COMPUTER ACCESS TECHNOLOGY CORP, 424B1, 2000-11-13

COMPUTER ACCESS TECHNOLOGY CORP
424B1, 2000-11-13
INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS

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FILED PURSUANT TO RULE 424(B)(1)
REGISTRATION STATEMENT NO. 333-43866

[COMPUTER ACCESS TECHNOLOGY CORPORATION LOGO]

3,500,000 Shares

Common Stock

Computer Access Technology Corporation is offering 3,500,000 shares of
its common stock. This is our initial public offering and no public market
currently exists for our shares. Our common stock has been approved for
quotation on the Nasdaq National Market under the symbol "CATZ."

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

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

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<TABLE>
<CAPTION>
Per
Share Total
------ -----
<S> <C> <C>
Public Offering Price.................................... $12.00 $42,000,000
Underwriting Discounts and Commissions................... $ 0.84 $ 2,940,000
Proceeds to Computer Access Technology Corporation....... $11.16 $39,060,000
</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 525,000 shares of common stock
to cover over-allotments.

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Robertson Stephens

CIBC World Markets

SG Cowen

Needham & Company, Inc.

The date of this Prospectus is November 10, 2000.
<PAGE>

[Description of Inside Cover Graphics]

The background of the inside front cover page of the prospectus is a graphic
likeness of the CATC Trace screen. The CATC logo is centered at the top of the
page. Below and to the left of the CATC logo is the Bluetooth wireless
technology standard logo. Below the Bluetooth logo is the USB standard logo.
Below the USB logo is a photograph of the CATC Merlin analyzer. Below and to
the right of the CATC logo is a photograph of a CATC Trace screen. A graphic,
depicting the projection of the CATC Trace screen from the Merlin analyzer,
extends from the Merlin photograph to the CATC Trace screen photograph. Below
the CATC Trace screen is the IEEE 1394 standard logo. On the bottom of the
inside front cover page is centered text that reads "Enabling Global
Connectivity."
<PAGE>

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

Until December 5, 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 dealers' obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.

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TABLE OF CONTENTS

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Page
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<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 8
Note Regarding Forward-Looking Statements................................ 19
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 20
Capitalization........................................................... 21
Dilution................................................................. 22
Selected Consolidated Financial Data..................................... 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 35
Management............................................................... 48
Related Party Transactions............................................... 60
Principal Stockholders................................................... 63
Description of Capital Stock............................................. 64
Shares Eligible for Future Sale.......................................... 68
Underwriting............................................................. 70
Legal Matters............................................................ 73
Experts.................................................................. 73
Where You Can Find Additional Information................................ 73
Index to Consolidated Financial Statements............................... F-1
</TABLE>

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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 their 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, trademark or
service mark owners.

3
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SUMMARY

This summary highlights 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 provider of advanced verification systems and connectivity products
for various existing and emerging digital communications standards such as
Universal Serial Bus, or USB, IEEE 1394, or 1394, Bluetooth wireless technology
and Ethernet. Our verification systems consist of development and production
products that accurately monitor communications traffic and diagnose
operational problems. Utilizing our easy to use, color-coded software, the CATC
Trace, our development products generate, capture, filter and analyze high
speed communications traffic, allowing our customers to quickly discover and
correct persistent and intermittent errors and flaws in their product design.
Our production products are used in manufacturing to ensure that products
comply with standards and operate with other devices as well as to assist
system manufacturers in downloading software onto new computers. Our
connectivity products are devices that translate communications traffic between
USB and Ethernet and enable reliable, uninterrupted service for broadband
Internet access. These connectivity products also allow for simple installation
and incorporate an application specific integrated circuit, or ASIC, and our
proprietary embedded software and software drivers. 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 customers include industry leaders such as 3Com, Apple, Compaq, Dell,
Hewlett-Packard, Intel, Lucent, Microsoft, Motorola, NEC, Philips, 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.

The rise of the Internet and the widespread availability of broadband
transmissions have created a growing demand for direct access to information
from a variety of digital devices. Devices such as personal computers, Internet
appliances, mobile phones, personal digital assistants and digital cameras,
must communicate with one another. 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 governs both
the channel and the device hardware and software, and regulates 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 has increased, the number of new
and more complex communications standards has continued to increase.

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

4
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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.

. Heighten awareness of the CATC brand by broadening our reputation as an
expert in communications standards.

. Leverage strategic relationships with leaders in the computer,
telecommunications and consumer electronic industries to gain early
access to new standards and technologies.

. Expand our distribution channels by increasing our marketing and sales
forces both domestically and internationally.

. 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 reincorporated in
Delaware in October 2000. 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
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The Offering

<TABLE>
<C> <S>
Common stock offered by CATC....................... 3,500,000 shares

Common stock to be outstanding after the offering.. 18,382,254 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.

Nasdaq National Market symbol...................... CATZ
</TABLE>
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The number of shares of common stock to be outstanding after this offering is
based on 14,882,254 shares of common stock outstanding as of September 30,
2000. It does not include:

. 2,045,545 shares issuable upon exercise of stock options outstanding as
of September 30, 2000 at a weighted average exercise price of $1.36 per
share;

. 2,766,955 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 the estimated number of shares available for
future grant under our 1994 stock option plan and our 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

. 312,500 additional shares available for future 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.

6
<PAGE>

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

<TABLE>
<CAPTION>
Nine Month
Year Ended December Period Ended
31, September 30,
--------------------- --------------
1997 1998 1999 1999 2000
------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Income Data:
Revenue................................... $4,169 $6,771 $12,506 $8,446 $14,708
Gross profit.............................. 3,405 5,334 9,370 6,442 11,117
Income from operations.................... 1,424 1,165 2,884 2,119 3,009
Net income................................ $ 924 $ 537 $ 1,262 $1,087 $ 1,003
====== ====== ======= ====== =======
Net income per share
Basic................................... $ 0.06 $ 0.04 $ 0.09 $ 0.08 $ 0.07
====== ====== ======= ====== =======
Diluted................................. $ 0.06 $ 0.04 $ 0.08 $ 0.07 $ 0.06
====== ====== ======= ====== =======
Weighted average shares outstanding
Basic................................... 14,286 14,286 14,286 14,286 14,485
====== ====== ======= ====== =======
Diluted................................. 14,507 15,079 15,084 15,340 15,525
====== ====== ======= ====== =======
</TABLE>

<TABLE>
<CAPTION>
September 30, 2000
-------------------
Actual As Adjusted
------- -----------
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments.......... $ 8,288 $46,248
Working capital............................................ 9,307 47,267
Total assets............................................... 15,456 53,416
Total debt................................................. -- --
Total stockholders' equity................................. 9,911 47,871
</TABLE>

The as adjusted balance sheet data appearing above gives effect to our
receipt of the net proceeds from the sale of 3,500,000 shares of common stock
at an initial public offering price of $12.00 per share, after deducting
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,
some of which are wholly or partially outside of our control. Many of these
risks are described in the following risk factors. 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;

. seasonality in some of our target markets;

. the effectiveness of our product cost reduction efforts;

. 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.

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;

8
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. 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
76.6% of our revenue in the nine month period ended September 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 would 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 may incur significant expenses and dedicate significant time and resources
in developing products for emerging communications standards that may not gain
broad acceptance. For example, we spent four years from 1992 to 1995 developing
products for the ACCESS.bus technology, a standard designed to connect
peripheral devices to computers, which did not gain market acceptance. The
failure of a standard for which we devote resources to gain widespread
acceptance, or our failure to be first to market with products that address a
particular standard, would likely harm our business.

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

9
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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
these 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. Although we have not experienced any material
product development delays in the past, these types of delays could occur 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.

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

10
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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 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 might fluctuate from period to period as a
result of shifts in product mix, the channels through which we sell our
products, the introduction of new products and 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 as a result of
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.

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.

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. As a result, our manufacturers could refuse to
continue to manufacture all or some of our products that we require or change
the terms under which they manufacture our products. 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

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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 through Wyle Electronics
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 18.5% of our revenue in the nine month period ended September 30,
2000. 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 distributors and 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 and resellers 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 quantity of products 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.

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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 50.0% in the nine month period ended
September 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, 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.

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<PAGE>

Our products may contain defects that 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. Although none of our products has contained any
material defects in the past, our products may contain defects of this nature
in the future. If any of our products contains defects or have reliability,
quality or compatibility problems, our reputation might be damaged and
customers might 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 remains undiscovered 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 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;

. 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.

14
<PAGE>

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 40.7% in the nine month period ended September 30, 2000.
We anticipate that revenue from international operations will continue to
represent a substantial portion of our revenue. In addition, several of our
manufacturers' 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 recently issued
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, floods, power
loss and telecommunication failure, 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 do
not have redundant, multiple site capacity in the event of a natural disaster.

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
recently filed applications for three 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

15
<PAGE>

provide us with a significant competitive advantage. Third 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 three companies demanding that they cease
infringing our copyrights. 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. To date, we have not received any letters, and we do
not have any other reason to believe, that our products infringe any other
party's intellectual property rights. However, 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, the entire telecommunications industry and many of our
customers and their products are subject to regulations and standards set by
the Federal Communications Commission, or FCC. Internationally, many of our
customers and their products may also be required to comply with regulations
established by local authorities in various countries. We believe that neither
our business nor our products is currently subject to regulations or standards
set by the FCC or any similar foreign authority. However, our business or
products may be deemed by the FCC or any similar foreign authority to be
subject to their jurisdiction. New products or lines of business we pursue may
also be subject to these types of regulations or standards. In addition, the
regulations in force both in the United States and in foreign jurisdictions are
constantly changing. As a result, our business or products could become subject
to regulations or standards in the future. 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 was 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 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 and entities affiliated
with them will beneficially own approximately 76.4% 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 securities, stockholders might experience dilution or the holders of new
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 common stock in the public market could
depress our stock price.

Our current stockholders hold a substantial number of shares of our common
stock, which they will be able to sell in the public market in the near
future. Sales of a substantial number of shares 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 $9.40 per share, based on an initial
public offering price of $12.00 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 September 30, 2000, we had options outstanding to
purchase 2,045,545 shares of common stock with a weighted average exercise
price of $1.36 per share of which options to purchase approximately 535,461
were then vested and exercisable. Beginning 180 days after the effective date
of this offering, approximately 670,672 shares issuable upon the exercise of
vested stock will become eligible for sale in the public market, if the
options are exercised.

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 currently intend to use
the proceeds for general corporate purposes, including hiring additional
personnel, working capital and capital expenditures, as well as the
acquisition of complementary businesses, products or services, 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 will receive net proceeds from the sale of the 3,500,000 shares of our
common stock in this offering of approximately $38.0 million, at an initial
public offering price of $12.00 per share, after deducting the underwriting
discounts and commissions and estimated offering expenses. If the underwriters'
over-allotment option is exercised in full, we estimate that we will receive
approximately $43.8 million in net proceeds from this offering.

We intend to use the net proceeds for general corporate purposes. We expect
that these purposes will include hiring additional personnel, working capital
and capital expenditures. Our planned increase in personnel is estimated to be
approximately $12 million during the next 24 months and will include salary,
benefits and related operating expenses. The increase in our working capital
requirements as we expand our business is estimated to be approximately $5
million. Capital expenditures are estimated to be approximately $1 million and
will include the following: a new enterprise resource planning system, the
information system we will use to manage production, sales, distribution and
finance activities; and computer, laboratory, and office equipment. In
addition, we may use a portion of the net proceeds to acquire or invest in
complementary businesses, products or services.

Other than to generate funds for the general corporate purposes outlined
above, the principal purposes of this offering are to:

. enhance our ability to use common stock to attract, motivate and retain
professionals and other employees;

. increase our visibility and brand awareness in our markets;

. facilitate our access to public capital markets for future financing
needs;

. enhance our ability to use our capital stock as consideration for any
future acquisitions; and

. increase our equity capital.

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. This would reduce the amount of the net proceeds available 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.

19
<PAGE>

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 that our board of directors
deems relevant, including our financial condition, operating results, current
and anticipated cash needs and plans for expansion.

20
<PAGE>

CAPITALIZATION

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

. on an actual basis; and

. on an as adjusted basis giving effect to the sale in this offering of
3,500,000 shares of common stock at an initial public offering price of
$12.00 per share and after deducting the underwriting discounts and
commissions and estimated offering expenses.

<TABLE>
<CAPTION>
September 30,
2000
-----------------
As
Actual Adjusted
------- --------
(in thousands)
<S> <C> <C>
Stockholders' equity:
Common stock, $0.001 par value, 100,000,000 shares
authorized; 14,882,254 shares issued and outstanding,
actual; and 18,382,254 shares issued and outstanding, as
adjusted.................................................. $ 15 $ 18
Additional paid-in capital................................. 15,766 53,723
Deferred stock-based compensation.......................... (9,623) (9,623)
Retained earnings.......................................... 3,753 3,753
------- -------
Total stockholders' equity............................... 9,911 47,871
------- -------
Total capitalization..................................... $ 9,911 $47,871
======= =======
</TABLE>

This table excludes the following:

. 2,045,545 shares issuable upon exercise of stock options outstanding as
of September 30, 2000 at a weighted average exercise price of $1.36 per
share;

This table should be read in conjunction with "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.

21
<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 September 30, 2000 was approximately $9.9 million, or approximately $0.67
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 September 30, 2000.

After giving effect to the sale of 3,500,000 shares of our common stock, at
an initial public offering price of $12.00 per share and after deducting
underwriting discounts and commissions and estimated offering expenses, our as
adjusted net tangible book value as of September 30, 2000 would have been $47.9
million, or $2.60 per share. This represents an immediate increase in net
tangible book value of $1.93 per share to existing stockholders and an
immediate and substantial dilution of $9.40 per share to new investors
purchasing shares of common stock in this offering. The following table
illustrates this dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share........................ $12.00
Net tangible book value per share as of September 30, 2000... $0.67
Increase per share attributable to new investors ............ 1.93
-----
As adjusted net tangible book value per share after the
offering...................................................... 2.60
------
Net tangible book value dilution per share to new investors.... $ 9.40
======
</TABLE>

This table excludes all options outstanding as of September 30, 2000. 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 options, see "Capitalization" 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 September 30, 2000 would have been
approximately $2.84 per share, representing an immediate increase in net
tangible book value of $2.17 per share to our existing stockholders and an
immediate and substantial dilution in net tangible book value of $9.16 per
share to new investors.

The following table sets forth, as of September 30, 2000 the total shares
purchased, the total consideration paid and the average price per share paid by
existing stockholders and by new investors in this offering at an initial
public offering price of $12.00 per share, before deducting the 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....... 14,882,254 81.0% $ 1,242,000 2.9% $ 0.08
New investors............... 3,500,000 19.0 42,000,000 97.1 $12.00
---------- ----- ----------- -----
Total..................... 18,382,254 100.0% $43,242,000 100.0%
========== ===== =========== =====
</TABLE>

This table excludes the following:

. 2,045,545 shares issuable upon exercise of stock options outstanding as
of September 30, 2000 at a weighted average exercise price of $1.36 per
share;

22
<PAGE>

. 312,500 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.

23
<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 consolidated balance
sheet data as of December 31, 1998 and 1999, 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 audited consolidated financial statements not included in this prospectus.
The consolidated statement of income data for the year ended December 31, 1995
and the nine month periods ended September 30, 1999 and September 30, 2000, and
the consolidated balance sheet data as of December 31, 1995 and September 30,
2000, are unaudited. Our unaudited consolidated financial statements have been
prepared by us on a basis consistent with our audited consolidated 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>
Nine Month Period
Year Ended December 31, Ended September 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 $8,446 $14,708
Cost of revenue........ 315 395 764 1,437 3,136 2,004 3,591
------ ------ ------ ------ ------- ------ -------
Gross profit........... 374 1,863 3,405 5,334 9,370 6,442 11,117
------ ------ ------ ------ ------- ------ -------
Operating expenses:
Research and
development.......... 394 782 1,210 2,572 3,538 2,602 3,167
Sales and marketing... 273 289 431 800 1,194 897 1,626
General and
administrative....... 140 152 340 345 434 270 931
Amortization of
deferred stock-based
compensation......... -- -- -- 452 1,320 554 2,384
------ ------ ------ ------ ------- ------ -------
Total operating
expenses............ 807 1,223 1,981 4,169 6,486 4,323 8,108
------ ------ ------ ------ ------- ------ -------
Income (loss) from
operations............ (433) 640 1,424 1,165 2,884 2,119 3,009
Interest income........ 24 18 56 80 138 90 266
------ ------ ------ ------ ------- ------ -------
Income (loss) before
provision for income
taxes................. (409) 658 1,480 1,245 3,022 2,209 3,275
Provision for income
taxes................. 2 20 556 708 1,760 1,122 2,272
------ ------ ------ ------ ------- ------ -------
Net income (loss)...... $ (411) $ 638 $ 924 $ 537 $ 1,262 $1,087 $ 1,003
====== ====== ====== ====== ======= ====== =======
Net income (loss) per
share.................
Basic................. $(0.03) $ 0.04 $ 0.06 $ 0.04 $ 0.09 $ 0.08 $ 0.07
====== ====== ====== ====== ======= ====== =======
Diluted............... $(0.03) $ 0.04 $ 0.06 $ 0.04 $ 0.08 $ 0.07 $ 0.06
====== ====== ====== ====== ======= ====== =======
Weighted average shares
outstanding...........
Basic................. 14,286 14,286 14,286 14,286 14,286 14,286 14,485
====== ====== ====== ====== ======= ====== =======
Diluted............... 14,286 14,379 14,507 15,079 15,084 15,340 15,525
====== ====== ====== ====== ======= ====== =======
<CAPTION>
December 31,
----------------------------------- September 30,
1995 1996 1997 1998 1999 2000
------ ------ ------ ------- ------ -------------

(in thousands)
<S> <C> <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 $ 8,288
Working capital............... 412 981 1,883 3,005 5,773 9,307
Total assets.................. 462 1,268 2,727 3,926 7,654 15,456
Total debt.................... -- -- -- -- -- --
Total stockholders' equity.... 409 1,047 1,971 3,202 6,027 9,911
</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 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 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 that products comply with standards and operate with other devices as
well as to assist system manufacturers in downloading 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 continually manage our manufacturing operations to minimize
inventory levels and product costs, including cost of materials and material
overhead. We believe that we have been historically successful in managing our
product costs at a reasonable level and, as a result, our operating results
have not been materially impacted by changes in product costs.

We were formed in February 1992 and offered our first verification system and
our first connectivity product in 1996. 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 was
$1.7 million. In the nine month period ended September 30, 2000, our revenue
from our development products was $8.2 million, from production products was
$3.6 million and from connectivity products was $3.0 million. Historically, we
have generated a majority of our revenue across all segments from products for
the USB standard. Revenue from our USB products accounted for approximately
89.7% of our revenue in the year ended December 31, 1999 and 76.6% in the nine
month period ended September 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 September 30, 2000, revenue of $1.6 million had
been

25
<PAGE>

deferred, which we expect to recognize in the three 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 nine month period ended September 30, 2000,
approximately 40.7% of our revenue was derived from international customers, of
which 18.5% was derived from customers in Japan, 8.0% was derived from
customers in other parts of Asia, and 13.6% 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. Although
seasonality affects many of our target markets, to date our revenues and
financial condition have not been materially impacted.

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 standards 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.

26
<PAGE>

Results of Operations

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

<TABLE>
<CAPTION>
Nine Month
Year Ended Period Ended
December 31, September 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 23.7 24.4
----- ----- ----- ------ ------
Gross profit.............................. 81.7 78.8 74.9 76.3 75.6
----- ----- ----- ------ ------
Operating expenses:
Research and development................ 29.0 38.0 28.3 30.8 21.5
Sales and marketing..................... 10.3 11.8 9.5 10.6 11.1
General and administrative.............. 8.2 5.1 3.5 3.2 6.3
Amortization of deferred stock-based
compensation........................... -- 6.7 10.5 6.6 16.2
----- ----- ----- ------ ------
Total operating expenses.............. 47.5 61.6 51.8 51.2 55.1
----- ----- ----- ------ ------
Income from operations.................... 34.2 17.2 23.1 25.1 20.5
Interest income........................... 1.3 1.2 1.1 1.1 1.8
----- ----- ----- ------ ------
Income before provision for income taxes.. 35.5 18.4 24.2 26.2 22.3
Provision for income taxes................ 13.3 10.5 14.1 13.3 15.5
----- ----- ----- ------ ------
Net income................................ 22.2% 7.9% 10.1% 12.9% 6.8%
===== ===== ===== ====== ======
</TABLE>

Results of Operations for the Nine Month Period Ended September 30, 2000 and
1999

Revenue. Our revenue was $14.7 million in the nine month period ended
September 30, 2000 and $8.4 million in the nine month period ended September
30, 1999, representing an increase of 75.0%. The increase reflected higher
revenue in all our product segments including an increase of $3.8 million in
our development product segment and $2.4 million in our connectivity product
segment. $5.1 million of this increase was due to sales to new customers. This
increase does not include $1.6 million of revenue from our development
products, which was deferred. Revenue from international customers represented
approximately 40.7% of our revenue in the nine month period ended September 30,
2000 and 44.8% of our revenue in the nine month period ended September 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
58.1%. 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 is comprised 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
$11.1 million in the nine month period ended September 30, 2000 and $6.4
million in the nine month period ended September 30, 1999, representing an
increase of 73.4%. This increase was due to revenue growth of 75.0% from 1999
to 2000. Our gross margin was 75.5% in the nine month period ended September
30, 2000 and 76.2% in the nine month period ended September 30, 1999. This
decrease was the result of an increase in the percentage of lower gross margin
products in our product mix for the nine month period ended September 30, 2000.
Without the amortization of deferred stock-based compensation, our gross margin
would have been 77.6% for the nine month period ended September 30, 2000 and
78.6% for the nine month period ended September 30, 1999.

Research and Development. Research and development expenses are comprised of
salaries and related personnel expenses of employees engaged in research,
design and development activities, and

27
<PAGE>

also include related supplies, software license fees for technologies used in
research and development, equipment expenses, depreciation and amortization.
Our research and development expenses were $3.2 million in the nine month
period ended September 30, 2000 and $2.6 million in the nine month period ended
September 30, 1999, representing an increase of 23.1%. This increase was due
primarily to an increase of $377,000 in personnel-related costs. Research and
development expenses represented 21.5% of revenue in the nine month period
ended September 30, 2000 and 30.8% of revenue in the nine month period ended
September 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 comprised of salaries
and related personnel expenses of employees engaged in sales and marketing
activities, expenses related to conferences and trade shows and also include
expenses related to consultants and professional services. Our sales and
marketing expenses were $1.6 million in the nine month period ended September
30, 2000 and $897,000 in the nine month period ended September 30, 1999,
representing an increase of 78.4%. The increase was primarily due to increases
of $280,000 in personnel and related expenses, $197,000 in expenses relating to
trade shows and conferences and $111,000 in expenses relating to consultants
and professional services. Sales and marketing expenses represented 11.1% of
revenue in the nine month period ended September 30, 2000 and 10.6% of revenue
in the nine month period ended September 30, 1999. Our sales and marketing
expenses in dollars may increase to support the growth of our business.

General and Administrative. General and administrative expenses are 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 $931,000 in
the nine month period ended September 30, 2000 and $270,000 in the nine month
period ended September 30, 1999, representing an increase of 244.8%. General
and administrative expenses represented 6.3% of revenue in the nine month
period ended September 30, 2000 and 3.2% of revenue in the nine month period
ended September 30, 1999. The increase was primarily due to an increase of
$373,000 in personnel and related expenses and $236,000 in expenses relating to
consultants and professional services. 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 is amortized over the vesting period of the applicable options,
generally 48 months, on an accelerated basis, and is presented, net of
amortization, as a reduction of stockholders' equity. Amortization of deferred
stock-based compensation was $2.7 million in the nine month period ended
September 30, 2000, of which $275,000 was included in cost of revenue.
Amortization of deferred stock-based compensation was $717,000 in the nine
month period ended September 30, 1999, of which $163,000 was included in cost
of revenue. We had deferred stock-based compensation of $9.6 million as of
September 30, 2000, which we expect to be amortized over the next four years.

Interest Income. Interest income is comprised of interest earned on invested
cash. Interest income was $266,000 in the nine month period ended September 30,
2000 and $90,000 in the nine month period ended September 30, 1999. 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 $2.3 million
in the nine month period ended September 30, 2000 and $1.1 million in the nine
month period ended

28
<PAGE>

September 30, 1999, representing an increase of 109.1%. 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
69.4% in the nine month period ended September 30, 2000 and 50.8% in the nine
month period ended September 30, 1999. The increase 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
nine month period ended September 30, 2000 and in the nine month period ended
September 30, 1999.

Net Income. Our net income was $1.0 million in the nine month period ended
September 30, 2000 and $1.1 million in the nine month period ended September
30, 1999. Net income represented 6.8% of revenue in the nine month period ended
September 30, 2000 and 12.9% of revenue in the nine month period September 30,
1999. This slight decrease in net income was the result of an increase in the
amortization of deferred stock-based compensation. Net income before the effect
of the amortization of deferred stock-based compensation was $3.7 million for
the nine month period ended September 30, 2000 and $1.8 million for the nine
month period ended September 30, 1999, an increase of 105.6%.

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 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 due to the growth in our development
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 44.7% 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 dollar
increases 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 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 29.0% of revenue in the year ended December 31, 1997. The dollar
increase in 1999 was primarily due to an increase in personnel related costs of
$777,000. 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

29
<PAGE>

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 dollar increases were primarily due to
increases in personnel and related expenses of $307,000 in the year ended
December 31, 1999 and $267,000 in the year ended December 31, 1998. 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 increases of 25.8% from 1998 to 1999 and 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 dollar
increase in 1999 was primarily due to the addition of management and
administrative personnel and related expenses of $58,000. The decrease as a
percentage of revenue from 1998 to 1999 was due to revenue growth of
approximately 84.7% from 1998 to 1999, and the decrease as a percentage of
revenue from 1997 to 1998 was due to revenue growth of approximately 62.4% from
1997 to 1998.

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 amortization of 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 due to an increase in our income before
provision for income taxes and before amortization of deferred stock-based
compensation. Our effective tax rate after excluding the effect of amortization
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.

Net Income. Our net income was $1.3 million in the year ended December 31,
1999, $537,000 in the year ended December 31, 1998 and $924,000 in the year
ended December 31, 1997. Net income represented 10.1% of revenue in the year
ended December 31, 1999, 7.9% of revenue in the year ended December 31, 1998,
and 22.2% of revenue in the year ended December 31, 1997. The decrease in net
income from 1997 to 1998 was primarily the result of an increase in the
amortization of deferred stock-based compensation. Net income before the effect
of the amortization of deferred stock-based compensation was $2.8 million in
the year ended December 31, 1999 and $1.2 million in the year ended December
31, 1998, an increase of 129.5%.

30
<PAGE>

Quarterly Results of Operations

The following table sets forth our historical unaudited quarterly
consolidated statement of income data for the seven quarters ended September
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
----------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30,
1999 1999 1999 1999 2000 2000 2000
-------- -------- --------- -------- -------- -------- ---------
(in thousands, except per share data, and as a percentage of
revenue)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Income Data:
Revenue................. $2,098 $3,191 $3,157 $4,060 $4,338 $4,444 $5,926
Cost of revenue......... 381 856 767 1,132 1,005 1,163 1,423
------ ------ ------ ------ ------ ------ ------
Gross profit............ 1,717 2,335 2,390 2,928 3,333 3,281 4,503
------ ------ ------ ------ ------ ------ ------
Operating expenses:
Research and
development........... 856 895 851 936 937 945 1,285
Sales and marketing.... 220 352 325 297 492 611 523
General and
administrative........ 84 87 99 165 170 263 498
Amortization of
deferred stock-based
compensation.......... 153 192 209 765 389 383 1,612
------ ------ ------ ------ ------ ------ ------
Total operating
expenses............ 1,313 1,526 1,484 2,163 1,988 2,202 3,918
------ ------ ------ ------ ------ ------ ------
Income from operations.. 404 809 906 765 1,345 1,079 585
Interest income......... 27 27 36 48 67 89 110
------ ------ ------ ------ ------ ------ ------
Income before provision
for income taxes....... 431 836 942 813 1,412 1,168 695
Provision for income
taxes.................. 244 412 466 638 711 614 947
------ ------ ------ ------ ------ ------ ------
Net income (loss)....... $ 187 $ 424 $ 476 $ 175 $ 701 $ 554 $ (252)
====== ====== ====== ====== ====== ====== ======
Net income (loss) per
share:
Basic.................. $ 0.01 $ 0.03 $ 0.03 $ 0.01 $ 0.05 $ 0.04 $(0.02)
====== ====== ====== ====== ====== ====== ======
Diluted................ $ 0.01 $ 0.03 $ 0.03 $ 0.01 $ 0.05 $ 0.04 $(0.02)
====== ====== ====== ====== ====== ====== ======
Weighted average shares
outstanding:
Basic.................. 14,286 14,286 14,286 14,286 14,293 14,359 14,485
====== ====== ====== ====== ====== ====== ======
Diluted................ 15,137 15,253 14,961 15,160 15,261 15,531 15,652
====== ====== ====== ====== ====== ====== ======
As a Percentage of
Revenue:
Revenue................. 100.0% 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 24.0
------ ------ ------ ------ ------ ------ ------
Gross profit............ 81.8 73.2 75.7 72.1 76.8 73.8 76.0
------ ------ ------ ------ ------ ------ ------
Operating expenses:
Research and
development........... 40.8 28.1 27.0 23.1 21.6 21.3 21.7
Sales and marketing.... 10.5 11.0 10.3 7.3 11.3 13.7 8.8
General and
administrative........ 4.0 2.7 3.1 4.1 3.9 5.9 8.4
Amortization of
deferred stock-based
compensation.......... 7.3 6.0 6.6 18.8 9.0 8.6 27.2
------ ------ ------ ------ ------ ------ ------
Total operating
expenses............ 62.6 47.8 47.0 53.3 45.8 49.5 66.1
------ ------ ------ ------ ------ ------ ------
Income from operations.. 19.2 25.4 28.7 18.8 31.0 24.3 9.9
Interest income......... 1.3 0.8 1.1 1.2 1.5 2.0 1.9
------ ------ ------ ------ ------ ------ ------
Income before provision
for income taxes....... 20.5 26.2 29.8 20.0 32.5 26.3 11.7
Provision for income
taxes.................. 11.6 12.9 14.8 15.7 16.3 13.8 16.0
------ ------ ------ ------ ------ ------ ------
Net income (loss)....... 8.9% 13.3% 15.0% 4.3% 16.2% 12.5% (4.3%)
====== ====== ====== ====== ====== ====== ======
</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. Revenue increased 34.1% from the three month period ended
June 30, 2000 to the three month period ended September 30, 2000. We recognized
previously deferred revenue of $1.0 million during this period and have
deferred an additional $840,000 of revenue which we expect to recognize in the
three 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 periods ended March
31, 2000 and September 30, 2000, primarily due to revenue growth.

In the three month periods ended December 31, 1999, June 30, 2000 and
September 30, 2000, 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 performance. 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,
seasonality, 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. It is difficult
for us to reduce our expenses quickly in response to any shortfall in revenue.
As a result, any downturn in revenue would likely have a disproportionately
adverse effect on our operating results. 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 nine month period ended September 30, 2000, cash provided by operating
activities of $4.4 million primarily consisted of net income of $1.0 million,
amortization of deferred stock-based compensation of $2.7 million, an increase
in accrued expenses of $2.1 million and an increase in deferred revenue of $1.6
million, offset by an increase in accounts receivable of $1.0 million, an
increase in deferred tax assets of $681,000 and an increase in other assets of
$1.2 million. The increases in accrued expenses and other assets were primarily
due to expenses associated with our

32
<PAGE>

initial public offering. Cash used in investing activities was $886,000,
primarily related to purchases of short-term investments of $382,000 and
capital expenditures of $379,000. Cash provided by financing activities of
$222,000 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.

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 and an increase in accrued expenses of
$486,000, offset by an increase in inventories of $186,000. Cash used in
investing activities of $58,000 related to capital expenditures.

As of September 30, 2000, we had cash, cash equivalents and short-term
investments of $8.3 million, working capital of $9.3 million and no debt. At
that date, we had no capital lease obligations, and we had future minimum lease
payments under our operating leases of approximately $896,000.

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. If we are required to raise additional funds, we may
not be able to do so on acceptable terms or at all. In addition, if we issue
new securities, stockholders might experience dilution or the holders of the
new securities might have rights, preferences or privileges senior to those of
existing 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 in which we
invest 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 an interest rate fixed
at the then-prevailing rate and the prevailing interest rate later rises, 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 September 30, 2000, all of our investments were
in money market funds, certificates of deposit or high quality commercial
paper.

Recent Accounting Pronouncements

33
<PAGE>

at their fair market value and that the corresponding derivative gains or
losses be reported either in the statement of income or as a deferred item
depending on the type of hedge relationship that exists with respect to these
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 No. 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities--An Amendment of FASB Statement No. 133, which
deferred the effective date of SFAS No. 133 until the quarter ending March 31,
2001. Accordingly, we will adopt SFAS No. 133 in the quarter ending March 31,
2001. We 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 December 15, 1998 or January 12, 2000. We believe that this
interpretation will not have a material effect on our financial position or
results of operations.

In various areas, including revenue recognition and stock-based compensation,
accounting standards and practices continue to evolve. The SEC has recently
issued 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.

34
<PAGE>

BUSINESS

Overview

We are a 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.

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 software, the CATC
Trace, our development products generate, capture, filter and analyze high
speed communications traffic, allowing our customers to quickly discover and
correct persistent and intermittent errors and flaws in their product design.
Our production products are used in manufacturing to ensure that products
comply with standards and operate with other devices as well as to assist
system manufacturers in downloading software onto new computers. Our
connectivity products are devices that translate communications traffic between
USB and Ethernet and enable reliable, uninterrupted service for broadband
Internet access. These connectivity products also allow for simple installation
and incorporate an ASIC and our proprietary embedded software and software
drivers.

Our customers include industry leaders such as 3Com, Apple, Compaq, Dell,
Hewlett-Packard, Intel, Lucent, Microsoft, Motorola, NEC, Philips, 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.

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 also 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.

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 governs both the channel and the device hardware and
software and regulates the manner in which the signals are sent.

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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 optic cables, 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 facilitates 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 medium, 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 September 15, 2000, the USB Implementers Forum had over 600 member
companies. USB enables connectivity through copper wires at speeds of up to
twelve 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 the percentage of USB-enabled personal computers produced in a
given year is expected to grow from nine percent in 2000 to 95% in 2003.

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<PAGE>

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, or IEEE, in 1995. The promoter group includes Apple, Canon, Compaq,
IBM, Intel, Microsoft, NEC, Philips, Sony, Sun Microsystems and Yamaha and, as
of September 15, 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
September 15, 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.

Ethernet. Ethernet enables high speed connection among computers and
peripheral devices in local area networks. Ethernet was introduced in 1980 by
Digital Equipment Corporation, Intel, and Xerox and, in 1983, the IEEE released
the first IEEE standard for Ethernet technology. Ethernet technology operates
over coaxial cable, twisted pair wiring or fiber optic cable at speeds of up to
ten Mbps over distances of up to 2000 meters. The IEEE has released newer
versions of the Ethernet technology, Fast Ethernet in 1995, which operates at
speeds up to 100 Mbps, Wireless Ethernet in 1997 which operates at speeds up to
10 Mbps, and Gigabit Ethernet in 1998, which operates at speeds up to 1Gbps.
According to International Data Corporation, an independent market research
firm, the number of Ethernet supported network connections, including Fast
Ethernet and Gigabit Ethernet, is expected to grow from approximately 77
million in 1999 to approximately 172 million in 2004.

InfiniBand Architecture. The InfiniBand standard enables high speed
connectivity both inside computers and among computers and storage devices in
storage area networks. InfiniBand was introduced in 1999 and is expected to
replace both the Peripheral Connect Interface, or PCI standard, for internal
computer communications and the emerging FibreChannel standard for
communications in storage area networks. The promoter group consists of Compaq,
Dell, Hewlett-Packard, IBM, Intel, Microsoft and Sun Microsystems and, as of
September 15, 2000, the InfiniBand Trade Association had over 170 members. The
specifications for this standard are expected to be released in 2000.
InfiniBand operates over both copper wire and fiber optic cable at speeds of up
to 6 Gbps over distances of up to ten meters for copper wire and ten kilometers
for fiber optic cable. According to International Data Corporation, the
percentage of InfiniBand-enabled servers produced in a given year is expected
to grow from less than one percent in 2001 to over 80% in 2004.

Other Standards. There are many other existing and emerging communications
standards at different stages in their respective lifecycles such as Digital
Subscriber Line, or DSL, FibreChannel,

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ATA, Home RF and Global System for Mobile communication, or GSM. We currently
offer products for the USB, 1394, Bluetooth wireless technology and Ethernet
standards.

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 standards 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 these 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.

The CATC Solution

We are a provider of advanced verification systems and connectivity products
for various 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 widely used in our markets for viewing digital
communications information. In addition, our connectivity products enable
quick and easy 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 a
range of technologies from the basic elements up to the system level,
including an ASIC and our proprietary embedded software and software
drivers, which we integrate so that they work together. 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.

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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.

. Heighten Brand Awareness. We intend to heighten awareness of the CATC
brand 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 continue to increase our participation in communications
standards groups and as invited experts at design workshops. We believe
that these steps will increase our brand recognition and product
acceptance.

. Leverage Strategic Relationships. We intend to continue to leverage our
strategic relationships to gain access to emerging communications
standards and specifications before they become widely available or
accepted, as well as to product roadmaps and additional market
opportunities. For example, we will continue to leverage our relationship
with Philips Semiconductors, one of our stockholders, to gain insight
into emerging communications standards. In addition, we recently entered
into an agreement with an affiliate of Agilent Technologies to jointly
develop an analyzer for the InfiniBand standard. Concurrently with this
offering, Agilent will purchase shares of our common stock. 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
establish and extend our technological leadership.

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<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 widely-
used 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. 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.

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 permits simultaneous USB bus
traffic generation.

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.

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<PAGE>

Inspector. Inspector, our second generation USB bus and protocol analyzer,
was introduced in the first quarter of 1997. It 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.

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.

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.

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<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 four 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. This ASIC 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.

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<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 September 30, 2000 from
each of the following customers:

<TABLE>
<S> <C> <C>
3Com Intel SCI Systems
Apple Jabil Circuit Samsung
AT&T Logitech Sepoong
Belkin Components Lucent 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 18.5% in the nine month period ended
September 30, 2000. In addition, we recognized approximately 42.4% and 40.7% 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.

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<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 distributors and
resellers in our current markets and with new distributors and resellers in our
future 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 future markets.

We intend to significantly expand our research and development team in the
near future. For example, we have recently opened research and development
centers in San Diego, California and Netanya, Israel. As of September 30, 2000,
we employed 30 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 $3.2 million in the nine month period ended
September 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;

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<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 we believe offers higher
performance at lower power levels and lower cost than those products otherwise
commercially available. 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. We conduct final assembly, testing and quality assurance 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 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. Currently, 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
could be time-consuming and expensive and might 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 offerings.

We believe that we compete favorably with respect to each of these factors
and have gained significant market share in some of 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. 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 address
our target markets more effectively and 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. In addition, we recently filed applications
for three patents. However, 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. Many of our products contain elements that we consider proprietary,
including the CATC Trace in our development products and the embedded software
and software drivers on our connectivity products. 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 intellectual
property 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 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

46
<PAGE>

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
further 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. To date, we have not
received any letters of this nature. If any claims cannot be resolved through a
license or similar arrangement, we could become a party to litigation. The
results of any litigation 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 January 2002, and we have an
option to renew the lease for an additional five-year period. In September
2000, we opened 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 September 30, 2000, we had 60 employees. Of these individuals, nine
were in sales and marketing, 30 were in research and development, twelve were
in operations and nine 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 September 30, 2000, information
regarding our executive officers and directors:

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

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

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

Srikumar Chandran................ 50 Vice President, Engineering

Philip Pollok.................... 46 Director

Jean-Louis Gassee................ 56 Director

Roger W. Johnson................. 66 Director
</TABLE>

Dan Wilnai, one of our co-founders, has served as our President, Chief
Executive Officer and Chairman of the Board of Directors since our
incorporation in February 1992 as well as our Secretary from our incorporation
in February 1992 until August 2000. 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 and our Secretary since August 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.

Srikumar 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.

Jean-Louis Gassee has served as one of our directors since September 2000.
Since October 1990, Mr. Gassee has served as Chief Executive Officer and a
director of Be Incorporated, a manufacturer of personal computer operating
systems and Internet appliances. From February 1981 to October 1990, Mr. Gassee
served in various capacities at Apple Computer, Inc., a manufacturer of
personal computers, related products and communication solutions, most recently
as the President of the Apple Products Division. Mr. Gassee serves on the
boards of directors of 3Com Corporation, EFI Electronics Corporation and
Logitech, International SA. Mr. Gassee holds a B.S. in Mathematics and Physics
from Orsay University in France.

Roger W. Johnson has served as one of our directors since September 2000.
Since March 1996, Mr. Johnson has served as the President of R.W. Johnson and
Associates, a private consulting firm. From June 1993 to March 1996,
Mr. Johnson served as the Administrator of the United States General Services
Administration. Mr. Johnson serves on the boards of directors of Collector's
Universe, Inc., Maxtor Corporation and Sypris Solutions, Inc. Mr. Johnson holds
a B.B.A. in Business Administration from Clarkson University and a M.B.A. in
Industrial Management from the University of Massachusetts.

49
<PAGE>

Board of Directors

We currently have five members on our board of directors. 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 Philip Pollok, who will serve until the annual
meeting of stockholders to be held in 2001;

. Class II consists of Jean-Louis Gassee and Roger Johnson, who will serve
until the annual meeting of stockholders to be held in 2002; and

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

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, Jean-Louis Gassee and Roger Johnson.

The audit committee of our board of directors reviews and monitors our
internal accounting procedures, corporate financial reporting, external and
internal audits, fees, 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, Jean-Louis Gassee and Roger Johnson.

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.

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<PAGE>

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.

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 25,000 5,579
Vice President, Operations
Peretz Tzarnotzky................ 181,121 54,000 -- 10,612
Vice President, Chief Technology
Officer
Srikumar Chandran................ 142,066 14,000 25,000 10,411
Vice President, Engineering
Joseph Mendolia.................. 116,885 15,000 187,500 3,910
Vice President, Sales and
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>
Individual Grants Potential Realizable
---------------------------------------------- Value at Assumed
Number of Annual Rates of Stock
Securities Percentage of Price Appreciation
Underlying Total Options for Option Term
Options Granted in Exercise Expiration ---------------------
Name Granted (#) Fiscal 1999 Price ($) Date 5% 10%
---- ----------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dan Wilnai.............. -- -- -- -- $ -- $ --
Albert Lee.............. 25,000 4.79% 0.60 7/1/09 464,235 739,217
Peretz Tzarnotzky....... -- -- -- -- -- --
Srikumar Chandran....... 25,000 4.79% 0.60 5/13/09 464,235 739,217
Joseph Mendolia......... 187,500 35.97% 0.60 4/14/09 3,481,762 5,544,125
</TABLE>

51
<PAGE>

In the year ended December 31, 1999, we granted options to purchase a total
of 649,000 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 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 various factors, including valuations of comparable
companies 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 market
trading 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 and calculated based on an initial public offering price of $12.00 per
share. 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
directors and executive officers under our 1994 stock option and 2000 stock
option/stock issuance plans as described in "Related Party Transactions--Grants
of Options."

Aggregate Option Exercises in 1999 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 an initial public offering price of $12.00 per share, 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.................. 70,313 142,187 817,206 1,646,994
Peretz Tzarnotzky........... -- -- -- --
Srikumar Chandran........... 46,875 103,125 546,000 816,800
Joseph Mendolia............. -- 187,500 -- 2,157,500
</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 and our
stockholders on August 4, 2000. 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

52
<PAGE>

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
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. We have reserved 4,812,500 shares of our common stock 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 556,250 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.

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 these
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. 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.

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

53
<PAGE>

stock issuance and the maximum term for which any granted option is to remain
outstanding. The 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 includes the features described
below.

. The exercise price for any option 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 these 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 that exercise or
purchase.

. The compensation committee has 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 has any stock
appreciation rights.

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

. If we are acquired by merger or asset sale, each outstanding option under
the discretionary option grant program that is not assumed by the
successor corporation will become immediately exercisable for all the
option shares, and all unvested shares under the discretionary option
grant 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 has 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 also has the authority to grant options that
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

54
<PAGE>

tender offer for more than 50% of our outstanding voting stock or a change
in the majority of our board of directors through one or more contested
elections for board membership. This 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 that 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 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 that individual joins the board, provided the 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 the 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

55
<PAGE>

annual 5,000 share automatic option grant will vest in two installments upon
the optionee's completion of each year of service on our board of directors
over the two-year period measured from the grant date. However, the shares will
immediately vest in full upon certain changes in control 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 and upon certain changes in control.

Additional Program Features. Our 2000 stock incentive plan also has the
features described below.

. Outstanding options under the salary investment option grant, 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 our board
of directors and our stockholders on August 4, 2000. 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 participating subsidiaries to purchase shares of common
stock, at semi-annual intervals, with their accumulated payroll deductions.

Share Reserve. We have reserved 312,500 shares of our common stock for
issuance under the plan. The reserve will automatically increase on the first
trading day in January of each calendar

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<PAGE>

year, beginning in calendar year 2001, by an amount equal to one percent of the
total 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 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 this offering is signed and will end on the last
business day in January 2003. The next offering period will start on the first
business day in February 2003, 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 months per calendar 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 January and July 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 July 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

57
<PAGE>

plan and so that we can deduct our contributions, if any, when made. 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, us to provide additional matching contributions to the plan on behalf
of all participants in the plan. We make contributions to the plan each pay
period on behalf of all participants in an amount determined by the board of
directors. In the year ended December 31, 1999, we contributed $162,493 on
behalf of participants in the plan, of which $41,124 was contributed on behalf
of our named executive officers.

Employment Contracts and Change of Control Arrangements

We have entered into employment agreements with Albert Lee, Srikumar
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 150,000 shares of
common stock pursuant to our 1994 stock option plan at a per share exercise
price of $0.35. 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, Srikumar 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 125,000 shares of common stock pursuant to our 1994 stock option plan at a
per share exercise price of $0.35.

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 187,500 shares of common stock pursuant to our 1994 stock option plan at a
per share exercise price of $0.60. 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
187,500 shares of common stock, in accordance with our 2000 stock option/stock
issuance plan at a per share exercise price of $2.00. This option grant was
subject to board approval, and was approved by the board of directors in August
2000. In the event Mr. Evans is involuntarily terminated without cause after
the

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<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 must 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.

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<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:

. 1,500,000 shares at a price of $0.00008 per share in February 1992 to Dan
Wilnai, the Chairman of our board of directors and our President, Chief
Executive Officer and Secretary.

. 1,000,000 shares at a price of $0.00008 per share in February 1992 to
Peretz Tzarnotzky, a member of our board of directors and our Vice
President, Chief Technology Officer.

. 1,071,426 shares at a price of $0.9333 per share in March 1994 to Philips
Semiconductors. Philip Pollok, a member of our board of directors, is the
Senior Vice President and General Manager of Business Line Networking at
Philips.

In October 1997, each outstanding share of our common stock was split into
four shares of common stock.

In October 2000, each outstanding share of our common stock was split into
1.25 shares of common stock.

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>
Srikumar Chandran..................................... 02/02/98 125,000 $0.35
05/13/99 25,000 0.60
08/04/00 31,250 2.00

Albert Lee............................................ 12/01/97 150,000 0.35
04/01/98 37,500 0.48
07/01/99 25,000 0.60
08/04/00 25,000 2.00

Joseph Mendolia....................................... 04/14/99 187,500 0.60
08/04/00 25,000 2.00

Dennis Evans.......................................... 08/04/00 187,500 2.00

Jean-Louis Gassee..................................... 9/06/00 25,000 4.00

Roger Johnson......................................... 9/06/00 25,000 4.00
</TABLE>

Transactions with Directors and Officers

In May 2000, Albert Lee, our Vice President, Operations, exercised options to
purchase 87,500 shares of our common stock and paid an aggregate purchase price
of $30,800 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 87,500 shares of our common stock held by
Mr. Lee. The note accrues interest at a rate of eight percent and is due on May
11, 2002 or upon termination of Mr. Lee's employment with our company. As of
September 30, 2000, $128,918 remained outstanding on Mr. Lee's loan.

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<PAGE>

In September 2000, Srikumar Chandran, our Vice President, Engineering,
exercised options to purchase 50,000 shares of our common stock and paid an
aggregate purchase price of $17,600 for these shares.

In September 2000, Joseph Mendolia, our Vice President, Sales and Marketing,
exercised options to purchase 33,750 shares of our common stock and paid an
aggregate purchase price of $20,250 for these shares.

We sold products to Philips Semiconductors, a stockholder, and its affiliates
totaling $95,000 in the year ended December 31, 1999, $49,000 in the year ended
December 31, 1998 and $144,000 in the year ended December 31, 1997 and $113,000
in the nine month period ended September 30, 2000. Philip Pollok, a member of
our board of directors, is the Senior Vice President and General Manager of
Business Line Networking at Philips.

In September 2000, some of our stockholders entered into an agreement to sell
certain of their shares of our common stock to Agilent Technologies for $3
million and Toyo Corporation for $2 million at a price per share equal to the
price paid by the public for our common stock in this offering. The selling
stockholders include family trusts of Dan Wilnai, our President and Chief
Executive Officer and the Chairman of our board of directors, of which Mr.
Wilnai is a trustee; several members of Mr. Wilnai's family; a family trust of
Peretz Tzarnotzky, our Vice President, Chief Technology Officer and a member of
our board of directors, of which Mr. Tzarnotzky is a trustee; Mr. Tzarnotzky;
and Philips Semiconductors. Philip Pollok, a member of our board of directors,
is the Senior Vice President and General Manager of Business Line Networking at
Philips. The sale is expected to be completed upon the completion of this
offering. If this offering is not completed by January 31, 2001, Agilent has
agreed to purchase shares of our common stock directly from us in a private
placement and Toyo has agreed to purchase shares of our common stock from the
selling stockholders for $13.00 per share. We have agreed to indemnify Agilent
in the event that the shares sold by the selling stockholders are delivered to
Agilent with any restrictions on title.

In September 2000, we entered into an agreement with Agilent Technologies
Deutschland GmbH, an affiliate of Agilent Technologies, in which both we and
Agilent agreed to license intellectual property to each other to allow each of
us to jointly develop an InfiniBand analyzer that can be utilized to provide
probing and analysis of a single InfiniBand link. We and Agilent will each
develop one module for a prototype of analyzer, and each of us will
independently develop, manufacture and sell its respective versions of the
analyzer. Both versions will include our proprietary graphical user interface,
the CATC Trace, and our CATC trademarks. Pursuant to the agreement, Agilent
will provide us a royalty-free license with respect to its intellectual
property, and will pay us for the license of our intellectual property by
paying us a royalty for each unit of the analyzer that it sells. The initial
term of the agreement is two years, with automatic renewals for one-year terms,
unless either party gives written notice to the contrary. The agreement
includes incentives for the parties to renew for at least one additional year
by imposing a fee, not to exceed $1,000,000, if either party elects not to
renew after the initial term. The agreement provides that if Agilent develops,
manufactures or sells another single (2.5 Gb/s) InfiniBand link analyzer that
is not based on or does not incorporate our technology or intellectual property
licensed under the agreement, the licenses and rights granted to Agilent will
be revoked and an additional payment, of up to $1,000,000, will be due to us.
Similarly, the agreement further provides that if we license the rights granted
to Agilent to another OEM, the licenses and rights granted to us will be
revoked.

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<PAGE>

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

We have 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 provides for indemnification beyond what is
provided for in our certificate of 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. 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.

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<PAGE>

PRINCIPAL STOCKHOLDERS

The table below sets forth information regarding the beneficial ownership of
our common stock as of September 30, 2000 and as adjusted for this offering
assuming no exercise of the underwriters' over-allotment 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 before the offering in the following
table is based on 14,882,254 shares of common stock outstanding as of September
30, 2000, which excludes shares of common stock issuable upon the closing of
this offering, and treats as outstanding all options exercisable within 60 days
of September 30, 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)........................ 4,285,705 28.8% 22.5%
Directors and Executive Officers:
Dan Wilnai(2).................................... 5,965,000 40.1 31.3
Peretz Tzarnotzky(3)............................. 4,000,000 26.9 21.0
Albert Lee(4).................................... 142,705 * *
Srikumar Chandran(5)............................. 96,864 * *
Joseph Mendolia(6)............................... 74,219 * *
Philip Pollok(7)................................. 4,285,705 28.8 22.5
Dennis Evans..................................... -- * *
Jean-Louis Gassee................................ -- * *
Roger Johnson.................................... -- * *
All directors and executive officers as a group
(9 persons)..................................... 14,564,493 97.9 76.4
</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. The percentage of shares beneficially owned
by Philips Semiconductors after the offering reflects the sale of an
aggregate of 158,637 shares to Agilent Technologies and Toyo Corporation as
further described in "Related Party Transactions."
(2) Mr. Wilnai's shares include an aggregate of 5,555,000 shares held by family
trusts of which Mr. Wilnai is a trustee and 410,000 shares held by Mr.
Wilnai's family members. The percentage of shares beneficially owned by Mr.
Wilnai after the offering reflects the sale of an aggregate of 205,646
shares to Agilent Technologies and Toyo Corporation as further described in
"Related Party Transactions."
(3) Mr. Tzarnotzky's shares include 562,500 held by a family trust of which Mr.
Tzarnotzky is a trustee. The percentage of shares beneficially owned by Mr.
Tzarnotzky after the offering reflects the sale of an aggregate of 148,046
shares to Agilent Technologies and Toyo Corporation as further described in
"Related Party Transactions."
(4) Mr. Lee's shares include 55,205 shares subject to options exercisable
within 60 days of September 30, 2000.
(5) Mr. Chandran's shares include 46,864 shares subject to options exercisable
within 60 days of September 30, 2000.
(6) Mr. Mendolia's shares include 40,469 shares of common stock subject to
options exercisable within 60 days of September 30, 2000.
(7) Mr. Pollok's shares represent 4,285,705 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. The percentage of shares
beneficially owned by Philips Semiconductors after the offering reflects
the sale of an aggregate of 158,657 shares to Agilent Technologies and Toyo
Corporation as further described in "Related Party Transactions."

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<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 September 30, 2000, 14,882,254 shares of common stock
were issued and outstanding and held by 40 stockholders. Upon the closing of
this offering, there will be an aggregate of 18,382,254 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 that 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 that 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.

We have no present plans to issue any shares of preferred stock.

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<PAGE>

Registration Rights

Upon completion of the offering and in connection with the private sale of
our shares by some of our stockholders, Agilent and Toyo, holders of an
aggregate of approximately 416,500 shares of our common stock, based on an
initial public offering price of $12.00 per share, will be entitled to certain
rights with respect to the registration of the shares under the Securities Act.
These rights are provided under the terms of agreements between Agilent, Toyo
and us. If we propose to register any of our securities under the Securities
Act, Agilent and Toyo are entitled to notice of the registration and are
entitled to include shares of our common stock held by them in the
registration. The rights of Agilent and Toyo are subject to conditions and
limitations, among them the right of the underwriters of an offering subject to
the registration to limit the number of shares included in the registration.

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 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 effects:

. enables removal of directors with or without cause with majority
stockholder approval that may lead to the frequent removal of a member or
members of our board of directors for any reason, which could allow
holders of a substantial number of shares of our common stock to elect
new directors and/or gain control of our company at any time;

. places limitations on the ability of our board of directors to declare or
distribute dividends and, as a result, you may never receive any
dividends on your shares of common stock;

. extends additional rights to dissenting stockholders in any
reorganization, including a merger, sale of assets or exchange of shares
that may limit or restrict our ability to complete these types of
transactions or cause us to incur additional expenses in doing so and, as
a result, the possibility that you may receive cash or stock of another
company, or both, in exchange for your shares of our common stock may be
reduced; and

. provides for information rights and required filings in the event we
effect a sale of assets or complete a merger that may limit or restrict
our ability to complete these types of transactions or cause us to incur
additional expenses in doing so and, as a result, the possibility that
you may receive cash or stock of another company, or both, in exchange
for your shares of our common stock may be reduced.

We anticipate that our common stock will be qualified for trading as a
national market security on the Nasdaq National Market. If this occurs, then we
will no longer be subject to Section 2115 as of the record date for our next
annual meeting of stockholders.

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<PAGE>

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 or chairman of the
board or a majority of our board of directors are permitted to call a special
meeting of stockholders.

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 majority vote of
members of our board of directors or a supermajority vote of 66 2/3% of our
stockholders to amend any 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 completion 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

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<PAGE>

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 after 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 EquiServe Trust
Company.

Listing

Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol "CATZ."

67
<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 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 18,382,254 shares of common
stock, based upon shares outstanding as of September 30, 2000, assuming no
exercise of the underwriters' over-allotment option and no exercise of
outstanding options after September 30, 2000. All of the shares sold in this
offering will be freely tradeable 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 14,882,254 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.

Each of our officers, directors, employees and other stockholders has entered
into a lock-up agreement with the underwriters 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, dispose of, loan, pledge or grant any rights with respect to
any of our shares or options to purchase any of our shares for a period of 180
days after the effective date of this offering. 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 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, 14,882,254 shares
of our common stock will be available for sale in the public market under the
provisions of Rules 144, 144(k) and 701 beginning 180 days after the effective
date of this offering.

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 183,823 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 the sale is filed
with the SEC, subject to restrictions.

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. 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.

68
<PAGE>

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 these 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 those 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 options, including exercises after the effective date of this
offering. Securities issued in reliance on Rule 701 are restricted securities
and, subject to the contractual restrictions described above, beginning 90 days
after the effective date of this offering, 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
September 30, 2000, options to purchase 2,045,545 shares of common stock were
outstanding, of which options to purchase approximately 535,461 shares were
then vested and exercisable. Beginning 180 days after the effective date of
this offering, approximately 670,672 shares issuable upon the exercise of
vested stock options will become eligible for sale in the public market, if the
options are exercised.

69
<PAGE>

UNDERWRITING

The underwriters named below, acting through their representatives, 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>
Robertson Stephens, Inc. .......................................... 1,575,000
CIBC World Markets Corp. .......................................... 787,500
SG Cowen Securities Corporation.................................... 787,500
Needham & Company, Inc. ........................................... 350,000
---------
Total............................................................ 3,500,000
=========
</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 $0.50 per share, of which $0.10
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. Robertson Stephens, Inc. expects to deliver the shares on November
15, 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 525,000 additional shares of common stock at the same price per
share as we will receive for the 3,500,000 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 3,500,000 shares are being sold. The underwriters may exercise
this option only to cover over-allotments made in connection with the sale of
the shares of common stock in this offering.

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
Per Over- With Over-
Share Allotment Allotment
------ ----------- -----------
<S> <C> <C> <C>
Public offering price........................ $12.00 $42,000,000 $48,300,000
Underwriting discounts and commissions....... $ 0.84 $ 2,940,000 $ 3,381,000
Proceeds, before expenses, to us............. $11.16 $39,060,000 $44,919,000
</TABLE>

Expenses of this Offering. The expenses of this offering, other than the
underwriting discounts and commissions, are estimated at approximately
$1.1 million and are payable entirely by us.

70
<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, subject to limited exceptions, 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 Robertson Stephens, Inc. This restriction terminates after the close of
trading of the shares on the 180th day after, and including, the day the shares
began trading on the Nasdaq National Market. However, 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.

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 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 175,000
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. We have agreed to indemnify the
underwriters of the directed share program against liabilities and expenses,
including liabilities under the Securities Act, in connection with the sale of
the reserved shares.

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 was determined through negotiations between us and the
representatives. Among the factors 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

71
<PAGE>

"covered" short position to the extent that it does not exceed the 525,000
shares subject to the underwriters' over-allotment option and will be deemed a
"naked" short position to the extent that it exceeds that number. A naked short
position is more likely to be created if the underwriters are concerned that
there may be downward pressure on the trading price of the common stock in the
open market that could adversely affect investors who purchased shares in the
offering. The underwriters may reduce or close out their covered short position
either by exercising the over-allotment option or by purchasing shares in the
open market. In determining which of these alternatives to pursue, the
underwriters will consider the price at which shares are available for purchase
in the open market as compared to the price at which they may purchase shares
through the over-allotment option. Any "naked" short position will be closed
out by purchasing shares in the open market. Similar to the other stabilizing
transactions described below, open market purchases made by the underwriters to
cover all or a portion of their short position may have the effect of
preventing or retarding a decline in the market price of our common stock
following this offering. As a result, our common stock may trade at a price
that is higher than the price that otherwise might prevail in the open market.

Stabilization. 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.

72
<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, 1998 and December 31, 1999 and for each of the
three years in the period ended December 31, 1999 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 SEC, 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 schedule. For further information
with respect to us and the shares we are offering pursuant to this prospectus,
you should refer to the registration statement and its exhibits and schedule.
Statements 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 a copy of the registration statement, including
exhibits, at the SEC public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can obtain copies of these documents upon payment
of a duplication fee. You may obtain information on the operation of the public
reference room by calling the SEC at 1-800-SEC-0330. The SEC maintains a web
site that contains reports, proxy information statements and other information
regarding registrants that file electronically with the SEC. 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.

73
<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

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 December 31, 1999 and 1998, and the results of
their operations and their cash flows 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.

/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP

San Jose, California
April 7, 2000 except for Note 10
as to which the date is
November 7, 2000

F-2
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

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

<TABLE>
<CAPTION>
December 31,
--------------- September 30,
1998 1999 2000
------ ------- -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $2,215 $ 4,195 $ 7,906
Short-term investments........................ -- -- 382
Trade accounts receivable, net of allowance
for doubtful accounts of $40, $58 and $84
(unaudited) in 1998, 1999 and 2000........... 1,046 2,166 3,200
Related party receivable...................... 83 95 44
Inventories................................... 373 673 1,141
Deferred tax assets........................... -- 250 931
Other current assets.......................... 12 2 1,235
------ ------- -------
Total current assets........................ 3,729 7,381 14,839
Property and equipment, net..................... 179 255 537
Other assets.................................... 18 18 80
------ ------- -------
$3,926 $ 7,654 $15,456
====== ======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $ 235 $ 370 $ 655
Accrued expenses.............................. 489 1,238 3,322
Deferred revenue.............................. -- -- 1,555
------ ------- -------
Total current liabilities................... 724 1,608 5,532
Deferred rent................................... -- 19 13
------ ------- -------
Total liabilities........................... 724 1,627 5,545
------ ------- -------

Commitments (Note 8)

Stockholders' equity:
Common Stock, $0.001 par value, 100,000,000
shares authorized, 14,285,705 shares issued
and outstanding as of December 31, 1998 and
1999 and 14,882,254 (unaudited) shares issued
and outstanding as of September 30, 2000..... 14 14 15
Additional paid-in capital.................... 2,454 5,039 15,766
Deferred stock-based compensation............. (754) (1,776) (9,623)
Retained earnings............................. 1,488 2,750 3,753
------ ------- -------
Total stockholders' equity.................. 3,202 6,027 9,911
------ ------- -------
$3,926 $ 7,654 $15,456
====== ======= =======
</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 per share data)

<TABLE>
<CAPTION>
Nine Month
Year Ended December Period Ended
31, September 30,
--------------------- --------------
1997 1998 1999 1999 2000
------ ------ ------- ------ -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue.................................. $4,169 $6,771 $12,506 $8,446 $14,708
Cost of revenue (inclusive of
amortization of deferred stock-based
compensation of none, $242, $243, $163
(unaudited) and $275 (unaudited) in
1997, 1998, 1999, and the nine month
period ended September 30, 1999 and
2000, respectively)..................... 764 1,437 3,136 2,004 3,591
------ ------ ------- ------ -------
Gross profit............................. 3,405 5,334 9,370 6,442 11,117
------ ------ ------- ------ -------
Operating expenses:
Research and development (exclusive of
amortization of deferred stock-based
compensation of none, $290, $656, $420
(unaudited) and $1,109 (unaudited) in
1997, 1998, 1999, and the nine month
period ended September 30, 1999 and
2000, respectively)................... 1,210 2,572 3,538 2,602 3,167
Sales and marketing (exclusive of
amortization of deferred stock-based
compensation of none, $162, $643,
$125 (unaudited) and $789 (unaudited)
in 1997, 1998, 1999, and the
nine month period ended September 30,
1999 and 2000, respectively).......... 431 800 1,194 897 1,626
General and administrative (exclusive
of non-cash stock-based compensation
of none, none, $21, $9 (unaudited) and
$486 (unaudited) in 1997, 1998, 1999,
and the nine month period ended
September 30, 1999 and 2000,
respectively)......................... 340 345 434 270 931
Amortization of deferred stock-based
compensation.......................... -- 452 1,320 554 2,384
------ ------ ------- ------ -------
Total operating expenses.............. 1,981 4,169 6,486 4,323 8,108
------ ------ ------- ------ -------
Income from operations................... 1,424 1,165 2,884 2,119 3,009
Interest income.......................... 56 80 138 90 266
------ ------ ------- ------ -------
Income before provision for income
taxes................................... 1,480 1,245 3,022 2,209 3,275
Provision for income taxes............... 556 708 1,760 1,122 2,272
------ ------ ------- ------ -------
Net income............................... $ 924 $ 537 $ 1,262 $1,087 $ 1,003
====== ====== ======= ====== =======
Net income per share:
Basic.................................. $ 0.06 $ 0.04 $ 0.09 $ 0.08 $ 0.07
====== ====== ======= ====== =======
Diluted................................ $ 0.06 $ 0.04 $ 0.08 $ 0.07 $ 0.06
====== ====== ======= ====== =======
Weighted average shares outstanding
Basic.................................. 14,286 14,286 14,286 14,286 14,485
====== ====== ======= ====== =======
Diluted................................ 14,507 15,079 15,084 15,340 15,525
====== ====== ======= ====== =======
</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 Nine Month Period Ended September 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............... 14,285,705 $14 $ 1,006 $ -- $ 27 $1,047
Net income............ -- -- -- -- 924 924
---------- --- ------- ------- ------ ------
Balance as of December
31, 1997............... 14,285,705 14 1,006 -- 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............... 14,285,705 14 2,454 (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............... 14,285,705 14 5,039 (1,776) 2,750 6,027
Exercise of common
stock options
(unaudited).......... 596,549 1 221 -- -- 222
Deferred stock-based
compensation
(unaudited).......... -- -- 10,506 (10,506) -- --
Amortization of
deferred stock-based
compensation
(unaudited).......... -- -- -- 2,659 -- 2,659
Net income
(unaudited).......... -- -- -- -- 1,003 1,003
---------- --- ------- ------- ------ ------
Balance as of September
30, 2000 (unaudited)... 14,882,254 $15 $15,766 $(9,623) $3,753 $9,911
========== === ======= ======= ====== ======
</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>
Nine Month
Year Ended December Period Ended
31, September 30,
----------------------- --------------
1997 1998 1999 1999 2000
------ ------ ------- ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................... $ 924 $ 537 $ 1,262 $1,087 $1,003
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization....... 24 44 88 64 97
Provision for doubtful accounts..... 40 -- 18 -- 26
Amortization of deferred stock-based
compensation....................... -- 694 1,563 717 2,659
Loss on disposal of property and
equipment.......................... -- -- 9 -- --
Changes in assets and liabilities:
Accounts receivable............... 45 (581) (1,150) (727) (1,009)
Inventories....................... (186) (115) (300) (528) (468)
Deferred tax assets............... -- -- (250) (160) (681)
Other assets...................... 12 5 10 12 (1,170)
Accounts payable.................. 49 72 135 183 285
Accrued expenses.................. 486 (104) 749 535 2,084
Deferred revenue.................. -- -- -- -- 1,555
Deferred rent..................... -- -- 19 19 (6)
------ ------ ------- ------ ------
Net cash provided by operating
activities..................... 1,394 552 2,153 1,202 4,375
------ ------ ------- ------ ------
Cash flows from investing activities:
Acquisition of property and
equipment........................... (58) (153) (173) (129) (379)
Purchase of short-term investments... -- -- -- -- (382)
Other assets......................... -- -- -- -- (125)
------ ------ ------- ------ ------
Net cash used in investing
activities..................... (58) (153) (173) (129) (886)
------ ------ ------- ------ ------
Cash flows from financing activities:
Proceeds from exercise of stock
options............................. -- -- -- -- 222
------ ------ ------- ------ ------
Net cash provided by financing
activities..................... -- -- -- -- 222
------ ------ ------- ------ ------
Net increase in cash and cash
equivalents.......................... 1,336 399 1,980 1,073 3,711
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 $3,288 $7,906
====== ====== ======= ====== ======
Supplemental information:
Cash paid for income taxes............ $ 137 $ 877 $ 1,063 $1,112 $2,348
====== ====== ======= ====== ======
</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 and reincorporated in Delaware in October 2000 (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, IEEE 1394, Bluetooth
wireless technology and Ethernet for semiconductor, device, system and software
companies in North America, 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 revenue 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 December 31, 1999, 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 resellers and
endusers 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. The Company does not
provide resellers or customers price protection, return or exchange rights.
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 the 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 the 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 from 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.

Purchase Commitments

The Company accrues for losses under open purchase commitments at such time
it is considered reasonably probable that such a loss will be 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 were $65,000, $136,000 and $156,000, 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.

F-8
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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.

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

<TABLE>
<CAPTION>
Nine Month
Year Ended Period Ended
December 31, September 30,
---------------- ---------------
1997 1998 1999 1999 2000
---- ---- ---- ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Company A................................. 17% 22% 19% 22% 19%
Company B................................. 17% 12% 7% 11% 6%

Accounts receivable:
Company A................................. 21% 29% 15% 34% 32%
Company B................................. 20% 14% 13% -- 4%
</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 in any of the
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 net income 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 for the periods indicated (in thousands except per share
data):

<TABLE>
<CAPTION>
Nine Month
Year Ended December Period Ended
31, September 30,
-------------------- -------------
1997 1998 1999 1999 2000
------ ------ ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income................................. $ 924 $ 537 $1,262 $1,087 $1,003
====== ====== ====== ====== ======
Denominator:
Weighted average shares outstanding........ 14,286 14,286 14,286 14,286 14,485
------ ------ ------ ------ ------
Denominator for basic calculation.......... 14,286 14,286 14,286 14,286 14,485
Dilutive effect of stock options........... 221 793 798 1,054 1,040
------ ------ ------ ------ ------
Denominator for diluted calculation........ 14,507 15,079 15,084 15,340 15,525
====== ====== ====== ====== ======
Net income per share:
Basic...................................... $ 0.06 $ 0.04 $ 0.09 $ 0.08 $ 0.07
====== ====== ====== ====== ======
Diluted.................................... $ 0.06 $ 0.04 $ 0.08 $ 0.07 $ 0.06
====== ====== ====== ====== ======
</TABLE>

Stock-based compensation

The Company measures stock-based employee compensation arrangements in
accordance with the 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 No. 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 unaudited interim consolidated financial statements as of September 30,
2000 and for the nine month period ended September 30, 1999 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 September
30, 2000 and its results of operations and cash flows for the nine month period
ended September 30, 1999 and 2000. The results for the nine month period ended
September 30, 2000 are not necessarily indicative of the results to be expected
for the year ending December 31, 2000.

F-10
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 reported
either in the statement of income or as a deferred item depending on the type
of hedge relationship that exists with respect to these 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
No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities - An Amendment of FASB Statement No. 133, which deferred the
effective date of SFAS No. 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. FIN 44 is effective July
1, 2000, but certain conclusions in this Interpretation cover specific events
that occur after December 15, 1998, or January 12, 2000. The Company believes
that FIN 44 will not have a material effect on its 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.

F-11
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

NOTE 3--BALANCE SHEET COMPONENTS:

Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
December
31, September 30,
------------ -------------
1998 1999 2000
---- ------ -------------
(unaudited)
<S> <C> <C> <C>
Raw materials.................................... $ 49 $137 $ 312
Work in progress................................. 1 79 235
Finished goods................................... 323 457 594
---- ------ ------
$373 $673 $1,141
==== ====== ======

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

<CAPTION>
December
31, September 30,
------------ -------------
1998 1999 2000
---- ------ -------------
(unaudited)
<S> <C> <C> <C>
Computers and equipment.......................... $246 $363 $610
Furniture and fixtures........................... 18 65 112
Leasehold improvements........................... -- -- 84
---- ------ ------
264 428 806
Less: Accumulated depreciation................... (85) (173) (269)
---- ------ ------
$179 $255 $537
==== ====== ======

Accrued expenses consist of the following (in thousands):

<CAPTION>
December
31, September 30,
------------ -------------
1998 1999 2000
---- ------ -------------
(unaudited)
<S> <C> <C> <C>
Income taxes payable............................. $308 $ 956 $1,560
Employee benefits and other...................... 181 282 1,762
---- ------ ------
$489 $1,238 $3,322
==== ====== ======
</TABLE>

F-12
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 2,750,000 shares
of common stock for issuance under the Plan. Options issued under the Plan vest
over four years.

A summary of the activity under the Plan, since its inception, is set forth
below (in thousands, except per share data):

<TABLE>
<CAPTION>
Weighted-
Options Average
Available Options Exercise
for Grant Outstanding Price
--------- ----------- ---------
<S> <C> <C> <C>
Balance, December 31, 1996.................. 2,473 278 $0.29
Options granted........................... (505) 505 $0.35
Options canceled.......................... 75 (75) $0.30
------ -----
Balance, December 31, 1997.................. 2,043 708 $0.33
Options granted........................... (531) 531 $0.40
Options canceled.......................... 16 (16) $0.35
------ -----
Balance, December 31, 1998.................. 1,528 1,223 $0.36
Options granted........................... (649) 649 $0.59
Options canceled.......................... 180 (180) $0.37
------ -----
Balance, December 31, 1999.................. 1,059 1,691 $0.44
Options granted (unaudited)............... (1,083) 1,083 $2.15
Options exercised (unaudited)............. -- (597) $0.37
Options canceled (unaudited).............. 131 (131) $0.56
------ -----
Balance, September 30, 2000 (unaudited)..... 107 2,046 $1.36
====== =====
</TABLE>

Significant option groups outstanding as of September 30, 2000 (unaudited),
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>
$0.27 13 5.53 13 $0.27
$0.30 32 5.82 32 $0.30
$0.35 373 7.93 261 $0.35
$0.48 165 8.06 91 $0.48
$0.60 396 8.78 139 $0.60
$0.80 59 9.45 -- $0.80
$2.00 881 9.83 -- $2.00
$4.00 127 9.93 -- $4.00
----- ---
2,046 535
===== ===
</TABLE>

F-13
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Stock-based compensation

In connection with certain stock option grants in 1998, 1999 and 2000, the
Company recorded deferred stock-based compensation totaling 14,539,000, which
represents 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 stock-based compensation on
grants prior to September 30, 2000 is estimated to be approximately $1,734,000,
$4,706,000, $2,152,000, $884,000 and $147,000 in the three month period ending
December 31, 2000 and the year ending December 31, 2001, 2002, 2003 and 2004
respectively, and may change due to the granting of additional options in
future periods.

Fair value disclosures

The weighted-average fair values of options granted during the year ended
December 31, 1997, 1998 and 1999, and the nine month period ended September 30,
1999 (unaudited) and 2000 (unaudited), under the Company's stock option plan
were $0.80, $2.21, $4.10, $3.98 and $10.22, 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>
Nine Month Period Ended
Year Ended December 31, September 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%-5.81% 5.80%-6.58%
Volatility.............. 0% 0% 0% 0% 70%
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 the Plan, consistent with the methodology prescribed
under SFAS No. 123, the Company's 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>
Nine Month
Year Ended Period Ended
December 31, September 30,
------------------ -------------
1997 1998 1999 1999 2000
----- ----- ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net income
As reported.............................. $ 924 $ 537 $1,262 $1,087 $1,003
Pro forma................................ $ 910 $ 495 $1,222 $ 784 $1,079
Net income per share, as reported
Basic.................................... $0.06 $0.04 $ 0.09 $ 0.08 $ 0.07
Diluted.................................. $0.06 $0.04 $ 0.08 $ 0.07 $ 0.06
Net income per share, pro forma
Basic.................................... $0.06 $0.03 $ 0.09 $ 0.05 $ 0.07
Diluted.................................. $0.06 $0.03 $ 0.08 $ 0.05 $ 0.07
</TABLE>

F-14
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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, the Company made
contributions of $53,000, $104,000 and $162,000, respectively.

NOTE 6--INCOME TAXES:

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

<TABLE>
<CAPTION>
Nine Month
Year Ended Period Ended
December 31, September 30,
------------------ --------------
1997 1998 1999 1999 2000
---- ---- ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Current:
Federal................................ $527 $619 $1,515 $1,103 $2,380
State.................................. 109 116 361 179 614
---- ---- ------ ------ ------
636 735 1,876 1,282 2,994
---- ---- ------ ------ ------
Deferred:
Federal................................ (77) (23) (110) (138) (630)
State.................................. (3) (4) (6) (22) (92)
---- ---- ------ ------ ------
(80) (27) (116) (160) (722)
---- ---- ------ ------ ------
$556 $708 $1,760 $1,122 $2,272
==== ==== ====== ====== ======
</TABLE>

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

<TABLE>
<CAPTION>
Nine Month
Year Ended Period Ended
December 31, September 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 5.5 5.4
Amortization of deferred stock-based
compensation............................... -- 20.2 17.6 12.5 31.2
Other....................................... (1.1) (1.1) (1.1) (1.2) (1.2)
---- ---- ---- ------ ------
Effective tax rate........................ 37.6% 56.9% 58.2% 50.8% 69.4%
==== ==== ==== ====== ======
</TABLE>

F-15
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

<TABLE>
<CAPTION>
December 31, September 30,
-------------- -------------
1998 1999 2000
------ ------ -------------
(unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Accrued expenses............................. $ 5 $ 234 $276
Allowance for doubtful accounts.............. 16 23 34
Deferred revenue............................. -- -- 619
------ ------ ----
21 257 929
Deferred tax liabilities:
Depreciation and amortization................ (21) (7) 2
------ ------ ----
$ -- $ 250 $931
====== ====== ====
</TABLE>

The Company has not provided a valuation allowance for its net deferred tax
assets as it expects these 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, $66,000 and $113,000 (deferred
at period end) in the year ended December 31, 1997, 1998 and 1999 and nine
month period ended September 30, 1999 (unaudited) and 2000 (unaudited),
respectively. At the end of each period the Company had receivable balances
with Philips Semiconductors of $26,000, $83,000, $95,000, none (unaudited) and
$44,000 (unaudited), 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 that the stockholder's
ownership percentage ceases to be at least 15% of the Company's outstanding
common stock.

In May 2000, the Company loaned $125,000 to Albert Lee, Vice President,
Operations, pursuant to a promissory note. The loan is full recourse and
collateralized by 87,500 shares of common stock in the Company held by Mr. Lee.
The note accrues interest at a rate of 8.00% and is due on May 11, 2002, or on
termination of Mr. Lee's employment.

NOTE 8--COMMITMENTS:

Purchase commitments

As of December 31, 1999, the Company had approximately $675,000 in
noncancelable purchase commitments to suppliers. These commitments were entered
into during 1999, and will expire once the commitment has been fulfilled. The
total value of these commitments when they were entered into was $959,000. The
Company expects to sell all products which it has committed to purchase from
suppliers.

F-16
<PAGE>

COMPUTER ACCESS TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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, was $208,000, $220,000 and $221,000, respectively.

As of December 31, 1999, future minimum lease payments under the
noncancelable facilities lease are as follows (in thousands):

<TABLE>
<CAPTION>
Operating
Period Ending December 31, Leases
-------------------------- ---------
<S> <C>
2000.............................................................. $228
2001.............................................................. 235
----
Total minimum payments....................................... $463
====
</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 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 analyzes 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 only revenue and gross profit by segment.

F-17
<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
Nine Month Period Ended
September 30, 1999
(unaudited)
Segment revenue from
external customers... $4,357 $3,523 $ 566 $ -- $ 8,446
Segment gross profit.. $3,851 $2,467 $ 287 $(163) $ 6,442
Nine Month Period Ended
September 30, 2000
(unaudited)
Segment revenue from
external customers... $8,153 $3,596 $2,959 $ -- $14,708
Segment gross profit.. $7,109 $3,077 $1,206 $(275) $11,117
</TABLE>

F-18
<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
======= ====
Nine Month Period Ended September 30, 1999 (unaudited)
North America.............................................. $ 4,665 $244
Europe..................................................... 953 --
Asia....................................................... 2,771 --
Rest of world.............................................. 57 --
------- ----
Total.................................................... $ 8,446 $244
======= ====
Nine Month Period Ended September 30, 2000 (unaudited)
North America.............................................. $ 8,728 $487
Europe..................................................... 2,006 50
Asia....................................................... 3,896 --
Rest of world.............................................. 78 --
------- ----
Total.................................................... $14,708 $537
======= ====
</TABLE>

Revenues are attributed to countries based on delivery locations. Sales to
foreign customers accounted for 45%, 43%, 42%, 45% and 41% of revenue during
the year ended December 31, 1997, 1998 and 1999, and the nine month periods
ended September 30, 1999 (unaudited) and 2000 (unaudited), 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-19
<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, which was consumated
on October 31, 2000.

As a result of the reincorporation, the Company was 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 September 2000, the Board of Directors finalized a 1.25 for 1 stock split
of common stock, which was consumated on October 31, 2000. All share and per
share amounts in the accompanying financial statements have been adjusted
retroactively.

Stock Option Grants

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, 4,812,500 and 312,500 shares will be
reserved for issuance under the 2000 Stock Incentive Plan and the 2000 Employee
Stock Purchase Plan, respectively.

Development Agreement

In September 2000, the Company entered into an agreement with Agilent
Technologies to jointly develop and separately market an InfiniBand analyzer.
Pursuant to the agreement, the Company will receive a royalty for each unit of
the analyzer that Agilent sells, subject to a minimum of $200,000 in the first
year of sales. The agreement provides for a fee of up to $1,000,000 if either
party elects not to renew the agreement after the initial two year term.

Private Sale of Equity

In September 2000, certain stockholders of the Company agreed to sell
$3,000,000 of common stock to Agilent at the initial public offering price. If
the Company's initial public offering is not completed by January 31, 2001, the
shares will be purchased from the Company at $13.00 per share.
The Company has agreed to indemnify Agilent in the event that the shares sold
by the selling stockholders are delivered to Agilent with any restrictions on
title.

In September 2000, certain stockholders of the Company agreed to sell
$2,000,000 of the Company's common stock to Toyo, one of the Company's
distributors and a major customer, at the initial public offering price. If the
Company's initial public offering is not completed by January 31, 2001, the
shares will be purchased from the selling stockholders at $13.00 per share.

F-20
<PAGE>

[Description of Inside Back Cover Graphics]

The background of the inside back cover page of the prospectus is a graphic
likeness of the CATC Trace screen. The CATC logo is centered at the top of the
page. The page includes photographs, with corresponding product category title,
of 11 of CATC's products. The bottom on the inside back cover page is centered
text that reads "Enabling Global Connectivity."
<PAGE>

[COMPUTER ACCESS TECHNOLOGY CORPORATION LOGO]