COMPUTER ACCESS TECHNOLOGY CORP, S-1, 2000-08-16

COMPUTER ACCESS TECHNOLOGY CORP
S-1, 2000-08-16

Previous: DUKE ENERGY FIELD SERVICES LLC, 8-K, EX-10.1, 2000-08-16

Next: COMPUTER ACCESS TECHNOLOGY CORP, S-1, EX-1.1, 2000-08-16

<PAGE>

As filed with the Securities and Exchange Commission on August 16, 2000
Registration No. 333-
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

COMPUTER ACCESS TECHNOLOGY CORPORATION
(Exact Name of Registrant as Specified in its Charter)

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

<TABLE>
<S> <C> <C>
California
(prior to
reincorporation in
Delaware) 3825 77-0302527
(State or other
jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or
organization) Classification Code Number) Identification Number)
</TABLE>

2403 Walsh Avenue, Santa Clara, CA 95051, (408) 727-6600
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Dan Wilnai
President and Chief Executive Officer
Computer Access Technology Corporation
2403 Walsh Avenue, Santa Clara, CA 95051, (408) 727-6600
(Name and address, including zip code, and telephone number, including area
code, of agent for service)

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

Copies to:
<TABLE>
<S> <C>
DONALD J. BOUEY, ESQ. LAIRD H. SIMONS III, ESQ.
SHANE M. BYRNE, ESQ. KATHERINE TALLMAN SCHUDA, ESQ.
JASON W. KUHNS, ESQ. PAMELA A. SERGEEFF, ESQ.
MATTHEW R. GEMELLO, ESQ. FENWICK & WEST LLP
MICHELLE C. BRATHWAITE, ESQ. Two Palo Alto Square
BROBECK, PHLEGER & HARRISON LLP Palo Alto, California 94306
One Market--Spear Tower (650) 494-0600
San Francisco, California 94105
(415) 442-0900
</TABLE>

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

Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
---------------

If 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,
please check the following box. [_]

CALCULATION OF REGISTRATION FEE
<TABLE>
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
<CAPTION>
Proposed Maximum Aggregate
Title of Each Class of Securities Offering Price Amount to
to be Registered be Registered(1) Amount of Registration Fee
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.001 par value............ $52,325,000 $13,814
-------------------------------------------------------------------------------------------------
</TABLE>
-------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o). Includes amount subject to the over-allotment
option granted to the underwriters.

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

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 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information 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 AUGUST 16, 2000

[COMPUTER ACCESS TECHNOLOGY CORPORATION LOGO]

Common Stock

Computer Access Technology Corporation is offering shares of its
common stock. This is our initial public offering and no public market
currently exists for our shares. We have applied for approval for quotation
of our common stock on the Nasdaq National Market under the symbol "CATZ."
We anticipate that the initial public offering price will be between
$ and $ per share.

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

Investing in our common stock involves risks.
See "Risk Factors" beginning on page 8.

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

<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public Offering Price............................................ $ $
Underwriting Discounts and Commissions........................... $ $
Proceeds to Computer Access Technology 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.

Computer Access Technology Corporation has granted the underwriters a 30-
day option to purchase up to an additional shares of common stock
to cover over-allotments.

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

Robertson Stephens

CIBC World Markets

SG Cowen

Needham & Company, Inc.

The date of this Prospectus is , 2000.
<PAGE>

[Artwork]
<PAGE>

You should rely 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 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 8
Note Regarding Forward-Looking Statements................................ 19
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Consolidated Financial Data..................................... 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 35
Management............................................................... 48
Related Party Transactions............................................... 60
Principal Stockholders................................................... 62
Description of Capital Stock............................................. 63
Shares Eligible for Future Sale.......................................... 66
Underwriting............................................................. 68
Legal Matters............................................................ 71
Experts.................................................................. 71
Where You Can Find Additional Information................................ 71
Index to Consolidated Financial Statements............................... F-1
</TABLE>

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

Our trademarks and service marks include CATC, CATC Trace, CATC Detective,
CATC Traffic Generator, CATC HPT, CATC Inspector, CATC UHT, CATC FireInspector,
CATC USB4DOS, CATC NetMate, CATC NetMate Plus, CATC Chief, CATC UPT, CATC
Merlin and CATC Advisor. Trademarks, trade names and service marks of other
companies appearing in this prospectus are the property of the respective
holders. Use or display by us of other parties' trade names, trademarks or
service marks is not intended to and does not imply a relationship with, or
endorsement or sponsorship of our company by, the trade name or trademark
owners.

3
<PAGE>

SUMMARY

This summary highlights some of the information found in greater detail
elsewhere in this prospectus. In addition to this summary, we urge you to read
the entire prospectus carefully, especially the risks of investing in our
common stock discussed under "Risk Factors" and our consolidated financial
statements and accompanying notes before you decide to buy our common stock.

Our Business

We are a leading provider of advanced verification systems and connectivity
products for existing and emerging digital communications standards such as
Universal Serial Bus, or USB, IEEE 1394, or 1394, Bluetooth wireless technology
and Ethernet. Our products are used by semiconductor, device, system and
software companies at each phase of their products' lifecycles from development
through production and market deployment. Our verification systems consist of
development and production products that accurately monitor communications
traffic and diagnose operational problems to ensure standards compliance and
interoperability as well as assist system manufacturers to download software
onto new computers. Our connectivity products enable reliable, uninterrupted
service for broadband Internet access.

Our customers include industry leaders such as 3Com, AT&T, Dell, Intel,
Microsoft, Motorola, NEC, Sony, Sun Microsystems and Toshiba. In addition, we
sell our products through a network of distributors and value-added resellers
including Dynacolor, Enable Engineering, Nohau Electronik and Toyo. We strive
to establish and maintain close, long-term relationships with our customers,
emphasizing technical excellence, product quality and customer satisfaction.

The rise of the Internet and the widespread availability of broadband
transmissions has created a growing demand for direct access to information
from a variety of digital appliances. Devices such as personal computers,
Internet appliances, mobile phones, personal digital assistants and digital
cameras, must be interoperable across different data delivery systems.
Communication among digital devices, or connectivity, occurs over a variety of
physical media, or channels, such as copper wire, fiber optic cable and
wireless technologies. Digital devices communicate by sending electronic
signals through a channel according to a specified protocol. A protocol is the
set of detailed rules that govern both the channel and the device hardware and
software, and regulate the manner in which the signals are sent. The channel
and the protocol are both typically specified in a formal communications
standard. For communication to be successful, each device must recognize and
follow the same standard. As the number of devices and communications channels
have increased, communications technologies have become more complex, and new
standards are emerging to enable interoperability.

4
<PAGE>

for simple plug and play installation and incorporate our vertically
integrated, proprietary technologies, including an application specific
integrated circuit, or ASIC, embedded software and software drivers. By
controlling all design elements of our connectivity products, we are able to
assure full standards compliance and create products with better functionality,
stability and reliability.

Our objective is to be the leading provider of advanced verification systems
and connectivity products for designers, manufacturers and users of computer,
telecommunications and consumer electronic technologies for existing and
emerging communications standards. Our strategy includes the following key
elements:

. Expand our product offerings and establish first mover advantage for
emerging communications standards. We introduced the first commercial
product for USB developers, our Detective analyzer, the first for
Bluetooth developers, our Merlin analyzer, and the first for USB 2.0
developers, our Advisor analyzer. We plan to continue identifying
attractive market opportunities in emerging communications standards and
being the first to market with innovative products.

. Heighten brand awareness by broadening our reputation as an expert in
communications standards and extending our expert status to new
standards. We intend to continue to increase our participation in
communications standards groups and as invited experts at design
workshops.

. Leverage strategic relationships with leaders in the computer,
telecommunications and consumer electronic industries to gain early
access to new standards and technologies. This will continue to provide
us with early access to specifications before they become widely
available or accepted, as well as to product roadmaps and additional
market opportunities.

. Expand our distribution channels by increasing our marketing and sales
forces both domestically and internationally. We also intend to establish
relationships with additional distributors and value-added resellers.

. Reduce our development time for new products for emerging communications
standards. We intend to continue to invest substantial resources in
research and development to establish and extend our technological
leadership. We also intend to leverage the modular architecture of our
hardware and software technology to accelerate the development and
introduction of our new products for emerging communications standards.

Corporate Information

We were incorporated in California in February 1992. We plan to reincorporate
in Delaware prior to this offering. Our principal executive offices are located
at 2403 Walsh Avenue, Santa Clara, California 95051 and our telephone number is
(408) 727-6600. Our web site can be found at catc.com. Information contained in
our web site does not constitute a part of this prospectus.

5
<PAGE>

The Offering

<TABLE>
<C> <S>
Common stock offered by CATC....................... shares

Common stock to be outstanding after the offering.. shares

Use of proceeds.................................... For general corporate
purposes, including
working capital and
capital expenditures. See
"Use of Proceeds" for more
information regarding our
planned use of the
proceeds from the
offering.

Proposed Nasdaq National Market symbol............. CATZ
</TABLE>
--------------------

The number of shares of common stock to be outstanding after this offering is
based on 11,664,064 shares of common stock outstanding as of June 30, 2000. It
does not include:

. 1,085,000 shares issuable upon exercise of stock options outstanding as
of June 30, 2000 at a weighted average exercise price of $0.58 per share;

. 2,765,000 additional shares available for future grant or issuance under
our 2000 stock incentive plan, which will become effective on the closing
of this offering, including shares available for future grant under our
1994 stock option plan and 2000 stock option/stock issuance plan to be
transferred to our 2000 stock incentive plan, which number of shares will
be increased annually by an aggregate of 4% of our outstanding shares of
common stock; and

. 250,000 additional shares available for future grant or issuance under
our 2000 employee stock purchase plan, which will become effective on the
closing of this offering, which number of shares will be increased
annually by an aggregate of 1% of our outstanding shares of common stock.

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

. assumes no exercise of the underwriters' over-allotment option; and

. reflects our reincorporation into Delaware prior to this offering.

6
<PAGE>

Summary Consolidated Financial Data
(in thousands, except share and per share data)

<TABLE>
<CAPTION>
Six Month
Year Ended December Period Ended
31, June 30,
--------------------- -------------
1997 1998 1999 1999 2000
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Income Data:
Revenue.................................... $4,169 $6,771 $12,506 $5,289 $8,782
Gross profit............................... $3,405 $5,334 $ 9,370 $4,052 $6,614
Income from operations..................... $1,424 $1,165 $ 2,884 $1,213 $2,424
Net income................................. $ 924 $ 537 $ 1,262 $ 611 $1,255
Net income per share
Basic.................................... $ 0.08 $ 0.05 $ 0.11 $ 0.05 $ 0.11
Diluted.................................. $ 0.08 $ 0.04 $ 0.10 $ 0.05 $ 0.10
Weighted average shares outstanding
Basic.................................... 11,429 11,429 11,429 11,429 11,487
Diluted.................................. 11,606 12,063 12,067 12,181 12,406
</TABLE>

<TABLE>
<CAPTION>
June 30, 2000
--------------------
Actual As Adjusted
------- ------------
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short term investments......... $ 6,319 $ --
Working capital........................................... 7,925
Total assets.............................................. 12,018
Total debt................................................ --
Total stockholders' equity................................ 8,269
</TABLE>

The as adjusted balance sheet data appearing above gives effect to our
receipt of the net proceeds from the sale of shares of common stock at an
assumed initial public offering price of $ per share, after deducting
estimated underwriting discounts and commissions and our estimated offering
expenses.

7
<PAGE>

RISK FACTORS

Any investment in our common stock involves a high degree of risk. You should
consider carefully the following information about these risks, together with
the other information contained in this prospectus, before you decide to buy
our common stock. If any of the following risks actually occurs, our business,
results of operations and financial condition would likely suffer. In these
circumstances, the market price of our common stock could decline and you might
lose all or part of the money you paid to buy our common stock.

Risks Related to Our Business

Our future operating results are unpredictable and are likely to fluctuate from
quarter to quarter and, if we fail to meet the expectations of securities
analysts or investors, our stock price would likely decline significantly.

Our quarterly and annual operating results have fluctuated in the past and
are likely to fluctuate significantly in the future due to a number of factors,
many of which are wholly or partially outside of our control. Accordingly, we
believe that period to period comparisons of our results of operations are not
meaningful and should not be relied upon as indications of future performance.
Some of the factors that could cause our quarterly or annual operating results
to fluctuate include:

. the amount and timing of our operating expenses and capital expenditures;

. changes in the volume of our product sales and pricing concessions on
volume sales;

. the timing, reduction, deferral or cancellation of customer orders or
purchases;

. the gain or loss of customers;

. the availability and pricing of competing products and technologies and
the resulting effect on sales and pricing of our products;

. fluctuations in the cost and availability of raw materials and the cost
and availability of manufacturing and assembly capacity;

. seasonality in some of our target markets;

. the effectiveness of our product cost reduction efforts;

. changes in the mix of products we sell;

. changes in demand by the end users of our customers' USB and other
products;

. variability of our customers' product lifecycles;

. changes in the average selling prices of our products; and

. cancellations, changes or delays of deliveries to us by our manufacturers
and suppliers.

If our operating results fall below the expectations of securities analysts
or investors, the trading price of our common stock would likely decline
significantly.

8
<PAGE>

If we fail to keep up with rapid technological change and evolving industry
standards, our products could become less competitive or obsolete.

The markets for our products are characterized by rapid technological change,
frequent new product introductions, changes in customer requirements and
evolving industry standards. Our products may cease to be competitive if we
fail to introduce new products or product enhancements that address these
changes, meet new customer requirements and support new standards. To continue
to introduce new products or product enhancements on a timely basis, we must:

. identify emerging technological trends in our target markets, including
new communications standards;

. accurately define and design new products or product enhancements to meet
market needs;

. develop or license the underlying core technologies necessary to create
new products and product enhancements; and

. respond effectively to technological changes and product introductions by
others.

If we are unable to identify, develop, manufacture, market or support new or
enhanced products successfully or on a timely basis, our competitors could gain
market share or our new products or product enhancements might not gain market
acceptance. Further, we might not be able to respond effectively to product
announcements by competitors, technological changes or emerging industry
standards.

We depend upon widespread market acceptance of our USB products, and our
revenue will decline if the market does not continue to accept these products.

We currently derive a substantial majority of our revenue from sales of our
USB products. Revenue from sales of our USB products accounted for
approximately 89.7% of our revenue in the year ended December 31, 1999 and
91.6% of our revenue in the six month period ended June 30, 2000. We expect
that revenue from these products will continue to account for a substantial
portion of our revenue for the foreseeable future. If the market does not
continue to accept our USB products, our revenue will decline significantly.
Factors that may affect the market acceptance of our current USB products
include the continued growth of the markets for USB compliant devices as well
as the performance and pricing of our USB products and the availability,
functionality and price of competing products. Companies must also modify their
products to support new versions of USB as they are developed, such as USB 2.0.
Many of these factors are beyond our control. In addition, in order to maintain
widespread market acceptance, we must continue to differentiate ourselves from
the competition through our technical expertise, product offerings and brand
name recognition. Failure of our USB products to maintain market acceptance
could adversely impact our revenue.

If we devote resources to developing products for communications standards that
ultimately are not widely accepted, our business could be harmed.

We have incurred significant expense to develop our products for the
Bluetooth wireless technology standard. This standard has not yet gained market
acceptance. Furthermore, we may incur significant expenses and dedicate
significant time and resources in developing products for other emerging
communications standards that may not gain broad acceptance. The failure of a
standard to gain widespread acceptance, or our failure to be first to market
with products that address a particular standard, would likely harm our
business.

9
<PAGE>

If we fail to maintain and expand our relationships with the core or promoter
companies in our target markets, we may have difficulty developing and
marketing our products.

It is important to our success to maintain and expand our relationships with
companies that are leaders in developing new communications standards in our
target markets. We believe that we need to work closely with these core or
promoter companies to gain valuable insights into the market demands for new
products, to obtain early access to new communications standards as they are
developed and to help us design new products. We will need to maintain our
relationships with leading technology and infrastructure companies, as well as
expand our relationships with leaders in markets that are new for us.
Generally, we do not enter into formal contracts that obligate these companies
to work or share their technology with us. Industry leaders could choose to
work with other companies as they develop new communications standards in the
future. If we fail to maintain and expand our industry relationships, we could
lose the opportunity for first-mover advantage with respect to emerging
standards and it would be more difficult for us to develop and market products
that address emerging standards.

If our target markets do not accept our products for emerging communications
standards, our revenue growth could suffer.

Our future growth depends upon our ability to sell advanced verification
systems and connectivity products for emerging communications standards such as
Bluetooth wireless technology. However, our products may not gain widespread
acceptance by customers. The success of our products depends upon volume
production of computer, communications and consumer electronic products that
use a particular standard and the acceptance of these products by customers.
The markets for emerging standards products have only recently begun to develop
and are rapidly evolving. As a result, it is difficult to predict their
potential size or future growth rate. There is significant uncertainty as to
whether these markets ultimately will develop at all or, if they do develop,
whether they will develop rapidly. If the markets for a particular emerging
communications standard fail to develop or develop more slowly than expected,
or if our products do not achieve widespread market acceptance by customers in
these markets, our business would be significantly harmed.

Delays in the development of new products or product enhancements could harm
our operating results and our competitive position.

The development of new, technologically advanced products is a complex and
uncertain process requiring high levels of innovation and highly skilled
engineering and development personnel, as well as accurate anticipation of
technological and market trends. We have in the past experienced delays in
product development, and delays may occur again in the future. To the extent
that we do not introduce the first product for an emerging standard or
customers defer or cancel orders with the expectation of a new product or
product enhancement release, our operating results could suffer. Product
development delays may result from numerous factors, including:

. changing product specifications and customer requirements;

. difficulties in hiring and retaining necessary technical personnel;

. difficulties in allocating engineering resources and overcoming resource
limitations;

. difficulties with contract manufacturers;

. changing market or competitive product requirements; and

. unanticipated engineering complexities.

10
<PAGE>

If we are unable to meet the design and market introduction schedules for our
new products or product enhancements, our operating results may suffer.

Variations in our revenue may cause fluctuations in our operating results.

We may experience a delay in generating or recognizing revenue for a number
of reasons. Historically, we have had little backlog and our revenue in any
quarter has depended upon orders booked and shipped in that quarter.
Furthermore, our customers may delay scheduled delivery dates and cancel orders
without significant penalty. In addition, even if we ship orders, generally
accepted accounting principles may require us to defer recognition of revenue
from those orders until a later date. Because we budget our operating expenses
on anticipated revenue trends and a high percentage of our expenses is fixed in
the short term, any delay in generating or recognizing forecasted revenue could
have a significant negative impact on our operating results.

Shifts in our product mix may result in declines in gross margins.

Our gross margins vary among our products, with our gross margins generally
being higher on our advanced verification systems than on our connectivity
products. Our overall gross margins have fluctuated from period to period as a
result of shifts in product mix, the introduction of new products and our
ability to reduce product costs.

Decreases in average selling prices of our products may reduce gross margins
and revenue.

The average selling prices of our products may decrease in the future in
response to product introductions by us or our competitors, or by other
factors, including discounts given on volume purchase orders or pricing
pressures. In that event, we would need to continue to develop and introduce on
a timely basis new products that incorporate features that can be sold at
higher average selling prices. Failure to do so would likely cause our revenue
and gross margins to decline.

Continued competition in our markets may lead to a reduction in our prices,
revenue and market share.

The markets for advanced verification and connectivity products for emerging
communications standards are highly competitive. We compete with multiple
companies in various markets, including 3A International in the markets for
products that address the 1394 standard. Any of our competitors may develop
technologies that more effectively address our targeted markets at a lower
cost. In addition, these competitors may enter into strategic alliances or
business combinations that increase their ability to innovate and address our
markets.

We may also face competition from other equipment manufacturers, such as
Finisar, National Instruments, Rhode & Schwartz and Tektronix. Many of these
companies have substantially greater financial, technical, marketing and
distribution resources and brand name recognition than we have. We expect that
more companies, including some of our customers, will enter our markets. If
these companies develop products that compete with our products or form
alliances with, or acquire companies offering competing products, even if those
products do not have capabilities comparable to our products, they would be
significant competitors and their activities could cause us to reduce our
prices. Increased competition could result in significant price erosion,
reduced revenue, lower margins and loss of market share, any of which would
significantly harm our business.

11
<PAGE>

We depend on contract manufacturers for substantially all of our manufacturing
requirements and if these manufacturers fail to provide us with adequate
supplies of high-quality products, our competitive position, reputation and
business could be harmed.

We currently rely on four contract manufacturers for all of our manufacturing
requirements except for the final assembly, testing and quality assurance on
our lower volume, higher margin products. We do not have long-term contracts
with any of these manufacturers. We have experienced delays in product
shipments from some of our contract manufacturers in the past, which in turn
forced us to delay product shipments to our customers. We may in the future
experience similar delays or other problems, such as inferior quality and
insufficient quantity of products, any of which could significantly harm our
business. Our contract manufacturers may not be able to meet our future
requirements for timely delivery of products of sufficient quality and
quantity. We intend to introduce new products and product enhancements
regularly, which will require that we rapidly achieve volume production by
coordinating our efforts with those of our suppliers and contract
manufacturers. The inability of our contract manufacturers to provide us with
adequate supplies of high quality products or the loss of any of our contract
manufacturers would cause a delay in our ability to fulfill orders while we
obtain a replacement manufacturer.

If we are unable to forecast our supply needs accurately, our costs may
increase or we may not be able to ship products in a timely manner.

We purchase components used in the manufacture of our products from several
key sources. We depend on these sources to deliver necessary components in a
timely manner based on twelve-month rolling forecasts that we provide. Lead
times for materials and components that we order vary significantly and depend
on factors such as specific supplier requirements, contract terms and current
market demand for particular components. If we overestimate our component
requirements, we may develop excess inventory, which would increase our costs.
If we underestimate our component requirements, we may not be able to fulfill
customer orders.

We depend on sole source suppliers for several key components of our products,
and we may lose sales if they fail to meet our needs.

We obtain some parts, components and packaging used in our products from sole
sources of supply. For example, we obtain field programmable gate array
integrated circuits from Altera, ASICs from LSI Logic and micro-controllers
from Intel. If suppliers are unable to meet our demand for sole source
components at reasonable costs and if we are unable to obtain an alternative
source or the price for an alternative source is prohibitive, our ability to
maintain timely and cost-effective production of our products would be harmed.
In addition, because we rely on purchase orders rather than long-term contracts
with our suppliers, including our sole source suppliers, we cannot predict with
certainty our ability to obtain components in the longer term. If we are unable
to obtain components or receive a smaller allocation of components than is
necessary to manufacture products in quantities sufficient to meet demand,
customers could choose to purchase competing products.

If our distributors and value-added resellers do not actively sell our
products, our product sales may decline.

We sell a substantial portion of our products through distributors and value-
added resellers, including Toyo, our distributor in Japan, which accounted for
approximately 18.8% of our revenue in the year ended December 31, 1999 and
approximately 12.9% of our revenue in the six month period ended June 30, 2000.

12
<PAGE>

Our distributors and resellers generally offer products from multiple
manufacturers. Accordingly, there is a risk that these distributors and
resellers may give higher priority to selling products from other suppliers and
reduce their efforts to sell our products. Our resellers may not market our
products effectively or continue to devote the resources necessary to provide
us with effective sales, marketing and technical support. Our distributors may
on occasion build inventories in anticipation of substantial growth in sales
and, if growth does not occur as rapidly as anticipated, may decrease the
amount of product ordered from us in subsequent quarters. A slowdown in orders
from our distributors could reduce our revenue in any given quarter and give
rise to fluctuations in our operating results.

In addition, our sales to Toyo are made on the basis of purchase orders
rather than a long-term commitment. Our sales to our other distributors are
made either by purchase orders or under one year agreements. The loss of any
one of our major distributors, or the delay of significant orders from these
distributors, could result in decreased revenue.

If we are unable to hire and retain additional sales, marketing, engineering
and finance personnel, our growth will be impaired.

To grow our business successfully and maintain a high level of quality, we
will need to recruit, retain and motivate additional highly skilled sales,
marketing, engineering and finance personnel. If we are not able to hire and
retain a sufficient number of qualified employees, our growth will be impaired.
In particular, as a company focused on the development of complex products, we
will need to hire additional hardware and software developers and engineers and
project managers of various experience levels in order to keep pace with
technological change and develop products that meet the needs of rapidly
evolving markets. Competition for skilled employees, particularly in the
San Francisco Bay Area, is intense. We may have even greater difficulty
recruiting potential employees after this offering if prospective employees
perceive the equity component of our compensation package to be less valuable
after this offering than before this offering.

The loss of key management personnel, on whose knowledge, leadership and
technical expertise we rely, would harm our ability to execute our business
plan.

Our success depends heavily upon the continued contributions of our key
management personnel, whose knowledge, leadership and technical expertise would
be difficult to replace. All of our executive officers and key personnel are
employees at will. We maintain no key person insurance on any of our personnel.
If we were to lose the services of any of our key personnel, our ability to
execute our business plan would be harmed. In addition, employees who leave our
company may subsequently compete against us.

If we fail to manage our growth effectively, our business could suffer.

Our ability to offer products and implement our business plan successfully in
a rapidly evolving market requires an effective planning and management
process. We increased our headcount by 45.0% in the six month period ended June
30, 2000. This growth may place a significant strain on our management systems,
infrastructure and other resources. We expect that we will need to continue to
improve our financial and managerial controls, reporting systems and
procedures. For example, we intend to migrate our operations to a new
enterprise resource planning system that affects almost every facet of our
business operations. Typically, these conversions negatively affect a company's
near-term ability to conduct business due to problems such as historical data
conversion errors,

13
<PAGE>

personnel training time associated with the new system, delays in
implementation or unforeseen technical problems during conversion. If problems
arise during this transition, we could experience delays in or lack of
shipping, an inability to support our existing customer base, delays in paying
vendors, delays in collecting from customers, an inability to place or receive
product orders or other operational problems. If this were to occur, our
profitability or financial position could be negatively impacted. If we are
not able to manage our growth effectively and efficiently, the quality of our
products, our ability to retain key personnel and our operating results could
suffer.

Our products may contain defects that may cause us to incur significant costs,
divert our attention from product development efforts and result in a loss of
customers.

Highly complex products such as our verification systems and connectivity
products frequently contain defects when they are first introduced or as new
versions are released. We have in the past experienced these defects and may
experience them in the future. If any of our products contain defects or have
reliability, quality or compatibility problems, our reputation may be damaged
and customers may be reluctant to buy our products. As a result, our ability
to retain existing customers or attract new customers could be harmed. In
addition, these defects could interrupt or delay sales to our customers. We
may have to invest significant capital and other resources to alleviate these
problems. If any of these problems are not found until after we have commenced
commercial production of a new product, we may be required to incur additional
development costs and product recall, repair or replacement costs. These
problems may also result in claims against us by our customers or others. In
addition, these problems may divert our technical and other resources from
other development efforts.

If we are unable to expand our direct sales operations and our distributor and
value-added reseller channels or successfully manage our expanded sales
organization, our ability to increase our revenue will be harmed.

Historically, we have relied on a limited direct sales organization,
supported by third-party resellers, to sell our products domestically and on
third party distributors to sell our products internationally. We intend to
develop and expand our direct sales organization in North America and our
indirect distribution channels internationally. We may not be able to expand
our direct sales organization successfully, and the cost of any expansion may
exceed the revenue generated from such expansion. In addition, if we fail to
develop relationships with significant distributors or resellers, or if these
distributors or resellers are not successful in their sales or marketing
efforts, sales of our products may decrease.

Any acquisitions that we undertake could be difficult to integrate, disrupt
our business, dilute stockholder value and harm our operating results.

We expect to review opportunities to buy other businesses or technologies
that would complement our current products, expand the breadth of our markets
or enhance our technical capabilities, or that might otherwise offer growth
opportunities. While we have no current agreements or negotiations underway,
we may buy businesses, product lines or technologies in the future. If we make
any future acquisitions, we could issue stock that would dilute the percentage
ownership of our existing stockholders, incur substantial debt or assume
contingent liabilities. To date, we have not acquired any other business or
technologies. Potential acquisitions also involve numerous risks, including:

. problems in assimilating the purchased operations, technologies or
products;

14
<PAGE>

. costs or accounting charges associated with the acquisition;

. diversion of management's attention from our existing business;

. adverse effects on existing business relationships with suppliers and
customers;

. risks associated with entering markets in which we have little or no
prior experience; and

. potential loss of key employees of purchased businesses.

Economic, political and other risks associated with international sales and
operations could adversely affect our sales.

Because we sell our products worldwide, our business is subject to risks
associated with doing business internationally. We recognized approximately
42.4% of our revenue from sales to international customers in the year ended
December 31, 1999 and 33.4% in the six month period ended June 30, 2000. We
anticipate that revenue from international operations will continue to
represent a substantial portion of our revenue. In addition, several of our
manufacturing facilities and suppliers are located outside the United States.
Accordingly, our future results could be harmed by a variety of factors,
including:

. changes in foreign currency exchange rates;

. changes in a specific country's or region's political or economic
conditions, particularly in emerging markets;

. trade protection measures and import or export licensing requirements;

. potentially negative consequences from changes in tax laws;

. difficulty in staffing and managing widespread operations;

. differing labor regulations;

. differing protection of intellectual property; and

. unexpected changes in regulatory requirements.

New accounting pronouncements may cause our operating results to fluctuate.

In various areas, including revenue recognition and stock-based compensation,
accounting standards and practices continue to evolve. The SEC is preparing to
issue interpretive guidance relating to SAB 101, and the FASB continues to
address revenue recognition and other related accounting issues. We believe we
comply with all of the rules and related guidance as they currently exist.
However, any changes to generally accepted accounting principles in these areas
would likely affect our results of operations.

Our headquarters and our contract manufacturers are located in Northern
California, Asia and other areas where natural disasters may occur.

Currently, our corporate headquarters and some of our contract manufacturers
are located in Northern California and our other contract manufacturers are
located in Asia. Northern California and Asia historically have been vulnerable
to natural disasters and other risks, such as earthquakes, fires and floods,
which at times have disrupted the local economy and posed physical risks to our
and our manufacturers' properties. We also maintain facilities in San Diego,
California and Netanya, Israel. We presently do not have redundant, multiple
site capacity in the event of a natural disaster.

15
<PAGE>

Any failure to protect our intellectual property adequately may significantly
harm our business.

To date, we protect our proprietary processes, software, know-how and other
intellectual property and related rights through copyrights, trademarks and
maintenance of trade secrets, including entering into confidentiality
agreements. Our success and ability to compete depend in part on our
proprietary technology. We currently do not have any patents. Although we
anticipate filing applications for one or more patents, patents may not issue
as a result of these or other patent applications. Any patents that ultimately
issue may be successfully challenged by others or invalidated, or may not
provide us with a significant competitive advantage. Other parties may breach
confidentiality agreements or other protective contracts into which we have
entered and we may not be able to enforce our rights in the event of these
breaches. We may be required to spend significant resources to monitor and
police our intellectual property rights, including pursuing remedies in court.
We recently sent letters to two companies demanding that they cease infringing
our copyrights. We believe that this matter is in the process of being resolved
in our favor. However, in the future, we may not be able to detect infringement
and may lose competitive position in our markets before we do so. In addition,
competitors may design around our technologies or develop competing
technologies. The laws of other countries in which we market our products might
offer little or no effective protection of our proprietary technology. Reverse
engineering, unauthorized copying or other misappropriation of our proprietary
technology could enable third parties to benefit from our technology without
paying us for it, which could significantly harm our business.

Claims that we infringe third-party intellectual property rights could result
in significant expenses or restrictions on our ability to sell our products.

Our industry is characterized by uncertain and conflicting intellectual
property claims and frequent intellectual property litigation, especially
regarding patent rights. We cannot be certain that our products do not and will
not infringe issued patents or other intellectual property rights of others.
Historically, patent applications in the United States have not been publicly
disclosed until the patent is issued, and we may not be aware of filed patent
applications that relate to our products or technology. If patents are later
issued in connection with these applications, we may be liable for
infringement. From time to time, other parties may assert patent, copyright and
other intellectual property rights to technologies and in various jurisdictions
that are important to our business. Any claims asserting that our products
infringe or may infringe proprietary rights of third parties, including claims
arising through our contractual indemnification of our customers, regardless of
their merit or resolution, would likely be costly and time-consuming, result in
costly litigation, divert the efforts of our technical and management
personnel, cause product shipment delays or require us to enter into royalty or
licensing agreements. Royalty or licensing agreements, if required, may not be
available on terms acceptable to us, or at all.

Changes in current laws or regulations or the imposition of new laws or
regulations could impede the sale of our products.

In the United States, our products must comply with various laws or
regulations and standards defined by the Federal Communications Commission.
Internationally, products that we develop also will be required to comply with
regulations established by local authorities in various countries. Failure to
comply with regulations established by regulatory authorities or to obtain
timely domestic or foreign regulatory approvals or certificates could
significantly harm our business.

16
<PAGE>

Risks Related to this Offering

Our stock price may be volatile and you might not be able to resell your shares
at or above the initial public offering price.

There has been no public market for our common stock prior to this offering.
The initial public offering price for our common stock will be determined
through negotiations between the underwriters and us. This initial public
offering price might vary from the market price of our common stock after the
offering. If you purchase shares of our common stock, you might not be able to
resell those shares at or above the initial public offering price. Many factors
could cause the market price of our common stock to rise and fall, including:

. changes in market valuations of other technology companies;

. changes in financial estimates by securities analysts;

. variations in our operating results that cause us to fail to meet
analysts' or investors' expectations;

. announcements by us or our competitors of significant technical
innovations, contracts, acquisitions, strategic partnerships, joint
ventures or capital commitments;

. additions or departures of key personnel;

. future sales of equity or debt securities; and

. general economic, industry and market conditions.

In addition, the stock market, and the stocks of technology companies in
particular, have experienced extreme volatility that often has been unrelated
or disproportionate to the performance of these companies. Similar market
fluctuations in the future might cause our stock price to decline regardless of
our performance. In the past, companies that have experienced volatility in the
market price of their stock have been the object of securities class action
litigation. If we were to become involved in securities class action
litigation, it could result in substantial costs and a diversion of
management's attention and resources from our existing business.

Because a limited number of existing stockholders will together own a majority
of our stock, the voting power of other stockholders, including purchasers in
this offering, might be limited.

We anticipate that our executive officers, directors, entities affiliated
with them and other 5% or greater stockholders will beneficially own
approximately % of our outstanding common stock after this offering. As a
result, if some of these existing stockholders choose to act together, they
will have the ability to control matters submitted to our stockholders for
approval, including the election and removal of directors and the approval of
any business combinations. These actions might be taken even if other
stockholders, including those who purchase shares in this offering, oppose
them. This concentration of ownership might also have the effect of delaying or
preventing a change of control of our company, which could harm the market
price of our stock.

We might be unable to meet our future capital requirements, and if we issue
additional equity or debt securities to do so, our stockholders could
experience additional dilution.

We might be required to seek additional funding to meet our capital
requirements, particularly if we elect to acquire complementary businesses,
products or technologies. If we are required to raise additional funds, we
might not be able to do so on favorable terms, if at all. In addition, if we
issue

17
<PAGE>

new equity securities, stockholders might experience dilution or the holders of
new equity or debt securities might have rights, preferences or privileges
senior to those of existing stockholders. If we are unable to raise additional
capital on acceptable terms, we might not be able to develop or enhance our
products, take advantage of future opportunities, or respond to competition.

Substantial future sales of our securities in the public market could depress
our stock price.

Our current stockholders hold a substantial number of shares, which they will
be able to sell in the public market in the near future. Sales of a substantial
number of shares of our securities after this offering could cause our stock
price to fall. In addition, the sale of these shares could impair our ability
to raise capital through the sale of additional securities. You should read
"Shares Eligible for Future Sale" for a full discussion of shares that might be
sold in the public market in the future.

You will experience immediate and substantial dilution in the book value of
your shares.

If you purchase shares of common stock in this offering, you will experience
immediate and substantial dilution of $ per share, based on an assumed
initial public offering price of $ per share. This dilution arises because
our earlier investors paid substantially less than the initial public offering
price when they purchased their shares of common stock. You will experience
additional dilution upon the exercise of outstanding stock options to purchase
our common stock. As of June 30, 2000, we had options outstanding to purchase
1,085,000 shares of common stock with a weighted average exercise price of
$0.58 per share.

The provisions of our charter documents might inhibit potential acquisition
bids that a stockholder might believe are desirable, and the market price of
our common stock could be lower as a result.

Provisions of our certificate of incorporation and bylaws could make it more
difficult for a third party to acquire us, even if doing so would be beneficial
to our stockholders. These provisions include:

. providing that only one of the three classes of directors is elected each
year;

. limiting the ability of our stockholders to remove directors without
cause;

. eliminating the ability of our stockholders to act by written consent;

. limiting the ability of our stockholders to call special meetings of
stockholders; and

. establishing notice requirements for stockholders to nominate directors
or submit proposals for consideration at stockholder meetings.

In addition, Section 203 of the Delaware General Corporation Law and the terms
of our stock option plans may discourage, delay or prevent a change in control.
Any of these provisions might prevent the market price of our common stock from
increasing in response to actual or rumored takeover attempts.

We have broad discretion in how we use the proceeds of this offering, and we
might not use these proceeds effectively.

Our management has broad discretion in the use of the net proceeds of this
offering and could spend the net proceeds in ways that do not yield a favorable
return or to which stockholders object. We may use the proceeds to acquire
complementary businesses or technologies, although no acquisitions are
currently planned. These acquisitions could prove to be unprofitable and harm
our business. Until we need to use the net proceeds of this offering, we plan
to invest them in short-term, interest-bearing investment grade securities.

18
<PAGE>

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about us and our industry.
Forward-looking statements relate to future events or to our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expect," "plan," "anticipate,"
"could," "believe," "estimate," "predict," "potential" or similar expressions.
Our actual results could differ materially from those anticipated in these
forward-looking statements for many reasons, including factors more fully
described in the "Risk Factors" section and elsewhere in this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future events or results. We
undertake no obligation to update publicly any forward-looking statements for
any reason, even if new information becomes available or other events occur.

USE OF PROCEEDS

We estimate the net proceeds from the sale of the shares of our
common stock in this offering will be $ million, assuming an initial
public offering price of $ per share, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses. If the
underwriters' overallotment option is exercised in full, we estimate that we
will receive approximately $ million in net proceeds from this offering.

We intend to use the net proceeds for general corporate purposes, including
working capital and capital expenditures. Management will retain broad
discretion in the allocation of the net proceeds of the offering. You will not
have the opportunity to evaluate the economic, financial or other information
on which we base our decisions on how to use the proceeds. In addition, we may
use a portion of the net proceeds to acquire or invest in complementary
businesses, products or services. This would reduce the use of the net proceeds
for one or more of the uses indicated above. We currently have no agreements or
commitments with respect to any acquisition or investment, and we are not
involved in any negotiations with respect to any such transaction. Pending
these uses, we will invest the net proceeds of this offering in short-term,
interest-bearing investment grade securities.

DIVIDEND POLICY

We have never declared or paid dividends on our common 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 various factors our board of directors
deems relevant, including our financial condition, operating results, current
and anticipated cash needs, plans for expansion and debt covenants.

19
<PAGE>

CAPITALIZATION

The following table sets forth our capitalization as of June 30, 2000:

. on an actual basis; and

. on an as adjusted basis giving effect to the sale in this offering of
shares of common stock at an assumed initial public offering price
of $ per share and after deducting the estimated underwriting
discounts and commissions and estimated offering expenses.

<TABLE>
<CAPTION>
June 30, 2000
-----------------
As
Actual Adjusted
------- --------
(in thousands)
<S> <C> <C>
Stockholders' equity:
Common stock, $0.001 par value, 100,000,000 shares
authorized and 11,664,064 shares issued and outstanding,
actual; $0.001 par value, 100,000,000 shares authorized and
shares issued and outstanding, as adjusted........... 12
Additional paid-in capital.................................. 5,694
Deferred stock-based compensation........................... (1,442)
Retained earnings........................................... 4,005
------- ----
Total stockholders' equity.............................. 8,269
------- ----
Total capitalization.................................... $ 8,269 $
======= ====
</TABLE>

This table excludes the following:

. 1,085,000 shares issuable upon exercise of stock options outstanding as
of June 30, 2000 at a weighted average exercise price of $0.58 per share;

. 2,765,000 additional shares available for future grant or issuance under
our 2000 stock incentive plan, which will become effective on the closing
of this offering, including shares available for grant under our 1994
stock option plan and our 2000 stock option/stock issuance plan, which
number of shares will be increased annually by an aggregate of 4% of our
outstanding common stock; and

This table should be read in conjunction with the "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and the
notes to our consolidated financial statements appearing elsewhere in this
prospectus.

20
<PAGE>

DILUTION

If you buy shares of our common stock in this offering, your investment will
be diluted to the extent of the difference between the public offering price
per share of our common stock and the as adjusted net tangible book value per
share of our common stock after this offering. Our net tangible book value as
of June 30, 2000 was approximately $ million, or approximately $ per
share of common stock. Net tangible book value per share represents our total
tangible assets less total liabilities, divided by the number of shares of
common stock outstanding as of June 30, 2000.

After giving effect to the sale of shares of our common stock, at an
assumed initial public offering price of $ per share and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses, our as adjusted net tangible book value as of June 30, 2000 would
have been $ , or $ per share. This represents an immediate increase in
net tangible book value of $ per share to existing stockholders and an
immediate and substantial dilution of $ 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................... $
Net tangible book value per share as of June 30, 2000........... $
Increase per share attributable to new investors ...............
----
As adjusted net tangible book value per share after the offering..
----
Net tangible book value dilution per share to new investors....... $
====
</TABLE>

This table excludes all options that will remain outstanding upon completion
of this offering. To the extent that any of these options are exercised at an
exercise price less than the offering price, there would be further dilution to
new investors. For additional information regarding these shares, see
"Capitalization," "Management--Benefit Plans," "Description of Capital Stock"
and Note 4 of the notes to our consolidated financial statements.

Assuming the exercise in full of the underwriters' over-allotment option, our
as adjusted net tangible book value as of June 30, 2000 would have been
approximately $ per share, representing an immediate increase in net
tangible book value of $ per share to our existing stockholders and an
immediate and substantial dilution in net tangible book value of $ per
share to new investors.

The following table sets forth as of June 30, 2000, the total consideration
paid and the average price per share paid by existing stockholders and by new
investors in this offering at our assumed initial public offering price of $
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...... % $ % $
New investors..............
--- --- ---------- ---------
Total.................... % $ %
=== === ========== =========
</TABLE>

This table excludes the following:

. 1,085,000 shares issuable upon exercise of stock options outstanding as
of June 30, 2000 at a weighted average exercise price of $0.58 per share;

21
<PAGE>

. 2,765,000 additional shares available for future grant or issuance under
our 2000 stock incentive plan, which will become effective on the closing
of this offering, including shares available for grant under our 1994
stock option plan and our 2000 stock option/stock issuance plan, which
number of shares will be increased annually by an aggregate of 4% of our
outstanding common stock; and

22
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

You should read the following consolidated financial data in conjunction with
our consolidated financial statements and accompanying notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus. The consolidated statement of income
data for the year ended December 31, 1997 to 1999 and the six month period
ended June 30, 2000, and the consolidated balance sheet data as of December 31,
1998 to 1999 and June 30, 2000, are derived from the audited consolidated
financial statements included in this prospectus. The consolidated statement of
income data for the year ended December 31, 1996, and the consolidated balance
sheet data as of December 31, 1996 and 1997, are derived from consolidated
audited financial statements not included in this prospectus. The consolidated
statement of income data for the year ended December 31, 1995 and the six month
period ended June 30, 1999, and the consolidated balance sheet data as of
December 31, 1995 are unaudited. Our unaudited consolidated financial
statements have been prepared by us on a basis consistent with our consolidated
audited financial statements and, in management's opinion, include all
adjustments consisting only of normal recurring adjustments necessary for a
presentation of the consolidated results of operations for these periods. Our
historical results are not necessarily indicative of results to be expected for
future periods.

<TABLE>
<CAPTION>
Six Month
Period Ended
Year Ended December 31, June 30,
------------------------------------ -------------
1995 1996 1997 1998 1999 1999 2000
------ ------ ------ ------ ------- ------ ------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of
Income Data:
Revenue..................... $ 689 $2,258 $4,169 $6,771 $12,506 $5,289 $8,782
Cost of revenue............. 315 395 764 1,437 3,136 1,237 2,168
------ ------ ------ ------ ------- ------ ------
Gross profit................ 374 1,863 3,405 5,334 9,370 4,052 6,614
Operating expenses:
Research and development.. 394 782 1,210 2,572 3,538 1,751 1,882
Sales and marketing....... 273 289 431 800 1,194 572 1,103
General and
administrative........... 140 152 340 345 434 171 433
Amortization of deferred
stock-based
compensation............. -- -- -- 452 1,320 345 772
------ ------ ------ ------ ------- ------ ------
Total operating
expenses............... 807 1,223 1,981 4,169 6,486 2,839 4,190
------ ------ ------ ------ ------- ------ ------
Income (loss) from
operations................. (433) 640 1,424 1,165 2,884 1,213 2,424
Interest income............. 24 18 56 80 138 54 156
------ ------ ------ ------ ------- ------ ------
Income (loss) before
provision for income
taxes...................... (409) 658 1,480 1,245 3,022 1,267 2,580
Provision for income taxes.. 2 20 556 708 1,760 656 1,325
------ ------ ------ ------ ------- ------ ------
Net income (loss)........... $ (411) $ 638 $ 924 $ 537 $ 1,262 $ 611 $1,255
====== ====== ====== ====== ======= ====== ======
Net income (loss) per
share......................
Basic..................... $(0.04) $ 0.06 $ 0.08 $ 0.05 $ 0.11 $ 0.05 $ 0.11
====== ====== ====== ====== ======= ====== ======
Diluted................... $(0.04) $ 0.06 $ 0.08 $ 0.04 $ 0.10 $ 0.05 $ 0.10
====== ====== ====== ====== ======= ====== ======
Weighted average shares
outstanding................
Basic..................... 11,429 11,429 11,429 11,429 11,429 11,429 11,487
====== ====== ====== ====== ======= ====== ======
Diluted................... 11,429 11,503 11,606 12,063 12,067 12,181 12,406
====== ====== ====== ====== ======= ====== ======
</TABLE>

23
<PAGE>

<TABLE>
<CAPTION>
December 31, June 30,
--------------------------------- --------
1995 1996 1997 1998 1999 2000
----- ------ ------ ------ ------ --------

(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short
term investments.................. $ 366 $ 480 $1,816 $2,215 $4,195 $ 6,319
Working capital.................... 412 981 1,883 3,005 5,754 7,925
Total assets....................... 462 1,268 2,727 3,926 7,654 12,018
Total debt......................... -- -- -- -- -- --
Total stockholders' equity......... 409 1,047 1,971 3,202 6,027 8,269
</TABLE>

24
<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 "Selected Consolidated
Financial Data" and our consolidated financial statements and accompanying
notes. Our discussion contains forward-looking statements based upon current
expectations that involve risks and uncertainties, such as statements of our
plans, objectives and intentions. Our actual results may differ materially from
those indicated in these forward-looking statements. See "Note Regarding
Forward-Looking Statements." Factors that could cause or contribute to these
differences include but are not limited to those discussed in "Risk Factors"
and elsewhere in this prospectus.

Overview

We are a leading provider of advanced verification systems and connectivity
products for existing and emerging digital communications standards such as
USB, 1394, Bluetooth wireless technology and Ethernet. Our products are used by
semiconductor, device, system and software companies at each phase of their
products' lifecycles from infrastructure development through product
development and market deployment. Our verification systems consist of
development and production products that accurately monitor communications
traffic and diagnose operational problems to ensure standards compliance and
interoperability as well as assist system manufacturers to download software
onto new computers. Our connectivity products enable reliable, uninterrupted
service for broadband Internet access. We currently outsource most of the
manufacturing of our verification systems and connectivity products so that we
may concentrate our resources on the design, development and marketing of our
existing and new products.

We were formed in February 1992 and offered our first verification system in
1996 and our first connectivity solution in 1998. Our product offerings have
expanded to include a range of analyzers, testers and connectivity products,
including FireInspector, our 1394 bus and protocol analyzer; NetMate Plus, a
USB connectivity product; UPT, a USB production product; Advisor, our fourth
generation USB bus and protocol analyzer; and Merlin, a Bluetooth wireless
protocol analyzer.

We report our revenue and gross profit in three business segments:
development, production and connectivity products. In the year ended December
31, 1999, our revenue from our development products was $6.2 million, from
production products was $4.6 million and from connectivity products
$1.7 million. In the six month period ended June 30, 2000, our revenue from our
development products was $4.0 million, from production products was $2.8
million and from connectivity products was $2.0 million. Historically, we have
generated a majority of our revenue across all segments from products that
address the USB standard. Revenue from our USB products accounted for
approximately 89.7% of our revenue in the year ended December 31, 1999 and
91.6% in the six month period ended June 30, 2000.

We sell our products on a purchase order basis. We have adopted Statement of
Position, or SOP, 97-2, Software Revenue Recognition. Under SOP 97-2, we
recognize revenue to resellers and end users upon shipment provided that there
is persuasive evidence of an arrangement, the product has been delivered, the
fee is fixed and determinable and collection of the resulting receivable is
probable. When we have shipped products but some elements essential to the
functionality of the products have not been completed, revenue and associated
cost of revenue are deferred until all remaining elements have been delivered.
As a result, our revenue trends are dependent on the timing of delivery of
these essential elements. As of June 30, 2000, revenue of $1.7 million had been

25
<PAGE>

deferred, which we expect to recognize in the six month period ending December
31, 2000. Our products are typically sold with a one year parts and labor
repair warranty. Provisions for warranty costs are recorded at the time
products are shipped. Product returns to date have not been significant.

We sell our products to technology, infrastructure and application companies
through our direct sales force and indirectly through our distributors and
value-added resellers. Historically, a significant portion of our revenue has
been derived from customers outside of the United States, and we expect this
trend to continue. For the six month period ended June 30, 2000, approximately
33.4% of our revenue was derived from international customers, of which 12.9%
was derived from customers in Japan, 7.3% was derived from customers in other
parts of Asia, and 12.1% was derived from customers in Europe. In the year
ended December 31, 1999, approximately 42.4% of our revenue was derived from
international customers, of which 18.8% was derived from customers based in
Japan, 9.7% was derived from customers based in other parts of Asia, and 12.1%
was derived from customers based in Europe. All of our revenue and accounts
receivable are denominated in U.S. dollars.

Competition, the development of emerging communications standards and
technological change have influenced and are likely to continue to influence
our quarterly and annual revenue and results of operations. Our product
development and marketing strategies are focused on working closely with the
promoter companies and communications standard groups to gain early access to
new communications standards and technologies, and establishing first mover
advantage for our products. We invest significantly in the research and
development and marketing of our products for emerging communications
standards, often before these standards have gained widespread industry
acceptance and in advance of generating substantial revenue related to these
investments. Additionally, the rate and timing of customer orders may vary
significantly from month to month. Accordingly, if sales of our products do not
occur when we expect and we are unable to predict or adjust our estimates on a
timely basis, our expenses may increase as a percentage of revenue.

Results of Operations

The following table presents selected consolidated financial data for the
periods indicated as a percentage of total revenue:

<TABLE>
<CAPTION>
Six Month
Period
Year Ended Ended June
December 31, 30,
------------------- ------------
1997 1998 1999 1999 2000
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Income Data:
Revenue..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue............................. 18.3 21.2 25.1 23.4 24.7
----- ----- ----- ----- -----
Gross profit................................ 81.7 78.8 74.9 76.6 75.3
----- ----- ----- ----- -----
Operating expenses:
Research and development.................. 29.0 38.0 28.3 33.1 21.4
Sales and marketing....................... 10.3 11.8 9.5 10.8 12.6
General and administrative................ 8.2 5.1 3.5 3.2 4.9
Amortization of deferred stock-based
compensation............................. -- 6.7 10.5 6.5 8.8
----- ----- ----- ----- -----
Total operating expenses................ 47.5 61.6 51.8 53.6 47.7
----- ----- ----- ----- -----
Income from operations...................... 34.2 17.2 23.1 23.0 27.6
Interest income............................. 1.3 1.2 1.1 1.0 1.8
----- ----- ----- ----- -----
Income before provision for income taxes.... 35.5 18.4 24.2 24.0 29.4
Provision for income taxes.................. 13.3 10.5 14.1 12.4 15.1
----- ----- ----- ----- -----
Net income.................................. 22.2% 7.9% 10.1% 11.6% 14.3%
===== ===== ===== ===== =====
</TABLE>

26
<PAGE>

Results of Operations for the Six Month Period Ended June 30, 2000 and 1999

Revenue. Our revenue was $8.8 million in the six month period ended June 30,
2000 and $5.3 million in the six month period ended June 30, 1999, representing
an increase of 66.0%. This increase was primarily due to the increases in unit
volume shipments to existing customers, expansion of our customer base and
growth in our connectivity product segment. This increase was partially offset
by deferral of $1.7 million of revenue from our development products. Revenue
from international customers represented approximately 33.4% of our revenue in
the six month period ended June 30, 2000 and 40.9% of our revenue in the six
month period ended June 30, 1999. Revenue from international customers
decreased as a percentage of revenue as domestic revenue grew at a faster rate
than revenue from international customers. However, revenue dollars from
international customers increased 38.3%. We expect that revenue generated from
international customers will continue to account for a significant percentage
of our revenue.

Cost of Revenue and Gross Profit. Cost of revenue consists primarily of costs
for the outsourced manufacturing of our products, along with our internal costs
for high-level assembly and final testing, and amortization of deferred stock-
based compensation related to production personnel. Our gross profit was
$6.6 million in the six month period ended June 30, 2000 and $4.1 million in
the six month period ended June 30, 1999, representing an increase of 63.2%.
This increase was primarily due to revenue growth of 66.0% from 1999 to 2000.
Our gross margin was 75.3% in the six month period ended June 30, 2000 and
76.6% in the six month period ended June 30, 1999. This decrease was primarily
related to an increase of lower gross margin products in the product mix for
the six month period ended June 30, 2000. Without the amortization of deferred
stock-based compensation, our gross margin would have been 76.6% for the six
month period ended June 30, 2000 and 78.5% for the six month period ended June
30, 1999.

Research and Development. Research and development expenses are primarily
comprised of salaries and related personnel expenses of employees engaged in
research, design and development activities, and also includes related
supplies, software license fees for technologies used in research and
development, equipment expenses, depreciation and amortization. Our research
and development expenses were $1.9 million in the six month period ended June
30, 2000 and $1.8 million in the six month period ended June 30, 1999,
representing an increase of 7.5%. This increase was primarily due to an
increase in personnel related costs. Research and development expenses
represented 21.4% of revenue in the six month period ended June 30, 2000 and
33.1% of revenue in the six month period ended June 30, 1999. The decrease in
research and development expenses as a percentage of revenue was due to
increased revenue. Our research and development expenses in dollars may
increase to support the growth of our business.

Sales and Marketing. Sales and marketing expenses are primarily comprised of
salaries and related personnel expenses of employees engaged in sales and
marketing activities, and also includes expenses related to conferences and
trade shows. Our sales and marketing expenses were $1.1 million in the six
month period ended June 30, 2000 and $572,000 in the six month period ended
June 30, 1999, representing an increase of 92.8%. This increase was primarily
due to an increase in sales and marketing personnel and related expenses. Sales
and marketing expenses represented 12.6% of revenue in the six month period
ended June 30, 2000 and 10.8% of revenue in the six month period ended June 30,
1999. The increase in sales and marketing expenses as a percentage of revenue
was primarily due to the deferral of $1.7 million in revenue in the six month
period ended June 30, 2000. Our sales and marketing expenses in dollars may
increase to support the growth of our business.

27
<PAGE>

General and Administrative. General and administrative expenses are primarily
comprised of salaries and related personnel expenses of employees engaged in
general and administrative activities, and also include expenses related to
consultants and professional services. Our general and administrative expenses
were $433,000 in the six month period ended June 30, 2000 and $171,000 in the
six month period ended June 30, 1999, representing an increase of 153.2%.
General and administrative expenses represented 4.9% of revenue in the six
month period ended June 30, 2000 and 3.2% of revenue in the six month period
ended June 30, 1999. The increases in dollars and as a percentage of revenue
resulted from the increase in general and administrative personnel and related
expenses and administrative costs. Our general and administrative expenses in
dollars and as a percentage of revenue may increase as we incur additional
costs as a public company, implement a new enterprise resource planning system
and hire additional personnel.

Amortization of Deferred Stock-based Compensation. Deferred 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.
This amount, net of amortization, is presented as a reduction of stockholders'
equity and amortized over the vesting period of the applicable options,
generally 48 months, on an accelerated basis. Amortization of deferred stock-
based compensation was $884,000 in the six month period ended June 30, 2000, of
which $112,000 was included in cost of revenue during that period. Amortization
of deferred stock-based compensation was $444,000 in the six month period ended
June 30, 1999, of which $99,000 was included in cost of revenue during that
period. We had deferred stock-based compensation of $1.4 million as of June 30,
2000 which we expect to be amortized over the next four years. In addition,
based on stock option grants to existing employees and new hires subsequent to
June 30, 2000, we expect to record additional deferred stock-based compensation
of at least $8.8 million in the third quarter of 2000 to be amortized over the
next four years.

Interest Income. Interest income is comprised of interest earned on invested
cash. Interest income was $156,000 and $54,000 in the six month period ended
June 30, 2000 and 1999, respectively. This increase resulted from additional
excess cash balances and investment of excess cash balances at higher interest
rates.

Provision for Income Taxes. Our provision for income taxes was $1.3 million
in the six month period ended June 30, 2000 and $656,000 in the six month
period ended June 30, 1999, representing an increase of 102.0%. This increase
relates to an increase in our income before provision for income taxes and
before amortization of deferred stock-based compensation. Our effective tax
rate was 51.4% in the six month period ended June 30, 2000 and 51.8% in the six
month period ended June 30, 1999. The decrease in our effective tax rate
relates to permanent non-deductible expenses related to amortization of
deferred stock-based compensation. Our effective tax rate after excluding the
effect of amortization of deferred stock-based compensation was 38.3% in the
six month period ended June 30, 2000 and 38.3% in the six month period ended
June 30, 1999.

Results of Operations in the Year Ended December 31, 1999, 1998 and 1997

Revenue. Our revenue was $12.5 million in the year ended December 31, 1999,
$6.8 million in the year ended December 31, 1998 and $4.2 million in the year
ended December 31, 1997. These amounts represent an increase of 84.7% from 1998
to 1999 and 62.4% from 1997 to 1998. The increase in revenue from 1998 to 1999
was primarily due to increases in unit volume shipments to existing customers,
expansion of our customer base and growth in our connectivity product segment.
The increase in revenue from 1997 to 1998 was primarily due to the growth in
our development

28
<PAGE>

product and production product segments. Revenue from international customers
represented 42.4%, of our revenue in the year ended December 31, 1999, 42.7% of
our revenue in the year ended December 31, 1998 and 44.8% of our revenue in the
year ended December 31, 1997. Revenue from international customers decreased as
a percentage of revenue from 1997 to 1999 as domestic revenue grew at a faster
rate than revenue from international customers.

Cost of Revenue and Gross Profit. Our gross profit was $9.4 million in the
year ended December 31, 1999, $5.3 million in the year ended December 31, 1998
and $3.4 million in the year ended December 31, 1997. These amounts represent
increases of 75.7% from 1998 to 1999 and 56.7% from 1997 to 1998. These
increases in gross profit dollars were the result of increased unit sales from
year to year. Our gross margin was 74.9% in the year ended December 31, 1999,
78.8% in the year ended December 31, 1998 and 81.7% in the year ended December
31, 1997. The decrease in gross margin from 1998 to 1999 was primarily due to a
shift in our product mix to lower margin connectivity products as well as
pricing discounts given on volume purchase orders. The decrease in gross margin
from 1997 to 1998 was due to the amortization of deferred stock-based
compensation. Excluding amortization of deferred stock-based compensation, our
gross margin would have been 76.9% for the year ended December 31, 1999, 82.4%
for the year ended December 31, 1998 and 81.7% for the year ended December 31,
1997.

Research and Development. Our research and development expenses were $3.5
million in the year ended December 31, 1999, $2.6 million in the year ended
December 31, 1998 and $1.2 million in the year ended December 31, 1997. These
amounts represent increases of 37.6% from 1998 to 1999 and 112.6% from 1997 to
1998. Research and development expenses represented 28.3% of revenue in the
year ended December 31, 1999, 38.0% of revenue in the year ended December 31,
1998 and 29% of revenue in the year ended December 31, 1997. The increase in
dollars in 1999 was primarily due to an increase in personnel related costs.
The decrease as a percentage of revenue in 1999 was due to revenue growth of
approximately 84.7% over the same period. The increase in dollars and as a
percentage of revenue in 1998 resulted from a significant increase in
development efforts for products from which anticipated revenue was and will
continue to be recognized in subsequent periods.

Sales and Marketing. Our sales and marketing expenses were $1.2 million in
the year ended December 31, 1999, $800,000 in the year ended December 31, 1998
and $431,000 in the year ended December 31, 1997. These amounts represent
increases of 49.3% from 1998 to 1999 and 85.6% from 1997 to 1998. Sales and
marketing expenses represented 9.5% of revenue in the year ended December 31,
1999, 11.8% of revenue in the year ended December 31, 1998 and 10.3% of revenue
in the year ended December 31, 1997. The increases in dollars in 1999 and 1998,
and as a percentage of revenue in 1998, resulted from an increase in personnel
related costs and marketing efforts such as compliance workshops, tradeshows
and market communications. The decrease as a percentage of revenue in 1999 was
due to revenue growth of 84.7% from 1998 to 1999.

General and Administrative. Our general and administrative expenses were
$434,000 in the year ended December 31, 1999 $345,000 in the year ended
December 31, 1998 and $340,000 in the year ended December 31, 1997. These
amounts represent an increase of 25.8% from 1998 to 1999 and an increase of
1.5% from 1997 to 1998. General and administrative expenses represented 3.5% of
revenue in the year ended December 31, 1999, 5.1% of revenue in the year ended
December 31, 1998 and 8.2% of revenue in the year ended December 31, 1997. The
increase in dollars in 1999 resulted from the addition of management and
administrative personnel and related expenses, including general business
costs. The decrease as a percentage of revenue from 1998 to 1999 was

29
<PAGE>

primarily due to revenue growth of approximately 84.7% during that period, and
the decrease as a percentage of revenue from 1997 to 1998 was primarily due to
revenue growth of approximately 62.4% during the period.

Amortization of Deferred Stock-based Compensation. Amortization of deferred
stock-based compensation was $1.6 million in the year ended December 31, 1999,
of which $243,000 was included in cost of revenue during that period.
Amortization of deferred stock-based compensation was $694,000 in the year
ended December 31, 1998, of which $242,000 was included in cost of revenue
during that period. There was no deferred stock-based compensation in 1997.

Interest Income. Interest income was $138,000 in the year ended December 31,
1999, $80,000 in the year ended December 31, 1998 and $56,000 in the year ended
December 31, 1997. These increases resulted from additional excess cash
balances and investment of excess cash balances at higher interest rates.

Provision for Income Taxes. Provision for income taxes was $1.8 million in
the year ended December 31, 1999, $708,000 in the year ended December 31, 1998
and $556,000 in the year ended December 31, 1997. These amounts represent
increases of 148.6% from 1998 to 1999 and 27.3% from 1997 to 1998. Our
effective tax rate increased from 56.9% in 1998 to 58.2% in 1999, and from
37.6% in 1997 to 56.9% in 1998 primarily due to an increase in our income
before provision for income taxes and before amortization of deferred
amortization of deferred stock-based compensation. Our effective tax rate after
excluding the effect of stock-based compensation was 38.4% in the year ended
December 31, 1999, 36.5% in the year ended December 31, 1998 and 37.6% in the
year ended December 31, 1997.

30
<PAGE>

Quarterly Results of Operations

The following table sets forth our historical unaudited quarterly
consolidated statement of income data for the six quarters ended June 30, 2000
as well as such data expressed as a percentage of revenue for each quarter.
This quarterly information has been prepared on a basis consistent with our
audited consolidated 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. Operating results for any quarter are not necessarily indicative of
results for any future quarter or for a full year.

<TABLE>
<CAPTION>
Three Month Period Ended
-----------------------------------------------------
Dec.
Mar. 31, June 30, Sept. 30, 31, Mar. 31, June 30,
1999 1999 1999 1999 2000 2000
-------- -------- --------- ------ -------- --------
(in thousands and as a percentage of revenue)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement of
Income Data:
Revenue.................. $2,098 $3,191 $3,157 $4,060 $4,338 $4,444
Cost of revenue.......... 381 856 767 1,132 1,005 1,163
------ ------ ------ ------ ------ ------
Gross profit............. 1,717 2,335 2,390 2,928 3,333 3,281
------ ------ ------ ------ ------ ------
Operating expenses:
Research and
development........... 856 895 851 936 937 945
Sales and marketing.... 220 352 325 297 492 611
General and
administrative........ 84 87 99 165 170 263
Amortization of
deferred stock-based
compensation.......... 153 192 209 765 389 383
------ ------ ------ ------ ------ ------
Total operating
expenses............ 1,313 1,526 1,484 2,163 1,988 2,202
------ ------ ------ ------ ------ ------
Income from operations... 404 809 906 765 1,345 1,079
Interest income.......... 27 27 36 48 67 89
------ ------ ------ ------ ------ ------
Income before provision
for income taxes........ 431 836 942 813 1,412 1,168
Provision for income
taxes................... 244 412 466 638 711 614
------ ------ ------ ------ ------ ------
Net income............... $ 187 $ 424 $ 476 $ 175 $ 701 $ 554
====== ====== ====== ====== ====== ======
As a Percentage of
Revenue:
Revenue.................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue.......... 18.2 26.8 24.3 27.9 23.2 26.2
------ ------ ------ ------ ------ ------
Gross profit............. 81.8 73.2 75.7 72.1 76.8 73.8
------ ------ ------ ------ ------ ------
Operating expenses:
Research and
development........... 40.8 28.0 27.0 23.1 21.6 21.3
Sales and marketing.... 10.5 11.0 10.3 7.3 11.3 13.7
General and
administrative........ 4.0 2.7 3.1 4.1 3.9 5.9
Amortization of
deferred stock-based
compensation.......... 7.3 6.0 6.6 18.8 9.0 8.6
------ ------ ------ ------ ------ ------
Total operating
expenses............ 62.6 47.8 47.0 53.3 45.8 49.5
------ ------ ------ ------ ------ ------
Income from operations... 19.3 25.4 28.7 18.8 31.1 24.3
Interest income.......... 1.3 0.8 1.1 1.2 1.5 2.0
------ ------ ------ ------ ------ ------
Income before provision
for income taxes........ 20.5 26.2 29.8 20.0 32.6 26.3
Provision for income
taxes................... 11.6 12.9 14.8 15.7 16.4 13.8
------ ------ ------ ------ ------ ------
Net income............... 8.9% 13.3% 15.0% 4.3% 16.2% 12.5%
====== ====== ====== ====== ====== ======
</TABLE>

31
<PAGE>

Our revenue increased in each quarter of 1999 and 2000, other than the three
month period ended September 30, 1999, primarily as a result of new product
releases and increased demand for our existing products from existing and new
customers. Revenue increased 50.5% from the three month period ended March 31,
1999 to the three month period ended September 30, 1999, but decreased 1.1%
from the three month period ended June 30, 1999 to the three month period ended
September 30, 1999, due to a large order and shipment of our production
products to a major customer in the three month period ended June 30, 1999.
Revenue increased 6.9% from the three month period ended December 31, 1999 to
the three month period ended March 31, 2000 and 2.4% from the three month
period ended March 31, 2000 to the three month period ended June 30, 2000,
primarily due to the deferral of $372,000 of revenue in the three month period
ended March 31, 2000 and $1.4 million of revenue in the three month period
ended June 30, 2000. We expect to recognize this deferred revenue in the six
month period ending December 31, 2000.

Gross margins have fluctuated from quarter to quarter primarily due to shifts
in our product mix, pricing discounts given on volume purchase orders and
amortization of deferred stock-based compensation. Gross profit increased in
each of the last three quarters of 1999 and the three month period ended March
31, 2000, primarily due to revenue growth.

In the three month period ended December 31, 1999, net income decreased
primarily due to an increase in amortization of deferred stock-based
compensation.

We believe that period to period comparisons of our operating results should
not be relied upon as an indication of our future performances. In the past,
our results of operations have fluctuated significantly, and we expect similar
quarterly fluctuations in the future as a result of a number of factors beyond
our control. Among other things, these factors include the rate of growth in
the market for our products, changes in the demand for our products, customer
buying habits and product volume and mix. Our anticipated research and
development, sales and marketing and general and administrative expenses are
based, in part, on future projections of revenues. If our operating results
fall below the expectations of securities analysts or investors, the trading
price of our common stock would likely decline significantly.

Liquidity and Capital Resources

Our operating cash flow requirements have generally increased reflecting the
expanding scope and level of our activities. Since our inception, we have
financed our operations primarily through cash flows from operating activities.

In the six month period ended June 30, 2000, cash provided by operating
activities of $2.3 million primarily consisted of net income of $1.3 million,
amortization of deferred stock-based compensation of $884,000 and an increase
in deferred revenue of $1.7 million, offset by an increase in accounts
receivable of $826,000 and a decrease in accrued expenses of $232,000. Cash
used in investing activities of $1.4 million related to purchases of short-term
investments of $1.2 million and capital expenditures of $136,000. Cash provided
by financing activities of $103,000 related to proceeds received from the
exercise of stock options.

In 1999, cash provided by operating activities of $2.2 million primarily
consisted of net income of $1.3 million and amortization of deferred stock-
based compensation of $1.6 million, offset by an increase in accounts
receivable of $1.2 million. Cash used in investing activities of $173,000
related to capital expenditures.

32
<PAGE>

In 1998, cash provided by operating activities of $552,000 primarily
consisted of net income of $537,000 and amortization of deferred stock-based
compensation of $694,000, offset by an increase in accounts receivable of
$581,000. Cash used in investing activities of $153,000 related to capital
expenditures.

In 1997, cash provided by operating activities of $1.4 million primarily
consisted of net income of $924,000, an increase in accrued expenses of
$486,000, and a decrease in accounts receivable of $45,000, offset by an
increase in inventories of $186,000. Cash used in investing activities of
$58,000 related to capital expenditures.

As of June 30, 2000, we had cash, cash equivalents and short-term investments
of $6.3 million, working capital of $7.9 million and no debt. At that date, we
had no capital lease obligations, and we had future minimum lease payments
under our operating lease of $349,000.

We believe that the net proceeds from the sale of the common stock in this
offering, together with funds generated from operations, 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.

Quantitative and Qualitative Disclosures About Market Risk

The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we may
invest in may be subject to market risk. This means that a change in prevailing
interest rates may cause the principal amount of the investment to fluctuate.
For example, if we hold a security that was issued with a fixed interest rate
set at the then-prevailing rate and the prevailing interest rates later rise,
the principal amount of our investment will probably decline. To minimize this
risk in the future, we intend to maintain our portfolio of cash equivalents and
short-term investments in a variety of securities, including commercial paper,
money market funds, government and non-government debt securities and
certificates of deposit. As of June 30, 2000, all of our investments were in
money market funds, certificates of deposit or high quality commercial paper.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes a new model for accounting for derivatives and hedging activities
and supercedes and amends a number of existing accounting standards. SFAS No.
133 requires that all derivatives be recognized in the balance sheet at their
fair market value and the corresponding derivative gains or losses be either
reported in the statement of operations or as a deferred item depending on the
type of hedge relationship that exists with respect to such derivatives. In
July 1999, the Financial Accounting Standards Board issued SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133. SFAS No. 137 deferred the effective
date until fiscal years commencing after June 15, 2000. In June 2000, the FASB
issued SFAS 138 Accounting for Certain Derivative Instruments and Certain
Hedging Activities--An Amendment of FASB Statement No. 133 which deferred the
effective date of SFAS 133 until the quarter ending March 31, 2001.

33
<PAGE>

Accordingly, we will adopt SFAS No. 133 in the quarter ending March 31, 2001
and have not determined whether the adoption of this pronouncement will have a
material impact on our financial condition or results of operations.

In December 1999, the SEC issued SAB No. 101, Revenue Recognition in
Financial Statements. SAB 101 summarizes certain areas of the staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. In June 2000, the SEC issued SAB No. 101B to defer the
effective date for implementation of SAB 101 until the fourth quarter of fiscal
2000. We believe that our current revenue recognition policies comply with SAB
101.

In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44, Accounting for Certain Transactions Involving Stock Compensation-an
interpretation of APB Opinion No. 25. This interpretation clarifies the
definition of employee for purposes of applying Accounting Principles 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 various 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 combination. This interpretation is effective July 1,
2000, but certain conclusions in this interpretation cover specific events that
occur after either 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.

34
<PAGE>

BUSINESS

Overview

We are a leading provider of advanced verification systems and connectivity
products for existing and emerging digital communications standards. Our
products are used by semiconductor, device, system and software companies at
each phase of their products' lifecycles from development through production
and market deployment. Our verification systems consist of development and
production products that accurately monitor communications traffic and diagnose
operational problems to ensure standards compliance and interoperability as
well as assist system manufacturers to download software onto new computers.
Our connectivity products enable reliable, uninterrupted service for broadband
Internet access.

We have expertise in the USB, USB 2.0, 1394, Bluetooth and Ethernet standards
and are actively engaged with our customers throughout their development and
production processes. Utilizing our easy to use, color-coded graphical user
interface, the CATC Trace, our verification systems generate, capture, filter
and analyze high speed communications traffic, allowing our customers to
quickly discover and remedy standards violations, persistent and intermittent
errors and flaws and inconsistencies in their product design and production.
Our connectivity products allow for simple plug and play installation and
incorporate our vertically integrated, proprietary technologies, including an
ASIC embedded software and software drivers. By controlling all design elements
of our connectivity products, we are able to assure full standards compliance
and create products with better functionality, stability and reliability.

Industry Background

The Demand for Digital Communications is Growing

The growth in the demand for digital information has accelerated the need for
communications among multiple electronic devices and in various markets,
including computers, telecommunications, consumer electronics and others, such
as aerospace, automotive, industrial automation, medical instrumentation and
robotics. This growing demand centers on widespread, broadband transmissions of
digital information, including Internet access, data storage and rich media
content. Communication among digital devices, or connectivity, occurs over a
variety of physical media, such as copper wire and fiber optic cable, and
wireless technologies with rapidly fluctuating frequencies.

Computer technology initially provided connectivity only among internal
devices, such as the processor, memory and storage and with external peripheral
devices, such as the keyboard, mouse and printer. Today, computer technology
also enables connectivity among multiple computing devices and across networks,
such as local area networks, wide area networks, storage area networks, home
area networks, personal area networks and the Internet. Telecommunications
technology currently enables connectivity among multiple devices, such as
telephones, fax machines, pagers and personal digital assistants. Consumer
electronics technology is progressively enabling connectivity among devices,
such as Internet appliances, digital cameras, audio systems and televisions.

35
<PAGE>

Communications Standards are Becoming Increasingly Complex

Digital devices communicate by sending electronic signals through a physical
transmission channel according to a specified protocol. A protocol is the set
of detailed rules that govern both the channel and the device hardware and
software and regulate the manner in which the signals are sent. The channel and
the protocol are both typically specified in a formal communications standard.
For communication to be successful, each device must recognize and follow the
same standard.

Early communications standards were relatively simple, typically involving
low speed communications between two simple devices connected directly by
copper wire. Current standards are increasingly complex, typically involving
high speed communications among multiple sophisticated devices indirectly
linked to other devices and across various physical media, including copper
wire and fiber optics, and wireless technologies with rapidly fluctuating
frequencies. As a result, standards that were expressed initially in only a few
pages of text may now extend to over a thousand pages. The specifications for
these standards are broadly available, which facilitate interoperability of
hardware and software products from different manufacturers.

A standard is typically introduced by several leading technology and
infrastructure companies. These core or promoter companies comprise the nucleus
of independent communications standards groups, which are sometimes referred to
as implementers' forums, trade associations or special interest groups. These
groups assist in the development, implementation and promotion of and
compliance with the standards. As commercial interest in a particular standard
increases, the communications standards group typically expands to include
system and device manufacturers and service providers. The promoter companies
typically remain closely associated with the standard throughout its lifecycle.

A standard is implemented over a lifecycle that includes three overlapping
phases: development, production and market deployment. The development phase
covers the development and production of the semiconductors and software,
including embedded software, protocol stacks and device drivers, that are the
building blocks for products and applications. During the production phase,
system and device manufacturers apply these building blocks to construct their
unique products and applications. The market deployment phase covers the
introduction and sale of products and applications in the marketplace.
Similarly, products that use or are associated with a particular standard
follow their own unique lifecycle from development through production,
deployment and operation.

Emerging Standards Promote Digital Communications

Many communications standards are emerging to meet the growing demand for
digital connectivity in the computer, telecommunications, consumer electronics
and other industries. The characteristics of each standard, including its
principal uses, physical media, transmission speed and distance covered, vary
greatly. Examples of emerging standards include the following:

Universal Serial Bus. The Universal Serial Bus standard, or USB, enables low
and medium speed connectivity between computers and peripheral devices,
including keyboards, mice, printers, scanners, joysticks and cameras, using
plug and play technology. USB was introduced in 1995 and replaces the serial,
parallel, mouse and keyboard ports. The specifications for the second version
of USB, or USB 2.0, were released in April 2000. The promoter group for USB 2.0
consists of Compaq, Hewlett-Packard, Intel, Lucent, Microsoft, NEC and Philips
and, as of July 31, 2000, the

36
<PAGE>

USB Implementers Forum had over 600 member companies. USB enables connectivity
through copper wires at speeds of up to 12 megabits per second, or Mbps, over
distances of up to five meters. This speed increases to up to 480 Mbps in USB
2.0. According to Dataquest, an independent market research firm, the number of
USB-enabled peripherals is expected to grow from 27 million in 1999 to 494
million by 2003. Dataquest estimates that 95% of personal computers produced in
2003 are expected to be USB 2.0-enabled.

IEEE 1394. The IEEE 1394a standard, commonly known as 1394, FireWire or
i.Link, enables high speed connectivity among computers, peripheral devices and
consumer electronic devices, including audio systems, television sets, digital
cameras, video recorders, video players and game consoles. 1394 was introduced
in 1987 and was ratified by the Institute of Electrical and Electronics
Engineers in 1995. The promoter group includes Apple, Canon, Compaq, IBM,
Intel, Microsoft, NEC, Panasonic, Philips, Sony, Sun Microsystems and Yamaha
and, as of July 31, 2000, the 1394 Trade Association had over 140 member
companies. 1394 enables connectivity through copper wire at speeds of up to 400
Mbps over distances of up to four and one-half meters. This speed increases to
up to 3.2 billion bits per second, or Gbps, over distances of up to 100 meters,
in the 1394b standard that is currently awaiting ratification. According to
Cahners In-Stat Group, an independent market research firm, the number of 1394-
enabled personal computers and peripheral devices shipped is expected to grow
from nearly eight million in 1999 to over 100 million by 2004.

Bluetooth Wireless Technology. The Bluetooth standard, or Bluetooth wireless
technology, enables low speed, wireless connectivity among computers,
telecommunication devices, such as mobile telephones, and consumer electronics
devices, such as personal digital assistants and headphones. Bluetooth wireless
technology was introduced in 1998. The promoter group consists of 3Com,
Ericsson, IBM, Intel, Lucent, Microsoft, Motorola, Nokia and Toshiba and, as of
July 31, 2000, the Bluetooth Special Interest Group had over 1,800 member
companies. Bluetooth wireless technology operates through radio waves with
rapidly fluctuating frequencies at speeds of up to one Mbps over distances of
up to 100 meters. According to Cahners In-Stat Group, the number of Bluetooth-
enabled products is expected to grow from under 100,000 in 1999 to 1.4 billion
unit shipments in 2005.

Other Standards. There are many other emerging communications standards at
different stages in their respective lifecycles such as Digital Subscriber
Line, or DSL, IEEE 802.11, or wireless Ethernet, IEEE 802.3, or Gigabit
Ethernet, and InfiniBand Architecture.

Emerging Communications Standards Create Market Needs

The emergence of new communications standards creates two primary market
needs. Manufacturers need advanced verification systems at each phase of the
standard's lifecycle and at each stage of the product lifecycle to accurately
monitor communications traffic, assure standard compliance and diagnose
operational problems. These verification systems must generate, capture, filter
and analyze high speed communications traffic to identify both persistent and
intermittent errors and to ensure product quality and interoperability.
Manufacturers and service providers also need connectivity products to bridge
old and new communications standards. These connectivity products must
translate data between standards and transmit this data at full speed without
creating bottlenecks. Both verification systems and connectivity products must
be easy to use, reliable and flexible. As communications standards become more
complex, satisfying these needs requires increasingly advanced expertise.

37
<PAGE>

The CATC Solution

We are a leading provider of advanced verification systems and connectivity
products for existing and emerging digital communications standards. We believe
that we have the following competitive advantages:

. Expertise in Communications Standards. We have expertise in the USB, USB
2.0, 1394, Bluetooth and Ethernet standards and are actively engaged with
our customers throughout their development and production processes. Our
customers capitalize on our expertise to reduce development and
production times, improve product reliability and ensure interoperability
of their products. Our verification systems allow our customers to
quickly discover and remedy standards violations, persistent and
intermittent errors and flaws and inconsistencies in their product design
and production. By working closely with our customers' engineers during
their product development, production, deployment and operation, we are
able to enhance our systems to meet our customers' specific needs.

. Ease of Use. We design our products for ease of use by our customers. Our
verification systems include a proprietary graphical user interface, the
CATC Trace, that provides an orderly and intuitive representation and
analysis of communications traffic, thereby reducing our customers'
training and operation time. The CATC Trace also facilitates the sharing
of traffic analyses among our customers' engineers. We believe that the
CATC Trace is the de facto standard in our markets for viewing digital
communications information. In addition, our connectivity products enable
quick and easy, plug and play connectivity between USB and Ethernet
networks.

. Accuracy and Reliability. We design our verification systems to provide
our customers with the accuracy and reliability necessary to ensure that
their products conform to emerging communications standards. Our product
design enables our customers to view and analyze communications traffic
accurately without affecting the data flow. This design architecture has
been applied and refined over time and, as a result, our products are
highly reliable.

. Vertically Integrated Technology. Our connectivity products incorporate
our vertically integrated, proprietary technologies including an ASIC,
embedded software and software drivers. By controlling all design
elements, we are able to assure full standards compliance and create
products with better functionality, stability and reliability.

Strategy

Our objective is to be the leading provider of advanced verification systems
and connectivity products for designers, manufacturers and users of computer,
telecommunications and consumer electronics technologies for existing and
emerging communications standards. Our strategy includes the following key
elements:

. Pursue Emerging Standards. We intend to expand our product offerings to
address emerging communications standards. We have traditionally
identified attractive opportunities and established a first-mover
advantage. For example, we identified the USB, USB 2.0 and Bluetooth
standards as significant opportunities and developed verification systems
for these standards. We introduced the first commercial verification
system for USB developers, our Detective analyzer, the first for
Bluetooth developers, our Merlin analyzer, and the first for USB 2.0
developers, our Advisor analyzer. We intend to continue identifying
attractive opportunities in emerging standards.

38
<PAGE>

. Heighten Brand Awareness. We intend to heighten brand awareness by
broadening our reputation as an expert in communications standards and
extending our expert status to new standards. We have traditionally been
early to market with verification systems for emerging communications
standards. By rapidly establishing our expert status with new standards,
we achieve brand awareness among the communications standards groups and
other manufacturers and developers in our target markets. We plan to
expand our role as a regular sponsor of, and presenter at, industry
conventions, seminars and trade shows. We also intend to increase our
participation in communications standards groups and as invited experts
at design workshops. We believe that these steps will increase CATC brand
recognition and product acceptance.

. Leverage Strategic Relationships. We intend to continue to leverage our
strategic relationships to gain early access to emerging communications
standards and specifications before they become widely available or
accepted, as well as to product roadmaps and additional market
opportunities. We will continue to work closely with the promoter
companies involved in establishing new communications standards. We
intend to enhance our strategic relationships with these companies in the
computer, telecommunications and consumer electronics industries. We also
plan to develop strategic relationships with promoter companies in other
industries.

. Expand Distribution Channels. We intend to increase our marketing and
sales forces in both domestic and foreign markets. In addition, we plan
to pursue relationships with additional distributors and value-added
resellers. To date, we have concentrated our efforts primarily in the
computer industry. In the future, we intend to expand our marketing and
sales efforts in the telecommunications, consumer electronics and other
industries. We believe that these strategies will increase the
penetration of our products into new and existing markets worldwide.

. Reduce Development Time. We intend to continue to leverage the modular
architecture of our hardware and software technology to reduce our
development time for new products and successive product generations. We
also intend to continue investing heavily in research and development to
extend our technological leadership.

39
<PAGE>

Products

We offer advanced design and production verification systems for the USB, USB
2.0, 1394 and Bluetooth standards, as well as production and commercial
connectivity products for the USB and Ethernet standards. We currently sell all
of the products listed below.

Development Products

Our development products are advanced verification systems that assist
hardware and software manufacturers in the efficient design of reliable and
interoperable systems and devices. All of these systems utilize our proprietary
graphical user interface, the CATC Trace, which displays communications traffic
in searchable, color-coded packets. We believe that the CATC Trace is the de
facto standard in our markets for viewing digital communications information.
Our development products consist of the following:

<TABLE>
<CAPTION>
Name Type Introduction Date

<S> <C> <C>
Merlin Wireless protocol analyzer First quarter of 2000
--------------------------------------------------------------------------------
Advisor Bus and protocol analyzer First quarter of 2000
--------------------------------------------------------------------------------
Chief Bus and protocol analyzer First quarter of 1999
--------------------------------------------------------------------------------
FireInspector Bus and protocol analyzer Second quarter of 1998
--------------------------------------------------------------------------------
Inspector Bus and protocol analyzer First quarter of 1997
--------------------------------------------------------------------------------
Traffic Generator Host emulator Second quarter of 1996
--------------------------------------------------------------------------------
Detective Bus and protocol analyzer First quarter of 1996
--------------------------------------------------------------------------------
</TABLE>

Merlin. Merlin, our first generation Bluetooth wireless protocol analyzer,
was introduced in the first quarter of 2000. It was the first analyzer for the
Bluetooth standard delivered to the market and our first analyzer for wireless
communications. Merlin is a non-intrusive design verification system that
provides Bluetooth network traffic capture, display and analysis.

Advisor USB 2.0. Advisor, our fourth generation USB bus and protocol
analyzer, was introduced in the first quarter of 2000. It was the first USB 2.0
analyzer delivered to the market and builds on our growing experience and
knowledge of the development community's needs. Advisor captures, displays and
analyzes signals transmitted at all three USB speeds, one and one-half, twelve
and 480 Mbps, and incorporates dual recording channels and direct cable probing
capabilities.

USB Chief. Chief, our third generation USB bus and protocol analyzer, was
introduced in the first quarter of 1999. It incorporates advanced features,
including dual channel recording, advanced triggering with event counting and
sequencing capability and automatic class and vendor specific decoding. Chief
also incorporates software that operates as a stand-alone viewer and is
backward compatible with the capture files from our earlier analyzers, the
Detective and Inspector. The Chief Plus version offers an integrated traffic
generator capability.

FireInspector. FireInspector, our first generation 1394 bus and protocol
analyzer, was introduced in the second quarter of 1998. FireInspector was the
first of our bus and protocol analyzers to incorporate our proprietary
BusEngine technology. All of our subsequently developed analyzers are based on
this modular design. The FireInspector Plus version permits simultaneous 1394
bus traffic generation.

40
<PAGE>

USB Inspector. Inspector, our second generation USB bus and protocol
analyzer, was introduced in the first quarter of 1997. It incorporates an
extensive triggering and filtering capability, operates with any Windows-based
desktop or portable design computer and provides real time event decoding. The
hardware is housed in a separate enclosure that is connected to the design
computer through the parallel port.

Traffic Generator. Traffic Generator, our first generation USB host emulator,
was introduced in the second quarter of 1996. It was the first emulator for USB
delivered to the market. Traffic Generator functions as a flexible host that
enables both device and hub developers to stress test their designs and observe
product behavior under intentionally faulty bus conditions. Traffic Generator
is complementary to both our Detective and Inspector products and is either
sold separately or bundled with them.

USB Detective. Detective, our first generation USB bus and protocol analyzer,
was introduced in the first quarter of 1996. It was the first analyzer for USB
delivered to the market. Detective is used by both hardware and software
developers to identify design and implementation problems by analyzing messages
transmitted over the bus. Detective consists of a circuit board that is
inserted into the design computer and application software that is loaded onto
this computer.

Production Products

Our production verification systems are also designed to assist hardware and
software manufacturers in volume production of reliable devices and systems and
software downloads onto new computers. Our production products consist of the
following:

<TABLE>
<CAPTION>
Name Type Introduction Date

<S> <C> <C>
UPT Universal port tester First quarter of 2000
-----------------------------------------------------------------------------------
EL2 USB/Ethernet link Third quarter of 1999
-----------------------------------------------------------------------------------
USB4DOS Protocol stack for DOS First quarter of 1999
-----------------------------------------------------------------------------------
UHT Hub tester First quarter of 1997
-----------------------------------------------------------------------------------
HPT Host production tester Third quarter of 1996
</TABLE>
--------------------------------------------------------------------------------

UPT. The universal port tester, or UPT, our second generation USB port
verification system, was introduced in the first quarter of 2000. UPT is used
as a universal verification system on the production line by integrated
circuit, circuit board, computer system and hub manufacturers to verify
compliance with USB specifications. UPT is capable of verifying up to eight USB
host or hub ports in less than 30 seconds.

Industrial EL2. EL2, an industrial device that links USB and Ethernet
channels, was introduced in the third quarter of 1999. It is used on the
production line by computer manufacturers and assembly houses for loading test
and data files on newly manufactured systems. We believe that EL2 is the only
device available that connects a computer operating under the DOS operating
system to an Ethernet network through a USB port. EL2 conforms to both USB and
Ethernet specifications and operates at an effective data transfer rate of more
than five Mbps.

USB4DOS. USB4DOS, a software product for the DOS operating system, was
introduced in the first quarter of 1999. It provides USB support under DOS for
production line verification and embedded applications. USB4DOS is either sold
separately or bundled with our EL2 product.

41
<PAGE>

UHT. The universal hub tester, or UHT, our first generation USB hub
verification system, was introduced in the first quarter of 1997. It is used on
the production line by hub manufacturers to verify compliance with USB
specifications and as an engineering tool for debugging and analysis. UHT is
also used by the USB Implementers Forum for hub compliance verification and
certification. UHT is capable of verifying hubs with up to one upstream and
four downstream ports in less than ten seconds.

HPT. The host production tester, or HPT, our first generation USB port
verification system, was introduced in the third quarter of 1996. HPT is used
on the production line by integrated circuit, circuit board and computer system
manufacturers to verify compliance with USB specifications. It is capable of
verifying compliance in computers with one or two USB ports in less than ten
seconds.

Connectivity Products

Our connectivity products are designed to assist broadband Internet service
providers in delivering convenient and dependable service and device
manufacturers in producing reliable products. Our connectivity products consist
of the following:

<TABLE>
<CAPTION>
Name Type Introduction Date

<S> <C> <C>
NetMate Plus USB/Ethernet link and hub Fourth quarter of 1999
--------------------------------------------------------------------------------
USB-EL1210A USB/Ethernet controller ASIC Third quarter of 1999
--------------------------------------------------------------------------------
NetMate USB/Ethernet link Fourth quarter of 1998
--------------------------------------------------------------------------------
</TABLE>

NetMate Plus. NetMate Plus, an integrated USB hub and connectivity device
that links USB and Ethernet channels, was introduced in the fourth quarter of
1999. It provides the ability to connect up to four low or full speed USB
devices, in conjunction with an Ethernet network, to any USB enabled desktop or
portable computer. NetMate Plus, which conforms to both the USB and Ethernet
standards, has a transfer rate of more than six Mbps.

USB-EL1210A. USB-EL1210A, a USB Ethernet Controller ASIC, was introduced in
the third quarter of 1999. It is a proprietary ASIC that combines the
functionality of a USB controller and an Ethernet controller. We use EL1210A in
both our EL2 and NetMate products and also sell it for use by other commercial
connectivity device manufacturers.

NetMate. NetMate, a commercial device that links USB and Ethernet channels,
was introduced in the fourth quarter of 1998. It is used primarily for cable
and DSL broadband Internet access by suppliers of these services. NetMate
provides plug and play connectivity and eliminates the need to insert cards or
shut down the system upon connection. NetMate consists of a small hardware
device and the associated Windows software that add a standard Ethernet
interface to a USB-equipped computer. NetMate has been tested successfully by
the Microsoft Windows Hardware Quality Labs to ensure that NetMate meets
Microsoft standards for compatibility with the Windows operating systems.

42
<PAGE>

Customers

Our customers include semiconductor, device, system and software companies
and our distributors and value-added resellers. We have recognized at least
$25,000 in revenue during the 12-month period ended June 30, 2000 from each of
the following customers:

<TABLE>
<S> <C> <C>
3Com Intel SCI Systems
Apple Jabil Circuit Seagate
AT&T Logitech Sepoong
Belkin Components Lucent Technologies Shaw Communications
CAE MediaOne Sierra Technologies
Cisco Medtronic Solectron
Comcast Cable Merritt Manufacturing Sony
Compaq Microsoft Standard Microsystems
Dell MicroWare Technology Sun Microsystems
Dynacolor Motorola Terayon
Enable Engineering NEC Texas Instruments
Flash Technology Nohau Elektronik Thomson Consumer Electronics
Fujitsu PC Panasonic Toshiba
Gateway Philips Toyo
Hewlett-Packard Proxim Xircom
</TABLE>

Collectively, our top five customers accounted for approximately 42.3% of our
revenue in the year ended December 31, 1999, which includes Toyo, our
distributor in Japan, which accounted for approximately 18.8% of our revenue in
the year ended December 31, 1999 and 12.9% in the six month period ended June
30, 2000. In addition, we recognized approximately 42.4% and 33.4% of our
revenue from sales to our international customers in the same periods.

Marketing, Sales and Distribution

Our marketing efforts focus on developing corporate and product strategies
and increasing our brand and product awareness. Our marketing group leads the
creation of our strategic corporate direction and develops our product roadmap,
including market studies, business potential analysis, competitive positioning,
functional requirements and product lifecycle planning. Our brand and product
awareness initiatives center on our strategic relationships with the core or
promoter companies and also include active participation in communications
standards groups, trade shows, compliance workshops and industry conferences.
Our marketing group also provides technical and strategic sales support to our
direct sales personnel, resellers and international distributors, including in-
depth product training, technical manuals, sales tools, pricing, marketing
communications, marketing research, trademark administration and other support
functions. We intend to continue to focus our marketing efforts on these
strategies in the future.

Our sales efforts are dedicated to establishing and maintaining long-term
customer relationships. This support emphasizes customer satisfaction and
includes the expertise and resources necessary for customers to use our
products successfully. We provide product documentation, technical information
and software bug fixes through our web site. We intend to continue to provide
our customers with comprehensive sales and technical support and believe that
this is critical to remaining competitive.

Our distribution channels include a direct sales force and a network of
distributors and value-added resellers. We sell our products in North America
through our direct sales force and resellers.

43
<PAGE>

Our direct sales force maintains close contact with our customers and provides
support to both direct customers and resellers. We sell our products in Asia
and Europe through distributors. Our direct sales force also maintains close
contact with these distributors, which provide both sales and support in the
countries they cover. To date, we have established relationships with
distributors and resellers in over 25 countries in Asia and Europe. We are
increasingly able to leverage customer satisfaction and our service-oriented
approach to gain valuable introductions that have led to additional sales to
existing customers and initial sales to new customers. We expect to continue
benefiting from this trend in the future. In addition, we intend to expand our
distribution efforts by pursuing relationships with additional distributions
and resellers in our current markets and with new distributors and resellers in
our target markets.

Research and Development

We believe that our future success depends, to a large extent, upon our
ability to develop new products for established and emerging communications
standards and to add improved features to our existing products. Our research
and development efforts are focused on the development of technology and
products that will enhance our position in our target markets.

We intend to significantly expand our research and development team in the
near future. For example, we have recently established research and development
centers in San Diego, California and Netanya, Israel. As of June 30, 2000, we
employed 27 people in our research and development organization. Our research
and development team is comprised of hardware and software design engineers
with expertise in the design and application of computer and communications
systems and devices, semiconductor devices, embedded software, software drivers
and software applications. Our research and development expenses were
approximately $3.5 million in the year ended December 31, 1999, $2.6 million in
the year ended December 31, 1998, $1.2 million in the year ended December 31,
1997 and $1.9 million in the six month period ended June 30, 2000.

As part of our research and development activities, we are engaged in formal
and informal relationships with our customers worldwide as well as special
interest groups for emerging communications standards. For example, in the
first half of 2000, we participated in three USB and one Bluetooth compliance
workshops, one USB 2.0, two Bluetooth and one 1394 Developers Conferences, an
Intel Developer Forum, the Microsoft Windows Hardware Engineering Conference
and the Applied Computing Conference.

Technology

We believe that we have a competitive advantage as a result of our knowledge
and expertise covering multiple communications standards, computer and software
architecture and advanced ASIC and programmable logic design. This expertise is
enhanced by our advanced design tools and collaboration among our various
design teams. The following is a summary of our technology position:

Vertically Integrated Technology. We have a broad, vertically integrated
technology base that includes the knowledge and expertise to:

. design advanced ASICs;

. use programmable logic in the form of microcontrollers and programmable
logic devices, or PLDs, in real-time, embedded applications;

44
<PAGE>

. design electronic circuit boards and systems; and

. design and develop embedded software, software drivers and software
applications.

This technology base, coupled with the specific experience gained by designing
previous generations of our products, enables us to provide reliable, easy to
use and cost-effective products.

Expertise in Multiple Standards. We have expertise in several communications
standards including USB, USB 2.0, 1394, Bluetooth wireless technology and
Ethernet and intend to extend our technology base to support additional
emerging standards. We believe that our broad technology base allows us to
quickly apply the expertise and technology incorporated in our existing product
lines to new standards and products.

Computer Architecture and Software. We have expertise in computer
architecture and software, including all forms of internal and external device
connectivity. Our products have a large software content at various levels,
from embedded software to software drivers to software applications, and for
different devices, computers and operating systems, such as DOS, Windows, Linux
and Unix. Our computer architecture and software expertise allow us to bring
easy to use, reliable and flexible products to market rapidly.

Semiconductor and Programmable Logic Design. Our ability to integrate a
complex design into an ASIC results in a product that offers higher performance
at lower power levels and lower cost. The combination of programmable logic
design techniques and non-volatile, or flash, memory adds flexibility and
reliability to our products and allows us to add new features and capabilities
to our products.

Core Technology for Verification Systems. Our most recent verification
systems are based on a common core of software and hardware technology. This
technology simplifies and accelerates our development of verification systems
for emerging communications standards, thereby reducing our time to market and
allowing us to remain an early market mover.

Manufacturing

We use outside contract manufacturing services for printed circuit board
fabrication, assembly and testing. We outsource the manufacture of our lower
volume, higher margin products to several facilities located in the Silicon
Valley area. Final assembly, testing and quality assurance is conducted at our
facility in Santa Clara, California. We outsource the turnkey manufacturing and
assembly of our higher volume, lower margin products to several facilities
located in Asia. This approach enables us to focus on our design strengths,
reduce fixed costs and capital expenditures and provide flexibility in meeting
market demand. We do not have long term contracts with any of our contract
manufacturers. We design and develop a number of the key components of our
products, including our proprietary ASIC, printed circuit boards and mechanical
packaging. We also use inspection, testing and statistical process controls to
assure product quality and reliability.

Although we use standard parts and components for our products where
possible, we currently purchase a few key components used in the manufacture of
our products from single or limited sources. Our principal single source
component suppliers include Altera, LSI Logic and Intel. Generally, purchase
commitments with our single or limited source suppliers are on a purchase order
basis. Any interruption or delay in the supply of any of these components, or
the inability to procure these components from alternate sources at acceptable
prices and within a reasonable time, would

45
<PAGE>

substantially harm our business. In addition, qualifying additional suppliers
can be time-consuming and expensive and may increase the likelihood of errors.

Competition

Our markets are highly competitive, and we expect competition to intensify in
the future. We believe that the principal factors of competition are:

. ease of product use;

. speed and accuracy of products;

. flexibility and programmability of products;

. upgradability of products;

. local support and service for products;

. time to market with new products; and

. breadth of product offering.

We believe that we compete favorably with respect to each of these factors
and have gained significant market share in our target markets as a result. We
believe our success has been driven by our vertically integrated technology,
ability to generate customer loyalty and ability to anticipate market trends.

The markets for advanced verification and connectivity products for emerging
communications standards are highly competitive. We compete with multiple
companies in various markets including 3A International in the markets for
products that address the 1394 standard. Any of our competitors may develop
technologies that more effectively address our targeted markets at a lower
cost. In addition, these competitors may enter into strategic alliances or
business combinations that increase their ability to innovate and address our
markets.

In addition to these competitors, we may also face competition from other
companies with new technologies or products based on emerging communications
standards or large companies that may enter our target markets. Any of these or
other potential competitors, as well as our existing competitors, may develop
or acquire technologies that more effectively address our target markets at a
lower cost. In addition, these competitors may enter into strategic alliances
or business combinations that increase their ability to innovate and address
our markets.

Intellectual Property

We rely on a combination of copyright, trademark and trade secret laws to
protect our intellectual property. While we rely on copyright, trademark and
trade secret laws to protect our technology, we believe that factors such as
the creativity and technological skills of our personnel, new product
developments, frequent product enhancements, reliable customer service and
product maintenance are more essential to establishing and maintaining a
technology leadership position. We cannot provide any assurance that other
companies will not develop technologies that are similar or superior to our
technology. Despite our efforts to protect our proprietary rights, existing
laws and our contractual arrangements provide only limited protection.
Unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. Monitoring unauthorized use of our products is
difficult, and we cannot be certain that the steps we have taken will prevent
unauthorized use of

46
<PAGE>

our intellectual property, particularly in foreign countries where the laws may
not protect our proprietary rights as fully as in the United States. Expensive
litigation may be necessary in the future to enforce our intellectual property
rights. Our failure to enforce and protect our intellectual property rights or
any adverse change in the laws protecting intellectual property rights could
harm our business.

We expect that we will be subject to infringement claims as the number of
products and competitors in our markets grows and the functionality of products
overlaps. From time to time, we may receive letters from third parties,
including some of our competitors, alleging that our products infringe these
parties' patent or other intellectual property rights. If any of these claims
cannot be resolved through a license or similar arrangement, we could become a
party to litigation. The results of any litigation matter are inherently
uncertain. In the event of an adverse result in any litigation with third
parties that could arise in the future, we could be required to pay substantial
damages, including treble damages if we are held to have willfully infringed,
to cease the manufacture, use and sale of infringing products, to expend
significant resources to develop noninfringing technology, or to obtain
licenses to the infringing technology. In addition, lawsuits, regardless of
their success, would likely be time-consuming and expensive to resolve and
would divert management time and attention from our business.

Facilities

Our principal executive and administrative offices are located in a leased
facility consisting of approximately 14,000 square feet of office space in
Santa Clara, California. This lease expires in December 2001 and we have an
option to renew the lease for an additional five-year period. We are in the
process of opening new facilities in Netanya, Israel, with approximately 3,500
square feet and in San Diego, California, with approximately 3,000 square feet.
We believe that our existing facilities are adequate to meet our current and
projected needs, or that suitable additional or substitute space will be
available as needed.

Employees

As of June 30, 2000, we had 48 employees and independent contractors who were
devoting substantially all of their time to us, and ten additional individuals
who have accepted an employment offer. Of these 58 individuals, twelve were in
sales and marketing, 27 were in research and development, eleven were in
operations and eight were in finance and administration. Our employees are not
represented by any collective bargaining unit and we believe our relations with
our employees are satisfactory.

Legal Proceedings

We are not a party to any material legal proceedings. We may, from time to
time, become a party to various legal proceedings arising in the ordinary
course of business.

47
<PAGE>

MANAGEMENT

Executive Officers and Directors

The following table sets forth, as of July 31, 2000, information regarding
our executive officers and directors:

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Dan Wilnai....................... 58 President, Chief Executive Officer,
Secretary and Chairman of the Board of
Directors

Peretz Tzarnotzky................ 52 Vice President, Chief Technology
Officer and Director

Dennis Evans..................... 48 Vice President, Chief Financial Officer

Albert Lee....................... 57 Vice President, Operations

Joseph Mendolia.................. 47 Vice President, Sales and Marketing

Shrikumar Chandran............... 50 Vice President, Engineering

Philip Pollok.................... 46 Director
</TABLE>

Dan Wilnai, one of our co-founders, has served as our President, Chief
Executive Officer, Secretary and Chairman of the Board of Directors since our
incorporation in February 1992. Prior to founding our company, from February
1985 to February 1992, Mr. Wilnai served as President of Summit Microsystems, a
company that focused on the FDDI fiber optic local area network standard. From
September 1974 to February 1985, Mr. Wilnai served as a program manager for
Fairchild Camera & Instrument Corporation, a developer of high performance
microprocessors and board-level products for military and commercial real-time
applications. Mr. Wilnai holds a B.S. in Electrical Engineering from the
Technion-Israel Institute of Technology.

Peretz Tzarnotzky, one of our co-founders, has served as a member of our
Board of Directors since our incorporation in February 1992 and our Vice
President, Chief Technology Officer since July 2000. Mr. Tzarnotzky also served
as our Vice President, Engineering from our incorporation in February 1992 to
June 2000. Prior to founding our company, from November 1989 to July 1991,
Mr. Tzarnotzky served as a systems engineering group manager at Cadence Design
Systems, a developer of design automation products. Mr. Tzarnotzky holds a
B.S.C. in Electrical Engineering from Ben-Gurion University of the Negev in
Israel.

Dennis Evans has served as our Vice President, Chief Financial Officer since
May 2000. Prior to joining our company, from March 1997 to May 2000, Mr. Evans
served as Vice President, Chief Financial Officer and Secretary of Whisper
Communications, Inc., a designer and manufacturer of wireless telemetry
systems. From February 1996 to March 1997, Mr. Evans served as the corporate
controller of Sherpa Corporation, a developer and distributor of product data
management software systems. From September 1993 to December 1995, Mr. Evans
was assistant division manager at Space Applications Corporation. Mr. Evans
holds a B.S. in Business Administration from California State University, Long
Beach.

Albert Lee has served as our Vice President, Operations since December 1997.
Prior to joining our company, from July 1995 to June 1997, Mr. Lee served as
Vice President of Operations with Hine Design, Inc., a designer and
manufacturer of robotics systems for the semiconductor equipment industry. From
February 1991 to July 1995, Mr. Lee served as the Vice President of Operations
at

48
<PAGE>

Advanced Molecular Systems, a designer and manufacturer of automated capillary
electrophoresis systems. Mr. Lee holds a B.S. in Business Administration from
the University of San Francisco.

Joseph Mendolia has served as our as Vice President, Sales and Marketing
since April 1999. Prior to joining our company, from May 1994 to April 1999,
Mr. Mendolia served as Vice President of Sales and Marketing with SciNet, Inc.,
a designer, manufacturer and distributor of storage networking systems. From
March 1992 to May 1994, Mr. Mendolia served as the North American sales manager
for Adaptec, Inc., a designer and manufacturer of hardware and software
products that enable data to be transferred from a computer to a peripheral or
network device. Mr. Mendolia holds a B.S. in Computer Science and Mathematics
from Pepperdine University.

Shrikumar Chandran has served as our Vice President, Engineering since June
2000. From February 1998 to June 2000, Mr. Chandran served as our Director of
Engineering. Prior to joining our company, from July 1997 to February 1998, Mr.
Chandran served as Director of Storage Systems Architecture with Storage
Dimensions, a designer, manufacturer and distributor of high performance, high
capacity data storage and back-up systems. From 1981 to July 1997, Mr. Chandran
served in several capacities at Tandem Computers, a designer, manufacturer and
distributor of enterprise servers, including, most recently, as section head of
ServerNet Adapters and related firmware. Mr. Chandran holds a B.E. in
Electrical Engineering from the University of Madras in India, an M.Tech in
Control Systems from the Indian Institute of Technology in India and a M.S. in
Computer Engineering from Oregon State University.

Philip Pollok has served as one of our directors since February 1999. Since
January 1999, Mr. Pollok has served as the Senior Vice President and General
Manager of Business Line Networking of Philips Semiconductors, a division of
Philips Electronics North American Corporation. From February 1998 to October
1998, Mr. Pollok served as the Business Unit Director of Wireless
Communications at Mitel Semiconductor, a manufacturer of cellular, GPS, set top
box, paging and wireless LAN products. From May 1994 to February 1998, Mr.
Pollok served as the Communications Business Unit Director at GEC Plessey
Semiconductors, a manufacturer of cellular, paging, wireless LAN and
telecommunications products. Mr. Pollok holds a B.S. in Electronic Engineering
from the University of Aston in Birmingham in the United Kingdom.

Board of Directors

We currently have three members and two vacancies on our board of directors.
We intend to expand the size of our board to five and elect two additional
directors prior to this offering. Each director holds office until his or her
term expires or until his or her successor is duly elected and qualified. Upon
completion of this offering, our certificate of incorporation and bylaws will
provide for a classified board of directors. In accordance with the terms of
our certificate of incorporation, our board of directors will be divided into
three classes whose terms will expire at different times. The three classes
will be comprised of the following directors:

. Class I consists of , who will serve until the annual meeting of
stockholders to be held in 2001;

. Class II consists of and , who will serve until the annual
meeting of stockholders to be held in 2002; and

. Class III consists of and , who will serve until the annual
meeting of stockholders to be held in 2003.

49
<PAGE>

At each annual meeting of stockholders, beginning with the 2001 annual
meeting, the successors to directors whose terms will then expire will be
elected to serve from the time of election and qualification until the third
annual meeting following election or until their successors have been duly
elected and qualified. Any additional directorships resulting from an increase
in the number of directors will be distributed among the three classes so that,
as nearly as possible, each class will consist of an equal number of directors.

Committees of the Board of Directors

The board of directors has a compensation committee and an audit committee.

The compensation committee of our board of directors reviews and makes
recommendations to the board of directors regarding all forms of compensation
and benefits provided to our officers. In addition, the compensation committee
establishes and reviews general policies relating to the compensation and
benefits of all our employees. The current members of the compensation
committee are Philip Pollok, and .

The audit committee of our board of directors reviews and monitors our
internal accounting procedures, corporate financial reporting, external and
internal audits, fee results and scope of the annual audit and other services
provided by our independent accountants and our compliance with legal matters
that have a significant impact on our financial reports. The current members of
the audit committee are Philip Pollok, and .

Compensation Committee Interlocks and Insider Participation

The board of directors established its compensation committee in August 2000.
Prior to establishing the compensation committee, the board of directors, as a
whole, performed the functions delegated to the compensation committee. None of
our compensation committee members has been an officer or employee of our
company at any time since our formation. None of our executive officers serves
as a member of 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. See "Related Party Transactions" for a description of
transactions between our company and entities affiliates with members of our
compensation committee.

Director Compensation

Other than expenses in connection with attendance at meetings, we currently
do not compensate any non-employee member of our board of directors. Directors
who are also employees currently do not receive additional compensation for
serving as directors.

50
<PAGE>

Executive Compensation

The following table sets forth information concerning compensation paid by us
during the year ended December 31, 1999 to our Chief Executive Officer and each
of our four other executive officers who received salary compensation of more
than $100,000 in that year, referred to collectively in this prospectus as the
"named executive officers." Mr. Evans joined our company in May 2000 at an
annual base salary of $175,000.

Summary Compensation Table

<TABLE>
<CAPTION>
Long-term
Compensation
Annual
Compensation Awards
---------------- ------------
Securities
Underlying All Other
Name and Principal Position Salary Bonus Options (#) Compensation(1)
--------------------------- -------- ------- ------------ ---------------
<S> <C> <C> <C> <C>
Dan Wilnai....................... $194,441 $60,000 $10,612
President and Chief Executive
Officer
Albert Lee....................... 144,250 15,000 5,579
Vice President, Operations
Peretz Tzarnotzky................ 181,121 54,000 10,612
Vice President, Chief Technology
Officer
Shrikumar Chandran............... 142,066 14,000 10,411
Vice President, Engineering
Joseph Mendolia.................. 116,885 15,000 3,910
Vice President, Marketing
</TABLE>
--------
(1) Consists solely of contributions made to each executive officer's account
under our 401(k) profit sharing plan.

Option Grants in Last Year

The following table sets forth information regarding stock options granted to
the named executive officers during the year ended December 31, 1999. All of
these options were granted pursuant to our 1994 stock option plan and have a
term of ten years from the date of grant.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term
---------------------------------------------- ---------------------
Number of
Securities Percentage of
Underlying Total Options
Options Granted in Exercise Expiration
Name Granted (#) Fiscal 1999 Price ($) Date 5% 10%
---- ----------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dan Wilnai.............. -- -- -- -- $ $
Albert Lee.............. 20,000 4.79% 0.75 7/1/09
Peretz Tzarnotzky....... -- -- -- --
Shrikumar Chandran...... 20,000 4.79% 0.75 5/13/09
Joseph Mendolia......... 150,000 35.97% 0.75 4/14/09
</TABLE>

In the year ended December 31, 1999, we granted options to purchase a total
of 417,000 shares of common stock to our employees, executive officers and
directors. Generally, we grant options at an exercise price equal to the fair
market value of the underlying common stock on the date of grant, as determined
by

51
<PAGE>

our board of directors, and the options vest over four years from the date of
grant. In determining the fair market value of our common stock, our board of
directors considers valuations of comparable companies, valuations reports and
analyses prepared by third parties and the lack of liquidity of our securities.
Once we become a publicly-held company, the fair market value of our stock will
equal its trading market price.

In accordance with the rules of the SEC, the above table sets forth the
potential realizable value over the ten-year period from the grant date to the
expiration date, assuming rates of stock appreciation of 5% and 10%, compounded
annually. These amounts do not represent our estimate of future stock price
performance. Actual realizable values, if any, of stock options will depend on
the future performance of our common stock.

We have granted options to purchase shares of our common stock to our
executive officers under our 1994 stock option and 2000 stock option/stock
issuance plans as described in "Related Party Transactions--Grant of Options."

Aggregate Option Exercises in Last Year and Year-End Option Values

The following table sets forth information for our named executive officers
relating to the number and value of shares of common stock underlying
exercisable and unexercisable options held at December 31, 1999. No options or
stock appreciation rights were exercised during 1999 and no stock appreciation
rights were outstanding as of December 31, 1999.

The value of unexercised in-the-money options at December 31, 1999 is based
on a value of $ per share, the assumed initial public offering price, less
the per share exercise price, multiplied by the number of shares issuable upon
exercise of the option. All options were granted under our 1994 stock option
plan.

<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options as In-the-Money Options as
of December 31, 1999 (#) of December 31, 1999 ($)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Dan Wilnai..................
Albert Lee..................
Peretz Tzarnotzky...........
Shrikumar Chandran..........
Joseph Mendolia.............
</TABLE>

2000 Stock Incentive Plan

Introduction. Our 2000 stock incentive plan is intended to serve as the
successor equity incentive program to our 1994 stock option plan and our 2000
stock option/stock issuance plan, also referred to as the predecessor plans.
The 2000 stock incentive plan was adopted by our board of directors on August
4, 2000 and is expected to be approved by our stockholders prior to the
commencement of this offering. If approved, the 2000 stock incentive plan will
become effective when the underwriting agreement for this offering is signed.
At that time, all outstanding options under the predecessor plans will be
transferred to the 2000 stock incentive plan, and no further option grants will
be made under the predecessor plans. 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 stock incentive plan to those
options. Except as otherwise noted below, the

52
<PAGE>

transferred options have substantially the same terms as will be in effect for
grants made under the discretionary option grant program of our 2000 stock
incentive plan.

Share Reserve. 3,850,000 shares of our common stock have been authorized for
issuance under the 2000 stock incentive plan. This share reserve consists of
the number of shares we estimate will be carried over from the predecessor
plans, including the shares subject to outstanding options thereunder, plus an
additional increase of approximately 445,000 shares. The share reserve under
our 2000 stock incentive plan will automatically increase on the first trading
day in January each calendar year, beginning in calendar year 2001, by an
amount equal to four percent of the total number of shares of our common stock
outstanding on the last trading day of December in the preceding calendar year,
but in no event will this annual increase exceed 2 million shares. In addition,
no participant in our 2000 stock incentive plan may be granted stock options,
separately exercisable stock appreciation rights, and direct stock issuances
for more than 500,000 shares of common stock per calendar year.

Equity Incentive Programs. Our 2000 stock incentive plan is divided into five
separate components.

. The discretionary option grant program, under which eligible individuals
may be granted options to purchase shares of 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 the completion of a specified period of service.

. 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 our 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.

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

Eligibility. The individuals eligible to participate in our 2000 stock
incentive plan include our officers and other employees, our non-employee 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 option grants or
stock 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 non-statutory 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

53
<PAGE>

compensation committee will also have the exclusive 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 activated for
one or more calendar years.

Plan Features. Our 2000 stock incentive 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 plan
administrator may 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 options
transferred from our predecessor plans, 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 vested shares subject to the surrendered option,
less the aggregate exercise price payable for those shares. We may make
the payment in cash or in shares of our common stock. None of the
outstanding options under our predecessor plans have any stock
appreciation rights.

Change in Control. The 2000 stock incentive 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 which is not assumed by the
successor corporation will become immediately exercisable for all the
option shares, and all unvested shares under the discretionary option
program and stock issuance program will immediately vest, except to the
extent our repurchase rights with respect to those shares are to be
assigned to the successor corporation.

. The compensation committee will have complete discretion to structure one
or more options under the discretionary option grant program so those
options will vest as to all the option shares in the event those options
are assumed in the acquisition but the optionee's service with us or the
acquiring entity is subsequently terminated. The vesting of outstanding
shares under the stock issuance program 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 50%
of our outstanding voting stock or a change in the majority of

54
<PAGE>

our board of directors through one or more contested elections for board
membership. Such accelerated vesting may occur either at the time of such
transaction or upon the subsequent termination of the individual's
service.

. The options currently outstanding under our 2000 stock option/stock
issuance plan will immediately vest if we are acquired by a merger or
sale of substantially all of our assets, unless those options are assumed
by the acquiring entity or our repurchase rights with respect to any
unvested shares subject to those options are assigned to such entity.
However, a number of those options may also contain a special
acceleration provision pursuant to which the shares subject to those
options will immediately vest upon an involuntary termination of the
optionee's employment within 18 months following an acquisition in which
the repurchase rights with respect to those shares are assigned to the
acquiring entity.

. The options currently outstanding under our 1994 stock option plan will
be assumed or an equivalent option substituted by an acquiring entity in
a merger.

Salary Investment Option Grant Program. If the compensation committee decides
to activate this program for one or more calendar years, each of our executive
officers and other selected highly compensated employees may elect, prior to
the start of the calendar year, to reduce his or her base salary for the
calendar year by a specified amount not less than $10,000 nor more than
$50,000. Each selected individual who makes such a timely 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 be exercisable at a 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
twelve 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 automatically receive an option grant for 20,000 shares of common stock on
the date such individual joins the board, provided such individual has not been
in our prior employ. 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 5,000 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 ten 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 20,000 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 5,000 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

55
<PAGE>

immediately vest in full upon certain changes in control or ownership or upon
the optionee's death or disability while a board member.

Director Fee Option Grant Program. If this program is activated in the
future, 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 twelve 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 optionee's death or
disability while serving as a board member.

Additional Program Features. Our 2000 stock incentive 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 stock incentive plan
at any time, subject to any required stockholder approval. The 2000 stock
incentive plan will terminate no later than August 3, 2010.

2000 Employee Stock Purchase Plan

Introduction. Our 2000 employee stock purchase plan was adopted by the board
on August 4, 2000, 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.

Share Reserve. 250,000 shares of our common stock 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

56
<PAGE>

number of outstanding shares of our common stock on the last trading day in
December in the prior calendar year. In no event will any such annual reserve
increase exceed 500,000 shares.

Offering Periods. The plan will have a series of successive offering periods,
each with a maximum duration of 24 months. However, the initial offering period
may have a duration in excess of 24 months and will start on the date the
underwriting agreement for the offering covered is signed and will end on the
last business day in 2002. The next offering period will start on the first
business day in 2002, and subsequent offering periods will be set by our
compensation committee.

Eligible Employees. Individuals scheduled to work more than 20 hours per week
for more than five calendar months per year may join an offering period on the
start date of that period. However, employees may participate in only one
offering period at a time.

Payroll Deductions. 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. The
purchase price per share will be equal to 85% of the fair market value per
share on the start date of the offering period in which the participant is
enrolled or, if lower, 85% of the fair market value per share on the semi-
annual purchase date. Semi-annual purchase dates will occur on the last
business day of and each year. However, a participant may not purchase
more than 5,000 shares on any purchase date, and not more than 100,000 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.

Reset Feature. 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 two-year offering period, then that offering period will automatically
terminate, and a new two-year offering period will begin on the next business
day. All participants in the terminated offering period will automatically be
transferred to the new offering period.

Change in Control. 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 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.

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

. The plan will terminate no later than the last business day of 2010.

. The board may at any time amend, suspend or discontinue the plan.
However, certain amendments may require stockholder approval.

401(k) Profit Sharing Plan

In January 1996, we adopted a 401(k) profit sharing plan covering our full-
time employees located in the United States. The plan is intended to qualify
under Section 401(a) of the Internal Revenue Code, so that contributions to the
plan by employees or by us on their behalf and the investment earnings on these
contributions, are not taxable to employees until withdrawn from the plan and
so that we can deduct our contributions, if any, when made.

57
<PAGE>

Pursuant to the plan, employees may elect to reduce their current compensation
by up to the statutorily prescribed annual limit ($10,500 in 2000) and to have
the amount of the reduction contributed to the plan. The plan permits, but does
not require, that we provide additional matching contributions to the plan on
behalf of all participants in the plan. We make contributions to the plan each
pay period to all participants in an amount determined by the board of
directors. In the year ended December 31, 1999, we contributed $75,493 on
behalf of participants in the plan, of which $41,124 was contributed on behalf
of our named executive officers.

Employment Contracts, Termination of Employment Agreements and Change of
Control Arrangements

We have entered into employment agreements with Albert Lee, Shrikumar
Chandran, Joseph Mendolia and Dennis Evans, each of whom are executive officers
of our company.

On December 5, 1997, Albert Lee, our Vice President, Operations, entered into
an employment agreement with us. The agreement provides for a starting annual
salary of $125,000. The agreement also provides for periodic achievement
bonuses based on our company's financial performance and on Mr. Lee meeting
certain objectives as defined by company management. In connection with his
employment, Mr. Lee was granted options to purchase up to 120,000 shares of
common stock pursuant to our 1994 stock option plan at a per share exercise
price of $0.44. In the event Mr. Lee is involuntarily terminated without cause
within twelve months of a change of control, he will be entitled to a lump sum
severance payment equal to six months of his base salary.

On January 8, 1998, Shrikumar Chandran, our Vice President, Engineering,
entered into an employment agreement with us. The agreement provides for a
starting annual salary of $130,000. The agreement also provides for periodic
achievement bonuses based on our company's financial performance and on Mr.
Chandran meeting certain objectives as defined by our company's management. In
connection with his employment, Mr. Chandran was granted options to purchase up
to 100,000 shares of common stock pursuant to our 1994 stock option plan at a
per share exercise price of $0.44.

On March 3, 1999, Joseph Mendolia, our Vice President, Sales and Marketing,
entered into an employment agreement with us. The agreement provides for a
starting annual salary of $100,000. The agreement also provides for periodic
achievement bonuses based on our company's financial performance and on Mr.
Mendolia meeting certain objectives as defined by our company's management. In
connection with his employment, Mr. Mendolia was granted options to purchase up
to 150,000 shares of common stock pursuant to our 1994 stock option plan at a
per share exercise price of $0.75. In the event Mr. Mendolia is involuntarily
terminated without cause within twelve months of a change of control, he will
be entitled to a lump sum severance payment equal to six months of his base
salary.

On May 1, 2000, Dennis Evans, our Vice President, Chief Financial Officer,
entered into an employment agreement with us. The agreement provides for a
starting annual salary of $175,000. The agreement also provides for periodic
achievement bonuses based on our company's financial performance and on Mr.
Evans meeting certain objectives as defined by our company's management. In
connection with his employment, Mr. Evans was granted options to purchase up to
150,000 shares of common stock, in accordance with our 2000 stock option
plan/stock issuance at a per share exercise price of $2.50. In the event Mr.
Evans is involuntarily terminated without cause after the

58
<PAGE>

first twelve months of his employment or his employment is terminated within
twelve months of a change of control, he will be entitled to a lump sum
severance payment equal to six months of his base salary.

Limitation of Liability and Indemnification

Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by the Delaware General Corporation Law. Delaware law
provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability for any of the following:

. any breach of their duty of loyalty to the corporation or its
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.

This limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.

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 to the
fullest extent permitted by law. Our bylaws also permit us to secure insurance
on behalf of any officer, director, employee or other agent for any liability
arising out of his or her actions in this capacity, regardless of whether the
bylaws would permit indemnification. Prior to the consummation of the offering,
we will 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>

RELATED PARTY TRANSACTIONS

Sales of Stock

Since our inception in February 1992, we have issued and sold shares of our
common stock in private placement transactions as follows:

. 1,200,000 shares at a price of $0.0001 per share in February 1992 to Dan
Wilnai, the Chairman of our Board of Directors and our President, Chief
Executive Officer and Secretary.

. 800,000 shares at a price of $0.0001 per share in February 1992 to Peretz
Tzarnotzky, a member of our Board of Directors and our Vice President,
Chief Technology Officer.

. 857,141 shares at a price of $1.16667 per share in March 1994 to Philips
Semiconductors. Philip Pollok, a member of our Board of Directors, is a
Senior Vice President and General Manager of Business Line Networking at
Philips.

Grants of Options

From our inception in February 1992, we have granted options to purchase our
common stock to our directors and executive officers as follows:

<TABLE>
<CAPTION>
Number
Grant of Exercise
Name Date Shares Price
---- -------- ------- --------
<S> <C> <C> <C>
Shrikumar Chandran.................................... 02/02/98 100,000 $0.44
05/13/99 20,000 0.75
08/04/00 25,000 2.50

Albert Lee............................................ 12/01/97 120,000 0.44
04/01/98 30,000 0.60
07/01/99 20,000 0.75
08/04/00 20,000 2.50

Joseph Mendolia....................................... 04/14/99 150,000 0.75
08/04/00 20,000 2.50

Dennis Evans.......................................... 08/04/00 150,000 $2.50
</TABLE>

Transactions with Directors and Officers

In May 2000, Albert Lee, our Vice President, Operations, exercised options to
purchase 70,000 shares of our common stock and paid an aggregate purchase price
of $30,000 for these shares.

In May 2000, we loaned $125,000 to Mr. Lee pursuant to a promissory note. The
loan is full-recourse and secured by 70,000 shares of our common stock held by
Mr. Lee. The note accrues interest at a rate of 6.42% and is due on May 11,
2002 or upon termination of Mr. Lee's employment with our company. As of July
31, 2000, $126,780 remained outstanding on Mr. Lee's loan.

We have entered into employment arrangements with our executive officers. See
"Management--Employment Contracts, Termination of Employment Agreements and
Change of Control Arrangements."

We made contributions to our 401(k) profit sharing plan on behalf of several
of our executive officers. See "Management--401(k) Profit Sharing Plan."

We have entered into an indemnification agreement with each of our directors
and executive officers that provide for indemnification beyond what is provided
for in our certificate of

60
<PAGE>

incorporation and bylaws. The indemnification agreements, among other things,
indemnify our directors and executive officers for expenses they may incur as a
result of any proceeding against them and 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 our company or other entities to which they provide service at our
request. We believe that these provisions and indemnification agreements are
necessary to attract and retain qualified directors and officers.

Policy Regarding Transactions with Affiliates

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, other than the interest rate of Mr. Lee's loan as described
above. All future transactions with affiliates, including any loans we make to
our officers, directors, principal stockholders or other affiliates, will be
approved by a majority of our board of directors, including a majority of the
independent and disinterested members or, if required by law, a majority of
disinterested stockholders, and will be on terms no less favorable to us than
we could have obtained from unaffiliated third parties.

61
<PAGE>

PRINCIPAL STOCKHOLDERS

The table below sets forth information regarding the beneficial ownership of
our common stock as of July 31, 2000 and as adjusted for this offering assuming
no exercise of the underwriters' overallotment option, by:

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

. each of the named executive officers and directors; and

. all of our directors and executive officers as a group.

Each stockholder's percentage ownership in the following table is based on
11,757,011 shares of common stock outstanding as of July 31, 2000, which
includes shares of common stock issuable upon the closing of this offering, and
treating as outstanding all options exercisable within 60 days of July 31, 2000
held by the particular stockholder and that are included in the first column.

Unless otherwise indicated, the principal address of each of the stockholders
below is c/o Computer Access Technology Corporation, 2403 Walsh Avenue, Santa
Clara, California 95051. Except as otherwise indicated and subject to
applicable community property laws, to the best of our knowledge, the persons
named in the table have sole voting and investment power for all of the shares
of common stock held by them.

<TABLE>
<CAPTION>
Shares Beneficially Owned
----------------------------
Percent Percent
Before After
Beneficial Owner Number Offering Offering
---------------- ---------- -------- --------
<S> <C> <C> <C>
5% Stockholders:
Philips Semiconductors(1)........................ 3,428,564 29.16% %
Directors and Executive Officers:
Dan Wilnai(2).................................... 4,800,000 40.08
Peretz Tzarnotzsky............................... 3,200,000 27.21
Albert Lee(3).................................... 102,082 * *
Shrikumar Chandran(4)............................ 72,493 * *
Joseph Mendolia(5)............................... 53,125 * *
Philip Pollok(6)................................. 3,428,564 29.16
Dennis Evans..................................... -- * *
All directors and executive officers as a group
(7 persons)..................................... 11,656,264 99.1
</TABLE>
--------
* Less than 1% of the outstanding shares of common stock

(1) Philips Semiconductors is a division of Philips Electronics North American
Corporation. The business address for Philips Semiconductors is 1109 McKay
Dr. M/S 48 San Jose , CA 95131.

(2) Mr. Wilnai's shares include an aggregate of 4,480,000 shares held by a
family trust of which Mr. Wilnai is a trustee and 320,000 shares held by
Mr. Wilnai's family members.

(3) Mr. Lee's shares include 32,082 shares subject to options exercisable
within 60 days of July 31, 2000.

(4) Mr. Chandran's shares include 72,493 shares subject to options exercisable
within 60 days of July 31, 2000.

(5) Mr. Mendolia's shares include 53,125 shares of common stock subject to
options exercisable within 60 days of July 31, 2000.

(6) Mr. Pollok's shares include 3,428,564 shares of common stock held by
Philips Semiconductors. Mr. Pollok is a Senior Vice President and General
Manager of Business Line Networking of Philips Semiconductors and disclaims
beneficial ownership of these shares, if any.

62
<PAGE>

DESCRIPTION OF CAPITAL STOCK

General

Our certificate of incorporation authorizes the issuance of up to 100 million
shares of common stock, $0.001 par value, and authorizes the issuance of 25
million shares of undesignated preferred stock, $0.001 par value. From time to
time, our board of directors may establish the rights and preferences of the
preferred stock. As of June 30, 2000, 11,664,064 shares of common stock were
issued and outstanding and held by 16 stockholders. Upon the closing of this
offering, there will be an aggregate of shares of common stock issued and
outstanding. The following description of our capital stock is, by necessity,
not complete. We encourage you to refer to our certificate of incorporation and
bylaws, which are included as exhibits to the registration statement of which
this prospectus forms a part, and applicable provisions of Delaware law for a
more complete description.

Common Stock

Each holder of common stock is entitled to one vote for each share of common
stock held on all matters to be voted upon by the stockholders. Subject to
preferences that may apply to any outstanding preferred stock that we may
issue, the holders of common stock are entitled to receive ratably dividends,
if any, that may be declared from time to time by our board of directors out of
funds legally available for dividends. In the event of a liquidation,
dissolution or winding up of our company, the holders of 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. Holders of common stock have no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are
fully paid and nonassessable, and the shares of common stock outstanding upon
completion of this offering will be fully paid and nonassessable. The rights,
preferences and privileges of the holders of common stock are subject to, and
may be adversely affected by the rights of the holders of shares of any series
of preferred stock which we may designate in the future.

Preferred Stock

Our board of directors has the authority, without action by the stockholders,
to designate and issue preferred stock in one or more series and to designate
the rights, preferences and privileges of each series, which may be greater
than the rights of the common stock. It is not possible to state the actual
effect of the issuance of any shares of preferred stock upon the rights of
holders of the common stock until our board of directors determines the
specific rights of the holders of such preferred stock. However, the effects
might include, among other things:

. restricting dividends on the common stock;

. diluting the voting power of the common stock;

. impairing the liquidation rights of the common stock; or

. delaying or preventing a change in control of our company without further
action by the stockholders.

Upon the closing of this offering, no shares of preferred stock will be
outstanding, and we have no present plans to issue any shares of preferred
stock.

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, certain provisions of California

63
<PAGE>

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 some 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 next annual meeting
of stockholders. If these two conditions occur, then we will no longer be
subject to Section 2115 as of the record date for our next annual meeting of
stockholders.

Antitakeover Effects of Provisions of Delaware Law and Our Certificate of
Incorporation and Bylaws

Some provisions of our certificate of incorporation and our bylaws could
discourage potential acquisition proposals and could delay or prevent a change
in control of our company. These provisions also may have the effect of
preventing changes in the management of our company.

The provisions, summarized below, are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids. These provisions are
also designed to encourage persons seeking to acquire control of our company to
first negotiate with our board of directors. We believe that the benefits of
increased protection of our potential ability to negotiate with the proponent
of an unfriendly or unsolicited proposal to acquire our company outweigh the
disadvantages of discouraging these proposals because negotiation of these
proposals could result in an improvement of their terms.

Undesignated Preferred Stock. Our certificate of incorporation authorizes our
board of directors to establish one or more series of undesignated preferred
stock, the terms of which can be determined by our board of directors at the
time of issuance.

Elimination of Stockholder Action by Written Consent. Our certificate of
incorporation also provides that all stockholder action must be effected at a
duly called meeting of stockholders and not by written consent.

Stockholder Meetings. In addition, our certificate of incorporation and
bylaws do not permit our stockholders to call a special meeting of
stockholders. Only our chief executive officer, president, chairman of the
board or a majority of our board of directors are permitted to call a special
meeting of stockholders.

64
<PAGE>

Election and Removal of Directors. Our certificate of incorporation also
provides that our board of directors is divided into three classes, with each
director assigned to a class with a term of three years and that the number of
directors may only be determined by our board of directors.

Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws require that stockholders give advance notice to our
secretary of any nominations for director or other business to be brought by
stockholders at any stockholders' meeting and that the chairman of the board
has the authority to adjourn any meeting called by the stockholders.

Amendment of Charter Provisions. Our bylaws also require a supermajority vote
of members of our board of directors and/or stockholders to amend certain bylaw
provisions.

Delaware Antitakeover Law. We are subject to Section 203 of the Delaware
General Corporation Law, an antitakeover law. 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 our voting stock outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by:

-- 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

-- persons who are directors and also officers; and

. 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.

Generally, a "business combination" includes a merger, asset or stock sale,
or other transaction resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns or, within three years prior to the
determination of interested stockholder status, did own 15% or more of a
corporation's outstanding voting securities. We expect the existence of this
provision to have an antitakeover effect with respect to transactions our board
of directors does not approve in advance. We also anticipate that Section 203
may discourage attempts that might result in a premium over the market price
for the shares of common stock held by stockholders.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is .

Listing

We have applied to have our common stock listed on the Nasdaq National Market
for quotation under the symbol "CATZ."

65
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common stock.
Future sales of substantial amounts of our common stock in the public market
following this offering or the possibility of such sales occurring could
adversely affect prevailing market prices for our common stock or could impair
our ability to raise capital through an offering of equity securities.

After this offering, we will have outstanding shares of common
stock, based upon shares outstanding as of June 30, 2000, assuming no exercise
of the underwriters' over allotment option and no exercise of outstanding
options after June 30, 2000. All of the shares sold in this offering will be
freely tradable without restriction under the Securities Act except for any
shares purchased by our "affiliates" as that term is defined in Rule 144 under
the Securities Act. The remaining 11,757,761 shares of common stock held by
existing stockholders are "restricted" shares as that term is defined in Rule
144 under the Securities Act. We issued and sold the restricted shares in
private transactions in reliance upon exemptions from registration under the
Securities Act. Restricted shares may be sold in the public market only if they
are registered under the Securities Act or if they qualify for an exemption
from registration, such as Rule 144 or 701 under the Securities Act, which are
summarized below.

Our officers, directors, employees and other stockholders, who collectively
hold an aggregate of 11,757,761 restricted shares, and the underwriters entered
into a lock-up agreement in connection with this offering. These lock-up
agreements provide that, with limited exceptions, our officers, directors,
employees and stockholders have agreed not to offer, sell, contract to sell,
grant any option to purchase or otherwise dispose of any of our shares for a
period of 180 days after the effective date of this offering. FleetBoston
Robertson Stephens Inc. may, in its sole discretion and at any time without
prior notice, release all or any portion of the shares subject to these lock-up
agreements. We have also entered into an agreement with FleetBoston Robertson
Stephens Inc. that we will not offer, sell or otherwise dispose of our common
stock until 180 days after the effective date of this offering.

Taking into account the lock-up agreements, the number of shares that will be
available for sale in the public market under the provisions of Rule 144,
144(k) and 701 will be as follows:

<TABLE>
<CAPTION>
Date of Availability for Number
Sale of Shares
------------------------ ----------
<S> <C>
At various times between
August 15, 2000 and
February 11, 2001...... 0
On or after February 12,
2001................... 11,757,761
----------
</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 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
with the SEC, subject to restrictions.

66
<PAGE>

Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about us. 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 shares
under Rule 144(k) without regard to the requirements 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. The foregoing summary of Rule 144 is not a
complete description.

Rule 144(k)

Under Rule 144(k), a person who is not one of our affiliates at any time
during the three months 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 then an affiliate), is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144. Therefore, unless otherwise restricted, "144(k)"
shares may be sold immediately upon the completion of this offering.

Rule 701

In general, under Rule 701 of the Securities Act as currently in effect, each
of our employees, consultants or advisors who purchases shares of our common
stock from us in connection with a compensatory share plan or other written
agreement is eligible to resell such shares 90 days after the effective date of
this offering in reliance on Rule 144, but without compliance with some
restrictions, including the holding period, contained in Rule 144.

The SEC has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, along with the shares acquired upon
exercise of such options (including exercises after the date of this
prospectus). Securities issued in reliance on Rule 701 are restricted
securities and, subject to the contractual restrictions described above,
beginning 90 days after the date of this prospectus, may be sold by persons
other than "affiliates", as defined in Rule 144, subject only to the manner of
sale provisions of Rule 144 and by "affiliates" under Rule 144 without
compliance with its one year minimum holding period requirement.

Stock Options

We intend to file a registration statement on Form S-8 under the Securities
Act covering the shares of common stock reserved for issuance under our 2000
stock incentive plan and our 2000 employee stock purchase plan. We expect this
registration statement to be filed and to become effective as soon as
practicable after the effective date of this offering. Shares of common stock
issued upon exercise of options under the Form S-8 will be available for sale
in the public market, subject to Rule 144 volume limitations applicable to
affiliates and subject to the contractual restrictions described above. As of
June 30, 2000, options to purchase 1,085,000 shares of common stock were
outstanding, of which options to purchase approximately 526,000 shares were
then vested and exercisable. Beginning 180 days after the effective date of
this offering, approximately shares issuable upon the exercise of
vested stock options will become eligible for sale in the public market, if
such options are exercised.

67
<PAGE>

UNDERWRITING

The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., CIBC World Markets Corp., SG Cowen
Securities Corporation and Needham & Company, Inc. 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 shown opposite their
names below. The underwriters are committed to purchase and pay for all of
these shares if any are purchased.

<TABLE>
<CAPTION>
Number
of
Underwriters Shares
------------ ------
<S> <C>
FleetBoston Robertson Stephens Inc. ..................................
CIBC World Markets Corp. .............................................
SG Cowen Securities Corporation.......................................
Needham & Company, Inc. ..............................................
----
Total...............................................................
====
</TABLE>

The representatives of the underwriters have advised us that the underwriters
propose to offer the shares of common stock to the public at the public
offering price shown on the cover page of this prospectus and to dealers at
that price less a concession of not more than $ per share, of which $
may be reallowed to other dealers. After the completion of this offering, the
public offering price, concession and reallowance to dealers may be reduced by
the representatives. No such reduction will change the amount of proceeds we
are to receive as shown 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. FleetBoston Robertson Stephens Inc. expects to deliver the shares
on , 2000.

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 additional shares of common stock at the same price per
share as we will receive for the shares that the underwriters have agreed
to purchase from us. To the extent that the underwriters exercise this option,
each of the underwriters will have a firm commitment to purchase approximately
the same percentage of these additional shares that the number of shares of
common stock to be purchased by it shown in the above table bears to the total
number of shares offered by this prospectus. If purchased, the additional
shares will be sold by the underwriters on the same terms as those on which the
shares are being sold.

The following table shows the per share and total underwriting discounts and
commissions that we are to pay to the underwriters. This information is
presented assuming either no exercise or full exercise by the underwriters of
their over-allotment option.

<TABLE>
<CAPTION>
Total
-------------------
Without With
Per Over- Over-
Share Allotment Allotment
----- --------- ---------
<S> <C> <C> <C>
Public offering price.............................. $ $ $
Underwriting discounts and commissions............. $ $ $
Proceeds, before expenses, to us................... $ $ $
</TABLE>

Expenses of this Offering. The expenses of this offering are estimated at
approximately $ million and are payable entirely by us.

68
<PAGE>

Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against 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 executive officers, directors, stockholders
and option holders has agreed, for a period of 180 days after the date of this
prospectus, not to offer, sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of common
stock, any options or warrants to purchase any shares of common stock, or any
securities convertible into or exchangeable for common stock owned by the
holder as of the date of this prospectus or acquired directly from us or with
respect to which these holders have or may acquire the power of disposition,
without the prior written consent of FleetBoston Robertson Stephens Inc.
However, FleetBoston Robertson Stephens Inc. may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject
to lock-up agreements. There are no agreements between the underwriters and any
of our stockholders providing consent by the representatives to the sale of
shares before the expiration of the 180-day lock-up period. This restriction
terminates after the close of trading of the shares on the 180th day of (and
including) the day the shares began trading on the NASDAQ National Market.

Future Sales By Us. In addition, we have agreed that for a period of 180 days
after the date of this prospectus, we will not, without the prior written
consent of FleetBoston Robertson Stephens Inc. (a) consent to the disposition
of any shares held by stockholders before the expiration of the 180-day lock-up
period or (b) 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, the issuance
of shares of common stock upon the exercise of options outstanding on the date
of this prospectus and the grant of options to purchase shares of common stock
under existing employee stock option or stock purchase plans.

Directed Shares. At our request, the underwriters will reserve up to
shares of common stock for sale in this offering, at the initial public
offering price, to our customers, partners and business associates. The number
of shares of common stock available for sale to the general public will be
reduced to the extent that these individuals purchase all or a portion of the
reserved shares. Any reserved shares that are not purchased will be offered by
the underwriters to the general public on the same basis as the other shares of
common stock offered by this prospectus.

No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price
for our common stock will be determined through negotiations between us and the
representatives. Among the factors to be considered in these negotiations are
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 and the present state of our development.

The underwriters do not expect sales of shares of common stock offered by
this prospectus to any accounts over which they exercise discretionary
authority to exceed 5% of the shares offered.

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

69
<PAGE>

"covered" short position to the extent that it does not exceed the
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. The representatives have advised us that, under Regulation M
under the Exchange 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 the shares of 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 claim the
selling concession otherwise accruing to an underwriter or syndicate member in
connection with the offering if the common stock originally sold by that
underwriter or syndicate member is purchased by the representatives in the open
market in a stabilizing bid or to cover all or part of a syndicate short
position. The representatives have advised us that stabilizing bids and open
market purchases may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.

70
<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 will
be passed upon for the underwriters by Fenwick & West LLP, Palo Alto,
California.

EXPERTS

The consolidated financial statements of Computer Access Technology
Corporation as of December 31, 1999 and June 30, 2000 and for each of the three
years in the period ended December 31, 1999 and the six month period ended June
30, 2000 included in this prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form S-1 under the Securities Act, relating
to the common stock sold in this offering. This prospectus does not contain all
of the information contained in the registration statement and its exhibits and
schedules. 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 schedules. Statements in this prospectus about
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. Each statement in
this prospectus relating to a contract or document filed as an exhibit is
qualified in all respects by the filed exhibit. You may read or obtain a copy
of the registration statement, including exhibits, 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
web site is http://www.sec.gov.

As a result of the offering, the information and reporting requirements of
the Securities Exchange Act of 1934 will apply to us. 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 condensed 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.

71
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Income.......................................... F-4
Consolidated Statement of Stockholders' Equity............................. F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Computer Access Technology Corporation

The reincorporation described in Note 10 to the consolidated financial
statements had not been consummated as of August 16, 2000. When it has been
consummated, we will be in a position to furnish the following report:

"In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position
of Computer Access Technology Corporation at June 30, 2000, December 31,
1999 and 1998, and the results of their operations and their cash flows for
the six month period 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. 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 of these statements in accordance
with auditing standards generally accepted in the United States, which
require that we plan and perform the audit 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, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above."

PricewaterhouseCoopers LLP

San Jose, California
August 3, 2000

F-2
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

<TABLE>
<CAPTION>
June
December 31, 30,
--------------- -------
1998 1999 2000
------ ------- -------
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.......................... $2,215 $ 4,195 $ 5,158
Short-term investments............................. -- -- 1,161
Trade accounts receivable, net of allowance for
doubtful accounts of $40, $58 and $79 in 1998,
1999 and 2000..................................... 1,046 2,166 2,995
Related party receivable........................... 83 95 71
Inventories........................................ 373 673 959
Deferred tax assets................................ -- 250 976
Other current assets............................... 12 2 339
------ ------- -------
Total current assets............................. 3,729 7,381 11,659
Property and equipment, net.......................... 179 255 334
Other assets......................................... 18 18 25
------ ------- -------
$3,926 $ 7,654 $12,018
====== ======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable................................... $ 235 $ 370 $ 538
Accrued expenses................................... 489 1,238 1,470
Deferred revenue................................... -- -- 1,726
------ ------- -------
Total current liabilities........................ 724 1,608 3,734
Deferred rent........................................ -- 19 15
------ ------- -------
Total liabilities................................ 724 1,627 3,749
------ ------- -------

Commitments (Note 8)

Stockholders' equity:
Common Stock, $0.001 par value, 100,000,000 shares
authorized, 11,428,564 shares issued and
outstanding as of December 31, 1998 and 1999 and
11,664,064 shares issued and outstanding as of
June 30, 2000..................................... 11 11 12
Additional paid-in capital......................... 2,457 5,042 5,694
Deferred stock-based compensation.................. (754) (1,776) (1,442)
Retained earnings.................................. 1,488 2,750 4,005
------ ------- -------
Total stockholders' equity....................... 3,202 6,027 8,269
------ ------- -------
$3,926 $ 7,654 $12,018
====== ======= =======
</TABLE>

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

F-3
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)

<TABLE>
<CAPTION>
Year Ended December Six Month Period
31, Ended June 30,
--------------------- ------------------
1997 1998 1999 1999 2000
------ ------ ------- ----------- ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue............................... $4,169 $6,771 $12,506 $5,289 $8,782
Cost of revenue (inclusive of
amortization of deferred stock-based
compensation of none, $242, $243, $99
(unaudited) and $112 in 1997, 1998,
1999, and the six month period ended
June 30, 1999 and 2000,
respectively)........................ 764 1,437 3,136 1,237 2,168
------ ------ ------- ------ ------
Gross profit.......................... 3,405 5,334 9,370 4,052 6,614
------ ------ ------- ------ ------
Operating expenses:
Research and development (exclusive
of amortization of deferred stock-
based compensation of none, $290,
$656, $266 (unaudited) and $336 in
1997, 1998, 1999, and the six month
period ended June 30, 1999 and
2000, respectively)................ 1,210 2,572 3,538 1,751 1,882
Sales and marketing (exclusive of
amortization of deferred stock-
based compensation of none, $162,
$643, $79 (unaudited) and $410 in
1997, 1998, 1999, and the six month
period ended June 30, 1999 and
2000, respectively)................ 431 800 1,194 572 1,103
General and administrative
(exclusive of non-cash stock-based
compensation of none, none, $21,
none (unaudited) and $26 in 1997,
1998, 1999, and the six month
period ended June 30, 1999 and
2000, respectively)................ 340 345 434 171 433
Amortization of deferred stock-based
compensation....................... -- 452 1,320 345 772
------ ------ ------- ------ ------
Total operating expenses........... 1,981 4,169 6,486 2,839 4,190
------ ------ ------- ------ ------
Income from operations................ 1,424 1,165 2,884 1,213 2,424
Interest income....................... 56 80 138 54 156
------ ------ ------- ------ ------
Income before provision for income
taxes................................ 1,480 1,245 3,022 1,267 2,580
Provision for income taxes............ 556 708 1,760 656 1,325
------ ------ ------- ------ ------
Net income............................ $ 924 $ 537 $ 1,262 $ 611 $1,255
====== ====== ======= ====== ======
Net income per share:
Basic............................... $ 0.08 $ 0.05 $ 0.11 $ 0.05 $ 0.11
====== ====== ======= ====== ======
Diluted............................. $ 0.08 $ 0.04 $ 0.10 $ 0.05 $ 0.10
====== ====== ======= ====== ======
Weighted average shares outstanding
Basic............................... 11,429 11,429 11,429 11,429 11,487
====== ====== ======= ====== ======
Diluted............................. 11,606 12,063 12,067 12,181 12,406
====== ====== ======= ====== ======
</TABLE>

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

F-4
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

For the Six Month Period Ended June 30, 2000 and Year Ended
December 31, 1999, 1998 and 1997
(in thousands, except share data)

<TABLE>
<CAPTION>
Common Stock Additional Deferred
----------------- Paid-In Stock-Based Retained
Shares Amount Capital Compensation Earnings Total
---------- ------ ---------- ------------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance as of December
31, 1996............... 11,428,564 $11 $1,009 $ -- $ 27 $1,047
Net income............ -- -- -- -- 924 924
---------- --- ------ ------- ------ ------
Balance as of December
31, 1997............... 11,428,564 11 1,009 -- 951 1,971
Deferred stock-based
compensation......... -- -- 1,448 (1,448) -- --
Amortization of
deferred stock-based
compensation......... -- -- -- 694 -- 694
Net income............ -- -- -- -- 537 537
---------- --- ------ ------- ------ ------
Balance as of December
31, 1998............... 11,428,564 11 2,457 (754) 1,488 3,202
Deferred stock-based
compensation......... -- -- 2,585 (2,585) -- --
Amortization of
deferred stock-based
compensation......... -- -- -- 1,563 -- 1,563
Net income............ -- -- -- -- 1,262 1,262
---------- --- ------ ------- ------ ------
Balance as of December
31, 1999............... 11,428,564 11 5,042 (1,776) 2,750 6,027
Exercise of common
stock options........ 235,500 1 102 -- -- 103
Deferred stock-based
compensation......... -- -- 550 (550) -- --
Amortization of
deferred stock-based
compensation......... -- -- -- 884 -- 884
Net income............ -- -- -- -- 1,255 1,255
---------- --- ------ ------- ------ ------
Balance as of June 30,
2000................... 11,664,064 $12 $5,694 $(1,442) $4,005 $8,269
========== === ====== ======= ====== ======
</TABLE>

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

F-5
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
Year Ended December Six Month Period
31, Ended June 30,
----------------------- -------------------
1997 1998 1999 1999 2000
------ ------ ------- ----------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income...................... $ 924 $ 537 $ 1,262 $ 611 $ 1,255
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization.. 24 44 88 43 57
Provision for doubtful
accounts...................... 40 -- 18 -- 21
Amortization of deferred stock-
based compensation............ -- 694 1,563 444 884
Loss on disposal of property
and equipment................. -- -- 9 -- --
Changes in assets and
liabilities:
Accounts receivable.......... 45 (581) (1,150) (981) (826)
Inventories.................. (186) (115) (300) (165) (286)
Deferred tax assets.......... -- -- (250) (184) (726)
Other assets................. 12 5 10 12 (219)
Accounts payable............. 49 72 135 275 168
Accrued expenses............. 486 (104) 749 227 232
Deferred revenue............. -- -- -- -- 1,726
Deferred rent................ -- -- 19 19 (4)
------ ------ ------- ------ -------
Net cash provided by
operating activities...... 1,394 552 2,153 301 2,282
------ ------ ------- ------ -------
Cash flows from investing
activities:
Acquisition of property and
equipment...................... (58) (153) (173) (111) (136)
Purchase of short-term
investments.................... -- -- -- -- (1,161)
Other assets.................... -- -- -- -- (125)
------ ------ ------- ------ -------
Net cash used in investing
activities................ (58) (153) (173) (111) (1,422)
------ ------ ------- ------ -------
Cash flows from financing
activities:
Proceeds from exercise of stock
options........................ -- -- -- -- 103
------ ------ ------- ------ -------
Net cash provided by
financing activities...... -- -- -- -- 103
------ ------ ------- ------ -------
Net increase in cash and cash
equivalents..................... 1,336 399 1,980 190 963
Cash and cash equivalents at
beginning of period............. 480 1,816 2,215 2,215 4,195
------ ------ ------- ------ -------
Cash and cash equivalents at end
of period....................... $1,816 $2,215 $ 4,195 $2,405 $ 5,158
====== ====== ======= ====== =======
Supplemental information:
Cash paid for income taxes....... $ 137 $ 877 $ 1,063 $ 855 $ 1,625
====== ====== ======= ====== =======
</TABLE>

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

F-6
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--THE COMPANY:

Computer Access Technology Corporation (the "Company") was incorporated in
California in February 1992. The Company will reincorporate in Delaware prior
to the effectiveness of its initial public offering (see Note 10). The Company
designs, manufactures and markets advanced verification systems and
connectivity products for existing and emerging digital communications
standards such as Universal Serial Bus and IEEE 1394, Bluetooth wireless
technology and Ethernet for semiconductor, device, system and software
companies in the United States, Europe and Asia.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of presentation

The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary. All intercompany transactions have
been eliminated in consolidation.

Use of estimates

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
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity
of three months or less when purchased to be cash equivalents. Cash equivalents
consist principally of investments in money market funds.

Short-term investments

The Company accounts for short-term investment in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain
Investments in Debt and Equity Securities." Debt and equity securities are
classified as available-for-sale securities and are reported at fair market
value with any unrealized holding gains and losses excluded from current
earnings and reported in stockholders' equity. As of June 30, 2000, there was
no significant difference between the cost of investments and their fair market
value.

Revenue recognition

The Company has adopted Statement of Position ("SOP") 97-2, Software Revenue
Recognition. Under SOP 97-2, the Company recognizes revenue to re-sellers and
end-users upon shipment provided that there is persuasive evidence of an
arrangement, the product has been delivered, the fee is fixed and determinable,
and collection of the resulting receivable is probable. When the Company has
shipped a product but certain elements essential to the functionality of the
product have not been completed, revenue and associated cost of revenue are
deferred until such time that all remaining elements have been delivered.
Provisions for warranty costs are recorded at the time products are shipped.

F-7
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Fair value of financial instruments

The reported amounts of certain of the Company's financial instruments
including cash and cash equivalents, short-term investments, receivables,
accounts payable and accrued expenses approximate fair value due to their short
maturities.

Inventories

Inventories are stated at lower of cost, determined using the first-in,
first-out method, or market value.

Property and equipment

Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, which is
three years for computers and software, and five years for all other assets.

Research and development

Research and development costs are charged to operations as incurred.

Software development costs incurred prior to the establishment of
technological feasibility are included in research and development and are
expensed as incurred. Costs incurred subsequent to the establishment of
technological feasibility through the period of general market availability of
the product are capitalized, if material. To date, all software development
costs have been expensed as incurred.

Income taxes

The Company accounts for income taxes under the liability method, which
requires, among other things, that deferred income taxes be provided for
temporary differences between the tax bases of the Company's assets and
liabilities and their financial statement reported amounts. In addition,
deferred tax assets are recorded for the future benefit of utilizing net
operating losses and research and development credit carryforwards. A valuation
allowance is provided against deferred tax assets unless it is more likely than
not that they will be realized.

Advertising and promotional costs

Advertising and promotional costs are charged to operations as incurred.
Advertising and promotional costs for the year ended December 31, 1997, 1998
and 1999, and for the six month period ended June 30, 1999 (unaudited) and 2000
were $65,000, $136,000, $156,000, $54,000 and $191,000, respectively.

Concentrations of credit risk

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents,
short-term investments and accounts receivable. The Company limits its exposure
to loss by placing its cash and cash equivalents with financial institutions in
the United States and Israel. The Company has not experienced any losses on its
deposits of cash and cash equivalents. The Company performs ongoing credit
evaluations of its customers' financial condition and historically has not
experienced significant bad debts related to accounts receivable.

F-8
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Revenue and accounts receivable of the customers comprising more than 10% of
revenues or receivables are summarized as follows:

<TABLE>
<CAPTION>
Year Ended Six Month Period
December 31, Ended June 30,
---------------- ----------------
1997 1998 1999 1999 2000
---- ---- ---- ----------- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Company A.................................. 17% 22% 19% 18% 13%
Company B.................................. 17% 12% 7% 17% 6%

Accounts receivable:
Company A.................................. 21% 29% 15% 41% 15%
Company B.................................. 20% 14% 13% 16% 14%
</TABLE>

Comprehensive income

Comprehensive income is defined as changes in equity of a company from
transactions, other events and circumstances, excluding transactions resulting
from investments by owners and distributions to owners. There is no difference
between net income and comprehensive income for the Company for all periods
presented.

Foreign currency translation

The functional currency of the Company's foreign subsidiary is the U.S.
dollar. All assets and liabilities denominated in foreign currency are
translated into U.S. dollars at the exchange rate on the balance sheet date.
Revenue, costs and expenses are translated at the average rates of exchange
prevailing during the period. Gains and losses resulting from foreign currency
translations and transactions are included in the consolidated statements of
income and have not been significant.

Net income per share

The Company computes net income per share in accordance with SFAS No. 128,
Earnings per Share, and SEC Staff Accounting Bulletin ("SAB") No. 98. Under the
provisions of SFAS No. 128 and SAB No. 98, basic net income per share is
computed by dividing the net income available to holders of common stock for
the period by the weighted average number of shares of common stock outstanding
during the period. The calculation of diluted net income per share excludes
potential common stock if their effect is antidilutive. Potential common stock
consists of incremental common shares issuable upon the exercise of stock
options.

F-9
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table sets forth the computation of basic and diluted net
income per share of the period indicated (in thousands except per share data):

<TABLE>
<CAPTION>
Year Ended December Six Month Period
31, Ended June 30,
-------------------- ------------------
1997 1998 1999 1999 2000
------ ------ ------ ----------- ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income............................ $ 924 $ 537 $1,262 $ 611 $1,255
====== ====== ====== ====== ======
Denominator:
Weighted average shares outstanding... 11,429 11,429 11,429 11,429 11,487
Denominator for basic calculation..... 11,429 11,429 11,429 11,429 11,487
Dilutive effect of stock options...... 177 634 638 752 919
------ ------ ------ ------ ------
Denominator for diluted calculation... 11,606 12,063 12,067 12,181 12,406
====== ====== ====== ====== ======
Net income per share:
Basic................................. $ 0.08 $ 0.05 $ 0.11 $ 0.05 $ 0.11
====== ====== ====== ====== ======
Net income per share:
Diluted............................... $ 0.08 $ 0.04 $ 0.10 $ 0.05 $ 0.10
====== ====== ====== ====== ======
</TABLE>

Stock-based compensation

The Company measures stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion ("APB") No.
25, Accounting for Stock Issued to Employees, and recognizes the related
expense in accordance with Financial Accounting Standards Board Interpretation
("FIN") No. 28, Accounting for Stock Appreciation Rights and Other Variable
Stock Option or Award Plans. The Company has adopted the disclosure provisions
of SFAS No. 123, Accounting for Stock-Based Compensation. Under APB No. 25,
compensation expense is based on the difference, if any, on the date of grant,
between the fair value of the Company's common stock and the exercise price.
SFAS 123 defines a "fair value" based method of accounting for an employee
stock option or similar equity investment. The pro forma disclosures of the
difference between the compensation expense included in net income and the
related cost measured by the fair value method are presented in Note 4.

Interim results

The interim consolidated financial statements as of June 30, 2000 and for the
six month period ended June 30, 1999 (unaudited) and 2000 have been prepared on
the same basis as the annual consolidated financial statements as of December
31, 1999 and, in the opinion of management, reflect all adjustments, which
include only normal recurring adjustments, necessary to present fairly the
Company's consolidated financial position as of June 30, 2000 and its results
of operations and cash flows for the six month period ended June 30, 1999
(unaudited) and 2000. The results for the six month period ended June 30, 2000
are not necessarily indicative of the results to be expected for the year
ending December 31, 2000.

Recent accounting pronouncements

F-10
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

accounting standards. SFAS No. 133 requires that all derivatives be recognized
in the balance sheet at their fair market value and the corresponding
derivative gains or losses be either reported in the statement of operations or
as a deferred item depending on the type of hedge relationship that exists with
respect to such derivatives. In July 1999, the Financial Accounting Standards
Board issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133. SFAS No.
137 deferred the effective date until fiscal years commencing after June 15,
2000. In June 2000, the FASB issued SFAS 138 Accounting for Certain Derivative
Instruments and Certain Hedging Activities - An Amendment of FASB Statement No.
133 which deferred the effective date of SFAS 133 until the quarter ending
March 31, 2001. Accordingly, the Company will adopt SFAS No. 133 in its quarter
ending March 31, 2001 and has not determined whether the adoption of this
pronouncement will have a material impact on its consolidated financial
condition or consolidated results of operations.

In December 1999, the Securities and Exchange Commission issued SAB No. 101,
Revenue Recognition in Financial Statements ("SAB 101"). SAB 101 summarizes
certain areas of the Staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. In June 2000, the
SEC issued SAB No. 101B to defer the effective date for implementation of SAB
101 until the fourth quarter of fiscal 2000. The Company believes that its
current revenue recognition policies comply with SAB 101.

In March 2000, the Financial Accounting Standards Board 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 Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), the
criteria for determining whether a plan qualifies as a noncompensatory plan,
the accounting consequence of various 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 combination. This Interpretation is
effective July 1, 2000, but certain conclusions in this Interpretation cover
specific events that occur after either December 15, 1998, or January 12, 2000.
The Company believes that FIN 44 will not have a material effect on the
consolidated financial position or consolidated results of operations.

Segment information

The Company identifies its operating segments based on business activities
and geographical location. For all periods presented, the Company operated in
three segments: development products, production products and connectivity
products. See Note 9 for disclosure of segment information.

NOTE 3--BALANCE SHEET COMPONENTS:

Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
December
31, June 30,
--------- --------
1998 1999 2000
---- ---- --------
<S> <C> <C> <C>
Raw materials................................................ $49 $137 $305
Work in progress............................................. 1 79 161
Finished goods............................................... 323 457 493
---- ---- ----
$373 $673 $959
==== ==== ====
</TABLE>

F-11
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
December 31,
--------------------- June 30,
1998 1999 2000
--------- ----------- ---------
<S> <C> <C> <C>
Computers and equipment......................... $246 $363 $480
Furniture and fixtures.......................... 18 65 84
----- ------ ------
264 428 564
Less: Accumulated depreciation.................. (85) (173) (230)
----- ------ ------
$179 $255 $334
===== ====== ======

Accrued expenses consist of the following (in thousands):

<CAPTION>
December 31,
--------------------- June 30,
1998 1999 2000
--------- ----------- ---------
<S> <C> <C> <C>
Income taxes payable............................ $308 $ 956 $ 658
Employee benefits and other..................... 181 282 812
----- ------ ------
$489 $1,238 $1,470
===== ====== ======

NOTE 4--STOCK OPTION PLAN:

In 1994, the Company adopted the 1994 Stock Option Plan (the "Plan") under
which shares of the Company's common stock are reserved for issuance to
employees and consultants. The Company had reserved a total of 2,200,000 shares
of common stock for issuance under the Plan. Options issued under the Plan vest
over four years (in thousands, except per share data):

<CAPTION>
Weighted-
Options Average
Available Options Exercise
for Grant Outstanding Price
--------- ----------- ---------
<S> <C> <C> <C>
Balance, December 31, 1996.................... 1,978 222 $ 0.36
Options granted............................. (404) 404 $ 0.44
Options granted............................. 60 (60) $ 0.38
----- ------
Balance, December 31, 1997.................... 1,634 566 $ 0.41
Options granted............................. (461) 461 $ 0.50
Options canceled............................ 13 (13) $ 0.44
----- ------
Balance, December 31, 1998.................... 1,186 1,014 $ 0.45
Options granted............................. (496) 496 $ 0.74
Options canceled............................ 144 (144) $ 0.46
----- ------
Balance, December 31, 1999.................... 834 1,366 $ 0.55
Options granted............................. (47) 47 $ 1.00
Options exercised........................... -- (236) $ 0.44
Options canceled............................ 92 (92) $ 0.69
----- ------
Balance, June 30, 2000........................ 879 1,085 $ 0.58
===== ======
</TABLE>

F-12
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Significant option groups outstanding as of June 30, 2000, and related
weighted average exercise price and contractual life information are as
follows:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------- -----------------------------
Weighted-
Average
Remaining
Contractual
Exercise Number of Life Number of Exercise
Price Shares (Years) Shares Price
-------- --------- ----------- --------- --------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
$0.34 38 5.52 37 $0.34
$0.38 52 6.16 50 $0.38
$0.44 413 7.64 263 $0.44
$0.60 158 8.33 77 $0.60
$0.75 377 9.05 99 $0.75
$1.00 47 10.00 -- $1.00
----- ---
1,085 526
===== ===
</TABLE>

Stock-based compensation

In connection with certain stock option grants in 1998, 1999 and 2000, the
Company recorded deferred stock-based compensation costs totaling $4,583,000
being the difference between the exercise price and the deemed fair value at
the date of grant, which is being recognized over the vesting period of the
related options. Future amortization of deferred compensation expense on grants
prior to June 30, 2000 is estimated to be approximately $578,000, $610,000,
$222,000, and $32,000 and in the six month period ending December 31, 2000 and
the year ending December 31, 2001, 2002 and respectively, and may change due to
the granting of additional options in future periods.

Fair value disclosures

The weighted average fair value of options granted during the year ended
December 31, 1997, 1998 and 1999, and the six month period ended June 30, 1999
(unaudited) and 2000, under the Company's stock option plan was $0.10, $2.76,
$5.13, $4.55 and $10.55 per option, respectively. In determining the fair value
of options granted in each of the periods, the Company used the minimum value
option pricing model and assumed the following:

<TABLE>
<CAPTION>
Six Month Period Ended
Year Ended December 31, June 30,
--------------------------------- -----------------------
1997 1998 1999 1999 2000
--------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Expected life (in
years)................. 4 4 4 4 4
Risk-free interest
rate................... 5.7%-6.6% 4.62%-5.77% 4.18%-5.84% 4.18%-5.44% 5.97%-6.58%
Volatility.............. 0% 0% 0% 0% 0%
Dividend yield.......... 0% 0% 0% 0% 0%
</TABLE>

Had compensation costs been determined based upon the fair value at the grant
date for awards under these plans, consistent with the methodology prescribed
under SFAS No. 123, the Company's

F-13
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

pro forma net income and pro forma basic and diluted net income per share under
SFAS No. 123 would have been (in thousands, except per share data):

<TABLE>
<CAPTION>
Year Ended December Six Month Period
31, Ended June 30,
-------------------- ------------------
1997 1998 1999 1999 2000
------ ------ ------ ----------- ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net income
As reported....................... $ 924 $ 537 $1,262 $ 611 $1,255
Pro forma......................... $ 910 $ 495 $1,222 $ 590 $1,232
Net income per share, as reported
Basic............................. $0.08 $0.05 $ 0.11 $0.05 $ 0.11
Diluted........................... $0.08 $0.04 $ 0.10 $0.05 $ 0.10
Net income per share, pro forma
Basic............................. $0.08 $0.04 $ 0.11 $0.05 $ 0.11
Diluted........................... $0.08 $0.04 $ 0.10 $0.05 $ 0.10
</TABLE>

NOTE 5--EMPLOYEE BENEFIT PLANS

In January 1996, the Company adopted the Computer Access Technology
Corporation 401(k) Profit Sharing Plan (the "401(k) Plan") covering full-time
employees located in the United States. The 401(k) Plan is intended to qualify
under Section 401(a) of the Internal Revenue Code, so that contributions to the
401(k) Plan by employees or by the Company and the investment earnings thereon,
are not taxable to employees until withdrawn from the 401(k) Plan and so that
the Company can deduct contributions, if any, when made. Pursuant to the 401(k)
Plan, employees may elect to reduce their current compensation by up to the
statutorily prescribed annual limit ($10,500 in 2000) and to have the amount of
such reduction contributed to the 401(k) Plan. The 401(k) Plan permits, but
does not require, that the Company provides additional matching contributions
to the 401(k) Plan on behalf of all participants in the 401(k) Plan. In the
year ended December 31, 1997, 1998 and 1999, and the six month period ended
June 30, 1999 (unaudited) and 2000 the Company made contributions of $53,000,
$104,000, $162,000, $40,000 and $46,000, respectively.

NOTE 6--INCOME TAXES:

The provision for income taxes included the following (in thousands):

<TABLE>
<CAPTION>
Year Ended Six Month Period
December 31, Ended June 30,
-------------------- ------------------
1997 1998 1999 1999 2000
----- ----- ------ ----------- ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Federal:
Current.......................... $ 527 $ 619 $1,515 $567 $1,620
Deferred......................... 109 116 361 131 431
----- ----- ------ ---- ------
636 735 1,876 698 2,051
----- ----- ------ ---- ------
State:
Current.......................... (77) (23) (110) (39) (623)
Deferred......................... (3) (4) (6) (3) (103)
----- ----- ------ ---- ------
(80) (27) (116) (42) (726)
----- ----- ------ ---- ------
$ 556 $ 708 $1,760 $656 $1,325
===== ===== ====== ==== ======
</TABLE>

F-14
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The reconciliation between the effective tax rates and statutory federal
income tax rates is shown in the following table:

<TABLE>
<CAPTION>
Year Ended Six Month Period
December 31, Ended June 30,
---------------- ----------------
1997 1998 1999 1999 2000
---- ---- ---- ----------- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Statutory federal income tax rate...... 34.0% 34.0% 34.0% 34.0% 34.0%
State taxes, net of federal income tax
benefit............................... 4.7 3.8 7.7 6.6 7.0
Amortization of deferred stock-based
compensation.......................... -- 20.2 17.6 12.4 11.6
Other.................................. (1.1) (1.1) (1.1) (1.2) (1.2)
---- ---- ---- ---- ----
Effective tax rate................... 37.6% 56.9% 58.2% 51.8% 51.4%
==== ==== ==== ==== ====

The significant components of deferred tax assets and liabilities consist of
the following (in thousands):

<CAPTION>
December
31, June 30,
---------- ----------------
1998 1999 1999 2000
---- ---- ----------- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Deferred tax assets:
Accrued expenses.......................... $ 5 $234 $168 $269
Allowance for doubtful accounts........... 16 23 20 31
Deferred revenue.......................... -- -- -- 685
---- ---- ---- ----
21 257 188 985
---- ---- ---- ----
Deferred tax liabilities:
Depreciation and amortization............. (21) (7) (4) (9)
---- ---- ---- ----
$ -- $250 $184 $976
==== ==== ==== ====
</TABLE>

The Company has not provided a valuation allowance for its net deferred tax
assets as it expects such amounts to be realized through taxable income from
future operations, or by carryback to prior years' taxable income.

NOTE 7--RELATED PARTY TRANSACTIONS:

The Company had sales to Philips Semiconductors, a stockholder, and its
affiliates totaling $144,000, $49,000, $95,000, $22,000 and $71,000 (deferred
at period end) in the year ended December 31, 1997, 1998, 1999 and six month
period ended June 30, 1999 (unaudited) and 2000, respectively. At the end of
each period the Company had receivable balances with Philips Semiconductors of
$26,000, $83,000, $95,000, $22,000 and $71,000, respectively. The stockholder
has a right of first refusal to purchase a pro rata share of any new securities
issued by the Company at the same price per share offered to any other entity.
This right terminates immediately prior to the closing of an initial public
offering with aggregate proceeds in excess of $5 million or in the event the
stockholder's ownership percentage ceases to be at least 15% of the Company's
outstanding common stock.

F-15
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 8--COMMITMENTS:

Purchase commitments

As of June 30, 2000, the Company had approximately $301,000 in noncancelable
purchase commitments with suppliers. The Company expects to sell all products
which it has committed to purchase from suppliers.

Leases

The Company leases its office facilities under a noncancelable operating
lease which expires in December 2001. Rent expense for the year ended December
31, 1997, 1998 and 1999, and the six month period ended June 30, 1999
(unaudited) and 2000 was $208,000, $220,000, $221,000, $111,000 and $111,000,
respectively.

Future minimum lease payments under the noncancelable facilities lease are as
follows (in thousands):

<TABLE>
<CAPTION>
Operating
Period Ending June 30, Leases
---------------------- ---------
<S> <C>
2001......................................................... $114
2002......................................................... 235
----
Total minimum payments..................................... $349
====
</TABLE>

NOTE 9--REPORTABLE SEGMENTS AND GEOGRAPHIC INFORMATION:

The Company has three reportable segments categorized by product type:
development products, production products and connectivity products. The
development products are advanced verification systems that assist hardware and
software manufacturers in the efficient design of reliable and interoperable
systems and devices. Production products are production verification systems
and connectivity solutions designed to assist hardware and software
manufacturers in volume production of reliable devices and systems.
Connectivity products are designed to assist both broadband Internet service
providers in delivering convenient and dependable service and device
manufacturers in producing reliable products. The Company has no inter-segment
revenue.

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company analyses segment
revenue and cost of revenue, but does not allocate operating expenses,
including stock-based compensation, or assets to segments. Accordingly, the
Company has presented revenue and gross profit by segment only.

F-16
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Information about segments (in thousands):

<TABLE>
<CAPTION>
Unallocated
stock-based
Development Production Connectivity compensation
Products Products Products expense Total
----------- ---------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1997
Segment revenue from
external customers... $2,396 $1,720 $ 53 $ -- $ 4,169
Segment gross profit.. $2,134 $1,256 $ 15 $ -- $ 3,405
Year Ended December 31,
1998
Segment revenue from
external customers... $3,708 $2,765 $ 298 $ -- $ 6,771
Segment gross profit.. $3,435 $2,054 $ 87 $(242) $ 5,334
Year Ended December 31,
1999
Segment revenue from
external customers... $6,204 $4,593 $1,709 $ -- $12,506
Segment gross profit.. $5,521 $3,476 $ 616 $(243) $ 9,370
Six Month Period Ended
June 30, 1999
(unaudited)
Segment revenue from
external customers... $2,533 $2,371 $ 385 $ -- $ 5,289
Segment gross profit.. $2,295 $1,763 $ 93 $ (99) $ 4,052
Six Month Period Ended
June 30, 2000
Segment revenue from
external customers... $4,028 $2,757 $1,997 $ -- $ 8,782
Segment gross profit.. $3,554 $2,311 $ 861 $(112) $ 6,614
</TABLE>

F-17
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Geographic information (in thousands):

<TABLE>
<CAPTION>
Long-Lived
Revenue Assets
------- ----------
<S> <C> <C>
Year Ended December 31, 1997
North America.............................................. $ 2,304 $ 70
Europe..................................................... 348 --
Asia....................................................... 1,492 --
Rest of world.............................................. 25 --
------- ----
Total.................................................... $ 4,169 $ 70
======= ====
Year Ended December 31, 1998
North America.............................................. $ 3,881 $179
Europe..................................................... 626 --
Asia....................................................... 2,169 --
Rest of world.............................................. 95 --
------- ----
Total.................................................... $ 6,771 $179
======= ====
Year Ended December 31, 1999
North America.............................................. $ 7,201 $255
Europe..................................................... 1,509 --
Asia....................................................... 3,562 --
Rest of world.............................................. 234 --
------- ----
Total.................................................... $12,506 $255
======= ====
Six Month Period Ended June 30, 1999 (unaudited)
North America.............................................. $ 3,172 $248
Europe..................................................... 694 --
Asia....................................................... 1,338 --
Rest of world.............................................. 85 --
------- ----
Total.................................................... $ 5,289 $248
======= ====
Six Month Period Ended June 30, 2000
North America.............................................. $ 5,851 $330
Europe..................................................... 1,067 4
Asia....................................................... 1,772 --
Rest of world.............................................. 92 --
------- ----
Total.................................................... $ 8,782 $334
======= ====
</TABLE>

Revenues are attributed to countries based on delivery locations. Sales to
foreign customers accounted for 45%, 43%, 42%, 41% and 33% of revenue during
the year ended December 31, 1997, 1998 and 1999, and the six month period ended
June 30, 1999 (unaudited) and 2000, respectively.

NOTE 10--SUBSEQUENT EVENTS:

Initial public offering

In August 2000, the Company's Board of Directors authorized management to
file a registration statement with the Securities and Exchange Commission to
permit the Company to sell shares of its common stock to the public.

F-18
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Reincorporation

In August 2000, the Company's Board of Directors authorized the
reincorporation of the Company in the State of Delaware prior to the
effectiveness of the offering referred to above.

As a result of the reincorporation, the Company is authorized to issue
100,000,000 shares of $0.001 par value common stock and 25,000,000 shares of
$0.001 par value preferred stock. The par value and shares of common stock in
the accompanying financial statements have been retroactively adjusted to
reflect the reincorporation.

In August 2000, the Board of Directors adopted the 2000 Stock Incentive Plan,
and the 2000 Employee Stock Purchase Plan. Upon approval of these plans and the
signing of the underwriting agreement 3,850,000 and 250,000 shares will be
reserved for issuance under the 2000 Stock Incentive Plan and the 2000 Employee
Stock Purchase Plan, respectively.

F-19
<PAGE>

[LOGO]
<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 and commissions, 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 fees and the Nasdaq National Market listing
fee.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................. $13,814
NASD filing fee..................................................... 5,733
Nasdaq National Market initial listing fee.......................... 5,000
Printing and engraving expenses.....................................
Legal fees and expenses............................................. *
Accounting fees and expenses........................................ *
Blue sky fees and expenses..........................................
Transfer agent and registrar fees and expenses......................
Miscellaneous....................................................... *
-------
Total............................................................. *
</TABLE>
--------
* To be provided 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 to grant, indemnity to directors and officers
in terms sufficiently broad to permit such indemnification under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act of 1933, as amended (the "Securities Act").

As permitted by the Delaware General Corporation Law, the Registrant's
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty as
a director, except for liability:

. for any breach of the director's duty of loyalty to the Registrant or its
stockholders;

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

. under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or

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

As permitted by the Delaware General Corporation Law, the Registrant's Bylaws
provide that:

. the Registrant is required to indemnify its directors and officers to the
fullest extent permitted by the Delaware General Corporation Law, subject
to certain very limited exceptions;

. the Registrant may indemnify its other employees and agents to the
fullest extent permitted by the Delaware General Corporation Law, subject
to very limited exceptions;

. the Registrant is required to advance expenses, as incurred, to its
directors and officers in connection with a legal proceeding;

II-1
<PAGE>

. the Registrant may advance expenses, as incurred, to its employees and
agents in connection with a legal proceeding; and

. the rights conferred in the Bylaws are not exclusive.

The Registrant has entered into Indemnification Agreements with each of its
current directors and executive officers to give such directors and officers
additional contractual assurances regarding the scope of the indemnification
set forth in the Registrant's Certificate of Incorporation and to provide
additional procedural protections. At present, there is no pending litigation
or proceeding involving a director, officer or employee of the Registrant
regarding which indemnification is sought, nor is the Registrant aware of any
threatened litigation that may result in claims for indemnification.

Reference is also made to Section 7 of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling persons
of the Registrant against certain liabilities. The indemnification provision in
the Registrant's Certificate of Incorporation, Bylaws and the Indemnification
Agreements entered into between the Registrant and each of its directors and
officers may be sufficiently broad to permit indemnification of the
Registrant's directors and officers for liabilities arising under the
Securities Act.

The Registrant maintains directors' and officers' liability insurance and
expects to obtain a rider to such coverage for securities matters.

See also the undertakings set out in response to Item 17.

Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:

<TABLE>
<CAPTION>
Exhibit Document Number
---------------- ------
<S> <C>
Form of Underwriting Agreement........................................... 1.1
Registrant's Certificate of Incorporation................................ 3.1
Registrant's Bylaws...................................................... 3.2
Form of Indemnification Agreement........................................ 10.1
</TABLE>

Item 15. Recent Sales of Unregistered Securities

In the three years prior to the effective date of this Registration
Statement, the Registrant has issued and sold the following unregistered
securities:

(1) From 1995 through August 2000, we granted stock options to acquire an
aggregate of 2,025,500 shares of our common stock at prices ranging from $0.375
to $2.50 per share to employees and directors pursuant to our 1994 stock option
plan and 2000 stock option/stock incentive plan. As of August 15, 2000, we have
issued 316,447 shares of our common stock to employees and directors pursuant
to the exercise of stock options.

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

II-2
<PAGE>

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 a part of this
registration statement.

(a) Exhibits

<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.

3.1* Form of Amended and Restated Certificate of Incorporation of the
Registrant.

3.2* Bylaws of the Registrant.

4.1* Specimen Certificate of the Registrant's common stock.

5.1 Opinion of Brobeck, Phleger & Harrison LLP, counsel to the
Registrant.

10.1 Form of Indemnification Agreement entered into between the
Registrant and its directors and executive officers.

10.2* 1994 Stock Option Plan, as amended.

10.3* 2000 Stock Option/Stock Issuance Plan.

10.4* 2000 Stock Incentive Plan.

10.5* 2000 Employee Stock Purchase Plan.

10.6* Office Lease for Santa Clara facility, dated October 3, 1996, by
and between Talus Corporation, a California corporation, and the
Registrant.

10.7* Office Lease for San Diego facility, dated July 20, 2000, by and
between Scripps Corporate Plaza, LLC, a Delaware limited liability
company, and the Registrant.

10.8* [Office Lease for Israel facility, dated , by and
between and the Registrant.]

10.9 Promissory Note, dated May 11, 2000, by and between Albert Lee and
the Registrant.

10.10 Security Agreement, dated May 11, 2000, by and between Albert Lee
and the Registrant.

10.11* Distributor Agreement, dated August 13, 1997, by and between Toyo
Corporation and the Registrant.

10.12* Employment Agreement dated December 5, 1997, by and between Albert
Lee and the Registrant.

10.13* Employment Agreement dated January 8, 1998, by and between
Shrikumar Chandran and the Registrant.

10.14* Employment Agreement dated March 3, 1999, by and between Joseph
Mendolia and the Registrant.

10.15* Employment Agreement dated May 1, 2000, by and between Dennis
Evans and the Registrant.

10.16* Common Stock Purchase Agreement dated March 15, 1994, by and
between Philips Semiconductors, a division of Philips Electronics
North American Corporation, and the Registrant.

23.1 Consent of Independent Accountants

23.2 Consent of Brobeck, Phleger & Harrison LLP, counsel to the
Registrant. Reference is made to Exhibit 5.1.

24.1 Power of Attorney (see signature page hereto).

27.1 Financial Data Schedule.
</TABLE>
--------
* To be supplied by amendment.

II-3
<PAGE>

(b) Financial Statement Schedule

S-1 Schedule II--Valuation and Qualifying Accounts

Item 17. Undertakings

The undersigned Registrant hereby undertakes 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 directors, officers and controlling persons of the
Registrant pursuant to the provision described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange 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
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant 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 hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is 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 the Registrant 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;
and

(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, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santa Clara, State of
California, on this 16th day of August, 2000.

COMPUTER ACCESS TECHNOLOGY
CORPORATION

/s/ Dan Wilnai
By: _________________________________
Dan Wilnai,
President and Chief Executive
Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints, jointly and severally, Dan Wilnai and
Dennis Evans and each of them, his true and lawful attorneys-in-fact and
agents, each with full power of substitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to sign any
registration statement for the same offering covered by the Registration
Statement that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act and all post-effective amendments thereto
and to file the same, with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming that each of said
attorneys-in-fact and agents or any of them, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:

<TABLE>
<CAPTION>
Name Title Date
---- ----- ----

<S> <C> <C>
Principal Executive Officer:

/s/ Dan Wilnai President, Chief Executive August 16, 2000
____________________________________ Officer, Chairman of the
Dan Wilnai Board of Directors

Principal Financial Officer and
Principal Accounting Officer:

/s/ Dennis W. Evans Vice President, Chief August 16, 2000
____________________________________ Financial Officer and
Dennis W. Evans Secretary
</TABLE>

II-5
<PAGE>

<TABLE>
<CAPTION>
Name Title Date
---- ----- ----

<S> <C> <C>
Additional Directors

/s/ Peretz Tzarnotsky Director August 16, 2000
____________________________________
Peretz Tzarnotzky

/s/ Philip Pollok Director August 16, 2000
____________________________________
Philip Pollok
</TABLE>

II-6
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE

In connection with our audits of the consolidated financial statements of
Computer Access Technology Corporation as of December 31, 1997, 1998, 1999 and
June 30, 2000, each of the three years in the period ended December 31, 1999,
and the six month period ended June 30, 2000, which financial statements are
included in the Prospectus, we have also audited the financial statement
schedule listed in Item 16 herein.

In our opinion, this financial statement schedule when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information required to be included therein.

PricewaterhouseCoopers LLP

San Jose, California
August 3, 2000

S-1
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

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

<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions Period
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997:
Allowance for doubtful
accounts....................... -- 40 -- 40

Year Ended December 31, 1998:
Allowance for doubtful
accounts....................... 40 -- -- 40

Year Ended December 31, 1999:
Allowance for doubtful
accounts....................... 40 37 (19) 58

Six Month Period Ended June 30,
2000:
Allowance for doubtful
accounts....................... 58 21 -- 79
</TABLE>

S-2
<PAGE>

EXHIBIT INDEX