ARTEST CORP, S-1/A, 2000-10-17

ARTEST CORP
S-1/A, 2000-10-17
INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS

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<PAGE>

As filed with the Securities and Exchange Commission on October 17, 2000
Registration No. 333-40744
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 3 TO
FORM S-1
UNDER
THE SECURITIES ACT OF 1933

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ARTEST CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
California 7389 93-1226054
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

678 Almanor Avenue
Sunnyvale, California 94085
(408) 731-8778
(Address, including zip code, and telephone number, including area code, of
the registrant's principal executive offices)

-------------------

Jen Kao
President and Chief Executive Officer
Artest Corporation
678 Almanor Avenue
Sunnyvale, California 94085
(408) 731-8778
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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Copies to:
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<S> <C>
Donald J. Bouey, Esq Christopher L. Kaufman, Esq.
L. Christopher Vejnoska, Esq. Bradley S. Fenner, Esq.
Elizabeth H. Lefever, Esq. Michael R. Fassler, Esq.
Christina Chiaramonte, Esq. Latham & Watkins
Leonard A. Ho, Esq. 135 Commonwealth Drive
Brobeck, Phleger & Harrison LLP Menlo Park, California 94025
One Market (650) 328-4600
Spear Street Tower
San Francisco, California 94105
(415) 442-0900
</TABLE>
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Proposed Maximum
Title of Each Class Maximum Aggregate Amount of
of Securities to be Amount to be Offering Price Offering Registration
Registered Registered(1) per Share(2) Price(1)(2) Fee
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<S> <C> <C> <C> <C>
Common Stock, $0.001
value per share....... 5,750,000 $11.00 $63,250,000 $16,698.00(3)
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</TABLE>
(1) Includes 750,000 shares of common stock which the underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o).

(3) Full amount previously paid.

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The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the
registration statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said Section 8(a), may determine.

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<PAGE>

EXPLANATORY NOTE

This registration statement contains two forms of prospectus: one to be
used in connection with a United States and Canadian offering of the
registrant's common stock and one to be used in a concurrent international
offering of the registrant's common stock. The international prospectus will be
identical to the U.S. prospectus except that the international prospectus will
have a different front cover page and underwriting section. The U.S. prospectus
is included herein and is followed by the alternate front cover page and
underwriting section to be used in the international prospectus, each of which
has been labeled "Alternative Page for International Prospectus."
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus is not an offer to sell securities, and we are not soliciting +
+offers to buy these securities, in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED OCTOBER 17, 2000

[LOGO]

Artest Corporation

5,000,000 Shares

Common Stock

Artest Corporation is offering 5,000,000 shares of its common stock. This is
our initial public offering and no public market currently exists for our
shares. We have applied for quotation of our common stock on the Nasdaq
National Market under the symbol "ARTE." We anticipate that the initial
offering price will be between $9.00 and $11.00 per share.

--------------

Investing in our common stock involves risks.
See "Risk Factors" beginning on page 9.

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<CAPTION>
Per
Share Total
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<S> <C> <C>
Public Offering Price............................................. $ $
Underwriting Discounts and Commissions............................ $ $
Proceeds to Artest Corporation.................................... $ $
</TABLE>

The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.

Artest Corporation has granted the underwriters a 30-day option to purchase
up to an additional 750,000 shares of its common stock to cover over-
allotments.

Robertson Stephens CIBC World Markets

The date of this Prospectus is , 2000
<PAGE>

[Edgar description of artwork]

Inside Front Cover

Graphic that depicts the phases of our test services with accompanying
descriptive text.

Inside Back Cover

Pictures that depict our staff conducting our test services and consulting
with a customer with accompanying descriptive text.
<PAGE>

You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.

Until , 2000 (the 25th day after the date of this prospectus), all
dealers that effect transactions in our common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This
delivery requirement is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.

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TABLE OF CONTENTS

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Page
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Prospectus Summary....................................................... 4
Risk Factors............................................................. 9
Cautionary Note on Forward-Looking Statements............................ 21
Use of Proceeds.......................................................... 22
Dividend Policy.......................................................... 22
Capitalization........................................................... 23
Dilution................................................................. 24
Selected Financial Data.................................................. 26
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 28
Business................................................................. 39
Management............................................................... 50
Certain Transactions and Relationships with Related Parties.............. 60
Principal Stockholders................................................... 62
Description of Capital Stock............................................. 64
Shares Available for Future Sale......................................... 68
United States Tax Consequences to Non-United States Holders of Common
Stock.................................................................. 70
Underwriting............................................................. 73
Legal Matters............................................................ 76
Experts.................................................................. 76
Where You Can Find Additional Information................................ 76
Index to Financial Statements............................................ F-1
</TABLE>

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Our trademarks, service marks and trade names include Artest(TM), IP
Test(TM), Test IP(TM) and our logos. This prospectus contains other trademarks,
service marks and trade names owned by other companies.

3
<PAGE>

PROSPECTUS SUMMARY

The following summary highlights information which we present more fully
elsewhere in this prospectus. You should read the entire prospectus carefully.
This prospectus contains forward-looking statements that describe risks and
uncertainties. Our actual results could differ materially from those
anticipated in the forward-looking statements as a result of factors described
under the heading "Risk Factors" and elsewhere in this prospectus.

Our Business

We are an independent United States-based provider of comprehensive test
services to the semiconductor industry. We provide a broad selection of
software and hardware development services that test analog, digital, mixed-
signal and high-performance integrated circuits that are used primarily in the
communications and networking industries.

Integrated circuits, or ICs, are electronic circuits in which millions of
transistors may be fabricated on a single piece of silicon or other
semiconductor material. Mixed-signal ICs are electronic circuits that convert
real-world analog signals, such as sound and radio waves, into digital signals,
such as those stored on compact discs. Analog systems are based on continuous
data or events. A digital device simulates or approximates continuous analog
experiences. High performance ICs are either digital or mixed-signal ICs
capable of processing sufficient information to be utilized in communications
products, including cellular telephones, cable and satellite set-top boxes,
modems and fax machines.

Our solution addresses each stage of our customers' product lifecycle from
new product development through high volume production. The production process
of an IC consists of hundreds of individual steps, which can be grouped into
three broad categories: design, fabrication and test. Design encompasses the
laying out of circuit components and interconnections. Fabrication includes the
process where patterns are formed on the wafer and transistors are created and
connected to form the desired circuitry. The third stage consists of testing
for manufacturing defects.

Traditionally, the semiconductor industry has been composed primarily of
companies, known as integrated device manufacturers, which design, fabricate
and test ICs in their own fabrication facilities. Each of the steps of IC
production has become increasingly complex and the semiconductor industry has
begun to outsource various aspects of the production process, including test.
The trend to outsource aspects of the production process is also due to the
escalating cost of fabrication facilities, the desire to reduce time-to-market
and time-to-volume, the increased cost associated with the production of
complex ICs and general downward pricing pressure on semiconductors. We believe
that these trends will continue due to the increased demand for complex ICs
that is being driven in part by the communications and networking industries.
According to Semiconductor Business News, spending on outsourced test services
is growing by more than 40% per year and is expected to reach $2.0 billion in
2001.

The testing of an IC is a complex process that requires increasingly
sophisticated engineering and production expertise and test equipment. These
tests require the development of software programs that are customized to the
IC and the test equipment. Our test services combine our internally developed
software test programs and test hardware with industry standard automated test
equipment which provides our customers with an advanced, cost-effective
solution. For example, our solution utilizes reusable software that can be
quickly customized to our customers' specifications which improves our
customers' time-to-market. In addition, our solution generally reduces the test
execution times which lowers our customers' production costs.

4
<PAGE>

We have been providing test services to the semiconductor industry since
1997. Our top six customers during the nine months ended September 30, 2000
were Micro Linear Corporation, Philips Semiconductors, Inc., Vitesse
Semiconductor Corporation, Fairchild Semiconductor Corporation, GlobeSpan, Inc.
and MMC Networks, Inc. Over this period, these customers represented 94% of our
revenues with Micro Linear representing 40% and Philips representing 27%.
During this nine-month period, for the first time in our operating history,
Philips was not our largest customer. We began receiving purchase orders from
Philips in June 1998 when it acquired VLSI Technology, Inc., our largest
customer for the years 1997, 1998 and 1999. Philips may not continue to use our
services when its VLSI products reach the end of their life cycle. Also,
Fairchild acquired Micro Linear's power management business in September 2000.
A substantial portion of the revenues we received from Micro Linear during this
nine-month period were derived from Micro Linear's power management business.
Therefore, Fairchild's acquisition of Micro Linear's power management business
could result in decreased sales of our services to Micro Linear.

Our goal is to be the leading supplier of a comprehensive selection of
advanced test services. Key aspects of our strategy to accomplish this goal are
as follows:

. target selected new customers in the complex analog, digital and mixed-
signal IC markets;

. continue to develop our intellectual property and improve our reusable,
proprietary software;

. pursue strategic acquisitions of IC test operations;

. increase penetration of existing customers; and

. expand our geographic presence and scope of services.

Artest Corporation was incorporated in California in November 1996. We will
reincorporate in Delaware prior to the closing of this offering.

Our Address

Our principal executive offices are located at 678 Almanor Avenue,
Sunnyvale, California 94085 and our telephone number is (408) 731-8778.

5
<PAGE>

The Offering

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<C> <S>
Common stock offered by Artest................ 5,000,000 shares

Common stock outstanding after this offering.. 24,279,567 shares

Use of proceeds............................... For repayment of approximately
$8.0 million of existing
indebtedness, with the
remaining proceeds to be used
for capital expenditures,
working capital and general
corporate purposes. See "Use of
Proceeds."

Proposed Nasdaq National Market symbol........ ARTE
</TABLE>

The number of shares of our common stock outstanding after this offering is
based on the number of shares outstanding as of September 30, 2000, and
includes the conversion of all outstanding shares of our preferred stock into
common stock effective on completion of this offering, and excludes:

. 3,984,000 shares of common stock issuable upon exercise of stock
options outstanding as of September 30, 2000 at a weighted average
exercise price of $2.71 per share, 715,000 of which were granted on
June 15, 2000 at a weighted average exercise price of $8.00 per share
and became fully vested and immediately exercisable on June 30, 2000;
and

. 736,433 shares of common stock reserved for issuance under our stock
option plans as of September 30, 2000.

--------------------

Except as set forth in our financial statements, the notes to our financial
statements or as otherwise specified in this prospectus, all information in
this prospectus:

. assumes no exercise of the underwriters' over-allotment option to
purchase up to an additional 750,000 shares of our common stock;

. assumes an initial public offering price of $10.00 per share, the
midpoint of the range shown on the cover of this prospectus;

. reflects the conversion of all of our outstanding preferred stock into
our common stock effective on the closing of this offering; and

. reflects our reincorporation in Delaware prior to the closing of this
offering.

6
<PAGE>

Summary Financial Data

The summary financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and our historical financial statements and the related notes
included elsewhere in this prospectus. The summary statement of operations data
for the years ended December 31, 1997, 1998 and 1999 are derived from our
audited financial statements included in this prospectus. The summary balance
sheet data as of September 30, 2000 and the summary statement of operations
data for the nine months ended September 30, 1999 and 2000 are derived from our
unaudited financial statements included elsewhere in this prospectus. Our
unaudited financial statements have been prepared on a basis consistent with
the audited financial statements appearing elsewhere in this prospectus and, in
the opinion of management, include all adjustments consisting only of normal
recurring adjustments necessary for a fair presentation of such data. Operating
results for the nine months ended September 30, 2000 are not necessarily
indicative of results we will experience for a full year. Summary financial
data for each of the last five years has not been presented as we were founded
in November 1996, opened our first facility in May 1997 and began operations in
September 1997. Our statement of operations data for 1997 is of limited
comparative value because it covers four months of operations. Additionally,
our historical statement of operations are not necessarily indicative of
results to be expected for any subsequent period.

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Nine Months
Year Ended December 31, Ended September 30,
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1997 1998 1999 1999 2000
------- ------- ------- --------- ---------
(in thousands, except share data)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data
Revenues........................ $ 1,042 $ 3,413 $ 7,994 $ 5,911 $ 12,770
Cost of revenues................ 724 2,573 3,648 2,471 7,486
------- ------- ------- --------- ---------
Gross profit.................... 318 840 4,346 3,440 5,284
Operating expenses:
Selling, general and
administrative............... 694 1,352 1,621 1,081 2,215
Research and development...... -- -- -- -- 367
Amortization of stock-based
compensation................. -- -- 219 71 1,247
------- ------- ------- --------- ---------
Total operating expenses..... 694 1,352 1,840 1,152 3,829
------- ------- ------- --------- ---------
Income (loss) from operations... (376) (512) 2,506 2,288 1,455
Other income (expense), net..... 761 629 354 204 (20)
------- ------- ------- --------- ---------
Income before provision for
income taxes................... 385 117 2,860 2,492 1,435
Provision for income taxes...... 169 70 1,230 1,071 865
------- ------- ------- --------- ---------
Net income...................... $ 216 $ 47 $ 1,630 $ 1,421 $ 570
======= ======= ======= ========= =========
Net income per share(1):
Basic......................... $ 0.04 $ 0.01 $ 0.31 $ 0.27 $ 0.11
======= ======= ======= ========= =========
Diluted....................... $ 0.01 $ 0.00 $ 0.07 $ 0.07 $ 0.03
======= ======= ======= ========= =========
Shares used for net income per
share(1):
Basic......................... 5,240 5,240 5,241 5,240 5,254
======= ======= ======= ========= =========
Diluted....................... 15,740 21,055 21,927 21,549 21,909
======= ======= ======= ========= =========
Other Data
EBITDA(2)....................... $ 570 $ 1,534 $ 5,078 $ 4,008 $ 5,628
Depreciation.................... $ 175 $ 1,075 $ 1,674 $ 1,209 $ 2,459
Capital expenditures............ $ 5,441 $ 1,942 $ 3,816 $ 2,398 $ 12,794
</TABLE>
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(1) No pro forma net income per share is presented for the year ended December
31, 1999 and the nine months ended September 30, 2000 because the amounts
would be the same as diluted net income per share for those periods.
(2) EBITDA is defined as income before interest, income tax, depreciation and
amortization. We present EBITDA because we believe EBITDA is a widely
accepted indicator of an entity's ability to incur and service debt. EBITDA
should not be considered by an investor as an alternative to net income or
income from operations, as an indicator of our operating performance or
other combined operations or cash flow data prepared in accordance with
U.S. GAAP, or as an alternative to cash flows as a measure of liquidity.
Our computation of EBITDA may differ from similarly titled computations of
other companies.

7
<PAGE>

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<CAPTION>
As of September 30, 2000
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Pro Forma
Actual Pro Forma As Adjusted
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(in thousands)
<S> <C> <C> <C>
Balance Sheet Data
Cash and cash equivalents......................... $ 9,056 $ 9,056 $47,843
Working capital................................... 8,023 8,023 46,811
Total assets...................................... 36,486 36,486 73,023
Long-term debt, net of current portion............ 9,606 9,606 3,355
Convertible preferred stock....................... 14,000 -- --
Retained earnings................................. 2,463 2,463 2,463
Total stockholders' equity........................ 17,995 17,995 62,496
</TABLE>

The pro forma balance sheet data gives effect to the automatic conversion
of all 14 million shares of our Series A convertible preferred stock into
shares of our common stock effective on the closing of this offering.

The pro forma as adjusted balance sheet data, further gives effect to our
receipt of the estimated net proceeds from the sale of 5,000,000 shares of
common stock in this offering at an assumed initial public offering price of
$10.00 per share, after deducting underwriting discounts and commissions and
estimated offering expenses payable by us, repayment of a portion of our bank
facilities and the release of restricted cash upon repayment of a portion of
these facilities, as if this offering had been completed on September 30, 2000.

The pro forma and pro forma as adjusted financial data do not necessarily
represent what our financial position would have been on September 30, 2000 or
project our financial position for any future period or date.

8
<PAGE>

RISK FACTORS

You should carefully consider the risks described below in analyzing an
investment in our common stock. If any of the events described below occurs,
our business, results of operations and financial condition would likely
suffer, the trading price of our common stock could fall and you could lose all
or part of the money you paid for our common stock. This prospectus contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in the forward-looking
statements as a result of many factors, including those identified below as
well as those discussed elsewhere in this prospectus.

Risks Related to Our Business

Because we depend on a small number of customers for a substantial portion of
our revenues, the loss of one or more of our significant customers could reduce
our revenues and profitability.

We anticipate that for the foreseeable future we will continue to be
primarily dependent on a small number of customers for most of our revenues.
Currently, our largest customer, Micro Linear, accounted for approximately 40%
of our revenues in the nine months ended September 30, 2000. Our largest
customer for the years 1997, 1998 and 1999, Philips' predecessor, VLSI
Technology, Inc., accounted for approximately 27% of our revenues in the
nine months ended September 30, 2000, 60% in 1999, 43% in 1998 and 82% in 1997.
The percentage of our revenues derived from Philips has been declining in 2000,
and we expect it to continue to decrease in the future as the Philips' VLSI
products that we have tested reach the end of their product life cycle. Our top
three customers accounted for approximately 75% of our revenues in the nine
months ended September 30, 2000, 85% in 1999, 83% in 1998 and 95% in 1997. In
the nine months ended September 30, 2000, our three largest customers were
Micro Linear, Philips and Vitesse. In 1999, our three largest customers were
Philips, Vitesse and MMC. The variation in the composition of our largest
customers has been minimal over the last three years, with existing customers
rotating into and out of these rankings as our customers' testing needs change.
These needs may increase or decrease as our customers move toward more complex
and more integrated ICs, producing products with differing life cycles. Also,
these variations may result as new customers with significant testing needs
begin using our services. Our ability to retain customers and to add new
customers is important to our ongoing success. The loss of one or more of our
significant customers, for any reason, or reduced orders from any of our
significant customers, without significant replacement customers or orders,
would reduce our revenues and our profitability.

We may lose business from our customers who are acquired if the acquiring
entity decides to internally test its products or outsource its test needs to
another company.

If any of our customers is acquired by an entity or develops a new product
that causes it to change its testers to ones that we do not own or have access
to, we could lose that customer's new business. For example, since our
inception, we have been testing large volumes of ICs for VLSI. However, in
1999, Philips acquired VLSI. Philips conducts the majority of its testing
internally and is a large company with aggregate testing needs that currently
exceed our testing resources. In addition, Philips is requiring that many of
VLSI's new ICs be tested on different testers than we have used in the past. We
do not possess the test equipment or personnel resources to accommodate all of
Philips' testing needs. We own or operate a few of the testers that are
necessary to test Philips' ICs, but such testers may not be completely
compatible with Philips' future test requirements. We anticipate that as the
products we test for VLSI reach the end of their life cycle, we will no longer
be receiving new purchase orders for testing these or other products for
Philips. If many of our customers change their tester preferences to testers
that we do not own or operate or are acquired by an entity that performs
testing internally, we will lose our ability to maintain or increase orders
from these customers. In September 2000, Fairchild acquired the power
management business of Micro Linear, currently our largest customer. A
substantial portion of the revenues we received from Micro Linear during the
nine-month period ended September 30, 2000 was derived from Micro Linear's
power management business. Therefore, Fairchild's acquisition of Micro Linear's
power management business could result in decreased sales of our services to
Micro Linear. The loss of Micro Linear, or Philips as a customer, or any other
major customer could have an adverse impact on our revenues.

9
<PAGE>

Most of our customers buy our services on a purchase order basis and are not
contractually obligated to us on a long-term basis, which could cause our
results of operations to vary.

We primarily sell our test services on a purchase order basis. This means
that the majority of our customers are not obligated, pursuant to any long-term
contractual commitment or otherwise, to purchase any minimum amount of our test
services or to provide us with binding orders for any future period. We are
highly sensitive to variability in demand for our test services by our
customers and it is difficult for us to forecast the demand for our services
and our revenues for any future period. For example, we make test equipment and
personnel expenditures in anticipation of increased future sales, and our
results of operations may be less than we expect if we make capital
expenditures without a corresponding increase in revenues. Additionally,
because most of our expenses, particularly equipment depreciation, employee
compensation and rent, are fixed, a delay or a cancellation of a significant
order by any of our customers could cause our quarter-to-quarter and year-to-
year results of operations to vary significantly. Further, we may not be able
to capture all potential revenue in a given period if our customers' demand for
quick-turnaround services exceeds our capacity during that period. We expect
that future revenues in any quarter will continue to be substantially dependent
on orders placed within that quarter even if we are able to increase the
percentage of our services sold on a long-term contract basis. Therefore, we do
not believe that period-to-period comparisons of our results of operations are
necessarily meaningful and they should not be relied upon as an indication of
future performance.

Because we may be unable to obtain test equipment or replacement parts when we
require them, we could lose our customers' business or be unable to manage our
growth.

Our operations and expansion plans are highly dependent upon our ability to
obtain a significant amount of new test equipment and replacement parts for our
test equipment from a limited number of suppliers who are located principally
in the United States, Europe and Japan. The market for capital equipment used
in semiconductor testing is characterized by periods of intense demand, limited
supply and long delivery cycles. From time to time, increased demand for this
equipment causes lead times to extend beyond those normally met by the
equipment vendors. In general, particular ICs can only be tested by a limited
number of specially configured testers. Customers may specify the tester on
which their ICs may be tested and if we are unable to obtain these testers or
replacement parts for these testers, we could lose those customers' business.
Additionally, if we are unable to obtain the equipment we order, or replacement
parts, in a timely manner or if the installation of such equipment or parts is
disrupted, we may be unable to fulfill our customers' orders which would
negatively impact our reputation, business, results of operations and financial
condition.

Generally, we have no binding supply agreements with our equipment
suppliers and we acquire our equipment on a purchase order basis, which exposes
us to substantial risks of being unable to obtain the equipment we want, when
we want it and at a price we consider reasonable. For example, increased demand
for the test equipment required in our business may prevent us from obtaining
the test equipment we need and may cause an increase in the price of such
equipment, which could result in greater capital expenditures.

We may not be able to maintain or increase our customer base if we do not
retain our current key personnel.

We do not carry key person life insurance on our key personnel and none of
our employees, including Jen Kao, our President and Chief Executive Officer, is
bound by an employment agreement. Our future performance depends on the
continued service of our key personnel, including our senior management and in
particular, Mr. Kao. We are highly dependent upon the sales efforts of Mr. Kao.
The loss of Mr. Kao's services, or one or more of our other key personnel,
could adversely impact our sales efforts and our ability to grow our business
and maintain or increase the size of our customer base.

10
<PAGE>

We may lose our competitive advantage if we cannot attract, hire, train and
retain sufficient engineering and other skilled technical personnel that we
need.

In order to maintain our competitive advantage and grow our business, we
will need to attract, hire, train and retain sufficient engineering and other
skilled technical personnel in the areas of test engineering, test development
and product engineering services. We believe that competition for qualified
engineering and technical personnel in these areas will continue to be intense.
We are actively searching for qualified engineers who are in short supply, and
we will need to significantly increase our technical staff to support the
growth of our business. In addition, new employees frequently require training
before they achieve desired levels of productivity and such training time may
adversely affect our productivity. If we fail to attract, hire, train and
retain sufficient engineering and other skilled technical personnel or if our
competitors successfully recruit our engineering and technical employees, we
may be required to spend more time and money to recruit employees, which could
harm our profitability.

Because we may not be able to develop or access leading technology, our
operating results and our competitive position could be adversely affected.

The semiconductor test market is characterized by complex technology and
rapid technological change. We must be able to offer our customers test
services capable of testing ICs that use advanced technology. If we fail to
develop advanced test services or, where necessary, to buy those developed by
others in a timely manner, our business could be adversely affected. For
example, we could lose existing customers or their new business, and we could
fail to attract new customers demanding technologically advanced test services.
To date, we have not experienced adverse effects from a decrease in the demand
for test services on earlier generation products. If technological advances
lead to rapid or significant price declines on earlier generation products, our
business could be harmed. Advances in technology also could affect gross
margins on our test services for ICs included in earlier generation products
that must be sold for lower prices, meaning that customers are more sensitive
to test prices.

Rapid technological change also affects the equipment used to test our
customers' new, more sophisticated ICs. If we incorrectly anticipate the
technological developments in the IC industry and obtain the wrong test
equipment or fail to understand market requirements for test equipment, we will
be less competitive and our asset utilization will decrease. In order to remain
competitive, we must be able to quickly upgrade or migrate our test equipment
to respond to changing technological requirements. If we fail to respond to
such changing technical requirements, our ability to maintain or attract
customers and grow our business may be adversely affected.

Our profitability could be adversely affected if we cannot maintain high
capacity utilization rates and generate revenues in excess of our high fixed
costs.

As a result of the capital intensive nature of our business, our operations
are characterized by high fixed costs. Consequently, if we insufficiently
utilize our capacity of installed equipment our profitability could be
materially and adversely affected. Capacity utilization rates may be affected
by a number of factors and circumstances, including:

. installation of new equipment in anticipation of future business;

. overall industry conditions;

. the cyclical and seasonal nature of the semiconductor industry and
fluctuations in customer orders;

. operating efficiencies;

. mechanical failure or malfunction of our test equipment;

. disruption of our operations due to expansion of operations or
relocation of equipment; or

. fire or other natural disasters.

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For example, during the first two quarters of 1998, our capacity
utilization rates were adversely impacted by a decrease in demand for our test
services resulting from a downturn in the overall semiconductor industry. Any
inability on our part to maintain or increase capacity utilization rates could
result in lower revenues and profit margins.

A decrease in the average selling price for communications and networking
equipment may lead to downward price pressures on ICs, which may reduce our
revenues and gross margins.

A significant percentage of our revenues is derived from customers who
provide ICs used in communications and networking equipment. Any decline in the
average selling price of communications and networking equipment places
significant pressure on the prices of the components that are used in this
equipment. If the average selling prices of ICs in communications and
networking equipment decreases, resulting pricing pressure on services provided
by us could increase, which may significantly reduce our revenues and gross
profit margins.

If we experience unpredictable delays in our revenue stream due to lengthy
sales and test implementation cycles, the delays may reduce our revenues and
harm our operating results.

Sales of our test services often require us to engage in a lengthy sales
effort followed by a lengthy test implementation cycle, and any increase in
these periods or delays in customer procurement could substantially harm our
results of operations and financial condition. Our sales efforts may have to
include significant education of prospective customers regarding the use and
benefits of our services. A customer's decision to purchase our test and
engineering services is discretionary, may involve a significant commitment of
their resources and is influenced by its design cycles. As a result, the sales
cycle for our services varies and could range from one month to six months for
purchase order test services and from three months to in excess of one year for
one-year or multi-year contractual commitments. In addition, prior to our
commencing test services for a customer, the customer must complete its own
test implementation cycle. This cycle, which begins with the prototype phase
and concludes with the production phase, can range from one to three months.
Any increase in the amount of time associated with these phases may delay or
reduce our revenues and harm our operating results.

Because we may have difficulty obtaining additional capital to finance future
purchases of technically advanced test equipment, we may not achieve our
projected expansion plans.

To grow our business, maintain our competitive technical position and meet
the needs of new customers, we intend to increase our test capacity by
purchasing additional advanced test equipment. Purchasing advanced test
equipment and employing new employees to operate this equipment will require
substantial expenditures. These expenditures will likely be made in advance of
increased sales. We cannot assure you that our revenues will increase after we
make these expenditures. Our failure to increase our revenues after these
expenditures could have a material adverse effect on our results of operations
and financial condition.

We expect the net proceeds from this offering, combined with our cash flow
from operations and our equipment lines of credit, will be sufficient to meet
our working capital and capital expenditure needs for at least the next
12 months. After that we may need to obtain additional debt or equity financing
to fund our capital expenditures. Additional equity financing may result in
dilution to the holders of our common stock. If additional debt financing is
required, such financing may:

. increase our vulnerability to adverse general economic and industry
conditions;

. limit our ability to pursue our growth plan;

. limit our flexibility in planning for, or reacting to, changes in our
business and our industry;

. require us to dedicate a substantial portion of our cash flow from
operations to payments on our debt; and

. further limit our ability to pay dividends or require us to seek
consents for the payment of dividends.

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If we are not able to obtain additional debt or equity financing on
acceptable terms, if and when needed, we may not be able to fund our
expenditures, develop or enhance our services, take advantage of future
opportunities, grow our business or respond to competitive pressures or
unanticipated requirements.

We have made acquisitions, and may engage in future acquisitions, that may, if
not integrated effectively with our operations, adversely impact our results of
operations, dilute our stockholders or cause us to incur debt or assume
contingent liabilities.

In October 1999, we acquired the San Diego mixed-signal test equipment of
Fairchild Semiconductor Corporation and in April 2000, we acquired the mixed-
signal and radio frequency test equipment of Micro Linear. As part of our
business strategy, we may make additional investments in or purchase
complementary companies, services, technologies or a customer's turnkey test
operations that we believe would be advantageous to the development of our
business. We could have difficulty in assimilating the purchased operations and
hired personnel. In addition, we may not be able to retain the key personnel or
optimize our use of the services and technology of the purchased company or
operations. These or other difficulties could disrupt our ongoing business,
divert our management and employees, increase our expenses and result in a
failure to realize the expected benefits of these acquisitions. Furthermore, we
may issue equity securities to pay for any future purchases, investments or
acquisitions, which could be dilutive to our existing stockholders. We may also
incur debt, which may contain covenants that could restrict our growth
strategy, assume contingent liabilities, incur amortization expenses related to
intangible assets or incur write-offs in connection with acquisitions, any of
which could harm our business and results of operations. If we do not integrate
these or future acquisitions effectively with our operations, we could fail to
achieve the benefits we expected and our gross profits and profitability would
be adversely affected.

Because we may not be successful in maintaining our existing, or establishing
additional, long-term contractual agreements or other long-term relationships
with customers, our revenues and future business opportunities that are
important for the expansion of our business may be adversely affected.

In connection with our purchase of assets from Fairchild and Micro Linear,
we entered into written agreements requiring us to provide each company set
services for three-year terms at prices no higher than the maximum prices set
in the agreements. These agreements also provide that we may perform additional
services for these parties at their request. These agreements are non-exclusive
and these parties are free to enter into similar or more favorable agreements
with our competitors. Each of these agreements may be terminated at the will of
either party at the end of the initial three-year term. We may not be able to
sell services in addition to those required under the agreements and, at the
expiration of these agreements, we may not be able to offer competitive test
services in order for the relationships to expand and be extended. Any failure
to expand or maintain our relationships with Fairchild and Micro Linear could
adversely affect the percentage of our revenues we receive from long-term
contracts as opposed to purchase orders which would increase our fixed expenses
without a corresponding increase in revenues.

Additionally, as part of our business strategy, we intend to enter into
additional agreements similar to those with Fairchild and Micro Linear. If we
fail to enter into new long-term relationships, we may not gain access to
opportunities that are important for the expansion of our business, including
the ability to jointly market products or collaborate or cooperate with these
companies.

We may be unable to implement our business strategy because of liabilities that
could decrease our cash reserve.

As part of our Micro Linear agreement, we are responsible for packaging ICs
after volume production wafer sort. Because we do not perform packaging in-
house, we currently subcontract this packaging function to a third-party
assembly house and must pay that third party the full fee for its packaging
services even if we are not paid by Micro Linear. If Micro Linear does not pay
us for these charges for any reason, our cash reserves would be reduced and we
may be delayed in implementing or unable to implement our business strategy. In

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addition, we may enter into agreements under which we subcontract packaging or
assembly services for other customers. If we are not paid as expected for these
services, our cash reserves would be reduced and we may be delayed in
implementing or unable to implement our business strategy.

If we are unable to manage our anticipated expansion effectively, we may be
unable to implement our business strategy.

We intend to increase the scope of our operations domestically and
internationally and to increase our headcount substantially. We had a total of
10 employees at December 31, 1997, 21 employees at December 31, 1998, 34
employees at December 31, 1999 and 101 employees at September 30, 2000. In
addition, we plan to continue to hire a significant number of employees during
the remainder of this year. This growth has placed, and our anticipated growth
in the future will continue to place, a significant strain on our management
systems and resources. We expect that we will need to continue to improve our
financial and managerial controls, reporting systems and procedures, and will
need to continue to expand, train and manage our work force. If we are unable
to effectively manage our anticipated future growth, we may not be able to
implement our business strategy and grow our business as planned.

We may experience reduced or negative revenue growth if we cannot attract,
hire, train and retain sufficient sales personnel to support our direct sales
approach.

Selling our services requires a sophisticated, direct sales approach
targeted at the senior management of our prospective customers in the
semiconductor industry. To date, we have relied heavily upon, and we will
continue to rely upon, our senior management team to sell our services. Our
ability to achieve significant revenue growth in the future will largely depend
on our success in attracting, hiring, training and retaining sufficient
additional direct sales personnel and their ability to establish relationships
with new customers and maintain relationships with our existing customers. We
believe that the competition for qualified technical sales personnel will
continue to be intense. In addition, due to the complex nature of semiconductor
test services, new sales personnel frequently require training before they
achieve desired levels of productivity and this training time may adversely
affect our productivity. If we are unsuccessful in hiring or training
sufficient direct sales personnel or if the personnel are unable to establish
relationships with new customers and maintain relationships with our existing
customers, our sales may decrease.

If we expand our operations into Asia, our profitability could be reduced due
to additional operational and financial risks we will face.

In order to grow our business, we believe that we may need to expand our
operations internationally, specifically targeting operations in Asia. If we
expand our business to include operations in Asia, we will face a number of
additional challenges and risks, which could increase our costs, reduce our
profitability and require significant management attention. For example, if we
commence operations in Asia, we may confront the following challenges:

. new competition from companies located in Asia;

. compliance with a wide variety of foreign laws and regulatory
environments with which we are not familiar, resulting in
unanticipated costs and delays;

. general economic conditions in Asian markets, such as the downturn
experienced by many Asian countries in 1998;

. potentially adverse tax consequences, including restrictions on
repatriations and earnings;

. potentially inadequate protection of our trademark and other
intellectual property in Asia due to the uncertainty of laws and
enforcement relating to the protection of intellectual property;

. tariffs, export controls and other trade barriers;

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. currency exchange rate fluctuations; and

. longer accounts receivable payment cycles than in the U.S.

We may experience difficulty selling our services due to problems associated
with our customers' international business operations.

Many of our customers sell their products outside of North America and
manufacture their products in Asia, particularly in Taiwan. Our customers are
subject to risks of economic and political instability in the countries where
they manufacture and sell their products, including the risk of conflict
between Taiwan and the People's Republic of China. If this instability affects
any of our customers, it could also materially and adversely affect our
business, particularly if this instability impacts the sales of products
manufactured by our customers. A substantial decrease in the demand for our
customers' products due to international economic instability could have a
material adverse effect on our business, results of operations and financial
condition. Decreases in demand for, or sale of, our customers' products, likely
would lead to decreases in the number of products containing ICs being
manufactured, which in turn would result in a decline in the demand for our
test services. Other factors associated with foreign commerce that could affect
our customers' operations and revenues include the following:

. changes in tax laws, tariff, freight rates and other trade barriers;

. foreign exchange rate fluctuations;

. timing and availability of export licenses; and

. inadequate protection of intellectual property rights in some
countries.

If these risks affect any of our customers, our expansion plans could be
delayed and our revenues could be adversely affected.

Because the testing process is complex and therefore prone to "bugs," operator
error and test equipment malfunction, our business may be harmed.

IC testing is a complex process involving sophisticated computer software
and test equipment. We develop software test programs which we use to test our
customers' ICs. We also develop conversion software programs which enable us to
test ICs on different types of testers. Similar to most software programs,
these software programs are complex and may contain programming errors or
"bugs." The testing process also is subject to operator error by our employees
who operate our test equipment and related software. In addition, the test
equipment may malfunction. To date, we have not experienced any significant
defect or bug in our test or conversion software, operator error or malfunction
in our test equipment. If we do experience these conditions, however, they
could:

. reduce our production quality;

. increase our costs;

. divert our resources; or

. damage or destroy our customer relationships.

If we are unable to adequately protect our proprietary technology, our ability
to be competitive in our industry will be harmed.

Our ability to compete successfully and achieve future growth in revenues
will depend, in part, on our ability to protect our proprietary technology and
the proprietary technology of our customers entrusted to us. We seek to protect
our proprietary technology and know-how through the use of non-disclosure
agreements and by limiting access to and distribution of proprietary
information. We have no patents or copyrights for our

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proprietary techniques, and we rely primarily on trade secret protection in the
form of non-disclosure and proprietary rights assignment agreements with our
key employees and non-disclosure agreements with many of our customers. Our
competitors may develop, patent, copyright or gain access to similar
intellectual property, including know-how and technology. In addition, our non-
disclosure agreements may not be adequate to protect our proprietary technology
or that of our customers. Additionally, as part of our growth strategy we
intend to enter into international markets, and the laws of foreign countries
may not protect our proprietary rights to the same extent as the laws of the
United States. Any inability to protect our proprietary technology or that of
our customers could have a material adverse effect on any competitive advantage
we may have.

Because we may be subject to intellectual property rights disputes, our ability
to offer our services could be adversely affected.

Our ability to compete successfully will depend, in part, on our ability to
operate without infringing the intellectual property rights of others. As the
number and coverage of patents, copyrights and other intellectual property
rights in our industry increases, we believe that companies in our industry may
face more frequent patent infringement claims. Although there are no pending or
threatened intellectual property lawsuits against us, we may face litigation or
patent infringement claims in the future. In the event that any valid claim is
made against us, we could be required to:

. stop using and selling services or processes for which we do not have
intellectual property rights;

. pay substantial damages;

. develop non-infringing technologies; or

. attempt to acquire licenses to use the infringed technology.

Additionally, litigation may be necessary to protect our technology against
patent infringement claims and determine the validity and scope of the
proprietary rights of our competitors. Intellectual property law is evolving
and we may not be successful in litigating to protect our technology or
determining the proprietary rights of others. Intellectual property litigation
could result in substantial costs and diversion of management and other
resources. If any infringement claim is asserted against us, we may be required
to seek to obtain a license of the other party's intellectual property rights,
which may not be available to us on reasonable terms or at all. Should any of
the disputes described above occur, our reputation could be harmed and our
business could be materially and adversely affected.

Our customer base may be negatively affected due to conflicts of interest among
our customers.

The semiconductor industry is highly competitive and many of our customers
directly compete with each other. There is a risk that we may alienate a
customer by working too closely or extensively with one or more of its
competitors. If we are forced to limit our service relationship with any large
customer or otherwise decrease or refocus our customer base to prevent the
alienation of one or more customers, our ability to attract and maintain
customers will be reduced.

The quality of our services and our reputation could suffer if we do not
maintain a controlled room environment for our operations.

Our testing operations take place in areas where temperature and humidity
are strictly controlled. If we are unable to control our testing environment
for any reason including power outages, our test equipment may become
nonfunctional or may malfunction and the quality of our services could suffer.
If we experience prolonged interruptions in our operations due to problems
related to the test room environment, we could lose customers to our
competitors and our business could be harmed.

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Fire, earthquake or other calamity at one of our facilities or at one of our
customers' sites could adversely affect our testing operations.

We conduct our testing operations at a limited number of facilities and
these facilities are located on or near fault lines. Additionally, a number of
our customers' and their suppliers' sites are similarly located. Any damage
caused by earthquakes may adversely affect our financial condition as our
insurance policies do not cover losses due to earthquakes. A fire, earthquake
or other calamity resulting in significant damage at any of our facilities
would have, and at any of our significant customers' or its suppliers' sites
could have, a material adverse effect on our business, results of operations
and financial condition. While we maintain insurance policies covering some
losses, including losses due to fire, these policies are limited in coverage
and they may not sufficiently cover all of these potential losses.

Risks Related to the Semiconductor Test Industry

Because the semiconductor industry is seasonal and cyclical and subject to
significant downturns, some customers may perform tests internally in response
to an industry downturn which could adversely affect our results of operations.

Our semiconductor test business is directly related to the market
conditions in the semiconductor industry. The semiconductor industry is
seasonal and cyclical and, in the past, has experienced significant downturns
because of production overcapacity and reduced unit demand. For example, the
volume of our test services decreased during the first two quarters of 1998
compared to the last quarter of 1997 because of reduced industry-wide demand
and seasonality. One result of this reduction was that our customers who
manufacture integrated devices increased the volume of services they performed
internally, including test, which further decreased their external demand for
our services.

Our business depends in significant part on the test requirements of
semiconductor companies for independent outsourced test program development and
test services. The market for semiconductors is characterized by:

. rapid technological change;

. evolving industry standards;

. intense competition; and

. fluctuations in end-user demand.

Any future downturn in the semiconductor industry is likely to adversely
affect our sales volume and profitability.

We may not be able to compete successfully because the semiconductor industry
is competitive and diverse.

The semiconductor test service industry is very competitive and diverse and
requires us to be capable of testing increasingly complex semiconductors as
quickly as our competitors. The industry is comprised of both large multi-
national companies and smaller independent test-houses. We believe that we face
substantial competition from the internal capabilities of many of our current
and potential customers who manufacture integrated devices and from large
assembly houses which offer production test services. Our largest competitors
include Amkor Technologies, Inc., ASE Test Limited, ASAT, Ltd., ChipPAC Inc.,
ST Assembly Test Services Ltd. and Siliconware Corporation. These companies
offer services in the United States, overseas or both in the United States and
overseas. We also face competition from smaller independent test-houses such as
Multitest Design and Test, Inc. and Viko Test Lab, which do not provide as wide
an array of services.

Many of our competitors and potential competitors have significantly longer
operating histories, larger installed bases of test equipment, greater name
recognition and significantly greater technical, financial, manufacturing,
marketing and other resources than we do. In addition, a number of these
competitors have

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long-established relationships with our customers and potential customers. We
believe it is likely that additional competitors will enter the market for
most, if not all, of the services which we will offer. In addition, we believe
all of our competitors or potential competitors all have sufficient resources
to attempt to compete directly with us in the future.

In addition, many integrated device manufacturers have greater financial
and other resources than we do and may rely on their own internal sources for
test and assembly services due to:

. their desire to realize higher utilization of their own existing test
capacity;

. their unwillingness to disclose proprietary technology;

. the guaranteed availability of their own test capacity; and

. their possession of more advanced test equipment.

Historically, we have been dependent on outsourcing of test services by
integrated device manufacturers. Our customers who manufacture integrated
devices continually evaluate our services against their own in-house test and
assembly services. As a result, at any time, these integrated device
manufacturers may decide to shift a portion or all of their outsourced test and
management of assembly services to their own internal services. Any such shift
or a slowdown in this trend to outsource is likely to adversely affect our
business, results of operations and financial condition. Furthermore, we cannot
assure you that we will be able to compete successfully in the future against
our existing or potential competitors.

Because our success is partly dependant on growth in the markets that use
semiconductors, our growth strategy may be slowed down if the markets in which
our customers sell their products shrink or do not grow.

Our success depends in large part on the continued growth of the markets
that use semiconductors, particularly the communications and networking
equipment industries. Any decline in the demand for semiconductors in any of
the following markets could materially harm our business:

. communications;

. networking;

. high-performance computing;

. video and audio; or

. graphics and imaging.

Slower growth in any of the other markets in which semiconductors are sold
may also materially harm our business. Many of these markets are characterized
by rapid technological change and intense competition. As a result,
semiconductors sold by our customers may face severe price competition, become
obsolete over a short time period or fail to gain market acceptance. Any of
these occurrences could materially harm our business by decreasing the demand
for our test services.

Risks Related to This Offering

Our common stock has never been publicly traded, and a trading market may not
develop for our stock.

Prior to this offering, there has not been a public market for our common
stock. A trading market may not develop for our common stock. The initial price
of our common stock in this offering will be determined by negotiations between
representatives of the underwriters and us and may not be indicative of prices
that will prevail in the future. As a result, the trading price of our common
stock may decline and you might lose all or a part of your investment.

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Because the market price of our common stock may be volatile, you may lose all
or part of your investment.

The market price of our common stock is likely to be highly volatile in the
future. Our common stock price may fluctuate significantly in response to
factors such as:

. quarterly variations in our operating results;

. announcements of technological innovations;

. changes in earnings estimates by analysts or our failure to meet such
earnings estimates;

. loss or addition of one or more significant customers;

. announcements by us regarding significant acquisitions;

. changes in our customer relationships or capital expenditure
commitments;

. additions or departures of key personnel;

. future sales or issuances of our common stock or other securities; and

. changes in federal, state or foreign regulations affecting the
semiconductor industry.

In addition, the stock markets in general, and the stocks of technology
companies in particular, have experienced extreme price and volume fluctuations
recently. These fluctuations often have been unrelated or disproportionate to
the operating performance of these companies. These broad market and industry
factors may have a material adverse effect on the market price of our common
stock, regardless of our actual operating performance, and you might lose all
or a part of your investment.

Future sales of securities by us or our existing shareholders may adversely
affect the price of our common stock.

Sales of substantial numbers of shares of our common stock in the public
market following this public offering could adversely affect the market price
of our shares. There will be 24,279,567 shares of common stock outstanding
immediately following this public offering. In addition, as of September 30,
2000, there were outstanding options under our employee stock option plans for
the purchase of a total of 3,984,000 shares of common stock. If these options
are exercised and the shares of common stock are fully paid for, such shares
would be freely tradable.

In connection with this offering, each of our directors, executive
officers, and substantially all of our security holders have agreed not to
offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to any shares of common stock or any options or
warrants to purchase any shares of common stock, or any securities convertible
into or exchangeable for shares of common stock or thereafter acquired, without
the prior written consent of Robertson Stephens, Inc., subject to a number of
exceptions, for a period of 180 days from the date of this prospectus.

Purchasers of common stock in this offering will suffer immediate and
substantial dilution because the initial public offering price is substantially
higher than the book value per share.

The initial public offering price is substantially higher than the book
value per share of our common stock. As a result, you will experience immediate
and substantial dilution in the pro forma net tangible book value per share of
our common stock. This dilution will occur because our earlier investors paid
substantially less than the initial public offering price in this offering when
they purchased their shares of common stock. You will experience additional
dilution upon exercise of outstanding stock options.

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We have not declared cash dividends on our common stock and we have no
intention of and are restricted from issuing such cash dividends in the
foreseeable future.

We have not declared or paid cash dividends on our common stock and we
anticipate that any future earnings will be retained for investment in our
business. Any payment of cash dividends in the future will be at the discretion
of our board of directors and will depend upon, among other things, our
earnings, financial condition, capital requirements, outstanding debt and
contractual restrictions. In addition, current agreements with our lender
prohibit the payment of cash dividends by us without receiving our lender's
prior consent, and future agreements we may enter into with lenders may contain
similar restrictions.

Our management has significant influence over stockholder decisions and may be
able to significantly influence matters related to our operations.

Our officers and directors will control the vote of approximately 79.0% of
the outstanding shares of common stock immediately following this offering,
prior to the exercise of any outstanding options. As a result, they may be able
to significantly influence all matters requiring approval by our stockholders,
including the election of directors.

If our management does not use its broad discretion over the use of the net
proceeds from this offering effectively, you may lose all or a part of your
investment.

Our management has broad discretion as to the use of a portion of the net
proceeds that we will receive from this offering for capital expenditures,
working capital and general corporate purposes. Our management may not apply
these funds effectively, and the net proceeds from this offering may not be
invested to yield a favorable return. As a result, you might lose all or a part
of your investment.

Our certificate of incorporation and bylaws and Delaware law contain provisions
that could discourage a takeover.

When we reincorporate in Delaware upon the closing of this offering, our
certificate of incorporation and bylaws and Delaware law will contain
provisions that might enable our management to resist a takeover. These
provisions might discourage, delay or prevent a change in the control of Artest
or a change in our management. This could reduce the price that investors might
be willing to pay for shares of our common stock and result in the market price
being lower than it would be without these provisions.

Our certificate of incorporation will also provide that our board of
directors may, without further action by our stockholders, issue shares of
preferred stock in one or more series and establish the rights, preferences,
privileges and restrictions of this preferred stock. The issuance of preferred
stock could adversely affect the voting power of holders of common stock and
reduce the likelihood that such holders will receive dividend payments and
payments upon liquidation. Our ability to issue preferred stock could also
reduce the price that investors are willing to pay for our common stock and
result in lower market prices for our common stock.

While we have no present intention to issue shares of preferred stock, such
issuance, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third-party to acquire a majority of our outstanding
voting stock. In addition, we will be subject to the anti-takeover provisions
of Section 203 of the Delaware General Corporation Law, which prohibits us from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved
in a prescribed manner. The application of Section 203 may have the effect of
deterring hostile takeovers or delaying or preventing changes in control or in
our management, including transactions in which stockholders might otherwise
receive a premium for their shares over then current market prices.

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CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of
the federal securities laws, which involve risks and uncertainties. These
forward-looking statements are not historical facts but rather are based on
current expectations, estimates and projections about our industry, beliefs and
assumptions. We use words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates," "may," "will," "could," "should," "would,"
"continue," "pro forma," and variations of these words and similar expressions
to identify forward-looking statements. These statements are not guarantees of
future performance and are subject to a number of risks, uncertainties and
other factors, a number of which are beyond our control, are difficult to
predict and could cause actual results to differ materially from those
expressed or forecasted in the forward-looking statements. These risks and
uncertainties include those described in "Risk Factors" and elsewhere in this
prospectus. You should not place undue reliance on these forward-looking
statements, which reflect our management's view only as of the date of this
prospectus.

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<PAGE>

USE OF PROCEEDS
The net proceeds to us from the sale of the 5,000,000 shares of common
stock offered hereby are estimated to be approximately $44,500,000 assuming an
initial public offering price of $10.00 per share, the midpoint of the range
shown on the cover of the prospectus, and deduction of the underwriting
discounts and commissions and estimated offering expenses payable by us.

We currently estimate that we will use the net proceeds from this offering
as follows:

. approximately $8.0 million to repay existing indebtedness outstanding
at September 30, 2000, including accrued interest;

. between approximately $14 million and $20 million on capital
expenditures for existing facilities and equipment over the next 12
months; and

. the remainder for working capital and general corporate purposes.

Our existing indebtedness includes three credit facilities we have
established with California Bank and Trust, formerly Sumitomo Bank of
California. The first line of credit was established in November 1997 as a non-
revolving $6.5 million equipment line of credit. The interest rate on this line
of credit ranges between 7.10% to 7.30%. All borrowings against this equipment
line of credit mature within five years. The second loan agreement was entered
into in August 1999 and provides us with a $2.0 million secured equipment line
of credit. All borrowings against this line bear interest at a rate equal to
the effective prime rate, which was 9.50% at September 30, 2000, and mature
within five years. The third loan agreement was entered into in July 2000 and
provides us with a $4.0 million secured equipment line of credit. All
borrowings against this line bear interest at a rate equal to the effective
prime rate minus one-half percent, which was 9.0% at September 30, 2000, and
mature within five years. The $8.0 million of debt to be repaid does not
include the promissory note related to the equipment purchase agreement with
Micro Linear Corporation. All three lines of credit were established for the
purchase of test equipment.

In addition to the purposes listed above, we also may use a portion of the
net proceeds to acquire or make investments in additional businesses, products
and technologies or establish joint ventures or strategic partnerships that we
believe will complement our current and future business. These acquisitions or
investments could be material. We are not currently engaged in any
negotiations, commitments or agreements with respect to any acquisitions or
investments. Pending such uses, we intend to invest the net proceeds in short-
term, investment-grade, interest-bearing securities. See "Risk Factors--Our
management has discretion as to the use of the net proceeds from this
offering."

DIVIDEND POLICY

We have never declared or paid dividends on our capital stock and do not
anticipate declaring or paying cash dividends in the foreseeable future.
Payments of future dividends, if any, will be at the discretion of our board of
directors after taking into account many factors, including our earnings,
financial condition, capital requirements, outstanding debt and contractual
restrictions. In addition, current agreements with our lender prohibit the
payment of cash dividends by us without receiving our lender's prior consent.

22
<PAGE>

CAPITALIZATION

The following table summarizes our cash and cash equivalents and our
capitalization as of September 30, 2000:

. on an actual basis;

. on a pro forma basis to reflect the conversion of all our outstanding
Series A convertible preferred stock into 14 million shares of common
stock upon the closing of this offering; and

. on a pro forma as adjusted basis giving effect to the conversion of
all of our outstanding Series A convertible preferred stock into 14
million shares of common stock upon the closing of this offering and
our receipt of the estimated net proceeds from the issuance and sale
of 5,000,000 shares of common stock at an assumed initial public
offering price of $10.00 per share, the mid-point of the range on the
front cover of the prospectus, less estimated underwriting discounts
and offering expenses payable by us and repayment of our equipment
lines.

The number of shares outstanding as of September 30, 2000 excludes:

. 736,433 shares of common stock reserved for issuance under our stock
option plans as of September 30, 2000.

This table should be read with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and
the accompanying notes appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
September 30, 2000
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands, except share
data)

<S> <C> <C> <C>
Cash and cash equivalents...................... $ 9,056 $ 9,056 $47,843(1)
======= ======= =======
Long-term debt obligations, net of current
portion...................................... $ 9,606 $ 9,606 $ 3,355(2)
------- ------- -------
Stockholders' equity:
Preferred stock; no par value, 14,000,000
shares authorized, issued and outstanding,
actual; $0.001 par value, 10,000,000
shares authorized and no shares issued and
outstanding, pro forma and pro forma as
adjusted................................... 14,000 -- --
Common stock, no par value, 24,000,000
shares authorized, 5,279,567 shares issued
and outstanding, actual; $0.001 par value,
24,000,000 shares authorized, 19,279,567
shares issued and outstanding, pro forma;
$0.001 par value, 90,000,000 shares
authorized, 24,279,567 shares issued and
outstanding, pro forma as adjusted......... 2,350 19 24
Additional paid-in capital................... -- 16,331 60,826
Deferred stock compensation.................. (818) (818) (818)
Retained earnings............................ 2,463 2,463 2,463
------- ------- -------
Total stockholders' equity................ 17,995 17,995 62,495
------- ------- -------
Total capitalization.................... $27,601 $27,601 $65,850
======= ======= =======
</TABLE>
--------

(1) Includes approximately $9.0 million of cash and cash equivalents,
approximately $44.5 million in net proceeds from this offering and
approximately $2.25 million of restricted cash which becomes unrestricted
upon our repayment of approximately $8.0 million in debt with the net
proceeds of this offering.

(2) The amount reflects the repayment of approximately $8.0 million in debt
with the net proceeds of this offering of which $6.25 million is classified
as long-term debt.

23
<PAGE>

DILUTION

If you invest in our common stock, your investment will be diluted to the
extent of the difference between the initial public offering price per share of
our common stock and the pro forma as adjusted net tangible book value per
share of our common stock after this offering. Our pro forma net tangible book
value as of September 30, 2000, was approximately $15.8 million, or $0.83 per
share of common stock. Pro forma net tangible book value per share represents
total tangible assets less total liabilities, divided by the number of shares
of common stock outstanding after giving effect to the conversion of all of our
outstanding Series A convertible preferred stock into shares of our common
stock. After giving effect to the issuance and sale of 5,000,000 shares of our
common stock in this offering at an assumed initial public offering price of
$10.00 per share, the midpoint of the range shown on the cover of the
prospectus, and after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us, our pro forma as
adjusted net tangible book value as of September 30, 2000, would have been
$60.3 million, or $2.49 per share. This represents an immediate increase in pro
forma as adjusted net tangible book value of $1.66 per share to existing
stockholders and an immediate dilution in pro forma as adjusted net tangible
book value of $7.51 per share to new investors purchasing shares of common
stock in this offering. The following table illustrates this dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $10.00
Pro forma net tangible book value per share as of September 30,
2000......................................................... $0.83
Increase per share attributable to new investors............... 1.66
-----
Pro forma as adjusted net tangible book value per share after the
offering....................................................... 2.49
------
Dilution per share to new investors.............................. $ 7.51
======
</TABLE>

The following table summarizes, as of September 30, 2000, on a pro forma as
adjusted basis, the total number of shares of common stock outstanding and the
total consideration paid to us and the average price per share paid by existing
stockholders and by new investors purchasing shares of common stock in this
offering at an assumed initial public offering price of $10.00 per share before
deducting the estimated underwriting discounts and commissions and estimated
offering expenses payable by us:

<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 19,279,567 79.4% $14,065,147 22.0% $ 0.73
New investors.......... 5,000,000 20.6 50,000,000 78.0 10.00
---------- ----- ----------- -----
Totals............... 24,279,567 100.0% $64,065,147 100.0%
========== ===== =========== =====
</TABLE>

The above computations are based on the number of shares of common stock
outstanding as of September 30, 2000 and exclude:

. 736,433 shares of common stock reserved for issuance under our stock
option plans as of September 30, 2000.

To the extent that any of these options are exercised, there would be
further dilution to new investors. If we assume that the 3,984,000 shares
subject to outstanding options are exercised at a weighted average exercise
price of $2.71 per share, the dilution per share to new investors would be
$7.48. In addition, the shares purchased and total consideration would be
28,263,567 and $74,861,787, respectively. For additional

24
<PAGE>

information regarding these shares, see "Capitalization," "Management--Benefit
Plans," and Note 6 of Notes to Financial Statements.

If the underwriters' over allotment option is exercised in full, the number
of shares of common stock held by new investors will increase to 5,750,000
shares, or 23.0% of the total number of shares of common stock outstanding
after this offering.

25
<PAGE>

SELECTED FINANCIAL DATA

You should read the selected financial data set forth below in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and our historical financial statements and the related notes
included elsewhere in this prospectus. The selected statement of operations
data for the years ended December 31, 1997, 1998 and 1999 and the selected
balance sheet data as of December 31, 1998 and 1999 are derived from our
audited financial statements included in this prospectus. The selected balance
sheet data as of December 31, 1997 are derived from our audited financial
statements not included in this prospectus. The selected balance sheet data as
of September 30, 2000 and the selected statement of operations data for the
nine months ended September 30, 1999 and 2000 are derived from our unaudited
financial statements included elsewhere in this prospectus. Our unaudited
financial statements have been prepared on a basis consistent with the audited
financial statements appearing elsewhere in this prospectus and, in the opinion
of management, include all adjustments consisting only of normal recurring
adjustments necessary for a fair presentation of such data. Operating results
for the nine months ended September 30, 2000 are not necessarily indicative of
results we will experience for a full year. Selected financial data for each of
the last five years has not been presented as we were founded in November 1996,
opened our first facility in May 1997 and began operations in September 1997.
Our statement of operations data for 1997 is of a limited comparative value
because it covers four months of operations. Additionally, our historical
statement of operations are not necessarily indicative of results to be
expected for any subsequent period.

<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, September 30,
------------------------- ---------------
1997 1998 1999 1999 2000
------- ------- ------- ------- -------
(in thousands, except share data)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data
Revenues............................ $ 1,042 $ 3,413 $ 7,994 $ 5,911 $12,770
Cost of revenues.................... 724 2,573 3,648 2,471 7,486
------- ------- ------- ------- -------
Gross profit........................ 318 840 4,346 3,440 5,284
Operating expenses:
Selling, general and
administrative.................. 694 1,352 1,621 1,081 2,215
Research and development.......... -- -- -- -- 367
Amortization of stock-based
compensation.................... -- -- 219 71 1,247
------- ------- ------- ------- -------
Total operating expenses....... 694 1,352 1,840 1,152 3,829
------- ------- ------- ------- -------
Income (loss) from operations....... (376) (512) 2,506 2,288 1,455
Other income (expense), net......... 761 629 354 204 (20)
------- ------- ------- ------- -------
Income before provision for income
taxes............................. 385 117 2,860 2,492 1,435
------- ------- ------- ------- -------
Provision for income taxes.......... 169 70 1,230 1,071 865
------- ------- ------- ------- -------
Net income.......................... $ 216 $ 47 $ 1,630 $ 1,421 $ 570
======= ======= ======= ======= =======
Net income per share(1)
Basic............................. $ 0.04 $ 0.01 $ 0.31 $ 0.27 $ 0.11
======= ======= ======= ======= =======
Diluted........................... $ 0.01 $ 0.00 $ 0.07 $ 0.07 $ 0.03
======= ======= ======= ======= =======
Shares used for net income per
share(1)
Basic............................. 5,240 5,240 5,241 5,240 5,254
======= ======= ======= ======= =======
Diluted........................... 15,740 21,055 21,927 21,549 21,909
======= ======= ======= ======= =======
</TABLE>
--------

26
<PAGE>

<TABLE>
<CAPTION>
December 31, September 30,
----------------------- -------------
1997 1998 1999 2000
------- ------- ------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data
Cash and cash equivalents................ $ 8,897 $ 8,422 $11,626 $ 9,056
Working capital.......................... 8,938 8,830 10,757 8,023
Total assets............................. 19,434 20,500 24,477 36,486
Long-term debt, net of current portion... 1,257 3,984 3,825 9,606
Convertible preferred stock.............. 14,000 14,000 14,000 14,000
Retained earnings........................ 216 263 1,893 2,463
Total shareholders' equity............... 14,269 14,316 16,166 17,995
</TABLE>

27
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with our financial
statements and the related notes included elsewhere in this prospectus. Our
discussion contains forward-looking statements based upon current expectations
that involve risks and uncertainties, such as statements of our plans,
objectives, intentions, estimates and projections about our industry. Our
actual results may differ materially from those predicted in such forward-
looking statements. Factors that could cause or contribute to such differences
include but are not limited to those discussed in "Risk Factors" and elsewhere
in this prospectus.

Overview

We are an independent United States-based provider of comprehensive
semiconductor test services. We focus on complex ICs used primarily in the
communications and networking industries. Our solution addresses each stage of
our customers' product lifecycle from new product development through high
volume production. Our services include software test program and hardware
development, prototype verification, characterization, volume production wafer
sort and volume production final test.

We were founded in November 1996 as a test services company, opened our
first facility in Sunnyvale, California in May 1997 and began operations in
September 1997. We have increased our capacity and revenue through two key
strategies:

. equipment purchases and sales efforts with existing and new customers;
and

. long-term customer relationships through which we purchase test
equipment and hire personnel.

The acquisition of customer facilities provides a cost-effective way to add
engineering capabilities, capacity and revenue growth, while entering into a
long-term relationship with the customer.

In October 1999, we expanded our capabilities and capacity by opening a
facility in San Diego, California by purchasing the San Diego mixed-signal test
equipment from Fairchild and hiring a number of its employees. In May 2000, we
opened an additional facility in San Jose, California, approximately doubling
our capacity at the time, by purchasing the mixed-signal and radio frequency
test equipment of Micro Linear and hiring a number of its employees. We entered
into three-year services agreements with both Fairchild and Micro Linear. The
agreements provide for the delivery of test and engineering services over the
terms of the contracts if we maintain service, quality and price levels that
are competitive in the industry.

Revenues from these long-term contracts for the nine months ended September
30, 2000 represented 45% of total revenues and 34% of the revenues generated
from these long-term contracts are from assembly management services. Through
September 30, 2000, orders made under these long-term contracts have equaled,
approximately, the required minimums under these long-term contracts. The gross
profit percentages on long-term contracts are generally lower than the gross
profit percentages on our test services that we perform under purchase orders,
and an increase in revenues from long-term contracts as a percentage of total
revenues could harm our gross profit percentages for a particular period.

We sell the majority of our test services on a purchase order basis, which
represented approximately 55% of our total revenues for the nine months ended
September 30, 2000. Most of our expenses, particularly equipment depreciation,
employee compensation and rent, are fixed. Therefore, a delay in a purchase by
a customer or a cancellation of a significant purchase order by any of our
large customers could cause our quarter-to-quarter and year-to-year results to
vary significantly. We recognize revenues when our services are completed and
no significant obligations remain.

Our sales are subject to seasonality, with the largest portion of quarterly
sales tied to IC purchasing patterns, which usually are lowest in the first
quarter and highest in the fourth quarter of the calendar year. The

28
<PAGE>

sales cycle for our services typically ranges from one month to six months for
purchase order test services and from three months to in excess of one year
for one-year or multi-year contractual commitments and includes a
qualification period during which our customers evaluate and audit our test
procedures. Due to the length of these sales cycles, we often order or invest
in test equipment in advance of generating revenue from these investments.
Accordingly, if sales of our services do not occur when we expect, we may be
unable to adjust our purchases of equipment on a timely basis, and expenses
may increase relative to revenues.

Historically, a significant portion of our revenues has been derived from
sales to relatively few customers. Our top three customers accounted for
approximately 75% of our revenues in the nine months ended September 30, 2000,
85% in 1999, 83% in 1998 and 95% in 1997. Micro Linear, currently our largest
customer, accounted for 40% of our revenues for the nine months ended
September 30, 2000. Philips, as a result of its acquisition of VLSI, was our
largest customer for the years 1997, 1998 and 1999 and accounted for
approximately 27% of our revenues in the nine months ended September 30, 2000,
60% in 1999, 43% in 1998 and 82% in 1997. As we implement our strategy of
increasing the penetration of existing customers and pursuing acquisitions of
IC test operations, we believe our customer concentration will change. All of
our revenues to date have been denominated in United States dollars and have
substantially come from United States-based customers.

In June 1999, Philips acquired VLSI and as a result of this acquisition
became a new Artest customer. Although we own or operate a few of the testers
necessary to test Philips' ICs, there can be no assurance that our testers
will be completely compatible with Philips' future test requirements. As the
VLSI products we test for Philips reach the end of their life cycle, we
anticipate we may no longer receive new purchase orders for testing these or
other products for Philips and this could adversely impact our revenues.

In September 2000, Fairchild acquired Micro Linear's power management
business. A substantial portion of the revenues we received from Micro Linear
during the nine-month period ended September 30, 2000 were derived from
Micro Linear's power management business. Therefore, Fairchild's acquisition
of Micro Linear's power management business could result in decreased sales of
our services to Micro Linear and this could adversely impact our revenues.

Results of Operations

The following table presents selected financial data for the periods
indicated as percentages of our revenues.

<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
--------------------- --------------
1997 1998 1999 1999 2000
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues............................... 100.0 % 100.0 % 100.0% 100.0% 100.0 %
Cost of revenues....................... 69.5 75.4 45.6 41.8 58.6
----- ----- ----- ------ ------
Gross profit........................... 30.5 24.6 54.4 58.2 41.4
----- ----- ----- ------ ------
Operating expenses:
Selling, general and administrative
................................... 66.6 39.6 20.3 18.3 17.4
Research and development............. -- -- -- -- 2.9
Amortization of stock-based
compensation....................... -- -- 2.7 1.2 9.8
----- ----- ----- ------ ------
Total operating expenses.......... 66.6 39.6 23.0 19.5 30.1
----- ----- ----- ------ ------
Income (loss) from operations.......... (36.1) (15.0) 31.4 38.7 11.3
Other income (expense), net............ 73.0 18.4 4.4 3.5 (0.1)
----- ----- ----- ------ ------
Income before provision for income
taxes................................ 36.9 3.4 35.8 42.2 11.2
Provision for income taxes............. 16.2 2.1 15.4 18.1 6.8
----- ----- ----- ------ ------
Net income............................. 20.7 % 1.3 % 20.4% 24.1% 4.4 %
===== ===== ===== ====== ======
</TABLE>

29
<PAGE>

Nine Months Ended September 30, 1999 Compared to Nine Months Ended September
30, 2000

Revenues. Our revenues consist of test services, including prototype
verification, characterization, volume production wafer sort, volume production
final test and rental of our IC test equipment. To date, our revenues have also
included test software and hardware development that was often billed to
customers in the form of non-recurring engineering charges. Revenues from non-
recurring engineering services represented approximately 1% of our revenues, or
$174,000, in the nine months ended September 30, 2000 and 10% of our revenues,
or $578,000, in the nine months ended September 30, 1999. This decrease in the
revenues from non-recurring engineering charges is due to a reduction in
purchase orders for our engineering services.

Revenues in the nine months ended September 30, 2000 were $12.8 million, an
increase of $6.9 million, or 116.0%, over the nine months ended September 30,
1999. This increase in revenues primarily relates to revenues from our three-
year services agreements with both Micro Linear and Fairchild. We did not have
revenues from these customer arrangements for the nine months ended September
30, 1999 as these contracts commenced subsequent to September 30, 1999.
Revenues also increased as a result of our ability to meet increased customer
demand for our services through additional testers.

In 2000, we began to generate revenues from assembly support services in
connection with our operating agreement with Micro Linear. Pursuant to this
agreement, we outsource these assembly support services to independent assembly
subcontractors. Assembly support services have significantly lower gross
margins than our test services and accordingly, our gross margins have
decreased in the second and third quarter of 2000. However, providing assembly
services requires little capital investment and we have offset part of this
decrease in our gross margins by utilizing the additional capacity available
from the test equipment we acquired from Micro Linear. For example, in the
third quarter of 2000 we began to perform wafer sort services for one customer
using the additional capacity available from the MicroLinear test equipment we
purchased.

Cost of Revenues and Gross Profit. Cost of revenues includes test equipment
depreciation, employee compensation, facility rent, production supplies and
assembly subcontracting. The purchase price of our principal test equipment, IC
testers, ranges between $500,000 and $2.0 million per tester. The depreciation
expense on testers in any quarter has not in the past and may not in the future
result in a corresponding revenue increase in that quarter, which may cause our
gross profit to vary. We currently have 46 testers and plan to purchase between
three and seven additional testers by the end of 2000. We have performed
software and hardware development that was often billed to customers in the
form of non-recurring engineering charges. These charges were not capitalized
or expensed as research and development expenses, but instead were included in
cost of revenues. We expect that cost of revenues will increase if we are
required to expand our workforce or facilities to meet commitments under any
purchase orders or other agreements with new or existing customers.

Cost of revenues in the nine months ended September 30, 2000 was $7.5
million, or 58.6% of revenues, an increase of $5.0 million, or 202.9%, over the
nine months ended September 30, 1999. Cost of revenues in the nine months ended
September 30, 1999 was $2.5 million, or 41.8% of revenues. This increase was
primarily due to increases in head count and salary expense totaling $1.1
million, depreciation expense totaling $1.2 million, rent expense totaling
$339,000, subcontracting costs totaling $1.9 million and $460,000 primarily
related to utility and production supply costs. The increase in salary,
depreciation, rent, subcontracting costs, utilities and production supplies
were associated with the expansion of our operations to meet current and
anticipated demand. During the nine months ended September 30, 2000, we
increased our operations head count by approximately 80, invested significantly
in new testers, expanded our Sunnyvale facility and opened our San Jose and San
Diego facilities. The increase in subcontracting costs relate to the
outsourcing of assembly and test services for Micro Linear and Acoustic
Technologies, Inc. which have significantly lower gross margins than our
traditional test services. Gross profit margins declined from 58.2% in the nine
months ended September 30, 1999 to 41.4% in the nine months ended September 30,
2000, primarily as a result of revenues from the long-term contracts with
Fairchild and Micro Linear and assembly management services which we began to
perform in May 2000. During the nine months ended September 30, 1999 we did not

30
<PAGE>

perform any assembly management services, had not yet expanded our Sunnyvale
facility, and our utilization of test equipment and personnel were essentially
at full capacity, helping us achieve 58.2% gross profit margins during that
period.

Many of our expenses, particularly test equipment depreciation, employee
compensation and rent, are fixed and will continue to increase as we expand our
operations. Thus, a failure to increase our revenues or a decrease in our
revenues as a result of a delay in a purchase by a customer or a cancellation
of a significant purchase order by any of our customers could cause our
quarter-to-quarter and year-to-year gross profit to vary significantly in the
future as they have in the past.

Selling, General and Administrative. Selling, general and administrative
expenses consist primarily of salaries and related costs, general allocated
facilities costs, promotion costs and professional fees, including legal and
accounting fees. We expect that selling, general and administrative costs will
increase in the future as we hire additional personnel, expand our operations
and incur additional costs related to the growth of our operations and the
costs associated with being a public company.

Selling, general and administrative expenses in the nine months ended
September 30, 2000 were $2.2 million, or 17.4% of revenues, an increase of $1.1
million, or 104.9%, over the nine months ended September 30, 1999. As a percent
of total revenues, selling, general and administrative expenses decreased to
17.4% in the nine months ended September 30, 2000, from 18.3%, or $1.1 million,
in the nine months ended September 30, 1999. The increase in selling, general
and administrative expenses was primarily due to increases in employee
headcount and related costs totaling $980,000, and depreciation expense
totaling $90,000 and $30,000 related to sales and marketing activities, rent,
travel expenses and other general corporate activities. These increases
primarily relate to the expansion of our corporate facilities, personnel and
our operations to meet current and anticipated demand.

Research and Development. Through March 31, 2000, our research and
development activities have consisted primarily of software and hardware
development that has been billed to our customers in the form of non-recurring
engineering charges and have been included in cost of revenues. During the nine
months ended September 30, 2000, we performed research and development
activities for our own purposes and incurred $367,000 of research and
development expenses to further develop proprietary technologies, such as our
Test IP capability. We expect research and development expenses to represent
between approximately 2.0% and 3.0% of our revenues in 2000.

Amortization of Stock-based Compensation. For employees, amortization of
stock-based compensation is the difference between the deemed fair value of our
common stock at the date of grant of options and the exercise price of those
options. For non-employees, amortization of stock-based compensation is based
on the fair value method of accounting for an option grant. Such amounts, net
of amortization, are presented as a reduction of stockholders' equity and
amortized over the vesting period of the applicable option.

Amortization of stock-based compensation expense was $1.2 million, or 9.8%
of revenues, in the nine months ended September 30, 2000, primarily due to the
grant of stock options to newly hired employees and consultants.

Other Income (Expense), Net. Other expense, net in the nine months ended
September 30, 2000 was $20,000, compared to other income, net of $204,000 in
the nine months ended September 30, 2000. The other expense, net of $20,000 is
due to increased interest expense of $231,000 resulting from increased bank
borrowings to finance our purchase of testers in order to meet rising demand
for test services.

Provision for Income Taxes. Our provision for income taxes was $865,000 in
the nine months ended September 30, 2000, a decrease of $206,000, or 19.2%,
over the nine months ended September 30, 1999. Our provision for income taxes
decreased because of lower taxable income. Our effective tax rate increased
from 43.0% in the nine months ended September 30, 1999 to 60.2% in the nine
months ended September 30, 2000. The increase in our effective tax rate relates
to permanent non-deductible expenses related to amortization of incentive
stock-based compensation.

31
<PAGE>

Years Ended December 31, 1999, 1998 and 1997

Revenues. Revenues in 1999 were $8.0 million, an increase of $4.6 million,
or 134.2%, over 1998. Revenues in 1998 were $3.4 million, an increase of $2.4
million, or 227.5%, over 1997. The increase in revenues in 1999 was primarily
due to an increase in our capacity, higher utilization rates and higher
customer sales. Additionally, the average revenue generated per customer
increased from $180,000 in 1998 to $363,000 in 1999. The average revenue per
customer increased over 102% from year-end 1998 to 1999 as a result of a
significant increase in sales to Philips' predecessor, VLSI, and Vitesse in
1999 as compared to 1998. The increase in revenues in 1998 over 1997 reflects a
full year of revenues in 1998 as compared to four months of revenues in 1997,
the year we started our operations.

Cost of Revenues and Gross Profit. Cost of revenues in 1999 was $3.6
million, or 45.6% of revenues, an increase of $1.1 million, or 41.8%, over
1998. Cost of revenues in 1998 was $2.6 million, or 75.4% of revenues, an
increase of $1.8 million, or 255.4%, over 1997. Cost of revenues in 1997 was
$724,000, or 69.5% of revenues. The 1999 increase was primarily due to higher
depreciation expenses that resulted from placing into service additional test
equipment and costs associated with increased capacity and the corresponding
labor costs. Depreciation expenses increased from $1.0 million in 1998 to
$1.7 million in 1999 which offset the increase in cost of revenues in 1999. In
1998 we paid $135,000 in employee bonuses; however, we did not pay employee
bonuses in 1999. Our board of directors, at its discretion, may decide to award
employee bonuses in 2000 and in subsequent years. Employee compensation and
related costs associated with testing operations increased due to the increase
in headcount from 18 employees at December 31, 1998 to 29 employees at December
31, 1999. Gross margins increased from 24.6% in 1998 to 54.4% in 1999. The
increase in gross margins was attributable primarily to improved utilization of
test equipment and operating personnel. The improved utilization of test
equipment and operating personnel improved our gross margins because our
significant operating costs are generally fixed in nature, and therefore
improvements in the utilization of testing ICs provide additional revenues with
no significant corresponding increase in operating costs.

The 1998 increase over 1997 was primarily due to the fact that we operated
for four months in 1997 compared to a full year in 1998 and we increased our
headcount from seven to 18 employees. Depreciation expense increased from
$177,000 in 1997 to $1.0 million in 1998 as a result of the acquisition of
additional test equipment. Gross margins decreased from 30.5% in 1997 to 24.6%
in 1998. The decrease in gross margins was attributable primarily to higher
fixed costs related to test equipment depreciation and employee compensation.

Selling, General and Administrative. Selling, general and administrative
expenses in 1999 were $1.6 million, or 20.3% of revenues, an increase of
$269,000, or 20.0%, over 1998. Selling, general and administrative expenses in
1998 were $1.4 million, or 39.6% of revenues, an increase of $658,000, or
94.8%, over 1997. The 1999 increase in selling, general and administrative
expenses primarily relates to expansion of our work force and administrative
facilities to meet demand for our services. Total headcount included in
selling, general and administrative expenses increased from three at December
31, 1998 to five at December 31, 1999. Payroll and related employee benefits
increased by $203,000, from $464,000 in 1998 to $667,000 in 1999. Further, rent
expense increased by $116,000, from $50,000 in 1998 to $166,000 in 1999, as a
result of expanding our administrative activities. The 1998 increase was mainly
due to the fact that we operated for only four months during 1997 as compared
to a full year in 1998.

Research and Development. Through March 31, 2000, our research and
development activities have primarily consisted of software and hardware
development that has been billed to our customers in the form of non-recurring
engineering charges. Our non-recurring engineering activities have been
included in cost of revenues.

Amortization of Stock-based Compensation. Amortization of stock-based
compensation increased from zero in 1998 to $219,000 in 1999 due primarily to
the grant of stock options to 14 newly hired employees. There was no
amortization of stock-based compensation in 1997 because we granted all options
at the deemed fair value of our common stock.

32
<PAGE>

Other Income (Expense), Net. Other income, net in 1999 was $354,000, a
decrease of $275,000, or 43.7%, over 1998. Other income, net in 1998 was
$629,000, a decrease of $132,000, or 17.3%, over 1997. The 1999 decrease is
primarily due to a gain of $438,000 on the sale of short-term investments
recognized in 1998. The sale of our short-term investments in 1998 related to
equity securities in mutual funds. We sold our mutual fund investments in
September 1998 and replaced them with short-term commercial paper and money
market accounts. This gain in 1998 was offset by an increase in net interest
income of $76,000 from higher cash balances and gain on the sale of equipment
of $87,000. The 1998 decrease in comparison to 1997 is primarily due to an
increase in interest expense from additional bank borrowings.

Provision for Income Taxes. Provision for income taxes in 1999 was $1.2
million, compared to $70,000 in 1998 and $169,000 in 1997. The increase in
provision for income taxes in 1999 relates to an increase in our pretax income
from $117,000 in 1998 to $2.9 million in 1999. Our effective tax rate decreased
from 59.8% in 1998 to 43.0% in 1999. Our effective tax rate increased from
43.9% in 1997 to 59.8% in 1998. Our effective tax rate in 1998 was higher than
the federal and state statutory rate primarily as a result of permanent non-
deductible expenses related to interest payments. The interest payments related
to amounts due quarterly on federal and state income taxes that were not paid
until the end of the year. As these interest payments are not deductible for
determining taxable income, this non-deductible expense drove our effective
income tax rate higher than the statutory rate in 1998.

33
<PAGE>

Quarterly Results of Operations

The following table sets forth our historical unaudited quarterly
information for our most recent eleven quarters, both in absolute dollars and
as a percentage of total revenue for each quarter. This quarterly information
has been prepared on a basis consistent with our audited financial statements
and we believe, includes all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the information shown. Our
quarterly operating results have fluctuated and may continue to fluctuate
significantly as a result of a variety of factors and operating results for any
quarter are not necessarily indicative of results for any future quarter or for
a full fiscal year.

<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------------------------------
Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30,
1998 1998 1998 1998 1999 1999 1999 1999 2000 2000 2000
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations:
Revenues.......... $ 272 $ 834 $ 919 $1,388 $1,724 $2,025 $2,162 $2,083 $2,616 $4,233 $5,921
Cost of revenues.. 357 586 717 913 688 810 973 1,177 1,220 2,340 3,926
------ ----- ----- ------ ------ ------ ------ ------ ------ ------ ------
Gross profit...... (85) 248 202 475 1,036 1,215 1,189 906 1,396 1,893 1,995
------ ----- ----- ------ ------ ------ ------ ------ ------ ------ ------
Operating
expenses:
Selling, general
and
administrative.. 289 323 324 416 289 379 413 540 614 673 928
Research and
development..... -- -- -- -- -- -- -- -- -- 139 228
Amortization of
stock-based
compensation.... -- -- -- -- -- -- 71 148 223 820 204
------ ----- ----- ------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses........ 289 323 324 416 289 379 484 688 837 1,632 1,360
------ ----- ----- ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations...... (374) (75) (122) 59 747 836 705 218 559 261 636
Other income
(expense), net.. 133 99 347 50 80 60 64 150 65 13 (98)
------ ----- ----- ------ ------ ------ ------ ------ ------ ------ ------
Income (loss)
before provision
for income
taxes............ (241) 24 225 109 827 896 769 368 624 274 539
Provision for
income taxes
(benefit)........ (144) 14 135 65 347 376 348 158 337 226 302
------ ----- ----- ------ ------ ------ ------ ------ ------ ------ ------
Net income
(loss).......... $ (97) $ 10 $ 90 $ 44 $ 480 $ 520 $ 421 $ 210 $ 287 $ 48 $ 235
====== ===== ===== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------------------------------
Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30,
1998 1998 1998 1998 1999 1999 1999 1999 2000 2000 2000
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(percentage of total revenues)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As a Percentage of
Revenues:
Revenues.......... 100.0 % 100.0 % 100.0 % 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0 %
Cost of revenues.. 131.3 70.3 78.0 65.8 39.9 40.0 45.0 56.5 46.6 55.3 66.3
------ ----- ----- ------ ------ ------ ------ ------ ------ ------ ------
Gross profit...... (31.3) 29.7 22.0 34.2 60.1 60.0 55.0 43.5 53.4 44.7 33.7
------ ----- ----- ------ ------ ------ ------ ------ ------ ------ ------
Operating
expenses:
Selling, general
and
administrative.. 106.3 38.7 35.3 30.0 16.8 18.7 19.1 25.9 23.5 15.9 15.7
Research and
development..... -- -- -- -- -- -- -- -- -- 3.3 3.8
Amortization of
stock-based
compensation.... -- -- -- -- -- -- 3.3 7.1 8.5 19.4 3.4
------ ----- ----- ------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses........ 106.3 38.7 35.3 30.0 16.8 18.7 22.4 33.0 32.0 38.6 22.9
------ ----- ----- ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations...... (137.6) (9.0) (13.3) 4.2 43.3 41.3 32.6 10.5 21.4 6.1 10.8
Other income
(expense), net.. 48.9 11.9 37.8 3.6 4.6 3.0 3.0 7.2 2.5 0.3 (1.7)
------ ----- ----- ------ ------ ------ ------ ------ ------ ------ ------
Income (loss)
before provision
for income
taxes............ (88.7) 2.9 24.6 7.8 47.9 44.3 35.6 17.7 23.9 6.4 9.1
Provision for
income taxes
(benefit)........ (52.9) 1.7 14.7 4.7 20.1 18.6 16.1 7.6 12.9 5.3 5.1
------ ----- ----- ------ ------ ------ ------ ------ ------ ------ ------
Net income
(loss).......... (35.8)% 1.2 % 9.9 % 3.1% 27.8% 25.7% 19.5% 10.1% 11.0% 1.1% 4.0 %
====== ===== ===== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>

34
<PAGE>

Other than the last quarter of 1999, our revenues generally increased in
each quarter of 1998 and 1999 and in each of the three quarters in the nine
months ended September 30, 2000, primarily as a result of increased customer
demand for our test services from existing and new customers. During the
quarters ended June 30, 1999, September 30, 1999 and December 31, 1999,
revenues remained relatively consistent, and actually decreased in the last
quarter of 1999 as a result of test capacity limitations. However, in 2000, we
increased our test capacity by adding floor space and additional testers
compared to the last quarter of 1999, allowing us to increase the volume of our
test services and our revenues.

Gross profit percentages have fluctuated from quarter-to-quarter as a
result of increased fixed costs associated with the expansion of our operations
and increases in our headcount. Our gross profit percentage of revenues
increased from 34.2% in the fourth quarter of 1998 to 60.1% in the first
quarter of 1999 primarily as a result of increased revenues in the first
quarter of 1999 caused by an increase in the demand for our test services from
customers such as Vitesse and MMC without a corresponding increase in costs.
Also, in the fourth quarter of 1998, we had additional costs related to
employee compensation for bonuses and we performed additional non-recurring
engineering service projects, which typically have lower gross profit
percentages than our test services. Gross profit decreased in each of the last
two quarters of 1999 because revenues remained relatively flat while we
increased fixed costs related to headcount and facility expansions to meet
anticipated demand for our test services. Further, in the last quarter of 1999,
we performed and completed additional non-recurring engineering projects which
typically have lower gross profit percentages than our test services.
Additionally, during the second and third quarters of 2000, our gross profit
percentages decreased as a result of performing assembly management services
which have significantly lower gross profit percentages than our test services.
We expect this trend of fluctuating gross profit percentages to continue as we
intend to further expand our operations.

Liquidity and Capital Resources

Our annual need for funds has generally increased reflecting the expanding
scope and level of our test service activities. Since our inception, we have
financed our operations primarily through the sale of $14.0 million of our
Series A convertible preferred stock, cash flows from operating activities,
bank borrowings and customer equipment financings.

In the nine months ended September 30, 2000, cash provided by operating
activities of $2.5 million related to net income of $570,000, depreciation
expense of $2.5 million, amortization of deferred stock based compensation of
$1.2 million and an increase in accounts payable to $2.8 million, related to
equipment purchases at the end of the quarter, offset by an increase in
accounts receivable of $2.8 million, related to an increase in sales and an
increase in prepaid expenses and other current assets of $1.4 million related
to capitalized initial public offering costs. Cash used in investing activities
of $12.8 million related to equipment purchases. Cash provided by financing
activities of $7.8 million primarily related to proceeds from issuance of notes
payable for the acquisition of the Micro Linear test equipment of $5.0 million
and bank borrowings of $3.9 million, offset by payments on our bank facilities
of $1.5 million.

In 1999, cash provided by operating activities of $4.4 million primarily
consisted of net income of $1.6 million, depreciation expense of $1.7 million,
an increase in income tax payable of $1.2 million, as a result of higher
taxable income, and an increase in accounts payable of $1.1 million, related to
equipment purchases at year-end. Cash used in investing activities of $1.4
million primarily related to capital expenditures of $3.8 million for test
equipment offset by a reduction in restricted cash of $2.3 million. Cash
provided by financing activities of $199,000 primarily related to net bank
borrowings. The total cash and cash equivalents at the end of 1999 was $11.6
million.

In 1998, cash used in operating activities of $2.7 million primarily
related to a decrease in accounts payable of $2.9 million primarily related to
payments on equipment purchases, an increase in accounts receivable of $518,000
as a result of higher sales, and a realized gain on sale of short-term
investments of $438,000, offset by depreciation of $1.1 million, an increase in
accrued liabilities of $250,000, due to employee bonuses and net income of
$47,000. Cash used in investing activities of $1.6 million related to purchases
of

35
<PAGE>

property and equipment of $1.9 million, an increase in restricted cash of
$4.5 million, offset by proceeds from sale of short-term investments of
$4.8 million. Cash provided by financing activities of $3.7 million related to
net borrowings on our bank facilities to fund test equipment purchases.

In 1997, cash provided by operating activities of $2.8 million primarily
related to an increase in accounts payable of $3.1 million, due primarily to
equipment purchases, net income of $216,000, an increase in accrued liabilities
of $280,000 related to employee compensation and benefits, offset by an
increase in accounts receivable of $693,000 and a realized gain on sale of
short-term investments of $366,000. Cash used in investing activities related
to purchases of property and equipment of $5.4 million and purchases of short-
term investments of $4.0 million. Cash provided by financing activities of
$15.6 million related to proceeds from our issuance of Series A convertible
preferred stock of $14.0 million and net borrowings of $1.6 million on our bank
facility to fund purchases of test equipment.

On September 29, 1999, we entered into an agreement with Fairchild to
purchase its backend test equipment used in its San Diego, California test
facility. The purchase price for the test equipment was $865,000 of which
$778,500 was funded through our bank facility on October 26, 1999. The entire
purchase price consideration was allocated to the fair value of the acquired
test equipment. The bank promissory note used to fund this transaction bears
interest at a per annum rate of 9.5% due monthly with monthly principal
installments of $13,000. The bank promissory note matures in October 2004. We
incurred moving expenses of approximately $22,000 and leasehold improvements of
$284,000 to move this equipment to our new San Diego facility.

On April 28, 2000, we issued an unsecured promissory note in the amount of
approximately $5.0 million to purchase mixed-signal and radio frequency test
equipment from Micro Linear. The entire purchase price consideration was
allocated to the fair value of the acquired test equipment. The promissory note
bears interest at a per annum rate of 6.00% due monthly with equal monthly
principal installments of approximately $165,000 beginning November 15, 2000.
The note is due and payable in full in April 2003.

Our long-term contract agreements with both Micro Linear and Fairchild
provide that we perform production test services at initial prices, which serve
as price ceilings, as long as we maintain competitive costs, service and
quality. If the initial prices under the agreements are no longer competitive,
the prices could be lowered to be less than or equal to the prevailing market
rates. Also, under our agreement with Micro Linear, we have agreed to implement
productivity enhancements to our services that would reduce test costs charged
to Micro Linear. If fixed costs associated with these long-term agreements
increase without a corresponding increase in revenues, our gross margins,
operating results and cash flows could be harmed.

In November 1997, we established a secured equipment line of credit with
California Bank and Trust, formerly Sumitomo Bank of California, for $6.5
million. Borrowings under this arrangement bear interest between 7.10% and
7.30%. This line is secured by liens on our equipment and was secured by $4.5
million in deposits at December 31, 1998 and $2.25 million in deposits at
December 31, 1999 and March 31, 2000. Pursuant to this arrangement, each
advance matures in five years and is limited to 100% of the invoice amount plus
tax, license and freight. No additional advances are available on this credit
line. As of September 30, 2000, $2.8 million was outstanding under this
arrangement.

In August 1999, we established an additional secured equipment line of
credit with California Bank and Trust for $2.0 million. Each advance under this
agreement bears interest at the effective prime rate, matures within five
years, and is limited to 90% of the cash value of the equipment securing the
loan. No further advances are available after August 31, 2000. This equipment
line of credit is secured by liens on our equipment. As of September 30, 2000,
$1.7 million was outstanding under this agreement.

In January 2000, we entered into an unsecured equipment note payable
agreement with Quality Test Systems for $389,000 in connection with the
purchase of a tester. The note payable agreement bears zero interest. The note
payable agreement expires March 2003. At September 30, 2000 the total borrowing
outstanding is $346,000. We are not required to satisfy any financial covenants
in connection with this agreement.

36
<PAGE>

In July 2000, we established an additional secured equipment line of credit
with California Bank and Trust for $4.0 million. All outstanding advances on
this line of credit will be converted into fully-amortized term loans with
terms of 54 months. All borrowings against this equipment line bear an interest
rate equal to the effective prime rate minus one-half percent, which was 9.0%
at September 30, 2000. No further advances are available under the bank
facility after July 31, 2001. As of September 30, 2000, $3.4 million was
outstanding under this agreement. This equipment line of credit is secured by
liens on the equipment purchased under it.

Future maturities of principal on our promissory notes and equipment lines
of credit as of September 30, 2000 were as follows for the next 12 months:

<TABLE>
<S> <C>
2001................................................................... 3,659
2002................................................................... 4,508
2003................................................................... 2,566
2004................................................................... 1,097
2005 and thereafter.................................................... 1,435
</TABLE>

Our contractual commitments as of December 31, 1999 for capital
expenditures were approximately $248,000. As discussed above, our commitment to
purchase the Micro Linear test equipment was funded through an unsecured
promissory note we issued to Micro Linear. We also plan to fund our capital
expenditures through the end of 2000 with our existing equipment lines of
credit, cash generated from operations and the net proceeds from the sale of
our common stock in this offering. The costs of approximately
$22,000 associated with relocating our San Diego facility and the related
leasehold improvements of $284,000 were funded by our current cash balances. We
believe that the net proceeds from the sale of the common stock in this
offering, together with funds generated from operations and our equipment lines
of credit, will be sufficient to meet our working capital and capital
expenditure requirements for at least the next 12 months. Thereafter, we may
find it necessary to obtain additional equity or debt financing. In the event
additional financing is required, we may not be able to raise it on acceptable
terms or at all. The sale of additional equity or debt securities may result in
additional dilution to our stockholders. See "Risk Factors--Our business could
be adversely affected if we have difficulty obtaining additional capital to
finance future purchases of technically advanced test equipment."

Recently Issued Accounting Standards

In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument
be recorded in the balance sheet as either an asset or liability measured at
its fair value. SFAS
No. 133, as recently amended, is effective for fiscal years beginning after
June 15, 2000. Management believes the adoption of SFAS No. 133 will not have a
material effect on our financial position or results of operations.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial statements.
The adoption of SAB 101 has not had a significant impact on our results of
operations and financial position.

In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation--an interpretation of APB
Opinion No. 25" ("FIN 44"). This interpretation clarifies the definition of
employee for purposes of applying Accounting Practice Board Opinion No. 25,
"Accounting for Stock Issued to Employees," the criteria for determining
whether a plan qualifies as a noncompensatory plan, the accounting consequence
of modifications to the terms of a previously fixed stock option or award, and
the accounting for an exchange of stock compensation awards in a business
combinations. This interpretation is effective July 1, 2000, but there are
conclusions in this interpretation that cover events that occur after either

37
<PAGE>

December 15, 1998, or January 12, 2000. We believe that FIN 44 will not have a
material effect on our financial position or results of operations.

Qualitative and Quantitative Disclosures about Market Risk

To date, we have operated exclusively in the United States and all sales to
date have been made in U.S. dollars. Accordingly, we have not had any material
exposure to foreign currency rate fluctuations. Even when we manage a
customer's outsourced IC assembly operation in Asia, the fees have been paid in
U.S. dollars. Because of this, our revenues and profits have not been impacted
directly by changes in foreign exchange rates. However, our future revenues may
be impacted indirectly by changes in foreign exchange rates if our customers
use foreign currency to purchase U.S. dollars to pay for our services. In
addition, we may be involved with customers and suppliers from overseas and the
fees may not be based in U.S. dollars. Such revenues and costs will then be
impacted by changes in foreign exchange rates.

Our exposure to market risk is confined to our cash and cash equivalents.
We maintain an investment portfolio of depository accounts and investment grade
short-term commercial paper. The securities in our investment portfolio are not
leveraged, are classified as cash equivalents and are, due to their very short-
term nature, subject to minimal interest rate risk. We currently do not hedge
interest rate exposure. Because of the short-term maturities of our
investments, we do not believe that an increase in market rates would have any
material adverse impact on the realized value of our investment portfolio.

38
<PAGE>

BUSINESS

Overview

We are an independent United States-based provider of comprehensive
semiconductor test services. We focus on analog, digital, mixed-signal and
high-performance ICs, primarily utilized in the communications and networking
industries. We provide our customers with a flexible, full service solution for
their testing needs. Our solution addresses each stage of our customers'
product lifecycle from new product development through high volume production.
Our services include software test program and hardware development, prototype
verification, characterization, volume production wafer sort and volume
production final test.

Each IC design requires a software test program customized to the product,
which can take up to four months to develop. As the time, expense and expertise
involved in this development process grows, manufacturers are increasingly
looking to outsource their test needs. However, most independent providers of
test services only offer production test services using the customers'
internally developed test programs. In contrast, our range of customer services
includes customized, high quality test software programs that can reduce
overall test times. Our test services combine our internally developed software
test programs and test hardware to provide our customers with advanced test
solutions on a cost-effective basis. We have created a library of proprietary
and reusable self-contained components called test modules, or Test IP, which
we generated during and used in the development of test programs for over 60
ICs. Our experienced test engineers use our Test IP to facilitate the rapid
development of high quality test programs and the reduction of test times. This
can accelerate our customers' new product time-to-market and time-to-volume
while simultaneously lowering their production costs.

We provide test services to integrated device manufacturers and fabless
semiconductor companies, which are companies that do not own manufacturing
facilities. Our top six customers during the nine months ended September 30,
2000 were Micro Linear, Philips, Vitesse, Fairchild, GlobeSpan, and MMC. Over
this period these customers accounted for 94% of our revenues. We were founded
in November 1996, opened our first facility in May 1997 and commenced
operations in September 1997, and have facilities located in California, in
Sunnyvale, San Jose and San Diego. We have strategically placed our facilities
close to concentrations of semiconductor companies in order to allow close
collaboration between our customers' development engineers and our test
engineers throughout all stages of new product development and production. This
allows our engineers to directly interact and communicate with our customers
during critical times of the product cycle, such as prototype verification and
production.

Industry Background

Growth in the Semiconductor Industry

ICs are critical components used in an increasingly wide variety of
electronic applications including communications, internet infrastructure,
networking, computers, consumer electronic devices and automotive and
industrial systems. The Semiconductor Industry Association, or SIA, estimates
that revenues for the semiconductor industry will grow from $149 billion in
1999 to approximately $312 billion in 2003, a compound annual growth rate of
20.3%. We believe that a principal factor driving the growth in ICs is
increased sales of communications and network ICs used in applications such as
digital subscriber lines, or DSL, cellular phones, television set-top-boxes,
broadband communications, cable modems, electronic commerce hardware and
network appliances and other wireless devices.

Overview of Our Semiconductor Test and Packaging Process

The process of testing and packaging a semiconductor can be visualized as
follows:
[DIAGRAM OF TEST AND PACKAGING PROCESS APPEARS HERE]

39
<PAGE>

The Semiconductor Testing Process

ICs are manufactured on high-purity silicon discs called wafers, which are
the base material for the ICs. The wafers are processed through a series of
complex cycles to form a number of individual ICs on each wafer. The testing of
an IC is a complex process that requires increasingly sophisticated
engineering, software, production expertise and test equipment. ICs are tested
on automated test equipment to verify that they operate in compliance with
their applicable specifications, including frequency and timing over
temperature and voltage ranges. These tests require the development of software
programs and hardware that are customized to the IC and the test equipment.
This test process can be divided into the three functional areas described
below:

Prototype Test. Initially, wafers and packaged ICs are tested to evaluate
design specification compliance. If compliant, a statistically significant
sample is selected for characterization tests to determine whether the
prototype is ready for volume production. If initially noncompliant, additional
tests are performed to attempt to debug the prototype and determine the origin
of the devices' failure.

Wafer Sort. Next, each IC on a completed wafer is tested for electrical
performance. Nonfunctioning ICs are identified and subsequently discarded
before being assembled in plastic or ceramic packages.

Final Test. Finally, the packaged ICs are tested again to confirm that they
operate and are suitable for shipment to customers or end users.

Increasing Test Complexity and Cost

Historically, semiconductor manufacturers performed their own test and
assembly and would rely on independent providers to handle overflow volume.
However, advances in IC technology such as increased functionality, integration
of analog and digital circuitry and a higher number of electrical contacts, or
pin counts, on a single IC have given rise to more complex testing requirements
and the deployment of sophisticated test equipment. This increasing IC
complexity has increased the cost of developing and maintaining advanced test
resources including the time and cost to develop test software, and the cost of
engineering resources and capital equipment. As a result, semiconductor
manufacturers have begun to outsource their sophisticated test needs to full
service test providers.

IC complexity has also given rise to sophisticated test software programs
and new generations of advanced test equipment. In addition, the cost of
developing and maintaining the advanced test resources required to effectively
introduce a new product to market. Faster new product introductions have made
it increasingly difficult for semiconductor companies to maintain adequate
internal capacity utilization levels necessary for cost effective IC testing.
More rapid obsolescence of expensive test equipment further adds to the
increasing cost of maintaining effective test capabilities. For example,
equipment used to test mixed-signal devices can become obsolete for the most
advanced ICs in as little as two years. We expect the cost of test software and
equipment to continue to increase as product development cycles shorten, new
products and applications proliferate, pin counts increase and IC sizes shrink.

Rising Demand for Outsourced Test

Today, semiconductor manufacturers increasingly are outsourcing test to
independent providers who have the expertise, equipment and engineers to
satisfy the time-to-market and time-to-volume demands of the industry, allowing
them to focus internal resources on their core competencies. According to
Semiconductor Business News, an online industry news service, a number of
industry estimates indicate that spending on outsourced test services is
growing by more than 40.0% per year and is expected to reach $2.0 billion by
2001.

40
<PAGE>

We believe that this growth is being driven by the following factors:

. Increased Engineering Complexity. As ICs have become more complex,
test program development and hardware platforms now require more
sophisticated engineering resources. Each device requires a
customized, product-specific test program, which can take up to four
months to develop. To keep pace with IC complexity, software test
programs must be developed by engineers experienced in the test field.

We believe that integrated device manufacturers and fabless companies
will prefer to outsource an increasing percentage of their test
services rather than directly incur the costs of employing the
additional experienced test engineers that otherwise would be
required.

. Efficient Use of Capital. The complex test process requires
substantial investment in specialized test equipment and facilities,
the cost of which has increased substantially over the past several
years as the devices they test have become more sophisticated. Shorter
product life cycles for high-performance ICs further discourage
customers and competitors from investing in expensive test equipment
that cannot be fully used. Conversely, having multiple customers, with
differing levels of technical requirements, allows independent test
companies to use their test equipment 24 hours per day, seven days a
week and to extend the productive life of their equipment.

We believe that semiconductor companies are turning to the outsourcing
of test services to optimize their limited resources, reduce capital
expenditures and control research and development costs.

. Time-to-Market and Time-to-Volume Pressures. To meet the demands of
the increasingly competitive semiconductor market, and to respond to
decreasing product life spans, semiconductor companies are seeking to
shorten their time-to-market and time-to-volume.

We believe that independent test companies that offer comprehensive
test solutions, test equipment, engineering capabilities and test
expertise can accelerate their customers' new product development and
time-to-market and time-to-volume.

The Artest Solution

We provide comprehensive engineering and production test services to the
semiconductor industry for analog, digital, mixed-signal and high-performance
ICs. We have the engineering, software and hardware experience to provide our
customers with a flexible, full service solution to their test needs. Our
solution addresses each stage of our customers' product lifecycle from new
product development through high volume production.

Our development engineering staff, with an average of over 19 years of
engineering and operations experience, has a comprehensive understanding of
device test requirements, including digital technology, analog technology, test
equipment, test languages and test hardware. We also have created a library of
our Test IP which we generated during and used in the development of test
programs for over 60 ICs. We use our Test IP library as valuable building
blocks to develop new solutions for our customers. Our engineering experience
and our software library allow us to accelerate test development times and
increase our own test capacity and utilization.

We have strategically placed our facilities close to concentrations of
semiconductor companies in order to allow close collaboration between our
customers' development engineers and our test engineers throughout all stages
of new product development and production. Our engineers' proximity to our
customers allows them to directly interact and communicate during critical
times of the product cycle such as prototype debug and production.

41
<PAGE>

Two case studies demonstrate how we use our comprehensive test engineering
services and experience to assist our customers.

Case Study No. 1 -- Test Operations Purchase Model

<TABLE>
<C> <S>
Customer Micro Linear Corporation

Customer Challenge Micro Linear faced increasing cost pressure associated with
delivering its analog and mixed-signal products. Although
Micro Linear had outsourced its assembly operations
overseas, it was seeking an outsourcing company to provide
complex test services locally, including direct access to
automated test equipment and test engineers who would
collaborate directly with Micro Linear engineers, to
support new product development and production.

Artest Solution We purchased the mixed-signal and radio frequency test
equipment from Micro Linear and entered into a three-year
agreement under which we are providing Micro Linear
production test services and equipment access for their new
product development. Micro Linear is one of two customers
for whom we are providing a broad range of end-to-end test
services within our facilities. By using our experience in
mixed-signal device testing, engineering and manufacturing,
we were able to reduce their total test costs by 40%. Micro
Linear is our first customer of this type to track cost
reduction data, and the actual cost reduction percentage
for other customers may vary from the Micro Linear result.
In addition, we now are providing management services for
Micro Linear's outsourced assembly operations. Our
agreement allows Micro Linear to focus its resources on the
development of new products, and helps us build a closer
relationship with this key customer.

Case Study No. 2 -- Project Specific Model

Customer Philips Semiconductors, Inc.

Customer Challenge Philips' predecessor, VLSI Technology, Inc., had developed
an advanced, mixed-signal cellular phone chip. The product
required complex testing and would have involved the
devotion of significant Philips resources and delayed the
product's time-to-volume if test services were conducted
in-house.
</TABLE>

<TABLE>
<C> <S>
Artest Solution Our engineering team worked closely with Philips' test
engineers to quickly develop test software to support the
high volume production requirements. As Philips' production
increased, we optimized the test program which reduced the
test time from 8 seconds to 4.5 seconds, a time reduction
of 44%, and as a result, significantly reduced Philips'
production costs.
</TABLE>

Strategy

Our goal is to be the leading provider of a comprehensive selection of
advanced test services to the communications and networking segments of the
semiconductor industry.

The principal components of our strategy to achieve this objective are set
forth below.

Target Selected Customers in Complex Analog, Digital and Mixed-Signal IC
Markets. We intend to strengthen our position as a leading provider of test
services for complex analog, digital and mixed-signal ICs in the communications
and networking sectors. Our engineering and software expertise will enable us
to continually expand our test services in these two high-growth areas driven
by rapid product introduction and shorter product life cycles. We believe that
our offering of services, including test software and hardware development and
prototype and production test services, are well-suited to the product
introduction and time-to-

42
<PAGE>

volume needs of IC companies. We also believe that by focusing our testing
services on these fast-growing markets, we will be able to take advantage of
the growing demand for testing expertise and the evolving trend towards
outsourcing.

Continue to Develop Our Test IP Library. We plan to expand our Test IP
library to include test modules for emerging standards such as analog-to-
digital converter, digital-to-analog converter, universal serial bus, a
standard for attaching external equipment to personal computers, and firewire,
a standard for high capacity communication. This will allow us to generate test
programs more efficiently for our customers.

Pursue Acquisitions of IC Test Operations. We believe that, like Micro
Linear and Fairchild, a number of potential customers ultimately may decide to
outsource their entire test operation. We believe that we can profitably
purchase their equipment and hire their test employees and then use these
resources as part of long-term test arrangements with these customers. This
strategy also will provide us with additional test capacity for other
customers.

Increase Penetration of Existing Customers. Independent test services
companies provide only a relatively small percentage of most IC manufacturers'
overall testing needs. For example, our major customers typically outsource to
us less than 10% of their overall test functions. We believe that as we
continue to demonstrate our expertise to these manufacturers, they will
outsource a greater proportion of their testing needs to us.

Expand Our Geographic Presence and Scope of Activities. We intend to open a
limited number of additional facilities in the United States and Asia near
concentrations of existing and potential customers. Our close proximity to our
customers' design facilities has allowed us in the past, and we anticipate will
permit us in the future, to work closely with them starting with the early
stage of product development. In order to complement our core test capabilities
and enable us to offer a comprehensive range of test and assembly services, our
expansion plans may also include the acquisition of packaging operations.

Services

We offer a comprehensive array of technologically advanced test and
engineering services to address the needs of our customers and their end
customers. We work closely with our customers to bring their products to market
quickly and cost-effectively while providing ongoing test data for yield
enhancement and cost reduction. There are two major device life-cycle phases:
prototype and production. We work closely with our customers to offer test
services during both phases. In addition, we offer our customers a turnkey
solution which includes wafer sort, selection and management of assembly
subcontractors, final test and drop shipment services, all of which can reduce
our customers' manufacturing costs and their time-to-market and time-to-volume.
For each of the last three years most of our revenues have been derived from
production phase services with 1% of our revenues for the nine months ended
September 30, 2000 from software test program and hardware development, or non-
recurring engineering services, and 11% from assembly management services. The
following is a summary of the services we offer throughout the IC development
to volume production process.

Prototype Phase

The initial stage of IC design, development and testing is the prototype
phase, during which we provide the following services:

Software Test Program and Hardware Development. To properly test the
functionality and performance of our customers' ICs for prototype verification
and characterization, our engineering staff develops software test programs for
each particular product. Additionally, we develop the test hardware required to
test the particular product.

Prototype Assembly. Based on our customers' requirements and the device
specifications, our engineers will assist customers with the selection of their
package and assembly vendor. Our engineers help our

43
<PAGE>

customers select the optimal package for their product in terms of package type
and cavity size by evaluating the electrical, thermal, mechanical and material
application characteristics of their product. We also provide expedited
domestic and overseas assembly management services. By working closely with
specialized packaging firms, we can provide tested prototypes to our customers
in two days.

Prototype Verification. We test wafers and packaged prototype devices to
verify basic functionality and compliance with the device specifications. In
the event that the IC does not meet published specifications, we work closely
with our customers' development engineers to quickly provide device test data
feedback to help identify and isolate failures. This is a critical step in
enabling our customers to achieve their development schedule and production
time-to-market requirements.

Prototype Characterization. We offer extensive test services to determine
if there are any IC design or manufacturing weaknesses. This often includes
developing an enhanced test program to measure functionality, frequency and
timing over temperature and voltage ranges.

Reliability Qualification. We provide engineering services to evaluate the
IC's life span. This process often includes long- and short-term high
temperature stress, electrostatic discharge, susceptibility to damage during
power up and package integrity tests.

Production Phase

The second stage of IC design, development and testing is the production
phase, during which we provide the following services:

Software Test Program and Hardware Development. To properly test the
functionality and performance of our customers' ICs for wafer sort and final
test, our engineering staff develops software test programs for each particular
product. Additionally, we develop the test hardware required to test the
particular product.

Wafer Sort. Following wafer fabrication and prior to packaging, we
electrically test the wafers to determine which ICs on the wafers meet the
device specifications.

Assembly Management. For a few of our customers, we offer to select their
independent assembly suppliers and manage the outsourcing of their assembly
operations. We negotiate the price, assist in package selection, manage the
inventory and manage the relationship with these independent assembly
suppliers. Currently, we are providing this service to only two of our
customers, Micro Linear and Acoustic Technologies.

Final Test. After ICs are packaged, we electrically test each IC to verify
that it conforms to the device specifications.

Other Tests and Support. After final test, we can lead scan, or verify pin
position on the IC package. Prior to shipment we can bake, or heat, and dry
pack, or place in protective shipping bags, packaged ICs. Additionally, we
either drop-ship the ICs to the end-user or return them to our customers. We
also help our customers plan their production and track their inventory.

Test Optimization. As the IC moves into high production volume, we provide
test engineering services to optimize test programs and reduce test time and,
therefore, the customer's cost. In addition, we provide our customers device
and test yield data and work closely with them to increase yield, which also
reduces costs.

In addition, we rent the use of our IC test equipment to a number of our
customers in order to maximize our capacity utilization rates.

44
<PAGE>

Customers, Long-Term Customer Relationships and Market

Customers.

We provide test services to a growing number of customers consisting
primarily of integrated device manufacturers and fabless companies. Our largest
customers accounted for a significant portion of our revenues in the nine
months ended September 30, 2000 and in 1999, 1998 and 1997. During the nine
months ended September 30, 2000, Micro Linear represented 40% of our revenues,
Philips represented 27% of our revenues, and Fairchild, GlobeSpan, MMC and
Vitesse each ranged between 5.5% and 7.5% of our revenues. In 1999, our three
largest customers, MMC, Philips and Vitesse in the aggregate represented 85% of
our revenues, with Philips representing 60%, Vitesse representing 15% and MMC
representing 10%. In 1998 Philips represented 43%, Vivid Semiconductor, Inc.
represented 27% and Vitesse represented 13% of our revenues. In 1997 Philips
represented 82% of our revenues. We anticipate that Fairchild, GlobeSpan, Micro
Linear, MMC, Philips and Vitesse will account for a high percentage of our
revenues for the near future, with Micro Linear expected to be our largest
customer for 2000. We expect that we will continue to be dependent upon a
relatively limited number of customers for a significant portion of our revenue
in future periods.

Our customers generally place their purchase orders one to three months in
advance, which is typical for the test industry. As a result, we usually
operate with no significant backlog. Moreover, all of our customers operate in
the cyclical semiconductor industry and may vary order levels significantly
from period to period.

Our customers over the twelve months ended September 30, 2000 were:
<TABLE>
<S> <C> <C>
Acoustic Technologies, Integrated Telecom Schlumberger
Inc. Express, Inc. Technologies, Inc.
Alantro Communications, LSI Logic Corporation Sensory, Inc.
Inc. MMC Networks, Inc. Sigma Designs, Inc.
Applied Micro Circuits MediaQ, Inc. Siliconware Precision
Corporation Micrel Semiconductor, Industry Company, Ltd.
Arizona Microtek, Inc. Inc. Siliconwave, Inc.
Artisan Components, Inc. Micro Linear Corporation Synaptics, Inc.
ATI Technologies, Inc. NetLogic Microsystems, Trident Microsystems,
AverLogic Technologies, Inc. Inc.
Inc. Oak Technology, Inc. TriQuint Semicondutor,
C-Cube Microsystems, Inc. Philips Semiconductors, Inc.
Edge Semiconductor, Inc. Inc. Tropian, Inc.
Fairchild Semiconductor PLX Technology, Inc. Vitesse Semiconductor
Corporation PMC-Sierra, Inc. Corporation
Fujitsu Computer Packaging RealChip, Inc. ZiLOG, Inc.
Technologies, Inc. Sage, Inc.
GlobeSpan, Inc.
</TABLE>

Long-Term Customer Relationships.

An important element of our business strategy is to increase our customer
base by expanding our services to include a broader range of test and related
services. We intend to achieve this result by creating long-term relationships
with potential customers. To facilitate these long-term relationships, we may
enter into arrangements similar to the Micro Linear and Fairchild agreements,
in which we purchase part or all of the customers' test equipment and hire
their test engineers and operators. Such arrangements will also provide us with
additional test capacity for other customers.

Fairchild. In September 1999, we entered into a test equipment purchase and
engineering test services agreement with Fairchild, under which we purchased
their San Diego mixed-signal test equipment and agreed to pay Fairchild a
monthly user fee until June 30, 2000 for the rental of its facilities. After
June 30, 2000, we relocated, at our cost, to a new facility in San Diego,
California, to accommodate Fairchild's test and engineering needs. We incurred
moving expenses of approximately $22,000 and leasehold improvements of $284,000
to move the equipment to our new San Diego facility. We also agreed to offer
employment to six of Fairchild's employees and pay them a retention fee which
shall be covered by Fairchild. For an initial three-year term, Fairchild has
agreed to

45
<PAGE>

use our production test and shipping services for a significant portion of the
production test and shipping services it had previously performed for itself
and to give us a favored testing service status for any new mixed-signal
products it develops. Fairchild also agreed to use these services for the term
of the agreement for as long as we maintain competitive costs, service and
quality. We cannot increase the prices for our services under the agreement
higher than the maximum prices set in the agreement. Under the agreement,
Fairchild is obligated to pay us minimum annual user fees for use of our
testers. The agreement provides for automatic renewals for successive one-year
terms unless either party gives written notice to the contrary.

Micro Linear. In April 2000, we entered into a test equipment purchase
agreement with Micro Linear under which we purchased the mixed-signal and radio
frequency test equipment from Micro Linear and assumed liabilities under six
contracts of Micro Linear. We also entered into an operating agreement that
requires us to employ approximately 65 of Micro Linear's employees, of which 26
are currently full-time employees of Artest, and assume severance payment
obligations which are funded by Micro Linear. For an initial three-year term,
Micro Linear has agreed to use us as its primary subcontractor to perform wafer
sort, final test, assembly management and shipping services for substantially
all of its existing products for a maximum hourly rate as long as we maintain
competitive costs, service and quality. Under the agreement, Micro Linear is
obligated to pay us minimum annual user fees for the use of our testers covered
by the agreement. The operating agreement provides for automatic renewals for
successive one-year terms unless either party gives written notice to the
contrary.

Market.

The following table sets forth for the periods indicated the percentage of
our revenue derived from the testing of ICs used in communications, which
includes both telecommunications and data communications, and other
applications:

<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended
--------------------------- September 30,
1997 1998 1999 2000
------- ------- ------- -------------
(percentage of total revenue)
<S> <C> <C> <C> <C>
Communications..................... 73% 51% 74% 77%
Networking......................... -- 5 13 14
Computing.......................... 9 11 7 --
Video.............................. 11 28 3 9
Application specific IC............ 1 1 1 --
Other.............................. 6 4 2 --
------- ------- ------- ---
Total............................ 100% 100% 100% 100%
======= ======= ======= ===
</TABLE>

Sales, Marketing and Customer Service

We target potential customers who are industry leaders in communications
and networking which present significant volume growth opportunities. We market
our services through our senior management and through direct sales personnel
located in Sunnyvale and San Diego, California and Phoenix, Arizona. Our sales
team is supported by technical managers, and consists of sales and engineering
representatives knowledgeable about our capabilities and our customers' needs
for testing analog, digital, mixed-signal and high-performance ICs. Typically,
our sales cycle goes through the following stages: initial contact with a
customer; discussion of the customer's technical requirements, production
volume and schedule forecast; discussion of our capabilities and advantages;
engineering discussions; development of our proposal and price quotes to the
customer and issuance of a purchase order by the customer.

46
<PAGE>

Our marketing strategy focuses on developing close working relationships
with our customers early in the product development phase and throughout the
lifecycle of their product. Our objective is to have our customers consider us
an integral part of their businesses. We place a strong emphasis on providing
quality test services to our customers, which we believe is a significant
component in our customers' selection process. We also believe our customers
value the breadth and the flexibility of the test services we provide. In
addition, we are committed to finding solutions for our customers' problems,
which has been a significant factor in our ability to attract and retain
customers.

Intellectual Property and Research and Development

Intellectual Property.

Our operational success will depend in part on our ability to develop and
protect our intellectual property. We have developed test programs for over 60
ICs for high-end applications such as DSL, modem, television set-top-box and
networking products. We are continuing to expand this Test IP library, which
provides valuable building blocks which enable rapid test program generation,
cross-platform program conversion and optimization of test programs. We also
are working with IC design intellectual property providers, wafer foundries and
computer aided design tool providers to fully integrate the test program
generation process into the design flow. We protect our Test IP and software
generation methodologies through non-disclosure and proprietary rights
assignment agreements with our key employees and non-disclosure agreements with
many of our customers.

Research and Development.

In the past, most of our research and development was in the form of
customer-financed non-recurring engineering charges. We first incurred research
and development expenses for our own purposes in the second quarter of 2000 and
expect to incur research and development expenses in the future to further
develop our Test IP. Our research and development efforts also will include our
continuing development of interface hardware to provide for high-frequency
testing by minimizing electrical noise. We believe that our research and
development program will be an integral component of our business strategy in
the future.

As of September 30, 2000, we employed 13 engineers who dedicate more than
50% of their time to our research and development activities. In addition, our
management and operational personnel are also involved in research and
development activities.

Equipment, Quality Control and Quality Standard Certification

Equipment.

We work closely with our major equipment suppliers to ensure that equipment
is delivered on time and such equipment meets our stringent performance
specifications. In a number of cases, we obtain our equipment through sole or
limited source suppliers.

We have formed equipment evaluation teams, consisting of engineering and
operations employees, to manage and procure equipment that meets our customers'
current and future needs. These teams conduct a regular review of future
technology roadmaps, equipment capacity and cost performance targets. These
activities provide a basis for us to determine our ongoing equipment needs.

With the exception of a few key suppliers that provide us with reserved
equipment delivery slots and price discount structures, we have no binding
supply agreements with any of our suppliers. A reserved equipment delivery slot
is one which allows us to obtain an accelerated delivery of the equipment over
and above the delivery schedule previously committed by the supplier.
Typically, price discounts are offered for volume purchases.

47
<PAGE>

Test equipment is one of the most critical components of the testing
process. We believe the highly specialized equipment we use is among the most
advanced for production test of IC's. We generally seek to obtain testers from
different vendors with similar functionality and the ability to test a variety
of different semiconductors. In general, particular semiconductors can be
tested on only a limited number of specially configured testers. As part of the
qualification process, customers may specify the equipment on which their
semiconductors may be tested. We purchase test equipment from major
international manufacturers, which are primarily located in the United States,
Europe and Asia, including Agilent Technologies, Inc., Credence Systems
Corporation, Eagle Test Systems, Inc., LTX Corporation, Schlumberger
Technologies, Inc., Teradyne Inc. and TMT, Inc., a division of Credence
Systems.

We operate approximately 46 testers, including 42 for mixed-
signal/analog/radio frequency testing and four for digital testing. Also, in
situations where a customer has specified test equipment that is not widely
applicable to other products that we test, we have required the customer to
provide the equipment to us on a consignment basis. Two of the 46 testers we
operate are on consignment. In addition, in the future, we may agree to
purchase specified test equipment that we do not currently support in order to
satisfy a potential customer's test requirements, if the potential customer
enters into a long-term customer relationship with us committing the customer
to use our test services.

In addition to test equipment, we maintain a variety of other types of
equipment, such as automated wafer probers and handlers, scanners and
workstations for use in software development.

Quality Control.

Customers require that our facilities and procedures undergo a stringent
vendor qualification process. This qualification process typically takes from
one to two weeks, but can take longer depending on the requirements of the
customer. The initial phase of test qualification is a process known as
correlation. During correlation, which typically takes two to three days, the
customer provides us with sample semiconductors to be tested. Our engineers
work with customers to resolve any correlation issues that may arise. Our
engineers and technicians are responsible for monitoring our test and
manufacturing processes to ensure they meet our quality standards.

Quality Standard Certification.

Our test operations in Sunnyvale, California and San Jose, California are
ISO 9002 certified. We plan to obtain ISO 9002 certification for our San Diego,
California facility later this year. This standard is issued and certified by
the International Standards Organization, and sets forth what is required to
ensure production of quality products and services. The ISO certification
process involves periodically subjecting production processes and quality
management systems to stringent third-party review and verification. ISO
certification is required for sales of products to those customers that look to
an ISO certification as a threshold indication of our quality control
standards.

Competition

We believe that the independent semiconductor test service industry is
fragmented and in an early stage of development. Traditionally, integrated
device manufacturers performed test development and production test services
for their products internally. The trend towards outsourcing and the recent
success of the fabless companies have altered this traditional business model.
We believe that the principal competitive factors in our markets are state-of-
the-art test and engineering capabilities, technical competence, software
development, flexibility of services offered, quality, price, customer service
and support, maturity of sales and services relationships, cycle time, location
and available capacity.

We believe that we face competition from the internal capabilities of many
of our current and potential customers who manufacture integrated devices and
from large assembly houses which offer production test services that compete
with our services. Our largest competitors include Amkor, ASE Test, ASAT,
ChipPAC,

48
<PAGE>

ST Assembly Test and Siliconware. Bough Lin is a director of our Company and
chief executive officer and chairman of Siliconware. See "Management--Bough
Lin" and "Certain Transactions and Relationships with Related Parties--Sale of
Securities." We also face competition from smaller independent, test-houses
such as Multitest and Viko, which do not provide as wide an array of services.

We believe that we are competitive with these companies because of our
engineering breadth, test generation methodologies and Test IP. Our
competitors' ability to provide the full set of engineering services, such as
test, product characterization, reliability and assembly to support product
development from the prototype stage through the production stage varies
greatly. The majority of our competitors sell little more than just production
test using the customer's own test software programs.

Many of our competitors and potential customers have significantly longer
operating histories, larger installed bases of test equipment, greater name
recognition and significantly greater technical, financial, manufacturing and
marketing resources than we do. In addition, a number of these competitors have
long established relationships with our customers and potential customers. We
believe it is likely that additional competitors will enter the market for
most, if not all, of the services which we offer. See "Risk Factors--We may not
be able to compete successfully in our industry because our industry is
competitive and diverse."

Employees

As of September 30, 2000, we had 101 employees, with 53 in general
operations, 40 in engineering, including research and development, and eight in
sales, administration and finance. Our key employees are subject to
non-disclosure and proprietary rights assignment agreements. We have not
entered into collective bargaining agreements with any of our employees. We
have not experienced any strikes or work stoppages by our employees and believe
that our relationship with our employees is good.

Facilities

Our testing operations are conducted in facilities located in San Jose,
Sunnyvale and San Diego, California. These facilities have a total floor space
of 46,998 square feet and typically operate 24 hours per day in two or three
shifts, seven days per week.

We lease a 17,240 square-foot facility in Sunnyvale, California, a 17,140
square-foot facility in San Jose, California and a 12,618 square-foot facility
in San Diego, California. We completed the move to our current San Diego
facility in June 2000. Our lease for the San Diego facility expires June 30,
2005. Our lease for the Sunnyvale facility expires February 28, 2002, and our
lease for the San Jose facility expires April 30, 2003. We believe that we have
adequate facilities to accommodate our needs for at least the next 12 months.

Litigation

We believe that we are not a party to any legal proceedings which would,
individually or in the aggregate, have a material adverse effect on our
business, financial condition or results of operations.

Environmental Matters and Compliance

Our test operations do not generate significant pollutants. Our operations
are subject to regulatory requirements and potential liabilities arising under
California laws and regulations governing, among other things, air, emissions,
waste water discharge, waste storage, treatment and disposal, and remediation
of releases of hazardous materials. We believe that we are in compliance with
all applicable environmental laws and regulations. Expenditures on
environmental compliance currently represent an insignificant portion of our
operating expenses.

49
<PAGE>

MANAGEMENT

The following table sets forth information regarding our executive
officers, directors and key employees as of September 30, 2000:

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Jen Kao................................. 51 President, Chief Executive Officer and
Director
Suheil Samaan........................... 50 Senior Vice President, Operations
S.C. "Sam" Lee, Ph.D. .................. 53 Senior Vice President, Engineering and
Technology
Keith Imai.............................. 45 Vice President, Sales and Marketing
Steven Liaw............................. 45 Vice President, Technology
Hector Santana.......................... 29 Vice President, Finance
Alan "Lanny" Ross(1)(2)................. 65 Chairman of the Board and Director
Jim Fiebiger, Ph.D.(1)(2)............... 59 Vice Chairman of the Board and Director
Terry Gou .............................. 49 Director
Bough Lin(1)(2)......................... 48 Director
Satoshi Nagata.......................... 53 Director
</TABLE>
--------
(1)Member of the audit committee

(2)Member of the compensation committee

Jen Kao founded Artest and has served as our President and a member of our
Board of Directors since November 1996 and also as our Chief Executive Officer
since March 1997. From May 1988 until February 1997, he served as a director
and vice president of VLSI Technology, Inc., now Philips Semiconductors, Inc.,
a semiconductor manufacturing company. Mr. Kao holds an M.S. in electrical
engineering from Stanford University and a B.S. in electrical engineering from
National Chiao Tung University in Taiwan.

Suheil Samaan has served as our Senior Vice President, Operations since
August 1998. From March 1997 until July 1998, Mr. Samaan was vice president of
worldwide assembly and test operations of VLSI, now Philips. From May 1995
until March 1997, he was director of subcontract assembly and test for VLSI.
From September 1988 until May 1995, he served as a manager at VLSI. Mr. Samaan
holds an M.S. in physics from San Jose State University.

S.C. "Sam" Lee, Ph.D., has served as our Senior Vice President, Engineering
and Technology since April 2000. From January 1998 until March 2000, he was
senior vice president, analog and mixed signal products at Fairchild
Semiconductor International, Inc., a semiconductor manufacturing company. Prior
to that, Dr. Lee was president of the semiconductor division at Raytheon
Company from April 1994 until December 1997. Dr. Lee received his Ph.D. and
M.S. degrees from Ohio State University in electrical engineering and his B.S.
in electrophysics from National Chiao Tung University in Taiwan.

Keith Imai served as our Director of Sales and Marketing from October 1997
until he was promoted to his present position of Vice President, Sales and
Marketing in April 2000. From June 1988 until October 1997, Mr. Imai served as
a marketing manager and engineering section head for the Advanced Computing
Division at VLSI, now Philips. Mr. Imai received his B.S. in electrical
engineering and computer science from the University of California at Berkeley.

Steven Liaw has served as our Vice President, Technology since March 1997.
From November 1986 until April 1996, he served as an engineering manager at
VLSI, now Philips. Mr. Liaw received his B.S. in electrical engineering from
Bolton Institute of Technology in the United Kingdom.

Hector Santana joined Artest as our Corporate Controller in May 2000, and
has served as our Vice President, Finance since June 2000. From July 1994 until
May 2000, Mr. Santana was employed by Arthur Andersen LLP, an accounting firm.
From September 1998 to May 2000, Mr. Santana served as Arthur Andersen's audit
manager for Artest. Mr. Santana holds a B.S. in accounting from Santa Clara
University.

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<PAGE>

Alan "Lanny" Ross has served as Chairman of our Board of Directors since
March 1997. From February 1996 until September 1999, he served as Chairman of
WSMC (Taiwan), a semiconductor manufacturing company. Mr. Ross also served as
chairman of the Semiconductor Industry Association in 1994. From 1988 until
1996, he was president of Rockwell International Telecommunications, currently
Conexant Systems Incorporated, an IC manufacturing and communications company.
He currently serves on the board of directors of Broadcom Corporation, a public
company. Mr. Ross holds a B.S. in industrial management from San Diego State
University.

Jim Fiebiger, Ph.D., has served as Vice Chairman of our Board of Directors
since December 1999. He has also served as chief executive officer and chairman
of Lovoltech Inc., a private semiconductor company, since December 1999 and as
vice chairman of GateField Corporation, a fabless semiconductor company, since
February 1999. From June 1996 until February 1999, Dr. Fiebiger was president
and chief executive officer of GateField. From December 1987 to September 1993,
he was president and chief operating officer of VLSI, now Philips. From October
1993 until June 1996, he was managing director and chairman of Thunderbird
Technology, a semiconductor technology licensing company. Dr. Fiebiger is a
director of Mentor Graphics and QLogic, which are both public companies.
Dr. Fiebiger received his Ph.D. and M.S. degrees in solid state electronics and
B.S. in electrical engineering from the University of California at Berkeley.

Terry Gou has served as a director on our Board of Directors since March
1997. From January 1995 until the present, Mr. Gou has served as the chairman
and chief executive officer of Hon Hai Precision Industry Co. Ltd., a public
manufacturing company in Taiwan. He received his B.S. in shipping management
from China College of Marine Technology and Commerce.

Bough Lin has served as a director on our Board of Directors since March
1997. Since April 1998, Mr. Lin has served as the chief executive officer and
chairman of Siliconware Corporation, a semiconductor test company in Taiwan and
an affiliate of Artest. He served as vice-chairman of Siliconware Corporation
from January 1994 until March 1998. He is the chief executive officer and vice-
chairman of Siliconware Precision Industries Company, Ltd., a public
semiconductor assembly company in Taiwan whose American Depository Shares are
traded on the Nasdaq National Market. See "Certain Transactions and
Relationships with Related Parties" and "Business--Competition." Mr. Lin
received his B.S. in physical electronics from National Chiao Tung University
in Taiwan.

Satoshi Nagata served as a director on our Board of Directors from March
1997 until July 1998 and from April 2000 through the present. Since April 1998,
Mr. Nagata has served as president and chief executive officer of Mitsui High-
tec (USA) Inc., a subsidiary of Mitsui High-tec, Inc., a public IC assembly and
leadframe company in Japan. Mr. Nagata served as senior managing director of
Mitsui from April 1994 until April 1997 and executive vice president from April
1997 until April 1998. Mr. Nagata has also served as president of Mitsui Asia
H/Q Pte, Ltd. since January 1997 and president of MHT America Holdings, Inc.
since September 1997. He received his B.L. in law from Tokyo University and
M.S. from Stanford University.

Board of Directors

We currently have six directors. Following our reincorporation as a
Delaware corporation, our board of directors will consist of six directors
divided into three classes, with each class serving for a term of three years.
At each annual meeting of stockholders, directors will be elected by the
holders of common stock to succeed the directors whose terms are expiring.
Messrs. Nagata and Gou will be Class I directors whose terms will expire in
2000; Messrs. Lin and Ross will be Class II directors whose terms will expire
in 2001; and Messrs. Fiebiger and Kao will be Class III directors whose terms
will expire in 2002. This classification of the board of directors may delay or
prevent a change in control of Artest or in our management. For more
information, see "Description of Capital Stock--Antitakeover Effects of
Provisions of the Certificate of Incorporation, Bylaws and Delaware General
Corporation Law."

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<PAGE>

Board Committees

Audit Committee. We will establish an audit committee composed of
independent directors that reviews and supervises our financial controls,
including the selection of our independent public accountants, reviews our
books and accounts, meets with our officers regarding our financial controls,
acts upon recommendations of our independent public accountants and takes
further actions as the audit committee deems necessary to complete an audit of
our financial statements, as well as other matters that may come before it or
as directed by the board of directors. The audit committee will consist of
three directors: Messrs. Ross, Fiebiger and Nagata.

Compensation Committee. We will also establish a compensation committee
that reviews and approves the compensation and benefits for our executive
officers, administers our stock option plans and performs other duties as may
from time to time be determined by the board of directors. The compensation
committee will consist of three directors: Messrs. Ross, Fiebiger and Lin.

Director Compensation

Currently, directors who are not our employees have received options to
purchase an aggregate of 400,000 shares of common stock. Directors also receive
reimbursement of out-of-pocket travel expenses for attendance at meetings of
our board of directors.

Under the 2000 stock incentive plan, non-employee directors will receive
automatic option grants upon becoming directors and on the date of each annual
meeting of stockholders. The 2000 stock incentive plan also contains a director
fee option grant program. Should this program be activated in the future, each
non-employee board member will have the opportunity to apply all or a portion
of any annual retainer fee otherwise payable in cash to the acquisition of an
option with an exercise price below the then fair market value. Non-employee
directors will also be eligible to receive discretionary option grants and
direct stock issuances under the 2000 Stock Incentive Plan. See "Management--
Benefit Plans."

In June 2000, we granted an option to purchase 50,000 shares of common
stock at an exercise price of $8.00 per share, which became fully vested and
immediately exercisable on June 30, 2000, to each of Alan "Lanny" Ross, Terry
Gou, Bough Lin and Satoshi Nagata. In addition, we granted an option to
purchase 200,000 shares of common stock at an exercise price of $8.00 per
share, which became fully vested and immediately exercisable on June 30, 2000,
to Jim Fiebiger.

Compensation Committee Interlocks and Insider Participation

None of our directors who perform the functions of a compensation
committee, other than Mr. Jen Kao, our President and Chief Executive Officer,
is an employee of or ever was an employee of Artest. Messrs. Lin, Nagata and
Gou, who serve on our board of directors, are affiliated with three of our
significant stockholders. See "Certain Transactions and Relationships with
Related Parties." None of our executive officers serves on the board of
directors or compensation committee of any entity that has one or more
executive officers serving as a member of our board or our compensation
committee.

Executive Officers

Our executive officers are appointed by and serve at the discretion of our
board of directors. There are no family relationships among any of our
directors, officers or key employees.

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<PAGE>

Executive Compensation

Summary Compensation Table

The following tables set forth information concerning compensation in 1999
of our chief executive officer and our four other most highly compensated
executives who earned an annualized salary of more than $100,000 for that year.
Although Mr. Bugarin, our Director, Engineering, does not hold an executive
officer position, he was included in the table because his annualized salary
met the required threshold for 1999. The table also includes two senior
executives we hired in 2000. In April 2000, Dr. S.C. "Sam" Lee joined Artest as
our Senior Vice President, Engineering and Technology. Dr. Lee's annualized
salary for 2000 is $150,000. Also in April 2000, Mr. Imai was promoted to his
present position of Vice President, Sales and Marketing with an annualized
salary for 2000 of $130,000. In May 2000, Hector Santana joined Artest as our
Corporate Controller and was appointed as our Vice President, Finance in June
2000. Mr. Santana's annualized salary for 2000 is $130,000.

Summary Compensation Table

<TABLE>
<CAPTION>
Annual Long-Term
Compensation(1) Compensation
-------------------- ------------
Fiscal Securities
Year Salary Bonus Other Underlying All Other
Name and Principal Position Ended ($) ($) ($) Options (#) Compensation
--------------------------- ------ -------- ----- ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Jen Kao ............................... 1999 $169,200 -- -- -- $33,887(2)
President and Chief Executive Officer
Suheil Samaan.......................... 1999 160,500 -- -- -- --
Senior Vice President, Operations
Steven Liaw ........................... 1999 132,500 -- -- -- --
Vice President, Technology
Keith Imai ............................ 1999 122,500 -- -- -- --
Vice President, Sales and Marketing
John Bugarin .......................... 1999 122,000 -- -- -- --
Director, Engineering
S.C. "Sam" Lee......................... 1999 -- -- -- -- --
Senior Vice President, Engineering
and Technology
Hector Santana......................... 1999 -- -- -- -- --
Vice President, Finance
</TABLE>
--------
(1) Excludes other compensation in the form of perquisites and other personal
benefits that constitute the lesser of $50,000 or 10% of the total annual
salary or bonus in 1999.

(2) Includes $15,887 for automobile allowance and $18,000 for premiums paid on
a cash surrender value life insurance policy.

Option Grants in Fiscal 1999 and through September 30, 2000

We did not grant any stock options to our chief executive officer, our four
other most highly compensated executive officers or our other executive
officers in fiscal 1999.

In 1999, we granted options to purchase an aggregate of 328,000 shares to
employees under our 1998 Stock Option Plan at an exercise price equal to the
fair market value of our common stock on the date of grant, as determined in
good faith by our board of directors.

In May 2000, we granted an option to purchase 100,000 shares of common
stock to Hector Santana, our Vice President of Finance, at a weighted average
exercise price of $8.00 per share.

Since March 31, 2000, we have granted options representing 1,172,000
shares, of which 715,000 shares became exercisable on June 30, 2000, at a
weighted average exercise price of $8.00 per share. Of those shares, we granted
an option to purchase 20,000 shares to Keith Imai, our Vice President, Sales
and Marketing.

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<PAGE>

Aggregated Option Exercises in 1999 and Fiscal Year End Option Values

The following table sets forth information with respect to option exercises
in 1999 and the value of options at December 31, 1999 for our chief executive
officer and our four other most highly compensated executive officers. The
value of unexercised "in-the-money" options at December 31, 1999 is calculated
on the basis of the assumed initial public offering price of $10.00 per share,
the midpoint of the range shown on the front cover of the prospectus.

Table of Aggregated Option Exercises During 1999
and Option Values at December 31, 1999

<TABLE>
<CAPTION>
Number of Shares
of Common Stock
Underlying Unexercised Value of Unexercised
Common Options and Warrants at In-the-Money Options at
Stock Value December 31, 1999 December 31, 1999
Acquired on Realized ------------------------- -------------------------
Name Exercise ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jen Kao................. -- .11 400,000 600,000 $3,956,000 $5,934,000
Suheil Samaan........... -- .20 60,000 240,000 588,000 2,352,000
Steven Liaw............. -- .10 96,000 144,000 950,400 1,425,600
Keith Imai.............. -- .10 40,000 60,000 396,000 594,000
John Bugarin............ -- .20 24,000 96,000 235,000 940,800
</TABLE>

Benefit Plans

2000 Stock Incentive Plan

Introduction. Our 2000 stock incentive plan is intended to serve as the
successor program to replace our 1998 stock option plan. The 2000 plan will be
adopted by our board of directors prior to the completion of this offering and
is expected to be approved by our stockholders prior to the consummation of
this offering. If approved, the 2000 plan will become effective when the
underwriting agreement for this offering is signed. At that time, all
outstanding options under our 1998 plan will be transferred to the 2000 plan,
and no further option grants will be made under the prior 1998 plan. The
transferred options will continue to be governed by their existing terms,
unless our compensation committee decides to extend one or more features of the
2000 plan to those options. Except as otherwise noted below, the transferred
options have substantially the same terms as will be in effect for grants made
under the discretionary option grant program of our 2000 plan.

Share Reserve. Six million shares of our common stock have been authorized
for issuance under the 2000 plan. This share reserve consists of the number of
shares we estimate will be carried over from the 1998 plan plus an additional
increase of 1,279,567 shares. The share reserve under our 2000 plan will
automatically increase on the first trading day in January each calendar year
from 2001 through 2005, by an amount equal to 3% of the total number of shares
of our common stock outstanding on the last trading day of December in the
prior year, but in no event will this annual increase exceed one million
shares. In addition, no participant in our 2000 plan may be granted stock
options or direct stock issuances for more than 1,000,000 shares of common
stock per calendar year.

Programs. Our 2000 plan has five separate programs:

. the discretionary option grant program, under which eligible employees
may be granted options to purchase shares of our common stock at an
exercise price not less than the fair market value of those shares on
the grant date;

. the stock issuance program, under which eligible individuals may be
issued shares of our common stock directly through the purchase of
such shares at a price not less than their fair market value at the
time of issuance or as a bonus tied to the attainment of performance
milestones or upon the completion of a specified period of service;

54
<PAGE>

. the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary to the acquisition
of special below market stock option grants;

. the automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee
board members to purchase shares of common stock at an exercise price
equal to the fair market value of those shares on the grant date; and

. the director fee option grant program, under which our non-employee
board members may be given the opportunity to apply a portion of any
retainer fee otherwise payable to them in cash for the year to the
acquisition of special below-market option grants.

Eligibility. The individuals eligible to participate in our 2000 plan
include our officers and other employees, our board members and any consultants
that we hire.

Administration. The discretionary option grant and stock issuance programs
will be administered by our compensation committee. This committee will
determine which eligible individuals are to receive option grants or stock
issuances under those programs, the time or times when the grants or issuances
are to be made, the number of shares subject to each grant or issuance, the
status of any granted option as either an incentive stock option or a
nonstatutory stock option under the federal tax laws, the vesting schedule to
be in effect for the option grant or stock issuance and the maximum term for
which any granted option is to remain outstanding. The compensation committee
will also have the authority to select the executive officers and other highly
compensated employees who may participate in the salary investment option grant
program if that program is put into effect for one or more calendar years.

Plan Features. Our 2000 plan will include the features described below.

. The exercise price for any options granted under the plan may be paid
in cash or in shares of our common stock valued at fair market value
on the exercise date. The option may also be exercised through a same-
day sale program without any cash outlay by the optionee. In addition,
the compensation committee will have the authority to provide
financial assistance to one or more optionees in the exercise of their
outstanding options or the purchase of their unvested shares by
allowing such individuals to deliver a full-recourse, interest-bearing
promissory note in payment of the exercise price and any associated
withholding taxes incurred in connection with such exercise or
purchase.

. The compensation committee will have the authority to cancel
outstanding options under the discretionary option grant program,
including any transferred options from our 1998 plan, in return for
the grant of new options for the same or a different number of option
shares with an exercise price per share based upon the fair market
value of our common stock on the new grant date.

. Stock appreciation rights may be issued under the discretionary option
grant program. These rights will provide the holders with the election
to surrender their outstanding options for a payment from us equal to
the fair market value of the shares subject to the surrendered options
less the exercise price payable for those shares. We may make the
payment in cash or in shares of our common stock. None of the options
under our 1998 plan have any stock appreciation rights.

Change in Control. The 2000 plan will include the change in control
provisions that may result in the accelerated vesting of outstanding option
grants and stock issuances described below.

. If we are acquired by merger or asset sale, each outstanding option
under the discretionary option grant program that is not to be assumed
by the successor corporation will immediately become exercisable for
all the option shares, and all outstanding unvested shares will
immediately vest, except to the extent our repurchase rights with
respect to those shares are to be assigned to the successor
corporation.

55
<PAGE>

. The compensation committee will have complete discretion to grant one
or more options that will become exercisable for all the option shares
if those options are assumed in the acquisition but the optionee's
service with us or the acquiring entity is subsequently terminated.
The vesting of any outstanding shares under our 2000 plan may be
accelerated upon similar terms and conditions.

. The compensation committee will also have the authority to grant
options which will immediately vest in the event we are acquired,
whether or not those options are assumed by the successor corporation.

. The compensation committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase
rights will vest in connection with a successful tender offer for more
than fifty percent of our outstanding voting stock or a change in the
majority of our board through one or more contested elections. Such
accelerated vesting may occur either at the time of such transaction
or upon the subsequent termination of the individual's service.

. A number of the options currently outstanding under our 1998 plan will
immediately vest if we are acquired by a merger or asset sale. The
remainder of those options, however, contain a provision that will
result in their termination immediately prior to the consummation of a
merger or asset sale.

Salary Investment Option Grant Program. If the compensation committee
decides to put this program into effect for one or more calendar years, each of
our executive officers and other highly compensated employees may elect to
reduce his or her base salary for the calendar year by an amount not less than
$10,000 nor more than $50,000. Each selected individual who makes such an
election will automatically be granted, on the first trading day in January of
the calendar year for which his or her salary reduction is to be in effect, an
option to purchase that number of shares of common stock determined by dividing
the salary reduction amount by two-thirds of the fair market value per share of
our common stock on the grant date. The option will have an exercise price per
share equal to one-third of the fair market value of the option shares on the
grant date. As a result, the option will be structured so that the fair market
value of the option shares on the grant date less the exercise price payable
for those shares will be equal to the amount by which the optionee's salary is
reduced under the program. The option will become exercisable in a series of 12
equal monthly installments over the calendar year for which the salary
reduction is to be in effect.

Automatic Option Grant Program. Each individual who first becomes a non-
employee board member at any time after the effective date of this offering
will receive an option grant for 40,000 shares of common stock on the date such
individual joins the board. In addition, on the date of each annual
stockholders' meeting held after the effective date of this offering, each non-
employee board member who is to continue to serve as a non-employee board
member, including each of our current non-employee board members, will
automatically be granted an option to purchase 10,000 shares of common stock,
provided such individual has served on the board for at least six months.

Each automatic grant will have an exercise price per share equal to the
fair market value per share of our common stock on the grant date and will have
a term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid
per share, any shares purchased under the option that are not vested at the
time of the optionee's cessation of board service. The shares subject to each
initial 40,000-share automatic option grant will vest in a series of four
successive annual installments upon the optionee's completion of each year of
board service over the four-year period measured from the grant date. The
shares subject to each annual 10,000-share automatic option grant will vest
upon the optionee's completion of one year of service on our board of directors
measured from the grant date. However, the shares will immediately vest in full
upon changes in control or ownership, as defined in the 2000 plan, or upon the
optionee's death or disability while a board member.

56
<PAGE>

Director Fee Option Grant Program. If this program is put into effect in
the future, then each non-employee board member may elect to apply all or a
portion of any cash retainer fee for the year to the acquisition of a below-
market option grant. The option grant will automatically be made on the first
trading day in January in the year for which the retainer fee would otherwise
be payable in cash. The option will have an exercise price per share equal to
one-third of the fair market value of the option shares on the grant date, and
the number of shares subject to the option will be determined by dividing the
amount of the retainer fee applied to the program by two-thirds of the fair
market value per share of our common stock on the grant date. As a result, the
option will be structured so that the fair market value of the option shares on
the grant date less the exercise price payable for those shares will be equal
to the portion of the retainer fee applied to that option. The option will
become exercisable in a series of 12 equal monthly installments over the
calendar year for which the retainer fee election is in effect. However, the
option will become immediately exercisable for all the option shares upon the
death or disability of the optionee while serving as a board member.

Additional Program Features. Our 2000 plan will also have the features
described below:

. Outstanding options under the salary investment, automatic option
grant and director fee option grant programs will immediately vest if
we are acquired by a merger or asset sale or if there is a successful
tender offer for more than 50% of our outstanding voting stock or a
change in the majority of our board through one or more contested
elections.

. Limited stock appreciation rights will automatically be included as
part of each grant made under the salary investment option grant
program and the automatic and director fee option grant programs, and
these rights may also be granted to one or more officers as part of
their option grants under the discretionary option grant program.
Options with this feature may be surrendered to us upon the successful
completion of a hostile tender offer for more than 50% of our
outstanding voting stock. In return for the surrendered option, the
optionee will be entitled to a cash distribution from us in an amount
per surrendered option share based upon the highest price per share of
our common stock paid in that tender offer.

. The board of directors may amend or modify the 2000 plan at any time,
subject to any required stockholder approval. The 2000 plan will
terminate no later than October, 2010.

Employee Stock Purchase Plan

Our employee stock purchase plan will be adopted by the board prior to the
completion of this offering, and is expected to be approved by the stockholders
prior to the consummation of this offering. If approved, the plan will become
effective immediately upon the signing of the underwriting agreement for this
offering. The plan is designed to allow our eligible employees and the eligible
employees of any of our future participating subsidiaries to purchase shares of
common stock, at semi-annual intervals, with their accumulated payroll
deductions.

We have 250,000 shares of our common stock that will initially be reserved
for issuance under the plan. The reserve will automatically increase on the
first trading day in January of each calendar year, beginning in calendar year
2001, by an amount equal to one percent of the total number of shares of our
common stock outstanding on the last trading day of the immediately preceding
first fiscal quarter. In no event will any annual reserve increase exceed
250,000 shares.

The plan will have a series of successive overlapping offering periods,
with a new offering period beginning on the first business day of May and
November each year. Each offering period will continue for a period of 24
months, unless otherwise determined by our compensation committee. However, the
initial offering period will start on the date the underwriting agreement for
this offering is signed and will end on the last business day of October 2002.
The next offering period will start on the first business day of May 2001 and
end on the last business day of April 2003.

57
<PAGE>

Employees scheduled to work more than 20 hours per week for more than five
calendar months per year may participate in the plan and may join an offering
period on the start date of that period. Employees may participate in only one
offering period at any time.

A participant may contribute up to 15% of his or her cash earnings through
payroll deductions, and the accumulated deductions will be applied to the
purchase of shares on each semi-annual purchase date. Semi-annual purchase
dates will occur on the last business day of April and October each year, with
the first purchase to occur on the last business day of April 2001. The
purchase price per share on each semi-annual purchase date will be equal to 85%
of the fair market value per share on the start date of the offering period or,
if lower, 85% of the fair market value per share on the semi-annual purchase
date. However, a participant may not purchase more than 1,500 shares on any
purchase date, and not more than 62,500 shares may be purchased in total by all
participants on any purchase date. Our compensation committee will have the
authority to change these limitations for any subsequent offering period.

If the fair market value per share of our common stock on any purchase date
is less than the fair market value per share on the start date of the 24-month
offering period, then that offering period will automatically terminate, and
all participants in the terminated offering period will automatically be
transferred to the new offering period commencing immediately thereafter.

Should we be acquired by merger or sale of substantially all of our assets
or more than 50% of our voting securities, then all outstanding purchase rights
will automatically be exercised immediately prior to the effective date of the
acquisition. The purchase price in effect for each participant will be equal to
85% of the market value per share on the start date of the offering period in
which the participant is enrolled at the time the acquisition occurs or, if
lower, 85% of the fair market value per share immediately prior to the
acquisition.

The following provisions will also be in effect under the plan:

. the plan will terminate no later than the last business day of October
2010; and

. the board of directors may at any time amend, suspend or discontinue
the plan; however, a number of amendments may require stockholder
approval.

401(k) Plan

In 1997, we adopted a 401(k) plan covering our full-time employees. The
401(k) plan is intended to qualify under Section 401(k) of the Internal Revenue
Code so that contributions to the 401(k) plan by employees or by us, and the
investment earnings thereon, are not taxable to the employees until withdrawn
from the 401(k) plan, and so that we can deduct our contributions, if any, when
made. Pursuant to the 401(k) plan, employees may elect to reduce their current
compensation by up to the lesser of 15% of their annual pre-tax gross
compensation or the statutorily prescribed annual limit of $10,500 in 2000, and
to have the amount of the reduction contributed to the 401(k) plan. Our 401(k)
plan permits us, but does not require us, to make additional matching
contributions on behalf of a number of plan participants.

Employment Contracts, Termination of Employment Arrangement and Change in
Control Agreements

We have no employment contracts, termination of employment arrangements or
change in control agreements with any of our executive officers at this time.

58
<PAGE>

Limitation of Liability and Indemnification

Our certificate of incorporation eliminates to the maximum extent allowed
by the Delaware General Corporation Law, our directors' personal liability to
us or our stockholders for monetary damages for breaches of fiduciary duties.
Our certificate of incorporation does not, however, eliminate or limit the
personal liability of a director for the following:

. any breach of the director's duty of loyalty to us or our
stockholders;

. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;

. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or

. any transaction from which the director derived an improper personal
benefit.

Our bylaws provide that we shall indemnify our directors and executive
officers to the fullest extent permitted under the Delaware General Corporation
Law and may indemnify our other officers, employees and other agents as set
forth in the Delaware General Corporation Law. In addition, we have entered
into an indemnification agreement with each of our directors and executive
officers. The indemnification agreements contain provisions that require us,
among other things, to indemnify our directors and executive officers against
liabilities, other than liabilities arising from intentional or knowing and
culpable violations of law, that may arise by reason of their status or service
as directors or executive officers of Artest or other entities to which they
provide service at our request and to advance expenses they may incur as a
result of any proceeding against them as to which they could be indemnified. We
believe that these bylaw provisions and indemnification agreements are
necessary to attract and retain qualified directors and officers.

Prior to the consummation of this offering, we intend to obtain an
insurance policy covering directors and officers for claims they may otherwise
be required to pay or for which we are required to indemnify them.

At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted, and we are not aware of any threatened litigation or
proceeding that may result in a claim for indemnification.

59
<PAGE>

CERTAIN TRANSACTIONS AND RELATIONSHIPS WITH RELATED PARTIES

Since 1997, there have been no transactions or series of transactions to
which we were or are a party in which the amount involved exceeded or exceeds
$60,000 and in which any director, executive officer, holder of more than 5% of
any class of our voting securities, or any member of the immediate family of
any of the foregoing persons has or will have a direct or indirect material
interest, other than the transactions described below.

Sales of Securities

In March 1997, we issued and sold an aggregate of 14 million shares of our
Series A convertible preferred stock for an aggregate purchase price of
$14,000,000, or $1.00 per share, to a number of investors, including one
million shares to Silicon Foundaries.

Siliconware Investment Company, Ltd. purchased six million shares of our
Series A convertible preferred stock. Siliconware Precision Industries Company,
Ltd., a public semiconductor assembly company in Taiwan, owns Siliconware
Investment Company, Ltd. Bough Lin, one of our current directors, is chief
executive officer and vice-chairman of Siliconware Precision. As of September
30, 2000, Siliconware Investment owned 32% of the outstanding securities of
Siliconware Corporation, a semiconductor test company in Taiwan and an
affiliate of Artest, and 31.2% of shares of our common stock outstanding prior
to this offering assuming the conversion of all of the Series A preferred stock
into our common stock. Bough Lin is the chief executive officer and chairman of
Siliconware Corporation. Siliconware Corporation is a competitor of Artest.
Bough Lin's ongoing relationship with Siliconware and Artest may present
conflict-of-interest situations for the board of directors of Artest. Although
the directors of Artest intend to act in a manner consistent with their
fiduciary duties to Artest's stockholders, there is a risk that Bough Lin's
role as chief executive officer and chairman of Siliconware and his role as a
director of Artest will lead to conflicts of interest in connection with
transactions that each company may wish to pursue. It is anticipated that Bough
Lin will abstain from voting on any matter submitted to a vote of the Artest
board of directors involving a conflict of interest with Siliconware. See
"Management--Bough Lin."

Mitsui High-tec (USA), Inc., formerly International Leadframe Corporation,
purchased two million shares of our Series A convertible preferred stock.
Satoshi Nagata, one of our current directors, is the president and chief
executive officer of Mitsui High-tec (USA).

Creative Group Ltd. purchased two million shares of our Series A
convertible preferred stock. Creative Group Limited is an investment
organization for Hon Hai Precision Co., Ltd. Terry Gou, one of our current
directors, is chairman and chief executive officer of Hon Hai.

Samuel D.F. Lee purchased one million shares of our Series A convertible
preferred stock as the representative of nine individuals, consisting of Jennie
K. Hanabusa, Tom J. Kao, Randy Jen-Yang Kao, A-Jen Lin, Le-Li Kuan, Chao-Yi Yu,
Chiu-Jong Huang, Chialie Sun Chen and Tian-Fuh Tseng. Jennie K. Hanabusa is the
sister of Jen Kao, our president and chief executive officer, and Tom Kao and
Randy Kao are Jen Kao's brothers. In April 2000, Mr. Lee transferred 100,000
shares of Series A convertible preferred stock to Ms. Hanabusa, 100,000 shares
of Series A convertible preferred stock to Mr. Tom Kao and 100,000 shares of
Series A convertible preferred stock to Mr. Randy Kao.

Fairchild Transaction

In September 1999, we entered into an equipment purchase and engineering
test services agreement with Fairchild. Pursuant to that agreement, we
purchased test equipment for $865,000 and, until the end of the lease term at
June 30, 2000, were obligated to pay $5,840 per month as a user fee for the
rental of facilities. Dr. S.C. "Sam" Lee, currently our Senior Vice President,
Engineering and Technology, served as a senior vice president of Fairchild at
the time we entered into the agreement.

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<PAGE>

Agreements with Officers and Directors

We conduct business with Siliconware Precision of which Mr. Bough Lin, one
of our current directors, is the chief executive officer and vice-chairman. We
received purchase orders representing approximately $63,000 from Siliconware
Precision in 1998. Also, Mr. Bough Lin is the chief executive officer and
chairman of Siliconware Corporation, a semiconductor test company in Taiwan and
an affiliate of Artest. In 1999, we sold a test handler to Siliconware
Corporation for approximately $144,000. We recognized a gain of $87,000 from
the $144,000 received from Siliconware Corporation for the test handler. See
"--Sales of Securities" above. See "Management--Bough Lin."

We have granted options and issued common stock to our executive officers
and directors. See "Management--Board of Directors--Director Compensation" and
"Principal Stockholders."

We have entered into an indemnification agreement with each of our
executive officers and directors. See "Management--Limitation of Liability and
Indemnification."

We have entered non-disclosure proprietary rights assignment agreements
with our key employees.

We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been otherwise obtained from
unaffiliated third parties. All future transactions, including loans, if any,
between Artest and our officers, directors and principal stockholders and their
affiliates and any transactions between Artest and any entity with which our
officers, directors or five percent stockholders are affiliated will be
approved by a majority of the board of directors, including a majority of the
independent and disinterested outside directors of the board of directors and
will be on terms no less favorable to us than could be obtained from
unaffiliated third parties.

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<PAGE>

PRINCIPAL STOCKHOLDERS

The table below sets forth information regarding the beneficial ownership
of our common stock as of September 30, 2000, by the following individuals or
groups:

. each person or entity who is known by us to own beneficially more than
5% of our outstanding common stock;

. each of our named executive officers;

. each of our directors; and

. all directors and executive officers as a group.

Each stockholder's percentage ownership in the following table is based on
19,279,567 shares of common stock outstanding as of September 30, 2000, as
adjusted to assume the conversion of all 14 million outstanding shares of our
Series A convertible preferred stock into our common stock on a one-for-one
basis. Each stockholder's percentage ownership after this offering assumes the
issuance of 5,000,000 shares of our common stock in this offering for an
assumed total of 24,279,567 shares outstanding after this offering. For
purposes of calculating each stockholder's percentage ownership, any shares of
common stock as to which the stockholder has sole or shared voting power and
any options or warrants exercisable within 60 days after September 30, 2000
held by a stockholder listed in the table below are treated as outstanding
shares. As of September 30, 2000, we had 25 stockholders.

Unless otherwise indicated, the principal address of each of the
stockholders below is c/o Artest Corporation, 678 Almanor Avenue, Sunnyvale,
California 94085. Except as otherwise indicated, and subject to applicable
community property laws, the persons named in the table below have sole voting
and investment power with respect to all shares of common stock held by them.
Unless otherwise indicated, we have assumed each share of our Series A
convertible preferred stock converts into one share of our common stock.

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<PAGE>

<TABLE>
<CAPTION>
Shares Shares
Beneficially Owned Beneficially
Prior to the Owned After the
Offering Offering
------------------ -----------------
Name and Address Number Percent Number Percent
---------------- ---------- ------- --------- -------
<S> <C> <C> <C> <C>
Siliconware Investment Company, Ltd.(1)............... 6,000,000 31.1% 6,000,000 24.7%
Fl. 9, No. 105 Tun Hwa S. Road,
Sec. 2. Taipei 106, Taiwan ROC
Creative Group Limited................................ 2,000,000 10.4 2,000,000 8.2
c/o Hon Hai Precision Industries Co., Ltd.
No. 2 Tzu Yu Street,
Tu-cheng City, Taipei Hsien 236, Taiwan
Mitsui High-tec (USA), Inc., formerly
International Leadframe Corporation................... 2,000,000 10.4 2,000,000 8.2
2001 Gateway Place, Suite 201 East Tower
San Jose, California 95110
Silicon Foundries..................................... 1,000,000 5.2 1,000,000 4.2
4F, No. 12, Huang-Hua E. 1st Street
Hsin Chu, Taiwan
Jen Kao(2)............................................ 5,866,667 29.1 5,866,667 23.3
Suheil Samaan(3)...................................... 135,000 * 135,000 *
S.C. "Sam" Lee........................................ -- * -- *
Steven Liaw(4)........................................ 192,000 * 192,000 *
Keith Imai(5)......................................... 83,333 * 83,333 *
Hector Santana........................................ -- * -- *
Alan "Lanny" Ross(6).................................. 277,500 1.4 277,500 1.1
Jim Fiebiger(7)....................................... 200,000 1.0 200,000 *
Terry Gou(8).......................................... 2,050,000 10.6 2,050,000 8.4
Bough Lin(9).......................................... 6,050,000 31.3 6,050,000 24.9
Satoshi Nagata(10).................................... 2,050,000 10.6 2,050,000 8.4
John Bugarin(11)...................................... 60,000 * 60,000 *
Directors and Executive Officers as a Group (11
persons)............................................ 16,772,500 79.8 64.5%
</TABLE>
--------
* Less than one percent of the outstanding shares of our common stock.

(1) Siliconware Investment Company, Ltd. owns approximately 32% of
Siliconware Corporation, a semiconductor test company in Taiwan and an
affiliate of Artest. Siliconware Investment is a fully-owned subsidiary
of Siliconware Precision Industries Company, Ltd. Mr. Bough Lin, one of
our directors, is the chief executive officer and vice-chairman of
Siliconware Precision and the chief executive officer and chairman of
Siliconware Corporation. See "Management--Bough Lin,""Certain
Transactions and Relationships with Related Parties" and "Business--
Competition."

(2) Includes 5,000,000 shares of our common stock owned by the Jen Kao and
Chia-Yin Kao Revocable Trust, dated August 13, 1998, for which Mr. Kao is
a trustee. Also includes 866,667 shares issuable upon exercise of stock
options held by Mr. Kao.

(3) Includes 135,000 shares issuable upon exercise of stock options held by
Mr. Samaan.

(4) Includes 192,000 shares issuable upon exercise of stock options held by
Mr. Liaw.

(5) Includes 83,333 shares issuable upon exercise of stock options held by
Mr. Imai.

(6) Includes 50,000 shares issuable upon exercise of stock options held by
Mr. Ross.

(7) Includes 200,000 shares issuable upon exercise of stock options by Dr.
Fiebiger.

(8) Includes 2,000,000 shares owned by Creative Group Limited, which is an
investment organization for Hon Hai Precision Industry Co., Ltd. Mr. Gou
is chairman and chief executive officer of Hon Hai Precision Industry
Co., Ltd. Also includes 50,000 shares issuable upon exercise of stock
options held by Mr. Gou.

(9) Includes 6,000,000 shares owned by Siliconware Investment Company, Ltd.,
a fully-owned subsidiary of Siliconware Precision Industries Company,
Ltd. Mr. Lin is chief executive officer and vice-chairman of Siliconware
Precision Industries Company, Ltd. See "Certain Transactions and
Relationships with Related Parties." Also includes 50,000 shares issuable
upon exercise of stock options held by Mr. Lin.

(10) Includes 2,000,000 shares owned by Mitsui High-tec (USA), formerly
International Leadframe Corporation. Mr. Nagata is president and chief
executive officer of Mitsui High-tec (USA). Also includes 50,000 shares
issuable upon exercise of stock options held by Mr. Nagata.

(11) Includes 60,000 shares issuable upon exercise of stock options held by
Mr. Burgarin.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

General

At the closing of this offering, we will be authorized to issue 90,000,000
shares of common stock, $0.001 par value, and 10,000,000 shares of undesignated
preferred stock, $0.001 par value, after giving effect to the amendment of our
certificate of incorporation to delete references to the existing preferred
stock following conversion of that preferred stock. The following description
of capital stock gives effect to our restated certificate of incorporation to
be filed prior to the closing of this offering. Immediately following the
closing of this offering and assuming no exercise of the underwriters' over-
allotment option, an aggregate of 24,279,567 shares of common stock will be
issued and outstanding, and no shares of preferred stock will be issued and
outstanding.

The following description of our capital stock is subject to and qualified
by our restated certificate of incorporation and bylaws, which are included as
exhibits to the registration statement of which this prospectus forms a part.

Common Stock

The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by our stockholders. Subject to preferences that may
be applicable to any outstanding preferred stock that may come into existence,
the holders of common stock are entitled to receive ratably those dividends, if
any, as may be declared from time to time by our board of directors out of
funds legally available for dividends. See "Dividend Policy." In the event of
our liquidation, dissolution or winding up, the holders of our common stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior distribution rights of preferred stock, if any, then
outstanding. Our common stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to our common stock. All outstanding shares of our common stock are
fully paid and nonassessable, and the shares of common stock to be outstanding
upon completion of this offering will be fully paid and nonassessable.

Preferred Stock

Our board of directors is authorized to issue from time to time, without
stockholder authorization, in one or more designated series, any or all of our
authorized but unissued shares of preferred stock with any dividend,
redemption, conversion and exchange provisions as may be provided in the
particular series. Any series of preferred stock may possess voting, dividend,
liquidation and redemption rights superior to those of the common stock. The
rights of the holders of our common stock will be subject to, and may be
adversely affected by, the rights of the holders of any preferred stock that we
may issue in the future. Our issuance of a new series of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult to
remove our board of directors and making it more difficult for a third-party to
acquire, or discourage a third-party from acquiring, a majority of our
outstanding voting stock. We have no present plans to issue any shares of or
designate any series of preferred stock.

Registration Rights

Pursuant to a stock purchase agreement we entered into with holders of
14,000,000 shares of our Series A convertible preferred stock, the holders of
these shares are entitled to registration rights. The registration rights
provide that if we propose to register any securities under the Securities Act,
they are entitled to notice of the registration and are entitled to include
shares of their common stock in such registration. This right is subject to
conditions and limitations, including the right of the underwriters in an
offering to limit the number of shares included in the registration. We are
required to use our best efforts to effect this registration, subject to
conditions and limitations. Each holder of our Series A convertible preferred
stock has waived its registration rights with respect to this offering.

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<PAGE>

Compliance with California Law

We are currently subject to Section 2115 of the California General
Corporation Law. Section 2115 provides that, regardless of a company's legal
domicile, a number of provisions of California corporate law will apply to that
company if more than 50% of its outstanding voting securities are held of
record by persons having addresses in California and the majority of the
company's operations occur in California. For example, while we are subject to
Section 2115, stockholders may cumulate votes in electing directors. This means
that each stockholder may vote the number of votes equal to the number of
candidates multiplied by the number of votes to which the stockholder's shares
are normally entitled in favor of one candidate. This potentially allows
minority stockholders to elect a few members of our board of directors. When we
are no longer subject to Section 2115, cumulative voting will not be allowed
and a holder of 50% or more of our voting stock will be able to control the
election of all directors. In addition to this difference, Section 2115 has the
following additional effects:

. enables removal of directors with or without cause with majority
stockholder approval;

. places limitations on the distribution of dividends;

. extends additional rights to dissenting stockholders in any
reorganization, including a merger, sale of assets or exchange of
shares; and

. provides for information rights and required filings in the event we
effect a sale of assets or complete a merger.

We anticipate that our common stock will be qualified for trading as a
national market security on the Nasdaq National Market and that we will have at
least 800 stockholders of record by the record date for our 2001 annual meeting
of stockholders. If these two conditions occur, then we will not be subject to
Section 2115 as of the record date for our 2001 annual meeting of stockholders.

Antitakeover Effects of Provisions of the Certificate of Incorporation, Bylaws
and Delaware General Corporation Law

Provisions of Delaware law, our certificate of incorporation and our bylaws
could have the effect of delaying or preventing a third party from acquiring
us, even if the acquisition would benefit our stockholders. These provisions
are intended to enhance the likelihood of continuity and stability in the
composition of our board of directors and in the policies formulated by the
board of directors and to discourage types of transactions that may involve an
actual or threatened change of control of Artest. These provisions are designed
to reduce our vulnerability to an unsolicited proposal for a takeover that does
not contemplate the acquisition of all of our outstanding shares, or an
unsolicited proposal for the restructuring or sale of all or part of Artest.

We are subject to Section 203 of the Delaware General Corporation Law,
which could discourage a takeover. In general, Section 203 prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that the stockholder
became an interested stockholder, unless:

. prior to that date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder;

. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining
the number of shares outstanding those shares owned by:

(i)persons who are directors and also officers; and

(ii) employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer; or

65
<PAGE>

. on or subsequent to that date, the business combination is approved by
the board of directors of the corporation and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock
that is not owned by the interested stockholder.

Section 203 defines "business combination" to include the following:

. any merger or consolidation involving the corporation and the
interested stockholder;

. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;

. subject to a number of exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;

. any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series
of the corporation beneficially owned by the interested stockholder;
or

. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by
or through the corporation.

In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by any of these entities or persons.

In addition, provisions of our certificate of incorporation and bylaws may
have an anti-takeover effect. These provisions may delay, defer or prevent a
tender offer or takeover attempt of our company that a stockholder might
consider in his or her best interest, including those attempts that might
result in a premium over the market price for the shares held by our
stockholders. See "Risk Factors--Our certificate of incorporation and bylaws
and Delaware law contain provisions that could discourage a takeover." The
following summarizes these provisions.

Classified Board of Directors. Our certificate of incorporation provides
that at the first annual meeting of stockholders following the closing of our
initial public offering, our board of directors will be divided into three
classes of directors, as nearly equal in size as is practicable, serving
staggered three-year terms. As a result, approximately one-third of the board
of directors will be elected each year. These provisions, when coupled with the
provisions of our certificate of incorporation and bylaws authorizing our board
of directors to fill vacant directorships or increase the size of our board,
may deter a stockholder from removing incumbent directors and simultaneously
gaining control of the board of directors.

Stockholder Action; Special Meeting of Stockholders. Our certificate of
incorporation eliminates the ability of stockholders to act by written consent.
Our bylaws provide that special meetings of our stockholders may be called only
by our Chief Executive Officer, President, Chairman of the Board or a majority
of our board of directors.

Advance Notice Requirements for Stockholders Proposals and Directors
Nominations. Our bylaws provide that stockholders seeking to bring business
before any meeting of stockholders, or to nominate candidates for election as
directors at an annual meeting of stockholders, must provide our secretary with
written notice of their proposal not less than one-hundred twenty (120) days
before such meeting.

Authorized but Unissued Shares. Our authorized but unissued shares of
common stock and preferred stock are available for our board to issue without
stockholder approval. We may use these additional shares for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
our authorized but unissued shares of common stock

66
<PAGE>

and preferred stock could render more difficult or discourage an attempt to
obtain control of our company by means of a proxy context, tender offer, merger
or other transaction.

Supermajority Vote Provisions. The Delaware General Corporation Law
provides generally that the affirmative vote of a majority of the shares
entitled to vote on any matter is required to amend a corporation's certificate
of incorporation or bylaws, unless a corporation's certificate of incorporation
or bylaws, as the case may be, requires a greater percentage. Our certificate
of incorporation includes supermajority vote provisions that require the
affirmative vote of the holders of at least two-thirds of the combined voting
power of all then-outstanding shares of our voting capital stock in order to
amend the provisions of our certificate of incorporation relating to the
classified board of directors and the elimination of action by written consent
of stockholders.

Indemnification. Our bylaws require us to indemnify our directors and
officers to the fullest extent permitted by Delaware law. We intend to enter
into indemnification agreements with all of our directors and executive
officers and intend to purchase directors' and executive officers' liability
insurance.

Transfer Agent and Registrar

Our transfer agent and registrar for our common stock is Equiserve. Its
telephone number is (781) 575-2294.

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<PAGE>

SHARES AVAILABLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common
stock, and we cannot predict the effect, if any, that market sales of shares of
our common stock or the availability of shares of our common stock for sale
will have on the market price of common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of our common stock in the public
market could adversely affect the market price of our common stock and could
impair our future ability to raise capital through the sale of our equity
securities.

Upon the completion of this offering we will have 24,279,567 shares of
common stock outstanding, including the issuance of 5,000,000 shares of common
stock in this offering and excluding:

. 3,984,000 shares of common stock issuable upon the exercise of stock
options outstanding as of September 30, 2000 at a weighted average
exercise price of $2.71 per share, 715,000 of which were granted on
June 15, 2000 at a weighted average exercise price of $8.00 per share
and became fully vested and immediately exercisable on June 30, 2000;
and

. 736,433 shares of common stock reserved for issuance under our stock
option plans at September 30, 2000.

Of the outstanding shares, all of the shares sold in this offering will be
freely tradable, except that any shares held by our "affiliates," as that term
is defined in Rule 144 promulgated under the Securities Act, may only be sold
in compliance with the limitations described below. The remaining 19,279,567
shares of common stock will be deemed "restricted securities" as defined under
Rule 144. Restricted shares may be sold in the public market only if registered
or if they qualify for an exemption from registration under Rules 144, 144(k)
or 701 promulgated under the Securities Act. Subject to the lock-up agreements
described below and the provisions of Rules 144, 144(k) and 701, additional
shares will be available for sale in the public market as follows:

<TABLE>
<CAPTION>
Number of
Shares Date
---------- -------------------------------------------------------------------
<C> <S>
5,512,500 after the date of this prospectus, freely tradable shares sold in
this offering and shares saleable under Rule 144(k) that are not
subject to the 180-day lock-up;

-- after 90 days from the date of this prospectus shares saleable
under Rule 701 (subject to repurchase by us) and Rule 144 (subject
in a number of cases, to volume limitations) that are not subject
to the 180-day lock-up;

18,767,067 after 180 days from the date of this prospectus, the 180-day lock-
up is released and these shares are saleable under Rule 144
(subject, in a number of cases, to volume limitations), Rule 144(k)
or Rule 701 (subject to repurchase by us); and

-- after 180 days from the date of this prospectus, restricted
securities that are held for less than one year and are not yet
saleable under Rule 144.
</TABLE>

Rule 144

In general, under Rule 144 as currently in effect, a person, or group of
persons whose shares are required to be aggregated, including any of our
affiliates, who has beneficially owned shares for at least one year, including
the holding period of any prior owner who is not an affiliate, is entitled to
sell within any three-month period commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of one percent
of the then-outstanding shares of our common stock, which will be approximately
242,795 shares immediately after this offering, or the average weekly trading
volume in our common stock during the four calendar weeks preceding the date on
which notice of such sale is filed, subject to a number of restrictions. In
addition, a person who is not deemed to have been an affiliate at any time
during the 90 days preceding a sale and who has beneficially owned the shares
proposed to be sold for at least two years, including the holding period of any
prior owner who is not an affiliate, would be entitled to sell these

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<PAGE>

shares under Rule 144(k) without regard to the volume limitations described
above. To the extent that shares were acquired from one of our affiliates, a
person's holding period for the purpose of effecting a sale under Rule 144
would commence on the date of transfer from the affiliate.

Rule 701

Rule 701, as currently in effect, permits resales of shares in reliance
upon Rule 144, but without compliance with some of the restrictions of Rule
144, including the holding period requirement, of Rule 144. Any employee,
officer or director or consultant to Artest who purchased shares pursuant to a
written compensatory plan or contract may be entitled to rely on the resale
provisions of Rule 701. Rule 701 permits affiliates to sell their Rule 701
shares under Rule 144 without complying with the holding requirements of Rule
144. Rule 701 further provides that non-affiliates may sell their Rule 701
shares in reliance on Rule 701 without having to comply with the holding
period, public information, volume limitation or notice provisions of Rule 144.

Stock Options

At September 30, 2000, options to purchase a total of 3,984,000 shares of
common stock were outstanding, and pursuant to those options, 2,325,633 shares
were exercisable. We intend to file a Form S-8 registration statement under the
Securities Act to register all shares of common stock issuable under our option
plans. Accordingly, shares of common stock underlying these options will be
eligible for sale in the public markets, subject to vesting restrictions or the
lock-up agreements described below. See "Management--Benefit Plans."

Lock-up Agreements

All of our officers and directors who own stock and substantially all of
our securityholders have agreed, subject to specified exceptions, not to offer
to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant
any rights with respect to any shares of common stock or any options or
warrants to purchase any shares of common stock, or any securities convertible
into or exchangeable for shares of common stock owned as of the date of this
prospectus or thereafter acquired directly by those holders or with respect to
which they have the power of disposition, without the prior written consent of
Robertson Stephens, Inc. This restriction terminates after the close of trading
of the shares on the 180th day of (and including) the day the shares commenced
trading on the Nasdaq National Market. However, Robertson Stephens, Inc. may,
in its sole discretion release all or any portion of the securities subject to
these lock-up agreements. See "Underwriting--Lock-Up Agreements."

Registration Rights

Following this offering, under specified circumstances and subject to
customary conditions, holders of approximately 14,000,000 shares of our
outstanding common stock, received through the conversion of our Series A
convertible preferred stock, will have demand registration rights with respect
to their shares of common stock, subject to the 180-day lock-up arrangement
described above, to require us to register their shares of common stock under
the Securities Act, and rights to participate in any future registrations of
securities. If the holders of these registrable securities request that we
register their shares, and if the registration is effected, these shares will
become freely tradable without restriction under the Securities Act. Any sales
of securities by these stockholders could have a material adverse effect on the
trading price of our common stock. See "Description of Capital Stock--
Registration Rights."

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<PAGE>

UNITED STATES TAX CONSEQUENCES TO
NON-UNITED STATES HOLDERS OF COMMON STOCK

The following is a general discussion of the material United States federal
income and estate tax consequences of the ownership and disposition of the
common stock applicable to Non-United States Holders of our common stock. For
the purpose of this discussion, a Non-United States Holder is any holder that
for U.S. federal income tax purposes is not a U.S. person. This discussion does
not address all aspects of U.S. federal income and estate taxation that may be
relevant in light of a Non-United States Holder's particular facts and
circumstances, such as being a U.S. expatriate, and does not address any tax
consequences arising under the laws of any state, local or non-U.S. taxing
jurisdiction. Furthermore, the following discussion is based on current
provisions of the Internal Revenue Code of 1986, as amended, and administrative
and judicial interpretations thereof, all as in effect on the date hereof, and
all of which are subject to change, possibly with retroactive effect. We have
not and will not seek a ruling from the Internal Revenue Service with respect
to the U.S. federal income and estate tax consequences described below, and as
a result, there can be no assurance that the Internal Revenue Service will not
disagree with or challenge any of the conclusions set forth in this discussion.
For purposes of this discussion, the term U.S. person means:

. a citizen or resident of the United States;

. a corporation, partnership or other entity created or organized in the
United States or under the laws of the United States or any political
subdivision thereof;

. an estate whose income is included in gross income for U.S. federal
income tax purposes regardless of its source; or

. a trust whose administration is subject to the primary supervision of
a U.S. court and which has one or more U.S. persons who have the
authority to control all substantial decisions of the trust.

Dividends

If we pay a dividend, any dividend paid to a Non-United States Holder of
common stock generally will be subject to U.S. withholding tax either at a rate
of 30% of the gross amount of the dividend or such lower rate as may be
specified by an applicable tax treaty. Dividends received by a Non-United
States Holder that are effectively connected with a U.S. trade or business
conducted by the Non-United States Holder are exempt from such withholding tax.
However, those effectively connected dividends, net of applicable deductions
and credits, are taxed at the same graduated rates applicable to U.S. persons.
Dividends received by a corporate Non-United States Holder that are effectively
connected with a U.S. trade or business of the corporate Non-United States
Holder may also be subject to a branch profits tax at a rate of 30% or such
lower rate as may be specified by an applicable tax treaty.

A Non-United States Holder of common stock that is eligible for a reduced
rate of withholding tax pursuant to a tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund
with the Internal Revenue Service.

Gain on Disposition of Common Stock

A Non-United States Holder generally will not be subject to U.S. federal
income tax on any gain realized upon the sale or other disposition of his or
her common stock unless:

. the gain is effectively connected with a U.S. trade or business of the
Non-United States Holder (which gain, in the case of a corporate Non-
United States Holder, must also be taken into account for branch
profits tax purposes);

. the Non-United States Holder is an individual who holds his or her
common stock as a capital asset (generally, an asset held for
investment purposes) and who is present in the United States for a
period or periods aggregating 183 days or more during the calendar
year in which the sale or disposition occurs and other conditions are
met; or

70
<PAGE>

. Artest is or has been a "United States real property holding
corporation" for U.S. federal income tax purposes at any time within
the shorter of the five-year period preceding the disposition or the
holder's holding period for its common stock. Artest has determined
that it is not and does not believe that it will become a "United
States real property holding corporation" for U.S. federal income tax
purposes.

Backup Withholding and Information Reporting

Generally, we must report annually to the Internal Revenue Service the
amount of dividends paid, the name and address of the recipient, and the
amount, if any, of tax withheld with respect to the dividend. A similar report
is sent to the holder. Pursuant to tax treaties or other agreements, the
Internal Revenue Service may make its reports available to tax authorities in
the recipient's country of resident.

Dividends paid to a Non-United States Holder at an address within the U.S.
may be subject to backup withholding at a rate of 31% if the Non-United States
Holder fails to establish that it is entitled to an exemption or to provide a
correct taxpayer identification number and other information to the payer.
Backup withholding will generally not apply to dividends paid to Non-United
States Holders at an address outside the U.S. on or prior to December 31, 2000
unless the payer has knowledge that the payee is a United States person. Under
recently finalized Treasury Regulations regarding withholding and information
reporting, payment of dividends to Non-United States Holders at an address
outside the U.S. after December 31, 2000 may be subject to backup withholding
at a rate of 31% unless such Non-United States Holder satisfies applicable
certification requirements.

Under current Treasury Regulations, the payment of the proceeds of the
disposition of common stock to or through the U.S. office of a broker is
subject to information reporting and backup withholding at a rate of 31% unless
the holder certifies its non-U.S. status under penalties of perjury or
otherwise establishes an exemption. Generally, the payment of the proceeds of
the disposition by a Non-United States Holder of common stock outside the U.S.
to or through a foreign office of a broker will not be subject to backup
withholding but will be subject to information reporting requirements if the
broker is:

. a U.S. person;

. a "controlled foreign corporation" for U.S. federal income tax
purposes; or

. a foreign person 50% or more of whose gross income for a number of
periods is from the conduct of a U.S. trade or business;

unless the broker has documentary evidence in its files of the Non-United
States Holders' non-U.S. status and other conditions are met, or the holder
otherwise establishes an exemption. Neither backup withholding nor information
reporting generally will apply to a payment of the proceeds of a disposition of
common stock by or through a foreign office of a foreign broker not subject to
the preceding sentence.

In general, the recently promulgated final Treasury Regulations, described
above, do not significantly alter the substantive withholding and information
reporting requirements but would alter the procedures for claiming benefits of
an income tax treaty and change the certification procedures relating to the
receipt by intermediaries of payments on behalf of the beneficial owner of
shares of common stock. Non-United States Holders should consult their tax
advisors regarding the effect, if any, of those final Treasury Regulations on
an investment in the common stock. Those final Treasury Regulations are
generally effective for payments made after December 31, 2000.

Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the Internal
Revenue Service.

71
<PAGE>

Estate Tax

An individual Non-United States Holder who owns common stock at the time of
his or her death or had made lifetime transfers of an interest in common stock
will be required to include the value of that common stock in such holder's
gross estate for U.S. federal estate tax purposes, unless an applicable estate
tax treaty provides otherwise.

The foregoing discussion is only a summary of the principal federal income
and estate tax consequences of the ownership, sale or other disposition of
common stock by Non-United States Holders. Investors are urged to consult their
own tax advisors with respect to the income tax consequences of the ownership
and disposition of common stock, including the application and effect of the
laws of any state, local, foreign or other taxing jurisdiction.

72
<PAGE>

UNDERWRITING

The underwriters named below, acting through their representatives,
Robertson Stephens, Inc. and CIBC World Markets Corp. have severally agreed
with us, subject to the terms and conditions of the underwriting agreement, to
purchase from us the number of shares of common stock set forth opposite their
names below at the public offering price less the underwriting discount set
forth on the cover page of this prospectus. The underwriters are committed to
purchase and pay for all shares if any are purchased.

<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Robertson Stephens, Inc. .........................................
CIBC World Markets Corp. .........................................
---------
Total........................................................... 5,000,000
=========
</TABLE>

The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price set forth
on the cover page of this prospectus and to various dealers at that price less
a concession of not in excess of $ per share, of which $ may be reallowed
to other dealers. After this offering, the public offering price, concession
and reallowance to dealers may be reduced by the representatives. No reduction
of this type will change the amount of proceeds to be received by us as set
forth on the cover page of this prospectus. The common stock is offered by the
underwriters as stated in this prospectus, subject to receipt and acceptance by
them and subject to their right to reject any order in whole or in part.

The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.

Over-Allotment Option

We have granted to the underwriters an option, exercisable during the 30-
day period after the date of this prospectus, to purchase up to 750,000
additional shares of common stock to cover over-allotments, if any, at the same
price per share that we will receive for the 5,000,000 shares that the
underwriters have agreed to purchase. If the underwriters exercise their over-
allotment option to purchase any of the additional 750,000 shares of common
stock, the underwriters have severally agreed, subject to a number of
conditions, to purchase additional shares approximately in proportion to the
amount specified in the table above. If purchased, these additional shares
will be sold by the underwriters on the same terms as those on which the
5,000,000 shares are being sold. We will be obligated, under the terms of the
option, to sell shares to the underwriters to the extent the over-allotment
option is exercised. The underwriters may exercise the option only to cover
over-allotments made in connection with the sale of the shares of common stock
in this offering.

The following table summarizes the compensation that we will pay to the
underwriters:

<TABLE>
<CAPTION>
Total
-------------------
Without With
Per Over- Over-
Share allotment allotment
----- --------- ---------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by
us............................................ $ $ $
</TABLE>

We estimate the expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will
be approximately $2,000,000.

73
<PAGE>

Indemnity

The underwriting agreement contains covenants of indemnity among the
underwriters and us against a number of civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.

Lock-Up Agreements

Each of our directors and executive officers, all of our stockholders and
substantially all of our optionholders have agreed, subject to specified
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of common stock
or any options or warrants to purchase any shares of common stock, or any
securities convertible into or exchangeable for shares of common stock owned as
of the date of this prospectus or thereafter acquired directly by those holders
or with respect to which they have the power of disposition, without the prior
written consent of Robertson Stephens, Inc. This restriction terminates after
the close of trading of the shares on the 180th day of (and including) the day
the shares commenced trading on the Nasdaq National Market. However, Robertson
Stephens, Inc. may, in its sole discretion and at any time or from time to time
before the termination of the 180-day period, without notice, release all or
any portion of the securities subject to lock-up agreements. There are no
existing agreements between the representatives and any of our stockholders who
have executed a lock-up agreement providing consent to the sale of shares prior
to the expiration of the lock-up period.

In addition, we have agreed that during the lock-up period we will not,
without the prior written consent of Robertson Stephens, Inc., subject to a
number of exceptions, consent to the disposition of any shares held by
stockholders subject to lock-up agreements prior to the expiration of the lock-
up period, or issue, sell, contract to sell, or otherwise dispose of, any
shares of common stock, any options or warrants to purchase any shares of
common stock or any securities convertible into, exercisable for or
exchangeable for shares of common stock other than our sale of shares in this
offering, and the issuance of options under existing stock option and incentive
plans provided that those options do not vest prior to the expiration of the
lock-up period.

Listing

We have filed an application seeking approval for quotation on The Nasdaq
National Market under the symbol "ARTE."

No Prior Public Market

Prior to this offering, no public market existed for our common stock.
Consequently, the initial public offering price for the common stock offered by
this prospectus was determined through negotiations between us and the
representatives. Among the factors considered in these negotiations were
prevailing market conditions, our financial information, market valuations of
other companies that we and the representatives believe to be comparable to us,
estimates of our business potential, the present state of our development and
other factors deemed relevant.

Syndicate Short Sales

74
<PAGE>

or close out their covered short position either by exercising the over-
allotment option or by purchasing shares in the open market. In determining
which of these alternatives to pursue, the underwriters will consider the price
at which shares are available for purchase in the open market as compared to
the price at which they may purchase shares through the over-allotment option.
Any "naked" short position will be closed out by purchasing shares in the open
market. Similar to the other stabilizing transactions described below, open
market purchases made by the underwriters to cover all or a portion of their
short position may have the effect of preventing or retarding a decline in the
market price of our common stock following this offering. As a result, our
common stock may trade at a price that is higher than the price that otherwise
might prevail in the open market.

Stabilization

The representatives have advised us that, pursuant to Regulation M under
the Securities Act, they may engage in transactions, including stabilizing
bids, or the imposition of penalty bids, that may have the effect of
stabilizing or maintaining the market price of our common stock at a level
above that which might otherwise prevail in the open market. A "stabilizing
bid" is a bid for or the purchase of shares of common stock on behalf of the
underwriters for the purpose of fixing or maintaining the price of the common
stock. A "penalty bid" is an arrangement permitting the representatives to
reclaim the selling concession otherwise accruing to an underwriter or
syndicate member in connection with this offering if the common stock
originally sold by such underwriter or syndicate member is purchased by the
representatives in the open market pursuant to a stabilizing bid or to cover
all or part of a syndicate short position. The representatives have advised us
that transactions of these types may be effected on the Nasdaq National Market
or otherwise and, if commenced, may be discontinued at any time.

Directed Share Program

At our request, the underwriters have reserved up to an aggregate of 5% of
the shares of common stock offered by this prospectus for sale at the initial
public offering price to persons who are directors, officers or employees of
Artest, or who are otherwise associated with us and our affiliates, and who
have advised us of their desire to purchase such shares. These shares are
referred to as the "directed shares." The number of shares of common stock
available for sale to the general public will be reduced by the number of
directed shares sold to any of the persons for whom they have been reserved.
The directed shares will not be subject to the lock-up agreements described
above. Any directed shares not purchased will be offered by the underwriters on
the same basis as all other shares of common stock offered by this prospectus.
We have agreed to indemnify the underwriters who have reserved directed shares
against a number of liabilities and expenses, including liabilities under the
Securities Act, in connection with the sales of the directed shares.

75
<PAGE>

LEGAL MATTERS

The validity of the common stock offered will be passed upon for us by
Brobeck, Phleger & Harrison LLP, San Francisco, California. Legal matters
relating to the sale of common stock in this offering will be passed on for the
underwriters by Latham & Watkins, Menlo Park, California.

EXPERTS

The audited financial statements and schedule included in this prospectus
and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports and are included herein in reliance upon the authority of said firm as
experts in giving said reports.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, under the Securities Act a registration statement on Form S-1 including
the exhibits, schedule and amendments to the registration statement relating to
the shares of common stock to be sold in this offering. This prospectus does
not contain all of the information set forth in the registration statement and
its exhibits and schedule. For further information with respect to us and the
shares we are offering pursuant to this prospectus, you should refer to the
registration statement and its exhibits and schedule. Statements contained in
this prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete, and you should refer to the copy of
that contract or other document filed as an exhibit to the registration
statement. You may read or obtain a copy of the registration statement at the
commission's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. You may obtain information on the operation of the public reference room
by calling the commission at 1-800-SEC-0330. The commission maintains a web
site that contains reports, proxy information statements and other information
regarding registrants that file electronically with the commission. The address
of this website is http://www.sec.gov.

We intend to furnish holders of our common stock with annual reports
containing, among other information, audited financial statements certified by
an independent public accounting firm and quarterly reports containing
unaudited financial information for the first three quarters of each fiscal
year. We intend to furnish other reports as we may determine or as may be
required by law.

76
<PAGE>

ARTEST CORPORATION

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Public Accountants.................................... F-2
Balance Sheets.............................................................. F-3
Statements of Operations.................................................... F-4
Statements of Shareholders' Equity.......................................... F-5
Statements of Cash Flows.................................................... F-6
Notes to Financial Statements............................................... F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Artest Corporation:

We have audited the accompanying balance sheets of Artest Corporation (a
California corporation) as of June 30, 2000, December 31, 1999 and 1998 and the
related statements of operations, shareholders' equity and cash flows for the
six months ended June 30, 2000 and for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Artest Corporation as of
June 30, 2000, December 31, 1999 and 1998 and the results of its operations and
its cash flows for the six months ended June 30, 2000 and for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.

/s/ Arthur Andersen LLP

San Jose, California

September 26, 2000

F-2
<PAGE>

ARTEST CORPORATION

BALANCE SHEETS
(In thousands, except share data)

<TABLE>
<CAPTION>
September 30, 2000
December 31, Pro Forma
--------------- June 30, September 30, Shareholders'
1998 1999 2000 2000 Equity
------- ------- -------- ------------- ------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................ $ 8,422 $11,626 $10,003 $ 9,056
Restricted cash.......................... 1,328 1,684 1,752 1,712
Accounts receivable, net of allowance of
$10, $60, $60, and $75, respectively... 1,211 1,700 3,526 4,465
Prepaid expense and other current
assets................................. -- 67 741 1,509
Deferred income tax asset--current....... 69 166 166 166
------- ------- ------- -------
Total current assets.................. 11,030 15,243 16,188 16,908
Property and Equipment, net................ 6,132 8,220 16,642 18,555
Deferred Income Tax Asset and Other
Assets................................... 166 448 476 485
Restricted cash--Long term................. 3,172 566 498 538
------- ------- ------- -------
$20,500 $24,477 $33,804 $36,486
======= ======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable--current portion........... $ 1,328 $ 1,684 $ 3,203 $ 3,659
Accounts payable......................... 129 1,259 4,920 4,053
Accrued liabilities...................... 530 156 318 361
Income tax payable....................... 213 1,387 510 812
------- ------- ------- -------
Total current liabilities............. 2,200 4,486 8,951 8,885
Notes payable--long-term portion........... 3,984 3,825 7,307 9,606
------- ------- ------- -------
Total liabilities..................... 6,184 8,311 16,258 18,491
------- ------- ------- -------

Commitments and Contingencies (Note 4)

Shareholders' Equity:
Series A convertible preferred stock, no
par value--14,000,000 shares
authorized, issued and outstanding..... 14,000 14,000 14,000 14,000 $ --
Common stock, no par value:
24,000,000 authorized at December 31,
1999 and pro forma, respectively;
5,240,000, 5,246,000, 5,259,567, and
5,279,567 shares outstanding at
December 31, 1998, December 31, 1999,
June 30, 2000, and September 30, 2000,
respectively, and 19,279,567 shares
outstanding pro forma.................. 53 1,740 2,340 2,350 16,350
Deferred stock-based compensation........ -- (1,467) (1,022) (818) (818)
Retained earnings........................ 263 1,893 2,228 2,463 2,463
------- ------- ------- ------- -------
Total shareholders' equity............ 14,316 16,166 17,546 17,995 $17,995
------- ------- ------- ------- =======
$20,500 $24,477 $33,804 $36,486
======= ======= ======= =======
</TABLE>

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

F-3
<PAGE>

ARTEST CORPORATION

STATEMENTS OF OPERATIONS
(In thousands, except per share data)

<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
---------------------- Six Months Ended ---------------
1997 1998 1999 June 30, 2000 1999 2000
------ ------ ------ ---------------- ------ -------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues............................ $1,042 $3,413 $7,994 $6,849 $5,911 $12,770
Cost of revenues.................... 724 2,573 3,648 3,560 2,471 7,486
------ ------ ------ ------ ------ -------
Gross profit................... 318 840 4,346 3,289 3,440 5,284
------ ------ ------ ------ ------ -------
Operating expenses:
Selling, general and
administrative ................. 694 1,352 1,621 1,287 1,081 2,215
Research and development.......... -- -- -- 139 -- 367
Amortization of stock-based
compensation(1)................. -- -- 219 1,043 71 1,247
------ ------ ------ ------ ------ -------
Total operating expenses....... 694 1,352 1,840 2,469 1,152 3,829
------ ------ ------ ------ ------ -------
Income (loss) from operations....... (376) (512) 2,506 820 2,288 1,455
Other Income (Expense):
Interest income................... 405 533 592 329 440 467
Realized gain from sale of
investments and dividend
income.......................... 366 438 -- -- -- --
Realized gain from sale of
equipment....................... -- -- 87 -- -- --
Interest expense.................. (10) (342) (325) (251) (236) 487
------ ------ ------ ------ ------ -------
Total other income (expense)... 761 629 354 78 204 (20)
------ ------ ------ ------ ------ -------
Income before provision for
income taxes................. 385 117 2,860 898 2,492 1,435
Provision for income taxes.......... 169 70 1,230 563 1,071 865
------ ------ ------ ------ ------ -------
Net income.......................... $ 216 $ 47 $1,630 $ 335 1,421 570
====== ====== ====== ====== ====== =======
Net income per share(2):
Basic............................. $0.041 $0.009 $0.311 $0.064 $0.271 $ 0.108
====== ====== ====== ====== ====== =======
Diluted........................... $0.014 $0.002 $0.074 $0.015 $0.066 $ 0.026
====== ====== ====== ====== ====== =======
Shares used for net income per
share(2):
Basic............................. 5,240 5,240 5,241 5,249 5,240 5,254
====== ====== ====== ====== ====== =======
Diluted........................... 15,740 21,055 21,927 21,922 21,549 21,909
====== ====== ====== ====== ====== =======
</TABLE>
--------

(1) For the year ended December 31, 1999, amortization of deferred stock-based
compensation includes $100 related to cost of revenues, and $119 related to
selling, general and administrative expense. For the six months ended June
30, 2000, amortization of deferred stock-based compensation includes $315
related to cost of revenues and $728 related to selling, general and
administrative expense. For the nine months ended September 30, 1999,
amortization of deferred stock-based compensation includes $12 related to
cost of revenues and $59 related to selling, general and administrative
expense. For the nine months ended September 30, 2000, amortization of
deferred stock-based compensation includes $471 related to cost of revenues
and $776 related to selling, general and administrative expense.

(2) No pro forma net income per share is presented for the year ended December
31, 1999, the six months ended June 30, 2000, and the nine months ended
September 30, 2000 because the amounts would be the same as diluted net
income per share for those periods.

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

F-4
<PAGE>

ARTEST CORPORATION

STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share data)

<TABLE>
<CAPTION>
Series A
Convertible
Preferred Stock Common Stock Deferred
------------------ ---------------- Stock-Based Retained
Shares Amount Shares Amount Compensation Earnings Total
---------- ------- --------- ------ ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock................ -- $ -- 5,240,000 $ 53 $ -- $ -- $ 53
Issuance of Series A
convertible preferred
stock................ 14,000,000 14,000 -- -- -- -- 14,000
Net income............ -- -- -- -- -- 216 216
---------- ------- --------- ------ ------- ------ -------
Balance, December 31,
1997.................. 14,000,000 14,000 5,240,000 53 -- 216 14,269
Net income............ -- -- -- -- -- 47 47
---------- ------- --------- ------ ------- ------ -------
Balance, December 31,
1998.................. 14,000,000 14,000 5,240,000 53 -- 263 14,316
Exercise of stock
options............. -- -- 6,000 1 -- -- 1
Deferred stock-based
compensation........ -- -- -- 1,686 (1,686) -- --
Amortization of
deferred stock-based
compensation........ -- -- -- -- 219 -- 219
Net income............ -- -- -- -- -- 1,630 1,630
---------- ------- --------- ------ ------- ------ -------
Balance, December 31,
1999.................. 14,000,000 14,000 5,246,000 1,740 (1,467) 1,893 16,166
Exercise of stock
options............. -- -- 13,567 2 -- -- 2
Deferred stock-based
compensation........ -- -- -- 598 (598) -- --
Amortization of
deferred stock-based
compensation........ -- -- -- -- 1,043 -- 1,043
Net income............ -- -- -- -- -- 335 335
---------- ------- --------- ------ ------- ------ -------
Balance, June 30, 2000.. 14,000,000 14,000 5,259,567 2,340 (1,022) 2,228 17,546
---------- ------- --------- ------ ------- ------ -------
Exercise of stock
options............. -- -- 20,000 10 -- -- 10
Amortization of
deferred stock-based
compensation........ -- -- -- -- 204 -- 204
Net income............ -- -- -- -- -- 235 235
---------- ------- --------- ------ ------- ------ -------
Balance, September
30, 2000.............. 14,000,000 $14,000 5,279,567 $2,350 $ (818) $2,463 $17,995
========== ======= ========= ====== ======= ====== =======
</TABLE>

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

F-5
<PAGE>

ARTEST CORPORATION

STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
Six
Months Nine Months
Ended Ended September
Year Ended December 31, June 30,
------------------------- 30, -----------------
1997 1998 1999 2000 1999 2000
------- ------- ------- ------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 216 $ 47 $ 1,630 $ 335 $ 1,421 $ 570
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation................................. 175 1,075 1,674 1,287 1,209 2,459
Amortization of deferred stock-based
compensation............................... -- -- 219 1,043 71 1,247
Realized gain from sale of investments and
dividend income............................ (366) (438) -- -- -- --
Realized gain from sale of equipment......... -- -- (87) -- -- --
Changes in assets and liabilities:
Accounts receivable........................ (693) (518) (489) (1,826) (631) (2,765)
Prepaid expense............................ -- -- (67) (674) (34) (1,442)
Deferred tax asset and other assets........ (78) (157) (379) (28) (240) (37)
Accounts payable........................... 3,062 (2,932) 1,130 3,661 1,084 2,794
Accrued liabilities........................ 280 250 (374) 162 (376) 205
Income tax payable......................... 233 (19) 1,174 (877) 982 (575)
------- ------- ------- ------- ------- --------
Net cash provided by (used in) operating
activities.............................. 2,829 (2,692) 4,431 3,083 3,486 2,456
------- ------- ------- ------- ------- --------

Cash flows from investing activities:
Purchases of property and equipment............ (5,441) (1,942) (3,816) (9,709) (2,398) (12,794)
Proceeds from sale of equipment................ -- -- 140 -- -- --
Purchases of available-for-sale short-term
investments.................................. (4,000) -- -- -- -- --
Proceeds from sale of available-for-sale short-
term investments............................. -- 4,804 -- -- -- --
Restricted cash due to financing of equipment.. -- (4,500) 2,250 -- 2,250 --
------- ------- ------- ------- ------- --------
Net cash used in investing activities..... (9,441) (1,638) (1,426) (9,709) (148) (12,794)
------- ------- ------- ------- ------- --------

Cash flows from financing activities:
Proceeds from issuance of notes payable........ 1,704 5,087 1,649 5,847 635 9,209
Payments on notes payable...................... (114) (1,366) (1,451) (846) (998) (1,453)
Proceeds from issuance of common stock......... 53 -- 1 2 -- 12
Proceeds from issuance of Series A convertible
preferred stock.............................. 14,000 -- -- -- -- --
------- ------- ------- ------- ------- --------
Net cash provided by (used in) financing
activities.............................. 15,643 3,721 199 5,003 (363) 7,768
------- ------- ------- ------- ------- --------
Net increase (decrease) in cash and cash
equivalents................................... 9,031 (609) 3,204 (1,623) 2,975 (2,570)
Cash and cash equivalents, beginning of period.. -- 9,031 8,422 11,626 8,422 11,626
------- ------- ------- ------- ------- --------
Cash and cash equivalents, end of period........ $ 9,031 $ 8,422 $11,626 $10,003 $11,397 $ 9,056
======= ======= ======= ======= ======= ========
Supplemental disclosure of cash flow
information:
Cash paid for interest......................... $ 10 $ 314 $ 325 $ 251 $ 236 $ 460
======= ======= ======= ======= ======= ========
Cash paid for income taxes..................... $ -- $ 253 $ 315 $ 1,440 $ 315 $ 1,440
======= ======= ======= ======= ======= ========
</TABLE>

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

F-6
<PAGE>

ARTEST CORPORATION

NOTES TO FINANCIAL STATEMENTS

As of June 30, 2000, December 31, 1999 and 1998

(Information for the nine months ended September 30, 1999 and 2000 is
unaudited)
(In thousands except share data and per share data)

1. Organization and Operations of the Company

Artest Corporation ("the Company") was incorporated in California on
November 18, 1996, opened its first facility in May 1997 and began operations
in September of 1997. The Company is an independent provider of comprehensive
semiconductor test services with an emphasis on complex analog, digital and
mixed signal integrated circuits primarily in the communications and networking
industries. The Company provides its customers with a flexible full service
solution for their test needs and their services include software test program
development, prototype testing and debugging, charterization, verification,
wafer sort and final test. The Company sells its services primarily to
semiconductor companies located in the United States.

The Company is subject to a number of business risks including, but not
limited to, dependence on key individuals, key customers, competition from
larger companies and the need for the continued successful development,
marketing and selling of its engineering and manufacturing test services.

2. Summary of Significant Accounting Policies

Use of Estimates in Preparation of Financial Statements

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.

Unaudited Interim Financial Statements

The unaudited interim financial statements for the nine months ended
September 30, 1999 and 2000 have been prepared on the same basis as the audited
financial statements and, in the opinion of management, reflect all normal
recurring adjustments necessary to present fairly the financial information set
forth therein, in accordance with generally accepted accounting principles.
Results for the nine months ended September 30, 2000 are not necessarily
indicative of results in future periods.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments or money market-
type funds with an original maturity of three months or less to be cash
equivalents.

Income Taxes

The Company accounts for income taxes in Accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income
Taxes." Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which those temporary differences
are expected to be recorded or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.

F-7
<PAGE>

ARTEST CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands except share data and per share data)

Property and Equipment

Property and equipment are stated at cost. Depreciation for all property
and equipment is computed using the straight-line method over the estimated
useful lives of the assets, generally three to five years. Leasehold
improvements are depreciated over the shorter of their useful lives or the term
of the lease. As of December 31, 1998 and 1999, June 30, 2000, and September
30, 2000, property and equipment consisted of the following:

<TABLE>
<CAPTION>
December 31,
---------------- June 30, September 30,
1998 1999 2000 2000
------- ------- -------- -------------
<S> <C> <C> <C> <C>
Computers and software............ $ 199 $ 262 $ 367 $ 388
Leasehold improvements............ 627 633 633 932
Furniture and fixtures............ 45 436 439 447
Machinery and equipment........... 6,513 9,815 19,416 22,173
------- ------- ------- -------
7,384 11,146 20,855 23,940
Less: accumulated depreciation.... (1,252) (2,926) (4,213) (5,385)
------- ------- ------- -------
$ 6,132 $ 8,220 $16,642 $18,555
======= ======= ======= =======
</TABLE>

The Company reviews the carrying value of property and equipment for
impairment whenever events and circumstances indicate that the carrying value
of an asset may not be recoverable from the estimated future cash flows
expected to result from its use and eventual disposition. In cases where
undiscounted expected future cash flows are less than the carrying value, an
impairment loss would be recognized equal to an amount by which the carrying
value exceeds the fair value of the assets.

Accrued Liabilities

As of December 31, 1998 and 1999, June 30, 2000, and September 30, 2000,
accrued liabilities consisted of the following:

<TABLE>
<CAPTION>
December 31,
------------- June 30, September 30,
1998 1999 2000 2000
------ ------ -------- -------------
<S> <C> <C> <C> <C>
Payroll and related employee
benefits........................... $ 455 $ 149 $318 $330
Other................................ 75 7 -- 31
------ ------ ---- ----
$ 530 $ 156 $318 $361
====== ====== ==== ====
</TABLE>

Revenue Recognition

The Company recognizes revenues on engineering and manufacturing testing
services, and assembly support services when the services are completed and
there are no significant obligations remaining. The Company's revenues have
also included test software and hardware development that is billed in the form
of non-recurring engineering charges for time and materials incurred. To date,
revenues from non-recurring engineering charges have not been significant.

The following table summarizes the percentage of revenues represented by
significant customers:

<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Six Months Ended September 30,
------------------------- Ended -------------------
1997 1998 1999 June 30, 2000 1999 2000
------- ------- ------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Customer A........ 82% 43% 60% 40% 61% 27%
Customer B........ -- 27% -- -- -- --
Customer C........ -- 13% 15% 7% 17% 8%
Customer D........ -- -- 10% 6% 10% 6%
Customer E........ -- -- -- 25% -- 40%
</TABLE>

F-8
<PAGE>

ARTEST CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands except share data and per share data)

Concentrations of Credit Risk and Significant Customers

Financial instruments that potentially subject the Company to a
concentration of credit risk principally consist of accounts receivable. The
Company generally does not require collateral on accounts receivable, as the
majority of the Company's revenues come from large, well established companies.
During the years ended December 31, 1997, 1998 and 1999, and six months ended
June 30, 2000, and nine months ended September 30, 2000, the Company provided
$0, $10, $50, $0, and $15, respectively, to its allowance for doubtful
accounts. The Company did not have any write-offs of uncollectible amounts
during 1997, 1998 and 1999, and the six months ended June 30, 2000. However,
the Company wrote-off uncollectable amounts during the nine months ended
September 30, 2000 of $11. As of September 30, 2000, approximately 67.2% of
gross accounts receivable was concentrated with two customers. As of June 30,
2000, approximately 65.6% of gross accounts receivable was concentrated with
two customers. As of December 31, 1999, approximately 55.5% of gross accounts
receivable was concentrated with two customers. As of December 31, 1998,
approximately 71.1% of gross accounts receivable was concentrated with two
customers.

Stock-Based Compensation

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation" (SFAS No. 123). This accounting
standard permits the use of either a fair value based method or the method
defined in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB Opinion 25), to account for stock-based compensation
arrangements. Companies that elect to employ the valuation method provided in
APB Opinion 25 are required to disclose the pro forma net income that would
have resulted from the use of the fair value based method. The Company has
elected to determine the value of stock-based compensation arrangements under
the provisions of APB Opinion 25 and, accordingly, the pro forma disclosures
required under SFAS No. 123 have been included in Note 6.

Computation of Per Share Amounts

Basic net income per common share and diluted net income per common share
are presented in conformity with SFAS No. 128, "Earnings Per Share" (SFAS No.
128) for all periods presented. Pursuant to Securities and Exchange Commission
Staff Accounting Bulletin No. 98, common stock and convertible preferred stock
issued or granted for nominal consideration prior to the anticipated effective
date of the initial public offering must be included in the calculation of
basic and diluted net income per common share as if such stock had been
outstanding for all periods presented. To date, the Company has not had any
issuances or grants for nominal consideration.

In accordance with SFAS No. 128, basic net income per common share has been
calculated using the weighted-average number of shares of common stock
outstanding during the period. Diluted net income per share has been calculated
assuming the conversion of the convertible preferred stock and outstanding
stock options. For the year ended December 31, 1997, the Company has excluded
1,000,000 outstanding stock options from the calculation of diluted net income
per common share because such securities are anti-dilutive for the period.

F-9
<PAGE>

ARTEST CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands except share data and per share data)

The following table presents the calculation of basic and diluted net
income per share:

<TABLE>
<CAPTION>
Six Months Ended Nine Months Ended
Year Ended December 31, June 30, September 30,
----------------------- ---------------- -----------------
1997 1998 1999 2000 1999 2000
------- ------- ------- ---------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Income...................... $ 216 $ 47 $ 1,630 $ 335 $ 1,421 $ 570
======= ======= ======= ======= ======== ========
Basic:
Weighted average shares used
in computing basic net
income per share............ 5,240 5,240 5,241 5,249 5,240 5,254
======= ======= ======= ======= ======== ========
Basic net income per share.... $ 0.041 $ 0.009 $ 0.311 $ 0.064 $ 0.271 $ 0.108
======= ======= ======= ======= ======== ========
Diluted:
Weighted average shares used
above....................... 5,240 5,240 5,241 5,249 5,240 5,254
Weighted average dilutive
convertible preferred
stock....................... 10,500 14,000 14,000 14,000 14,000 14,000
Weighted average dilutive
stock options............... -- 1,815 2,686 2,673 2,309 2,655
------- ------- ------- ------- -------- --------
Weighted average shares used
in computing diluted net
income per share............ 15,740 21,055 21,927 21,922 21,549 21,909
======= ======= ======= ======= ======== ========
Diluted net income per share.. $ 0.014 $ 0.002 $ 0.074 $ 0.015 $ 0.066 $ 0.026
======= ======= ======= ======= ======== ========
</TABLE>

No pro forma net income per share calculation is presented for the year
ended December 31, 1999, the six months ended June 30, 2000, and the nine
months ended September 30, 2000 because the calculations would be the same as
diluted net income per share for those periods.

Fair Value of Financial Investments

For certain financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities, recorded amounts
approximate fair value due to the relatively short maturity period. Based on
interest rates available to the Company for debt with comparable maturities,
the carrying values of the Company's loans payable approximate fair value.

Software Development Costs

The company accounts for software development costs in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for
the Costs of Computer Software to be sold, leased or otherwise Marketed." The
Company has expensed all software development costs to date and as such
development costs have substantially occurred prior to the Company's services
attaining technological feasibility.

Comprehensive Income

In fiscal 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. Such items may include
foreign currency translation adjustments and unrealized gains/losses from
investing and hedging activities. Comprehensive income is the same as net
income for all periods presented in the accompanying consolidated financial
statements.

F-10
<PAGE>

ARTEST CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands except share data and per share data)

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument
be recorded in the balance sheet as either an asset or liability measured at
its fair value. SFAS No. 133, as recently amended, is effective for fiscal
years beginning after June 15, 2000. Management believes the adoption of SFAS
No. 133 will not have a material effect on the Company's financial position or
results of operations.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial statements.
Management believes the adoption of SAB 101 will not have a significant impact
on the Company's consolidated results of operations and financial position in
fiscal 2000. The Company plans to adopt SAB 101 in the fourth quarter of fiscal
2000.

In March 2000, the FASB issued Financial Accounting Standards Board
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an Interpretation of APB Opinion No. 25" (FIN No. 44). FIN No. 44
addresses the application of APB No. 25 to clarify, among other issues: (a) the
definition of employee for purposes of applying APB No. 25, (b) the criteria
for determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequences of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. FIN No. 44 is effective as of
July 1, 2000, but certain conclusions cover specific events that occur after
either December 15, 1998 or January 12, 2000. To the extent FIN 44 covers
events occurring during the period after December 15, 1998 or January 12, 2000,
but before the effective date of July 1, 2000, the effects of applying the
interpretation will be recognized on a prospective basis from July 1, 2000. The
Company does not expect that FIN 44 will have a material effect on its
financial position or results of operations.

3. Notes Payable

In November 1997, the Company entered into an equipment note payable
agreement with a bank under which it can borrow up to $6,500. Interest on
outstanding advances under the credit arrangement range between 7.10% and
7.30%. The credit arrangement expired for additional advances in November 1998.
In August 1999, the Company entered into another secured equipment note payable
agreement under which it can borrow up to $2,000. Interest on advances under
this credit arrangement accrues at the bank's prime lending rate (9.50% at
September 30, 2000). The credit arrangement expired for additional advances in
August 2000. At December 31, 1998 and 1999, June 30, 2000, and September 30,
2000 total borrowings outstanding under the above credit arrangements were
$5,312, $5,509, $5,212, and $4,542 respectively. At December 31, 1998 and 1999,
June 30, 2000 and September 30, 2000, the $6,500 equipment note payable
agreement was secured by $4,500, $2,250, $2,250, and $2,250 cash and cash
equivalents, respectively. The Company's testing equipment which secures this
note payable had a carrying amount of $8,902 at September 30, 2000. The cash
and cash equivalent amounts which secures the note payable are reflected as
restricted cash in the accompanying financial statements. The Company is
required to satisfy certain financial covenants which includes the prohibition
of the payment of cash dividends without receiving the bank's prior consent,
which were all met at December 31, 1999, June 30, 2000 and September 30, 2000.

In April 2000, the Company entered into an unsecured equipment note payable
agreement with Micro Linear for $4,956. Interest on outstanding advances under
the note payable agreement is 6.00%. The notes payable agreement expires April
2003. At September 30, 2000 the total borrowing outstanding is $4,956. The
Company is not required to satisfy any financial covenants in connection with
this agreement.

F-11
<PAGE>

ARTEST CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands except share data and per share data)

In January 2000, the Company entered into an unsecured equipment note
payable agreement with Quality Test Systems for $389 in connection with the
purchase of a tester. The note payable agreement bears zero interest. The note
payable agreement expires in March 2003. At September 30, 2000 the total
borrowing outstanding is $346. The Company is not required to satisfy any
financial covenants in connection with this agreement.

On July 10, 2000 the Company entered into a $4,000 notes payable agreement
with California Bank and Trust. Interest on outstanding advances under the
credit agreement was 9.00% at September 30, 2000. The credit arrangement will
expire for additional advances on July 31, 2001. At September 30, 2000 the
total borrowings under the credit agreement is $3,421 (unaudited), which is
secured by the Company's test equipment with a carrying value of $3,538
(unaudited). Monthly payments will commence in January 2001 and will be
amortized over 54 months.

Future maturities of principal on the promissory notes and equipment lines
of credit as of September 30, 2000 were as follows (for the 12 months ended
September 30):

<TABLE>
<S> <C>
2001.............................................................. $ 3,659
2002.............................................................. 4,508
2003.............................................................. 2,566
2004.............................................................. 1,097
2005 and thereafter............................................... 1,435
-------
$13,265
=======
</TABLE>

4. Commitments and Contingencies

The Company leases its facilities under operating lease agreements expiring
through June 2005. Rent expense for the years ended December 31, 1997, 1998 and
1999, six months ended June 30, 2000 and nine month ended September 30, 2000
was $113, $179, $305, $258, and $487, respectively. Future minimum lease
payments as of September 30, 2000 were as follows (for the 12 months ended
September 30):

<TABLE>
<S> <C>
2001.............................................................. $ 824
2002.............................................................. 848
2003.............................................................. 511
2004.............................................................. 177
2005.............................................................. 133
------
Total........................................................... $2,493
======
</TABLE>

5. Shareholders' Equity

On March 28, 1997, the Company issued 14,000,000 shares of Series A
convertible preferred stock under the Series A convertible preferred stock
Purchase Agreement at one dollar per share. The rights with respect to Series A
convertible preferred stock are as follows:

Dividends

a. Preference. The holders of outstanding Series A convertible preferred
stock are entitled to receive, when and as declared by the Board of Directors,
out of any assets at the time legally available, dividends in cash at the rate
of $0.08 per share per annum before any dividend is paid on common stock. The
right to such dividends on shares of Series A convertible preferred stock is
non-cumulative. Such dividend is payable when and as the Board of Directors may
from time to time determine.

F-12
<PAGE>

ARTEST CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands except share data and per share data)

b. Non-Cash Dividends. In the event the Company declares a distribution
payable in securities of other persons, evidences of indebtedness issued by
this corporation or other assets (excluding cash dividends) or options or
rights to purchase any such securities or evidences of indebtedness, then, in
each such case the holders of the Series A convertible preferred stock are
entitled to a proportionate share of any such distribution as though the
holders of the Series A convertible preferred stock were the holders of the
number of shares of common stock of the corporation into which their respective
shares of Series A convertible preferred stock are convertible.

Liquidation Preference

In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or, involuntary, the holders of the Series A convertible
preferred stock are entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Company to the
holders of the common stock, the amount of one dollar per share. If upon the
occurrence of such event the assets and funds distributed among the holders of
the Series A convertible preferred stock are insufficient to permit the payment
to such holders of the full preferential amount, then the entire assets and
funds of the Company legally available for distribution are distributed ratably
among the holders of the Series A convertible preferred stock.

Conversion

Each share of Series A convertible preferred stock is convertible at the
option of the holder into one share of common stock. Each share of Series A
convertible preferred stock will automatically convert into common stock on a
one-for-one basis upon the closing of an initial public offering ("IPO").

Voting

Each holder of shares of the Series A convertible preferred stock is
entitled to the number of votes equal to the number of shares of Common Stock
into which such shares of Series A convertible preferred stock could be
converted and has voting rights and powers equal to the voting rights and
powers of the common stock.

Unaudited Pro Forma Shareholders' Equity

In June 2000, the Company's Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission to register
shares of its common stock in connection with a proposed IPO. If the IPO is
consummated under the terms presently anticipated, all of the currently
outstanding shares of Series A convertible preferred stock as of September 30,
2000 will be converted into 14,000,000 shares of common stock upon the closing
of the IPO. The effect of the Series A convertible preferred stock conversion
has been reflected as unaudited pro forma shareholders' equity in the
accompanying balance sheet as of September 30, 2000.

Common Stock

At September 30, 2000, the Company had reserved the following shares of
authorized but unissued shares of common stock for future issuance:

<TABLE>
<S> <C>
Conversion of Series A convertible preferred stock
outstanding............................................... 14,000,000
Stock option plan........................................... 4,720,433
----------
18,720,433
==========
</TABLE>

401(k) Plan

Substantially, all of the Company's employees are eligible to participate
in the Artest 401(k) Plan. Employer matching contributions for the years ended
December 31, 1997, 1998, and 1999, six months ended June 30, 2000, and nine
months ended September 30, 2000, were $16, $43, $67, $61, and $127
respectively.

F-13
<PAGE>

ARTEST CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands except share data and per share data)

6. Stock Option Plan

In 1998, the Company adopted the 1998 Stock Option Plan (the "Plan") and,
in accordance with the Plan, as amended, authorized the issuance of 4,760,000
shares of common stock. Under the Plan, the Board of Directors may grant
incentive and nonqualified stock options to employees, directors, and
consultants of the Company. The exercise price per share for an incentive stock
option cannot be less than the fair market value, as determined by the Board of
Directors, on the date of the grant. The exercise price per share for
nonqualified stock options cannot be less than the fair market value, as
determined by the Board of Directors, on the date of grant. Options generally
vest over a four-year period and generally expire ten years after the date of
grant. Option activity under the Plan was as follows:

<TABLE>
<CAPTION>
Weighted Average Weighted Average
Outstanding Options Exercise Price Grant Fair Value
------------------- ---------------- ----------------
<S> <C> <C> <C>
Balance at December 31,
1996.................. -- -- --
Granted............... 1,785,000 $0.10 $0.10
Exercised............. -- -- --
Cancellations......... (5,000) 0.10 0.10
--------- ----- -----
Balance at December 31,
1997.................. 1,780,000 0.10 0.10
Granted............... 685,000 0.20 0.20
Exercised............. -- -- --
Cancellations......... -- -- --
--------- ----- -----
Balance at December 31,
1998.................. 2,465,000 0.13 0.13
Granted............... 328,000 0.50 5.64
Exercised............. (6,000) 0.20 0.20
Cancellations......... (24,000) 0.20 0.20
--------- ----- -----
Balance at December 31,
1999.................. 2,763,000 0.17 0.78
Granted............... 1,270,500 8.00 7.55
Exercised............. (13,567) 0.11 0.11
Cancellations......... (8,333) 0.10 0.10
--------- ----- -----
Balance at June 30,
2000.................. 4,011,600 2.65 2.92
Granted............... 1,000 8.00 7.00
Exercised............. (20,000) 0.50 0.50
Cancellations......... (8,600) 5.19 5.19
--------- ----- -----
Balance at September 30,
2000.................. 3,984,000 $2.71 $2.92
========= ===== =====
</TABLE>

The following table summarizes additional information with respect to stock
options outstanding as of September 30, 2000:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- --------------------------
Weighted Average Weighted Average Weighted Average
Range of Exercise Prices Number Remaining Years Exercise Price Number Exercise Price
------------------------ --------- ---------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$0.10-0.11.............. 1,760,000 7.21 $0.11 1,332,000 $0.11
0.20................... 650,000 8.21 0.20 269,166 0.20
0.50................... 308,000 9.21 0.50 9,467 0.50
8.00................... 1,266,000 9.66 8.00 715,000 8.00
--------- ---------
3,984,000 2,325,633
========= =========
</TABLE>

F-14
<PAGE>

ARTEST CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands except share data and per share data)

The Company accounts for these Plans under APB Opinion No. 25 under which
compensation expense has been recognized as the grant price was less than the
deemed fair market value at date of grant. Had compensation expense for stock
options granted to employees been determined based on the fair value of the
related options at the grant dates, consistent with SFAS No. 123, the Company's
net income and net income per share would have decreased by the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
Year Ended December Nine Months Ended
31, September 30,
-------------------- Six Months Ended ------------------
Net Income 1997 1998 1999 June 30, 2000 1999 2000
---------- ------ ------ ------ ---------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income as reported.. $ 216 $ 47 $1,630 $ 335 $1,421 $ 570
Net income pro forma.... 190 4 1,149 (399) 1,285 (526)
As Reported:
Basic net income per
share............... $0.041 $0.009 $0.311 $ 0.064 $0.271 $ 0.108
Diluted net income per
share............... 0.014 0.002 0.074 0.015 0.066 0.026
Pro Forma:
Basic net income per
share............... $0.036 $0.001 $0.219 $(0.076) $0.245 $(0.100)
Diluted net income per
share............... 0.012 0.000 0.052 (0.018) 0.060 (0.024)
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in fiscal 1999, for six months ended June 30, 2000,
and for the nine months ended September 30, 2000: risk-free interest rate range
of 4.64%-6.50%; expected dividend yield of zero percent; expected lives of four
years; and volatility of common stock of 70%.

Stock-based Compensation

In connection with the grant of certain stock options to employees during
the year ended December 31, 1999, the Company recorded deferred stock-based
compensation of approximately $1,686 representing the difference between the
deemed value of the common stock for accounting purposes and the option
exercise price at the date of the option grant. Such amount is presented as a
reduction of stockholders' equity and will be amortized over the vesting period
of the applicable options in a manner consistent with Financial Standards Board
Interpretation No. 28, "Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans." Approximately $219, $1,043, and $1,247
was expensed during the year ended December 31, 1999, six months ended June 30,
2000, and the nine months ended September 30, 2000, respectively, and is
included in amortization of deferred stock-based compensation in the
accompanying statement of operations. The amortization expense relates to
options granted to employees in all operations' expense categories.
Compensation expense is decreased in the period of forfeiture for any accrued
but unvested compensation arising from the early termination of an option
holder's services.

Options Granted to Non-employees

In June 2000, the Company granted options to purchase 205,000 shares of
common stock to consultants under the 1998 plan. The options had an exercise
price of $8.00 per share and vested on June 30, 2000. The Company recorded
selling, general, and administrative expense of approximately $598 as deferred
compensation based on the fair value of the option at the date of the grant
calculated using the Black-Scholes model.

F-15
<PAGE>

ARTEST CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands except share data and per share data)

The following assumptions were used in the Black-Scholes model for
calculating the fair value of the non-employee options granted:

<TABLE>
<S> <C>
Risk-free interest rate............................................ 6.00%
Average computed life of the option................................ 1.5 years
Dividend yield..................................................... 0%
Volatility of common stock......................................... 70%
</TABLE>

7. Income Tax

The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards No. 109 (SFAS No. 109, "Accounting for Income Taxes"). The
provision for income taxes consisted of the following:

<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
------------------- Six Months Ended -------------------
1997 1998 1999 June 30, 2000 1999 2000
---- ----- ------ ---------------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Current:
Federal............... $184 $ 178 $1,263 $525 $1,107 $ 317
State................. 48 49 216 86 181 93
Deferred:
Federal............... (50) (134) (219) (18) (190) 389
State................. (13) (23) (30) (30) (37) 66
---- ----- ------ ---- --------- -------
Income tax
provision........ $169 $ 70 $1,230 $563 $1,071 $865
==== ===== ====== ==== ========= =======
</TABLE>

The components of the net deferred income tax asset are as follows:

<TABLE>
<CAPTION>
December 31,
------------- June 30, September 30,
1998 1999 2000 2000
------ ------ -------- -------------
<S> <C> <C> <C> <C>
Depreciation and asset basis
differences.......................... $ 152 $ 304 $304 $304
Reserves and accruals not currently
deductible for tax purposes.......... 69 166 166 166
------ ------ ---- ----
Deferred income tax asset............ $ 221 $ 470 $470 $470
====== ====== ==== ====
</TABLE>

The Company has been profitable for each of the three years ended December
31, 1999, for the six months ended June 30, 2000 and for the nine months ended
September 30, 2000. As a result, management believes it is more likely than not
that the Company will generate sufficient taxable income in the future to
realize the deferred income tax assets. Accordingly, the Company has not
recognized a valuation allowance at December 31, 1998 and 1999, June 30, 2000,
and at September 30, 2000. However, given the dynamic nature of the
semiconductor engineering and manufacturing test services industry, management
can provide no assurance as to the realization of deferred income tax assets.

F-16
<PAGE>

ARTEST CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands except share data and per share data)

The provision for income taxes differs from the amount computed by applying
the federal statutory rate to the Company's income before provision for income
taxes as follows:

<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, Six Months September 30,
---------------- Ended ---------------
1997 1998 1999 June 30, 2000 1999 2000
---- ---- ------ ------------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Tax provision at statutory
rate..................... $135 $41 $1,001 $314 $ 872 $ 502
Non-deductible amortization
of deferred stock-based
compensation............. -- 90 183 71 226
State tax expense, net of
federal benefit.......... 22 7 166 52 144 83
Other, net................. 12 22 (27) 14 (16) 54
---- --- ------ ---- ------- ------
Provision for income
taxes.................... $169 $70 $1,230 $563 $ 1,071 $ 865
==== === ====== ==== ======= ======
</TABLE>

8. Segment Reporting

Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker, or chief decision making group, in deciding how
to allocate resources and in assessing performance. The Chief Executive Officer
is the Company's chief decision maker. Because the business is completely
focused on one industry segment, engineering and manufacturing test services to
semiconductor companies, management believes the Company has one reportable
segment. All of the revenues and profits are generated through the engineering
and manufacturing test services for this one segment.

9. Equipment Purchase

On September 29, 1999 the Company entered into an asset purchase agreement
with Fairchild Semiconductor Corporation ("Fairchild") under which it purchased
certain assets from Fairchild relating to its test operations for cash
consideration of $865. The purchase was funded through the Company's bank
facility. The entire purchase price consideration was allocated to the fair
value of the assets acquired.

On April 28, 2000 the Company entered into an asset purchase agreement with
Micro Linear Corporation ("Micro Linear") under which it purchased certain
assets from Micro Linear relating to its test operations for a value of $5,956
of which $1,000 was paid in cash with the remaining balance settled with the
issuance of a promissory note. The entire purchase price consideration was
allocated to the fair value of the test equipment acquired.

F-17
<PAGE>

[Back Page]

LOGO
<PAGE>

Alternate Page for International Prospectus

SUBJECT TO COMPLETION, DATED OCTOBER 17, 2000

[LOGO]

Artest Corporation

5,000,000 Shares

Common Stock

--------------

Investing in our common stock involves risks.
See "Risk Factors" beginning on page 9.

--------------

Artest Corporation has granted the underwriters a 30-day option to purchase
up to an additional 750,000 shares of its common stock to cover over-
allotments.

Robertson Stephens International CIBC World Markets

The date of this Prospectus is , 2000
<PAGE>

Alternate Page for
International Prospectus

UNDERWRITING

<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Robertson Stephens, Inc. .........................................
CIBC World Markets Corp. ..........................................
<CAPTION>
International Underwriter
-------------------------
<S> <C>
Robertson Stephens International, Ltd. ............................
CIBC World Markets plc. ...........................................
---------
Total............................................................ 5,000,000
=========
</TABLE>

The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.

Over-Allotment Option

We have granted to the underwriters an option, exercisable during the 30-
day period after the date of this prospectus, to purchase up to 750,000
additional shares of common stock to cover over-allotments, if any, at the same
price per share that we will receive for the 5,000,000 shares that the
underwriters have agreed to purchase. If the underwriters exercise their over-
allotment option to purchase any of the additional 750,000 shares of common
stock, the underwriters have severally agreed, subject to specific conditions,
to purchase additional shares approximately in proportion to the amount
specified in the table above. If purchased, these additional shares will be
sold by the underwriters on the same terms as those on which the 5,000,000
shares are being sold. We will be obligated, under the terms of the option, to
sell shares to the underwriters to the extent

70
<PAGE>

Alternate Page for
International Prospectus

the over-allotment option is exercised. The underwriters may exercise the
option only to cover over-allotments made in connection with the sale of the
shares of common stock in this offering.

The following table summarizes the compensation that we will pay to the
underwriters:

We estimate the expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will
be approximately $2,000,000.

Indemnity

The underwriting agreement contains covenants of indemnity among the
underwriters and us against certain civil liabilities, including liabilities
under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.

Lock-Up Agreements

Each of our directors and executive officers and substantially all of our
stockholders and optionholders have agreed, subject to specified exceptions,
not to offer to sell, contract to sell, or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to any shares of common stock or any
options or warrants to purchase any shares of common stock, or any securities
convertible into or exchangeable for shares of common stock owned as of the
date of this prospectus or thereafter acquired directly by those holders or
with respect to which they have the power of disposition, without the prior
written consent of Robertson Stephens, Inc. This restriction terminates after
the close of trading of the shares on the 180th day of (and including) the day
the shares commenced trading on the Nasdaq National Market. However, Robertson
Stephens, Inc. may, in its sole discretion and at any time or from time to time
before the termination of the 180-day period, without notice, release all or
any portion of the securities subject to lock-up agreements. There are no
existing agreements between the representatives and any of our stockholders who
have executed a lock-up agreement providing consent to the sale of shares prior
to the expiration of the lock-up period.

In addition, we have agreed that during the lock-up period we will not,
without the prior written consent of Robertson Stephens, Inc., subject to
specific exceptions, consent to the disposition of any shares held by
stockholders subject to lock-up agreements prior to the expiration of the lock-
up period, or issue, sell, contract to sell, or otherwise dispose of, any
shares of common stock, any options or warrants to purchase any shares of
common stock or any securities convertible into, exercisable for or
exchangeable for shares of common stock other than our sale of shares in this
offering, and the issuance of options under existing stock option and incentive
plans provided that those options do not vest prior to the expiration of the
lock-up period.

Listing

We have filed an application seeking approval for quotation on The Nasdaq
National Market under the symbol "ARTE."

No Prior Public Market

71
<PAGE>

Alternate Page for
International Prospectus

our financial information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.

Syndicate Short Sales

The representatives have advised us that, on behalf of the underwriters,
they may make short sales of our common stock in connection with this offering,
resulting in the sale by the underwriters of a greater number of shares than
they are required to purchase pursuant to the underwriting agreement. The short
position resulting from those short sales will be deemed a "covered" short
position to the extent that it does not exceed the 750,000 shares subject to
the underwriters' over-allotment option and will be deemed a "naked" short
position to the extent that it exceeds that number. A naked short position is
more likely to be created if the underwriters are concerned that there may be
downward pressure on the trading price of the common stock in the open market
that could adversely affect investors who purchased shares in the offering. The
underwriters may reduce or close out their covered short position either by
exercising the over-allotment option or by purchasing shares in the open
market. In determining which of these alternatives to pursue, the underwriters
will consider the price at which shares are available for purchase in the open
market as compared to the price at which they may purchase shares through the
over-allotment option. Any "naked" short position will be closed out by
purchasing shares in the open market. Similar to the other stabilizing
transactions described below, open market purchases made by the underwriters to
cover all or a portion of their short position may have the effect of
preventing or retarding a decline in the market price of our common stock
following this offering. As a result, our common stock may trade at a price
that is higher than the price that otherwise might prevail in the open market.

Stabilization

Directed Share Program

At our request, specific underwriters have reserved up to an aggregate of
5% of the shares of common stock offered by this prospectus for sale at the
initial public offering price to persons who are directors, officers or
employees of Artest, or who are otherwise associated with us and our
affiliates, and who have advised us of their desire to purchase such shares.
These shares are referred to as the "directed shares." The number of shares of
common stock available for sale to the general public will be reduced by the
number of directed shares sold to any of the persons for whom they have been
reserved. The directed shares will not be subject to the lock-up agreements
described above. Any directed shares not purchased will be offered by the
underwriters on the same basis as all other shares of common stock offered by
this prospectus. We have agreed to indemnify the underwriters who have reserved
directed shares against specific liabilities and expenses, including
liabilities under the Securities Act, in connection with the sales of the
directed shares.

72
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the costs and expenses, other than the
underwriting discounts payable by us in connection with the sale of common
stock being registered. All amounts are estimates except the SEC registration
fee, the NASD filing fee and the Nasdaq National Market listing fee.

<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 16,698
NASD Filing Fee.................................................. 6,825
Nasdaq National Market Listing Fee............................... 5,000
Printing and Engraving Expenses.................................. 300,000
Legal Fees and Expenses.......................................... *
Accounting Fees and Expenses..................................... *
Blue Sky Fees and Expenses....................................... 10,000
Transfer Agent Fees.............................................. 15,000
Miscellaneous.................................................... *
----------
Total.......................................................... $2,000,000
==========
</TABLE>
--------
*To be filed by amendment

Item 14. Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's board of directors to grant indemnification to
directors and officers in terms sufficiently broad to permit the
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Our bylaws provide for mandatory
indemnification of our directors and officers and permissible indemnification
of employees and other agents to the maximum extent permitted by the Delaware
General Corporation Law. Our certificate of incorporation provides that,
subject to Delaware law, our directors will not be personally liable for
monetary damages for breach of the directors' fiduciary duty as directors to
Artest Corporation and its stockholders. This provision in the certificate of
incorporation does not eliminate the directors' fiduciary duty, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to the company or our stockholders for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. We have entered into
indemnification agreements with our officers and directors, a form of which
will be filed with the Securities and Exchange Commission as an exhibit to our
registration statement on Form S-1 (No. 333-40744). The indemnification
agreements provide our officers and directors with further indemnification to
the maximum extent permitted by the Delaware General Corporation Law. Reference
is also made to Section of the underwriting agreement contained in exhibit
1.1 hereto, indemnifying our officers and directors against certain
liabilities, and section 6.4 of the Series A Preferred Stock Purchase Agreement
contained in exhibit 4.2 hereto, indemnifying the parties thereto, including
controlling stockholders, against liabilities.

II-1
<PAGE>

Item 15. Recent Sales of Unregistered Securities

During the past three years, the registrant has issued unregistered
securities to a limited number of persons as described below:

Common Stock

(1) In March 1997, we sold 5,000,000 shares of our common stock at a price
of $0.01 per share to Jen Kao, our President and Chief Executive Officer for a
purchase price of $50,000.

(2) In March 1997, we sold 240,000 shares of our common stock at a price of
$0.01 per share to Alan Ross, Chairman of our Board of Directors for a purchase
price of $2,400.

(3) In March 1997, we sold 14,000,000 shares of our Series A convertible
preferred stock at a price of $1.00 per share to a group of eight investors for
an aggregate purchase price of $14,000,000.

Stock Options

(1) From 1997 through September 2000, we granted stock options to acquire
an aggregate of 4,023,567 shares of our common stock at prices ranging from
$0.10 to $8.00 per share to employees, consultants and directors pursuant to
our 1998 Stock Plan.

(2) From 1997 through September 2000, we issued an aggregate of 39,567
shares of our common stock to employees pursuant to the exercise of stock
options granted under the 1998 Stock Plan for an aggregate consideration of
$12,746.70.

None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and we believe that each
transaction was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or Rule
701 pursuant to compensatory benefit plans and contracts relating to
compensation as provided under Rule 701. The recipients in each transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to share certificates and instruments issued
in these transactions. All recipients had adequate access, through their
relationships with us, to information about us.

Item 16. Exhibits and Financial Statement Schedules

The exhibits listed in the exhibit Index are filed as part of this
registration statement.

(a) Exhibits

<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.

3.1** Amended and Restated Certificate of Incorporation, to be effective
upon consummation of this offering.

3.2** Amended and Restated Bylaws, to be effective upon consummation of this
offering.

4.1** Form of registrant's Specimen Common Stock Certificate.
4.2** Series A Preferred Stock Purchase Agreement.

5.1* Opinion of Brobeck, Phleger & Harrison LLP, counsel for the
registrant, with respect to the common stock being registered.

10.1+ Agreement for Purchase and Sale of Assets between Registrant and Micro
Linear Corporation, dated April 28, 2000.

</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.2+ Equipment Purchase and Engineering Test Services Agreement between
Registrant and Fairchild Semiconductor International, Inc., dated
September 30, 1999.

10.3 [exhibit withdrawn]

10.4** Lease for Registrant's headquarters located at 678 Almanor Avenue,
Sunnyvale, CA 94085.

10.5** Lease for Registrant's facilities located at 2050 and 2092 Concourse
Drive, San Jose CA 95131, included as part of Exhibit 10.1.

10.6** Lease for Registrant's facilities located at 6696 Mesa Ridge, Suite A,
San Diego, CA 92121.

10.7** Promissory Note payable to Micro Linear Corporation, included as part
of Exhibit 10.1.

10.8** Operating Agreement between Registrant and Micro Linear Corporation,
included as part of Exhibit 10.1.

10.9 Registrant's 2000 Stock Incentive Plan.

10.10 Registrant's 2000 Employee Stock Purchase Plan.

10.11** Form of registrant's Directors' and Officers' Indemnification
Agreement.

10.12** Business Loan Agreement between Registrant and California Bank &
Trust, dated November 20, 1997.

10.13** Business Loan Agreement between Registrant and California Bank &
Trust, dated August 30, 1999.

10.14** Commercial Loan Agreement between Registrant and California Bank &
Trust, dated July 10, 2000.

23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.

23.2* Consent of Brobeck, Phleger & Harrison LLP (contained in their opinion
filed as Exhibit 5.1).

24.1** Power of Attorney. Reference is made to Page II-5.

27.1** Financial Data Schedule. (In EDGAR format only)
</TABLE>
--------

* To be filed by amendment

** Filed previously

+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Such portions are marked with a "[*]" in place of the
redacted language. Omitted portions are filed separately with the Securities
and Exchange Commission.

(b) Financial Statement Schedule

Item 17. Undertakings

We hereby undertake to provide to the underwriters at the closing specified
in the underwriting agreement, certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the Delaware General Corporation Law, our certificate of incorporation or our
bylaws, indemnification agreements entered into between the company and our
officers and directors, the underwriting agreement, or otherwise, we have been
advised that in the opinion of the commission such indemnification is against
public policy as expressed in the Securities Act, and is, therefore,
unenforceable. If a claim for indemnification against such liabilities (other
than the payment by us of expenses incurred or paid by any of our directors,
officers or controlling persons in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question of whether such
indemnification by us is

II-3
<PAGE>

against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

The undersigned registrant hereby undertakes:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-1 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Sunnyvale, State of California, on this 17th
day of October 2000.

/s/ Jen Kao
By: ________________________________
Jen Kao
President and Chief Executive
Officer

IN WITNESS WHEREOF, each of the undersigned has executed this power of
attorney as of the date indicated.

Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the persons whose signatures
appear below, which persons have signed such registration statement in the
capacities and on the dates indicated:

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ Jen Kao President and Chief October
______________________________________ Executive Officer (Principal 17, 2000
Jen Kao Executive Officer)

/s/ Hector Santana* Vice President, Finance October
______________________________________ (Principal Financial Officer 17, 2000
Hector Santana and Principal Accounting
Officer)

/s/ Alan Ross* Director October
______________________________________ 17, 2000
Alan Ross

/s/ Jim Fiebiger* Director October
______________________________________ 17, 2000
Jim Fiebiger

/s/ Terry Gou* Director October
______________________________________ 17, 2000
Terry Gou

/s/ Bough Lin* Director October
______________________________________ 17, 2000
Bough Lin

/s/ Satoshi Nagata* Director October
______________________________________ 17, 2000
Satoshi Nagata
</TABLE>

/s/ Jen Kao
By:* ______________________________
Jen Kao
Attorney-in-Fact

II-5
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

To the Board of Directors and Shareholders
of Artest Corporation:

We have audited, in accordance with generally accepted auditing standards,
the financial statements of Artest Corporation included in this Registration
Statement and have issued our report thereon dated September 26, 2000. Our
audits were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The accompanying schedule is the responsibility of
the Company's management and is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements as a whole.

/s/ Arthur Andersen LLP

San Jose, California

September 26, 2000

S-1
<PAGE>

ARTEST CORPORATION

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(in thousands)

<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
----------------------------------- ---------- ---------- ---------- ---------
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions of Period
----------------------------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997
Allowance for doubtful accounts.... $ -- $ -- $ -- $ --
Year Ended December 31, 1998
Allowance for doubtful accounts.... $ -- $ 10 $ -- $ 10
Year Ended December 31, 1999
Allowance for doubtful accounts.... $ 10 $ 50 $ -- $ 60
Six Months Ended June 30, 2000
Allowance for doubtful accounts.... $ 60 $ -- $ -- $ 60
Nine Months Ended September 30,
2000.............................
Allowance for doubtful accounts
(unaudited)...................... $ 60 $ 26 $ 11 $ 75
</TABLE>

S-2