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, 1998

                                      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 9, 1998, 9,651,597 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, 1998
                   and December 31, 1997                                 3
		
                 Consolidated statements of income for the three
                   and nine months ended September 30, 1998 and 1997     4

                 Consolidated statements of cash flows for the nine
                   months ended September 30, 1998 and 1997              5

                 Notes to financial statements                       6 - 8

        Item 2.  Management's Discussion and Analysis of
                 Financial Condition and Results of Operations       8 - 18

Part II. OTHER INFORMATION

        Item 6.  Exhibits and Reports on Form 8-K                        19

SIGNATURES                                                               20

			


Part I  - FINANCIAL INFORMATION

Item 1. Financial Statements

                            Lumisys Incorporated
                        Consolidated Balance Sheets
                                 (Unaudited)
                    (In thousands, except per share amounts)
                                                       Sept. 30,   Dec. 31,
                                                          1998       1997
                                                       ---------   --------
                                  ASSETS
Current assets:
 Cash and cash equivalents                              $ 5,697     $ 7,522
 Short-term investments                                  14,023      17,007
 Accounts receivable, net of allowances 
  of $703 and $657                                        3,818       4,622
 Inventories                                              3,593       2,892
 Deferred tax assets                                      1,453       1,453
 Other current assets                                       290         316
                                                       ---------   --------
  Total current assets                                   28,874      33,812
Property and equipment, net                                 571         606
                                                       ---------   --------
                                                        $29,445     $34,418
                                                       =========   ========	

                   LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable                                       $ 1,163     $ 1,355
 Accrued expenses                                         2,077       2,967
 Merger and related costs                                   903       2,117
                                                       ---------   --------
  Total current liabilities                               4,143       6,439
                                                       ---------   --------

Note payable to related party                               142         130

Commitments and contingencies

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; 9,652 and 10,370 shares issued 
  and outstanding                                            10          10
 Additional paid-in capital                              29,093      32,265
 Accumulated deficit                                     (3,935)     (4,407)
 Deferred compensation related to stock options              (8)        (19)
                                                       ---------   --------
  Total stockholders' equity                             25,160      27,849
                                                       ---------   --------
                                                        $29,445     $34,418
                                                       =========   ========	
The accompanying notes are an integral part of these financial statements.

                            Lumisys Incorporated
                    Consolidated Statements of Income
                                 (Unaudited)
                    (In thousands, except per share amounts)

                             Three months ended     Nine months ended
                             -------------------   -------------------
                             Sept. 30,  Sept. 30,  Sept. 30,  Sept. 30,
                              1998        1997       1998       1997
                             ---------  ---------  ---------  ---------
Sales                         $ 5,756    $ 7,947    $17,651    $22,941		
Cost of sales                   2,599      3,477      7,966     10,088
                             ---------  ---------  ---------  ---------
  Gross profit                  3,157      4,470      9,685     12,853
                             ---------  ---------  ---------  ---------
Operating expenses:
  Sales and marketing             999      1,095      2,592      3,471
  Research and development      1,361      1,615      4,545      4,939
  General and administrative      724      1,440      2,509      3,344
                             ---------  ---------  ---------  ---------
    Total operating expenses    3,084      4,150      9,646     11,754
                             ---------  ---------  ---------  ---------
Income from operations             73        320         39      1,099
Interest income                   213        271        731        835
                             ---------  ---------  ---------  ---------
Income before income taxes        286        591        770      1,934
Provision for income taxes        110        395        298      1,225
                             ---------  ---------  ---------  ---------
Net income                    $   176    $   196    $   472    $   709
                             =========  =========  =========  =========
	
Net income per share
  Basic                       $  0.02    $  0.02    $  0.05    $  0.07
                             =========  =========  =========  =========
  Diluted                     $  0.02    $  0.02    $  0.05    $  0.07
                             =========  =========  =========  =========

Weighted average shares 
 used to compute net 
 income per share
  Basic                         9,742     10,119     10,016     10,056
                            ==========  =========  =========  =========
  Diluted                       9,835     10,332     10,185     10,306
                            ==========  =========  =========  =========

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


                           Lumisys Incorporated
                     Consolidated Statements of Cash Flows
                                 (Unaudited)
                                (In thousands)

                                                     Nine months ended
                                                 -------------------------
                                                   Sept. 30,    Sept. 30,
                                                    1998         1997
                                                 -----------  -----------
Cash flows from operating activities:
 Net income	                                       $   472       $   711
 Adjustments to reconcile net income to net cash
  provided by operating activities:
 Depreciation and amortization                         239           371	
 Changes in assets and liabilities:
  Accounts receivable, net                             804        (1,036)
  Inventories                                         (701)         (464)
  Other assets                                          26           303
  Accounts payable                                    (192)          510
  Accrued expenses                                    (878)          973
  Merger and related costs                          (1,214)         (151)
                                                 -----------  -----------
Net cash provided (used) by operating activities    (1,444)        1,217
                                                 -----------  -----------
Cash flows from investing activities:
  Proceeds from sale of short-term investments       2,984           ---
  Purchases of property and equipment                 (193)         (408)
                                                 -----------  -----------
Net cash provided (used) in investing activities     2,791          (408)
                                                 -----------  -----------
Cash flows from financing activities:
  Sale (purchase) of common stock, net              (3,172)         (389)
  Payment on notes receivable from stockholders        ---           114
                                                 -----------  -----------
Net cash used by financing activities               (3,172)         (275)
                                                 -----------  -----------
Net increase (decrease) in cash and 
 cash equivalents                                   (1,825)          534
Cash and cash equivalents at beginning of period     7,522        22,490
                                                 -----------  -----------
Cash and cash equivalents at end of period         $ 5,697       $23,024
                                                 ===========  ===========	

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


                            Lumisys Incorporated
                  Notes to Consolidated Financial Statements

Note 1 - Basis of Presentation

The consolidated financial statements of Lumisys Incorporated (the "Company") 
presented herein have been prepared pursuant to the rules of the Securities 
and Exchange Commission for quarterly reports on Form 10-Q and do not include 
all of the information and note disclosures required by generally accepted 
accounting principles.  These statements should be read in conjunction with 
the consolidated financial statements and notes thereto for the year ended 
December 31, 1997, 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, 1998, and the consolidated 
statements of income for the three and nine months ended September 30, 1998 
and 1997, and the consolidated statements of cash flows for the nine months 
ended September 30, 1998 and 1997, 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, 
1998, are not necessarily indicative of the results to be expected for the 
entire fiscal year ending December 31, 1998.

Note 2 - Net Income Per Share

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

Basic earnings per share is computed by dividing income 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 per share calculations for the periods presented below (in 
thousands):

                             Three months ended     Nine months ended
                             -------------------   -------------------
                              Sept. 30, Sept. 30,  Sept. 30,  Sept. 30,
                               1998      1997       1998       1997
                             ---------  ---------  ---------  ---------
Net income                     $  176    $  196     $  472     $  709
                             =========  =========  =========  =========

Weighted average shares 
  outstanding - basic           9,742    10,119     10,016     10,056
Effect of dilutive securities:
   Stock options and warrants      93       213        169        250
                             ---------  ---------  ---------  ---------
Weighted average shares 
  outstanding - diluted         9,835    10,332     10,185     10,306
                             =========  =========  =========  =========


Note 3 - Comprehensive Income

Effective January 1, 1998, the Company has adopted the pro forma disclosure 
requirements of Statement of Financial Accounting Standards No. 130, 
"Reporting Comprehensive Income" ("SFAS 130").  SFAS 130 establishes standards 
for the reporting of comprehensive income and its components in a full set of 
general-purpose financial statements.  Comprehensive income is comprised of 
net income 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 4 - Composition of Certain Financial Statement Amounts

                                                       Sept. 30,   Dec. 31,
                                                          1998       1997
                                                       ---------   --------
                                                            (In thousands)
              Inventories:
                Raw materials                           $ 2,746     $ 2,363
                Work-in-process                             970         586
                Finished goods                              975       1,093
                                                       ---------   --------
                                                          4,691       4,042
                Less:  inventory reserves                (1,098)     (1,150)
                                                       ---------   --------
                                                        $ 3,593     $ 2,892
                                                       =========   ========

              Accrued expenses:
                Payroll and related benefits            $   779     $ 1,122
                Warranty                                    464         465
                Accrued professional fees                     6         401
                Unearned revenue                            422         979
                Other                                       406         ---
                                                       ---------   --------
                                                        $ 2,077     $ 2,967
                                                       =========   ========

Note 5 - Revenue Recognition

In October, 1997, the American Institute of Certified Public Accountants 
("AICPA") issued Statement of Position No. 97-2 ("SOP 97-2"), "Software 
Revenue Recognition", which the Company adopted for transactions January 1, 
1998.  In March 1998, the AICPA issued Statement of Position No. 98-4 ("SOP 
98-4") "Deferral of the Effective Date of a Provision of SOP 97-2, Software 
Revenue Recognition".  SOP 98-4 defers, for one year, the application of 
certain passages in SOP 97-2 which limit what is considered vendor-specific 
objective evidence ("VSOE") necessary to recognize revenue for software 
licenses on multiple-element arrangements when undelivered elements exist.  
Additional guidance is expected to be provided prior to adoption of the 
deferred provision of SOP 97-2.  The Company will determine the impact, if 
any, the further guidance will have on current revenue recognition practices 
when issued.  Adoption of the remaining provisions of SOP 97-2 did not have a 
material impact on revenue recognition during the first nine months of 1998.

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

EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING 
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND 
UNCERTAINTIES.  THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM 
THOSE DISCUSSED HERE.  FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH 
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THIS SECTION, 
AS WELL AS THOSE DISCUSSED IN THE COMPANY'S 1997 ANNUAL REPORT ON FORM 10-K 
AND OTHER DOCUMENTS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE 
COMMISSION.

Overview

Lumisys develops, manufactures and markets a broad product line of laser-based 
very high resolution medical film digitizers, charge-coupled device-based 
("CCD") film scanners and video digitizer products necessary for converting 
analog medical images into diagnostic quality digital formats.

Results of Operations

Total sales for the three months ended September 30, 1998 decreased 27.6% to 
$5.8 million from $7.9 million for the three months ended September 30, 1997.  
Total sales for the nine months ended September 30, 1998 decreased 23.1% to 
$17.7 million from $22.9 million for the nine months ended September 30, 1997. 
These decreases were primarily due to lower software sales in 1998 as a result 
of the Company's change in its software sales strategy.  In November 1997, the 
Company decided to sell software products to OEM and VAR customers only, 
whereas previously the Company sold software to direct end-user customers as 
well.  OEM and VAR sales have a substantially longer sales cycle compared to 
those for direct end-user customers; additionally, to date the Company has not 
been very successful in obtaining software sourcing agreements with OEMs.


Gross profit for the three months ended September 30, 1998 decreased 29.4% to 
$3.2 million from $4.5 million for the corresponding period of 1997. Gross 
margin decreased in the three month period ended September 30, 1998 to 54.8% 
from 56.2% in the same period of 1997.  Gross profit for the nine months ended 
September 30, 1998 decreased 24.6% to $9.7 million from $12.9 million for the 
nine months ended September 30, 1997.  Gross margin decreased in the nine 
month period to 54.9% from 56.0%, primarily due to lower software sales for 
the first three quarters of 1998 compared to the first three quarters of 1997.

Sales and marketing expenses decreased 8.8% in the three months ended 
September 30, 1998 to $999,000 from $1.1 million in 1997.  As a percentage of 
sales, these expenses increased to 17.4% in 1998 from 13.8% in 1997.  Sales 
and marketing expenses decreased 25.3% to $2.5 million for the nine months 
ended September 30, 1998 from $3.4 million for the same period of 1997. As a 
percentage of sales, these expenses decreased to 14.7% in the nine months 
ended September 30, 1998 from 15.1% in 1997.  The decrease for the three and 
nine month periods was primarily due to the decrease in the Company's sales 
and marketing personnel as a result of the strategic change in software 
product sales.  

Research and development expenses decreased 15.7% in the three months ended 
September 30, 1998 to $1.4 million from $1.6 million in the same quarter of 
1997. The decrease is primarily due to lower software development costs and 
lower prototype material costs in 1998 compared to 1997.  As a percentage of 
sales, research and development expenses increased to 23.6% in the three 
months ended September 30, 1998 from 20.3% in the same quarter of 1997 
primarily as a result of lower sales offset in part by the decrease in 
absolute dollars.  For the nine months ended September 30, 1998, research and 
development expenses decreased 8.0% to $4.5 million from $4.9 million for the 
nine months ended September 30, 1997.  As a percentage of sales, research and 
development expenses increased to 25.7% in the nine months ended September 30, 
1998 from 21.5% in 1997 due primarily to lower sales in 1998 compared to 1997. 

General and administrative expenses decreased 49.7% in the three months ended 
September 30, 1998 to $724,000 from $1.4 million in the same quarter of 1997.  
As a percentage of sales, these expenses decreased to 12.6% from 18.1%. The 
decrease is primarily due to the decrease in the Company's accounting and 
administration personnel resulting from combining the digitizer and software 
groups' accounting functions.  General and administrative expenses decreased 
25.0% in the nine months ended September 30, 1998 to $2.5 million from $3.3 
million in the same period of 1997.  As a percentage of sales, general and 
administrative expenses decreased to 14.2% for the nine months ended September 
30, 1998 from 14.6% in the nine month period ended September 30, 1997. 

The Company recognized a provision for income taxes of $110,000 in the three 
months ended September 30, 1998 compared to a provision for income taxes of 
$395,000 in the same period of 1997.  The Company recognized a provision for 
income taxes of $298,000 in the nine months ended September 30, 1998 compared 
to a provision for income taxes of $1.2 million in the same period of 1997.  
The Company has provided a partial valuation allowance against the balance of 
the deferred tax assets remaining as of September 30, 1998.  The Company 
expects to continue to be subject to an effective tax rate of approximately 
39% for the remainder of 1998.

Liquidity and Capital Resources

The Company financed its cash used in operating activities of $1.4 million 
primarily from the proceeds of the sale of short-term investments which  
contributed $3.0 million in the first three quarters of 1998.  The use of cash 
in operating activities principally resulted from the payment of prior period 
accruals.

At September 30, 1998, the Company's working capital was $24.7 million.  The 
Company had cash, cash equivalents and short-term investments of approximately 
$19.7 million at September 30, 1998 compared with $24.5 million of cash, cash 
equivalents and short-term investments at December 31, 1997.  The decrease is 
primarily due to the purchase by the Company of 760,000 shares of its Common 
Stock.

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.

Year 2000

The rapid approach of Year 2000 presents significant issues for many computer 
systems, since much of the software in use today may not accurately process 
data beyond 1999.  The Company is currently expending resources to review its 
products and services, as well as its internal use software in order to 
identify and modify those products, services and systems that are not Year 
2000 compiant.  The costs associated with this effort are not incremental to 
the Company, but represents a reallocation of existing resources.  In 
addition, the Company believes any modifications deemed necessary will be made 
on a timely basis and does not believe that the cost of such modifications 
will have a material effect on the Company's operating results.  

The Company has recently implemented new information systems and accordingly 
does not anticipate any internal Year 2000 issue from its own information 
systems, databases or programs.  However, the Company could be adversely 
impacted by Year 2000 issues faced by major distributors, suppliers, 
customers, vendors and financial service organizations with which the Company 
interacts.  The Company is currently taking steps to address the impact, if 
any, of the Year 2000 issue on the operations of the Company.  There can be no 
assurances that such a review will detect all potential failures of the 
Company's and/or third-party's computer systems.  A significant failure of the 
Company's or a third-party's computer system could have a material adverse 
effect on the Company's business, financial condition and results of 
operations.  The Company is in the process of evaluating the need for 
contingency plans with respect to Year 2000 requirements.  The necessity of 
any contingency plan must be evaluated on a case-by-case basis and will vary 
considerably in nature depending on the Year 2000 issue it may need to 
address.  

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

Risk Factors That Could Effect Results of Operations

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

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

Uncertainty of Market Acceptance.  The Company's success is dependent on 
market acceptance of its new and existing products.  There can be no assurance 
that sales of new products will achieve significant market acceptance in the 
future.  In addition, third party payers, such as governmental programs and 
private insurance plans, can indirectly affect the pricing or the relative 
attractiveness of the Company's products by regulating the maximum amount of 
reimbursement that they will provide for the taking, storing and 
interpretation of medical images.  A decrease in the reimbursement amounts for 
radiological procedures may decrease the amount which physicians, clinics and 
hospitals are able to charge patients for such services.  As a result, 
adoption of teleradiology and Picture Archiving and Communications Systems 
("PACS") may slow as capital investment budgets are reduced, thereby 
significantly reducing the demand for the Company's products.  

New Product Development in Hardware and Software Products; Uncertainty of 
Market Acceptance.  The market for PACS and teleradiology software is 
uncertain.  Current and future competitors are likely to introduce competing 
hardware and software, making it difficult to predict the rate at which the 
market will grow, if at all, or the rate at which new or increased competition 
will result in market saturation. If the market for such software 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 its new computed radiography ("CR") hardware through the OEM and System 
Integrator sales channels will be longer than that for its other existing 
hardware products.  Accordingly, the Company's quarterly revenues and 
operating results may be subject to greater fluctuation as the Company begins 
to market and sell PACS and teleradiology software through these new channels.  
Additionally, the Company has limited experience in marketing, installing and 
supporting its software and CR hardware through these sales channels, and 
there can be no assurance that the Company can obtain the necessary resources 
to market, install and support its PACS and teleradiology software and CR 
hardware in an efficient, cost-effective and competitive manner.  The failure 
of PACS and teleradiology software to achieve market acceptance for any reason 
could have a material adverse effect on the Company's business, financial 
condition and results of operations.

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

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

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

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

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

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

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

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

Competition in the CR market is well established and includes Fuji, Agfa and 
Kodak.  Furthermore, other healthcare and non-healthcare equipment companies 
not presently offering competing products may enter the CR market.  Increased 
competition could result in price reduction, reduced gross margins and loss of 
market share, any of which could materially adversely effect the Company's 
business, financial condition and results of operations.  In addition, many of 
the Company's competitors and potential competitors have significantly greater 
financial, technical, product development, marketing and other resources and 
market recognition than the Company in the CR area.  Many of the Company's 
competitors also currently have, or may develop or acquire, substantial 
installed customer bases in the healthcare industry.  As a result of these 
factors, the Company's competitors may be able to respond more quickly to new 
or emerging technologies and changes in customer requirements or to devote 
greater resources to the development, promotion and sale of their products 
than the Company.  There can be no assurances that the Company will be able to 
compete successfully against current and future competitors or that 
competitive pressures faced by the Company will not have a materially adverse 
effect on its business, financial condition or results of operations.  

Competition in the machine vision and scientific markets for frame grabbers 
and software is well established and includes Matrox, Imaging Technologies and 
Integral Technologies.  Many of the Company's competitors and potential 
competitors have significantly greater financial, technical, product 
development, marketing and other resources and market recognition than the 
Company in the machine vision and scientific imaging areas.  Many of the 
Company's competitors also currently have, or may develop or acquire, 
substantial installed customer bases in the healthcare industry.  As a result 
of these factors, the Company's competitors may be able to respond more 
quickly to new or emerging technologies and changes in customer requirements 
or to devote greater resources to the development, promotion and sale of their 
products than the Company.  There can be no assurances that the Company will 
be able to compete successfully against current and future competitors or that 
competitive pressures faced by the Company will not have a materially adverse 
effect on its business, financial condition or results of operations.  

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

Customer Concentration; Reliance on OEMs.  Although no company currently 
represents more than 10% of the Company's revenues, a significant portion of 
the Company's net sales is derived from a small number of customers.  Large 
customers also accounted for a significant portion of the Company's backlog at 
September 30, 1998.  The Company expects to continue to depend upon its 
principal customers for a significant portion of its sales, although there can 
be no assurance that the Company's principal customers will continue to 
purchase products and services from the Company at current levels, if at all.  
The loss of one or more major customers or a change in their buying patterns 
could have a material adverse effect on the Company's business and results of 
operations. 

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

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

The Company is also required to register as a Class II medical device 
manufacturer with the FDA and state agencies, such as the California 
Department of Health Services ('CDHS').  As such, the Company may be inspected 
on a routine basis by both the FDA and the CDHS for compliance with the FDA's 
Good Manufacturing Practices ("GMP"), Quality Standards Regulations ("QSR") 
and other applicable regulations.  These regulations require that the Company 
manufacture its products and maintain its documents in a prescribed manner 
with respect to manufacturing, reporting of product malfunctions and other 
matters.  If the FDA believes that a company is not in compliance with federal 
regulatory requirements, it can institute proceedings to detain or seize 
products, issue a recall, prohibit marketing and sales of the company's 
products and assess civil and criminal penalties against the company, its 
officers or its employees.  Failure to comply with the regulatory requirements 
could have a material adverse effect on the Company's business and results of 
operations.  The Sunnyvale facility of the Company was inspected by the CDHS 
and the FDA in 1996 and was found to be compliant with both the CDHS's and 
FDA's GMP regulations.  In the second quarter of 1998 the Tucson facility of 
the Company was inspected by the FDA and was found to have some items not in 
compliance with the FDA's GMP regulations.  The Company has taken corrective 
action on the FDA's observations and has invited the FDA back for another 
inspection.  The FDA has not yet re-inspected the Tucson facility. 

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

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

Litigation.  On July 9, 1997 and July 10, 1997 two securities class action 
lawsuits were filed in the Superior Court of the State of California, County 
of Santa Clara, and the United States District Court for the Northern District 
of California against the Company, several of its current and former officers 
and directors, and its underwriters.  The complaints are brought on behalf of 
all persons who purchased the Company's common stock between November 15, 1995 
and July 11, 1996.  The complaints allege that defendants made material false 
statements and omitted to disclose material information concerning the 
Company's actual and expected performance, causing the price of the Company's 
stock to be artificially inflated.  The federal complaint alleges claims under 
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934; the state 
complaint alleges claims under California's securities statutes.  Neither 
complaint specifies the amount of damages sought.  The Company and the other 
defendants deny all allegations of wrongdoing.  On January 9, 1998, the court 
dismissed the state court complaint with leave to amend.  On March 31, 1998, 
the court dismissed the federal complaint with leave to amend.  On May 26, 
1998, the state court dismissed plaintiff's first amended complaint with leave 
to amend.  Plaintiffs have filed a first amended complaint in the federal 
action, and a second amended complaint in the state action.  Defendants have 
filed motions to dismiss both of these complaints.  There can be no assurance 
that the Company will prevail in this action or that the plaintiffs will not 
recover damages.

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

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

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

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

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

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

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

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.


                                SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the 
registrant has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized.

                                                   LUMISYS INCORPORATED

Dated:  November 12, 1998                          By: /s/ Phillip Berman 
                                                       ----------------------
                                                       Phillip Berman, M.D.
                                                       President and 
                                                       Chief Executive Officer 
	
	
        November 12, 1998                              /s/ Dean MacIntosh
                                                       ----------------------
                                                       Dean MacIntosh
                                                       Chief Financial Officer 
                                                       And Vice President 
                                                       of Finance

		
	



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