<PAGE>
                                   UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549

                                     FORM 10-Q

X     Quarterly report pursuant to Section 13 or 15(d) of the Securities 
      Exchange Act of 1934 for the quarterly period ended June 30, 1998 or

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

Commission file number:  000-20923

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


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

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

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        
                                                      ---         ---
As of August 11, 1998, the Registrant had outstanding 15,237,624 shares of 
Common Stock.

<PAGE>

                                SUMMIT DESIGN, INC.
                                       INDEX
                                          

PART I     FINANCIAL INFORMATION

Item 1    Consolidated Financial Statements

          Consolidated Balance Sheets as of June 30, 1998 (unaudited) 
          and December 31, 1997.                                             3
                                                                              
          Consolidated Statements of Operations for the three month 
          periods ended June 30, 1998 and 1997 and for the six month 
          periods ended June 30, 1998 and 1997 (unaudited).                  4
                                                                              
          Consolidated Statements of Cash Flows for the 
          six month periods ended June 30, 1998 and 1997 (unaudited).        5
                                                                              
          Notes to Consolidated Financial Statements.                        6

Item 2    Management's Discussion and Analysis of Financial
          Condition and Results of Operations                                9

PART II   OTHER INFORMATION

Item 1    Not Applicable

Item 2    Changes in Securities and Use of Proceeds                         28

Item 3    Not Applicable

Item 4    Submission of Matters to a Vote of Security Holders               28

Item 5    Not Applicable

Item 6    Exhibits and Reports on Form 8-K                                  29

Signature                                                                   30

Exhibit Index                                                               31

                                       -2-
<PAGE>

                                SUMMIT DESIGN, INC.
                            CONSOLIDATED BALANCE SHEETS
                                   (in thousands)
<TABLE>
<CAPTION>
                                                          June 30, 1998        December 31, 1997
                                                          -------------        -----------------
                                                           (Unaudited)                          
<S>                                                       <C>                  <C>              
                  ASSETS                                                                        
Current assets:                                                                                 
     Cash and cash equivalents.......................       $  24,768                $  19,973  
     Accounts receivable, net........................           5,672                    5,131  
     Prepaid expenses and other......................             323                      540  
     Deferred income taxes...........................           1,268                    1,209  
                                                          -------------        -----------------
          Total current assets.......................          32,031                   26,853  
                                                                                                
Furniture and equipment, net.........................           3,208                    2,698  
Intangibles, net.....................................           1,376                    1,622  
Deferred taxes.......................................             555                      533  
Deposits and other assets............................           1,649                    1,055  
                                                          -------------        -----------------
               Total assets..........................       $  38,819                $  32,761  
                                                          -------------        -----------------
                                                          -------------        -----------------
                                                                                                
               LIABILITIES                                                                      
Current liabilities:                                                                            
     Note payable to bank............................       $       -                $      29  
     Long-term debt, current portion.................             151                      105  
     Capital lease obligation, current portion.......              42                       49  
     Accounts payable................................           1,307                    1,210  
     Accrued liabilities.............................           6,394                    5,190  
     Deferred revenue................................           5,462                    5,674  
                                                          -------------        -----------------
          Total current liabilities..................          13,356                   12,257  
                                                                                                
Long-term debt, less current portion.................           1,156                      194  
Capital lease obligations, less current portion......             124                       43  
Deferred revenue, less current portion...............             175                        -  
                                                          -------------        -----------------
          Total liabilities..........................          13,711                   12,494  
                                                          -------------        -----------------
                                                                                                
Commitments and contingencies                                                                   
                                                                                                
           STOCKHOLDERS' EQUITY                                                                 
Common stock, $.01 par value.                                                                   
Authorized 30,000 shares; issued and                                                           
outstanding 15,213 shares at June 30, 1998 and 
15,841 shares at December 31, 1997..................              152                      159  
Additional paid-in capital..........................           39,791                   51,797  
Treasury stock, at cost, 939 shares at                                                         
December 31, 1997...................................                -                  (11,555)  
Accumulated deficit.................................          (14,835)                 (20,134)    
                                                          -------------        -----------------
          Total stockholders' equity................           25,108                   20,267  
                                                          -------------        -----------------
               Total liabilities and stockholders' 
                 equity............................         $  38,819                $  32,761  
                                                          -------------        -----------------
                                                          -------------        -----------------
</TABLE>

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

                                       -3-
<PAGE>

                                SUMMIT DESIGN, INC.
                       CONSOLIDATED STATEMENTS OF OPERATIONS
                       (In thousands, except per share data)
                                    (Unaudited)
<TABLE>
<CAPTION>
                                                    Three Months Ended               Six Months Ended
                                                         June 30                         June 30,
                                                 ------------------------         -------------------------
                                                   1998           1997               1998            1997
                                                 --------        --------         ---------       ---------
<S>                                              <C>             <C>              <C>             <C>
Revenue:
     Product licenses...................         $  8,574        $  5,611         $  16,775       $  10,507
     Maintenance and services...........            2,347           1,444             4,411           2,926
     Other..............................               91             125               183             267
                                                 --------        --------         ---------       ---------
          Total revenue.................           11,012           7,180            21,369          13,700

Cost of revenue:
     Product licenses...................              205             164               484             349
     Maintenance and services...........              279             142               505             252
                                                 --------        --------         ---------       ---------
          Total cost of revenue.........              484             306               989             601
                                                 --------        --------         ---------       ---------
               Gross profit.............           10,528           6,874            20,380          13,099

Operating expenses:
     Research and development...........            2,428           1,675             4,807           3,127
     Sales and marketing................            3,257           2,584             6,305           5,115
     General and administrative.........            1,344             881             2,442           2,061
                                                 --------        --------         ---------       ---------
          Total operating expenses......            7,029           5,140            13,554          10,303
     

Income from operations..................            3,499           1,734             6,826           2,796

Other income (expense), net.............              204             229               492             440
                                                 --------        --------         ---------       ---------
Income before income taxes..............            3,703           1,963             7,318           3,236
Income tax provision....................            1,041             100             2,019             180
                                                 --------        --------         ---------       ---------
Net income..............................         $  2,662         $ 1,863         $   5,299       $   3,056
                                                 --------        --------         ---------       ---------
                                                 --------        --------         ---------       ---------

Earnings per share:
          Basic.........................        $    0.18        $   0.13        $     0.35       $    0.22
                                                 --------        --------         ---------       ---------
                                                 --------        --------         ---------       ---------
          Diluted.......................        $    0.16        $   0.12        $     0.33       $    0.20
                                                 --------        --------         ---------       ---------
                                                 --------        --------         ---------       ---------
Number of shares used in computing
earnings per share:
          Basic.........................           15,058          14,167            14,984          14,137
          Diluted.......................           16,285          14,965            16,240          15,000
</TABLE>

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

                                       -4-
<PAGE>

                                SUMMIT DESIGN, INC.
                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (In thousands)
                                    (Unaudited)
<TABLE>
<CAPTION>
                                                                              Six Months Ended
                                                                                  June 30,
                                                                       ------------------------------
                                                                          1998                 1997
                                                                       --------             ---------
<S>                                                                    <C>                  <C>
Cash flows from operating activities:
     Net income.................................................       $  5,299             $ 3,056
     Adjustments to reconcile net income to net cash 
      provided by operating activities:
        Depreciation and amortization...........................            781                 403
        Loss on asset disposition...............................              -                   1
        Deferred taxes..........................................            (81)                  -
        Equity in losses and elimination of intercompany
           profits of unconsolidated joint venture..............            350                   -
        Changes in assets and liabilities:
        Accounts receivable.....................................           (541)               (354)
        Prepaid expenses and other..............................            217                  47
        Accounts payable........................................             97                 155
        Accrued liabilities.....................................          1,204                 165
        Deferred revenue........................................            (37)               (370)
        Other, net..............................................            131                 104
                                                                       --------             -------
     Net cash provided by operating activities..................          7,420               3,207
                                                                       --------             -------
Cash flows from investing activities:
     Additions to furniture and equipment.......................         (1,045)               (751)
     Loan to joint venture......................................           (750)                  - 
     Notes receivable, net......................................           (325)               (425)
                                                                       --------             -------
        Net cash used in investing activities...................         (2,120)             (1,176)
                                                                       --------             -------
Cash flows from financing activities:
     Issuance of common stock, net of issuance costs............          1,046                 303
     Tax benefit of option exercises............................            825                   - 
     Payments to acquire treasury stock.........................         (2,329)                  - 
     Principal payments of debt obligations.....................            (21)                (81)
     Principal payments of capital lease obligations............            (26)                (49)
                                                                       --------             -------
        Net cash (used in) provided by financing activities.....           (505)                173
                                                                       --------             -------
        Increase in cash and cash equivalents...................          4,795               2,204
Cash and cash equivalents, beginning of period..................         19,973              19,801
                                                                       --------             -------
Cash and cash equivalents, end of period........................       $ 24,768             $22,005
                                                                       --------             -------
                                                                       --------             -------

Supplemental disclosure of cash flow information:
     Cash paid during the period for:
        Interest                                                       $      3             $     9
        Income taxes                                                        667                  38
Supplemental disclosure of non-cash financing activities:
      Retirement of treasury stock                                     $ 11,555             $     -
</TABLE>

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

                                       -5-
<PAGE>

                                SUMMIT DESIGN, INC.
                     Notes to Consolidated Financial Statements
                                    (Unaudited)


1.   BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared by Summit 
Design, Inc. ("Summit" or "the Company") in accordance with the rules and 
regulations of the Securities and Exchange Commission. Certain information 
and footnote disclosures normally included in financial statements prepared 
in accordance with generally accepted accounting principles have been 
condensed or omitted in accordance with such rules and regulations. In the 
opinion of management, the accompanying unaudited financial statements 
reflect all adjustments, consisting only of normal recurring adjustments, 
necessary to present fairly the financial position of the Company, and its 
results of operations and cash flows. These financial statements should be 
read in conjunction with the audited financial statements and notes thereto 
for the years ended December 31, 1997, 1996 and 1995 included in the 
Company's Form 10-K filed for December 31, 1997.

The results of operations for the six months ended June 30, 1998 are not 
necessarily indicative of the results that may be expected for the year ended 
December 31, 1998 or any other future interim period, and the Company makes 
no representations related thereto.

2.   ACQUISITION OF PROSOFT OY

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. The effect of the combination did not have a material 
impact on the net sales and net income of the combined entity.
 
3.   SOFTWARE REVENUE RECOGNITION

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

SOP 98-4 defers for one year, the application of several paragraphs and 
examples in SOP 97-2 that limit the definition of vendor specific objective 
evidence (VSOE) of the fair value of various elements in a multiple element 
arrangement. 

The Company analyzed the elements included in its multiple element 
arrangements and determined that the Company has sufficient evidence to 
allocate revenue to the license and maintenance components of its product 
licenses. The adoption of SOP's 97-2 and 98-4 did not have a significant 
effect on revenue recognized for the three and six month periods ending June 
30, 1998.

                                       -6-
<PAGE>

                                SUMMIT DESIGN, INC.
                     Notes To Consolidated Financial Statements
                                    (Unaudited)

4.   BALANCE SHEET COMPONENTS (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                       June 30, 1998         December 31, 1997
                                                       -------------         -----------------
                                                        (Unaudited)
<S>                                                    <C>                   <C>

Accounts receivable:
     Trade receivables...........................          $   6,061             $    5,723 
     Less allowance for doubtful accounts........               (389)                  (592)
                                                           ---------             ----------
                                                           $   5,672             $    5,131
                                                           ---------             ----------
                                                           ---------             ----------
Furniture and equipment:
     Office furniture equipment..................          $     930             $      596
     Computer equipment..........................              4,377                  3,679
     Leasehold improvements......................                 79                     66
                                                           ---------             ----------
                                                               5,386                  4,341
Less: accumulated depreciation and amortization..             (2,178)                (1,643)
                                                           ---------             ----------
                                                           $   3,208              $   2,698
                                                           ---------             ----------
                                                           ---------             ----------
Accrued expenses:
     Payroll and related benefits................         $    3,369              $   2,888
     Sales and marketing.........................                985                    435
     Accounting and legal........................                226                    260
     Federal and state income taxes payable......              1,343                    819
     Sales taxes payable.........................                 76                    114
     Other.......................................                395                    674
                                                           ---------             ----------
          Total accrued expenses.................         $    6,394              $   5,190
                                                           ---------             ----------
                                                           ---------             ----------
</TABLE>

                                       -7-
<PAGE>

                                SUMMIT DESIGN, INC.
                     Notes To Consolidated Financial Statements
                                    (Unaudited)

5.   RECONCILIATION OF EARNINGS PER SHARE

Basic earnings per share is computed using the weighted average number of 
common shares outstanding during the period. Diluted earnings per share is 
computed using the weighted average number of common and dilutive common 
equivalent shares outstanding during the period. Dilutive common equivalent 
shares consist of common stock issuable upon exercise of stock options using 
the treasury stock method. The following provides a reconciliation of the 
numerators and denominators of the basic and diluted per share computations:

<TABLE>
<CAPTION>
                                                   Three months ended        Six months ended
                                                         June 30,                June 30,
                                                   ------------------     --------------------
                                                      1998      1997         1998      1997   
                                                   ---------  ---------   ---------   --------
<S>                                                <C>        <C>         <C>         <C>
 Numerator:
    Net income                                     $   2,662  $   1,863   $   5,299   $  3,056
                                                   ---------  ---------   ---------   --------
                                                   ---------  ---------   ---------   --------
 Denominator:
    Denominator for basic earnings per share 
      weighted average shares                         15,058     14,167      14,984     14,137

    Effect of dilutive securities:
      Employee stock options                           1,227        798       1,256        863
                                                   ---------  ---------   ---------   --------

    Denominator for diluted earnings per share        16,285     14,965      16,240     15,000 
                                                   ---------  ---------   ---------   --------
                                                   ---------  ---------   ---------   --------
   

 Net income per share - basic                      $    0.18  $    0.13   $    0.35  $    0.22 
                                                   ---------  ---------   ---------   --------
                                                   ---------  ---------   ---------   --------

 Net income per share - diluted                    $    0.16  $    0.12   $    0.33  $    0.20 
                                                   ---------  ---------   ---------   --------
                                                   ---------  ---------   ---------   --------
</TABLE>

6.   IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivitive 
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and 
reporting standards requiring that every derivitive instrument be recorded in 
the balance sheet as either an asset or liability measured at its fair value. 
SFAS No. 133 also requires that changes in the derivitive instrument's fair 
value be recognized currently in results of operations unless specific hedge 
accounting criteria are met. SFAS No. 133 is effective for fiscal years 
beginning after June 15, 1999. The Company does not expect SFAS No. 133 to 
have a material impact on its consolidated financial statements.

                                       -8-
<PAGE>

ITEM 2    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 was founded in December 1993 to act as the holding company for Test 
Systems Strategies, Inc. ("TSSI") and SEE Technologies, (now Summit Design 
(EDA) Ltd.) (collectively , the "Reorganization"). TSSI was founded in 1979 
to develop and market integrated circuit ("IC" or "chip") manufacturing test 
products. In January 1993, TSSI retained a new Chief Executive Officer and 
began to restructure its senior management team. Thereafter, the Company 
broadened its strategy from focusing primarily on manufacturing test products 
to include providing high level design automation ("HLDA") design creation 
and verification tools and integrating these with its core technology. As 
part of its strategy, in early 1994, TSSI acquired SEE Technologies, an 
Israeli company that, through its predecessor, began operations in 1983 and 
had operated primarily as a research and development and consulting company 
focused on the electronic design automation ("EDA") 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 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 Plus 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 Test Development Series ("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. With  the acquisition of 
TriQuest Design Automation, Inc. ("TriQuest") in February 1997, Simulation 
Technologies Corp. ("SimTech") in September 1997, and ProSoft Oy ("ProSoft") 
in June of 1998, the Company has also derived revenue from verification 
products which include hardware-software co-verification, code coverage, and 
HDL debugging products, as well as analysis, verification and Register 
Transfer Language ("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 

                                       -9-
<PAGE>

is recognized when the service is performed. Revenue earned on software 
arrangements involving multiple elements is allocated to each element based 
on vendor-specific objective evidence (VSOE) of the fair value of the various 
elements within the arrangement. The Company sells its products through a 
direct sales force in North America and selected European countries and 
through distributors in the Company's other international markets. Revenue 
from product sales through distributors is recognized net of the associated 
distributor discounts. Fees received for granting distribution rights are 
deferred and recognized ratably over the term of the distribution agreement. 
Although the Company has not adopted a formal return policy, the Company 
generally reimburses customers in full for returned products. Estimated sales 
returns are recorded upon delivery of the product.

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 entered into a joint venture with Anam, effective April 1, 1996, 
pursuant to which the joint venture corporation (Summit Design Asia, Ltd. 
("Summit Asia")) acquired exclusive rights to sell, distribute and support 
all of Summit's products in the Asia-Pacific region, excluding Japan. Prior 
to that date, Anam was an independent distributor of the Company's products 
in Korea. In April 1998, the joint venture corporation, Summit Asia, which is 
headquartered in Korea, was renamed Asia Design Corporation ("ADC"). In May 
1998, the Company exchanged a portion of its ownership in ADC for ownership 
in another company located in Hong Kong, Summit Design Asia, Ltd. ("SDA").  
SDA also acquired an equity investment in ADC. In June 1998, the Company and 
Anam each loaned SDA $750,000, which is guaranteed by ADC. SDA acquired from 
ADC the exclusive rights to sell, distribute and support the Company's products 
in the Asia-Pacific region, excluding Japan. SDA granted distribution rights 
to the Company's products to ADC for the Asia Pacific region, excluding 
Japan. For the three months ended June 30, 1998 and 1997, sales through SDA 
and ADC combined accounted for 3.1% and 3.9% of the Company's revenue, 
respectively. For the six months ended June 30, 1998 and 1997, sales through 
SDA and ADC combined accounted for 4.5% and 10.1% of the Company's revenue, 
respectively.

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

Approximately 38%, 38%, 35% and 45% of the Company's total revenue for the 
three months ended June 30, 1998 and 1997, and for the six months ended June 
30, 1998 and 1997,  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 1998 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 addition of revenue from products 
acquired in the SimTech acquisition which had a principally domestic market. 
The Company expects that international revenue will continue to represent a 
significant portion of its total revenue. The Company's international 
revenue is currently denominated in U.S. dollars. As a result, increases in 
the value of the U.S. dollar relative to foreign currencies could make the 
Company's products more expensive and, therefore, potentially less 
competitive in 

                                       -10-
<PAGE>

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 interests" 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 primarily due to increased revenue associated with the 
Company's HLDA Plus products. Substantially all of the Company's Design to 
Test product license revenue and related maintenance and services revenue for 
the three and six months ended June 30, 1997 were attributable to the TDS 
products. As of July 1, 1997, TDS products ceased to be a source of such 
revenues. CSC assumed 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. As of June 
30, 1998, the Company has sold $11.4 million of Visual Testbench licenses 
pursuant to this agreement. At the completion of the thirty month period, 
under certain conditions, CSC may obtain shared ownership to 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 
(including shares of common stock reserved for issuance upon exercise of 
SimTech options assumed by the Company) was 1,980,000 shares of 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. The fair 
value of tangible assets acquired and liabilities assumed were $1.3 million 
and $2.2 million, respectively. In addition, $19.9 million was allocated to 
in-process technology which had not reached technological feasibility and had 
no probable alternative uses, which the Company expensed as of the 
acquisition date. The remainder of the purchase price was allocated to 
purchased technology ($1,037,000) and identifiable intangibles ($735,000), 
which are being amortized on a straight line basis over three and five years 
respectively.

In connection with the acquisition of SimTech, the Company repurchased 
939,000 shares of common stock in private transaction at an average price of 
$12.30 per share for $11,555,000 in September 1997.

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

                                       -11-
<PAGE>

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

On June 30, 1998 the Company completed its acquisition of ProSoft Oy 
("ProSoft"). ProSoft develops software tools used to verify embedded systems 
software prior to the availability of a hardware prototype. The aggregate 
consideration for the acquisition (including shares of common stock reserved 
for issuance upon exercise of ProSoft options which were exchanged for 
options of the Company) was 248,334 shares of common stock. The transaction 
has been accounted for as a "pooling of interests" in accordance with 
generally accepted accounting principles. In compliance with such principles, 
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.

                                       -12-
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated, certain financial data
as a percentage of revenue.

<TABLE>
<CAPTION>
                                                             Three Months Ended             Six Months Ended
                                                                 June 30,                        June 30,
                                                            --------------------          --------------------
                                                             1998           1997           1998           1997
                                                            -----          -----          -----          -----
<S>                                                         <C>            <C>            <C>            <C>
Revenue:
          Product licenses . . . . . . . . . . . .           77.9%          78.1%          78.5%          76.7%
          Maintenance and services . . . . . . . .           21.3           20.1           20.6           21.4
          Other. . . . . . . . . . . . . . . . . .            0.8            1.8            0.9            1.9
                                                            -----          -----          -----          -----
               Total revenue . . . . . . . . . . .          100.0          100.0          100.0          100.0
Cost of revenue:
          Product licenses . . . . . . . . . . . .            1.9            2.3            2.3            2.6
          Maintenance and services . . . . . . . .            2.5            2.0            2.3            1.8
                                                            -----          -----          -----          -----
               Total cost of revenue . . . . . . .            4.4            4.3            4.6            4.4
                                                            -----          -----          -----          -----
               Gross profit. . . . . . . . . . . .           95.6           95.7           95.4           95.6

Operating expenses:
          Research and development . . . . . . . .           22.0           23.3           22.5           22.8
          Sales and marketing. . . . . . . . . . .           29.6           36.0           29.5           37.3
          General and administrative (a)(b). . . .           12.2           12.3           11.5           15.1
                                                            -----          -----          -----          -----
               Total operating expenses. . . . . .           63.8           71.6           63.5           75.2
                                                            -----          -----          -----          -----
Income from operations . . . . . . . . . . . . . .           31.8           24.1           31.9           20.4
Other income (expense), net. . . . . . . . . . . .            1.8            3.2            2.3            3.2
                                                            -----          -----          -----          -----
Income before income taxes . . . . . . . . . . . .           33.6           27.3           34.2           23.6
Income tax provision . . . . . . . . . . . . . . .            9.4            1.4            9.4            1.3
                                                            -----          -----          -----          -----
Net income . . . . . . . . . . . . . . . . . . . .           24.2%          25.9%          24.8%          22.3%
                                                            -----          -----          -----          -----
                                                            -----          -----          -----          -----
</TABLE>

(a)  General and administrative expenses for the six months ended June 30, 1997
     include a one-time charge of $379,000 (5.8% of revenue) for costs relating
     to the acquisition of TriQuest.
(b)  General and administrative expenses for the three and six months ended June
     30, 1998 include a one-time charge of $227,000 (2.1% of revenue and 1.1% of
     revenue, respectively), relating to the acquisition of ProSoft.


TOTAL REVENUE

Total revenue increased by 53.4% from $7.2 million for the three months ended 
June 30, 1997 to $11.0 million for the three months ended June 30, 1998 and 
total revenue increase by 56.0% from $13.7 million for the six months ended 
June 30, 1997 to $21.4 million for the six months ended June 30, 1998. 
Although total revenue increased for the three and six months ended June 30, 
1998 from the comparable periods in 1997, the Company experienced a softening 
in sales order rates during the three months ended June 30, 1998. Sales 
through one distributor accounted for 14.1% and 11.3% of the Company's total 
revenue for the three months ended June 30, 1998 and 1997, respectively. 
Sales through one distributor accounted for 13.7% and 13.4% of the Company's 
total revenue for the six months ended June 30, 1998 and 1997, respectively.  
Sales to CSC accounted for 23.2% and 27.0% of the Company's total revenue for 
the three and six month periods ended June 30, 1998, respectively. Such 
revenue included $2.3 million and $5.2 million of Visual Testbench license 
sales made pursuant to the Company's contract with CSC for the three and six 
months ended June 30, 1998, respectively. See "Overview." Sales to one 
customer accounted for 28.1% of total revenue for the three months ended June 
30, 1997 and 15.5% of the total revenue for the six months ended June 30, 
1997.

                                       -13-
<PAGE>

REVENUE

PRODUCT LICENSES 

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 52.8% from $5.6 
million for the three months ended June 30, 1997 to $8.6 million for the 
three months ended June 30, 1998 and increased 59.7% from $10.5 million for 
the six months ended June 30, 1997 to $16.8 million for the six months ended 
June 30, 1998. Due to the sale of the TDS product line in July of 1997, 
revenue from HLDA Plus products accounted for 100% of product licenses 
revenue for the three and six months ended June 30, 1998. During the three 
months ended June 30, 1997, HLDA Plus and Design to Test revenues accounted 
for 82.9% and 17.1% of product license revenue, respectively. During the six 
months ended June 30, 1997, HLDA Plus and Design to Test revenues accounted 
for 80.4% and 19.6% of product and license revenue, respectively.

HLDA Plus license revenue increased 31.4% from $4.7 million for the three 
months ended June 30, 1997 to $6.1 million for the three months ended June 30,
1998, and increased 49.8% from $8.5 million for the six months ended June 30, 
1997 to $12.7 million for the six months ended June 30, 1998. The increase in 
HLDA Plus license revenue over the same period in 1997 was primarily 
attributable to sales to a single customer, revenue from the verification 
products portfolio that was not shipping in the comparable period in 1997, 
and growth in the installed base of HLDA Plus customers. Sales to the single 
customer are expected to continue over the next six quarters pursuant to 
contractual arrangements with the customer.(1)

MAINTENANCE AND SERVICES

The Company's maintenance and services revenue is derived from maintenance 
contracts related to the Company's HLDA products, consulting services, and 
training classes offered to purchasers of the Company's software products. 
Maintenance and services revenue increased 62.5% from $1.4 million for the 
three months ended June 30, 1997 to $2.3 million for the three months ended 
June 30, 1998, and increased 50.8% from $2.9 million for the six months ended 
June 30, 1997 to $4.4 million for the six months ended June 30, 1998. The 
increase is primarily attributable to maintenance contracts for Verification 
products acquired in the SimTech acquisition, a maintenance contract with one 
customer, an increase in the installed base of HLDA Plus customers over the 
previous comparable period, partially offset by a decrease of Design to Test 
maintenance revenue of $695,000 and $1.4 million for the three and six months 
ended June 30, 1998, respectively, due to the sale of the TDS product line.

OTHER 

Other revenue consists of fees received for granting distribution rights. 
Other revenue decreased 27.2% from $125,000 for the three months ended June 
30, 1997 to $91,000 for the three months ended June 30, 1998 and decreased 
31.5% from $267,000 for the six months ended June 30, 1997 to $183,000 for 
the six months ended June 30, 1998. In May 1997 a distribution agreement 
expired; and as a result the distribution rights fees paid at the inception 
of the agreement and amortized into revenue at $50,000 each quarter over the 
agreement period are no longer a source of other revenue. No material costs 
were associated with other revenue for the three and six months ended June 
30, 1998 and 1997.

----------------------
(1) 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 19 for a discussion of factors that could affect future performance.

                                       -14-
<PAGE>

COST OF REVENUE

PRODUCT LICENSES 

Cost of product licenses revenue includes product packaging, software 
documentation, labor and other costs associated with handling, packaging and 
shipping product and other production related costs plus the amortization of 
purchased technology acquired in the SimTech purchase. The cost of product 
licenses revenue increased 25.0% from $164,000 for the three months ended 
June 30, 1997 to $205,000 for the three months ended June 30, 1998, and 
increased 38.7% from $349,000 for the six months ended June 30, 1997 to 
$484,000 for the six months ended June 30, 1998. This increase is primarily 
attributable to amortization of purchased technology included in the three 
and six months ended June 30, 1998 relating to the purchase of SimTech in 
September of 1997. As a percentage of product licenses revenue, the cost of 
product licenses revenue decreased from 2.9% of product licenses revenue for 
the three months ended June 30, 1997 to 2.4% of product licenses revenue for 
the three months ended June 30, 1998, and decreased from 3.3% of product 
licenses revenue for the six months ended June 30, 1997 to 2.9% of product 
licenses revenue for the six months ended June 30, 1998. This decrease was 
primarily due to leveraging fixed costs across increased product licenses 
revenue.

MAINTENANCE AND SERVICES 

Cost of maintenance and services revenue, which consists primarily of 
personnel costs for customer support consulting and training classes offered 
to purchasers of the Company's products, increased 96.5% from $142,000 for 
the three months ended June 30, 1997 to $279,000 for the three months ended 
June 30, 1998, and increased 100.4% from $252,000 for the six months ended 
June 30, 1997 to $505,000 for the six months ended June 30, 1998. As a 
percentage of maintenance and services revenue, the cost of maintenance and 
services revenue increased from 9.8% for the three months ended June 30, 1997 
to 11.9% for the three months ended June 30, and increased from 8.6% for the 
six months ended June 30, 1997 to 11.4% for the six months ended June 30, 
1998. This increase as a percentage of maintenance and services revenue for 
the three and six months ended June 30, 1998 is due to the Company operating 
at below forecasted staffing levels during the first half of 1997. 

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT

Research and development expenses consist of the engineering and operations 
support costs of developing new products and enhancements to existing 
products and performing quality assurance activities. Research and 
development expenses increased 45.0% from $1.7 million for the three months 
ended June 30, 1997 to $2.4 million for the three months ended June 30, 1998 
and increased 53.7% from $3.1 million for the six months ended June 30, 1997 
to $4.8 million for the six months ended June 30, 1998. As a percentage of 
total revenue, research and development expenses decreased from 23.3% for the 
three months ended June 30, 1997 to 22.0% for the three months ended June 30, 
1998, and decreased from 22.8% for the six months ended June 30, 1997 to 
22.5% for the six months ended June 30, 1998. The Company's research and 
development staff increased from 64 at June 30, 1997 to 95 at June 30, 1998. 
This increase is primarily attributable to the addition of 28 engineers 
through the acquisition of SimTech in September of 1997 and the hiring of 18 
additional engineers, less a decrease of 15 engineers due to the sale of the 
TDS product line in July of 1997. The Company continues to believe that 
significant investment in research and development is required to remain 
competitive in its 

                                       -15-
<PAGE>

markets, and the Company therefore anticipates that research and development 
expense will increase in absolute dollars in future periods, but may vary as 
a percent of revenue.(1)

SALES AND MARKETING

Sales and marketing expenses, consisting primarily of salaries, commissions 
and promotional costs, increased 26.0% from $2.6 million for the three months 
ended June 30, 1997 to $3.3 million for the three months ended June 30, 1998  
and increased 23.3% from $5.1 million for the six months ended June 30, 1997 
to $6.3 million for the six months ended June 30, 1998. The increase over 
1997 was attributable to expenses related to the marketing of new products 
acquired with the purchase of SimTech and additional commissions directly 
related to the increase in gross sales over the comparable period in 1997. As 
a percentage of total revenue, sales and marketing expenses decreased from 
36.0% for the three months ended June 30, 1997 to 29.6% for the three months 
ended June 30, 1998, and decreased from 37.3% for the six months ended June 
30, 1997 to 29.5% for the six months ended June 30, 1998. The decrease as a 
percentage of revenue was primarily attributable to the increase in total 
revenue for 1998. In the future, the Company expects sales and marketing 
expenses to continue to increase in absolute dollars.(1)

GENERAL AND ADMINISTRATIVE

General and administrative expenses consist primarily of the corporate, 
finance, human resource, information services, administrative, and legal and 
accounting expenses of the Company. General and administrative expenses 
increased 52.5% from $881,000 for the three months ended June 30, 1997, to 
$1.3 million for the three months ended June 30, 1998, which includes a 
$227,000 one-time charge for costs associated with the acquisition of 
ProSoft, and increased 18.5% from $2.1 million for the six months ended June 
30, 1997, which includes $379,000 one-time charge for costs associated with 
the acquisition of TriQuest, to $2.4 million for the six months ended June 
30, 1998, which includes a $227,000 one-time charge for costs associated with 
the acquisition of ProSoft. Excluding one-time charges, expenses increased 
by $236,000 (26.8%) for the three months ended June 30, 1998 and $533,000 
(31.7%) for the six months ended June 30, 1998, as compared to the same 
period in the prior year. As a percentage of total revenue, excluding the 
one time charges, general and administrative expenses decreased from 12.3% 
for the three months ended June 30, 1997 to 10.1% for the three months ended 
June 30, 1998, and decreased from 12.3% for the six months ended June 30, 
1997 to 10.4% for the six months ended June 30, 1998. The decrease as a 
percentage of total revenue was attributable to the increase in total revenue 
in 1998. The Company expects general and administrative expenses to increase 
in absolute dollars to support future sales and operations.(1)

OTHER INCOME (EXPENSE), 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 SDA and ADC and 
foreign exchange rate differences resulting from paying operating expenses of 
foreign operations in the 

------------------------
(1) 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 19 for a discussion of factors that could affect future performance.

                                       -16-
<PAGE>

local currency. Other income was $229,000 for the three months ended June 
30, 1997 and $204,000 for the three months ended June 30, 1998 and $440,000 
for the six months ended June 30, 1997 and $492,000 for the six months ended 
June 30, 1998. The increase in other income was primarily due to increased 
interest earned on the Company's cash holdings which was partially offset by 
a charge related to the reorganization of Summit Design Asia.

INCOME TAX PROVISION

The income tax provision increased from $100,000 for the three months ended 
June 30, 1997 to $1.0 million for the three months ended June 30, 1998 and 
from $180,000 for the six months ended June 30, 1997 to $2.0 million for the 
six months ended June 30, 1998. The provision for the three and six months 
ended June 30, 1997 reflects an effective rate of 6.5% of taxable income and 
is comprised of federal alternative minimum tax and Israeli income taxes. In 
the first and second quarters of 1997, the Company utilized net operating 
loss carryforwards to offset a considerable portion of U.S. federal and state 
taxable income. The 1998 income tax provision reflects the Company's 
expected, annualized consolidated tax rate for federal, state and foreign 
taxes of approximately 28% of taxable income. The difference between the 
Company's expected effective rate and the statutory rate for the year ending 
December 31, 1998 is primarily due to reduced tax rates on the Company's 
income generated from operations in Israel.

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 quality issues, 
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.

                                       -17-
<PAGE>

EFFECTIVE CORPORATE TAX RATES

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

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

The Company has foreign income tax net operating losses of approximately $5.6 
million at December 31, 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 has financed its operations primarily through a public offering 
in 1996, the private placement 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 June 30, 1998, 
the Company had approximately $24.8 million in cash and cash equivalents and 
a $1.0 million bank line of credit with a major financial institution ("the 
Bank"). The line of credit expires on April 30, 1999. 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 
June 30, 1998 the Company had no borrowings outstanding under this line of 
credit.

The Company is obligated to lend up to $2.5 million to an independent 
software 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 June 30, 1998, the Company had working capital of approximately $18.7 
million.

                                       -18-
<PAGE>

Net cash generated by operating activities was approximately $7.4 million and 
$3.2 million for the six months ended June 30, 1998 and 1997, respectively. 
Cash generated by operating activities resulted primarily from profitable 
operations, and an increase in accrued liabilities partially offset by an 
increase in accounts receivable for the six months ended June 30, 1998 and 
primarily from profitable operations for the six months ended June 30, 1997.

Net cash used in investing activities was approximately $2.1 million and $1.2 
million for the six months ended June 30, 1998 and 1997, respectively. Net 
cash used in investing activities was related to the acquisition of furniture 
and equipment and loans to a joint venture for the six months ended June 30, 
1998 and the acquisition of furniture and equipment and a loan to an employee 
for the six months ended June 30, 1997.

Net cash used by financing activities was approximately $505,000 for the six 
months ended June 30, 1998 and net cash provided by financing activities was 
approximately $173,000 for the six months ended June 30 1997. For the six 
months ended June 30, 1998 the use of cash was primarily from the repurchase 
of common stock, less the issuance of common stock and a tax benefit from 
option exercises. For the six months ended June 30, 1997, the cash provided 
by financing activities was primarily from the issuance of common stock less 
principal payments on debt and capital lease obligations.

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

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

HISTORY OF OPERATING LOSSES; FLUCTUATIONS IN QUARTERLY RESULTS

While the Company generated net income in the first two quarters of 1998, 
there can be no assurance that the Company will be profitable in the future. 
In addition, 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 quality, 
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 

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

                                       -19-
<PAGE>

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.

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, SimTech in September 1997, and ProSoft in June 
1998, 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 Plus 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 Plus products. The Company commercially shipped 
its first HLDA Plus 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 Plus 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.

                                       -20-
<PAGE>

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 
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 beginning in July 1997. As of June 30, 1998 the Company had sold $11.4 
million of Visual Testbench licenses pursuant to this 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 affect on the Company's operating results.

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 

                                       -21-
<PAGE>

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

DEPENDENCE ON THIRD PARTIES FOR PRODUCT INTEROPERABILITY

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

NEW PRODUCTS AND TECHNOLOGICAL CHANGE; EVOLVING INDUSTRY STANDARDS

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

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.

                                       -22-
<PAGE>

DEPENDENCE ON DISTRIBUTORS

The Company relies on distributors for licensing and support of its products 
outside of North America. Approximately 25%, 42%, 29%, 46% and 42% of the 
Company's revenue for the six months ended June 30, 1998 and 1997 and the 
years ended December 31, 1997, 1996 and 1995, respectively, were attributable 
to sales made through distributors. Effective April 1, 1996 the Company 
entered into a joint venture with Anam pursuant to which the joint venture 
corporation Summit Asia acquired exclusive rights to sell, distribute and 
support all of the Company's products in the Asia-Pacific region, excluding 
Japan. Prior to that date, Anam was an independent distributor of the 
Company's products. In April 1998, the joint venture corporation, Summit 
Asia, which is headquartered in Korea, was renamed Asia Design Corporation 
"ADC." In May 1998, the Summit exchanged a portion of its ownership in ADC 
for ownership in another company located in Hong Kong which was renamed 
Summit Design Asia, Ltd. "SDA." SDA also has an equity investment in ADC. In 
June 1998, the Summit and Anam each loaned SDA $750,000, which is guaranteed 
by ADC. SDA acquired from ADC the exclusive rights to sell, distribute and 
support Summits products in the Asia-Pacific region, excluding Japan. SDA 
granted distribution rights to Summit's products to ADC for the Asia Pacific 
region, excluding Japan. There can be no assurance that this restructuring 
will result in Summit Asia or ADC becoming profitable or that revenue 
attributable to sales in the Asia Pacific region, excluding Japan, would 
increase. 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 six months ended 
June 30, 1998 and the year ended December 31, 1997, all sales of the 
Company's products in the Asia-Pacific region were through Seiko, SDA, ADC, 
ATE and Kanematsu.

There can be no assurance the relationships with Seiko, SDA, ADC, 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, SDA, ADC, 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 35%, 45%, 33%, 50% and 52% of the Company's revenue for the six 
months ended June 30, 1998 and 1997 and 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 

                                       -23-
<PAGE>

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 economics 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, on 
September 9, 1997, Summit completed its acquisition of SimTech, and on June 
30, 1998 Summit completed its acquisition of ProSoft. As a result of these 
acquisitions, Summit's operating expenses have increased and are expected to 
continue to increase. There can be no assurance that the integration of 
TriQuest's, SimTech's, or ProSoft's business can be successfully completed in 
a timely fashion, or at all, or that the revenues from TriQuest, SimTech, and 
ProSoft 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 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 
effect 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 

                                       -24-
<PAGE>

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 non-competition 
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 qualified personnel. There 
can be no assurance that the Company will retain its key personnel or that it 
will be successful in attracting and retaining other qualified technical, 
sales and marketing and management personnel in the future. The loss of any 
key employees or the inability to attract and retain additional qualified 
personnel may have a material adverse effect on the Company's business, 
financial condition, results of operations or cash flows. The Company has 
obtained a $1 million "key person" life insurance policy on its 
President/Chief Executive Officer. Additions of new personnel and departures 
of existing personnel, particularly in key positions, can be disruptive and 
can result in departures of additional personnel, which could have a material 
adverse effect on the Company's business, financial condition, results of 
operations or cash flows. 

                                       -25-
<PAGE>

ISRAELI RESEARCH, DEVELOPMENT AND MARKETING GRANTS

Summit's Israeli subsidiary obtained research and development grants from the 
Office of the Chief Scientist (the "Chief Scientist") in the Israeli Ministry 
of Industry and Trade of approximately $232,000 and $608,000 in 1993 and 
1995, respectively. As of December 31, 1997, all amounts had 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 June 30, 1998, 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 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

                                       -26-
<PAGE>

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 modification will have a material adverse affect 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.

                                       -27-
<PAGE>

PART II

Item 1.   Legal Proceedings

          Not applicable

Item 2.   Changes in Securities

          In June 1998, in connection with the Company's acquisition of 
          ProSoft Oy ("ProSoft"), the Company issued 225,386 shares of the 
          Company's Common Stock to the existing shareholders of ProSoft in 
          exchange for all of the outstanding shares of capital stock of 
          ProSoft. Such shares were not registered under the securities act 
          of 1933, as amended (the "Securities Act"), and such issuance was 
          deemed to be exempt from registration in reliance under Section 
          4(2) of the Securities Act as a transaction by an issuer not 
          involving a public offering. The recipients of the securities 
          represented their intentions to acquire the securities for 
          investment only and had access to all relevant information regarding
          the Company necessary to evaluate the investment.

Item 3.   Defaults Upon Senior Securities

          Not applicable

Item 4.   Submission of Matters to a Vote of Security Holders

          The following matters were submitted to the stockholders at the 
          Company's Annual Meeting of Stockholders held May 14, 1998. Each of
          these matters was approved by a majority of the shares present at 
          the meeting.

     1.   The election of one Class I director to serve for a term of three
          years:
     
                                    VOTES FOR          VOTES WITHHELD
                                    ---------          --------------
     CLASS I DIRECTOR
     
     Steven P. Erwin                12,140,472             8,242
     
     
     2.   The amendment of the Company's 1994 Stock Plan to increase the number
          of shares reserved for issuance thereunder by 500,000 shares and to
          approve the material terms of the 1994 Stock Plan solely for purposes
          of Section 162(m) of the Internal Revenue Code of 1986, as amended:
     
          VOTES FOR           VOTES AGAINST       VOTES WITHHELD
          ---------           -------------       --------------
          9,001,008             3,130,298             17,408


     3.   The amendment of the Company's 1996 Employee Stock Purchase Plan to
          increase the number of shares reserved for issuance thereunder by
          235,000 shares:

          VOTES FOR           VOTES AGAINST       VOTES WITHHELD
          ---------           -------------       --------------
          12,050,001             82,185               16,528


                                       -28-
<PAGE>

     4.   The ratification of the appointment of Coopers & Lybrand L.L.P. as the
          independent accountants for the Company for the fiscal year ending
          December 31, 1998:

          VOTES FOR           VOTES AGAINST       VOTES WITHHELD
          ---------           -------------       --------------
          12,139,009              3,516               6,189

Item 5.   Other Information

          Not applicable

Item 6.   Exhibits and Reports on Form 8-K

          (a)  Exhibits

               10.27     Shareholders Agreement between the Registrant and 
                         Summit Design Asia, Ltd. dated May 12, 1998.
               10.28     Shareholders Agreement between the Registrant and 
                         Asia Design Corporation, Ltd. dated May 12, 1998.
               10.29++   Distributor Agreement between the Registrant and 
                         Summit Design Asia, Ltd. dated May 12, 1998.
               10.30     Loan Agreement between the Registrant and Summit Design
                         Asia, Ltd. dated June 2, 1998.
               10.31     Joint Escrow Agreement between the Registrant Perkins 
                         Coie (Hong Kong) Limited, Summit Design Asia, Ltd. and
                         Asia Design Corporation, Ltd.
               10.32     Guarantee Agreement between the Registrant and Asia
                         Design Corporation, Ltd. dated May 12, 1998.
               10.33     Security Agreement between the Registrant and Asia
                         Design Corporation, Ltd. dated May 12, 1998.
               27.1      Financial Data Schedule
               27.2      Restated Financial Data Schedules
               27.3      Restated Financial Data Schedules

                 ++      Document for which confidential treatment has been
                         requested.

          (b)  Reports on Form 8-K

               On July 13, 1998, the Company filed a report on Form 8-K dated 
               June 30, 1998 in conjunction with the acquisition of ProSoft Oy.
     

                                       -29-
<PAGE>

SIGNATURES


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

                              SUMMIT DESIGN, INC.


                              By:  /s/ C. Albert Koob
                                   ------------------------------------
                                   C. Albert Koob
                                   Vice President - Finance, 
                                   Chief Financial Officer and Secretary
                                   (Principal Financial and Accounting
                                   Officer and Duly Authorized Officer)


Date:     August 13, 1998


                                       -30-
<PAGE>

EXHIBIT INDEX

EXHIBIT  10.27    Shareholders Agreement between the Registrant and 
                  Summit Design Asia, Ltd. dated May 12, 1998.

EXHIBIT  10.28    Shareholders Agreement between the Registrant and 
                  Asia Design Corporation, Ltd. dated May 12, 1998.

EXHIBIT  10.29++  Distributor Agreement between the Registrant and 
                  Summit Design Asia, Ltd. dated May 12, 1998.

EXHIBIT  10.30    Loan Agreement between the Registrant and Summit Design
                  Asia, Ltd. dated June 2, 1998.

EXHIBIT  10.31    Joint Escrow Agreement between the Registrant Perkins 
                  Coie (Hong Kong) Limited, Summit Design Asia, Ltd. and
                  Asia Design Corporation, Ltd.

EXHIBIT  10.32    Guarantee Agreement between the Registrant and Asia
                  Design Corporation, Ltd. dated May 12, 1998.

EXHIBIT  10.33    Security Agreement between the Registrant and Asia
                  Design Corporation, Ltd. dated May 12, 1998.

EXHIBIT  27.1     Financial Data Schedule

EXHIBIT  27.2     Restated Financial Data Schedules

EXHIBIT  27.3     Restated Financial Data Schedules


           ++     Document for which confidential treatment has been
                  requested.


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