<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
-------------------------
X Annual Report Pursuant to Section 13 or 15(d) of The Securities
- --
Exchange Act of 1934
For the fiscal year ended December 31, 1995.
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: 13244
-------------------------
ZYCAD CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 41-1404495
(State of Incorporation) (I.R.S. Employer Identification No.)
47100 Bayside Parkway (510) 623-4400
Fremont, California 94538 (Registrant's telephone number,
(Address of prinicpal executive offices) including area code)
---------------
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS: NAME OF EXCHANGE ON WHICH REGISTERED:
None National Association of Securities
Dealers, Inc.
(NASDAQ)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
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 by check mark if disclosure of delinquent fliers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
(X)
The aggregate market value of voting stock held by nonaffiliates of the
Registrant as of March 22, 1996 was approximately $102,554,880 (based on the
last sale price of such stock on such date as reported by NASDAQ).
The number of shares outstanding of Common Stock, $.10 par value as of
March 22, 1996:
19,856,004 shares
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Registrant's Annual Report to Stockholders for the year ended
December 31, 1995 (Parts II and IV) are incorporated by reference into parts II,
III and IV of this Form 10-K Report.
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PART I
ITEM 1. BUSINESS
Zycad Corporation-Registered Trademark- (the "Company")(1) designs, manufactures
and markets a broad array of high performance tools and services for design
verification of electronic systems and components. Zycad's products, include
hardware and software simulation acceleration tools, emulation/rapid prototyping
systems, partitioning software and, recently introduced, high-density field
programmable gate arrays (FPGAs) and related desktop foundry design tools, that
enable electronic designers to verify their designs prior to production. This
process of verification throughout the design cycle ensures that a design
produces a final delivered product that meets the customer's requirements. The
high-density FPGAs also provide designers with an alternative to using ASICs
(Application Specific Integrated Circuit) for their more complex, higher-density
designs.
Zycad's business emphasis is on providing both the highest performance
simulation and emulation verification product offerings in the EDA (Electronic
Design Automation) market and the highest density FPGAs to the ASIC designer for
both design verification and programmable component use. All development
activities are focused on bringing these technologies together to solve the
customer's high-end complex verification problems.
Customers benefit from Zycad's solutions by:
- - GETTING TO MARKET FASTER at the lowest possible cost.
- - IMPROVING PRODUCT QUALITY through more comprehensive verification.
- - REDUCING RISK and MANAGING COMPLEXITY through the effective application of
advanced verification tools, methodologies and services.
Zycad Corporation, founded in 1981, designs, develops, and markets products
and services that provide design verification, rapid prototyping, test
analysis and programmable silicon components to customers designing
high-performance, electronic systems. These allow customers to quickly logic
simulate, fault simulate, emulate, or rapidly prototype their designs. Logic
simulation is used to verify accuracy, completeness, and quality of designs
before building hardware. Fault simulation is used to verify the quality and
completeness of tests developed for the design once it is manufactured.
Emulation is the ability to replicate the operation of a portion of a design
by programming a series of FPGAs to behave like the target circuit. Rapid
prototyping also uses FPGAs, but takes a more flexible approach to
replicating behavior of a system by allowing other system components, like
processors, memory, and software, to be included in the emulation environment.
Zycad's corporate offices, product development operations and its GateField
division are located in Fremont, California. The services operations, which
provide consulting, engineering and design management services is located in
Rockaway, New Jersey. Sales and support offices are located throughout the
United States, Europe, Japan and Asia.
- --------------------------
(1) As used herein, the term "Company" includes Zycad Corporation and its
wholly-owned subsidiaries listed in Exhibit 21.1 hereto, unless the context
requires otherwise.
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STRATEGY
ZYCAD'S STRATEGY IS TO PROVIDE HIGH PERFORMANCE VERIFICATION SOLUTIONS TO
DEVELOPERS OF COMPLEX ELECTRONIC PRODUCTS AND TO PROVIDE HIGH-DENSITY FPGAS
AS AN ALTERNATIVE TO USING CUSTOM OR SEMI-CUSTOM ASICS IN END-USER PRODUCTS
In the development of today's electronic systems, the market pressures of
creating increasingly more complex products, in constantly decreasing time
frames, forces design engineers to seek improved methods of development. The
primary challenge during the mid to late 1990's will be how to integrate all
the components of a system so that it works right the first time and meets the
customers' expectations - the two greatest concerns among system designers. The
available tools have solved many of the problems of getting the individual
components of the system to work right the first time, but fall short in solving
the problem for an entire system. In particular, challenges for system
developers include:
- Design complexity that increases dramatically each year.
- This complexity then permeates the design cycle, making traditional
end-of-process methods of verification obsolete.
- This complexity also increases the risk that designs will fail to meet
customer expectations for performance, functionality, ruggedness, and
other issues of quality.
Zycad will continue to provide high performance, verification solutions to
address the problem of complexity by enabling developers to verify their complex
electronic systems prior to productization. Verification has the goal of
minimizing downstream problems and risks (i.e., avoiding the expensive and time-
consuming process of redesign should a final design not work or the manufactured
product does not meet customer requirements). As with all development
strategies, the ultimate objective is to produce the best product, at the lowest
cost, as early as possible.
MARKET
Companies who market electronic products must overcome the shorter
product life cycles, and yet increasing design complexity for these products.
System architects, system engineers, hardware and software design engineers, and
test engineers in all electronic industries confront a similar set of problems
in evolving new products from concept to physical reality. This has made the
product development cycle more difficult to control and manage.
Increasing complexity of electronic system and circuit design is a key trend
which will continue to require companies to make extensive changes to their
organizations and design methodologies over the next few years. Recent market
surveys from Dataquest Inc. show that approximately 50% of new electronic design
starts will comprise gate complexity of more than 50,000 gates, and more than
half of those will be greater than 100,000-gate designs. Within our customer
base, some design sizes already reach beyond one million gates.
With this growth in electronic systems design size and complexity comes an
increasing need to know whether the system will work as intended before
fabrication. The problem of redesigning a product or coping with widespread
field failures can be catastrophic. In addition, being late to market can cause
dire consequences for products and the companies developing them. Designers are
challenged with bringing increasingly advanced, higher quality products to
market faster in order to remain competitive.
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Zycad's customers include:
- SEMICONDUCTOR MANUFACTURERS with architecture compatibility, fast
time-to-volume and high quality requirements.
- MILITARY/AEROSPACE COMPANIES with the need to integrate increasingly
complex avionics in reduced budget and schedule environments.
- TELECOMMUNICATIONS EQUIPMENT MANUFACTURERS with zero fault tolerance
requirements and reduced market windows.
- MULTI-MEDIA COMPANIES that need to make real-time subjective
measurements of their designs in order to fine-tune their products
before submitting to manufacturing.
- COMPUTER VENDORS with rapidly shortening product life cycles,
requiring a predictable development process and efficient system
integration.
ASIC/FPGA
Characteristics of today's $7 billion ASIC market include non-recurring
engineering costs in the several hundred thousands of dollars to incorporate
electronic designs into ASICs for complex designs, lead times of 16 weeks or
more from completion of design verification to receiving the ASIC and 65% of
design starts result in unit volume of less than 1,000 units. Where product
life cycles are short, waiting 16 weeks can have a dramatic influence on time to
market and profitability results, and if the ASIC doesn't meet the component or
system requirements, even further costs, delays, and profit consequences.
An alternative is using reprogrammable FPGAs. Where design corrections are
needed, designers simply reprogram the part and proceed with the verification
process until satisfied. Then, instead of waiting 16 or more weeks, the FPGA is
included in the final system and shipped to customers. When increasing volume
justifies it, the design can then be mapped to an ASIC for unit cost savings.
But, this can be done while the product is generating revenues and profits.
Today's FPGA vendors cannot meet the density requirements of designs greater
than 12,000 to 15,000 gates on a single FPGA. Furthermore, because their tools
are not sufficiently compatible with "Top Down" design tools used by ASIC
designers, use of these FPGAs requires additional effort and time to complete
the design and get the product to market, exactly the opposite of what is
needed.
The Company's GateField 100,000 gate family of FPGAs, together with its "Top
Down" methodology compatible software tools, provide a desktop foundry system
that allows ASIC designers to easily work within their current design
environment to verify their design and get their product to market more quickly.
ZYCAD'S PRODUCTS
Zycad products provide high-performance solutions for concurrent verification of
complex electronic system designs. These products include Paradigm XP
simulation accelerators, Paradigm RP rapid prototyping/emulation systems and the
Desktop Foundry system of GateField FPGAs and Desktop Foundry Tools. These
verification products are enhanced by the Zycad Service Division's consulting
and engineering services business.
Zycad's products and services are complementary. Figure 1 shows the tasks that
a typical design engineer must take to develop a product, and the areas in which
Zycad's products are used. The segments defined as dark blocks with white
letters are those that Zycad products can accelerate. The figure demonstrates
that all the products are needed and can be an important part in the
verification of a complex electronic system.
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[FLOW CHART]
Fig. 1: Designing a Complex Product Requires Regular Verification with Zycad's
Products
Each block in Figure 1 above represents the process of designing an electronic
product. The tasks occur in time from left to right. Block 1 shows requirements
definition and Block 2 shows high-level system analysis. Once the system
analysis is complete the process splits into parallel hardware and software
tasks.
On the software track, Block 3b, the software code is constructed at a high
level, then divided into different processes for further development. On the
hardware side, Block 3a, a behavioral or RTL description is created and, then
synthesized into gates. The gate structure, the real building blocks of a
system, is developed and simulated on the Paradigm XP, Block 4a, until the
designer is satisfied with the results. At that point, the design can be defined
at the physical implementation level, Block 5a, in order to prepare for
manufacturing. During this process, fault simulation can be run on the Paradigm
XP, Block 5, in order to grade the tests that will be used to verify the
finished product. Before sending off the ASICs to be manufactured, it is wise to
test them along with the software and other system components on the Paradigm
RP, Block 5b, in order to ensure compatibility. Now, when the chips come back,
it is easy to perform a final hardware/software integration and productization,
Block 6, before shipping to customers.
Zycad and its products are unique in many ways, which helps the company maintain
a strong technical lead in the industry. A few of these features include:
PERFORMANCE - A criteria for all development at Zycad is that the products
provide at least an order of magnitude performance improvement over other
methods available in the marketplace. This performance is critical to both
simulation and emulation applications required for system verification.
ARCHITECTURE - The Company's hardware products' advantage over software-based
simulators on traditional workstations is achieved by building products that
have a much different architecture. Zycad's development emphasis is on
developing high performance simulation and emulation/rapid prototyping products,
not general purpose machines as the workstations manufacturers are designing.
With this main focus, Zycad employs specialized techniques, technology and
architectures that produce systems that provide an order, to orders of
magnitude greater performance over workstations.
AN EDA COMPANY THAT DESIGNS HARDWARE - Zycad is an EDA company that actually
uses its own tools and methodologies to design its hardware. We are our own end
user and, therefore, have the opportunity to debug our tools and services in a
real world environment before taking them to our customers. Our Services
business is dramatically enhanced by the on-going real world experience that our
engineers obtain through the development of our products.
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Specifically, Zycad incorporates these features into its main product lines:
PARADIGM XP SIMULATION ACCELERATOR
The Paradigm XP family is the world's leading line of structural logic and fault
simulation accelerators that meet the verification challenges of complex ASIC
and large system designs. They range in price from approximately $50,000 for an
entry-level model with 256,000 gate capacity to several hundred thousand dollars
for expansion to multi-million gate capacity. The Paradigm XP provides powerful
features that address ASIC, integrated circuit, and system logic and fault
verification problems including modular compilation and hardware assisted toggle
test.
Transparent interfaces are provided to popular simulation environments and to
VHDL via third party tools. This allows the Paradigm XP product line to
transparently integrate into these environments, making it easy for the design
engineer to access the XP accelerators in their design environment. Interfaces
include:
- - QuickSim II-TM- - VHDL System
(Mentor Graphics-TM-) Simulator-TM-(Synopsys-Registered
Trademark-) - ViewSim-TM- (Viewlogic)
- - Verilog-Registered Trademark- (Cadence) - MDE-Registered
- - VantageSpreadSheet-TM- (Viewlogic) Trademark-/C-MDE-TM-(LSI Logic)
- - VLSI Link (Compass)
Libraries are always a main concern with our customers. In order to ease the
creation of accurate libraries, Zycad has developed automated tools that will
accept multiple sources for library translation.
The Paradigm XP is available in three basic system configurations. The Paradigm
XP 2001 Desktop Accelerator is a single-board, entry-level system that supports
up to 256,000 gates for logic simulation and 64,000 gates for fault simulation.
The Paradigm XP 2004 Design Team Accelerator is a four-board, office environment
system expandable to one million gates for logic and 256,000 gates for fault
simulation. And the Paradigm XP 2016 System Design Accelerator is a 16-board
configuration which offers capacity expansion to 16 million gates for logic
simulation and four million gates for fault simulation.
LIGHTSPEED SIMULATION SERVER
The Company has recently announced its next generation accelerator, LightSpeed,
which is expected to be 10 to 40 times faster than the Paradigm XP and will be
available to beta customers in June 1996, with production quantities in Q3 1996.
PARADIGM RP RAPID PROTOTYPING SYSTEM
The Paradigm RP, starting at below $100,000, was the industry's first low-cost
rapid prototyping system, and is currently offered as a series of application-
specific rapid prototyping solutions. It became part of Zycad's product line
with the acquisition of InCA, Ltd. and its VA-II product in September of 1993.
The first Paradigm RP systems are geared to digital signal processor (DSP) based
design, and speed DSP time-to-market cycles by enabling developers to emulate
and rapid prototype complex DSP-based designs before committing them to silicon.
The Paradigm RP provides the performance and flexibility required for the near-
real-time testing of DSP designs with complexities up to 120,000 gates and with
clock rates exceeding 10MHz. The system is based on a 30,000 gate module
containing high speed, electrically reprogrammable FPGAs.
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An intuitive yet powerful graphical user environment, Concept Silicon, allows
the importing, partitioning, and mapping of designs to the system's emulation
hardware. Concept Silcon supports both standard Paradigm RP emulation hardware
and user-defined prototype hardware.
The partitioning software within the Concept Silicon promotes fast concept-to-
production by taking a netlist from a computer-aided engineering (CAE) system
and automatically partitioning it across multiple FPGAs, thereby providing
device programming data and a manufacturing database for printed circuit board
(PCB) design. The partitioner software is designed to minimize the connectivity
between FPGAs while optimizing high gate utilization, thus achieving an emulated
system on a par with a production board.
By incorporating the GateField family of 100K gate FPGAs into its RP product
offering, the Company expects to significantly improve its capacity and value to
rapid prototyping customers.
GATEFIELD FPGAs
The GateField GF100K series of field-programmable FPGAs use a unique
architecture and switch technology to provide a device that is comparable to
a gate array in capacity and usable density, while offering all the advantages
of non-volatility and field re-programmability. The revolutionary
Sea-of-Tiles-TM- architecture coupled with GateField's Desktop Foundry
software, provides the ASIC designer with unparalleled gate capacity and
automation.
With the wide acceptance of top-down design methodologies, the average size
of ASIC designs is approaching 30K gates and countinues to grow. CMOS gate
arrays are the dominant ASIC technology. They are highly integrated,
flexible, and well supported by EDA tools. But they also have high initial
costs, slow turnaround time and require zero design defects. Current FPGA
products avoid these drawbacks, but do not provide the high gate density, the
flexibility, nor the support for top-down design methodologies needed for
ASIC design.
ZYCAD'S SERVICES DIVISION
Zycad's Services Division offers consulting, engineering and process management
services with an emphasis on complex system design verification methodologies.
The services engineering staff leverage Zycad products to achieve customers'
goals of increasing design productivity, reducing development costs and
improving product quality.
Consulting services are comprised of assessment/recommendation and
implementation planning. These services include:
- DESIGN AND VERIFICATION METHODOLOGY CONSULTING. Zycad recommends
design methodologies and verification tools (e.g. simulation,
emulation, rapid prototyping) for determining the completeness of a
system design in the shortest time frame with minimal cost.
- FAULT SIMULATION AND TEST GENERATION CONSULTING. Customers leverage
Zycad's expertise in fault simulating highly complex circuits. Zycad
recommends optimal fault grading and vector generation methodologies
to help customers meet strict quality requirements.
Zycad's engineering services include both packaged and custom engineering
services executed by expert design, test and software engineers to enhance
customer development teams and/or increase design environment productivity.
These services include:
- FAULT GRADING AND TEST VECTOR GENERATION -- Perform fault vector
grading and increase fault coverage by developing additional vectors.
- SYSTEM SIMULATION -- Perform complex system simulations to help
customers debug functional designs.
- ASIC DESIGN -- Develop ASICs from customer specifications.
- RAPID PROTOTYPING -- Develop FPGA-based rapid prototypes of
customer-specific systems within the context of additional system
entities, including processors, memories, and software.
- MODEL DEVELOPMENT -- Develop behavioral/specification models using
VHDL and/or Verilog.
Process management services involve managing a critical segment of a customer's
design and/or verification process. This can include managing the modeling,
system simulation, rapid prototyping, fault grading, and/or test generation
activities on a project.
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PRODUCT DEVELOPMENT
Zycad is regularly engaged in ongoing research and development to further
enhance and improve its family of high-performance design verification products.
The Company will introduce its next generation simulation accelerator,
LightSpeed, in June 1996 and will also introduce several other FPGA products
ranging in densities from 23K up to 100K. In fiscal year 1995, the Company
expensed $11,263,000 on research and development, compared to $11,172,000 in
1994 and $9,339,000 in 1993.
MARKETING & SALES
Zycad markets its products directly, through a worldwide product and service
sales organization. The Company has direct sales offices in North America,
Europe, Japan, Korea, and Taiwan. To complement its direct organization, the
Company also has international distributors in the Far East, Israel and Europe.
The Company highlights the economic benefits that can be gained from use of its
high performance verification products and services. In addition, demonstration
of the products' capacity and speed to individual potential customers through
the use of benchmark comparisons against software alternatives is an important
element of the selling cycle. The Company's applications engineers, consulting
engineers, and sales force are involved in the sales process in order to provide
pre-sale technical assistance, technical credibility, and continuity with post-
sale installation and servicing. The Company's general policy is to sell and not
to lease its products; however, leasing arrangements are available for customers
who prefer that option.
The rate at which orders are received by the Company may vary from month to
month. In addition, customers' lead times for placing purchase orders have
varied substantially. For these reasons, the Company's backlog as of any
particular date may not be indicative of its actual sales for any succeeding
period.
The Company offers a maintenance agreement to its customers under which its
applications engineers provide diagnostic, repair or replacement and maintenance
service.
Zycad will market its GateField FPGA products both directly through its
worldwide sales organization, as well as through manufacturing
representatives. In addition, the manufacturer of the GateField FPGAs, Rohm
Co. LTD. located in Kyoto Japan, will also market and sell the GF100K series
of FPGAs and the Desktop Foundry design software tools in Japan on a
non-exclusive basis. Rohm has strong marketing and sales presence in Japan
through its seven design centers and its direct sales force of 350 people.
This partnership provides Zycad the opportunity to quickly penetrate the
Japanese market, which according to the market research from Dataquest,
constitutes 36 percent of the world's gate array market.
For Export Sales Information for the three years ended December 31, 1995, see
Note 10 to the Company's Consolidated Financial Statements in the Company's
Annual Report to its stockholders for the year ended December 31, 1995, which
Note has been incorporated herein by reference in Item 8.
COMPETITION
The EDA market is a dynamic market characterized by advancing technologies in
both hardware and software. The advancing technologies frequently result in new
product introductions, increased product capabilities and relative product
improvements in price/performance ratios. The Company recognizes that rapid
technological changes could impair its competitive position.
Indirect competition for the Company's system verification products consists
primarily of software simulators that run on general purpose workstations.
Software simulators currently hold a large share of the logic simulation market.
However, the Company's strategy is to leverage this large installed base of
software simulators through selling accelerators as a complementary point tool
into the large installed base of EDA vendors whose customers require increased
simulation performance.
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Direct competition to the Paradigm XP comes from one other company with a
hardware-assisted simulator, IKOS Systems, Inc. Zycad believes that the
combined features, speed, and capacity of its current and future products offer
competitive performance and functionality advantages over Ikos. Competition in
the emulation/rapid prototyping arena, versus the Paradigm RP, comes mainly from
Quickturn Design Systems, Inc., although their products are mostly targeted at
the small number of customers that need very large capacities. The Paradigm RP,
on the other hand, is targeted at the many telecom, audio, and multi-media
companies that may not have huge circuits to prototype, but need a machine that
can provide a real-time test of their product. There are other companies
that recently have bought products they intend to market in the
emulation/system rapid prototyping arena, including Synopsys and Mentor
Graphics.
Indirect competition for the Company's services, comes primarily from customers
accomplishing the activity with their own personnel. The Company's strategy is
to demonstrate our expertise to accomplish the objectives more rapidly and
extensively than less experienced individuals might achieve.
Direct competition for the Company's services comes from other EDA vendors
including Cadence Design Systems, Inc. and Mentor Graphics. The EDA vendors
services are primarily focused on the tools they provide. Zycad offers a
significant advantage through its ability to work with many tools and its
experience in real hardware design. The Company's focus on the contribution
of the systems engineering process to systems integration success is not
addressed by the EDA vendors.
Management believes that its superior products, consulting services, and
customer support will enable the Company to compete effectively in the EDA
market based on the breadth, quality, features, performance and price of its
product offerings and the neutrality, flexibility, and technological prowess of
its services offerings.
The FPGA market is a fast growing and dynamic market with several large
established vendors including Xilinx, Altera and Actel. These companies offer
broad product lines but have not yet been very successful in providing
high-density FPGA solutions to gate array designers. Their penetration into
this market has been limited, both by their lack of high gate count devices,
and by the mismatch between the top down design methodologies used by gate
array designers and the design tools required to use their FPGAs effectively.
The revolutionary flash switch technology utilitied by the GF100K family
provides a 7X size advantage over switches used by SRAM-based devices offered
by the market leaders in higher gate count devices. This switch technology is
used in a Sea-of-Tiles architecture to create devices that have a 2X-4X density
advantage over the competitive offerings. Unlike competing devices the
Sea-of-Tiles architecture has been designed specifically to work seamlessly in
the top down design flow used by today's ASIC designers. The GateField devices
offer the gate array designer not only high density but also allow the designer
to remain within his established design environment.
PATENTS AND TRADEMARKS
Due to the rapid pace of technological advance, the Company believes that, while
the protection of proprietary information is important, it must continue to
develop and market new products to remain competitive. The Company protects its
proprietary product information through issuance of patents, use of employee
nondisclosure agreements and by limiting access to sensitive information. On
July 2, 1985, United States Patent No. 4,527,249 was issued to the Company for a
"Concurrent Fault Simulation for Logic Designs", and on April 5, 1988, United
States Patent No. 4,736,338 was issued to the Company for a "Programmable Look
Up System". These patents are effective for a period of 17 years from the issue
date and the Company believes that these patents are an important factor in the
protection of its proprietary information. On May 17, 1989, the Company signed
a Patent Cross License Agreement with IKOS Systems, Inc., under which both
companies granted to each other a perpetual non-exclusive license for logic or
fault simulation products utilizing inventions covered by its respective patents
issued through May 1, 1994.
On October 10, 1995, United States Patent No. 5.457,653 was isssued to the
Company for a "Technique To Prevent Deprogramming A Floating Gate Transistor
Used To Directly Switch A Large Electrical Signal". This is the first patent
issued for the GateField FPGA technology and several more patent applications
are on file and are pending at this time.
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The Company has obtained federal trademark registration for its trademark "Zycad
Corporation" from the United States Patent and Trademark Office.
EMPLOYEES
At December 31, 1995, the Company had 219 employees. The employees are not
represented by a labor organization, and the Company considers its relations
with its employees to be good.
MANUFACTURING
The Company's accelerator and rapid prototyping hardware products utilize a
technology which has significant impact upon its manufacturing activities. The
efficient use of full custom IC's dramatically reduces both assembly and test
time. In addition, custom IC's tend to operate more reliably than a
functionally equivalent printed circuit board due to a number of factors
including the reduction of solder points and external contacts.
Product configurations include standard computer components such as a
controller, CPU and main memory which are selected from various independent
suppliers on the basis of cost, reliability and performance properties. These
standard components are connected utilizing proprietary bus structures and
controlled using operating systems with proprietary extensions as they interact
with the Company's custom IC-based, application-specific subsystems.
The Company contracts out certain manufacturing steps, including printed circuit
fabrication and assembly, circuit board wiring, cabinet fabrication and
assembly, sheet metal fabrication and painting, and performs final assembly,
configuration, testing and quality control procedures itself. Circuit boards
are wired by automated equipment on computerized instructions generated on the
Company's own CAE system, which is used extensively in order design and test
phases. Manufacturing efficiency is enhanced by testing each circuit board on
the Company's test equipment. After final assembly and configuration, each
simulation system undergoes additional "burn in" testing.
The company's FPGA products are manufactured by Rohm CO. LTD, located in
Kyoto, Japan under a manufacturing and development partnership agreement.
GateField and Rohm have built a strong working alliance that dates back to
October 1993. ROHM is widely recognized for its expertise in large scale
integration (LSI) manufacturing and as one of the pioneers in flash
technology. As part of the agreement, the company has secured guaranteed
wafer capacity sufficient to meet the expected product needs for the
foreseeable future. Packaging for the Gatefield parts is done by third-party
companies located in the Philippines and in Korea. The company performs wafer
sort and final test at its facilities in Fremont California, but, as volume
dictates these activities may be moved off shore.
Currently, Zycad has sufficient capacity to meet its present manufacturing
requirements through 1996 and the foreseeable future.
ITEM 2. PROPERTIES
The Company occupies approximately 61,000 square feet of office space in
Fremont, California for its headquarters, manufacturing, and engineering
operations. The total lease payments remaining amount to approximately $2.3
million. The lease expires July 31, 1999. The Company's Service Division in New
Jersey, occupies approximately 25,000 square feet of office space. Total lease
payments remaining through February, 1998 amount to approximately $1.8 million.
For additional information, see Note 6 of "Notes to Consolidated Financial
Statements" included in the Company's 1995 Annual Report to Stockholders.
The Company leases sales and support office space in seven domestic locations,
three European locations, one Taiwanese, one Korean and one Japanese location on
a short-term or intermediate-term basis.
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ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of the stockholders was held on December 18, 1995 for the
purpose of voting on the following proposals with the following votes cast:
<TABLE>
<CAPTION>
VOTES CAST
FOR AGAINST ABSTAIN NO-VOTE
-------------------------------------------------
<S> <C> <C> <C> <C>
1. Approve 1993 stock 7,659,946 1,646,282 73,229 7,804,958
option plan and reserve
1,500,000 shares thereunder.
2. Approve increase in the 6,329,678 3,341,429 112,691 7,400,617
shares reserved under the
1993 stock option plan to
3,000,000 shares.
3. Approve increase of 200,000 7,973,344 824,432 57,999 8,328,641
shares under Employee
Stock Purchase Plan.
4. Approve 1995 Non-employee 7,149,864 824,431 2,010,517 7,924,300
Director's Stock Option Plan and
reserve 200,000 for issuance thereunder.
5. Approve increase in number of 15,084,809 1,430,718 145,205 523,683
authorized common stock from
25,000,000 to 30,000,000 shares.
</TABLE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information regarding executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Phillips W. Smith 58 President and Chief Executive Officer
Peter J. Cassidy 52 Executive Vice President
and Chief Financial Officer
Douglas E. Klint 45 Vice President, General Counsel and
Corporate Secretary
Charles R. Olson 42 Vice President and General Manager
Accelerator Division
Horst G. Sandfort 53 President, GateField Division
</TABLE>
Dr. Smith was named President, Chief Executive Officer and a Director of Zycad
Corporation in June 1990. He had been an industry consultant after leaving his
post as Chairman and CEO of Edgecore Technology, Inc., after its September 1989
acquisition by Arix Corporation. Previously, Dr. Smith had served as President
and CEO and a director of CAE Systems, which was sold to Tektronix in March
1985, and prior to that, he was Vice President, Marketing for Computervision.
Dr. Smith holds a Ph.D. in business administration from St. Louis University, an
M.B.A. from Michigan State and a B.S. from the U.S. Military Academy at West
Point.
Mr. Cassidy joined the Company in July 1990 from Sharebase Corporation, where he
served as Executive Vice President, Operations and CFO. Before joining
Sharebase in October 1987, he held a similar position at NCA Corporation, a
supplier of computer software for manufacturing resource planning. He holds a
B.S. in Accounting from the University of Dayton.
Mr. Klint joined the Company in December 1984 as Director of Contracts, was
named Corporate Secretary in June 1986, and was promoted to Vice President and
General Counsel in November 1987. Mr. Klint holds a J.D. degree from William
Mitchel College of Law and a B.A. degree from Gustavus Adolphus College.
Mr. Olson joined the Company in 1982 and, except for a 2 year separation from
1986 to 1988, has been employed at the Company since that time. He has served
in his current position since January 1995 and prior to January 1995 held
several management positions including, Vice President
Mr. Sandfort joined the Company in September 1995 after serving ten years at LSI
Logic, his most recent position being Executive Vice President for Geographic
Markets. He also held other senior management positions at LSI including General
Manager, Germany; Vice President Marketing, Sales and Engineering LSI Europe;
and President, LSI Europe.
Zycad Corporation Page 11
3/26/96 2:44 PM
<PAGE>
Worldwide Sales -GateField Division, Vice President and General Manager - ViP
Division and Director of Sales - Western area.
There are no family relationships among the officers listed, and there are no
arrangements or understandings pursuant to which any of them were elected as
officers.
Zycad Corporation Page 12
3/26/96 2:44 PM
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information under the heading "Stock Listing" on page 17 of the Company's
1995 Annual Report to Stockholders is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information under the heading "Selected Financial Data" on page 1 of the
Company's 1995 Annual Report to Stockholders is incorporated herein by
reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 4 and 5 of the Company's
1995 Annual Report to Stockholders is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Independent Auditors' Report, the consolidated financial statements and the
notes to consolidated financial statements on pages 6 to 15 of the Company's
1995 Annual Report to Stockholders are incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK)
Page 13
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Set forth below is information regarding the Directors of the Company,
including information furnished by them as to their principal occupation for the
last five years, certain other directorships held by them, and their ages as of
March 29, 1996:
<TABLE>
<CAPTION>
Director
Name Since Age Principal Occupation
- ---- ----- --- --------------------
<S> <C> <C> <C>
Phillips W. Smith 1990 58 President and Chief
Executive Officer of the
Company
Peter J. Cassidy 1991 52 Executive Vice President
and Chief Financial
Officer of the Company
James R. Fiebiger 1994 54 Industry Consultant;
Chairman and Managing
Director, Thunderbird
Technology, Inc.
Benjamin Huberman 1990 58 President of Huberman
Consulting Group
Horst G. Sandfort 1995 53 President of GateField
</TABLE>
Except as set forth below, each of the nominees has been engaged in his
principal occupation set forth above during the past five years. There is no
family relationship between any of the directors and executive officers of the
Company.
Dr. Smith was named President, Chief Executive Officer and director of the
Company in June 1990. He had been an Independent industry consultant from
October 1989 to June 1990 after leaving his post as Chairman and Chief Executive
Officer of Edgecore Technology, Inc., a computer manufacturer, after it was
acquired by Arix Corporation in September 1989. Previously, Dr. Smith had been
President and Chief Executive Officer and a director of CAE Systems, Inc.
Mr. Cassidy was appointed a director of the Company in November 1991. He
has held the position of Executive Vice President and Chief Financial Officer of
Zycad Corporation since July 1990. From October 1987 to July 1990, he was
Executive Vice President, Operations and Chief Financial Officer for Sharebase
Corporation, a relational data base system supplier.
Dr. Fiebiger was appointed a director of the Company in February 1994. Dr.,
Fiebiger has been a Consultant for the semiconductor industry since serving as
President and Chief Operating Officer of VLSI Technology, Inc., a manufacturer
of semiconductors, from February 1988 to August 1993. Previous positions include
President and CEO of Thomson-Mostek and Senior Vice President and Assistant
General Manager of Motorola's Worldwide Semiconductor Sector. Dr. Fiebiger is
also a member of the board of directors of Mentor Graphics Corporation,
Cooper & Chyan Technology, Inc., and Chairman and Managing Director,
Thunderbird Technology, Inc.
Mr. Huberman was appointed a director of the Company in September 1990. He
has served as President of the Huberman Consulting Group, a technology
consulting firm, since 1990. Prior to that, he served as Vice president of
Consultants International from 1981 to 1988 and as President from 1988
Page 14
<PAGE>
to 1990. Mr. Huberman is currently a member of the Chief of Naval Operations'
Executive Panel. From 1988 to mid-1990, he also served as the first chairman of
the Technical Advisory Panel to the U.S. Space Command. Mr. Huberman is also
a member of the board of directors of Silicon Valley Research, Inc.
Mr. Sandfort was appointed a director of the Company in September 1995. He
held the position of Executive Vice President for Geographic Markets at LSI
Logic, where he had worldwide responsibilities for Sales, Marketing, and
Engineering in Asia, Canada, Europe and the U.S.A. During his ten years at LSI,
he was also employed in a variety of other senior management positions including
General Manager, Germany; Vice President Marketing, Sales and Engineering LSI
Europe; and President, LSI Europe.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership on Form 3 and changes in ownership on Form 4 or 5 with the SEC. Such
officers, directors and ten-percent stockholders are also required by SEC rules
to furnish the Company with copies of all Section 16(a) forms that they file.
Based solely on its review of the copies of such forms received by it, or
representations from certain reporting persons that no Forms 5 were required for
such persons, the Company believes that, during the last fiscal year, all
Section 16(a) filing requirements applicable to its officers, directors, and
ten-percent stockholders were complied with.
(The remainder of this page is intentionally left blank)
Page 15
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table shows, as to the Chief Executive Officer and each of
the three other executive officers, information concerning compensation paid for
services to the Company in all capacities during the fiscal year ended December
31, 1995 as well as the Company's two previous fiscal years (if such person was
the Chief Executive Officer or an executive officer, as the case may be, during
any part of such fiscal year).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation Other Compensation-
Name and Annual Bonus/Incentive Annual Securities All Other
Principal Salary Compensation(1) Compensation Underlying Options Compensation
Position Year ($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C>
Phillips W. Smith 1995 200,000 0 44,048 (2) 0 15,340 (3)
President and Chief 1994 200,000 0 64,912 (4) 0 19,990 (5)
Executive Officer 1993 177,258 0 25,732 (6) 0 11,173 (7)
Peter J. Cassidy 1995 182,500 0 -- 0 9,125 (7)
Executive Vice President. 1994 175,000 0 -- 0 7,314 (7)
And Chief Financial Officer 1993 161,965 0 -- 0 8,098 (7)
Douglas E. Klint 1995 129,750 7,785 -- 20,000 6,488 (7)
Vice President, General 1994 120,998 0 -- 0 6,050 (7)
Counsel and Corporate 1993 107,692 0 -- 10,000 5,385 (7)
Secretary
Charles R. Olson 1995 150,000 (8) 93,400 -- 150,000 7,500 (7)
Vice President
& General Manager
Accelerator Division
Horat G. Sandfort 1995 80,000 (9) 15,000 -- 400,000 0
President
GateField Division
</TABLE>
(1) Messrs. Smith, Cassidy and Klint are paid bonuses based on the Company's
profitability. Mr. Olson is paid incentive compensation based on the
Accelerator Division revenues and gross profit margin. Mr. Sandfort had a
one-time guaranteed bonus of $15,000.
(2) Represents $44,048 in cost of living adjustments for California housing.
(3) Includes $10,000 contributed by the Company to a cafeteria benefit plan and
$2,310 contributed by the Company to a 401K plan and $3,030 for term
life insurance premium reimbursement.
(4) Represents $25,937 in cost of living adjustments for California housing and
$38,975 in tax gross up rembursement payments for 1993 and 1994.
(5) Includes $10,000 contributed by the Company to a cafeteria benefit plan
and $2,310 contributed by the Company to a 401 (K) plan, and $7,680 for
term life insurance premium reimbursement.
(6) Represents $25,732 in cost of living adjustments for California housing.
(7) Represents Company contributions to defined benefit plans.
(8) Mr. Olson became an Executive Officer in June 1995. His annual base salary
in 1995 was $150,000.
(9) Mr. Sandfort hire date was September 6, 1995 and his annual base salary is
$240,000. He was actually paid $80,000 in salary in 1995.
(The remainder of this page is intentionally left blank)
Page 16
<PAGE>
OPTION GRANTS TO EXECUTIVE OFFICERS
The following table sets forth further information regarding individual
grants of stock options pursuant to the 1993 Stock Option Plan during 1995 to
each of the executive officers named in the Summary Compensation Table above.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Percent of total Annual Rates of Stock
Number of options granted Price Appreciation
Securities to employees in Exercise Expiration ----------------------
Name Underlying 1995 Price ($/she) Date 5% 10%
- ---- ----------- ---------------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Douglas Klint 20,000 (1) 1.3% $6.94 12/1/2003 $4,310 $9,282
Charles Olson 150,000 (2) 9.7% $1.00 2/27/2003 $23,644 $49,650
Horst G. Sandfort 400,000 (3) 26% $6.81 9/6/2003 $86,620 $185,640
</TABLE>
Note: All option shave an exercise price equal to the fair market value of the
Company's common stock on the date of grant.
(1) All 20,000 options are time based with vesting over 4 years with annual
vesting for the first two years and monthly vesting thereafter.
(2) Options for 90,000 shares are time based with annual vesting over 3 years.
Options for 60,000 shares are performance based with vesting upon
achievement of certain performance goals.
(3) Options for 240,000 shares are time based with vesting over 4 years with
annual vesting for the first two years and monthly vesting thereafter.
Options for 160,000 shares are performance based with vesting upon
achievement of certain performance goals.
OPTIONS EXERCISED AND HELD
The following table shows, as to the individuals named in the Summary
Compensation Table above, information concern in stock options exercised during
the fiscal year ended December 31, 1995 and options held at fiscal year end.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Acquired Value Realized options at FY-End (I#) FY-End ($) (2)
Name on Exercise (#) ($) (1) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Phillips W. Smith 0 0 0 0 0 0
Peter J. Cassidy 0 0 300,000 0 2,214,000 0
Douglas E. Klint 0 0 4,000 26,000 10,360 67,340
Charles R. Olson 23,000 70,845 4,897 182,503 31,928 1,189,920
Horst G. Sandfort 0 0 0 400,000 0 628,000
</TABLE>
(1) Market value of underlying securities, based on the last sale price of the
Companies Common Stock on the National Association of Securities Dealers,
Inc. Automated Quotation ("NASDAQ") National Market System on the date of
exercise, minus the exercise price.
(2) Market value of underlying securities, based on the last sale price of the
Company's Common Stock on the NASDAQ National Market System on December 29,
1995 ($8.38 per share), minus the exercise price.
DIRECTOR COMPENSATION
Members of the Board of Directors who are not employees of the Company
receive a retainer of $2,500 per quarter plus a fee of $1,000 for attendance
at each Board and Board Committee meetings and are reimbursed for their
expenses in attending meetings of the Board of Directors. On September 10,
1990, Mr. Huberman received warrants from the Company entitling him to
purchase 50,000 shares of the Company's Common Stock at an exercise price of
$1.00 per share, the then market value. In August 1993 Mr. Huberman received
warrants from the Company entitling him to purchase 30,000 shares of the
Company's Common Stock at an exercise price of $2.06 per share. In February
1994 Dr. Fiebiger received warrants from the Company entitling him to
purchase 50,000 shares of the Company's Common Stock at an exercise price of
$3.63 per share. Both of these warrants are exercisable for 10,000 shares on
each anniversary date.
All warrants expire six years after their respective issue dates or 90 days
after resignation from the Board of Directors, whichever occurs first.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors is comprised of two
non-employee directors of the Board of Directors. No member of the Committee is
a former or current officer or employee of the Company.
Page 17
<PAGE>
The Compensation Committee is responsible for setting and administering the
policies governing annual compensation of executive officers, including the
annual management incentive plans and the Company's stock option plans. In
addition, The Committee reviews compensation levels of executive officers and
evaluates their performance.
It is the compensation policy of the Committee that a substantial portion
of the annual compensation opportunities of each executive officer be contingent
upon the performance of the Company. The Committee also believes that employee
equity ownership is highly motivating, provides a major incentive to employees
in building stockholder value and serves to align the interests of employees
with stockholders.
The salaries for executive officers generally are based on a review of
salaries for comparable positions among competing companies, and are adjusted
annually to take into account cost of living increases, merit increases and
adjustments deemed necessary to continue to attract and retain highly qualified
executive officers.
Under the Company's annual incentive plan, incentive compensation is paid
based on the performance of the Company as a whole. Bonuses for Messrs.
Smith, Cassidy and Klint are paid based on attainment of Company
profitability goals and incentive compensation for Mr. Olson is paid based on
attainment of Accelerator Division revenues and gross profit margin. Mr.
Sandfort's bonus is based on revenue and expense goals for the Gatefield
Division. Annual incentive compensation at targeted levels of performance
represents approximately 50% of total cash compensation for the CEO and 25%
to 45% for the executive officers. The targeted amounts of incentive
compensation are established in the Company's annual operating plan, which is
approved by the Board annually.
The Company's performance is measured for purposes of compensation
decisions under the annual incentive plan against goals established by the
Committee in consultation with management prior to the fiscal year based on the
Company's annual operating plan.
The financial goals for fiscal 1995 which related to Company revenue and
net profit before tax were partially achieved. No bonuses were paid to
Messrs. Smith and Cassidy for 1995 performance. Mr. Sandfort was guaranteed a
one time bonus of $15,000 for Fourth Quarter 1995. Mr. Olson was paid
incentive compensation of $93,400 related to revenue and gross profit
attainment in 1995. In 1995 stock options for 20,000 shares, 150,000 shares
and 400,000 shares were granted to Messrs. Klint, Olson and Sandfort,
respectively.
James Fiebiger
Chairman, Compensation Committee
Benjamin Huberman
Member, Compensation Committee
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of outside directors James
Fiebiger and Benjamin Huberman. None of these individuals was at any time during
the fiscal year ended December 31, 1995 or at any other time an officer or
employee of the Company.
During fiscal year ended December 31, 1995 the Company paid Mr.. Benjamin
Huberman, a member of the Board of Directors, $80,000 in consulting fees. Mr.
Huberman has worked closely with the Company in developing and marketing the
Company's consulting services. Management believes that this arrangement is at
least as favorable as could be negotiated with outside consultants.
During fiscal year ending December 31, 1995 the Company paid Dr. James
Fiebiger, a member of the Board of Directors, consulting fees in the amount
of $77,788. Dr. Fiebiger's consulting services were rendered for product
development, strategic planning and marketing consulting services for Field
Programmable Gate Array Products developed by the Company's GateField
Division. Management believes that this arrangement is at least as favorable
as could be negotiated with outside consultants.
Page 18
<PAGE>
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
COMPANY STOCK PRICE PERFORMANCE
The following graph shows a five-year comparison of cumulative total
stockholder returns (on a dividend reinvestment basis) for the Company's Common
Stock, NASDAQ Stock Market (U.S.) and Hambrecht and Quist ("H&Q") Technology
Index. Note that the historic stock price performance is not necessarily
indicative of future stock price performance.
ZYCAD CORPORATION
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
ZYCAD CORPORATION NASDAQ H&Q TECHNOLOGY INDEX
<S> <C> <C> <C>
1990 100 100 100
1991 569 161 147
1992 415 187 170
1993 330 214 185
1994 169 209 215
1995 1,015 297 323
</TABLE>
Assumes $100 invested on December 31, 1990 in the Company's Common Stock, NASDAQ
Stock Market (U.S.) and Hambrecht and Quist Technology Index.
*Total return assumes reinvestment of dividends.
(The remainder of this page is intentionally left blank)
Page 19
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SHARE OWNERSHIP
The following persons or entities were known to the Company to be the
beneficial owners of more than 5% of the Company's Common Stock.
<TABLE>
<CAPTION>
Number Percent
Name and Address of Shares of Total
<S> <C> <C>
Phillips W. Smith 1,000,000 5.0%
4811 East Beryl Avenue
Paradise Valley, Arizona 85253
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding ownership of
the Company's Common Stock as of March 29, 1995, by each director, by each of
the executive officers, and all executive officers named in the summary
Compensation Table and directors of the Company as a group.
SHARES OF COMMON STOCK BENEFICIALLY OWNED
<TABLE>
<CAPTION>
Approximate
Name Amount Owned Percent Owned
- ---- ------------ -------------
<S> <C> <C>
Phillips W. Smith 1,000,000 5.0%
Peter J. Cassidy 300,000 (1) 1.5%
James Fiebiger 23,668 (2) *
Benjamin Huberman 90,000 (3) *
Douglas E. Klint 6,043 (4) *
Charles R. Olson 4,897 (5) *
Horst G. Sandfort -- *
All directors and executive 1,424,608 (6) 7.2%
officers as a group (7 persons)
</TABLE>
*Less than (1) percent.
(1) Represents 300,000 shares subject to options held by Mr. Cassidy that are
exercisable within 60 days of the Record Date.
(2) Includes 20,000 shares subject to warrants held by Dr. Fiebiger that are
exercisable within 60 days of the Recorded Date.
(3) Includes 70,000 shares subject to warrants held by Mr. Huberman that are
exercisable within 60 days of the Record Date.
(4) Includes 6,042 shares subject to options held by Mr. Klint that are
exercisable within 60 days of the Recorded Date.
(5) Includes 4,896 shares subject to options held by Mr. Olson that are
exercisable within 60 days of the record date.
(6) Includes 400,938 share subject to options and warrants held by five persons
that are exercisable within 60 days of the Record Date.
Page 20
<PAGE>
ITEM 13. CERTAIN TRANSACTIONS
CERTAIN TRANSACTIONS
The following table sets forth information with respect to all executive
officers of the Company who had indebtedness in excess of $60,000 outstanding
during the past fiscal year.
<TABLE>
<CAPTION>
Largest
Principal
Amount Principal
Outstanding Balance at
Name/ Interest Maturity During December
Principal Position Loans Loan Date Rate Date 1995 31,1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Phillips W. Smith $1,500,000 August 27, 1992 one percent August 27, 1995 1,500,000 0
President & CEO for $600,000 and over Prime for $600,000 and
September 1, 1993 rate adjusted September 1, 1995
for $900,000 quarterly for $900,000
</TABLE>
These Loans were paid in full in August and September, 1995. These loans were
made in connection with the purchase and financing of real property by Dr.
Smith and in connection with the exercise of stock options by Dr. Smith. Both
loans are documented with full recourse Promissory Notes signed by Dr. Smith.
These loans are secured by certain real property including Dr. Smith's
personal residence; as well as 1,200,000 shares of Common Stock of the
Company owned by Dr. Smith of which 900,000 shares were issued pursuant to
the exercise of his stock options and 300,000 shares were previously
purchased by him in the open market.
(The remainder of this page is intentionally left blank)
page 21
<PAGE>
PART IV
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(a) 1. Financial Statements
Independent Auditors' Report (page 15 of the Company's 1995
Annual Report to Stockholders).
Consolidated Balance Sheets as of December 31, 1995 and 1994
(page 6 of the Company's 1995 Annual Report to Stockholders).
Consolidated Statements of Operations for Years Ended December
31, 1995, 1994 and 1993 (page 7 of the Company's 1995 Annual
Report to Stockholders).
Consolidated Statements of Stockholders' Equity for Years Ended
December 31, 1995, 1994 and 1993 (page 8 of the Company's 1995
Annual Report to Stockholders).
Consolidated Statements of Cash Flows for Years Ended December
31, 1995, 1994 and 1993 (page 9 of the Company's 1995 Annual
Report to Stockholders).
Notes to Consolidated Financial Statements (pages 10 to 14 of the
Company's 1995 Annual Report to Stockholders).
2. The following financial statement schedules is included
herein: Schedule II: Valuation and Qualifying Accounts and
Reserves
All other schedules are omitted because they are not required,
inapplicable or the information is otherwise included.
3. Exhibits:
EXHIBIT
NUMBER DESCRIPTION
3.1 Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1987).
3.2 Bylaws of the Company, as amended (incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1988).
3.3 Amendment to the Certificate of Incorporation of the Company
10.1 * 1984 Stock Option Plan as amended (incorporated by reference to
Exhibit 10.2 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1987).
Page 22
<PAGE>
10.2 Patent Agreement dated October 28, 1985 with Control Data
Corporation (incorporated by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1985).
10.3 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.12 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1986).
10.4 Warrant Certificate for the purchase of 15,000 shares of Common
Stock executed with Douglas E. Johnson and John A. Fahlberg
(incorporated by reference 10.22 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1989).
10.5 Patent Cross License Agreement dated May 17, 1989 with IKOS
Systems, Inc. (incorporated by reference 10.25 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1989).
10.6 Warrant Certificate for the purchase of 50,000 shares of Common
Stock executed with Benjamin Huberman dated September 19, 1990
(incorporated by reference 10.22 to the Company's Annual Report
on Form 10-12 for the year ended December 31, 1991).
10.7 Consulting Agreement dated October 1, 1990 with Benjamin Huberman
(incorporated by reference 10.24 to the Company's Annual Report
on Form 10-12 for the year ended December 31, 1991).
10.8 Warrant Certificate for the purchase of 50,000 shares of Common
Stock executed with Yoshikazu Hori dated July 18, 1991
(incorporated by reference 10.25 to the Company's Annual Report
on Form 10-12 for the year ended December 31, 1991).
10.9 Asset Purchase Agreement between Zycad Corporation and Synopsys
Technology Inc., a wholly-owned subsidiary of Synopsys, Inc.
dated as October 19, 1990 (incorporated by reference 10.26 to the
Company's Annual Report on Form 10-12 for the year ended December
31, 1991).
10.10 Agreement regarding non-compete and payments dated January 15,
1992 between Synopsys, Inc. and Synopsys Technology, Inc. and
Zycad Corporation (incorporated by reference 10.27 to the
Company's Annual Report on Form 10-12 for the year ended December
31, 1991).
10.11 Lease dated March 6, 1992 relating to premises at 47100 Bayside
Parkway, Fremont, California (incorporated by reference 10.22 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1992).
10.12 Promissory Note dated August 27, 1992 in the amount of $600,000
from Phillips W. Smith (incorporated by reference 10.24 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1992).
10.13 * 1993 Stock Option Plan (incorporated by reference 10.13 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1993).
10.14 Lease dated October 23, 1992 relating to premises at 100
Enterprise Drive, Rockaway, New Jersey (incorporated by reference
10.14 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993).
Page 23
<PAGE>
10.15 Form of Warrant Certificate for the purchase of 30,000 shares of
Common Stock executed with Benjamin Huberman and Yoshikazu Hori
dated August 16, 1993 (incorporated by reference 10.15 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1993).
10.16 Promissory Note (full recourse) dated September 1, 1993 in the
amount of $900,000 from Phillips W. Smith and Patricia Smith
(incorporated by reference 10.16 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993).
10.17 Share Exchange and Allotment Agreement dated September 7, 1993,
for the purchase of Integrated Circuit Applications, Ltd.
(incorporated by reference 10.17 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993).
10.18 SICAN/Zycad Technology Agreement dated September 23, 1993,
between SICAN GmbH and Zycad Corporation (incorporated by
reference 10.18 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993).
10.19 Private Placement Distribution Agreement dated March 4, 1994 with
Rosehouse, Ltd. (incorporated by reference 10.19 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.20 Warrant Certificate for purchase of 50,000 shares of Common Stock
executed with James Fiebiger dated February 4, 1994 (incorporated
by reference 10.20 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
10.21 Warrant Certificate for purchase of 5,918 shares of Common Stock
executed with James Fiebiger dated November 11, 1994 (incorporated
by reference 10.21 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
10.22 First Amendment to Rockaway New Jersey Lease dated January 13,
1995 (incorporated by reference 10.22 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994).
11.1 Computation of Earnings Per Share.
13.1 The Company's 1995 Annual Report to Stockholders.
21.1 Subsidiaries of the Registrant.
23.1 Independent Auditors' Consent -- Deloitte & Touche LLP.
- -------------------------------------
* Denotes a compensation plan in which an executive officer participates.
(b) REPORTS ON FORM 8-K. None.
(c) EXHIBITS. See response to Item 14(a) (3).
(d) FINANCIAL STATEMENTS SCHEDULES. See response to Item 14 (a)
(2).
For the purposes of complying with the amendments to the Rules governing Form S-
8 (effective July 13, 1990) under the Securities and Exchange Act of 1933, the
undersigned hereby undertakes as follows, which undertaken shall be incorporated
by reference into the Registrant's Registration Statements on Form S-8 (File
Nos. 13244):
Page 24
<PAGE>
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(The remainder of this page is intentionally left blank)
Page 25
<PAGE>
----------
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ZYCAD CORPORATION
By /s/Phillips W. Smith
-------------------------
Phillips W. Smith
President and Chief Executive
Officer
By /s/Peter J. Cassidy
------------------------
Peter J. Cassidy
Executive Vice President
and Chief Financial Officer
Date: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company in their
respective capacities as directors of the Company.
/s/Phillips W. Smith Director March 29, 1996
- -----------------------------
Phillips W. Smith
/s/Peter J. Cassidy Director March 29, 1996
- -----------------------------
Peter J. Cassidy
/s/Horst G. Sandfort Director March 29, 1996
- -----------------------------
Horst G. Sandfort
/s/Benjamin Huberman Director March 29, 1996
- -----------------------------
Benjamin Huberman
/s/James R. Fiebiger Director March 29, 1996
- -----------------------------
James R. Fiebiger
Page 26
<PAGE>
INDEX TO EXHIBITS SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
3.1 Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1987).
3.2 Bylaws of the Company, as amended (incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1988).
3.3 Amendment to the Certificate of Incorporation of the Company
10.1 1984 Stock Option Plan as amended (incorporated by reference to
Exhibit 10.2 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1987).
10.2 Patent Agreement dated October 28, 1985 with Control Data
Corporation (incorporated by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1985).
10.3 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.12 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1986).
10.4 Warrant Certificate for the purchase of 15,000 shares of Common
Stock executed with Douglas E. Johnson and John A. Fahlberg
(incorporated by reference 10.22 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1989).
10.5 Patent Cross License Agreement dated May 17, 1989 with IKOS
Systems, Inc. (incorporated by reference 10.25 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1989).
10.6 Warrant Certificate for the purchase of 50,000 shares of Common
Stock executed with Benjamin Huberman dated September 19, 1990
(incorporated by reference 10.22 to the Company's Annual Report
on Form 10-12 for the year ended December 31, 1991).
10.7 Consulting Agreement dated October 1, 1990 with Benjamin Huberman
(incorporated by reference 10.24 to the Company's Annual Report
on Form 10-12 for the year ended December 31, 1991).
10.8 Warrant Certificate for the purchase of 50,000 shares of Common
Stock executed with Yoshikazu Hori dated July 18, 1991
(incorporated by reference 10.25 to the Company's Annual Report
on Form 10-12 for the year ended December 31, 1991).
10.9 Asset Purchase Agreement between Zycad Corporation and Synopsys
Technology Inc., a wholly-owned subsidiary of Synopsys, Inc.
dated as October 19, 1990 (incorporated by reference 10.26 to the
Company's Annual Report on Form 10-12 for the year ended December
31, 1991).
10.10 Agreement regarding non-compete and payments dated January 15,
1992 between Synopsys, Inc. and Synopsys Technology, Inc. and
Zycad Corporation (incorporated by reference 10.27 to the
Company's Annual Report on Form 10-12 for the year ended December
31, 1991).
Page 27
<PAGE>
10.11 Lease dated March 6, 1992 relating to premises at 47100 Bayside
Parkway, Fremont, California (incorporated by reference 10.22 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1992).
10.12 Promissory Note dated August 27, 1992 in the amount of $600,000
from Phillips W. Smith (incorporated by reference 10.24 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1992).
10.13 1993 Stock Option Plan (incorporated by reference 10.13 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1993).
10.14 Lease dated October 23, 1992 relating to premises at 100
Enterprise Drive, Rockaway, New Jersey (incorporated by reference
10.14 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993).
10.15 Form of Warrant Certificate for the purchase of 30,000 shares of
Common Stock executed with Benjamin Huberman and Yoshikazu Hori
dated August 16, 1993 (incorporated by reference 10.15 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1993).
10.16 Promissory Note (full recourse) dated September 1, 1993 in the
amount of $900,000 from Phillips W. Smith and Patricia Smith
(incorporated by reference 10.16 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993).
10.17 Share Exchange and Allotment Agreement dated September 7, 1993,
for the purchase of Integrated Circuit Applications, Ltd.
(incorporated by reference 10.17 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993).
10.18 SICAN/Zycad Technology Agreement dated September 23, 1993,
between SICAN GmbH and Zycad Corporation (incorporated by
reference 10.18 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993).
10.19 Private Placement Distribution Agreement dated March 4, 1994 with
Rosehouse, Ltd. (incorporated by reference 10.19 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.20 Warrant Certificate for purchase of 50,000 shares of Common Stock
executed with James Fiebiger dated February 4, 1994 (incorporated
by reference 10.20 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
10.21 Warrant Certificate for purchase of 5,918 shares of Common Stock
executed with James Fiebiger dated November 11, 1994 (incorporated
by reference 10.21 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
10.22 First Amendment to Rockaway New Jersey Lease dated January 13,
1995 (incorporated by reference 10.22 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994).
11.1 Computation of Earnings Per Share.
13.1 The Company's 1995 Annual Report to Stockholders.
21.1 Subsidiaries of the Registrant.
23.1 Independent Auditors' Consent -- Deloitte & Touche LLP.
Page 28
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Zycad Corporation:
We have audited the consolidated financial statements of Zycad Corporation as
of December 31, 1995 and 1994, and for each of the three years in the period
ended December 31, 1995, and have issued our report thereon dated March 27,
1996. Our audits also included the consolidated financial statement schedule
of Zycad Corporation, listed in the Index at Item 14. This consolidated
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set
forth therein.
DELOITTE & TOUCHE LLP
San Jose, California
March 27, 1996
<PAGE>
Exhibit 3.3
ZYCAD CORPORATION
Certificate of Amendment
of
Certificate of Incorporation
(Pursuant to Section 242 of the General
Corporation Law of the State of Delaware)
Phillips W. Smith, President and Chief Executive Officer, and Douglas E.
Klint, Secretary, of Zycad Corporation, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
do hereby certify:
FIRST: That on November 7, 1995, the Board of Directors of Zycad
Corporation did, by its resolution adopted at a duty constituted meeting of
said Board, propose an amendment, as hereafter set forth, to the Certificate
of Incorporation of said Corporation, and declared the advisability of such
amendment, and directed that the amendment be presented for the consideration
of the stockholders of said Corporation at the next special meeting of the
stockholders.
SECOND: That at the duly constituted special meeting of the
stockholders of said corporation held on December 18, 1995, the corporation
adopted a resolution adopting such amendment, in accord with the provisions
of Section 242 of the General Corporation Laws of the State of Delaware.
THIRD: That there has been duly adopted, in accordance with the
provisions of Section 242 of the General corporation Law of the State of
Delaware, an amendment to the Certificate of Incorporation of Zycad
Corporation which amends paragraph 4 (a) of Article 4 to read as follows:
"The corporation is authorized to issue a total of 32,000,000
shares of all classes of stock, of which, 30,000,000 shall be
shares of Common Stock with a par value of $0.10 per share."
IN WITNESS WHEREOF, said Zycad Corporation has caused this Certificate
to be signed by Phillips W. Smith, its President and Chief Executive Officer,
and arrested by Douglas E. Klint, its Secretary, this 20th day of December,
1995.
ZYCAD CORPORATION
By /s/ Phillips W. Smith
-----------------------------
Phillips W. Smith
President and CEO
ATTEST:
By /s/ Douglas E. Klint
---------------------------
Douglas E. Klint
Secretary
<PAGE>
EXHIBIT 11.1
ZYCAD CORPORATION AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1995 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $ 1,957 $ (9,748) $ (4,480)
------ ------ ------
------ ------ ------
Weighted average shares of common
stock outstanding during the
periods indicated 19,395 18,598 16,908
Dilutive common equivalent shares
relating to outstanding options and
warrants to purchase common stock
using the treasury stock method 1,838 ---(1) ---(1)
------- ------ ------
Total common and common
equivalent shares outstanding 21,233 18,598 16,908
------ ------ ------
------ ------ ------
Net Income (loss) per common and
common equivalent share $ .09 $ (.52) $(.26)
------ ------ ------
------ ------ ------
</TABLE>
(1) Common stock equivalents of 3.1 million and 2.9 million shares are
excluded from the computation in 1994 and 1993 respectively,
as they are antidilutive.
Page 29
<PAGE>
ZYCAD CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column F
- -------- -------- -------- -------- --------
Balance at Balance at
Beginning End of
Descriptions of Period Additions Deductions Period
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deducted from assets:
Allowance for doubtful acounts
(accounts receivable):
Year ended December 31,
1995 $ 381 $--- $ 85(1)s $ 296
------ ---- ----- ------
------ ---- ----- ------
1994 $ 401 $--- $ 20(1) $ 381
------ ---- ----- ------
------ ---- ----- ------
1993 $ 580 $ --- $ 179(1) $ 401
------ ----- ------ ------
------ ----- ------ ------
</TABLE>
(1) Write-off of accounts and notes determined to be uncollectable.
Page 30
<PAGE>
CORPORATE OVERVIEW
Zycad Corporation, founded in 1981, designs, develops, and markets products
and services that provide design verification, rapid prototyping, test analysis
and silicon components to customers designing high-performance, electronic
systems. From its inception through 1995, Zycad's primary revenue focus has
been simulation accelerators and rapid prototyping products and services. Zycad
will continue to enhance these products to offer customers increasing value.
Additonally, over the last two years Zycad has made significant investments,
through its GateField division, in developing high-density field programmable
gate array (FPGA) products. At the end of 1995, Zycad shipped its first high-
density 51,000 gate FPGA to a beta customer and will be selling its family of
GateField FPGAs ranging in densities from 9,000 gates to 100,000 gates during
1996. These FPGAs will be available to ASIC designers who previously had no
alternative but to use custom or semi-custom ASICs for their more complex
designs.
Zycad products, including its FPGAs, are designed to be compatible with
industry standard design methodologies such as VHDL and Verilog and other third-
party Electronic Design Automation (EDA) vendor tools. The Company's products
and services help customers shorten their design cycles by increasing
engineering productivity and ensuring product quality. The result is earlier
product introduction and improved profitability for Zycad's customers.
Zycad's corporate offices, product development operations and its GateField
division are located in Fremont, California. The services operations, which
provide consulting, engineering and design management services is located in
Rockaway, New Jersey. Sales and support offices are located throughout the
United States, Europe, Japan and Asia.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA
Year Ended December 31 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $51,117 $50,051 $41,478 $45,154 $43,454
Gross profit 33,624 30,094 24,769 28,949 30,703
Operating income (loss) 2,550 (9,511) (8,565) (3,940) 4,526
Net income (loss) 1,957 (9,748) (4,480) (2,798) 5,249
Net income (loss) per share .09 (.52) (.26) (.18) .30
Shares used in per share computation 21,233 18,598 16,908 15,850 17,628
- --------------------------------------------------------------------------------------------------------------
Working capital 6,741 1,621 6,030 10,829 19,702
Total assets 28,980 29,825 28,606 30,913 35,920
Long-term debt 1,207 1,874 81 309 888
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Revenues, net income and net income per share for 1995 and 1994 include
amounts related to a technology distributed by Zycad and owned by a U.K.
Company. Effective January 1, 1996, a joint venture was formed by the two
companies. Consequently, specific revenues and costs related to this
technology will no longer be included in Zycad's financial statements (see
Note 2 of Notes to the Consolidated Financial Statements). The net loss in
1994 includes a charge for asset write-downs and staff reductions of $6.8
million, primarily related to the Company's decision to discontinue selling
the Paradigm ViP (VHDL instruction processor) product (see Note 4 of Notes to
Consolidated Financial Statements). The net loss in 1993 includes $2.9
million of staff reduction costs and asset write downs and $3.9 million of
gain related to the sale of another company's common stock (see Notes 2 and 4
of Notes to Consolidated Financial Statements).
1
<PAGE>
TO OUR STOCKHOLDERS
I am pleased to report that 1995 was a year of significant accomplishment for
Zycad and a much more satisfying and rewarding year than any in the recent past.
The highlights include:
- - a return to profitability - 1995 net income was $1,957,000, or $.09 per
share, compared to a net loss of $9,748,000, or $.52 per share in 1994,
- - net cash, offset by bank borrowing, improved in 1995 to $3,946,000 from
$189,000 in 1994,
- - the year end closing stock price was $8.25 in 1995 compared to $1.38 in
1994, and
- - the first GateField high-density field programmable gate array (FPGA), the
GF51K, was shipped to a beta customer in late December.
Zycad's focus during 1995 was twofold; concentration on adding value to our
industry leading performance simulation and design verification products and
completing the industry's first high-density 50,000+ gate FPGA.
Substantial investments were made during the year in developing the next
generation simulation accelerator product, LightSpeed, which was announced in
March 1996. This product is expected to be the fastest accelerator in the
market. Our customers should realize substantial performance improvements over
their current Zycad XP and Paradigm XP products.
The GateField family of high-density FPGA products was introduced to the market
through a cover story feature in the May 1995 issue of "Electronic Design"
magazine. Subsequently, several other leading trade publications have included
articles about the GateField FPGAs.
Our engineering and consulting services business continued to operate
profitably. This business included the U.S. marketing and distribution of a
third-party owned product, DOORS, an industry leading "requirements
management" product. In January, 1996, Zycad transferred its DOORS activities
to form a joint venture with the product owner, Quality Systems Software,
Ltd., a U.K. based company. This U.S. joint venture, QSS Inc., will be better
able to focus on expanding the market for the DOORS product while Zycad
concentrates on its other product opportunities. Additionally, in July 1995,
a three year, $2.9 million contract was received from the U.S. Defense
Department's Advanced Research Projects Agency (ARPA) to support the
development of a next-generation system verification environment
incorporating electronic design simulation and emulation technologies.
In summary, each operating activity contributed to our success in 1995; the
GateField 51K gate FPGA was introduced, accelerator products contributed
substantial profits while making investments in the next generation accelerator,
LightSpeed, and engineering and consulting services further added to our
profitability.
Now let's look forward to our challenges and opportunities in 1996!
We believe that Zycad can be a leader in providing high-density FPGAs to the
$7 BILLION Application Specific Integrated Circuit (ASIC) market. No other
supplier is delivering FPGAs with logic gate density equal to the GF51K part.
Further, as we take advantage of manufacturing process technology
improvements, we will gain even greater density advantages. The advantage
results from a flash-based switch and fine grained architecture that is
significantly smaller than the competitors' architecture. This architectural
advantage translates to compacting more logic elements onto a chip, thereby
obtaining higher gate densities and lower costs per chip.
The first production quality GF51K and GF9K parts were received in early March,
later than originally expected because testing took longer than planned.
However, we have finally moved out of the "lab environment" into the
manufacture/sell mode and expect to have quantity parts to sell beginning in
April. The sales challenge is to obtain design wins for these parts
and ultimately turn these
2
<PAGE>
design wins into quantity shipments as our customers ship the final product to
their customers. Our sales organization has been recently chartered with the
design win challenge.
Now that the GF51K parts are being delivered, the next parts in the GF100K
product family, the GF23K and the GF35K, will be sent to the foundry in April
for availability in July. The GF77K and the GF100K parts are expected to be
available later in the year. Presently, all the parts in the GF100K product
family will be manufactured in a .8 micron process. The scaling of the design to
a .6 micron process is expected to be completed in 1997 and should improve
densities per chip by 60% to 80%.
The LightSpeed simulation server family of products has been announced and will
be available for beta shipment in June, with quantity shipments in the third
quarter. Because of the significant performance improvement, it is expected that
many of our existing customers will upgrade to LightSpeed and more new customers
will be attracted to this product in the second half of 1996.
As we transition to the newer products, we expect that revenues in the first two
quarters of 1996 will be lower and expenses related to the LightSpeed and
GateField product development and market introduction activities will be higher
than the comparable 1995 quarters. However, subject to market acceptance of
LightSpeed, we expect that the accelerator business can generate similar profits
in 1996 as achieved last year. We further expect that the GateField product line
will continue to require investments in the first three quarters, but can
achieve quarterly profitability during the fourth quarter of 1996 and will then
no longer adversely affect the profits generated by the accelerator business.
While we made substantial improvements in 1995 and enter this year in a much
stronger position than a year ago, two quarters remain to complete the
transition to the new LightSpeed accelerator and to gain momentum in marketing
the new GateField FPGAs. However, we would not be in position to make this
transition without the tireless effort of the Zycad employees. The return to
profitability in 1995 and the preparation of the new technology for introduction
in 1996 is a direct result of their complete dedication.
On behalf of the entire Zycad team, thank you, our shareholders, for your
patience, continued interest and loyalty during these transition years. We
remain committed to building a strong foundation that will sustain Zycad's
profitable growth well into the next millennium.
Sincerely,
Phillips W. Smith
President and Chief Executive Officer
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATION
OVERVIEW
The Company's net profit at $2.0 million was an $11.7 million improvement over
the 1994 financial results on a revenue increase of only $1.1 million. The 1994
net loss included $6.8 million of asset write-downs and restructuring costs as
the Company discontinued selling its ViP product and concentrated on fewer
product technology areas. Gross profit improved $3.5 million as a result of
revenue increases and product mix. The Company discontinued selling its lower
margin ViP product line at the end of 1994 and both margins and revenues from
the Paradigm XP product were higher in 1995. Operating expenses were $1.7
million lower in 1995 as a result of the cost reduction and restructuring
actions taken in December 1994.
Net income per share in the first half of 1995 was $.07 compared to $.02 per
share in the second half on essentially equal revenue amounts in each half.
Expenses were higher in the second half due to increased R & D spending related
to the next generation accelerator product, LightSpeed, expected to be released
to customers in June 1996 and increased sales and marketing spending related to
achievement of annual quotas and preparation for introducing the GateField FPGAs
to market in early 1996.
The Company's net profit of $2.0 million was comprised of approximately $5.4
million profit from product, maintenance and services related to its accelerator
business activity, approximately $1.6 million profit related to marketing and
distributing a requirements management technology, DOORS, owned by a third-party
U.K. company and approximately $5.0 million of expenses related to the
development of the GateField FPGAs.
Income or losses in 1996 related to the third-party owned technology will be
reported on an equity basis in 1996 because this activity was transferred out of
Zycad in connection with the formation of a joint venture between Zycad and the
U.K. company in January 1996. Zycad owns 40% of the new joint venture.
The Company shipped its first high-density FPGA to a beta customer in late
December 1995 and expects to begin shipping FPGAs in quantity in the second
quarter of 1996.
REVENUES
Revenues in 1995 were $51.1 million, an increase of $1.1 million over 1994
revenues. Paradigm XP revenues increased $2.2 million due to increased purchases
from the Company's largest customer. This increase was offset by a $3.1 decrease
in Paradigm ViP and Paradigm RP product revenues as the ViP product was
discontinued at the end of 1994 and emphasis on the RP product was reduced
pending introduction of the GateField high-density FPGAs. Service revenues
increased $2.0 million due to increased demand for the DOORS technology and
to an increase in commercial service contracts.
Revenues in 1994 were $50.1 million, $8.6 million higher than in 1993. Product
revenues increased $6.2 million, which included Paradigm XP revenue increases of
approximately $3.3 million, Paradigm ViP revenues of $1.7 million (none in 1993)
and an increase in the Paradigm RP product revenues of approximately $1.2
million. The product revenue growth resulted from increased demand in the
domestic market, as certain customers increased their level of purchases
consistent with their design cycle requirements.
Service revenues increased $2.4 million, or 13% due to increased maintenance
revenues resulting from a larger installed base and higher consulting service
revenue related to more service contracts in both the commercial and government
market segments.
COST OF SALES
Gross profit in 1995 was $33.6 million, or 66%, compared to $30.1 million, or
60% in 1994. Product gross profits increased $.9 million on lower product
revenues in 1995. The product gross profit percentage increased to 77% from 72%
in 1994 due a higher mix of Paradigm XP product revenue in 1995. In 1994, lower
margin Paradigm ViP and Paradigm RP revenues accounted for 13% of product
revenue, compared to 3% in 1995. Service gross profits increased $2.6 million in
1995 on a revenue increase of $2.0 million. This improvement was due to a higher
revenue mix of more profitable DOORS business and higher value commercial
contracts compared to mil/aero contracts than in 1994.
In 1994, the gross profit was $30.1 million or 60% of revenue compared to $24.8
million and 60% in 1993. The increase is due to higher revenue levels. The
product gross margins declined slightly to 72% from 75% due to higher material
costs in all products compared to 1993 when a significant portion of revenues
resulted from the lower cost Paradigm XP product. This decline was offset by
higher service margins due to higher value contacts and maintaining cost levels.
4
<PAGE>
OPERATING EXPENSES
SALES AND MARKETING
Sales and marketing expenses decreased 11% in 1995 due to reduced staffing
levels, which resulted from restructuring and cost reduction actions taken in
December 1994.
Sales and marketing expenses in 1994 increased 2% compared to 1993 primarily due
to higher commissions related to the increase in revenue over 1993.
RESEARCH AND DEVELOPMENT
Research and development spending was essentially identical in both 1995 and
1994. Staffing was reduced in the first half of 1995 related to the December
1994 restructuring and increased in the second half as the Company began its
development program for the next generation accelerator, LightSpeed and
increased its GateField FPGA development activities.
Research and development expense in 1994 increased 20%, or $1.8 million compared
to 1993, primarily due to the investment in the GateField division established
in third quarter 1993 related to FPGA technology and increased spending in the
emulation and rapid prototype technology following the September 1993 purchase
of Integrated Circuit Applications, Ltd. (InCA).
GENERAL AND ADMINISTRATIVE
General and administrative expenses in 1995 increased $.2 million, or 6% related
to normal operating increases and higher special project costs. Total general
and administrative expenses remained under 6% of revenues.
General and administrative expenses in 1994 increased 11% or $.3 million
compared to 1993 principally due to costs related to special short term projects
incurred in the latter part of 1994.
ASSET WRITE-DOWNS AND STAFF REDUCTIONS
In the fourth quarter 1994 the Company decided to discontinue selling its VHDL
accelerator product, the Paradigm ViP. This decision resulted from the
disappointing financial performance in 1994 and the redirection of the product
diversification strategy. Non-recurring costs amounting to $6.8 million,
principally related to write-downs of capitalized software and inventory for the
ViP product line and staff reduction costs, were charged against income. (See
Note 4 of Notes to Consolidated Financial Statements.)
OTHER INCOME/EXPENSE
Other expenses increased in 1995 due to a higher bank interest rates for line of
credit borrowings and due to translation losses related to foreign currency
adjustments.
Other income decreased in 1994 primarily due to the gain from the sale of
100,000 shares of another company's common stock in 1993. Interest expense
increased in 1994 due to bank borrowings under the Company's line of credit for
working capital purposes and a higher level of equipment financing debt.
INCOME TAXES
The Company has not recorded income tax expense in 1995 due to the tax
benefits obtained from utilization of net operating loss carryforwards and
reversals of temporary differences. (See Note 9 of Notes to Consolidated
Financial Statements.)
LIQUIDITY AND CAPITAL RESOURCE
At December 31 1995, the Company's working capital was $6.7 million compared
to $1.6 million at December 31, 1994. Cash and short-term investments, net of
bank borrowings improved to $3.9 million in 1995 from $.2 million in 1994.
This improvement is due to the Company's return to profitability and the
repayment of $1.5 million shareholder loans due from the Company's CEO.
Management believes that current working capital, together with funds expected
to be generaged from operations and the $5.0 million bank line of credit will be
adequate to satisfy the Company's operating needs in the foreseeable future.
However, the Company may seek additional financing sources to ensure the
successful market introduction of Gatefield FPGAS. (See Note 5 of Notes to
Consolidated Financial Statements.)
5
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
As of December 31,
-------------------
1995 1994
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,722 $ 2,861
Short-term investments 224 225
Accounts receivable, net 12,123 12,481
Inventories 1,788 948
Other current assets 765 1,134
------- -------
Total current assets 18,622 17,649
Property and equipment, net 5,598 7,224
Purchased technology 1,129 1,370
Other assets 3,631 3,582
------- -------
Total assets $28,980 $29,825
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings under line of credit $ --- $ 2,897
Current portion of debt obligations 1,028 998
Accounts payable 3,968 2,516
Accrued expenses 3,619 4,368
Asset write-downs and staff reductions 336 1,792
Deferred revenues 2,930 3,457
------- -------
Total current liabilities 11,881 16,028
Other long-term liabilities 213 408
Non-current portion of debt obligations 1,207 1,874
------- -------
Total liabilities 13,301 18,310
------- -------
Commitments (Note 6)
Stockholders' equity:
Preferred stock, $.10 par value; 2,000,000
shares authorized --- ---
Common stock, $.10 par value; 30,000,000 shares
authorized; 19,752,653 and 19,034,530
shares outstanding 1,975 1,903
Additional paid-in capital 47,837 46,739
Notes receivable --- (900)
Accumulated translation adjustments (19) (156)
Accumulated deficit (34,114) (36,071)
------- -------
Total stockholders' equity 15,679 11,515
------- ------
Total liabilities and stockholders' equity $28,980 $29,825
------- -------
------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended December 31,
----------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues:
Product $28,422 $29,350 $23,185
Service 22,695 20,701 18,293
------- ------- -------
Total revenues 51,117 50,051 41,478
------- ------- -------
Cost of revenues:
Product 6,407 8,224 5,837
Service 11,086 11,733 10,872
------- ------- -------
Total cost of revenues 17,493 19,957 16,709
------- ------- -------
Gross profit 33,624 30,094 24,769
------- ------- -------
Operating expenses:
Sales and marketing 16,911 18,895 18,558
Research and development 11,263 11,172 9,339
General and administrative 2,900 2,738 2,471
Asset write-downs and staff reductions --- 6,800 2,966
------- ------- -------
Total operating expenses 31,074 39,605 33,334
------- ------- -------
Operating income (loss) 2,550 (9,511) (8,565)
------- ------- -------
Other income (expense):
Interest income 232 213 233
Interest expense (575) (385) (90)
Other (250) ( 65) 3,942
------- ------- -------
Other income (expense), net (593) (237) 4,085
------- ------- -------
Net income (loss) $ 1,957 $(9,748) $(4,480)
------- ------- -------
------- ------- -------
Net income (loss) per share $ .09 $ (.52) $ (.26)
------- ------- -------
------- ------- -------
Shares used in computation 21,233 18,598 16,908
------- ------- -------
------- ------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
Additional Treasury Stock Accumulated
Common Stock Paid-In and Notes Receivable Translation Accumulated
Shares Amount Capital Shares Amount Adjustments Deficit Total
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 16,265 $1,627 $42,418 (778) $(2,666) $(160) $(20,812) $20,407
Issuance of stock under warrants 50 5 45 --- --- --- --- 50
Issuance of stock to employees
under the stock option plan 1,189 119 1,071 --- (900) --- --- 290
Issuance of stock to employees
under the stock purchase plan 79 8 182 --- --- --- --- 190
InCA acquisition 460 46 1,276 --- --- --- --- 1,322
Current translation adjustment --- --- --- --- --- (177) --- (177)
Net loss --- --- --- --- --- --- (4,480) (4,480)
------------------------------------------------------------------------------------------
Balances, December 31, 1993 18,043 1,805 44,992 (778) (3,566) (337) (25,292) 17,602
Issuance of stock to employees
under the stock option plan 195 19 190 --- --- --- --- 209
Issuance of stock to employees
under the stock purchase plan 74 7 194 --- --- --- --- 201
Foreign Stock Issue 722 72 1,363 778 2,666 --- (1,031) 3,070
Current translation adjustment --- --- --- --- --- 181 --- 181
Net loss --- --- --- --- --- --- (9,748) (9,748)
------------------------------------------------------------------------------------------
Balances, December 31, 1994 19,034 1,903 46,739 --- (900) (156) (36,071) 11,515
Issuance of stock to employees
under the stock option plan 636 64 877 --- --- --- --- 941
Issuance of stock to employees
under the stock purchase plan 28 3 38 --- --- --- --- 41
Exercise of warrants 54 5 183 --- --- --- --- 188
Collection of note receivable
from stockholder --- --- --- --- 900 --- --- 900
Current translation adjustment --- --- --- --- --- 137 --- 137
Net income --- --- --- --- --- --- 1,957 1,957
------------------------------------------------------------------------------------------
Balances, December 31, 1995 19,752 $1,975 $47,837 --- --- $ (19) $(34,114) $15,679
------ ------ ------- ----- ----- ------- -------- -------
------ ------ ------- ----- ----- ------- -------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Year Ended December 31,
--------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 1,957 $ (9,748) $ (4,480)
Reconciliation to net cash used in operating activities:
Depreciation and amortization 3,654 4,069 3,692
Amortization of capitalized software 1,078 362 425
Asset write-downs and staff reductions 233 4,422 1,379
Gain on sale of common stock 226 --- (3,888)
Loss on disposition of property and equipment --- 326 177
Sales under capital leases (854) (885) (604)
Changes in assets and liabilities:
Accounts receivable 845 (2,912) 1,243
Inventories (840) 220 (731)
Other assets 381 (248) 92
Accounts payable and accrued expenses (966) 978 520
Deferred revenues (527) 751 422
----- ------ ------
Net cash provided (used) in operating activities 5,187 (2,665) (1,753)
----- ------ ------
Investing activities:
Capital expenditures (1,773) (3,770) (4,087)
Capitalized software (1,683) (3,492) (1,680)
Collection of notes receivable 1,500 --- ---
Proceeds from sale of common stock investment --- --- 3,988
Cash used in acquisition, net of cash acquired --- --- (339)
Collections from capital leases 209 285 1,368
Proceeds from (purchases of) short-term investments, net 1 331 (134)
----- ----- -----
Net cash used in investing activities (1,748) (6,646) (884)
----- ----- -----
Financing activities:
Proceeds from sales of common stock 1,169 3,479 530
Net borrowings (repayment) under line of credit (2,897) 2,897 ---
Lease receivables sold with recourse --- 612 ---
Borrowings under debt obligations 217 1,985 98
Repayments of debt obligations (1,083) (584) (626)
----- ------ ------
Net cash provided (used) by financing activities (2,594) 8,389 2
----- ------ ------
Effect of exchange rate changes on cash and cash equivalents 16 (7) (202)
----- ------ ------
Net change in cash and cash equivalents 861 (929) (2,837)
Cash and cash equivalents, beginning of year 2,861 3,790 6,627
----- ------ ------
Cash and cash equivalents, end of year $ 3,722 $ 2,861 $ 3,790
-------- -------- --------
-------- -------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION: Zycad Corporation (NASDAQ: ZCAD) (the "Company"), based in
Fremont, California, designs, manufactures, markets and services high-
performance, special purpose accelerators and related software that are used to
increase engineering productivity in the design of complex integrated circuits
and electronic systems and has recently introduced high-density field
programmable gate arrays (FPGAs). The Company also provides system engineering
services and custom solutions to military, aerospace and commercial companies,
primarily in the U.S., Asia and Europe.
BASIS OF PRESENTATION: The consolidated financial statements include the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation. The functional currency of the
Company's foreign subsidiaries is the local currency.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from these estimates.
CASH EQUIVALENTS: The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
SHORT-TERM INVESTMENTS: Short-term investments consisting of Certificates of
Deposit are valued at cost plus accrued interest, which approximates market.
FAIR VALUE OF FINANCIAL INSTRUMENTS: Financial instruments consist of cash
equivalents and short-term investments, stated at cost, which approximates fair
value.
CONCENTRATION OF CREDIT RISK: Financial instruments which potentially subject
the Company to concentrations of credit risk consist primarily of cash and cash
equivalents, short-term investments and trade accounts receivables. The
Company invests only in high credit quality short-term debt investments and
limits the amount of credit exposure to any one entity. The majority of the
Company's trade accounts receivable are derived from sales to manufacturers in
the semiconductor, computer, military and aerospace industries. The company
performs ongoing credit evaluations of it's customers financial condition and
limits the amount of credit extended when deemed necessary, but generally
requires no collateral. The Company maintains reserves for potential credit
losses, and all such losses to date have been within management s expectations.
INVENTORIES: Inventories are valued at the lower of cost (first-in, first-out
basis) or market.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost with
depreciation determined on a straight-line method over the estimated useful
lives of the assets (generally three to five years). Leasehold improvements are
amortized on a straight-line basis over the shorter of the estimated useful
lives or the underlying lease term.
The Company will adopt SFAS No. 121, "Accounting for the impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" effective
January 1, 1996. The adoption of this standard is not expected to have any
effect on the Company's financial condition or results of operations.
CAPITALIZED SOFTWARE: Software development costs incurred after establishment of
technological feasibility and the costs of software acquired from others are
capitalized and subsequently amortized using the greater of the straight-line
method over three to five years or the ratio of the products' current revenues
divided by the anticipated total product revenues.
REVENUE RECOGNITION: The Company generally recognizes product revenues as
products are shipped, but may delay revenue recognition until products are
installed or accepted, depending on the particular product and contract terms.
Design and verification service revenues are recognized as the services are
performed. Maintenance revenues are recognized over the contract period.
INCOME TAXES: The Company follows Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes," which requires an asset and liability
approach to account for income taxes and requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities and net operating loss and tax credit carryforwards.
PER SHARE DATA: Per share data is computed based on the weighted average number
of common and dilutive common shares outstanding. Common equivalent shares
include stock options and warrants (computed using the treasury stock method).
Net loss per share excludes common stock equivalents, which are antidilutive.
10
<PAGE>
RECLASSIFICATION: Certain prior year amounts have been reclassified to conform
with current year presentation.
NOTE 2: CERTAIN TRANSACTIONS
JOINT VENTURE: The Company's financial statements include the activities
related to the distribution of third-party owned technology, DOORS, as follows
(in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Service revenues $ 5.4 $ 2.1
Cost of service revenues 1.7 .6
------ ------
Gross Profit 3.7 1.5
Sales and marketing expenses 2.1 .6
------ ------
Operating income $ 1.6 $ .9
------ ------
------ ------
</TABLE>
Assets related to the DOORS activites are not material.
In January 1996, the Company and Quality Systems Software, Ltd., a U.K. company
and owner of the DOORS technology, established a joint venture, QSS, Inc. to
continue the distribution operations of the DOORS technology and other products
in the North American market.
Accordingly, in the future, the Company will report its 40% ownership of QSS,
Inc. on a one-line equity basis rather than in the detail as shown above.
COMPANY STOCK TRANSACTION: On March 14, 1994 the Company raised $3.1 million of
cash, net of broker fees and discounts through the sale of 1,500,000 shares of
its common stock including all of its treasury shares. These shares were sold
to foreign investors under the provisions of Regulation S of the Securities Act
of 1933, as amended (the "Securities Act").
THIRD-PARTY STOCK SALE: During 1993 the Company sold its last 100,000 shares of
common stock acquired in connection with the October 1990 sale of its simulation
product line (VHDL) for a net gain of $3.9 million which is included as part of
other income in 1993.
NOTE 3: PURCHASED TECHNOLOGY
In September 1993, the Company acquired Integrated Circuit Applications, Ltd.
(InCA), located in Ascot, United Kingdom for $450,000 cash and 460,000 shares of
the Company's common stock valued at $1.3 million. This transaction was
accounted for as a purchase; accordingly, the operations of InCA have been
included in the consolidated results of the Company since the date of
acquisition. The operating results of InCA prior to the acquisition were not
significant. As part of this transaction the technology purchased was valued at
$1.7 million which is being amortized over seven years. Accumulated amortization
was $564,000, $322,000 and $80,000 at December 31, 1995, 1994 and 1993,
respectively. The technology is utilized in the rapid prototyping and
emulation product markets and will be incorporated into the GateField
FPGA technology. This is consistent with Zycad's overall strategy to
remain a leader in complex electronic system verification solutions.
NOTE 4: ASSET WRITE-DOWNS AND STAFF REDUCTIONS
During fourth quarter 1994, the Company recorded $6.8 million of expenses, of
which $5.3 million related to discontinuing its Paradigm ViP product line. The
remaining $1.5 million was primarily related to various asset write-downs and
staff reductions. Details of the write-off are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Non-cash asset write-downs:
ViP inventory $ 750
ViP related capital equipment,
including demos and spares 500
Capitalized ViP software 2,872
Other assets 300
--------
4,422
Charges relating to cash outflows:
ViP inventory purchase
commitments 870
Vacated facilities ($200 long-term) 300
Severance and other staff
reduction costs 908
Other 300
--------
Total $ 6,800
--------
--------
</TABLE>
During second quarter 1993, the Company initiated a 16% reduction in force and
accrued $1.6 million for severance costs and other charges. The Company also
expensed previously capitalized software of $1.3 million, including $1.0 million
related to its ViP product due to delays in the product introduction, to reflect
its revised estimated net realizable value less costs to complete.
NOTE 5: BORROWING AGREEMENTS
Under current terms of the Company's bank line of credit, which expires August
15, 1996, up to $5.0 million may be borrowed, collaterized by certain accounts
receivable, at the prime rate plus one-half percent (9.0% at December 31, 1995).
During part of 1995 the borrowing limit had been $4.0 million and the highest
interest rate charged was prime plus five percent. The agreement prohibits the
payment of dividends without bank approval and contains financial covenants,
including quarterly and annual profitability and maintaining certain financial
ratios. At December 31, 1995 no amounts were outstanding under the agreement and
the highest amount borrowed during the year was $2.9 million, compared to the
high of $4.2 million in 1994. The Company was in compliance with all covenants
at December 31, 1995.
11
<PAGE>
NOTE 6: LEASE AND OTHER COMMITMENTS
The Company leases office facilities under operating leases. Rent expense of
$1,602,000, $2,248,000 and $2,454,000, was incurred in 1995, 1994, and 1993,
respectively.
At December 31, 1995, estimated future minimum rentals under noncancelable
operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
Operating
Leases
--------
<S> <C>
1996 $1,638
1997 1,597
1998 859
1999 419
------
Total minimum lease payments $4,513
------
------
</TABLE>
During 1994 the Company sold $612,000 of its lease receivables to certain
finance companies. At December 31, 1995, the Company remains contingently
liable in the event of uncollectibility for $305,000 to these finance companies.
During 1993 the Company entered into a joint development agreement with a
European company under which the Company will spend approximately $2.5 million
over three years. At December 31, 1995, approximately $1.5 million remained
under this obligation.
NOTE 7: SELECTED BALANCE SHEET INFORMATION (IN THOUSANDS)
<TABLE>
<CAPTION>
As of December 31,
------------------
1995 1994
---- ----
<S> <C> <C>
Accounts receivable:
Accounts receivable $ 12,111 $ 12,556
Current portion lease receivables 308 306
Less allowance for doubtful
accounts (296) (381)
------- -------
$ 12,123 $ 12,481
------- -------
------- -------
Inventories:
Finished goods $ 753 $ 211
Raw materials and supplies 1,035 737
------- --------
$ 1,788 $ 948
------- -------
------- -------
Property and equipment:
Engineering, manufacturing, and
general office equipment $ 19,131 $ 18,139
Leasehold improvements 1,525 1,517
Equipment under capital lease 1,208 1,125
------- -------
21,864 20,781
Less accumulated depreciation
and amortization (16,266) (13,557)
------- -------
$ 5,598 $ 7,224
------- -------
------- -------
<CAPTION>
1995 1994
---- ----
Other assets:
Capitalized software $ 4,709 $ 3,222
Accumulated amortization (1,848) (787)
Employee loans 100 716
Lease receivables, less non-
current portion 323 207
Other 347 224
------- -------
$ 3,631 $ 3,582
------- -------
------- -------
Accrued expenses:
Salaries and commissions $ 1,416 $ 1,514
Other 2,203 2,854
------- -------
$ 3,619 $ 4,368
------- -------
------- -------
</TABLE>
NOTE 8: EQUIPMENT FINANCING
In 1995 the Company acquired capital equipment amounting to $2,013. Of this
amount, $217 was obtained through promissory notes and $229 through capital
leases. Interest rates charged under these instruments range from 10% to 17% and
the equipment is pledged as collateral. At December 31, 1995, future annual
payments are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Promissory
Leases Notes Total
------ ---------- --------
<S> <C> <C> <C>
1996 $ 469 $ 709 $ 1,178
1997 340 612 952
1998 252 57 309
------- ------ --------
1,061 1,378 2,439
Less imputed interest 204 --- 204
------- ------ --------
857 1,378 2,235
Current portion 319 709 1,028
------- ------ --------
Non-current portion $ 538 $ 669 $ 1,207
------- ------ --------
------- ------ --------
</TABLE>
NOTE 9: INCOME TAXES
The provision (benefit) for income taxes reconciles to the amount computed by
applying the statutory federal rate to loss before taxes as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31
------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Provision (benefit) at
statutory rate $ 757 $(3,388) $(1,560)
Foreign losses not
currently utilizable 21 91 ---
Foreign income taxed
at different rates 67 131
Decrease in valuation
allowance for reversing
temporary differences (1,056) --- ---
Utilization of net operating
loss carryforwards --- (714)
Domestic losses not
currently utilizable 164 3,108 2,143
Other 114 122 ---
----- ------- -------
$ --- $ --- $ ---
----- ------- -------
----- ------- -------
</TABLE>
12
<PAGE>
The Company was not required to pay income taxes in 1995, 1994 or 1993 due to
its net operating losses and reversals of temporary differences.
Significant components of the Company's deferred tax asset are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31
--------------
Deferred tax asset: 1995 1994
---- ----
<S> <C> <C>
Net operating loss carryforwards $ 10,540 $ 10,480
Tax credit carryforwards 3,036 3,036
Capitalized software and
other research and development (682) (836)
Tax basis depreciation 1,330 1,254
Accruals and reserves recognized
in different periods 1,058 2,332
Other 38 45
Valuation allowance (15,320) (16,311)
------- -------
Total $ --- $ ---
------- -------
------- -------
</TABLE>
The valuation allowance was established due to uncertainty regarding the
utilization of the net operating loss carryforwards. The net change in
valuation allowance was a decrease of $991,000 and an increase of $4,365,000 in
1995 and 1994, respectively.
Net pretax foreign income (losses) were $ 185,000, $(261,000) and $1,642,000 in
1995, 1994, and 1993, respectively. The Company intends to indefinitely
reinvest the unremitted earnings of its foreign subsidiaries. The Company has
net operating loss carryforwards of approximately $26.0 million for federal tax
purposes that will begin to expire in 2005. State operating loss carryforwards
expires as follows: $2.2 million in 1996, $5.0 million in 1997, $335,000 in
1998 and $314,000 in the year 2000. The Company has research and development
credit carryforwards of $2.1 million and $318,000 available to reduce future
federal and California income taxes, respectively. These credits will expire
beginning in 1999. The Company also has foreign net operating loss
carryforwards of approximately $3.0 million which may be used to offset future
foreign taxable income.
NOTE 10: CUSTOMER INFORMATION
Information concerning the Company's operations by geographic area is as follows
(in thousands):
Net revenues to unaffiliated customers by geographic region:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
United States 42,107 $39,271 $30,848
Europe 4,355 5,196 7,509
Japan 4,655 5,584 3,121
------- ------- -------
Net revenues $51,117 $50,051 $41,478
------- ------- -------
------- ------- -------
</TABLE>
The amounts reported for Europe and Japan reflect amounts sold by foreign
subsidiaries. Included in the United States amount are revenues sold directly
to Japan and other Asian countries amounting to $6.1 million in 1995, $2.2
million in 1994 and $1.6 million in 1993.
Operating results and identifiable assets by geographic location are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
Operating income (loss):
<S> <C> <C> <C>
United States $2,836 $ (9,235) $(9,948)
Europe (383) (606) 1,681
Japan 97 330 (298)
------- -------- -------
$ 2,550 $ (9,511) $(8,565)
------- -------- -------
------- -------- -------
Identifiable assets:
United States $25,040 $ 24,120 $22,986
Europe 2,785 3,108 4,098
Japan 2,155 2,597 1,522
------- -------- -------
Total assets $29,980 $29,825 $28,606
------- -------- -------
------- -------- -------
</TABLE>
During 1995 and 1994, one customer accounted for 17% and 14% of consolidated
revenues, respectively. In 1993 no individual customer accounted for more than
ten percent of consolidated revenues.
Outside the United States, the Company operates four subsidiaries in Europe and
one in Japan. For the years ended December 31, 1995, 1994 and 1993, export
sales (including sales by foreign subsidiaries), principally to Europe and
Japan comprised approximately 30%, 26% and 29% of consolidated revenues,
respectively.
NOTE 11: EMPLOYEE BENEFIT PLANS
STOCK OPTION PLANS: The Company has several stock option plans under which
options have been or may be granted to officers and other employees to purchase
common stock. Options may be granted at prices equal to the market value at the
date of grant and are exercisable over periods up to eight years from that
date. Options granted to officers subsequent to June 22, 1990 provide for
acceleration of exercisability in the event of an acquisition of the Company
meeting certain defined criteria. The plans permit the granting of incentive
and nonstatutory stock options and stock appreciation rights (SARs). No SARs
are outstanding as of December 31, 1995. In August 1993, the Company's Board of
Directors adopted the 1993 Stock Option Plan which was ratified by shareholders
in December 1995. Under this plan, 1,500,000 shares were reserved for issuance
in 1993, and subsequently increased to 3,000,000 in 1995. In September, 1993,
the CEO of the Company exercised 900,000 options granted under the 1984 Stock
Option Plan for a $900,000 secured promissory note which was paid in 1995.
13
<PAGE>
Information with respect to options under the plans are as follows:
<TABLE>
<CAPTION>
Options Outstanding
-----------------------
Shares Available Price
for Grant Shares Per Share
-------------------------------------
<S> <C> <C> <C>
Balance,
January 1, 1993 340,073 3,086,633 $.75-7.75
Additional shares
authorized 1,500,000 --- ---
Granted (1,536,067) 1,536,067 2.06-3.50
Exercised --- (1,189,144) .75-2.94
Canceled 535,639 (535,639) .75-7.75
----------------------------------------
Balance,
December 31, 1993 839,645 2,897,917 .75-7.75
Granted (438,000) 438,000 1.56-4.00
Exercised --- (195,974) .75-2.06
Canceled 516,005 (741,620) 1.00-7.75
----------------------------------------
Balance,
December 31, 1994 917,650 2,398,323 $ .75-7.75
Additional shares 1,500,000 --- ---
authorized
Granted (1,538,826) 1,538,826 1.00 - 6.94
Exercised --- (634,983) .75 - 3.63
Canceled 221,190 (428,262) 1.00 - 7.75
----------------------------------------
Balance,
December 31, 1995 1,100,014 2,873,904 $.75 - 6.94
--------- --------- -----------
--------- --------- -----------
Options exercisable
at December 31, 1995 1,067,024
---------
---------
</TABLE>
INVESTMENT PLAN: The Company has an elective savings plan available to U.S.
employees permitting them to contribute up to 20 percent of their earnings
(subject to IRS restrictions), of which the first 10 percent is matched 25
percent by the Company. The participants vest in the Company's contribution over
five years. Company contributions to the plan were $197,824 in 1995, $256,000
in 1994 and $215,000 in 1993.
EMPLOYEE STOCK PURCHASE PLAN: The Company has an employee stock purchase plan
allowing participating employees to contribute from 3 to 10 percent of their
gross salary to purchase shares at the end of each quarter for the lower of the
market price on the first or last day of the quarter. Participants may spend up
to $25,000 on purchases of the Company's stock each year but individual
participants are prohibited from owning more than 5 percent of the Company's
stock. At December 31, 1995, 200,000 shares are available to be offered under
this plan.
WARRANTS AND DIRECTOR'S OPTION: During 1995 stockholders approved a
Non-Employee Director stock option plan, whereby 200,000 additional shares
have been reserved for issuance to outside directors. No options have been
issued under the plan.
At December 31, 1995, total warrants outstanding were 135,000. Purchase price
of the securities subject to these warrants range from $1.00 to $3.63 and they
expire at various dates through February 2000.
In 1995, warrants for 53,860 shares were exercised and warrants for 32,058
issued in prior years were canceled.
During 1994, 50,000 warrants for shares were issued to Dr. Fiebiger, who was
elected to the Board of Directors in 1994, at an exercise price of $3.63.
Warrants for an additional 5,918 shares were given in lieu of cash to Dr.
Fiebiger for consulting services valued at $16,800. The exercise price for
these warrants is $0.
During 1993, 50,000 warrants issued to a Director were exercised at an exercise
price of $1.00 and 30,000 warrants each were issued to two Directors at
an exercise price of $2.06.
RECENTLY ISSUED ACCOUNTING STANDARD: In October 1995, the Financial Accounting
Standards Board issued Statement No. 123, "Accounting for Stock-Based
Compensation." The new standard defines a fair value method of accounting for
stock options and other equity instruments, such as stock purchase plans. Under
this method, compensation cost is measured based on the fair value of the stock
award when granted and is recognized as an expense over the service period,
which is usually the vesting period. This standard will be effective for the
Company beginning in 1996, and requires measurement of awards made beginning in
1995.
The new standard permits companies to continue to account for equity
transactions with employees under existing accounting rules, but requires
disclosure in a note to the financial statements of the pro forma net income and
earnings per share as if the Company had applied the new method of accounting.
The Company intends to follow these disclosure requirements for its employee
stock plans. As a result, adoption of the new standard will not impact the
Company's results of operations.
14
<PAGE>
NOTE 12: SUPPLEMENTAL CASH FLOW
INFORMATION
The following provides additional information concerning supplemental
disclosures of cash flow activities (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash paid during
the year for:
Interest $ 562 $ 385 $ 90
Non-cash investing and
financing activities:
Note receivable
for stock $ --- $ --- $ 900
Equipment acquired under
capital lease $ 900 $ 1,125 $ ---
Effect of InCA acquisition:
Liabilities assumed $ 108
Cash paid, net of
cash acquired 339
Common stock issued 1,322
------
Total assets acquired $1,769
------
------
(including $1.7 million purchased technology)
</TABLE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
ZYCAD CORPORATION
We have audited the accompanying consolidated balance sheets of Zycad
Corporation and its subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Zycad Corporation and its
subsidiaries at December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.
San Jose, California
March __, 1996
15
<PAGE>
CORPORATE INFORMATION
CORPORATE OFFICERS
Phillips W. Smith
President and Chief Executive Officer
Peter J. Cassidy
Executive Vice President
and Chief Financial Officer
Douglas E. Klint
Vice President, General Counsel
and Corporate Secretary
Charles R. Olson
Vice President and General Manager,
Accelerator Division
Horst G. Sandfort
President, Gatefield Division
ADMINISTRATIVE AND DIVISIONAL
OFFICERS
Martin J. Baynes
Vice President, Engineering
Accelerator Division
James J. Ensell
Vice President and General Manager
Services Division
Orlando Gallegos
Executive Vice President, GateField Division
Robert Lipp
Vice President, Technology
GateField Division
Robert A. Peterson
Vice President, Manufacturing
Tim Saxe
Vice President, Engineering
GateField Division
Lyle R. Smith
Vice President, Marketing
GateField Division
John R. Walsh
Vice President, International Sales
and Customer Support
Makoto Yamada
Managing Director, Zycad, K.K.
INDEPENDENT AUDITORS
Deloitte & Touche LLP
San Jose, California
LEGAL COUNSEL
Wilson, Sonsini, Goodrich & Rosati
Palo Alto, California
TRANSFER AGENT & REGISTRAR
The Bank of Boston
Boston, Massachusetts
DIRECTORS
Phillips W. Smith
President and Chief Executive Officer
Zycad Corporation
Peter J. Cassidy
Executive Vice President
and Chief Financial Officer
Zycad Corporation
James R. Fiebiger
Industry Consultant, Chairman & Managing Director
Thunderbird Tech., Inc.
Benjamin Huberman
President
Huberman Consulting Group
Horst G. Sandfort
President, Gatefield Division
AUDIT COMMITTEE AND
COMPENSATION COMMITTEE
James R. Fiebiger
Benjamin Huberman
ANNUAL MEETING OF STOCKHOLDERS
The annual meeting of stockholders will be held at Zycad's corporate office,
47100 Bayside Parkway, Fremont, California 94538, on Thursday, May 16, 1996, at
3:30 P.M. Pacific Daylight Time.
FORM 10-K
The Company has filed an annual report with the Securities and Exchange
Commission on Form 10-K. Stockholders may obtain a copy of this report, without
charge, by writing:
Zycad Corporation
Attention: Investor Relations
47100 Bayside Parkway
Fremont, CA 94538-9942
16
<PAGE>
STOCK LISTING
Zycad Corporation's common stock is traded in the over-the-counter market and is
quoted through the National Association of Securities Dealers Automated
Quotation (NASDAQ") System/National Market System ("NMS") under the symbol
"ZCAD". The following table sets forth the high and low trade quotations for the
common stock as reported by NASDAQ for each quarter.
The prices set forth below represent quotations between dealers without
adjustment for retail mark-ups, mark-downs or commissions and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
1995 High Low
--------------------------------
<S> <C> <C>
First Quarter $ 1.94 $0.94
Second Quarter $ 4.31 $1.31
Third Quarter $10.75 $3.25
Fourth Quarter $10.13 $5.38
</TABLE>
<TABLE>
<CAPTION>
1994 High Low
--------------------------------
<S> <C> <C>
First Quarter $3.75 $2.68
Second Quarter $3.75 $2.31
Third Quarter $2.88 $2.31
Fourth Quarter $2.88 $1.00
</TABLE>
The high and low trade quotations for the common stock on March 22, 1996 were
$5.38 and $5.69, respectively.
As of March 22, 1996 the Company had approximately 1,356 stockholders of
record.
DIVIDEND POLICY
The Company has never paid cash dividends on its common stock. The Board of
Directors currently intends to retain all earnings for use in the Company's
business and does not anticipate paying cash dividends in the foreseeable
future. Any future determination as to payment of dividends will depend upon the
financial condition and results of operations of the Company, compliance with
dividend restrictions in bank agreements, and such other factors as are deemed
relevant by the Board of Directors.
17
<PAGE>
EXHIBIT 21.1
ZYCAD CORPORATION AND SUBSIDIARIES
Set forth below are the subsidiaries of the Registrant:
ZYCAD G.M.B.H.
Bahnhofstrasse 19A
85737 Ismaning
Germany
ZYCAD SARL
69 rue d'Aguesseau
92100 Boulogne
France
ZYCAD LIMITED
West Lodge
Station Approach
West Byfleet, Surrey
England KT14 6NG
Zycad House
London Road
Bracknell, Barkshire RG12 2UT
ZYCAD JAPAN K.K.
Toshin 24 Shin-Yokohama Blvd B-8F
2-3-8, Shin Yokohama
Yokohama, 222 Japan
ZYAD INTERNATIONAL, INC.
47100 Bayside Parkway
Fremont CA 94538
Page 33
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statements No.
2-93079 on Form S-8, and No. 33-12170 and No. 33-36124 on Forms S-3 of our
reports dated March 27, 1996, appearing in and incorporated by reference in the
Annual Report of Form 10-K of Zycad Corporation for the year ended December 31,
1995.
DELOITTE & TOUCHE LLP
San Jose, California
March 29, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,722
<SECURITIES> 224
<RECEIVABLES> 12,123
<ALLOWANCES> 0
<INVENTORY> 1,788
<CURRENT-ASSETS> 18,622
<PP&E> 5,598
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,980
<CURRENT-LIABILITIES> 11,881
<BONDS> 0
0
0
<COMMON> 15,679
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 28,980
<SALES> 28,422
<TOTAL-REVENUES> 51,117
<CGS> 6,407
<TOTAL-COSTS> 17,493
<OTHER-EXPENSES> 31,074
<LOSS-PROVISION> (296)
<INTEREST-EXPENSE> (575)
<INCOME-PRETAX> 1,957
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,957
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,957
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
