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 June 30, 1997
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 August 7, 1997, 6,449,073 shares of the registrant's Common Stock, $.001
par value, were outstanding.
Lumisys Incorporated
Index
Page
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated balance sheets at June 30, 1997
and December 31, 1996 3
Consolidated statements of income for the three
and six months ended June 30, 1997 and 1996 4
Consolidated statements of cash flows for the six
months ended June 30, 1997 and 1996 5
Notes to financial statements 6 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
2
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Lumisys Incorporated
Consolidated Balance Sheets
(Unaudited)
(In thousands)
June 30, December 31,
1997 1996
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 19,822 $ 18,438
Accounts receivable, net of allowances of $316
and $296 3,462 3,199
Inventories 3,487 3,053
Deferred tax assets 1,429 1,429
Other current assets 322 453
------------ ------------
Total current assets 28,522 26,572
Property and equipment, net 343 345
Other assets 57 173
------------ ------------
$ 28,922 $ 27,090
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,243 $ 823
Accrued expenses 1,996 1,604
------------ ------------
Total current liabilities 3,239 2,427
------------ ------------
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; 6,441 and 6,240 shares issued
and outstanding, net of re-acquired
shares of 28 and 0 6 6
Additional paid-in capital 23,485 23,887
Retained earnings 2,218 918
Notes receivable from stockholders --- (114)
Deferred compensation related to stock options (26) (34)
------------ ------------
Total stockholders' equity 25,683 24,663
------------ ------------
$ 28,922 $ 27,090
============ ============
The accompanying notes are an integral part of these financial statements.
3
Lumisys Incorporated
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)
Three months ended Six months ended
------------------ ------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
------- ------- ------- -------
Sales $ 5,311 $ 5,872 $11,129 $10,982
Cost of sales 2,372 2,716 4,970 5,111
------- ------- ------- -------
Gross profit 2,939 3,156 6,159 5,871
------- ------- ------- -------
Operating expenses:
Sales and marketing 628 456 1,264 938
Research and development 1,216 1,036 2,249 2,035
General and administrative 508 584 1,018 1,213
------- ------- ------- -------
Total operating expenses 2,352 2,076 4,531 4,186
------- ------- ------- -------
Income from operations 587 1,080 1,628 1,685
Interest income 252 214 502 429
------- ------- ------- -------
Income before income taxes 839 1,294 2,130 2,114
Provision for income taxes 327 398 830 497
------- ------- ------- -------
Net income $ 512 $ 896 $ 1,300 $ 1,617
======= ======= ======= =======
Net income per share $ 0.08 $ 0.13 $ 0.19 $ 0.24
======= ======= ======= =======
Shares used to compute net
income per share 6,676 6,848 6,710 6,841
======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
4
Lumisys Incorporated
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Six months ended
---------------------
June 30, June 30,
1997 1996
--------- ---------
Cash flows from operating activities:
Net income $ 1,300 $ 1,617
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 105 101
Deferred income taxes --- (315)
Interest on notes receivable from stockholders --- (5)
Changes in assets and liabilities:
Accounts receivable, net (263) (437)
Inventories (434) (568)
Other assets 247 39
Accounts payable 420 (182)
Accrued expenses 392 542
--------- ---------
Net cash provided by operating activities 1,767 792
--------- ---------
Cash flows from investing activities:
Proceeds from sale of short-term investments --- 3,934
Purchases of property and equipment (95) (70)
--------- ---------
Net cash provided (used) in investing activities (95) 3,864
--------- ---------
Cash flows from financing activities:
Proceeds from sale of common stock, net 161 82
Payment on notes receivable from stockholders 114 174
Purchase of treasury stock (563) ---
--------- ---------
Net cash provided (used) by financing activities (288) 256
--------- ---------
Net increase (decrease) in cash and cash equivalents 1,384 4,912
Cash and cash equivalents at beginning of period 18,438 11,426
--------- ---------
Cash and cash equivalents at end of period $19,822 $16,338
========= =========
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 572 $ 499
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, 1996, 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 June 30, 1997, and the consolidated
statements of income for the three and six months ended June 30, 1997 and
1996, and the consolidated statements of cash flows for the six months ended
June 30, 1997 and 1996, 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 six months ended June 30, 1997,
are not necessarily indicative of the results to be expected for the entire
fiscal year ending December 31, 1997.
Note 2 - Composition of Certain Financial Statement Amounts
June 30, Dec. 31,
1997 1996
------- -------
(In thousands)
Inventories:
Raw materials $2,247 $2,607
Work-in-process 1,114 422
Finished goods 1,243 959
------- -------
4,604 3,988
Less: inventory reserves (1,117) (935)
------- -------
$ 3,487 $ 3,053
======= =======
Accrued expenses:
Payroll and related benefits $ 671 $ 670
Warranty 470 471
Accrued income taxes 462 204
Other 393 259
------- -------
$ 1,996 $ 1,604
======= =======
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Note 3 - Recently Issued Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"). SFAS 128, which is effective for the Company's fiscal year
ending December 31, 1997, redefines earnings per share under generally
accepted accounting principles. Under the new standard, primary earnings
per share is replaced by basic earnings per share, and fully diluted earnings
per share is replaced by diluted earnings per share. If the Company had
adopted this Statement for the three and six month periods ended June 30, 1997
and June 30, 1996, the Company's earnings per share would have been as follows:
Three months ended Six months ended
------------------ ------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
Earnings per share:
Basic $ 0.08 $ 0.14 $ 0.20 $ 0.26
Diluted $ 0.08 $ 0.13 $ 0.19 $ 0.24
In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards
for the way companies report information about operating segments in annual
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The
Company has not yet determined the impact, if any, of adopting this new
standard. The disclosures prescribed by SFAS 131 are effective in 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 1996 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, CCD-based film scanners and
video digitizer products necessary for converting analog medical images into
diagnostic quality digital formats.
7
Results of Operations
Total sales for the three months ended June 30, 1997 decreased 9.6% to $5.3
million from $5.9 million for the three months ended June 30, 1996. The
decrease for the three month period was due to a decrease in system sales in
1997 from 1996. Total sales for the six months ended June 30, 1997 increased
1.3% to $11.1 million from $11.0 million for the six months ended June 30,
1996.
Gross profit for the three months ended June 30, 1997 decreased 6.9% to $2.9
million from $3.2 million for the corresponding period of 1996. Gross margin
increased in the three month period ended June 30, 1997 to 55.3% from 53.7% in
the same period of 1996. Gross profit for the six months ended June 30, 1997
increased 4.9% to $6.2 million from $5.9 million for the six months ended June
30, 1996. Gross margin increased in the six month period to 55.3% from 53.5%,
primarily due to stable prices for systems and continued product cost control.
Sales and marketing expenses increased 37.7% in the three months ended June
30, 1997 to $628,000 from $456,000 in 1996. As a percentage of sales, these
expenses increased to 11.8% in 1997 from 7.8% in 1996. Sales and marketing
expenses increased 34.8% to $1,264,000 for the six months ended June 30, 1997
from $938,000 for the same period of 1996. As a percentage of sales, these
expenses increased to 11.4% in the six months ended June 30, 1997 from 8.5%
in 1996. The increase for the six month period was primarily due to the
increase in the Company's sales and marketing personnel to explore new product
introductions. The Company expects sales and marketing expenses to increase
in absolute dollars as the Company grows.
Research and development expenses increased 17.4% in the three months ended
June 30, 1997 to $1,216,000 from $1,036,000 in the same quarter of 1996. As a
percentage of sales, research and development expenses increased to 22.9% in
the three months ended June 30, 1997 from 17.6% in the same quarter of 1996.
For the six months ended June 30, 1997, research and development expenses
increased 10.5% to $2,249,000 from $2,035,000 for the six months ended June
30, 1996. As a percentage of sales, research and development expenses
increased to 20.2% in the six months ended June 30, 1997 from 18.5% in 1996.
The increases for both the three and six month periods were primarily due to
increased engineering expenses as a result of the continuing development of
the computed radiography reader for the medical market. The Company believes
that advanced technology is a key element in the success of its business and
expects to continue to increase its research and development expenditures in
absolute dollar amounts.
General and administrative expenses decreased 13.0% in the three months ended
June 30, 1997 to $508,000 from $584,000 in the same quarter of 1996. As a
percentage of sales, these expenses decreased slightly to 9.6% from 9.9%.
General and administrative expenses decreased 16.1% in the six months ended
June 30, 1997 to $1,018,000 from $1,213,000 in the same period of 1996. As a
percentage of sales, general and administrative expenses decreased to 9.1% for
the six months ended June 30, 1997 from 11.0% in the six month period ended
June 30, 1996. The decrease is due in part to lower acquisition related
charges in 1997 and to the reorganization of Imagraph which resulted in a
decrease in administrative personnel.
8
The Company recognized a provision for income taxes of $327,000 in the three
months ended June 30, 1997 compared to a net provision for income taxes of
$398,000 in the same period of 1996. The Company recognized a provision for
income taxes of $830,000 in the six months ended June 30, 1997 compared to a
net provision for income taxes of $497,000 in the same period of 1996. The
net provision for taxes in the first half of 1996 was reduced by the
recognition of $315,000 of deferred tax assets. The Company has provided a
partial valuation allowance against the balance of the deferred tax assets
remaining as of June 30, 1997. The Company expects to continue to be subject
to an effective tax rate of approximately 39% for the remainder of 1997.
Liquidity and Capital Resources
The Company has financed its activities primarily from net cash provided by
operations, which contributed $1.8 million in the first half of 1997 and
$792,000 in the same period of 1996.
At June 30, 1997, the Company's working capital was $25.3 million. The
Company had $19.8 million in cash and cash equivalents at June 30, 1997
compared with $18.4 million of cash, cash equivalents at December 31, 1996.
The increase is primarily due to net income for the period.
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 1. Legal Proceedings
On July 9 and July 10, 1997, two class action complaints were filed by the law
firm of Milberg, Weiss, Bershad, Hynes & Lerach in Superior Court of the State
of California, County of Santa Clara and the U.S. District Court for the
Northern District of California, on behalf of certain plaintiffs against the
Company, several of its current and former officers and directors and its
underwriters. The complaints allege that the defendants made material
misstatements, and failed to disclose information, concerning the Company's
actual and expected performance and results, which statements and omissions
are alleged to have artificially inflated the value of the Company's stock.
The complaints further allege that upon disclosure of accurate information
concerning the Company's performance, the stock price lost substantial value
causing financial injury to shareholders. The complaints do not specify the
amount of damages sought. The Company and other defendants vigorously deny
all allegations of wrongdoing, and intend to aggressively defend themselves in
this matter. There can be no assurance that the Company will prevail in this
action or that the plaintiffs will not recover damages.
9
Item 4. Submission of Matters to a Vote of Security Holders
The 1996 Annual Meeting of Shareholders ("Annual Meeting") of the Company was
held on May 12, 1997. The total number of shares of the Company's common
stock, $.001 par value per share, outstanding as of March 26, 1997, the record
date of the Annual Meeting, was 6,459,273. Management of the Company
solicited proxies pursuant to Section 14 of the Securities Exchange Act of
1934, as amended, and Regulation 14A promulgated thereunder for the Annual
Meeting. One (1) director, Stephen J. Weiss, was elected to serve until the
2000 Annual Meeting of Shareholders and the election and qualification of his
successor. The director was elected by a vote of 5,731,518 votes "FOR" and
77,781 votes "WITHHELD." An amendment to the Company's 1995 Stock Option Plan
to increase the aggregate number of shares of Common Stock authorized for
issuance under such plan by 200,000 shares was approved by a vote of 4,715,836
votes "FOR", 1,056,493 votes "AGAINST" and 36,970 votes "ABSTAIN". The
selection of Price Waterhouse LLP as the Company's independent accountants for
its fiscal year ending December 31, 1997 was also ratified. The selection was
ratified by a vote of 5,735,131 votes "FOR," 50,459 votes "AGAINST," and
23,709 votes "ABSTAIN."
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.
10
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: August 14, 1997 By: /s/ Stephen J. Weiss
Stephen J. Weiss
President, Chief Executive Officer
August 14, 1997 /s/ Craig L. Klosterman
Craig L. Klosterman
Chief Operating and Chief
Financial Officer
11