AVANT CORP, 10-Q, 1997-11-14

AVANT CORP
10-Q, 1997-11-14
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 1997

[ ] 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 0-25864

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

Delaware 94-3133226
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

46871 Bayside Parkway
Fremont, California 94538
(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: (510) 413-8000

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.
[x] Yes [ ] No

The number of shares outstanding of the registrant's common stock as of November
3, 1997 was 26,651,512.

<PAGE>

<TABLE>
AVANT! CORPORATION

FORM 10-Q

September 30, 1997

INDEX
<CAPTION>
PART 1. FINANCIAL INFORMATION Page
----
<S> <C> <C>
Item 1. Financial Statements

Consolidated Balance Sheets as of September 30, 1997 and
December 31, 1996 1

Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 1997 and 1996 2

Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996 3

Notes to Consolidated Financial Statements 4

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

PART 2. OTHER INFORMATION

Item 1. Legal Proceedings 14

Item 2. Changes in Securities 16

Item 3. Defaults Upon Senior Securities 16

Item 4. Submission of Matters to a Vote of Security Holders 16

Item 5. Other Information 16

Item 6. Exhibits and Reports on Form 8-K 16

Signature Page 17

Exhibit Index 18
</TABLE>

<PAGE>

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

<TABLE>
AVANT! CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<CAPTION>
September 30, December 31,
1997 1996
------------ -----------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 73,565 $ 33,067
Short-term investments 24,205 84,256
Accounts receivable, net 25,487 13,321
Deferred income taxes 5,867 6,450
Prepaid income taxes -- 1,254
Other 12,412 7,892
---------- ----------
Total current assets 141,536 146,240

Equipment, furniture and fixtures, net 27,823 8,929
Deferred income taxes 17,423 62
Intangibles and other assets 15,875 872
---------- ----------
Total assets $ 202,657 $ 156,103
========== ==========

Liabilities and Shareholders' Equity
Current liabilities:
Current portion of capital lease obligations $ 4 $ 52
Accounts payable 6,918 1,716
Accrued compensation 8,622 5,867
Other accrued liabilities 13,519 8,162
Accrued income taxes 3,954 --
Current portion of technology acquisition payable 406 642
Deferred revenue 18,526 13,824
---------- ----------
Total current liabilities 51,949 30,263

Deferred rent 42 71
Other noncurrent liabilities -- 43
Technology acquisition payable, less current portion 497 903
---------- ----------
Total liabilities 52,488 31,280
---------- ----------

Commitments and contingencies

Shareholders' equity:
Series A convertible preferred stock, $.000l par value;
5,000 shares authorized; no shares issued and
outstanding in 1997 and 1996 -- --
Common stock, $.0001 par value; 75,000 and 50,000 shares authorized;
26,586 and 24,952 shares issued and outstanding
at September 30, 1997 and December 31, 1996, respectively 3 3
Additional paid-in capital 137,951 110,583
Deferred compensation (2,031) (2,820)
Net unrealized loss on short-term investments (28) (75)
Retained earnings 14,274 17,132
---------- ----------
Total shareholders' equity 150,169 124,823
---------- ----------
Total liabilities and shareholders' equity $ 202,657 $ 156,103
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>

1
<PAGE>
<TABLE>
AVANT! CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Software $ 28,301 $ 21,620 $ 77,669 $ 60,030
Services 10,334 6,308 26,663 17,263
----------- ---------- ---------- ----------
Total revenue 38,635 27,928 104,332 77,293
----------- ---------- ---------- ----------
Costs and expenses:
Costs of software 698 678 1,635 1,802
Costs of services 2,823 1,835 8,664 5,383
Selling and marketing 10,696 7,810 29,596 22,318
Research and development 7,218 5,538 19,690 15,133
General and administrative 4,293 4,022 11,618 10,609
Acquired in-process research
and development 41,186 300 41,186 300
Merger expenses -- 920 -- 920
----------- ---------- ---------- ----------
Total operating expenses 66,914 21,103 112,389 56,465
----------- ---------- ---------- ----------
Income (loss) from operations (28,279) 6,825 (8,057) 20,828
Interest income and other, net 1,289 1,057 3,592 3,100
----------- ---------- ---------- ----------
Income (loss) before income taxes (26,990) 7,882 (4,465) 23,928
Income tax expense (benefit) (9,716) 2,900 (1,607) 8,664
----------- ---------- ---------- ----------
Net income (loss) $ (17,274) $ 4,982 $ (2,858) $ 15,264
=========== ========== ========== ==========

Net income (loss) per common share $ (0.66) $ 0.18 $ (0.11) $ 0.57
=========== ========== ========== ==========
Weighted average number of
common and common equivalent
shares outstanding 26,054 27,125 25,616 26,621
=========== ========== ========== ==========
<FN>

See accompanying notes to consolidated financial statements.
</FN>
</TABLE>

<PAGE>
<TABLE>
AVANT! CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,858) $ 15,264
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 3,952 2,178
Gain on sale of securities -- 14
Amortization of capitalized software costs 49 70
Amortization of deferred compensation 789 320
Deferred income taxes (16,840) (1,409)
Deferred rent (29) (29)
Stock compensation expense (benefit) (123) 17
Stock issued for services -- 140
Acquired in-process research and development 41,186 --
Changes in operating assets and liabilities:
Accounts receivable, net (7,833) (5,762)
Prepaid income taxes and other assets (349) (5,736)
Accounts payable (14,794) 453
Accrued compensation (563) 722
Accrued income taxes 3,766 (553)
Other accrued liabilities (1,063) 2,611
Deferred revenue (756) 2,085
------------ ----------
Net cash provided by operating activities 4,534 10,385
------------ ----------
Cash flows from investing activities:
Purchases of short-term investments (59,277) (177,335)
Maturities and sales of short-term investments 119,375 134,656
Purchases of equipment, furniture and fixtures (18,405) (4,532)
Payment for purchase of Compass Design Automation,
net of cash acquired (12,985) --
------------ ----------
Net cash provided by (used in) investing activities 28,708 (47,211)
------------ ----------
Cash flows from financing activities:
Principal payments under capital lease obligations (48) (104)
Payments on technology acquisition payable (642) (783)
Exercise of stock options 6,116 3,898
Shareholder distribution -- (1,754)
Issuance of common stock under employee stock purchase plan 1,830 630
------------ ----------
Net cash provided by financing activities 7,256 1,887
------------ ----------
Net increase (decrease) in cash and cash equivalents 40,498 (34,939)
Cash and cash equivalents, beginning of period 33,067 50,010
------------ ----------
Cash and cash equivalents, end of period $ 73,565 $ 15,071
============ ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
AVANT! CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. BASIS OF PRESENTATION

The unaudited consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated. The consolidated financial statements
have been restated to reflect the effect of the mergers with Anagram, Inc.
(Anagram), Meta-Software Inc. (Meta) and FrontLine Design Automation, Inc.
(FrontLine) discussed in Note 4. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of financial position and results of operations have been made.
Operating results for interim periods are not necessarily indicative of results
which may be expected for a full year. The information included in this Form
10-Q should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the 1996 consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-K filed with the Securities and Exchange Commission (SEC) and Form
S-3 as declared effective by the SEC on January 31, 1997.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Certain financial statement items
have been reclassified to conform to the current period's format.

These notes to the consolidated financial statements contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein.

2. NET INCOME (LOSS) PER SHARE

Net income (loss) per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during each period
presented. Common stock equivalents consist of stock options and awards (using
the treasury stock method).

3. STATEMENTS OF CASH FLOWS

Income taxes of $7,550,000 and $10,946,000 were paid for the nine months
ended September 30, 1997 and 1996, respectively. Interest of $112,000 and $9,000
was paid for the nine months ended September 30, 1997 and 1996, respectively. An
income tax benefit attributable to employee stock plans of $2,045,000 and
$3,345,000 was credited to equity for the nine months ended September 30, 1997
and 1996, respectively, which is included in the change in accrued income taxes
and change in prepaid income taxes and other assets. Noncash investing
activities includes 522,192 shares ($17,500,000) of common stock issued in
connection with the Compass Design Automation, Inc. (Compass) acquisition for
the nine months ended September 30, 1997. Noncash financing activities includes
$538,000 of vested stock appreciation rights liability converted to capital upon
exercise of stock options for the nine months ended September 30, 1996.

4. MERGERS

On September 7, 1997, Avant! entered into a definitive agreement to acquire
Technology Modeling Associates, Inc. (TMA). The agreement provides that Avant!
will issue shares of Avant! common stock in exchange for all outstanding TMA
equity. Total value of the deal is approximately $150 million. The proposed
merger transaction is structured as a tax-free reorganization and will be
accounted for as a pooling of interests and is expected to close in the fourth
quarter of 1997. The closing of the merger is subject to regulatory and
stockholder approval, the availability of pooling-of-interests accounting
treatment, and other customary closing conditions.

On September 12, 1997, Avant! acquired Compass Design Automation, Inc.
(Compass), a subsidiary of VLSI Technology, Inc., in exchange for $17,500,000
cash, 522,192 shares of its common stock (valued at $17,500,000), and costs of
acquisition of $4,948,000. The net purchase price of $39,948,000 was allocated
as follows: $6,701,000 to current assets; $4,441,000 to property, plant and
equipment; $41,186,000 to in-process research and development; $14,822,000 as
goodwill and other identifiable intangibles and $27,202,000 to assumed
liabilities.

On November 27, 1996, the Company issued approximately 1,812,000 shares of
its common stock for all of the outstanding common stock of FrontLine and
assumed approximately 410,000 warrants and stock options under option plans.

4
<PAGE>

On October 29, 1996, the Company issued approximately 4,471,000 shares of
Avant! common stock for all of the outstanding common stock of Meta, and assumed
approximately 608,000 stock options and subscriptions under option and purchase
plans.

On September 27, 1996, the Company issued approximately 2,154,000 shares of
its common stock for all of the outstanding common and preferred stock of
Anagram, and assumed approximately 260,000 stock options under various option
plans.

The Compass acquisition described above was accounted for using the purchase
method of accounting. The FrontLine, Meta and Anagram mergers described above
have been accounted for as poolings of interests and, accordingly, the Company's
consolidated financial statements have been restated for all periods prior to
the mergers to include the results of operations, financial position and cash
flows of FrontLine, Meta and Anagram.

5. LITIGATION

The Company is involved in various litigation matters as discussed below as
well as in Item 1 of Part 2 of this Form 10-Q. The Company has charged to
expenses approximately $5,475,000 and $4,500,000 (net of expected recoveries
from insurance) in litigation expenses during the nine months ended September
30, 1997 and 1996, respectively.

Cadence Litigation.

On December 6, 1995, Cadence Design Systems, Inc. (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. The essence of the complaint
is that certain Avant! employees who were formerly Cadence employees allegedly
misappropriated and improperly copied source code for certain important
functions of Avant! place and route products from Cadence, and that the Company
has allegedly competed unfairly by making false statements concerning Cadence
and its products. The action also alleges that the Company induced certain
individual defendants to breach their agreements of employment and
confidentiality with Cadence. The matter is currently awaiting trial, pending
further pretrial matters. A trial date has not been set. Cadence appealed the
order denying a preliminary injunction. On July 25, 1997, the District Court
stayed the civil action pending completion of the criminal proceedings described
below, except for certain documentary and third-party discovery. Avant! posted a
$5 million bond pending the resumption of the civil action.

In addition to actual and punitive damages, which were not quantified by
Cadence, Cadence seeks to enjoin the sale of Avant!'s place and route products
pending trial of the action. On March 18, 1997, the District Court denied
Cadence's motion for a preliminary injunction. On September 23, 1997, the United
States Court of Appeals for the Ninth Circuit overruled the District Court's
denial of Cadence's motion with respect to Avant!'s ArcCell product and held
that a preliminary injunction should be granted against the further sale of the
ArcCell product. The Court of Appeals did not enjoin Avant!'s Aquarius place and
route products, but rather remanded this aspect of Cadence's motion to the
District Court for further consideration. The Court of Appeals stated that, if
Avant's Aquarius products infringe Cadence products , the sale of Aquarius
products should be enjoined. There can be no assurance that the district court
will not, on reconsideration, grant a preliminary injunction with respect to the
sale of the Aquarius products. A date for further hearing in the District Court
has not been set.

On January 16, 1996, Avant! filed a counterclaim against Cadence 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.

Avant! believes it has defenses to all of Cadence's claims and intends to
defend itself vigorously. If, however, Avant!'s defenses are unsuccessful,
Avant! may ultimately be permanently enjoined from selling certain place and
route products and may be required to pay damages to Cadence. In addition, upon
remand and further consideration by the district court, Avant! could be
preliminarily enjoined from selling its Aquarius place and route products. In
such event, Avant!'s business, operating results and financial condition may be
materially adversely affected. In addition, it is likely that an adverse
judgment against Avant! would result in a steep decline in the market price of
Avant! Common Stock. Although it is reasonably possible Avant! may incur a loss
upon conclusion of these claims, an estimate of any loss or range of loss cannot
be made, based on information Avant! presently possesses. There can be no
assurance that Avant!'s customer relationships will not be adversely affected in
the future as a result of the Cadence litigation.

5
<PAGE>

Criminal Complaint.

The Santa Clara County District Attorney's office is also investigating the
allegations of misappropriation of trade secrets set forth in Cadence's lawsuit,
described above. On April 11, 1997, the Santa Clara County District Attorney
filed a criminal complaint alleging felony level offenses against, among others,
the Company, Gerald C. Hsu, President, Chief Executive Officer and Chairman of
the Board of Directors, Y. Eric Cho, a member of the Board of Directors, Y. Z.
Liao, Vice President, and three other employees of the Company for allegedly
violating various California Penal Code Sections relating to the theft of trade
secrets. The Company and the individuals above have pleaded not guilty and are
awaiting further proceedings. The criminal complaint could result in criminal
fines against Avant!, as well as the potential incarceration of certain members
of its management team. Such outcomes could result in canceled or postponed
orders, increased future expenditures, the loss of management and other key
personnel, additional shareholder litigation, loss of goodwill and would have
other material adverse effects on the business, results of operations and
financial condition of the company.

Silvaco Litigation.

In March 1993, Meta Software, Inc., which Avant! acquired in October 1996
and which is now a wholly owned subsidiary of Avant! ("Meta"), filed a complaint
in Santa Clara Superior Court against Silvaco Data Systems, Inc. and related
parties (collectively, "Silvaco") seeking monetary damages and injunctive
relief. Meta's complaint alleged, among other things, that Silvaco breached its
representative agreement with Meta by withholding customer payments for products
and services that had been delivered, and by failing to pay royalties on
software that Silvaco sold to others. In August 1995, Meta was awarded $529,828
under the Superior Court's judicial arbitration program. Both parties rejected
the award and requested a trial de novo on the issues involved. In August 1995,
Silvaco filed a cross-complaint against Meta alleging, among other things, that
Meta owes Silvaco royalties and license fees pursuant to a product development
and marketing program and unpaid commissions related to Silvaco's sale of Meta's
products and services under such program. Meta filed an answer to the
cross-complaint denying the allegations contained therein. In July 1997, Silvaco
filed a first amended cross-complaint, adding Shawn Hailey, then the President,
Chief Executive Officer and a major shareholder of Meta, and, until July 19967,
the Senior Vice President of Avant!'s Silicon Division, as a personal defendant,
and further alleging defamation, interference with economic advantage, unfair
competition and abuse of process by acts or statements made by Meta or its
agents.

In August 1996, the Superior Court entered a default judgment against Mr.
Hailey as to the defamation and interference with economic advantage claims for
failure to answer the complaint. In October 1997, Mr. Hailey's application for
relief from the default judgment was denied. In August 1997, the Superior Court
entered a default judgment against Meta as to the defamation and interference
with economic advantage claims. On October 31, 1997, Meta's application for
relief from the default judgment was denied. On October 28, 1997, Silvaco first
presented their theory of damages and a trial began on November 3, 1997. On
November 4, 1997, the Superior Court dismissed Meta's remaining affirmative
claims. On November 5, 1997, the Superior Court awarded Silvaco $20 million in
damages against Mr. Hailey and Meta related to the defamation and interference
with economic advantage claims, and on November 6, 1997, the Superior Court
awarded Silvaco $11.4 million in damages related to the unfair competition claim
and claims related to product development and marketing program. On November 12,
1997, the Superior Court awarded nominal damages to Silvaco related to the
August 1995 cross-complaint.

Meta intends to pursue all remedies available to it in connection with the
litigation with Silvaco, including filing an appeal as quickly as practicable.
Meta believes it has substantial appellate issues which could cause the judgment
to be remanded to the trial court for further proceedings. Should Meta be
permitted to participate fully in further trial court proceedings, Meta believes
it would have substantial defenses to Silvaco's claims. However, there can be no
assurance that any such remedies will be successful. Although it is reasonably
possible Meta will incur a loss in relation to this claim, it is currently
unable to estimate the actual loss or range of loss. However, payment of the
damages previously awarded, and damages which may be awarded in the future,
would have a material adverse effect on Avant!'s, consolidated financial
condition and consolidated results of operations.

Securities Class Action Claims.

On December 15, 1995, Paul Margetis and Helen Margetis filed in the United
States District Court for the Northern District of California a securities fraud
class action complaint against Avant!. In addition, on December 19, 1995, Fred
Tarca filed in the United States District Court for the Northern District of
California a class action complaint against Avant! for violations of the federal
securities laws. These class action lawsuits allege certain securities law
violations, including omissions and/or misrepresentation of material facts. The
alleged omissions and/or misrepresentations are largely consistent with those
outlined in the Cadence claim, described above. In February 1997, plaintiff
Tarca voluntarily dismissed his action and the Margetis plaintiffs were
certified as class representatives in their action. On July

6
<PAGE>
25, 1997, a federal judge stayed the Margetis action, except for certain
documentary and third-party discovery, pending resolution of the Cadence suit.

On May 30, 1997, Joanne Hoffman filed in the United States District Court
for the Northern District of California a purported class action alleging
securities claims on behalf of purchasers of Avant! stock between March 29, 1996
and April 11, 1997, the date of the filing of the criminal complaints against
Avant! and various of its officers. Plaintiff alleges that the Company and
various of its officers misled the market as to the likelihood of criminal
charges being filed and as to the validity of the Cadence allegations. The
Company has moved to dismiss the Hoffman complaint for failure to state a claim,
but the court has not yet heard argument on that motion.

The Company believes it has defenses to all of the plaintiffs' claims and
intends to defend itself vigorously. There can be no assurance, however, that
Avant!'s defenses will be successful. In the event Avant!'s defenses are
unsuccessful, Avant! may be required to pay damages to the securities class
action plaintiffs, and such a judgment would likely have a material adverse
effect on Avant!'s business, operating results and financial condition.

The Company is subject to other claims that have arisen in the ordinary
course of business. In the opinion of management, all such matters are without
merit or involve amounts that would not have a material adverse effect on the
Company's consolidated financial position if unfavorably resolved.

6. RECENT PRONOUNCEMENTS

The Financial Accounting Standards Board (FASB) recently issued Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. SFAS No. 128
requires the presentation of basic earnings per share ("EPS") and, for companies
with complex capital structures, diluted EPS. SFAS No. 128 is effective for
annual and interim periods ending after December 15, 1997. The Company expects
that basic EPS will be higher than earnings per share as presented in the
accompanying consolidated financial statements and the diluted EPS and per share
amounts relating to loss periods will not differ materially from earnings per
share as presented in the accompanying consolidated financial statements.

In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
This Statement establishes standards for reporting and displaying comprehensive
income and its components in the consolidated financial statements. It does not,
however, require a specific format for the statement, but requires the Company
to display an amount representing total comprehensive income for the period in
that financial statement. The Company is in the process of determining its
preferred format. This Statement is effective for fiscal years beginning after
December 15, 1997.

In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. The Statement establishes standards for the
way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to report
selected information about operating segments in interim financial reports
issued to shareholders. This Statement is effective for financial statements for
periods beginning after December 31, 1997. The Company does not believe it has
any separately reportable business segments.

On October 27, 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2, which supersedes SOP 91-1, Software Revenue
Recognition. The adoption of the provisions of SOP 97-2 is not expected to have
a material effect on the Company's consolidated results of operations. The
Company intends to adopt the provisions of SOP 97-2 effective for transactions
entered into after September 30, 1997.

7
<PAGE>

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

The discussion in this Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in "Quarterly Results" and "Factors That May Impact
Future Operations" as well as those discussed in this section and elsewhere in
this Form 10-Q, and the risks discussed in the "Risk Factors" section included
in the Company's Registration Statement on Form S-1 as declared effective by the
Securities and Exchange Commission on June 6, 1995 (Reg. No. 33-91128), the
Registration Statements on Form S-4 as declared effective by the Securities and
Exchange Commission on October 23, 1995 (Reg. No. 33-96648) and on September 30,
1996 (Reg. No. 333-11659), the Registration Statement on Form S-3 as declared
effective by the SEC on January 31, 1997, and other risks detailed from time to
time in the Company's Securities and Exchange Commission reports, including the
report on Form 10-K for the year ended December 31, 1996.

Overview

Avant! Corporation, (the Company) develops, markets and supports software
products that assist design engineers in the physical layout, design,
verification, simulation and timing analysis of advanced integrated circuits
(ICs). The Company's strategy is to focus on productivity enhancing software for
the integrated circuit design automation (ICDA) segment of the electronic design
automation (EDA) market.

Effective September 27, 1996, October 29, 1996, and November 27, 1996, the
Company merged with Anagram, Meta, and FrontLine, respectively. These mergers
have been accounted for by the pooling-of-interests method, and accordingly, the
Company's consolidated financial statements give retroactive effect for all
periods presented to include the results of operations, financial positions, and
cash flows of Anagram, Meta, and FrontLine. Effective September 12, 1997, the
Company acquired Compass Design Automation, Inc. (Compass). The acquisition has
been accounted for by the purchase method, and accordingly, the Company's
consolidated financial statements do not include the results of operations,
financial positions and cash flows of Compass prior to September 12, 1997.

The Company began shipping Hercules (formerly VeriCheck), its hierarchical
physical verification software, in 1992, and, Aquarius (formerly ArcCell), its
cell-based place and route software product, in 1993. Anagram was founded in
March 1993, and began shipping Star-Sim, its high-capacity circuit simulation
and high-accuracy timing analysis software, in December 1994. Meta was founded
in 1980, when it introduced its simulation and library software products
including Star-Hspice. FrontLine was founded in 1993. Substantially all of the
Company's revenue for the nine months ended September 30, 1997 and 1996 was
derived from the licensing and support of Aquarius, Hercules, Star-Sim and
Star-Hspice.

8
<PAGE>

Results of Operations

<TABLE>
The following table sets forth the percentage of total revenue for certain
items in the Company's Consolidated Financial Statements (after giving effect to
rounding) for the periods indicated:
<CAPTION>

Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Percentage of total revenue
Software................................................ 74 77 74 78
Services................................................ 26 23 26 22
----- ---- ---- ----
Total revenue....................................... 100% 100% 100% 100%

Costs and expenses:
Costs of software....................................... 2 3 2 2
Costs of services....................................... 7 7 8 7
Selling and marketing................................... 28 28 28 29
Research and development................................ 19 20 19 20
General and administrative.............................. 11 14 11 14
Acquired In-process research and development............ 106 1 39 1
Merger expenses......................................... -- 3 -- 1
----- ---- ---- ----
Total operating expenses............................. 173 76 108 73
----- ---- ---- ----
Income (loss) from operations........................ (73) 24 (8) 27
Interest income and other, net ........................... 3 4 3 4
----- ---- ---- ----
Income (loss) before income taxes.................... (70) 28 (4) 31
Income tax expense (benefit) ............................. (25) 10 (1) 11
----- ---- ---- ----
Net income (loss) ................................... (45)% 18% (3)% 20%
===== ==== ==== ====
</TABLE>

Comparison of Three and Nine Months Ended September 30, 1997 and 1996

Revenue. Revenue consists primarily of fees for licenses of the
Company's software products, maintenance and customer support. Revenue from the
sale of software licenses is recognized after shipment of the products, delivery
of permanent authorization codes and fulfillment of acceptance terms, if any,
providing that no significant vendor and post-contract support obligations
remain and collection of the related receivable is probable. Any remaining
insignificant vendor or post-contract support obligations are accrued at the
time the revenue is recognized. In instances where there is a contingency
regarding the sale, revenue recognition is delayed until the contingency has
been resolved. When the Company receives advance payment for software products,
such payments are reported as deferred revenue until all conditions for revenue
recognition are met. The Company has entered into certain license agreements
under which software, support and other services are provided to a customer for
a bundled price for a specific period. Generally, revenue under such agreements
is recognized ratably over the contract period. Maintenance revenue is deferred
and recognized ratably over the term of the maintenance agreement, which is
typically twelve months. Revenue from customer training, support and other
services is recognized as the service is performed.

The Company's total revenue increased 38% to $38,635,000 for the three
months ended September 30, 1997 from $27,928,000 for the three months ended
September 30, 1996. The percentage of the Company's total revenue attributable
to software licenses decreased to 74% for the three months ended September 30,
1997 from 77% for the three months ended September 30, 1996. The Company's total
revenue increased 35% to $104,332,000 for the nine months ended September 30,
1997 from $77,293,000 for the nine months ended 1996. The percentage of the
Company's total revenue attributable to software licenses decreased to 74% for
the nine months ended September 30, 1997 from 78% for the nine months ended
September 30, 1996. The decrease in software license as a percentage of total
revenue, for both the three and nine months ended September 30, 1997, is
primarily due to the increased user base and resulting increase in service and
maintenance revenue. Increases in total revenue, for both the three and nine
months ended September 30, 1997, were due primarily to increased license revenue
from the Company's place and route, physical verification and analysis software.
To date, price increases have not been a material factor in the Company's
revenue growth. Software revenue increased 31% to $28,301,000 for the three
months ended September 30, 1997 from $21,620,000 for the three months ended
September 30, 1996. Software revenue increased 30% to $77,669,000 for the nine
months ended September 30, 1997 from $60,030,000 for the nine months ended
September 30, 1996. Revenue from services increased 64% to $10,334,000 for the
three months ended September 30, 1997 from $6,308,000 for the three months ended
September 30, 1996. Revenue from services increased 54% to $26,663,000 for the
nine months ended September 30, 1997 from

9
<PAGE>

$17,263,000 for the nine months ended September 30, 1996. The increase in
services reflects the growing base of installed systems.

As discussed in the notes to the consolidated financial statements and Item
1 of Part 2, the Company is involved in litigation with Cadence Design Systems,
Inc., and other litigation issues. As a result of the Cadence litigation, some
customers may cancel or postpone orders of the Company's products. As of
September 30, 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.

On September 23, 1997, the United States Court of Appeals for the Ninth
Circuit overruled the district court's denial of Cadence's motion with respect
to Avant!'s ArcCell product and held that a preliminary injunction should be
granted against the further sale of the ArcCell product. The Company stopped
selling the ArcCell product in June 1996 and no longer supports the ArcCell
product. The Court of Appeals did not enjoin Avant!'s Aquarius place and route
products, but rather remanded this aspect of Cadence's motion to the district
court for further consideration. The Court of Appeals stated that, if Avant's
Aquarius products infringe Cadence products , the sale of Aquarius products
should be enjoined. There can be no assurance that the district court will not,
on reconsideration, grant a preliminary injunction with respect to the sale of
the Aquarius products. An injunction, with respect to the Aquarius products, if
granted, could have a material adverse effect in the Company's business,
financial position, and results of operation.

Costs of Software. Costs of software consist primarily of expenses
associated with product documentation and production costs as well as
amortization of capitalized software costs and other intangibles. Costs of
software increased to $698,000 from $678,000 for the three months ended
September 30, 1997 and 1996, respectively. As a percentage of software revenue,
costs of software decreased to 2% from 3% for the three months ended September
30, 1997 and 1996, respectively. Costs of software as a percentage of software
revenue decreased due to higher revenue growth. Costs of software decreased to
$1,635,000 from $1,802,000 for the nine months ended September 30, 1997 and
1996, respectively. Costs of software, decreased to 2% from 3% as a percentage
of software revenue for the nine months ended September 30, 1997 and 1996,
respectively. Costs of software decreased in the first nine months of 1997 due
to a major product launch in 1996.

Costs of Services. Costs of services consist of costs of maintenance and
customer support, and direct costs associated with providing other services.
Maintenance includes activities undertaken after the product is available for
general release to customers to correct errors, make routine changes and provide
additional features. Customer support includes any installation assistance,
training classes, telephone question and answer services, newsletters, on-site
visits and software or data modifications. Costs of services increased to
$2,823,000 from $1,835,000 for the three months ended September 30, 1997 and
1996, respectively. Costs of services as a percentage of services revenue
decreased to 27% from 29% for the three months ended September 30, 1997 and
1996. Costs of service increased to $8,664,000 from $5,383,000 the first nine
months of September 30, 1997 and 1996, respectively. Costs of services as a
percentage of services revenue increased to 32% from 31% for the nine months
ended September 30, 1997 and 1996, respectively. The increase in costs of
service for the first nine months is due to the increase in personnel and
expenses necessary to support the Company's growing base of installed software
and customers.

Selling and Marketing Expenses. Selling and marketing expenses consist
primarily of costs, including sales commissions, of all personnel involved in
the sales process. This includes sales representatives, marketing associates,
benchmarking personnel and field application engineers. Selling and marketing
expenses also include costs of advertising, public relations, conferences and
trade shows. Selling and marketing expenses increased to $10,696,000 from
$7,810,000 for the three months ended September 30, 1997 and 1996, respectively.
As a percentage of total revenue, selling and marketing expenses remained at 28%
for the three months ended September 30, 1997 and 1996, respectively. The
increase in selling and marketing costs was due primarily to personnel increases
in domestic sales and field support and increases in distributor commissions
associated with increased sales. Selling and marketing expenses increased to
$29,596,000 from $22,318,000 for the nine months ended September 30, 1997 and
1996, respectively. As a percentage of total revenue, selling and marketing
expenses decreased to 28% from 29% for the nine months ended September 30, 1997
and 1996, respectively. The increase in selling and marketing costs reflects
significant increases in sales personnel, new sales offices, increase in
marketing advertising and increased foreign sales commission due to higher
revenue growth. As a percentage of revenue, selling and marketing expenses have
dropped, due to a more rapid growth rate in revenue.

Research and Development Expenses. Research and development expenses
include all costs associated with the development of new products and
significant enhancement of existing products. Research and development expenses
increased to $7,218,000 from $5,538,000 for the three months ended September 30,
1997 and 1996, respectively. Research and development expenses decreased to 19%
from 20% of total revenue for the three months ended September 30, 1997 and
1996, respectively. Research and development expenses increased to $19,690,000
from $15,133,000 for

10
<PAGE>

the nine months ended September 30, 1997 and 1996, respectively. Research and
development expenses as a percentage of total revenue decreased to 19% from 20%
for the nine months ended September 30, 1997 and 1996, respectively. The
increases in expenses, for both the three months and nine months ended September
30, 1997, resulted from increased personnel-related costs associated with the
development of new products and enhancement of existing products. The decrease
in research and development, as a percentage of revenue, for both the three
months and nine months ended September 30, 1997, were due to a higher growth
rate in revenue. No software development costs were capitalized for the nine
months ended September 30, 1997 and 1996. The Company currently does not
capitalize software development costs, primarily because achievement of
technological feasibility is typically concurrent with general release.

General and Administrative Expenses. General and administrative expenses
increased to $4,293,000 from $4,022,000 for the three months ended September 30,
1997 and 1996, respectively. As a percentage of total revenue, general and
administrative expenses decreased to 11% from 14% for the three months ended
September 30, 1997 and 1996, respectively. General and administrative expenses
increased to $11,618,000 from $10,609,000 for the nine months ended September
30, 1997 and 1996, respectively. The increase for the three months and nine
months ended September 30, 1997, was primarily due to increases in legal and
personnel costs. As a percentage of total revenue, general and administrative
expenses decreased to 11% from 14% for the first nine months ended September 30,
1997 and 1996, respectively. The Company expects to incur significant legal
expenses in the future as a result of the current litigation issues.

Acquired in-process research and development. In September 1997, the
Company acquired Compass. In connection with the acquisition, net intangibles of
$56,008,000 were acquired, of which $41,186,000 was expensed as acquired
in-process research and development. It was expensed since it had not reached
technological feasibility and, in management's opinion, had no probable
alternative future use. In 1996, the Company acquired rights to certain software
technology under development. As the acquired software had not reached
technological feasibility at the date of acquisition, it was expensed upon
acquisition.

Merger expenses. The Company incurred $920,000 of costs in connection with
the merger with Anagram in September 1996.

Interest Income and Other, Net. Interest income and other increased to
$1,289,000 from $1,057,000 for the three months ended September 30, 1997 and
1996, respectively. Interest income and other increased to $3,592,000 from
$3,100,000 for the nine months ended September 30, 1997 and 1996, respectively.
Most of the increase relates to interest on higher cash and investment balances.

Income Tax Expense (Benefit). The Company accounts for income taxes in
accordance with SFAS No. 109. For the three months ended September 30, 1997, the
Company accrued an income tax benefit of $9,716,000. For the three months ended
September 30, 1996, the Company accrued an income tax expense of $2,900,000. The
income tax benefit as a percentage of pre-tax loss was 36% for the three months
ended September 30, 1997. The income tax expense as a percentage of pre-tax
income was 36% for the three months ended September 30, 1996. For the nine
months ended September 30, 1997, the Company accrued an income tax benefit of
$1,607,000. For the nine months ended September 30, 1996, the Company accrued an
income tax expense of $8,664,000. The income tax benefit as a percentage of
pre-tax loss was 36% for the nine months ended September 30, 1997 and the
expense was 36% as a percentage of pre-tax income for the nine months ended
September 30, 1996. As of September 30, 1997, the increase in deferred tax asset
relates to future tax benefits attributable to the compass acquired in-process
research and development.

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. A
substantial portion of the Company's revenue in each quarter results from orders
received in the same quarter. The Company's expense levels are based, in part,
on its expectations as to future revenue. The Company continues to expand and
increase its operating expenses in order to generate and support future revenue.
If revenue levels are below expectations, operating results are likely to be
disproportionately affected because only a small portion of the Company's
expenses varies with its revenue. As a result, the Company believes that period
to period comparison of financial results are not necessarily meaningful and
should not be relied upon as an indication of future performance.

11
<PAGE>
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.

Liquidity and Capital Resources

Net cash provided by operations was $4,534,000 and $10,385,000 for the nine
months ended September 30, 1997 and 1996, respectively. The Company's investing
activities provided $28,708,000 and used $47,211,000 of net cash for the nine
months ended September 30, 1997 and 1996, respectively. Net cash provided by,
(used by), investing activities relates primarily to net maturities (purchases)
of short-term "available-for-sale" securities, which were $60,098,000 for the
nine months ended September 30, 1997 and ($42,679,000) for the nine months ended
September 30, 1996. The securities, which are accounted for in accordance with
SFAS No. 115, consist of short-term debt securities, U.S. Government Agency debt
securities, U.S. Treasury Bills, municipal/corporate auction preferred stock,
municipal bonds, and demand deposit investments in limited maturity fixed income
mutual funds. Cash was also used for the purchase of Compass, purchase of
leasehold improvements for the Company's new headquarter facilities, along with
furniture and fixtures, including computer workstations and file servers, for
use by the Company's employees. The Company expects that purchases of equipment
will likely increase as the Company's employee base grows. Net cash provided by
financing activities was $7,256,000 and $1,887,000 for the nine months ended
September 30, 1997 and 1996, respectively. The financing activities for the nine
months ended September 30, 1997 and 1996 were primarily due to the exercise of
stock options and issuance of common stock under the employee stock purchase
plan.

The Company's stated payment terms generally are net 30 days. However, in
the Company's experience, many customers do not comply with stated payment terms
due to industry or local practice, slower payment by certain major companies and
most foreign customers, and general economic conditions. The Company
periodically increases its allowance for doubtful accounts to reflect increased
sales levels and collection experience. The Company believes that its allowance
for doubtful accounts is adequate.

As of September 30, 1997, the Company had $97,770,000 of cash and
short-term investments and $89,587,000 of working capital. As of September 30,
1997, there was no bank indebtedness outstanding and the Company had no
long-term commitments other than the technology acquisition payable and
operating and capital lease obligations.

Basedon 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. The essence of the complaint is that certain Avant! employees who
were formerly Cadence employees allegedly misappropriated and improperly copied
source code for certain important functions of Avant! place and route products
from Cadence, and that the Company has allegedly competed unfairly by making
false statements concerning Cadence and its products. The action also alleges
that the Company induced certain individual defendants to breach their
agreements of employment and confidentiality with Cadence. The matter is
currently awaiting trial, pending further pretrial matters. A trial date has not
been set. On July 25, 1997, the District Court stayed the civil action pending
completion of the criminal proceedings, except for certain documentary and
third-party discovery. Avant! posted a $5 million bond pending the resumption of
the civil action.

In addition to actual and punitive damages, which were not quantified by
Cadence, Cadence seeks to enjoin the sale of Avant!'s place and route products
pending trial of the action. On March 18, 1997, the District Court denied
Cadence's motion for a preliminary injunction. Cadence appealed the order
denying a preliminary injunction. On September 23, 1997, the United States Court
of Appeals for the Ninth Circuit overruled the District Court's denial of
Cadence's motion with respect to Avant!'s ArcCell product and held that a
preliminary injunction should be granted against the further sale of the ArcCell
product. The Court of Appeals did not enjoin Avant!'s Aquarius place and route
products, but rather remanded this aspect of Cadence's motion to the District
Court for further consideration.

12
<PAGE>

The Court of Appeals stated that, if Avant's Aquarius products infringe Cadence
products , the sale of Aquarius products should be enjoined. There can be no
assurance that the district court will not, on reconsideration, grant a
preliminary injunction with respect to the sale of the Aquarius products. A date
for further hearing in the District Court has not been set.

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.

The Company's products compete with similar products from both larger and
smaller EDA vendors, and with dissimilar EDA products for a share of their
customers' EDA budgets. The EDA industry, and as a result the Company's
business, has benefited from the rapid worldwide growth of the semiconductor
industry. There can be no assurance that this growth will continue. The EDA
industry as a whole may experience pricing and margin pressures from a decrease
in growth in the semiconductor industry, or other changes in the overall
computer industry. In addition, the EDA industry is experiencing consolidation
as the major EDA vendors are seeking to provide a complete range of EDA products
to customers. There can be no assurance that the Company will be able to compete
successfully against current and future competitors, or that market conditions
faced by the Company will not adversely affect its operating results and
financial condition.

The Company's future success depends upon its ability to improve current
products and develop new products that address the increasingly sophisticated
needs of its customers. There can be no assurance that the Company will continue
to successfully develop technologically acceptable products on a timely basis.
The Company's ability to develop and improve products is dependent on key
individuals for their technical and other contributions. There can be no
assurance that the Company can continue to attract and retain these key
personnel. Loss of certain key personnel could result in loss of the Company's
market advantage and could adversely affect its operating results and financial
condition.

(1) An injunction with respect to the Acquarius products, if granted, could
have a material adverse effect on the Company's business, financial
position, and results of operations.

(2) In March 1993, Meta Software, Inc. which Avant! acquired in October 1996
and which is now a wholly owned subsidiary of Avant! ("Meta"), filed a
complaint in Santa Clara Superior Court against Silvaco Data Systems, Inc.
and related parties (collectively, "Silvaco") seeking monetary damages and
injunctive relief. Meta's complaint alleged, among other things, that
Silvaco breached its representative agreement with Meta by withholding
customer payments for products and services that had been delivered, and by
failing to pay royalties on software that Silvaco sold to others. In August
1995, Silvaco filed a cross-complaint against Meta alleging, among other
things, that Meta owes Silvaco royalties and license fees pursuant to a
product development and marketing program and unpaid commissions related to
Silvaco's sale of Meta's products and services under such program. Meta
filed an answer to the cross-complaint denying the allegations contained
therein. In July 1996, Silvaco filed a first amended cross-complaint,
adding Shawn Haily, then the President, Chief Executive Officer and a major
shareholder of Meta, and, until July 1997, the Senior Vice President of
Avant!'s Silicon Division, as a personal defendant, and further alleging
defamation, interference with economic advantage, unfair competition and
abuse of process by acts or statements made by Meta or its agents.

In August 1996, the Superior Court entered a default judgement against Mr.
Hailey as to the defamation and interference with economic advantage claims
for failure to sanswer the complaint. In August 1997, the Superior Court
entered a default judgement against Meta as to the defamation and
interference with economic advantage claims. On November 5, 1997, the
Superior Court awarded Sikvaco $20 million in damages against Mr. Hailey
and Meta related to the defamation and interference with economic advantage
claims, and on November 6, 1997, the Superior Court awarded Sikvaco $11.4
million in damages related to the unfair competition claim and claims
related other product development and marketing program. On November 12,
1997, the Superior Court awarded nominal damages to Silvaco related to the
August 1995 cross-complaint.

The Company intends to pursue all remedies available to in in connection
with the litigation with Silvaco, including filing an appeal as quickly as
practicable. However, there can be no assurance that any such remedies will
be successful. Although it is reasonable possible Meta will incur a loss in
relation to this claim, it is currently unable to estimate the actual loss
or range of loss. However, payment of the damages previously awarded, and
damages which may be awarded in the future, sould have a material adverse
effect on Avant!'s business, consolidated financial condition and
consolidated results of operation.

13
<PAGE>
PART 2. OTHER INFORMATION

Item 1. Legal Proceedings

Cadence Litigation.

Criminal Complaint.

14
<PAGE>
Silvaco Litigation.

Meta intends to pursue all remedies available to it in connection with the
litigation with Silvaco, including filing an appeal as quickly as practicable.
Meta believes it has substantial appellate issues which could cause the judgment
to be remanded to the trial court for further proceedings. Should Meta be
permitted to participate fully in further trial court proceedings, Meta believes
it would have substantial defenses to Silvaco's claims. However, there can be no
assurance that any such remedies will be successful. Although it is reasonably
possible Meta will incur a loss in relation to this claim, it is currently
unable to estimate the actual loss or range of loss. However, payment of the
damages previously awarded, and damages which may be awarded in the future,
would have a material adverse effect on Avant!'s consolidated financial
condition and consolidated results of operations.

Securities Class Action Claims.

15
<PAGE>

Item 2. Changes in Securities

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

The exhibits filed as part of this Quarterly Report on Form 10-Q are
listed on the Exhibit Index immediately preceding such exhibits and are
incorporated herein by reference.

(b) Reports on Form 8-K

The Company filed a report on Form 8-K, under items 2 and 7, dated
September 26, 1997. Pursuant to this report, the Company announced the
completion of its merger with Compass Design Automation, Inc. and filed
as an exhibit, the Agreement and Plan of Reorganization dated July 31,
1997 as amended on August 27, 1997.

The Company filed a report on Form 8-K, under items 5 and 7, dated
September 10, 1997. Pursuant to this report, the Company entered into
an Agreement and Plan of Reorganization with Technology Modeling
Associates, Inc.

16
<PAGE>
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.

Avant! Corporation
--------------------
(Registrant)

November 14, 1997 /s/ GERALD C. HSU
- ----------------- ------------------
Gerald C. Hsu
President and
Chief Executive Officer

November 14, 1997 /s/ JOHN P. HUYETT
- ----------------- -------------------
John P. Huyett
Vice President of Finance,
Treasurer and Principal
Accounting Officer

17
<PAGE>

EXHIBIT INDEX

Sequential
Number Description Page Number
- ------ ----------- -----------

Exhibit 11.1 Computations of Net Income (Loss) Per Common Share

Exhibit 27.1 Financial Data Schedules

Exhibit 11.1 Computations of Net Income (Loss) Per Common Share

<TABLE>
AVANT! CORPORATION
STATEMENTS RE: COMPUTATIONS OF NET INCOME (LOSS) PER COMMON SHARE
(in thousands, except per share data)
<CAPTION>

Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ------------------------
1997 1996 1997 1996
---- ---- ---- ----

<S> <C> <C> <C> <C>
Net income (Loss) $ (17,274) $ 4,982 $ (2,858) $ 15,264
=========== ======== ========== =========

Common shares outstanding 26,054 24,844 25,616 24,338

Common stock equivalents:
Stock options and awards -- 2,281 -- 2,283
----------- -------- ---------- ---------

Total weighted average number of
common and common equivalent
shares outstanding 26,054 27,125 25,616 26,621
=========== ======== ========== =========

Net income (Loss) per common share $ (0.66) $ 0.18 $ (0.11) $ 0.57
=========== ======== ========== =========

19
</TABLE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 73,565
<SECURITIES> 24,205
<RECEIVABLES> 29,838
<ALLOWANCES> 4,351
<INVENTORY> 0
<CURRENT-ASSETS> 141,536
<PP&E> 65,603
<DEPRECIATION> 37,780
<TOTAL-ASSETS> 202,657
<CURRENT-LIABILITIES> 51,949
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 150,166
<TOTAL-LIABILITY-AND-EQUITY> 202,657
<SALES> 0
<TOTAL-REVENUES> 104,332
<CGS> 1,635
<TOTAL-COSTS> 10,299
<OTHER-EXPENSES> 102,090
<LOSS-PROVISION> 916
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,465)
<INCOME-TAX> (1,607)
<INCOME-CONTINUING> (2,858)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,858)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)

</TABLE>