SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JUNE 28, 2000
-------------------------------
ZORAN CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 0-27246 94-2794449
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer)
incorporation or organization) Identification No.)
3112 SCOTT BOULEVARD 95054
SANTA CLARA, CALIFORNIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (408) 919-4111
Item 7 of the Registrant's Current Report on Form 8-K filed on July 10,
2000 is hereby amended in its entirety to read as follows:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial statements of PixelCam required pursuant to Rule 3-05 of
Regulation S-X:
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of PixelCam, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of shareholders' deficit and of cash flows present fairly, in all
material respects, the financial position of PixelCam, Inc. (a company in the
development stage) at March 31, 2000, and the results of its operations and its
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States. 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 audit. We conducted our audit
of these statements in accordance with auditing standards generally accepted in
the United States, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses and negative
cash flow from operations and has a net capital deficiency that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are described in Note 9. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ PricewaterhouseCoopers LLP
May 26, 2000
San Jose, California
PIXELCAM, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEET
- -------------------------------------------------------------------------------
MARCH 31, MARCH 31, JUNE 30,
2000 1999 2000
(UNAUDITED) (UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 52,472 $ 375,041 $ 87,634
Accounts receivable, net 1,422 -- 1,360
Inventory 164,722 -- 120,771
Prepaid expenses and other current assets 72,918 34,132 55,462
----------- ----------- -----------
Total current assets 291,534 409,173 265,227
Property and equipment, net 396,487 286,996 324,684
Other assets 15,344 43,255 15,344
----------- ----------- -----------
Total assets $ 703,365 $ 739,424 $ 605,255
=========== =========== ===========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND SHAREHOLDERS' DEFICIT
Current liabilities:
Convertible notes payable, current $ 1,000,000 $ 300,000 $ --
Accounts payable 479,836 111,465 73,834
Accrued liabilities 196,785 42,531 138,026
Capital lease obligations, current 62,419 62,871 39,562
----------- ----------- -----------
Total current liabilities 1,739,040 516,867 251,422
Convertible notes payable, long-term, net 1,213,008 -- --
Capital lease obligations, long-term 10,798 53,126 5,440
----------- ----------- -----------
2,962,846 569,993 256,862
----------- ----------- -----------
Commitments (Note 6)
Redeemable Convertible Preferred Stock: 6,500,000 shares authorized;
3,488,373, 3,488,373 and 5,223,663 shares issued and outstanding
at March 31, 2000, March 31, 1999 and June 30, 2000, respectively 1,534,263 1,485,824 4,659,475
----------- ----------- -----------
Shareholders' deficit:
Common Stock: 10,000,000 shares authorized; 1,767,164, 1,750,000
and 3,227,992 shares issued and outstanding at March 31, 2000,
March 31, 1999 and June 30, 2000, respectively 715,895 696,780 2,318,379
Unearned stock-based compensation (264,211) (475,078) (1,619,059)
Deficit accumulated during the development stage (4,245,428) (1,538,095) (5,010,402)
----------- ----------- -----------
Total shareholders' deficit (3,793,744) (1,316,393) (4,311,082)
----------- ----------- -----------
Total liabilities, redeemable convertible preferred stock
and shareholders' deficit $ 703,365 $ 739,424 $ 605,255
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
1
PIXELCAM, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
CUMULATIVE
PERIOD FROM PERIOD FROM
MARCH 9, MARCH 9,
1998 1998
(INCEPTION) TO (INCEPTION) TO THREE MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31, JUNE 30,
2000 1999 2000 2000 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Sales $ 250,217 $ -- $ 250,217 $ 153,298 $ --
Cost of sales 289,092 -- 289,092 133,309 --
----------- ----------- ----------- ----------- -----------
Gross profit (loss) (38,875) -- (38,875) 19,989 --
----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and development 1,516,535 1,190,153 2,706,688 280,542 248,199
Sales and marketing 297,150 -- 297,150 90,731 46,739
General and administrative 521,641 115,237 636,878 290,228 114,943
Stock-based compensation 229,165 204,202 433,367 139,075 71,820
----------- ----------- ----------- ----------- -----------
Total operating expenses 2,564,491 1,509,592 4,074,083 800,576 481,701
----------- ----------- ----------- ----------- -----------
Loss from operations (2,603,366) (1,509,592) (4,112,958) (780,587) (481,701)
Interest income 5,428 13,177 18,605 15,613 924
Interest expense 109,395 41,680 151,075 -- (15,955)
----------- ----------- ----------- ----------- -----------
Net loss $(2,707,333) $(1,538,095) $(4,245,428) $ (764,974) $ (496,732)
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
2
PIXELCAM, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF SHAREHOLDERS' DEFICIT
- -------------------------------------------------------------------------------
DEFICIT
ACCUMULATED
UNEARNED DURING THE TOTAL
COMMON STOCK STOCK-BASED DEVELOPMENT SHAREHOLDERS'
SHARES AMOUNT COMPENSATION STAGE DEFICIT
Issuance of common stock to
founders in exchange for
intellectual property
in March 1998 (unaudited) 1,750,000 $ 17,500 $ -- $ -- $ 17,500
Unearned stock-based
compensation (unaudited) -- 679,280 (679,280) -- --
Amortization of unearned stock-based
compensation (unaudited) -- -- 204,202 -- 204,202
Net loss (unaudited) -- -- -- (1,538,095) (1,538,095)
----------- ----------- ----------- ----------- -----------
Balance at March 31, 1999 1,750,000 696,780 (475,078) (1,538,095) (1,316,393)
Sale of common stock under
stock option plans 17,164 687 -- -- 687
Issuance of stock options to
non-employees -- 130 -- -- 130
Unearned stock-based compensation -- 18,298 (18,298) -- --
Amortization of unearned stock-based
compensation -- -- 229,165 -- 229,165
Net loss -- -- -- (2,707,333) (2,707,333)
----------- ----------- ----------- ----------- -----------
Balance at March 31, 2000 1,767,164 $ 715,895 $ (264,211) $(4,245,428) $(3,793,744)
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
3
PIXELCAM, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
- -------------------------------------------------------------------------------
PERIOD FROM PERIOD FROM
MARCH 9, MARCH 9,
YEAR 1998 1998
ENDED (INCEPTION) TO (INCEPTION) TO THREE MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31, JUNE 30,
2000 1999 2000 2000 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,707,333) $(1,538,095) $(4,245,428) $ (764,974) $ (496,732)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 156,958 51,233 208,191 44,623 29,798
Loss on disposal of fixed assets -- -- -- 27,180 --
Stock-based compensation 229,165 204,202 433,367 139,075 71,820
Amortization of discount on notes payable 13,136 -- 13,136 -- --
Non-cash charges 130 -- 130 5,889 --
Changes in current assets and liabilities:
Accounts receivable (1,422) -- (1,422) 62 --
Inventory (164,722) -- (164,722) 43,951 --
Prepaid expenses and other current assets (10,875) (77,387) (88,262) 17,456 1,533
Accounts payable 368,371 111,465 479,836 (406,002) (949)
Accrued liabilities 154,254 42,531 196,785 (58,759) 15,671
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities (1,962,338) (1,206,051) (3,168,389) (951,499) (378,859)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (244,944) (204,732) (449,676) -- (39,271)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities (244,944) (204,732) (449,676) -- (39,271)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible preferred stock -- 1,485,824 1,485,824 265,000 --
Principal payments on capital lease obligations (64,285) -- (64,285) (28,215) --
Proceeds from issuance of notes payable 1,950,000 300,000 2,250,000 700,000 100,000
Proceeds from issuance of common stock 687 -- 687 58,433 --
Payment of convertible preferred stock issuance costs (1,689) -- (1,689) (8,557) --
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities 1,884,713 1,785,824 3,670,537 986,661 100,000
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (322,569) 375,041 52,472 35,162 (318,130)
Cash and cash equivalents at beginning of period 375,041 -- -- 52,472 375,041
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 52,472 $ 375,041 $ 52,472 $ 87,634 $ 56,911
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
4
PIXELCAM, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
PixelCam, Inc. (the "Company") was incorporated in California on March 9,
1998. The Company designs and markets megapixel CMOS image sensors and
integrated lens/sensor modules. These products have applications in digital
still cameras and video camera products used in a wide variety of consumer
and commercial applications.
The Company is in the development stage, devoting substantially all its
efforts to developing its initial products, recruiting personnel and
raising capital. The Company has experienced recurring net losses and
negative cash flow from operations since inception. In the course of its
development stage activities, the Company has funded its operating losses
since inception through the sale of equity securities and borrowings. The
Company may continue to suffer net losses and negative cash flow from
operations in future periods as it continues to incur substantial costs
relating to research and development. These matters raise substantial doubt
about the Company's ability to continue as a going concern. The Company's
continued existence is dependent on the Company's ability to obtain funding
for operations from the sale of equity securities and the generation of
operating revenues.
ACQUISITION BY ZORAN CORPORATION (UNAUDITED)
On June 29, 2000, the Company entered into a definitive agreement to be
acquierd by Zoran Corporation. Under the terms of the agreement,
Zoran Corporation paid $21 million to the shareholders of the Company on
the closing date. A further $21 million may be paid to the shareholders
of the Company contingent upon the achievement of certain revenue
milestones by the Company as described in the definitive agreement.
These financial statements have been prepared on the historical basis
and do not reflect any adjustments resulting from Zoran's application of
purchase accounting.
INTERIM RESULTS (UNAUDITED)
The accompanying balance sheet as of June 30, 2000, the statements of
operations and cash flows for the three months ended June 30, 2000 and
1999, and related note disclosures herein are unaudited. In the opinion
of management, these statements have been prepared on the same basis as
the audited financial statements and include all adjustments, consisting
only of normal recurring adjustments, necessary for the fair statement
of the results of these periods. Results for the interim periods
presented are not necessarily indicative of the results to be expected
for the full year. The data disclosed in the notes to the financial
statements for these periods are unaudited.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States 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 reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. At March
31, 2000 and 1999, $3,507 and $63,079, respectively, of money market funds,
the fair value of which approximates costs, are included in cash and cash
equivalents. The Company deposits cash and cash equivalents with high
credit quality financial institutions.
INVENTORY
Inventory is stated at the lower of cost or market, cost being determined
using the average method.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable
and accrued liabilities approximate fair value due to their short
maturities.
5
PIXELCAM, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets, generally three years.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB No. 25") and complies
with the disclosure provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123").
Under APB No. 25, unearned stock-based compensation is based, in general,
on the excess, if any, of the fair value of the Company's common stock over
the exercise price on the date of grant. The Company presents stock-based
compensation expense as a separate line item in its statement of
operations. The compensation expense is recognized over the periods the
employee performs the related services, generally the vesting period,
consistent with the multiple option method described in Financial
Accounting Standards Board Interpretation No. 28. The Company accounts for
stock issued to non-employees in accordance with provisions of SFAS No. 123
and Emerging Issues Task Force Issue No. 96-18, "Accounting for Equity
Instruments that are Issued to Other than Employees for Acquiring or in
Conjunction with Selling, Goods or Services."
RESEARCH AND DEVELOPMENT COSTS
Costs related to research, design and development of products are charged
to expense as incurred.
REVENUE RECOGNITION
Revenue is recognized when a purchase order has been received, the product
has been shipped, the sales price is fixed and determinable and collection
of the resulting receivable is probable.
INCOME TAXES
Income taxes are accounted for using the asset and liability approach in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." The asset and liability approach requires
the recognition of taxes payable or refundable for the current year and
deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in the Company's financial statements or
tax returns. The measurement of current and deferred tax liabilities and
assets are based on provisions of the enacted tax law; the effects of
future changes in tax laws or rates are not anticipated. The measurement of
deferred tax assets is reduced, if necessary, by the amount of any tax
benefits that, based on available evidence, are not expected to be
realized.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 133 "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
establishes accounting and reporting standards for derivative instruments
and for hedging activities. This statement becomes effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. In June 1999, the
FASB issued Statement of Financial Accounting Standard No. 137 "Accounting
for Derivative Instruments - Deferral of the Effect Date of SFAS Statement
No. 133" ("SFAS 137"). SFAS 137 defers the effective date of SFAS 133 until
June 15, 2000. The Company will adopt SFAS 133 in 2001. The Company expects
the adoption of SFAS 133 will not affect results of operations.
6
PIXELCAM, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
In December 1998, the Accounting Standards Executive Committee ("AcSEC")
released Statement of Position 98-9, or SOP 98-9, Modification of SOP 97-2,
"Software Revenue Recognition," with Respect to Certain Transactions." SOP
98-9 amends SOP 97-2 to require that an entity recognize revenue for
multiple element arrangements by means of the "residual method" when (1)
there is vendor-specific objective evidence ("VSOE") of the fair values of
all the undelivered elements that are not accounted for by means of
long-term contract accounting, (2) VSOE of fair value does not exist for
one or more of the delivered elements, and (3) all revenue recognition
criteria of SOP 97-2 (other than the requirement for VSOE of the fair value
of each delivered element) are satisfied.
The provisions of SOP 98-9 that extend the deferral of certain paragraphs
of SOP 97-2 became effective December 15, 1999. These paragraphs of SOP
97-2 and SOP 98-9 will be effective for transactions that are entered into
in fiscal years beginning after March 15, 1999. Retroactive application is
prohibited. The Company does not expect the adoption of SOP 98-9 to have a
material effect on its operations or financial position.
In December 1999, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 provides guidance for revenue recognition
under certain circumstances. In June 2000, the SEC issued Staff Accounting
Bulletin No. 101B ("SAB 101B"), which delayed the implementation date of
SAB 101 until no later than the fourth fiscal quarter of fiscal years
beginning after December 15, 1999. The impact of implementing SAB 101 on
the Company's financial statements is still being assessed by management.
In March 2000, FASB issued FASB Interpretation No. 44 "Accounting for
Certain Transactions Involving Stock Compensation - an interpretation of
APB Opinion No. 25." This interpretation has provisions that are effective
on staggered dates, some of which began after December 15, 1998 and others
that become effective after June 30, 2000. The adoption of this
interpretation will not have a material impact on the financial statements.
2. SUPPLEMENTAL CASH FLOW INFORMATION
MARCH 31,
2000 1999
(UNAUDITED)
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes $ 485 $ -
---------------- ----------------
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITY:
Property and equipment acquired under capital leases $ 21,505 $ 115,997
================ ================
Issuance of redeemable preferred stock warrants for notes payable $ 50,128 $ -
================ ================
7
PIXELCAM, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
3. BALANCE SHEET COMPONENTS
MARCH 31, JUNE 30,
2000 1999 2000
(UNAUDITED) (UNAUDITED)
INVENTORY:
Finished goods $ 17,041 $ - $ 26,372
Work-in-process 99,797 - 94,399
Raw materials 47,884 - -
---------------- --------------- ---------------
$ 164,722 $ - $ 120,771
================ =============== ===============
PROPERTY AND EQUIPMENT, NET:
Computer equipment and software $ 462,570 $ 265,330
Furniture and fixtures 124,608 55,399
---------------- ---------------
587,178 320,729
Less: Accumulated depreciation and amortization (190,691) (33,733)
---------------- ---------------
$ 396,487 $ 286,996
================ ===============
Property and equipment includes $137,502 of computer equipment and
purchased software under capital leases at March 31, 2000. Accumulated
amortization of assets under capital leases totaled $61,442 and $25,561
(unaudited) at March 31, 2000 and 1999, respectively.
4. INCOME TAXES
No provision for federal or state income tax has been recorded as the
Company incurred net operating losses for all periods presented. As of
March 31, 2000, the Company had approximately $3,000,000 of federal net
operating loss carryforwards and $3,000,000 of state net operating loss
carryforwards available to offset future taxable income. The federal net
operating loss carryforwards expire between 2018 and 2019 and the state net
operating loss carryforwards will expire in 2006, if not utilized. Under
the Tax Reform Act of 1986, the amounts of and benefits from net operating
loss carryforwards may be impaired or limited in certain circumstances.
Events which may cause changes in a company's net operating loss and credit
carryforwards include, but are not limited to, a cumulative stock ownership
change of greater than 50% over a three year period.
8
PIXELCAM, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
Deferred tax assets consist of the following:
YEAR ENDED MARCH 31,
2000 1999
Net operating loss carryforwards $1,311,000 $ 325,000
Credit carryforwards 118,000 71,000
Depreciation and amortization 167,000 207,000
Reserves and accruals 21,000 -
Other 5,000 5,000
---------------- ----------------
1,622,000 608,000
Valuation allowance (1,622,000) (608,000)
---------------- ----------------
$ - $ -
================ ================
A valuation allowance has been provided in an amount equal to the deferred
tax assets at March 31, 2000 and 1999 because sufficient uncertainty exists
regarding the realizability of those assets.
5. CONVERTIBLE NOTES PAYABLE
MARCH 31,
2000 1999
(UNAUDITED)
4.98% notes $2,250,000 $ 300,000
Less: Unamortized discount (36,992) -
---------------- ----------------
2,213,008 300,000
Less: Current portion (1,000,000) (300,000)
---------------- ----------------
Long-term portion $1,213,008 $ -
================ ================
On various dates during 1999 and 2000, the Company issued notes to members
of the Board of Directors having an aggregate principal amount of $2.25
million. The notes are unsecured obligations of the Company and bear
interest at 4.98% per annum, payable at maturity.
As described under Note 7, the Company issued warrants to purchase shares
of preferred stock in connection with the issuance of the convertible notes
payable.
In the event that the Company issues and sells shares of its Series B
preferred stock, then upon the closing of such sale of Series B preferred
stock, (the "Financing"), the notes shall automatically convert in whole
into shares of Series B preferred stock. In the event the Financing has not
closed, the notes shall be due and payable within eighteen months from cash
receipt.
9
PIXELCAM, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
6. COMMITMENTS
LEASES
The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through May 2003. Rent
expense for the year ended March 31, 2000 was $54,700. The Company
recognizes rent expense on a straight-line basis over the lease period.
Future minimum lease payments under noncancelable operating and capital
leases are as follows:
YEAR ENDING CAPITAL OPERATING
MARCH 31, LEASES LEASES
2001 $ 72,186 $ 56,119
2002 11,773 57,796
2003 - 59,531
---------------- ----------------
Total minimum lease payments 83,959 $ 173,446
================
Less: Amount representing interest (10,742)
----------------
Present value of capital lease obligations 73,217
Less: Current portion (62,419)
----------------
Long-term portion of capital lease obligations $ 10,798
================
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK
Under the Company's Certificate of Incorporation, as amended, the Company
is authorized to issue 6,500,000 shares of convertible preferred stock, of
which 3,700,000 shares have been designated as Series A and 2,500,000
shares have been designated as Series B. From inception through March 31,
2000, the Company issued redeemable convertible preferred stock as follows:
PROCEEDS
NET OF
SHARES ISSUANCE LIQUIDATION
SERIES AUTHORIZED OUTSTANDING COSTS AMOUNT
A 3,700,000 3,488,373 $1,484,135 $1,500,000
B 2,500,000 - - -
Undesignated 300,000 - - -
---------------- ---------------- ---------------- ----------------
6,500,000 3,488,373 $1,484,135 $1,500,000
================ ================ ================ ================
10
PIXELCAM, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
The holders of preferred stock have various rights and preferences as
follows:
VOTING
Each holder of shares of convertible preferred stock shall be entitled to
the number of votes equal to the number of whole shares of common stock
into which such shares of convertible preferred stock could be converted at
the record date for the determination of the shareholders entitled to vote
on such matters or, if no such record date is established, the date such
vote is taken or any written consent of shareholders is solicited.
DIVIDENDS
Holders of Series A and B convertible preferred stock are entitled to
receive non-cumulative dividends at the per annum rate of $0.043 and $0.20
per share, respectively, when and if declared by the Board of Directors.
The holders of Series A and B convertible preferred stock will also be
entitled to participate in dividends on common stock, when and if declared
by the Board of Directors, based on the number of shares of common stock
held on an as-if converted basis. No dividends on convertible preferred
stock or common stock have been declared by the Board from inception
through March 31, 2000.
LIQUIDATION OR MERGER
In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial
owners of the Company's common stock and convertible preferred stock own
less than 51% of the resulting voting power of the surviving entity, the
holders of Series A and B convertible preferred stock are entitled to
receive an amount of $0.43 and $2.0 per share, respectively, plus any
declared but unpaid dividends prior to and in preference to any
distribution to the holders of common stock. In addition to the above,
holders of Series A and B convertible preferred stock shall receive, from
the original issue date of the Series A and B convertible preferred stock,
upon the liquidation events described above, all such remaining available
funds and assets distributed among the holders of the then outstanding
common stock, the Series A and B convertible preferred stock pro rata
according to the number of shares of common stock held by such holders
where, for this purpose, holders of shares of Series A and B convertible
preferred stock will be deemed to hold the greatest whole number of shares
of common stock then issuable upon conversion in full of such shares of
Series A and B convertible preferred stock until such time as each holder
of then outstanding Series A and B convertible preferred stock shall have
received an aggregate amount equal to $0.56 and $2.60 per share,
respectively.
CONVERSION
Each share of Series A and B convertible preferred stock is convertible, at
the option of the holder, according to a conversion ratio, subject to
adjustment for dilution. Each share of Series A and B convertible preferred
stock automatically converts into the number of shares of common stock into
which such shares are convertible at the then effective conversion ratio
upon: (1) the closing of a public offering of common stock at a per share
price of at least $5.0 per share with gross proceeds of at least
$10,000,000, (2) the consent of the holders of the majority of convertible
preferred stock.
At March 31, 2000, the Company had reserved 3,488,373 shares of common
stock for the conversion of Series A convertible preferred stock.
11
PIXELCAM, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
WARRANTS FOR CONVERTIBLE PREFERRED STOCK
In connection with the issuance of the notes payable, the Company issued
warrants to purchase 162,790 and 62,500 shares of Series A and B of
convertible preferred stock for $0.43 and $2.00 per share, respectively.
Such warrants are outstanding at March 31, 2000 and expire in five years.
Using the Black-Scholes pricing model, the Company determined that the fair
value of the warrants was $50,128 at the date of grant. During the year
ended March 31, 2000, the Company recorded $13,136 in interest expense
associated with these warrants.
8. STOCK OPTION PLANS
In September 1998, the Company adopted the 1998 Equity Incentive Stock
Option Plan (the "Plan"). The Plan provides for the granting of stock
options to employees and consultants of the Company. Options granted under
the Plan may be either incentive stock options or nonqualified stock
options. Incentive stock options ("ISO") may be granted only to employees
(including officers and directors who are also employees). Nonqualified
stock options ("NSO") may be granted to employees and consultants. The
Company has reserved 749,336 shares of common stock for issuance under the
Plan.
Options under the Plan may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the
date of grant as determined by the Board of Directors, provided, however,
that (i) the exercise price of an ISO and NSO shall not be less than 100%
and 85% of the estimated fair value of the shares on the date of grant,
respectively, and (ii) the exercise price of an ISO and NSO granted to a
10% shareholder shall not be less than 110% of the estimated fair value of
the shares on the date of grant, respectively. Options granted under the
Plan are exercisable and vest at such times and under such conditions as
determined by the Board of Directors, but the term of the option and the
right of exercise may not exceed ten years from the date of grant, and the
vesting rate should be at least 20% per year over five years from the date
of grant.
Activity under this plan is as follows:
OUTSTANDING OPTIONS
----------------------------------------------------
OPTIONS WEIGHTED
AVAILABLE AVERAGE
FOR NUMBER OF EXERCISE
GRANT OPTIONS PRICE
September 1, 1998 (unaudited) 1,750,000 -
Granted (973,000) 973,000 $ 0.04
--------------- ----------------
Outstanding at March 31, 1999 777,000 973,000 0.04
Granted (35,000) 35,000 0.04
Exercised - (17,164) 0.04
Cancelled 7,336 (7,336) 0.04
--------------- ----------------
Outstanding at March 31, 2000 749,336 983,500 $ 0.04
=============== ================
12
PIXELCAM, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
The following table summarizes information with respect to stock options
outstanding at March 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------- -----------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
OUTSTANDING LIFE (IN YEARS) PRICE EXERCISABLE PRICE
700,000 8.6 $ 0.04 150,497 $ 0.04
150,000 8.7 0.04 53,125 0.04
108,500 8.9 0.04 20,709 0.04
25,000 9.7 0.04 - -
- ----------- -----------
983,500 8.7 $ 0.04 224,331 $ 0.04
=========== ===========
UNEARNED STOCK-BASED COMPENSATION
In connection with certain employee and non-employee stock option grants
during fiscal 1999 and 2000, the Company recorded unearned stock-based
compensation totaling $697,578, which is being amortized over the vesting
periods of the related options, generally four years using the method set
out in FASB Interpretation No. 28 ("FIN 28"). Under FIN 28, each vested
tranche of options is accounted for as a separate option grant for past
services. Accordingly, the compensation expense is recognized over the
period during which the services have been provided. This method results in
higher compensation expense in the earlier vesting periods of the related
options. Amortization of this stock-based compensation recognized during
the years ended March 31, 1999 and 2000 totaled approximately $204,202 and
$229,165, respectively.
During the three months ended June 30, 2000, the Company recorded
unearned stock-based compensation totaling $1,566,277 (unaudited) and
recognized amortization expense totaling $139,075 (unaudited).
FAIR VALUE DISCLOSURES
Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant dates for the awards under
a method prescribed by SFAS No. 123, the Company's net loss would not have
been materially impacted and accordingly, pro forma net loss amounts have
not been presented.
The Company calculated the fair value of each option grant on the date of
grant using the Black-Scholes pricing method with the following
assumptions: dividend yield at 0%; weighted average expected option term of
five years; risk free interest rate of 6.14% and volatility of zero
percent.
9. SUBSEQUENT EVENTS
ISSUANCE OF CONVERTIBLE NOTES PAYABLE
On April 10, 2000, the Company issued notes payable in the amount of
$500,000. The notes bear interest at 4.98% per annum and have a maturity of
18 months from date of issue. The note payable is convertible into Series B
preferred stock in the event that the Company issues and sells shares of
its Series B preferred stock.
13
PIXELCAM, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
On May 10, 2000, notes payable in the aggregate principal amount of
$2,750,000 were converted into 1,375,000 shares of Series B preferred
stock. Interest payable of $66,016, relating to these notes, was waived.
Holders of warrants for convertible preferred stock exercised those
warrants and purchased 162,790 shares and 87,500 shares of Series A and
Series B preferred stock, respectively.
ACQUISITION BY ZORAN CORPORATION (UNAUDITED)
On June 29, 2000, the Company entered into a definitive agreement to be
acquired by Zoran Corporation. Under the terms of the agreement, Zoran
Corporation will pay $21 million to the shareholders of the Company on the
closing date. A further $21 million may be paid to the shareholders of the
Company contingent upon the achievement of certain revenue milestones by
the Company as described in the definitive agreement.
ISSUANCE OF CONVERTIBLE NOTES PAYABLE (UNAUDITED)
On June 20, 2000, the Company issued convertible notes payable in the
amount of $200,000. The notes bear interest at 4.98% per annum and have a
maturity of 18 months from date of issue. On June 21, 2000, these notes
were converted into 100,000 shares of Series B preferred stock. Holders of
warrants for convertible preferred stock exercised those warrants and
purchased 10,000 shares of Series B preferred stock.
14
(b) PRO FORMA financial information of PixelCam required pursuant to
Article 11 of Regulation S-X:
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
OVERVIEW
On June 29, 2000, Zoran Corporation ("Zoran") consummated a stock
acquisition agreement and acquired all outstanding shares of PixelCam, Inc.
("PixelCam"). Total consideration for the shares of PixelCam was $24.6
million consisting of 370,832 shares of Zoran common stock and options to
purchase 4,168 shares of Zoran common stock. The stock options were valued
using the Black-Scholes valuation model. The common stock issued includes
123,612 shares of restricted stock subject to repurchase by Zoran exchanged
for restricted stock of PixelCam. The agreement also includes shares
that are contingently issuable to former PixelCam shareholders upon
achievement of certain milestones. These shares will be accounted for as
additional purchase price at the date of achievement of the milestones if
achieved. Zoran accounted for the acquisition of PixelCam using the purchase
method of accounting.
The unaudited pro forma combined statements of operations assume the
business combination took place as of the beginning of the periods presented.
The unaudited pro forma combined statement of operations for the year ended
December 31, 1999 combines Zoran's statement of operations for the year ended
December 31, 1999 and PixelCam's statement of operations for the year ended
March 31, 2000. The unaudited pro forma combined statement of operations for
the six months ended June 30, 2000 combines Zoran's unaudited statement of
operations for the six months ended June 30, 2000 and PixelCam's unaudited
statement of operations for the six months ended June 30, 2000. Revenues of
approximately $160,000 and net loss of approximately $1,835,000 of PixelCam
for the period from January 1, 2000 through March 31, 2000 were included in
both the unaudited pro forma combined statements of operations for the year
ended December 31, 1999 and the six months ended June 30, 2000.
There were no material transactions between Zoran and PixelCam during
the periods presented. There are no material differences between the
accounting policies of Zoran and PixelCam. The pro forma combined provision
for income taxes may not represent the amounts that would have resulted had
Zoran and PixelCam filed consolidated income tax returns during the periods
presented. The pro forma combined statements of operations do not give effect
to the issuance of the shares contingently issuable upon achievement of
certain milestones.
The unaudited pro forma combined statements of operations should be
read in conjunction with the historical financial statements and notes
thereto of Zoran included in Zoran's Annual Report on Form 10-K for the year
ended December 31, 1999 and Zoran's Quarterly Report on Form 10-Q as of June
30, 2000 (which includes disclosures relating to the purchase price
allocation) and PixelCam included elsewhere in this Report on Form 8-K. The
unaudited pro forma combined statements of operations are presented for
illustrative purposes only and are not necessarily indicative of results of
operations that would have actually occurred had the acquisition of PixelCam
by Zoran been effected on the dates assumed.
15
ZORAN CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA
ZORAN PIXELCAM ADJUSTMENTS PRO FORMA
-------- -------- ----------- ---------
Revenues:
Product sales $ 52,887 $ 250 $ -- $ 53,137
Software, licensing and development 8,787 -- -- 8,787
-------- -------- --------- --------
Total revenues 61,674 250 -- 61,924
-------- -------- --------- --------
Operating expenses:
Cost of sales 28,523 289 -- 28,812
Research and development 12,651 1,517 -- 14,168
Sales and marketing, general and administrative 14,251 819 -- 15,070
Amortization of goodwill and other intangibles -- -- 6,012(1) 6,012
Stock based compensation -- 229 -- 229
-------- -------- --------- --------
Total operating expenses 55,425 2,854 6,012 64,291
-------- -------- --------- --------
Income (loss) from operations 6,249 (2,604) (6,012) (2,367)
Interest and other income 1,585 5 -- 1,590
Interest expense -- (109) -- (109)
-------- -------- --------- --------
Income (loss) before income taxes 7,834 (2,708) (6,012) (886)
Provision for income tax 1,175 -- (510)(3) 665
-------- -------- --------- --------
Net income (loss) 6,659 (2,708) (5,502) (1,551)
======== ======== ========= ========
Basic net income (loss) per share $ 0.61 $(0.14)(4)
======== ========
Diluted net income (loss )per share $ 0.54 $(0,14)(4)
======== ========
Shares used to compute basic net income per share 10,844 247 11,091(4)
======== ========= ========
Shares used to compute diluted net income per share 12,249 (1,158) 11,091(4)
======== ========= ========
16
ZORAN CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA
ZORAN PIXELCAM ADJUSTMENTS PRO FORMA
-------- --------- ----------- ---------
Revenues:
Product sales $ 30,611 $ 313 $ -- 30,924
Software, licensing and development 5,892 -- -- 5,892
-------- --------- --------- ---------
Total revenues 36,503 313 -- 36,816
-------- --------- --------- ---------
Operating expenses:
Cost of sales 17,205 313 -- 17,518
Research and development 7,245 1,252 -- 8,497
Sales and marketing, general and administrative 8,580 870 -- 9,450
Stock based compensation -- 485 -- 485
Amortization of goodwill and other intangibles -- -- 3,006 (1) 3,006
Write-off of acquired in-process research and development 6,769 -- (6,769)(2) --
-------- --------- --------- ---------
Total operating expenses 39,799 2,920 (3,763) 38,956
-------- --------- --------- ---------
Loss from operations (3,296) (2,607) 3,763 (2,140)
Interest and other income 4,214 16 -- 4,230
Interest expense -- (45) -- (45)
-------- --------- --------- ---------
Income (loss) before income taxes 918 (2,636) 3,763 2,045
Provision for income tax 1,153 2 (449)(3) 706
-------- --------- --------- ---------
Net income (loss) (235) (2,638) 4,212 1,339
======== ========= ========= =========
Basic net income (loss) per share $ (.02) $ 0.09(4)
======== =========
Diluted net income (loss) per share $ (.02) $ 0.08(4)
======== =========
Shares used to compute basic net income per share 14,072 247 14,319(4)
======== ========= =========
Shares used to compute diluted net income per share 14,072 1,775 15,847(4)
======== ========= =========
17
ZORAN CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(1) To record additional amortization of goodwill and other intangible assets
related to the acquisition of PixelCam. Goodwill of $16.0 and other
intangible assets including covenants not to compete of $800,000, patents
of $900,000 and acquired employees of $380,000 were recorded and are being
amortized on a straight-line basis over the weighted average useful lives
of three years.
(2) To eliminate the write-off of acquired in-process technology recorded by
Zoran in connection with the acquisition of PixelCam.
(3) To adjust the tax provision for additional benefit related to losses of
PixelCam.
(4) Unaudited pro forma net income (loss) reflects the impact of the
adjustments above. Basic and Diluted unaudited pro forma net income (loss)
per share is computed using the weighted average number of shares
outstanding after the issuance of 247,220 shares of unrestricted Zoran
common stock, 123,612 shares of restricted Zoran common stock and 4,168
options assumed in connection with the acquisition of PixelCam.
18
(c) EXHIBITS
Exhibit No. Description
----------- -----------
*2.1(1) Agreement and Plan of Reorganization dated
June 28, 2000 among Zoran Corporation, Grape
Acquisition Corp. and PixelCam, Inc.
23.1 Consent of PricewaterhouseCoopers LLP,
Independent Accountants
*99.1 Press Release dated June 28, 2000 announcing
the effectiveness of the Merger.
- -----------------------
* Previously filed.
(1) Other Exhibits to the Reorganization Agreement not filed herewith are
identified in the Reorganization Agreement. The registrant will
supplementally furnish any omitted Exhibit to the Commission upon request.
19
PIXELCAM, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
FINANCIAL STATEMENTS
MARCH 31, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Zoran Corporation
September 12, 2000 By: /s/ Karl Schneider
--------------------------------------------
Karl Schneider
Vice President, Finance and Chief Financial
Officer
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
*2.1(1) Agreement and Plan of Reorganization dated June 28, 2000 among
Zoran Corporation, Grape Acquisition Corp. and PixelCam, Inc.
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
*99.1 Press Release dated June 28, 2000 announcing effectiveness of
the Merger.
- -----------------------
*Previously filed
(1) Other Exhibits to the Reorganization Agreement not filed herewith are
identified in the Reorganization Agreement. The registrant will
supplementally furnish any omitted Exhibit to the Commission upon request.