<PAGE>


                          SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C. 20549

                             FORM 10-K/A (AMENDMENT NO. 1)
                              --------------------------

/X/   Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
      Act of 1934 for the fiscal year ended December 31, 1997 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 Indentification Number)
 incorporation or organization)

                           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. 
                             ---

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 23,
1998 as reported on the Nasdaq National Market, was approximately $110,932,958
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 23,1998, Registrant had outstanding 14,741,258 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 1998 Annual Meeting of Stockholders to be held on May 14, 1998. 
        
                                 EXPLANATORY NOTE

The Registrant previously announced that it would revise the accounting 
treatment of its September 1997 acquisition of Simulation Technologies Corp. 
in response to comments received from the Securities and Exchange Commission. 
Accordingly, this Annual Report on Form 10-K/A is being filed as Amendment 
No. 1 to the Registrant's Annual Report on Form 10-K filed with the 
Securities and Exchange Commission on March 31, 1998 for the purpose of 
restating financial information and related disclosures for the year ended 
December 31, 1997. See Notes 1 and 5 to the Consolidated Fiancial Statements.

<PAGE>

                                       PART I
                                          

ITEM 1.    BUSINESS


IMPORTANT NOTE ABOUT FORWARD LOOKING STATEMENTS

The following discussion 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.  Predictions of future events are inherently uncertain. 
Actual events could differ materially from those predicted in the forward
looking statements as a result of the risks set forth in the following
discussion, and, in particular, the risks discussed below and 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."


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 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 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. (ii) TriQuest Design 
Automation, Inc. ("Triquest") which the Company acquired in February 1997 and 
subsequently merged into the Company in December 1997 and (iii) the Company's 
wholly-owned subsidiaries, Summit Design EDA, Ltd., and Summit Verification, 
Inc., the surviving company from the acquisition of Simulation Technologies, 
Corp. ("SimTech") in September 1997. In July 1997, the Company sold 
substantially all of the assets used in its business of developing and 
marketing the Test Development Series ("TDS") Products to Credence Systems 
Corporation ("CSC"). Such assets were held in the company's Test Systems 
Strategies Inc. ("TSSI") subsidiary which was subsequently merged into the 
Company in December 1997.

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 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

                                         2
<PAGE>

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 1 thousand
gates at 5 micron line-widths in the 1970s, to more than 10,000 gates in the
1980s, to greater than 1 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 Pro introduced in 1995 contains approximately 2 million gates and is
manufactured using 0.35 micron process technology.

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. Primarily as a result of the above shortcomings, adoption of HLDA
tools as of 1995 had been limited to approximately 18% of the estimated 285,000
IC design engineers worldwide.

                                             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 meet 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. 
 
In 1997, Summit's software tool suite, named "HLDA Plus",  became the market 
leader in RTL solutions.  Summit's HLDA Plus 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 size. Visual HDL for VHDL and Verilog has become the industry leader for 
graphical design creation, analysis and IP management for both Workstation 
and PC based IC engineering. The Company's seven other HLDA Plus tools 
include a mathematical RTL design verification product, HDL Alert, three 
simulation analysis tools that help the engineer prepare simulation input 
data, run simulations, analyze simulation results, and HDL Score which allows 
the engineer to determine when the simulation process has tested the entire 
design. State Optimize allows the engineer to optimize designs for IC speed 
and or size and Virtual CPU ("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.

The Company believes that its products provide the following benefits:

INCREASED DESIGN PRODUCTIVITY

Summit's HLDA Plus 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 Plus 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:

                                 4
<PAGE>

ACCELERATE MARKET ADOPTION OF HLDA PLUS

Summit intends to expand market acceptance by focusing on key customer 
accounts to ensure their successful adoption of the HLDA Plus 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 
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 Plus tools through programs with various 
universities.(1)

The Company will continue its aggressive third party position to form and 
maintain relationships with EDA industry leaders. This strategy will promote 
an open environment for our customers that provides for future flexibility 
and maximum use of their capital investments. Seamless interoperability is 
the mission of this strategic objective.

LEVERAGE SUMMIT'S HLDA PLUS 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 Plus 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 HLDA PLUS

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 Plus 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

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 and Simtech, the Company offers analysis, 
verification, and optimization products which include V-CPU, VirSim, HDL 
Score, HDL Alert and State Optimize which provide a design verification 
environment for all RTL designs. Visual IP allows the 

----------------------
(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 32
for a discussion of factors that could affect future performance.


                                    5
<PAGE>

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. ("Synopsys"), Mentor Graphics Corporation ("Mentor
Graphics"), Cadence Design Systems ("Cadence"), IBM, Altera, Simplicity 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. 
The fifth major release of Visual HDL was released in December 1997. 

As of February 28, 1998, Visual HDL's single seat list price ranged from 
$18,000 to $30,000. The list price of the UNIX workstation version of Visual 
HDL for VHDL is higher than that for PCs. The actual price for a system also 
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 
the Verilog XL simulator sold by Cadence. Finally, the Visual HDL price for a 
floating license commands a premium over the node locked version since it 
offers multi-user flexibility. 

                                   6
<PAGE>

Summit recently introduced Visual IP, which 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 
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. The Company anticipates a
lengthy period of test marketing for Visual Testbench. Accordingly, the Company
cannot predict the extent, if any, to which it will realize revenue from this
product.(1)

VERIFICATION SOLUTION PRODUCTS

The Company's verification products include V-CPU, VirSim,  HDL
Score, HDL Alert and State Optimize. 

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.

HDL Alert is a static analysis product that mathematically verifies RTL designs.
It incorporates proprietary verification in algorithms that statistically
analyze a design and provides graphical information about design flows.  HDL
Alert quickly finds design errors that simulation cannot detect or that require
excessive simulation hours to detect.

State Optimize is an optimization and exploration tool that works at the RTL
level of design. It accepts RTL descriptions of control logic and generates
multiple RTL implementation alternatives with various speed and IC area
characteristics.  The engineer simply chooses the desired result from a
graphical display or plot and State Optimize produces the RTL design.

-----------------------
(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 32
for a discussion of factors that could affect future performance.

                                    7
<PAGE>

The Company's future success depends primarily upon the market acceptance of its
existing and future HLDA Plus products. The Company's HLDA Plus 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 Plus 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 Plus products has
increased in recent years, the market for HLDA Plus 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 Plus
products. A decline in the demand for, or the failure to achieve broad market
acceptance of, the Company's HLDA Plus 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 1997, sales to CSC accounted for 29% of the 
Company's total revenue, no other customer accounted for more than 10% of 
total revenue. As of February 28, 1998, the Company had installed more than 
3,100 seats of its design solution tools in more than 350 companies, of which 
more than 280 companies had entered into support contracts. In addition, as 
of such date, the Company has installed more than 4,000 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 1996 or 1997.

<TABLE>
<CAPTION>

Semiconductor Devices         Telecommunications       Computer/        Consumer                Aerospace/         Other
                                                      Peripherals      Electronics              Defense
-----------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>                   <C>                   <C>                   <C>
AMD                           Alcatel               Adaptec               Canon                 Allied Signal      Credence
Chips and Technologies        Bay Networks          Compaq                Delco Electronics     Hughes Aircraft    Fuji/Xerox
Cisco Systems                 Bell Northern         Digital Equipment     Honeywell             Lockheed-Martin    Lucky Goldstar
I-Cube                        Bosch                 Fujitsu               Matsushita            Raytheon           Teradyne
Level One                     Cabletron             Hewlett-Packard       Mitsubishi            Rockwell           Xerox
LSI Logic                     Ericsson              Hitachi               NEC                   TRW                Zenith
Motorola                      Hitachi               IBM                   Phillips                                    
National Semi                 Lucent                OKI                   Sharp                                       
PMC Sierra                    Newbridge Networks    Quantum               Sony                                        
SGS-Thomson                   Nokia                 Seagate                                                           
Texas Instruments             Northern Telecom      Siemans                                                           
                                                    Storagetek                                                        
                                                    Stratus                                                           
                                                    Sun Microsystems                                                  

</TABLE>

The following examples illustrate the selection and use of the Company's
products by certain of the Company's customers. There can be no assurance that
new or existing customers will achieve any of the benefits described below.

A major communications company used Visual HDL to provide solutions for their
electronic systems designers. The team designed an FPGA, which provided clock
signal controls for a backplane interface.  There was an extremely tight
deadline on this project and the design team had no previous HDL experience. The
team found Visual HDL very intuitive and easy to adapt to fit their design
requirements which helped them complete their design in the short timeframe
allotted.

------------------------
(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 32
for a discussion of factors that could affect future performance.
     
                                    8
<PAGE>

A workstation division of a major computer company used Visual HDL to develop
ASIC's for their hardware.  Their objectives were governed by functionality,
cost, quality and time-to-market constraints. This industry is highly
competitive and required them to use leading edge technology to meet their
goals.  Their design teams were a mix of expert and novice designers, which
necessitated finding a tool to accommodate everyone in the team. Using Visual
HDL's graphical capability improved the team's communication and coordination.
Visual HDL was a natural fit as they design in a top-down fashion.

A networking and communications division of a major electronics company believed
that the V-CPU hardware/software co-simulation environment allowed their
operation to develop software prior to having actual silicon. This capability
reduced software and hardware revisions as hardware/software integration was
verified prior to tape out, thereby reducing time to market.  The flexibility of
the V-CPU product and the support from Summit enabled them to use the tool with
their hardware models and their software development environment within one
week.

A major semiconductor company selected VirSim for their entire Design Center
after having had excellent experiences with it on past projects. VirSim was
found to be a robust tool and became the mainstay of their development
environment.  They believed the ease of building complex expressions for
identifying problems was exceptional. Projects which had previously taken hours
of scanning the screen can now be performed in seconds.


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 Plus
methodologies, and to evaluate customer satisfaction and determine additional
customer demands. To increase market awareness, the Company displays its HLDA
Plus 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, 1997, the
Company had 39 employees in its sales organization and 9 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, Massachusetts,
Minnesota, Oregon and Texas, as well as France, Germany and the United Kingdom. 
Approximately 71%, 54% and 58% of the Company's revenue for the years ended
December 31, 1997, 1996 and 1995, respectively, were generated through Summit's
direct sales force.

                                    9
<PAGE>

DISTRIBUTORS

Distributors promote and distribute the Company's products in the 
Asia-Pacific region, the United Kingdom, France, Germany, Sweden, Italy and 
Israel. Approximately 29%, 46% and 42% of the Company's revenue in the years 
ended December 31, 1997, 1996 and 1995, 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 Company and 
ANAM created a joint venture corporation (Summit Design Korea, Inc. ("Summit 
Asia")) which acquired exclusive rights to sell, distribute and support all 
of the Company's products in the Asia-Pacific region, excluding Japan. Summit 
Asia has acted in such capacity since April 1, 1996. Prior to that date, Anam 
was an independent distributor of the Company's products. The Company is 
currently restructuring the ownership and responsibilities of Summit Asia. 
There can be no assurance that any restructuring would result in Summit Asia 
becoming profitable or that revenue attributable to sales in the Asia Pacific 
region, excluding Japan, would increase. During the first quarter of 1997, 
the Company entered into a distribution agreement with ATE pursuant to which 
ATE was granted exclusive rights to sell, distribute and support Summit's 
Visual Testbench products within Japan until October 1998, subject to the 
Company's ability to terminate the relationship if ATE fails to meet 
quarterly sales objectives. The agreement may also be terminated by either 
party for breach. 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. 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. The agreement is renewable for successive five-year terms by 
mutual agreement of the Company and Seiko and terminable by either party for 
breach. In March 1997, the Company entered into a three year distribution 
agreement with Kanematsu USA, Inc. to which Kanematsu was granted exclusive 
distribution rights to sell, distribute and support certain verification 
products in Japan. For the year ended December 31, 1997, all sales of the 
Company's products in the Asia-Pacific region were made through Summit Asia, 
ATE, Kanematsu and Seiko. There can be no assurance the relationships 
with Summit Asia, ATE, Kanematsu and Seiko 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 these 
distributors.

Approximately 33%, 50% and 52% of the Company's revenue for the years ended
December 31, 1997, 1996 and 1995, respectively, were attributable to sales made
outside of the United States. 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.
 
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, ATE, Kanematsu 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.


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 

                                    10
<PAGE>

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. The Company intends to further expand its focus on customer
training. For the years ended December 31, 1997, 1996 and 1995, maintenance and
services provided approximately 19%, 21% and 19% of the Company's total revenue,
respectively.


COMPETITION

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 Plus 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, the Company 
has added additional research and development facilities in Campbell, 
California and New Brighton, Minnesota. As of December 31, 1997, the 
Company's research and development team consisted of 92 software developers, 
dedicated to the Company's products. 

                                     11
<PAGE>

For the years ended December 31, 1997, 1996, and 1995, the Company's research
and development expenditures were approximately $7.7 million, $5.9 million, and
$5.4 million, respectively, which represented approximately 25%, 29%, and 38% of
revenue in each such period. The Company has to date expensed all research and
development costs as incurred. 

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 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 relationship mutually benefit the Company and the EDA
vendors by fostering development and facilitating interoperability of the
Company's and vendors' complementary 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,

                                  12
<PAGE>

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 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 $4.7, $4.3 and $4.3 million in 1997, 1996 and
1995, 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 7%, 11% and 8%
during 1997, 1996, and 1995, 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

                                             13
<PAGE>


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. 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. 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. 

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 has 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, 1997, approximately 
$261,000 was outstanding under the grant.

MANAGEMENT OF GROWTH AND ACQUISITIONS

Summit's ability to achieve significant growth will require it to implement 
new and continually expand its existing 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.  Summit's 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.

On February 28, 1997, Summit completed its acquisition of TriQuest and on
September 9, 1997, Summit completed its acquisition of SimTech.  As a result of
these acquisitions, Summit's operating expenses are expected to increase.  There
can be no assurance that the integration of TriQuest's and SimTech'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 could result in
potentially dilutive issuance's of equity securities, the incurrence of debt and
contingent liabilities and amortization expenses related to goodwill and other
intangible assets, 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.

                                  14
<PAGE>

EMPLOYEES

As of December 31, 1997, the Company had 178 employees, 106 of whom were engaged
primarily in research and development and related operations, 48 of whom were
engaged primarily in sales and marketing and 24 of whom were engaged primarily
in corporate management and administration. A total of 112 of these employees
were located in the United States, 56 in Israel and 10 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.

                                   15
<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 9,800 square feet of office space in
Herzlia, Israel for research and development under a lease with DCL Technologies
Ltd. that expires on December 31, 1998. The rent payable on this office space is
currently $12,100 per month, and increases over the term of the lease based on
the Israeli consumer price index.

Additionally, the Company leases approximately 4,300 square feet of office space
in Campbell, California and 4,600 square feet in New Brighton, Minnesota for
research and development and sales activities.  The aggregate rent payable for
both facilities is currently approximately $12,800 per month, and the leases
expire in April 1999 and June 1999, respectively. The leases for these
facilities were added through the Company's acquisitions of TriQuest and
SimTech.

The Company also leases office space for sales activities throughout the 
United States and Europe at an aggregate annual rental of approximately 
$100,000.

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

ITEM 3.     LEGAL PROCEEDINGS

None

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

None

-------------------------------
(2) This statement 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 32 for a discussion of factors that could affect future 
performance.

                                  16
<PAGE>

EXECUTIVE OFFICERS OF THE COMPANY

The executive officers of the Company and their ages as of March 23, 1998 are 
as follows:

     Name                      Age               Position           
     ----                      ---     ---------------------------------------

Larry J. Gerhard.............  57     Chairman of the Board, President and
                                       Chief Executive Officer
C. Albert Koob...............  43     Vice President--Finance, Chief Financial
                                       Officer and Secretary
Joseph G. Masarich...........  38     Senior Vice President--Worldwide
                                       Marketing and Sales
Moshe Guy....................  40     Vice President, General Manager and
                                       Chief Operating Officer--Design
                                       Solutions Division
Richard Davenport............  53     Vice President and Chief Operating
                                       Officer--Verification Products Division
Eric Benhayoun...............  44     Vice President, General Manager--European
                                       Operations
Sharon L. Beelart............  50     Corporate Controller
Arthur Fletcher..............  33     Treasurer and Director of Investor
                                       Relations


Mr. Gerhard has served as President, Chief Executive Officer and Director of the
Company since January 1993 and was elected Chairman of the Board in May 1996.
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. 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. Masarich has served as Senior Vice President of Worldwide Marketing and 
Sales since December 1997. From July 1997 to October 1997 Mr. Masarich was 
the acting President and Chief Executive Officer of Junk Yard Dogs, Inc. a 
manufacturer of electro-luminscent products.  Mr. Masarich was the Vice 
President of Worldwide Sales for Technology Modeling Associates, Inc., a 
provider of physical simulation software to support integrated circuit design 
and manufacturing, from January 1996 through May 1997.  Additionally, Mr. 
Masarich served for ten years in sales management positions with Cadence 
Design Systems and Hewlett Packard.

Mr. Guy has served as Vice President, General Manager and Chief Operating 
Officer of the Design Solutions Division of the Company since September of 
1997. From May 1996 to September 1997 Mr. Guy served as General Manager of 
Summit Design (EDA) Ltd. and as the Vice President of Product Marketing from 
February 1994 to May 1996. Mr. Guy was the Director of Marketing and Sales 
for SEE Technologies from January 1991 to January 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.

                                17
<PAGE>


Mr. Davenport has served as Vice President and Chief Operating Officer of the 
Verification Products Division since September 1997. 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. Benhayoun has served as Vice President, General Manager--European Operations
since June 1996 and as Vice President--European Sales Operations from November
1994 to June 1996. From June 1994 to November 1994, Mr. Benhayoun was the
European Marketing Manager for the Modeling Product Division of Synopsys. From
March 1990 to June 1994, Mr. Benhayoun was the General Manager and Director of
Logic Modeling Corporation France, an SDA provider which was acquired by
Synopsys in January 1994. Prior to that time, he held various European sales and
marketing management positions with Cadnetix Corporation and Daisy Systems, each
an EDA supplier.

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 Coopers & Lybrand L.L.P.

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.


                                  18
<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 23, 1998 was $14.25 per share. As of March 
23, 1998, the Company had approximately 226 stockholders of record.

The following table sets forth the high and low sales prices per share of the
Company's Common Stock for the periods indicated: 
<TABLE>
<CAPTION>
                                                              HIGH       LOW
                                                              ----       ---
<S>                                                          <C>        <C>
 1996:
             Fourth Quarter (fromOctober 18, 1996) . . . .   $12.375    $8.375

 1997:                                                                 
             First Quarter . . . . . . . . . . . . . . . .   $11.750    $7.375
             Second Quarter. . . . . . . . . . . . . . . .   $ 9.250    $5.375
             Third Quarter . . . . . . . . . . . . . . . .   $17.750    $7.875
             Fourth Quarter. . . . . . . . . . . . . . . .   $18.125    $9.312

 1998:       First Quarter (through March 23 1998) . . . .   $16.125    $9.875
</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.

From October 1, 1997 to December 31,1997, the Company issued and sold  35,205 
shares of Common Stock that were not registered under the Securities Act of 
1933 at prices ranging from $0.0779 to $1.9477 per share upon exercise of 
stock options. Such issuances were made in reliance upon the exemption from 
registration set forth in Rule 701 promulgated under the Securities Act of 
1933.  
 

                                          19
<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 elsewhere in this report. The selected financial data set forth 
below for the Company as of December 31, 1996 and 1997 and for each of the 
three years in the period ended December 31, 1997 are derived from the 
audited financial statements included elsewhere in this report. The selected 
financial data set forth below for the Company as of December 31, 1993, 1994 
and 1995 and for each of the two years in the period ended December 31, 1994 
are derived from the financial statements not included elsewhere herein.

<TABLE>
<CAPTION>
                                                                               Years Ended December 31,
                                                                -------------------------------------------------------
                                                                   1997        1996       1995       1994       1993
                                                                -----------  ---------  ---------  ---------  ---------
                                                                 (Restated)(5)
                                                                         (in thousands, except per share data)
<S>                                                             <C>          <C>        <C>        <C>        <C>
Statement of Operations Data (1):
Revenue:
  Product licenses............................................  $  24,828    $  15,446  $  10,604  $   9,327  $   4,821
  Maintenance and services....................................      6,161        4,301      2,637      2,323      2,546
  Other.......................................................        450          567      1,051      1,517         --
                                                                -----------  ---------  ---------  ---------  ---------
    Total revenue.............................................     31,439       20,314     14,292     13,167      7,367
Cost of revenue
  Product licenses............................................        701          573        651        681        441
  Maintenance and services....................................        632          466        400        390        330
  Amortization of purchased technologies......................        219
                                                                -----------  ---------  ---------  ---------  ---------
    Total cost of revenue.....................................      1,552        1,039      1,051      1,071        771
                                                                -----------  ---------  ---------  ---------  ---------
  Gross profit................................................     29,887       19,275     13,241     12,096      6,596
Operating expenses:
  Research and development....................................      7,749        5,867      5,447      4,751      2,472
  Sales and marketing.........................................     10,591        9,319      7,547      5,947      3,734
  General and administrative..................................      4,164(4)     3,188      3,286      2,326      1,932
  Amortization of intangibles and goodwill....................        942           --         --         --         --
  In-process technology.......................................     11,689           --         --        647         --
                                                                -----------  ---------  ---------  ---------  ---------
    Total operating expenses..................................     35,135       18,374     16,280     13,671      8,138
                                                                -----------  ---------  ---------  ---------  ---------
Income (loss) from operations.................................     (5,248)         901     (3,039)    (1,575)    (1,542)
Other income (expense), net                                         6,619(3)       117       (172)      (103)      (120)
                                                                -----------  ---------  ---------  ---------  ---------
Income (loss) before income taxes.............................      1,371        1,018     (3,211)    (1,678)    (1,662)
Income tax provision (benefit)................................        940         (245)       400        404          2
                                                                -----------  ---------  ---------  ---------  ---------
Net income (loss).............................................  $     431    $   1,263  $  (3,611) $  (2,082) $  (1,664)
                                                                -----------  ---------  ---------  ---------  ---------
                                                                -----------  ---------  ---------  ---------  ---------
Net income (loss) per share (2)...............................  $    0.03    $    0.10  $   (0.33) $   (0.22) $   (0.59)
                                                                -----------  ---------  ---------  ---------  ---------
                                                                -----------  ---------  ---------  ---------  ---------
Number of shares used in per share calculation (2)............     14,403       13,243     11,085      9,449      2,838
 
<CAPTION>
 
                                                                                     December 31,
                                                                -------------------------------------------------------
                                                                   1997        1996       1995       1994       1993
                                                                -----------  ---------  ---------  ---------  ---------
                                                                 (Restated)(5)
                                                                                    (in thousands)
<S>                                                             <C>          <C>        <C>        <C>        <C>
Balance Sheet Data:
  Cash and cash equivalents...................................  $  19,973    $  19,801  $     711  $   1,203  $     435
  Working capital.............................................     14,603       17,236       (540)      (439)    (2,083)
  Total assets................................................     39,670       28,700      9,151      8,097      2,751
  Long-term obligations, less current portion.................      1,224          916      1,462        743        366
  Total stockholders' equity (deficit)........................     26,196       19,151        548      1,224     (1,349)
</TABLE>
 
------------------------
 
(1) The results of SEE Technologies are included in the Consolidated Financial
    Statements of the Company commencing January 1, 1994.
 
(2) See Note 2 of Notes to Consolidated Financial Statements for an explanation
    of the determination of shares used in computing net income (loss) per
    share.
 
(3) Includes a gain of $5,574,000 in connection with the sale of the TDS product
    line.
 
(4) General and administrative expenses for the year ended December 31, 1997
    included a one-time charge of $379,000 for costs relating to the acquisition
    of TriQuest.

(5) Certain amounts have been restated related to the September 1997 
    acquisition of SimTech. See Notes 1 and 5 to the consolidated financial 
    statements.

                                      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 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.  Predictions of future events are inherently uncertain. 
Actual events could differ materially from those predicted in the forward
looking statements as a result of the risks set forth in the following
discussion, and, in the particular, the risks discussed below under the
subheading "Additional Risk Factors that Could Affect Operating Results and
Market Price of Stock."

OVERVIEW

Summit previously announced it would revise the accounting treatment of its 
September 1997 acquisition of SimTech in response to comments received from 
the Securities and Exchange Commission. The following discussion includes all 
changes that have been made related to the restatement. See also Notes 1 and 
5 of the consolidated financial statements.

Summit was founded in December 1993 to act as the holding company for TSSI 
and SEE Technologies, (now Summit Design (EDA) Ltd.)  TSSI was founded in 
1979 to develop and market IC 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 EDA and HLDA market. As a result of the 
Reorganization, TSSI and SEE Technologies became wholly-owned subsidiaries of 
Summit in the first quarter of 1994.

The Company's ongoing implementation of its strategy has involved significant 
expenditures. Following the Reorganization, the Company significantly 
increased its research and development expenditures to support the continued 
development of HLDA and Design to Test products. To promote its products, the 
Company has added sales and marketing staff, increasing its sales and 
marketing expenditures by 187% from 1993 to 1997, and has restructured its 
key distributor relationships. This concurrent effort to develop products and 
promote market awareness and acceptance of its products in a new and evolving 
market contributed to the Company's annual losses through 1995.  The Company 
introduced its first HLDA product, Visual HDL for VHDL 1.0, in the first 
quarter of 1994. This product lacked compiled simulation and operated only on 
a PC platform. In the third quarter of 1994, with the release of version 2.5, 
Summit expanded the simulation capability of Visual HDL for VHDL and 
introduced its UNIX-based version of this product. 

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 the 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.  Since the acquisition of 
TriQuest in February 1997 and SimTech, in September 1997,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.

Revenue consists primarily of fees for licenses of the Company's software
products, maintenance and customer training. Revenue from the sale of software
licenses is recognized at the later of the time of shipment or satisfaction of
all acceptance terms. 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. 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 upon delivery of the product.

                                    21

<PAGE>

The Company's products have a range of prices which depend on platform, HDL
language, functionality and duration of license. 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. Accordingly, based on these and other factors, the Company expects
that average selling prices for its products may continue to fluctuate in the
future.

The Company has entered into a joint venture with Anam, effective April 1, 
1996, pursuant to which the joint venture corporation (Summit Asia) acquired 
exclusive rights to sell, distribute and support all of Summit's products in 
the Asia-Pacific region, excluding Japan.  Summit Asia has acted in such 
capacity since April 1, 1996. Prior to that date, Anam was an independent 
distributor of the Company's products in Korea. The amount of revenue from 
sales through Summit Asia, which is remitted to the Company, is fixed by the 
joint venture agreement at a percentage which approximates the percentage 
applicable to sales through Anam prior to the formation of the joint venture. 
For the years ended December 31, 1997 and 1996, Anam and Summit Asia together 
accounted for 1.9% and 3.8% of the Company's revenue, respectively.

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

Approximately, 34% and 50% of the Company's total revenue for the years ended 
December 31, 1997 and 1996, respectively, were attributable to sales made 
outside the United States. The decline in the percentage of revenue from 
sales made outside the United States in 1997 is primarily the result of (1) 
domestic sales to one customer, (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 sale of products acquired in 
the SimTech acquisition which have a principally domestic market. The Company 
expects that international revenue will continue to represent a significant 
portion of its total revenue.  The Company's international revenue is 
currently denominated in U.S. dollars. As a result, increases in the value of 
the U.S. dollar relative to foreign currencies could make the Company's 
products more expensive and, therefore, potentially less competitive in those 
markets. The Company pays the expenses of its international operations in 
local currencies and does not engage in hedging transactions with respect to 
such obligations. International sales and operations are subject to numerous 
risks, including tariff regulations and other trade barriers, requirements 
for licenses, particularly with respect to the export of certain 
technologies, collectability of accounts receivable, changes in regulatory 
requirements, difficulties in staffing and managing foreign operations and 
extended payment terms.(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 Credence Systems Corporation ("CSC").  The 
increase in the Company's product licenses revenue during the last twelve 
months has been 

--------------
(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 32
for a discussion of factors that could affect future performance.

                                22

<PAGE>

primarily due to increased revenue associated with the Company's HLDA
Plus products.  The Asset Sale will allow the Company to focus on the
development and marketing of these products.

Substantially all of the Company's Design to Test product license revenue and
related maintenance and services revenue for the year ended December 31, 1996
and 1997 were attributable to the TDS products.  As of July 1, 1997, TDS
products ceased to be a source of such revenues.  CSC assumed the Company's
obligations under TDS maintenance contracts entered into prior to the closing
and the Company has not recognized deferred revenue associated with such
contracts after June 30, 1997.

The Company maintained exclusive rights to its Visual Testbench technology 
and CSC agreed to purchase a minimum of $16,000,000 of Visual Testbench 
licenses over a thirty-month period beginning July 1997 subject to specified 
quarterly maximums and certain additional conditions, and $2,000,000 of 
maintenance over an eighteen month period beginning July 1997.  At the 
completion of the thirty month period, under certain conditions, CSC may 
obtain shared ownership to the Visual Testbench for sales into the ATE 
marketplace.

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 $3,875,000 in cash. The transaction was accounted for using 
the purchase method of accounting. Accordingly, the 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 consolidated financial statements as of December 31, 1997 
and for the year ended December 31, 1997 have been restated to reflect a 
change in the original accounting treatment related to the September 1997 
acquisition of SimTech.

The Company allocated amounts to IPR&D and intangible assets in the third 
quarter of 1997 in a manner consistent with widely recognized appraisal 
practices in consultation with their independent accountants 
PricewaterhouseCoopers LLP at the date of the acquisition of SimTech. 
Subsequent to the acquisition, the SEC staff expressed views that took issue 
with certain appraisal practices generally employed in determining the fair 
value of the IPR&D that was the basis for measurement of the Company's IPR&D 
charge. The charge of $19.9 million, originally reported, was based upon the 
work of an independent valuation firm that had utilized the methodologies the 
SEC has since announced it does not consider appropriate.

As a result of computing IPR&D using the SEC preferred methodology, the 
Company, in consultation with their independent accountants, has revised the 
amount originally allocated to IPR&D from $19.9 million to $11.7 million. In 
addition, Summit adjusted the discount on common shares paid to SimTech 
shareholders from 28% to 10% and allocated $4.4 million of the purchase 
price, associated with certain shares, to contingent compensation. The 
Company has reduced the amount originally allocated to IPR&D and increased 
the amounts allocated to purchased technology, identifiable intangibles, 
deferred tax liability, and goodwill from $1.0 million to $2.4 million, $1.0 
million to $4.1 million, $0 to $1.3 million and $0 to $3.8 million, 
respectively. These amounts are being amortized on a straight line basis over 
periods ranging from two to five years.

The $4.4 million allocated to compensation will be recorded as expense as the 
employment obligation lapses. The restatement does not affect previously 
reported net cash flows for the periods.

In connection with the purchase of SimTech, the Company repurchased 939,000 
shares of common stock in private transactions at an average price of $12.30 
per share for $11,555,000 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 in the open market from time to time. From January 1, 1998 to March 23, 
1998, the Company repurchased 162,500 shares of its Common Stock at a cost of 
$2.3 million.


                                      23

<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,
                                                                                   -------------------------------------
                                                                                      1997         1996         1995
                                                                                   -----------  -----------  -----------
                                                                                    (Restated)
<S>                                                                                <C>            <C>          <C>
Revenue:                                                                                         
  Product licenses...............................................................       79.0%          76.0%        74.2%
  Maintenance and services.......................................................       19.6           21.2         18.5
  Other..........................................................................        1.4            2.8          7.3
                                                                                   -----------    -----------  -----------
    Total revenue................................................................      100.0          100.0        100.0
                                                                                                 
Cost of revenue:                                                                                 
  Product licenses...............................................................        2.2            2.8          4.6
  Maintenance and services.......................................................        2.0            2.3          2.8
  Amortization of purchased technologies.........................................        0.7             --           --
                                                                                   -----------    -----------  -----------
    Total cost of revenue........................................................        4.9            5.1          7.4
                                                                                   -----------    -----------  -----------
    Gross profit.................................................................       95.1           94.9         92.6
Operating expenses:                                                                              
  Research and development.......................................................       24.7           28.9         38.1
  Sales and marketing............................................................       33.7           45.9         52.8
  General and administrative.....................................................       13.2(a)        15.7         23.0
  Amortization of intangibles and goodwill.......................................        3.0             --           --
  In-process technology..........................................................       37.2             --           --
                                                                                   -----------    -----------  -----------
    Total operating expenses.....................................................      111.8           90.5        113.9
                                                                                   -----------    -----------  -----------
Income (loss) from operations....................................................      (16.7)           4.4        (21.3)
Other income (expense), net......................................................       21.1(b)         0.6         (1.2)
                                                                                   -----------    -----------  -----------
Income (loss) before income taxes................................................        4.4            5.0        (22.5)
Income tax provision (benefit)...................................................        3.0           (1.2)         2.8
                                                                                   -----------    -----------  -----------
Net income (loss)................................................................        1.4%           6.2%       (25.3)%
                                                                                   -----------    -----------  -----------
                                                                                   -----------    -----------  -----------
</TABLE>
 
(a) General and administrative expenses for the year ended December 31, 1997
    included a one-time charge of $379,000 (1.2% of revenue) for costs relating
    to the acquisition of TriQuest.
 
(b) Includes a gain of $5,574, 000 (17.8% of revenues) in conjunction with the
    sale of the TDS product line.

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. Sales to CSC accounted for 28.8% of 
the Company's total revenue for the year ended December 31, 1997.  Such 
revenue included $6.2 million of Visual Testbench license sales made pursuant 
to the Company's contract with CSC. See "Overview." 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 Plus 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.

Because of the addition of HLDA functionality to Visual Testbench version 2.0,
beginning with the release of version 2.0 in December 1996, the Company
recognizes revenue from Visual Testbench products as HLDA revenue instead of
Design to Test revenue.

                                      24

<PAGE>

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. The increase 
in HLDA revenue over the same periods in 1996 was primarily attributable to 
sales to a single customer and to revenue from the Verification product 
portfolio that was not shipping in the comparable period in 1996. Significant 
sales to the single customer are expected to continue over the next eight 
quarters pursuant to contractual arrangements with that customer. 

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 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. 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, and expects to continue to increase headcount.(2)

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.

-----------
(2) This statement 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 32
for a discussion of factors that could affect future performance.


                                      25

<PAGE>

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 is recording $4.4 million of compensation expense for shares issued 
as part of the acquisition which are contingent upon continued employment and 
are expensed as the employment obligation lapses.  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 25 engineers net, 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 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 30.6%
from $3.2 million for the year ended December 31, 1996 to $4.2 million for the
year ended December 31, 1997 which includes a $379,000 one-time charge for costs
associated with the acquisition of TriQuest. Excluding this one-time charge for
costs associated with the TriQuest acquisition, general and administrative
expenses increased $597,000 (18.7%) as compared to the same period in 1996.  As
a percentage of total revenue, excluding the one-time charge associated with the
acquisition of TriQuest, 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. 

AMORTIZATION OF INTANGIBLES AND GOODWILL

The Company recorded $4.1 million in intangibles (excluding $2.4 million of 
developed 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.

ACQUIRED 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 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.  The Company then estimated the stage of 
completion of the products at the date of the acquisition based on the code 
that had been completed at the date of acquisition as compared to total 
estimated code at completion.  The percentages derived from such calculation 
were then applied to the net present value of future cash flows to determine 
the in-process technology charge.

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 foreseeaable 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, the Company estimates that 
revenues from the sales of the products acquired in connection with the 
SimTech acquisition will fall short of forecast by 10%(2).  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)

----------
(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 32 for a discussion of factors that could affect future performance.


(2) This statement 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 32 for a discussion of factors that could affect future performance.

                                     26

<PAGE>

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 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.  The Company has recorded a gain on the sale
of $5.6 milllion.

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 $1,659,000 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.


YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995

The Company's acquisition of Triquest in February 1997 was accounted for as a 
pooling of interests as defined by generally accepted accounting principles 
and, therefore, the Company's financial statements have been restated.

TOTAL REVENUE 

The Company's revenue is comprised of product licenses revenue, maintenance 
and services revenue and other revenue.  Total revenue increased by 42.1% 
from $14.3 million for the year ended December 31, 1995 to $20.3 million for 
the year ended December 31, 1996.  Sales through one distributor accounted 
for 14.6% and 12.7% of the Company's total revenue for the years ended 
December 31, 1996 and 1995, respectively.  No customer accounted for more 
than 10% of the Company's total revenue for the years ended December 31, 1996 
and 1995.

PRODUCT LICENSES REVENUE

The Company's product licenses revenue is derived from license fees from the
Company's HLDA and Design to Test products. Product licenses revenue increased
by 45.7% from $10.6 million for the year ended December 31, 1995 to $15.4
million for the year ended December 31, 1996. Revenue from HLDA and Design to
Test 

                                  27

<PAGE>

products accounted for 58.5% and 41.5%, respectively, of product licenses
revenue for the year ended December 31, 1995 and 72.2% and 27.8%, respectively,
of product licenses revenue for the year ended December 31, 1996.

HLDA revenue increased 78.8 % from $6.3 million for the year ended December 31,
1995 to $11.2 million for the year ended December 31, 1996. The increase was
primarily attributable to the hiring of the HLDA sales force beginning in late
1994 and early 1995, improved international distribution and thereafter
increased market acceptance of the Company's HLDA products and increased account
penetration at major targeted accounts.

Design to Test revenue decreased slightly from $4.3 million for the year ended
December 31, 1995 to $4.2 million for the year ended December 31, 1996. Revenue
from Design to Test products typically results from fewer, larger orders and, as
a result, the timing of orders can result in significant variations in quarterly
revenue.

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 63.1% from $2.6 million for the year ended
December 31, 1995 to $4.3 million for the year ended December 31, 1996. The
increase was attributable to an increase in maintenance revenue related to
growth in the installed base of HLDA customers and an increase in domestic
Design to Test maintenance revenue due to the Company hiring a telemarketing
salesperson dedicated to sales of renewal maintenance.

OTHER REVENUE

Other revenue consists of revenue from one-time technology sales and fees
received for granting distribution rights. Other revenue for the year ended
December 31, 1995 was approximately $1.1 million, which consisted of $850,000
related to a one-time sale of non-core technology and $200,000 of distribution
rights fees.  For the year ended December 31, 1996 other revenue consisted of
$567,000 of distribution rights fees. No material costs were associated with
other revenue for the years ended December 31, 1995 and 1996.


COST OF REVENUE


COST OF PRODUCT LICENSES REVENUE

Cost of product licenses revenue includes product packaging, software
documentation, labor and other costs associated with handling, packaging and
shipping product and other production related costs. Cost of product licenses
revenue decreased 12% from $651,000 for the year ended December 31, 1995 to
$573,000 for the year ended December 31, 1996. The decrease was primarily
attributable to one-time costs incurred in the year ended December 31, 1995
associated with the write-off of prepaid royalties and obsolete inventory and
the production of demonstration and evaluation materials related to the release
of new versions of the Company's HLDA products. As a percentage of product
licenses revenue, the cost of product licenses revenue decreased from 6.1% for
the year ended December 31, 1995 to 3.7% for the year ended December 31,1996.
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 16.0% from $400,000 for the 
year ended December 31, 1995 to $466,000 for the year ended December 31, 
1996. As a percentage of maintenance and services revenue, the cost of 
maintenance and services revenue decreased from 15.2% for the year ended 
December 31, 1995 to 10.8% for the year ended December 31, 1996.

                                   28

<PAGE>

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 7.7% from $5.4 million for the year ended December 31, 1995 to $5.9
million for the year ended December 31, 1996. This increase is primarily related
to the costs associated with the five engineers included in the TriQuest
acquisition in 1997, which was accounted for as a "pooling of interest." As a
percentage of total revenue, research and development expenses decreased from
38.1% for the year ended December 31, 1995 to 28.9% for the year ended December
31, 1996 due to the increase in total revenue for 1996. 

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 23.5% from $7.5 million for the year ended December
31, 1995 to $9.3 million for the year ended December 31, 1996. The increase was
primarily attributable to increased commissions and travel expenses. As a
percentage of total revenue, sales and marketing expenses decreased from 52.8%
for the year ended December 31, 1995 to 45.9% for the year ended December 31,
1996. The decrease was primarily attributable to the increase in total revenue
for 1996.

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 decreased 3.0% from
$3.3 million for the year ended December 31, 1995 to $3.2 million for the year
ended December 31, 1996. During 1995, the Company wrote-off expenses of
approximately $270,000 primarily related to prepaid expenses deemed to have no
future value and costs associated with the severance of a senior manager. As a
percentage of total revenue, general and administrative expenses decreased from
23.0% for 1995 to 15.7% for 1996.  The decrease as a percentage of total revenue
was primarily attributable to the increase in total revenue in 1996 and the
absence of any one time charges. 

INTEREST EXPENSE

Interest expense decreased from $206,000 for the year ended December 31, 1995 to
101,000 for the year ended December 31, 1996 due to decreased borrowings under
the Company's bank line of credit, long term debt and capital leases
obligations.


OTHER INCOME, NET

Other income consists of interest income associated with available cash balances
and gains or losses from the sale of property and equipment. Other income was
$34,000 for the year ended December 31, 1995 and $218,000 for the year ended
December 31, 1996. The increase in other income was primarily due to increased
interest earned on the Company's cash holdings.

INCOME TAX PROVISION

The income tax provision decreased from $400,000 for the year ended December 31,
1995 to a tax benefit of $245,000 for the year ended December 31, 1996. The
decrease was primarily attributable to the Company, as of June 1996, no longer
being required to pay Japanese withholding tax of approximately 10% on its
Japanese 

                                   29

<PAGE>

sales and the recognition in the fourth quarter of 1996 of a net deferred tax 
asset of $500,000. State income tax payments were lower than statutory limits 
due to the carryforward of net operating losses.

VARIABILITY OF OPERATING RESULTS

The Company has experienced significant quarterly fluctuations in operating 
results and cash flows and it is likely that these fluctuations will continue 
in future periods.  These fluctuations have been, and may in the future be, 
caused by a number of factors, including the rate of acceptance of new 
products, corporate acquisitions and consolidations, product, customer and 
channel mix, the size and timing of orders, lengthy sales cycles, the timing 
of new product announcements and introductions by the Company and its 
competitors, seasonal factors, rescheduling or cancellation of customer 
orders, the Company'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 the Company 
and its competitors, product quality issues, currency fluctuations and 
general economic conditions.

The Company has generally recognized a substantial portion of its revenue in the
last month of each quarter, with this revenue concentrated in the latter part of
the month.  Any significant deferral of purchases of the Company's products
could have a material adverse effect 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. The Company's revenue is
difficult to forecast for several reasons. The market for certain of the
Company's software products is evolving. The Company's sales cycle is typically
six to nine months and varies substantially from customer to customer.  In
addition, a significant portion of the Company's sales are made through indirect
channels and can be harder to predict. The Company establishes its expenditure
levels for product development, sales and marketing and other operating
activities based primarily on its expectations as to future revenue. As a
result, if revenue in any quarter falls below expectations, expenditure levels
could be disproportionately high as a percentage of revenue, and the Company's
operating results for that quarter would be adversely affected. Based upon the
factors described above, the Company believes that its quarterly revenue,
expenses and operating results are likely to vary significantly in the future,
that period-to-period comparisons of its results of operations are not
necessarily meaningful and that, as a result, such comparisons should not be
relied upon as indications of the Company's future performance. Moreover,
although the Company's revenue has increased in recent periods, there can be no
assurance that the Company's revenue will grow in future periods or that the
Company will remain profitable on a quarterly or annual basis. Due to the
foregoing or other factors, it is likely that the Company's results of
operations may be below investors' and market analysts' expectations in some
future quarters, which could have a severe adverse effect on the market price of
the Company's Common Stock.

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 applicable federal and state 
statutory tax rates 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 their financial statements.

The Company's Israeli operations, Summit Design (EDA) Ltd., a wholly owned 
subsidiary, is a separate taxable Israeli entity.  Summit Design (EDA) Ltd. 
has been granted "Approved Enterprise" status under the Israeli Investment 
Law, which entitles it to reductions in the tax rate normally applicable to 
Israeli companies with respect to the income generated by its "Approved 
Enterprise" programs.  In particular, this program 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 program 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.
 

                                   30

<PAGE>

The Company has foreign income tax net operating losses, related to the 
operations of Summit Design (EDA) Ltd., of approximately $5.6 million at 
December 31, 1997. 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 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 and cash flows.

LIQUIDITY AND CAPITAL RESOURCES

The Company completed its initial public offering in October 1996, raising $16.2
million, net of offering expenses.  Prior to the IPO, the Company had financed
its operations primarily through the private placement of approximately $15.4
million of capital stock, as well as capital equipment leases, borrowings under
its bank line of credit, Israeli research and development grants and cash
generated from operations.  As of December 31, 1997, the Company had
approximately $20.0 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, 1998 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, 1997, 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 development company pursuant to a secured loan agreement entered 
into during July 1997. Borrowings under the agreement bear interest at prime 
plus 2%.

As of December 31, 1997, the Company had working capital of approximately $14.6
million.

Net cash generated by operating activities was approximately $12.1 million and
$4.7 million for the years ended December 31, 1997 and 1996, respectively. Net
cash used in operating activities was approximately $3.3 million for the year
ended December 31, 1995. 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 from improved collections, increases in deferred revenue and
profitability during the period, while in 1995, the use of cash from operations
resulted primarily from the Company's net loss and the increase in accounts
receivable. 

Net cash used in investing activities was approximately $1,298,000, $855,000,
and $793,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
For the year ended December 31, 1997, net cash


                                   31

<PAGE>

used was primarily related to the acquisition of furniture and equipment, the 
acquisition of Simulation Technologies, and a loan to an independent software 
development company, which was partially offset by proceeds from the sale of 
the TDS product line. For 1996 and 1995, net cash used in investing 
activities was related primarily to the acquisition of furniture and 
equipment.

Net cash used in financing activities was approximately $10.6 million for the 
year ended December 31, 1997. Net cash provided by financing activities was 
approximately $15.3 million, and $3.6 million for the years ended December 
31, 1996, and 1995, respectively. For the year ended December 31, 1997 net 
cash used in financing activities resulted primarily from the Company 
repurchasing approximately 939,000 shares of treasury stock and repayment of 
debt, less proceeds from the issuance of common stock. The 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 cash provided in 1995 was related primarily to 
the issuance of preferred stock and short-term borrowings, partially offset 
by debt payments and principal payments on capital lease obligations.

From January 1, 1998 to March 23, 1998 the Company repurchased 162,500 shares 
of its common stock for $2.3 million.

The Company presently believes that its current cash and cash equivalent,
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)

The Company 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. The Company expects any required 
modification to be made on a timely basis and does not believe that the cost 
of any such modifications will have a material adverse effect on the 
Company'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 the Company's inability to implement such 
modifications could have an adverse effect on the Company's future operating 
results.

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

HISTORY OF OPERATING LOSSES; FLUCTUATIONS IN QUARTERLY RESULTS

The Company has experienced significant quarterly fluctuations in operating 
results and cash flows and it is likely that these fluctuations will continue 
in future periods. These fluctuations have been, and may in the future be, 
caused by a number of factors, including the rate of acceptance of new 
products, corporate acquisitions and consolidations, product, customer and 
channel mix, the size and timing of orders, lengthy sales cycles, the timing 
of new product announcements and introductions by the Company and its 
competitors, seasonal factors, rescheduling or cancellation of customer 
orders, the Company'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 the Company 
and its competitors, product quality issues, currency fluctuations and 
general economic conditions.

The Company has generally recognized a substantial portion of its revenue in the
last month of each quarter, with this revenue concentrated in the latter part of
the month.  Any significant deferral of purchases of the Company's products
could have a material adverse effect on the Company's business, financial
condition, results of operations or cash flows in any particular quarter, and to
the extent that significant sales occur earlier than expected, operating results
for subsequent quarters may be adversely affected. The Company's revenue is
difficult to forecast for several reasons. The market for certain of the
Company's software products is evolving. The Company's sales cycle is typically
six to nine months and varies substantially from customer to customer. The
Company operates with little product backlog because its products are typically
shipped shortly after orders are received. In addition, a significant portion of
the Company's sales are made through indirect channels and can be harder to
predict. The Company establishes its expenditure levels for product development,
sales and marketing and other operating activities based primarily on its
expectations as to future revenue. As a result, if revenue in any quarter falls
below expectations, expenditure levels could be disproportionately high as a
percentage of revenue, and the Company's operating results for that quarter
would be adversely affected. Based 

-----------
(2) This statement 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 32
for a discussion of factors that could affect future performance.

                                 32

<PAGE>

upon the factors described above, the Company believes that its quarterly
revenue, expenses and operating results are likely to vary significantly in the
future, that period-to-period comparisons of its results of operations are not
necessarily meaningful and that, as a result, such comparisons should not be
relied upon as indications of the Company's future performance. Moreover,
although the Company's revenue has increased in recent periods, there can be no
assurance that the Company's revenue will grow in future periods or that the
Company will remain profitable on a quarterly or annual basis. Due to the
foregoing or other factors, it is likely that the Company's results of
operations may be below investors' and market analysts' expectations in some
future quarters, which could have a severe adverse effect on the market price of
the Company's Common Stock.


PRODUCT CONCENTRATION; UNCERTAINTY OF MARKET ACCEPTANCE OF HLDA 

Prior to July 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.  Effective July 1, 1997, as a result of the Asset Sale, TDS
products ceased to be a source of revenue.  With the acquisition of TriQuest in
February 1997 and SimTech in September 1997, the Company also derives 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.

The Company believes that HLDA products will continue to account for
substantially all of its revenue in the future. 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
the Company's business, financial condition and results of operations.

The Company's future success depends primarily upon the market acceptance of its
existing and future HLDA products. The Company commercially shipped its first
HLDA product, Visual HDL for VHDL, in the first quarter of 1994. For the years
ended December 31, 1997, 1996 and 1995, respectively, revenue from HLDA products
and related maintenance contracts represented 76.5%, 63.5%, and 43.6%,
respectively, of the Company's total revenue. 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. The Company anticipates a lengthy period of test 
marketing for the Visual Testbench product. Accordingly, the Company cannot 
predict the extent, to which it will realize revenue from Visual Testbench in 
excess of the revenue expected to be received pursuant to an OEM agreement 
with CSC entered into in July 1997. As part of this agreement, CSC must 
purchase a minimum of $16.0 million of Visual Testbench licenses over a 
thirty-month period which began in July 1997. As of December 31, 1997, the 
Company had sold $6.2 million of Visual Testbench licenses to CSC pursuant to 
the agreement. The Company will need to replace this revenue when the $16.0 
million purchase obligation is satisfied and the failure of the Company to 
replace this revenue would have a material adverse effect on the Company's 
operating results.

                                 33

<PAGE>

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 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.

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 

                                 34
<PAGE>

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.

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.


DEPENDENCE ON DISTRIBUTORS

The Company relies on distributors for licensing and support of its products
outside of North America. Approximately 29%, 46% and 42% of the Company's
revenue for the years ended December 31, 1997, 1996 and 1995, respectively, were
attributable to sales made through distributors. The Company has also 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.  Summit Asia
has acted in such capacity since April 1, 1996. Prior to that date, Anam was an
independent distributor of the Company's products. The Company is currently
restructuring the ownership and responsibilities of Summit Asia.  There can be
no assurance that any restructuring would result in Summit Asia becoming
profitable or that revenue attributable to sales in the Asia Pacific region,
excluding Japan, would increase. During the first quarter of 1997, the Company
entered into a distribution agreement with ATE pursuant to which ATE was granted
exclusive rights to sell, distribute and support Summit's Visual Testbench
products within Japan until October 1998, subject to the Company's ability to
terminate the relationship if ATE fails to meet quarterly sales objectives. The
agreement may also be terminated by either party for breach. 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.  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. 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. In March 1997, the Company entered into a three-year
distribution agreement with Kanematsu USA Inc. pursuant to which Kanematsu was
granted exclusive distribution rights to sell, distribute and support certain
verification products in Japan.  For the year ended December 31, 1997, all sales
of the Company's products in the Asia-Pacific region were through Seiko, Summit
Asia, ATE and Kanematsu.

                                 35

<PAGE>

There can be no assurance the relationships with Seiko, Summit Asia, ATE and
Kanematsu 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, Summit Asia, ATE and
Kanematsu, 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 34%, 50% and 52% of the Company's revenue for the years ended
December 31, 1997, 1996 and 1995, respectively, were attributable to sales made
outside the United States. 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 conditions
which could adversely affect demand for the Company's products in such region.

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 effectively to manage any such growth would have a material
adverse effect on Summit's business, financial condition, results of operations
or cash flows.

On February 28, 1997, Summit completed its acquisition of TriQuest and on
September 9, 1997, Summit completed its acquisition of SimTech.  As a result of
these acquisitions, Summit's operating expenses are expected to increase.  There
can be no assurance that the integration of TriQuest's and SimTech'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

                                 36

<PAGE>


opportunities.  Future acquisitions by Summit could result in potentially 
dilutive issuances of equity securities, the incurrence of debt and 
contingent liabilities and amortization expenses related to goodwill and 
other intangible assets, which could materially adversely affect Summit's 
results of operations.  Product and technology acquisitions entail numerous 
risks, including difficulties in the assimilation of acquired operations, 
technologies and products, diversion of management's attention to other 
business concern, risks of entering markets in which Summit has no or limited 
prior experience and potential loss of key employees of acquired companies.  
Summit's management has had limited experience in assimilating acquired 
organizations and products into 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 
affect on Summit's results of operations.

OPERATIONS IN ISRAEL

The Company's research and development operations related to its HLDA 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 $4.7,
$4.3 and $4.3 million in 1997, 1996 and 1995, 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 7%, 11% and 8% during 1997, 1996, and 1995, 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. 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. 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 future success depends in large part on the continued service of
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 noncompetition provisions. 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 

                                 37

<PAGE>

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 does not carry "key person" life insurance on any of its 
key personnel.  The Company recently hired a new Vice President of Worldwide 
Marketing and Sales and several new sales persons. The Company's future 
success will depend in part on the ability of these new persons to rapidly 
and effectively transition into their new positions. Additions of new 
personnel and departures of existing personnel, particularly in key 
positions, can be disruptive and can result in departures of additional 
personnel, which could have a material adverse effect on 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
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, 1997, approximately $261,000 was
outstanding under the grant.

LIMITATIONS ON PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

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 its HLDA Plus 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 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 

                                 38

<PAGE>

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

The Company 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.  The Company expects any required 
modification to be made on a timely basis and does not believe that the cost 
of any such modifications will have a material adverse effect on the 
Company'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 the Company's inability to implement such 
modifications could have an adverse affect on the Company's future operating 
results.

                                  39
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPORTING DATA


                INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                               Page
                                                               ----
<S>                                                            <C>
Report of Independent Accountants.............................  41

Consolidated Balance Sheets as of December 31, 1997 and 1996..  42

Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995..............................  43

Consolidated Statements of Stockholders' Equity for the 
Years Ended December 31, 1997, 1996 and 1995 .................  44

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995..............................  45

Notes to Consolidated Financial Statements....................  46
</TABLE>

                                       40

<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

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

We have audited the accompanying consolidated balance sheets of Summit 
Design, Inc. and its subsidiaries as of December 31, 1997 and 1996, and the 
related consolidated statements of operations, stockholders' equity and cash 
flows for each of the three years in the period ended December 31, 1997. 
These financial statements are the responsibility of the Company's 
management. Our responsibility is to express an opinion on the financial 
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards. Those standards 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. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the consolidated financial position of Summit Design, 
Inc. and its subsidiaries as of December 31, 1997 and 1996, and the results 
of their consolidated operations and their cash flows for each of the three 
years in the period ended December 31, 1997 in conformity with generally 
accepted accounting principles.

As discussed more fully in Notes 1 and 5, the Company and the staff of the 
Securities and Exchange Commission have had discussions regarding the 
accounting treatment related to the September 1997 acquisition of Simulation 
Technologies, Corp. (SimTech). As a result of these discussions, the Company 
has modified the method used to allocate the purchase price to in-process 
technologies. In addition, the Company has adjusted the valuation of common 
shares paid to SimTech shareholders and allocated a portion of the purchase 
price associated with certain shares to contingent compensation. Accordingly, 
the consolidated financial statements as of and for the year ended December 
31, 1997 have been restated.

                                    PricewaterhouseCoopers LLP


Portland, Oregon
January 30, 1998, except as to Notes 1 and 5,
as to which the date is December 24, 1998 and 
Note 20 as to which the date is September 20, 1998.


                                       41

<PAGE>

                                SUMMIT DESIGN, INC.
                                          
                            CONSOLIDATED BALANCE SHEETS
                       (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                          --------------------
                                                             1997        1996
                                                          --------------------
                                                          (Restated)
<S>                                                       <C>         <C>
                             ASSETS
Current assets:
     Cash and cash equivalents . . . . . . . . . . . . .  $19,973      $19,801
     Accounts receivable, less allowance for 
        doubtful accounts of $592 and $433 . . . . . . .    5,131        5,578
     Prepaid expenses and other. . . . . . . . . . . . .      540          490
     Deferred income taxes . . . . . . . . . . . . . . .    1,209            -
                                                          -------      -------
        Total current assets . . . . . . . . . . . . . .   26,853       25,869
     
Furniture and equipment, net . . . . . . . . . . . . . .    2,698        1,862
Intangibles, net . . . . . . . . . . . . . . . . . . . .    5,571            -
Goodwill, net. . . . . . . . . . . . . . . . . . . . . .    3,493            -
Deferred income taxes. . . . . . . . . . . . . . . . . .        -          500
Deposits and other assets. . . . . . . . . . . . . . . .    1,055          469
                                                          -------      -------
        Total assets . . . . . . . . . . . . . . . . . .  $39,670      $28,700
                                                          -------      -------
                                                          -------      -------

                        LIABILITIES
Current liabilities:
     Long-term debt, current portion . . . . . . . . . .  $   134      $   473
     Capital lease obligation, current portion . . . . .       49           66
     Accounts payable. . . . . . . . . . . . . . . . . .    1,211        1,456
     Accrued liabilities . . . . . . . . . . . . . . . .    5,182        2,880
     Deferred revenue. . . . . . . . . . . . . . . . . .    5,674        3,758
                                                          -------      -------
        Total current liabilities. . . . . . . . . . . .   12,250        8,633
     
Long-term debt, less current portion . . . . . . . . . .      194          754
Capital lease obligation, less current portion . . . . .       43           95
Deferred revenue, less current portion . . . . . . . . .        -           67
Deferred taxes . . . . . . . . . . . . . . . . . . . . .      987            -
                                                          -------      -------
        Total liabilities. . . . . . . . . . . . . . . .   13,474        9,549
                                                          -------      -------
                                                          -------      -------
     
Commitments  and contingencies (Notes 10 and 17)
     
                STOCKHOLDERS' EQUITY
Common stock, $.01 par value. Authorized 30,000; 
    issued and outstanding 15,841 shares in 1997 
    and 14,079 shares in 1996. . . . . . . . . . . . . .      159          141
Additional paid-in capital . . . . . . . . . . . . . . .   51,412       33,261
Treasury stock, at cost, 939 shares in 1997. . . . . . .  (11,555)           -
Accumulated deficit. . . . . . . . . . . . . . . . . . .  (13,820)     (14,251)
                                                          -------      -------
        Total stockholders' equity . . . . . . . . . . .   26,196       19,151
                                                          -------      -------
        Total liabilities and stockholders' equity . . .  $39,670      $28,700
                                                          -------      -------
                                                          -------      -------
</TABLE>

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

                                       42

<PAGE>

                               SUMMIT DESIGN, INC.

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

<TABLE>
<CAPTION>

                                              YEARS ENDED DECEMBER 31,
                                         ---------------------------------
                                           1997        1996         1995
                                         --------    --------     --------
                                        (Restated)
<S>                                      <C>         <C>          <C>
Revenue:
     Product licenses. . . . . . . . . . $ 24,828    $ 15,446     $ 10,604 
     Maintenance and services. . . . . .    6,161       4,301        2,637 
     Other . . . . . . . . . . . . . . .      450         567        1,051 
                                         --------    --------     --------
       Total revenue . . . . . . . . . .   31,439      20,314       14,292 
Cost of revenue: . . . . . . . . . . . .                      
     Product licenses. . . . . . . . . .      701         573          651 
     Maintenance and services. . . . . .      632         466          400 
     Amortization of purchased
     technologies. . . . . . . . . . . .      219           -            -
                                         --------    --------     --------
       Total cost of revenue . . . . . .    1,552       1,039        1,051 
                                         --------    --------     --------
Gross profit . . . . . . . . . . . . . .   29,887      19,275       13,241 
Operating expenses:
     Research and development. . . . . .    7,749       5,867        5,447 
     Sales and marketing . . . . . . . .   10,591       9,319        7,547 
     General and administrative. . . . .    4,164       3,188        3,286 
     Amortization of intangibles
     and goodwill. . . . . . . . . . . .      942           -            -
     In-process technology . . . . . . .   11,689           -            -
                                         --------    --------     --------
       Total operating expenses. . . . .   35,135      18,374       16,280
                                         --------    --------     --------
Income (loss) from operations. . . . . .   (5,248)        901       (3,039)
Interest expense . . . . . . . . . . . .      (12)       (101)        (206)
Other income, net. . . . . . . . . . . .    1,057         218           34  
Gain on sale of TDS product line . . . .    5,574           -            -  
                                         --------    --------     --------
Income (loss) before income taxes. . . .    1,371       1,018       (3,211)
Income tax provision (benefit) . . . . .      940        (245)         400 
                                         --------    --------     --------
Net income (loss). . . . . . . . . . . .  $   431     $ 1,263     $ (3,611)
                                         --------    --------     --------
                                         --------    --------     --------
       
Earnings per share - Basic:. . . . . . .                                   
  Earnings per share . . . . . . . . . .  $  0.03     $  0.10     $  (0.33)
                                         --------    --------     --------
                                         --------    --------     --------
  Number of shares used in 
  computing basic earnings per share . .   14,403      12,240       11,085 
       
Earnings per share - Diluted:. . . . . .                                   
  Earnings per share . . . . . . . . . .  $  0.03     $  0.10     $  (0.33)
                                         --------    --------     --------
                                         --------    --------     --------
  Number of shares used in 
  computing diluted earnings per share .   15,402      13,243       11,085 
</TABLE>



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

                                       43

<PAGE>

                              SUMMIT DESIGN, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              for the years ended December 31, 1997, 1996 and 1995
                        (In thousands, except shares)


<TABLE>
<CAPTION>
                                                           Convertible
                                                          Preferred Stock             Common Stock
                                                      -----------------------   ------------------------
                                                        Shares      Amount        Shares       Amount
                                                      ----------  -----------   -----------  -----------
                                                                                              (Restated)
<S>                                                   <C>         <C>           <C>          <C>
Balance, December 31, 1994..........................   8,599,012          86      2,173,486          22
Issuance of Series E preferred stock................     600,000           6   
Issuance of Series A preferred stock................      80,383         444   
Repurchase of Series C preferred stock..............     (65,000)         (1)  
Repurchase of Series D preferred stock..............     (30,666)              
Issuance of common stock............................                                141,722          43
Issuance of common stock under stock option plan....                                 71,757           1
Repurchase of common stock..........................                               (153,705)         (2)
Net loss............................................                           
                                                      ----------  -----------   -----------       -----
Balance, December 31, 1995..........................   9,183,729         535      2,233,260          64
Issuance of convertible Preferred stock.............     290,938         986   
Issuance of common stock in in initial public                                  
 offering, net of Issuance costs....................                              2,000,000          20
Issuance of common stock under stock option plan and                           
 other..............................................                                383,952           6
Conversion of preferred stock to common stock.......  (9,474,667)     (1,521)     9,474,667          95
Repurchase of common stock..........................                                (12,737)
Conversion of TriQuest common stock.................                                                (44)
Net income..........................................                           
                                                      ----------  -----------   -----------       -----
Balance, December 31, 1996..........................          --          --     14,079,142  >      141
                                                                                             -
Issuance of common stock............................                                 29,733
Issuance of common stock under stock option plan....                                440,711           5
Issuance of common stock under employee stock                                  
 purchase plan......................................                                 58,701           1
Repurchase of common stock..........................                                (23,760)
Issuance of common stock in conjunction with a                                 
 business combination...............................                              1,256,777          12
Purchase of treasury stock..........................                           
Tax benefit of option exercises.....................                           
Net loss............................................                           
                                                      ----------  -----------   -----------       -----
Balance, December 31, 1997..........................          --   $      --     15,841,304   $     159
                                                      ----------  -----------   -----------       -----
                                                      ----------  -----------   -----------       -----
 
<CAPTION>
 
                                                      Additional      Treasury Stock                        Total
                                                        Paid-in    ---------------------   Accumulated   Stockholders'
                                                        Capital     Shares      Amount       Deficit        Equity
                                                      -----------  ---------   ---------  -------------  -------------
                                                      (Restated)                            (Restated)     (Restated)
<S>                                                   <C>          <C>         <C>        <C>            <C>
Balance, December 31, 1994..........................      13,019                              (11,903)         1,224
Issuance of Series E preferred stock................       2,575                                               2,581
Issuance of Series A preferred stock................                                                             444
Repurchase of Series C preferred stock..............         (64)                                                (65)
Repurchase of Series D preferred stock..............        (115)                                               (115)
Issuance of common stock............................                                                              43
Issuance of common stock under stock option plan....          49                                                  50
Repurchase of common stock..........................          (1)                                                 (3)
Net loss............................................                                           (3,611)        (3,611)
                                                      -----------  ---------   ---------  -------------  -------------
Balance, December 31, 1995..........................      15,463          --          --      (15,514)           548
Issuance of convertible Preferred stock.............                                                             986
Issuance of common stock in in initial public                                            
 offering, net of Issuance costs....................      16,204                                              16,224
Issuance of common stock under stock option plan and                                     
 other..............................................         134                                                 140
Conversion of preferred stock to common stock.......       1,418                                                  (8)
Repurchase of common stock..........................          (2)                                                 (2)
Conversion of TriQuest common stock.................          44                                                  --
Net income..........................................                                            1,263          1,263
                                                      -----------  ---------   ---------  -------------  -------------
Balance, December 31, 1996..........................      33,261          --          --      (14,251)        19,151
Issuance of common stock............................           3                                                   3
Issuance of common stock under stock option plan....         563                                                 568
Issuance of common stock under employee stock                                            
 purchase plan......................................         349                                                 350
Repurchase of common stock..........................          (4)                                                 (4)
Issuance of common stock in conjunction with a                                           
 business combination...............................      15,538                                              15,550
Purchase of treasury stock..........................                (939,381)    (11,555)                    (11,555)
Tax benefit of option exercises.....................         969                                                 969
Amortization of future contingent share liability...         733                                                 733
Net loss............................................                                              431            431
                                                      -----------  ---------   ---------  -------------  -------------
Balance, December 31, 1997..........................   $  51,412    (939,381)  $ (11,555)   $ (13,820)     $  26,196
                                                      -----------  ---------   ---------  -------------  -------------
                                                      -----------  ---------   ---------  -------------  -------------
</TABLE>
 
             The accompanying notes are an integral part of the 
                    consolidated financial statements.

                                       44

<PAGE>
                              SUMMIT DESIGN, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                   YEARS ENDED DECEMBER 31,
                                                                              ----------------------------------
                                                                                 1997        1996        1995
                                                                              ----------  ----------  ----------
                                                                              (Restated)
<S>                                                                           <C>         <C>         <C>
Cash flows from operating activities:
  Net income (loss).........................................................  $      431 $    1,263  $   (3,611)
  Adjustments to reconcile net income (loss) to net cash provided by (used
   in) operating activities:
    Depreciation and amortization...........................................       1,984         870         606
    Amortization of future contingent share liability.......................         733          --          --
    (Gain) loss on asset disposition........................................           2          18          (1)
    Gain on sale of TDS product line........................................      (5,574)         --          --
    Write-off of acquired in-process technology.............................      11,689          --          --
    Deferred taxes..........................................................      (1,044)       (500)         --
    Changes in assets and liabilities:
      Accounts receivable...................................................         951         (21)     (1,401)
      Prepaid expenses and other............................................         (13)       (157)         (1)
      Accounts payable......................................................        (254)        406        (300)
      Accrued liabilities...................................................       1,667         561         803
      Deferred revenue......................................................       1,601       2,067         380
      Other, net............................................................         (68)        160         191
                                                                              ----------  ----------  ----------
        Net cash provided by (used in) operating activities.................      12,105       4,667      (3,334)
                                                                              ----------  ----------  ----------
Cash flows from investing activities:
  Additions to furniture and equipment......................................      (1,613)       (763)       (810)
  Acquisitions, net of cash received........................................      (3,816)         --          --
  Proceeds from sale of product line........................................       4,666          --          --
  Proceeds from sale of assets..............................................          30           8          17
  Notes receivable..........................................................        (565)         --          --
  Investment in joint venture...............................................          --        (100)         --
                                                                              ----------  ----------  ----------
      Net cash used in investing activities.................................      (1,298)       (855)       (793)
                                                                              ----------  ----------  ----------
Cash flows from financing activities:
  Issuance of preferred stock...............................................          --         977       3,025
  Issuance of common stock, net.............................................         922      16,364          77
  Tax benefit of option exercises...........................................         969          --          --
  Payments to acquire treasury stock........................................     (11,555)         --          --
  Proceeds from notes payable and long-term debt............................          --          96       3,315
  Repurchase of preferred stock.............................................          --          --        (180)
  Repurchase of common stock................................................          (4)         (2)        (13)
  Principal payments of debt obligations....................................        (898)     (1,952)     (2,329)
  Principal payments of capital lease obligations...........................         (69)       (205)       (260)
                                                                              ----------  ----------  ----------
      Net cash (used in) provided by financing activities...................     (10,635)     15,278       3,635
                                                                              ----------  ----------  ----------
      Increase (decrease) in cash and cash equivalents......................         172      19,090        (492)
Cash and cash equivalents, beginning of year................................      19,801         711       1,203
                                                                              ----------  ----------  ----------
Cash and cash equivalents, end of year......................................  $   19,973  $   19,801  $      711
                                                                              ----------  ----------  ----------
                                                                              ----------  ----------  ----------
 
Supplemental disclosure (see Note 16)
</TABLE>
 
             The accompanying notes are an integral part of the 
                    consolidated financial statements.

                                       45


<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 and
Israel. The Company markets and sells its products in the United States, Europe,
and Asia through its direct sales force and distributor relationships.

RESTATEMENT:

After discussion with the staff of the Securities and Exchange Commission 
(the "staff") the consolidated financial statements as of December 31, 1997 
and for the year ended December 31, 1997 have been restated to reflect a 
change in the original accounting treatment related to the September 1997 
acquisition of Simulation Technologies Corp. ("SimTech").

The Company allocated amounts to IPR&D and intangible assets in the third 
quarter of 1997 in a manner consistent with widely recognized appraisal 
practices in consultation with their independent accountants 
PricewaterhouseCoopers LLP at the date of the acquisition of SimTech. 
Subsequent to the acquisition, the SEC staff expressed views that took issue 
with certain appraisal practices generally employed in determining the fair 
value of the IPR&D that was the basis for measurement of the Company's IPR&D 
charge. The charge of $19.9 million, originally reported, was based upon the 
work of an independent valuation firm that utilized methodologies the 
SEC has since announced it does not consider appropriate.

As a result of computing IPR&D using the SEC preferred methodology, the 
Company, in consultation with their independent accountants, has revised the 
amount originally allocated to IPR&D. In addition, Summit adjusted the 
discount on common shares paid to SimTech shareholders from 28% to 10% and 
allocated $4.4 million of the purchase price, associated with certain shares, 
to contingent compensation. The Company has reduced the amount originally 
allocated to IPR&D from $19.9 million to $11.7 million and increased the 
amounts allocated to purchased technology, identifiable intangibles, deferred 
tax liability, and goodwill from $1.0 million to $2.4 million, $1.0 million 
to $4.1 million, $0 to $1.3 million and $0 to $3.8 million, respectively. 
These amounts are being amortized on a straight line basis over periods 
ranging from two to five years. The $4.4 million allocated to compensation 
will be recorded as expense as the employment obligation lapses.

The restatement does not affect previously reported net cash flows for the 
periods.  The effect of this reallocation on previously reported consolidated 
financial statements as of and for the year ended December 31, 1997 is as 
follows (in thousands except per share amounts, unaudited):

<TABLE>
<CAPTION>
                                              Year Ended
                                           December 31, 1997
Statements of Operations:           As Reported        Restated
                                    -----------        --------
<S>                                 <C>                <C>
Cost of revenues                       $  1,439        $  1,552
Gross margin                             30,000          29,887
Operating expenses, excluding
 in process technology                   21,816          23,446
In process technology                    19,937          11,689
Loss from operations                    (11,753)         (5,248)
Net income (loss)                        (5,875)            431
Net income (loss) per share
     Basic                             $  (0.41)       $   0.03
     Diluted                           $  (0.41)       $   0.03

<CAPTION>
                                          December 31, 1997
Balance Sheets:                     As Reported         Restated
                                    -----------         --------
<S>                                 <C>                 <C>
Other assets                           $  5,908         $ 12,817
Total assets                             32,761           39,670
Deferred tax liability                        0              987
Accumulated deficit                     (20,126)         (13,820)
Total shareholders' equity               20,275           26,196
</TABLE>


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 vendor obligations is deferred until such time as 
vendor obligations are met. 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 the related 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.

The Company records revenue from sales through distributors upon sales from 
distributors to a third party or end user.

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, 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.


                                     46
<PAGE>

                                SUMMIT DESIGN, INC.
                                          
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                          

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 technology and other intangibles are 
being amortized on a straight line basis over two to five years for purchased 
technology 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 intangibles 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.

FOREIGN CURRENCY TRANSLATION

The Company's subsidiary in Israel 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.


                                     47
<PAGE>

                                SUMMIT DESIGN, INC.
                                          
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


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.


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, 1997 and 1996
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, 1997 and 1996, 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. This statement
simplifies the standards for computing earnings per share ("EPS") previously
found in APB Opinion No. 15, EARNINGS PER SHARE, and makes them comparable with
international EPS standards. This statement requires restatement of all prior
period data presented and, therefore, the Company has restated EPS for the years
ended December 31, 1996 and 1995, respectively. The principal differences
between the provisions of SFAS No. 128 and previous authoritative pronouncements
are exclusion of common stock equivalents in the determination of basic EPS and
the market price at which common stock equivalents are calculated in the
determination of diluted EPS. 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.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1997, FASB issued SFAS No. 130, "Comprehensive Income" SFAS No. 130 
becomes effective in 1998 and requires reclassification of earlier financial 
statements for comparative purposes.  SFAS No. 130 requires that changes in 
the amounts of certain items, including foreign currency translation 
adjustments and gains and losses on certain securities be shown in a 
statement of comprehensive income.  Management does not expect the adoption 
to have a material effect on the consolidated financial statements.

Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information."  This statement will change 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 is effective for fiscal years beginning after December
15, 1997 and will modify the disclosure of certain segment information for the
Company.


                                     48
<PAGE>
                                SUMMIT DESIGN, INC.
                                          
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                          
                                          
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. Management does not expect the adoption to have any effect on the
consolidated financial statements.

In October 1997, the AICPA issued SOP 97-2, "Software Revenue Recognition",
which supersedes SOP 91-1 and is effective for transactions entered into in
years beginning after December 15, 1997. Management has not yet determined 
the effect of the adoption of this statement.

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 TriQuest and Summit 
(in thousands):


<TABLE>
<CAPTION>
                         Two Months Ended        Year Ended            Year Ended
                         February 28, 1997    December 31, 1996    December 31, 1995
                         -----------------   ------------------    -----------------
                            (unaudited)
<S>                      <C>                 <C>                   <C>
Summit Design, Inc
     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.  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.


                                     49
<PAGE>
                                SUMMIT DESIGN, INC.
                                          
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


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 the 
Summit Common Stock, 723,200 options to purchase Summit common stock, and 
$3,875,000 of cash.   An additional $315,000 of direct acquisition costs were 
also incurred and included in the purchase price.  The total consideration at 
estimated fair value as originally reported and as restated is summarized as 
follows (in thousands):

<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 acquisition was accounted for using the purchase method of accounting. 
Accordingly, the results of SimTech's 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 and five years. 
Additionally, the Company will record a charge to expense for shares issued 
in the transaction which are contingent upon continued employment for up to 
two years from the acquisition date.  A total of $4.4 million of compensation 
expense will be recorded as the employment obligation lapses.

The following table reflects unaudited pro forma combined results of operations
of the Company and SimTech on a basis that the acquisitions 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
                                       ------------        ------------
                                        (Restated)          (Restated)
                                     (in thousands, except per share data)

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

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

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


                                     50
<PAGE>
                                SUMMIT DESIGN, INC.
                                          
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


6.   FURNITURE AND EQUIPMENT:

Furniture and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
                                                            December 31, 
                                                          1997       1996  
                                                        --------   --------
<S>                                                     <C>        <C>
Office furniture and equipment . . . . . . . . . .      $    596   $    513
Computer equipment . . . . . . . . . . . . . . . .         3,679      3,251
Leasehold improvements . . . . . . . . . . . . . .            66         41
                                                        --------   --------
                                                           4,341      3,805
Less accumulated depreciation and amortization . .        (1,643)    (1,943)
                                                        --------   --------
                                                        $  2,698   $  1,862
                                                        --------   --------
                                                        --------   --------
</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, 1997 are $490,000 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, 1998 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 a rate that ranges from prime to prime plus 0.75%,
depending on the debt to tangible net worth ratio maintained by the Company, and
is payable monthly.  The prime rate at December 31, 1997 was 8.5%. There was no
amount outstanding at December 31, 1997.

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, 1997.

9.   ACCRUED LIABILITIES:

Accrued liabilities consists of the following (in thousands):
<TABLE>
<CAPTION>
                                                        December 31,
                                                    --------   --------
                                                      1997       1996  
                                                    --------   --------
<S>                                                 <C>        <C>
Payroll and related benefits . . . . . .            $  2,887   $  1,621
Sales and marketing. . . . . . . . . . .                 435        225
Accounting and legal . . . . . . . . . .                 260        301
Federal and state income taxes payable .                 819          -
Sales taxes payable. . . . . . . . . . .                 114        115
Other. . . . . . . . . . . . . . . . . .                 667        618
                                                    --------   --------
                                                    $  5,182   $  2,880
                                                    --------   --------
                                                    --------   --------
</TABLE>


                                     51
<PAGE>
                                SUMMIT DESIGN, INC.
                                          
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


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 and $662,000 at December 31, 1997
and 1996, respectively. Related accumulated amortization of $108,000 and
$508,000 at December 31, 1997 and 1996 is included in accumulated depreciation.

The Company has entered into a noncancelable operating lease for the use of a
building. Rental expense was approximately $285,000, $303,000, and $261,000 for
the years ended December 31, 1997, 1996 and 1995, respectively. In addition,
Summit Design (EDA) Ltd. has entered into a sublease with a related party for
its premises. The lease expires in 1998. Annual rent is contingent on the
Israeli consumer price index and is approximately $145,000 annually.

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>
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . $     52   $    860
1999 . . . . . . . . . . . . . . . . . . . . . . . . . .       44        549
2000 . . . . . . . . . . . . . . . . . . . . . . . . . .        -        106
                                                         --------   --------
   Total minimum lease payments. . . . . . . . . . . . .       96   $  1,515
   Less amount representing interest (at 4%) . . . . . .       (4)  --------
                                                         --------   --------
   Present value of minimum capital lease payments . . .       92           
   Current portion of capital lease obligation . . . . .      (49)          
                                                         --------  
   Capital leases obligation, less current portion . . . $     43           
                                                         --------  
                                                         --------  
</TABLE>

11.   LONG-TERM DEBT:

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

<TABLE>
<CAPTION>
                                                               December 31, 
                                                           -------------------
                                                             1997       1996 
                                                           --------   --------
<S>                                                        <C>        <C>
Marketing Fund grant payable to the Israeli government . . $    261   $    364
Chief Scientist grant payable to the Israeli government. .        -        773
Other. . . . . . . . . . . . . . . . . . . . . . . . . . .       67         90
                                                           --------   --------
                                                                328      1,227
Current portion. . . . . . . . . . . . . . . . . . . . . .     (134)      (473)
                                                           --------   --------
Non-current portion. . . . . . . . . . . . . . . . . . . . $    194   $    754
                                                           --------   --------
                                                           --------   --------
</TABLE>

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

The Company received a Marketing Fund grant of $423,000 from the Israeli
Ministry of Industry and Trade through December 31, 1997. 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.


                                     52
<PAGE>

                                SUMMIT DESIGN, INC.
                                          
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Future principal payments of debt outstanding for the years ending December 31
are as follows (in thousands):

<TABLE>
<CAPTION>
     <S>                                         <C>
     1998 . . . . . . . . . . . . . . . . . .       134
     1999 . . . . . . . . . . . . . . . . . .       116
     2000 . . . . . . . . . . . . . . . . . .        78
                                                 ------
                                                 $  328
                                                 ------
                                                 ------
</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 plan, 
2,322,000 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 2,659, 366,094, and 622,915 shares of common stock reserved for the
grant of stock options under the 1994 Plan at December 31, 1997, 1996 and 1995,
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 1996 Director Plan.  The Company
granted 40,000 options under this plan in 1997.

1997 NONSTATUTORY STOCK OPTION PLAN

The Company established the 1997 Nonstatutory Stock Option Plan 
("Nonstatutory Plan") in order to provide additional incentive to employee's, 
directors and consultants. Options granted under the 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 143,000 options under the Nonstatutory Plan in 1997.
 

                                     53
<PAGE>

                                SUMMIT DESIGN, INC.
                                          
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


A summary of the status of the Company's stock option plans as of December 31,
1997, 1996 and 1995 and changes during the years ended on those dates is
presented below:

<TABLE>
<CAPTION>
                                                           Exercise
                                          Options        Price Range   
                                         ---------      --------------
<S>                                      <C>            <C>
Balance, December 31, 1994 . . . . . . .   873,457      $0.02 -- $5.00
    Options granted. . . . . . . . . . .   558,627      $0.33 -- $1.75
    Options exercised. . . . . . . . . .   (71,757)     $0.02 -- $0.51
    Options canceled . . . . . . . . . .  (196,845)     $0.02 -- $2.50
                                         ---------
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
                                         ---------
                                         ---------
</TABLE>

The following are the shares exercisable at the corresponding weighted average
exercise price at December 31, 1997, 1996 and 1995, respectively: 949,261 at
$2.3119, 1,186,986 at $2.0662 and 1,171,185 at $1.1217.  The weighted average
exercise price per share of options outstanding at December 31, 1997 is 
$4.5879.  The following are the weighted-average grant date fair value of 
options granted for the years ended December 31, 1997, 1996 and 1995, 
respectively: $8.96, $5.95 and $1.52.  At December 31, 1997, 219,761 shares 
were 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 31,1997:

<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 12/31/97   Remaining Life    Price     at 12/31/97    Price  
------------------  -----------   --------------   --------   -----------   --------
<S>                 <C>           <C>              <C>        <C>           <C>
 $ 0.08 to $ 0.63      578,048        7.39         $ 0.4195     389,197     $ 0.3738
 $ 1.17 to $ 1.95      580,670        7.94           1.6410     402,761       1.6592
 $ 4.67 to $ 7.00       99,005        9.18           5.4049      39,403       5.8608
 $ 8.13 to $ 9.50      652,000        9.47           8.8663     110,666       9.3135
 $ 9.63 to $10.50      167,500        9.96           9.6354         583      10.5000
 $12.75 to $17.00       46,151        9.82          13.3625       6,651      17.0000

</TABLE>


                                     54
<PAGE>

                                SUMMIT DESIGN, INC.
                                          
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


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
150,000 shares of common stock for issuance under the 1996 Purchase Plan. The
Company issued approximately 59,000 shares of common stock under the 1996
Purchase Plan during 1997.

SFAS NO. 123 DISCLOSURE

The Company to 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
1997, 1996 and 1995 are presented below.
                                          
The fair value of each option granted during the years ended December 31,1997,
1996, and 1995 are estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions:

<TABLE>
<CAPTION>
                                                1997          1996          1995   
                                             ----------    ----------    ----------
<S>                                            <C>          <C>            <C>
Average dividend yield                             0%           0%             0%
Expected volatility                               44%          46%            46%
Expected life in years                             4            5              5
Risk free interest rate:
    Low                                        5.787%       5.546%         5.487%
    High                                       6.421%       6.453%         7.022%
</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>
                                                1997          1996          1995   
                                             ----------    ----------    ----------
                                             (Restated)
<S>                                          <C>           <C>           <C>
Net income (loss) - as reported              $     431     $  1,263      $  (3,611)
Net income (loss)- pro forma                 $  (1,496)    $    714      $  (3,853)
Diluted net income (loss) per common 
  share - as reported                        $     .03     $   0.10      $   (0.33)
Diluted net income (loss) per common 
  share - pro forma                          $    (.10)    $   0.05      $    (.35)

</TABLE>

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


                                     55
<PAGE>

                                SUMMIT DESIGN, INC.
                                          
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


13.   INCOME TAXES:

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

<TABLE>
<CAPTION>
                                                Years Ended December 31,
                                             -----------------------------
                                              1997        1996       1995
                                             ------      ------     ------
                                           (Restated)
<S>                                         <C>         <C>        <C>
Current:
  Federal. . . . . . . . . . . . . . . .    $  765      $   26     $ -   
  State. . . . . . . . . . . . . . . . .       426           4          1
  Foreign. . . . . . . . . . . . . . . .       468         225        399
                                             ------      ------     ------
                                             1,659         255        400
                                             ------      ------     ------
Deferred:
  Federal. . . . . . . . . . . . . . . .      (486)       (373)      -   
  State. . . . . . . . . . . . . . . . .        14         (27)      -   
  Foreign. . . . . . . . . . . . . . . .      (247)       (100)      -   
                                             ------      ------     ------
                                              (719)       (500)      -   
                                             ------      ------     ------
                                            $  940      $ (245)    $  400
                                             ------      ------     ------
                                             ------      ------     ------
</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,
                                                         -----------------------------
                                                          1997        1996       1995
                                                         ------      ------     ------
                                                       (Restated)
<S>                                                   <C>         <C>        <C>
Tax provision (benefit) at statutory rate. . . .      $   (452) $    826   $   (907)
In-process research and development. . . . . . .         3,974         -          -   
Amortization of goodwill . . . . . . . . . . . .           101
Expense for contingent shares. . . . . . . . . .           282
Alternative minimum tax. . . . . . . . . . . . .           -            26        -   
Foreign withholding taxes. . . . . . . . . . . .           221         225        399
Increase (decrease) in valuation allowance . . .        (3,288)       (964)     1,503
Utilization of net operating losses. . . . . . .          (104)       (545)       -   
Other. . . . . . . . . . . . . . . . . . . . . .          (210)        183       (596)
State. . . . . . . . . . . . . . . . . . . . . .           416           4          1 
                                                      --------    --------   --------
                                                      $    940    $   (245)  $    400
                                                      --------    --------   --------
                                                      --------    --------   --------
</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, 1997, 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 research and experimentation and
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. . . . . . . . . . . . . . . .    $1,341             2009 -- 2010
  State. . . . . . . . . . . . . . . . .     1,341             2009 -- 2010
Research and experimentation 
  credits (federal only) . . . . . . . .       313             2003 -- 2011
Foreign tax credits (federal only) . . .       727             1998 -- 2002

</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.


                                     56
<PAGE>

                                SUMMIT DESIGN, INC.
                                          
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


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.  A 
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.

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

<TABLE>
<CAPTION>
                                              December 31,
                                          -------------------
                                            1997        1996
                                          -------     -------
                                        (Restated)
<S>                                       <C>         <C>
Deferred tax assets:
     Federal and state net operating 
       loss carryforwards. . . . . . . .  $   548     $ 3,037              
     Foreign operating loss 
       carryforwards . . . . . . . . . .      563         701              
     Research and experimentation 
       credit carryforwards. . . . . . .      313         263              
     Foreign tax credit carryforwards. .      727         711              
     Other deferred tax items. . . . . .      773       1,133              
                                          -------     -------
       Total deferred tax assets . . . .    2,924       5,845              
     Less valuation allowances . . . . .     (563)     (5,018)            
                                          -------     -------
       Net deferred tax assets . . . . .    2,361         827              
                                          -------     -------
Deferred tax liabilities:
     Other deferred tax items. . . . . .   (2,139)       (327)            
                                          -------     -------
     Total deferred tax liabilities. . .   (2,139)       (327)            
                                          -------     -------
                                          $   222     $   500              
                                          -------     -------
                                          -------     -------
Net deferred income taxes:
     Current . . . . . . . . . . . . . .  $ 1,209     $    --
     Deferred  . . . . . . . . . . . . .     (987)        500
                                          -------     -------
       Net deferred taxes. . . . . . . .  $   222     $   500              
                                          -------     -------
                                          -------     -------
</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, 1997 and 1996 was a decrease of
approximately $4,455,000 and $964,000, respectively.  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. Approximately $3.8 million of the decrease in the
valuation allowance for the year ended December 31, 1997 resulted from the
operating loss carryforwards utilized in such year.


                                     57
<PAGE>

                                SUMMIT DESIGN, INC.
                                          
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


14.   RECONCILIATION OF EARNINGS PER SHARE

The following provides a reconciliation of the numerators and denominators of
the basic and diluted per share computations (in thousands, except per share 
data):

<TABLE>
<CAPTION>
                                                      December 31,
                                            1997         1996         1995  
                                          --------     --------     --------
                                         (Restated)
<S>                                      <C>          <C>          <C>
Numerator:
   Net income (loss)                     $     431    $   1,263    $  (3,611)

Denominator:
   Denominator for basic earnings per 
   share weighted average shares            14,403       12,240       11,085
       
   Effect of dilutive securities:
     Employee stock options                    999        1,003           --
       
   Denominator for diluted earnings 
     per share                              15,402       13,243       11,085
                                          --------     --------     --------
                                          --------     --------     --------
Net income (loss) per share - basic      $    0.03    $    0.10    $   (0.33)
                                          --------     --------     --------
                                          --------     --------     --------
Net income (loss) per share - diluted    $    0.03    $    0.10    $   (0.33)
                                          --------     --------     --------
                                          --------     --------     --------
</TABLE>

Options to purchase 663,000 shares of common stock at various prices were
outstanding during 1995, but were not included in the computation of diluted EPS
because their effect on EPS for the year ended December 31, 1995 would have been
anti-dilutive. 

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 contribution to the Plan was
approximately $50,000 in 1997. The Company made a discretionary contribution to
the Plan of $10,000 in 1995. There were no contributions in 1996.


                                     58
<PAGE>

                                SUMMIT DESIGN, INC.
                                          
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


16.   SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Supplemental cash flow information is as follows:

<TABLE>
<CAPTION>
                                                 Year ended December 31
                                                 ----------------------
                                             1997          1996         1995
                                           --------      --------     --------
                                          (Restated)
<S>                                        <C>           <C>          <C>
Cash paid for interest                     $     11      $  111       $  195
Cash paid for income taxes                 $    175      $  254       $    1
       
Noncash investing and financing activities:
  Equipment acquired under capital leases       -        $   23       $  170
  Conversion of preferred stock to 
    common stock                                -        $   91           - 
Acquisition of Simulation Technologies:
  In-process technology                    $ 11,689          -            - 
  Purchased technology, 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.

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 (in 
thousands):

<TABLE>
<CAPTION>
                                               Years Ended December 31,  
                                               -----------------------
                                            1997        1996        1995 
                                           ------      ------      ------
<S>                                        <C>         <C>         <C>
     Europe. . . . . . . . . . . . . . .   $3,582      $3,294      $2,115
     Asia Pacific. . . . . . . . . . . .    7,020       6,855       5,447
       
As a Percentage of Total Revenue:. . . .                      
     Europe. . . . . . . . . . . . . . .     11.4%       16.2%       14.8%
     Asia Pacific. . . . . . . . . . . .     22.3%       33.8%       38.1%

</TABLE>



                                     59
<PAGE>

                                SUMMIT DESIGN, INC.
                                          
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


During 1997 one customer accounted for 28.6% of total revenue. In 1996, no
single customer accounted for more than 10% of total revenue. Sales through a
single distributor accounted for 12.0%, 14.6% and 12.5% of the Company's total
revenue in 1997, 1996 and 1995, 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, 1997. Identifiable
assets of the Company's Israeli subsidiary were less than 10% of total assets at
December 31, 1997.

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 year ended December 31, 1997 and
1996, the Company recognized revenue of $367,000 associated with this agreement.

19.   RELATED PARTIES:

Summit Design (EDA) Ltd. leases its corporate offices from a stockholder under a
four-year sublease agreement on the same terms and conditions that the
stockholder leases such space. Lease expense due to the stockholder for the year
ended December 31, 1997, 1996 and 1995 were $145,000, $141,000 and $138,000,
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 $67,000 and $33,000 for the years ended 
December 31, 1997 and 1996, respectively.  Total product licenses and 
maintenance revenue for sales to the joint venture  totaled approximately 
$590,000 and $586,000 for the years ended December 31,1997 and 1996, 
respectively, total accounts receivable, with payment terms similar to other 
customers in the Asia-Pacific region, was $357,000 at December 31, 1997.

The Company holds a note from an employee in the amount of $75,000, bearing
interest at 6%, due in March of 2000, and collateralized by stock.

20.  SUBSEQUENT EVENTS --(UNAUDITED):

On June 30, 1998, the Company acquired ProSoft Oy ("ProSoft"), a Company 
located in Finland.  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 the Company) was 248,334 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 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 herein.  The effect of the combination did not 
have a material impact on the net sales and net income of the combined entity.

On September 20, 1998, the Company entered into a definitive agreement to 
merge with OrCAD, Inc., (OrCAD) a publicly traded software company 
headquartered in Beaverton, Oregon under which the Company will acquire 
OrCAD. Each share of OrCAD Common Stock, including shares reserved for 
issurance upon exercise of OrCAD options which will be assumed by the Company
will be exchanged for 1.05 shares of Summit Common Stock upon closing of the 
transaction.  The Company intends to account for this acquisition as a 
pooling-of-interests. On February 1, 1999 the proposed acquisition was 
terminated.



                                     60
<PAGE>

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

On February 9, 1996, Coopers & Lybrand L.L.P. was engaged as the principal
independent accountants for the Company and its subsidiaries, replacing KPMG
Peat Marwick LLP ("KPMG"), which was dismissed in January, 1996. The change was
approved by the audit committee of the Company's Board of Directors. In
connection with the audits of the two fiscal years in the period ended December
31, 1995 and through the interim period ended January 31, 1996, there were no
disagreements with KPMG on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which
disagreements, if not resolved to KPMG's satisfaction would have caused them to
make reference to the matter in their report. The audit reports of KPMG on the
consolidated financial statements of the Company as of and for the year ended
December 31, 1994 did not contain any adverse opinion or disclaimer of opinion,
nor were they qualified or modified as to uncertainty or audit scope.  The audit
report for the year ended December 31, 1994 was modified to include a discussion
on the restatement of the Company's 1993 financial statements for the timing of
when certain expenses were recognized in the financial statements. During the
audit period ended December 31, 1994, and through the interim period ended
January 31, 1996, there have been no reportable events.

During the two fiscal years ended December 31, 1995, and through the interim
period ended February 8, 1996, the Company had not consulted with Coopers &
Lybrand L.L.P. on items which concerned the subject matter of a disagreement or
reportable event with the former auditor.


                                     61
<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 I Directors"
and "Compliance with Section 16(a) of the Securities Exchange Act  contained in
the Company's Proxy Statement for its 1998 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, 1997, 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 1998 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, 1997.

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 1998 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, 1997.

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 1998 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, 1997. 


                                     62
<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. 

                                                Page No.
------------------------------------------------------------
   Report of Independent Accountants               41
      
   Consolidated Balance Sheets as of       
      December 31, 1997 and 1996                   42
      
   Consolidated Statements of Operations   
      for the years ended December 31,     
      1997, 1996 and 1995                          43
      
   Consolidated Statements of 
      Stockholders Equity for the years 
      ended December 31, 1997, 1996 and 
      1995                                         44
      
   Consolidated Statements of Cash Flows   
      for the years ended December 31,     
      1997, 1996 and 1995                          45
      
   Notes to Consolidated Financial         
      Statements                                   46

(a)(2)    FINANCIAL STATEMENT SCHEDULE

The following financial statement schedule for the years ended December 31,
1995, 1996 and 1997, 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:

                                                                    Page No.
                                                                    --------

Schedule II           Valuation and Qualifying Accounts               S-1

Report of Independent Accountants on financial statement schedule     S-2

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.


                                     63
<PAGE>

(a)(3)    EXHIBITS

Exhibit No.    
----------
** 2.1    Agreement and Plan of Reorganization dated as of February 17, 1997.
          (2)
** 2.2    Asset 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)
** 3.1    Amended and Restated Certificate of Incorporation. (1)
** 3.2    Amended and Restated Bylaws. (5)
** 4.1    Specimen Common Stock Certificate of Company. (1)
** 4.2    Investors' Rights Agreement between the Registrant and the parties
          named therein dated February 10, 1994, as amended. (1)
**10.1    Form of Indemnification Agreement between Registrant and its executive
          officers and directors.  (1)
**10.2*   1994 Stock Plan, as amended. (1)
**10.3*   1996 Employee Stock Purchase Plan. (1)
**10.4*   1996 Director Option Plan. (1)
**10.5*   Employment Agreement between the Registrant and Larry J. Gerhard dated
          as of August 1, 1997.
**10.6*   Employment Agreement between the Registrant and C. Albert Koob dated
          October 21, 1995. (1)
**10.7*   Employment Agreement between the Registrant and Richard Davenport
          dated September 9, 1997.
**10.8*   Employment Agreement between the Registrant and Arthur Fletcher dated
          July 1, 1996.
**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
          as of July 1, 1997.
**10.11*  Employment Agreement between the Registrant and Joseph Masarich 
          dated as of December 22, 1997.
**10.12+  Software OEM License Agreement between the Registrant, Test System
          Strategies, Inc. and Credence Systems Corporation dated May 19, 
          1997. (5)
**10.13   Lease Agreement between the Registrant and Petula Associates Ltd. and
          Koll Creekside Associates II dated October 26, 1993, as amended. (1)
**10.14   Sublease Agreement, dated as of January 1993 between DCL Technologies,
          Ltd. and SEE Technologies, Ltd. (1)
**10.15   Bank Line of Credit Agreement between Registrant and U.S. National
          Bank of Oregon dated June 24, 1997. (7)
**10.16+  Joint Venture Agreement between Summit Design Israel, Inc. and Anam
          S&T Co., Ltd. dated March 21, 1996. (1)
**10.17+  Distributor Agreement between the Registrant and Seiko Instruments, 
          Inc., dated February 1, 1996. (1)
**10.18+  Distributor Agreement between the Registrant and ATE Service Co.,
          Ltd., dated October 23, 1995, and amended as of April 9, 1996. (1)
**10.19++ Amendment to the Distributor Agreement between the Registrant and
          Seiko Instruments, Inc. 
**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 and form of 
          agreement thereto. (4)
**10.23*  Simulation Technologies Corp. 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   Promissory Notes between the Registrant and John DiFerdinado dated 
          July 15, 1997.
**10.26*  Employment Agreement between the Registrant and John DiFerdinando 
          dated as of April 15, 1997.
**16.1    Letter re Change in Certifying Accountant. (1)
**21.1    List of Subsidiaries.
  23.1    Consent of PricewaterhouseCoopers L.L.P.
**24.1    Power of attorney, see page 66.
  27.1    Financial Data Schedule.


                                     64
<PAGE>
     
(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 Form 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.
 +   Documents for which confidential treatment has been granted.
 ++  Document for which confidential treatment has been requested.
 *   Indicates management compensatory plan, contract or arrangement. 
**   Previously filed.

b)  REPORTS ON FORM 8-K

No reports on Form 8-K have been filed by the Registrant during the quarter
ended December 31, 1997.

(c)  EXHIBITS

     See Item 14(a)(3) above. 

(d)  FINANCIAL STATEMENT SCHEDULES  

     See Item 14(a)(2) above.


                                     65
<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
15th day of March 1999. 
                              SUMMIT DESIGN, INC.

                              By:   /s/ C. ALBERT KOOB       
                                    -------------------------------------
                                    C. Albert Koob
                                    Vice President - Finance,
                                    Chief Financial Officer and
                                    Secretary


     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: 

          Signature                        Title                    Date
 ---------------------------    ---------------------------    --------------

            *                   Chairman of the Board,         March 15, 1999
 ---------------------------    President and Chief
    Larry J. Gerhard            Executive Officer
                                (Principal Executive
                                Officer)

 /s/ C. ALBERT KOOB             Vice President - Finance,      March 15, 1999
 ---------------------------    Chief Financial Officer and
    C. Albert Koob              Secretary (Principal
                                Financial and Accounting
                                Officer)

            *                   Director                       March 15, 1999
 ---------------------------
    Amihai Ben-David

            *                   Director                       March 15, 1999
 ---------------------------
    William V. Botts

            *                   Director                       March 15, 1999
 ---------------------------
    Steven P. Erwin

            *                   Director                       March 15, 1999
 ---------------------------
    Barbara M. Karmel


* By /s/ C. ALBERT KOOB
     --------------------
       C. Albert Koob
       As Attorney-in-Fact

                                     66
<PAGE>

                                SUMMIT DESIGN, INC.

                  Schedule II - Valuation and Qualifying Accounts
                                          
                     Years ended December 31, 1995, 1996, 1997
                                          
                                   (in thousands)
<TABLE>
<CAPTION>
                                     Balance      Additions               
                                        at       charged to              Balance at
                                    beginning     costs and                end of
                                    of period     expenses   Deductions    period
                                    ---------    ----------  ----------  ----------
<S>                                 <C>          <C>         <C>         <C>
Year ended December 31, 1995:                                       
  Allowance for doubtful accounts    $ 355         $ 306       $ 206       $ 455

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

</TABLE>


                                    S-1

<PAGE>


                    REPORT OF INDEPENDENT ACCOUNTANTS


The Board of Directors and Stockholders
Summit Design, Inc.:

Our report on the consolidated financial statements of Summit Design, Inc. 
and subsidiaries (as restated) is included on page 41 of this Form 10-K.  In 
connection with our audits of such financial statements, we have also audited 
the related financial statement schedule listed in the index on page S-1 of 
this Form 10-K.

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


                                          PricewaterhouseCoopers LLP


Portland, Oregon
January 30, 1998, except as to Notes 1 and 5,
as to which the date is December 24, 1998 and Note 20 as
to which the date is September 20, 1998.


                                   S-2