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                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q
|X|  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2003

                                       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: 000-32967

                             HPL TECHNOLOGIES, INC.
             (Exact Name of Registrant as Specified in Its Charter)

      Delaware                                            77-0550714
     (State of Incorporation)              (I.R.S. Employer Identification No.)

      2033 Gateway Place, Suite 400
      San Jose, California 95110                        (408) 437-1466
      (Address of Principal Executive Offices)   (Registrant's telephone number,
                                                            including area code)

            Securities registered under Section 12(b) of the Act: None

               Securities registered under Section 12(g)of the Act:
                         Common Stock, $0.001 Par Value

         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 whether the registrant is an accelerated filer
(as defined in Rule 12b-2 under the Securities Exchange Act of 1934) Yes |_| No
|X|

         As of July 31, 2003, the registrant had outstanding 31,206,622 shares
of common stock.




===============================================================================


<PAGE>
<table>
<caption>


          <c>                                                                                                                 <c>
                                                             TABLE OF CONTENTS



                                                       PART I - FINANCIAL INFORMATION

Item 1        Condensed Consolidated Financial Statements (unaudited):

              Condensed Consolidated Statement of Operations for the three months ended June 30, 2003 and 2002.................    3

              Condensed Consolidated Balance Sheets as of June 30, 2003 and March 31, 2003 ....................................    4

              Condensed Consolidated Statements of Cash Flow for the three months ended June 30, 2003 and 2002.................    5

              Notes to Condensed Consolidated Financial Statements.............................................................    6

Item 2        Management's Discussion and Analysis of Financial Condition and Results of Operations............................   12

Item 3        Quantitative and Qualitative Disclosures about Market Risk.......................................................   25

Item 4        Controls and Procedures..........................................................................................   26

                                                         PART II - OTHER INFORMATION

Item 1        Legal Proceedings................................................................................................   28

Item 2        Changes in Securities and Use of Proceeds........................................................................   29

Item 6        Exhibits and Reports on Form 8-K.................................................................................   29

</table>

<PAGE>



PART I - FINANCIAL INFORMATION

ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<table>
<caption>
                             HPL Technologies, Inc.
                      Consolidated Statements of Operations
                    (In thousands, except per share amounts)
                                   (Unaudited)

                                                                          <c>                  <c>
                                                                                    Three months ended June 30,
                                                                              -----------------------------------------
                                                                                     2003                 2002
                                                                              -------------------- --------------------

Revenues:
Software licenses                                                                           $ 141                 $ 57
Consulting services, maintenance and other                                                  1,931                2,222
                                                                              -------------------- --------------------
Total revenues                                                                              2,072                2,279
                                                                              -------------------- --------------------

Cost of revenues:
Software licenses                                                                               3                    0
Consulting services, maintenance and other (1)                                                819                  610
                                                                              -------------------- --------------------
Total cost of revenues                                                                        822                  610
                                                                              -------------------- --------------------
Gross profit                                                                                1,250                1,669
                                                                              -------------------- --------------------
Operating expenses:
Research and development (1)                                                                1,836                3,619
Sales, general and administrative (1)                                                       4,384                4,726
Stock-based compensation                                                                      106                  706
Amortization of intangible assets                                                             332                  463
                                                                              -------------------- -------------------
Total operating expenses                                                                    6,658                9,514
                                                                              -------------------- --------------------
Loss from operations                                                                     $ (5,408)            $ (7,845)
Interest income (expense) and other, net                                                       49                  195
                                                                              -------------------- --------------------
Net loss before income taxes                                                             $ (5,359)            $ (7,650)
Provision for income taxes                                                                      7                    0
                                                                              -------------------- --------------------
Net loss                                                                                 $ (5,366)            $ (7,650)
                                                                              ==================== ====================

Net loss per share - basic and diluted:                                                   $ (0.17)             $ (0.25)
                                                                              ==================== ====================

Shares used in per share calculations - basic and dilute                                   30,810               30,410
                                                                              ==================== ====================
___________

(1)  Excludes the following stock-based compensation charges:

Cost of revenues                                                                              $ 0                 $ 12
Research and development                                                                       46                  142
Sales, general and administrative                                                              60                  552
                                                                              -------------------- --------------------
                                                                                            $ 106                $ 706
                                                                              ==================== ====================

     The accompanying notes are an integral part of these consolidated financial statements.
</table>
<PAGE>


<table>
<caption>

                                                                                 <c>                     <c>
                             HPL Technologies, Inc.
                           Consolidated Balance Sheets
                      (In thousands, except per share data)
                                   (Unaudited)
                                                                                          June 30,               March 31,
                                                                                            2003                   2003
                                                                                    ----------------------  --------------------
ASSETS
Current assets:
Cash and cash equivalents                                                                         $ 4,991              $ 17,350
Short-term investments                                                                             11,513                 4,391
Accounts receivable, net of allowances of $100 and $100, respectively                               1,511                 1,560
Unbilled accounts receivable                                                                          473                   619
Prepaid expenses and other current assets                                                           2,865                 3,206
                                                                                    ----------------------  --------------------
Total current assets                                                                               21,353                27,126
Property and equipment, net                                                                         2,150                 2,316
Goodwill                                                                                           27,754                27,704
Other intangible assets, net                                                                        2,176                 2,508
Other assets                                                                                          689                   731
                                                                                    ----------------------  --------------------
Total assets                                                                                     $ 54,122              $ 60,385
                                                                                    ======================  ====================


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable                                                                                  $ 1,346               $ 1,342
Accrued liabilities                                                                                 7,323                 6,754
Deferred revenue                                                                                    3,800                 3,667
Capital lease obligations - current portion                                                           269                   338
Convertible debenture                                                                                   -                 1,500
                                                                                    ----------------------  --------------------
Total current liabilities                                                                          12,738                13,601
Capital lease obligations - net of current portion                                                     78                   130
Deferred revenue                                                                                       72                   108
Other liabilities                                                                                     435                   514
                                                                                    ----------------------  --------------------
Total liabilities                                                                                  13,323                14,353
                                                                                    ----------------------  --------------------

Contingencies and Commitments
Stockholders' equity :
Preferred stock, $0.001 par value, 10,000 shares authorized, no shares issued
and outstanding at June 30 2003 and 2002                                                                0                     0

Common stock, $0.001 par value; 75,000 shares authorized; 31,207 shares issued                         32                    31
and outstanding at June 30, 2003 and March 31,2003
Additional paid-in capital                                                                        124,484               124,590
Deferred stock-based compensation                                                                    (626)                 (887)
Accumulated deficit                                                                               (83,070)              (77,704)
Accumulated other comprehensive (loss)gain                                                            (21)                    2
                                                                                    ----------------------  --------------------
Total stockholders' equity                                                                         40,799                46,032
                                                                                    ----------------------  --------------------
Total liabilities and stockholders' equity                                                       $ 54,122              $ 60,385
                                                                                    ======================  ====================


         The accompanying notes are an integral part of these consolidated financial statements.
</table>

<PAGE>

<table>
<caption>

                                                                                  <c>                 <c>

                             HPL Technologies, Inc.
                      Consolidated Statements of Cash Flows
                                 (In thousands)
                                   (Unaudited)
                                                                                          Three months ended June 30,
                                                                                      -------------------------------------
                                                                                             2003               2002
                                                                                      ------------------- -----------------

Cash flows from operation activities:
  Net loss                                                                                      $ (5,366)         $ (7,650)
      Adjustments to reconcile net loss to net cash used in
      operating activities:
         Depreciation and amortization                                                               661               988
         Stock-based compensation                                                                    106               706
     Changes in assets and liabilities, net of effects from acquisitions:
         Accounts receivable                                                                          49               692
         Unbilled accounts receivable                                                                146              (341)
         Prepaid expenses and other current assets                                                   341            (1,512)
         Other assets                                                                                 42                45
         Accounts payable                                                                              4            (1,156)
         Accrued liabilities                                                                         569              (399)
         Other liabilities                                                                           (79)                0
         Deferred revenue                                                                             97                11
                                                                                      ------------------- -----------------
             Net cash used in operating activities                                                (3,430)           (8,616)
                                                                                      ------------------- -----------------

Cash flows from investing activities:
   Acquisition of property and equipment                                                            (163)             (228)
   Issuance of note receivable                                                                         0              (450)
   Acquisitions, net of cash acquired                                                                  0            (2,012)
   Purchase of short-term investments, net                                                        (7,137)           (5,279)
                                                                                      -------------------------------------
             Net cash used in investing activities                                                (7,300)           (7,969)
                                                                                      -------------------------------------

Cash flows from financing activities:
   Repayment of Convetible Debenture                                                              (1,500)                0
   Issuance of common stock                                                                            0               141
   Principal payments on capital lease obligations                                                  (121)              (47)
   Amounts received from HPL's former Chief Executive Officer                                          0             1,300
                                                                                      ------------------- -----------------
              Net cash provided by (used in) financing activities                                 (1,621)            1,394
                                                                                      ------------------- -----------------
   Effect of exchange rate changes on cash and cash equivalents                                       (8)              160

   Net decrease in cash and cash equivalents                                                     (12,359)          (15,031)
   Cash and cash equivalents at beginning of period                                               17,350            32,798
                                                                                      ------------------- -----------------
   Cash and cash equivalents at end of period                                                    $ 4,991          $ 17,767
                                                                                      =================== =================

Supplemental disclosures of cash flow information:
   Interest paid                                                                                   $ 173              $ 14
   Income taxes paid                                                                                 $ 0             $ 723
   Acquisition of property and equipment under capital lease obligations                             $ 0              $ 94
   Issuance of common stock and options assumed in connection with acquisition                       $ 0          $ 14,178


     The accompany notes are an integral part of these condensed consolidated financial statements.
</table>

<PAGE>



                             HPL Technologies, Inc.
         Notes to unaudited Condensed Consolidated Financial Statements
NOTE 1.  GENERAL

         The unaudited condensed consolidated financial statements have been
prepared by HPL Technologies, Inc., a Delaware corporation (the "Company"),
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC"). Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations. These unaudited condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and the notes thereto for the year ended March
31, 2003 included in the Company's Annual Report on Form 10-K filed with the
SEC. In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) necessary to present a fair statement of financial
position as of June 30, 2003 and 2002, and results of operations and cash flows
for the three months ended June 30, 2003 and 2002, have been made. The results
of operations for the three months ended June 30, 2003 are not necessarily
indicative of the operating results for the full fiscal year or any future
periods.

         The preparation of condensed consolidated financial statements in
conformity with generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. These estimates may
affect the amounts of assets and liabilities reported in the balance sheet, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the periods
presented. Actual results may differ from those estimates.

         The Company has funded its losses from operations principally through
its July 2001 initial public offering and debt financing. Management believes
the Company has sufficient cash, cash equivalents and short-term investments to
fund its operations through at least March 31, 2004. Future cash requirements
will be affected by slow or diminished revenue growth, additional research and
development and sales and marketing costs, and higher general and administrative
costs, including costs related to the litigation matters described in Note 2. In
the event the Company needs to raise capital, there is no assurance that funds
would be available to the Company or, if available, under terms that would be
acceptable to the Company. The Company does not believe it will be able to raise
additional capital until the litigation and other uncertainties described in
Note 2 are resolved.

NOTE 2.  LEGAL PROCEEDINGS

         Between July 31, 2002 and November 15, 2002, fourteen class-action
lawsuits were filed and are pending against the Company, certain current and
former officers and/or directors of the Company, and the Company's independent
auditors (collectively, the "Defendants") in the United States District Court
for the Northern District of California. The lawsuits allege that the Defendants
violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and
Rule 10b-5 promulgated thereunder by the SEC, by making a series of material
misrepresentations as to the financial condition of the Company during the class
period of July 31, 2001 to July 19, 2002. Several of the lawsuits further allege
violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933. The
plaintiffs are generally seeking to recover compensatory damages, costs and
expenses incurred, interest and such other relief as the court may deem
appropriate. The Company expects that these lawsuits will be consolidated into a
single action in the United States District Court for the Northern District of
California. Motions for appointment of a lead plaintiff are pending before the
Court.

         The Company is also a nominal defendant in five stockholder derivative
lawsuits pending in Superior Court in the County of Santa Clara, California.
These lawsuits, which were filed between July 31, 2002 and September 30, 2002,
assert derivative claims on behalf of the Company against current and/or former
officers and directors of the Company and the Company's independent auditors.
The claims asserted in these lawsuits include insider trading, breach of
fiduciary duties, aiding and abetting breaches of fiduciary duties, negligence
and professional malpractice, negligent misrepresentation and omission,
contribution and indemnification, abuse of control, gross mismanagement, unjust
enrichment and breach of contract. These lawsuits seek damages suffered by the
Company, treble damages for the sale of shares, costs and expenses of these
actions and such other relief as the court may deem appropriate. In an order
dated December 3, 2002, the Court consolidated these actions and appointed lead
plaintiff's counsel. The date for filing a consolidated complaint has been
continued to August 29, 2003.

         Five shareholders of the Company have sued in state court of the
District Court of Dallas County, Texas, the Company's independent auditors and
the managing underwriter in the Company's initial public offering, in connection
with claims relating to the Company's acquisition of Covalar Technologies Group,
Inc. in February 2002. The Company has been named as a responsible third party
in this action for purposes of apportioning fault in jury findings; to date, no
claims have been brought against the Company. Subject to a reservation of
rights, the Company has accepted the underwriter's request to indemnify the
underwriter in connection with the Company's initial public offering and to
advance expenses in this matter. While the Company had obtained insurance to
cover its obligation to indemnify and advance expenses to the underwriter, the
insurer has stated that it intends to rescind coverage to HPL for this claim,
but also stated that it might revisit this issue after reviewing certain
requested information. That information has been provided, but the insurer has
not yet informed the Company as to whether it will modify its position. If it
does not contest coverage, however, coverage for these indemnification
obligations is subject to a sub-limit of $1,000,000. Discovery is ongoing in the
lawsuit, and the Company's potential liability cannot be determined at this
time.

         Five former shareholders of FabCentric, Inc., which was acquired by the
Company in December 2001, have sued the Company, the Company's former President
and CEO and former CFO, and the Company's independent auditors in a lawsuit
pending in Superior Court in the County of Santa Clara, California. This lawsuit
was filed on or about May 22, 2003. This lawsuit alleges claims for fraud,
negligent misrepresentation, breach of warranties and covenants, breach of
contract and negligence, and seeks rescission or, alternatively, damages, costs
and expenses. No defendants have responded to the complaint yet. Because this
lawsuit was only recently filed, the Company has not evaluated the merits of
these allegations.

         Additionally, in April 2003, UBS PaineWebber, Inc. filed suit against
the Company in the Supreme Court of the State of New York, County of New York
(the "New York Action") alleging tortius interference of contract and a
violation of the Uniform Commercial Code. This action relates to the transfer of
shares of HPL common stock putatively pledged to UBS PaineWebber, Inc. by Y.
David Lepejian, our former President and CEO, and his spouse and seeks, among
other things, mandatory injunctive relief requiring HPL to effect the transfer
of the subject stock. In May 2003, the Company filed an interpleader action in
United States District Court for the Northern District of California relating to
the New York Action. Mr. Lepejian and UBS PaineWebber are currently engaged in
an NASD arbitration proceeding regarding the pledge of the shares.

         All of the aforementioned litigation matters are in the early stages.
As a result, the Company believes that no amount should be accrued for these
matters under SFAS No. 5, "Accounting for Contingencies," because we are
currently unable to evaluate the likelihood of an unfavorable outcome or an
estimate of the amount or range of potential loss, if any.

         Any adverse resolution of the aforementioned litigation could have a
material effect on the Company's financial position, results of operations or
cash flows. The Company is investigating a number of alternatives, including
informal and formal restructuring, which potentially may dilute shareholder
equity but could mitigate any material adverse affect on our financial position
or results of operations which might otherwise result from an unfavorable
resolution of these lawsuits.

NOTE 3.  LOSS PER SHARE

         Basic net loss per share is computed by dividing the net loss for the
period by the weighted average number of shares of common stock outstanding
during the period, less shares outstanding that are subject to repurchase.
Diluted net loss per share is computed by dividing the net loss for the period
by the weighted average number of shares and potential shares of common stock
outstanding during the period. The calculation of diluted net loss per share
excludes shares of potential common stock if their effect is anti-dilutive.
Potential common stock consists of shares of common stock that are incremental
common shares issuable upon the exercise of stock options and warrants, computed
using the treasury stock method, and shares issuable upon conversion of the
convertible debenture, computed using the if-converted method.

The total number of shares excluded from the calculation of diluted net loss per
share are detailed in the table below (in thousands):
<table>
<caption>

                                                                                    <c>                   <c>
                                                                                       Three months ended June 30,
                                                                                           2003             2002
                                                                                        -------          --------
Outstanding stock options                                                                 1,402            8,499
Convertible debenture                                                                        --            1,032
Shares issuable under warrants                                                              138              138
Contingent shares issuable to former Covalar shareholders                                    --              600
                                                                                        --------         --------
Total                                                                                     1,540           10,269
                                                                                        --------         --------
</table>



<PAGE>



NOTE 4.  CONCENTRATION OF CREDIT RISK

         Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash, cash
equivalents, short-term investments, unbilled receivables, accounts receivable
and a note receivable. Cash and cash equivalents are deposited with financial
institutions that management believes are credit worthy. The Company performs
ongoing credit evaluations of its customers' financial condition and generally
requires no collateral from its customers. At June 30, 2003, three customers
accounted for 31%, 19% and 14% of the Company's accounts receivable and unbilled
receivables combined. At June 30, 2002, three customers accounted for 38%, 17%
and 11% of the Company's accounts receivable and unbilled receivables combined.

         For the three months ended June 30, 2003, the Company derived 52% of
its revenue from two end-user customers that individually represented 34% and
18% of the company's total.

         For the three months ended June 30, 2002, the Company derived 55% of
its revenues from one end-user.

NOTE 5.  COMPREHENSIVE LOSS

         Comprehensive loss consists of gains and losses that are not recorded
in the statements of operations but instead are recorded directly to
stockholders' equity. For the three months ended June 30, 2003 and 2002,
comprehensive loss was $5.3 million and $7.5 million, respectively. The
difference between net loss and comprehensive loss for the three months ended
June 30, 2003, is the result of foreign currency transaction gains and losses
and the net unrealized gains and losses on available for sale securities in the
aggregate amount of loss of $8,000 and loss of $15,000, respectively. The
difference between net gain and comprehensive gain for the three months ended
June 30, 2002, is the result of foreign currency transaction gains and the net
unrealized gains on available for sale securities in the aggregate amount of
$112,000 and $83,000, respectively.

NOTE 6.  ACCRUED LIABILITIES
<table>
<caption>

                                                                                 <c>                    <c>
         Accrued liabilities consist of the following (in thousands):

                                                                                     June 30, 2003          March 31, 2003
                                                                                     -------------          --------------

Payroll and related expenses................................................         $         847             $      819
Professional fees...........................................................                 1,043                    563
Other accrued expenses......................................................                 1,098                  1,037
Amounts received from HPL's former Chief Executive Officer (see Note 10)....                 4,335                  4,335
                                                                                     --------------         --------------
                                                                                     $        7,323            $     6,754
                                                                                     --------------         ---------------
</table>

NOTE 7.  CONVERTIBLE DEBENTURE

         In February 2000, the Company issued a $1.5 million convertible
debenture against which all of our principal operating subsidiary's assets were
pledged as security. The debenture bore interest at the rate of 8% per annum.
This debenture was convertible at any time at the option of the holder to common
stock of the Company, at a conversion price of $1.45 per share. The debenture,
if not converted, was due on February 15, 2005.

         The debenture was repaid in full on May 13, 2003, along with accrued
interest of $164,000.



<PAGE>



NOTE 8.  INTANGIBLE ASSETS

         Intangible assets consist of the following (in thousands):
<table>
<caption>

                                                  <c>               <c>                  <c>                <c>
                                                                                            June 30, 2003
                                                                       -----------------------------------------------------
                                                      Amortization            Gross         Accumulated        Net Carrying
                                                        Period                Amount        Amortization          Amount
                                                     -------------     --------------      --------------      -------------
Existing technology................................   3 years           $       2,760      $     (1,245)       $      1,515
Modular library....................................   3 years                   1,220              (559)                661
                                                     -------------     --------------      --------------      -------------
                                                                        $       3,980      $     (1,804)       $      2,176
                                                                       --------------      --------------      -------------



                                                                                              March 31, 2003
                                                                       -----------------------------------------------------
                                                       Amortization           Gross           Accumulated       Net Carrying
                                                         Period               Amount          Amortization          Amount
                                                     --------------    --------------       --------------     -------------
Existing technology................................   3 years            $      2,760       $    (1,015)        $     1,745
Modular library....................................   3 years                   1,220              (458)                762
                                                     --------------    --------------       --------------     -------------
                                                                         $      3,980       $    (1,473)        $     2,507
                                                                       --------------       --------------     -------------
</table>

         The amortization of intangible assets for the three months ended June
30, 2003 and 2002 was $332,000 and $463,000 respectively.

         The estimated future amortization of intangible assets for the fiscal
years ending March 31 are as follows (in thousands):


2004 (second, third and fourth quarters)..........................       $  995
2005..............................................................        1,181
                                                                       ---------
                                                                        $ 2,176
                                                                       ---------

NOTE 9.  STOCK-BASED COMPENSATION

         The Company accounts for stock-based compensation in accordance with
the provisions of Accounting Principles Board Opinion No. 25 ("APB No. 25"),
Accounting for Stock Issued to Employees, and complies with the disclosure
provisions of Statement of Financial Accounting Standards No. 123
("SFAS No. 123") as amended by SFAS 148, Accounting for Stock-Based Compensation
 -- Transition and Disclosures. Deferred compensation recognized under APB
No. 25 is amortized to expense using the graded vesting method. The Company
accounts for stock options and warrants issued to non-employees in accordance
with the provisions of SFAS No. 123 and Emerging Issues Task Force No. 96-18
under the fair value based method.

         The Company adopted the disclosure-only provisions of SFAS 123, and
accordingly, no expense has been recognized for options granted to employees
under the various stock plans. The Company amortizes deferred stock-based
compensation on the graded vesting method over the vesting periods of the
applicable stock purchase rights and stock options, generally four years. The
graded vesting method provides for vesting of portions of the overall awards at
interim dates and results in greater vesting in earlier years than the
straight-line method. Had compensation expense been determined based on the fair
value at the grant date for award, consistent with the provisions of SFAS 123,
the Company's pro forma net loss and net loss per share would be as follows (in
thousands, except per share data):
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                        <C>                    <C>

                                                                                    Three months ended June 30,
                                                                            --------------------------------------------
                                                                                    2003                   2002
                                                                            ----------------------  --------------------
Net loss as reported:                                                                    $ (5,366)             $ (7,650)
Add: stock-based employee compensation expense included in reported net
loss under APB 25                                                                             106                   706
Deduct:  total employee stock-based compensation determined under fair                       (121)               (1,952)
value based method for all awards, net of tax effects                       ----------------------  --------------------
Pro forma net loss                                                                       $ (5,381)             $ (8,896)
Basic and diluted net loss per share:
  As reported                                                                             $ (0.17)              $ (0.25)
  Pro forma                                                                               $ (0.17)              $ (0.29)

</table>

NOTE 10.  SEGMENT AND GEOGRAPHIC INFORMATION

         The Company has determined that it has one reportable business segment:
the sale of yield optimization software and services used in the design,
fabrication and testing of semiconductors and flat panel displays.

         The following is a geographic breakdown of the Company's revenues by
destination for three-month periods ended (in thousands):
<table>
<caption>

                                                                         <c>                      <c>

                                                                             June 30, 2003            June 30, 2002
                                                                            --------------          ---------------

United States.........................................................      $        1,155          $        1,718
Japan.................................................................                 284                     355
Rest of  Asia.........................................................                 593                     140
Rest of the world.....................................................                  40                      66
                                                                            --------------          ---------------
                                                                            $        2,072          $        2,279
                                                                            --------------          ---------------
</table>
===============================================================================
         For the three months ended June 30, 2003, the Company derived revenue
from two customers which comprised 34% and 18% of the Company's total revenues,
respectively.

         For the three months ended June 30, 2002, the Company derived revenue
from one customer which comprised 55% of the Company's total revenues.


NOTE 11.  RELATED PARTY TRANSACTIONS

         During the year ended March 31, 2002, the former Chief Executive
Officer of the Company had deposited approximately $3,035,000 into the Company's
bank accounts which were purported to have represented proceeds from the payment
of accounts receivable related to fictitious sales transactions. An additional
$1,300,000 was deposited by this individual for this purpose in the three months
ended June 30, 2002. Although these amounts are included in accrued liabilities,
the Company does not expect it will be required to repay this sum because the
Company believes it has offsetting claims against its former Chief Executive
Officer.

NOTE 12.  RECENT ACCOUNTING PRONOUNCEMENTS

         In November 2002, the Financial Accounting Standards Board ("FASB")
issued FIN 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45
requires a guarantor to recognize a liability for obligations it has undertaken
in relation to the issuance of a guarantee. It requires that the liability be
recorded at fair value on the date that the guarantee is issued. It also
requires a guarantor to provide additional disclosures regarding guarantees,
including the nature of the guarantee, the maximum potential amount of future
payments under the guarantee, the carrying amount of the liability, if any, for
the guarantor's obligations under the guarantee, and the nature and extent of
any recourse provisions or available collateral that would enable the guarantor
to recover the amounts paid under the guarantee. The disclosure requirements
under FIN 45 are effective for the interim and annual periods ending after
December 15, 2002. The recognition and measurement provisions under FIN 45 are
effective for guarantees issued or modified after December 31, 2002. In June
2003, the FASB issued a FASB Staff Position which indicated that indemnification
clauses in software agreements related to intellectual property infringement are
subject to the disclosure requirements of FIN 45, but not the initial
recognition or measurement provisions. The adoption of FIN 45 did not have a
material impact upon the Company's financial position, cash flows or results of
operations.

         In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51"("FIN 46"). FIN 46 requires
certain variable interest entities to be consolidated by the primary beneficiary
of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 is effective
immediately for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after June 15, 2003. The Company does not believe
that the adoption of this standard will have a material effect on its financial
position or results of operations.

         In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities," which amends SFAS 133 for
certain decisions made by the FASB Derivatives Implementation Group. In
particular, SFAS 149 (1) clarifies under what circumstances a contract with an
initial net investment meets the characteristic of a derivative, (2) clarifies
when a derivative contains a financing component, (3) amends the definition of
an underlying to conform it to language used in FIN 45, and (4) amends certain
other existing pronouncements. This Statement is effective for contracts entered
into or modified after June 30, 2003, and for hedging relationships designated
after June 30, 2003. In addition, most provisions of SFAS 149 are to be applied
prospectively. The Company does not expect the adoption of SFAS 149 to have a
material impact upon its financial position, cash flows or results of
operations.

         In May 2003, the FASB issued SFAS 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). SFAS 150 is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. It is to be implemented by reporting the cumulative effect of a change
in an accounting principle for financial instruments created before the issuance
date of the Statement and still existing at the beginning of the interim period
of adoption. Restatement is not permitted. The Company does not expect the
adoption of SFAS 150 to have a material impact upon its financial position, cash
flows or results of operations.

<PAGE>



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         Certain parts of this Quarterly Report on Form 10-Q, including the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Legal Proceedings," may contain forward-looking statements that
involve risks and uncertainties. Statements that are not historical fact are
forward-looking statements within the meaning of the Federal securities laws.
These statements are based on current expectations, estimates and projections
about the industries in which we operate and management's beliefs, and
assumptions. Specifically, the amount and timing of future sales, research and
development expenses and results, industry demand, and competitive pressures
could vary greatly and affect the results of operations. Readers should refer to
the information under the caption "Risk Factors" in this Quarterly Report
concerning certain factors that could cause our actual results to differ
materially from the results anticipated in such forward-looking statements.

OVERVIEW

         We provide comprehensive yield-optimization solutions to the
semiconductor industry and flat-panel display manufacturers. We license our
software products and sell related services through our direct sales force,
distributors, sales agents and semiconductor equipment manufacturers ("OEMs")
that bundle our software with their hardware.

         Our sales cycle for the license of our software products has
historically been very long. Our products are new and our customers spend a
significant amount of time evaluating our products. Customer purchase orders
typically include integration and installation services, rights of return and
acceptance criteria. As such, we defer a significant amount of our license
revenue until integration and installation services are complete, rights of
return lapse and final acceptance occurs. The amount of our license revenue is
currently at levels that have resulted in no meaningful trend from period to
period. Our ability to sell our products in the future may also be affected by
the current decline in capital spending by potential customers in the
semiconductor industry.

         Our standard payment terms for our customers provide for payment in 30
days. It is frequently the case that our receivables are outstanding for more
than 30 days. Our accounts receivable from international customers have been
outstanding longer than our domestic receivables and we expect this to continue.

         In the three months ended June 30, 2003 and 2002, a relatively small
number of customers have accounted for a large portion of our revenues, and the
composition of our major customers has changed from period to period. This is
because we currently have a limited sales force and our products have a lengthy
sales cycle. We had two and one end customers that individually accounted for at
least 10% of our revenues in the three months ended June 30, 2003 and 2002,
respectively. In the aggregate, these end customers accounted for 52% and 55% of
our revenues in the three months ended June 30, 2003 and 2002, respectively.

CRITICAL ACCOUNTING POLICIES

         The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect our reported assets, liabilities, revenues
and expenses, and our related disclosure of contingent assets and liabilities.
On an on-going basis, we evaluate our estimates, including those related to
revenue recognition, goodwill and identifiable, separately recorded intangible
assets, litigation, contingent liabilities and income taxes. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances. Our estimates then form the
basis of judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

         We believe the following critical accounting policies and the related
judgments and estimates significantly affect the preparation of our consolidated
financial statements:

Revenue Recognition

         Revenue recognition rules are very complex, and certain judgments
affect the application of our revenue policy. The amount and timing of our
revenue is difficult to predict, and any shortfall in revenue or delay in
recognizing revenue could cause our operating results to vary significantly from
quarter to quarter. In addition to determining our results of operations for a
given period, our revenue recognition determines the timing of certain expenses,
such as commissions, royalties and other variable expenses.

         We derive revenues principally from the sale of software licenses,
software maintenance contracts and consulting services. We offer two types of
licenses: perpetual and time-based. Perpetual licenses have no expiration date,
while time-based licenses require renewal. Our software product licenses provide
a narrowly defined subset of features for a given customer. The customer may
acquire additional licenses to extend the functionality of our products as its
technologies and facilities change or if it wishes to use additional features of
our software for its production process. Our licenses usually limit the number
of people who can use the software at a given time.

         Revenues from software licenses are generally recognized upon the
execution of a binding agreement and delivery of the software, provided that:
the fee is fixed or determinable; vendor-specific objective evidence exists to
allocate a portion of the total license fee to any undelivered elements of the
arrangement; collection is reasonably assured; and the agreement does not
contain customer acceptance clauses. If customer acceptance clauses exist,
revenues are recognized upon customer acceptance provided that all other revenue
recognition criteria are met.

         If the consulting or other services sold in connection with the
software license are essential to the functionality of the software or involve
significant production, customization or modification of software, we recognize
revenue on either a percentage-of-completion or completed contract basis. For
the percentage-of-completion method, we recognize revenues using labor hours
incurred as the measure of progress against the total labor hours estimated for
completion of the project. We consider a project completed after all contractual
obligations are met. At times, an unbilled accounts receivable balance can exist
which comprises revenue recognized in advance of contractual billings. We make
provisions for estimated contract losses in the period in which the loss becomes
probable and can be reasonably estimated. Estimates of total labor hours or
expected losses on contracts are subject to judgment and actual amounts may
differ significantly from those estimates.

         For contracts with multiple obligations (e.g., deliverable and
undeliverable products, post-contract support and other services), we allocate
revenues to the undelivered element of the contract based on objective evidence
of its fair value. This objective evidence is the sales price of the element
when sold separately or the renewal rate specified in the agreement for
licensing arrangements with terms of one year or greater that include
post-contract customer support and software updates. We recognize revenues
allocated to undelivered products when the criteria for software license
revenues set forth above are met. Revenues from time-based software licenses are
generally recognized ratably over the period of the licenses. Determining
whether objective evidence of fair value exists is subject to judgment and
resulting fair values used in determining the value of the undelivered elements
is also subject to judgment and estimates.

         Software maintenance revenues are recognized ratably over the term of
the maintenance period, which is generally one year. Our software maintenance
includes product maintenance updates, Internet-based technical support and
telephone support. Revenues derived from our consulting services are recognized
as the services are performed. Revenues derived from software development
projects are recognized on a completed contract basis.

         We also derive revenues from the sale of software licenses, maintenance
and post-contract support services through our distributors. Revenues from sales
made through our distributors for which the distributors have return rights are
recognized when the distributors have sold the software licenses or service to
their customers and the criteria for revenue recognition under SOP 97-2, as
amended, are met. Revenues from maintenance and post-contract support services
sold through our distributors are recognized ratably over the contract period.

         Amounts invoiced to our customers in excess of recognized revenues are
recorded as deferred revenues. The timing and amounts invoiced to customers can
vary significantly depending on specific contract terms and can therefore have a
significant impact on deferred revenues in any given period.

Goodwill and Intangible Assets

         Consideration paid in connection with acquisitions is required to be
allocated to the acquired assets, including certain identifiable intangible
assets, goodwill, and liabilities acquired. Acquired assets and liabilities are
recorded based on our estimate of fair value, which requires significant
judgments, including those with respect to future estimated cash flows and
discount rates. For identifiable intangible assets that we separately record, we
are required to estimate the useful life of the assets and recognize their cost
as an expense over the useful lives. We use the straight-line method to amortize
long-lived assets, except goodwill, which results in an equal amount of expense
in each period.

         We assess the impairment of identifiable intangibles and long-lived
assets whenever events or changes in circumstances indicate that the carrying
value may not be recoverable. Furthermore, we assess the impairment of goodwill
at least annually. Factors we consider important which could trigger an
impairment review include the following:

   o   significant underperformance relative to expected historical or projected
       future operating results;
   o   significant changes in the manner of our use of
       the acquired assets or the strategy for our overall business;
   o   significant negative industry or economic trends;
   o   significant decline in our stock price for a sustained period;
   o   market capitalization relative to net book value; and
   o   a current expectation that, more likely than not, a long-lived
       asset will be sold or otherwise disposed of significantly
       before the end of its previously estimated useful life.

     When one or more of the above indicators of impairment occurs we estimate
the value of long-lived assets and intangible assets to determine whether there
is an impairment. We measure any impairment based on the projected discounted
cash flow method, which requires us to make several estimates including the
estimated cash flows associated with the asset, the period over which these cash
flows will be generated and a discount rate commensurate with the risk inherent
in our current business model. These estimates are subjective and if we made
different estimates, it could materially impact the estimated fair value of
these assets and the conclusions we reached regarding an impairment.

     The first and second steps of the two-step process are as follows:

Step 1 - We compare the fair value of our reporting units to the carrying value,
including goodwill. For each reporting unit where the carrying value, including
goodwill, exceeds the unit's fair value, we proceed on to Step 2. If a unit's
fair value exceeds the carrying value, no further analysis is performed and no
impairment charge is necessary.

Step 2 - We perform an allocation of the fair value of the reporting unit to our
identifiable tangible and non-goodwill intangible assets and liabilities. This
derives an implied fair value for the reporting unit's goodwill. We then compare
the implied fair value of the reporting unit's goodwill with the carrying amount
of the reporting unit's goodwill. If the carrying amount of the reporting unit's
goodwill is greater than the implied fair value of its goodwill, an impairment
charge would be recognized for the excess.

         We determined that we have one reporting unit. We performed Step 1 of
the goodwill impairment analysis required by SFAS 142 as of April 1, 2002, June
30, 2002, September 30, 2002 and December 31, 2002 and concluded that goodwill
was not impaired. Accordingly, Step 2 was not performed. We performed Step 1 as
of March 31, 2003 and determined that goodwill was impaired. We then performed
Step 2 and determined that a $30.6 million impairment charge was required in the
three months ended March 31, 2003. We will continue to test for impairment on an
annual basis and on an interim basis if an event occurs or circumstances change
that would potentially reduce the fair value of our reporting units below their
carrying amount.

Litigation

         Management's estimated range of liability related to some of the
pending litigation is based on claims for which our management can estimate the
amount and range of loss. Because of the uncertainties related to our insurance
coverage and indemnification obligations we have provided to various parties who
are defendants and the amount and range of potential losses, if any, related to
litigation, management is currently unable to make a reasonable estimate of the
liability that could result from an unfavorable outcome. As additional
information becomes available, we will assess the potential liability related to
our pending litigation and create and/or revise our estimates. Such revisions in
estimates of the potential liability could materially impact our results of
operation and financial position. Any resolution of the litigation could
materially affect our financial resources and liquidity.

Income Taxes

         We are required to estimate our income taxes in each of the
jurisdictions in which we operate as part of the process of preparing our
consolidated financial statements. This process involves estimating our actual
current tax exposure, together with assessing temporary differences resulting
from differing treatment of items, such as deferred revenue, for tax and
accounting purposes. These differences result in deferred tax assets and
liabilities. We then assess the likelihood that our net deferred tax assets will
be recovered from future taxable income and, to the extent we believe that
recovery is not likely, we must establish a valuation allowance. We currently
have a full valuation allowance on our gross deferred tax assets. In the event
our future taxable income is expected to be sufficient to utilize our deferred
tax assets, an adjustment to the valuation allowance will be made, increasing
income in the period in which such determination is made.

Stock-based compensation

         We account for our employee stock option plans using the intrinsic
value method described in Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations. Under
APB Opinion No. 25, deferred stock compensation is recorded for the difference,
if any, between an option's exercise price and the fair value of the underlying
common stock on the grant date of the option. As permitted by SFAS No. 123,
"Accounting for Stock-Based Compensation," we adopted the "disclosure only"
alternative described in SFAS No. 123 for its employee stock plans.

         We account for stock issued to non-employees in accordance with the
provisions of SFAS No. 123 and Emerging Issues Task Force Consensus ("EITF") No.
96-18 "Accounting for Equity Instruments that Are Issued to Other than Employees
For Acquiring, or in Conjunction with Selling, Goods or Services." Under SFAS
No. 123 and EITF No. 96-18, stock options and warrants issued to non-employees
are accounted for at their fair value calculated using the Black-Scholes option
pricing model.

         Compensation expense resulting from employee and non-employee stock
options are amortized to expense using an accelerated approach over the term of
the options in accordance with Financial Accounting Standards Board
Interpretation ("FIN") No. 28, "Accounting for Stock Appreciation Rights and
Other Variable Stock Option or Award Plans."

RECENT ACCOUNTING PRONOUNCEMENTS

         In November 2002, the Financial Accounting Standards Board ("FASB")
issued FIN 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45
requires a guarantor to recognize a liability for obligations it has undertaken
in relation to the issuance of a guarantee. It requires that the liability be
recorded at fair value on the date that the guarantee is issued. It also
requires a guarantor to provide additional disclosures regarding guarantees,
including the nature of the guarantee, the maximum potential amount of future
payments under the guarantee, the carrying amount of the liability, if any, for
the guarantor's obligations under the guarantee, and the nature and extent of
any recourse provisions or available collateral that would enable the guarantor
to recover the amounts paid under the guarantee. The disclosure requirements
under FIN 45 are effective for the interim and annual periods ending after
December 15, 2002. In June 2003, the FASB issued a FASB Staff Position which
indicated that indemnification clauses in software agreements related to
intellectual property infringement are subject to the disclosure requirements of
FIN 45, but not the initial recognition or measurement provisions. The
recognition and measurement provisions under FIN 45 are effective for guarantees
issued or modified after December 31, 2002. The adoption of FIN 45 did not have
a material impact upon our financial position, cash flows or results of
operations.

         In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51"("FIN 46"). FIN 46 requires
certain variable interest entities to be consolidated by the primary beneficiary
of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 is effective
immediately for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after June 15, 2003. We do not believe that the
adoption of this standard will have a material effect on our financial position
or results of operations.

         In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities," which amends SFAS 133 for
certain decisions made by the FASB Derivatives Implementation Group. In
particular, SFAS 149 (1) clarifies under what circumstances a contract with an
initial net investment meets the characteristic of a derivative, (2) clarifies
when a derivative contains a financing component, (3) amends the definition of
an underlying to conform it to language used in FIN 45, and (4) amends certain
other existing pronouncements. This Statement is effective for contracts entered
into or modified after June 30, 2003, and for hedging relationships designated
after June 30, 2003. In addition, most provisions of SFAS 149 are to be applied
prospectively. We do not expect the adoption of SFAS 149 to have a material
impact upon our financial position, cash flows or results of operations.

         In May 2003, the FASB issued SFAS 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). SFAS 150 is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. It is to be implemented by reporting the cumulative effect of a change
in an accounting principle for financial instruments created before the issuance
date of the Statement and still existing at the beginning of the interim period
of adoption. Restatement is not permitted. We do not expect the adoption of SFAS
150 to have a material impact upon our financial position, cash flows or results
of operations.


RESULTS OF OPERATIONS

Comparison of the three months ended June 30, 2003 and 2002

         Revenues. Total revenues decreased to $2.1 million in the three months
ended June 30, 2003 from $2.3 million in the three months ended June 30, 2002,
or a decrease of 9%. Our sales cycle for the license of our software products
has historically been very long as our customers spend a significant amount of
time evaluating our products. Customer purchase orders typically include
integration and installation services, rights of return and acceptance criteria.
As such, we defer a significant amount of our license revenue until integration
and installation services are complete, rights of return lapse and final
acceptance occurs. The amount of our license revenue is currently at levels that
have resulted in no meaningful trend from period to period. Our ability to sell
our products in the future may also be affected by the current decline in
capital spending by potential customers in the semiconductor industry and our
pending lawsuits.

         Revenues were highly concentrated, with 52% of total revenues in the
three months ended June 30, 2003 coming from two customers and 55% of total
revenues in the three months ended June 30, 2002 coming from one customer.

         Software license revenue increased to $141,000 in the three months
ended June 30, 2003, from $57,000 in the three months ended June 30, 2002, or an
increase of 147%.

         Consulting services, maintenance and other revenues decreased to $1.9
million in the three months ended June 30, 2003, down from $2.2 million in the
three months ended June 30, 2002, or a decrease of 13%. The decrease was due to
customer delays in providing layout design specifications for custom services
work.

         Gross profit. As a percentage of revenues, gross profit decreased from
73% for the three months ended June 30, 2002 to 60% for the three months ended
June 30, 2003. The decrease in gross profit percentage is a result of providing
lower margin services work in the three months ended June 30, 2003 versus the
three months ended June 30, 2002. Gross profit has been and will continue to be
affected by a variety of factors, the most important of which is the relative
mix of revenues among software licenses, maintenance fees and consulting
services.

         Research and development. Research and development expenses represented
89% of revenues in the three months ended June 30, 2003 compared to 159% of
revenues in the three months ended June 30, 2002. Actual costs decreased to $1.8
million for the three months ended June 30, 2003, down from $3.6 million for the
three months ended June 30, 2002. This decrease is primarily attributable to the
cost cutting measures we put in place in September 2002. Salaries and related
benefits of research and development engineers represent the single largest
component of our research and development expenses.

         Sales, general and administrative. Sales, general and administrative
expenses for the three months ended June 30, 2003 were $4.4 million, or 212% of
revenues, compared to $4.7 million, or 207% of revenues in the three months
ended June 30, 2002. The decrease in costs was primarily due to decreases in
staff as a result of our cost cutting measures in September 2002, offset by
legal fees associated with litigation.

         Stock-based compensation. Stock-based compensation expense for the
three months ended June 30, 2003 decreased to $106,000, compared with $706,000
for the three months ended June 30, 2002. Stock-based compensation expense in
the three months ended June 30, 2003 decreased from the previous three months
primarily as a result of our reduction in workforce on September 30, 2002 and
due to stock-based compensation being amortized on an accelerated basis.

         Amortization of intangible assets. Amortization of intangible assets
was $332,000 in the three months ended June 30, 2003, compared to $463,000 in
the three months ended June 30, 2002. This decrease in amortization is due to
certain intangible assets being fully amortized prior to the three months ended
June 30, 2003.

         Interest income (expense) and other, net. Interest income, net of
interest and other expenses for the three months ended June 30, 2003, was
$49,000, compared to $195,000, for the three months ended June 30, 2002. This
decrease was due to less interest income from lower average balances of cash,
cash equivalents and short-term investments and low interest rates on cash
balances during the three months ended June 30, 2003.

         Provision for income taxes. In the three months ended June 30, 2003 and
2002, we incurred operating losses for which we have recorded valuation
allowances for the full amount of our net deferred tax assets, because the
future realization of the deferred tax assets was not likely as of June 30, 2003
and 2002. Our tax provision of $7,000 in the three months ended June 30, 2003
relates to international withholding taxes.

LIQUIDITY AND CAPITAL RESOURCES

         At June 30, 2003, we had approximately $16.5 million in cash and cash
equivalents and short-term investments.

         Net cash used in operating activities for the three months ended June
30, 2003 was approximately $3.4 million, compared to $8.6 million used in
operating activities for the three months ended June 30, 2002. Our cash used in
operations for the three months ended June 30, 2003 and 2002 was primarily due
to our net loss, adjusted for certain non-cash items including depreciation and
amortization, goodwill impairment, stock-based compensation and deferred revenue
and the timing of the payment of accounts payable and accrued liabilities.

         Net cash used in investing activities was $7.3 million for the three
months ended June 30, 2003 compared to $8.0 million used in investing activities
for the three months ended June 30, 2002. The cash used in investing activities
for the three months ended June 30, 2003 consisted primarily of the purchase of
marketable securities. Our investing activities for the three months ended June
30, 2002 consisted primarily of the acquisition of DYM, purchases of marketable
securities, issuance of a note receivable and equipment purchases.

         Net cash used in financing activities was $1.6 million for the three
months ended June 30, 2003, mainly due to the repayment of our $1.5 million
convertible debenture and $121,000 in payments of capital lease obligations. Net
cash provided by financing activities was $1.4 million for the three months
ended June 30, 2002, primarily from amounts received from our former Chief
Executive Officer and proceeds from exercise of stock options, partially offset
by the repayment of capital lease obligations.

         We believe our current cash and cash equivalents, our short-term
investments, and our cash flows from operations will be sufficient to meet our
cash requirements through at least March 31, 2004. Our future cash position will
be adversely affected by slow or diminished revenue growth, research and
development expenses, additional sales and marketing costs and higher general
and administrative expenses, such as professional fees associated with the
litigation. The Company does not believe that it will be able to raise
additional capital until the litigation described below is resolved.

         See Note 8 to our March 31, 2003 Consolidated Financial Statements
filed on Form 10-K for information regarding our operating leases. As of March
31, 2003, our aggregate future minimum lease commitments through the year ending
2007 totaled $3.6 million.

         Between July 31, 2002 and November 15, 2002, fourteen class-action
lawsuits were filed and are pending against the Company, certain current and
former officers and/or directors of the Company, and the Company's independent
auditors (collectively, the "Defendants") in the United States District Court
for the Northern District of California. The lawsuits allege that the Defendants
violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and
Rule 10b-5 promulgated thereunder by the SEC, by making a series of material
misrepresentations as to the financial condition of the Company during the class
period of July 31, 2001 to July 19, 2002. Several of the lawsuits further allege
violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933. The
plaintiffs are generally seeking to recover compensatory damages, costs and
expenses incurred, interest and such other relief as the court may deem
appropriate. We expect that these lawsuits will be consolidated into a single
action in the United States District Court for the Northern District of
California. Motions for appointment of a lead plaintiff are pending before the
Court.

         We are also a nominal defendant in five stockholder derivative lawsuits
pending in Superior Court in the County of Santa Clara, California. These
lawsuits, which were filed between July 31, 2002 and September 30, 2002, assert
derivative claims on behalf of the Company against current and/or former
officers and directors of the Company and the Company's independent auditors.
The claims asserted in these lawsuits include insider trading, breach of
fiduciary duties, aiding and abetting breaches of fiduciary duties, negligence
and professional malpractice, negligent misrepresentation and omission,
contribution and indemnification, abuse of control, gross mismanagement, unjust
enrichment and breach of contract. These lawsuits seek damages suffered by the
Company, treble damages for the sale of shares, costs and expenses of these
actions and such other relief, as the court may deem appropriate. In an order
dated December 3, 2002, the Court consolidated these actions and appointed lead
plaintiff's counsel. The date for filing a consolidated complaint has been
continued to August 29, 2003.

         Five shareholders of the Company have sued in the state court of the
District Court of Dallas County, Texas, the Company's independent auditors and
the managing underwriter in the Company's initial public offering, in connection
with claims relating to the Company's acquisition of Covalar Technologies Group,
Inc. in February 2002. The Company has been named as a responsible third party
in this action for purposes of apportioning fault in jury findings; to date, no
claims have been brought against the Company. Subject to a reservation of
rights, we have accepted the underwriter's request to indemnify the underwriter
in connection with the initial public offering and to advance expenses in
this matter. While we have obtained insurance to cover our obligation to
indemnify and advance expenses to the underwriter, the carrier stated that it
intends to rescind coverage to HPL for this claim, but also stated that it might
revisit this issue after reviewing certain requested information. That
information has been provided, but the insurer has not yet informed the Company
as to whether it will modify its position. If it does not contest coverage,
however, coverage for these indemnification obligations is subject to a
sub-limit of $1,000,000. Discovery is ongoing in the lawsuit, and the Company's
potential liability cannot be determined at this time.


         Five former shareholders of FabCentric, Inc., which was acquired by the
Company in December 2001, have sued the Company, the Company's former President
and CEO and former CFO, and the Company's independent auditors in a lawsuit
pending in Superior Court in the County of Santa Clara, California. This lawsuit
was filed on or about May 22, 2003. This lawsuit alleges claims for fraud,
negligent misrepresentation, breach of warranties and covenants, breach of
contract and negligence, and seeks rescission or, alternatively, damages, costs
and expenses. No defendants have responded to the complaint yet. Because this
lawsuit was only recently filed, we have not evaluated the merits of these
allegations.

         Additionally, in April 2003, UBS PaineWebber, Inc. filed suit against
the Company in the Supreme Court of the State of New York, County of New York
(the "New York Action") alleging tortius interference of contract and a
violation of the Uniform Commercial Code. The action relates to the transfer of
shares of HPL common stock putatively pledged to UBS PaineWebber, Inc. by Y.
David Lepejian, our former President and CEO, and his spouse and seeks, among
other things, mandatory injunctive relief requiring HPL to effect the transfer
of subject stock. In May 2003, we filed an interpleader action in United States
District Court for the Northern District of California relating to the New York
Action. Mr. Lepejian and UBS PaineWebber are currently engaged in an NASD
arbitration proceeding regarding the pledge of the shares.

         All of the aforementioned litigation matters are in the early stages.
As a result, we believe that no amount should be accrued for these matters under
SFAS No. 5, "Accounting for Contingencies," because we are currently unable to
evaluate the likelihood of an unfavorable outcome or an estimate of the amount
or range of potential loss, if any.

         Any adverse resolution of the aforementioned litigation could have a
material effect on our financial position, results of operations or cash flows.
We are investigating informal or formal restructuring alternatives which
potentially may dilute shareholder equity but could mitigate any material
adverse affect on our financial position or results of operations which might
otherwise result from an unfavorable resolution of these lawsuits. Any such
dilution could be significant and could greatly affect the value of our common
stock. See, Risk Factors

<PAGE>

                                  RISK FACTORS

RISKS ASSOCIATED WITH OUR BUSINESS

An investment in our securities is highly speculative.

         We have sustained a substantial decline in the value of our securities
since announcing the accounting and financial inaccuracies in our previously
filed financial statements and our securities have been delisted from the Nasdaq
National Market System. We have also been named in a number of lawsuits and been
the subject of an SEC investigation. The ultimate cost and effect of these
matters on the financial condition, results of operations, customer relations
and management of the Company is unknown at this time. If the Company is
unsuccessful in defending itself in these actions, we may face significant
damage awards that could materially impair our liquidity and results of
operations. In addition, the Company is investigating informal and formal
restructuring alternatives which potentially may dilute shareholder equity.
Accordingly, an investment in our securities is highly speculative and should
not be made unless you are prepared to lose your entire investment.

The restatement of our financial statements and pending securities litigation
may raise concerns among our customers regarding our long-term stability. These
concerns may adversely affect future sales.

         Customers who purchase our software products make a significant
long-term investment in our technology. Our products often become an integral
part of each installed fabrication facility and our customers look to us to
provide continuing support, enhancements and new versions of our products.
Because of the long-term nature of an investment in yield optimization software,
customers are often concerned about the stability of their suppliers. Our
restatement and the pending securities litigation may cause current and
potential customers concern over our stability and these concerns may cause us
to lose sales. Any loss in sales could adversely affect our results of
operations, further deepening concern among current and potential customers.

Our restatement and pending securities litigation will make it difficult, if not
impossible, to raise additional capital.

         Our pending securities litigation raises uncertainty regarding the
financial condition and long term viability of the Company. Until this
litigation is resolved, it is unlikely that the Company will be able to raise
additional capital.

Although we have an obligation to indemnify our officers and directors and
underwriters, we may not have insurance coverage available for this purpose and
may be forced to pay these indemnification costs directly.

         Our charter and bylaws require that we indemnify our directors and
officers to the fullest extent provided by applicable law. In addition, the
Underwriting Agreement with our underwriters for our initial public offering
requires us to indemnify the underwriters in certain instances. Although we have
purchased directors and officers liability insurance to fund such obligations,
our insurance carriers have notified us that coverage may not be available. If
our insurance carriers are able to deny coverage, we would be forced to bear
these indemnification costs directly, which could be substantial and may have an
adverse effect on our results of operations and liquidity.

Our stock has been delisted from the Nasdaq National Market and a subsequent
public market for our stock may never develop.

         In July 2002, we received a Staff Determination Notice from the Nasdaq
National Market informing us that our stock may be delisted due to a failure to
comply with Nasdaq's continued listing standards. We appealed the Nasdaq staff
determination in August 2002 and were subsequently notified by Nasdaq that on
September 30, 2002, our stock would no longer be listed on the Nasdaq National
Market. Our stock is currently traded in the over the counter market or "pink
sheets." Stocks trading in this market typically suffer significantly lower
volume (liquidity) and lower share prices.

We currently have only three directors and believe we will have difficulty
attracting qualified candidates to serve on our board. Our failure to add
additional directors could adversely impact the management of our company, our
compliance with securities laws and our future exchange listing eligibility.

         Since July 2003, two of our directors resigned from the board of
directors of the Company, leaving only three directors. We have begun searching
for candidates to fill these vacancies. However, in light of the restatement of
our financial statements and the pending securities litigation, we believe we
will have difficulty attracting qualified individuals to serve on our board. Our
inability to attract and retain qualified independent directors may adversely
affect the quality of our management and may make it more difficult for us to
comply with corporate governance requirements of the securities exchanges, such
as Nasdaq and those imposed by the Securities and Exchange Commission pursuant
to the Sarbanes-Oxley Act of 2002.

There are significant barriers to widespread adoption of our yield optimization
products by the semiconductor industry.

         In order for our business to grow, we must overcome certain barriers to
the adoption of our yield optimization products by the semiconductor industry.
Many semiconductor designers and manufacturers have in-house yield management
systems and may be reluctant to implement our software because they may believe
that third party tools will not incorporate their existing know-how and
methodology. If participants in this industry reject using third party software
to optimize their yield, our growth would be impaired, which would negatively
affect our results of operations and cause our business to fail. In addition,
because our yield optimization solutions are relatively new to the semiconductor
industry and can be difficult to explain, intensive marketing and sales efforts
will be necessary to educate prospective industry partners and customers
regarding the uses and benefits of our technologies and software products.
Accordingly, we cannot assure you that our software products will gain
acceptance at the level or in the time frame we anticipate. Such a failure to
gain acceptance would have a material adverse effect on our business.

The semiconductor industry is currently experiencing a downturn and has
experienced downturns in the past and any future downturns or prolonged current
downturn could adversely affect our revenues and operating results.

         Our business depends in part on the economic health of our customers:
IDMs, or integrated device manufacturers, fabless semiconductor companies, and
semiconductor equipment OEMs, or original equipment manufacturers. The
semiconductor industry is prone to periods of oversupply resulting in
significantly reduced capital expenditures, and it is currently experiencing
such a downturn. As a result of the slowdown, some semiconductor manufacturers
have postponed or canceled capital expenditures for previously planned
expansions or new fabrication facility construction projects, resulting in a
substantial decline in worldwide semiconductor capital expenditures.

         Current conditions and future downturns could affect the willingness of
semiconductor companies to purchase our yield-optimization products and services
or to purchase equipment from semiconductor equipment OEMs that have embedded
our software in their products. Significant downturns could materially and
adversely affect our business and operating results.

In any particular period, we derive a substantial portion of our revenues from a
small number of customers, and our revenues may decline significantly if any
major customer cancels or delays a purchase of our products.

         In each of the three months ended June 30, 2003 and 2002, customers
that individually accounted for at least 10% of our revenues together
represented 52% and 55% of our revenues, respectively, and in each of these
three months, there was substantial change among the companies that represented
our largest customers. In the three months ended June 30, 2003, sales to two
customers accounted for 34% and 18%, respectively, of our revenues. Because we
derive most of our revenues from a few customers and because our existing
customers' needs for additional products are based on intermittent events, such
as the introduction of new technologies or processes, building of new facilities
or the need to increase capacity of existing facilities, our largest customers
change from period to period. Delays or failures in selling new licenses to
existing or new customers would cause significant period-to-period changes in
our operating results, which may result in our failure to meet market
expectations. We may also incur significant expense and devote management
attention to the pursuit of potentially significant license revenues, but
ultimately fail to secure these revenues.

        We must continually replace the revenues generated from the sale of
licenses and one-time orders to maintain and grow our business.

         Over the past three months, we have generated the bulk of our revenues
from sales of one-time customer orders. These licenses and orders produce large
amounts of revenues in the periods in which the license fees are recognized and
are not necessarily indicative of a commensurate level of revenues from the same
customers in future periods. Achieving period-to-period growth will depend
significantly on our ability to expand the number of users of our products
within our customers' organizations, license additional software to our
customers and attract new customers. We may not be successful in these sales
efforts and, consequently, revenues in any future period may not match that of
prior periods.

We have a long and variable sales cycle, which can result in uncertainty and
delays in generating additional revenues.

         Because our yield optimization software and services are often
unfamiliar to our prospective customers, it can take a significant amount of
time and effort to explain the benefits of our products. For example, it
generally takes at least six months after our first contact with a prospective
customer before we start licensing our products to that customer. In addition,
due to the nature of fabrication facility deployment and the extended time
required to bring a fabrication facility to full capacity, capital expenditures
vary greatly during this time. Accordingly, we may be unable to predict
accurately the timing of any significant future sales of software licenses. We
may also spend substantial time and management attention on potential licenses
that are not consummated, thereby foregoing other opportunities.

        Our operating results may fluctuate significantly and any failure to
meet financial expectations may disappoint investors and could cause our stock
price to decline.

         Historically, our quarterly operating results have fluctuated and we
expect them to continue to fluctuate in the future due to a variety of factors,
many of which are outside of our control. Because of our current limited sales
force, the lengthy sales cycle of our products and the intermittent needs of
customers, we derive our revenues primarily from a relatively small number of
large transactions in any given operating period. Accordingly, the timing of
large orders has significantly affected, and will continue to significantly
affect, quarterly operating results. In addition to the previously discussed
risk resulting from our restatement of previously issued financial statements,
factors that could cause our revenues and operating results to vary from period
to period include:

o    large sales unevenly spaced over time;
o    timing of new products and product enhancements by us and our competitors;
o    the cyclical nature of the semiconductor industry;
o    changes in our customers' development schedules, expenditure levels
     and product support requirements; and
o    incurrence of sales and marketing and research and development expenses
     that may not generate revenues until subsequent quarters.

        As a result, we believe that period-to-period comparisons of our results
of operations are not necessarily meaningful and may not be accurate indicators
of future performance. These factors may cause our operating results to be below
market expectations in some future quarters, which could cause the market price
of our stock to decline.

        We may not succeed in developing new products and our operating results
may decline as a result.

         Our customers and competitors operate in rapidly evolving markets that
are characterized by introduction of new technologies and more complex designs,
shorter product life cycles and disaggregation of the industry into new
subsectors. For example, ever smaller geometries are being used in
semiconductors and new materials are being employed to enhance performance. We
must continually create new software and add features and functionality to our
existing software products to keep pace with these changes in the semiconductor
industry. Specifically, we need to focus our research and development to:

o   interface with new semiconductor producing hardware and systems that others
    develop;
o   remain competitive with companies marketing third party yield management
    software and consulting services;
o   continue developing new software modules that are attractive to existing
    customers, many of which have purchased perpetual licenses and are under no
    ongoing obligation to make future purchases from us; and
o   attract new customers to our software.

         Maintaining and capitalizing on our current competitive strengths will
require us to invest heavily in research and development, marketing, and
customer service and support. Although we intend to devote substantial
expenditures to product development, we may not be able to create new products
in a timely manner that adequately meet the needs of our existing and potential
customers. A failure to do so would adversely affect our competitive position
and would result in lower sales and a decline in our profitability.

        We may not be able to effectively compete against other companies, which
could impair our growth and profitability.

         We target IDMs, fabless semiconductor companies, foundries and
semiconductor equipment OEMS. The tools and systems against which our products
and services most commonly compete are those that semiconductor companies have
created in house. In order to grow our business, we must convince these
producers of the benefit of an outside solution. The third party providers
against whom we compete are, generally, divisions of larger semiconductor
equipment OEMs, such as KLA-Tencor. These companies can compete on the basis of
their greater financial, engineering and manufacturing resources, and their
long-standing relationships with the same companies we are targeting. If we
cannot compete successfully against these forms of competition, the growth of
our business will be impaired.

        Errors in our products or the failure of our products to conform to
specifications could hurt our reputation and result in our customers demanding
refunds or asserting claims against us for damages.

         Because our software products are complex, they could contain errors or
"bugs" that can be detected at any point in a product's lifecycle. We have a
team dedicated to detecting errors in our products prior to their release in
order to enable our software developers to remedy any such errors. In the past
we have discovered errors in some of our products and have experienced delays in
the delivery of our products because of these errors. In addition, we have
software engineers and developers who participate in the maintenance and support
of our products and assist in detecting and remedying errors after our products
are sold. On some occasions in the past, we have had to replace defective
products that were already delivered. These delays and replacements have
principally related to new product releases. Detection of any significant errors
may result in:

o   the loss of, or delay in, market acceptance and sales of our
    products;
o   the delay or loss of revenues;
o   diversion of development resources;
o   injury to our reputation; or
o   increased maintenance and warranty costs.

         Any of these problems could harm our business and operating results. If
our products fail to conform to specifications, customers could demand a refund
for the purchase price or assert claims for damages. Liability claims could
require us to spend significant time and money in litigation or to pay
significant damages. Any such claims, whether or not successful, could seriously
damage our reputation and our business.

        We may continue to experience losses in the future.

         We will need to continue to generate new sales while controlling our
costs and we may not be able to successfully generate enough revenues to cover
our expenses. We anticipate that our expenses may increase in the next twelve
months as we:

o   increase our direct sales and marketing personnel and activities;
o   develop our technology, expand our existing product lines and create
    additional software modules for our products;
o   develop additional strategic alliances with third party providers of
    semiconductor design, fabrication and test solutions;
o   implement additional internal systems, develop additional infrastructure and
    hire additional management; and
o   pay professional fees and other costs related to litigation matters.

         Any failure to increase our revenues and control costs as we implement
our product and distribution strategies would harm our profitability and would
likely negatively affect the market price of our common stock.

        We may incur non cash charges resulting from acquisitions and equity
issuances, which could harm our operating results.

        We incurred a $30.6 million goodwill impairment charge in the fourth
quarter of our year ended March 31, 2003. We will continue to incur charges to
reflect amortization and any future impairment of identified intangible assets
acquired in connection with our acquisitions of FabCentric, Covalar and DYM, and
we may make other acquisitions or issue additional stock or other securities in
the future that could result in further accounting charges. In the future, we
may incur additional impairment charges related to the goodwill already recorded
, as well as goodwill arising out of any future acquisitions. Current and future
accounting charges like these could result in significant losses and delay our
achievement of net income.

        Our cost reduction initiatives may adversely affect the morale and
performance of our personnel and our ability to hire new personnel.

        In connection with our effort to streamline operations, reduce costs and
bring our staffing and structure in line with industry standards, we
restructured our organization on September 27, 2002, with substantial reductions
in our workforce. There have been and may continue to be substantial costs
associated with the workforce reductions, including severance and other employee
related costs, and our restructuring plan may yield unanticipated consequences,
such as attrition beyond our planned reduction in workforce. As a result of
these reductions, our ability to respond to unexpected challenges may be
impaired and we may be unable to take advantage of new opportunities.

         In addition, many of the employees who were terminated possessed
specific knowledge or expertise that may prove to have been important to our
operations. In that case, their absence may create significant difficulties.
This personnel reduction may also subject us to the risk of litigation, which
may adversely impact our ability to conduct our operations and may cause us to
incur significant expense.

Key employees

         Our employees are vital to our success, and our key management,
engineering and other employees are difficult to replace. We generally do not
have employment contracts with our key employees. Further, we do not maintain
key person life insurance on any of our employees. The expansion of high
technology companies worldwide has increased the demand and competition for
qualified personnel. If we are unable to retain key personnel, or if we are not
able to attract, assimilate or retain additional highly qualified employees to
meet our needs in the future, our business and operations could be harmed. These
factors could seriously harm our business.

        Terrorist activities and resulting military and other actions could
adversely affect our business

        Terrorist attacks in New York, Pennsylvania and Washington, D.C. in
September 2001 disrupted commerce throughout the United States and other parts
of the world. The continued threat of terrorism within the United States and
abroad, and the potential for military action and heightened security measures
in response to such threats, may cause significant disruption to commerce
throughout the world. To the extent that such disruptions result in delays or
cancellations of customer orders, a general decrease in corporate spending, or
our inability to effectively market, sell or operate our services and software,
our business and results of operations could be materially and adversely
affected.

RISKS RELATED TO OUR INTERNATIONAL OPERATIONS

        Our business could be harmed by political or economic instability in the
Republic of Armenia.

         Our software products are largely developed, produced, delivered and
supported from our facilities in the Republic of Armenia. Armenian employees
participate in our direct sales and marketing efforts. Changes in the political
or economic conditions in Armenia and the surrounding region, such as
fluctuations in exchange rates, the imposition of currency transfer restrictions
or limitations, or the adoption of burdensome trade or tax policies, procedures,
rules, regulations or tariffs, could adversely affect our ability to develop new
products and take advantage of Armenia's low labor and production costs, and to
otherwise conduct business effectively in Armenia.

         Armenia voted for independence in 1991 and adopted its current
constitution in 1995. Laws protecting property (including intellectual property)
are not well established and may be difficult to enforce. In recent years,
Armenia has suffered significant political and economic instability. Any
future political and economic instability could interfere with our ability to
retain or recruit employees, significantly increase the cost of our operations,
or result in regulatory restrictions on our business, making it difficult for us
to maintain our business in Armenia or disrupting our Armenian operations. Any
significant increase in the costs of our Armenian operations (whether due to
inflation, imposition of additional taxes or other causes) would diminish, and
could eliminate their current cost-advantages. Furthermore, we cannot assure you
that restrictive foreign relations laws or policies on the part of Armenia or
the United States will not constrain our ability to operate effectively in both
countries. If we lose or choose to terminate any part of our Armenian operation,
replacements could be costly and we could experience delays in our product
development, thereby harming our competitive position and adversely affecting
our results of operations.

        Our expansion into international markets may result in higher costs and
could reduce our operating margins due to the higher costs of international
sales.

         Our current strategy for growth includes further expansion in Asia,
Europe, and other international markets. To effectively further this strategy,
we must find additional partners to sell our products in international markets
and expand our direct international sales presence. We would likely incur higher
sales costs by expanding our direct sales staff abroad, but we might not realize
corresponding increases in revenues or profitability. Furthermore, we may be
forced to share sales revenues with distributors or other sales partners abroad
in order to successfully penetrate foreign markets. Even if we successfully
expand our direct and indirect international sales efforts, we cannot be certain
that we will be able to create or increase international market penetration or
demand for our products.

        Problems with international business operations could adversely affect
our sales.

        Sales to customers located outside the United States accounted for
approximately 44% and 25% of our revenues in the three months ended June 30,
2003 and 2002, respectively. We anticipate that sales to customers located
outside the United States will represent a significant portion of our total
revenues in future periods. In addition, many of our customers rely on third
party foundries operating outside of the United States. Accordingly, our
operations and revenues are subject to a number of risks associated with foreign
commerce, including the following:

        o   managing foreign distributors;
        o   maintaining relationships with foreign distributors;
        o   staffing and managing foreign branch offices;
        o   political and economic instability abroad;
        o   foreign currency exchange fluctuations;
        o   changes in tax laws and tariffs;
        o   timing and availability of export licenses;
        o   inadequate protection of intellectual property rights in some
            countries; and
        o   obtaining governmental approvals for certain technologies.

        Any of these factors could result in decreased sales to international
customers and domestic customers that use foreign fabrication facilities.

         Our accounts receivable from international customers are generally
outstanding longer than our domestic receivables and, as a result, we may need a
proportionately greater amount of working capital to support our international
sales.

INTELLECTUAL PROPERTY RELATED RISKS

        Our success depends in part on our ability to protect our intellectual
property, and any inability to do so could cause our business material harm.

         Our success depends in significant part on our intellectual property.
While we have attempted to protect our intellectual property through patents,
copyrights, or the maintenance of trade secrets, there can be no assurance that
these measures will successfully protect our technology or that competitors will
not be able to develop similar technology independently. It is possible, for
example, that the claims we are allowed on any of our patents will not be
sufficiently broad to protect our technology. In addition, patents issued to us
could be challenged, invalidated or circumvented and the rights granted under
those patents might not provide us with any significant competitive advantage.
The laws of some foreign countries do not protect our intellectual property as
effectively as the laws of the United States. Also, our source code developed in
Armenia may not receive the same copyright protection that it would receive if
it was developed in the United States. As we increase our international
presence, we expect that it will become more difficult to monitor the
development of competing products that may infringe on our rights as well as
unauthorized use of our products.


        Our operating results would suffer if we were subject to a protracted
intellectual property infringement claim or one with a significant damages
award.

        Litigation regarding intellectual property rights frequently occurs in
the software industry. We expect we will be subject to infringement claims as
the number of competitors in our industry segment grows. While we are unaware of
any claims that our products infringe on the intellectual property rights of
others, such claims may arise in the future. Regardless whether these claims
have merit, they could:

        o   be costly to defend;
        o   divert senior management's time, attention and resources;
        o   cause product shipment delays; and
        o   require us to enter into costly licensing or royalty arrangements.

        Any of these potential results of intellectual property infringement
claims could limit our ability to maintain our business and negatively affect
our operating results.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         In the normal course of business, our financial position is subject to
a variety of risks, including market risk associated with interest rate and
foreign currency exchange movements. We regularly assess these risks and have
established policies and business practices to protect against these and other
exposures. As a result, we do not anticipate material potential losses in these
areas.

Interest Rate Risk

         We invest excess cash in debt instruments of the U.S. Government and
its agencies, and in high quality corporate issuers and, limit the amount of
credit exposure to any one issuer. Our investments in fixed rate securities may
have their fair market value adversely impacted due to a rise in interest rates.
We believe that a change in long-term interest rates would not have a material
effect on our business, financial condition results of operations or cash flow.
Our cash and cash equivalents consist of cash and highly liquid money market
instruments with original or remaining maturities of 90 days or less. Because of
the short maturities of these instruments, a sudden change in market interest
rates would not have a material impact on the fair value of the portfolio, but
it may cause the amount of income we derive to vary significantly from period to
period. A hypothetical 10% increase in interest rates would result in an
approximate $1,000 decrease in the fair value of our available-for-sale
securities as of June 30, 2003.

Foreign Exchange Risk

         Our sales are primarily denominated in U.S. dollars and, as a result,
we have relatively little exposure to foreign currency exchange risk with
respect to revenues. Our sales through our Japanese subsidiary, which
represented approximately 6.1% of total revenues for the three months ended June
30, 2003, are denominated in yen. A 10% adverse change in yen exchange rates
would not have had a material impact on revenues for the three months ended June
30, 2003. Additionally, our exposure to foreign exchange rate fluctuations
arises in part from inter-company accounts which can be denominated in the
functional currency of the foreign subsidiary. As exchange rates vary when the
accounts are translated, results may vary from expectations and adversely impact
earnings. The effect of foreign exchange rate fluctuations for the three months
ended June 30, 2003 was not material.

         While our sales are generally denominated in U.S. dollars, our
international subsidiaries' books and records are maintained in the local
currency. As a result, our financial statements are remeasured in U.S. dollars
using a combination of current and historical exchange rates. The functional
currencies of our foreign subsidiaries are their local currencies. We translate
certain assets and liabilities to U.S. dollars at the current exchange rate as
of the applicable balance sheet date. Revenues and expenses are translated at
the average exchange rates prevailing during the period. Adjustments resulting
from the translation of the foreign subsidiaries' financial statements are
recorded in accumulated other comprehensive income (loss) in stockholders'
equity.

<PAGE>

ITEM 4.  CONTROLS AND PROCEDURES

CEO and CFO Certifications

         Attached as Exhibits 31.1 and 31.2 to this Quarterly Report on Form
10-Q are certifications of the chief executive officer and the chief financial
officer. The certifications are required in accordance with Section 302 of the
Sarbanes-Oxley Act of 2002. This section of the Quarterly Report on Form 10-Q
contains the information concerning the disclosure controls and procedures
evaluation referred to in the Section 302 certifications and this information
should be read in conjunction with the Section 302 certifications for a more
complete understanding of the topics presented.

Disclosure Controls and Internal Controls

         Disclosure controls are procedures that are designed with the objective
of ensuring that information required to be disclosed in our reports filed under
the Securities Exchange Act of 1934, or the Exchange Act, such as this Quarterly
Report on Form 10-Q, is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms. Disclosure controls are
also designed with the objective of ensuring that such information is
accumulated and communicated to our management, including the chief executive
officer and chief financial officer, as appropriate to allow timely decisions
regarding required disclosure. Internal controls are procedures which are
designed with the objective of providing reasonable assurance that our
transactions are properly authorized, our assets are safeguarded against
unauthorized or improper use and our transactions are properly recorded and
reported, all to permit the preparation of our financial statements in
conformity with generally accepted accounting principles.

Limitations on the Effectiveness of Controls

         Our management, including our Chief Executive Officer and Chief
Financial Officer, does not expect that our disclosure controls or our internal
controls will prevent all errors and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within HPL have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of a simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the control. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions; over time,
control may become inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.

Scope of the Controls Evaluation

         Within 90 days prior to the date of this report (the "Evaluation
Date"), the Company's Chief Executive Officer and Chief Financial Officer,
carried out an evaluation of the effectiveness of the Company's disclosure
controls and procedures. The evaluation of our disclosure controls and our
internal controls included a review of disclosure controls implemented by HPL
and the effect of the controls on the information generated for use in this
Quarterly Report on Form 10-Q. In the course of the controls evaluation, we
sought to identify data errors, weaknesses in the control problem or acts of
fraud and to confirm that appropriate corrective action, including process
improvements, if any, were being undertaken. This type of evaluation will be
done on a quarterly basis so that the conclusions concerning controls
effectiveness can be reported in our quarterly reports on Form 10-Q and our
Annual Report on Form 10-K. Our internal controls are also evaluated on an
ongoing basis by our finance department. The overall goals of these various
evaluation activities are to monitor our disclosure controls and our internal
controls and to make modifications as necessary; our intent in this regard is
that the disclosure controls and the internal controls will be maintained as
dynamic systems that change (with improvements and corrections) as
conditions warrant.

         Among other matters, we sought in our evaluation to determine whether
there were any significant deficiencies or material weaknesses in our internal
controls, or whether we had identified any acts of fraud involving personnel who
have a significant role in our internal controls. This information was important
both for the controls evaluation generally and because Items 5 and 6 in the
Section 302 certifications of the chief executive officer and the chief
financial officer require that the chief executive officer and the chief
financial officer disclose that information to our board's audit committee and
to our independent auditors and to report on related matters in this section of
the Quarterly Report on Form 10-Q. In the professional auditing literature,
significant deficiencies are referred to as reportable conditions. These are
control issues that could have a significant adverse effect on the ability to
record, process, summarize and report financial data in the financial
statements. A material weakness is defined in the auditing literature as a
particularly serious reportable condition where the internal control does not
reduce to a relatively low level the risk that misstatements caused by error or
fraud may occur in amounts that would be material in relation to the financial
statements and not be detected within a timely period by employees in the normal
course of performing their assigned functions. We also sought to deal with other
controls matters in the controls evaluation and, in each case if a problem was
identified, we considered what revision, improvement, and/or correction to make
in accordance with our ongoing procedures. In accordance with SEC requirements,
the chief executive officer and the chief financial officer note that, since the
date of the controls evaluation to the date of this Quarterly Report on Form
10-Q, there have been no significant changes in internal controls or in other
factors that could significantly affect our internal controls, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Conclusions

Based upon the disclosure controls evaluation, our Chief Executive Officer and
our Chief Financial Officer have concluded that, subject to the limitations
noted above, our disclosure controls are effective to ensure that material
information relating to HPL is made known to management, including our Chief
Executive Officer and Chief Financial Officer, particularly during the period
when our periodic reports are being prepared, and that our internal controls are
effective to provide reasonable assurance that our financial statements are
fairly presented in conformity with generally accepted accounting principles.
There were no significant changes in the Company's disclosure controls, or to
the Company's knowledge, in other factors that could significantly affect the
Company's disclosure controls and procedures subsequent to the Evaluation Date.

<PAGE>



PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         Between July 31, 2002 and November 15, 2002, fourteen class-action
lawsuits were filed and are pending against the Company, certain current and
former officers and/or directors of the Company, and the Company's independent
auditors (collectively, the "Defendants") in the United States District Court
for the Northern District of California. The lawsuits allege that the Defendants
violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and
Rule 10b-5 promulgated thereunder by the SEC, by making a series of material
misrepresentations as to the financial condition of the Company during the class
period of July 31, 2001 to July 19, 2002. Several of the lawsuits further allege
violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (the
"Act"). The plaintiffs are generally seeking to recover compensatory damages,
costs and expenses incurred, interest and such other relief as the court may
deem appropriate. We expect that these lawsuits will be consolidated into a
single action in the United States District Court for the Northern District of
California. Motions for appointment of a lead plaintiff are pending before the
Court.

         We are also a nominal defendant in five stockholder derivative lawsuits
pending in Superior Court in the County of Santa Clara, California. These
lawsuits, which were filed between July 31, 2002 and September 30, 2002, assert
derivative claims on behalf of the Company against current and/or former
officers and directors of the Company and the Company's independent auditors.
The claims asserted in these lawsuits include insider trading, breach of
fiduciary duties, aiding and abetting breaches of fiduciary duties, negligence
and professional malpractice, negligent misrepresentation and omission,
contribution and indemnification, abuse of control, gross mismanagement, unjust
enrichment and breach of contract. These lawsuits seek damages suffered by the
Company, treble damages for the sale of shares, costs and expenses of these
actions and such other relief as the court may deem appropriate. In an order
dated December 3, 2002, the Court consolidated these actions and appointed lead
plaintiff's counsel. The date for filing a consolidated complaint has been
continued to August 29, 2003.

         Five shareholders of the Company have sued in state court of the
District Court of Dallas County, Texas, the Company's independent auditors and
the managing underwriter in the Company's initial public offering, in connection
with claims relating to the Company's acquisition of Covalar Technologies Group,
Inc. in February 2002. The Company has been named as a responsible third party
in this action for purposes of apportioning fault in jury findings; to date, no
claims have been brought against the Company. Subject to a reservation of
rights, we have accepted the underwriter's request to indemnify the underwriter
in connection with the Company's initial public offering and to advance expenses
in this matter. While the Company had obtained insurance to cover our obligation
to indemnify and advance expenses to the underwriter, the carrier stated that it
intends to rescind coverage to HPL for this claim, but also stated that it might
revisit this issue after reviewing certain requested information. That
information has been provided, but the insurer has not yet informed the Company
as to whether it will modify its position. If it does not contest coverage,
however, coverage for these indemnification obligations is subject to a
sub-limit of $1,000,000. Discovery is ongoing in the lawsuit, and the Company's
potential liability cannot be determined at this time.

          Five former shareholders of FabCentric, Inc., which was acquired by
the Company in December 2001, have sued the Company, the Company's former
President and CEO and former CFO, and the Company's independent auditors in a
lawsuit pending in Superior Court in the County of Santa Clara, California. This
lawsuit was filed on or about May 22, 2003. This lawsuit alleges claims for
fraud, negligent misrepresentation, breach of warranties and covenants, breach
of contract and negligence, and seeks rescission or, alternatively, damages,
costs and expenses. No defendants have responded to the complaint yet. Because
this lawsuit was only recently filed, we have not evaluated the merits of these
allegations.

         Additionally, in April 2003, UBS PaineWebber, Inc. filed suit against
the Company in the Supreme Court of the State of New York, County of New York
(the "New York Action") alleging tortius interference of contract and a
violation of the Uniform Commercial Code. This action relates to the transfer of
shares of HPL common stock putatively pledged to UBS PaineWebber, Inc. by Y.
David Lepejian, our former President and CEO, and his spouse and seeks, among
other things, mandatory injunctive relief requiring HPL to effect the transfer
of the subject stock. In May 2003, we filed an interpleader action in United
States District Court for the Northern District of California relating to the
New York action. Mr. Lepejian and UBS PaineWebber are currently engaged in an
NASD arbitration proceeding regarding the pledge of the shares.

         All of the aforementioned litigation matters are in the early stages.
As a result, we believe that no amount should be accrued for these matters under
SFAS No. 5, "Accounting for Contingencies," because we are currently unable to
evaluate the likelihood of an unfavorable outcome or an estimate of the amount
or range of potential loss, if any.

         Any adverse resolution of the aforementioned litigation could have a
material effect on our financial position, results of operations or cash flows.
We are investigating informal or formal restructuring alternatives which
potentially may dilute shareholder equity but could mitigate any material
adverse affect on our financial position or results of operations which might
otherwise result from an unfavorable resolution of these lawsuits. Any such
dilution could be significant and could greatly affect the value of our common
stock. See, Risk Factors.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

USE OF PROCEEDS FROM SALES OF REGISTERED SECURITIES.

         Our Registration Statement on Form S-1 (Commission File No. 333-61810)
for our initial public offering of common stock was declared effective on July
30, 2001. We sold a total of 6,900,000 shares of common stock to an underwriting
syndicate for aggregate gross offering proceeds of $75.9 million. In connection
with this offering, we incurred total expenses of approximately $7.2 million,
consisting of $5.3 million for underwriting discounts and commissions, and
approximately $1.9 million of other expenses. None of these expenses were paid
directly or indirectly to any of our directors, officers, or their associates,
persons owning 10% or more of any class of our securities, or affiliates of HPL.
Offering proceeds, net of expenses were approximately $68.7 million. We have
applied the proceeds to temporary investments in a money market investment
account, the purchase of short-term investments and have spent a portion of the
proceeds on research and development, sales and marketing and the acquisitions
of Tyecin-Innotech Corporation, FabCentric, Covalar, and DYM.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K


(a) Exhibits:
<table>
<caption>

   <c>     <c>
Exhibit
Number                                    Description
------------  -----------------------------------------------------------------
       10.1   2001 Amended and Restated Equity Incentive Plan
       10.2   Employment Offer Letter from HPL Technologies, Inc. to Cary D. Vandenberg, dated April 23, 2003

       31.1   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
       31.2   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
       32.1   Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
       32.2   Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

--------------------------------------------------------------------------------
(b) Reports on Form 8-K:

         The Registrant filed Current Reports on Form 8-K on May 12, 2003 and May 16, 2003.
</TABLE>


<PAGE>



                                    SIGNATURE

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                                          HPL Technologies, Inc.


Date:  August 14, 2003                            By:     /s/ CARY D. VANDENBERG
                                                        ------------------------

                                                              Cary D. Vandenberg
                                           President and Chief Executive Officer


<PAGE>



         EXHIBIT INDEX


Exhibit
Number                                Description
------------  ------------------------------------------------------------------

<table>
<caption>

    <c>    <c>
       10.1   2001 Amended and Restated Equity Incentive Plan
       10.2   Employment Offer Letter from HPL Technologies, Inc. to Cary D. Vandenberg, dated April 23, 2003

       31.1   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
       31.2   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
       32.1   Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
       32.2   Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


</table>
<PAGE>



                                                                    EXHIBIT 10.1

                             HPL TECHNOLOGIES, INC.

                              AMENDED AND RESTATED
                           2001 EQUITY INCENTIVE PLAN

                              Dated April 30, 2003

1.       PURPOSES OF THE PLAN

         The purpose of this HPL Technologies, Inc. Amended and Restated 2001
Equity Incentive Plan (the "Plan") is to enhance the long-term stockholder value
of HPL Technologies, Inc. by offering opportunities to qualified individuals (as
provided in the Plan) to participate in the growth in value of the common stock
of HPL Technologies, Inc.

2.       DEFINITIONS AND RULES OF INTERPRETATION

2.1      Definitions. The following defined terms are used in the Plan:

(a) "Administrator" means the Board, the Committee, or, if authority to
administer the Plan has been delegated pursuant to Section 4.1, the Chief
Executive Officer or the President of the Company.

(b) "Affiliate" means a "parent" or "subsidiary" corporation (as defined in
Section 424 of the Code).

(c) "Applicable Laws" means the requirements relating to the issuance of stock
or the administration of stock option or stock award plans under U.S. federal
and state laws, any stock exchange or quotation system on which the Shares are
listed or quoted, and the applicable laws of any foreign jurisdiction where
Awards are, or will be, granted under the Plan or to which an Awardee, the
Company or an Affiliate is subject.

(d) "Approved Leave" means an approved personal or medical leave of absence with
an employment guarantee (by statute or contract) upon return.

(e) "Award" means a Stock Award, SAR, or Option granted in accordance with the
terms of the Plan.

(f) "Award Agreement" means the document evidencing the grant of an Award to a
Participant.

(g) "Awardee" means the holder of an outstanding Award.

(h) "Board" means the board of directors of the Company.

(i) "Cashless Exercise" has the meaning given in Section 6.6.

(j) "Code" means the Internal Revenue Code of 1986, as amended, and the Treasury
Regulations promulgated thereunder.

(k) "Committee" means the compensation committee of the Board, or, if so
determined by the Board, some other committee of Directors appointed in
accordance with Section 4.

(l) "Company" means HPL Technologies, Inc.

(m) "Consultant" means any person, entity, or employee of an entity, engaged to
render services to the Company or an Affiliate.

(n) "Corporate Transaction" shall have the meaning set forth in Section 10.2.

(o) "Covered Executive Employees" means Participants who are "covered employees"
under Section 162(m) of the Code.

(p) "Director" means a member of the Board of Directors of the Company or an
Affiliate.

(q) "Disabled" means the inability of a person, in the opinion of a qualified
physician acceptable to the Company, to perform major duties of that person's
position with the Company or its Affiliates because of the sickness or injury of
that person.

(r) "Employee" means a regular employee of the Company or any Affiliate,
including an Officer or Director, who is treated as an employee in the personnel
records of the Company or an Affiliate for the relevant period, but shall
exclude individuals who are classified by the Company or an Affiliate as (i)
leased from or otherwise employed by a third party, (ii) independent
contractors, or (iii) intermittent or temporary, even if any such classification
is changed retroactively as a result of an audit, litigation or otherwise. An
Awardee shall not cease to be an Employee in the case of transfers between
locations of the Company or between the Company and an Affiliate, or any
successor to the Company that assumes the Awards granted hereunder pursuant to
Section 10.2. Neither service as a Director nor payment of a director's fee by
the Company shall be sufficient to make the Director an Employee of the Company.

(s) "Exchange Act" means the Securities Exchange Act of 1934, as amended.

(t) "Expiration Date" means the latest date on which an Award may be exercised
under the Award Agreement and the Plan.

(u) "Fair Market Value" means the value of Shares as determined under Section
16.2.

(v) "Grant Date" means the date the Administrator approves the grant of an Award
under the Plan, except that, with respect to grants to become effective on a
future date or the satisfaction of a condition, the Grant Date is the future
date or the date the condition is satisfied.

(w) "Incentive Stock Option" or "ISO" means an Option intended to qualify as an
incentive stock option under Section 422 of the Code and designated as an
Incentive Stock Option. The designation of an Option as an ISO by the
Administrator or in the Award Agreement is not a warranty or representation that
it will be treated as an incentive stock option under Section 422 of the Code.

(x) "Listed Security" means any Share listed or approved for listing upon notice
of issuance on a national securities exchange or other market system that meets
the requirements of Section 25100(o) of the California Securities Law of 1968,
as amended.

(y) "Non Employee Director" means Non -Employee Director as defined in Rule
16b-3.

(z) "Non-Qualified Stock Option" means an Option other than an Incentive Stock
Option.

(aa) "Objectively Determinable Performance Condition" shall mean a performance
condition (i) that is established at the time an Award is granted, (ii) that is
established no later than the earlier of (x) 90 days after the beginning of the
period of service to which it relates, or (y) before the elapse of 25% of the
period of service to which it relates, (iii) that is uncertain of achievement at
the time it is established, and (iv) the achievement of which is determinable by
a third party with knowledge of the relevant facts. Examples of measures that
may be used in Objectively Determinable Performance Conditions include net order
dollars, net profit dollars, net profit growth, net revenue dollars, revenue
growth, individual performance, earnings per share, return on assets, return on
equity, and other financial objectives, objective customer satisfaction
indicators and efficiency measures, each with respect to the Company and/or an
individual business unit.

(bb) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

(cc)     "Option" means a right to purchase Shares of the Company, as described
          in Sections 6 and 7.

(dd) "Option Price" means the price payable under an Option for Shares.

(ee) "Optionee" means a person to whom an Option has been granted.

(ff) "Participant" means an individual eligible to receive an Award under
Section 5.

(gg) "Plan" means this HPL Technologies, Inc. 2001 Equity Incentive Plan.

(hh)     "Qualified Domestic Relations Order" means a judgment, order or decree
          meeting the requirements of Section 414(p) of the Code.

(ii) "Reverse Vesting" means the right of an Optionee to exercise an Option
before it has vested, receiving in exchange Shares that are subject to a right
of repurchase by the Company at the Option Price for the remainder of the
vesting period.

(jj)     "RULE 16b-3" means Rule 16b-3 under Section 16(b) of the Exchange Act,
          as amended from time to time.

(kk) "Shares" means shares of the common stock of the Company or other
securities substituted for the common stock under Sections 3.3 or 10.2.

(ll) "Stock Appreciation Right" or "SAR" means a right to receive cash based on
a change in the Fair Market Value of the common stock of the Company, as
described in Section 8.1.

(mm) "Stock Award" means a right to receive Shares, as described in Section 8.2

(nn) "Ten Percent Stockholder" means any person who owns, directly or by
attribution under Section 424(d) of the Code, an amount of stock greater than
ten percent of the total combined voting power of all classes of stock of the
Company or of any Affiliate.

(oo) "Termination" means, with respect to an Awardee, that the Awardee has
ceased to be, for any reason, employed by, or consulting to, the Company, or an
Affiliate; provided, that for purposes of this definition, if so determined by
the Administrator, "Termination" shall not include a change in status from an
Employee to a Consultant.

(pp) "Vest" means, with respect to an Option, that the Option has become
exercisable by reason of an Awardee's continued employment or consultancy as
provided in the Award Agreement (or, in the case of "qualified performance-based
compensation" within the meaning of Section 162(m) of the Code, by reason of the
Awardee meeting one or more of the Objectively Determinable Performance
Conditions), or by reason of restrictions on exercise having been removed
automatically or by action of the Administrator. With respect to a Stock Award
or SAR, "vest" means such Award shall have become exercisable by or payable to
the Awardee, as provided in the Award Agreement or by reason of restrictions on
exercise having been removed automatically or by action of the Administrator.

2.2 Rules Of Interpretation. References to "Sections," without more, are to
sections of this Plan. Captions and titles are for convenience only and shall
not be determinative in the interpretation of the Plan. Except when otherwise
indicated by the context the singular includes the plural and vice versa. "Or"
is not intended to be exclusive unless the context clearly requires otherwise.

3.       STOCK SUBJECT TO THE PLAN

3.1      Number Of Shares. Subject to adjustment as provided in Section 3.3, the
         maximum aggregate number of Shares that may be issued under the Plan is
         12,750,000.

3.2 Shares May Be Unissued Or Re-Acquired. The Shares may be authorized, but
unissued, or reacquired securities of the Company. If an Option or Stock Award
expires or becomes unexercisable without having been exercised in full, the
unpurchased Shares which were subject to the Award shall become available for
future Awards under the Plan. Shares actually issued under the Plan shall not be
available for future Awards even if repurchased by the Company. For purposes of
computing the number of Shares available under the Plan, the exercise of a Stock
Appreciation Right shall be treated as an issuance of the number of Shares
equivalent to the shares of common stock as to which the Award has been
exercised.

3.3 Adjustments For Changes To Capital Structure. In the event of any stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, spin-off or similar change to the capital structure of the
Company, appropriate adjustments shall be made to (a) the number and class of
securities subject to the Plan, (b) the number and class of securities that may
be awarded to any individual under the Plan, and (c) the exercise price and
number and class of securities under each outstanding Award. Any such
adjustments shall be made by the Board in its absolute discretion, and the
decision of the Board shall be final, binding and conclusive. Any shares of
stock issuable as a result of any such adjustment shall be rounded to the next
lower whole share; no fractional shares of stock shall be issued. Except as
expressly provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason of such issuance or the conversion of such
securities shall be made with respect to, the number or price of Shares subject
to an Award.

3.4      Term Of The Plan

(a) The Plan shall be effective on the date it has been approved by the Board;
provided that no Award may be exercised unless and until the Plan has been
approved either: (i) at a duly held stockholders' meeting by the affirmative
vote of the holders of a majority of the voting power of the shares of the
Company entitled to vote and represented at the meeting in person or by proxy,
or (ii) by an action by written consent of the holders of a majority of the
voting power of the shares of the Company entitled to vote.

(b) Subject to the provisions of Section 13, Awards may be granted under this
Plan for a period of ten years from the earlier of the date on which the Board
approves this Plan and the date the Company's stockholders approve this Plan.

4. ADMINISTRATION

4.1 General. The Board shall have ultimate responsibility for administering the
Plan. The Board may delegate some of its responsibilities to a Committee of two
or more Board members. The Board or the Committee may further delegate to an
Administrator. Where the Plan specifies that an action is to be taken or a
determination is to be made by the Board, it may be taken or made only by the
Board. Where the Plan references the "Committee" or "Administrator," the action
may be taken or a determination made by the Board, the Committee, or other
Administrator, except that only the Board or the Committee may approve grants to
Covered Executive Employees, and an Administrator other than the Board or the
Committee may grant Awards only to non-executive level employees and within
guidelines established by the Board or the Committee.

4.2 Public Company. So long as the Company has outstanding a class of equity
securities registered under Section 12 of the Exchange Act, the Committee shall
consist of Board members who are Non-Employee Directors, and, following the
expiration of any transition period permitted by Section 162(m) of the Code, who
are "outside directors" within the meaning of Section 162(m) of the Code.

4.3      Authority Of Administrator. Subject to the other provisions of this
         Plan, the Administrator shall have the authority, in its
         sole discretion:

(a) to grant Awards;

(b) to determine the Fair Market Value of the Common Stock subject to Awards;

(c) to determine the exercise price of Options granted;

(d) to determine the Awardees;

(e) to determine the time or times at which to grant an Award;

(f) to determine the number of shares subject to each Award;

(g) to determine the terms and provisions of each Award granted (which need not
be identical), including but not limited to, the time or times at which Awards
can be exercised, whether and under what conditions an Award is assignable, and
whether an Option is a Non-Qualified Stock Option or an ISO;

(h) to prescribe, amend, and rescind rules and regulations relating to this
Plan, including rules and regulations relating to sub-plans and Plan addenda;

(i) to interpret the Plan;

(j) to modify or amend any Award (with the consent of the Awardee);

(k) to defer (with the consent of the Awardee) or to accelerate the vesting of
any Award or class of Awards;

(l) to authorize any person to execute on behalf of the Company any instrument
evidencing the grant of an Award;

(m) to determine the form of Award Agreement and other documents used in the
administration of the Plan, and whether such documents may be in electronic
form;

(n) to adopt rules and procedures relating to the operation and administration
of the Plan to accommodate the specific requirements of local laws and
procedures. Without limiting the generality of the foregoing, the Administrator
is specifically authorized (i) to adopt the rules and procedures regarding the
conversion of local currency, withholding procedures and handling of stock
certificates which vary with local requirements, (ii) to adopt sub-plans and
Plan addenda as the Administrator deems desirable, to accommodate foreign laws,
regulations and practice, including with respect to taxes;

(o) to authorize conversion or substitution under the Plan of any or all
outstanding stock options held by optionees of an entity acquired by the Company
(the "Conversion Options"). Any conversion or substitution shall be effective as
of the close of the merger or acquisition. The Conversion Options may be
Non-Qualified Stock Options or Incentive Stock Options, as determined by the
Administrator. Unless otherwise determined by the Administrator at the time of
conversion or substitution, all Conversion Options shall have the same terms and
conditions as Options generally granted by the Company under the Plan;

(p) to allow Awardees to satisfy withholding tax obligations by electing to have
the Company withhold from the Shares to be issued upon exercise of an Award that
number of Shares having a Fair Market Value equal to the amount required to be
withheld. The Fair Market Value of the Shares to be withheld shall be determined
on the date that the amount of tax to be withheld is to be determined. All
elections by an Awardee to have Shares withheld for this purpose shall be made
in such form and under such conditions as the Administrator may deem necessary
or advisable;

(q) to determine the effect of a divestiture of an Affiliate;

(r) to correct any defect, supply any omission or reconcile any inconsistency in
the Plan, and any agreement under the Plan; and

(s) to make all other determinations deemed necessary or advisable for the
administration of the Plan. All decisions, determination and interpretations of
the Administrator shall be final and binding on all Participants, Awardees and
any other holders of Awards.

5. ELIGIBLE PERSONS AND RESTRICTIONS

5.1      Eligible Persons. Awards may be granted to Employees, Directors and
         Consultants, including to prospective Employees, Directors and
         Consultants conditioned on the beginning of service for the Company
         or an Affiliate.

5.2      Section 162(m) Limitations.

(a) SARs and Options. So long as the Company is a "publicly held corporation"
within the meaning of Section 162(m) of the Code, no Employee or prospective
Employee may be granted one or more Awards of SARs and Options within any fiscal
year of the Company with respect to more than 250,000 shares (as adjusted
pursuant to Section 3.3), and all such Awards must have an exercise price or
reference value of not less than Fair Market Value as of the Grant Date. An
Award that is cancelled by the Company, whether or not in the same fiscal year
in which it was granted, shall continue to be counted against such limit for
such year.

(b) Stock Awards. Any Stock Award intended as "qualified performance-based
compensation" within the meaning of Section 162(m) of the Code must be
contingent on one or more Objectively Determinable Performance Conditions, and
the material terms of the Award, including the maximum amount payable or the
payment formula, must be approved by the stockholders of the Company before such
Award is paid.

6. TERMS AND CONDITIONS OF OPTIONS

6.1 General. The Administrator may grant Options to Participants subject to
terms and conditions not inconsistent with the Plan and determined by the
Administrator. The specific terms and conditions applicable to the Awardee shall
be provided for in the Award Agreement. Options shall vest, in whole or in part,
at such times as the Administrator shall specify in the Award Agreement.

6.2 Price. No Option may be granted for less than 85% of the Fair Market Value
of the Shares on the Grant Date. No Option intended as "qualified
performance-based compensation" within the meaning of Section 162(m) of the Code
may be granted for less than 100% of the Fair Market Value of the Shares on the
Grant Date.

6.3 Term. No Option shall be exercisable more than ten years after the Grant
Date, or such lesser term as may be fixed by the Administrator in the Award
Agreement.

6.4 Vesting. Options granted under this Plan shall be exercisable in accordance
with a schedule related to the Grant Date of the Option, the date of first
employment, or such other date as may be set by the Administrator and specified
in the Award Agreement relating to such Option, but not in any event less than
six months from the Grant Date, date of first employment or other date of set
forth in the Award Agreement for purposes of fixing the vesting of the Option.
If so provided in the Award Agreement, an Option, subject to Reverse Vesting,
may be exercisable immediately. The Administrator may require that all Shares be
held in escrow until such repurchase right lapses. Notwithstanding anything to
the contrary herein, Options granted to Employees, who are not officers or
directors of the Company or any Affiliate of the Company, to purchase Shares
that are not Listed Securities shall vest at a rate of not less than 20% per
year from the Grant Date.

6.5 Right Of Repurchase. If an Option is subject to Reverse Vesting, the Company
shall have the right, beginning at the Termination of the Optionee and
continuing for the next three months, to repurchase that number of Shares that
the Optionee would not have been able to purchase under the Option if the Option
did not permit Reverse Vesting, based on the vesting schedule provided in the
Award Agreement. Such right of repurchase shall be at the Option Price.

6.6 Form Of Consideration. The Administrator shall determine the acceptable form
of consideration for exercising rights under an Award from among the following
acceptable forms of consideration:

(a) cash;

(b) check or wire transfer, denominated in U.S. Dollars except with the consent
of the Administrator or as specified by the Administrator for foreign employees
or foreign sub-plans;

(c) delivery or designation of other Shares which (A) in the case of Shares
originally acquired upon exercise of an Option, have been owned by the Optionee
for more than six months on the date of exercise, and (B) have a Fair Market
Value on the date of surrender equal to the aggregate Option Price of the Shares
for which the previously-owned Shares are to be used as consideration;

(d) provided that a public market exists for the Shares through a "same day
sale" commitment from the Awardee and a broker-dealer that is a member of the
National Association of Securities Dealers, Inc. (an "NASD Dealer") whereby the
Awardee irrevocably elects to exercise the Option and to sell a portion of the
Shares so purchased to pay for the exercise price of the Option and all other
amounts due to the Company hereunder, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the exercise price and all other
amounts due to the Company hereunder directly to the Company; or

(e) any combination of the foregoing methods of payment.

6.7      Non-Employee Director Options.

         The provisions of this Section 6.7 shall apply only to grants of
Options to Non-Employee Directors. Except as set forth in this Section 6.7, the
other provisions of the Plan shall apply to grants of Options to Non-Employee
Directors to the extent not inconsistent with this Section.

(a) General. Non-Employee Directors shall receive Non-Qualified Stock Options in
accordance with Section 6.7 and may not be granted Incentive Stock Options under
this Plan. The exercise price for Options granted to Non-Employee Directors
shall be the Fair Market Value on the date of grant.

(b) Grants To Non-Employee Directors. Commencing at the 2002 Annual Meeting of
Stockholders of the Company, each Non-Employee Director who is elected or
appointed to the Board (including by a way of re-election or re-appointment)
will, at the time such director is elected or appointed and duly qualified, and
after Board approval of such grant, be granted automatically, without action by
the Administrator, an option to purchase 7,500 Shares. Such Option shall become
exercisable with respect to one-third of the Shares covered by the Option six
months after the Grant Date (the "Initial Vesting Date") and with respect to an
additional one-third of the Shares covered by the Option on each of the next two
anniversaries of the Initial Vesting Date.

(c) Duration. Subject to the immediately following sentence, each Option granted
to a Non-Employee Director shall be for a term of 10 years. Upon the cessation
of a Non-Employee Director's membership on the Board for any reason, Options
granted to such Non-Employee Director shall expire upon the earlier of (i) three
months from the date of such cessation of Board membership (or one year if
cessation of Board membership is due to the Non-Employee Director's death or
permanent disability); or (ii) expiration of the term of the Option. The
Administrator may not provide for an extended exercise period beyond the periods
set forth in this Section 6.7(c).

6.8 Nonassignability of Options. Except as set forth in any Award Agreement
determined by the Administrator, no Option shall be assignable or otherwise
transferable by the Optionee except by will or by the laws of descent and
distribution. Notwithstanding the foregoing, Options may be transferred and
exercised in accordance with a Qualified Domestic Relations Order.

6.9 Holders of More Than Ten Percent of the Voting Power. A stockholder who
holds more than 10% of the total combined voting power (as defined in Section
194.5 of the California General Corporation Law) of the Company shall not be
granted an Option unless the exercise price of such Option is at least 110% of
the Fair Market Value of the Common Stock on the Grant Date.

7.       INCENTIVE STOCK OPTIONS

         Notwithstanding any other provision of the Plan, the following
provisions apply to Incentive Stock Options:

(a) The term of an Incentive Stock Option shall be no more than ten years.

(b)      No Incentive Stock Option may be granted under the Plan more than ten
         years following the date the Plan was approved by the Board.

(c) Regardless of any other provision of this Plan, for any Optionee Incentive
Stock Options granted under all incentive stock option plans of the Company and
its Affiliates may not vest for more than $100,000 in Fair Market Value of the
shares of stock covered by the Options (measured on the Grant Dates(s)) in any
calendar year. To the extent that the value of such shares exceeds $100,000 in
Fair Market Value, the excess shall be considered to be a Non-Qualified Stock
Option, with the earliest-granted Options or portions thereof to be treated as
Incentive Stock Options and the remainder to be treated as Non-Qualified Stock
Options.

(d) Any Incentive Stock Option granted to a Ten Percent Stockholder must have an
Expiration Date within five years of the Grant Date.

(e) The exercise price of an Incentive Stock Option shall never be less than the
Fair Market Value of the shares covered by the Option at the Grant Date. The
exercise price of an Incentive Stock Option granted to a Ten Percent Stockholder
shall never be less than 110% of the Fair Market Value of the Common Stock on
the Grant Date.

(f) Incentive Stock Options may be granted only to Employees.

(g) No rights under an Incentive Stock Option may be transferred, other than by
will or the laws of descent and distribution. During the life of the Optionee,
an Incentive Stock Option may be exercised only by the Optionee. The Company's
compliance with a Qualified Domestic Relations Order, or the exercise of an
Incentive Stock Option by a guardian or conservator appointed to act for the
Optionee, shall not violate this Section 7(g).

(h) Any Incentive Stock Option that is not exercised within three months
following the Termination of the Optionee for any reason other than death or
total and permanent disability, or within one year of the total and permanent
disability of the Optionee, shall be treated as a Non-Qualified Stock Option;
provided, however, that in the case of an Optionee who dies within three months
following Termination this subsection shall not apply.

(i) Any Incentive Stock Option that is not exercised within 90 days after the
beginning of a leave of absence other than an Approved Leave shall be treated as
a Non-Qualified Stock Option; provided, however, that in the case of an Optionee
who dies within three months following the start of the leave of absence this
subsection shall not apply.

8. STOCK APPRECIATION RIGHTS, RESTRICTED STOCK

8.1      SARs.

(a) General. SARs may be granted either alone, in addition to, or in tandem with
other Awards granted under the Plan. The Administrator may grant SARs to
Participants subject to terms and conditions not inconsistent with the Plan and
determined by the Administrator. The specific terms and conditions applicable to
the Awardee shall be provided for in the Award Agreement. SARs shall be
exercisable, in whole or in part, at such times as the Administrator shall
specify in the Award Agreement.

(b) Exercise. Upon the exercise of a SAR, in whole or in part, an Awardee shall
be entitled to receive, at the Administrator's discretion: (i) cash payment in
an amount equal to the excess of the Fair Market Value of a fixed number of
shares of common stock covered by the exercised portion of the SAR on the date
of such exercise, over the Fair Market Value of the common stock covered by the
exercised portion of the SAR on the Grant Date; or (ii) shares of common stock
having a Fair Market Value on the date of exercise equal to the excess of the
Fair Market Value of a fixed number of shares of common stock covered by the
exercised portion of the SAR on the date of such exercise, over the Fair Market
Value of the common stock covered by the exercised portion of the SAR on the
Grant Date; provided, however, that the Administrator may place limits on the
aggregate cash amount or number of shares of common stock that may be paid or
issued upon the exercise of a SAR.

(c) Method Of Exercise. A SAR shall be deemed to be exercised when notice of
such exercise has been given to the Company in accordance with the terms of the
SAR by the person entitled to exercise the SAR.

(d) Price. No SAR may be granted for less than 85% of the Fair Market Value of
the Shares covered by the SAR on the Grant Date. A holder of more than 10% of
the total combined voting power of the Company (as defined in Section 194.5 of
the California General Corporation Law) shall not be granted a SAR unless the
purchase price of the Shares covered by the SAR is at least 100% of the Fair
Market Value of the Common Stock on the Grant Date.

(e) Nonassignability of SARs. Except as set forth in any Award Agreement, no SAR
shall be assignable or otherwise transferable by the Awardee except by will or
by the laws of descent and distribution. Notwithstanding the foregoing, SARs may
be transferred and exercised in accordance with a Domestic Relations Order.

8.2      Stock Awards.

(a) General. Stock Awards may be granted either alone, in addition to, or in
tandem with other Awards granted under the Plan. The specific terms and
conditions applicable to the Awardee shall be provided for in the Award
Agreement. The Award Agreement shall state the number of Shares that the Awardee
shall be entitled to purchase, the terms and conditions on which the Shares
shall vest, the price to be paid, and the time within which the Awardee must
accept such offer. The offer shall be accepted by execution of the Award
Agreement. The grant or vesting of a Stock Award may be made contingent on
achievement of Objectively Determinable Performance Conditions.

(b) Forfeiture. Unless otherwise provided for by the Administrator in the Award
Agreement, unvested Shares shall be forfeited upon the Awardee's Termination,
except as provided in Sections 9.4 and 10.2. To the extent that the Awardee
purchased the Shares, the Company shall have a right to repurchase the unvested
Shares at the original price paid by the Awardee, upon Awardee's Termination and
for a period of three months following termination, except as provided in
Sections 9.4 and 10.2.

(c) Holders of More Than 10% of the Voting Power. Holders of more than 10% of
the voting power of the Company (as defined in Section 194.5 of the California
General Corporation Law) shall not be granted a restricted stock award unless
the purchase price of the restricted stock is at least 100% of the Fair Market
Value of the Common Stock on the Grant Date.

(d) Price. Subject to the preceding paragraph, no Stock Award may be granted for
less than 85% of the Fair Market Value of the Shares on the Grant Date using any
form of consideration described in Section 6.6; provided the Awardee provides a
payment in cash or other valid consideration approved by the Administrator equal
to at least the aggregate par value of such Shares to the extent required by the
Delaware General Corporation Law.

(e) Nonassignability. Except as set forth in any Award Agreement determined by
the Administrator, no Stock Award shall be assignable or otherwise transferable
by the Awardee except by will or by the laws of descent and distribution.
Notwithstanding the foregoing, Stock Awards may be transferred and exercised in
accordance with a Qualified Domestic Relations Order.

(f) Vesting. Stock Awards granted under this Plan shall be exercisable in
accordance with a schedule related to the Grant Date of the Stock Award, the
date of first employment, or such other date as may be set by the Administrator
and specified in the Award Agreement relating to such Stock Award, but not in
any event less than six months from the Grant Date, date of first employment or
other date of set forth in the Award Agreement for purposes of fixing the
vesting of the Stock Award. If so provided in the Award Agreement, a Stock
Award, subject to a right of repurchase, may be exercisable immediately. The
Administrator may require that all Shares subject to a right of repurchase be
held in escrow until such repurchase right lapses. Notwithstanding anything to
the contrary set forth herein, Stock Awards subject to a right of repurchase
that are granted to Employees, who are not officers or directors of the Company
or any Affiliate, to purchase Shares that are not Listed Securities, shall
provide that the Company's right of repurchase must lapse at the rate of at
least 20% per year from the Grant Date.

9. EXERCISE OF AWARDS

9.1      General

(a) Procedure For Exercise. Any Award granted hereunder shall be exercisable
according to the terms of the Plan and at such times and under such conditions
as may be determined by the Administrator and set forth in the respective Award
Agreement. Options subject to Reverse Vesting shall be exercisable only after
the expiration of six months from the Grant Date. Notwithstanding any other
provision of this Plan, no Award may be exercised after the term of the Award
has expired.

(b) Leaves Of Absence. An Award shall continue to vest during a leave of
absence. No Award may be exercised more than 90 days after the beginning of a
leave of absence, other than an Approved Leave, as described below; provided,
however, that in the case of an Awardee who dies within three months following
the start of the leave of absence, the Awardee's vested Awards may be exercised
during the period provided in Section 9.4(b). Awards held by an Awardee who has
taken an Approved Leave may be exercised within the first three months after the
beginning of the leave of absence, upon the Awardee's return to active
employment status, or if the Awardee dies within three months following the
beginning of the leave of absence, the period specified in Section 9.4(b), in
each case to the extent the Awards have vested.

9.2 Time Of Exercise. An Award shall be deemed exercised when the Company
receives: (a) notice of exercise (in accordance with the Award Agreement) from
the person entitled to exercise the Award, (b) in the case of an Award requiring
payment of an Option Price, full payment, or provision for payment in a form
approved by the Administrator, for the Shares underlying the Award, and (c) in
the case of a Non-Qualified Stock Option, or other Award requiring the payment
of withholding taxes, payment of all applicable withholding taxes due upon such
exercise. An Award may not be exercised for a fraction of a Share.

9.3 Issuance Of Shares. Shares issued upon exercise of an Award shall be issued
in the name of the Awardee. Until the Shares are issued (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company), no right to vote or receive dividends or any other rights
as a stockholder shall exist with respect to the Shares subject to an Award,
notwithstanding the exercise of the Award. The Company shall issue (or cause to
be issued) such Shares promptly after the Award is exercised. No adjustment will
be made for a dividend or other right for which the record date is prior to the
date the Shares are issued, except as provided in Section 3.3 of the Plan.

9.4      Termination.

(a) General. Unless otherwise provided for by the Administrator in the Award
Agreement, if an Awardee ceases to be an Employee or Consultant, other than as a
result of circumstances described in Sections 9.4(b), (c) and (d) below, the
Awardee's vested Awards shall be exercisable for thirty days following the
Awardee's Termination, or if earlier, the expiration of the term of such Awards.
If the Awardee does not exercise an Award within the time set forth above, the
Award shall automatically terminate.

(b) Death Or Disability. Unless otherwise provided for by the Administrator in
the Award Agreement, if an Awardee dies or becomes Disabled while an Employee or
Consultant, the Awardee's vested Awards shall be exercisable for one year
following the Awardee's death or disability, but not after the expiration of the
term of such Award. The Award may be exercised by the beneficiary designated by
the Awardee (as provided in Section 15), the executor or administrator of the
Awardee's estate or, if none, by the person(s) entitled to exercise the Award
under the Awardee's will or the laws of descent and distribution. If an Award is
not so exercised within the time specified herein, the Award shall automatically
terminate.

(c) Termination for "Cause". If an Awardee ceases to be an Employee or
Consultant for "cause," all Awards held by the Awardee as of the time of
Termination shall immediately terminate, and such Awards shall cease to be
exercisable as of such time. "Cause" means dishonesty, fraud, misconduct,
disclosure of confidential information, conviction of, or a plea of guilty or no
contest to, a felony under the laws of the United States or any state thereof,
habitual absence from work for reasons other than illness, intentional conduct
which causes significant injury to the Company, or habitual abuse of alcohol or
a controlled substance, in each case determined by the Administrator, whose
determination will be conclusive and binding.

(d) Divestiture. If an Awardee ceases to be an Employee or Consultant because of
a divestiture of an Affiliate, the Administrator may, in its sole discretion,
make such Awardee's outstanding Awards fully vested and exercisable and provide
that such Awards remain exercisable for a period of time to be determined by the
Administrator. The determination of whether a divestiture will occur or has
occurred shall be made by the Administrator in its sole discretion. If the
Awardee does not exercise an Award by the expiration of such time period, the
Award shall automatically terminate.

9.5 Buyout Provisions. At any time, the Administrator may, but shall not be
required to, offer to buy out for a payment in cash or Shares an Award
previously granted based on such terms and conditions as the Administrator shall
establish and communicate to the Awardee at the time that such offer is made.

10.      DISSOLUTION AND CORPORATE TRANSACTIONS

10.1 Dissolution Or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, the Administrator shall notify each Awardee as soon
as practicable prior to the effective date of such proposed transaction. The
Administrator in its discretion may provide for an Award to be fully vested and
exercisable until ten days prior to such transaction. In addition, the
Administrator may provide that any restrictions on any Award shall lapse prior
to the transaction, provided the proposed dissolution or liquidation takes place
at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Award will terminate immediately prior to the
consummation of such proposed transaction.

10.2     Corporate Transactions.

(a) Assumption Or Replacement Of Awards By Successor. In the event of (i) a
dissolution or liquidation of the Company, (ii) a merger or consolidation in
which the Company is not the surviving corporation (other than a merger or
consolidation with a wholly-owned subsidiary, a reincorporation of the Company
in a different jurisdiction, or other transaction in which there is no
substantial change in the stockholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Awardees), (iii) a merger in which the Company is the surviving corporation but
after which stockholders owning more than 50% of the voting stock of the Company
immediately prior to the merger (other than any stockholder which merges, or
which owns or controls another corporation which merges, with the Company in
such merger) cease to own a majority of the voting stock of the Company
immediately after the merger, or (iv) the sale of all or substantially all of
the assets of the Company (collectively, "Corporate Transaction"), any or all
outstanding Awards may be assumed, converted or replaced by the successor
corporation (if any), which assumption, conversion or replacement will be
binding on all Awardees. In the alternative, the successor corporation may
substitute equivalent Awards or provide substantially similar consideration to
Awardees as was provided to stockholders (after taking into account the existing
provisions of the Awards). The successor corporation may also issue, in place of
outstanding Shares of the Company held by the Awardees, substantially similar
shares or other property subject to repurchase restrictions no less favorable to
the Awardee. Notwithstanding the foregoing, if (a) any Awardee whose options are
(i) assumed, converted or replaced by the successor corporation (if any), or
(ii) substituted by the successor corporation with equivalent Awards or
substantially similar consideration; and (b) such Awardee is terminated by the
Company or a successor corporation (if any) without cause within twelve months
of the effective date of the Corporate Transaction; then any Options held by the
Awardee will immediately become fully vested and exercisable by the Awardee. In
the event such successor corporation (if any) refuses to assume or substitute
Options, as provided above, pursuant to a transaction described in this Section
10.2(a) then notwithstanding any other provision in this Plan to the contrary,
such Award will become fully vested at such time and on such conditions as the
Board determines.

(b) Other Treatment Of Awards. Subject to any greater rights granted to Awardees
under the foregoing provisions of Section 10.2, in the event of the occurrence
of any transaction described in Section 10.2(a), any outstanding Awards will be
treated as provided in the applicable agreement or plan of merger,
consolidation, dissolution, liquidation, sale of assets or other "corporate
transaction."

(c) Assumption Of Awards By The Company. The Company, from time to time, also
may substitute or assume outstanding awards granted by another company, whether
in connection with an acquisition of such other company or otherwise, by either:
(a) granting an Award under the Plan in substitution of such other company's
award; or (b) assuming such award as if it had been granted under this Plan. In
the event the Company assumes an award granted by another company, the terms and
conditions of such award will remain unchanged (except that the exercise price
and the number and nature of Shares issuable upon exercise of any such option
will be adjusted appropriately pursuant to Section 424(a) of the Code).

11. WITHHOLDING AND TAX REPORTING

11.1     Tax Withholding.

(a) Withholding Generally. Whenever Shares are to be issued in satisfaction of
Awards granted under the Plan, the Company may require the Awardee to remit to
the Company an amount sufficient to satisfy federal, state and local withholding
tax requirements prior to the delivery of any certificate or certificates for
such Shares. Whenever, under the Plan, payments in satisfaction of Awards are to
be made by the Company, such payment will be net of an amount sufficient to
satisfy federal, state, and local withholding tax requirements.

(b) Stock Withholding. The Company shall have the right, but not the obligation,
to deduct from the Shares issuable upon the exercise of an Award, or to accept
from the Awardee the tender of, a number of whole Shares having a Fair Market
Value equal to all or any part of the federal, state, local and foreign taxes,
if any, required by law to be withheld by the Company with respect to such Award
or the Shares acquired upon the exercise thereof. Alternatively or in addition,
in its discretion, the Company shall have the right to require the Awardee,
through payroll withholding, cash payment or otherwise, including by means of a
Cashless Exercise, to make adequate provision for any such tax withholding
obligations arising in connection with the Award or the Shares acquired upon the
exercise thereof. The Company shall have no obligation to deliver Shares or to
release Shares from an escrow established pursuant to the Award Agreement until
the Company's tax withholding obligations have been satisfied by the Awardee.

11.2 Tax Reporting. The Awardee of an Incentive Stock Option shall notify the
Administrator within ten days of any disposition of the Shares acquired on the
exercise of such Option for (a) the longer of two years from the Grant Date or
one year from the exercise date of such Option, or (b) such different period as
the Administrator may establish, and shall provide such information in
connection with such disposition as the Administrator may request.

12.      COMPLIANCE WITH LAW; MODIFICATION OF PLAN MATERIALS

12.1 Compliance With Law. The grant of Awards and the issuance of Shares upon
exercise of Awards shall be subject to compliance with Applicable Laws,
including all applicable requirements of federal, state and foreign law with
respect to the offering and sale of securities. Awards may not be exercised if
the issuance of Shares upon exercise would constitute a violation of Applicable
Laws. In addition, no Award may be exercised unless (a) a registration statement
under the Securities Act shall at the time of exercise of the Award be in effect
with respect to the Shares issuable upon exercise of the Award or (b) in the
opinion of legal counsel to the Company, the Shares issuable upon exercise of
the Award may be issued in accordance with the terms of an applicable exemption
from the registration requirements of the Securities Act. The inability of the
Company to obtain from any regulatory body the authority deemed by the Company's
legal counsel to be necessary to the lawful issuance and sale of Shares
hereunder shall relieve the Company of any liability in respect of the failure
to issue or sell such Shares. As a condition to the exercise of any Award, the
Company may require the Awardee to satisfy any qualifications that may be
necessary or appropriate, to evidence compliance with any applicable law or
regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.

12.2 Certificates. All certificates for Shares or other securities delivered
under this Plan will be subject to such stop transfer instructions, legends and
other restrictions as the Administrator may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the Securities and
Exchange Commission or any stock exchange or automated quotation system upon
which the Shares may be listed or quoted.

12.3 Financial Information. The Company shall furnish its annual financial
statements to each Awardee during the period the Awardee holds any Award or
shares issued pursuant to an Award. Those statements shall include a balance
sheet and income statement, and shall be delivered as soon as is practical after
the end of the Company's fiscal year.

13.      AMENDMENT OR TERMINATION OF PLAN

13.1     Amendment And Termination. The Board may at any time amend, alter,
         suspend or terminate the Plan.

13.2     Stockholder Approval. The Company shall obtain stockholder approval of
         any Plan amendment to the extent necessary and desirable to comply with
         Applicable Laws.

13.3 Effect Of Amendment Or Termination. No amendment, alteration, suspension or
termination of the Plan shall impair the rights of any Award, unless mutually
agreed otherwise between the Awardee and the Administrator, which agreement must
be in writing and signed by the Awardee and the Company. Termination of the Plan
shall not affect the Administrator's ability to exercise the powers granted to
it hereunder with respect to Awards granted under the Plan prior to the date of
such termination.

14.      RESERVED RIGHTS

14.1 Nonexclusivity Of The Plan. The adoption of this Plan shall not limit the
power of the Company in any way to adopt other incentive arrangements,
including, without limitation, the granting of stock options or the granting of
stock or rights with respect to stock other than under this Plan.

14.2 Unfunded Plan. The Plan shall be unfunded. Although bookkeeping accounts
may be established with respect to Participants who are granted Awards of Shares
under this Plan, any such accounts will be used merely as a bookkeeping
convenience. Except for the holding of restricted stock in escrow pursuant to
Section 8.2 or 6.5, the Company shall not be required to segregate any assets
which may at any time be represented by Awards, and neither shall this Plan be
construed as providing for such segregation, nor shall the Company or the
Administrator be deemed to be a trustee of stock or cash to be awarded under the
Plan. Any liability of the Company to any Awardee shall be based solely upon any
contractual obligations that may be created by the Plan; no such obligation of
the Company shall be deemed to be secured by any pledge or other encumbrance on
any property of the Company. Neither the Company nor the Administrator shall be
required to give any security or bond for the performance of any obligation that
may be created by this Plan.

14.3 Consulting Or Employment Relationship. This Plan or any Award granted by
this Plan shall not interfere with or limit in any way the right of the Company
or of any of its Affiliates to terminate any Awardee's employment or consulting
at any time. This Plan does not confer upon any Participant any right to
continue in the employ of, or consult with, the Company or any of its
Affiliates. In addition, this Plan does not interfere in any way with any
provision in the Company's charter documents relating to the election,
appointment, terms of office, and removal of members of the Board.

15. BENEFICIARIES

(a) An Awardee may file a written designation of a beneficiary who is to receive
the Awardee's rights pursuant to Awardee's Award or the Awardee may include his
or her Awards in an omnibus beneficiary designation for all benefits under the
Plan.

(b) Any designation of beneficiary may be changed by the Awardee at any time by
written notice. In the event of the death of an Awardee and in the absence of a
beneficiary validly designated under the Plan who is living at the time of such
Awardee's death, the Company shall allow the executor or administrator of the
estate of the Awardee to exercise the Award, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may allow the spouse or one or more dependents or relatives
of the Awardee to exercise the Award.

16. MISCELLANEOUS

16.1     Governing Law. This Plan and all determinations made and actions taken
         pursuant hereto shall be governed by the substantive laws, but not the
         choice of law rules, of the State of Delaware.

16.2     Determination Of Value. Fair Market Value shall be determined as
         follows:

(a) Listed Stock. If the stock of the Company is listed on any established stock
exchange or a national market system, its Fair Market Value shall be the closing
sales price for the stock as quoted on the stock exchange or system for the date
the value is to be determined (the "Value Date") as reported in the Wall Street
Journal or a similar publication. If no sales occurred on the Value Date, then
the Company shall use the value for the last preceding business day on which
sales occurred. If no sales occurred for one week before the Value Date, the
Company shall use the closing bid on the Value Date as the Fair Market Value of
the stock. If the stock is listed on multiple exchanges or systems, the stock's
value on the largest exchange will be used.

(b) Stock Quoted By Securities Dealer. If the stock of the Company is regularly
quoted by a recognized securities dealer but selling prices are not reported,
its Fair Market Value shall be the mean between the high bid and low asked
prices on the Value Date. If there are no quoted prices for the Value Date, then
the Fair Market Value shall be its value on the last preceding business day on
which there were quoted prices.

(c) No Established Market For Stock. In the absence of an established market for
the stock, the Administrator will determine the Fair Market Value in good faith
in a manner consistent with Section 260.140.50 of Title 10 of the California
Code of Regulations.

16.3 Notice. Any written notice to the Company required by any provisions of the
Plan shall be addressed to the Secretary of the Company and shall be effective
when received.

16.4     Reservation Of Shares. The Company, during the term of the Plan, will
         at all times reserve and keep available such number of Shares as shall
         be sufficient to satisfy the requirements of the Plan.

16.5     Electronic Communications. Any Award Agreement, notice of exercise of
         an Option, or other document required or permitted by this Plan may be
         delivered in writing or, to the extent determined by the Administrator,
         electronically. Signatures may also be electronic to the extent
         determined by the Administrator.

16.6 Nonassignability Of Awards. Except as expressly permitted by the
Administrator, no Award granted under this Plan shall be assignable or otherwise
transferable by the Awardee except by will, pursuant to a domestic relations
order (within the meaning of Rule 16a-12 promulgated under the Exchange Act) or
by the laws of descent and distribution. During the life of the Awardee, except
as expressly permitted by the Administrator, an Award shall be exercisable only
by the Awardee. No Award may be assigned before it has vested.

16.7 Additional Restrictions of Rule 16b-3. The terms and conditions of Awards
granted hereunder to, and the purchase of Shares by, Participants subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. The Plan shall be deemed to contain, and such Awards shall contain,
and the Shares issued upon exercise thereof shall be subject to, such additional
conditions and restrictions as may be required by Rule 16b-3 to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to
transactions under the Plan.


<PAGE>


                                                                   Exhibit 10.2
April 23, 2003


Cary Vandenberg
112 Worcester Lane
Los Gatos, CA 95030

Private & Confidential



Dear Cary:

It is my pleasure to extend to you an offer to become the President and Chief
Executive Officer of HPL Technologies, Inc. (the "Company" or "HPL").This offer
is subject to the terms and conditions set forth in this letter agreement (the
"Agreement").

1.       Position. HPL is pleased to offer you the full-time position of
         President and Chief Executive Officer, subject to the approval of the
         Board of Directors of HPL.


2.       Reporting Duties and Responsibilities. In this position, you will
         report to the Board of Directors of the Company or its committees, as
         appropriate. You will have all of the duties and responsibilities of
         the President and Chief Executive Officer set forth in the Bylaws of
         the Company and as the Board of Directors or its committees shall, from
         time to time, assign to you. Your primary work location will be at the
         corporate offices of the Company, located at 2033 Gateway Place, Suite
         400, San Jose, CA 95110. Travel to other locations may be necessary to
         fulfill your responsibilities.


3.       Salary and Bonus. Your monthly salary will be $22,916.67, less
         customary payroll deductions. This equates to base compensation of
         $275,000.00 on an annual basis. At the completion of your first year of
         employment with the Company, you will also be eligible to participate
         in the Company's executive bonus program. Under that program, you will
         be eligible to earn an annual performance bonus based on the
         achievement of written objectives that the Board of Directors
         determines at or near the beginning of each fiscal year.

         During your first twelve months of employment you will be eligible to
earn the following bonuses:

a. You will receive a signing bonus of $100,000.00, less customary payroll
deductions. However, if within the first twelve months of your employment (1)
you voluntarily resign your employment with HPL or its successors or assigns, or
(2) your employment is terminated by the Company for "cause" as defined below,
you agree to repay the signing bonus to the Company on a prorated basis.

b. You will also be eligible to earn a bonus of $75,000.00, less customary
payroll deductions, payable within 90 days of a Company and court approved
settlement of all outstanding Federal securities litigation and state derivative
actions, provided that such settlement is reached before the first anniversary
of your start date with the Company, and provided further, such bonus is
approved as part of the court approved settlement referenced above or as part of
a court approved restructuring.

4. Subject to qualification of the Company's Common Stock to be issued pursuant
to the HPL Amended and Restated 2001 Equity Incentive Plan (the "Plan") under
the California Corporate Securities Law of 1968, the Company will recommend to
the Board of Directors that you be granted a stock option (the "Option") under
the Plan and the standard form of option agreements related thereto to purchase
up to 925,000 shares of the Company's Common Stock. The Option will be an
Incentive Stock Option to the maximum extent permitted by the Internal Revenue
Code and any balance will be a non-qualified stock option. The option exercise
price will be equal to the fair market value of the Company's Common Stock at
the date of grant. In the event that the Company undergoes a "Corporate
Transaction" (as such term is defined in the Plan), the Options will be governed
by the terms contained in the Plan.

5. Confidential Information. As an employee of the Company, you will have access
to certain Company confidential information and you may, during the course of
your employment, develop certain information or inventions, which will be the
property of the Company. To protect the interests of the Company, you will need
to sign the Company's standard "Employee Inventions and Confidentiality
Agreement" as a condition of your employment. HPL expects that you will not
retain or bring to HPL any confidential or proprietary material of any former
employer or violate any other obligation to your former employers, and you have
advised us that in connection with your employment by the Company you will not
bring with you or otherwise use any such confidential or proprietary material.

6. If the Company terminates your employment without cause (as defined below) or
if you resign for good reason (as defined below), you will receive all wages
earned; including accrued but unused vacation in accordance with the Company's
vacation policy. In addition, HPL will continue to pay your base salary for a
period of twelve months from your date of termination. HPL will also pay for
your COBRA benefits for a twelve month period. In addition you shall be entitled
to accelerated vesting of 50% of your unvested options to buy shares of HPL
stock. You agree that this shall constitute the only benefits, payments,
severance or other amounts that you shall be entitled to receive upon
termination of your employment, and you hereby acknowledge and agree that
receipt of those benefits shall be expressly conditioned upon your execution of
a general release of claims against the Company in a form acceptable to HPL.
This section/paragraph of the offer letter supercedes section 1.2 of the
Employee Inventions and Confidentiality Agreement.

a. For purposes of this Agreement, "cause" shall mean the occurrence of one or
more of the following: (i) your conviction of a felony or a crime involving
moral turpitude or dishonesty; (ii) your participation in a fraud or act of
deceit or dishonesty against the Company or its stockholders; (iii) your
intentional and material damage to the Company's property; (iv) your willful or
continuing neglect of your duties (following notice); (v) a material breach by
you of this Agreement, the Company's written policies, or the Employee
Inventions and Confidentiality Agreement that is not remedied by you within 14
days of written notice of such breach from the Company.

b. For purposes of this Agreement, "good reason" shall mean (i) a material
reduction in your duties, including removal as President and Chief Executive
Officer of HPL, or a change in your reporting relationship such that you no
longer report directly to the Board of Directors; (ii) any reduction in your
base salary and target bonus (other than in connection with a general decrease
in the salary of other executive officers of the Company without your consent);
(iii) a material breach by HPL of any of its obligations hereunder after
providing HPL with reasonable written notice of such breach and the opportunity
to cure same within 14 days of receipt of the notice; (iv) a requirement by HPL
that you relocate your principal office to a facility more than 50 miles from
HPL's current headquarters; or (v) failure of any successor to assume this
agreement.

7. Benefits. You will be eligible to receive all benefits that are extended to
other similarly-situated employees at HPL, including paid time off. Details
about these benefits will be available for your review in the Company's employee
handbook and employee benefits package. Additionally as an officer of the
company you will be covered under HPL's Directors and Officers Liability
Insurance Policy.

8. At-Will Employment. Should you decide to accept our offer, you will be an
"at-will" employee of HPL. This means that either you or HPL may terminate the
employment relationship with or without cause at any time. Participation in any
benefit, compensation or bonus program does not change the nature of the
employment relationship, which remains "at-will".

9. Representation Regarding Other Agreements. By accepting this offer, you
represent that you are not bound by any employment contract, restrictive
covenant or other restriction (including any governmental order or decree)
preventing you from entering into this agreement or carrying out your
responsibilities as contemplated herein.

10. Complete Offer and Agreement; Other Terms. This letter and the Employee
Inventions and Confidentiality Agreement contain our complete understanding and
agreement regarding the terms of your employment by HPL. There are no other,
different or prior agreements or understandings on this or related subjects.
Changes to the terms of your employment can be made only in a writing signed by
you and a duly authorized member of the Board of Directors of HPL, provided,
however, that HPL may, from time to time, in its sole discretion, adjust the
salaries, bonus and incentive compensation, and benefits paid to you and its
other employees with reasonable notice thereof. This Agreement shall inure to
the benefit of and be binding upon the Company and its successors and assigns
and upon you and your heirs, administrators and executors, provided that neither
this Agreement, nor any of your rights, duties or obligations, may be assigned
by you, and any attempt to do so shall be void. This Agreement shall be governed
by California law.

11. Authorization to Work. Federal government regulations require that all
prospective employees present documentation verifying their identity and
demonstrating that they are authorized to work in the United States. If you have
any questions about this requirement, which applies to U.S. citizens and
non-U.S. citizens alike, please contact Annie Chow.

12. Start Date. You will commence employment pursuant to the terms hereof on May
12, 2003. If this letter is not signed, dated and returned to HPL before the
close of business on May 2, 2003, the offer of employment set forth herein shall
be null and void.

13. Notice. All written notices described herein shall be issued in the
following manner: first class mail and hand delivery.


Cary, we are excited and pleased to have you lead the HPL team. We are confident
that we can work together to successfully grow the company and enhance its
leadership position in the market.


     Sincerely,


     /s/ ELIE ANTOUN
     -------------------------------------------
     Elie Antoun
     Chairman of the Board


ACCEPTANCE OF EMPLOYMENT OFFER:

I accept the offer of employment by HPL Technologies, Inc. on the terms
described in this letter.

Signature:  /s/ CARY D. VANDENBERG
            ------------------------

Date:
       -----------------------------

My start date will be:     May 12, 2003
                      -----------------


<PAGE>

                                                                    Exhibit 31.1

                                  CERTIFICATION

I, Cary D. Vandenberg, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of HPL Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

         a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

         b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and

         c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and

5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):

         a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

         b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.

Date: August 14, 2003


/s/ Cary D. Vandenberg

Cary D. Vandenberg
         President and Chief Executive Officer


<PAGE>

                                                                    Exhibit 31.2

                                  CERTIFICATION

I, Michael P. Scarpelli, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of HPL Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

         a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

         b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and

         c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and

5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):

         a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

         b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.

Date: August 14, 2003



/s/ Michael P. Scarpelli
Michael P. Scarpelli
Chief Financial Officer


<PAGE>
                                                                    Exhibit 32.1


                            CERTIFICATION PURSUANT TO
                 SECTIONS 906 OF THE SARBANES-OXLEY ACT OF 2002

         Each of the undersigned hereby certifies that, in accordance with 18
U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, in his capacity as an officer of HPL Technologies, Inc. that this
quarterly report on Form 10-Q (the "Report") fully complies with the
requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934,
and that the information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of HPL
Technologies, Inc.


Date: August 14, 2003
                                                          /s/ CARY D. VANDENBERG
                                                          ----------------------

                                                              Cary D. Vandenberg
                                           President and Chief Executive Officer

The foregoing certification (the "Certification") is being furnished solely
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and
(b) of Section 1350, Chapter 63 of Title 18, United States Code). A signed
original of the Certification has been provided to the Company and will be
retained by the Company in accordance with Rule 12b-11(d) of the Act and
furnished to the Securities and Exchange Commission or its staff upon request.



<PAGE>

                                                                    Exhibit 32.2

                            CERTIFICATION PURSUANT TO
                 SECTIONS 906 OF THE SARBANES-OXLEY ACT OF 2002

         Each of the undersigned hereby certifies that, in accordance with 18
U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, in his capacity as an officer of HPL Technologies, Inc. that this
quarterly report on Form 10-Q (the "Report") fully complies with the
requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934,
and that the information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of HPL
Technologies, Inc.


Date: August 14, 2003
                                                       /s/ Michael P. Scarpelli
                                                     ---------------------------

                                                           Michael P. Scarpelli
                                                        Chief Financial Officer

The foregoing certification (the "Certification") is being furnished solely
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and
(b) of Section 1350, Chapter 63 of Title 18, United States Code). A signed
original of the Certification has been provided to the Company and will be
retained by the Company in accordance with Rule 12b-11(d) of the Act and
furnished to the Securities and Exchange Commission or its staff upon request.