<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ----------------------


                                    FORM 10-Q

(Mark One)

(X)      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For the quarterly period ended June 30, 1999

                                       or

( )      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For the transition period from__________ to__________


                         Commission File Number: 0-27246


                                ZORAN CORPORATION
             (Exact name of registrant as specified in its charter)


         DELAWARE                                             94-2794449
(State or other jurisdiction of                            (I.R.S. Employer
incorporation or organization)                            Identification No.)


               3112 SCOTT BOULEVARD, SANTA CLARA, CALIFORNIA 95054
            (Address of principal executive offices)       (Zip Code)

       Registrant's telephone number, including area code: (408) 919-4111


Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

                              Yes X        No
                                  ---         ---

The number of outstanding shares of the registrant's Common Stock, $.001 par
value, as of July 30, 1999 was 10,557,417.

<PAGE>

                                ZORAN CORPORATION

                                      INDEX

                                                                       PAGE NO.
                                                                       --------

                          PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

              Condensed Consolidated Balance Sheets
                  June 30, 1999 and December 31, 1998                      3

              Condensed Consolidated Statements of Operations
                  Three and Six Months Ended June 30, 1999 and 1998        4

              Condensed Consolidated Statements of Cash Flows
                  Six Months Ended June 30, 1999 and 1998                  5

              Notes to Condensed Consolidated Financial Statements         6

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

Item 3.  Quantitative and Qualitative Disclosures
              About Market Risk                                           14

                           PART II. OTHER INFORMATION


Item 6.  Exhibits and Reports on Form 8-K                                 15


SIGNATURES                                                                16

                                       2
<PAGE>

                                ZORAN CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                     June 30,           December 31,
                                                                       1999                 1998
                                                           ---------------------   ---------------------
<S>                                                        <C>                     <C>

ASSETS
      Current assets:
           Cash & cash equivalents                                   $     6,103            $      8,221
           Short-term investments                                         12,240                  10,954
           Accounts receivable, net                                       17,770                  15,558
           Inventory                                                      11,733                   7,063
           Prepaid expenses and other current assets                       2,566                   2,018
                                                           ---------------------   ---------------------
              Total current assets                                        50,412                  43,814

      Property and equipment, net                                          4,644                   5,356
                                                           ---------------------   ---------------------

                                                                    $     55,056            $     49,170
                                                           ---------------------   ---------------------
                                                           ---------------------   ---------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
       Current liabilities:
           Accounts payable                                         $      9,399            $      6,530
           Accrued expenses and other liabilities                          7,262                   6,454
                                                           ---------------------   ---------------------
              Total current liabilities                                   16,661                  12,984

      Stockholders' equity:
           Common Stock, $0.001 par value;
              20,000,000 shares authorized; 10,500,354
              and 10,213,394 shares issued and outstanding                    10                      10
           Additional paid-in capital                                     80,517                  79,635
           Warrants                                                          717                     717
           Accumulated deficit                                          (42,849)                (44,176)
                                                           ---------------------   ---------------------
              Total stockholders' equity                                  38,395                  36,186
                                                           ---------------------   ---------------------

                                                                    $     55,056            $     49,170
                                                           ---------------------   ---------------------
                                                           ---------------------   ---------------------
</TABLE>

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

                                       3
<PAGE>

                                ZORAN CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                Three Months Ended             Six Months Ended
                                                                                     June 30,                      June 30,
                                                                            ---------------------------    ------------------------
                                                                                1999          1998            1999         1998
                                                                            ------------- -------------    ------------ -----------
<S>                                                                          <C>           <C>              <C>          <C>
Revenues:
      Product sales                                                            $  10,927     $   4,610        $ 20,209    $ 13,244
      Software, licensing and development                                          2,704         2,465           5,314       4,999
                                                                              -----------   -----------      ---------   ---------
         Total revenues                                                           13,631         7,075          25,523      18,243

Costs and expenses:
      Cost of product sales                                                        5,684         2,940          10,777       7,597
      Research and development                                                     3,991         2,944           7,515       6,178
      Selling, general and administrative                                          3,302         2,686           6,549       5,434
                                                                              -----------   -----------      ---------   ---------
         Total costs and expenses                                                 12,977         8,570          24,841      19,209

Operating income (loss)                                                              654       (1,495)             682        (966)

Interest and other income (expense), net                                             878          275              977         520
                                                                              -----------   -----------      ---------   ---------

Income (loss) before income taxes                                                  1,532       (1,220)           1,659        (446)

Provision for (benefit from) income taxes                                            306         (244)             332         (89)
                                                                              -----------   -----------      ---------   ---------

Net income (loss)                                                              $   1,226     $   (976)        $  1,327    $   (357)
                                                                              -----------   -----------      ---------   ---------
                                                                              -----------   -----------      ---------   ---------

Basic net income (loss) per share                                              $    0.12     $  (0.10)        $   0.13    $  (0.04)
                                                                              -----------   -----------      ---------   ---------
                                                                              -----------   -----------      ---------   ---------

Diluted net income (loss) per share                                            $    0.10     $  (0.10)        $   0.11    $  (0.04)
                                                                              -----------   -----------      ---------   ---------
                                                                              -----------   -----------      ---------   ---------

Shares used to compute basic net income (loss) per share                          10,436        9,975           10,441       9,916
                                                                              -----------   -----------      ---------   ---------
                                                                              -----------   -----------      ---------   ---------

Shares used to compute diluted net income (loss) per share                        11,673        9,975           11,735       9,916
                                                                              -----------   -----------      ---------   ---------
                                                                              -----------   -----------      ---------   ---------
</TABLE>

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

                                       4
<PAGE>

                                ZORAN CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                       SIX MONTHS ENDED
                                                                                           JUNE 30,
                                                                          -------------------------------------------
                                                                                 1999                   1998
                                                                          --------------------   --------------------
<S>                                                                        <C>                    <C>
Cash flows from operating activities:
      Net income (loss)                                                           $     1,327            $      (357)
      Adjustments to reconcile net income (loss) to net cash
      used by operations:
         Depreciation, amortization and other                                           1,213                  1,046
         Changes in current assets and liabilities:
            Accounts receivable                                                        (2,173)                 5,531
            Inventory                                                                  (4,670)                (4,971)
            Prepaid expenses and other current assets                                    (548)                   278
            Accounts payable                                                            2,869                 (2,133)
            Accrued expenses and other liabilities                                       (138)                (4,965)
                                                                          --------------------   --------------------
                 Net cash used in operating activities                                 (2,120)                (5,571)
                                                                          --------------------   --------------------

Cash flows from investing activities:
      Capital expenditures for property and equipment                                    (794)                (1,091)
      Proceeds from sale of assets                                                        200                     --
      Sale (purchase) of short-term investments, net                                     (286)                 2,839
                                                                          --------------------   --------------------
                 Net cash provided by (used in) investing activities                     (880)                 1,748

Cash flows from financing activities:
      Proceeds from issuance of Common Stock, net                                         882                    472
                                                                          --------------------   --------------------
                 Net cash provided by financing activities                                882                    472
                                                                          --------------------   --------------------

Net decrease in cash and cash equivalents                                              (2,118)                (3,351)

Cash and cash equivalents at beginning of period                                        8,221                  9,903
                                                                          --------------------   --------------------

Cash and cash equivalents at end of period                                        $     6,103            $     6,552
                                                                          --------------------   --------------------
                                                                          --------------------   --------------------
</TABLE>

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

                                       5
<PAGE>

                                ZORAN CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.   BASIS OF PRESENTATION

         The accompanying unaudited condensed consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) which, in the opinion of management, are necessary to present
fairly the financial information included therein. While the Company believes
that the disclosures are adequate to make the information not misleading, it
is suggested that these financial statements be read in conjunction with the
audited consolidated financial statements and accompanying notes included in
the Company's Annual Report on Form 10-K for the year ended December 31,
1998. Results for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.

2.   BALANCE SHEET COMPONENTS

<TABLE>
<CAPTION>

                                               JUNE 30,            DECEMBER 31,
                                                 1999                  1998
                                          --------------------  --------------------
<S>                                        <C>                   <C>
INVENTORY:

                   Work-in-process                $     3,934           $     1,781
                   Finished goods                       7,799                 5,282
                                          --------------------  --------------------

                                                  $    11,733           $     7,063
                                          --------------------  --------------------
                                          --------------------  --------------------
</TABLE>

3.   INCOME TAXES

         The provision for or benefit from income taxes reflects the
estimated annualized effective tax rate applied to earnings for the interim
periods. The effective tax rate differs from the U.S. statutory rate due to
utilization of net operating losses and State of Israel tax benefits on
foreign earnings. The provision includes primarily taxes on income in excess
of net operating loss carryover limitations and foreign withholding taxes.

4.   EARNINGS PER SHARE

         A reconciliation of the numerators and the denominators of the basic
and diluted per share computation is as follows:

<TABLE>
<CAPTION>


                                                                         Three Months Ended June 30,
                                                                1999                                     1998
                                               ---------------------------------------- ----------------------------------------
                                                 Income        Shares       Per Share      Loss         Shares       Per Share
                                               (Numerator)  (Denominator)    Amount     (Numerator)  (Denominator)    Amount
                                               ------------ -------------- ------------ ------------ -------------- ------------
<S>                                             <C>          <C>            <C>          <C>          <C>            <C>
Basic EPS:
    Net income (loss) available
        to common stockholders                     $ 1,226         10,436       $ 0.12       $ (976)         9,975      $ (0.10)
                                                                           ------------                             -----------
                                                                           ------------                             -----------

Effects of Dilutive Securities:
    Stock Options                                                   1,237                                        -
                                               ------------ --------------              ------------ --------------

Diluted EPS:
    Income (loss) available to
        common stockholders                        $ 1,226         11,673       $ 0.10       $ (976)         9,975      $ (0.10)
                                               ------------ -------------- ------------ ------------ -------------- ------------
                                               ------------ -------------- ------------ ------------ -------------- ------------
</TABLE>

<TABLE>
<CAPTION>
                                               ---------------------------------------------------------------------------------

                                                                          Six Months Ended June 30,
                                                                1999                                     1998
                                               ---------------------------------------- ----------------------------------------
                                                 Income        Shares       Per Share      Loss         Shares       Per Share
                                               (Numerator)  (Denominator)    Amount     (Numerator)  (Denominator)    Amount
                                               ------------ -------------- ------------ ------------ -------------- ------------
<S>                                             <C>          <C>            <C>          <C>          <C>            <C>
Basic EPS:
    Net income (loss) available
        to common stockholders                     $ 1,327         10,441       $ 0.13       $ (357)         9,916      $ (0.04)
                                                                           ------------                             -----------
                                                                           ------------                             -----------

Effects of Dilutive Securities:
    Stock Options                                                   1,294                                        -
                                               ------------ --------------              ------------ --------------

Diluted EPS:
    Income (loss) available to
        common stockholders                        $ 1,327         11,735       $ 0.11       $ (357)         9,916      $ (0.04)
                                               ------------ -------------- ------------ ------------ -------------- ------------
                                               ------------ -------------- ------------ ------------ -------------- ------------
</TABLE>

                                       6
<PAGE>

5.   RECENTLY ISSUED ACCOUNTING STANDARD

         In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
establishes a new model for accounting for derivatives and hedging activities
and supercedes and amends a number of existing accounting standards. SFAS 133
requires that all derivatives be recognized on the balance sheet at their
fair market value, and the corresponding derivative gains or losses be either
reported on the statement of operations or as a deferred item depending on
the type of hedge relationship that exists with respect to such derivative.
In July 1999, the Financial Accounting' Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS
133 ("SFAS 137"). SFAS 137 defers the effective date of SFAS 133 to fiscal
quarters and years beginning after June 15, 2000. Adopting the provisions of
SFAS 133 is not expected to have a material effect on the Company's
consolidated financial statements.

6.   SALE OF CERTAIN ASSETS

         In June, 1999 the Company sold to MGI Software of Canada ("MGI") the
intellectual property related to Zoran's SoftDVD(TM) product line and
transferred to MGI certain related software development and support resources
in exchange for cash, MGI common stock, and future royalties. The Company's
results for the second quarter of 1999 include a $732,000 gain realized from
this transaction which is reported as part of Interest and other income or
expense. In connection with this transaction, the Company also recorded a
charge that reduced software, licensing and development revenues for the
quarter by $517,000 for possible issues related to receivables associated
with the SoftDVD product line. When viewed in total, the net impact of the
MGI transaction on the Company's results was effectively a net gain of
$215,000, or $0.01 per share, on a diluted basis after tax.

                                       7
<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO
THE COMPANY'S FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE CURRENTLY ANTICIPATED DEPENDING UPON A VARIETY OF
FACTORS, INCLUDING THOSE DESCRIBED BELOW UNDER THE SUB-HEADING, "FUTURE
PERFORMANCE AND RISK FACTORS" AND DISCUSSED MORE FULLY IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998.

OVERVIEW

         Zoran Corporation ("Zoran" or the "Company") develops and markets
integrated circuits ("ICs"), IC Intellectual Property ("IP") cores, and
embedded and PC software for digital audio and video applications enabled by
compression. Zoran also provides complete reference designs based on Zoran's
technology. Zoran's product lines and IP include DVD and MPEG-based decoders,
digital still camera system on a chip ICs, JPEG-based codecs and digital
audio ICs. All these standards-based products benefit from Zoran's Standards
Plus(TM) technology. Zoran's ICs are used in numerous digital video and audio
products. Leading applications incorporating Zoran's products and IP include
standalone consumer DVD players, SuperVCD players, professional and consumer
video editing systems, filmless digital cameras, digital speakers and audio
systems.

         Historically, average selling prices ("ASPs") in the semiconductor
industry in general, and for the Company's products in particular, have
decreased over the life of a particular product. Although ASPs for the
Company's hardware products have fluctuated substantially from period to
period, these fluctuations have been driven principally by changes in
customer mix (original equipment manufacturer ("OEM") sales versus sales to
distributors) and the transition from low-volume to high-volume production
sales rather than by factors related to product life cycles. Since 1996, the
Company has periodically reduced its ASPs on certain products to better
penetrate its target markets and remain competitive. The Company believes
that, as its product lines continue to mature and competitive markets evolve,
it is likely to experience further declines in the ASPs of its products,
although the timing and amount of such future changes cannot be predicted
with any certainty. There can be no assurance that costs will decrease at the
same rate as such declines in ASPs, or at all.

         The Company sells its products to OEMs worldwide directly and
through distributors and independent sales representatives. Sales prices to
distributors are generally lower than prices for direct sales, as
distributors are responsible for certain sales and marketing expenses,
maintenance of inventories and customer support and training. Lower gross
margins on sales to distributors are partially offset by reduced selling and
marketing expenses related to such sales. Product sales in Japan are
primarily made through Fujifilm Microdevices Co., Ltd. ("Fujifilm"), the
Company's strategic partner and distributor in Japan. Fujifilm provides more
sales and marketing support than Zoran's other distributors.

         Zoran has historically generated a significant percentage of its
total revenues from development contracts, primarily with key customers.
These development contracts have provided the Company with partial funding
for the development of certain of its products. Payments received by the
Company under these development contracts are recorded as development
revenue. The Company classifies all development costs, including costs
related to these development contracts, as research and development expenses.
The Company retains ownership of the intellectual property developed by it
under these development contracts. While the Company intends to continue to
enter into development contracts with certain strategic partners, it expects
development revenue to decrease as a percentage of total revenues.

         The Company conducts a substantial portion of its research and
development and certain sales and marketing and administrative operations in
Israel through its wholly-owned Israeli subsidiary. As a result, certain
expenses are incurred in Israeli shekels, and a portion of its products are
sold directly from its facility in Israel. To date, substantially all of the
Company's revenues have been denominated in U.S. dollars and most costs of
product sales have been incurred in U.S. dollars. The Company expects that
most of its

                                       8

<PAGE>

revenues and costs of product sales will continue to be denominated and
incurred in U.S. dollars for the foreseeable future. The Company has not
experienced material losses or gains as a result of currency exchange rate
fluctuations and has not engaged in hedging transactions to reduce its exposure
to such fluctuations. The Company intends to actively monitor its foreign
exchange exposure and to take appropriate action to reduce its foreign exchange
risk, if such risk becomes material.

         In June, 1999 the Company sold to MGI Software of Canada ("MGI") the
intellectual property related to Zoran's SoftDVD(TM) product line and
transferred to MGI certain related software development and support resources
in exchange for cash, MGI common stock, and future royalties. The Company's
results for the second quarter of 1999 include a $732,000 gain realized from
this transaction which is reported as part of Interest and other income or
expense. In connection with this transaction, the Company also recorded a
charge that reduced software, licensing and development revenue for the
quarter by $517,000 for possible issues related to receivables associated
with the SoftDVD product line. When viewed in total, the net impact of the
MGI transaction on the Company's results was effectively a net gain of
$215,000 or, after tax, $0.01 per share on a diluted basis. This gain does
not reflect the potential future economic benefit that may be derived from
this transaction and realized in future periods in the form of royalties. The
Company does not currently expect, however, that these royalties will have a
material impact on quarterly revenues for the foreseeable future. In
addition, the shares of MGI stock received by the Company as part of this
transaction are subject to future appreciation and depreciation. The Company
believes that software revenues will decline considerably as a result of the
sale of the SoftDVD product line.

RESULTS OF OPERATIONS

REVENUES

         Total revenues were $13.6 million and $25.5 million for the three
and six month periods ended June 30, 1999, compared to $7.1 million and $18.2
million for the same periods of the prior fiscal year, representing an
increase of 92.7% and 39.9% for the respective periods. For the three and six
month periods ended June 30, 1999, product revenues were $10.9 million and
$20.2 million, compared to $4.6 million and $13.2 million for the same
periods in 1998, increases of 137.0% and 52.6%, respectively. Fueling the
growth in product revenue was the DVD product line which increased period
over period. Software, licensing and development revenues were $2.7 million
and $5.3 million for the three and six month periods ended June 30, 1999,
compared to $2.5 million and $5.0 million for the same periods of the prior
fiscal year, representing an increase of 9.7% and 6.3% for the respective
periods. This increase was primarily due to the timing of significant new
licensing contracts, as well as, the timing of revenue recognition on
development contracts. Software, licensing and development revenues for the
three months ended June 30, 1999 were adversely affected by the $517,000
charge related to the MGI transaction.

         Product sales consist of revenues from sales of the Company's
integrated circuits. Software, licensing and development revenue consists of
revenue from license and royalty agreements, primarily for audio and video
decoder software, that generally provide for the license of software for a
specified period of time for either a single fee or a fee based on the number of
units distributed by the licensee. Development revenue is derived from hardware
design contracts that provide for license and milestone payments to be made at
specified times.

PRODUCT GROSS MARGIN

         Product gross margins were 48.0% and 46.7% of product revenues for the
three and six month periods ended June 30, 1999, compared to 36.2% and 42.6% for
the same periods of the prior fiscal year, an increase of 11.8 and 4.1
percentage points, respectively. The increase was due to a product sales mix
that included an increased percentage of higher-margin products, a greater
percentage of products sold directly to OEM customers and lower manufacturing
costs as a function of increased product shipments.

         The Company's product gross margin is dependent on product mix and on
the percentage of products sold directly to the Company's OEM customers versus
indirectly through its marketing partners who purchase the Company's products at
lower prices but absorb most of the associated marketing and sales

                                       9
<PAGE>

support expenses. The Company expects product and customer mix to continue to
fluctuate in future periods, causing further fluctuations in margins.

RESEARCH AND DEVELOPMENT

         Research and development ("R&D") expenses were $4.0 million and $7.5
million for the three and six month periods ended June 30, 1999, compared to
$2.9 million and $6.2 million for the same periods of the prior fiscal year. The
increase is a result of the timing and recognition of project funding from
external sources, timing of major project expenses, such as tape-outs, and costs
associated with some internal restructuring in the quarter ended June 30, 1999.
As a percentage of revenues, R&D expenses decreased to 29.3% and 29.4% for the
three and six month periods ended June 30, 1999, compared to 41.6% and 33.9% for
the same periods of the prior fiscal year. The decrease in R&D expenses as a
percentage of revenues for the current quarter compared to the same period in
1998 was due to increased revenues in 1999.

         The Company continues to believe that significant investments in R&D
are required for it to remain competitive and expects to continue to devote
significant resources to product development, although such expenses as a
percentage of total revenues may fluctuate.

SELLING, GENERAL AND ADMINISTRATIVE

         Selling, general and administrative ("SG&A") expenses were $3.3
million and $6.5 million for the three and six month periods ended June 30,
1999, compared to $2.7 million and $5.4 million for the same periods of the
prior fiscal year. The increase in expenses was primarily due to increased
efforts in the development of the China market and greater commission expense
related to increased sales volume. As a percentage of revenues, SG&A expenses
were 24.2% and 25.7% for the three and six month periods ended June 30, 1999,
compared to 38.0% and 29.8% for the same periods of the prior fiscal year.
The decrease as a percent of revenues, quarter to quarter, was due to the
increase in revenues in 1999.

INTEREST AND OTHER INCOME, NET

         Net interest and other income for the three and six month periods ended
June 30, 1999 was $878,000 and $977,000, respectively, an increase of 219.3% and
87.9% compared to the same periods in 1998. The increase was primarily the
result of the $732,000 gain realized from the sale of the Company's SoftDVD(TM)
product line to MGI.

PROVISION FOR INCOME TAXES

         The Company's estimated effective tax rate remained at 20% for the
current quarter, the same as last year's effective tax rate.

LIQUIDITY AND CAPITAL RESOURCES

         At June 30, 1999, the Company had $6.1 million of cash and cash
equivalents, $12.2 million of short-term investments and $33.8 million of
working capital. Cash used in operations for the first six months of 1999 was
$2.1 million, compared to $3.4 million for the comparable period in 1998. Cash
used primarily reflects changes in inventory, accounts receivable and accrued
liabilities. The Company's capital expenditures for the six months ended June
30, 1999 totaled $626,000. The Company had no bank debt at June 30, 1999 or at
December 31, 1998.

         The Company believes that its current balances of cash, cash
equivalents and short-term investments, and anticipated cash flow from
operations, will satisfy the Company's anticipated working capital and capital
expenditure requirements through at least the next 12 months.

YEAR 2000 READINESS

          Many companies face potentially serious consequences due to the
inability of many older software applications and operational programs to
properly recognize calendar dates beginning in the Year 2000. The

                                       10
<PAGE>

risk for Zoran exists in three areas: systems used by the Company to run its
business, embedded software and software products sold to its customers, and
the Year 2000 readiness of the Company's key suppliers and customers. The
Company is currently evaluating its exposure in all of these areas based on a
Year 2000 compliance plan it has developed.

         The Company is conducting a comprehensive inventory and evaluation of
the systems used in running its business. These systems include the Company's
information technology, or IT, systems as well as equipment and facilities. To
date, the Company has not identified any potential Year 2000 issues that would
have a material impact on its operations. The Company believes that this portion
of the investigation is approximately 98% complete and expects to complete the
remainder in August 1999. Since the Company has not yet identified any
significant non-compliance problems there are currently no contingency plans in
place for Year 2000 issues. The Company has not concluded its investigation,
however, and may still find it necessary to create contingency plans in order to
address Year 2000 compliance problems. The Company expects to complete any
necessary contingency planning by August 1999.

         The Company believes that its current products are Year 2000 compliant.
This is based on the fact that none of the products process or store date
information.

         Zoran is in the process of contacting each of its critical suppliers to
determine that the suppliers' operations and the products and services they
provide are Year 2000 compliant. Where practicable, Zoran will attempt to
mitigate its risks with respect to the failure of suppliers to be Year 2000
ready. For instance, the Company may seek alternative suppliers who are found to
be in Year 2000 conformance. To date, the Company has received responses from
approximately 75% of its critical suppliers. None of these suppliers have
indicated that they will not be Year 2000 ready by the appropriate timeframe.
However, the Company has not yet completed contacting all of its key suppliers
and does not anticipate completing this portion of the investigation until the
third quarter of 1999. The Company is contacting its key customers in order to
ascertain their Year 2000 compliance status. Failure of the Company's customers
to be Year 2000 ready may result in lost sales and reduced revenue or diminish
the ability of customers to pay on a timely basis. The Company expects to
complete contacting all of its key customers by the third quarter of 1999.

        The Company has not incurred material costs in connection with its
investigation to date. Based on its investigation to date, the Company does
not anticipate incurring costs that would materially impact the Company's
operating results or financial condition. However, the investigation is
ongoing and no assurances can be given that unidentified non-compliance
issues will not be discovered or that their remediation will not have a
material impact on the Company's operations or financial condition. Failure
to ensure that the Company has fully identified and addressed the Year 2000
problem could result in the Company or any of its key vendors being unable
for a period of time to conduct critical business activities, which include
but are not restricted to, shipping product to customers, invoicing customers
and paying vendors

FUTURE PERFORMANCE AND RISK FACTORS

THE COMPANY'S FUTURE BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION ARE
SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING THOSE DESCRIBED BELOW.

         PRODUCT CONCENTRATION; EVOLVING MARKETS. Current applications for the
Company's products and intellectual property include professional and consumer
video editing systems, filmless digital cameras, standalone and PC-based DVD
players, Super VCD players, digital speakers and audio systems. During 1994 and
1995, the Company derived a majority of its product revenues from the sale of
integrated circuits for video editing applications, and video editing
applications continued to account for the largest percentage of the Company's
product sales from 1996 through 1998. However, in the first half of 1999 the
Company derived a majority of its product revenues from the sale of integrated
circuits for DVD and Super VCD applications. The Company expects that sales of
its devices for DVD and Super VCD applications, video capture and editing
applications, and digital audio applications will continue to account for a
significant portion of its revenues for the near future. Over the longer term,
the Company's ability to generate increased revenues will be dependent on the
expansion of sales of its products for use in other existing applications, as
well as the development and acceptance of new applications for the Company's
technologies and products. The potential size of the markets for new
applications and the timing of their development and acceptance is uncertain.
The Company's future success will depend upon whether manufacturers select the
Company's integrated circuits and embedded software for incorporation into their
products, and upon the successful

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<PAGE>

marketing of these products by the manufacturers. There can be no assurance
that demand for existing applications will be sustained, that new markets
will develop or that manufacturers developing products for any of these
markets will design the Company's integrated circuits into their products or
successfully market them. The failure of existing and new markets to develop
or to be receptive to the Company's products would have a material adverse
effect on the Company's business, operating results and financial condition.

         The emergence of markets for the Company's integrated circuits will be
affected by a variety of factors beyond the Company's control. In particular,
the Company's products are designed to conform with certain current industry
standards. There can be no assurance that manufacturers will continue to follow
these standards or that competing standards will not emerge which will be
preferred by manufacturers. The emergence of markets for the Company's products
is also dependent in part upon third-party content providers developing and
marketing content for end user systems, such as video and audio playback
systems, in a format compatible with the Company's products. There can be no
assurance that these or other factors beyond the Company's control will not
adversely affect the development of markets for the Company's products.

         RELIANCE ON INDEPENDENT FOUNDRIES AND CONTRACTORS. The Company does not
operate any manufacturing facilities, and from time to time shortages of foundry
capacity develop for certain process technologies in the semiconductor industry.
The Company currently relies on independent foundries to manufacture
substantially all of its products. The Company's independent foundries fabricate
products for other companies and may also produce products of their own design.
The Company does not have a long-term supply contract with either TSMC or
Motorola Inc., its principal suppliers, and, therefore, neither TSMC nor
Motorola is obligated to supply products to the Company for any specific period,
in any specific quantity or at any specified price, except as may be provided in
a particular purchase order.

         The Company's reliance on independent foundries involves a number of
risks, including the inability to obtain adequate capacity, the unavailability
of or interruption in access to certain process technologies, reduced control
over delivery schedules, quality assurance, manufacturing yields and cost, and
potential misappropriation of the Company's intellectual property. The loss of
any of the Company's foundries as a supplier, the inability of the Company, in a
period of increased demand for its products, to expand supply or the Company's
inability to obtain timely and adequate deliveries from its current or future
suppliers could reduce or delay shipments of the Company's products. Any of
these developments could damage relationships with the Company's current and
prospective customers and have a material adverse effect on the Company's
business, operating results or financial condition.

         At present, all of the Company's semiconductor products are assembled
by one of three independent contractors, ASAT, Inc., Anam Industrial, and
Advanced Semiconductor Engineering, Inc. ("ASE") and tested by those contractors
or other independent contractors. The Company's reliance on independent assembly
and testing houses limits its control over delivery schedules, quality assurance
and product cost. Disruptions in the provision of services by the Company's
assembly or testing houses or other circumstances that would require the Company
to seek alternative sources of assembly or testing could lead to supply
constraints or delays in the delivery of the Company's products. These
constraints or delays could damage relationships with current and prospective
customers and have a material adverse effect on the Company's business,
operating results or financial condition.

         NEW PRODUCT DEVELOPMENT AND TIMELY INTRODUCTION OF NEW AND ENHANCED
PRODUCTS. The markets for the Company's products are characterized by rapidly
changing technologies, evolving industry standards, frequent new product
introductions and short product life cycles. The Company expects to increase its
expenses relating to product development, and its future success will depend to
a substantial degree upon its ability to develop and introduce, on a timely and
cost-effective basis, new and enhanced products that meet changing customer
requirements and industry standards. There can be no assurance that the Company
will successfully develop, introduce or manage the transition to new products.
Future delays in the introduction or shipment of new or enhanced products, the
inability of such products to gain market acceptance or problems associated with
new product transitions could adversely affect the Company's business, operating
results and financial condition.

         COMPETITION; PRICING PRESSURES. The Company's existing and potential
competitors include many large domestic and international companies that have
substantially greater financial, manufacturing, technical, marketing,
distribution and other resources, broader product lines and longer standing
relationships with

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<PAGE>

customers than the Company. The markets in which the Company competes are
intensely competitive and are characterized by rapid technological change,
declining ASPs and rapid product obsolescence.

         CUSTOMER CONCENTRATION; CHANGES IN CUSTOMER MIX. The Company's
largest customers have accounted for a substantial percentage of its
revenues, and sales to these large customers have varied materially from year
to year. There can be no assurance that the Company will be able to retain
its key customers or that such customers will not cancel purchase orders or
reschedule or decrease their level of purchases. In addition, sales to these
key customers may fluctuate significantly from quarter to quarter. Any
development that would result in a substantial decrease or delay in sales to
one or more key customers, including actions by competitors or technological
changes, could have a material adverse effect on the Company's business,
operating results or financial condition. In addition, any development that
would adversely affect the collectability of account balances from one or
more key customers could have a material adverse effect on the Company's
business, operating results or financial condition.

         FLUCTUATIONS IN OPERATING RESULTS; NET OPERATING LOSS CARRYFORWARDS.
The Company's quarterly operating results have varied significantly due to a
number of factors, including the timing of new product introductions by the
Company and its competitors, market acceptance of new and enhanced versions of
the Company's products and products of its customers, the timing of large
customer orders, the availability of development funding and the timing of
development revenue, changes in the mix of products sold, and competitive
pricing pressures. The Company expects that its operating results will fluctuate
in the future as a result of these factors and a variety of other factors,
including the availability of adequate foundry capacity, fluctuations in
manufacturing yields, the emergence of new industry standards, product
obsolescence, changes in pricing policies by the Company, its competitors or its
suppliers, the cyclical nature of the semiconductor industry, the evolving and
unpredictable nature of the markets for products incorporating the Company's
integrated circuits and software and the amount of research and development
expenses associated with new product introductions. The Company's operating
results could also be adversely affected by economic conditions generally or in
various geographic areas where the Company or its customers do business, other
conditions affecting the timing of customer orders, a downturn in the markets
for its customer's products, particularly the consumer electronics market, or
order cancellations or reschedulings. These factors are difficult or impossible
to forecast, and these or other factors could materially affect the Company's
quarterly or annual operating results. The Company places orders to purchase its
products from independent foundries several months in advance of the scheduled
delivery date, often in advance of receiving non-cancelable orders from its
customers. If anticipated shipments or development revenue in any quarter are
canceled or do not occur as quickly as expected, expense and inventory levels
could be disproportionately high. A significant portion of the Company's
expenses are relatively fixed, and the timing of increases in expenses is based
in large part on the Company's forecast of future revenues. As a result, if
revenues do not meet the Company's expectations it may be unable to quickly
adjust expenses to levels appropriate to actual revenues, which could have a
material adverse effect on the Company's business, operating results or
financial condition. Increasingly, the Company's operating results have been
affected by seasonal factors. As markets for consumer products incorporating the
Company's products have matured, the Company's sales have been stronger during
the last several months of the calendar year than at other times due to
increased demand for consumer products during the holiday season. As a result of
the foregoing, the Company's operating results and stock price may be subject to
significant volatility, particularly on a quarterly basis. Any shortfall in
revenues or net income from levels expected by securities analysts could have an
immediate and significant adverse effect on the trading price of the Company's
Common Stock.

         MANAGEMENT OF GROWTH. The Company anticipates that future growth, if
any, will require it to recruit and hire a substantial number of new
engineering, managerial, sales and marketing personnel. The Company's ability to
manage its growth successfully will also require the Company to expand and
improve its administrative, operational, management and financial systems and
controls. Many of the Company's key operations, including the major portion of
its research and development operations and a significant portion of its sales
and administrative operations, are located in Israel, while a majority of its
sales and marketing and certain of its research and development and
administrative personnel, including its President and Chief Executive Officer
and other officers, are based in the United States. The geographic separation of
these operations places additional strain on the Company's resources and its
ability to effectively manage its growth. If the Company's management is unable
to manage growth effectively, the Company's business, operating results or
financial condition could be materially and adversely affected.

                                       13
<PAGE>

         DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a
significant degree upon the continuing contributions of its senior management.
The loss of key management personnel could delay product development cycles or
otherwise have a material adverse effect on the Company's business, operating
results or financial condition. There can be no assurance that the Company will
be able to retain the services of any of its key employees. The Company believes
that its future success will also depend in large part on its ability to attract
and retain highly-skilled engineering, managerial, sales and marketing
personnel, both in the United States and in Israel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in attracting, integrating and retaining such personnel. Failure to
attract and retain key personnel could have a material adverse effect on the
Company's business, operating results or financial condition.

         RELIANCE ON INTERNATIONAL SALES AND OPERATIONS; RELIANCE ON OPERATIONS
IN ISRAEL. The Company anticipates that international sales will continue to
represent a significant portion of total revenues. In addition, substantially
all of the Company's semiconductor products are manufactured, assembled and
tested outside of the United States by independent foundries and subcontractors.
The Company is subject to the risks of doing business internationally, including
unexpected changes in regulatory requirements, fluctuations in exchange rates,
imposition of tariffs and other barriers and restrictions and the burdens of
complying with a variety of foreign laws. The Company is also subject to general
geopolitical risks, such as political and economic instability and changes in
diplomatic and trade relationships, in connection with its international
operations.

         A substantial portion of the Company's research and development and
sales operations are located in the State of Israel. Therefore, the Company is
directly affected by the political, economic and military conditions to which
that country is subject. In addition, many of the Company's expenses in Israel
are paid in Israeli shekels, thereby subjecting the Company to the risk of
foreign currency fluctuations and to economic pressures resulting from Israel's
generally high rate of inflation. There can be no assurance that such factors
will not have a material adverse effect of the Company's business, operating
results or financial condition.

         VOLATILITY OF STOCK PRICE. The market price of the Company's Common
Stock has fluctuated significantly since the Company's initial public offering
and is subject to material fluctuations in the future in response to
announcements concerning the Company or its competitors or customers, quarterly
variations in operating results, announcements of technological innovations, the
introduction of new products or changes in product pricing policies by the
Company or its competitors, proprietary rights or other litigation, changes in
analysts' earnings estimates, general conditions in the semiconductor industry,
developments in the financial markets and other factors. In addition, the stock
market has, from time to time, experienced extreme price and volume fluctuations
that have particularly affected the market prices for semiconductor companies or
technology companies generally and which have been unrelated to the operating
performance of the affected companies. Broad market fluctuations of this type
may adversely affect the future market price of the Common Stock.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company has an investment portfolio of securities that are
classified as "available-for-sale". These securities are subject to interest
rate risk and will fall in value if market interest rates increase. The Company
attempts to limit this exposure by investing primarily in short-term securities.
From time to time, the Company makes certain capital equipment or other
purchases denominated in foreign currencies. As a result, cash flows and
earnings are exposed to fluctuations in interest rates and foreign currency
exchange rates. The Company attempts to limit these exposures through
operational strategies and generally has not hedged currency exposures.

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Item 6.  Exhibits and Reports on Form 8-K

           (a)    Exhibits

                  10.35   Agreement for Purchase and Sale of Assets between the
                          Registrant and MGI Software Corp. dated June 15, 1999.

                   27     Financial Data Schedule.


             (b)  Reports on Form 8-K

                  No reports on Form 8-K were filed during the six months ended
                  June 30, 1999.

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                                   SIGNATURES


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


                             ZORAN CORPORATION





Date:  August 16, 1999        /s/  Levy Gerzberg
                             -----------------------------------
                             Levy Gerzberg
                             President
                             Chief Executive Officer

                              /s/  Karl Schneider
                             -----------------------------------
                             Karl Schneider
                             Vice President of Finance
                             Chief Financial Officer

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