SUMMIT DESIGN INC, 10-K405, 2000-03-02

SUMMIT DESIGN INC
10-K405, 2000-03-02
PREPACKAGED SOFTWARE

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

/X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1999 or

/ / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ____________ to ___________

COMMISSION FILE NUMBER: 0-20923

SUMMIT DESIGN, INC.

(Exact name of registrant as specified in its charter)

DELAWARE 93-1137888
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)

9305 S. W. GEMINI DRIVE,

BEAVERTON, OREGON 97008

(Address of principal executive office)
Registrant's Telephone number, including area code: (503) 643-9281

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Common Stock, $0.01 par value
(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
-----

The aggregate market value of the voting-stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on February
25, 2000 as reported on the Nasdaq National Market, was approximately
$118,360,055. Shares of Common Stock held by each named executive officer and
director and by each entity that owns 5% or more of the outstanding Common
Stock have been excluded in that such persons may be deemed affiliates. This
determination of affiliate status is not necessarily a conclusive
determination for other purposes.

As of February 25, 2000, Registrant had outstanding 15,913,957 shares of
Common Stock.

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DOCUMENTS INCORPORATED BY REFERENCE

The Registrant has incorporated by reference into Part III of this Form 10-K to
the extent stated herein certain sections of its definitive Proxy Statement for
the 2000 Annual Meeting of Stockholders to be held during the year 2000.

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PART I

IMPORTANT NOTE ABOUT FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates" and similar expressions
identify such forward-looking statements. These forward-looking statements are
subject to risks and uncertainties that could cause actual results to differ
materially from those indicated in the forward-looking statements. Such risks
and uncertainties include those set forth in Part II, Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations under
the subheading "Additional Risk Factors that Could Affect Operating Results and
Market Price of Stock." Unless required by law, the Company undertakes no
obligation to update publicly any forward-looking statements.

ITEM 1. BUSINESS

GENERAL

Summit Design, Inc. ("Summit" or the "Company") is a leading supplier of
software tools designed to solve the integrated circuit ("IC" or "chip")
engineering problems caused by increasing chip complexity and the corporate
problem of reusing the highly valuable intellectual property ("IP") created by
IC engineers. The worldwide community of IC engineers is rapidly moving up in
the design hierarchy from physical design entry to functional level design. This
migration is intended to achieve greater engineering efficiency and shorter time
and to market and to provide an excellent basis for IC intellectual property
management. At the functional level of design, engineers conceptualize designs
in graphical paradigms such as block diagrams, state machines and flow diagrams
and then write programs describing those concepts in a textual language called a
Hardware Descriptive Language ("HDL"). There are two standard HDLs, Verilog and
VHDL. There are two levels of functional design, Register Transfer Level ("RTL")
and Behavioral level. The mathematical process to translate from an RTL design
to the physical level of design is called synthesis. With Summit's Visual HDL
product, the IC engineer can draw functional level designs on a workstation or
PC using familiar graphical paradigms such as block diagrams, state machines and
flow diagrams. Visual HDL compiles these graphical representations into correct
by construction, synthesis ready, behavioral or RTL designs. Summit's suite of
RTL simulation, verification and optimization software tools then provide a
highly efficient environment for getting a design from concept to synthesis. The
Company's IP solutions allow the synthesizable design with graphical executable
documentation to be placed in libraries for reuse or to be distributed in a
software model format for early inclusion in future electronic system or product
designs.

The Company was incorporated in the State of Delaware on December 29, 1993. The
Company's principal executive offices are located at 9305 SW Gemini Drive,
Beaverton, Oregon 97008 and its telephone number is (503) 643-9281. Unless the
context otherwise requires, the terms "Company" and "Summit" as used in this
report refer to (i) Summit Design, Inc. and its wholly-owned subsidiaries
following the acquisition of SEE Technologies Software Environment for Engineers
Ltd. ("SEE Technologies"), SEE Technologies changed its name to Summit Design
(EDA) Ltd. in September 1994, and the reorganization of Test Systems Strategies,
Inc. ("TSSI") as a wholly-owned subsidiary of Summit (collectively, the
"Reorganization"), (ii) TSSI prior to the Reorganization, which has been merged
into the Company, (iii) TriQuest Design Automation, Inc. ("TriQuest") which was
acquired February 1997 and which has been merged into the Company, (iv) Summit
Verification, Inc., the surviving company from the acquisition of Simulation
Technologies Corp. ("SimTech") in September 1997 and (v) ProSoft Oy ("ProSoft")
which was acquired in June 1998.

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INTRODUCTION

Summit's target marketplace for its software based front-end design tools
includes hardware companies who develop chips, such as Intel, AMD and Motorola,
as well as hardware companies who build electronic systems consisting of both
hardware and software, such as IBM, Sun Microsystems and Cisco Systems. More
specifically, Summit develops and licenses software applications which help our
customers to create and verify ICs and systems. The specific segments in the
front-end of the design cycle where Summit participates are:

- design entry;
- simulations; and
- verification

Summit's products include:

- VISUAL HDL--a graphical design entry tool which allows engineers
to conceptualize and capture a design
- TEXT TO GRAPHICS--converts a design model initially created in an
all-text style to the graphical representation of Visual HDL
where it can be visualized by those new to the design team and
used for making modifications to the model
- VISUAL IP--provides a method of packaging design models, a common
form of intellectual property, so they may be re-used in
subsequent versions or other designs
- VIRSIM--a simulation utility that produces graphical waveforms,
schematics with time values and displays code execution while a
model is being simulated
- HDLSCORE--a verification tool which verifies how well a
particular test or tests have exercised a design
- V-CPU--a co-verification tool which allows the system designer to
execute software code against a simulated model of a chip or
system; V-CPU is used for hardware/software co-verification to
ensure the software design really works on the proposed hardware
before the chip is produced

The end users of Summit's products are electronic engineers and computer science
engineers who use Summit's products to create software models of proposed chips
and systems and verify these models for accuracy, speed and behavior. These
software models are typically written in a Hardware Description Language, or
HDL, which can be run in a simulation environment. The two principal HDLs are
Verilog and VHDL. The simulation environment allows the end user to evaluate how
the chip or system responds to various inputs and to make timing measurements to
establish how fast the chip or system can operate. Once the model is perfected,
it can be synthesized for physical implementation into the real chip. This
design process typically uses tools from multiple electronic design automation,
or EDA, companies.

The simplified front-end design flow below identifies where Summit's tools are
used in the design process:

DESIGN FLOW

<TABLE>
<S> <C> <C> <C> <C> <C>
Design Entry-> Simulation-> Verification-> Synthesis-> Layout, Place & Route-> Manufacture
</TABLE>

Summit Product Offerings:

Visual HDL VirSim HDLScore
Visual IP V-CPU

INDUSTRY BACKGROUND

Electronic design automation software is software that automates the tasks and
process of designing electronic components, systems and products. This software
has played a critical role in accelerating the dramatic advances in the
electronics industry over the past two decades. For most of this period, the
need for more advanced electronic design automation tools has been driven by the
rapid increase in complexity of integrated circuits or chips. An integrated
circuit is an electrical device consisting of various components, connections
and switches that can be designed to perform a specific function. The increase
in complexity of integrated circuits has been compounded by the increasing
number of new chips being developed and the scarcity of engineers skilled in the
design and testing of chips. Moreover, the increase in the complexity of chips
lengthens their development cycle while, at the same time, competitive pressures
shorten the life cycles of the products that incorporate chips.

In recent years, chip development productivity has increased through the
evolution of electronic design automation. But this development productivity has
not kept pace with the advances in chip manufacturing technology. Chip
manufacturing technology has advanced from the ability to produce chips with
over one thousand switches and five micron wide wires connecting parts of the
chip in the 1970s to greater than one million switches at less than 0.5 micron
wire widths today.

The productivity of the average chip design engineer has not kept pace with the
progress in manufacturing technology. As a result, a greater number of
engineering hours are required to design many of today's more complex electronic
components and systems, leading to either longer development schedules or the
need for larger design teams. To address this challenge, organizations with chip
design

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capabilities continue to search for electronic design automation tools that
enable them to increase their productivity and meet the aggressive
development schedules dictated by competitive forces.

In recent years, lengthening design cycles and significant time-to-market
pressures have influenced a shift in the choice of chip technologies away from
fully customized integrated circuits and partially pre-designed integrated
circuits also know as application-specific integrated circuits, to more flexible
technologies that shorten the design cycle. These more flexible technologies
include:

- chips whose function can be changed with software-like
programming known as field programmable gate arrays;
- chips created to provide a fixed function for a specific
application known as application-specific standard parts; and
- multi-purpose processing chips that actually run software
programs known as embedded processors. These integrated circuit
choices help to provide greater flexibility and faster time to
market for companies that design electronic products. They also
present new design automation challenges, including design and
testing of systems that contain significant embedded software
programs.

Further complicating the design task is the effect that faster chips have on
overall system design. Fast-switching signals (when an electrical signal changes
voltage beyond a predetermined amount) are required to achieve the very fast
processor speeds we now take for granted. These fast signals can cause
electrical signals to radiate from the chip and cause unintentional negative
effects on other signals on the chip, potentially causing the system to fail. If
the necessary analysis and testing is not performed before the system is
manufactured, these problems can affect the quality of the final system that the
chips are embedded in. This situation has created the need for sophisticated
tools to design and test the wires on the chip and those that connect the chips
and other components within electronic products.

This emerging design challenge, driven by faster, more complex chips, creates
many new problems for the manufacturers of electronic products and opportunities
for companies that provide tools for the design of electronic products. The
objectives of electronic design automation are to reduce time to market and the
costs associated with product design, analysis, testing and optimization, while
permitting the development of a greater number of product designs of higher
speed and greater complexity which can be reliably manufactured.

Summit believes that time to market pressures and the complexity of chip
designing will cause manufacturers of electronic products to move towards
differentiating their products at the system level rather than at the chip level
and plan to focus on providing tools for that purpose.

Electronic design automation has come to mean hardware design automation, and
Summit believes it is no longer appropriate to describe the breadth of the
market for software to automate the design of electronic products. The scope of
this expanded market can be defined by the stages of the electronic design
process.

The system-level design automation phase of development is comprised of the
software and services that serve the needs of designers designing electronic
products that also include computer software. This system-level design is based
on the cooperative design of both hardware and software for the completed
electronic product. An increasing number of electronic products now include
software as a major component of the overall functionality of the product.
Therefore, system-level design involves managing tradeoffs among the following
factors:

- system performance and features;
- system memory requirements;
- processor selection;
- chip area/cost;
- product cost;
- system power/battery life;
- system programmability; and
- project schedule.

It is also the stage of a project where decisions are usually made about
adopting new design partners, methodologies, policies and automation tools.

These decisions include choices regarding software development tools, strategies
needed for the design and test of hardware and software components together,
chip vendors and electronic design automation tools and processes. In addition,
refinements to the processes and tools that are created to help large design
teams work together efficiently also emerge at this phase of development.

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SUMMIT STRATEGY

Summit's mission is to become the leading supplier of High Level Design
Automation or HLDA software and to achieve wide-spread acceptance of these
technologies by expanding the size of Summit's served market. The key elements
of Summit's strategy to achieve this mission are as follows:

ACCELERATE MARKET ADOPTION OF HLDA

Summit intends to expand market acceptance by focusing on key customer accounts
to ensure their successful adoption of the HLDA methodology. Summit believes
that successful adoption by certain key customers in various industries will
promote adoption by other customers within those industries. Summit also
believes that its joint development and marketing programs with industry leaders
promote awareness and adoption of HLDA. In addition, Summit supports all of the
industry's major synthesis, simulation, and many test products and continues to
support and complement new standards as they emerge. Summit also targets student
engineers by introducing them to its HLDA products through programs with various
universities.

LEVERAGE SUMMIT'S HLDA TECHNOLOGY

Summit's products target HDLA users and support both popular hardware
description languages: Verilog and VHDL. There is significant investment being
made in the EDA industry to move up further in abstraction to certain
programming languages such as C and C++. In 1999, Summit embarked on product
development for a new design entry product, SLD (System Level Design). SLD will
include the core technology of Visual HDL, but will also be enhanced to
accommodate the higher level programming languages and will be tightly
integrated with the Summit's V-CPU and related technology to produce a true
system level design entry and analysis product for any design language the end
user desires. In addition, SLD will be optimized to handle analysis and
simulation of both the hardware and software components of the design. Summit is
the only EDA company who has access to technology for integrating real-time
operating system, or RTOS, functions into the system simulation.

BROADEN THE SCOPE OF SUMMIT'S HLDA SOLUTIONS

Summit will continue to identify challenges facing both IC systems engineers and
IC design engineers in the areas of HLDA and to focus its development efforts on
products to further increase productivity in the creation, analysis,
verification, documentation and optimization of single function ICs and complete
systems on a chip. Summit believes that power, timing, thermal and cost
constraints management and analog circuit design will become increasingly
significant bottlenecks, especially in the area of complete systems on a chip.
Summit believes that in the future its HLDA products will provide a graphical
means for both systems and design engineers to specify the functional intent and
simulate the interoperability of hardware and software, as well as providing the
capability to perform what-if analysis on constraints such as power, speed,
temperature and cost early in the design cycle.

SUMMIT PRODUCTS

VISUAL HDL

In 1994, Summit introduced Visual HDL. It is the result of a focused five-year
development effort of approximately 40 EDA software development experts. Visual
HDL provides system design management, graphical design creation, graphical
level simulation, automatic HDL code generation and high speed compiled code
simulation of the design. It assists design engineers in meeting the market
demands for rapid time to market, increased product functionality and lower
product cost while providing the corporations that employ these engineers an
efficient way to document, revise and distribute the highly valuable IC
intellectual property they create. Visual HDL automates manual design entry and
verification by enabling IC systems and design engineers to create and verify IC
designs using familiar graphical paradigms rather than less intuitive textual
HDL code. Visual HDL allows engineers to quickly determine the cause of a bug by
highlighting the specific line of text and the related graphical representation
where the error exists, thereby significantly shortening the time to debug a
program. Visual HDL has become an industry leader for graphical design creation,
analysis and IP management and is available for use on both UNIX and PC based
workstations.

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Visual HDL is designed to provide the following key benefits:

- Increased design productivity
- Highly interactive cause and effect feedback for design debugging
- Enhanced documentation of designs algorithms
- Graphical presentation to allow new developers to better
understand a design
- Complete and understandable design archives for future design
revisions

TEXT TO GRAPHICS

Introduced in 1997, Text to Graphics provides companies who purchase Visual HDL
an automated methodology to convert their existing designs into the Visual
format. Prior to this product, Visual HDL was only purchased for doing new
designs. Existing HDL text based designs had to be dealt with in the old
fashioned way--by reviewing thousands of lines of code to try and understand how
a model worked. Text to graphics thus expanded the use of Visual HDL by making
it easy to convert text-based code to a graphics-based presentation. Working
from a graphics representation is especially useful to international users who
may not understand the nuances of the common English programming constructs.

Text to Graphics provides the following key benefits:

- Automatic conversion from a text-based design to a graphical
representation of the design which can be used in Visual HDL for
design analysis and simulation
- Re-constructs the design graphically so that new users can easily
grasp the designs concepts and algorithms

VISUAL IP

Companies spend significant budgets in developing and testing models, and re-use
is a key strategy for many companies to leverage their existing technology. The
goal of Summit's Visual IP product is to provide a mechanism for distributing
these highly confidential simulation models to other users, either within the
organization or externally, while at the same time protecting the intellectual
value through encryption. The protection is not only so they can not be copied,
but so that internal users cannot change the source code which represents the
design thus eliminating the value of all the prior testing that has been done on
the IC model.

Visual IP is designed to provide the following benefits:

- Encryption of intellectual property for design reuse
- Generates models which can be used with any simulator
- Generates models which can be executed stand alone allowing the
user to apply his own criteria to a model before selecting it for
reuse
- Provides a safe mechanism for companies to provide soft versions
of their design while maintaining the proprietary nature of their
intellectual property

VIRSIM

VirSim is a debug and analysis tool which provides an integrated set of debug
capabilities for use with the leading HDL simulators provided by other EDA
companies. VirSim makes extensive use of graphics in presenting detailed yet
cohesive information to the user about simulation results. Outputs from both
digital and analog simulations are supported and signal values can be displayed
as digital or analog waveforms. Multiple simulation runs can be debugged at the
same time, allowing signals from different simulations to be compared easily.

VirSim is designed to provide the following benefits:

- Fast waveform tracing with minimum file size
- Extensive waveform editing and algebraic combination capabilities
- Color coded source tracing with breakpoint insertion
- Powerful graphical logic tracing even from text based designs
- Integration with all the popular simulators

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HDL SCORE

HDLScore provides a quantitative measure of the quality of simulation tests that
have been applied to an entire design model or to selected portions of a design.
Simply stated, HDLScore answers the question "have I adequately tested my design
with the tests I have developed?" To answer this question, HDLScore provides a
percentage measurement of how much of the design has been exercised with the
provided tests. At the end of any simulation, the user can get the score or
coverage he has accomplished. HDLScore works with all popular simulation
environments and fits seamlessly into the design verification process. In
addition, HDLScore provides a graphic user interface which displays exactly
which statements in the model have been executed and, more importantly, which
statements have not been executed.

HDLScore is designed to provide the following benefits:

- Answers the question, "how much of my design has been tested?"
- Provides graphical display of untested areas of the design
- Provides a percentage of the design covered by each test so that
tests which are redundant can be eliminated to save simulation
time
- Provides test ordering capability so high coverage tests can be
simulated first, thus exposing potential errors early in the
simulation run

V-CPU allows embedded-system designers to analyze and validate the interaction
between hardware and software early in the development process, while design
options are still open. Co-verification of software can begin as soon as there
is an executable description of the software and hardware. This early
integration allows problems to be detected while they are still easy to fix.
With V-CPU, software developers can test software against simulated hardware at
high execution rates, and hardware developers can validate the system
architecture with stimulus provided by the software. In short, V-CPU allows
early simulation of hardware with the actual software before the IC's are even
built.

V-CPU is designed to provide the following benefits:

- Use the actual software to test the hardware under design,
exposing potential miscommunication between hardware and software
groups
- Encourages early design communication between hardware and
software groups when co-verification displays unexpected results
- Minimizes the activity in the hardware simulator allowing for
fast run times
- Provides a specific interface to the hardware simulator to allow
use of standard programming languages to create test suites

SUMMIT CUSTOMERS

Summit's end-user customers include companies in a wide range of industries,
including semiconductor devices, telecommunications, computer peripherals,
consumer electronics, aerospace defense and other electronics entities. In 1999,
no single customer accounted for more than 10% of total revenue. In 1998 and
1997, sales to Credence Systems Corporation ("CSC") accounted for 25% and 29% of
Summit's total revenue, respectively. As of December 31, 1999, Summit had
installed more than 7,100 seats of its Design tools in more than 500 companies,
of which more than 300 companies had entered into support contracts. In
addition, as of such date, Summit had licensed more than 4500 seats of
verification solution tools.

SUMMIT BACKLOG

Summit's backlog was $5.6 million, $5.9 million and $7.0 million at December 31,
1999, 1998 and 1997, respectively. Such backlog amounts include $5.6 million,
$5.4 million and $5.7 million that were reflected in deferred revenue in
Summit's financial statements for December 31, 1999, 1998 and 1997,
respectively. Backlog consists of orders for which Summit has received a firm
purchase order for products that are currently shippable and certain amounts
previously invoiced to customers which are included in deferred revenue. Amounts
included in deferred revenue consist of maintenance and support contracts that
are expected to be completed within one year, orders for customer training
services that are expected to be completed within one year, prepaid exclusivity
fees that are expected to be recognized within one year, and shipments made
subject to conditions that are expected to be satisfied within one year. In
addition to the backlog amounts reflected above, at December 31, 1997, Summit
had the right to ship up to a maximum of $8.8 million of Visual Testbench
licenses during 1998 to CSC pursuant to a contract with CSC. During 1998, all
obligations pursuant to the contract with CSC were satisfied such that, at
December 31, 1998, CSC had no further obligation to purchase Visual Testbench
licenses. Third-parties to such commitments may terminate or breach their
obligations. Therefore, these revenues may not be recognized in fiscal 2000 or
in any later period. Summit recognized no such revenue during 1999.

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SUMMIT MARKETING AND SALES

Summit markets its products to customers worldwide who design or manufacture ICs
for their own use or sale in a wide variety of industries. The primary
objectives of Summit's marketing effort are to (i) increase market awareness of
Summit's products, (ii) promote the adoption of HLDA methodologies, and (iii)
evaluate customer satisfaction and determine additional customer demands. To
increase market awareness, Summit displays its HLDA products at all major
industry trade shows, including the annual Design Automation Conference in the
U.S., Design Automation and Test Conference in Europe, Japan DAC in Japan and
the Embedded Systems Conference in the U.S. Summit also promotes its products
through advertisements in trade journals and by sponsoring various seminar
series. To promote the adoption of its methodologies, Summit offers its products
at a reduced cost to design engineering programs at several universities so that
engineering students may become familiar with Summit's products and design
techniques.

Summit's sales strategy is to employ its direct sales as well as its independent
and affiliated distributors to efficiently and effectively target individual
customer and product market segments worldwide.

DIRECT SALES

Summit employs direct sales teams which combine technically proficient sales
persons with skilled field applications engineers capable of serving the
sophisticated needs of the management and engineering staff of its customers.
Summit assigns selected direct sales personnel to target major accounts, such as
vertically integrated systems design houses like Lucent, IBM, Motorola and
Siemens that produce their own IC designs for their electronic products. Major
accounts receive particular focus because of their size and influence as
industry leaders.

Summit's direct sales force operates in the United States and portions of
Europe, with offices in Arizona, California, Colorado, Florida, Maryland,
Massachusetts, Minnesota, Oregon and Texas, as well as France, Germany, Italy
and the United Kingdom. Approximately 72%, 77%, and 71% of Summit's revenue for
the years ended December 31, 1999, 1998, and 1997, respectively, were generated
through Summit's direct sales force.

DISTRIBUTORS

Summit relies on distributors for licensing and support of Summit's products
outside of North America. Approximately 28%, 23%, and 29% of Summit's revenue
for the years ended December 31, 1999, 1998 and 1997, respectively, came from
sales made through distributors. In Asia, Summit Design Asia, Ltd., or SDA, a
joint venture of Summit, has the exclusive rights to sell, distribute and
support Summit's products in the Asia Pacific region, excluding Japan. In turn,
SDA has granted exclusive rights to sell, distribute and support products in
Korea to Asia Design Corporation, or ADC, a company in which SDA has an equity
investment. SDA has also granted non-exclusive distribution rights to
Semiconductor Technologies Australia for the Asia Pacific region, excluding
Japan and Korea.

In addition, in the first quarter of 1996, Summit entered into a three-year,
exclusive distribution agreement for Summit's HLDA products in Japan with Seiko.
The agreement is renewable for successive five-year terms by mutual agreement of
Summit and Seiko and is terminable by either party for breach. The agreement was
renewed for an additional five-year term which began in February 1999. Sales
through Seiko accounted for 22%, 14%, and 12% of its total for the years ended
December 31, 1999, 1998, and 1997, respectively. In June 1999, Summit lowered
Seiko's first quarter 2000 product quota in recognition of the adverse economic
conditions in the Asia Pacific Region. In December 1999, Summit agreed to waive
Seiko's first quarter 2000 product quota requirements to maintain distribution
exclusivity. As a result, Summit expects sales through Seiko to decrease for at
least the current and following two quarters and revenue attributable to sales
in the Asia Pacific region to decrease.

INTERNATIONAL SALES

Approximately 44%, 36%, and 34% of Summit's revenue for the years ended December
31, 1999, 1998 and 1997, respectively, came from sales made outside of the
United States which includes the Asia Pacific region and Europe. Approximately
25%, 22%, and 22% of Summit's revenue for the years ended December 31, 1999,
1998 and 1997, respectively, came from sales made in the Asia Pacific region and
approximately 19%, 14%, and 12% of Summit's revenue for the years ended December
31, 1999, 1998, and 1997, respectively, came from sales made in Europe. In order
to successfully expand international sales, Summit may need to establish
additional foreign operations, hire additional personnel and recruit additional
international distributors. This will require significant management attention
and financial resources and could adversely affect Summit's operating margins.
In addition, to the extent that Summit is unable to effect these additions in a
timely manner, Summit's growth, if any, in international sales will be limited.
Summit may not be able to maintain or increase international

Sales of Summit's products, and failure to do so could have a material adverse
effect on Summit's business, financial condition, results of operations or cash
flows. In addition, financial markets and economies in the Asia Pacific region
have been experiencing adverse economic conditions. Demand for and sales of
Summit's products in the Asia Pacific region have decreased and may further
decrease.

<PAGE>

CUSTOMER SERVICES

Technical support is available to customers on both a pre-sale and post-sale
basis. Pre-sale support involves Summit's application engineers working with
Summit's direct sales force and distributors to provide on-site support during
the end user's evaluation and implementation process. Post-sale support is
provided through annual world wide web (internet) maintenance contracts which
provide customers access to Summit's technical support team via telephone, minor
enhancements and any major upgrades. This program is sold for 15% to 20% of the
list price of the product, depending on the product. Summit provides its
customers with a 90-day warranty that its product media is free from defects.

In addition to its maintenance, technical support and upgrade fees, Summit also
conducts a variety of training programs ranging from introductory level courses
to advanced training on full use of all of its products. Training is offered at
Summit's facilities, at distributors' facilities and at customer locations
worldwide. For the years ended December 31, 1999, 1998 and 1997, maintenance and
services provided approximately 38%, 22%, and 20% of Summit's total revenue,
respectively.

SUMMIT COMPETITION

The electronic design automation industry is highly competitive and Summit
expects competition to increase as other electronic design automation companies
introduce HLDA products. Summit's Design Entry products compete principally with
Mentor Graphics and Escalade, a small private company. Summit's Verification
products compete with Cadence Design Systems, Synopsys, Mentor Graphics and
Verisity. Indirectly, Summit also competes with other firms that offer
alternatives to HLDA and could potentially offer more directly competitive
products in the future. Certain of these companies have significantly greater
financial, technical and marketing resources and larger installed customer bases
than Summit. Some of Summit's current and future competitors offer a more
complete range of electronic design automation products and may distribute
products that directly compete with Summit's HLDA products by bundling such
products with their core product line. In addition, Summit's products perform a
variety of functions, certain of which are, and in the future may be, offered as
separate products or discrete point solutions by Summit's existing and future
competitors. For example, certain companies currently offer design entry
products without simulators. Competition may cause Summit to offer point
solutions instead of, or in addition to, Summit's current software products.
Such point solutions might be priced lower than Summit's current product
offerings and could cause Summit's average selling prices to decrease, which
could have a material adverse effect on Summit's business, financial condition,
results of operations or cash flows.

Summit competes on the basis of certain factors including:

- product capabilities;
- product performance;
- price;
- support of industry standards;
- ease of use;
- first to market; and
- customer technical support and service.

Summit believes that it competes favorably overall with respect to these
factors. However, in particular cases, Summit's competitors may offer HLDA
products with functionality which is sought by Summit's prospective customers
and which differs from that offered by Summit. In addition, certain competitors
may achieve a marketing advantage by establishing formal alliances with other
electronic design automation vendors. Further, the electronic design automation
industry in general has experienced significant consolidation in recent years.
The acquisition of one of Summit's competitors by a larger, more established
electronic design automation vendor could create a more significant competitor.
Summit may not be able to compete successfully against current and future
competitors. Competitive pressures faced by Summit may have a material adverse
effect on its business, financial condition, results of operations or cash
flows. Summit's current and future competitors may be able to develop products
comparable or superior to those developed by Summit or adapt more quickly than
Summit to new technologies, evolving industry trends or customer requirements.
Increased competition could result in price reductions, reduced margins and loss
of market share, all of which could have a material adverse effect on Summit's
business, financial condition, results of operations or cash flows.

<PAGE>

SUMMIT PRODUCT DEVELOPMENT

Development of HLDA products has been performed at Summit's offices in Israel
and at Summit's principal office in Beaverton, Oregon. As the result of the
acquisitions of TriQuest and SimTech during 1997 and ProSoft in 1998, Summit has
added additional research and development facilities in San Jose, California,
New Brighton, Minnesota, and Finland. As of December 31, 1999, Summit's research
and development team consisted of 87 software developers, dedicated to Summit's
products.

For the years ended December 31, 1999, 1998, and 1997, Summit's research and
development expenditures were approximately $10.2 million, $13.0 million, and
$7.7 million, respectively, which represented approximately 34%, 30%, and 25% of
revenue in each such period. Summit has to date expensed all research and
development costs as incurred. Summit's $13.0 million expenditure in 1998 and
$7.7 million expenditure in 1997 included $3.7 million and $733,000,
respectively, of expense in connection with the acquisition of SimTech in
September 1997. In connection with Summit's acquisition of SimTech in September
1997, Summit recorded a total of $4.4 million of compensation expense for shares
issued as part of the acquisition which were contingent upon continued
employment and were being expensed as the employment obligation lapsed. See
"Summit Management's Discussion and Analysis of Financial Condition and Results
of Operations." Summit's research and development strategy is to be proactive in
determining customer needs and to develop new HLDA products to meet these needs.
Summit believes that system-level definition and design analysis will become
increasingly significant bottlenecks in the IC development process and thus
present product development opportunities. Summit's research and development
efforts are focused on creating products to further increase productivity in the
creation, verification, documentation and the preservation of both IC and system
level designs.

Summit has actively sought to establish cooperative relationships with certain
electronic design automation industry leaders in order to gain early access to
new product information and to better integrate Summit's products with those
supplied by other vendors in the electronic design automation market. For
example, Summit has a relationship with Cadence pursuant to which Cadence helps
specify the integration between Summit's Visual HDL for Verilog and Cadence
Verilog XL simulator. Summit believes that these relationships mutually benefit
Summit and the electronic design automation vendors by fostering development and
facilitating interoperability of Summit's and vendors' complimentary products.
These relationships are informal and may be terminated by either party with
limited notice. In addition, such relationships are with companies that are
current or potential future competitors of Summit. If any of these relationships
were terminated and Summit was unable to obtain in a timely manner information
regarding modifications of third party products necessary for modifying its
software products to interoperate with these third party products, Summit could
experience a significant increase in development costs, the development process
would take longer, product introductions would be delayed and Summit's business,
financial condition, results of operations or cash flows could be materially
adversely affected.

The electronic design automation industry is characterized by extremely rapid
technological change, frequent new product introductions and evolving industry
standards. The introduction of products embodying new technologies and the
emergence of new industry standards can make existing products obsolete and
unmarketable. In addition, customers in the electronic design automation
industry require software products that allow them to reduce time to market,
differentiate their products, improve their engineering productivity and reduce
their design errors. Summit's future success will depend upon its ability to
enhance its current products, develop and introduce new products that keep pace
with technological developments and emerging industry standards and address the
increasingly sophisticated needs of its customers. Summit may not be successful
in developing and marketing product enhancements or new products that respond to
technological change or emerging industry standards. Summit may experience
difficulties that could delay or prevent the successful development,
introduction and marketing of these products, or its new products may not
adequately meet the requirements of the marketplace and achieve market
acceptance. If Summit is unable, for technological or other reasons, to develop
and introduce products in a timely manner in response to changing market
conditions, industry standards or other customer requirements, particularly if
such product releases have been pre-announced, Summit's business, financial
condition, results of operations or cash flows would be materially adversely
affected.

Software products as complex as those offered by Summit may contain errors that
may be detected at any point in the products' life cycles. Summit has in the
past discovered software errors in certain of its products and has experienced
delays in shipment of products during the period required to correct these
errors. Despite testing by Summit and by current and potential customers, errors
may be found, resulting in loss of, or delay in, market acceptance and sales,
diversion of development resources, injury to Summit's reputation or increased
service and warranty costs, any of which could have a material adverse effect on
Summit's business, financial condition, results of operations or cash flows.

SUMMIT PROPRIETARY RIGHTS

Summit's success depends upon its proprietary technology. Summit relies on a
combination of copyright, trademark and trade secret laws, confidentiality
procedures, licensing arrangements and technical means to establish and protect
its proprietary rights. As part of its confidentiality procedures, Summit
generally enters into non-disclosure agreements with its employees, distributors
and corporate partners, and limits access to, and distribution of, its software,
documentation and other proprietary information. In addition, Summit's products
are protected by hardware locks and software encryption techniques designed to
deter unauthorized use and copying. Despite these precautions, it may be
possible for a third party to copy or otherwise obtain and use Summit's products
or technology without

<PAGE>

authorization, or to develop similar technology independently. In addition,
effective protection of intellectual property rights may be unavailable or
limited in certain foreign countries.

Summit provides its products to end-users primarily under "shrink-wrap" license
agreements included within the packaged software. In addition, Summit delivers
certain of its verification products electronically under an electronic version
of a "shrink-wrap" license agreement. These agreements are not negotiated with
or signed by the licensee, and thus may not be enforceable in certain
jurisdictions. In addition, the laws of some foreign countries do not protect
Summit's proprietary rights as fully as do the laws of the United States.
Summit's means of protecting its proprietary rights in the United States or
abroad may not be adequate, and competitors may independently develop similar
technology. Summit could be increasingly subject to infringement claims as the
number of products and competitors in Summit's industry segment grows, the
functionality of products in its industry segment overlaps and an increasing
number of software patents are granted by the United States Patent and Trademark
Office. Although Summit is not aware of any threatened litigation or
infringement claims, a third party may claim such infringement by Summit with
respect to current or future products. Any such claims, with or without merit,
could be time-consuming, result in costly litigation, cause product delays or
require Summit to enter into royalty or licensing agreements. Such royalty or
license agreements, if required, may not be available on terms acceptable to
Summit or at all. Failure to protect its proprietary rights or claims of
infringement could have a material adverse effect on Summit's business,
financial condition, results of operations or cash flows.

SUMMIT OPERATIONS IN ISRAEL

Summit's research and development operations related to Visual HDL products are
located in Israel. Economic, political and military conditions may affect
Summit's operations in that country. Hostilities involving Israel, for example,
could materially adversely affect Summit's business, financial condition and
results of operations. Restrictions on Summit's ability to manufacture or
transfer outside of Israel any technology developed under research and
development grants from the government of Israel further heightens the potential
impact.

While all of Summit's sales are denominated in U.S. dollars, a portion of its
annual costs and expenses in Israel are paid in Israeli currency. Payment in
Israeli currency subjects Summit to foreign currency fluctuations and to
economic pressures resulting from Israel's generally high rate of inflation of,
for example, approximately 4.5% and 9% in 1999 and 1998, respectively. As a
result, an increase in the value of Israeli currency in comparison to the U.S.
dollar could increase the cost of research and development expenses and general
and administrative expenses.

Coordination with and management of the Israeli operations requires Summit to
address differences in culture, regulations and time zones. Failure to
successfully address these differences could disrupt Summit's operations.

Summit's Israeli production facility has been granted the status of an "Approved
Enterprise" under the Israeli Investment Law for the Encouragement of Capital
Investments, 1959 (the "Investment Law"). Taxable income of a company derived
from an "Approved Enterprise" is eligible for certain tax benefits, including
significant income tax rate reductions for up to seven years following the first
year in which the "Approved Enterprise" has Israeli taxable income (after using
any available net operating losses) subject to certain conditions. In the event
of a failure by Summit to comply with these conditions, the tax benefits could
be canceled, in whole or in part, and Summit would be required to refund the
amount of the canceled benefits, adjusted for inflation and interest. No
"Approved Enterprise" tax benefits had been realized by Summit from its Israeli
operations as of December 31, 1995 since the Israeli operations were still
incurring losses at that time. During 1999 and 1998, Summit realized income of
$1.3 million and $4.3 million, respectively, from its Israeli operations and
"Approved Enterprise" tax benefits of $672,000 and $1.9 million, respectively.
Summit has recently applied for "Approved Enterprise" status with respect to a
new project and intends to apply in the future with respect to additional
projects. However, Summit's Israeli production facility may not continue to
operate or qualify as an "Approved Enterprise", and the benefits under the
"Approved Enterprise" regulations may not continue, or be applicable, in the
future. Management of Summit intends to permanently reinvest earnings of the
Israeli subsidiary outside the U.S. If such earnings were remitted to the U.S.,
additional U.S. federal and foreign taxes may be due. The loss of, or any
material decrease in, these income tax benefits could have a material adverse
effect on Summit's business, financial condition, results of operations or cash
flows.

ISRAELI RESEARCH, DEVELOPMENT AND MARKETING GRANTS

Summit's Israeli subsidiary obtained research and development grants from the
Office of the Chief Scientist in the Israeli Ministry of Industry and Trade of
approximately $232,000 and $608,000 in 1993 and 1995, respectively. As of
December 31, 1997, all amounts have been repaid. The terms of the grants
prohibit the manufacture of products developed under these grants outside of
Israel and the transfer of the technology developed pursuant to these grants to
any person, without the prior written consent of the Chief Scientist. Summit's
Visual HDL for VHDL products have been developed under grants from the Chief
Scientist and thus are subject to these restrictions. If Summit is unable to
obtain the consent of the government of Israel, Summit would be unable to take
advantage of potential economic benefits such as lower taxes, lower labor and
other manufacturing costs and advanced research and development facilities that
may be available if such technology and manufacturing operations could be
transferred to locations outside of Israel. In addition, Summit would be unable
to minimize risks particular to operations in Israel, such as hostilities
involving Israel.

<PAGE>

SUMMIT EMPLOYEES

As of December 31, 1999, Summit had 168 employees, 100 of whom were engaged
primarily in research and development and related operations, 36 of whom were
engaged primarily in sales and marketing and 32 of whom were engaged primarily
in corporate management and administration. A total of 86 of these employees
were located in the United States, 65 in Israel and 17 in Europe. Summit's
employees are not represented by any collective bargaining organization and
Summit has never experienced a work stoppage. Summit's future success will
depend, in part, on its ability to continue to attract, retain and motivate
highly qualified technical, marketing and management personnel, who are in great
demand.

ITEM 2. PROPERTIES

Summit's principal facility, located in Beaverton, Oregon, consists of
approximately 31,000 square feet of office space leased pursuant to an agreement
which terminates on March 31, 2000. The rent and common area fees payable on
this facility are currently approximately $28,000 per month. This space is used
for Summit's production, sales and marketing and administration. Summit also
leases approximately 12,000 square feet of office space in Herzlia, Israel for
research and development pursuant to a lease that expires on December 8, 2003
with an option to renew for five years. The rent payable on this office space is
currently $24,650 per month.

Additionally, Summit leases approximately 9,300 square feet of office space in
San Jose, California and 16,600 square feet in St. Paul, Minnesota for research
and development and sales activities. The aggregate rent payable for both
facilities is currently approximately $54,000 per month, and the leases expire
in October 2003 and August 2004, respectively.

Summit also leases office space for sales activities throughout the United
States and Europe at an aggregate annual rental of approximately $200,000.

Summit expects that its current facilities will be adequate to serve its needs
for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any material litigation and is not aware of any
pending or threatened litigation that could have a material adverse effect upon
the Company's business, operating results or financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

EXECUTIVE OFFICERS OF THE COMPANY

The executive officers and directors of the Company and their ages as of
February 25, 2000 are as follows:

<TABLE>
<CAPTION>
Name Age Position
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
William V. Botts.................... 64 Chairman of the Board, Chief Executive Officer
and Interim Chief Financial Officer

Richard Davenport................... 55 President and Chief Operating Officer

Moshe Guy........................... 42 Vice President, General Manager and Chief Operating
Officer Design Solutions Division

Eric Benhayoun...................... 46 Vice President, General Manager--European Operations

Arthur Fletcher..................... 35 Vice-President of Finance, Treasurer and Director of
Investor Relations

Sean Whiteley-Ross.................. 33 Chief Accounting Officer and Corporate Controller
</TABLE>

Mr. Botts was elected Chairman of the Board and Chief Executive Office in
July 1999. He served as a Director of the Company from May 1997 to the
present. Mr. Botts served as Chairman and CEO of California Lifestyles, Inc.,
an early stage consumer products company from 1997 to 1999. Prior to that,
from March 1996 to March 1997, he was Chairman of the Board and Chief
Executive Officer of Hard Candy, Inc., a fashion cosmetics company. From June
1993 to March 1996, Mr. Botts was the owner and President of WV Associates, a
consulting firm involved in mergers, acquisitions, business turnarounds and
strategic planning. From late 1992 until the end of 1995 he served on the
Board of Creative Nail Design Inc. From October 1992 to June 1993, Mr. Botts
served as President and Chief Executive Officer of Aurora Electronics, Inc.,
a semiconductor company and from March 1992 to June 1993 he was President and
Chief Executive Officer of Micro-C Corporation. Mr. Botts served as founder,
President and Chief Executive Officer of Vertex Design Systems, Inc., a CAD
software company, from September 1988 to March 1992 and as Chairman of the
Board, Chief Executive Officer

<PAGE>

and President of EI International Inc., a computer systems, software
and consulting company from April 1978 to January 1988. Prior to that time,
Mr. Botts was a divisional Vice President of Rockwell International
Corporation.

Mr. Davenport has served as President and Chief Operating Officer of the Company
since February 1999. Mr. Davenport was Vice President and Chief Operating
Officer of the Company's Verification Products Division from September 1997 to
February 1999. Mr. Davenport was the founder and CEO of SimTech from 1991
through September 1997. From 1987 through 1991, Mr. Davenport was a Regional
Sales Manager for Gateway Design Automation and Cadence Systems.

Mr. Guy has served as Vice President, General Manager and Chief Operating
Officer of the Design Solutions Division of Summit Design, Inc. since September
of 1997. From May 1996 to September 1997 Mr. Guy served as General Manager of
Summit Design (EDA) Ltd. Mr. Guy served as the Vice President of Product
Marketing for Summit Design Inc. from February 1994 to May 1996. Mr. Guy was the
Director of Marketing and Sales for SEE Technologies from January 1991 to
February 1994. SEE Technologies was the continuation of the Israeli Design
Center of Daisy and the main supplier of EDA Tools for Intergraph. From 1987 to
1991, Mr. Guy was a Technical Manager for Daisy Systems. Prior to that time, Mr.
Guy held various engineering positions with companies in the computer design
industry in Israel.

Mr. Benhayoun has served as Vice President, General Manager--European Operations
since June 1996 and as Vice President--European Sales Operations from November
1994 to June 1996. From June 1994 to November 1994, Mr. Benhayoun was the
European Marketing Manager for the Modeling Product Division of Synopsys. From
March 1990 to June 1994, Mr. Benhayoun was the General Manager and Director of
Logic Modeling Corporation France, an SDA provider which was acquired by
Synopsys in January 1994. Prior to that time, he held various European sales and
marketing management positions with Cadnetix Corporation and Daisy Systems, each
an EDA supplier.

Mr. Fletcher has served as Vice President of Finance since January 2000 and as
Treasurer and Director of Investor Relations since April 1996. From October 1995
to March 1996, Mr. Fletcher was Director of Business and Financial Planning.
From April 1994 to September 1995, Mr. Fletcher was Manager of Financial
Planning and Systems. Prior to April 1994, Mr. Fletcher held a variety of
finance and accounting positions with high technology companies.

Mr. Whiteley-Ross has served as Corporate Controller since May 1999 and as Chief
Accounting Officer since January 2000. Prior to that time, he was an audit
manager with PricewaterhouseCoopers LLP. Mr. Whiteley-Ross was with
PricewaterhouseCoopers LLP from January 1993 to May 1999.

<PAGE>

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS

The Company's Common Stock commenced trading on the Nasdaq National Market under
the trading symbol SMMT on October 18, 1996. The price for the Common Stock as
of the close of business on February 25, 2000 was $7.4375 per share. As of
January 23, 2000, the Company had approximately 3500 stockholders of record.

The following table sets forth the high and low sales prices per share of the
Company's the Common Stock for the periods indicated:

<TABLE>
<CAPTION>
HIGH LOW
------------- ----------------
<S> <C> <C>
1997:
First Quarter .......................... $ 11.875 $ 7.375
Second Quarter ......................... $ 9.375 $ 5.250
Third Quarter .......................... $ 18.125 $ 7.625
Fourth Quarter ......................... $ 18.750 $ 8.750

1998:
First Quarter .......................... $ 16.625 $ 9.438
Second Quarter ......................... $ 17.125 $ 13.500
Third Quarter .......................... $ 15.375 $ 5.875
Fourth Quarter ......................... $ 10.250 $ 4.750

1999:
First Quarter ......................... $ 9.625 $ 3.125
Second Quarter ......................... $ 4.000 $ 2.375
Third Quarter .......................... $ 3.500 $ 2.219
Fourth Quarter ......................... $ 4.188 $ 2.125

2000:
First Quarter (through February 25, 2000) $ 8.063 $ 3.375
</TABLE>

The Company has never paid any cash dividends on its Common Stock. The Company
intends to retain any earnings for use in its business and does not anticipate
paying any cash dividends on its Common Stock in the foreseeable future.

The stock markets have experienced price and volume fluctuations that have
particularly affected technology companies, resulting in changes in the market
prices of the stocks of many companies which may not have been directly related
to the operating performance of those companies. Such broad market fluctuations
may adversely affect the market price of the Company's Common Stock. In
addition, factors such as announcements of technological innovations or new
products by the Company or its competitors, market conditions in the computer
software or hardware industries and quarterly fluctuations in the Company's
operating results may have a significant adverse effect on the market price of
the Company's Common Stock.

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data relating to the Company should be read in
conjunction with the Company's consolidated financial statements and the related
notes thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial information included herein. The
selected balance sheet financial data set forth below for the Company as of
December 31, 1999 and 1998 and the selected statement of operations financial
data for each of the three years in the period ended December 31, 1999 are
derived from the audited financial statements included elsewhere herein. All
other selected financial data set forth below for the Company is derived from
the financial statements not included elsewhere herein.

<TABLE>
<CAPTION>
Years Ended December 31,

--------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>

Statement of Operations Data:
Revenue:
Product licenses....................... $ 18,620 $ 33,589 $ 24,828 $ 15,446 $10,604
Maintenance and services............... 11,615 9,642 6,161 4,301 2,637
Other.................................. - 367 450 567 1,051
--------- --------- ---------- --------- ----------

Total revenue........................ 30,235 43,598 31,439 20,314 14,292
Cost of revenue:
Product licenses....................... 776 744 701 573 651
Maintenance and services............... 1,034 955 632 466 400
Amortization of purchased technologies. 561 661 219 -- --
--------- --------- ---------- --------- ----------

Total cost of revenue................ 2,371 2,360 1,552 1,039 1,051
--------- --------- ---------- --------- ----------

Gross profit........................... 27,864 41,238 29,887 19,275 13,241
Operating expenses:
Research and development............... 10,204 13,042 7,749 5,867 5,447
Sales and marketing.................... 11,143 11,713 10,591 9,319 7,547
General and administrative............. 5,151 4,398 3,785 3,188 3,286
Amortization of intangibles and goodwill 2,111 2,791 942 -- --
Merger costs........................... 1,218(1) 1,249(1) 379(1) -- --
Severance and write-off of note receivable 4,005(3) -- -- -- --
In-process technology.................. -- -- 11,689 -- --

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

Total operating expenses............. 33,832 33,193 35,135 18,374 16,280

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

Income (loss) from operations............. (5,968) 8,045 (5,248) 901 (3,039)
Other income (expense), net............... 1,147 1,093 6,619 (2) 117 (172)
--------- --------- ---------- --------- ----------

Income (loss) before income taxes......... (4,821) 9,138 1,137 1,018 (3,211)
Income tax provision (benefit)............ -- 4,037 940 (245) 400
--------- --------- ---------- --------- ----------

Net income (loss)......................... $ (4,821) $ 5,101 $ 431 $ 1,263 $(3,611)
========= ========= ========== ========= ==========

Net income (loss) per diluted share ...... $ 0.31 $ 0.32 $ 0.03 $ 0.10 $ (0.33)
========= ========= ========== ========= ==========

Number of shares used in per diluted share
calculation .............................. 15,678 16,115 15,402 13,243 11,085

December 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------

(in thousands)

Balance Sheet Data:
Cash and cash equivalents.............. $ 28,403 $ 27,693 $19,973 $ 19,801 $711
Working capital (deficit) 24,702 24,255 14,603 17,236 (540)
Total assets........................... 44,044 50,210 39,670 28,700 9,151
Long-term obligations, less current portion -- 156 237 770 1,216
Total stockholders' equity ............ 31,309 35,475 26,196 19,151 548
</TABLE>
(1) Merger costs relate to charges associated with business combinations and
acquisitions. During 1997, the Company incurred $379,000 in costs relating
to the TriQuest acquisition. During 1998, the Company incurred $227,000 in
costs relating to the ProSoft acquisition and approximately $1.0 million
related to the terminated acquisition of OrCAD. During 1999, the Company
incurred $1.2 million in costs related to the pending acquisition of
Viewlogic.

(2) Includes a gain of $5.6 million in connection with the sale of the TDS
product line.

(3) Includes a write-off of a note receivable of approximately $2.7 million and
a severance charge of approximately $1.3 million.

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

IMPORTANT NOTE ABOUT FORWARD LOOKING STATEMENTS

The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto included in Item 8 of this Annual Report
on Form 10-K. This item contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 that involve risks and uncertainties. Actual results may
differ materially from those indicated in such forward-looking statements.
Factors which could cause actual results to differ materially include those set
forth under "Additional Risk Factors that Could Affect Operating Results and
Market Price of Stock."

OVERVIEW

Summit was founded in December 1993 to act as the holding company for Test
Systems Strategies, Inc. ("TSSI") and SEE Technologies, (now Summit Design (EDA)
Ltd.) (collectively , the "Reorganization"). TSSI was founded in 1979 to develop
and market integrated circuit ("IC" or "chip") manufacturing test products. In
January 1993, TSSI retained a new Chief Executive Officer and began to
restructure its senior management team. Thereafter, the Company broadened its
strategy from focusing primarily on manufacturing test products to include
providing HLDA design creation and verification tools and integrating these with
its core technology. As part of its strategy, in early 1994, TSSI acquired SEE
Technologies, an Israeli company that, through its predecessor, began operations
in 1983 and had operated primarily as a research and development and consulting
company focused on the electronic design automation ("EDA") market. As a result
of the Reorganization, TSSI and SEE Technologies became wholly-owned
subsidiaries of Summit in the first quarter of 1994.

Prior to the Reorganization, the Company's TDS product and related maintenance
revenue accounted for all of the Company's revenue. After the Reorganization and
through June 30, 1997, the Company's revenue was predominantly derived from two
product lines, Visual HDL, which includes Visual HDL for VHDL and Visual HDL for
Verilog, and TDS. As a result of the July 1997 sale of the TDS product line,
Design to Test products are no longer a source of revenue for the Company. With
the acquisition of TriQuest in February 1997, SimTech, in September 1997, and
ProSoft in June 1998, the Company has also derived revenue from verification
products which include hardware-software co-verification, code coverage, and HDL
debugging products as well as analysis, verification and RTL optimization tools.

Summit generated net losses in 1993, 1994 and 1995, as a result of investing
heavily in research and development as well as developing a direct sales channel
for new products. In 1996, this investment generated increased revenues, which
resulted in net income. Summit operates with high gross margins and, as such, a
downturn in revenue could have a significant impact on income from operations
and net income.

Revenue consists primarily of fees for licenses of the Company's software
products, maintenance and customer training. Product license revenue is derived
from the sale of software licenses to distributors and end-users. Revenue from
the sale of software licenses is recognized upon shipment of the product if
remaining vendor obligations are insignificant and collection of the resulting
receivable is probable, otherwise revenue from such software products is
deferred until such time as vendor obligations are met. Maintenance revenue is
deferred and recognized ratably over the term of the maintenance agreement,
which is typically 12 months. Revenue from customer training is recognized when
the service is performed. Revenue earned on software arrangements involving
multiple elements is allocated to each element based on vendor-specific
objective evidence (VSOE) of the fair value of the various elements within the
arrangement. The Company sells its products through a direct sales force in
North America and selected European countries and through distributors in the
Company's other international markets. Revenue from product sales through
distributors is recognized net of the associated distributor discounts. Fees
received for granting distribution rights are deferred and recognized ratably
over the term of the distribution agreement. Although the Company has not
adopted a formal return policy, the Company generally reimburses customers in
full for returned products. Estimated sales returns are recorded when the
related revenue is recognized.

The Company's products perform a variety of functions, certain of which are, and
in the future may be, offered as separate products or discrete point solutions
by the Company's existing and future competitors. For example, certain companies
currently offer design entry products without simulators. There can be no
assurance that such competition will not cause the Company to offer point
solutions instead of, or in addition to, the Company's current software
products. Such point solutions would be priced lower than the Company's current
product offerings and could cause the Company's average selling prices to
decrease. Accordingly, based on these and other factors, the Company expects
that average selling prices for its products may continue to fluctuate in the
future.

<PAGE>

Pacific region, excluding Japan. SDA granted distribution rights to Summit's
products to ADC for the Asia Pacific region, excluding Japan. In December
1998, SDA cancelled ADC's distribution rights in all areas except Korea. In
April 1999, SDA granted non-exclusive distribution rights to Semiconductor
Technologies Australia for the Asia Pacific region, excluding Japan and
Korea. As of December 31, 1999 and 1998, the Company owned 50% of SDA and 30%
of ADC through direct and indirect ownership. For the years ended
December 31, 1999, 1998, and 1997, sales through SDA and ADC combined
accounted for 1.0%, 1.7% and 1.9% of Summit's revenue, respectively.

The Company accounts for its ownership interest in SDA and ADC on the equity
method of accounting and, as a result, the Company's share of the earnings and
losses of SDA and ADC are recognized as income or losses in the Company's income
statement in "Other income, net." The Company does not expect SDA or ADC to
recognize a profit for the foreseeable future and thus does not expect to
recognize income from its investment in SDA or ADC for the foreseeable future,
if at all. There can be no assurance that the restructuring will result in SDA
or ADC becoming profitable or that revenue attributable to sales in the Asia
Pacific region, excluding Japan, would increase.

Approximately 44%, 36%, and 34% of the Company's total revenue for the years
ended December 31, 1999, 1998 and 1997, respectively, were attributable to sales
made outside the United States which includes the Asia Pacific region and
Europe. Approximately 25%, 22%, and 22% of the Company's revenue for the years
ended December 31, 1999, 1998 and 1997, respectively, were attributable to sales
made in the Asia Pacific region and approximately 19%, 14%, and 12% of the
Company's revenue for the years ended December 31, 1999, 1998 and 1997,
respectively, were attributable to sales made in Europe. The decline in the
percentage of revenue from sales made outside the United States in 1998 and 1997
is primarily the result of (1) domestic sales to CSC, (2) the loss of Design to
Test product sales in the last half of 1997 as a result of the sale of the
product line, which had a strong international market, and (3) the addition of
revenue from products acquired in the SimTech acquisition which had a
principally domestic market. The Company expects that international revenue will
continue to represent a significant portion of its total revenue. The Company's
international revenue is currently denominated in U.S. dollars. As a result,
increases in the value of the U.S. dollar relative to foreign currencies could
make the Company's products more expensive and, therefore, potentially less
competitive in those markets. The Company pays the expenses of its international
operations in local currencies and does not engage in hedging transactions with
respect to such obligations. International sales and operations are subject to
numerous risks, including tariff regulations and other trade barriers,
requirements for licenses, particularly with respect to the export of certain
technologies, collectability of accounts receivable, changes in regulatory
requirements, difficulties in staffing and managing foreign operations and
extended payment terms. In addition, financial markets and economies in the Asia
Pacific region have been experiencing adverse economic conditions. Demand for
and sales of Summit's products in the Asia Pacific region have decreased and,
there can be no assurance that economic conditions will not worsen or that
demand for and sales of Summit's products in such region will not further
decrease.(1)

On February 28, 1997, Summit completed its acquisition of TriQuest. TriQuest
develops HDL analysis, optimization, and verification tools for the design of
high performance, deep submicron integrated circuits. The transaction has been
accounted for as a pooling of interest in accordance with generally accepted
accounting principles.

Effective July 1, 1997 the Company sold substantially all of the assets used in
its business of developing and marketing its Test Development Series "TDS"
Products (the "Asset Sale") to CSC. The increase in the Company's product
licenses revenue during the last twelve months has been primarily due to
increased revenue associated with the Company's HLDA products. Substantially all
of Summit's Design to Test product license revenue and related maintenance and
services revenue for the nine months ended September 30, 1997 were attributable
to the TDS products. As of July 1, 1997, TDS products ceased to be a source of
such revenues. CSC assumed Summit's obligations under TDS maintenance contracts
entered into prior to the closing and Summit has not recognized deferred revenue
associated with such contracts since June 30, 1997.
- --------------------------
(1) This paragraph contains forward-looking statements reflecting current
expectations. There can be no asurance that the Company's actual future
performance will meet the Company's current expectations. Investors are strongly
encouraged to review the section entitled "Additional Risk Factors That Could
Affect Operating Results and Market Price of Stock" commencing on page 29 for a
discussion of factors that could affect future performance.

18
<PAGE>

The Company maintained exclusive rights to its Visual Testbench technology and
CSC agreed to purchase a minimum of $16 million of Visual Testbench licenses
over a thirty-month period beginning July 1997, subject to specified quarterly
maximums and certain additional conditions, and $2 million of maintenance over
an eighteen month period beginning July 1997. In December 1998, the Company and
CSC agreed to amend the OEM agreement and as of December 31, 1998, CSC had
satisfied its obligation to purchase $16.0 million of Visual Testbench licenses.
CSC also obtained shared ownership of the Visual Testbench source code in
December 1998 and has the right to sell Visual Testbench licenses based on the
source code received from the Company. The Company does not expect to receive
any additional revenue from sales of Visual Testbench licenses to CSC.

On September 9, 1997, the Company acquired SimTech, a company that develops and
distributes hardware-software co-verification, code coverage and HDL debugging
software. The aggregate consideration for the acquisition was 1,256,800 shares
of Summit common stock, 723,200 options to purchase Summit common stock and $3.9
million in cash. The transaction was accounted for using the purchase method of
accounting. Accordingly, SimTech's results of operations for the period from
September 9, 1997 are included in the consolidated statements of operations. The
purchase price was allocated to the net assets acquired based on their estimated
fair market values at the date of acquisition.

After discussion with the staff of the Securities and Exchange Commission (the
"Staff") the Company restated the consolidated financial statements as of and
for the quarters ended September 30, 1997, March 31, 1998, June 30, 1998 and
September 30, 1998 and as of and for the year ended December 31, 1997 to reflect
a change in the original accounting treatment to the September 1997 acquisition
of SimTech.

In connection with the acquisition of SimTech, Summit repurchased 939,000 shares
of common stock in private transactions at an average price of $12.30 per share
for $11.6 million in September 1997.

On December 23, 1997, the Company announced that the Board of Directors had
authorized the repurchase of up to 750,000 shares of the Company's Common Stock.
From January 1, 1998 to May 12, 1998, the Company repurchased 162,500 shares of
its common stock at a cost of $2.3 million. Summit subsequently reissued these
shares through the exercise of stock options during the three months ended June
30, 1998. On June 29, 1998, Summit cancelled this stock repurchase plan.

On June 30, 1998 Summit completed its acquisition of ProSoft. ProSoft develops
software tools used to verify embedded systems software prior to the
availability of a hardware prototype. The aggregate consideration for the
acquisition (including shares of common stock reserved for issuance upon
exercise of ProSoft options which were exchanged for options of Summit) was
248,334 shares of common stock. The transaction has been accounted for as a
pooling-of-interests in accordance with generally accepted accounting
principles. In compliance with such principles, Summit's financial statements
have been restated to include the accounts of ProSoft as if the acquisition had
occurred at the beginning of the first period presented.

In September 1998, the Company announced its proposed acquisition of OrCAD, Inc.
In February 1999, Summit announced that its planned acquisition of OrCAD, Inc.
had been terminated. During the quarter ended December 31, 1998, the Company
incurred approximately $1.0 million in costs related to the terminated
acquisition.

On September 16, 1999, the Company entered into a definitive agreement to merge
with Viewlogic Systems, Inc. ("Viewlogic") a privately held software company
headquartered in Marlboro, Massachusetts under which the Company will acquire
Viewlogic. Each share of Viewlogic Preferred and Common Stock will be assumed by
the Company and will be exchanged for 0.67928 shares for Summit Common Stock
upon closing of the transaction. In addition, the Company will assume all
options outstanding under Viewlogic's stock option plan. The estimated purchase
price in common stock, stock options and acquisition costs is approximately
$48.3 million, $4.5 million, and $1.5 million, respectively. The Company intends
to account for this acquisition as a purchase. Although Summit will be acquiring
Viewlogic, after such transaction, Viewlogic stockholders will hold a
controlling interest in Summit. Accordingly, for accounting purposes, the
acquisition will be a "reverse acquisition" and Viewlogic will be the
"accounting acquirer". As Viewlogic will be the accounting acquirer, its
accounts will be recorded at historical cost and the assets and liabilities of
Summit will be recorded at their estimated fair value as of the closing date.

<PAGE>

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated the percentage of total
revenue represented by selected income statement items.

<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------
1999 1998 1997
-------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Product licenses.................................. 61.6 % 77.1 % 79.0 %
Maintenance and services.......................... 38.4 22.1 19.6
Other .......................................... - 0.8 1.4
----------- ------------ ------------------
Total revenue................................ 100.0 100.0 100.0
Cost of revenue:
Product licenses.................................. 2.6 1.7 2.2
Maintenance and services.......................... 3.4 2.2 2.0
Amortization of purchased technologies 1.8 1.5 0.7
----------- ------------ ------------------
Total cost of revenue........................ 7.8 5.4 4.9
----------- ------------ ------------------
Gross profit................................. 92.2 94.6 95.1
Operating expenses:
Research and development.......................... 33.8 29.9 24.7
Sales and marketing............................... 36.9 26.8 33.7
General and administrative........................ 17.0 10.1 12.0
Amortization of intangibles and goodwill.......... 7.0 6.4 3.0
Merger costs...................................... 4.0 (a) 2.9 (a) 1.2 (a)
Severance and write-off of note receivable........ 13.2 (c) - -
In-process technology............................. - - 37.2
----------- ------------ ------------------
Total operating expenses..................... 111.9 76.1 111.8
----------- ------------ ------------------
Income (loss) from operations.......................... (19.7) 18.5 (16.7)
Other income, net...................................... 3.8 2.5 21.1 (b)
----------- ------------ ------------------
Income before income taxes............................. (15.9) 21.0 4.4
Income tax provision .................................. - 9.3 3.0
----------- ------------ ------------------
Net income (15.9) % 11.7 % 1.4 %
=========== ============ ==================
</TABLE>

(a) Merger costs relate to mergers and acquisitions. During 1997, the Company
incurred $379,000 in costs relating to the TriQuest acquisition. During
1998, the Company incurred $227,000 in costs relating to the ProSoft
acquistiion and approximately $1.0 million related to the terminated
acquisition of OrCAD. During 1999, the Company incurred $1.2 million in
costs related to the pending acquisition of Viewlogic.

(b) Includes a gain of $5.6 million (17.7% of revenues) in conjunction with the
sale of the TDS product line.

(c) Includes a write-off of a note receivable of approximately $2.7 million and
a severance charge of approximately $1.3 million.

YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998

TOTAL REVENUE

The Company's revenue is comprised of product licenses revenue, maintenance and
services revenue and other revenue. Total revenue decreased by 30.7% from $43.6
million for the year ended December 31, 1998 to $30.2 million for the year ended
December 31, 1999. Sales through one distributor, accounted for 22% and 14.0% of
the Company's total revenue for the years ended December 31, 1999 and 1998,
respectively. Sales to CSC accounted for 25.1% of the Company's total revenue
for the year ended December 31, 1998. Revenue for the year ended December 31,
1998 include $9.8 million of Visual Testbench licenses sales made pursuant to an
OEM agreement with CSC. As of December 31, 1998, CSC had fully satisfied its
obligation to purchase Visual Testbench licenses pursuant to the OEM agreement
and the Company does not expect to receive any additional revenue from sales of
Visual Testbench licenses to CSC.

<PAGE>

PRODUCT LICENSES REVENUE

The Company's product licenses revenue is derived from license fees from the
Company's HLDA products. Product licenses revenue decreased by 44.6% from
$33.6 million for the year ended December 31, 1998 to $18.6 million for the
year ended December 31, 1999. The decrease in product licenses revenue was
primarily attributable to the Company ceasing to receive revenue from CSC
pursuant to the OEM Agreement. The decrease was also attributable to
decreased sales as a result of the Company hiring fewer sales and marketing
personnel than planned in the fourth quarter of 1998 and the first two
quarters of 1999 and attrition in the existing sales force during the first
two quarters of 1999.

MAINTENANCE AND SERVICES REVENUE

The Company's maintenance and services revenue is derived from maintenance
contracts related to the Company's HLDA products and training classes offered to
purchasers of the Company's software products. Maintenance and services revenue
increased 20.5% from $9.6 million for the year ended December 31, 1998 to $11.6
million for the year ended December 31, 1999. This increase is primarily
attributable to maintenance contract renewals by the installed base of HLDA
customers, and to a lesser extent from non-recurring engineering services
provided to one customer, which is not expected to reoccur.

OTHER REVENUE

Other revenue consists of revenue from one-time technology sales and fees
received for granting distribution rights. Other revenue decreased 100% from
$367,000, for the year ended December 31, 1998 to $0 for the year ended December
31, 1999. Although the Company renewed a significant distribution agreement, the
renewal did not include additional fees. As a result, the distribution rights
fees paid at the inception of the agreement and amortized into revenue at
$91,000 each quarter over the agreement period were no longer a source of other
revenue for the year ended December 31, 1999.

COST OF REVENUE

COST OF PRODUCT LICENSES REVENUE

Cost of product licenses revenue includes product packaging, software
documentation, labor and other costs associated with handling, packaging and
shipping product and other production related costs. Cost of product licenses
revenue increased 4.3% from $744,000 for the year ended December 31, 1998 to
$776,000 for the year ended December 31, 1999. As a percentage of product
licenses revenue, the cost of product licenses revenue increased from 2.2% for
the year ended December 31, 1998 to 4.2% for the year ended December 31,1999.
This increase was primarily due to leveraging fixed costs across decreased
product licenses revenue.

COST OF MAINTENANCE AND SERVICES REVENUE

Cost of maintenance and services revenue, which consists primarily of personnel
costs for customer support and training classes offered to purchasers of the
Company's products, increased 8.3% from $955,000 for the year ended December 31,
1998 to $1.0 million for the year ended December 31, 1999. As a percentage of
maintenance and services revenue, the cost of maintenance and services revenue
decreased from 9.9% for the year ended December 31, 1998 to 8.9% for the year
ended December 31, 1999. The decrease in the cost of maintenance and services
revenue as a percentage of maintenance and services revenue was primarily a
result of the 20.5% increase in maintenance and services revenue for the year
ended December 31, 1999.

AMORTIZATION OF PURCHASED TECHNOLOGIES

The Company recorded $2.4 million of purchased technologies (intangibles) as
part of the SimTech acquisition which are being amortized to cost of revenue on
a straight-line basis over periods ranging from two to five years beginning
September 9, 1997. The Company expensed $561,000 and $661,000 for the years
ended December 31, 1999 and 1998, respectively.

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT

<PAGE>

the employment agreements to which this contingent compensation related were
amended to eliminate the continued employment obligation. At that time, the
remaining unrecorded compensation was expensed. As a result, the Company
recorded $3.7 million of compensation related to contingent employment for
the year ended December 31, 1998. Excluding the $3.7 million compensation
expense recorded in the year ended December 31, 1998, research and
development expense increased 9.2% from $9.3 million for the year ended
December 31, 1998 to $10.2 million for the year ended December 31, 1999. As a
percentage of total revenue, research and development expenses increased from
29.9% to 33.7% for the years ended December 31, 1998 and 1999, respectively.
The increase in research and development expenses as a percent of revenue is
the result of a decrease in total revenues. The Company continues to believe
that significant investment in research and development is required to remain
competitive in its markets, and the Company therefore anticipates that
research and development expense will increase in absolute dollars in future
periods, but may vary as a percent of revenue. (2)

Software development costs are accounted for in accordance with Financial
Accounting Standards Board Statement No. 86, under which the Company is required
to capitalize software development costs after technological feasibility has
been established. To date, development costs have been expensed as incurred
since technological feasibility generally has not been established until shortly
before the release of a new product, and no material development costs have been
incurred after establishment of technological feasibility.

SALES AND MARKETING

Sales and marketing expenses, consisting primarily of salaries, commissions and
promotional costs, decreased 4.9% from $11.7 million for the year ended December
31, 1998 to $11.1 million for the year ended December 31, 1999. This decrease
was primarily attributable to the Company hiring fewer sales and marketing
personnel than planned in the fourth quarter of 1998 and the first two quarters
of 1999 and attrition in the existing sales force during the first quarter of
1999. As a percentage of total revenue, sales and marketing expenses increased
from 26.9% for the year ended December 31, 1998 to 36.9% for the year ended
December 31, 1999. The increase as a percentage of total revenue was primarily
attributable to the decrease in total revenue for 1999. In the future, the
Company expects sales and marketing expenses to continue to increase in absolute
dollars, in part due to the hiring of additional sales and marketing
personnel.(2)

GENERAL AND ADMINISTRATIVE

General and administrative expenses consist primarily of the corporate, finance,
human resource, information services, administrative, legal and auditing
expenses of the Company. General and administrative expenses increased 17.1%
from $4.4 million for the year ended December 31, 1998 to $5.1 million for the
year ended December 31, 1999. As a percentage of total revenue, general and
administrative expenses increased from 10.1% for 1998 to 17.0% for 1999. The
increase in general and administrative expenses as a percentage of total revenue
and in actual dollars was primarily attributable to the addition of three
positions, the cost of the CEO search, and a decrease in total revenue for the
year ended December 31, 1999. The Company expects general and administrative
expenses to increase in absolute dollars to support future sales and operations.
(2)

AMORTIZATION OF INTANGIBLES AND GOODWILL

The Company recorded $4.1 million in intangibles (excluding $2.4 million of
purchased technologies) and $3.8 million of goodwill as part of the SimTech
acquisition which are being amortized to expense on a straight-line basis over
periods ranging from two to five years beginning September 9, 1997. The Company
expensed $2.1 million and $2.8 million for the years ended December 31, 1999 and
1998, respectively.

MERGER COSTS

Merger costs relate to charges associated with mergers and acquisitions. During
1998, the Company incurred $227,000 in costs relating to the ProSoft acquisition
and approximately $1.0 million relating to the terminated acquisition of OrCAD.
During 1999, the Company incurred $1.2 million in costs relating to the pending
acquisition of Viewlogic.

- --------------------------
(2) This sentence is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock" commencing on
page 29 for a discussion of factors that could affect future performance.

<PAGE>

SEVERANCE AND WRITE-OFF OF NOTE RECEIVABLE

During the year ended December 31, 1999, the Company recorded $1.3 million in
non-recurring charges related to severance obligations for certain management
personnel. During the same period, the Company also recorded $2.7 million in
write-off of a loan receivable. The Company had loaned $2.7 million to an
independent software company pursuant to a secured loan agreement entered into
July 1997. During the third quarter of 1999, it became evident that because of
missed product development milestones, the independent software company's cash
flows would not be sufficient to repay the loan. The Company exercised its right
under the terms of the contract with the independent software company to retain
co-ownership of the technology and distribution rights to the product in
satisfaction of the note. During the third quarter the Company also evaluated
its business strategy relative to the technology acquired from the software
company. Based on the Company's assessment of market potential, revised sales
projections, and limited manpower resources, management decided that Summit
could not provide the support necessary to successfully market and sell this
product. The Company concluded that the technology had no value and Summit has
no plans to sell this product in the future. The Company therefore wrote-off the
balance of the note receivable of $2.7 million.

OTHER INCOME, NET

Other income consists of interest income associated with available cash
balances, gains or losses from the sale of property and equipment, the Company's
share of the earnings and losses of SDA and ADC and foreign exchange rate
differences resulting from paying operating expenses of foreign operations in
the local currency. Other income was $1.2 million and $1.1 million for the years
ended December 31, 1999 and 1998, respectively. Interest income increased
approximately $142,000 to $1.5 million for the year ended December 31, 1999.
This increase was offset by losses recorded on the equity method which related
to SDA and ADC.

INCOME TAX PROVISION

The income tax provision decreased from $4.0 million for the year ended December
1998 to $0 for the year ended December 31, 1999. The provision of $4.0 million
for 1998 is comprised of $3.4 million of federal, state and foreign taxes
payable, plus $659,000 of deferred tax liabilities. The $0 tax provision for
1999 is comprised of $261,000 of federal, state and foreign taxes payable less,
$261,000 of deferred tax benefit recognized for an increase in reserve for legal
settlements as well as an increase in allowance for receivables from Summit
Design Asia and ADC. The effective tax rate decreased from 44% for the year
ended December 31, 1998 to 0% for the year ended December 31, 1999. The 1998
effective tax rate is higher than the statutory rate due primarily to
nondeductible amortization and contingent stock compensation expense relating to
the SimTech acquisition. The zero effective rate for 1999 is primarily due to
the increase in valuation allowance due to the management's determination of the
future recoverability of net deferred assets due to the uncertainty of future
income.

YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997

TOTAL REVENUE

The Company's revenue is comprised of product licenses revenue, maintenance and
services revenue and other revenue. Total revenue increased by 38.7% from $31.4
million for the year ended December 31, 1997 to $43.6 million for the year ended
December 31, 1998. Sales through one distributor, accounted for 14.0% and 12.1%
of the Company's total revenue for the years ended December 31, 1998 and 1997,
respectively. Sales to CSC accounted for 25.1% and 28.6% of the Company's total
revenue for the years ended December 31, 1998 and 1997, respectively. Revenues
for the years ended December 31, 1997 and 1998 include $6.2 million and $9.8
million of Visual Testbench licenses sales made pursuant to an OEM agreement
with CSC. As of December 31, 1998, CSC had fully satisfied its obligation to
purchase Visual Testbench licenses pursuant to the OEM agreement and the Company
does not expect to receive any additional revenue from sales of Visual Testbench
licenses to CSC.

PRODUCT LICENSES REVENUE

The Company's product licenses revenue is derived from license fees from the
Company's HLDA products and, additionally, from Design to Test products through
June 30, 1997. Product licenses revenue increased by 35.3% from $24.8 million
for the year ended December 31, 1997 to $33.6 million for the year ended
December 31, 1998. Revenue from HLDA and Design to Test products accounted for
91.7% and 8.3%, respectively, of product licenses revenue for the year ended
December 31, 1997, respectively, and 100% and 0% of product licenses revenue for
the year ended December 31, 1998, respectively. The decline in revenue from
Design to Test products is a result of the sale of the TDS product line
effective July 1, 1997.

HLDA revenue increased 47.5% from $22.8 million for the year ended December 31,
1997 to $33.6 million for the year ended December 31, 1998. Revenues
attributable to products existing in 1997 accounted for 46% of the increase in
HLDA revenues, while revenues from products introduced in 1998 accounted for 54%
of the increase in such revenues. A significant amount of the increase in the
existing products revenue for 1998 over the same period in 1997 was attributable
to sales of Visual Testbench and Visual to one customer. The increase in
revenues from new products was primarily from sales of products developed from
in-process technology acquired in the SimTech acquisition in September 1997.

<PAGE>

Design to Test revenue decreased from $2.1 million for the year ended December
31, 1997 to $0 for the year ended December 31, 1998 as a result of the sale of
all of the assets used in the business of developing and marketing the TDS
Products effective July 1, 1997.

MAINTENANCE AND SERVICES REVENUE

The Company's maintenance and services revenue is derived from maintenance
contracts related to the Company's HLDA and Design to Test products and training
classes offered to purchasers of the Company's software products. Maintenance
and services revenue increased 56.5% from $6.2 million for the year ended
December 31, 1997 to $9.6 million for the year ended December 31, 1998. The
increase in maintenance and services revenue was attributable to maintenance
contracts for verification products acquired in the SimTech acquisition, a
maintenance contract with one customer, and additional maintenance revenue
related to growth in the installed base of HLDA customers over the previous
year, less a decrease in Design to Test maintenance revenue of $1.4 million, due
to the sale of the TDS product line.

OTHER REVENUE

Other revenue consists of revenue from one-time technology sales and fees
received for granting distribution rights. Other revenue decreased 18.4% from
$450,000, for the year ended December 31, 1997 to $367,000 for the year ended
December 31, 1998. In May 1997, a distribution agreement expired; and as a
result, the distribution rights fees paid at the inception of the agreement and
amortized into revenue, ($83,000 for the year ended December 31, 1997) were no
longer a source of other revenue.

COST OF REVENUE

COST OF PRODUCT LICENSES REVENUE

Cost of product licenses revenue includes product packaging, software
documentation, labor and other costs associated with handling, packaging and
shipping product and other production related costs plus the amortization of
purchased technology acquired in the SimTech purchase. Cost of product licenses
revenue increased 6.1% from $701,000 for the year ended December 31, 1997 to
$744,000 for the year ended December 31, 1998. As a percentage of product
licenses revenue, the cost of product licenses revenue decreased from 2.8% for
the year ended December 31, 1997 to 2.2% for the year ended December 31,1998.
This decrease was primarily due to leveraging fixed costs across increased
product licenses revenue.

COST OF MAINTENANCE AND SERVICES REVENUE

Cost of maintenance and services revenue, which consists primarily of personnel
costs for customer support and training classes offered to purchasers of the
Company's products, increased 51.1% from $632,000 for the year ended December
31, 1997 to $955,000 for the year ended December 31, 1998. As a percentage of
maintenance and services revenue, the cost of maintenance and services revenue
decreased from 10.3% for the year ended December 31, 1997 to 9.9% for the year
ended December 31, 1998. The decrease in the cost of maintenance and services
revenue as a percentage of maintenance and services revenue was primarily a
result of the 56.5% increase in maintenance and services revenue for the year
ended December 31, 1998.

AMORTIZATION OF PURCHASED TECHNOLOGIES

The Company recorded $2.4 million of purchased technologies (intangibles) as
part of the SimTech acquisition which are being amortized to cost of revenue on
a straight-line basis over periods ranging from two to five years beginning
September 9, 1997. The Company expensed $219,000 and $661,000 for the years
ended December 31, 1997 and 1998, respectively.

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT

Research and development expenses consist of the engineering and operations
support costs of developing new products and enhancements to existing products
and performing quality assurance activities. Research and development expenses
increased 68.3% from $7.7 million for the year ended December 31, 1997 to $13.0
million for the year ended December 31, 1998. As a percentage of total revenue,
research and development expenses increased from 24.7% for the year ended
December 31, 1997 to 29.9% for the year ended December 31, 1998. The majority of
the increase was attributable to compensation expense recorded in connection
with the Company's acquisition of SimTech in September 1997. The Company
recorded a total of $4.4 million of compensation expense for shares issued as
part of the acquisition which were contingent upon continued employment and were
being expensed as the employment obligation lapsed. This expense was being
recorded on a straight-line basis over the two year employment obligation
period. However, in December 1998, the employment agreements to which this
contingent compensation related were amended to eliminate the continued
employment obligation. At that time, the remaining unrecorded compensation was
expensed. As a result, the Company recorded $723,000 and $3.7 million of
compensation related to contingent employment for the years ended December 31,
1997 and 1998, respectively. The remaining increase in research and development
expenses was primarily attributable to an increase in the number of engineers
employed by the

<PAGE>

Company. During the second half of 1997, the Company hired 38 additional
engineers. The Company believes that significant investment in research and
development is required to remain competitive in its markets, and the
Company, therefore, anticipates that research and development expenses will
increase in absolute dollars in future periods, but may vary as a percentage
of total revenue.(2)

SALES AND MARKETING

Sales and marketing expenses, consisting primarily of salaries, commissions and
promotional costs, increased 10.6% from $10.6 million for the year ended
December 31, 1997 to $11.7 million for the year ended December 31, 1998. This
increase was primarily attributable to expenses related to the sales and
marketing of products acquired in the SimTech acquisition in September 1997. As
a percentage of total revenue, sales and marketing expenses decreased from 33.7%
for the year ended December 31, 1997 to 26.9% for the year ended December 31,
1998. The decrease was primarily attributable to the increase in total revenue
for 1998. The decrease was also attributable to the Company hiring fewer sales
and marketing personnel than planned during 1998. The Company expects sales and
marketing expenses to continue to increase in absolute dollars, in part due to
the hiring of additional sales and marketing personnel.(2)

GENERAL AND ADMINISTRATIVE

General and administrative expenses consist primarily of the corporate, finance,
human resource, information services, administrative, legal and auditing
expenses of the Company. General and administrative expenses increased 16.2%
from $3.8 million for the year ended December 31, 1997 to $4.4 million for the
year ended December 31, 1998. As a percentage of total revenue, general and
administrative expenses decreased from 12.0% for 1997 to 10.1% for 1998. The
decrease as a percentage of total revenue was primarily attributable to the
increase in total revenue in 1997. The Company expects general and
administrative expenses to increase in absolute dollars to support future sales
and operations. (2)

AMORTIZATION OF INTANGIBLES AND GOODWILL

The Company recorded $4.1 million in intangibles (excluding $2.4 million of
purchased technologies) and $3.8 million of goodwill as part of the SimTech
acquisition which are being amortized to expense on a straight-line basis over
periods ranging from two to five years beginning September 9, 1997. The Company
expensed $942,000 and $2.8 million for the years ended December 31, 1997 and
1998, respectively.

MERGER COSTS

Merger costs relate to charges associated with business combinations and
acquisitions. During 1997, the Company incurred $379,000 in costs relating to
the TriQuest acquisition. During 1998, the Company incurred $227,000 in costs
relating to the ProSoft acquisition and approximately $1.0 million related to
the terminated acquisition of OrCAD.

IN-PROCESS TECHNOLOGY

For the year ended December 31, 1997, $11.7 million of the purchase price for
the acquisition of SimTech ($25.4 million) was allocated to in-process
technology and, accordingly, was expensed as of the acquisition date (September
9, 1997). The amount allocated to the in-process technology represented the
technology that had not yet reached technological feasibility and had no
alternative future use. The Company had no acquisitions in 1998 that generated a
charge to in-process technology.

The value assigned to purchased in-process technology in 1997 was related
primarily to two research projects for which technological feasibility had not
been established, V-CPU ($8.1 million) and HDL Score ($3.1 million). The value
was determined by estimating the net cash flows from the sale of products
resulting from the completion of such projects, and discounting the net cash
flows back to their present value adjusted for the stage of completion of the
technologies at the date of acquisition.

Summit released the commercial version of the V-CPU hardware/software
co-verification product in the first quarter of 1998, consistent with
expectations at the time of the acquisition. A market requirement for extensive
embedded system component interfaces called bus functional models ("BFM") and
instruction set simulators ("ISS") was underestimated in the introduction
schedule and has caused delays

- ----------------------------
(2) This sentence is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock" commencing on
page 29 for a discussion of factors that could affect future performance.

<PAGE>

in initial sales of the product. Summit introduced the HDL Score product in
the second quarter of 1998, approximately four months later than originally
anticipated, due to delays in completing the control logic support
functionality that was essential for product introduction to take place. For
1998, revenues from the sales of the products acquired in connection with the
SimTech acquisition fell short of forecast by 10%. The Company's forecast of
revenues for 1999 reflects that the shortfall of revenues in 1998 related to
HDL Score will be realized in 1999 and that V-CPU will have revenues that are
approximately 50% of those originally estimated due to the delays in
availability of BFM's and ISS's.(2) Although these delays affected the timing
of the realization of revenue from these products as originally estimated by
Summit, Summit believes the aggregate revenue streams originally anticipated
from these products will be realized and that there has been no material
change in expected return on investment related to these products.(2)
However, there can be no assurance that Summit will realize revenue for V-CPU
and HDL Score in the amounts estimated, and actual revenue realized from
either or both of these products may be significantly lower than expected.(1)

INTEREST EXPENSE

Interest expense decreased from $12,000 for the year ended December 31, 1997 to
$4,000 for the year ended December 31, 1998 due to the expiration of certain
capital leases obligations.

OTHER INCOME, NET

Other income consists of interest income associated with available cash
balances, gains or losses from the sale of property and equipment, the Company's
share of the earnings and losses of SDA and ADC and foreign exchange rate
differences resulting from paying operating expenses of foreign operations in
the local currency. Other income was $1.1 million for the years ended December
31, 1998 and 1997. Interest income increased approximately $200,000, to $1.3
million for the year ended December 31, 1998. This increase was offset by losses
recorded on the equity method which were incurred in SDA and ADC.

GAIN ON SALE OF TDS PRODUCT LINE

On July 11, 1997 the Company sold substantially all of the assets used in its
business of developing and marketing its Test Development Series "TDS" Products
to CSC for $5 million. CSC assumed certain liabilities, including the Company's
obligations under TDS maintenance contracts entered into prior to the closing.
The Company has recorded a gain on the sale of $5.6 million in 1997.

INCOME TAX PROVISION

The income tax provision increased from $940,000 for the year ended December 31,
1997 to $4.0 million for the year ended December 31, 1998. The Company utilized
substantially all its U.S. Federal and State net operating loss carryforwards to
offset a considerable portion of U.S. taxable income for the year ended December
31, 1997. The provision of $940,000 for 1997 is comprised of $1.7 million of
federal, state and foreign taxes payable, less $719,000 of deferred tax benefit
recognized for NOL's available from the TriQuest acquisition as well as research
and development credits and alternative minimum tax credits. The provision of
$4.0 million for 1998 is comprised of $3.4 million of federal, state and foreign
taxes payable, plus $659,000 of deferred tax liabilities. The effective tax rate
decreased from 69% for the year ended December 31, 1997 to 44% for the year
ended December 31, 1998. The 1997 effective tax rate was high primarily due to
the write-off of in-process research and development costs which are not
deductible for tax purposes, reduced by the tax benefit realized in 1997 for
utilizing the net operating loss carryforwards. The 1998 effective tax rate is
higher than the statutory rate due primarily to nondeductible amortization and
contingent stock compensation expense relating to the SimTech acquisition.

EFFECTIVE CORPORATE TAX RATES

The effective tax rate decreased from 44% for the year ended December 31, 1998
to 0% for the year ended December 31, 1999. The 1998 effective tax rate is
higher than the statutory rate due primarily to nondeductible amortization and
contingent stock compensation expense relating to the SimTech acquisition. The
zero effective rate for 1999 is primarily due to the increase in valuation
allowance due to the management's determination of the future recoverability of
net deferred assets due to the uncertainty of future income.

- --------------------------------
(2) This sentence is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock" commencing on
page 29 for a discussion of factors that could affect future performance.

(1) This paragraph contains forward-looking statements reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are strongly
encouraged to review the section entitled "Additional Risk Factors That Could
Affect Operating Results and Market Price of Stock" commencing on page 29 for a
discussion of factors that could affect future performance.

<PAGE>

The Company's Israeli operations are performed entirely by Summit Design (EDA)
Ltd., which is a separate taxable Israeli entity. The Company's existing Israeli
production facility has been granted "Approved Enterprise" status under the
Israeli Investment Law, which entitles the Company to reductions in the tax rate
normally applicable to Israeli companies with respect to the income generated by
its "Approved Enterprise" programs. In general, the tax holiday covers the seven
year period beginning the first year in which Summit Design (EDA) Ltd. generates
taxable income from its "Approved Enterprise." The tax holiday provides that,
during such future years, a portion of the Company's taxable income from its
Israeli operations will be taxed at favorable rates. The Company has recently
applied for "Approved Enterprise" status with respect to a new project and
intends to apply in the future with respect to additional projects. There can be
no assurance that the Company will be granted any approvals and therefore there
can be no assurance the Company will continue to have favorable tax status in
Israel. Management of the Company intends to permanently reinvest earnings of
the Israeli subsidiary outside the U.S. If such earnings were remitted to the
U.S., additional U.S. federal and foreign taxes may be due.

The Company has foreign income tax net operating losses of approximately $5.6
million at both December 31, 1999 and 1998. These foreign losses were generated
in Israel over several years and have not yet received final assessment from the
Israeli government. Consequently, management is uncertain as to the availability
of a substantial portion of such foreign loss carryforwards.

The Company is also subject to risk that United States and foreign tax laws and
rates may change in a future period or periods, and that any such changes may
materially adversely affect the Company's effective tax rate. As a result of the
factors described above and other related factors, there can be no assurance
that the Company will maintain a favorable tax rate in future periods. Any
increase in the Company's effective tax rate, or variations in the effective tax
rate from period to period, could have a material adverse effect on the
Company's business, financial condition, results of operations or cash flows.

LIQUIDITY AND CAPITAL RESOURCES

The Company completed its initial public offering in October 1996, raising $16.2
million, net of offering expenses. Prior to the IPO, the Company had financed
its operations primarily through the private placement of approximately $15.4
million of capital stock, as well as capital equipment leases, borrowings under
its bank line of credit, Israeli research and development grants and cash
generated from operations. As of December 31, 1999, the Company had
approximately $28.4 million in cash and cash equivalents.

In July 1997, the Company entered into an agreement to lend up to $2.5 million
to an independent software development company pursuant to a loan agreement
which is collateralized by the intellectual property and stock of the software
development company. Borrowings under this agreement bear interest at prime rate
plus 2%. Total amounts due to the Company under this agreement at December 31,
1998 was $1.7 and was included in Deposits and Other Assets. During 1999,
borrowings under this agreement reached $2.5 million. During 1999, the Company
agreed to loan an additional $200,000 to the independent software company.
During the third quarter of 1999, it became evident that because of missed
product development milestones, the independent software company's cash flows
would not be sufficient to repay the loan. The Company exercised its right under
the terms of the contract with the independent software company to retain
co-ownership of the technology and distribution rights to the product in
satisfaction of the note. During the third quarter the Company also evaluated
its business strategy relative to the technology acquired from the software
company. Based on the Company's assessment of market potential, revised sales
projections, and limited manpower resources, management decided that Summit
could not provide the support necessary to successfully market and sell this
product. The Company concluded that the technology had no value and Summit has
no plans to sell this product in the future. The Company therefore wrote-off the
balance of the note receivable of $2.7 million.

As of December 31, 1999, the Company had working capital of approximately $24.7
million.

Net cash generated by operating activities was approximately $2.4 million, $11.9
million, and $12.1 million for the years ended December 31, 1999, 1998, and
1997, respectively. For the year ended December 31, 1999, cash generated by
operating activities resulted primarily from a net loss offset by depreciation,
amortization, write-off of note receivable, decreases in accounts payable and
collections of accounts receivable. For the year ended December 31, 1998, cash
generated by operating activities resulted primarily from an increase in
profitability, and to a lesser extent from an increase in accounts payable and
accrued liabilities offset by an increase in accounts receivable. For the year
ended December 31, 1997, cash generated by operating activities resulted
primarily from improved collection of accounts receivable, an increase in
deferred revenues and accrued liabilities and profitability during the period.

Net cash used in investing activities was approximately $2.1 million, $4.5
million, and $1.3 million for the years ended December 31, 1999, 1998, and 1997,
respectively. For the year ended December 31, 1999, net cash used in investing
activities was related to the acquisition of furniture and equipment, and a loan
to an independent software company. For the year ended December 31, 1998, net
cash used was primarily related to the acquisition of furniture and equipment
and loans to an independent software development company and to an
unconsolidated joint venture. For the year ended December 31, 1997, net cash
used was primarily related to the acquisition of furniture and equipment, the
acquisition of SimTech, and a loan to an independent software development
company, which was partially offset by proceeds from the sale of the TDS product
line. During 1996, net cash used in investing activities was related primarily
to the acquisition of furniture and equipment.

<PAGE>

Net cash provided by financing activities was approximately $440,000 and
$345,000 for the years ended December 31, 1999 and 1998, respectively. Net cash
used in financing activities was approximately $10.6 million for the year ended
December 31, 1997. The net cash provided by financing activities in 1999 was
primarily generated by proceeds from the issuance of common stock through stock
options plans, offset by payments of debt obligations and capital leases, and a
tax benefit from option exercises. The net cash provided in 1998 was primarily a
result of the proceeds from the issuance of common stock through stock option
plans and the employee stock purchase plan and the tax benefit of option
exercises, partially offset by the repurchase of $2.3 million of the Company's
outstanding common stock. For the year ended December 31, 1997 net cash used in
financing activities resulted primarily from the Company purchasing
approximately 939,000 shares of treasury stock and repayment of debt, less
proceeds from the issuance of common stock.

The Company presently believes that its current cash and cash equivalents,
together with funds expected to be generated from operations, will satisfy the
Company's anticipated working capital and other cash requirements for at least
the next 12 months.(2)

YEAR 2000

The Year 2000 issue results from computer programs written using two, rather
than four, digits to define the applicable year. These computer programs may
recognize a date using "00" as the year 1900 instead of 2000 and cause system
failures or miscalculations, material disruptions of business operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business operations.

Summit upgraded or replaced the software packages underlying its financial,
production, communication, desktop and other systems, as appropriate, to address
the Year 2000 issue. It performed an in-depth analysis of all of its products
and modified products that were not Year 2000 compliant. Summit also contacted
all major external third parties that provide products and services to Summit to
assess their readiness for the Year 2000. Summit created contingency plans for
its internal information technology systems and products. These contingency
plans were in place by December 31, 1999.

Summit made certain investments in systems, applications and products to address
Year 2000 issues. Summit did not track internal resources dedicated to the
resolution of the Year 2000 issue and, therefore, is unable to quantify internal
costs incurred to date that are associated with the Year 2000 issue. Summit did,
however, hire external consultants to resolve internal information system issues
related to the resolution of the Year 2000 issue. Identifiable expenditures for
these consultants were approximately $250,000 through December 31, 1999.
Expenditures to resolve any future Year 2000 issues are not expected to be
material and are expected to be funded through cash generated from operations.

To date, Summit has not experienced any known Year 2000 issues and has been
informed by material suppliers and vendors that they have also not
experienced material Year 2000 issues. Summit will continue to monitor any
on-going issues.

<PAGE>

ADDITIONAL RISK FACTORS THAT COULD AFFECT OPERATING RESULTS AND MARKET PRICE OF
STOCK

SUMMIT'S QUARTERLY RESULTS WILL LIKELY FLUCTUATE AND AFFECT THE MARKET PRICE OF
SUMMIT'S COMMON STOCK.

Various factors will cause summit's quarterly results to fluctuate. Summit's
quarterly operating results and cash flows have fluctuated in the past and have
fluctuated significantly in certain quarters. These fluctuations resulted from
several factors, including, among others:

- the size and timing of orders;
- large one-time charges incurred as a result of an acquisition or
consolidation;
- seasonal factors;
- the rate of acceptance of new products;
- product, customer and channel mix;
- lengthy sales cycles; and
- level of sales and marketing staff.

These fluctuations will likely continue in future periods because of the above
factors. Additional factors potentially causing fluctuations include, among
others:

- corporate acquisitions and consolidations and the integration of
acquired entities and any resulting large one-time charges;
- the timing of new product announcements and introductions by
Summit and Summit's competitors;
- the rescheduling or cancellation of customer orders;
- the ability to continue to develop and introduce new products and
product enhancements on a timely basis;
- the level of competition;
- purchasing and payment patterns, pricing policies of competitors;
- product quality issues;
- currency fluctuations; and
- general economic conditions.

SUMMIT'S REVENUE IS DIFFICULT TO FORECAST BECAUSE OF THE TIMING OF REVENUE
RECOGNITION AND UNPREDICTABLE NATURE OF CUSTOMER BEHAVIOR.

Summit's revenue is difficult to forecast for several reasons. Summit operates
with little product backlog because Summit typically ships its products shortly
after it receives orders. Consequently, license backlog at the beginning of any
quarter has in the past represented only a small portion of that quarter's
expected revenue. Correspondingly, license fee revenue in any quarter is
difficult to forecast because it is substantially dependent on orders booked and
shipped in that quarter. Moreover, Summit generally recognizes a substantial
portion of its revenue in the last month of a quarter, frequently in the latter
part of the month. Any significant deferral of purchases of Summit's products
could have a material adverse affect on its business, financial condition and
results of operations in any particular quarter. If significant sales occur
earlier than expected, operating results for subsequent quarters may also be
adversely affected. Quarterly license fee revenue is difficult to forecast also
because Summit's typical sales cycle ranges from six to nine months and varies
substantially from customer to customer. In addition, Summit makes a portion of
its sales through indirect channels, and these sales can be difficult to
predict.

SHORTFALLS IN REVENUE COULD ADVERSELY IMPACT QUARTERLY OPERATING RESULTS.

Summit establishes its expenditure levels for product development, sales and
marketing and other operating activities based primarily on Summit's
expectations as to future revenue. Because a high percentage of Summit's
expenses are relatively fixed in the near term, if revenue in any quarter falls
below expectations, expenditure levels could be disproportionately high as a
percentage of revenue and materially adversely affect Summit's operating
results.

SUMMIT'S OPERATING RESULTS WILL LIKELY FLUCTUATE, AND FLUCTUATION MAY ADVERSELY
AFFECT THE STOCK PRICE OF SUMMIT COMMON STOCK.

Summit believes that its quarterly revenue, expenses and operating results will
likely vary significantly from quarter to quarter. Summit also believes that
period-to-period comparisons of Summit's operating results are not necessarily
meaningful. As a result, you should not rely on these comparisons as indications
of Summit's future performance. In addition, Summit operates with high gross
margins, and a downturn in revenue has had a significant impact on income from
operations and net income. Summit's results of operations fell below investors'
and market makers' expectations for the year ended December 31, 1999 and could
be below investors' and market makers' expectation in other quarters, which
could have a material adverse effect on the market price of Summit's common
stock.

<PAGE>

FAILURE TO REPLACE REVENUE ASSOCIATED WITH CREDENCE SYSTEMS WILL HURT SUMMIT'S
OPERATING RESULTS.

As of December 31, 1998, Credence Systems Corporation, or CSC, one of Summit's
larger customers, had satisfied its obligation to purchase a minimum number of
Visual Testbench licenses prsuant to an OEM agreement entered into in July 1997,
and Summit does not expect to receive any additional revenue from sales of
Visual Testbench to CSC. Summit will need to replace this revenue, and the
failure to replace this revenue would have a material adverse affect on Summit's
operating results.

BECAUSE HIGH LEVEL DESIGN AUTOMATION, OR HLDA, PRODUCTS MAKE UP MOST OF SUMMIT'S
REVENUE, SUMMIT FACES THE RISK OF LACK OF DIVERSIFICATION.

Summit's future success depends primarily upon the broad market acceptance of
Summit's existing and future HLDA products. For the years ended December 31,
1999, 1998 and 1997, revenue from HLDA products and related maintenance
contracts represented 100%, 100%, and 88.8%, respectively, of Summit's total
revenue. As a result, factors adversely affecting sales of these products could
have a material adverse effect on Summit's business, financial condition and
results of operations. These factors include:

- increased competition;
- inability to successfully introduce enhanced or improved versions
of these products;
- product quality issues; and
- technological change.

SUMMIT MAY NOT GAIN BROAD MARKET ACCEPTANCE OF HLDA PRODUCTS, AND FAILURE TO DO
SO WILL MATERIALLY ADVERSELY AFFECT SUMMIT'S BUSINESS.

Although demand for HLDA products has increased in recent years, the market for
HLDA products is still emerging. The market may not continue to grow. Even if it
does grow, businesses may not continue to purchase Summit's HLDA products. If
the market for HLDA products fails to grow or grows more slowly than Summit
currently anticipates, it will materially adversely affect Summit's business,
financial condition, results of operations or cash flows.

Summit believes that broad market acceptance of its HLDA products will depend on
several factors, including, among others:

- the ability to significantly enhance design productivity;
- ease of use;
- interoperability with existing electronic design automation
tools;
- price; and
- the customer's assessment of Summit's financial results and
Summit's technical, managerial, service and support expertise.

Summit also depends on its distributors to assist it in gaining market
acceptance of its products. These distributors may not give sufficient priority
to marketing Summit's products. They may even discontinue offering Summit's
products. A decline in the demand for, or the failure to achieve broad market
acceptance of, Summit's HLDA products will have a material adverse effect on
Summit's business, financial condition, results of operations or cash flows.

SUMMIT FACES INTENSE COMPETITION IN THE INDUSTRY AND MUST COMPETE SUCCESSFULLY
IN VARIOUS ASPECTS OR ITS BUSINESS MAY SUFFER.

The electronic design automation industry is highly competitive, and Summit
expects competition to increase as other electronic design automation companies
introduce HLDA products. In the HLDA market, Summit principally competes with
Mentor Graphics and a number of smaller firms. Indirectly, Summit also competes
with other firms that offer alternatives to HLDA. These other firms could also
offer more directly competitive products in the future. Some of these companies
have significantly greater financial, technical and marketing resources and
larger installed customer bases than Summit. Some of Summit's current and future
competitors offer a more complete range of electronic design automation
products. They may also distribute products that directly compete with Summit's
HLDA products by selling such products together with their core product line. In
addition, Summit's products perform a variety of functions, and its existing and
future competitors are offering, or may offer in the future, some of the same
functions as separate products or discrete point solutions. For example, some
companies currently offer design entry products without simulators. Competition
may cause Summit to offer point solutions instead of, or in addition to,
Summit's current software products. Summit would have to price such point
solutions lower than Summit's current product offerings, causing Summit's
average selling prices to decrease. This, in turn, could have a material adverse
effect on Summit's business, financial condition, results of operations, or cash
flows.

<PAGE>

Summit competes on the basis of various factors including, among others:

- product capabilities;
- product performance;
- price;
- support of industry standards;
- ease of use;
- first to market; and
- customer technical support and service.

Summit believes that its products are competitive overall with respect to these
factors. However, in particular cases, Summit's competitors may offer HLDA
products with functionality sought by Summit's prospective customers and which
differs from those Summit offers. In addition, some competitors may achieve a
marketing advantage by establishing formal alliances with other electronic
design automation vendors. Further, the electronic design automation industry in
general has experienced significant consolidation in recent years, and the
acquisition of one of Summit's competitors by a larger, more established
electronic design automation vendor could create a more significant competitor.
Summit may not compete successfully against current and future competitors, and
competitive pressures may have a material adverse effect on Summit's business,
financial condition, results of operations, or cash flows. Summit's current and
future competitors may develop products comparable or superior to Summit's or
more quickly adapt new technologies, evolving industry trends or customer
requirements. Increased competition could result in price reductions, reduced
margins and loss of market share, all of which could have a material adverse
effect on Summit's business, financial condition, results of operations or cash
flows.

SUMMIT'S DEPENDENCE ON THE ELECTRONIC INDUSTRY MAKES IT VULNERABLE TO GENERAL,
INDUSTRY-WIDE DOWNTURNS.

Summit's future operating results may reflect substantial fluctuations from
period to period as a consequence of these industry patterns, general economic
conditions affecting the timing of orders from customers and other factors. The
electronics industry involves

- rapid technological change;
- short product life cycles;
- fluctuations in manufacturing capacity; and
- pricing and margin pressures.

Correspondingly, certain segments, including the computer, semiconductor,
semiconductor test equipment and telecommunications industries, have experienced
sudden and unexpected economic downturns. During these periods, capital spending
often falls, and the number of design projects often decreases. Because Summit's
sales depend upon capital spending trends and new design projects, negative
factors affecting the electronics industry could have a material adverse effect
on Summit's business, financial condition, results of operations, or cash flows.
A number of electronics companies, including Summit's customers, have
experienced a slowdown in their businesses.

SUMMIT DEPENDS ON THIRD PARTIES FOR PRODUCT INTEROPERABILITY, AND THAT MAKES
SUMMIT VULNERABLE FROM THESE THIRD PARTIES' REFUSAL TO COOPERATE WITH SUMMIT ON
ECONOMICALLY FEASIBLE TERMS.

Because Summit's products must interoperate, or be compatible, with electronic
design automation products of other companies, particularly simulation and
synthesis products, Summit must have timely access to third party software to
perform development and testing of products. Although Summit has established
relationships with a variety of electronic design automation vendors to gain
early access to new product information, any of these parties may terminate
these relationships with limited notice. In addition, these relationships are
with companies that are Summit's current or potential future competitors,
including Synopsys, Mentor Graphics and Cadence. If any of these relationships
terminate and Summit were unable to obtain, in a timely manner, information
regarding modifications of third party products, Summit would not have the
ability to modify its software products to interoperate with these third party
products. As a result, Summit could experience a significant increase in
development costs, the development process would take longer, product
introductions would be delayed, and Summit's business, financial condition,
results of operations or cash flows could be materially adversely affected.

IF SUMMIT CANNOT DEVELOP NEW PRODUCTS TO KEEP PACE WITH TECHNOLOGICAL CHANGE AND
EVOLVING INDUSTRY STANDARDS, SUMMIT'S BUSINESS WILL SUFFER.

If Summit cannot, for technological or other reasons, develop and introduce
products in a timely manner in response to changing market conditions, industry
standards or other customer requirements, particularly if Summit has
pre-announced the product releases, its business, financial condition, results
of operations or cash flows will be materially adversely affected. The
electronic design automation industry is characterized by extremely rapid
technological change, frequent new product introductions and evolving industry
standards. The introduction of products with new technologies and the emergence
of new industry standards can render existing products obsolete and

<PAGE>

unmarketable. In addition, customers in the electronic design automation
industry require software products that allow them to reduce time to market,
differentiate their products, improve their engineering productivity and reduce
their design errors. Summit's future success will depend upon its ability to
enhance its current products, develop and introduce new products that keep pace
with technological developments and emerging industry standards and address the
increasingly sophisticated needs of Summit's customers. Summit may not succeed
in developing and marketing product enhancements or new products that respond to
technological change or emerging industry standards. It may experience
difficulties that could delay or prevent the successful development,
introduction and marketing of these products. Summit's products may not
adequately meet the requirements of the marketplace and achieve market
acceptance.

SUMMIT'S SOFTWARE MAY HAVE DEFECTS.

Summit's software products may contain errors that may not be detected until
late in the products' life cycles. Summit has in the past discovered software
errors in certain of its products and has experienced delays in shipment of
products during the period required to correct these errors. Despite testing by
Summit and by current and prospective customers, errors may persist, resulting
in loss of, or delay in, market acceptance and sales, diversion of development
resources, injury to Summit's reputation or increased service and warranty
costs, any of which could have a material adverse effect on its business,
financial condition, results of operations or cash flows.

SUMMIT DEPENDS ON ITS DISTRIBUTORS TO SELL ITS PRODUCTS, ESPECIALLY
INTERNATIONALLY, BUT THESE DISTRIBUTORS MAY NOT DEVOTE SUFFICIENT EFFORTS TO
SELLING SUMMIT'S PRODUCTS OR THEY MAY TERMINATE THEIR RELATIONSHIPS WITH SUMMIT.

DISTRIBUTORS' CONTINUED VIABILITY. If any of Summit's distributors fails,
Summit's business may suffer. Summit relies on distributors for licensing and
support of Summit's products outside of North America. Summit depends on the
relationships with its distributors to maintain or increase sales. Since
Summit's products are used by skilled design engineers, distributors must
possess sufficient technical, marketing and sales resources and must devote
these resources to a lengthy sales cycle, customer training and product service
and support. Only a limited number of distributors possess these resources.
Accordingly, Summit depends on the continued viability and financial stability
of these distributors.

DISTRIBUTORS' EFFORTS IN SELLING SUMMIT'S PRODUCTS. Summit's distributors may
offer products of several different companies, including Summit's competitors.
Summit's current distributors may not continue to market or service and support
Summit's products effectively. Any distributor may discontinue to sell Summit's
products or devote its resources to products of other companies. The loss of, or
a significant reduction in, revenue from Summit's distributors could have a
material adverse effect on its business, financial condition, results of
operations or cash flows.

SEIKO. Seiko, a distributor in Asia, accounted for about 21.5% of Summit's
revenue for the year ended December 31, 1999. In June 1999, Summit lowered
Seiko's first quarter 2000 product quota in recognition of the adverse economic
conditions in the Asia Pacific Region. In December 1999, Summit agreed to waive
Seiko's first quarter 2000 product quota requirements to maintain distribution
exclusivity. As a result, Summit expects sales through Seiko to decrease for at
least the current and following two quarters and revenue attributable to sales
in the Asia Pacific region to decrease.

SUMMIT FACES THE RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS,
INCLUDING ITS BUSINESS ACTIVITIES IN EUROPE AND THE ASIA PACIFIC REGION.

International revenue represents a significant portion of Summit's total revenue
and Summit expects this trend to continue. Summit's international revenue is
currently denominated in U.S. dollars. As a result, increases in the value of
the U.S. dollar relative to foreign currencies could make its products more
expensive and, therefore, potentially less competitive in those markets. Summit
pays the expenses of its international operations in local currencies and does
not engage in hedging transactions with respect to such obligations.
International sales and operations involve numerous risks, including, among
others:

- tariff regulations and other trade barriers;
- requirements for licenses, particularly with respect to the
export of certain technologies;
- collectability of accounts receivable;
- changes in regulatory requirements; and
- difficulties in staffing and managing foreign operations and
extended payment terms.

These factors may have a material adverse effect on Summit's future
international sales and operations and, consequently, on its business, financial
condition, results of operations or cash flows. In addition, financial markets
and economies in the Asia Pacific region have been experiencing adverse
conditions. Demand for and sales of Summit's products in the Asia Pacific region
have decreased, and these adverse economic conditions may worsen. Demand for and
sales of Summit's products in this region may further decrease.

In order to successfully expand international sales, Summit may need to
establish additional foreign operations, hire additional personnel and recruit
additional international distributors. This will require significant management
attention and financial resources and could adversely affect Summit's operating
margins. In addition, to the extent that Summit cannot effect these additions in
a timely manner,

<PAGE>

Summit can only generate limited growth in international sales, if any.
Summit may not maintain or increase international sales of its products, and
failure to do so could have a material adverse effect on its business,
financial condition, results of operations or cash flows.

SUMMIT MUST MANAGE GROWTH AND ACQUISITIONS EFFECTIVELY, OR ITS FINANCIAL
CONDITION OR RESULTS OF OPERATIONS MAY SUFFER.

Summit's ability to achieve significant growth will require it to implement and
continually expand its operational and financial systems, recruit additional
employees and train and manage current and future employees. Summit expects any
growth to place a significant strain on its operational resources and systems.
Failure to effectively manage any growth would have a material adverse effect on
Summit's business, financial condition, results of operations or cash flows.

Summit regularly evaluates acquisition opportunities. Summit's future
acquisitions could result in potentially dilutive issuances of equity
securities, the incurrence of debt and contingent liabilities and amortization
expenses related to goodwill and other intangible assets, and large one-time
charges which could materially adversely affect Summit's results of operations.
Product and technology acquisitions entail numerous risks, including
difficulties in the assimilation of acquired operations, technologies and
products, diversion of management's attention to other business concern, risks
of entering markets in which Summit has no or limited prior experience and
potential loss of key employees of acquired companies. Summit's management has
had limited experience in assimilating acquired organizations and products into
its operations. Summit may not integrate successfully the operations, personnel
or products that have been acquired or that might be acquired in the future, and
the failure to do so could have a material adverse affect on its results of
operations.

SUMMIT FACES THE RISKS ASSOCIATED WITH OPERATIONS IN ISRAEL, INCLUDING
POLITICAL, CURRENCY FLUCTUATION AND COORDINATION RISKS.

POLITICAL RISKS AND GOVERNMENTAL REGULATIONS. Summit's research and development
operations related to Visual HDL products are located in Israel. Economic,
political and military conditions may affect Summit's operations in that
country. Hostilities involving Israel, for example, could materially adversely
affect Summit's business, financial condition and results of operations.
Restrictions on Summit's ability to manufacture or transfer outside of Israel
any technology developed under research and development grants from the
government of Israel further heightens the impact. See "Summit relies on Israeli
research, development and marketing grants for certain benefits."

CURRENCY RISKS. In addition, while all of Summit's sales are denominated in U.S.
dollars, a portion of its annual costs and expenses in Israel are paid in
Israeli currency. Payment in Israeli currency subjects Summit to foreign
currency fluctuations and to economic pressures resulting from Israel's
generally high rate of inflation of, for example, approximately 9% in 1998. As a
result, an increase in the value of Israeli currency in comparison to the U.S.
dollar could increase the cost of research and development expenses and general
and administrative expenses.

COORDINATION RISKS. In addition, coordination with and management of the Israeli
operations requires Summit to address differences in culture, regulations and
time zones. Failure to successfully address these differences could disrupt
Summit's operations.

SUMMIT CURRENTLY ENJOYS CERTAIN TAX BENEFITS UNDER AN ISRAELI "APPROVED
ENTERPRISE" STATUS WHICH IT MAY NOT ENJOY IN THE FUTURE AND WHICH IN TURN MAY
ADVERSELY AFFECT SUMMIT'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The Israeli government has granted Summit's Israeli production facility the
status of an "Approved Enterprise" under the Israeli Investment Law for the
Encouragement of Capital Investments, 1959. Taxable income of a company derived
from an "Approved Enterprise" is eligible for tax benefits, including
significant income tax rate reductions for up to seven years following the first
year in which the "Approved Enterprise" has Israeli taxable income (after using
any available net operating losses) subject to specified conditions. In the
event of Summit's failure to comply with these conditions, the tax benefits
could be canceled, in whole or in part, and Summit would have to refund the
amount of the canceled benefits, adjusted for inflation and interest. During
1998, Summit realized income of $4.3 million from its Israeli operations and
"Approved Enterprise" tax benefits of $1.9 million. Summit has recently applied
for "Approved Enterprise" status with respect to a new project and intends to
apply in the future with respect to additional projects. Summit's Israeli
production facility may not continue to operate or qualify as an "Approved
Enterprise". The benefits under the "Approved Enterprise" regulations may not
continue, or be applicable, in the future. Summit intends to permanently
reinvest earnings of the Israeli subsidiary outside the United States. If these
earnings are remitted to the United States, Summit may have to pay additional
U.S. federal and foreign taxes. The loss of, or any material decrease in, these
income tax benefits could have a material adverse effect on Summit's business,
financial condition, results of operations or cash flows. Losing the "Approved
Enterprise" status may likewise adversely affect the combined company's
financial condition and results of operations.

SUMMIT DEPENDS ON ITS KEY PERSONNEL, AND FAILURE TO HIRE OR RETAIN QUALIFIED
PERSONNEL COULD CAUSE SUMMIT'S BUSINESS TO SUFFER.

Summit's future success will depend in large part on its key technical and
management personnel and its ability to continue to attract and retain
highly-skilled technical, sales and marketing and management personnel. Summit
has entered into employment agreements with

<PAGE>

certain of its executive officers. These agreements, however, do not
guarantee the services of these employees and do not contain noncompetition
provisions. Summit recently amended the employment agreement with Richard
Davenport, Summit's President. As amended, Mr. Davenport's employment
agreement provides that he is entitled to certain guaranteed severance
payments. Mr. Davenport may or may not continue his employment with Summit.
In addition, C. Albert Koob, Summit's Vice President, Finance and Chief
Financial Officer, tendered his resignation effective as of January 31, 2000.

Competition for personnel in the software industry in general, and the
electronic design automation industry in particular, is intense. Summit has in
the past experienced difficulty in recruiting qualified personnel. Summit may
fail to retain its key personnel or attract and retain other qualified
technical, sales and marketing and management personnel in the future. The loss
of any key employees or the inability to attract and retain additional qualified
personnel may have a material adverse effect on Summit's business, financial
condition, results of operations or cash flows. Additions of new personnel and
departures of existing personnel, particularly in key positions, can be
disruptive and can result in departures of additional personnel, which could
have a material adverse effect on Summit's business, financial condition,
results of operations or cash flows.

IF SUMMIT FAILS TO EXPAND ITS SALES AND MARKETING ORGANIZATIONS, ITS BUSINESS
MAY SUFFER.

Summit's success will depend on its ability to build and expand its sales and
marketing organizations. Summit hired fewer sales and marketing personnel than
planned in the fourth quarter of 1998 and the first two quarters of 1999 and
experienced attrition in the existing sales force during the first quarter of
1999. In part, as a result of the lack of sales people, Summit's revenues for
the fourth quarter of 1998 were lower than expected. In February 1998, Summit's
Senior Vice President of Worldwide Marketing and Sales resigned. Summit's future
success will depend in part on its ability to hire and retain qualified sales
and marketing personnel and the ability of these new persons to rapidly and
effectively transition into their new positions. Competition for qualified sales
and marketing personnel is intense, and Summit may not be able to hire and
retain the number of sales and marketing personnel needed, which would have a
material adverse effect on its business, financial condition, results of
operations or cash flows.

SUMMIT RELIES ON ISRAELI RESEARCH, DEVELOPMENT AND MARKETING GRANTS FOR CERTAIN
BENEFITS. FAILURE TO OBTAIN SIMILAR GRANTS AND BENEFITS IN THE FUTURE MAY
ADVERSELY AFFECT SUMMIT'S BUSINESS.

Summit has developed its Visual HDL for VHDL products under grants from the
Office of the Chief Scientist in the Israeli Ministry of Industry and Trade. The
terms of the grants prohibit the manufacture of products developed under these
grants outside of Israel and the transfer of the technology developed under
these grants to any person, without the prior written consent of the Chief
Scientist. If Summit were unable to obtain the consent of the government of
Israel, it would be unable to take advantage of potential economic benefits such
as lower taxes, lower labor and other manufacturing costs and advanced research
and development facilities that may be available if these technology and
manufacturing operations could be transferred to locations outside of Israel. In
addition, Summit would be unable to minimize risks particular to operations in
Israel, such as hostilities involving Israel.

SUMMIT DEPENDS ON ITS INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS BUT
PROTECTION OF THESE RIGHTS IS LIMITED.

Summit's success depends in part upon its proprietary technology. Summit relies
on a combination of copyright, trademark and trade secret laws, confidentiality
procedures, licensing arrangements and technical means to establish and protect
its proprietary rights. As part of Summit's confidentiality procedures, Summit
generally enters into non-disclosure agreements with employees, distributors and
corporate partners, and limit access to, and distribution of, its software,
documentation and other proprietary information. In addition, Summit protects
its products with hardware locks and software encryption techniques designed to
deter unauthorized use and copying. Despite these precautions, a third party may
still copy or otherwise obtain and use Summit's products or technology without
authorization, or develop similar technology independently.

SUMMIT MAY FACE INFRINGEMENT CLAIMS, AND INTELLECTUAL PROPERTY LITIGATION WILL
BE COSTLY FROM BOTH THE ECONOMIC AND BUSINESS PERSPECTIVES.

Summit could face an increasing number of infringement claims as the number of
products and competitors in Summit's industry segment grows, the functionality
of products in Summit's industry segment overlaps and an increasing number of
software patents are granted by the United States Patent and Trademark Office. A
third party may claim such infringement by Summit with respect to current or
future products. Any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product delays or require
Summit to enter into royalty or licensing agreements. These royalty or license
agreements, if required, may not be available on acceptable

<PAGE>

terms or at all. Failure to protect Summit's proprietary rights or claims of
infringement could have a material adverse effect on Summit's business,
financial condition, results of operations or cash flows.

SUMMIT'S STOCK PRICE MAY FLUCTUATE DRAMATICALLY.

The stock markets have experienced price and volume fluctuations that have
particularly affected technology companies, resulting in changes in the market
prices of the stocks of many companies which may not have been directly related
to the operating performance of those companies. These broad market fluctuations
may adversely affect the market price of Summit's common stock. In addition,
factors such as announcements of technological innovations or new products by
Summit or its competitors, market conditions in the computer software or
hardware industries and quarterly fluctuations in Summit's operating results may
have a significant adverse effect on the market price of Summit's common stock.

IF SUMMIT'S PLANNED MERGER WITH VIEWLOGIC SYSTEMS FAILS, ITS BUSINESS MAY
SUFFER.

On September 16, 1999, the Company entered into a definitive agreement to
merge with Viewlogic Systems, Inc. ("Viewlogic") a privately held software
company headquartered in Marlboro, Massachusetts under which the Company will
acquire Viewlogic. Summit's overall business strategy depends upon the
successful completion of this merger. Summit has expended significant
resources on the merger. If the merger fails, Summit will have to dedicate
significant resources to modifying its current business strategy, which could
have a material adverse effect on its business, financial condition, results
of operations or cash flows. Such modifications include, among other things,
hiring and retaining a number of sales, marketing, and management personnel
including a chief executive officer and chief financial officer, and Summit
may not succeed in doing so. A failed merger could also have a material
affect on the market price of Summit's common stock.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from interest rate changes, foreign
currency fluctuations, and changes in the market values of its investments.

INTEREST RATE RISK. The Company invests its excess cash in debt instruments of
the U.S. Government and its agencies, and in high-quality corporate issuers and,
by policy, limits the amount of credit exposure to any one issue. The Company
attempts to protect and preserve its invested funds by limiting default, market
and reinvestment risk. Investments in both fixed rate and floating rate interest
earning instruments carry a degree of interest rate risk. Fixed rate securities
may have their fair market value adversely impacted due to a rise in interest
rates, while floating rate securities may produce less income than expected if
interest rates fall. Due in part to these factors, the Company's future
investment income may fall short of expectations due to changes in interest
rates and the Company may suffer losses in principal if forced to sell
securities which have declined in market value due to changes in interest rates.

FOREIGN CURRENCY RISK. The Company pays the expenses of its international
operations in local currencies. The Company's international operations are
subject to risks typical of an international business, including, but not
limited to: differing economic conditions, changes in political climate,
differing tax structures, other regulations and restrictions, and foreign
exchange rate volatility. Accordingly, the Company's future results could be
materially adversely impacted by changes in these or other factors. The Company
is also exposed to foreign exchange rate fluctuations as they relate to
operating expenses as the financial results of foreign subsidiaries are
translated into U.S. dollars in consolidation. As exchange rates vary, these
results, when translated, may vary from expectations and adversely impact
overall expected profitability. The effect of foreign exchange rate fluctuations
on the Company in 1999 was not material.

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPORTING DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants..................................................................................... 37

Consolidated Balance Sheets as of December 31, 1999 and 1998.......................................................... 38

Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997............................ 39

Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 1998 and 1997.................. 40

Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997............................ 41

Notes to Consolidated Financial Statements............................................................................ 42
</TABLE>

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Summit Design, Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Summit Design, Inc. and its subsidiaries 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.

PRICEWATERHOUSECOOPERS LLP

Portland, Oregon
January 28, 2000

37
<PAGE>

SUMMIT DESIGN, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

<TABLE>
<CAPTION>
DECEMBER, 31
-------------------------------
1999 1998
------------- -----------
<S> <C> <C>
ASSETS

Current assets:
Cash and cash equivalents ............................... $ 28,403 $ 27,693
Accounts receivable, less allowance for doubtful accounts
of $427 and $511 ..................................... 7,391 8,852
Deferred income taxes ................................... 564 792
Prepaid expenses and other .............................. 991 862
-------- --------
Total current assets ............................... 37,349 38,199

Furniture and equipment, net ................................. 3,598 4,113
Intangibles, net ............................................. 949 2,870
Goodwill, net ................................................ 1,991 2,742
Deposits and other assets .................................... 157 2,286
-------- --------
Total assets ....................................... $ 44,044 $ 50,210
======== ========

LIABILITIES

Current liabilities:
Long-term debt, current portion ......................... $ 56 $ 54
Capital lease obligation, current portion ............... - 43
Accounts payable ........................................ 1,448 2,520
Accrued liabilities ..................................... 5,667 5,687
Deferred revenue ........................................ 5,476 5,640
-------- --------
Total current liabilities .......................... 12,647 13,944

Long-term debt, less current portion ......................... - 156
Deferred revenue, less current portion ....................... 88 146
Deferred income taxes ........................................ - 489
-------- --------
Total liabilities .................................. 12,735 14,735
======== ========

Commitments and contingencies (Notes 10 and 17)

STOCKHOLDERS' EQUITY
Common stock, $.01 par value. Authorized 30,000; issued
and outstanding 15,815 shares in 1999 and 15,457
shares in 1998 ............................................ 158 155
Additional paid-in capital ................................... 44,691 44,039
Accumulated deficit .......................................... (13,540) (8,719)
-------- --------
Total stockholders' equity ......................... 31,309 35,475
-------- --------
Total liabilities and stockholders' equity ......... $ 44,044 $ 50,210
======== ========

</TABLE>

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

<PAGE>

SUMMIT DESIGN, INC.

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
------------- ------------ -----------
<S> <C> <C> <C>
Revenue:
Product licenses............................ $18,620 $33,589 $ 24,828
Maintenance and services.................... 11,615 9,642 6,161
Other .................................... - 367 450
------------- ------------ -----------
Total revenue.......................... 30,235 43,598 31,439
------------- ------------ -----------

Cost of revenue:
Product licenses............................ 776 744 701
Maintenance and services.................... 1,034 955 632
Amortization of purchased technologies...... 561 661 219
------------- ------------ -----------
Total cost of revenue.................. 2,371 2,360 1,552
------------- ------------ -----------

Gross profit .................................... 27,864 41,238 29,887

Operating expenses:
Research and development.................... 10,204 13,042 7,749
Sales and marketing......................... 11,143 11,713 10,591
General and administrative.................. 5,151 4,398 3,785
Amortization of intangibles and goodwill.... 2,111 2,791 942
Merger costs................................ 1,218 1,249 379
Severance and write-off of note receivable.. 4,005 - -
In-process technology....................... - - 11,689
------------- ------------ -----------
Total operating expenses............... 33,832 33,193 35,135
------------- ------------ -----------

Income (loss) from operations.................... (5,968) 8,045 (5,248)
Interest expense................................. (4) (4) (12)
Other income, net................................ 1,151 1,097 1,057
Gain on sale of TDS product line................. - - 5,574
------------- ------------ -----------

Income (loss) before income taxes................ (4,821) 9,138 1,371
Income tax provision............................. - 4,037 940
------------- ------------ -----------

Net income (loss) ............................... $(4,821) $ 5,101 $ 431
============= ============ ===========

Net income (loss) per share - Basic:.............
Net income (loss) per share................... $ ( 0.31) $ 0.34 $ 0.03
============= ============ ===========
Number of shares used in computing............
basic net income (loss) per share......... 15,678 15,155 14,403

Net income (loss) per share - Diluted:...........
Net income (loss) per share................... $ ( 0.31) $ 0.32 $ 0.03
============= ============ ===========
Number of shares used in computing............
diluted net income (loss) per share....... 15,678 16,115 15,402
</TABLE>

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

39
<PAGE>

SUMMIT DESIGN, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1999, 1998 and 1997
(In thousands, except shares)

<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-in Treasury Stock Stock-
------------------------------------------------------------- Accumulated holders'
Shares Amount Capital Shares Amount Deficit Equity
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 14,079,142 $ 141 $ 33,261 - - $(14,251) $ 19,151
Issuance of common stock............ 29,733 3 3
Issuance of common stock
under stock option plan........... 440,711 5 563 568
Issuance of common stock under
employee stock purchase plan...... 58,701 1 349 350
Repurchase of common stock.......... (23,760) (4) (4)
Issuance of common stock in
conjunction with a business
combination....................... 1,256,777 12 15,538 15,550
Purchase of treasury stock.......... (939,381) (11,555) (11,555)
Tax benefit of option exercises..... 969 969
Amortization of contingent
share liability.................. 733 733
Net income.......................... 431 431
------------------------------------------------------------------------------------------
Balance, December 31, 1997 15,841,304 159 51,412 (939,381) (11,555) (13,820) 26,196
Issuance of common stock............ 14,616 11 11
Issuance of common stock
under stock option plan........... 460,590 5 994 999
Issuance of common stock
under employee stock
purchase plan..................... 80,252 1 602 603
Purchase of treasury stock.......... (162,500) (2,330) (2,330)
Reissuance of treasury stock........ (2,330) 162,500 2,330 -
Retirement of treasury stock........ (939,381) (10) (11,545) 939,381 11,555 -
Amortization of contingent share
liability......................... 3,666 3,666
Tax benefit of option exercises..... 1,229 1,229
Net income.......................... 5,101 5,101
------------------------------------------------------------------------------------------
Balance, December 31, 1998 15,457,381 155 44,039 - - (8,719) 35,475
Issuance of common stock
under stock option plan........... 199,535 2 153 155
Issuance of common stock
under employee stock
purchase plan..................... 157,571 1 392 393
Stock options issued to consultant.. 18 18
Tax benefit of option exercises..... 89 89
Net loss............................ (4,821) (4,821)
==========================================================================================
Balance, December 31, 1999 15,814,487 $ 158 $ 44,691 - $ - $(13,540) $ 31,309
==========================================================================================
</TABLE>

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

<PAGE>

SUMMIT DESIGN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

YEARS ENDED DECEMBER 31,
1999 1998 1997
-------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,821) $5,101 $ 431
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization.............................. 4,313 4,649 1,984
Amortization of contingent share liability................. - 3,666 733
Loss on asset disposition.................................. 29 - 2
Gain on sale of TDS product line........................... - - (5,574)
Write-off of acquired in-process technology................ - - 11,689
Deferred income taxes...................................... (261) (81) (1,044)
Equity in losses of and transactions with unconsolidated
joint venture............................................. 230 520 77
Write-off of note receivable............................... 2,665 - -
Issuance of stock options to consultant.................... 18 - -

Changes in assets and liabilities:
Accounts receivable................................... 1,461 (3,721) 951
Prepaid expenses...................................... (130) (322) (13)
Accounts payable...................................... (1,072) 1,309 (254)
Accrued liabilities................................... (18) 505 1,667
Deferred revenue...................................... (222) 112 1,601
Other, net............................................ 197 134 (145)
-------------------------------------------
Net cash provided by operating activities........ 2,389 11,872 12,105
-------------------------------------------
Cash flows from investing activities:
Additions to furniture and equipment............................ (1,166) (2,619) (1,613)
Acquisitions, net of cash received.............................. - - (3,816)
Proceeds from sale of TDS product line.......................... - - 4,666
Proceeds from sale of assets.................................... 12 7 30
Notes receivable advances....................................... (965) (1,210) (565)
Notes receivable repayments..................................... - 75 -
Investment in and advances to joint venture..................... - (750) -
-------------------------------------------
Net cash used in investing activities............ (2,119) (4,497) (1,298)
-------------------------------------------
Cash flows from financing activities:
Issuance of common stock, net of expenses....................... 548 1,613 922
Tax benefit of option exercises................................. 89 1,229 969
Payments to acquire treasury stock.............................. - - (11,555)
Repurchase of common stock...................................... - (2,330) (4)
Principal payments of debt obligations.......................... (154) (118) (898)
Principal payments of capital lease obligations................. (43) (49) (69)
-------------------------------------------
Net cash provided by (used in) financing
activities..................................... 440 345 (10,635)
-------------------------------------------
Increase in cash and cash equivalents............ 710 7,720 172
Cash and cash equivalents, beginning of year......................... 27,693 19,973 19,801
-------------------------------------------
Cash and cash equivalents, end of year............................... $28,403 $27,693 $19,973
===========================================

Supplemental disclosure (see Note 16)

</TABLE>

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

<PAGE>

SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY

Summit Design, Inc. (Summit or the Company) develops, manufactures and markets
software which enhances and accelerates the creation of electronic systems and
integrated circuits using top-down design methodologies. The Company provides
software products for design specification entry, design analysis and
verification. Subsidiaries of the Company are located in the United States,
Israel Europe and Finland. The Company markets and sells its products in the
United States, Europe, and Asia through its direct sales force and distributor
relationships.

On September 16, 1999, the Company entered into a definitive agreement to merge
with Viewlogic Systems, Inc. ("Viewlogic") a privately held software company
headquartered in Marlboro, Massachusetts under which the Company will acquire
Viewlogic. Each share of Viewlogic Preferred and Common Stock will be assumed by
the Company and will be exchanged for 0.67928 shares for Summit Common Stock
upon closing of the transaction. In addition, the Company will assume all
options outstanding under Viewlogic's stock option plan. The Company intends to
account for this acquisition as a purchase. Although Summit will be acquiring
Viewlogic, after such transaction, Viewlogic stockholders will hold a
controlling interest in Summit. Accordingly, for accounting purposes, the
acquisition will be a "reverse acquisition" and Viewlogic will be the
"accounting acquirer". As Viewlogic will be the accounting acquirer, its
accounts will be recorded at historical cost and the assets and liabilities of
Summit will be recorded at their estimated fair value as of the closing date.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of the Company's significant accounting policies:

BASIS OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Summit Verification, Inc., Summit Design (EDA)
Ltd., ProSoft OY, Summit Design France, Summit Design GmbH, and Summit Design
U.K. Ltd. Upon consolidation, all intercompany accounts, transactions and
profits have been eliminated. Investments in business entities in which the
Company does not have control, but has the ability to exercise significant
influence over operating and financial policies (generally 20-50 percent
ownership), are accounted for by the equity method.

REVENUE RECOGNITION

Product licenses revenue is derived from the sale of software licenses to
distributors and end-users. Revenue from the sale of product licenses is
recognized upon delivery of the product if remaining vendor obligations are
insignificant and collection of the resulting receivable is probable, otherwise
revenue from such software products is deferred until such time as vendor
obligations are met. Revenue earned on software arrangements involving multiple
elements is allocated to each element based on vendor-specific objective
evidence (VSOE) of the fair value of the various elements within the
arrangement. Revenue from the sale of software licenses is recognized at the
later of the time of shipment of satisfaction of all acceptance terms. Revenue
from product sales through distributors is recognized net of the associated
distributor discounts. The Company provides a ninety-day warranty that its
products are free from defects. Estimated sales returns and provisions for
insignificant vendor obligations and estimated warranty costs are recorded when
revenue is recognized.

Maintenance and services revenue includes software maintenance and other service
revenue, primarily from training. Software maintenance revenue is deferred and
recognized ratably over the life of the maintenance contract. Other service
revenue is recognized as the related service is performed.

Fees received for granting distribution rights are deferred and recognized
ratably over the term of the distribution agreement.

RESEARCH AND DEVELOPMENT COSTS

Costs related to research, design and development of products are charged to
research and development expense as incurred. Software development costs are
capitalized beginning when a product's technological feasibility has been
established by completion of a working model of the product and ending when a
product is available for general resale to customers. To date, completion of a
working model of the Company's products and general release have substantially
coincided. As a result, the Company has not capitalized any software development
costs since such costs have not been significant.

CASH EQUIVALENTS

The Company considers all highly liquid debt instruments with a remaining
maturity of three months or less when purchased to be cash equivalents. At
December 31, 1999 and 1998, substantially all of the Company's cash and cash
equivalents are invested in interest-bearing deposits and other short-term
investments with several major banks.

<PAGE>
FURNITURE AND EQUIPMENT

Furniture and equipment, consisting primarily of computer equipment and office
furniture, are stated at cost, net of related depreciation. Maintenance and
repairs are charged to expense as incurred. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets
ranging from three to seven years. Amortization of equipment under capital
leases is provided using the straight-line method over the shorter of the
related lease terms or economic life of the leased assets. Upon disposal of an
asset subject to depreciation, the cost and related accumulated depreciation are
removed from the accounts and resulting gains and losses are reflected in other
income, net.

INTANGIBLES AND GOODWILL

Intangibles, which include purchased technologies and other intangibles are
being amortized on a straight-line basis over two to five years for purchased
technologies and two years for other intangibles. Purchased technology
represents acquired software which has been fully developed, achieved
technological feasibility, reached commercial viability, and is generating
revenue. Goodwill, which represents the excess of the purchase price over
identifiable net assets acquired, is being amortized over five years. The
carrying value of intangible assets and goodwill are reviewed whenever
circumstances occur which indicate that the carrying value may not be
recoverable.

INCOME TAXES

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial reporting and tax
bases of assets and liabilities and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period of change. Valuation allowances are established when necessary, to reduce
deferred tax assets to the amounts expected to be realized.

CONCENTRATION OF CREDIT RISK

The Company sells its products primarily to commercial end-users across many
industries directly and through independent and affiliated distributors in North
America, Europe and Asia. The Company's end-user customers include companies in
a wide range of industries, including semiconductor devices, semiconductor test
equipment, telecommunications, computer/peripherals, consumer electronics,
aerospace/defense and other electronics entities. The Company performs ongoing
credit evaluations of its customers' financial condition and generally does not
require collateral. The Company maintains allowances for potential losses, and
such losses have been within management's expectations.

The Company has made equity investments in ADC and SDA and has provided loans to
ADC and a privately-held, independent software company for business and
strategic purposes. The Company identifies and records impairment losses on
these investments when events and circumstances indicate that such assets might
be impaired.

FOREIGN CURRENCY TRANSLATION

The Company's subsidiaries in Israel, Finland, France, Germany and the U.K. use
the U.S. dollar as their functional currency for financial reporting purposes.
The Company's sales to foreign distributors and customers are denominated in
U.S. dollars. Operating expenses of the Company's subsidiary in Israel and other
international operations are paid in the local currency. Transaction gains and
losses, as well as gains and losses experienced with respect to remeasurement to
the functional currency are recorded in the consolidated statement of
operations. As the gains and losses are insignificant in 1999 and 1998, such
amounts were recorded as other income, net.

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.

<PAGE>

DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of financial instruments including cash and cash
equivalents, accounts receivable, other current assets, accounts payable and
accrued liabilities approximated fair value as of December 31, 1999 and 1998
because of the relatively short maturity of these instruments. The carrying
value of capital lease obligations and long-term debt approximated fair value as
of December 31, 1999 and 1998, based upon the interest rates available to the
Company for similar instruments. The carrying amount of notes receivable at
December 31, 1998 approximates fair value which is evaluated based upon the
present value of the expected future cash flows and the fair value of the
underlying collateral.

COMPUTATION OF NET INCOME (LOSS) PER SHARE

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard (SFAS) No. 128 EARNINGS PER SHARE
effective for fiscal periods ending after December 15, 1997. Basic EPS is
computed using the weighted average number of shares of common stock outstanding
for the period. Diluted EPS is computed using the weighted average number of
shares of common stock and dilutive common stock equivalents outstanding during
the period. Common equivalent shares from stock options are excluded from the
computation when their effect is antidilutive.

3. ACQUISITION OF TRIQUEST DESIGN AUTOMATION, INC.:

On February 28, 1997, the Company acquired TriQuest Design Automation, Inc., a
California corporation ("TriQuest"). TriQuest develops hardware description
language ("HDL") analysis, optimization and verification tools for the design of
high performance, deep submicron integrated circuits. The aggregate
consideration for the acquisition (including shares of common stock reserved for
issuance upon exercise of TriQuest options assumed by the Company) was 775,000
shares of common stock. The transaction was accounted for as a "pooling of
interests" in accordance with generally accepted accounting principles. In
compliance with such principles, the Company's operating results have been
restated to include the results of TriQuest as if the acquisition had occurred
at the beginning of the first period presented.

The following presents the previously separate results of Summit and TriQuest
(in thousands):

Two Months Ended Years Ended
February 28, 1997 --------------------------------------------
----------------- December 31, 1996 December 31, 1995
(unaudited) --------------------------------------------
<S> <C> <C> <C>
Summit
Revenues $ 1,473 $ 20,163 $ 14,292
Net income (loss) (921) 2,688 (3,123)

TriQuest
Revenues 199 151 -
Net income (loss) 143 (1,425) (488)
</TABLE>

4. SALE OF TDS PRODUCT LINE:

On July 11, 1997 the Company sold substantially all of the assets used in its
business of developing and marketing its Test Development Series "TDS" Products
(the "Asset Sale") to Credence Systems Corporation ("CSC") for $5 million. CSC
assumed certain liabilities, including the Company's obligations under TDS
maintenance contracts entered into prior to the closing. CSC also agreed to
purchase $2 million of Visual interface licenses in the second quarter of 1997.
TDS product license, maintenance and services and other revenue for the years
ended December 31, 1995, 1996 and 1997 were $6,978,000, $7,331,000 and
$3,500,000, respectively.

The Company and CSC also entered into a software license agreement ("OEM
Agreement") in which CSC agreed to purchase $16 million of Visual Testbench
licenses over a thirty-month period subject to specified quarterly maximums and
certain additional conditions. Additionally, CSC entered into an 18 month
maintenance agreement for $2 million associated with the Visual Testbench
product.

<PAGE>

5. ACQUISITION OF SIMULATION TECHNOLOIGES CORP:

On September 9, 1997, the Company acquired Simulation Technologies Corp.
("SimTech"), a Minnesota Corporation. SimTech develops and distributes
hardware-software co-verification, code coverage and HDL debugging software. The
aggregate consideration for the acquisition was 1,256,800 shares of Summit
common stock, 723,200 options to purchase Summit common stock and $3,875,000 in
cash. An additional $315,000 of direct acquisition costs were also incurred and
included in the purchase price.

After discussion with the staff of the Securities and Exchange Commission, the
Company restated the consolidated financial statements as of and for the
quarters ended September 30, 1997, March 31, 1998, June 30, 1998 and September
30, 1998 and as of and for the year ended December 31, 1997 to reflect a change
in the original accounting treatment to the September 1997 acquisition of
SimTech.

The total consideration at estimated fair value as originally reported and as
restated is summarized as follows (in thousands):

<TABLE>
<CAPTION>
Originally
Reported As Restated
-------------- -------------
<S> <C> <C>
Cash......................................................... $3,875 $3,875
Common stock of Summit....................................... 11,367 14,649
Options to purchase Summit common stock...................... 5,299 5,299
Other direct acquisition costs............................... 315 315
-------------- -------------
$ 20,856 $ 24,138
============== =============
</TABLE>

The transaction was accounted for using the purchase method of accounting.
Accordingly, the results of operations have been combined with those of Summit
since the date of acquisition. The allocation of the purchase price to the net
assets acquired based upon their estimated fair values as originally reported
and as restated is summarized as follows (in thousands):

<TABLE>
<CAPTION>
Originally
Reported As Restated
-------------- --------------
<S> <C> <C>
Current assets..................................................... $ 937 $ 937
Property and equipment............................................. 377 377
In-process technology.............................................. 19,937 11,689
Purchased technology............................................... 1,037 2,390
Identifiable intangibles........................................... 735 4,079
Goodwill.... - 3,756
Current liabilities assumed........................................ (707) (707)
Unearned revenue assumed........................................... (1,460) (1,460)
Deferred taxes..................................................... - (1,322)
Compensation expense contingent upon future employment - 4,399
-------------- --------------
$ 20,856 $ 24,138
============== ==============
</TABLE>

The amount allocated to in-process technology was written off immediately
subsequent to the acquisition of SimTech as the in-process technology had not
reached technological feasibility and had no probable alternative future use.
The amounts allocated to purchased technology and identifiable intangibles are
being amortized on a straight-line basis over two to five years. Additionally,
the Company recorded a charge to expense for shares issued in the transaction
which were contingent upon continued employment for up to two years from the
acquisition date. A total of $4.4 million of compensation expense was recorded
as the employment obligation lapsed.

45
<PAGE>

The following table reflects unaudited pro forma combined results of operations
of the Company and SimTech on a basis that the acquisition had taken place at
the beginning of the fiscal year for each of the periods presented, excluding
the effect of the one-time charge of in-process technology:

December 31, December 31,
1996 1997
-------------------- --------------------
(in thousands, except per share data)
<S> <C> <C>

Revenues $ 24,391 $ 35,278
-------------------- --------------------
Net income (loss) $ (4,104) $ 6,563
-------------------- --------------------

Basic net income (loss) per share $ (0.31) $ 0.43
-------------------- --------------------
Diluted net income (loss) per share $ (0.31) $ 0.40
-------------------- --------------------

Number of shares used in computing basic net
income (loss) per share 13,292 15,268
-------------------- --------------------
Number of shares used in computing diluted net
income (loss)per share 13,292 16,267
-------------------- --------------------

</TABLE>

In management's opinion, the unaudited pro forma combined results of operations
are not indicative of the actual results that would have occurred had the
acquisition been consummated at the beginning of 1996 or at the beginning of
1997 or under the ownership and management of the Company.

In connection with this transaction the Company also repurchased 939,000 shares
of Summit common stock in private transactions at an average price of $12.30 per
share for $11,555,000 in cash.

6. FURNITURE AND EQUIPMENT:

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

<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
---------- -----------
<S> <C> <C>
Office furniture and equipment.............................. $ 691 $ 1,201
Computer equipment.......................................... 5,573 5,138
Leasehold improvements...................................... 934 491
---------- -----------
7,198 6,830
Less accumulated depreciation and amortization.............. (3,600) (2,717)
---------- -----------
$ 3,598 $4,113
========== ===========

</TABLE>

7. DEPOSITS AND OTHER ASSETS:

During 1999, the Company advanced $965,000 to the sofware company bringing total
borrowings to $2.7 million During 1999, the Company agreed to loan an additional
$200,000 to the independent software company. During the third quarter of 1999,
it became evident that because of missed product development milestones, the
independent software company's cash flows would not be sufficient to repay the
loan. The Company exercised its right under the terms of the contract with the
independent software company to retain co-ownership of the technology and
distribution rights to the product in satisfaction of the note. During the third
quarter the Company also evaluated its business strategy relative to the
technology acquired from the software company. Based on the Company's assessment
of market potential, revised sales projections, and limited manpower resources,
management decided that Summit could not provide the support necessary to
successfully market and sell this product. The Company concluded that the
technology had no value and Summit has no plans to sell this product in the
future. The Company therefore wrote-off the balance of the note receivable of
$2.7 million.

<PAGE>

Also included in Deposits and Other Assets are investments in and advances to
two joint ventures (see Note 19) of which $0 and $230,000 are outstanding at
December 31, 1999 and December 31, 1998, respectively. Advances bear interest at
5% per year and are due June 2003.

8. NOTE PAYABLE TO BANK

The Company had available a $1 million line of credit with U.S. National Bank of
Oregon, which matured April 30, 1999 and was collateralized by accounts
receivable, inventory, chattel paper, general intangibles, patents, trademarks,
copyrights and products and proceeds of the foregoing. Maximum borrowings under
the line shall not exceed 75% of eligible accounts receivable. Interest on the
unpaid balance accrues at prime and is payable monthly. The prime rate at
December 31, 1998 was 7.75%. There was no amount outstanding at December 31,
1998. The Company did not borrow any funds under this note through April 30,
1999 when the note matured. The Company did not renew the note.

The line of credit agreement contained financial covenants, including covenants
relating to maintenance of a minimum level of working capital, net worth, the
ratio of debt to net worth and dividend restrictions. The Company was in
compliance with these covenants at December 31, 1998.

9. ACCRUED LIABILITIES

Accrued liabilities consists of the following (in thousands):

December 31,
---------------------------
1999 1998
----------- -------------
<S> <C> <C>
Payroll and related benefits................................................. $4,006 $3,051
Sales and marketing.......................................................... 170 332
Accounting and legal......................................................... 575 310
Federal and state income taxes payable....................................... 564 1,549
Sales taxes payable.......................................................... 48 160
Other........................................................................ 304 285
----------- -------------
$5,667 $5,687
=========== =============

</TABLE>

10. LEASES

The Company has entered into noncancelable operating leases for the use of
buildings in Beaverton, Oregon, Herzlia, Israel, and San Jose, California.
Rental expense was approximately $1.3 million, $653,000, and $495,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.

Future minimum lease payments under these operating and capital leases for the
years ending December 31 are as follows (in thousands):

Operating
Leases
---------------
<S> <C>
2000................................................................. $ 1,286
2001................................................................... 977
2002 ............................................................... 870
2003 ............................................................... 830
2004 ............................................................... 477
---------------
Total minimum lease payments.................................... $ 4,440
===============
</TABLE>
47
<PAGE>
11. LONG-TERM DEBT:

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
--------------------------
<S> <C> <C>
Marketing grant payable to the Israeli government.......................... $ 56 $ 187

Other...................................................................... - 23
--------------------------
56 210
Current portion............................................................ (56) (54)
--------------------------
Non-current portion........................................................ $ - $ 156
==========================

</TABLE>

The Chief Scientist grant represents research and development funding of
approximately $232,000 in 1993 and $608,000 in 1995 received from the Israeli
government. The Company repaid both the 1993 and 1995 grants in full during
1997.

The Company received a Marketing Fund grant of $423,000 from the Israeli
Ministry of Industry and Trade through December 31, 1998. This grant is to be
repaid at the rate of 3% of the increase in export sales of all Israeli products
over the base year until repaid.

12. STOCKHOLDERS' EQUITY:

PREFERRED STOCK

Summit has 5,000,000 shares of Preferred Stock authorized, of which there
are no shares outstanding. The Summit Board has the authority to issue
these shares of Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions granted to or imposed
upon any unissued and undesignated shares of Preferred Stock and to fix
the number of shares constituting any series and the designations of such
series, without any future vote or action by the stockholders.

STOCK OPTIONS GRANTED TO CONSULTANT

During 1999, the Company issued options to purchase 20,000 shares of
common stock to the Interim Chief Executive Officer as partial
consideration for consulting services provided to the Company. The Company
incurred compensation cost of approximately $18,000 related to these
options. The Company does not expect to recognize additional compensation
related to these options in the future.

1994 INCENTIVE STOCK OPTION PLAN

The Company has an Incentive Stock Option Plan ("1994 Plan") pursuant to
which the Company may grant options to employees and consultants. Under
the terms of the 1994 Plan, the option price is determined as the fair
value of the Company's common stock at the time the option is granted.
Under the 1994 Plan, 3,447,000 shares of common stock are authorized for
issuance. Options granted prior to the Company's initial public offering
generally became immediately exercisable. Shares issued are subject to
repurchase until vested. Options granted subsequent to the Company's
initial public offering are exercisable upon vesting. Options generally
vest 25% twelve months after the date of grant and the remainder at 1/48th
of the grant amount in each successive month thereafter. Options expire no
later than 10 years after the date of grant.

There were 503,715, 342,026, and 2,659 shares of common stock reserved for
the grant of stock options under the 1994 Plan at December 31, 1999, 1998,
and 1997, respectively.

1996 DIRECTOR OPTION PLAN

Non-employee directors are entitled to participate in the Company's 1996
Director Option Plan (the "Director Plan"). The Director Plan provides for
an automatic grant of an option to purchase 7,500 shares of common stock
to each non-employee director on the date on which the Director Plan
becomes effective or, if later, an option to purchase 10,000 shares of
common stock on the date on which the person first becomes a non-employee
director and 10,000 shares on the date of the annual meeting of each
subsequent year, provided that he or she is then a non-employee director
and, provided further, that on such date he or she has served on the Board
for at least six months. Options granted under the Director Plan generally
become vested and all exercisable 12 months after the grant date and are
granted at an exercise price equal to 100% of the fair market value per
share on the date of the grant. The company has reserved 150,000 shares of
common stock for issuance under the Director Plan. The Company granted
40,000 options in 1999, 1998, and 1997.

48
<PAGE>

1997 NONSTATUTORY STOCK OPTION PLAN

The Company established the 1997 Nonstatutory Stock Option Plan
("Nonstatutory Plan") in order to provide additional incentive to
employees, directors and consultants. Options granted under the
Nonstatutory Plan will be nonstatutory stock options and are not intended
to qualify as incentive stock options within the meaning of Section 422 of
the Internal Revenue Code. Options generally vest 25% twelve months after
the date of grant and the remainder at 1/48th of the grant amount in each
successive month thereafter. Options expire no later than 10 years after
the grant date. In addition, no more than 25,000 options may be granted to
directors and persons considered "officers" by the NASDAQ Stock Market.
The maximum aggregate number of shares of common stock authorized for
issuance is 1,050,000 shares. The Company granted 1,022,697 and 101,623
options under the Nonstatutory Plan in 1999 and 1998, respectively.

A summary of the status of the Company's stock option plans as of December
31, 1999, 1998, and 1997 and changes during the years ended on those dates
is presented below:

<TABLE>
<CAPTION>
EXERCISE
OPTIONS PRICE RANGE
-----------
<S> <C> <C>
Balance, December 31, 1996............................................... 1,393,874 $0.02 -- $10.50
Options granted..................................................... 1,643,121 $0.08 -- $17.00
Options exercised................................................... (470,715) $0.02 -- $7.00
Options canceled.................................................... (442,906) $0.02 -- $12.75
----------------
Balance, December 31, 1997 2,123,374 $0.08 -- $17.00
Options granted..................................................... 380,599 $6.75 -- $15.88
Options exercised................................................... (623,087) $0.08 -- $9.25
Options canceled.................................................... (147,773) $1.17 -- $17.00
----------------
Balance, December 31, 1998 1,733,113 $0.08 -- $17.00
Options granted..................................................... 1,913,397 $2.25 -- $3.91
Options exercised................................................... (199,535) $0.08 -- $8.13
Options canceled.................................................... (1,079,736) $0.33 -- $17.00
----------------
Balance, December 31, 1999 2,367,239 $0.14-- $17.00
================
</TABLE>

The following are the shares exercisable at the corresponding weighted average
exercise price at December 31, 1999, 1998, and 1997, respectively: 756,813 at
$5.46, 780,195 at $5.21, and 949,261 at $2.31. The weighted average exercise
price per share of options outstanding at December 31, 1999 is $4.33. The
following are the weighted average grant date fair value of options granted for
the years ended December 31, 1999, 1998, and 1997, respectively: $2.00, $12.00,
and $8.96.

The following table summarizes information about stock options outstanding at
December 31,1999:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Shares Weighted Average Weighted Shares
Range of Exercise Outstanding at Contractual Life Weighted Average Exercisable at Weighted Average
Prices 12/31/99 Remaining Exercise Price 12/31/99 Exercise Price
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.14 to $ 0.62 147,623 5.73 $0.4784 123,266 $0.5414
$ 1.17 to $ 1.95 163,907 6.15 1.6684 128,669 1.6560
$ 2.25 to $ 3.91 1,518,993 9.4 3.1138 152,493 2.5920
$ 4.67 to $ 7.00 60,814 8.04 6.0928 43,114 6.2102
$ 8.13 to $ 9.63 374,418 7.59 8.9604 233,688 8.9543
$ 12.75 to $ 17.00 101,484 8. 2 14.3632 75,583 14.5566
</TABLE>

<PAGE>

1996 EMPLOYEE STOCK PURCHASE PLAN

The Company has established the 1996 Employee Stock Purchase Plan ("1996
Purchase Plan"). The 1996 Purchase Plan, which is intended to qualify under
Section 423 of the Internal Revenue code, permits eligible employees of the
Company to purchase common stock through payroll deductions of up to 10% of
their base salary up to a maximum of $25,000 of common stock for all purchase
periods ending within any calendar year. The price of common stock purchased
under the 1996 Purchase Plan will be 85% of the lower of the fair market value
of the common stock on the first day of each 24 month offering period or the
last day of the applicable six-month purchase period. The Company has reserved
535,000 shares of common stock for issuance under the 1996 Purchase Plan. The
Company issued approximately 157,571 and 80,252 shares of common stock under the
1996 Purchase Plan during 1999 and 1998, respectively.

SFAS NO. 123 DISCLOSURE

The Company applies APB No. 25 and related interpretations in accounting for its
plans. However, in accordance with SFAS No. 123, pro forma disclosures as if the
Company adopted the cost recognition requirements under No. SFAS 123 in 1999,
1998, and 1997 are presented below.

The fair value of each option granted during the years ended December 31,1999,
1998, and 1997 are estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions:

<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------------
<S> <C> <C> <C>
Average dividend yield 0% 0% 0%
Expected volatility 59% 57% 44%
Expected life in years 4 4 4
Risk free interest rate:

Low 5.040% 4.050% 5.787%
High 6.420% 5.665% 6.421%
</TABLE>

Had the Company used the fair value methodology for determining compensation
expense, the Company's net income (loss) and net income (loss) per share would
approximate the pro forma amounts below (in thousands, except per share data):

<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------------
<S> <C> <C> <C>
Net income (loss) - as reported $ (4,821) $ 5,101 $ 431
Net income (loss)- pro forma $ (10,639) $ 1,802 $ (1,496)
Diluted net income (loss) per common share - as reported $ (0.31) $ 0.32 $ 0.03
Diluted net income (loss) per common share - pro forma $ (0.68) $ 0.11 $ (0.10)
</TABLE>

The effect of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts.

13. INCOME TAXES

The provision (benefit) for income taxes consists of the following (in
thousands):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal................................................. $ 3 $ 1,811 $765
State................................................... 0 457 426
Foreign................................................. 258 1,110 468
------------------------------------------------------
261 3,378 1,659
------------------------------------------------------
Deferred:
Federal................................................. (307) 693 (486)
State................................................... (40) 93 14
Foreign................................................. 86 (127) (247)
------------------------------------------------------
(261) 659 (719)
------------------------------------------------------
$ 0 $ 4,037 $ (940)
======================================================
</TABLE>

<PAGE>

The difference between the effective income tax rate and the statutory U.S.
federal income tax rate is as follows (in thousands):

<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1999 1998 1997
---------------------------------------------
<S> <C> <C> <C>
Tax provision (benefit) at statutory rate....................... $ (1,661) $1,554 $ (452)
In-process technology........................................... - - 3,974
Foreign taxes................................................... (135) 983 221
State........................................................... (40) 342 416
Amortization of goodwill........................................ 255 255 101
Compensation expense for contingent stock....................... - 1,246 282
Deferred taxes:
Utilization of net operating losses.......................... - - (3,392)
Other........................................................... 24 (343) (210)
Valuation allowance............................................. 1,557 - -
---------------------------------------------
$ - $4,037 $ 940
=============================================
</TABLE>

The tax provision (benefit) at statutory rate is calculated based on U.S. income
and does not include tax on earnings from foreign operations. Tax on earnings
from foreign operations is included in foreign income and withholding taxes.

At December 31, 1999, the Company had net operating loss carryforwards for
federal and state income tax purposes which can be used to offset future income
subject to taxes. Such loss carryforwards and tax credits are summarized below
(in thousands):

<TABLE>
<CAPTION>
Expiration
Amount Dates
<S> <C> <C>
Loss carryforwards:
Federal................................................... $729 2009-- 2010
State..................................................... 729 2009-- 2010
</TABLE>

Due to the acquisition of TriQuest, the federal and state net operating loss
carryforwards are limited in use to approximately $300,000 annually.

In addition, the Company has foreign income tax net operating losses of
approximately $5.6 million. These foreign losses were generated in Israel over
several years and have not yet received final assessment from the Israeli
government. Consequently, management is uncertain as to the availability of a
substantial portion of such foreign loss carryforwards and as such has recorded
a valuation allowance against the resulting deferred tax asset. Provision has
not been made for U.S. or additional foreign taxes on undistributed earnings of
the Company's foreign subsidiary, as those earnings are considered to be
permanently reinvested. If such earnings were remitted to the U.S., additional
federal and foreign taxes may be due. It is not practical to determine the
amount of such taxes that might be payable on these foreign earnings.

<PAGE>

The approximate effects of temporary differences which give rise to deferred tax
assets and liabilities are as follows (in thousands):

<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Federal and state net operating loss carryforwards............ $248 $398
Foreign operating loss carryforwards.......................... 229 336
Foreign tax credit carryforwards.............................. - 625
Accrued expenses.............................................. 421 -
Accrued reserves.............................................. 1,692 -
Other deferred tax items...................................... 106 271
-------------- --------------
Total deferred tax assets................................ 2,696 1,630
Less valuation allowances..................................... (1,893) (336)
-------------- --------------
Net deferred tax assets.................................. 803 1,294
-------------- --------------
Deferred tax liabilities:
Other deferred tax items...................................... (239) (991)
-------------- --------------

Total deferred tax liabilities........................... (239) (991)
-------------- --------------
Net deferred taxes....................................... $564 $303
============== ==============

Net deferred income taxes:
Current...................................................... $ 564 $ 792
Deferred..................................................... - (489)
-------------- --------------

$ 564 $ 303
============== ==============
</TABLE>

The Company has established a valuation allowance against a portion of deferred
tax assets due to the uncertainty surrounding the realization of such assets.
Management evaluates on a quarterly basis the recoverability of the deferred tax
assets and the level of the valuation allowance. The net change in the valuation
allowance for the years ended December 31, 1999 and 1998 was an increase of
approximately $1,557,000 and a decrease of approximately $227,000, respectively.
The increase in the valuation allowance for the year ended December 31, 1999
resulted from management's re-evaluation of the future recoverability of net
deferred tax assets due to the uncertainty of future taxable income. The
decrease in the valuation allowance for the year ended December 31, 1998
resulted from a decrease in the effective tax rate in Israel.

14. RECONCILIATION OF EARNINGS PER SHARE:

The following provides a reconciliation of the numerators and denominators of
the basic and diluted per share computations:

<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income (loss)......................... $(4,821) $5,101 $ 431
============= ============ ============

Denominator:
Denominator for basic earnings (loss) per share:
Weighted average shares 15,678 15,155 14,403
Effect of dilutive securities:
Employee stock options - 960 999
------------- ------------ ------------
Denominator for diluted earnings per share 15,678 16,115 15,402
============= ============ ============

Net income (loss) per share - basic $(0.31) $ 0.34 $ 0.03
============= ============ ============
Net income (loss) per share - diluted $(0.31) $ 0.32 $ 0.03
============= ============ ============
</TABLE>

Diluted loss per common share for the year ended December 31, 1999 is based only
on the weighted average number of common shares outstanding during the year, as
the inclusion of approximately 172,000 common share equivalents would have been
antidilutive.

<PAGE>

401(K) PLAN:

The Company maintains a tax qualified defined contribution plan that meets the
requirements of Section 401(k) of the Internal Revenue Code (the Plan) and
covers substantially all U.S. employees meeting minimum service requirements.
The Plan was amended in 1997 to include a mandatory Company matching
contribution up to a maximum of 1.5% of employee compensation. At its
discretion, the Company may make additional contributions to the Plan. In
connection with the required match, the Company's contributions to the Plan were
approximately $71,000, $98,000 and $50,000 in 1999, 1998, and 1997,
respectively.

16. SUPPLEMENTAL CASH FLOW INFORMATION IS AS FOLLOWS:

<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
----------------------------------------
<S> <C> <C> <C>
Cash paid for interest .............................. $ 4 $ 3 $ 11
Cash paid for income taxes .......................... $ 1,441 $ 2,108 $ 175

Noncash investing and financing activities:
Retirement of treasury stock ................... - $ 11,555 -
Acquisition of Simulation Technologies:
In-process technology .......................... - - $ 11,689
Purchased technologies, intangibles and goodwill - - $ 10,225
Property and other assets acquired ............. - - $ 941
Deferred revenue assumed ....................... - - $ (1,460)
Other liabilities assumed ...................... - - $ (707)
Common stock issued ............................ - - $(15,550)
Sale of TDS product line
Property and other assets sold ................. - - $ (369)
Deferred revenue sold .......................... - - $ 1,213
Other liabilities sold ......................... - - $ 64
</TABLE>

17. COMMITMENTS AND CONTINGENCIES:

Summit Design (EDA) Ltd. has registered floating charges on all its assets as
security for compliance with the terms attached to Israeli investment grants
received.

The Company has entered into employment agreements with certain of its executive
officers. These agreements provide for base annual compensation and certain
incentive bonuses and stock options on various vesting schedules as well as
severance compensation in the event of termination without cause.

The Company is involved in various claims and lawsuits incidental to its
business. In the opinion of management, these claims and suits in the aggregate
will not have a material adverse affect on the Company's consolidated financial
statements.

During 1999, Summit recorded $1.3 million in non-recurring charges relating to
severance obligations for certain management personnel. A significant amount of
the liability relates to the retirement of Summit's Chairman of the Board and
Chief Executive Officer in June 1999. Payments to four individuals will be made
over a period of nine to twenty four months. At December 31, 1999, the balance
of the severance benefits payable was approximately $973,000.

18. BUSINESS SEGMENTS, EXPORTS AND MAJOR CUSTOMERS:

The Company operates in a single industry segment comprising the electronic
design automation industry. Net revenue by geographic region (in thousands) and
as a percentage of total revenue for each region outside the United States is as
follows:

<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Europe........................................... $5,825 $6,061 $3,582
Japan............................................ 6,513 7,373 6,311
Other Asia Pacific............................... 1,102 2,191 709
As a Percentage of Total Revenue:
Europe........................................... 19.3% 13.9% 11.4%
Japan............................................ 21.5% 16.9% 20.0%
Other Asia Pacific............................... 3.6% 5.0% 2.3%
</TABLE>

<PAGE>

During 1998 and 1997 Credence Systems Corporation ("CSC") accounted for 25.1%
and 28.6% of total revenue, respectively. As of December 31, 1998, CSC had fully
satisfied its obligation to purchase Visual Testbench Licenses pursuant to the
OEM agreement. The Company did not receive any revenue from CSC during 1999 and
does not expect to receive any additional revenue from sales of Visual Testbench
licenses.

Revenue generated pursuant to another OEM agreement accounted for 11.0% of the
Company's total revenue for the year ended December 31, 1999. Sales through a
single distributor accounted for 21.5%, 14.0%, and 12.1% of the Company's total
revenue in 1999, 1998 and 1997, respectively.

The Company entered into an agreement with Seiko Instruments, Inc. (Seiko)
during the first quarter of 1996, which granted to Seiko an exclusive right to
distribute and support certain Summit products in Japan. Under the terms of the
agreement, Seiko will pay the Company a distribution rights fee of $1.1 million
during the period of the agreement which is three years ending February 1999.
The Company received payments from Seiko of $100,000, $200,000, and $800,000 in
1998, 1997 and 1996, respectively. In the years ended December 31, 1998, 1997
and 1996, the Company recognized revenue of $367,000 associated with this
agreement.

Foreign operations of Summit Design (EDA) Ltd. accounted for less than 10% of
total revenue of the Company in each of the three years in the period ended
December 31, 1999. Identifiable assets of the Company's Israeli subsidiary were
less than 10% of total assets at December 31, 1999.

19. RELATED PARTIES

Summit Design (EDA) Ltd. leased its corporate offices from a stockholder under a
four-year sublease agreement which expired in December 1998, on the same terms
and conditions that the stockholder leases such space. Lease expense paid to the
stockholder for the year ended December 31, 1998 and 1997 was $180,000 and
$145,000, respectively.

Effective April 1, 1996, the Company invested $100,000 for a minority interest
in a joint venture corporation, Asia Design Corporation ("ADC"), which acquired
the exclusive rights to sell, distribute and support all of the Company's
products in the Asia-Pacific region, excluding Japan. In May 1998, the Company
exchanged a portion of its investment in the joint venture for a 50%
non-controlling interest in Summit Design Asia, Ltd. ("SDA"). SDA also acquired
an equity investment in ADC. In June 1998, Summit loaned SDA $750,000, which is
guaranteed by ADC. SDA acquired from ADC the exclusive rights to sell,
distribute and support Summit's products in Asia Pacific region, excluding
Japan. SDA granted distribution rights to Summit's products to ADC for the Asia
Pacific region, excluding Japan. In December 1998, SDA cancelled ADC's
distribution rights in all areas except Korea. In April 1999, SDA granted
non-exclusive distribution rights to Semiconductor Technologies Australia for
the Asia Pacific region, excluding Japan and Korea. As of December 31, 1999 and
1998, the Company owned 50% of SDA and 30% of ADC through direct and indirect
ownership. The Company has reflected in other income a loss in equity of and
loans to the joint ventures of $230,000, $360,000, and $77,000 for the years
ended December 31, 1999, 1998 and 1997, respectively. Total product licenses and
maintenance revenue for sales to the joint venture totaled approximately
$293,000, $501,000, and $590,000 for the years ended December 31, 1999, 1998 and
1997, respectively. Total accounts receivable, with payment terms similar to
other customers in the Asia-Pacific region, was $12,000 and $67,000 at December
31, 1999 and 1998, respectively.

QUARTERLY FINANCIAL DATA (UNAUDITED):

The following table sets forth selected unaudited quarterly financial
information for each of the eight quarters in the period ended December 31,
1999:

<TABLE>
<CAPTION>
Three-Month Periods Ended
---------------------------------------------------------------------------------------------------
1999 1998
----------------------------------------------- ------------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
---------- ----------- ----------- ------------ ----------- ------------ ----------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 6,816 $7,182 $7,854 $8,382 $10,357 $ 11,012 $ 11,314 $ 10,915
Gross profit 6,262 6,541 7,227 7,834 9,774 10,449 10,701 10,314
Net income (loss) (2,234) (1,004) (2,300) 717 1,402 1,455 1,761 483

Net income (loss)
per share-basic $ (0.14) $(0.06) $(0.15) $ 0.05 $ 0.09 $ 0.10 $ 0.12 $ 0.03
Net income (loss)
per share-diluted $ (0.14) $(0.06) $(0.15) $ 0.04 $ 0.09 $ 0.09 $ 0.11 $ 0.03
</TABLE>

The sum of quarterly earnings (loss) per share does not equal annual earnings
(loss) per share as a result in the computation of quarterly versus annual
average shares outstanding.

<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not Applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is incorporated by reference to the
information set forth in the sections entitled "Election of Class II Directors"
and "Compliance with Section 16(a) of the Securities Exchange Act" contained in
the Company's Proxy Statement for its 2000 Annual Meeting of Stockholders, to be
filed by the Company with the Securities and Exchange Commission within 120 days
of the end of the Company's fiscal year ended December 31, 1999, except that the
information required by this item concerning the executive officers of the
Company is incorporated by reference to the information set forth in the section
entitled "Executive Officers of the Company" at the end of Part I of this Form
10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the
information set forth in the section entitled "Executive Officer Compensation"
contained in the Company's Proxy Statement for its 2000 Annual Meeting of
Stockholders to be filed by the Company with the Securities and Exchange
Commission within 120 days of the end of the Company's fiscal year ended
December 31, 1999.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference to the
information set forth in the section entitled "Security Ownership of Certain
Beneficial Owners and Management" contained in the Company's Proxy Statement for
its 2000 Annual Meeting of Stockholders and is incorporated herein by reference
to be filed by the Company with the Securities and Exchange Commission within
120 days of the end of the Company's fiscal year ended December 31, 1999.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to the
information set forth in the section entitled "Certain Transactions" contained
in the Company's Proxy Statement for its 2000 Annual Meeting of Stockholders to
be filed by the Company with the Securities and Exchange Commission within 120
days of the end of the Company's fiscal year ended December 31, 1999.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) FINANCIAL STATEMENTS

The following financial statements and the Report of Independent Accountants
therein are filed as part of this Form 10-K:

<TABLE>
<CAPTION>
Page No.
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Report of Independent Accountants 37
Consolidated Balance Sheets as of December 31, 1999 and 1998 38
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997 39
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1999, 1998 and 1997 40
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 41
Notes to Consolidated Financial Statements 42
</TABLE>

<PAGE>

(a)(2) FINANCIAL STATEMENT SCHEDULE

The following financial statement schedule for the years ended December 31,
1997, 1998 and 1999, filed as part of this Form 10-K should be read in
conjunction with the consolidated financial statements and related notes thereto
and report of independent accountants filed herewith:

<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Schedule II Valuation and Qualifying Accounts 60

Report of Independent Accountants on financial statement schedule 61
</TABLE>

Schedules not listed above have been omitted because the information required to
be set forth therein is not required, not applicable or the information is
otherwise included elsewhere in this Form 10-K.

(a)(3) EXHIBITS

<PAGE>

10.21 Loan Agreement between the Registrant and Dasys, Inc. dated
July 26, 1997.(7)
10.22* TriQuest Design Automation, Inc. 1995 Stock Option Plan. (4)
10.23* Simulation Technologies 1994 Stock Option Plan and form of
agreement thereto.(8)
10.24* 1997 NonStatutory Stock Option Plan and for of agreement thereto.
(9)
10.25 Amendment to the Distributor Agreement between the Registrant and
Seiko Instruments, Inc. (10)
10.26++ Amendment to Software OEM License Agreement between the Registrant
and Credence Systems Corporation dated December 18, 1998. (14)
10.27 Shareholders Agreement between the Registrant and Summit Design
Asia, Ltd. dated May 12, 1998. (13)
10.28 Shareholders Agreement between the Registrant and Asia Design
Corporation, Ltd. Dated May 12, 1998. (13)
10.29+ Distributor Agreement between the Registrant and Summit Design
Asia, Ltd. Dated May 12, 1998. (13)
10.30 Loan Agreement between the Registrant and Summit Design Asia, Ltd.
dated June 2, 1998. (13)
10.31 Joint Escrow Agreement between the Registrant, Perkins Coie (Hong
Kong) Limited, Summit Design Asia, Ltd. and Asia Design
Corporation, Ltd. (13)
10.32 Guarantee Agreement between the Registrant and Asia Design
Corporation, Ltd. Dated May 12, 1998. (13)
10.33 Security Agreement between the Registrant and Asia Design
Corporation, Ltd. Dated May 12, 1998. (13)
10.34 Amendment to Employment Agreement between the Registrant and
Larry J. Gerhard dated April 30, 1999. (15)
21.1 List of Subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP
24.1 Power of attorney, see page 61.
27.1 Financial Data Schedule.
</TABLE>

<TABLE>
<S> <C>
(1) Incorporated by reference to the Registration Statement on Form S-1
(File No. 333-06445) as declared effective by the Securities and
Exchange Commission October 17, 1996.
(2) Incorporated by reference to the Registrant's Current Report on Form
8-K dated February 28, 1997.
(3) Incorporated by reference to the Registrant's Current Report on Form
8-K dated July 11, 1997.
(4) Incorporated by reference to the Registration Statement on Form S-8
(File No. 333-32551) as filed on July 31, 1997.
(5) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997.
(6) Incorporated by reference to the Registrant's Current Report on Form
8-K dated September 9, 1997.
(7) Incorporated by reference to the Registrant's Quarterly Report on From
10-Q for the quarter ended September 30, 1997.
(8) Incorporated by reference to the Registration Statement on Form S-8
(File No. 333-47481) as filed on March 6, 1998.
(9) Incorporated by reference to the Registration Statement on Form S-8
(File No. 333-47545) as filed on March 9, 1998.
(10) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1997.
(11) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998.
(12) Incorporated by reference to the Registrant's Current Report on Form
8-K dated June 30, 1998.
(13) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998.
(14) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1998.
(15) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999.
(16) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999.
(17) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999.

+ Documents for which confidential treatment has been granted.
++ Document for which confidential treatment has been requested.
* Indicates management compensatory plan, contract or arrangement
</TABLE>

<PAGE>

(b) REPORTS ON FORM 8-K

On December 7, 1998, the Company filed a Current Report on Form 8-K to update
the status of the Company's proposed acquisition of OrCAD, Inc.

On February 2, 1999, the Company filed a Current Report on Form 8-K dated
February 2, 1999 in connection with the termination of the proposed acquisition
of OrCAD, Inc.

On July 6, 1999, the Company filed a Current Report on Form 8-K dated July 6,
1999 in connection with a press release issued by the Company announcing
preliminary results for the second quarter of 1999.

On September 21, 1999, the Company filed a Current Report on Form 8-K dated
September 16, 1999 in connection with a press release issued by the Company
announcing the signing of a definitive agreement to merge the Company with
Viewlogic Systems, Inc.

See Item 14(a)(3) above.

(d) FINANCIAL STATEMENT SCHEDULES

See Item 14(a)(2) above.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on this 1st day of
March 2000.

SUMMIT DESIGN, INC.

By: /s/ Sean Whiteley-Ross
--------------------------
Sean Whiteley-Ross
Chief Accounting Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints William V. Botts, Richard Davenport and Sean
Whiteley-Ross, and each of them, his true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, to sign any and
all amendments (including post-effective amendments) to this Annual Report on
Form 10-K and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact, or their substitute or substitutes, or any of them, shall do
or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
on Form 10-K has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

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

/s/ WILLIAM V. BOTTS Chairman of the Board, Chief March 1, 2000
- --------------------------- Executive Officer and Interim Chief
William V. Botts Financial Officer

/s/ ART FLETCHER Vice President - Finance, Treasurer March 1, 2000
- --------------------------- and Director of Investor Relations
Art Fletcher

/s/ SEAN WHITELEY-ROSS Chief Accounting Officer and March 1, 2000
- ---------------------------- Corporate Controller
Sean Whiteley-Ross

/s/ AMIHAI BEN-DAVID Director March 1, 2000
- ----------------------------
Amihai Ben-David

/s/ STEVEN P. ERWIN Director March 1, 2000
- ----------------------------
Steven P. Erwin

/s/ BARBARA M. KARMEL Director March 1, 2000
- ----------------------------
Barbara M. Karmel
</TABLE>

<PAGE>

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
Years ended December 31, 1997, 1998, 1999
-------------------------------------------------------------
Additions/
(credits)
Balance at charged to Balance at
Beginning costs and end of
of period expenses Deductions period
------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Allowance for doubtful accounts 433 270 111 592

Year ended December 31, 1998:
Allowance for doubtful accounts 592 (63) 18 511

Year ended December 31, 1999:
Allowance for doubtful accounts 511 (84) - 427
</TABLE>

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors of Summit Design, Inc.

Our audits of the consolidated financial statements referred to in our report
dated January 28, 2000 appearing in the 1999 Annual Report to Shareholders of
Summit Design, Inc. and subsidiaries (which report and consolidated financial
statements are incorporated in this Annual Report on Form 10-K) also included
an audit of the financial statement schedule listed in Item 14(a)(2) of this
Form 10-K. In our opinion, the financial statement schedule presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.

PRICEWATERHOUSECOOPERS LLP

Portland, Oregon
January 28, 2000

<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.
------------
<S> <C>
2.1 Agreement and Plan of Reorganization dated as of February 17,
1997. (2)
2.2 Assets Purchase Agreement between the Registrant, Credence Systems
Corporation and Test Systems, Strategies, Inc., dated as of
May 19, 1997. (3)
2.3 Agreement and Plan of Reorganization between the Registrant, Star
Acquisition, Inc. and Simulation Technologies Corp. date as of
September 5, 1997. (6)
3.1 Amended and Restated Certificate of Incorporation. (1)
3.2 Amended and Restated Bylaws. (5)
4.1 Specimen Common Stock Certificate of Company. (1)
4.2 Investors' Rights Agreement between the Registrant and the parties
named therein dated February 10, 1994, as amended. (1)
10.1 Form of Indemnification Agreement between Registrant and its
executive officers and directors (1)
10.2* 1994 Stock Plan, as amended. (1)
10.3* 1996 Employee Stock Purchase Plan. (1)
10.4* 1996 Director Option Plan. (1)
10.5* Employment Agreement between the Registrant and Larry J. Gerhard
dated February 25, 1999. (14)
10.6* Employment Agreement between the Registrant and C. Albert Koob
dated July 30, 1999. (16)
10.7* Employment agreement between the Registrant and Richard Davenport
dated October 24, 1999. (17)
10.8* Employment agreement between the Registrant and Arthur Fletcher
dated July 1, 1997. (10)
10.9* Employment Agreement between the Registrant and Eric Benhayoun
dated February 25, 1999. (16)
10.10* Employment Agreement between the Registrant and Moshe Guy dated
February 25, 1999. (16)
10.11* Employment Agreement between the Registrant and Joseph Masarich
dated December 22, 1997. (10)
10.12+ Software OEM License Agreement between the Registrant, Test System
Strategies Inc. and Credence Systems Corporation dated May 19,
1997. (5)
10.13 Lease Agreement between the Registrant and Petula Associates Ltd.
And Koll Creekside Associates II dated October 26, 1993, as
amended. (1)
10.14 Sublease Agreement, dated as of January 1993 between DCL
Technologies, Ltd. and SEE Technologies, Ltd. (1)
10.15 Bank Line of Credit Agreement between Registrant and U.S. National
Bank of Oregon dated June 24, 1997. (7)
10.16* Employment Agreement between the Registrant and Sharon L. Beelart
dated January 5, 1998. (14)
10.17+ Distributor Agreement between the Registrant and Seiko
Instruments, Inc., dated February 1, 1996. (1)
10.18 Option Exchange Agreement dated as of June 30, 1998 among the
Registrant, ProSoft Oy, and Optionholders of ProSoft Oy. (12)
10.19* First Amendment to Employment Agreement between the Registrant and
Richard Davenport dated December 21, 1998. (14)
10.20 Loan Agreement between the Registrant and Moshe Guy dated May 20,
1997. (5)
10.21 Loan Agreement between the Registrant and Dasys, Inc. dated
July 26, 1997.(7)
10.22* TriQuest Design Automation, Inc. 1995 Stock Option Plan. (4)
10.23* Simulation Technologies 1994 Stock Option Plan and form of
agreement thereto.(8)
10.24* 1997 NonStatutory Stock Option Plan and for of agreement thereto.
(9)
10.25 Amendment to the Distributor Agreement between the Registrant and
Seiko Instruments, Inc. (10)
10.26++ Amendment to Software OEM License Agreement between the Registrant
and Credence Systems Corporation dated December 18, 1998. (14)
10.27 Shareholders Agreement between the Registrant and Summit Design
Asia, Ltd. dated May 12, 1998. (13)
10.28 Shareholders Agreement between the Registrant and Asia Design
Corporation, Ltd. Dated May 12, 1998. (13)
10.29+ Distributor Agreement between the Registrant and Summit Design
Asia, Ltd. Dated May 12, 1998. (13)
10.30 Loan Agreement between the Registrant and Summit Design Asia, Ltd.
dated June 2, 1998. (13)
10.31 Joint Escrow Agreement between the Registrant, Perkins Coie (Hong
Kong) Limited, Summit Design Asia, Ltd. and Asia Design
Corporation, Ltd. (13)
10.32 Guarantee Agreement between the Registrant and Asia Design
Corporation, Ltd. Dated May 12, 1998. (13)
10.33 Security Agreement between the Registrant and Asia Design
Corporation, Ltd. Dated May 12, 1998. (13)
10.34 Amendment to Employment Agreement between the Registrant and
Larry J. Gerhard dated April 30, 1999. (15)
21.1 List of Subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP
24.1 Power of attorney, see page 61.
27.1 Financial Data Schedule.
</TABLE>

<PAGE>

EXHIBIT 21.1

List of Subsidiaries, Summit Design, Inc.

1. Summit Design (EDA) Ltd., an Israeli Corporation

2. Summit Verification, Inc., a Delaware Corporation

3. ProSoft Oy, a Finnish Corporation

4. Summit Design France, a French Corporation

5. Summit Design, GmbH, a German Corporation

6. Summit Design UK Limited, a British Corporation

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 333-18063, 333-47481, 333-32551, 333-47545,
333-84593 and 333-77835), Form S-3 (File Nos. 333-46557 and 333-44003) and
Form S-4 (File No. 333-89491) of Summit Design, Inc. and subsidiaries of our
report dated January 28, 2000 relating to the consolidated financial
statements, which appears in the Annual Report to Shareholders, which is
incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report dated January 28, 2000 relating to
the financial statement schedule, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers, LLP

Portland, Oregon
March 1, 2000

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 28,403
<SECURITIES> 0
<RECEIVABLES> 7,818
<ALLOWANCES> 427
<INVENTORY> 0
<CURRENT-ASSETS> 37,349
<PP&E> 7,198
<DEPRECIATION> 3,600
<TOTAL-ASSETS> 44,044
<CURRENT-LIABILITIES> 12,647
<BONDS> 0
0
0
<COMMON> 158
<OTHER-SE> 31,151
<TOTAL-LIABILITY-AND-EQUITY> 44,044
<SALES> 0
<TOTAL-REVENUES> 30,235
<CGS> 0
<TOTAL-COSTS> 2,371
<OTHER-EXPENSES> 33,832
<LOSS-PROVISION> (84)
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> (4,821)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,821)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,821)
<EPS-BASIC> (0.31)
<EPS-DILUTED> (0.31)

</TABLE>