UNITED STATES 
                 SECURITIES AND EXCHANGE COMMISSION 
                     Washington, D.C.  20549 
 
                            FORM 10-Q 
 
(Mark One) 
 
/X/  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE  
                    SECURITIES EXCHANGE ACT OF 1934  
 
              For the quarterly period ended September 30, 1996 
 
                                or 
 
/  /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE 
                    SECURITIES EXCHANGE ACT OF 1934 
              For the transition period from ____ to ____ 
 
                Commission File Number:    0-26832 
 
                          Lumisys Incorporated 
         (Exact name of registrant as specified in its charter) 
 
 Delaware                                         77-0133232 
(State of incorporation)  (I.R.S. Employer Identification No.) 
 
 225 Humboldt Court, Sunnyvale, CA                         94089 
(Address of principal executive offices)               (Zip Code) 
 
                           (408) 733-6565 
        (Registrant's telephone number, including area code) 
 
Indicate by check mark whether the registrant (1) has filed all 
reports required to be filed by Section 13 or 15(d) of the 
Securities Exchange Act of 1934 during the preceding 12 months (or 
for such shorter period that the registrant was required to file 
such reports), and (2) has been subject to such filing 
requirements for the past 90 days. 
 
               Yes / X /                           No /  / 
Indicate the number of shares outstanding of each of the issuer's 
classes of common stock, as of the latest practicable date. 
 
As of November 8, 1996, 6,392,720 shares of the registrant's 
Common Stock, $.001 par value, were outstanding. 
 
 
 
 
 
 
 
 
 
 
                      Lumisys Incorporated 
                             Index 
 
                                                               
Page 
Part I. FINANCIAL INFORMATION 
 
        Item 1.  Financial Statements: 
 
                 Consolidated balance sheets at  
                  September 30, 1996 and December 31, 1995       3 
		 
                 Consolidated statements of income for 
                  the three and nine months ended September 30, 
                  1996 and 1995                                  4 
 
                 Consolidated statements of cash flows  
                  for the nine months ended September 30, 1996 
                  and 1995                                       5 
 
                 Notes to financial statements                   6 
 
        Item 2.  Management's Discussion and Analysis 
                  of Financial Condition and Results of 
                  Operations                                 7 - 9 
 
Part II. OTHER INFORMATION 
 
        Item 6.  Exhibits and Reports on Form 8-K                9 
 
SIGNATURES                                                       
10 
 
			 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                    2 
 
Part I  - FINANCIAL INFORMATION 
 
Item 1. Financial Statements 
 
                      Lumisys Incorporated 
                   Consolidated Balance Sheets 
                          (Unaudited) 
                                         Sept. 30,   December 31, 
                                            1996         1995 
                                         ---------   ------------ 
                                               (In thousands) 
                            ASSETS 
Current assets: 
  Cash and cash equivalents              $ 17,430       $ 11,426 
  Short-term investments                      ---          3,934 
  Accounts receivable, net of  
   allowances of $280 and $249              3,118          2,410 
  Inventories                               3,650          3,003 
  Deferred tax assets                         632          1,114 
  Other current assets                        178            294 
                                        ---------    ------------ 
    Total current assets                   25,008         22,181 
Property and equipment, net                   141            162 
Other assets                                  196            400 
                                        ---------    ------------ 
                                         $ 25,345       $ 22,743 
                                        =========    ============ 
 
               LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities: 
  Accounts payable                       $    959       $  1,525 
  Accrued expenses                          1,910          1,468 
                                        ---------    ------------ 
    Total current liabilities               2,869          2,993 
                                        ---------    ------------ 
Stockholders' equity 
  Preferred stock, $0.001 par value; 
   5,000 shares authorized; no shares 
   issued and outstanding                     ---            --- 
  Common stock, $0.001 par value;  
   25,000 shares authorized; 6,366 and  
   6,240 shares issued and outstanding          6              6 
  Additional paid-in capital               22,788         22,702 
  Accumulated deficit                         (87)        (2,521) 
  Notes receivable from stockholders         (120)          (297) 
  Deferred compensation related to stock 
   options                                   (111)          (140) 
                                        ---------    ------------ 
    Total stockholders' equity             22,476         19,750 
                                        ---------    ------------ 
                                         $ 25,345       $ 22,743 
                                        =========    ============ 
       The accompanying notes are an integral part of these 
                     financial statements. 
                                    3 
                      Lumisys Incorporated 
               Consolidated Statements of Income 
                          (Unaudited) 
 
                           Three months ended   Nine months ended 
                          -------------------  ------------------ 
                          Sept. 30, Sept. 30, Sept. 30, Sept. 30, 
                             1996      1995       1996    1995 
                           -------  --------   --------  ------- 
                             (In thousands)        (In thousands) 
Sales                        $5,933    $5,013    $16,915 $12,091 
Cost of sales                 2,684     2,322      7,795   5,581 
                             ------  --------   -------- ------- 
  Gross profit                3,249     2,691      9,120   6,510 
                             ------  --------   -------- ------- 
Operating expenses: 
  Sales and marketing           463       412      1,408   1,112 
  Research and development    1,064       821      3,099   2,042 
  General and administrative    621       540      1,828   1,322 
  Acquired in-process  
   research and development     ---       ---        ---   1,442 
                             ------  --------   -------- ------- 
    Total operating expenses  2,148     1,773      6,335   5,918 
                             ------  --------   -------- ------- 
Income (loss) from operations 1,101       918      2,785     592 
Interest income                 238        32        668     110 
                             ------  --------   -------- ------- 
Income (loss) before  
 income taxes                 1,339       950      3,453     702 
Provision (benefit) for  
 income taxes                   522       (47)     1,019    (724) 
                             ------  --------   -------- ------- 
Net income                   $  817   $   997    $ 2,434 $ 1,426 
                             ======  ========   ======== ======= 
 
Net income per share         $ 0.12   $  0.20    $  0.36  $ 0.28	 
                             ======  ========   ========  ====== 
 
Shares used to compute net  
 income per share             6,805     5,096      6,829   5,104 
                             ======  ========   ========  ====== 
 
 
 
 
 
 
 
 
 
     The accompanying notes are an integral part of these  
                   financial statements. 
 
 
                                    4 
                      Lumisys Incorporated 
             Consolidated Statements of Cash Flows 
                           (Unaudited) 
                                              Nine months ended 
                                          ------------------------ 
                                          Sept. 30,   December 31, 
                                             1996         1995 
                                          ---------   ------------ 
                                               (In thousands) 
Cash flows from operating activities: 
 Net income                                  $2,434        $1,426 
 Adjustments to reconcile net income to 
  net cash provided by operating activities: 
   Depreciation and amortization                145           122 
   Deferred income taxes                        482          (963) 
   Interest on notes receivable from 
    stockholders                                 (7)          (10) 
   Deferred compensation related to stock 
    options                                      29            22 
   Acquired research and development in-process ---         1,442 
   Changes in assets and liabilities (net of  
    effects of Imagraph and XRS acquisitions): 
     Accounts receivable                       (708)           58 
     Inventories                               (647)       (1,655) 
     Other assets                               320          (288) 
     Accounts payable                          (566)          832 
     Accrued expenses                           442           363 
                                             ------        ------ 
Net cash provided by operating activities     1,924         1,349 
                                             ------        ------ 
Cash flows from investing activities: 
 Proceeds from sale of short-term investments 3,934           --- 
 Purchases of property and equipment           (124)          (42) 
 Purchase of Imagraph                           ---        (1,800) 
 Purchase of XRS                                ---          (200) 
                                             ------        ------ 
Net cash provided (used) in investing 
activities                                    3,810        (2,042) 
                                             ------        ------ 
Cash flows from financing activities: 
 Proceeds from sale of common stock, net         86            40 
 Payment on notes receivable from stockholders  184           --- 
                                             ------        ------ 
Net cash provided by financing activities       270            40 
                                             ------        ------ 
Net increase (decrease) in cash and  
 cash equivalents                             6,004          (653) 
Cash and cash equivalents at beginning of 
 period                                      11,426         3,633 
                                             ------        ------ 
Cash and cash equivalents at end of period  $17,430        $2,980 
                                             ======        ====== 
 
 
Supplemental disclosure of cash flow information: 

 Cash paid for income taxes                 $   620       $    79 
 
Supplemental schedule of noncash investing 
 and financing activities: 
  Common stock issued for purchase of 
   XRS and to consultant                        ---       $    33	 
  Series C mandatorily redeemable convertible  
   preferred stock issued for purchase 
   of Imagraph                                  ---           200 
 
          The accompanying notes are an integral part of these 
                       financial statements. 
 
                                    5 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                      Lumisys Incorporated 
             Notes to Consolidated Financial Statements 
 
Note 1 - Basis of Presentation 
 
The consolidated financial statements of Lumisys Incorporated (the 
"Company") presented herein have been prepared pursuant to the 
rules of the Securities and Exchange Commission for quarterly 
reports on Form 10-Q and do not include all of the information and 
note disclosures required by generally accepted accounting 
principles.  These statements should be read in conjunction with 
the consolidated financial statements and notes thereto for the 
year ended December 31, 1995, included in the Company's Annual 
Report on Form 10-K as filed with the Securities and Exchange 
Commission.   
 
The consolidated balance sheet as of September 30, 1996, and the 
consolidated statements of income for the three and nine months 
ended September 30, 1996 and 1995, and the consolidated statements 
of cash flows for the nine months ended September 30, 1996 and 
1995, are unaudited but, in the opinion of management, include all 
adjustments (consisting of normal, recurring adjustments) 
necessary for a fair statement of the results for these interim 
periods. 
 
The results of operations for the three and nine months ended 
September 30, 1996, are not necessarily indicative of the results 
to be expected for the entire fiscal year ending December 31, 
1996. 
 
Note 2 - Composition of Certain Financial Statement Amounts 
                                          Sept. 30,   December 31, 
                                             1996         1995 
                                           --------   ------------ 
                                                (In thousands) 
            Inventories: 
             Raw materials                   $3,094        $2,283 
             Work-in-process                    695           774 
             Finished goods                     578           779 
                                           --------   ------------ 
                                              4,367         3,836 
             Less:  inventory reserves         (717)         (833) 
                                           --------   ------------ 
                                             $3,650        $3,003 
                                           ========   ============
	            Accrued expenses: 
             Payroll and related benefits    $  839        $  538 
             Warranty                           651           533 
             Accrued income taxes               ---           173 
             Other                              420           224 
                                           --------   ------------ 
                                             $1,910        $1,468 
                                           ========   ============ 
 
                                    6 
 
Item 2.  Management's Discussion and Analysis of Financial 
Condition and Results of Operations 
 
Overview 
 
Lumisys develops, manufactures and markets a broad product line of 
laser-based very high resolution medical film digitizers, CCD-
based film scanners and video digitizer products necessary for 
converting analog medical images into diagnostic quality digital 
formats. 
 
Except for the historical information contained herein, the 
following discussion contains forward-looking statements that 
involve risks and uncertainties.  The Company's actual results 
could differ materially from those discussed here.  Factors that 
could cause or contribute to such differences include, but are not 
limited to, those discussed in this section, as well as those 
discussed in the Company's 1995 Annual Report on Form 10-K and 
other documents filed by the Company with the Securities and 
Exchange Commission. 
 
Results of Operations 
 
Total sales for the three months ended September 30, 1996 
increased 18.4% to $5.9 million from $5.0 million for the three 
months ended September 30, 1995. Total sales for the nine months 
ended September 30, 1996 increased 39.9% to $16.9 million from 
$12.1 million for the nine months ended September 30, 1995.  The 
increase for the nine month period was due in part to the 
acquisitions of  Imagraph and XRS in March of 1995 as well as an 
increase in system sales.  The percentage increase in sales of 
systems, including film digitizers and computed radiography 
readers, was 39.1%, primarily as a result of growth in demand for 
teleradiology. 
 
Gross profit for the three months ended September 30, 1996 
increased 20.7% to $3.2 million  from $2.7 million for the 
corresponding period of 1995. Gross margin increased in the three 
month period ended September 30, 1996 to 54.8% from 53.7% in the 
same period of 1995 primarily due to a more favorable product mix.  
Gross profit for the nine months ended September 30, 1996 
increased 40.1% to $9.1 million from $6.5 million for the nine 
months ended September 30, 1995.  Gross margin increased in the 
nine month period to 53.9% from 53.8%.  
 
Sales and marketing expenses increased 12.4% in the three months 
ended September 30, 1996 to $463,000 from $412,000 in the same 
period of 1995.  As a percentage of sales, these expenses declined 
to 7.8% in the three months ended September 30, 1996 from 8.2% in 
the same period of 1995.  Sales and marketing expenses increased 
26.6% to $1,408,000 for the nine months ended September 30, 1996 
from $1,112,000 for the same period of 1995. As a percentage of 

                                    7
sales, these expenses decreased to 8.3% in the nine months ended
September 30, 1996 from 9.2%  in the same period of 1995.  The
increase in absolute dollars for the nine month period was 
primarily due to the increase in the Company's sales and marketing 
personnel as a result of acquisitions.  The Company expects sales 
and marketing expenses to increase in absolute dollars as the 
Company grows. 
  
Research and development expenses increased 29.6% in the three 
months ended September 30, 1996 to $1,064,000 from $821,000 in the 
same quarter of 1995. As a percentage of sales, research and 
development expenses increased to 17.9% in the three months ended 
September 30, 1996 from 16.4% in the same quarter of 1995.  For 
the nine months ended September 30, 1996, research and development 
expenses increased 51.8% to $3,099,000 from $2,042,000 for the 
nine months ended September 30, 1995.  As a percentage of sales, 
research and development expenses increased to 18.3% in the nine 
months ended September 30, 1996 from 16.9% in the same period of 
1995.  The increases for both the three and nine month periods 
were primarily due to increased engineering personnel expenses as 
a result of acquisitions.  The Company believes that continuing 
product development is a key element in the success of its 
business and expects to continue to increase its research and 
development expenditures in absolute dollar amounts.    
 
General and administrative expenses increased 15.0% in the three 
months ended September 30, 1996 to $621,000 from $540,000 in the 
same quarter of 1995.  As a percentage of sales, these expenses 
decreased in the three months ended September 30, 1996 to 10.5% 
from 10.8% in the same quarter of 1995.  General and 
administrative expenses increased 38.3% in the nine months ended 
September 30, 1996 to $1,828,000 from $1,322,000 in the same 
period of 1995.  As a percentage of sales, general and 
administrative expenses decreased to 10.8% in the nine months 
ended September 30, 1996 from 10.9% in the same quarter of 1995. 
The increase in absolute dollars for the nine month period was due 
to the ongoing costs associated with increased personnel expenses 
as a result of acquisitions and the expenses of complying with the 
responsibilities of being a public company.  The Company expects 
that its general and administrative expenses will increase in 
absolute dollars in the future as the Company continues to grow. 
 
Acquired in-process research and development expenses represent a 
non-recurring charge in the first quarter of 1995 of $1.4 million 
relating to products being developed by Imagraph and XRS at the 
time of the acquisitions. 
 
The Company recognized a provision for income taxes of $522,000 in 
the three months ended September 30, 1996.  In the same period of 
1995, the Company recognized a provision for income taxes of 
$95,000, which was more than offset by the recognition of $142,000 
of deferred tax assets, resulting in a net benefit for income 
taxes of $47,000.  The Company recognized a provision for income 

                                    8
taxes of $1,334,000 in the nine months ended September 30, 1996, 
which was partially offset by the recognition of $315,000 of 
deferred tax assets, resulting in a net provision for income taxes 
of $1,019,000.  In the same period of 1995, the Company recognized 
a provision for income taxes of $239,000, which was more than 
offset by the recognition of $963,000 of deferred tax assets, 
resulting in a net benefit for income taxes of $724,000.  The 
Company's 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 
became subject to an effective tax rate of approximately 39% 
beginning in the quarter ended September 30, 1996.   
                                     
Liquidity and Capital Resources 
 
The Company has financed its activities primarily from net cash 
provided by operations and the issuance of securities. 
 
At September 30, 1996, the Company's working capital was $22.1 
million.  The Company's cash, cash equivalents and short-term 
investments increased by $2.0 million in the nine months ended 
September 30, 1996 to $17.4 million at September 30, 1996 compared 
with $15.4 million of cash, cash equivalents and short-term 
investments at December 31, 1995.  The increase is primarily due 
to net income for the period which was partially offset by 
increases in the Company's inventories and accounts receivable and 
decreases in accounts payable.  The increase in inventories is 
primarily due to increasing sales. 
 
The Company does not currently have any significant capital 
commitments and believes that existing sources of liquidity and 
funds expected to be generated from operations will provide 
adequate cash to fund the Company's anticipated working capital 
and other cash needs for the foreseeable future. 
 
Part 2 - OTHER INFORMATION 
 
Item 6.  Exhibits and Reports on Form 8-K. 
a)   Exhibits furnished: 
 
     Exhibit 
     Number       Description of Document 
     -------	   ----------------------- 
       27	        Financial Data Schedule 
  
b)   Reports on Form 8-K:  none. 
 
 
 
 
 
 
 
 
                                    9 
 
 
SIGNATURES 
 
Pursuant to the requirements of the Securities Exchange Act of 
1934, the registrant has duly caused this report to be signed on 
its behalf by the undersigned thereunto duly authorized. 
 
	LUMISYS INCORPORATED 
 
Dated:  November 13, 1996            By:/s/ Stephen J. Weiss 
        -----------------               -------------------------- 
                                        Stephen J. Weiss 
                                        President, Chief Executive  
                                        Officer	 
	 
        November 13, 1996               /s/ Craig L. Klosterman 
        -----------------               --------------------------          
                                        Craig L. Klosterman 
                                        Chief Operating and Chief  
                                        Financial Officer 
 
		 
	 
 
 
 
 
                                    10