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resources than the Company. The Company believes that its ability to compete
successfully depends upon a number of factors both within and outside of its
control, including product performance, product features, product availability,
price, quality, timing of new product introductions by the Company and its
competitors, the emergence of new graphics and PC standards, customer support,
and industry and general economic trends. There can be no assurance that the
Company will have the financial resources, technical expertise, or marketing,
distribution and support capabilities to compete successfully. The Company's
future success will be highly dependent upon the successful development and
introduction of new products that are responsive to market needs. There can be
no assurance that the Company will be able to successfully develop or market any
such products.
Customer Concentration
The Company expects a significant portion of its future sales to remain
concentrated within a limited number of strategic customers. This concentration
is also reflected in the Company's accounts receivable where greater than 50% of
the balance is held by three customers at September 30, 1997. There can be no
assurance that the Company will be able to retain its strategic customers or
that such customers will not otherwise cancel or reschedule orders, or in the
event of canceled orders, that such orders will be replaced by other sales. In
addition, sales to any particular customer may fluctuate significantly from
quarter to quarter. The occurrence of any such events could have a material
adverse effect on the Company's operating results.
Management of Growth; Dependence on Key Personnel
Since its inception, the Company has experienced significant growth in
the number of its employees and in the scope of its operating and financial
systems, resulting in increased responsibilities for the Company's management.
To manage future growth effectively, the Company will need to continue to
improve its operational, financial and management information systems,
procedures and controls, and expand, train, motivate, retain and manage its
employee base. There can be no assurance that the Company will be able to manage
its growth effectively, and failure to do so could have a material adverse
effect on the Company's operating results.
The Company's future success depends in part on the continued service of
its key engineering, sales, marketing and executive personnel, including highly
skilled semiconductor design personnel and software developers, and its ability
to identify and hire additional personnel. Competition for such personnel is
intense and there can be no assurance that the Company can retain and recruit
necessary personnel to operate its business and support its future growth. The
loss of key personnel could have a material adverse effect on the Company's
business and operating results. The Company does not maintain key man insurance
on any of its employees.
Importance of Intellectual Property; Litigation Involving Intellectual P
roperty
The Company's ability to compete will be affected by its ability to
protect its proprietary information. The Company has filed several United States
and foreign patent applications and to date has a number of issued United States
patents. The Company relies primarily on its trade secrets and technological
know-how in the conduct of its business. There can be no assurance that the
steps taken by the Company to protect its intellectual property will be adequate
to prevent misappropriation of its technology or that the Company's competitors
will not independently develop technologies that are substantially equivalent or
superior to the Company's technology. The semiconductor and software industries
are characterized by frequent claims and related litigation regarding patent and
other intellectual property rights. The Company has been and can be in the
future party to various claims of this nature. Although the ultimate outcome of
these matters is not presently determinable, management presently believes that
the resolution of all such pending matters will not have a material adverse
Page 20 of 24
effect on the Company's operating results. There can be no assurance that third
parties will not assert additional claims or initiate litigation against the
Company, its foundries, or its customers with respect to existing or future
products. In addition, the Company may initiate claims or litigation against
third parties for infringement of the Company's proprietary rights or to
determine the scope and validity of the proprietary rights of the Company or
others. Litigation by or against the Company has in the past, in the case of the
Brooktree Corporation ("Brooktree") litigation, resulted and could in the future
result in substantial expense to the Company and diversion of the efforts of the
Company's technical and management personnel, whether or not litigation is
determined in favor of the Company. In the event of litigation to determine the
validity of any third-party claims, such litigation could result in significant
expense to the Company and divert the efforts of the Company's technical and
management personnel, whether or not litigation is determined in favor of the
Company. In the event of an adverse result in any such litigation, the Company
could be required to pay substantial damages, cease the manufacture, use, sale,
offer for sale and importation of infringing products, expend significant
resources to develop or obtain non-infringing technology, discontinue the use of
certain processes or obtain licenses to the technology which is the subject of
the litigation. There can be no assurance that the Company would be successful
in such development or acquisition or that any such licenses, if available,
would be available on commercially reasonable terms, and any such development or
acquisition could require expenditures by the Company of substantial time and
other resources. Any such litigation or adverse result therefrom could have a
material adverse effect on the Company's operating results.
In October 1995, Brooktree filed a complaint against the Company in the
United States District Court for the Southern District of California, alleging
that the Company's current products infringe a Brooktree patent. Such a lawsuit
resulted in substantial expense to the Company to defend the action and diverted
the efforts of the Company's technical and management personnel. In August 1996,
the Company and Brooktree entered into a settlement and license agreement
pursuant to which all claims and counterclaims between the parties were
dismissed and the Company agreed to pay to Brooktree a license fee and royalties
related to certain product revenues over a five-year period. |
