<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K

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

/X/  Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the fiscal year ended December 31, 1998 or

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

Commission file number:  0-20923

                               SUMMIT DESIGN, INC.
             (Exact name of registrant as specified in its charter)

          DELAWARE                                     93-1137888
(State or other jurisdiction of                    (I.R.S. Employer 
incorporation or organization)                   Identification Number)

                            9305 S. W. GEMINI DRIVE,
                             BEAVERTON, OREGON 97008
                     (Address of principal executive office)
       Registrant's Telephone number, including area code: (503) 643-9281

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

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                          Common Stock, $0.01 par value
                                (Title of Class)

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

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

The aggregate market value of the voting-stock held by non-affiliates of the 
registrant, based upon the closing sale price of the Common Stock on March 
19, 1999 as reported on the Nasdaq National Market, was approximately 
$28,514,611. Shares of Common Stock held by each named executive officer and 
director and by each entity that owns 5% or more of the outstanding Common 
Stock have been excluded in that such persons may be deemed affiliates. This 
determination of affiliate status is not necessarily a conclusive 
determination for other purposes.

As of March 19,1999, Registrant had outstanding 15,587,916 shares of Common 
Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

The Registrant has incorporated by reference into Part III of this Form 10-K 
to the extent stated herein certain sections of its definitive Proxy 
Statement for the 1999 Annual Meeting of Stockholders to be held on May 26, 
1999.

<PAGE>

                                     PART I


IMPORTANT NOTE ABOUT FORWARD LOOKING STATEMENTS

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

ITEM 1.  BUSINESS

GENERAL

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

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

BACKGROUND

Electronic design automation ("EDA") software has played a critical role in 
accelerating the dramatic advances in the electronics industry over the past 
two decades. The need for advances in EDA tools has resulted from the 
increasing complexity of ICs, as well as the increasing number of new IC 
design starts and the scarcity of skilled IC design and verification 
engineers. The increase in the complexity of ICs lengthens the development 
cycle


                                      2
<PAGE>

while, at the same time, competitive pressures shorten product life cycles. 
The objectives of EDA are to reduce time to market and the costs associated 
with product design, entry, analysis, verification and optimization while 
permitting the development of a greater number of designs of higher speed and 
density chips that can be reliably manufactured.

IC development productivity has increased through the evolution of EDA, but 
has significantly lagged fabrication technology in recent years. Fabrication 
technology has advanced from the ability to produce chips with over one
thousand gates at five micron line-widths in the 1970s, to more than 10,000 
gates in the 1980s, to greater than one million gates at sub 0.5 micron 
line-widths today. For example, the processor used in the original IBM PC in 
1981 had approximately 10,000 gates and was manufactured using 3 micron 
process technology, whereas the Pentium III introduced in 1999 contains 
more than two million gates.

In contrast to the progress in fabrication technology, the productivity of 
the average design engineer has not kept pace. As a result, a greater number 
of engineering hours are required to produce many of today's more complex 
designs, leading to either longer development schedules or the need for 
larger design teams. To address this challenge, organizations with IC design 
capabilities continue to search for EDA tools that enable them to increase 
their productivity and meet the aggressive development schedules dictated by 
competitive forces.

ADVANCES IN EDA

EDA tools emerged in the early 1970s with the introduction of computer aided 
design ("CAD") software that permitted engineers to textually enter designs 
of several thousand gates, and in the early 1980s evolved to computer aided 
engineering ("CAE") software that enabled engineers to graphically enter 
designs of tens of thousands of gates. Despite the advantages of graphical 
CAE tools, design at the gate level became impractical and more error prone 
as design complexities and gate counts increased. To address these problems, 
textual HDLs, logic synthesis and functional level simulation tools were 
introduced in the late 1980s, allowing engineers to engage in high level 
design automation ("HLDA"). To use the HLDA methodology, engineers are 
required to describe their IC design in a textual HDL, such as VHDL or 
Verilog. After the design is coded in HDL, the HDL description can be 
executed using simulation software to emulate the operation of the desired 
IC, allowing the engineer to debug the design without building a hardware 
prototype. The HDL description can be automatically translated to a gate 
level description using a synthesis software tool.

LIMITATIONS OF HLDA

HLDA tools have enabled engineers to accelerate IC development schedules and 
create more complex chips. However, these tools have significant limitations. 
First, the conventional design flow for IC engineers using HLDA tools is to 
represent a design in hand-drawn graphical paradigms such as block diagrams, 
state machines, flow charts or truth tables, and then laboriously translate 
their hand-drawn graphical designs into a textual HDL which resembles 
software program code. This process is time consuming and error prone, and 
requires the engineer to master a complex programming language. Second, the 
numerous lines of HDL code that comprise a design are very difficult for 
engineering teams to understand and communicate during design reviews and 
equally difficult for engineering management to understand and evaluate. 
Third, while it would be possible to accelerate time to market by reusing 
portions of HDL code where similar functions are needed, reuse of HDL code is 
difficult and often avoided because the complex HDL code complicates 
understanding the design's functional intent. Fourth, the HLDA methodology is 
further limiting because textual HDL code typically must be written in either 
Verilog or VHDL and according to strict rules unique to a specific synthesis 
tool. This limits the ability of engineers to increase synthesis efficiency 
by using various HDL languages and multiple synthesis tools. Finally, the 
lack of stylistic restrictions in HDLs often allows designers to express an 
IC functional design several different ways. As a result, an HDL design could 
comply with HDL programming constraints and yet not be able to be 
synthesized. As importantly, the lack of restrictions allows a designer to 
produce an HDL description that can be synthesized but that is not as 
efficient in terms of the resulting gate count or circuit timing. Further, 
the lack of programming consistency between engineers arising from the lack 
of stylistic restrictions complicates design team management and design 
integration.


                                      3
<PAGE>

In order to meet the market's demands for more powerful, higher density ICs 
and to reduce both time to market and cost, IC designers and manufacturers 
seek design, analysis, verification and optimization tools that overcome the 
limitations of the current HLDA methodologies.

THE SUMMIT SOLUTION

Summit offers software products to assist design engineers in meeting the 
market demands for rapid time to market, increased product functionality and 
lower product cost while providing the corporations that employ these 
engineers an efficient way to document, revise and distribute the highly 
valuable IC intellectual property they create. In 1994, Summit introduced 
Visual HDL for VHDL, its first graphical product, which accelerates the 
development, analysis and documentation of single function ICs as well as 
complete systems on a chip. Visual HDL products automate manual design entry 
and verification by enabling IC systems and design engineers to create and 
verify IC designs using familiar graphical paradigms such as block diagrams, 
state machines, flow charts and truth tables, rather than less intuitive 
textual HDL code. Summit's HLDA tools assist an IC engineer from concept to 
synthesis in the shortest period of time and with a design that has been 
analyzed and verified for correctness and optimized for IC speed and or area. 
Visual HDL for VHDL and Verilog has become an industry leader for graphical 
design creation, analysis and IP management for both Workstation and PC based 
IC engineering. The Company's other HLDA tools include simulation analysis 
tools that help the engineer prepare simulation input data, run simulations 
and analyze simulation results. HDL Score allows the engineer to know when 
the simulation process has tested the entire design. V-CPU provides a 
capability that allows a software and hardware engineer to work together at 
design time in a highly efficient co-verification environment and E-Sim 
allows the engineer to verify embedded systems software prior to the 
availability of a hardware prototype.

The Company believes that its products provide the following benefits:

INCREASED DESIGN PRODUCTIVITY

Summit's HLDA products enhance the designers' ability to create, verify and 
document HDL designs while managing the HDL development environment. These 
products provide the ability to capture, analyze and verify a variety of high 
level graphical descriptions and automatically produce a synthesis-ready RTL 
design, thus eliminating the need to perform time-consuming and error-prone 
manual coding in an HDL. These familiar graphical descriptions are more 
easily debugged and more easily communicated among IC engineering team 
members. The descriptions also facilitate review and approval by engineering 
management.

DESIGN REUSE, RE-TARGETING AND CONSISTENCY

The Company's HLDA products enable engineers to use libraries of existing 
VHDL or Verilog code. This code can be used as HDL inputs or automatically 
converted into a graphical format. Due to the widespread ability of engineers 
to understand this graphical format, designs can be more easily modified and 
reused in future developments. In addition, Summit's products can optimize 
the design output for nearly all of the EDA industry's standard synthesis and 
simulation tools. In the event the designer requires a different synthesis or 
simulation tool, the design can be automatically re-targeted to optimize the 
HDL output for the desired tool set. Finally, because each engineer's work is 
implemented using the Company's software, which automatically generates the 
actual HDL code, design efficiency and consistency is maintained even when 
several engineers work on a project.

STRATEGY

The Company's mission is to become the leading supplier of HLDA software and 
to achieve wide-spread acceptance of these technologies by expanding the size 
of the Company's served market. The key objectives of the Company's strategy 
to achieve this mission are as follows:

Accelerate Market Adoption of HLDA

Summit intends to expand market acceptance by focusing on key customer 
accounts to ensure their successful adoption of the HLDA methodology. The 
Company believes that successful adoption by certain key customers in various 
industries will promote adoption by other customers within those industries. 
The Company also believes that its joint development and marketing programs 
with industry leaders promote awareness and adoption of


                                      4
<PAGE>

HLDA. In addition, Summit supports all of the industry's major synthesis, 
simulation, layout and test products and continues to support and complement 
new standards as they emerge. The Company also targets student engineers by 
introducing them to its HLDA products through programs with various 
universities.(1)

LEVERAGE SUMMIT'S HLDA TECHNOLOGY

The Company intends to integrate all of its technology into a design 
environment that focuses on getting an IC engineer from product 
conceptualization through design creation, analysis, verification and 
optimization. This environment will provide the most efficient methodology to 
get a design correct and ready for synthesis. In addition, Summit's HLDA 
software environment includes a complete hardware /software coverification 
capability and the ability for the engineer to create an encrypted software 
model of the synthesized design that can be used by systems and electronic 
product designers long before a hardware prototype is available. The products 
comprising this design environment can be used as a bundled set or 
individually with other analysis, verification and simulation products 
available from other EDA vendors.

BROADEN THE SCOPE OF SUMMIT'S HLDA SOLUTIONS

The Company will continue to identify challenges facing both IC systems 
engineers and IC design engineers in the areas of HLDA and to focus its 
development efforts on products to further increase productivity in the 
creation, analysis, verification, documentation and optimization of single 
function ICs and complete systems on a chip. The Company believes that power, 
timing, thermal and cost constraints management and analog circuit design 
will become increasingly significant bottlenecks, especially in the area of 
complete systems on a chip. Summit believes that in the future its HLDA 
products will provide a graphical means for both systems and design engineers 
to specify the functional intent and simulate the interoperability of 
hardware and software, as well as providing the capability to perform what-if 
analysis on constraints such as power, speed, temperature and cost at the 
front end of the development process.(1)

PRODUCTS

EDA software tools aid electronic engineers in the design of increasingly 
complex products, and the tools provided by EDA suppliers must be 
periodically upgraded to meet the needs of the engineering community. 
Although the core technology and functionality remain essentially the same 
for the life of a product, EDA software tools undergo continual maintenance 
engineering for bug fixes and quality control. This continuation engineering 
is provided to Summit's customers in the form of an upgrade.

The Company attempts to release upgrades for each of its major products on an 
annual basis. The dates of the last upgrades of these major products were the 
fourth quarter of 1997 for Visual HDL and Text to Graphics and the third 
quarter of 1998 for Visual Testbench. In the first quarter of 1998, a 
commercial version of V-CPU, a new product, was released. In the second 
quarter of 1998, HDL Score, a new product, and VirSim 2.2, a substantially 
re-architected product, were released.

Visual HDL, Text to Graphics, Visual Testbench, VirSim and V-CPU all made 
significant contributions to revenue for the year ended December 31, 1998. 
Visual HDL, Text to Graphics and Visual Testbench were also significant 
contributors to revenue in 1997. Substantially all of the revenue 
attributable to sales of Visual Testbench in 1998 and 1997 were pursuant to 
an OEM agreement with Credence Systems Corporation ("CSC"). As of December 
31, 1998, CSC had satisfied its obligation to purchase Visual Testbench 
licenses pursuant to the OEM agreement and the Company does not expect to 
receive any additional revenue from sales of Visual Testbench to CSC. In 
December 1998, CSC obtained shared ownership to the Visual Testbench source 
code and has the right to sell Visual Testbench licenses based on the source 
code received from the Company.

___________________

(1) This paragraph contains forward-looking statements reflecting current 
expectations. There can be no assurance that the Company's actual future 
performance will meet the Company's current expectations. Investors are 
strongly encouraged to review the section entitled "Additional Risk Factors 
That Could Affect Operating Results and Market Price of Stock" commencing on 
page 38 for a discussion of factors that could affect future performance.

                                      5
<PAGE>

Visual HDL for VHDL and Verilog provide system design management, graphical 
design creation, graphical level simulation, HDL code generation and high 
speed compiled simulation. These products are the result of a focused 
five-year development effort of approximately 40 EDA software development 
experts. Visual Testbench allows a design engineer to graphically create 
timing and pattern data to drive the RTL simulation process. This product 
allows the IC designer to "what-if" on timing variables with the goal of 
quickly bringing a design to a substantially bug-free state. As a result of 
the acquisitions of TriQuest, Simtech, and ProSoft, the Company offers 
analysis, verification, and optimization products which include Virtual CPU 
(V-CPU), VirSim, HDL Score, and E-Sim, which provide a design verification 
environment for all RTL designs. Visual IP allows the design engineer to 
create a software model of an RTL design that has high quality graphical 
documentation and can be distributed to other electronic designers to be used 
in IC systems and electronic products long before chips are available. The 
Company's products are constructed using modern software design methods and 
programming languages such as C and C++. The Company's products operate on 
the industry's most popular UNIX workstations and, on PCs running Windows 
3.1, Windows 95 and Windows NT.

Design Solution Products

Visual HDL for VHDL and Visual HDL for Verilog (together, "Visual HDL") are 
graphical creation and analysis solutions designed to simplify and accelerate 
top-down design. Visual HDL can raise productivity by allowing system level, 
behavioral level and functional level design entry using graphical design 
methods such as block diagrams, state machines, flow charts and truth tables. 
As a result, engineers no longer need to textually program their designs in 
lines of VHDL or Verilog code. Once the design is graphically captured, 
Visual HDL can then automatically generate synthesizable HDL code that is 
optimized for specific synthesis tools.

Visual HDL for VHDL uses VHDL as its internal data format and Visual HDL for 
Verilog uses Verilog as its internal data format, allowing both products to 
support all the hardware modeling features of both of these standard HDL 
languages. Competing products typically use proprietary internal languages 
making them more difficult to use because the design engineer must learn an 
additional textual language. Such products do not take full advantage of the 
functionality of VHDL or Verilog, thus limiting the level of integration that 
can be achieved with industry standard simulation and synthesis tools.

The Visual HDL design environment offers several benefits to top-down 
designers, including easier design creation and faster, more complete design 
debugging. Because Visual HDL represents HDL code graphically, designers can 
better communicate their ideas in a much more intuitive manner. This allows 
experienced and novice HDL designers to work together efficiently. Visual HDL 
automatically generates HDL code that is optimized for efficient synthesis. 
It can also import VHDL or Verilog code and automatically generate graphics 
from this source text. Utilizing the graphical representations generated by 
Visual HDL, designers are able to quickly determine the original design 
intent, allowing them to save time by reusing design components in future 
designs. An important aspect of Visual HDL is its graphical simulation and 
debug environment. This environment allows designers to view the path of 
simulation execution and the simulation results. This gives them the 
opportunity to shorten development time by focusing on debugging their 
circuits instead of debugging their HDL code. Visual HDL also provides 
point-and-click functionality which allows engineers to quickly determine the 
cause of a bug by highlighting the specific line of text and the related 
graphical representation where the error exists, thereby significantly 
shortening the time to debug a program.

Text-To-Graphics is now offered as an add-on to Visual HDL. With 
Text-To-Graphics, the user can convert any VHDL or Verilog textual 
description into graphics and control the process by choosing the resultant 
graphical format. Text-To-Block-Diagram now contains the graphic bundling 
feature (as described below). Text-To-State Machine converts VHDL/Verilog 
descriptions into graphical State Diagrams, and the Text-To-Flow Chart 
feature converts textual descriptions of VHDL and Verilog into graphical 
flowcharts.

Visual HDL operates in both VHDL and Verilog on UNIX workstations and on PCs. 
It supports a broad range of HLDA synthesis and simulation products, 
including products from Synopsys, Inc., Mentor Graphics, Cadence, Synplicity 
and Exemplar. Visual HDL for VHDL was first shipped in the first quarter of 
1994, and Visual HDL for Verilog was first shipped in the fourth quarter of 
1995.


                                      6

<PAGE>
As of February 28, 1999, Visual HDL's single seat list price ranged from 
$18,000 to $30,000. The actual price for a system varies depending on the 
duration of the license and the simulation features included. For example, 
because Visual HDL for VHDL generally includes a Summit simulator, its price 
is higher than Visual HDL for Verilog, which uses third party Verilog XL 
simulators. Finally, the Visual HDL price for a floating license commands a 
premium over the node locked version since it offers multi-user flexibility.

Summit introduced Visual IP in 1997, which allows the design engineer to 
create a software model of an RTL design that has high quality documentation 
and can be distributed to other electronic designers to be used in IC systems 
and electronic products long before chips are available. The synthesizable 
design with graphical executable documentation can be placed in libraries for 
reuse or distribution in an encrypted, executable software model format for 
early inclusion in future electronic systems or product design.

Visual Testbench provides a methodology for creating simulation stimulus, 
validating device timing specifications and tying simulation results directly 
to test. Visual Testbench is designed to raise productivity by providing 
graphical timing diagrams, specification spreadsheets and flowcharts for 
simulation stimulus creation. In addition, this product allows the designer 
to check that timing requirements have been met by the simulation. 
Substantially all of the revenue attributable to sales of Visual Testbench in 
1998 and 1997 were pursuant to an OEM agreement with CSC. As of December 31, 
1998, CSC had satisfied its obligation to purchase Visual Testbench licenses 
pursuant to the OEM agreement. In December 1998, CSC obtained shared 
ownership to the Visual Testbench source code and has the right to sell 
Visual Testbench licenses based on the source code received from the Company. 
The Company does not expect to receive any additional revenue from sales of 
Visual Testbench to CSC and cannot predict whether the Company will be able 
to generate customer demand for its Visual Testbench product or the extent to 
which it will realize additional revenue, if any, from its Visual Testbench 
product.(1)

VERIFICATION SOLUTION PRODUCTS

The Company's verification products include Virtual-CPU (V-CPU), VirSim, HDL 
Score, and E-Sim.

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

VirSim provides an integrated set of advanced debug and analysis tools for 
use with the leading Verilog simulators. VirSim is a multi-windowed product 
that makes extensive use of graphics. It provides an advanced graphical debug 
environment that includes multiple debug windows for presenting Verilog 
design and simulation results in different graphical views. Outputs from both 
digital and analog simulation runs are supported and signal values can be 
displayed as digital or analog graphical waveforms. Multiple simulation runs 
can be debugged at the same time, allowing signals from different simulations 
to be compared easily in graphical and analytical formats.

HDL Score provides a quantitative measure of the quality of simulation tests 
that have been applied to an entire design or to user-selected portions of a 
design. Simply stated, HDL Score tells the design engineer when they have 
performed an adequate amount of simulation. HDL Score works with all RTL 
designs and simulation environments and fits seamlessly into the design 
verification process. While using HDL Score prior to synthesis is the most 
productive way of using the tool, HDL Score supports coverage for all levels 
of design and all HDL language implementations.

___________________

(1) This paragraph contains forward-looking statements reflecting current 
expectations. There can be no assurance that the Company's actual future 
performance will meet the Company's current expectations. Investors are 
strongly encouraged to review the section entitled "Additional Risk Factors 
That Could Affect Operating Results and Market Price of Stock" commencing on 
page 38 for a discussion of factors that could affect future performance.

                                      7
<PAGE>

E-Sim is a product which is used by engineers to verify embedded systems
software prior to the availability of a hardware prototype.

The Company's future success depends primarily upon the market acceptance of 
its existing and future HLDA products. The Company's HLDA products 
incorporate certain unique design methodologies and thus represent a 
departure from industry standards for design entry and verification. The 
Company believes that broad market acceptance of its HLDA products will 
depend on several factors, including the ability to significantly enhance 
design productivity, ease of use, interoperability with existing EDA tools, 
price and the customer's assessment of the Company's financial resources and 
its technical, managerial, service and support expertise. Although demand for 
HLDA products has increased in recent years, the market for HLDA products is 
still emerging and there can be no assurance that it will continue to grow or 
that, even if the market does grow, businesses will continue to purchase the 
Company's HLDA products. A decline in the demand for, or the failure to 
achieve broad market acceptance of, the Company's HLDA products will have a 
material adverse effect on the Company's business, financial condition, 
results of operations or cash flows.(1)

CUSTOMERS

The Company's end-user customers include companies in a wide range of 
industries, including semiconductor devices, telecommunications, 
computer/peripherals, consumer electronics, aerospace/defense and other 
electronics entities. In 1998 and 1997, sales to CSC accounted for 25% and 
29% of the Company's total revenue, respectively. In 1996, no single customer 
accounted for more than 10% of total revenue. As of February 28, 1999, the 
Company had installed more than 4,600 seats of its Design tools in more than 
420 companies, of which more than 285 companies had entered into support 
contracts. In addition, as of such date, the Company had licensed more than 
4,500 seats of verification solution tools. The following table lists a 
representative sample of the Company's worldwide end-user customers that 
generated at least $25,000 in revenue for the Company in 1998 or 1997:

<TABLE>
<CAPTION>
                                                   Computer/            Consumer             Aerospace/
Semiconductor Devices    Telecommunications       Peripherals          Electronics            Defense                Other
-----------------------  -------------------  -------------------- --------------------  -------------------  --------------------
<S>                      <C>                  <C>                  <C>                   <C>                  <C>                 
AMD                      3Com                 Compaq               Canon                 L3 Communications    Broadcom Corp.
Chips and Technologies   Alcatel              Cray Research, Inc.  Matsushita            Lockheed-Martin      Credence
Cisco Systems            Bay Networks         Fujitsu              Mitsubishi            Raytheon             Fuji/Xerox
I-Cube                   Bosch                Hewlett-Packard      NEC                   Rockwell             LG Semicon
Level One                Cabletron            Hitachi              Phillips                                   Teradyne
LSI Logic                Ericsson             IBM                  Sharp                                      Xerox
Motorola                 Hitachi              OKI                  Sony                                       Western Digital Corp.
National Semiconductor   Lucent               Quantum
PMC Sierra               Newbridge Networks   Siemens
ST Microelectronics      Nokia                Storagetek
Texas Instruments                             Stratus
                                              Sun Microsystems
</TABLE>

BACKLOG

Summit's backlog was $5.9 million and $7.0 million at December 31, 1998 and
1997, respectively. Such backlog amounts include $5.4 million and $5.7 million
that were reflected in deferred revenue in Summit's financial statements for
December 31, 1998 and 1997, respectively. Backlog consists of orders for which
Summit has received a firm purchase order for products that are currently
shippable, maintenance and support contracts that are expected to be completed
within one year, orders for customer training services that are expected to be
completed within one year, prepaid exclusivity fees that are expected to be
recognized within one year, and shipments made subject to conditions that are
expected to be satisfied within one year. In addition to the backlog amounts
reflected above, at December 31, 1997, Summit had the right to ship up to a
maximum of 

---------------------
(1) This paragraph contains forward-looking statements reflecting current 
expectations. There can be no assurance that the Company's actual future 
performance will meet the Company's current expectations. Investors are 
strongly encouraged to review the section entitled "Additional Risk Factors 
That Could Affect Operating Results and Market Price of Stock" commencing on 
page 38 for a discussion of factors that could affect future performance.

                                       8
<PAGE>
$8.8 million of Visual Testbench licenses during 1998 to CSC pursuant to a 
contract with CSC. During 1998, all obligations pursuant to the contract with 
CSC were satisfied such that, at December 31, 1998, CSC had no further 
obligation to purchase Visual Testbench licenses. There can be no assurance 
that third-parties to such commitments will not terminate or breach their 
obligations or that products will not be returned, and thus there can be no 
assurance that such revenue will be recognized in fiscal 1999 or in any 
period thereafter.

Marketing and Sales

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

The Company's sales strategy is to employ its direct sales as well as its 
independent and affiliated distributors to efficiently and effectively target 
individual customer and product market segments. As of December 31, 1998, the 
Company had 54 employees in its sales organization and 7 employees in its 
marketing group.

DIRECT SALES

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

The Company's direct sales force operates in the United States and portions 
of Europe, with offices in Arizona, California, Colorado, Florida, Maryland, 
Massachusetts, Minnesota, Oregon and Texas, as well as France, Germany, Italy 
and the United Kingdom. Approximately 77%, 71% and 54% of the Company's 
revenue for the years ended December 31, 1998, 1997 and 1996, respectively, 
were generated through Summit's direct sales force.

DISTRIBUTORS

The Company currently relies on distributors to promote and distribute its 
products in the Asia-Pacific region and in Denmark, The Netherlands and 
Sweden. Approximately 23%, 29% and 46% of the Company's revenue in the years 
ended December 31, 1998, 1997 and 1996, respectively, were attributable to 
sales made through distributors. The Company has also entered into an 
agreement with Anam S&T Co. Ltd. ("Anam") pursuant to which the joint venture 
corporation (Summit Asia Ltd., Inc. ("Summit Asia")) acquired exclusive 
rights to sell, distribute and support all of the Company's products in the 
Asia Pacific region, excluding Japan. Prior to that date, Anam was an 
independent distributor of Summit's products in Korea. In April 1998, Summit 
Asia, which is headquartered in Korea, was renamed Asia Design Corporation 
("ADC"). In May 1998, Summit exchanged a portion of its ownership in ADC for 
ownership in another company located in Hong Kong, Summit Design Asia, Ltd. 
("SDA"). SDA also acquired an equity investment in ADC. In June 1998, Summit 
and Anam each loaned SDA $750,000, which is guaranteed by ADC. SDA acquired 
from ADC the exclusive rights to sell, distribute and support Summit's 
products in the Asia Pacific region, excluding Japan. In February 1996, 
Summit entered into a three year, exclusive distribution agreement for its 
HLDA products in Japan with Seiko. The agreement is renewable for successive 
five-year terms by mutual agreement of Summit and Seiko and terminable by 
either party for breach. The agreement was renewed for an additional 
five-year term which began in February 1999. In the event Seiko fails to meet 
specified quotas for two or more quarterly periods, exclusivity can be 
terminated by Summit, subject to Seiko's right to pay a specified fee to 
maintain exclusivity. Sales through Seiko accounted for 

                                       9
<PAGE>

14%, 12%, and 15% of Summit's total revenue for the years ended December 31, 
1998, 1997, and 1996, respectively. There can be no assurance the 
relationships with SDA, ADC and Seiko will be effective in maintaining or 
increasing sales relative to the levels experience prior to such 
relationships. Summit also has independent distributors in Europe and is 
dependent on the continued viability and financial stability of these 
distributors.

The Company's reliance on distributors involves certain risks. For example, 
the Company is dependent on the continued viability and financial stability 
of its distributors. Since the Company's products are used by skilled design 
engineers, distributors must possess sufficient technical, marketing and 
sales resources and must devote these resources to a lengthy sales cycle, 
customer training and product service and support. Only a limited number of 
distributors possess these resources. In addition, Summit Asia, ADC, and 
Seiko, as well as the Company's other distributors, may offer products of 
several different companies, including competitors of the Company. There can 
be no assurance that the Company's current distributors will continue to 
market or service and support the Company's products effectively, that any 
distributor will continue to sell the Company's products or that the 
distributors will not devote greater resources to products of other 
companies. The loss of, or a significant reduction in, revenue from the 
Company's distributors could have a material adverse effect on the Company's 
business, financial condition, results of operations or cash flows.

INTERNATIONAL SALES

Approximately 36%, 34% and 50% of the Company's revenue for the years ended 
December 31, 1998, 1997 and 1996, respectively, were attributable to sales 
made outside of the United States which includes the Asia Pacific region and 
Europe. Approximately 22%, 22% and 34% of the Company's revenue for the years 
ended December 31, 1998, 1997 and 1996, respectively, were attributable to 
sales made in the Asia Pacific region and approximately 14%, 12% and 16% of 
the Company's revenue for the years ended December 31, 1998, 1997 and 1996, 
respectively, were attributable to sales made in Europe. In order to 
successfully expand international sales, the Company may need to establish 
additional foreign operations, hire additional personnel and recruit 
additional international distributors. This will require significant 
management attention and financial resources and could adversely affect the 
Company's operating margins. In addition, to the extent that the Company is 
unable to effect these additions in a timely manner, the Company's growth, if 
any, in international sales will be limited. There can be no assurance that 
the Company will be able to maintain or increase international sales of the 
Company's products, and failure to do so could have a material adverse effect 
on the Company's business, financial condition, results of operations or cash 
flows. In addition, financial markets and economies in the Asia Pacific 
region have been experiencing adverse economic conditions. Demand for and 
sales of Summit's products in the Asia Pacific region have decreased and 
there can be no assurance that such economic conditions will not worsen or 
that demand for and sales of Summit's products in such region will not 
further decrease.

CUSTOMER SERVICES

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

In addition to its maintenance, technical support and upgrade fees, the 
Company also conducts a variety of training programs ranging from 
introductory level courses to advanced training on full use of all of its 
products. Training is offered at the Company's facilities, at distributors' 
facilities and at customer locations worldwide. For the years ended December 
31, 1998, 1997 and 1996, maintenance and services provided approximately 22%, 
20% and 21% of the Company's total revenue, respectively.

COMPETITION

                                       10

<PAGE>

The EDA industry is highly competitive and the Company expects competition to 
increase as other EDA companies introduce HLDA products. The Company 
principally competes with Mentor Graphics and a number of smaller firms. 
Indirectly, the Company also competes with other firms that offer 
alternatives to HLDA and could potentially offer more directly competitive 
products in the future. Certain of these companies have significantly greater 
financial, technical and marketing resources and larger installed customer 
bases than the Company. Some of the Company's current and future competitors 
offer a more complete range of EDA products and may distribute products that 
directly compete with the Company's HLDA products by bundling such products 
with their core product line. In addition, the Company's products perform a 
variety of functions, certain of which are, and in the future may be, offered 
as separate products or discrete point solutions by the Company's existing 
and future competitors. For example, certain companies currently offer design 
entry products without simulators. There can be no assurance that such 
competition will not cause the Company to offer point solutions instead of, 
or in addition to, the Company's current software products. Such point 
solutions would be priced lower than the Company's current product offerings 
and could cause the Company's average selling prices to decrease, which could 
have a material adverse effect on the Company's business, financial 
condition, results of operations or cash flows. The Company competes on the 
basis of certain factors including product capabilities, product performance, 
price, support of industry standards, ease of use, first to market and 
customer technical support and service. The Company believes that it competes 
favorably overall with respect to these factors. However, in particular 
cases, the Company's competitors may offer HLDA products with functionality 
which is sought by the Company's prospective customers and which differs from 
that offered by the Company. In addition, certain competitors may achieve a 
marketing advantage by establishing formal alliances with other EDA vendors. 
Further, the EDA industry in general has experienced significant 
consolidation in recent years, and the acquisition of one of the Company's 
competitors by a larger, more established EDA vendor could create a more 
significant competitor. There can be no assurance that the Company will be 
able to compete successfully against current and future competitors or that 
competitive pressures faced by the Company will not have a material adverse 
effect on its business, financial condition, results of operations or cash 
flows. There can be no assurance that the Company's current and future 
competitors will not be able to develop products comparable or superior to 
those developed by the Company or to adapt more quickly than the Company to 
new technologies, evolving industry trends or customer requirements. 
Increased competition could result in price reductions, reduced margins and 
loss of market share, all of which could have a material adverse effect on 
the Company's business, financial condition, results of operations or cash 
flows.

PRODUCT DEVELOPMENT

Development of HLDA products has been performed at the Company's offices in 
Israel and at the Company's principal office in Beaverton, Oregon. As the 
result of the acquisitions of TriQuest and SimTech during 1997 and ProSoft in 
1998, the Company has added additional research and development facilities in 
San Jose, California, New Brighton, Minnesota, and Finland. As of December 
31, 1998, the Company's research and development team consisted of 92 
software developers, dedicated to the Company's products.

For the years ended December 31, 1998, 1997, and 1996, the Company's research 
and development expenditures were approximately $13.0 million, $7.7 million, 
and $5.9 million, respectively, which represented approximately 30%, 25%, and 
29% of revenue in each such period. The Company has to date expensed all 
research and development costs as incurred. The Company's $13.0 million 
expenditure in 1998 and $7.7 million expenditure in 1997 included $3.7 
million and $733,000 of compensation expense, respectively. In connection 
with the Company's acquisition of SimTech in September 1997, the Company
recorded a total of $4.4 million of compensation expense for shares issued 
as part of the acquisition which were contingent upon continued employment 
and were being expensed as the employment obligation lapsed. See 
"Management's Discussion and Analysis of Financial Condition and Results of 
Operations." Summit's research and development strategy is to be proactive in 
determining customer needs and to develop new HLDA products to meet these 
needs. The Company believes that system-level definition and design analysis 
will become increasingly significant bottlenecks in the IC development 
process and thus present product development opportunities. The Company's 
research and development efforts are focused on creating products to further 
increase productivity in the creation, verification, documentation and the 
preservation of both IC and system level designs.

The Company has actively sought to establish cooperative relationships with 
certain EDA industry leaders in order to gain early access to new product 
information and to better integrate the Company's products with those 

                                       11

<PAGE>

supplied by other vendors in the EDA market. For example, the Company has a 
relationship with Cadence pursuant to which Cadence helps specify the 
integration between Summit's Visual HDL for Verilog and Cadence Verilog XL 
simulator. The Company believes that these relationships mutually benefit the 
Company and the EDA vendors by fostering development and facilitating 
interoperability of the Company's and vendors' complimentary products. These 
relationships are informal and may be terminated by either party with limited 
notice. In addition, such relationships are with companies that are current 
or potential future competitors of the Company. If any of these relationships 
were terminated and the Company was unable to obtain in a timely manner 
information regarding modifications of third party products necessary for 
modifying its software products to interoperate with these third party 
products, the Company could experience a significant increase in development 
costs, the development process would take longer, product introductions would 
be delayed and the Company's business, financial condition, results of 
operations or cash flows could be materially adversely affected. The EDA 
industry is characterized by extremely rapid technological change, frequent 
new product introductions and evolving industry standards. The introduction 
of products embodying new technologies and the emergence of new industry 
standards can render existing products obsolete and unmarketable. In 
addition, customers in the EDA industry require software products that allow 
them to reduce time to market, differentiate their products, improve their 
engineering productivity and reduce their design errors. The Company's future 
success will depend upon its ability to enhance its current products, develop 
and introduce new products that keep pace with technological developments and 
emerging industry standards and address the increasingly sophisticated needs 
of its customers. There can be no assurance that the Company will be 
successful in developing and marketing product enhancements or new products 
that respond to technological change or emerging industry standards, that the 
Company will not experience difficulties that could delay or prevent the 
successful development, introduction and marketing of these products, or that 
its new products will adequately meet the requirements of the marketplace and 
achieve market acceptance. If the Company is unable, for technological or 
other reasons, to develop and introduce products in a timely manner in 
response to changing market conditions, industry standards or other customer 
requirements, particularly if such product releases have been pre-announced, 
the Company's business, financial condition, results of operations or cash 
flows would be materially adversely affected.

Software products as complex as those offered by the Company may contain 
errors that may be detected at any point in the products' life cycles. The 
Company has in the past discovered software errors in certain of its products 
and has experienced delays in shipment of products during the period required 
to correct these errors. There can be no assurance that, despite testing by 
the Company and by current and potential customers, errors will not be found, 
resulting in loss of, or delay in, market acceptance and sales, diversion of 
development resources, injury to the Company's reputation or increased 
service and warranty costs, any of which could have a material adverse effect 
on the Company's business, financial condition, results of operations or cash 
flows.

PROPRIETARY RIGHTS

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

The Company provides its products to end-users primarily under "shrink-wrap" 
license agreements included within the packaged software. In addition, the 
Company delivers certain of its verification products electronically under an 
electronic version of a "shrink-wrap" license agreement. These agreements are 
not negotiated with or signed by the licensee, and thus may not be 
enforceable in certain jurisdictions. In addition, the laws of some foreign 
countries do not protect the Company's proprietary rights as fully as do the 
laws of the United States. There can be no assurance that the Company's means 
of protecting its proprietary rights in the United States or abroad will be 
adequate or that competitors will not independently develop similar 
technology. The Company could be increasingly subject to infringement claims 
as the number of products and competitors in the Company's industry segment 
grows, the functionality of products in its industry segment overlaps and an 
increasing number 

                                       12

<PAGE>

of software patents are granted by the United States Patent and Trademark 
Office. Although the Company is not aware of any threatened litigation or 
infringement claims, there can be no assurance that a third party will not 
claim such infringement by the Company with respect to current or future 
products. Any such claims, with or without merit, could be time-consuming, 
result in costly litigation, cause product delays or require the Company to 
enter into royalty or licensing agreements. Such royalty or license 
agreements, if required, may not be available on terms acceptable to the 
Company or at all. Failure to protect its proprietary rights or claims of 
infringement could have a material adverse effect on the Company's business, 
financial condition, results of operations or cash flows.

OPERATIONS IN ISRAEL

The Company's research and development operations related to its Visual HDL 
products are located in Israel and may be affected by economic, political and 
military conditions in that country. Accordingly, the Company's business, 
financial condition, results of operations or cash flows could be materially 
adversely affected if hostilities involving Israel should occur. This risk is 
heightened due to the restrictions on the Company's ability to manufacture or 
transfer outside of Israel any technology developed under research and 
development grants from the government of Israel as described in "--Israeli 
Research, Development and Marketing Grants." In addition, while all of the 
Company's sales are denominated in U.S. dollars, a portion of the Company's 
annual costs and expenses in Israel are paid in Israeli currency. These costs 
and expenses were approximately $5.2, $4.7 and $4.3 million in 1998, 1997 and 
1996, respectively. Payment in Israeli currency subjects the Company to 
foreign currency fluctuations and to economic pressures resulting from 
Israel's generally high rate of inflation, which has been approximately 9%, 
7% and 11% during 1998, 1997, and 1996, respectively. The Company's primary 
expense which is paid in Israeli currency is employee salaries for research 
and development activities. As a result, an increase in the value of Israeli 
currency in comparison to the U.S. dollar could increase the cost of research 
and development expenses and general and administrative expenses. There can 
be no assurance that currency fluctuations, changes in the rate of inflation 
in Israel or any of the other aforementioned factors will not have a material 
adverse effect on the Company's business, financial condition, results of 
operations or cash flows. In addition, coordination with and management of 
the Israeli operations requires the Company to address differences in 
culture, regulations and time zones. Failure to successfully address these 
differences could be disruptive to the Company's operations.

The Company's Israeli production facility has been granted the status of an 
"Approved Enterprise" under the Israeli Investment Law for the Encouragement 
of Capital Investments, 1959 (the "Investment Law"). Taxable income of a 
company derived from an "Approved Enterprise" is eligible for certain tax 
benefits, including significant income tax rate reductions for up to seven 
years following the first year in which the "Approved Enterprise" has Israeli 
taxable income (after using any available net operating losses). The period 
of benefits cannot extend beyond 12 years from the year of commencement of 
operations or 14 years from the year in which approval was granted, whichever 
is earlier. The tax benefits derived from a certificate of approval for an 
"Approved Enterprise" relate only to taxable income attributable to such 
"Approved Enterprise" and are conditioned upon fulfillment of the conditions 
stipulated by the Investment Law, the regulations promulgated thereunder and 
the criteria set forth in the certificate of approval. In the event of a 
failure by the Company to comply with these conditions, the tax benefits 
could be canceled, in whole or in part, and the Company would be required to 
refund the amount of the canceled benefits, adjusted for inflation and 
interest. No "Approved Enterprise" tax benefits had been realized by Summit 
from its Israeli operations as of December 31, 1995 since the Israeli 
operations were still incurring losses at that time. During 1996, Summit 
realized income of $1.4 million from its Israeli operations and "Approved 
Enterprise" tax benefits of $53,000. During 1997, Summit realized income of 
$2.7 million from its Israeli operations and "Approved Enterprise" tax 
benefits of $702,000. During 1998, Summit realized income of $4.3 million 
from its Israeli operations and "Approved Enterprise" tax benefits of 
$1.9 million. Summit has recently applied for "Approved Enterprise" status with 
respect to a new project and intends to apply in the future with respect to 
additional projects. However, there can be no assurance that Summit's Israeli 
production facility will continue to operate or qualify as an "Approved 
Enterprise" or that the benefits under the "Approved Enterprise" regulations 
will continue, or be applicable, in the future. Management of Summit intends 
to permanently reinvest earnings of the Israeli subsidiary outside the U.S. 
If such earnings were remitted to the U.S., additional U.S. federal and 
foreign taxes may be due. The loss of, or any material decrease in, these 
income tax benefits could have a material adverse effect on Summit's 
business, financial condition, results of operations or cash flows.

                                       13

<PAGE>

ISRAELI RESEARCH, DEVELOPMENT AND MARKETING GRANTS

Summit's Israeli subsidiary obtained research and development grants from the 
Office of the Chief Scientist (the "Chief Scientist") in the Israeli Ministry 
of Industry and Trade of approximately $232,000 and $608,000 in 1993 and 
1995, respectively. As of December 31, 1997, all amounts have been repaid. 
The terms of the grants prohibit the manufacture of products developed under 
these grants outside of Israel and the transfer of the technology developed 
pursuant to these grants to any person, without the prior written consent of 
the Chief Scientist. The Company's Visual HDL for VHDL products have been 
developed under grants from the Chief Scientist and thus are subject to these 
restrictions. If the Company is unable to obtain the consent of the 
government of Israel, the Company would be unable to take advantage of 
potential economic benefits such as lower taxes, lower labor and other 
manufacturing costs and advanced research and development facilities that may 
be available if such technology and manufacturing operations could be 
transferred to locations outside of Israel. In addition, the Company would be 
unable to minimize risks particular to operations in Israel, such as 
hostilities involving Israel. Although the Company is eligible to apply for 
additional grants from the Chief Scientist, it has no present plans to do so. 
The Company received a Marketing Fund Grant from the Israeli Ministry of 
Industry and Trade for an aggregate of $423,000. The grant must be repaid at 
the rate of 3% of the increase in exports over the 1993 export level of all 
Israeli products, until repaid. As of December 31, 1998, approximately 
$187,000 was outstanding under the grant.

EMPLOYEES

As of December 31, 1998, the Company had 199 employees, 112 of whom were 
engaged primarily in research and development and related operations, 61 of 
whom were engaged primarily in sales and marketing and 26 of whom were 
engaged primarily in corporate management and administration. A total of 121 
of these employees were located in the United States, 60 in Israel and 18 in 
Europe. The Company's employees are not represented by any collective 
bargaining organization and the Company has never experienced a work 
stoppage. The Company's future success will depend, in part, on its ability 
to continue to attract, retain and motivate highly qualified technical, 
marketing and management personnel, who are in great demand.

                                       14
<PAGE>

ITEM 2.    PROPERTIES

The Company's principal facility, located in Beaverton, Oregon, consists of 
approximately 31,000 square feet of office space leased pursuant to an 
agreement which terminates on December 31, 1999. The rent and common area 
fees payable on this facility are currently approximately $28,000 per month. 
This space is used for the Company's U.S. research and development, 
production, sales and marketing and administration. The Company also leases 
approximately 12,000 square feet of office space in Herzlia, Israel for 
research and development pursuant to a lease that expires on December 8, 
2003 with an option to renew for five years. The rent payable on this office 
space is currently $24,650 per month.

Additionally, the Company leases approximately 9,300 square feet of office 
space in San Jose, California and 5,000 square feet in New Brighton, 
Minnesota for research and development and sales activities. The aggregate 
rent payable for both facilities is currently approximately $35,000 per 
month, and the leases expire in October 2003 and June 1999, respectively.

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

The Company expects that its current facilities will be adequate to serve its 
needs for the foreseeable future.(2)

ITEM 3.    LEGAL PROCEEDINGS

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

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

None

-------------------------
(2) This sentence is a forward-looking statement reflecting current 
expectations. There can be no assurance that the Company's actual future 
performance will meet the Company's current expectations. Investors are 
strongly encouraged to review the section entitled "Additional Risk Factors 
That Could Affect Operating Results and Market Price of Stock" commencing on 
page 38 for a discussion of factors that could affect future performance.

                                       15
<PAGE>

EXECUTIVE OFFICERS OF THE COMPANY

The executive officers and directors of the Company and their ages as of 
March 19, 1999 are as follows:

<TABLE>
<CAPTION>
      Name                                   Age                   Position
      ----                                   ---      ----------------------------------------------------
<S>                                          <C>      <C>
Larry J. Gerhard....................         58       Chairman of the Board and Chief Executive Officer
Richard Davenport..................          54       President and Chief Operating Officer
C. Albert Koob......................         44       Vice President--Finance, Chief Financial Officer
                                                      and Secretary
Moshe Guy...........................         41       Vice  President, General Manager and Chief Operating
                                                      Officer Design Solutions Division
Eric Benhayoun......................         45       Vice President, General Manager--European Operations
Sharon L. Beelart..................          51       Corporate Controller
Arthur Fletcher.....................         34       Treasurer and Director of Investor Relations
</TABLE>

Mr. Gerhard has served as Chief Executive Officer and Director of the Company 
since January 1993 and was elected Chairman of the Board in May 1996. Mr. 
Gerhard was President of the Company from January 1993 to February 1999. The 
Company currently expects that Mr. Gerhard will retire at the end of 1999(3).
From November 1991 to November 1992, Mr. Gerhard was the President and Chief
Executive Officer of Enterprise Communications and Computing Inc., a
communications products provider for the Unix-based virtual mainframe market.
Mr. Gerhard was the President and Chief Executive Officer of Ventura Software,
Inc., a desktop publishing company and a wholly-owned subsidiary of Xerox
Corporation from November 1989 to November 1991. Prior to that time,
Mr. Gerhard was employed for nine years with Decision Data, Inc., a supplier 
of peripherals and applications software for IBM System 3X and AS400, 
including the last three years as President and Chief Executive Officer.

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

Mr. Koob has served as Vice President--Finance and Chief Financial Officer 
since October 1995 and Secretary since May 1996. From October 1989 to April 
1994, Mr. Koob was the Vice President and Chief Financial Officer of Ventura 
Software, Inc. Mr. Koob was the Vice President and General Manager of 
Decision Business Solutions, an IBM midrange system reseller, from 1987 to 
1989. Prior to 1987, Mr. Koob held various senior level financial management 
positions with technology companies.

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

Mr. Benhayoun has served as Vice President, General Manager--European 
Operations since June 1996 and as Vice President--European Sales Operations 
from November 1994 to June 1996. From June 1994 to November 1994, Mr. 
Benhayoun was the European Marketing Manager for the Modeling Product 
Division of Synopsys. From March 1990 to June 1994, Mr. Benhayoun was the 
General Manager and Director of Logic Modeling Corporation France, an SDA 
provider which was acquired by Synopsys in January 1994. Prior to that time, 
he 

                                       16

(3) This statement is a forward-looking statement reflecting current 
expectations.  There can be no assurance that Mr. Gerhard will continue his 
employment with the Company until December 31, 1999.

<PAGE>

held various European sales and marketing management positions with Cadnetix 
Corporation and Daisy Systems, each an EDA supplier.

Ms. Beelart has served as Corporate Controller since December 1996. From 
April 1992 to December 1996, Ms. Beelart worked independently as a CPA and 
financial consultant, serving from April 1996 to December 1996 with Summit. 
From June 1986 to April 1992, Ms. Beelart served as the Chief Financial 
Officer of Sierra Detroit Diesel Allison, Inc., a $40 million distribution 
company in the San Francisco Bay Area. From January 1978 to June 1986, Ms. 
Beelart held various positions including audit manager with 
PricewaterhouseCoopers LLP.

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

                                       17
<PAGE>

                                     PART II


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

The Company's Common Stock commenced trading on the Nasdaq National Market 
under the trading symbol SMMT on October 18, 1996. The price for the Common 
Stock as of the close of business on March 19, 1999 was $3.563 per share. As 
of March 19, 1999, the Company had approximately 173 stockholders of record.

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

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


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

1999:               First Quarter (through March 19, 1999)...................................$ 9.6250             $ 3.250
</TABLE>

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

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

                                       18
<PAGE>

ITEM 6.    SELECTED FINANCIAL DATA


The following selected financial data relating to the Company should be read 
in conjunction with the Company's consolidated financial statements and the 
related notes thereto, "Management's Discussion and Analysis of Financial 
Condition and Results of Operations" and the other financial information 
included herein. The selected financial data set forth below for the Company 
as of December 31, 1998 and 1997 and for each of the three years in the 
period ended December 31, 1998 are derived from the audited financial 
statements included elsewhere herein. The selected financial data set forth 
below for the Company as of and for the years ended December 31, 1994, 1995 
and 1996 are derived from the financial statements not included elsewhere 
herein.

<TABLE>
<CAPTION>
                                                                       Years Ended December 31,
                                                 -------------------------------------------------------------------
                                                       1998         1997          1996           1995         1994
                                                 -------------------------------------------------------------------
                                                                (in thousands, except per share data)
<S>                                               <C>           <C>           <C>            <C>           <C>
Statement of Operations Data:
Revenue:
   Product licenses.......................           $33,589       $24,828       $15,446        $10,604        $9,327

   Maintenance and services...............             9,642         6,161         4,301          2,637         2,323

   Other..................................               367           450           567          1,051         1,517
                                                  ----------    ----------    ----------     ----------    ----------
     Total revenue........................            43,598        31,439        20,314         14,292        13,167

Cost of revenue
   Product licenses.......................               744           701           573            651           681

   Maintenance and services...............               955           632           466            400           390

   Amortization of purchased technologies.               661           219
                                                  ----------    ----------    ----------     ----------    ----------
     Total cost of revenue................             2,360         1,552         1,039          1,051         1,071

                                                  ----------    ----------    ----------     ----------    ----------
   Gross profit...........................            41,238        29,887        19,275         13,241        12,096

Operating expenses:
   Research and development...............            13,042         7,749         5,867          5,447         4,751

   Sales and marketing....................            11,713        10,591         9,319          7,547         5,947

   General and administrative.............             4,398         3,785         3,188          3,286         2,326

   Amortization of intangibles and goodwill            2,791           942            --             --            --
   Non-recurring charges..................             1,249(1)        379(1)         --             --            --
   In-process technology..................                --        11,689            --             --           647
                                                  ----------    ----------    ----------     ----------    ----------
     Total operating expenses.............            33,193        35,135        18,374         16,280        13,671

                                                  ----------    ----------    ----------     ----------    ----------
Income (loss) from operations.............             8,045        (5,248)          901         (3,039)       (1,575)

Other income (expense), net...............             1,093         6,619(2)        117           (172)         (103)
                                                  ----------    ----------    ----------     ----------    ----------
Income (loss) before income taxes.........             9,138         1,371         1,018         (3,211)       (1,678)

Income tax provision (benefit)............             4,037           940          (245)           400           404
                                                  ----------    ----------    ----------     ----------    ----------
Net income (loss).........................            $5,101          $431        $1,263        $(3,611)      $(2,082)
                                                  ----------    ----------    ----------     ----------    ----------
                                                  ----------    ----------    ----------     ----------    ----------
Net income (loss) per diluted share ......            $ 0.32         $0.03         $0.10         $(0.33)       $(0.22)
                                                  ----------    ----------    ----------     ----------    ----------
                                                  ----------    ----------    ----------     ----------    ----------
Number  of  shares  used  in  per  diluted  share
calculation ..............................            16,115        15,402        13,243         11,085         9,449
</TABLE>
                                       19
<PAGE>

<TABLE>
<CAPTION>
                                                                             December 31,
                                                  ------------------------------------------------------------------
                                                      1998         1997          1996           1995          1994
                                                  ----------    ----------    ----------     ----------    ----------
                                                                                     (in thousands)
<S>                                               <C>           <C>           <C>            <C>           <C>
Balance Sheet Data:
   Cash and cash equivalents..............          $ 27,693       $19,973       $19,801           $711        $1,203

   Working capital(deficit)...............            24,255        14,603        17,236           (540)         (439)

   Total assets...........................            50,210        39,670        28,700          9,151         8,097

   Long-term obligations, less current portion           791         1,224           916          1,462           743

   Total stockholders' equity ............            35,475        26,196        19,151            548         1,224
</TABLE>

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

(1)  Non-recurring charges relate to costs associated with mergers and 
acquisitions. During 1997, the Company incurred $379,000 in costs relating to 
the TriQuest acquisition. During 1998, the Company incurred $227,000 in costs 
relating to the ProSoft acquisition and approximately $1.0 million related to 
the terminated acquisition of OrCAD.

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

                                       20

<PAGE>

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

IMPORTANT NOTE ABOUT FORWARD LOOKING STATEMENTS

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

OVERVIEW

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

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

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

Revenue consists primarily of fees for licenses of the Company's software 
products, maintenance and customer training. Product license revenue is 
derived from the sale of software licenses to distributors and end-users. 
Revenue from the sale of software licenses is recognized upon shipment of the 
product if remaining 

                                       21

<PAGE>

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

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

Summit entered into a joint venture with Anam, effective April 1, 1996, 
pursuant to which the joint venture corporation (Summit Asia, Ltd. ("Summit 
Asia")) acquired exclusive rights to sell, distribute and support all of 
Summit's products in the Asia-Pacific regions, excluding Japan. Prior to that 
date, Anam was an independent distributor of Summit's products in Korea. In 
April 1998, the joint venture corporation, Summit Asia, which is 
headquartered in Korea, was renamed Asia Design Corporation ("ADC"). In May 
1998, Summit exchanged a portion of its ownership in ADC for ownership in 
another company located in Hong Kong, Summit Design Asia, Ltd. ("SDA"). SDA 
also acquired an equity investment in ADC. In June 1998, Summit and Anam each 
loaned SDA $750,000, which is guaranteed by ADC. SDA acquired from ADC the 
exclusive rights to sell, distribute and support Summit's products in Asia 
Pacific region, excluding Japan. SDA granted distribution rights to Summit's 
products to ADC for the Asia Pacific region, excluding Japan. For the year 
ended December 31, 1998 and 1997, sales through SDA and ADC combined 
accounted for 1.7% and 1.9% of Summit's revenue, respectively.

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

Approximately 36%, 34% and 50% of the Company's total revenue for the years 
ended December 31, 1998, 1997 and 1996, respectively, were attributable to 
sales made outside the United States which includes the Asia Pacific region 
and Europe. Approximately 22%, 22% and 34% of the Company's revenue for the 
years ended December 31, 1998, 1997 and 1996, respectively, were attributable 
to sales made in the Asia Pacific region and approximately 14%, 12% and 16% 
of the Company's revenue for the years ended December 31, 1998, 1997 and 
1996, respectively, were attributable to sales made in Europe. The decline in 
the percentage of revenue from sales made outside the United States in 1998 
and 1997 is primarily the result of (1) domestic sales to CSC, (2) the loss 
of Design to Test product sales in the last half of 1997 as a result of the 
sale of the product line, which had a strong international market, and (3) 
the addition of revenue from products acquired in the SimTech acquisition 
which had a principally domestic market. The Company expects that 
international revenue will continue to represent a significant portion of its 
total revenue. The Company's international revenue is currently denominated 
in U.S. dollars. As a result, increases in the value of the U.S. dollar 
relative to foreign currencies could make the Company's products more 
expensive and, therefore, potentially less competitive in those markets. The 
Company pays the expenses of its international operations in local currencies 
and does not engage in hedging transactions with respect to such obligations. 
International sales and operations are subject to 

                                       22

<PAGE>

numerous risks, including tariff regulations and other trade barriers, 
requirements for licenses, particularly with respect to the export of certain 
technologies, collectability of accounts receivable, changes in regulatory 
requirements, difficulties in staffing and managing foreign operations and 
extended payment terms. In addition, financial markets and economies in the
Asia Pacific region have been experiencing adverse economic conditions. 
Demand for and sales of Summit's products in the Asia Pacific region have 
decreased and, there can be no assurance that economic conditions will not 
worsen or that demand for and sales of Summit's products in such region will 
not further decrease.(1)

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

Effective July 1, 1997 the Company sold substantially all of the assets used 
in its business of developing and marketing its Test Development Series "TDS" 
Products (the "Asset Sale") to CSC. The increase in the Company's product 
licenses revenue during the last twelve months has been primarily due to 
increased revenue associated with the Company's HLDA products. Substantially 
all of Summit's Design to Test product license revenue and related 
maintenance and services revenue for the nine months ended September 30, 1997 
were attributable to the TDS products. As of July 1, 1997, TDS products 
ceased to be a source of such revenues. CSC assumed Summit's obligations 
under TDS maintenance contracts entered into prior to the closing and Summit 
has not recognized deferred revenue associated with such contracts since June 
30, 1997.

The Company maintained exclusive rights to its Visual Testbench technology 
and CSC agreed to purchase a minimum of $16 million of Visual Testbench 
licenses over a thirty-month period beginning July 1997, subject to specified 
quarterly maximums and certain additional conditions, and $2 million of 
maintenance over an eighteen month period beginning July 1997. In December 
1998, the Company and CSC agreed to amend the OEM agreement and as of 
December 31, 1998, CSC had satisfied its obligation to purchase $16.0 million
of Visual Testbench licenses. CSC also obtained shared ownership of the Visual
Testbench source code in December 1998 and has the right to sell Visual 
Testbench licenses based on the source code received from the Company.

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

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

---------------------
(1) This paragraph contains forward-looking statements reflecting current 
expectations. There can be no assurance that the Company's actual future 
performance will meet the Company's current expectations. Investors are 
strongly encouraged to review the section entitled "Additional Risk Factors 
That Could Affect Operating Results and Market Price of Stock" commencing on 
page 38 for a discussion of factors that could affect future performance.

                                       23

<PAGE>

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

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

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

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

                                       24

<PAGE>

RESULTS OF OPERATIONS

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

Income statement data:

<TABLE>
<CAPTION>
                                                                           Years Ended December 31,
                                                                --------------------------------------------------
                                                                    1998                1997               1996
                                                                --------------------------------------------------
<S>                                                             <C>                <C>                <C>
Revenue:
     Product licenses..................................             77.1%               79.0%              76.0%
     Maintenance and services..........................             22.1                19.6               21.2
     Other   ..........................................              0.8                 1.4                2.8
                                                                -----------        ------------       ------------
          Total revenue................................            100.0               100.0              100.0
Cost of revenue:                                                                                       
     Product licenses..................................              1.7                 2.2                2.8
     Maintenance and services..........................              2.2                 2.0                2.3
     Amortization of purchased technologies                          1.5                 0.7                  -
                                                                -----------        ------------       ------------
          Total cost of revenue........................              5.4                 4.9                5.1
                                                                -----------        ------------       ------------
          Gross profit.................................             94.6                95.1               94.9
Operating expenses:                                                                                    
     Research and development..........................             29.9                24.7               28.9
     Sales and marketing...............................             26.8                33.7               45.9
     General and administrative........................             10.1                12.0               15.7
     Amortization of intangibles and goodwill..........              6.4                 3.0                  -
     Non  recurring charges............................              2.9(a)              1.2(a)               -
     In-process technology.............................                -                37.2                  -
                                                                -----------        ------------       ------------
          Total operating expenses.....................             76.1               111.8               90.5
                                                                -----------        ------------       ------------
Income (loss) from operations..........................             18.5               (16.7)               4.4
Other income, net......................................              2.5                21.1 (b)            0.6
                                                                -----------        ------------       ------------
Income (loss) before income taxes......................             21.0                 4.4                5.0
Income tax provision (benefit).........................              9.3                 3.0               (1.2)
                                                                -----------        ------------       ------------
Net income (loss)......................................             11.7%                1.4%               6.2%
                                                                -----------        ------------       ------------
                                                                -----------        ------------       ------------
</TABLE>

(a)  - Non-recurring charges relate to costs associated with mergers and 
       acquisitions. During 1997, the Company incurred $379,000 in costs 
       relating to the TriQuest acquisition. During 1998, the Company incurred
       $277,000 in costs relating to the ProSoft acquistiion and approximately
       $1.0 million related to the terminated acquisition of OrCAD.

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

YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997

TOTAL REVENUE

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

PRODUCT LICENSES REVENUE

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

                                       25

<PAGE>

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

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

MAINTENANCE AND SERVICES REVENUE

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

OTHER REVENUE

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

COST OF REVENUE

COST OF PRODUCT LICENSES REVENUE

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

COST OF MAINTENANCE AND SERVICES REVENUE

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

                                       26

<PAGE>

AMORTIZATION OF PURCHASED TECHNOLOGIES

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

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT

Research and development expenses consist of the engineering and operations 
support costs of developing new products and enhancements to existing 
products and performing quality assurance activities. Research and 
development expenses increased 68.3% from $7.7 million for the year ended 
December 31, 1997 to $13.0 million for the year ended December 31, 1998. As a 
percentage of total revenue, research and development expenses increased from 
24.7% for the year ended December 31, 1997 to 29.9% for the year ended 
December 31, 1998. The majority of the increase was attributable to 
compensation expense recorded in connection with the Company's acquisition of 
SimTech in September 1997. The Company recorded a total of $4.4 million of 
compensation expense for shares issued as part of the acquisition which were 
contingent upon continued employment and were being expensed as the 
employment obligation lapsed. This expense was being recorded on a 
straight-line basis over the two year employment obligation period. However, 
in December 1998, the employment agreements to which this contingent 
compensation related were amended to eliminate the continued employment 
obligation. At that time, the remaining unrecorded compensation was expensed. 
As a result, the Company recorded $723,000 and $3.7 million of compensation 
related to contingent employment for the years ended December 31, 1997 and 
1998, respectively. The remaining increase in research and development 
expenses was primarily attributable to an increase in the number of engineers 
employed by the Company. During the second half of 1997, the Company hired 38 
additional engineers. The Company believes that significant investment in 
research and development is required to remain competitive in its markets, 
and the Company, therefore, anticipates that research and development 
expenses will increase in absolute dollars in future periods, but may vary as 
a percentage of total revenue.(2)

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

SALES AND MARKETING

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

-----------------
(2) This sentence is a forward-looking statement reflecting current 
expectations. There can be no assurance that the Company's actual future 
performance will meet the Company's current expectations. Investors are 
strongly encouraged to review the section entitled "Additional Risk Factors 
That Could Affect Operating Results and Market Price of Stock" commencing on 
page 38 for a discussion of factors that could affect future performance.

                                       27

<PAGE>

GENERAL AND ADMINISTRATIVE

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

AMORTIZATION OF INTANGIBLES AND GOODWILL

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

NON-RECURRING CHARGES

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

IN-PROCESS TECHNOLOGY

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

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

-----------------
(2) This sentence is a forward-looking statement reflecting current 
expectations. There can be no assurance that the Company's actual future 
performance will meet the Company's current expectations. Investors are 
strongly encouraged to review the section entitled "Additional Risk Factors 
That Could Affect Operating Results and Market Price of Stock" commencing on 
page 38 for a discussion of factors that could affect future performance.

                                       28

<PAGE>

Summit released the commercial version of the V-CPU hardware/software 
co-verification product in the first quarter of 1998, consistent with 
expectations at the time of the acquisition. A market requirement for 
extensive embedded system component interfaces called bus functional models 
("BFM") and instruction set simulators ("ISS") was underestimated in the 
introduction schedule and has caused delays in initial sales of the product. 
Summit introduced the HDL Score product in the second quarter of 1998, 
approximately four months later than originally anticipated, due to delays in 
completing the control logic support functionality that was essential for 
product introduction to take place. For 1998, revenues from the sales of the 
products acquired in connection with the SimTech acquisition fell short of 
forecast by 10%. The Company's forecast of revenues for 1999 reflects that
the shortfall of revenues in 1998 related to HDL Score will be realized in
1999 and that V-CPU will have revenues that are approximately 50% of those 
originally estimated due to the delays in availability of BFM's and ISS's.(2) 
Although these delays affected the timing of the realization of revenue from 
these products as originally estimated by Summit, Summit believes the 
aggregate revenue streams originally anticipated from these products will be 
realized and that there has been no material change in expected return on 
investment related to these products. (2) However, there can be no assurance 
that Summit will realize revenue for V-CPU and HDL Score in the amounts 
estimated, and actual revenue realized from either or both of these products 
may be significantly lower than expected.(1)

INTEREST EXPENSE

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

OTHER INCOME, NET

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

GAIN ON SALE OF TDS PRODUCT LINE

On July 11, 1997 the Company sold substantially all of the assets used in its
business of developing and marketing its Test Development Series "TDS" Products
to CSC for $5 million. CSC assumed certain liabilities, 

-------------------------
(1) This paragraph contains forward-looking statements reflecting current 
expectations. There can be no assurance that the Company's actual future 
performance will meet the Company's current expectations. Investors are 
strongly encouraged to review the section entitled "Additional Risk Factors 
That Could Affect Operating Results and Market Price of Stock" commencing on 
page 38 for a discussion of factors that could affect future performance.

(2) This sentence is a forward-looking statement reflecting current 
expectations. There can be no assurance that the Company's actual future 
performance will meet the Company's current expectations. Investors are 
strongly encouraged to review the section entitled "Additional Risk Factors 
That Could Affect Operating Results and Market Price of Stock" commencing on 
page 38 for a discussion of factors that could affect future performance.


                                       29

<PAGE>

including the Company's obligations under TDS maintenance contracts entered 
into prior to the closing. The Company has recorded a gain on the sale of 
$5.6 million in 1997.

INCOME TAX PROVISION

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

YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996

TOTAL REVENUE

The Company's revenue is comprised of product licenses revenue, maintenance 
and services revenue and other revenue. Total revenue increased by 54.8% from 
$20.3 million for the year ended December 31, 1996 to $31.4 million for the 
year ended December 31, 1997. Sales through one distributor, accounted for 
12.1% and 14.7% of the Company's total revenue for the years ended December 
31, 1997 and 1996, respectively. Revenues for the year ended December 31, 
1997 include $6.2 million of Visual Testbench licenses sales pursuant to an 
OEM agreement with CSC. Sales to CSC accounted for 28.6% of the Company's 
total revenue for the year ended December 31, 1997. No customer accounted for 
more than 10% of the Company's total revenue for the year ended December 31, 
1996.

PRODUCT LICENSES REVENUE

The Company's product licenses revenue is derived from license fees from the 
Company's HLDA products and, additionally, from Design to Test products 
through June 30, 1997. Product licenses revenue increased by 60.7% from $15.4 
million for the year ended December 31, 1996 to $24.8 million for the year 
ended December 31, 1997. Revenue from HLDA and Design to Test products 
accounted for 72.6% and 27.4%, respectively, of product licenses revenue for 
the year ended December 31, 1996 and 91.7% and 8.3%, respectively, of product 
licenses revenue for the year ended December 31, 1997.

HLDA revenue increased 103.2 % from $11.2 million for the year ended December 
31, 1996 to $22.8 million for the year ended December 31, 1997. Revenue 
attributable to products existing in 1996 accounted for 76% of the increase 
in HLDA revenues, while revenues from products introduced in 1997 accounted 
for 23% of the increase in such revenues. A significant amount of the 
increase in existing products revenue over the same period in 1996 was 
attributable to sales of Visual Testbench and Visual to one customer. The 
increase in revenues from new products was primarily from sales of products 
added as a result of the SimTech acquisition.

Design to Test revenue decreased from $4.2 million for the year ended 
December 31, 1996 to $2.1 million for the year ended December 31, 1997 as a 
result of the sale of all of the assets used in the business of developing 
and marketing the TDS Products effective July 1, 1997.

MAINTENANCE AND SERVICES REVENUE

The Company's maintenance and services revenue is derived from maintenance 
contracts related to the Company's HLDA and Design to Test products and 
training classes offered to purchasers of the Company's software products. 
Maintenance and services revenue increased 43.2% from $4.3 million for the 
year ended December 31, 1996 to $6.2 million for the year ended December 31, 
1997. The increase in maintenance and services revenue was attributable to 
maintenance contracts for verification products acquired in the SimTech 
acquisition, a maintenance contract with one customer, and additional 
maintenance revenue related to growth in 


                                       30

<PAGE>

the installed base of HLDA customers over the previous year, less a decrease 
in Design to Test maintenance revenue of $1.6 million, due to the sale of the 
TDS product line.

OTHER REVENUE

Other revenue consists of revenue from one-time technology sales and fees 
received for granting distribution rights. Other revenue decreased 20.6% from 
$567,000, for the year ended December 31, 1996 to $450,000 for the year ended 
December 31, 1997. There was no revenue from one time technology sales during 
the years ended December 31, 1996 or 1997. In May 1997, a distribution 
agreement expired; and as a result, the distribution rights fees paid at the 
inception of the agreement and amortized into revenue at $50,000 each quarter 
over the agreement period will no longer be a source of other revenue.

COST OF REVENUE

COST OF PRODUCT LICENSES REVENUE

Cost of product licenses revenue includes product packaging, software 
documentation, labor and other costs associated with handling, packaging and 
shipping product and other production related costs plus the amortization of 
purchased technology acquired in the SimTech purchase. Cost of product 
licenses revenue increased 22.3% from $573,000 for the year ended December 
31, 1996 to $701,000 for the year ended December 31, 1997. As a percentage of 
product licenses revenue, the cost of product licenses revenue decreased from 
3.7% for the year ended December 31, 1996 to 2.8% for the year ended December 
31,1997. This decrease was primarily due to leveraging fixed costs across 
increased product licenses revenue.

COST OF MAINTENANCE AND SERVICES REVENUE

Cost of maintenance and services revenue, which consists primarily of 
personnel costs for customer support and training classes offered to 
purchasers of the Company's products, increased 35.6% from $466,000 for the 
year ended December 31, 1996 to $632,000 for the year ended December 31, 
1997. As a percentage of maintenance and services revenue, the cost of 
maintenance and services revenue decreased from 10.8% for the year ended 
December 31, 1996 to 10.3% for the year ended December 31, 1997. The decrease 
in the cost of maintenance and services revenue as a percentage of 
maintenance and services revenue was primarily a result of the Company 
operating below forecasted staffing levels during the first half of 1997. The 
Company increased headcount during the second half of 1997.

AMORTIZATION OF PURCHASED TECHNOLOGIES

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

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT

Research and development expenses consist of the engineering and operations 
support costs of developing new products and enhancements to existing 
products and performing quality assurance activities. Research and 
development expenses increased 32.1% from $5.9 million for the year ended 
December 31, 1996 to $7.7 million for the year ended December 31, 1997. A 
significant amount of the increase was attributable to compensation expense 
in the amount of $723,000 for the year ended December 31, 1997 recorded in 
connection with the Company's acquisition of SimTech in September 1997. The 
Company recorded $4.4 million of compensation expense for shares issued as 
part of the acquisition which were contingent upon continued employment and 
were being expensed as the employment obligation lapsed. In connection with 
the sale of the TDS product line on July 1, 1997, the Company's research and 
development staff decreased by 15 engineers. With the acquisition of SimTech 
on September 9, 1997 the Company added 28 engineers. Additionally, the 
Company added a net of 25 engineers during 1997. As a percentage of total 
revenue, research and development expenses decreased from 28.9% for the year 
ended December 31, 1996 to 24.6% for the year ended December 31, 1997 
primarily 

                                       31

<PAGE>

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

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

SALES AND MARKETING

Sales and marketing expenses, consisting primarily of salaries, commissions 
and promotional costs, increased 13.6% from $9.3 million for the year ended 
December 31, 1996 to $10.6 million for the year ended December 31, 1997. The 
increase was primarily attributable to the addition of 8 sales and marketing 
personnel and the related increased commissions and travel expenses. As a 
percentage of total revenue, sales and marketing expenses decreased from 
45.9% for the year ended December 31, 1996 to 33.7% for the year ended 
December 31, 1997. The decrease was primarily attributable to the increase in 
total revenue for 1997. In the future, the Company expects sales and 
marketing expenses to continue to increase in absolute dollars, in part due 
to the hiring of additional sales personnel.(2)

GENERAL AND ADMINISTRATIVE

General and administrative expenses consist primarily of the corporate, 
finance, human resource, information services, administrative, legal and 
auditing expenses of the Company. General and administrative expenses 
increased 18.7% from $3.2 million for the year ended December 31, 1996 to 
$3.8 million for the year ended December 31, 1997. As a percentage of total 
revenue, general and administrative expenses decreased from 15.7% for 1996 to 
12.0% for 1997. The decrease as a percentage of total revenue was primarily 
attributable to the increase in total revenue in 1997. The Company expects 
general and administrative expenses to increase in absolute dollars to 
support future sales and operations. (2)

AMORTIZATION OF INTANGIBLES AND GOODWILL

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

NON-RECURRING CHARGES

Non-recurring charges relate to costs associated with mergers and 
acquisitions. During 1997, the Company incurred $379,000 in costs relating to 
the TriQuest acquisition.

IN-PROCESS TECHNOLOGY

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


-------------------------
(2) This sentence is a forward-looking statement reflecting current 
expectations. There can be no assurance that the Company's actual future 
performance will meet the Company's current expectations. Investors are 
strongly encouraged to review the section entitled "Additional Risk Factors 
That Could Affect Operating Results and Market Price of Stock" commencing on 
page 38 for a discussion of factors that could affect future performance.

                                       32
<PAGE>

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

The nature of the efforts to develop the purchased in-process technology into 
commercially viable products principally related to the completion of all 
planning, designing, prototyping, verification and testing activities that 
are necessary to establish that the product can be produced to meet its 
design specification, including function, features and technical performance 
requirements. The originally estimated costs to be incurred to develop the 
purchased in-process technology into commercially viable products was 
approximately $1.8 million. The estimated resulting net cash flows from such 
products were based on Summit management's estimates of revenues, costs of 
sales, research and development costs, selling, general and administrative 
costs, and income taxes from such projects.

The estimated revenues include average compounded annual revenue growth rates 
for the V-CPU and HDL Score products of 155% to 88% during 1998 to 2000, 
declining slightly in 2001 and declining thereafter as other new products are 
expected to enter the market.(2) These projections are based on Summit 
management's estimates of market size and growth (which are supported by 
independent market data), expected trends in technology and the nature and 
expected timing of new product introductions by Summit.

Estimated cost of sales of 5% is consistent with Summit's current cost of 
sales and future expectations for cost of sales. Sales, marketing and general 
administrative costs are expected to be higher than the Company's average 
costs in the introduction phase and then stabilize upon introduction at 
levels that are expected to be consistent with the Company's expected overall 
costs in these areas in future periods. Research and development costs are 
expected to be higher than the Company's average costs in the introduction 
and early phases of product sales and then decline below the Company's 
average costs as sales of the products begin to decline in 2001. This 
research and development cost pattern is consistent with the Company's 
historical experience through product life cycles. Income taxes were 
estimates at 30%, which are consistent with the Company's anticipated tax 
rate for the foreseeable future.(1)

Summit released the commercial version of the V-CPU hardware/software 
coverification product in the first quarter of 1998, consistent with 
expectations at the time of the acquisition. A market requirement for 
extensive embedded system component interfaces called bus functional models 
("BFM") and instruction set simulators ("ISS") was underestimated in the 
introduction schedule and has caused delays in initial sales of the product. 
Summit introduced the HDL Score product in the second quarter of 1998, 
approximately four months later than originally anticipated, due to delays in 
completing the control logic support functionality that was essential for 
product introduction to take place. For 1998, revenues from the sales of the 
products acquired in connection with the SimTech acquisition fell short of
forecast by 10%.  The Company's forecast of revenues for 1999 reflects that
the shortfall of revenues in 1998 related to HDL Score will be realized in
1999 and that V-CPU will have revenues that are approximately 50% of those 
originally estimated due to the delays in availability of BFM's and ISS's.(2) 
Although these delays affected the timing of the realization of revenue from 
these products as originally estimated by Summit, Summit believes the 
aggregate revenue streams originally anticipated from these products will be 
realized and that there has been no material 

---------------------
(1) This paragraph contains forward-looking statements reflecting current 
expectations. There can be no assurance that the Company's actual future 
performance will meet the Company's current expectations. Investors are 
strongly encouraged to review the section entitled "Additional Risk Factors 
That Could Affect Operating Results and Market Price of Stock" commencing on 
page 38 for a discussion of factors that could affect future performance.

(2) This sentence is a forward-looking statement reflecting current 
expectations. There can be no assurance that the Company's actual future 
performance will meet the Company's current expectations. Investors are 
strongly encouraged to review the section entitled "Additional Risk Factors 
That Could Affect Operating Results and Market Price of Stock" commencing on 
page 38 for a discussion of factors that could affect future performance.

                                       33
<PAGE>

change in expected return on investment related to these products.(2) 
However, there can be no assurance that Summit will realize revenue for V-CPU 
and HDL Score in the amounts estimated, and actual revenue realized from 
either or both of these products may be significantly lower than expected.(1)

INTEREST EXPENSE

Interest expense decreased from $101,000 for the year ended December 31, 1996 
to $12,000 for the year ended December 31, 1997 due to decreased borrowings 
under the Company's bank line of credit and long term debt and the expiration 
of certain capital leases obligations.

OTHER INCOME, NET

Other income consists of interest income associated with available cash 
balances, gains or losses from the sale of property and equipment, the 
Company's pro rata share of the earnings and losses of Summit Design Asia and 
foreign exchange rate differences resulting from paying operating expenses of 
foreign operations in the local currency. Other income was $218,000 for the 
year ended December 31, 1996 and $1.1 million for the year ended December 31, 
1997. The increase in other income was primarily due to increased interest 
earned on the Company's cash holdings resulting from the initial public 
offering in October of 1996.

GAIN ON SALE OF TDS PRODUCT LINE

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

INCOME TAX PROVISION

The income tax provision increased from a benefit of $245,000 for the year 
ended December 31, 1996 to a tax provision of $940,000 for the year ended 
December 31, 1997. The Company utilized substantially all its U.S. Federal 
and State net operating loss carryforwards to offset a considerable portion 
of U.S. taxable income for the year ended December 31, 1997. The provision of 
$940,000 for 1997 is comprised of $1.7 million of Federal, State and foreign 
taxes payable, less $719,000 of deferred tax benefit recognized for NOL's 
available from the TriQuest acquisition as well as research and development 
credits and alternative minimum tax credits. The provision for 1996 is 
comprised primarily of Japanese withholding tax of approximately 10% on 
Japanese sales through June 1996 and alternative minimum tax. The effective 
tax rate increased from a benefit of 24% for the year ended December 31, 1996
to 69% for the year ended December 31, 1997. The 1996 effective tax rate was 
substantially lower than the statutory rate due primarily to the utilization 
of previously unrecognized deferred tax assets. The 1997 effective tax rate 
was high primarily due to the write-off of in-process technology costs which 
are not deductible for tax purposes, reduced by the tax benefit realized in 
1997 for utilizing the net operating loss carryforwards.

---------------------
(1) This paragraph contains forward-looking statements reflecting current 
expectations. There can be no assurance that the Company's actual future 
performance will meet the Company's current expectations. Investors are 
strongly encouraged to review the section entitled "Additional Risk Factors 
That Could Affect Operating Results and Market Price of Stock" commencing on 
page 38 for a discussion of factors that could affect future performance.

(2) This sentence is a forward-looking statement reflecting current 
expectations. There can be no assurance that the Company's actual future 
performance will meet the Company's current expectations. Investors are 
strongly encouraged to review the section entitled "Additional Risk Factors 
That Could Affect Operating Results and Market Price of Stock" commencing on 
page 38 for a discussion of factors that could affect future performance.


                                       34

<PAGE>

EFFECTIVE CORPORATE TAX RATES

Prior to 1996, the Company had experienced losses for income tax purposes in 
the United States. The Company is now profitable in the United States and 
expects to pay income taxes at or near the statutory tax rate on its U.S. 
taxable earnings. As of December 31, 1997, the Company has recognized the 
benefit of its U.S. net operating loss carryforwards and tax credit 
carryforwards in its financial statements.

The Company's Israeli operations are performed entirely by Summit Design 
(EDA) Ltd., which is a separate taxable Israeli entity. The Company's 
existing Israeli production facility has been granted "Approved Enterprise" 
status under the Israeli Investment Law, which entitles the Company to 
reductions in the tax rate normally applicable to Israeli companies with 
respect to the income generated by its "Approved Enterprise" programs. In 
particular, the tax holiday covers the seven year period beginning the first 
year in which Summit Design (EDA) Ltd. generates taxable income from its 
"Approved Enterprise" (after using any available NOLs), provided that such 
benefits will terminate in 2006 regardless of whether the seven year period 
has expired. The tax holiday provides that, during such seven year periods, a 
portion of the Company's taxable income from its Israeli operations will be 
taxed at favorable tax rates. The Company has recently applied for "Approved 
Enterprise" status with respect to a new project and intends to apply in the 
future with respect to additional projects. There can be no assurance that 
the Company will be granted any approvals and therefore there can be no 
assurance the Company will continue to have favorable tax status in Israel. 
Management of the Company intends to permanently reinvest earnings of the 
Israeli subsidiary outside the U.S. If such earnings were remitted to the 
U.S., additional U.S. federal and foreign taxes may be due.

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

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

LIQUIDITY AND CAPITAL RESOURCES

The Company completed its initial public offering in October 1996, raising $16.2
million, net of offering expenses. Prior to the IPO, the Company had financed
its operations primarily through the private placement of approximately $15.4
million of capital stock, as well as capital equipment leases, borrowings under
its bank line 


                                       35

<PAGE>

of credit, Israeli research and development grants and cash generated from 
operations. As of December 31, 1998, the Company had approximately $27.7 
million in cash and cash equivalents. Additionally, the Company has a $1.0 
million bank line of credit with a bank. The line of credit expires on April 
30, 1999 and borrowings thereunder accrue interest at specified percentages 
above the prime lending rate based on the Company's ratio of debt to tangible 
net worth. Advances under the line of credit are limited to a specified 
percentage of eligible accounts receivable (as defined in the line of 
credit). Borrowings under the line of credit are collateralized by the 
Company's accounts receivable, inventory and general intangible assets, 
including its intellectual property rights. As of December 31, 1998, the 
Company had no borrowings outstanding under this line of credit.

The Company is obligated to lend up to $2.5 million to an independent 
software Company pursuant to a secured loan agreement entered into during 
July 1997. Borrowings under the agreement bear interest at prime plus 2%. At 
December 31, 1998, $1.7 million had been advanced to the independent software 
company.

As of December 31, 1998, the Company had working capital of approximately 
$24.3 million.

Net cash generated by operating activities was approximately $11.9 million, 
$12.1 million and $4.7 million for the years ended December 31, 1998, 1997 
and 1996, respectively. For the year ended December 31, 1998, cash generated 
by operating activities resulted primarily from an increase in profitability, 
and to a lesser extent from an increase in accounts payable and accrued 
liabilities offset by an increase in accounts receivable. For the year ended 
December 31, 1997, cash generated by operating activities resulted primarily 
from improved collection of accounts receivable, an increase in deferred 
revenues and accrued liabilities and profitability during the period. For 
1996, cash generated from operating activities resulted primarily from 
increases in deferred revenue and profitability during the period.

Net cash used in investing activities was approximately $4.5 million, $1.3 
million, and $855,000 for the years ended December 31, 1998, 1997 and 1996, 
respectively. For the year ended December 31, 1998, net cash used was 
primarily related to the acquisition of furniture and equipment and loans to 
an independent software development company and to an unconsolidated joint 
venture. For the year ended December 31, 1997, net cash used was primarily 
related to the acquisition of furniture and equipment, the acquisition of 
SimTech, and a loan to an independent software development company, which was 
partially offset by proceeds from the sale of the TDS product line. During 
1996, net cash used in investing activities was related primarily to the 
acquisition of furniture and equipment.

Net cash provided by financing activities was approximately $345,000 and 
$15.3 million for the years ended December 31, 1998 and 1996, respectively. 
Net cash used in financing activities was approximately $10.6 million for the 
year ended December 31, 1997. The net cash provided in 1998 was primarily a 
result of the proceeds from the issuance of stock through stock option plans 
and the employee stock purchase plan and the tax benefit of option exercises, 
partially offset by the repurchase of $2.3 million of the Company's 
outstanding common stock. For the year ended December 31, 1997 net cash used 
in financing activities resulted primarily from the Company purchasing 
approximately 939,000 shares of treasury stock and repayment of debt, less 
proceeds from the issuance of common stock. The net cash provided in 1996 was 
primarily a result of the Company's initial public offering, partially offset 
by the repayment of $2.1 million of outstanding debt and capital lease 
obligations.

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

YEAR 2000

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

---------------------
(2) This sentence is a forward-looking statement reflecting current 
expectations. There can be no assurance that the Company's actual future 
performance will meet the Company's current expectations. Investors are 
strongly encouraged to review the section entitled "Additional Risk Factors 
That Could Affect Operating Results and Market Price of Stock" commencing on 
page 38 for a discussion of factors that could affect future performance.



                                       36

<PAGE>

take the necessary steps to correct or replace these problematic computer 
programs, the Year 2000 issue could have a material adverse effect on Summit. 
Summit cannot, however, quantify the impact at this time.

Summit has begun upgrading or replacing the software packages underlying its 
financial, production, communication, desktop and other systems, as 
appropriate, to address the Year 2000 issue. It has also performed an 
in-depth analysis of all of its products and is in the process of modifying 
those products that are not Year 2000 compliant. Moreover, Summit is 
contacting all major external third parties that provide products and 
services to Summit to assess their readiness for the Year 2000.

Management believes it has completed the review and assessment phase of 
affected systems within Summit and those which are external to Summit. This 
assessment indicated that most of Summit's significant internal information 
systems could be affected by the Year 2000 issue, and that Summit could be 
negatively impacted by non-compliance of related third parties. In addition, 
this assessment concluded that certain of Summit's products were also at risk.

Summit has begun the remediation phase of Summit's internal information 
technology systems and has set October 1999 as the target for Year 2000 
compliance of all of Summit's internal information technology systems. 
Summit's internal information technology systems include Summit's finance 
systems and those systems used in the research and development of Summit's 
products.

Summit's products are subject to periodic upgrades. These upgrades are 
typically released to end-users once a year. Summit intends to modify its 
products, as required, in order to make such products Year 2000 compliant by 
July 1999.

Summit is currently in the process of creating contingency plans for its 
internal information technology systems and products. These contingency plans 
are expected to be in place by October 31, 1999. In the event Summit's 
information technology systems and/or products are not Year 2000 compliant by 
October 31, 1999, Summit will decide at that time whether to implement the 
necessary contingency plan(s).

Summit has queried its important suppliers and service providers and is 
presently obtaining assurances and verification from those selected third 
parties that they are or will be Year 2000 complaint. The inability of those 
parties to complete their Year 2000 resolution process could materially 
impact Summit. The effects of non-compliance by third parties where no system 
interface exists is not determinable.

Summit will determine whether a contingency plan is necessary in relation to 
third parties with whom Summit has material relationships once the assessment 
of these third parties' Year 2000 compliance is complete. It is anticipated 
that third party assessment will be complete by July 31, 1999.

Concurrent with performing the above steps, Summit will make certain 
investments in systems, applications and products to address Year 2000 
issues. Summit has not tracked internal resources dedicated to the resolution 
of the Year 2000 issue and, therefore, is unable to quantify internal costs 
incurred to date that are associated with the Year 2000 issue. Summit has, 
however, hired external consultants to resolve internal information system 
issues related to the resolution of the Year 2000 issue. Identifiable 
expenditures for these consultants were approximately $250,000 through 
December 31, 1998. Expenditures to resolve Year 2000 issues are not expected 
to be material and are expected to be, funded through cash generated from 
operations.

Summit's plans to complete the Year 2000 modifications are based upon 
management's best estimates, which were derived utilizing numerous 
assumptions of future events including continued availability of certain 
resources, and other factors. However, there can be no assurance that these 
estimates will be achieved and actual results could differ materially from 
those plans. Specific factors that might cause such material differences 
included the availability and cost of personnel trained in this area, and the 
ability to locate and correct all relevant computer codes.


                                       37
<PAGE>
ADDITIONAL RISK FACTORS THAT COULD AFFECT OPERATING RESULTS AND MARKET PRICE 
OF STOCK

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

         FACTORS WHICH MAY CAUSE SUMMIT'S OPERATING RESULTS TO FLUCTUATE. 
Summit's quarterly operating results and cash flows have fluctuated in the 
past and have fluctuated significantly in certain quarters. Such fluctuations 
resulted from several factors including the size and timing of orders, the 
incurrence of a large one-time charge as a result of an acquisition, seasonal 
factors, the rate of acceptance of new products, product, customer and 
channel mix, and lengthy sales cycles.  These fluctuations are likely to 
continue in future periods as a result of the factors discussed above and 
potentially due to corporate acquisitions and consolidations and the 
integration of acquired entities and the incurrence of any large one-time 
charges as a result of any acquisitions, the timing of new product 
announcements and introductions by Summit and its competitors, the 
rescheduling or cancellation of customer orders, Summit's ability to continue 
to develop and introduce new products and product enhancements on a timely 
basis, the level of competition, purchasing and payment patterns, pricing 
policies of Summit and its competitors, product quality issues, currency 
fluctuations and general economic conditions.

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

         SHORTFALLS IN REVENUE COULD ADVERSELY IMPACT QUARTERLY OPERATING 
RESULTS. Summit establishes its expenditure levels for product development, 
sales and marketing and other operating activities based primarily on its 
expectations as to future revenue. Because a high percentage of Summit's 
expenses are relatively fixed in the near term, if revenue in any quarter is 
below expectations, expenditure levels could be disproportionately high as a 
percentage of revenue and Summit's operating results would be materially 
adversely affected.

     OPERATING RESULTS LIKELY TO FLUCTUATE. Based upon the factors described 
above, Summit believes that its quarterly revenue, expenses and operating 
results are likely to vary significantly from quarter to quarter, that 
period-to-period comparisons of its operating results are not necessarily 
meaningful and that, as a result, such comparisons should not be relied
upon as indications of Summit's future performance.  Additionally, as of
December 31, 1998, CSC had satisfied its obligation to purchase a minimum
number of Visual Testbench licenses pursuant to an OEM agreement entered into
in July 1997, and the Company does not expect to receive any additional
revenue from sales of Visual Testbench to CSC. Summit will need to replace
this revenue and the failure of Summit to replace this revenue would have a
material adverse affect on Summit's operating results. Due to the foregoing or
other factors, Summit's results of operations are likely to be below investors'
and market makers' expectations in some quarters, which could have a severe
adverse effect on the market price of Summit's Common Stock.

DEPENDENCE ON HLDA PRODUCTS

Summit's future success depends primarily upon the broad market acceptance of 
Summit's existing and future HLDA products. Summit commercially shipped its 
first HLDA product, Visual HDL for VHDL, in the first quarter of 1994. For 
the years ended December 31, 1998, 1997 and 1996, revenue from HLDA products 
and related maintenance contracts represented 100%, 88.8%, and 63.9%, 
respectively, of Summit's total revenue. As a result, factors adversely 
affecting sales of these products, including increased competition, inability 
to successfully introduce enhanced or improved versions of these products, 
product quality issues and technological change, could have a material 
adverse effect on Summit's business, financial condition and results of 
operations.

                                       38
<PAGE>

UNCERTAINTY OF BROAD MARKET ACCEPTANCE OF HLDA PRODUCTS

The Company's HLDA products incorporate certain unique design methodologies 
and thus represent a departure from industry standards for design creation 
and verification. The Company believes that broad market acceptance of its 
HLDA products will depend on several factors, including the ability to 
significantly enhance design productivity, ease of use, interoperability with 
existing EDA tools, price and the customer's assessment of the Company's 
financial resources and its technical, managerial, service and support 
expertise. The Company also depends on its distributors to assist the Company 
in gaining market acceptance of its products. There can be no assurance that 
sufficient priority will be given by the Company's distributors to marketing 
the Company's products or whether such distributors will continue to offer 
the Company's products. There can be no assurance that the Company's HLDA 
products will achieve broad market acceptance. A decline in the demand for, 
or the failure to achieve broad market acceptance of, the Company's HLDA 
products will have a material adverse effect on the Company's business, 
financial condition, results of operations or cash flows.

Although demand for HLDA products has increased in recent years, the market 
for HLDA products is still emerging and there can be no assurance that it 
will continue to grow or that, even if the market does grow, businesses will 
continue to purchase the Company's HLDA products. If the market for HLDA 
products fails to grow or grows more slowly than the Company currently 
anticipates, the Company's business, financial condition, results of 
operations or cash flows would be materially adversely affected.

Traditionally, EDA customers have been risk averse in accepting new design 
methodologies. Because many of Summit's tools embody new design 
methodologies, this risk aversion on the part of potential customers presents 
an ongoing marketing and sales challenge to the Company and makes the 
introduction and acceptance of new products unpredictable. The Company's 
Visual Testbench product, introduced in the fourth quarter of 1995, provides 
a new methodology and requires a change in the traditional design flow for 
creating IC test programs. Accordingly, the Company cannot predict the 
extent, to which it will realize revenue from Visual Testbench in excess of 
the revenue already received from CSC pursuant to an OEM agreement entered 
into in July 1997.

COMPETITION.

The EDA industry is highly competitive and the Company expects competition to 
increase as other EDA companies introduce HLDA products. In the HLDA market, 
the Company principally competes with Mentor Graphics and a number of smaller 
firms. Indirectly, the Company also competes with other firms that offer 
alternatives to HLDA and could potentially offer more directly competitive 
products in the future. Certain of these companies have significantly greater 
financial, technical and marketing resources and larger installed customer 
bases than the Company. Some of the Company's current and future competitors 
offer a more complete range of EDA products and may distribute products that 
directly compete with the Company's HLDA products by bundling such products 
with their core product line. In addition, the Company's products perform a 
variety of functions, certain of which are, and in the future may be, offered 
as separate products or discrete point solutions by the Company's existing 
and future competitors. For example, certain companies currently offer design 
entry products without simulators. There can be no assurance that such 
competition will not cause the Company to offer point solutions instead of, 
or in addition to, the Company's current software products. Such point 
solutions would be priced lower than the Company's current product offerings 
and could cause the Company's average selling prices to decrease, which could 
have a material adverse effect on the Company's business, financial 
condition, results of operations, or cash flows.

The Company competes on the basis of certain factors including product 
capabilities, product performance, price, support of industry standards, ease 
of use, first to market and customer technical support and service. The 
Company believes that they compete favorably overall with respect to these 
factors. However, in particular cases, the Company's competitors may offer 
HLDA products with functionality which is sought by the Company's prospective 
customers and which differs from that offered by the Company. In addition, 
certain competitors may achieve a marketing advantage by establishing formal 
alliances with other EDA vendors. Further, the EDA industry in general has 
experienced significant consolidation in recent years, and the acquisition of 
one of the Company's competitors by a larger, more established EDA vendor 
could create a more significant competitor. There can be no assurance that 
the Company will be able to compete successfully against current and future 
competitors or that competitive pressures faced by the Company will not have 
a material adverse effect on its business, financial condition, results of 
operations, or cash flows. There can be no assurance that the Company's 
current and future competitors will not be able to develop products 
comparable or superior to those developed by the Company or to adapt more 
quickly than the Company to new technologies, evolving industry trends or 

                                       39

<PAGE>

customer requirements. Increased competition could result in price 
reductions, reduced margins and loss of market share, all of which could have 
a material adverse effect on the Company's business, financial condition, 
results of operations or cash flows.

DEPENDENCE ON ELECTRONICS INDUSTRY MARKET. Because the electronics industry 
is characterized by rapid technological change, short product life cycles, 
fluctuations in manufacturing capacity and pricing and margin pressures, 
certain segments, including the computer, semiconductor, semiconductor test 
equipment and telecommunications industries, have experienced sudden and 
unexpected economic downturns. During these periods, capital spending is 
commonly curtailed and the number of design projects often decreases. Because 
the Company's sales are dependent upon capital spending trends and new design 
projects, negative factors affecting the electronics industry could have a 
material adverse effect on the Company's business, financial condition, 
results of operations, or cash flows. A number of electronics companies, 
including customers of the Company, have recently experienced a slowdown in 
their businesses. The Company's future operating results may reflect 
substantial fluctuations from period to period as a consequence of such 
industry patterns, general economic conditions affecting the timing of orders 
from customers and other factors.

DEPENDENCE ON THIRD PARTIES FOR PRODUCT INTEROPERABILITY.

Because the Company's products must interoperate with EDA products of other 
companies, particularly simulation and synthesis products, the Company must 
have timely access to third party software to perform development and testing 
of its products. Although the Company has established relationships with a 
variety of EDA vendors to gain early access to new product information, these 
relationships may be terminated by either party with limited notice. In 
addition, such relationships are with companies that are current or potential 
future competitors of the Company, including Synopsys, Mentor Graphics and 
Cadence. If any of these relationships were terminated and the Company was 
unable to obtain, in a timely manner, information regarding modifications of 
third party products necessary for modifying its software products to 
interoperate with these third party products, the Company could experience a 
significant increase in development costs, the development process would take 
longer, product introductions would be delayed and the Company's business, 
financial condition, results of operations or cash flows could be materially 
adversely affected.

NEW PRODUCTS AND TECHNOLOGICAL CHANGE; EVOLVING INDUSTRY STANDARDS.

The EDA industry is characterized by extremely rapid technological change, 
frequent new product introductions and evolving industry standards. The 
introduction of products embodying new technologies and the emergence of new 
industry standards can render existing products obsolete and unmarketable. In 
addition, customers in the EDA industry require software products that allow 
them to reduce time to market, differentiate their products, improve their 
engineering productivity and reduce their design errors. The Company's future 
success will depend upon its ability to enhance its current products, develop 
and introduce new products that keep pace with technological developments and 
emerging industry standards and address the increasingly sophisticated needs 
of its customers. There can be no assurance that the Company will be 
successful in developing and marketing product enhancements or new products 
that respond to technological change or emerging industry standards, that the 
Company will not experience difficulties that could delay or prevent the 
successful development, introduction and marketing of these products, or that 
its new products will adequately meet the requirements of the marketplace and 
achieve market acceptance. If the Company is unable, for technological or 
other reasons, to develop and introduce products in a timely manner in 
response to changing market conditions, industry standards or other customer 
requirements, particularly if such product releases have been pre-announced, 
the Company's business, financial condition, results of operations or cash 
flows will be materially adversely affected.

RISKS OF SOFTWARE DEFECTS.

Software products as complex as those offered by the Company may contain 
errors that may be detected at any point in the products' life cycles. The 
Company has in the past discovered software errors in certain of its products 
and has experienced delays in shipment of products during the period required 
to correct these errors. There can be no assurance that, despite testing by 
the Company and by current and potential customers, errors will not be found, 
resulting in loss of, or delay in, market acceptance and sales, diversion of 
development resources, injury to the Company's reputation or increased 
service and warranty costs, any of which could have a material adverse effect 
on the Company's business, financial condition, results of operations or cash 
flows.

                                       40

<PAGE>

DEPENDENCE ON DISTRIBUTORS.

The Company relies on distributors for licensing and support of its products 
outside of North America. Approximately 23%, 29% and 46% of the Company's 
revenue for the years ended December 31, 1998, 1997 and 1996, respectively, 
were attributable to sales made through distributors. Effective April 1, 
1996, the Company entered into a joint venture with Anam pursuant to which 
the joint venture corporation Summit Asia acquired exclusive rights to sell, 
distribute and support all of the Company's products in the Asia Pacific 
region, excluding Japan. In April 1998, the joint venture corporation, Summit 
Asia, which is headquartered in Korea, was renamed Asia Design Corporation 
"ADC." In May 1998, Summit exchanged a portion of its ownership in ADC for 
ownership in another company located in Hong Kong which was renamed Summit 
Design Asia, Ltd. "SDA." SDA also has an equity investment in ADC. In June 
1998, Summit and Anam each loaned SDA $750,000, which is guaranteed by ADC. 
SDA acquired from ADC the exclusive rights to sell, distribute and support 
Summits products in the Asia Pacific region, excluding Japan. SDA granted 
distribution rights to Summit's products to ADC for the Asia Pacific region, 
excluding Japan. There can be no assurance that this restructuring will 
result in Summit Asia or ADC becoming profitable or that revenue attributable 
to sales in the Asia Pacific region, excluding Japan, would increase. In 
addition, in the first quarter of 1996, the Company entered into a 
three-year, exclusive distribution agreement for its HLDA products in Japan 
with Seiko. The agreement is renewable for successive five-year terms by 
mutual agreement of the Company and Seiko and is terminable by either party 
for breach. The agreement was renewed for an additional five-year term which 
began in February 1999. In the event Seiko fails to meet specified quotas for 
two or more quarterly periods, exclusivity can be terminated by Summit, 
subject to Seiko's right to pay a specified fee to maintain exclusivity. 
Sales through Seiko accounted for 14%, 12%, and 15%, of Summit's total for 
the years ended December 31, 1998, 1997, and 1996, respectively.

There can be no assurance that Summit's relationships with Seiko, SDA, and 
ADC will be effective in maintaining or increasing sales relative to the 
levels experienced prior to such relationships. The Company also has 
independent distributors in Europe and is dependent on the continued 
viability and financial stability of its distributors. Since the Company's 
products are used by skilled design engineers, distributors must possess 
sufficient technical, marketing and sales resources and must devote these 
resources to a lengthy sales cycle, customer training and product service and 
support. Only a limited number of distributors possess these resources. In 
addition, Seiko, SDA and ADC, as well as the Company's other distributors, 
may offer products of several different companies, including competitors of 
the Company. There can be no assurance that the Company's current 
distributors will continue to market or service and support the Company's 
products effectively, that any distributor will continue to sell the 
Company's products or that the distributors will not devote greater resources 
to products of other companies. The loss of, or a significant reduction in, 
revenue from the Company's distributors could have a material adverse effect 
on the Company's business, financial condition, results of operations or cash 
flows.

INTERNATIONAL SALES AND OPERATIONS.

Approximately 36%, 34%, and 50% of Summit's revenue for the years ended 
December 31, 1998, 1997 and 1996, respectively, were attributable to sales 
made outside the United States, which includes the Asia Pacific region and 
Europe. Approximately , 22%, 22%, and 34% of Summit's revenue for years ended 
December 31, 1998, 1997 and 1996, respectively, were attributable to sales 
made in the Asia Pacific region and approximately 14%, 12% and 16% of 
Summit's revenue for the years ended December 31, 1998, 1997 and 1996, 
respectively, were attributable to sales made in Europe. The Company expects 
that international revenue will continue to represent a significant portion 
of its total revenue. The Company's international revenue is currently 
denominated in U.S. dollars. As a result, increases in the value of the U.S. 
dollar relative to foreign currencies could make the Company's products more 
expensive and, therefore, potentially less competitive in those markets. The 
Company pays the expenses of its international operations in local currencies 
and does not engage in hedging transactions with respect to such obligations. 
International sales and operations are subject to numerous risks, including 
tariff regulations and other trade barriers, requirements for licenses, 
particularly with respect to the export of certain technologies, 
collectability of accounts receivable, changes in regulatory requirements, 
difficulties in staffing and managing foreign operations and extended payment 
terms. There can be no assurance that such factors will not have a material 
adverse effect on the Company's future international sales and operations 
and, consequently, on the Company's business, financial condition, results of 
operations or cash flows. In addition, financial markets and economies in the 
Asia Pacific region have been experiencing adverse economic conditions. 
Demand for and sales of Summit's products in the Asia Pacific region have 
decreased and there can be no assurance that such adverse economic conditions 
will not worsen or that demand for and sales of Summit's products in such 
region will not further decrease.

                                       41

<PAGE>

In order to successfully expand international sales, the Company may need to 
establish additional foreign operations, hire additional personnel and 
recruit additional international distributors. This will require significant 
management attention and financial resources and could adversely affect the 
Company's operating margins. In addition, to the extent that the Company is 
unable to effect these additions in a timely manner, the Company's growth, if 
any, in international sales will be limited. There can be no assurance that 
the Company will be able to maintain or increase international sales of the 
Company's products, and failure to do so could have a material adverse effect 
on the Company's business, financial condition, results of operations or cash 
flows.

MANAGEMENT OF GROWTH AND ACQUISITIONS

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

The Company has consummated a series of acquisitions including the 
acquisition of TriQuest in February 1997, SimTech in September 1997, and 
ProSoft in June 1998. As a result of these acquisitions, Summit's operating 
expenses are expected to continue to increase. There can be no assurance that 
the integration of TriQuest's, SimTech's and ProSoft's business can be 
successfully completed in a timely fashion, or at all, or that the revenues 
from TriQuest and SimTech will be sufficient to support the costs associated 
with the acquired businesses, without adversely affecting Summit's operating 
margins. Any failure to successfully complete the integration in a timely 
fashion or to generate sufficient revenues from the acquired business could 
have a material adverse effect on Summit's business, financial condition, 
results of operations or cash flows. In addition, Summit regularly evaluates 
acquisition opportunities. Future acquisitions by Summit, if any, could 
result in potentially dilutive issuances of equity securities, the incurrence 
of debt and contingent liabilities, amortization expenses related to goodwill 
and other intangible assets, and large one-time charges which could 
materially adversely affect Summit's results of operations. Product and 
technology acquisitions entail numerous risks, including difficulties in the 
assimilation of acquired operations, technologies and products, diversion of 
management's attention to other business concerns, risks of entering markets 
in which Summit has no or limited prior experience and potential loss of key 
employees of acquired companies. Summit's management has had limited 
experience in assimilating acquired organizations and products into Summit's 
operations. No assurance can be given as to the ability of Summit to 
integrate successfully any operations, personnel or products that have been 
acquired or that might be acquired in the future, and the failure of Summit 
to do so could have a material adverse effect on Summit's results of 
operations.

OPERATIONS IN ISRAEL

     RISKS ASSOCIATED WITH OPERATING IN ISRAEL. The Company's research and 
development operations related to its Visual HDL products are located in 
Israel and may be affected by economic, political and military conditions in 
that country. Accordingly, the Company's business, financial condition and 
results of operations could be materially adversely affected if hostilities 
involving Israel should occur. This risk is heightened due to the 
restrictions on the Company's ability to manufacture or transfer outside of 
Israel any technology developed under research and development grants from 
the government of Israel as described in "--Israeli Research, Development and 
Marketing Grants." In addition, while all of the Company's sales are 
denominated in U.S. dollars, a portion of the Company's annual costs and 
expenses in Israel are paid in Israeli currency. These costs and expenses 
were approximately $5.2, $4.7 and $4.3 million in 1998, 1997 and 1996, 
respectively. Payment in Israeli currency subjects the Company to foreign 
currency fluctuations and to economic pressures resulting from Israel's 
generally high rate of inflation, which has been approximately 9%, 7% and 11% 
during 1998, 1997, and 1996, respectively. The Company's primary expense 
which is paid in Israeli currency is employee salaries for research and 
development activities. As a result, an increase in the value of Israeli 
currency in comparison to the U.S. dollar could increase the cost of research 
and development expenses and general and administrative expenses. There can 
be no assurance that currency fluctuations, changes in the rate of inflation 
in Israel or any of the other aforementioned factors will not have a material 
adverse effect on the Company's business, financial condition, results of 
operations, or cash flows. In addition, coordination with and management of 
the Israeli operations 

                                       42

<PAGE>

requires the Company to address differences in culture, regulations and time 
zones. Failure to successfully address these differences could be disruptive 
to the Company's operations.

     RISKS ASSOCIATED WITH "APPROVED ENTERPRISE" STATUS. The Company's 
Israeli production facility has been granted the status of an "Approved 
Enterprise" under the Israeli Investment Law for the Encouragement of Capital 
Investments, 1959 (the "Investment Law"). Taxable income of a company derived 
from an "Approved Enterprise" is eligible for certain tax benefits, including 
significant income tax rate reductions for up to seven years following the 
first year in which the "Approved Enterprise" has Israeli taxable income 
(after using any available net operating losses). The period of benefits 
cannot extend beyond 12 years from the year of commencement of operations or 
14 years from the year in which approval was granted, whichever is earlier. 
The tax benefits derived from a certificate of approval for an "Approved 
Enterprise" relate only to taxable income attributable to such "Approved 
Enterprise" and are conditioned upon fulfillment of the conditions stipulated 
by the Investment Law, the regulations promulgated thereunder and the 
criteria set forth in the certificate of approval. In the event of a failure 
by the Company to comply with these conditions, the tax benefits could be 
canceled, in whole or in part, and the Company would be required to refund 
the amount of the canceled benefits, adjusted for inflation and interest. No 
"Approved Enterprise" tax benefits had been realized by Summit from its 
Israeli operations as of December 31, 1995 since the Israeli operations were 
still incurring losses at that time. During 1996, Summit realized income of 
$1.4 million from its Israeli operations and "Approved Enterprise" tax 
benefits of $53,000. During 1997, Summit realized income of $2.7 million from 
its Israeli operations and "Approved Enterprise" tax benefits of $702,000. 
During 1998, Summit realized income of $4.3 million from its Israeli 
operations and "Approved Enterprise" tax benefits of $1.9 million. Summit has 
recently applied for "Approved Enterprise" status with respect to a new 
project and intends to apply in the future with respect to additional 
projects. However, there can be no assurance that the Company's Israeli 
production facility will continue to operate or qualify as an "Approved 
Enterprise" or that the benefits under the "Approved Enterprise" regulations 
will continue, or be applicable, in the future. Management of Summit intends 
to permanently reinvest earnings of the Israeli Subsidiary outside the U.S. 
If such earnings were remitted to the U.S., additional U.S. federal and 
foreign taxes may be due. The loss of, or any material decrease in, these 
income tax benefits could have a material adverse effect on the Company's 
business, financial condition, results of operations or cash flows.

DEPENDENCE ON KEY PERSONNEL

The Company's success will continue to depend in large part on its key 
technical and management personnel and its ability to continue to attract and 
retain highly-skilled technical, sales and marketing and management 
personnel. The Company has entered into employment agreements with certain of 
its executive officers, however, such agreements do not guarantee the 
services of these employees and do not contain non-competition provisions. In 
addition, the Company recently entered into new employment agreements with 
Larry Gerhard, the Company's Chief Executive Officer, and C. Albert Koob, the 
Company's Chief Financial Officer. Mr. Gerhard is currently entitled to 
certain guaranteed severance payments and has been provided incentives to 
remain with Summit through December 31, 1999. Absent an agreement between Mr. 
Gerhard and Summit to continue his employment after December 31, 1999, Mr. 
Gerhard's employment will terminate as of such date. Summit currently expects 
that Mr. Gerhard will retire at the end of 1999, although there can be no 
assurance that Mr. Gerhard will continue his employment until such date.  The 
Company intends to seek a qualified replacement for Mr. Gerhard prior to his 
planned retirement. Mr. Koob's employment agreement provides that he is 
entitled to certain guaranteed severance payments if he remains employed 
through July 31, 1999. The Company is in the process of negotiating an 
amendment to Mr. Koob's employment agreement that would provide him with a 
financial incentive to continue his employment until December 31, 1999, 
although there can be no assurance that an agreement will be reached or that 
Mr. Koob would continue his employment until such date.  The Company's 
failure to timely hire suitable replacements for either Mr. Gerhard or Mr. 
Koob prior to or after their departure could have a material adverse effect 
on Summit.

Competition for personnel in the software industry in general, and the EDA 
industry in particular, is intense, and the Company has at times in the past 
experienced difficulty in recruiting qualified personnel. There can be no 
assurance that the Company will retain its key personnel or that it will be 
successful in attracting and retaining other qualified technical, sales and 
marketing and management personnel in the future. The loss of any key 
employees or the inability to attract and retain additional qualified 
personnel may have a material adverse effect on the Company's business, 
financial condition, results of operations or cash flows. The Company has 
obtained a $1 million "key person" life insurance policy on its Chief 
Executive Officer. Additions of new personnel and departures of existing 
personnel, particularly in key positions, can be disruptive and can result in 
departures of 


                                       43

<PAGE>

additional personnel, which could have a material adverse effect on the 
Company's business, financial condition, results of operations or cash flows.

NEED TO EXPAND SALES AND MARKETING ORGANIZATIONS

The Company's success will depend on its ability to build and expand its 
sales and marketing organizations. The Company hired fewer sales and 
marketing personnel than planned during 1998 and hired most of the new sales 
and marketing personnel at the end of 1998. As a result of the lack of sales 
people, the Company's revenues for the fourth quarter of 1998 were lower than 
expected. In February 1998, the Company's Senior Vice President of Worldwide 
Marketing and Sales resigned. While the Company has filled the position of 
Vice President of Marketing, the Company is still seeking a Vice President of 
Sales. The Company's future success will depend in part on its ability to 
hire and retain qualified sales and marketing personnel and the ability of 
these new persons to rapidly and effectively transition into their new 
positions. Competition for qualified sales and marketing personnel is intense,
and the Company may not be able to hire and retain the number of sales and 
marketing personnel needed which would have a material adverse effect on the
Company's business, financial condition, results of operations or cash flows.

ISRAELI RESEARCH, DEVELOPMENT AND MARKETING GRANTS

Summit's Israeli subsidiary obtained research and development grants from the 
Chief Scientist in the Israeli Ministry of Industry and Trade of 
approximately $232,000 and $608,000 in 1993 and 1995, respectively. As of 
December 31, 1997, all amounts have been repaid. The terms of the grants 
prohibit the manufacture of products developed under these grants outside of 
Israel and the transfer of the technology developed pursuant to these grants 
to any person, without the prior written consent of the Chief Scientist. The 
Company's Visual HDL for VHDL products have been developed under grants from 
the Chief Scientist and thus are subject to these restrictions. If the 
Company is unable to obtain the consent of the government of Israel, the 
Company would be unable to take advantage of potential economic benefits such 
as lower taxes, lower labor and other manufacturing costs and advanced 
research and development facilities that may be available if such technology 
and manufacturing operations could be transferred to locations outside of 
Israel. In addition, the Company would be unable to minimize risks particular 
to operations in Israel, such as hostilities involving Israel. Although the 
Company is eligible to apply for additional grants from the Chief Scientist, 
it has no present plans to do so. The Company received a Marketing Fund Grant 
from the Israeli Ministry of Industry and Trade for an aggregate of $423,000. 
The grant must be repaid at the rate of 3% of the increase in exports over 
the 1993 export level of all Israeli products, until repaid. As of December 
31, 1998, approximately $187,000 was outstanding under the grant.

LIMITATIONS ON PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

     NO ASSURANCE THAT EFFORTS TO PROTECT PROPRIETARY TECHNOLOGY WILL 
SUCCEED. The Company's success depends in part upon its proprietary 
technology. The Company relies on a combination of copyright, trademark and 
trade secret laws, confidentiality procedures, licensing arrangements and 
technical means to establish and protect its proprietary rights. As part of 
its confidentiality procedures, the Company generally enters into 
non-disclosure agreements with its employees, distributors and corporate 
partners, and limits access to, and distribution of, its software, 
documentation and other proprietary information. In addition, the Company's 
products are protected by hardware locks and software encryption techniques 
designed to deter unauthorized use and copying. Despite these precautions, it 
may be possible for a third party to copy or otherwise obtain and use the 
Company's products or technology without authorization, or to develop similar 
technology independently.

The Company provides products to end-users primarily under "shrink-wrap" 
license agreements included within the packaged software In addition, the 
Company delivers certain of its verification products electronically under an 
electronic version of a "shrink-wrap" license agreement. These agreements are 
not negotiated with or signed by the licensee, and thus may not be 
enforceable in certain jurisdictions. In addition, the laws of some foreign 
countries do not protect the Company's proprietary rights as fully as do the 
laws of the United States. There can be no assurance that the Company's means 
of protecting its proprietary rights in the United States or abroad will be 
adequate or that competitors will not independently develop similar 
technology.


                                       44

<PAGE>

RISKS OF INFRINGEMENT CLAIMS. The Company could be increasingly subject to 
infringement claims as the number of products and competitors in the 
Company's industry segment grows, the functionality of products in its 
industry segment overlaps and an increasing number of software patents are 
granted by the United States Patent and Trademark Office. There can be no 
assurance that a third party will not claim such infringement by the Company 
with respect to current or future products. Any such claims, with or without 
merit, could be time-consuming, result in costly litigation, cause product 
delays or require the Company to enter into royalty or licensing agreements. 
Such royalty or license agreements, if required, may not be available on 
terms acceptable to the Company or at all. Failure to protect its proprietary 
rights or claims of infringement could have a material adverse effect on the 
Company's business, financial condition, results of operations or cash flows.

POSSIBLE VOLATILITY OF STOCK PRICE

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

YEAR 2000

Summit is currently reviewing its products, internal systems and 
infrastructure in order to identify and modify those products and systems 
that are not Year 2000 compliant. Summit expects any required modification to 
be made on a timely basis and does not believe that the cost of any such 
modification will have a material adverse effect on Summit's operating 
results. There can be no assurance, however, that there will not be a delay 
in, or increased costs associated with, implementation of any such 
modifications and inability to implement such modifications could have an 
adverse effect on Summit's future operating results.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

INTEREST RATE RISK. The Company invests its excess cash in debt instruments of
the U.S. Government and its agencies, and in high-quality corporate issuers and,
by policy, limits the amount of credit exposure to any one issue.  The Company
attempts to protect and preserve its invested funds by limiting default, market
and reinvestment risk.

Investments in both fixed rate and floating rate interest earning instruments
carry a degree of interest rate risk.  Fixed rate securities may have their fair
market value adversely impacted due to a rise in interest rates, while floating
rate securities may produce less income than expected if interest rates fall.
Due in part to these factors, the Company's future investment income may fall
short of expectations due to  changes in interest rates and the Company may
suffer losses in principal if forced to sell securities which have declined in
market value due to changes in interest rates.

FOREIGN CURRENCY RISK.  The Company pays the expenses of its international
operations in  local currencies.  The Company's international operations are
subject to risks typical of an international business, including, but not
limited to:  differing economic conditions, changes in political climate,
differing tax structures, other regulations and restrictions, and foreign
exchange rate volatility.  Accordingly, the Company's future results could be
materially adversely impacted by changes in these or other factors.

The Company is also exposed to foreign exchange rate fluctuations as they relate
to operating expenses as the financial results of foreign subsidiaries are
translated into U.S. dollars in consolidation.  As exchange rates vary, these
results, when translated, may vary from expectations and adversely impact
overall expected profitability.  The effect of foreign exchange rate
fluctuations on the Company in 1998 was not material.

INVESTMENT RISK.  The Company has made equity investments in ADC and SDA and has
provided loans to ADC and a privately-held, independent software company for
business and strategic purposes..  These investments are included in other
long-term assets and are accounted for under the equity method when ownership is
greater than 20% and the Company does not exert control.  For these investments
in privately-held companies, the Company's policy is to regularly review the
assumptions underlying the operating performance and cash flow forecasts in
assessing the carrying values.  The Company identifies and records impairment
losses on long-lived assets when events and circumstances indicate that such
assets might be impaired.


                                       45
<PAGE>

ITEM 8.    FINANCIAL STATEMENTS AND SUPPORTING DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                               Page
                                                                               -----
<S>                                                                            <C>
Report of Independent Accountants.............................................  47

Consolidated Balance Sheets as of December 31, 1998 and 1997..................  48

Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996..............................................  49

Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996..............................................  50

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996..............................................  51

Notes to Consolidated Financial Statements....................................  52
</TABLE>


                                       46

<PAGE>

                         REPORT OF INDEPENDENT ACCOUNTANTS


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

In our opinion, the accompanying consolidated balance sheets and the related 
consolidated statements of operations, of changes in stockholders' equity and 
of cash flows present fairly, in all material respects, the financial 
position of Summit Design, Inc. and its subsidiaries at December 31, 1998 and 
1997, and the results of their operations and their cash flows for each of 
the three years in the period ended December 31, 1998, in conformity with 
generally accepted accounting principles. These financial statements are the 
responsibility of the Company's management; our responsibility is to express 
an opinion on these financial statements based on our audits. We conducted 
our audits of these statements in accordance with generally accepted auditing 
standards, which require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of 
material misstatement. An audit includes examining, on a test basis, evidence 
supporting the amounts and disclosures in the financial statements, assessing 
the accounting principles used and significant estimates made by management, 
and evaluating the overall financial statement presentation. We believe that 
our audits provide a reasonable basis for the opinion expressed above.

PRICEWATERHOUSECOOPERS LLP


Portland, Oregon
February 3, 1999


                                       47

<PAGE>

                               SUMMIT DESIGN, INC.

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

<TABLE>
<CAPTION>
                                                                                     DECEMBER 31,
                                                                           ------------------------------
                                                                                 1998           1997    
                                                                           ------------------------------
<S>                                                                        <C>               <C>
                                  ASSETS
Current assets:
     Cash and cash equivalents....................................                $27,693       $19,973 
     Accounts receivable, less allowance for doubtful accounts
        of $511 and $592..........................................                  8,852         5,131 
     Prepaid expenses and other...................................                    862           540 
     Deferred income taxes........................................                    792         1,209
                                                                                  -------        ------
          Total current assets....................................                 38,199        26,853 

Furniture and equipment, net......................................                  4,113         2,698 
Intangibles, net..................................................                  2,870         5,571 
Goodwill, net.....................................................                  2,742         3,493 
Deposits and other assets.........................................                  2,286         1,055
                                                                                  -------        ------
          Total assets............................................               $ 50,210      $ 39,670
                                                                                 ========      ========

                                LIABILITIES
Current liabilities:
     Long-term debt, current portion..............................               $     54        $  134 
     Capital lease obligation, current portion....................                     43            49 
     Accounts payable.............................................                  2,520         1,211 
     Accrued liabilities..........................................                  5,687         5,182 
     Deferred revenue.............................................                  5,640         5,674
                                                                                  -------        ------
          Total current liabilities...............................                 13,944        12,250 

Long-term debt, less current portion..............................                    156           194 
Capital lease obligation, less current portion....................                      -            43 
Deferred revenue, less current portion............................                    146             -
Deferred income taxes.............................................                    489           987 
                                                                                  -------        ------
          Total liabilities.......................................                 14,735        13,474
                                                                                  -------        ------

Commitments  and contingencies (Notes 10 and 17)

                           STOCKHOLDERS' EQUITY
Common stock, $.01 par value. Authorized 30,000; issued
   and outstanding 15,457 shares in 1998 and 15,841
   shares in 1997.................................................                    155           159 
Additional paid-in capital........................................                 44,039        51,412 
Treasury stock, at cost, 939 shares in 1997.......................                      -       (11,555)
Accumulated deficit...............................................                (8,719)       (13,820)
                                                                                  -------        ------
          Total stockholders' equity..............................                 35,475        26,196
                                                                                  -------        ------
          Total liabilities and stockholders' equity..............                $50,210      $ 39,670
                                                                                  =======      ========
</TABLE>


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


                                       48

<PAGE>

                             SUMMIT DESIGN, INC.

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

<TABLE>
<CAPTION>
                                                                        YEARS ENDED DECEMBER 31,
                                                          ------------------------------------------------------
                                                                  1998              1997               1996
                                                                --------          --------             --------
<S>                                                       <S>                     <C>                  <C>
Revenue:
     Product licenses............................                $33,589          $ 24,828             $ 15,446

     Maintenance and services....................                  9,642             6,161                4,301

     Other   ....................................                    367               450                  567
                                                                --------          --------             --------
          Total revenue..........................                 43,598            31,439               20,314
                                                                --------          --------             --------
Cost of revenue:
     Product licenses............................                    744               701                  573  
     Maintenance and services....................                    955               632                  466  
     Amortization of purchased technologies......                    661               219                    -   
                                                                --------          --------             --------
          Total cost of revenue..................                  2,360             1,552                1,039
                                                                --------          --------             --------
Gross profit ....................................                 41,238            29,887               19,275  
Operating expenses:
     Research and development....................                 13,042             7,749                5,867  
     Sales and marketing.........................                 11,713            10,591                9,319  
     General and administrative..................                  4,398             3,785                3,188  
     Amortization of intangibles and goodwill                      2,791               942                    -
     Non-recurring charges related to
          acquisitions...........................                  1,249               379                    -
     In-process technology.......................                     -             11,689                    -
                                                                --------          --------             --------
          Total operating expenses...............                 33,193            35,135               18,374
                                                                --------          --------             --------
Income (loss) from operations....................                  8,045            (5,248)                 901  
Interest expense.................................                     (4)              (12)                (101) 
Other income, net................................                  1,097             1,057                  218  
Gain on sale of TDS product line.................                     -              5,574                   -
                                                                --------          --------             --------
Income before income taxes.......................                  9,138             1,371                1,018  
Income tax provision (benefit)...................                  4,037               940                 (245) 
                                                                --------          --------             --------
Net income   ....................................                $ 5,101             $ 431              $ 1,263
                                                                --------          --------             --------
                                                                --------          --------             --------
Net income per share - Basic:....................
   Net income per share..........................                 $ 0.34            $ 0.03                $0.10
                                                                --------          --------             --------
                                                                --------          --------             --------
   Number of shares used in .....................
   computing basic net income per share..........                 15,155            14,403               12,240 

Net income per share - Diluted:..................
   Net income per share..........................                 $ 0.32            $ 0.03                $0.10
                                                                --------          --------             --------
                                                                --------          --------             --------
   Number of shares used in .....................
   computing diluted net income per share........                 16,115            15,402               13,243 

</TABLE>

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

                                       49

<PAGE>
                               SUMMIT DESIGN, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 for the years ended December 31, 1998, 1997 and 1996
                          (In thousands, except shares)
<TABLE>
<CAPTION>
                                 Convertible
                               Preferred Stock       Common Stock                   Treasury Stock                    
                             ------------------   -------------------  Additional   ---------------                  Total   
                                                                        Paid-in                       Accumulated     Stock-  
                                                                                                                     holders' 
                              Shares     Amount     Shares     Amount   Capital     Shares   Amount     Deficit       Equity  
                            ----------   ------   ----------   ------   -------     ------   ------     -------       ------  
<S>                         <C>          <C>      <C>          <C>     <C>          <C>      <C>      <C>           <C>
Balance, December 31,
  1995 ....................  9,183,729     $535    2,233,260      $64    $15,463          -      $-    $(15,514)        $548 
Issuance of convertible
  Preferred stock..........    290,938      986                                                                          986 
Issuance of common stock in
  in initial public 
  offering, net of Issuance
  costs....................                        2,000,000       20     16,204                                      16,224 
Issuance of common stock
  under stock option
  plan and other...........                          383,952        6        134                                         140 
Conversion of preferred
  Stock to common 
  stock.................... (9,474,667)  (1,521)   9,474,667       95      1,418                                          (8)
Repurchase of common 
  stock....................                          (12,737)                (2)                                          (2)
Conversion of TriQuest
  Common stock.............                                       (44)        44                                           -
Net income.................                                                                               1,263        1,263
                             ---------   ------   ----------   ------    -------     ------   ------     -------      ------  
Balance, December 31, 
  1996.....................          -        -   14,079,142      141     33,261          0         0   (14,251)      19,151
Issuance of common stock...                           29,733                   3                                           3
Issuance of common stock 
  Under stock option plan..                          440,711       5         563                                         568
Issuance of common stock 
  Under employee stock
  Purchase plan............                           58,701       1         349                                         350
Repurchase of common 
  stock....................                          (23,760)                 (4)                                         (4)
Issuance of common stock 
  in conjunction with a
  business combination.....                        1,256,777      12      15,538                                      15,550
Purchase of treasury stock.                                                        (939,381)  (11,555)               (11,555)
Tax benefit of option 
  exercises................                                                  969                                         969
Amortization of contingent
  share liability..........                                                  733                                         733
Net income.................                                                                                  431         431
                             ---------   ------   ----------   ------    -------     ------   ------     -------      ------
                                     0        0   15,841,304      159     51,412   (939,381)  (11,555)   (13,820)     26,196
Balance, December 31, 1997
Issuance of common stock...                           14,616                  11                                          11
Issuance of common stock
  Under stock option plan..                          460,590        5        994                                         999
Issuance of common stock
  Under employee stock
  Purchase plan............                           80,252        1        602                                         603
Purchase of treasury stock                                                         (162,500)   (2,330)                (2,330)
Reissuance-treasury stock                                                 (2,330)   162,500     2,330
Retirement treasury stock..                         (939,381)     (10)   (11,545)   939,381    11,555                      0
Amortization of contingent
  share liability                                                          3,666                                       3,666
Tax benefit of option
exercises..................                                                1,229                                       1,229
Net income.................                                                                                5,101       5,101
                             ---------   ------   ----------   ------    -------     ------   ------     -------      ------ 
Balance, December 31, 1998           0       $0   15,457,381     $155    $44,039          -       $-     $(8,719)    $35,475
                             ---------   ------   ----------   ------    -------     ------   ------     -------      ------ 

                    The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>

                                                     50
<PAGE>
                                              SUMMIT DESIGN, INC.

                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                 (In thousands)
<TABLE>
<CAPTION>
                                                                               YEARS ENDED DECEMBER 31,
                                                                      -------------------------------------------
                                                                         1998             1997            1996
                                                                      ----------       ----------      ----------
<S>                                                                   <C>              <C>              <C>
Cash flows from operating activities:
     Net income...................................................      $ 5,101         $    431        $ 1,263
     Adjustments to reconcile net income  to net cash provided by
        (used in) operating activities:
          Depreciation and amortization...........................        4,649            1,984            870
          Amortization of contingent share liability..............        3,666              733              -
          Loss on asset disposition...............................            -                2             18
          Gain on sale of TDS product line........................            -           (5,574)             -
          Write-off of acquired in-process technology.............            -           11,689              -
          Deferred taxes..........................................          (81)          (1,044)          (500)
          Equity in losses of and transactions with unconsolidated
           joint venture..........................................          520               77             33
          Changes in assets and liabilities:
               Accounts receivable................................       (3,721)             951            (21)
               Prepaid expenses...................................         (322)             (13)          (157)
               Accounts payable...................................        1,309             (254)           406
               Accrued liabilities................................          505            1,667            561
               Deferred revenue...................................          112            1,601          2,067
               Other, net.........................................          134             (145)           127
                                                                      ---------       ----------      ---------
                    Net cash provided by operating activities            11,872           12,105          4,667
                                                                      ---------       ----------      ---------
Cash flows from investing activities:
     Additions to furniture and equipment........................        (2,619)          (1,613)          (763)
     Acquisitions, net of cash received..........................             -           (3,816)             - 
     Proceeds from sale of TDS product line......................             -            4,666              - 
     Proceeds from sale of assets................................             7               30              8
     Notes receivable advances...................................        (1,210)            (565)             - 
     Notes receivable repayments.................................            75                -              -
     Investment in and advances to joint venture.................          (750)               -           (100)
                                                                      ---------       ----------      ---------
                    Net cash used in investing activities........        (4,497)          (1,298)          (855)
                                                                      ---------       ----------      ---------
Cash flows from financing activities:
     Issuance of preferred stock.................................                              -            977
     Issuance of common stock, net of expenses...................         1,613              922         16,364
     Tax benefit of option exercises.............................         1,229              969              -
     Payments to acquire treasury stock..........................             -          (11,555)             -
     Proceeds from notes payable and long-term debt..............             -                -             96
     Repurchase of common stock..................................        (2,330)              (4)            (2)
     Principal payments of debt obligations......................          (118)            (898)        (1,952)
     Principal payments of capital lease obligations.............           (49)             (69)          (205)
                                                                      ---------       ----------      ---------
                    Net cash provided by (used in) financing
                          activities.............................           345          (10,635)        15,278
                                                                      ---------       ----------      ---------
                    Increase in cash and cash equivalents........         7,720              172         19,090
Cash and cash equivalents, beginning of year.....................        19,973           19,801            711
                                                                      ---------       ----------      ---------
Cash and cash equivalents, end of year...........................       $27,693         $ 19,973        $19,801
                                                                      ---------       ----------      ---------
                                                                      ---------       ----------      ---------
</TABLE>

Supplemental disclosure (see Note 16)


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


                                      51
<PAGE>
                               SUMMIT DESIGN, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   THE COMPANY:

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

<PAGE>

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

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

BASIS OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and 
its wholly-owned subsidiaries, Summit Verification, Inc., Summit Design (EDA) 
Ltd. and ProSoft OY. Upon consolidation, all intercompany accounts, 
transactions and profits have been eliminated.

REVENUE RECOGNITION

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

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

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

RESEARCH AND DEVELOPMENT COSTS

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

CASH EQUIVALENTS

The Company considers all highly liquid debt instruments with a remaining 
maturity of three months or less when purchased to be cash equivalents. At 
December 31, 1998 and 1997, substantially all of the Company's cash and cash 
equivalents are invested in interest-bearing deposits and other short-term 
investments with several major banks.

                                      53
<PAGE>
FURNITURE AND EQUIPMENT

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

INTANGIBLES AND GOODWILL

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

INCOME TAXES

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

CONCENTRATION OF CREDIT RISK

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

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

FOREIGN CURRENCY TRANSLATION

The Company's subsidiaries in Israel and Finland uses the U.S. dollar as its 
functional currency for financial reporting purposes. The Company's sales to 
foreign distributors and customers are denominated in U.S. dollars. Operating 
expenses of the Company's subsidiary in Israel and other international 
operations are paid in the local currency. Transaction gains and losses, as 
well as gains and losses experienced with respect to remeasurement to the 
functional currency are recorded in the consolidated statement of operations. 
As the gains and losses are insignificant in 1997 and 1998, such amounts were 
recorded as other income, net.

ESTIMATES

The preparation of financial statements in conformity with generally accepted 
accounting principles requires management to make estimates and assumptions 
that affect the reported amounts of assets and liabilities and disclosure of 
contingent assets and liabilities at the date of the financial statements and 
the reported amounts of revenue and expenses during the reporting period. 
Actual results could differ from those estimates.


                                      54
<PAGE>
DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of financial instruments including cash and cash 
equivalents, accounts receivable, other current assets, accounts payable and 
accrued liabilities approximated fair value as of December 31, 1998 and 1997 
because of the relatively short maturity of these instruments. The carrying 
value of capital lease obligations and long-term debt approximated fair value 
as of December 31, 1998 and 1997, based upon the interest rates available to 
the Company for similar instruments.

COMPUTATION OF NET INCOME (LOSS) PER SHARE

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

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments 
of an Enterprise and Related Information." This statement changed the way 
public companies report information about segments of their business in their 
annual financial statements and requires them to report selected segment 
information in their quarterly reports issued to shareholders. It also 
requires entity-wide disclosures about the products and services an entity 
provides, the material countries in which it holds assets and reports 
revenues, and its major customers. The statement was effective for fiscal 
years beginning after December 15, 1997 and has not significantly modified
the disclosure of segment information for the Company.

In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about 
Pensions and Other Postretirement Benefits". This statement revises 
employers' disclosures about pension and other postretirement benefit plans. 
It does not change the measurement or recognition of those plans. The 
statement suggests combined formats for presentation of pension and other 
postretirement benefit disclosures. The Statement also permits reduced 
disclosures for nonpublic entities. This statement is effective for fiscal 
years beginning after December 15, 1997. The adoption of this statement has 
not had any effect on the consolidated financial statements.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative 
Instruments and Hedging Activities." This statement establishes accounting 
and reporting standards for derivative instruments, including certain 
derivative instruments embedded in other contracts (collectively referred to 
as derivatives), and for hedging activities. It requires that an entity 
recognize all derivatives as either assets or liabilities in the balance 
sheet and measure those instruments at fair value. Changes in the fair value 
of derivatives are recorded each period in current earnings or other 
comprehensive income, depending on whether a derivative is designated as part 
of a hedge transaction and, if it is, the type of hedge transaction.  This 
statement is effective for fiscal years beginning after June 15, 1999.  
Management does not expect the adoption of this statement to have any effect 
on the consolidated financial statements.

During the first quarter of 1998, the Company adopted Statements of Position 
(SOP) 97-2, "Software Revenue Recognition" and 98-4, "Deferral of the 
Effective Date of a Provision of SOP 97-2, "Software Revenue Recognition." 
The provisions of SOPs 97-2 and 98-4 have been applied to transactions 
entered into beginning January 1, 1998. SOP 97-2 generally requires revenue 
earned on software arrangements involving multiple elements to be allocated 
to each element based on vendor-specific objective evidence (VSOE) of the 
fair value of the various elements in a multiple element arrangement Revenue 
from the sale of software licenses is recognized at the later of the time of 
shipment or satisfaction of all acceptance terms. The revenue allocated to 
maintenance is recognized ratably over the term of the maintenance agreement 
and revenue allocated to services is recognized as the services are performed.

                                       55
<PAGE>

The Company analyzed the elements included in its multiple element 
arrangements and determined that the Company has sufficient evidence to 
allocate revenue to the license and maintenance components of its product 
licenses. The adoption of SOPs 97-2 and 98-4 did not have a significant 
effect on revenue recognized for the year ended December 31, 1998.

3.   ACQUISITION OF TRIQUEST DESIGN AUTOMATION, INC.:

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

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

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

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

4.   SALE OF TDS PRODUCT LINE:

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

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

5.   ACQUISITION OF SIMULATION TECHNOLOGIES CORP.:

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

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

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

                                      56
<PAGE>

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

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

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

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

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

<TABLE>
<CAPTION>
                                                               December 31,              December 31,
                                                                   1996                      1997
                                                               ------------              ------------
                                                                (in thousands, except per share data)
<S>                                                            <C>                       <C>
                Revenues                                           $ 24,391                   $35,278
                                                               ------------              ------------
                                                               ------------              ------------
                Net income (loss)                                  $ (4,104)                  $ 6,563
                                                               ------------              ------------
                                                               ------------              ------------
                Basic net income (loss) per share                  $  (0.31)                  $  0.43
                                                               ------------              ------------
                                                               ------------              ------------
                Diluted net income (loss) per share                $  (0.31)                  $  0.40
                                                               ------------              ------------
                                                               ------------              ------------
                Number of shares used in computing basic
                net income per share                                 13,292                    15,268
                                                               ------------              ------------
                                                               ------------              ------------
                Number of shares used in computing diluted     
                net income per share                                  13,292                    16,267
                                                                ------------              ------------
                                                                ------------              ------------
</TABLE>


                                             57
<PAGE>
In management's opinion, the unaudited pro forma combined results of 
operations are not indicative of the actual results that would have occurred 
had the acquisition been consummated at the beginning of 1996 or at the 
beginning of 1997 or under the ownership and management of the Company.

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

6.   FURNITURE AND EQUIPMENT:

Furniture and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
                                                                        December 31,
                                                                      ---------------
                                                                       1998     1997
                                                                      ------   ------
<S>                                                                   <C>      <C>
Office furniture and equipment..............................          $1,201   $  596

Computer equipment..........................................           5,138    3,679

Leasehold improvements......................................             491       66
                                                                      ------   ------
                                                                       6,830    4,341

Less accumulated depreciation and amortization..............          (2,717)  (1,643)
                                                                      ------   ------

                                                                      $4,113   $2,698
                                                                      ------   ------
                                                                      ------   ------
</TABLE>


7.   NOTE RECEIVABLE:

In July 1997, the Company entered into an agreement to lend up to $2.5 
million to an independent software development company pursuant to a loan 
agreement which is collateralized by the intellectual property and stock of 
the software development company. Borrowings under this agreement bear 
interest at prime rate plus 2%. Total amounts due to the Company under this 
agreement at December 31, 1998 and 1997 were $1.7 million and $490,000, 
respectively, and are included in other non-current assets.

8.   NOTE PAYABLE TO BANK:

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

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


                                          58
<PAGE>
9.   ACCRUED LIABILITIES:

Accrued liabilities consists of the following (in thousands):
<TABLE>
<CAPTION>
                                                             December 31,
                                                           ---------------
                                                            1998     1997
                                                           ------   ------
<S>                                                        <C>      <C>
Payroll and related benefits...........................    $3,051   $2,887
Sales and marketing....................................       332      435
Accounting and legal...................................       310      260
Federal and state income taxes payable.................     1,549      819
Sales taxes payable....................................       160      114
Other..................................................       285      667
                                                           ------   ------
                                                           $5,687   $5,182
                                                           ------   ------
                                                           ------   ------
</TABLE>


10.   LEASES:

The Company is obligated under capital leases for equipment that expire at 
various dates during the next three years. The leased assets are included in 
equipment at a capitalized amount of $197,000 at December 31, 1998 and 1997. 
Related accumulated amortization of $153,000 and $108,000 at December 31, 
1998 and 1997 is included in accumulated depreciation.

The Company has entered into significant noncancelable operating leases for 
the use of buildings in Beaverton, Oregon, Herzlia, Israel, and San Jose, 
California. Rental expense was approximately $653,000, $495,000, and $470,000 
for the years ended December 31, 1998, 1997 and 1996, respectively.

Future minimum lease payments under these operating and capital leases for 
the years ending December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
                                                             Capital   Operating
                                                             Leases     Leases
                                                             -------   ---------
<S>                                                          <C>       <C>
1999......................................................   $45       $1,349
2000......................................................     -          966
2001......................................................     -          953
2002......................................................     -          759
2003......................................................     -          617
                                                             -------   ---------

     Total minimum lease payments.........................    45       $4,644
                                                                       ---------
                                                                       ---------

     Less amount representing interest (at 4%)............    (2)
                                                             -------
     Present value of minimum capital lease payments......    43 
     Current portion of capital lease obligation .........   (43)
                                                             -------
     Capital leases obligation, less current portion......   $ -
                                                             -------
                                                             -------
</TABLE>


11.   LONG-TERM DEBT:

Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
                                                           December 31,
                                                         ----------------
                                                          1998     1997
                                                         ------   ------
<S>                                                      <C>      <C>
Marketing grant payable to the Israeli government......    $187     $261
Other..................................................      23       67
                                                         ------   ------
                                                            210      328
Current portion........................................     (54)    (134)
                                                         ------   ------
Non-current portion....................................    $156     $194
                                                         ------   ------
                                                         ------   ------
</TABLE>


                                  59
<PAGE>
The Chief Scientist grant represents research and development funding of 
approximately $232,000 in 1993 and $608,000 in 1995 received from the Israeli 
government. The Company repaid both the 1993 and 1995 grants in full during 
1997.

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

Future principal payments of debt outstanding for the years ending December 
31 are as follows (in thousands):
<TABLE>
<CAPTION>
<S>                             <C>
      1999...................    $54
      2000...................    156
                                 ---
                                 210
                                 ---
                                 ---
</TABLE>

12.   STOCKHOLDERS' EQUITY:

PREFERRED STOCK

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

1994 INCENTIVE STOCK OPTION PLAN

The Company has an Incentive Stock Option Plan ("1994 Plan") pursuant to 
which the Company may grant options to employees and consultants. Under the 
terms of the 1994 Plan, the option price is determined as the fair value of 
the Company's common stock at the time the option is granted. Under the 1994 
Plan, 2,822,000 shares of common stock are authorized for issuance. Options 
granted prior to the Company's initial public offering generally became 
immediately exercisable. Shares issued are subject to repurchase until 
vested. Options granted subsequent to the Company's initial public offering 
are exercisable upon vesting. Options generally vest 25% twelve months after 
the date of grant and the remainder at 1/48th of the grant amount in each 
successive month thereafter. Options expire no later than 10 years after the 
date of grant.

There were 342,026, 2,659, and 366,094 shares of common stock reserved for 
the grant of stock options under the 1994 Plan at December 31, 1998, 1997 and 
1996, respectively.

1996 DIRECTOR OPTION PLAN

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

1997 NONSTATUTORY STOCK OPTION PLAN


                                      60
<PAGE>
The Company established the 1997 Nonstatutory Stock Option Plan 
("Nonstatutory Plan") in order to provide additional incentive to employees, 
directors and consultants. Options granted under the Nonstatutory Plan will 
be nonstatutory stock options and are not intended to qualify as incentive 
stock options within the meaning of Section 422 of the Internal Revenue Code. 
Options generally vest 25% twelve months after the date of grant and the 
remainder at 1/48th of the grant amount in each successive month thereafter. 
Options expire no later than 10 years after the grant date. In addition, no 
more than 25,000 options may be granted to directors and persons considered 
"officers" by the NASDAQ Stock Market. The maximum aggregate number of shares 
of common stock authorized for issuance is 250,000 shares. The Company 
granted 101,623 options under the Nonstatutory Plan in 1998.

A summary of the status of the Company's stock option plans as of December 
31, 1998,  1997 and 1996 and changes during the years ended on those dates is 
presented below:
<TABLE>
<CAPTION>
                                                              Exercise
                                              Options        Price Range
                                             ---------     ---------------
<S>                                          <C>           <C>
Balance, December 31, 1995...............    1,163,482     $0.02 -- $ 2.50
     Options granted.....................      722,575     $0.33 -- $10.50
     Options exercised...................     (345,278)    $0.02 -- $ 2.50
     Options canceled....................     (146,905)    $0.02 -- $10.50
                                             ---------
Balance, December 31, 1996...............    1,393,874     $0.02 -- $10.50
     Options granted.....................    1,643,121     $0.08 -- $17.00
     Options exercised...................     (470,715)    $0.02 -- $ 7.00
     Options canceled....................     (442,906)    $0.02 -- $12.75
                                             ---------
Balance, December 31, 1997                   2,123,374     $0.08 -- $17.00
     Options granted.....................      380,599     $6.75 -- $15.88
     Options exercised...................     (623,087)    $0.08 -- $ 9.25
     Options canceled....................     (147,773)    $1.17 -- $17.00
                                             ---------
Balance, December 31, 1998                   1,733,113     $0.08 -- $17.00
                                             ---------
                                             ---------
</TABLE>

The following are the shares exercisable at the corresponding weighted 
average exercise price at December 31, 1998, 1997, and 1996, respectively: 
780,195 at $5.2121, 949,261 at $2.3119, and 1,186,986 at $2.0662. The 
weighted average exercise price per share of options outstanding at December 
31, 1998 is $6.976. The following are the weighted average grant date fair 
value of options granted for the years ended December 31, 1998, 1997, and 
1996, respectively: $12.00, $8.96, and $5.95. At December 31, 1998, 127,083 
shares are subject to repurchase.

Effective September 13, 1995, the Board of Directors of the Company approved 
an adjustment to the exercise price of the Company's outstanding stock 
options with an exercise price in excess of $1.75. All outstanding options 
subject to the adjustment were repriced to $1.75, the fair market value at 
that date as determined by the Board. Participation by each option holder was 
voluntary.

The following table summarizes information about stock options outstanding at 
December 31,1998:
<TABLE>
<CAPTION>
                            Options Outstanding                  Options Exercisable
                   -----------------------------------------   -----------------------
                                    Weighted        Weighted    Weighted      Weighted
                     Shares         Average         Average      Shares       Average
   Range of        Outstanding     Contractual      Exercise   Exercisable    Exercise
Exercise Prices    at 12/31/98   Remaining Life      Price     at 12/31/98     Price 
----------------   -----------   ---------------    --------   -----------    --------
<S>                <C>           <C>                <C>         <C>           <C>
$ 0.08 to $ 0.62   318,423             6.59         $ 0.3778     223,916      $ 0.3237
$ 1.17 to $ 1.95   250,275             7.25           1.7116     159,203        1.7053
$ 4.67 to $ 7.00    94,160             9.08           6.1831      41,712        6.2183
$ 8.13 to $ 9.50   642,938             8.57           8.8846     277,025        8.9756
$ 9.63 to $10.50   197,000             8.98           9.9194      34,833        9.6522
$12.75 to $17.00   230,317             9.24          14.2973      43,506       14.7214
</TABLE>


                                      61
<PAGE>
1996 EMPLOYEE STOCK PURCHASE PLAN

The Company has established the 1996 Employee Stock Purchase Plan ("1996 
Purchase Plan"). The 1996 Purchase Plan, which is intended to qualify under 
Section 423 of the Internal Revenue code, permits eligible employees of the 
Company to purchase common stock through payroll deductions of up to 10% of 
their base salary up to a maximum of $25,000 of common stock for all purchase 
periods ending within any calendar year. The price of common stock purchased 
under the 1996 Purchase Plan will be 85% of the lower of the fair market 
value of the common stock on the first day of each 24 month offering period 
or the last day of the applicable six-month purchase period. The Company has 
reserved 385,000 shares of common stock for issuance under the 1996 Purchase 
Plan. The Company issued approximately 80,252 shares of common stock under 
the 1996 Purchase Plan during 1998.

SFAS NO. 123 DISCLOSURE

The Company applies APB No. 25 and related interpretations in accounting 
for its plans. However, in accordance with SFAS No. 123, pro forma 
disclosures as if the Company adopted the cost recognition requirements under 
No. SFAS 123 in 1998, 1997 and 1996 are presented below.

The fair value of each option granted during the years ended December 
31,1998, 1997, and 1996 are estimated on the date of grant using the 
Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
                                   1998     1997      1996
                                   ----     ----      ----
<S>                               <C>      <C>       <C>
Average dividend yield                0%       0%        0%
Expected volatility                  57%      44%       46%
Expected life in years                4        4         5
Risk free interest rate:
     Low                          4.050%   5.787%    5.546%
     High                         5.665%   6.421%    6.543%
</TABLE>

Had the Company used the fair value methodology for determining compensation 
expense, the Company's net income (loss) and net income (loss) per share 
would approximate the pro forma amounts below (in thousands, except per share 
data):
<TABLE>
<CAPTION>
                                                                1998        1997    1996
                                                               ------     -------   ------
<S>                                                            <C>        <C>       <C>
Net income - as reported                                       $5,101     $   431   $1,263
Net income (loss)- pro forma                                   $1,802     $(1,496)  $  714
Diluted net income per common share - as reported              $ 0.32     $  0.03   $ 0.10
Diluted net income (loss) per common share - pro forma         $ 0.11     $ (0.10)  $ 0.05
</TABLE>

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

13.   INCOME TAXES:

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

<TABLE>
<CAPTION>
                                                   Years Ended December 31,
                                               ------------------------------
                                                1998          1997       1996
                                               ------       --------     ----
<S>                                            <C>         <C>           <C>
Current:
     Federal................................   $1,811         $765       $ 26
     State..................................      457          426          4
     Foreign................................    1,110          468        225
                                               ------        ------       ---
                                                3,378        1,659        255
                                               ------        ------       ---
Deferred:
     Federal................................      693        (486)       (373)
</TABLE>


                                      62
<PAGE>

<TABLE>

     <S>                                       <C>          <C>         <C>
     State..................................       93          14         (27)
     Foreign................................     (127)       (247)       (100)
                                               ------        ------      -----
                                                  659        (719)       (500)
                                               ------        ------     -----
                                               $4,037       $ 940       $(245)
                                               ------        ------     -----
                                               ------        ------     -----
</TABLE>

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

<TABLE>
<CAPTION>


                                                                          Years Ended December 31,
                                                                     ----------------------------------
                                                                       1998          1997        1996
                                                                      ------       ---------    ------
<S>                                                                   <C>           <C>          <C>
Tax provision (benefit) at statutory rate.......................      $1,554        $  (452)     $  826
In-process technology...........................................           -          3,974           -
Amortization of Goodwill........................................         255            101           -
Compensation expense for contingent stock.......................       1,246            282           -
Alternative minimum tax.........................................           -              -          26
Foreign taxes...................................................         983            221         225
Deferred taxes:
   Utilization of net operating losses..........................           -         (3,392)     (1,509)
Other...........................................................        (343)          (210)        183
State...........................................................         342            416           4
                                                                      ------        -------      ------
                                                                      $4,037        $   940       $(245)
                                                                      ------        -------      ------
                                                                      ------        -------      ------
</TABLE>

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

At December 31, 1998, the Company had net operating loss carryforwards for 
federal and state income tax purposes which can be used to offset future 
income subject to taxes. In addition, there are unused foreign tax credits 
which may be available for offset against future federal income taxes after 
use of the loss carryforwards. Such loss carryforwards and tax credits are 
summarized below (in thousands):
<TABLE>
<CAPTION>
                                                                  Expiration
                                                    Amount          Dates
                                                    ------      ------------
<S>                                                 <C>         <C>
Loss carryforwards:
     Federal....................................    $1,035      2009 -- 2010
     State......................................     1,035      2009 -- 2010
Foreign tax credits (federal only)..............       625      2000 -- 2001
</TABLE>

Due to the acquisition of TriQuest, the federal and state net operating loss 
carryforwards are limited in use to approximately $300,000 annually. The tax 
credit carryforwards are also subject to limitation due to the acquisition of 
TriQuest.

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


                                      63
<PAGE>
The approximate effects of temporary differences which give rise to deferred 
tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                               --------------------
                                                                                1998         1997
                                                                               ------       -------
<S>                                                                            <C>          <C>
Deferred tax assets:
     Federal and state net operating loss carryforwards............            $  398       $   548 
     Foreign operating loss carryforwards..........................               336           563 
     Research and experimentation credit carryforwards.............                 -           313 
     Foreign tax credit carryforwards..............................               625           727 
     Other deferred tax items......................................               271           773
                                                                               ------       -------
          Total deferred tax assets................................             1,630         2,924 
     Less valuation allowances.....................................              (336)         (563)
                                                                               ------       -------
          Net deferred tax assets..................................             1,294         2,361
                                                                               ------       -------
Deferred tax liabilities:
     Other deferred tax items......................................              (991)       (2,139)
                                                                               ------       -------
          Total deferred tax liabilities...........................              (991)       (2,139)
                                                                               ------       -------
          Net deferred taxes.......................................            $  303       $   222
                                                                               ------       -------
                                                                               ------       -------
Net deferred income taxes:
      Current                                                                  $  792       $ 1,209
      Deferred                                                                   (489)         (987)
                                                                               ------       -------
                                                                               $  303       $   222
                                                                               ------       -------
                                                                               ------       -------
</TABLE>

The Company has established a valuation allowance against a portion of 
deferred tax assets due to the uncertainty surrounding the realization of 
such assets. Management evaluates on a quarterly basis the recoverability of 
the deferred tax assets and the level of the valuation allowance. The net 
change in the valuation allowance for the years ended December 31, 1998 and 
1997 was a decrease of approximately $227,000 and $4,455,000, respectively. 
The decrease in the valuation allowance for the year ended December 31, 1998 
resulted from a decrease in the effective tax rate in Israel. The decrease in 
the valuation allowance for the year ended December 31, 1997 resulted 
primarily from the utilization of net operating loss carryforwards and 
management's evaluation of the future recoverability of net deferred tax 
assets due to the likelihood of future taxable income.

14.   RECONCILIATION OF EARNINGS PER SHARE

The following provides a reconciliation of the numerators and denominators of 
the basic and diluted per share computations:
<TABLE>
<CAPTION>
                                                                             December 31,
                                                                 ----------------------------------------
                                                                  1998            1997             1996
                                                                 ------          -------          -------
<S>                                                              <C>             <C>              <C>
Numerator:
   Net income                                                    $5,101          $   431          $ 1,263
                                                                 ------          -------          -------
                                                                 ------          -------          -------
Denominator:
   Denominator for basic earnings per share
   weighted average shares                                       15,155           14,403           12,240

   Effect of dilutive securities:
     Employee stock options                                         960              999            1,003
                                                                 ------          -------          -------
   Denominator for diluted earnings per share                    16,115           15,402           13,243
                                                                 ------          -------          -------
                                                                 ------          -------          -------
Net income per share - basic                                     $ 0.34          $  0.03          $  0.10
                                                                 ------          -------          -------
                                                                 ------          -------          -------
Net income per share - diluted                                   $ 0.32          $  0.03          $  0.10
                                                                 ------          -------          -------
                                                                 ------          -------          -------
</TABLE>


15.   401(k) PLAN:

The Company maintains a tax qualified defined contribution plan that meets 
the requirements of Section 401(k) of the Internal Revenue Code (the Plan) 
and covers substantially all U.S. employees meeting minimum service 
requirements. The Plan was amended in 1997 to include a mandatory Company 
matching contribution up to a maximum of 1.5% of employee compensation. At 
its discretion, the Company may make additional contributions to the Plan. In 
connection with the required match, the Company's contributions to the Plan 
were approximately $98,000 and $50,000 in 1998 and 1997, respectively. There 
were no contributions in 1996.

16.   SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
                                                                        Year ended December 31  
                                                                        ----------------------
                                                                   1998            1997         1996
                                                                 -------        --------        ----
<S>                                                              <C>            <C>             <C>
      Cash paid for interest                                     $     3        $     11        $111
      Cash paid for income taxes                                 $ 2,108        $    175        $254

      Noncash investing and financing activities:
           Retirement of treasury stock                          $11,555               -           -
            Equipment acquired under capital leases                    -               -        $ 23
            Conversion of preferred stock to common stock              -               -        $ 91
      Acquisition of Simulation Technologies:
           In-process technology                                       -        $ 11,689           -
           Purchased technologies, intangibles and
              goodwill                                                 -        $ 10,225           -
           Property and other assets acquired                          -        $    941           -
           Deferred revenue assumed                                    -        $ (1,460)          -
           Other liabilities assumed                                   -        $   (707)          -
           Common stock issued                                         -        $(15,550)          -
      Sale of TDS product line
           Property and other assets sold                              -        $   (369)          -
           Deferred revenue sold                                       -        $  1,213           -
           Other liabilities sold                                      -        $     64           -
</TABLE>

17.   COMMITMENTS AND CONTINGENCIES:

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

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

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

The Company has guaranteed the rent payments for a software development 
company of $4,200 per month for the first 18 months of the lease term 
beginning November 1997.


                                      65
<PAGE>
18.   BUSINESS SEGMENTS, EXPORTS AND MAJOR CUSTOMERS:

The Company operates in a single industry segment comprising the electronic 
design automation industry. Net revenue by geographic region (in thousands) 
and as a percentage of total revenue for each region outside the United 
States that constitutes more than 10% of the Company's total revenue is as 
follows:
<TABLE>
<CAPTION>
                                                             Years Ended December 31,
                                                           ---------------------------
                                                            1998      1997       1996
                                                           -----     ------     ------
<S>                                                        <C>       <C>        <C>
     Europe...........................................    $6,061     $3,582     $3,294
     Japan............................................     7,373      6,311      6,157
     Other Asia Pacific...............................     2,191        709        698

As a Percentage of Total Revenue:
     Europe...........................................      13.9%      11.4%      16.2%
     Japan............................................      16.9%      20.0%      30.4%
     Other Asia Pacific...............................       5.0%       2.3%       3.4%
</TABLE>

During 1998 and 1997 one customer accounted for 25.1% and 28.6% of total 
revenue, respectively. In 1996, no single customer accounted for more than 
10% of total revenue. Sales through a single distributor accounted for 14.0%, 
12.1% and 14.7% of the Company's total revenue in 1998, 1997 and 1996, 
respectively. Foreign operations of Summit Design (EDA) Ltd. accounted for 
less than 10% of total revenue of the Company in each of the three years in 
the period ended December 31, 1998. Identifiable assets of the Company's 
Israeli subsidiary were less than 10% of total assets at December 31, 1998.

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

19.   RELATED PARTIES:

Summit Design (EDA) Ltd. leased its corporate offices from a stockholder 
under a four-year sublease agreement which expired in December 1998, on the 
same terms and conditions that the stockholder leases such space. Lease 
expense paid to the stockholder for the year ended December 31, 1998, 1997 and 
1996 were $180,000, $145,000 and $141,000, respectively.

Effective April 1, 1996, the Company invested $100,000 for a minority interest
in a joint venture corporation which acquired the exclusive rights to sell,
distribute and support all of the Company's products in the Asia-Pacific region,
excluding Japan. The Company has recorded a net loss in equity of the joint
venture of $360,000, $77,000 and $33,000 for the years ended December 31, 1998,
1997 and 1996, respectively. Total product licenses and maintenance revenue for
sales to the joint venture totaled approximately $501,000, $590,000 and $586,000
for the years ended December 31, 1998, 1997 and 1996, respectively.  Total
accounts receivable, with payment terms similar to other customers in the
Asia-Pacific region, was $67,000 at December 31, 1998.

20.  QUARTERLY FINANCIAL DATA:

The following table sets forth selected unaudited quarterly financial 
information for each of the eight quarters in the period ended December 31, 
1998:
<TABLE>
<CAPTION>
                                                       Three-Month Periods Ended
                                       1997                                                1998
                          -------------------------------------------    ---------------------------------------------
                          Mar. 31,   June 30,   Sept. 30,    Dec. 31,    Mar. 31,    June 30,    Sept. 30,    Dec. 31,
                          --------   --------   ---------    --------    --------    --------    ---------    --------
                                                    (in thousands, except per share data)
 <S>                      <C>        <C>        <C>          <C>         <C>         <C>         <C>          <C>
 Revenue                  $6,520     $7,180    $ 7,909       $9,830      $10,357     $11,012     $11,314      $10,915
 Gross Margin              6,225      6,874      7,519        9,269        9,774      10,449      10,701       10,314
 Net Income (loss)         1,193      1,863     (4,508)       1,883        1,402       1,455       1,761          483

 Net income (loss)
  per Share-basic         $ 0.09     $ 0.13    $ (0.31)      $ 0.13      $  0.09     $  0.10     $  0.12      $  0.03
 Net income (loss)
  per Share-diluted       $ 0.08     $ 0.12    $ (0.31)      $ 0.12      $  0.09     $  0.09     $  0.11      $  0.03
</TABLE>


                                      67
<PAGE>
ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE

Not Applicable.

                                      68
<PAGE>
                                  PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is incorporated by reference to the 
information set forth in the sections entitled "Election of Class II 
Directors" and "Compliance with Section 16(a) of the Securities Exchange Act" 
contained in the Company's Proxy Statement for its 1999 Annual Meeting of 
Stockholders, to be filed by the Company with the Securities and Exchange 
Commission within 120 days of the end of the Company's fiscal year ended 
December 31, 1998, except that the information required by this item 
concerning the executive officers of the Company is incorporated by reference 
to the information set forth in the section entitled "Executive Officers of 
the Company" at the end of Part I of this Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the 
information set forth in the section entitled "Executive Officer 
Compensation" contained in the Company's Proxy Statement for its 1999 Annual 
Meeting of Stockholders to be filed by the Company with the Securities and 
Exchange Commission within 120 days of the end of the Company's fiscal year 
ended December 31, 1998.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference to the 
information set forth in the section entitled "Security Ownership of Certain 
Beneficial Owners and Management" contained in the Company's Proxy Statement 
for its 1999 Annual Meeting of Stockholders and is incorporated herein by 
reference to be filed by the Company with the Securities and Exchange 
Commission within 120 days of the end of the Company's fiscal year ended 
December 31, 1998.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to the 
information set forth in the section entitled "Certain Transactions" 
contained in the Company's Proxy Statement for its 1999 Annual Meeting of 
Stockholders to be filed by the Company with the Securities and Exchange 
Commission within 120 days of the end of the Company's fiscal year ended 
December 31, 1998.


                                      69
<PAGE>


                                   PART IV


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

(a)(1)   FINANCIAL STATEMENTS

The following financial statements and the Report of Independent Accountants 
therein are filed as part of this Form 10-K:
<TABLE>
<CAPTION>
                                                                                        Page No.
---------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>
          Report of Independent Accountants                                                47

          Consolidated Balance Sheets as of December 31, 1998 and 1997
                                                                                           48

          Consolidated Statements of Operations for the years ended
              December 31, 1998, 1997 and 1996                                             49

          Consolidated Statements of Stockholders' Equity for the years
              ended December 31, 1998, 1997 and 1996
                                                                                           50
          Consolidated Statements of Cash Flows for the years ended
              December 31, 1998, 1997 and 1996                                             51

          Notes to Consolidated Financial Statements                                       52
</TABLE>

(a)(2)    FINANCIAL STATEMENT SCHEDULE

The following financial statement schedule for the years ended December 31, 
1996, 1997 and 1998, filed as part of this Form 10-K should be read in 
conjunction with the consolidated financial statements and related notes 
thereto and report of independent accountants filed herewith:
<TABLE>
<CAPTION>
                                                                                          Page No.
                                                                                          --------
<S>                                                                                       <C>
   Schedule II                    Valuation and Qualifying Accounts                          S-1

   Report of Independent Accountants on financial statement schedule                         S-2
</TABLE>

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


                                      70
<PAGE>
(a)(3)    EXHIBITS
<TABLE>
<CAPTION>
 Exhibit No.
 ----------- 
<S>          <C>
    2.1      Agreement and Plan of Reorganization dated as of February 17, 1997. (2)
    2.2      Assets Purchase Agreement between the Registrant, Credence Systems Corporation
             and Test Systems, Strategies, Inc., dated as of May 19, 1997. (3)
    2.3      Agreement and Plan of Reorganization between the Registrant, Star Acquisition,
             Inc. and Simulation Technologies Corp. dated as of September 5, 1997. (6)
    2.4      Stock Purchase Agreement dated as of June 30, 1998 among the 
             Registrant, ProSoft Oy and Shareholders of ProSoft Oy. (12)
    3.1      Amended and Restated Certificate of Incorporation. (1)
    3.2      Amended and Restated Bylaws. (5)
    4.1      Specimen Common Stock Certificate of Company. (1)
    4.2      Investors' Rights Agreement between the Registrant and the parties
                 named therein dated February 10, 1994, as amended. (1)
    4.3      Summit Design, Inc. Registration Rights Agreement dated as of June 30, 
                 1998. (12)
   10.1      Form of Indemnification Agreement between Registrant and its
                 executive officers and directors  (1)
   10.2*     1994 Stock Plan, as amended. (1)
   10.3*     1996 Employee Stock Purchase Plan. (1)
   10.4*     1996 Director Option Plan. (1)
   10.5*     Employment Agreement between the Registrant and Larry J.
             Gerhard dated February 25, 1999.
   10.6*     Employment Agreement between the Registrant and C. Albert
             Koob dated February 14, 1999.
   10.7*     Employment agreement between the Registrant and Richard
             Davenport dated September 9, 1997. (10)
   10.8*     Employment agreement between the Registrant and Arthur
             Fletcher dated July 1, 1997. (10)
   10.9*     Employment Agreement between the Registrant and Eric Benhayoun dated
                 October 31, 1994.(1)
   10.10*    Employment Agreement between the Registrant and Moshe Guy dated July 
             1, 1997. (10)
   10.11*    Employment Agreement between the Registrant and Joseph
                 Masarich dated December 22, 1997. (10)
   10.12+    Software OEM License Agreement between the Registrant, Test System Strategies
             Inc. and Credence Systems Corporation dated May 19, 1997. (5)
   10.13     Lease Agreement between the Registrant and Petula Associates Ltd. And
                 Koll Creekside Associates II dated October 26, 1993, as amended. (1)
   10.14     Sublease Agreement, dated as of January 1993 between DCL
                 Technologies, Ltd. and SEE Technologies, Ltd. (1)
   10.15     Bank Line of Credit Agreement between Registrant and U.S. National
                 Bank of Oregon dated April 30, 1998. (11)
   10.16*    Employment Agreement between the Registrant and Sharon Beelart 
                 dated January 5, 1998.
   10.17+    Distributor Agreement between the Registrant and Seiko 
                  Instruments, Inc., dated February 1, 1996. (1)
   10.18     Option Exchange Agreement dated as of June 30, 1998 among the 
                  Registrant, ProSoft Oy, and Optionholders of ProSoft Oy. (12)
   10.19*    First Amendment to Employment Agreement between the Registrant 
                  and Richard Davenport dated December 21, 1998.
   10.20     Loan Agreement between the Registrant and Moshe Guy dated May 20, 1997. (5)
   10.21     Loan Agreement between the Registrant and Dasys, Inc. dated July 26, 1997.(7)
   10.22*    TriQuest Design Automation, Inc. 1995 Stock Option Plan. (4)
   10.23*    Simulation Technologies 1994 Stock Option Plan and form of agreement thereto.(8)
   10.24*    1997 NonStatutory Stock Option Plan and form of agreement thereto. (9)
   10.25     Amendment to the Distributor Agreement between the Registrant and Seiko
             Instruments, Inc. (10)
   10.26++   Amendment to Software OEM License Agreement between the Registrant and Credence 
             Systems Corporation dated December 18, 1998.
   10.27     Shareholders Agreement between the Registrant and Summit Design 
             Asia, Ltd. dated May 12, 1998. (13)
   10.28     Shareholders Agreement between the Registrant and Asia Design 
             Corporation, Ltd. dated May 12, 1998. (13)
   10.29+    Distributor Agreement between the Registrant and Summit Design 
             Asia, Ltd. dated May 12, 1998. (13)
   10.30     Loan Agreement between the Registrant and Summit Design Asia, 
             Ltd. dated June 2, 1998. (13)
   10.31     Joint Escrow Agreement between the Registrant, Perkins Coie 
             (Hong Kong) Limited, Summit Design Asia, Ltd. and Asia Design 
             Corporation, Ltd. (13)
   10.32     Guarantee Agreement between the Registrant and Asia Design 
             Corporation, Ltd. dated May 12, 1998. (13)
   10.33     Security Agreement between the Registrant and Asia Design 
             Corporation, Ltd. dated May 12, 1998. (13)
   21.1      List of Subsidiaries.
   23.1      Consent of PricewaterhouseCoopers LLP.
   24.1      Power of attorney, see page 73.
   27.1      Financial Data Schedule.
</TABLE>


                                      71
<PAGE>
<TABLE>
<S>   <C>
(1)   Incorporated by reference to the Registration Statement on Form S-1 (File
      No. 333-06445) as declared effective by the Securities and Exchange
      Commission October 17, 1996.
(2)   Incorporated by reference to the Registrant's Current Report on Form 8-K
      dated February 28, 1997. 
(3)   Incorporated by reference to the Registrant's
      Current Report on Form 8-K dated July 11, 1997. 
(4)   Incorporated by reference to the Registration Statement on Form S-8 (File 
      No. 333-32551) as filed on July 31, 1997.
(5)   Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
      for the quarter ended June 30, 1997.
(6)   Incorporated by reference to the Registrant's Current Report on Form 8-K
      dated September 9, 1997. 
(7)   Incorporated by reference to the Registrant's Quarterly Report on 
      From 10-Q for the quarter ended September 30, 1997.
(8)   Incorporated by reference to the Registration Statement on Form S-8 
      (File No. 333-47481) as filed on March 6, 1998.
(9)   Incorporated by reference to the Registration Statement on Form S-8 (File
      No. 333-47545) as filed on March 9, 1998.
(10)  Incorporated by reference to the Registrant's Annual Report on Form 
      10-K for the fiscal year ended December 31, 1997.
(11)  Incorporated by reference to the Registrant's Quarterly Report on Form 
      10-Q for the quarter ended March 31, 1998.
(12)  Incorporated by reference to the Registrant's Current Report on Form 
      8-K dated June 30, 1998.
(13)  Incorporated by reference to the Registrant's Quarterly Report on Form 
      10-Q for the quarter ended June 30, 1998.
 +    Documents for which confidential treatment has been granted.
++    Document for which confidential treatment has been requested.
 *    Indicates management compensatory plan, contract or arrangement.
</TABLE>

(b)  REPORTS ON FORM 8-K

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

(c)  EXHIBITS

         See Item 14(a)(3) above.

(d)  FINANCIAL STATEMENT SCHEDULES

         See Item 14(a)(2) above.


                                      72
<PAGE>


                                  SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the 
Securities Exchange Act of 1934, as amended, the Registrant has duly caused 
this Report to be signed on its behalf by the undersigned, thereunto duly 
authorized, on this 30th day of March 1999.

                                                     SUMMIT DESIGN, INC.

                                                     By: /s/ LARRY J. GERHARD
                                                         --------------------
                                                         Larry J. Gerhard
                                                         Chief Executive Officer

                               POWER OF ATTORNEY

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

         Pursuant to the requirements of the Securities Exchange Act of 1934, 
this Report on Form 10-K has been signed below by the following persons on 
behalf of the Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
               Signature                                    Title                              Date
----------------------------------------    ---------------------------------------     --------------------
<S>                                         <C>                                         <C>
/s/ LARRY J. GERHARD                        Chairman of the Board and Chief             March 30, 1999
---------------------------                 Executive Officer (Principal
   Larry J. Gerhard                         Executive Officer)


/s/ C. ALBERT KOOB                          Vice President - Finance, Chief             March 30, 1999
---------------------------                 Financial Officer and Secretary
   C. Albert Koob                           (Principal Financial and Accounting
                                            Officer)

/s/ AMIHAI BEN-DAVID                        Director                                    March 30, 1999
---------------------------
   Amihai Ben-David

/s/ WILLIAM V. BOTTS                        Director                                    March 30, 1999
---------------------------
   William V. Botts

/s/ STEVEN P. ERWIN                         Director                                    March 30, 1999
---------------------------
   Steven P. Erwin

/s/ BARBARA M. KARMEL                       Director                                    March 30, 1999
---------------------------
   Barbara M. Karmel
</TABLE>


                                      73
<PAGE>


                               SUMMIT DESIGN, INC.

                 Schedule II - Valuation and Qualifying Accounts

                     Years ended December 31, 1996, 1997, 1998

                                 (in thousands)
<TABLE>
<CAPTION>

                                                                 Additions/
                                                                 (credits)
                                                 Balance at      charged to                    Balance at
                                                 beginning       costs and                       end of
                                                 of period       expenses       Deductions       period
                                                 ----------      ----------     ----------     ----------
<S>                                              <C>             <C>            <C>            <C>
Year ended December 31, 1996:
    Allowance for doubtful accounts               $455                 $3             $25        $433

Year ended December 31, 1997:
    Allowance for doubtful accounts                433                270             111         592

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

</TABLE>



                                      S-1


                                      74
<PAGE>


                     REPORT OF INDEPENDENT ACCOUNTANTS



The Board of Directors of
Summit Design, Inc.

Our audits of the consolidated financial statements of Summit Design, Inc. 
and subsidiaries referred to in our report dated February 3, 1999 appearing 
on page 47 of this Form 10-K also included an audit of the financial 
statement schedule listed in item 14(a)2 of this Form 10-K. In our opinion, 
the financial statement schedule presents fairly, in all material respects, 
the information set forth therein when read in conjunction with the related 
consolidated financial statements.

PRICEWATERHOUSECOOPERS LLP

Portland, Oregon
February 3, 1999









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