Excerpts from AVNT 10-Q:
As discussed in the notes to the consolidated financial statements and Item 1 of Part II, the Company is involved in litigation with Cadence Design Systems, Inc., and other related actions (collectively "the Cadence litigation"). As a result of the Cadence litigation, some customers may cancel or postpone orders of the Company's products. As of March 31, 1997, there had not been a material financial impact on the Company's revenues as a result of the Cadence litigation; however
significant order delays or cancellations in the future may impact the Company's business, financial condition and results of operations.
The Company expects to incur significant legal expenses in the future in connection with the Cadence litigation.
Quarterly Results
The Company's quarterly results have varied in the past and may be subject to fluctuations resulting from a variety of factors, including the outcome of outstanding litigation, purchasing patterns of customers, the completion of product evaluations by customers, the timing of product enhancements and product introductions by the Company and its competitors and the timing of significant orders.
The customer evaluation process for the Company's products is lengthy, and the timing and outcome of such evaluations have affected the Company's historical quarterly performance and may
impact future quarterly results.
Due to the factors noted above, the Company's future earnings and stock price may be subject to significant volatility, particularly on a quarterly basis. Any shortfall in revenues or earnings from levels
expected by securities analysts could have an immediate and significant adverse effect on the trading price of the Company's common stock. Additionally, the Company may not learn of such shortfalls until late in a fiscal quarter, which could result in an even more immediate and adverse effect on the trading price of the Company's common stock.
Based on its operating plan, and absent any adverse judgments in the pending Cadence litigation, the Company believes that it has available cash and short-term investments sufficient to fund the Company's operations for at least the next twelve months.
Factors That May Affect Future Operations
On December 6, 1995, Cadence filed an action against the Company and certain of its officers in the Northern California United States District Court alleging copyright infringement, unfair competition, misappropriation of trade secrets, conspiracy, breach of contract, inducing breach of contract and false advertising. In addition to actual and punitive damages, which were not quantified by Cadence, Cadence seeks to enjoin the sale of certain place and route products. On March 18, 1997, the Northern California United States District Court denied Cadence's motion to obtain a preliminary injunction that would have prohibited the production and sale of Avant!'s ArcCell,
ArcCell XO, Aquarius XO and Aquarius XO 2.0 products or any other product that Avant! is currently selling. The matter is currently awaiting trial, pending further pretrial matters. A trial date
has not been set. Avant! has filed a counterclaim alleging antitrust violations, racketeering, false advertising, defamation, trade libel, unfair competition, unfair trade practices, negligent and
intentional interference with prospective economic advantage and intentional interference with contractual relations.
The Santa Clara County District Attorney's office is also investigating the allegations of misappropriation of trade secrets set forth in Cadence's lawsuit and filed a criminal complaint against
the Company and six employees on April 11, 1997. The Company and the individuals have pleaded not guilty and are awaiting further proceedings. The criminal complaint may result in canceled or
postponed customer orders, increased future expenditures, loss of certain key employees and could have other material adverse effects on the Company.
Obviously these are some of the negative points in the 10-Q that management is discussing, and there are some positive points to look at too.
Management makes some things clear, the company is going to be booking
tremendous legal expenses, and the outcome could dramatically affect
the share price, orders, and the "loss of key employees". I assume they are referring to the chance they will serve time, as oppossed to
just leaving the company.
From my viewpoint, I am paying more attention to the criminal actions by the state of California, than the Cadence suit. The loss of key employees and a criminal conviction will do more to a company than the
civil suit in regards to its ability to operate. The civil suit will be appealed and the company will continue.
The criminal charges also would be appealed most likely, but, the damage done to the company will be close to terminal. It will be tough to sell product in the marketplace. |
