
|                  | Raw materials                      |             
|                  | Work-in-process                    |             
|                  | Finished goods                     |             
|                  |                                    |             
|                  | Less: inventory reserves           |             
|                  |                                    |             
|                 
|Accrued expenses: |                                    |             
|                  | Payroll and related benefits       |             
|                  | Warranty                           |             
|                  | Professional fees                  |             
|                  | Unearned revenue                   |             
|                  | Related to discontinued operations |             
|                  | Income taxes                       |             
|                  | Marketing expenses                 |             
|                  | Other                              |             
|                  |                                    |             

Note 6- Segment Information

Since July of 1999, the Company has organized its continuing business into two reportable segments: the Lumisys division ("Lumisys") and the AuntMinnie.com division ("AuntMinnie.com"). 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. Lumisys manufactures and markets an integrated suite of hardware and
software products for digitizing medical images. The AuntMinnie.com division includes an Internet portal, intended to be the most comprehensive Internet site for radiologists and professionals in the medical imaging industry, and software that enables
healthcare clinicians to access medical images and clinical information at any point of care.

The segments' accounting policies are the same as those described in the summary of significant accounting policies. The Company's chief operating decision makers evaluate performance for each segment based on net income or loss before
income taxes. Lumisys' total assets include the initial investment in AuntMinnie.com and amounts receivable from AuntMinnie.com, which are eliminated on consolidation.

|                                  | Lumisys | AuntMinnie.com | Elimination of Intercompany Transactions | Consolidated
|--------------------------------- | ------- | -------------- | ---------------------------------------- | ------------
|Three months ended March 31, 2000 |         |                |                                          |             
|Revenues                          | $5,062  | $90            | $ ---                                    | $5,152      
|Income (loss) from operations     | $286    | $(896)         | $ ---                                    | $(610)      
|Total assets                      | $25,693 | $345           | $(2,005)                                 | $24,033     



Note 7- Discontinued Operations

On June 3, 1999, the Company signed a definitive technology transfer agreement with Foresight Imaging, LLC ("Foresight") under which certain assets and technology of the Company's Imagraph, Inc. subsidiary were sold to Foresight for approximately
$300,000, with additional royalties to be paid to the Company over a three year period. In addition, Foresight holds an option to purchase other assets of Imagraph including inventory, furniture and equipment. All remaining operations of Imagraph were
terminated. The principals of Foresight were all employees of Imagraph and one was an officer of the Company until the execution of the technology transfer agreement.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Except for the historical information contained herein, the following discussion contains forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. As such, they are subject to a number of uncertainties that could cause actual results to differ materially from the statements. The words "expect," "believe," "anticipate," "intend" and words of similar import are intended to identify these
statements as forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section, as well as those discussed in the Company's 1999 Annual Report on Form 10-K and other
documents filed by the Company with the Securities and Exchange Commission. The Company does not undertake any obligation to update forward-looking statements.

Overview

Lumisys Incorporated (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 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. 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 5,950 Lumiscan units since its first product was introduced in 1990.

In 1999, the Company substantially completed its restructuring plan resulting from the 1997 merger with CompuRAD, a leading provider of software that enables healthcare clinicians to access medical images and clinical information at any
point of care. The Company currently sells its software products exclusively to its existing OEM and VAR customers or bundled with its family of laser and CCD film digitizers and its DesktopCRTM products. Utilizing the core technological competencies
and market expertise of the software design and marketing groups, the Company developed AuntMinnie.com, a comprehensive Internet portal for radiologists and professionals in the medical imaging industry. AuntMinnie.com provides a vertical portal for
radiologists, imaging managers, technologists, members of organized medicine, industry, and radiology practices to meet, transact, research, and collaborate on topics within the field of radiology with the ease and speed that only the Internet can
provide. Organized into various sections of interest to the radiology community, AuntMinnie.com has set itself apart from other medical information sites by its singular and unified focus on radiology professionals, aggregating the information they
require and facilitating the commerce in which they engage. AuntMinnie.com intends to generate revenue through the sale of corporate sponsorships and advertising on the various web pages and intends to earn commissions on ecommerce and used equipment
transactions. Currently, all development and marketing expenses are funded by the Company.

In 1998, the Company introduced its first CR system for use in the medical market, the ACR-2000 DesktopCRTM. The DesktopCRTM system utilized many of the design features of the CR system the Company developed for use in the
industrial inspection market in 1996. The DesktopCRTM system reads medical or industrial images from reusable phosphor plates, replacing the need for film and film processing. This was followed in 1999 by the second generation model, the ACR-2000i DesktopCRTM with an integrated eraser, allowing users to automatically erase phosphor plates without removing them from the system. Also in 1999, the Company introduced the iLuminator, a unique image management system based upon the
ACR-2000i DesktopCRTM , providing digital x-ray acquisition with computed radiography, image viewing, permanent storage of the digital images, and if required, transmission of these images to local and/or remote sites. The iLuminator is a
self-contained, fully integrated system that allows the user to completely replace film and chemistry and all their attendant costs and problems. The Company's CR systems are low-cost, small systems and particularly suited for low volume environments.

In 1999, the Company signed a definitive technology transfer agreement with Foresight Imaging, LLC ("Foresight") under which certain assets and technology of the Company's Imagraph subsidiary were sold to Foresight. The remaining
operations of Imagraph were discontinued.

Results of Operations

Revenues for the three months ended March 31, 2000 decreased 12.7% to $5.2 million from $5.9 million for the same period in 1999. Included in these amount are sales of the Company's digitizer products and Desktop CRTM products
and related accessories. Sales of digitizer products were $2.9 million for each period. Sales of Desktop CRTM products for the three months ended March 31, 1999 were $2.3 million compared to $1.5 million for the same period in 2000. The higher sales
for the three months ended March 31, 1999 were due to sales of units to be used as demonstration models by the Company's distributors. Also included in revenues for the three months ended March 31, 2000 is $90,000 in sponsorship revenue for the
AuntMinnie.com Internet portal which was developed in the second half of 1999.

Gross profit for the three months ended March 31, 2000 decreased to $2.3 million from $2.9 million for same period in 1999. Gross margin decreased to 44.1% for the three months ended March 31, 2000 from 49.3% for the same period in
1999, primarily due to lower sales volume. If sales volume of the Desktop CRTM products increases, the Company believes its gross margins should improve.

Production, content and other website costs were $346,000 for the three months ended March 31, 2000 and 6.7% of total revenues. These expenses relate to the AuntMinnie.com Internet portal which was developed in the second half of 1999
and include editorial staff and consultants and engineering and development expenses. The Company expects these expenses to increase as it expands the functionality of AuntMinnie.com.

Sales and marketing expenses for the three months ended March 31, 2000 increased 67.9% to $1.3 million from $761,000 for the same period in 1999. As a percentage of revenues for the three months ended March 31, 2000, these expenses
increased to 24.8% from 12.9% for the same period in 1999. The increase was due primarily to marketing costs related to AuntMinnie.com, which was developed in the second half of 1999. The Company expects its sales and marketing expenses to increase to
further develop and support the CR distribution channel and sponsorship and ecommerce revenue for AuntMinnie.com.

Research and development expenses for the three months ended March 31, 2000 increased 13.9% to $687,000 from $603,000 for the same period in 1999. As a percentage of revenues for the three months ended March 31, 2000, these expenses
increased to 13.3% from 10.2% for the same period in 1999. The increase was due primarily to development costs related to the next generation of Desktop CRTM.

General and administrative expenses increased 2.5% in the three months ended March 31, 2000 to $571,000 from $557,000 for the same period in 1999. As a percentage of revenues for the three months ended March 31, 2000, these expenses
increased to 11.1% from 9.4% for the same period in 1999. The increase primarily relates to expenses related to AuntMinnie.com offset by receipt of a legal settlement in March 2000. The Company expects increased general and administrative expenditures in
the future related to AuntMinnie.com.

The provision for income taxes for continuing operations for three months ended March 31, 1999 was $442,000. No tax provision or benefit was recognized for the three months ended March 31, 2000 due to the net loss from continuing
operations. The Company has provided a partial valuation allowance against the balance of its deferred tax assets remaining as of March 31, 2000. If the Company generates income from continuing operations for the year ended December 31, 2000, the Company
expects continuing operations to be subject to an effective tax rate of approximately 11%.

The loss from discontinued operations of $427,000 in the three months ended March 31, 1999, related to the net operating losses, net of income taxes, of the Imagraph subsidiary. In future periods, the Company expects to recognize income
from the discontinued operations related to royalty payments to be paid by Foresight.

Liquidity and Capital Resources

At March 31, 2000, the Company's working capital was $18.8 million. The Company had cash, cash equivalents and short-term investments of approximately $15.4 million on March 31, 2000, compared with $16.4 million on December 31,
1999. The decrease is primarily due to operating expenditures and capital equipment purchases for the AuntMinnie.com Internet portal.

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 December 31, 2000. Thereafter, if cash
generated from operations is insufficient to satisfy the Company's projected requirements, the Company or its subsidiary, AuntMinnie.com, 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 or its subsidiary 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.

Risk Factors

Significant Fluctuations in Operating Results. The Company reported a loss from continuing operations for the three months ended March 31, 2000. There can be no assurances 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, the incurrence of costs associated with discontinued operations of 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 Communication Systems ("PACS") and mini-PACS. The Company 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 60 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.

New Product Development in Hardware, Software and Internet Products; 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. The market for PACS, teleradiology software and Internet products and services for radiology is uncertain. Current and future competitors are likely to introduce competing hardware,
software and Internet products for radiology, 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 Internet products,
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 CR hardware through the OEM, System Integrator sales channels and direct sales 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. Additionally, the Company has limited experience in marketing, installing and supporting its software and CR hardware through these sales channels
and direct sales, 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 Company has limited experience in Internet products and services and there can be no assurance that AuntMinnie.com will generate significant revenue. AuntMinnie.com will rely heavily on revenues derived from Internet advertising and
sponsorships under short-term contracts, which are difficult to forecast accurately and which may prove to be an ineffective means of advertising for our current and potential clients. AuntMinnie.com's business services, while costly to develop, may fail
to gain market acceptance. The Company has invested a significant amount of money and resources in the creation of business services, such as facilitating used imaging equipment sales, but such services are unproven and may fail to gain market acceptance.
Because the market for these business services is new and evolving, it is difficult to predict the size of this market and its rate of growth, if any. If the market fails to develop, develops more slowly than expected or becomes more competitive than is
currently expected, the Company's business, financial condition and results of operations would be materially adversely affected.

Significant Risks Associated with Acquisitions. The integration of any acquisition 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 or computed radiography could cause a decline in sales or loss of market acceptance of the Company's
hardware and software products. In particular, 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 and CR 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.

The Company established a new business entity, AuntMinnie.com, and is incurring costs to establish this business line. There can be no assurance that the Company will be successful in implementing and developing the radiology portal,
meeting the expectations as to revenue generation, attracting executive talent, strategic partnerships and sponsors, competing with other internet sites, or achieving market acceptance by the radiology community, and such failure could have a material
adverse effect on the Company's business and results of operations. AuntMinnie.com may have difficulty scaling and adapting existing architecture and infrastructure to accommodate increased traffic and technology advances. In the future, AuntMinnie.com
may be required to make significant changes to architecture including moving to a completely new architecture. If AuntMinnie.com is required to switch architectures, the Company would incur substantial costs and users may experience delays or
interruptions in service. Delays or interruptions in service may cause users to become dissatisfied with AuntMinnie.com and move to competing providers of online services. Further, to the extent that demand for AuntMinnie.com's services increase, the
Company will need to expand its infrastructure, including the capacity of its hardware servers and the sophistication of its software. This expansion is likely to be expensive and complex and require additional technical expertise. Any loss of traffic,
increased costs, inefficiencies or failures to adapt to new technologies and the associated adjustments to AuntMinnie.com's architecture would 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 recognizing revenue or collecting payments for these products. The Company's reputation from such errors could also be damaged, resulting in fewer orders. 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.

Risks Associated With the Internet. The Internet may not prove to be a viable commercial marketplace for a number of reasons, including the lack of acceptable security technologies, potentially inadequate development of the
necessary infrastructure, or the lack of timely development and commercialization of performance improvements.

AuntMinnie.com's operations could be significantly hindered by the occurrence of a natural disaster or other catastrophic event. AuntMinnie.com's operations are susceptible to outages due to fire, floods, power loss, telecommunications
failures, break-ins and similar events. In addition, substantially all of AuntMinnie.com's network infrastructure is located in Tucson, Arizona. The Company does not have multiple site capacity in the event of any such occurrence. Despite the Company's
implementation of network security measures, its servers are vulnerable to computer viruses, break-ins, and similar disruptions from unauthorized tampering with the Company's computer systems. The Company's business interruption insurance may not be
sufficient to compensate the Company for losses that may occur as a result of any of these events. Such events could have a material adverse effect on the Company's business and results of operations.

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, 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 nine months, and the time from
purchase order to delivery and recognition of revenue typically ranges from one to nine 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. In addition, PhorMax and Digident plan to debut a desktop-sized CR in the near future. 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 affect 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. In 1996, CLS entered the market with a product similar to the laser-based film digitizers offered by the Company 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. The Company 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 the Company's competitors will not develop enhancements to, or future generations of, competitive products that will offer
superior price or performance features that render the Company's products less competitive or obsolete.

In addition, large 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 the Company's products, and some of
them have in the past produced and marketed such products. While many of these companies currently purchase products from the Company, the Company believes that it will be required to continue to improve the price and performance characteristics of its
products to retain their business especially in view of the fact that these customers are not contractually required to purchase their CR and digitizers exclusively or at all from the Company. All of these companies have significantly greater financial,
marketing and manufacturing resources than the Company and would be significant competitors if they decided to enter this market.

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 Emed Technologies 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 brings additional value to the Company's CR and digitizer products.

Competition in the Internet portal business is intense and includes other vertical Internet portals focused on the radiology community such as Radiology.com, as well as companies offering e-commerce products using the Internet, such as
Neoforma and companies offering content, products and services to a broader medical market, such as WebMD. Some of the Company's competitors and potential competitors may have significantly greater financial, technical, product development, marketing and
other resources and market recognition than the Company in the Internet portal business. Many of the Company's competitors also currently have, or may develop or acquire, substantial market acceptance by the radiology community. 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. For the three months ended March 31, 2000, one customer represented 10% of the Company's total sales. A number of large customers accounted for a significant portion of the Company's
backlog at March 31, 2000. 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 assurances 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.

Third Party Content. The future success of AuntMinnie.com depends in part on its ability to aggregate compelling content and deliver that content through its online properties. Much of the content that attracts users to
AuntMinnie.com, such as news items, continuing medical education ("CME"), industry standards and regulations, stock quotes and weather reports is licensed from third parties such as Massachusetts General Physicians Organization, Reuters and The Weather
Channel. Many of AuntMinnie.com's content licenses with third parties are non-exclusive and extend for a period of less than two years. There can be no guarantee that such licenses will be renewed upon their expirations or that other radiology Internet
portals will not be able to offer similar or identical content. If AuntMinnie.com is unable to license or acquire compelling content for its Internet site from third parties, or if other companies are able to broadcast content that is similar to or the
same as that provided by AuntMinnie.com, the number of users on AuntMinnie.com may not grow at all or at a slower rate than anticipated or may decrease, which would decrease advertising and e-commerce revenue and would have a material adverse effect on
the Company's business and results of operations.

Litigation. 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.

In December 1998, the state court granted in part and denied in part defendants' motion to dismiss plaintiff's amended complaint. Discovery is in progress in the state case. There can be no assurance that the Company will prevail in the
state case. In July 1999, plaintiff voluntarily dismissed the federal case.

Government Regulation. The manufacturing and marketing of the Company's digitizers, CR products 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 Company's Sunnyvale facility 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 Company's Tucson facility 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.

AuntMinnie.com is subject to U.S. and foreign government regulation of the Internet, the impact of which is difficult to predict. There are currently few laws or regulations directly applicable to the Internet. The application of
existing laws and regulations to AuntMinnie.com relating to issues such as user privacy, defamation, pricing, advertising, taxation, sweepstakes, promotions, content regulation, quality of products and services, and intellectual property ownership and
infringement can be unclear. In addition, AuntMinnie.com will also be subject to new laws and regulations directly applicable to AuntMinnie.com's activities. Any existing or new legislation applicable to AuntMinnie.com could expose the Company to
substantial liability, including significant expenses necessary to comply with such laws and regulations, and dampen the growth in use of the Internet.

AuntMinnie.com posts privacy policies concerning the use and disclosure of user data. Any failure by the Company to comply with the posted privacy policies could have a material adverse effect on the Company's business, financial
condition and results of operations.

Due to the global nature of the Internet, it is possible that the governments of other states and foreign countries might attempt to regulate its transmissions or prosecute AuntMinnie.com for violations of their laws. AuntMinnie.com
might unintentionally violate such laws, such laws may be modified and new laws may be enacted in the future. Any such developments could have a material adverse effect on the Company's business, financial condition and results of operations.

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.

The Company periodically enters into arrangements to offer third-party products, services or content under the AuntMinnie.com brand or via distribution on AuntMinnie.com, including stock quotes and trading information. AuntMinnie.com
may be subject to claims concerning these products, services or content by virtue of AuntMinnie.com's involvement in marketing, branding, broadcasting or providing access to them, even if AuntMinnie.com does not host, operate, provide, or provide access
to these products, services or content. While the agreements with these parties often provide that AuntMinnie.com will be indemnified against such liabilities, such indemnification may not be adequate. It is also possible that, if any information provided
directly by AuntMinnie.com contains errors or is otherwise negligently provided to users, third parties could make claims against the Company. Investigating and defending any of these types of claims is expensive, even to the extent that the claims do not
result in liability.

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 the teleradiology and health care industry, for PACS and teleradiology products, healthcare information
systems and Internet products and services for the radiology community. Also, the stock market has experienced and continues to experience extreme price and volume fluctuations which have affected the market prices of securities, particularly those of
medical technology companies, and which often have been unrelated to the operating performance of the companies. These broad market fluctuations, as well as general economic and political conditions, may adversely affect the market price of the Company's
common stock in future periods.





Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market Risk Disclosures. The Company is exposed to market risk related to changes in interest rates and foreign currency exchange rates. The Company does not use derivative financial instruments for speculative or trading
purposes.

Interest Rate Sensitivity. The Company maintains a short-term investment portfolio consisting mainly of income securities with an average maturity of less 180 days. These available-for-sale securities are subject to interest rate
risk and will fall in value if market interest rates increase. If market interest rates were to increase immediately and uniformly by 10 percent from levels at March 31, 2000, the fair value of the Company's portfolio would decline by an immaterial
amount. The Company has the ability to hold its fixed income investments until maturity, and therefore the Company would not expect its operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market
interest rates on its securities portfolio.

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. At March 31, 2000, the Company had no purchase commitments denominated in foreign currencies.



Part II - OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable

Item 2. Changes in Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

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

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits and Reports on Form 8-K

|(a). Exhibits furnished: 
|-------------------------
|                         
|                         
|                         
|                         
|(b). Reports on Form 8-K:
|                         









SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|      |              |     | LUMISYS INCORPORATED              
|----- | ------------ | --- | ----------------------------------
|      |              |     |                                   
|Dated | May 12, 2000 | By: | /s/ Phillip Berman                
|      |              |     | Phillip Berman, M.D.              
|      |              |     | Chief Executive Officer           
|      |              |     |                                   
|      | May 12, 2000 |     | /s/ Dean MacIntosh                
|      |              |     | Dean MacIntosh                    
|      |              |     | Vice President and Chief Financial
|      |              |     | Officer (Principal Financial and  
|      |              |     | Accounting Officer)