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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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: 0-27246
ZORAN CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-2794449
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2041 MISSION COLLEGE BOULEVARD, SANTA CLARA, CALIFORNIA 95054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 986-1314
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
----- -----
The number of outstanding shares of the registrant's Common Stock, $.001 par
value, as of April 26, 1996 was 6,855,921.
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ZORAN CORPORATION
INDEX
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995 3
Consolidated Income Statements
Three Months Ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
2
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ZORAN CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
March 31, December 31,
1996 1995
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ASSETS
Current assets:
Cash and cash equivalents $ 7,894 $ 20,521
Short-term investments 15,490 -
Accounts receivable, net 5,508 4,479
Inventory 2,186 2,255
Prepaid expenses and other current assets 527 439
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Total current assets 31,605 27,694
Property and equipment, net 1,824 1,391
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Total assets $ 33,429 $ 29,085
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,448 $ 3,414
Accrued expenses and other liabilities 4,588 4,444
Current portion of long-term debt 372 372
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Total current liabilities 8,408 8,230
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Long-term debt 508 601
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Stockholders' equity:
Common Stock, $0.001 par value;
20,000,000 shares authorized;
6,855,021 and 6,538,530 shares
issued and outstanding 7 7
Additional paid-in capital 76,168 72,567
Accumulated deficit (51,662) (52,320)
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Total stockholders' equity 24,513 20,254
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Total liabilities and stockholders' equity $ 33,429 $ 29,085
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The accompanying notes are an integral part of these consolidated financial
statements.
3
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ZORAN CORPORATION
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share data)
(unaudited)
Three Months Ended
March 31,
------------------
1996 1995
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Revenues:
Product sales $6,381 $3,415
Development and licensing 224 560
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Total revenues 6,605 3,975
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Costs and expenses:
Cost of product sales 3,425 1,755
Research and development 986 1,031
Selling, general and administrative 1,687 1,090
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Total costs and expenses 6,098 3,876
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Operating income 507 99
Interest expense (30) (109)
Interest and other income, net 263 17
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Income before income taxes 740 7
Provision for income taxes 82 1
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Net income $ 658 $ 6
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Net income per share $ 0.08 $ 0.00
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Weighted average common shares
and equivalents 8,322 6,415
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The accompanying notes are an integral part of these consolidated financial
statements.
4
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ZORAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
March 31,
--------------------
1996 1995
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Cash flows from operating activities:
Net income $ 658 $ 6
Adjustments:
Depreciation and amortization 196 204
Deferred revenue - 154
Changes in assets and liabilities:
Accounts receivable (1,029) (1,984)
Inventory 69 31
Prepaid expenses and other current assets (88) (74)
Accounts payable 34 762
Accrued expenses and other liabilities 144 212
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Net cash used in operating activities (16) (689)
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Cash flows from investing activities:
Purchase of short-term investments (15,490) -
Expenditures for property and equipment (619) (32)
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Net cash used in investing activities (16,109) (32)
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Cash flows from financing activities
Proceeds of debt - 186
Repayment of debt (93) (111)
Proceeds from issuance of Common Stock, net 3,591 1
Net cash provided by financing activities 3,498 76
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Net decrease in cash and cash equivalents (12,627) (645)
Cash and cash equivalents at beginning of period 20,521 1,054
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Cash and cash equivalents at end of period $ 7,894 $ 409
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The accompanying notes are an integral part of these consolidated financial
statements.
5
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ZORAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements contain all
adjustments (consisting only of normal recurring adjustments) which, in the
opinion of management, are necessary to present fairly the financial information
included therein. While the Company believes that the disclosures are adequate
to make the information not misleading, it is suggested that these financial
statements be read in conjunction with the audited consolidated financial
statements and accompanying notes included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995. Results for the interim period
presented are not necessarily indicative of the results to be expected for the
full year.
2. BALANCE SHEET COMPONENTS
March 31, December 31,
1996 1995
--------- ------------
(in thousands)
Inventories:
Work-in-process $1,197 $ 942
Finished goods 989 1,313
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$2,186 $2,255
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3. STOCKHOLDERS' EQUITY
Stockholders' equity as of March 31, 1996 reflects the exercise of the
underwriters' over-allotment option in January 1996, which was related to the
December 1995 initial public stock offering. This exercise resulted in the sale
of 307,500 additional shares of Common Stock for net proceeds of approximately
$3.5 million.
4. INCOME TAXES
The provision for income taxes reflects the estimated annualized effective
tax rate applied to earnings for the interim period. The effective tax rate
differs from the U.S. statutory rate due to utilization of net operating losses,
State of Israel tax benefits on foreign earnings, foreign withholding taxes and
an alternative minimum tax liability.
5. NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
common and common equivalent shares outstanding during the period. Common
equivalent shares consist of shares issuable upon exercise of stock options and
warrants (using the treasury stock method). Pursuant to the requirements of the
Securities and Exchange Commission, Common Stock, Preferred Stock and common
equivalent shares issued during the twelve months prior to the initial public
offering are included in the computation for all periods presented.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO
THE COMPANY'S FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE CURRENTLY ANTICIPATED DEPENDING UPON A VARIETY OF
FACTORS, INCLUDING THOSE DESCRIBED BELOW UNDER THE SUB-HEADING, "FUTURE
PERFORMANCE AND RISK FACTORS" AND DISCUSSED MORE FULLY IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995.
OVERVIEW
From the Company's inception in 1981 through 1991, the Company derived the
substantial majority of its revenue from digital filter processors ("DFPs") and
vector signal processors ("VSPs") used principally in military, industrial and
medical applications. In 1989, the Company repositioned its business to develop
and market integrated circuits designed to compress video and audio data for
commercial and consumer applications in evolving multimedia markets. At that
time, the Company discontinued development of DFP and VSP products, and in mid-
1994, the Company advised its customers that it was discontinuing production of
these products. "End-of-life sales of DFP and VSP products contributed
substantially to revenues and operating income during the first quarter of 1995,
while sales of these products declined during the balance of 1995. DFP and VSP
products are not expected to contribute significant revenues in future periods.
The Company's current lines of multimedia compression products include JPEG
products used in video editing and filmless digital cameras, MPEG products used
in video playback and Dolby AC-3 audio products used in movie and home theater
systems and DVD players which the Company believes will be introduced later this
year.
Historically, average selling prices ("ASPs") in the semiconductor industry
in general, and for the Company's products in particular, have decreased over
the life of a particular product. To date, the Company has not experienced a
recognizable pattern of declines in the ASPs of its multimedia products.
Although ASPs have fluctuated substantially during prior periods, these
fluctuations have been driven principally by changes in customer mix (original
equipment manufacturer ("OEM") sales versus sales to distributors) and the
transition from low-volume "test" sales to high-volume production sales rather
than by factors related to product life cycles. The Company believes that, as
its multimedia product lines mature and competitive markets evolve, it is likely
to experience declines in the ASPs of its multimedia products, although the
timing and amount of such future changes cannot be predicted with any certainty.
The Company sells its products, either directly or through distributors
or independent sales representatives, to OEMs worldwide. Sales in Japan are
primarily made through Fujifilm Microdevices Co., Ltd. ("Fujifilm"). Sales
prices to distributors are generally lower than selling prices for direct
sales, as distributors are responsible for certain sales and marketing
expenses, customer support and training. Lower gross margins on sales to
distributors are partially offset by reduced selling and marketing expenses
related to such sales.
Zoran has historically generated a significant percentage of its total
revenues from development contracts, primarily with key customers. These
development contracts have provided the Company with partial funding for the
development of certain of its products. Payments received by the Company under
these development contracts are recorded as development revenue. The Company
classifies all development costs, including costs related to these development
contracts, as research and development expenses. The Company retains ownership
of the intellectual property developed under these development contracts.
7
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The Company is a party to certain research and development agreements
with the Office of the Chief Scientist in Israel's Ministry and Trade
Department (the "Chief Scientist") and the Israel-United States Binational
Industrial Research and Development Foundation ("BIRDF"), which fund up to
50% of incurred project costs for approved products up to specified contract
maximums. These agreements require the Company to use its best efforts to
achieve specified results and require the Company to pay royalties at rates
of 2 1/2% to 5% of resulting product sales, and up to 30% of resulting
license revenues, up to a maximum of 100% to 150% of total revenues received.
Reported research and development expenses are net of these grants, which
fluctuate from period to period.
The Company conducts research and development and certain sales and
marketing and administrative operations in Israel through its wholly-owned
Israeli subsidiary. As a result, certain expenses are incurred in Israeli
shekels. Until May 1995, substantially all of the Company's product sales were
made from the Company's U.S. facility. In May 1995, the Company restructured
its manufacturing and sales organizations and began selling a portion of its
products directly from its facility in Israel. To date, substantially all of
the Company's product sales have been denominated in U.S. dollars and most costs
of product sales have been incurred in U.S. dollars. The Company expects that
most of its sales and costs of sales will continue to be denominated and
incurred in U.S. dollars for the foreseeable future. The Company has not
experienced material losses or gains as a result of currency exchange rate
fluctuations and has not engaged in hedging transactions to reduce is exposure
to such fluctuations. The Company intends to actively monitor its foreign
exchange exposure and to take appropriate action to reduce its foreign exchange
risk, if such risk becomes material.
RESULTS OF OPERATIONS
REVENUES
Total revenues for the quarter ended March 31, 1996 were $6.6 million, an
increase of 66% compared to the same quarter in 1995. This growth was due to an
87% increase in product sales which were $6.4 million for the current quarter.
The product sales growth resulted from increased unit sales of the Company's
JPEG video and Dolby AC-3 digital audio compression products. Multimedia
product sales (video and audio digital compression) increased by 203% to $6.3
million for the quarter ended March 31, 1996, from $2.1 million for the
comparable quarter last year while sales of discontinued DFP and VSP military
and industrial products were insignificant in the current quarter compared to
sales of $1.3 million for these products during the first quarter of 1995.
Development and licensing revenue decreased during the current quarter
compared to the same quarter last year due to the completion of several
projects. While Zoran intends to continue to enter into development contracts
with certain strategic partners, it expects development revenue to remain
relatively constant, or decrease, and to decrease as a percentage of total
revenues.
8
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PRODUCT GROSS PROFIT
Product gross margin was 46% during the current quarter compared to 49% for
the first quarter of 1995. Product gross margin during the first quarter of
last year was positively impacted by substantial of sales of high-margin, "end-
of-life" DFP and VSP products. Product gross margin on the Company's multimedia
products was approximately 46% for the current quarter compared to approximately
36% for the first quarter of 1995. This improvement was primarily due to the
absorption of operations overhead over substantially increased product sales and
a decrease in overhead as the Company more effectively used its subcontractors.
The Company expects ASPs to decline in future quarters, and there can be no
assurance that costs will decrease at the same rate or at all.
RESEARCH AND DEVELOPMENT
Research and development ("R&D") expenses of $1.0 million for the
quarter ended March 31, 1996 were approximately the same as for the
comparable quarter of 1995. As a result of higher revenues, R&D expenses as
a percentage of total revenues decreased to 15% for the current quarter from
26% for the same quarter last year. The Company continues to believe that
significant investments in R&D are required for it to remain competitive, and
anticipates that such expenses in terms of absolute dollars will increase in
future periods, although such expenses as a percentage of total revenues may
fluctuate.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses increased to $1.7
million for the current quarter from $1.1 million for the first quarter of
1995, but decreased as a percentage of total revenues to 26% for the current
quarter compared to 27% for the comparable quarter last year. The increase
in absolute dollars for the current quarter was due primarily to increased
commissions and royalties related to higher product sales and increased
administrative expenses associated Zoran's status as a publicly-traded
company. The Company expects that SG&A expenses will continue to increase in
order to support the growth of the Company.
INTEREST AND OTHER INCOME (EXPENSE), NET
Net interest and other income and expense resulted in net other income
of $233,000 for the quarter ended March 31, 1996 compared to a net other
expense of $92,000 for the first quarter of 1995. Interest expense decreased
due to the use of proceeds from the December 1995 initial public stock
offering ("IPO") to repay short-term debt. Interest income increased due to
the investment of IPO proceeds, including proceeds from the January 1996
exercise of the underwriters' over-allotment option.
PROVISION FOR INCOME TAXES
The provision for income taxes increased to $82,000 for the current quarter
from $1,000 for the comparable quarter last year. The Company's estimated
effective tax rate of 11% for the current year resulted from alternative minimum
tax on its domestic earnings and foreign withholding taxes on intercompany
royalties.
9
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LIQUIDITY AND CAPITAL RESOURCES
Net proceeds from the Company's December 1995 IPO and the exercise of
certain warrants in connection with the IPO totaled $17.5 million. The Company
also received net proceeds of $3.5 million in January 1996 upon the exercise of
the underwriters' over-allotment option. At March 31, 1996, the Company had
$23.4 million of cash, cash equivalents and short-term investments.
The Company's operating activities used cash of $16,000 in the quarter
ended March 31, 1996. Cash used in operating activities reflected changes to
working capital, partially offset by net income and depreciation and
amortization. The major change to working capital during the current quarter
was an increase in accounts receivable of $1.0 million due to delayed payments
from a significant customer. The Company expects to receive payment in full
from this customer during the next four months, but there can be no assurance
that expected amounts will be received. During the current quarter, the
Company's capital expenditures were $619,000 and its repayment of long-term debt
was $93,000.
The Company believes that its current balances of cash, cash equivalents
and short-term investments and anticipated cash flow from operations, will
satisfy the Company's anticipated working capital and capital equipment
requirements through 1996.
FUTURE PERFORMANCE AND RISK FACTORS
THE COMPANY'S FUTURE BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION
ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING THOSE DESCRIBED BELOW.
PRODUCT CONCENTRATION; EVOLVING MARKETS. To date, only a limited number of
commercial and consumer products that incorporate the Company's integrated
circuits are in volume production. Current applications for the Company's
products include professional and consumer video editing systems, PC-based video
CD systems, stand-alone video CD systems, digital audio systems and filmless
digital cameras. During 1994 and 1995, the Company derived a majority of its
product revenues from the sale of integrated circuits for video editing
applications. The Company expects that video editing applications will continue
to account for a significant portion of its revenues for the near future,
although sales of audio products are expected to account for an increased
percentage of product sales in 1996. Over the longer term, the Company's
ability to generate increased revenues will be dependent on the expansion of
sales of its products for use in other existing applications, as well as the
development and acceptance of new applications for the Company's technologies
and products. The potential size of the markets for new applications and the
timing of their development and acceptance is uncertain. The Company's future
success will depend upon whether manufacturers select the Company's integrated
circuits for incorporation into their products, and upon the successful
marketing of these products by the manufacturers. There can be no assurance
that demand for existing applications will be sustained, that new markets will
develop or that manufacturers developing products for any of these markets will
design the Company's integrated circuits into their products or successfully
market them. The failure of existing and new markets to develop or to be
receptive to the Company's products would have a material adverse effect on the
Company's business, operating results and financial condition.
10
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The emergence of markets for the Company's integrated circuits will be
affected by a variety of factors beyond the Company's control. In particular,
the Company's products are designed to conform with certain current industry
standards. There can be no assurance that manufacturers will continue to follow
these standards or that competing standards will not emerge which will be
preferred by manufacturers. The emergence of markets for the Company's products
is also dependent in part upon third-party content providers developing and
marketing content for end user systems, such as video and audio playback
systems, in a format compatible with the Company's products. There can be no
assurance that these or other factors beyond the Company's control will not
adversely affect the development of markets for the Company's products.
RELIANCE ON INDEPENDENT FOUNDRIES AND CONTRACTORS. The Company does not
operate any manufacturing facilities, and there currently exists a shortage of
foundry capacity for certain process technologies in the semiconductor industry.
The Company currently relies on independent foundries to manufacture
substantially all of its products. The Company's independent foundries
fabricate products for other companies and may also produce products of their
own design. The Company does not have a long-term supply contract with two of
its principal suppliers and, therefore, neither of these suppliers is obligated
to supply products to the Company for any specific period, in any specific
quantity or at any specified price, except as may be provided in a particular
purchase order.
The Company's reliance on independent foundries involves a number of risks,
including the inability to obtain adequate capacity, the unavailability of or
interruption in access to certain process technologies, reduced control over
delivery schedules, quality assurance, manufacturing yields and cost, and
potential misappropriation of the Company's intellectual property. The loss of
any of the Company's foundries as a supplier, the inability of the Company in a
period of increased demand for its products to expand supply or the Company's
inability to obtain timely and adequate deliveries from its current or future
suppliers could reduce or delay shipments of the Company's products. Any of
these developments could damage relationships with the Company's current and
prospective customers and have a material adverse effect on the Company's
business, operating results or financial condition.
All of the Company's semiconductor products are currently being assembled
by one of two independent contractors and tested by those contractors or other
independent contractors. The Company's reliance on independent assembly and
testing houses limits its control over delivery schedules, quality assurance and
product cost. Disruptions in the provision of services by the Company's assembly
or testing houses or other circumstances that would require the Company to seek
alternative sources of assembly or testing could lead to supply constraints or
delays in the delivery of the Company's products. These constraints or delays
could damage relationships with current and prospective customers and have a
material adverse effect on the Company's business, operating results or
financial condition.
NEW PRODUCT DEVELOPMENT AND TIMELY INTRODUCTION OF NEW AND ENHANCED
PRODUCTS. The markets for the Company's products are characterized by rapidly
changing technologies, evolving industry standards, frequent new product
introductions and short product life cycles. The Company expects to increase
its expenses relating to product development, and its future success will depend
to a substantial degree upon its ability to develop and introduce, on a timely
and cost-effective basis, new and enhanced products that meet changing customer
requirements and industry standards. There can be no assurance that the Company
will successfully develop, introduce or manage the transition to new products.
Future delays in the introduction or shipment of new or enhanced products, the
inability of such products to gain market acceptance or problems associated with
new product transitions could adversely affect the Company's business, operating
results and financial condition.
11
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COMPETITION; PRICING PRESSURES. The Company's existing and potential
competitors include many large domestic and international companies that have
substantially greater financial, manufacturing, technical, marketing,
distribution and other resources, broader product lines and longer standing
relationships with customers than the Company. The markets in which the Company
competes are intensely competitive and are characterized by rapid technological
change, declining ASPs and rapid product obsolescence.
CUSTOMER CONCENTRATION; CHANGE IN CUSTOMER MIX. The Company's largest
customers have accounted for a substantial percentage of its revenues, and sales
to these large customers have varied materially from year to year. There can be
no assurance that the Company will be able to retain its key customers or that
such customers will not cancel purchase orders to reschedule or decrease their
level of purchases. In addition, sales to these key customers may fluctuate
significantly from quarter to quarter. Any development that would result in a
substantial decrease or delay in sales to one or more key customers, including
actions by competitors or technological changes, could have a material adverse
effect on the Company's business, operating results or financial condition. In
addition, any development that would affect the collectibility of account
balances from one or more key customers could have a material adverse effect on
the Company's business, operating results or financial condition.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS. The Company's quarterly
operating results have varied significantly due to a number of factors,
including the timing of new product introductions by the Company and its
competitors, market acceptance of new and enhanced versions of the Company's
products and products of its customers, the timing of large customer orders,
the availability of development funding and the timing of development
revenue, changes in the mix of products sold and competitive pricing
pressures. The Company expects that its operating results will fluctuate in
the future as a result of these factors and a variety of other factors,
including the availability of adequate foundry capacity, fluctuations in
manufacturing yields, the emergence of new industry standards, product
obsolescence, changes in pricing policies by the Company, its competitors or
its suppliers, the cyclical nature of the semiconductor industry, the
evolving and unpredictable nature of the markets for products incorporating
the Company's integrated circuits and the amount of research and development
expenses associated with new product introductions. The Company's operating
results could also be adversely affected by economic conditions generally or
in various geographic areas where the Company or its customers do business,
other conditions affecting the timing of customer orders, a downturn in the
markets for its customer's products, particularly the consumer electronics
market, or order cancellations or reschedulings. These factors are difficult
or impossible to forecast, and these or other factors could materially affect
the Company's quarterly or annual operating results. The Company places
orders to purchase its products from independent foundries several months in
advance of the scheduled delivery date, often in advance of receiving
non-cancelable orders from its customers. If anticipated shipments or
development revenue in any quarter are canceled or do not occur as quickly as
expected, expense and inventory levels could be disproportionately high. A
significant portion of the Company's expenses is relatively fixed, and the
timing of increases in expenses is based in large part on the Company's
forecast of future revenues. As a result, if revenues do not meet the
Company's expectations it may be unable to quickly adjust expenses to levels
appropriate to actual revenues, which could have a material adverse effect
on the Company's business, operating results or financial condition. To
date, the Company's operating results have not been materially affected by
seasonal factors. However, as markets for consumer products incorporating
the Company's integrated circuits mature, the Company expects that sales will
tend to be stronger during the last several months of the calendar year than
at other times due to increased demand for consumer products during the
holiday season. As a result of the foregoing, the Company's operating results
and stock price may be subject to significant volatility, particularly on a
quarterly basis. Any shortfall in revenues or net income from levels expected
by securities analysts could have an immediate and significant adverse effect
on the trading price of the Company's Common Stock.
12
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MANAGEMENT OF GROWTH. The Company has recently experienced rapid growth
and expansion which has placed, and will continue to place, a significant strain
on its administrative, operational and financial resources and has resulted, and
will continue to result, in a continuing increase in the level of responsibility
for both existing and new management personnel. The Company anticipates that
future growth, if any, will require it to recruit and hire a substantial number
of new engineering, managerial, sales and marketing personnel. The Company's
ability to manage its growth successfully will also require the Company to
continue to expand and improve its administrative, operational, management and
financial systems and controls. Many of the Company's key operations, including
research and development and a significant portion of its sales and
administrative operations, are located in Israel, while a majority of its sales
and marketing and certain of its administrative personnel, including its
President and Chief Executive Officer, are based in the United States. The
geographic separation of these operations is likely to place additional strain
on the Company's resources and its ability to effectively manage its growth. If
the Company's management is unable to manage growth effectively, the Company's
business, operating results or financial condition could be materially and
adversely affected.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a
significant degree upon the continuing contributions of its senior management,
particularly Levy Gerzberg, a co-founder of the Company and its President and
Chief Executive Officer. The loss of Dr. Gerzberg or other key management
personnel could delay product development cycles or otherwise have a material
adverse effect on the Company's business, operating results or financial
condition. There can be no assurance that the Company will be able to retain
the services of Dr. Gerzberg or any of its other key employees. The Company
believes that its future success will also depend in large part on its ability
to attract and retain highly-skilled engineering, managerial, sales and
marketing personnel, both in the United States and in Israel. Competition for
such personnel is intense, and there can be no assurance that the Company will
be successful in attracting, integrating and retaining such personnel. Failure
to attract and retain key personnel could have a material adverse effect on the
Company's business, operating results or financial condition.
RELIANCE ON INTERNATIONAL SALES AND OPERATIONS; RELIANCE ON OPERATIONS IN
ISRAEL. The Company anticipates that international sales will continue to
represent a significant portion of total revenues. In addition, substantially
all of the Company's products are manufactured, assembled and tested outside of
the United States by independent foundries and subcontractors. The Company is
subject to the risks of doing business internationally, including unexpected
changes in regulatory requirements, fluctuations in exchange rates, imposition
of tariffs and other barriers and restrictions and the burdens of complying with
a variety of foreign laws. The Company is also subject to general geopolitical
risks, such as political and economic instability and changes in diplomatic and
trade relationships, in connection with its international operations.
The Company's principal research and development facilities and a
substantial portion of its sales operations are located in the State of Israel.
Therefore, the Company is directly affected by the political, economic and
military conditions to which that country is subject. In addition, many of the
Company's expenses in Israel are paid in Israeli shekels, thereby subjecting the
Company to the risk of foreign currency fluctuations and to economic pressures
resulting from Israel's generally high rate of inflation. There can be no
assurance that such factors will not have a material adverse effect of the
Company's business, operating results or financial condition.
VOLATILITY OF STOCK PRICE. The market price of the Company's Common Stock
has fluctuated significantly since the IPO and is subject to material
fluctuations in the future in response to announcements concerning the Company
or its competitors or customers, quarterly variations in operating results,
announcements of technological innovations, the introduction of new products or
changes in product pricing policies by the Company or its competitors,
proprietary rights or other litigation, changes in analysts' earnings estimates,
general conditions in the semiconductor industry, developments in the financial
markets and other factors. In addition, the stock market has, from time to
time, experienced extreme price and volume fluctuations that have particularly
affected the market prices for technology companies and which have been
unrelated to the operating performance of the affected companies. Broad market
fluctuations of this type may adversely affect the future market price of the
Common Stock.
13
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statement re: Computation of Net Income Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
March 31, 1996.
14
<PAGE>
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.
ZORAN CORPORATION
Date: May 13, 1996 /S/ LEVY GERZBERG
------------------------------------
Levy Gerzberg
President
Chief Executive Officer
Date: May 13, 1996 /S/ AMI KRAFT
------------------------------------
Ami Kraft
Vice President, Finance
Chief Financial Officer
15
<PAGE>
Exhibit 11.1
ZORAN CORPORATION
COMPUTATION OF NET INCOME PER SHARE
(in thousands, except per share data)
(unaudited)
Three Months Ended
March 31,
1996 1995
------ ------
Weighted average common shares outstanding 6,849 166
Convertible Preferred Stock (1) - 2,027
Dilutive effect of stock options and warrants based on
the treasury stock method (1) 1,473 539
Cheap stock (1) - 3,683
------ ------
Weighted average common shares and equivalents 8,322 6,415
------ ------
------ ------
Net income $ 658 $ 6
------ ------
------ ------
Net income per share $ 0.08 $ 0.00
------ ------
------ ------
(1) Pursuant to the requirements of the Securities and Exchange Commission,
Common Stock, Preferred Stock and common equivalent shares issued during
the twelve months prior to the initial public offering are included in the
computation for all periods presented.
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED INCOME STATEMENTS, THE CONSOLIDATED BALANCE SHEETS AND THE
ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 7,894
<SECURITIES> 15,490
<RECEIVABLES> 5,708
<ALLOWANCES> 200
<INVENTORY> 2,186
<CURRENT-ASSETS> 31,605
<PP&E> 5,729
<DEPRECIATION> 3,905
<TOTAL-ASSETS> 33,429
<CURRENT-LIABILITIES> 8,408
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 24,506
<TOTAL-LIABILITY-AND-EQUITY> 33,429
<SALES> 6,381
<TOTAL-REVENUES> 6,605
<CGS> 3,425
<TOTAL-COSTS> 3,425
<OTHER-EXPENSES> 2,673
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30
<INCOME-PRETAX> 740
<INCOME-TAX> 82
<INCOME-CONTINUING> 658
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 658
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
