<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, 1999 or
--------------------------------------------------------------------------------

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

Commission file number:  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 Identification Number)
     incorporation or organization)


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


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 12, 1999, the Registrant had outstanding 15,694,520 shares of
Common Stock.

<PAGE>

                               SUMMIT DESIGN, INC.
                                      INDEX


<TABLE>
<S>                                                                                  <C>
PART I     FINANCIAL INFORMATION

Item 1   Condensed Consolidated Financial Statements

         Condensed Consolidated Balance Sheets as of June 30, 1999
         (unaudited) and December 31, 1998.                                             3

         Condensed Consolidated Statements of Operations for the
         three months ended June 30, 1999 and 1998 and
         for the six months ended June 30, 1999 and 1998 (unaudited).                   4

         Condensed Consolidated Statements of Cash Flows for
         the six months ended June 30, 1999 and 1998 (unaudited).                       5

         Notes to Condensed Consolidated Financial Statements.                          6

Item 2   Management's Discussion and Analysis of Financial
              Condition and Results of Operations                                       8

Item 3   Quantitative and Qualitative Disclosures about Market Risk                    28

PART II     OTHER INFORMATION

Item 4   Submissions of matters to a vote of security holders                          29

Item 6   Exhibits and Reports on Form 8-K                                              29

Items 1, 2, 3 and 5      Not Applicable                                                29

Signature                                                                              30

Exhibit Index                                                                          31
</TABLE>


                                      -2-
<PAGE>

                               SUMMIT DESIGN, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                             June 30, 1999           December 31, 1998
                                                          -----------------------   ----------------------
                                                              (Unaudited)
<S>                                                       <C>                       <C>
                     ASSETS
Current assets:
   Cash and cash equivalents....................                      $ 24,028                  $27,693
   Accounts receivable, net.....................                         8,533                    8,852
   Prepaid expenses and other...................                           585                      862
   Deferred income taxes........................                           792                      792
                                                          -----------------------   ----------------------
     Total current assets.......................                        33,938                   38,199

Furniture and equipment, net....................                         3,834                    4,113
Intangibles, net................................                         2,366                    2,870
Goodwill, net...................................                         1,521                    2,742
Deposits and other assets.......................                         3,013                    2,286
                                                          -----------------------   ----------------------
        Total assets............................                       $44,672                  $50,210
                                                          -----------------------   ----------------------
                                                          -----------------------   ----------------------

                  LIABILITIES
Current liabilities:
   Long-term debt, current portion..............                       $    92                  $    54
   Capital lease obligation, current portion....                            20                       43
   Accounts payable.............................                           982                    2,520
   Accrued liabilities..........................                         4,873                    5,687
   Deferred revenue.............................                         5,546                    5,640
                                                          -----------------------   ----------------------
     Total current liabilities..................                        11,513                   13,944

Long-term debt, less current portion............                             -                      156
Deferred revenue, less current portion..........                           117                      146
Deferred income tax.............................                           489                      489
                                                          -----------------------   ----------------------
     Total liabilities..........................                        12,119                   14,735
                                                          -----------------------   ----------------------

Commitments and contingencies

              STOCKHOLDERS' EQUITY
Common stock, $.01 par value. Authorized
30,000 shares; issued and outstanding 15,694
shares at June 30, 1999 and 15,457 shares at
December 31, 1998. .............................                           156                      155
Additional paid-in capital......................                        44,354                   44,039
Accumulated deficit.............................                       (11,957)                  (8,719)
                                                          -----------------------   ----------------------
     Total stockholders' equity.................                        32,553                   35,475
                                                          -----------------------   ----------------------
        Total liabilities and stockholders' equity                     $44,672                  $50,210
                                                          -----------------------   ----------------------
                                                          -----------------------   ----------------------
</TABLE>


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


                                      -3-
<PAGE>

                               SUMMIT DESIGN, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                    Three Months Ended                Six Months Ended
                                                                          June 30,                        June 30,
                                                                   --------------------              ------------------
                                                                     1999         1998                1999        1998
                                                                   -------      -------              -------    -------
<S>                                                               <C>          <C>                  <C>        <C>
Revenue:
   Product licenses.................................               $ 4,549      $ 8,574              $ 8,605    $16,775
   Maintenance and services.........................                 2,633        2,347                5,393      4,411
   Other............................................                     -           91                    -        183
                                                                   -------      -------              -------    -------
     Total revenue..................................                 7,182       11,012               13,998     21,369

Cost of revenue:
   Product licenses.................................                   127          118                  258        311
   Maintenance and services.........................                   348          279                  606        504
   Amortization of purchased technologies...........                   166          166                  331        331
                                                                   -------      -------              -------    -------
     Total cost of revenue..........................                   641          563                1,195      1,146
                                                                   -------      -------              -------    -------
        Gross profit................................                 6,541       10,449               12,803     20,223

Operating expenses:
   Research and development.........................                 2,491        2,978                5,167      5,907
   Sales and marketing..............................                 3,179        3,258                6,087      6,306
   General and administrative.......................                 1,373        1,080                2,540      2,142
   Amortization of goodwill and other intangibles...                   697          697                1,395      1,395
   Non-recurring charges............................                     -          227                1,340        227
                                                                   -------      -------              -------    -------
     Total operating expenses.......................                 7,740        8,240               16,529     15,977

Income (loss) from operations.......................                (1,199)       2,209               (3,726)     4,246

Other income, net...................................                   195          204                  488        492
                                                                   -------      -------              -------    -------
Income (loss) before income taxes...................                (1,004)       2,413               (3,238)     4,738
Income tax provision................................                     -          958                    -      1,881
                                                                   -------      -------              -------    -------
Net income (loss)...................................               $(1,004)     $ 1,455              $(3,238)   $ 2,857
                                                                   -------      -------              -------    -------
                                                                   -------      -------              -------    -------

Earnings (loss) per share:
     Basic..........................................               $ (0.06)     $  0.10              $ (0.21)   $  0.19
                                                                   -------      -------              -------    -------
                                                                   -------      -------              -------    -------
     Diluted........................................               $ (0.06)     $  0.09              $ (0.21)   $  0.18
                                                                   -------      -------              -------    -------
                                                                   -------      -------              -------    -------

Number of shares used in computing earnings (loss) per share:
     Basic..........................................                15,621       15,058               15,666     14,984
     Diluted........................................                15,621       16,285               15,666     16,240
</TABLE>

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


                                      -4-
<PAGE>

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

<TABLE>
<CAPTION>
                                                                            Six Months Ended
                                                                                June 30,
                                                                         -----------------------
                                                                           1999            1998
                                                                         -------         -------
<S>                                                                     <C>             <C>
Cash flows from operating activities:
     Net income (loss).....................................              $(3,238)        $ 2,857
     Adjustments to reconcile net income to net cash
          provided by (used in) operating activities:
          Depreciation and amortization....................                2,545           2,262
          Amortization of future contingent share liability                    -           1,100
          Loss on asset disposition........................                   34               -
          Deferred taxes...................................                    -             (81)
          Equity in losses of and transactions with
             unconsolidated joint venture..................                  120             350
          Changes in assets and liabilities:
               Accounts receivable.........................                  320            (541)
               Prepaid expenses and other..................                  276             216
               Other, net..................................                 (198)            131
               Accounts payable............................               (1,539)             97
               Accrued liabilities.........................                 (814)          1,066
               Deferred revenue............................                 (123)            (37)
                                                                         -------         -------
       Net cash provided by (used in) operating activities                (2,617)          7,420
                                                                         -------         -------
Cash flows from investing activities:
     Additions to furniture and equipment..................                 (586)         (1,045)
     Proceeds from sale of assets..........................                   11               -
     Notes receivable from related parties, net............                 (650)           (325)
     Loan to a joint venture...............................                    -            (750)
                                                                         -------         -------
       Net cash used in investing activities...............               (1,225)         (2,120)
                                                                         -------         -------
Cash flows from financing activities:
     Issuance of common stock, net of issuance costs.......                  317           1,046
     Tax benefit of option exercises.......................                    -             825
     Payments to acquire treasury stock....................                    -          (2,329)
     Principal payments of debt obligations................                 (117)            (21)
     Principal payments of capital lease obligations.......                  (23)            (26)
                                                                         -------         -------
       Net cash provided by (used in) financing activities.                  177            (505)
                                                                         -------         -------
       Increase (decrease) in cash and cash equivalents....               (3,665)          4,795
Cash and cash equivalents, beginning of period.............               27,693          19,973
                                                                         -------         -------
                                                                         -------         -------
Cash and cash equivalents, end of period...................              $24,028         $24,768
                                                                         -------         -------
                                                                         -------         -------
Supplemental disclosure of cash flow information:
     Cash paid during the period for:
          Interest.........................................              $     2         $     3
          Income taxes.....................................                1,167             667
Supplemental disclosure of non-cash financing activities:
     Retirement of treasury stock..........................                               11,555
</TABLE>


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


                                      -5-
<PAGE>

                               SUMMIT DESIGN, INC.
              Notes to Condensed 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, 1998, 1997 and 1996 included in the Company's Form 10-K
filed for December 31, 1998.

The results of operations for the six months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999 or any other future interim period, and the Company makes no
representations related thereto.

2.       BALANCE SHEET COMPONENTS (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                   June 30, 1999             December 31, 1998
                                                                ----------------------      ----------------------
                                                                    (Unaudited)
<S>                                                            <C>                          <C>
Accounts receivable:
   Trade receivables...............................                         $ 9,000                     $ 9,363
   Less allowance for doubtful accounts............                            (467)                       (511)
                                                                ----------------------      ----------------------
                                                                            $ 8,533                     $ 8,852
                                                                ----------------------      ----------------------
                                                                ----------------------      ----------------------

Furniture and equipment:
   Office furniture equipment .....................                         $   571                     $ 1,201
   Computer equipment..............................                           5,639                       5,138
   Leasehold improvements..........................                             596                         491
                                                                ----------------------      ----------------------
                                                                              6,806                       6,830
Less: accumulated depreciation and amortization....                          (2,972)                     (2,717)
                                                                ----------------------      ----------------------
                                                                            $ 3,834                     $ 4,113
                                                                ----------------------      ----------------------
                                                                ----------------------      ----------------------

Accrued liabilities:
   Payroll and related benefits....................                         $ 2,322                     $ 3,051
   Severance.......................................                           1,273                           -
   Sales and marketing.............................                             445                         332
   Accounting and legal............................                             218                         310
   Federal and state income taxes payable..........                             352                       1,549
   Sales taxes payable.............................                              45                         160
   Other  .........................................                             218                         285
                                                                ----------------------      ----------------------
     Total accrued liabilities.....................                         $ 4,873                     $ 5,687
                                                                ----------------------      ----------------------
                                                                ----------------------      ----------------------
</TABLE>


                                      -6-
<PAGE>

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


3.       RECONCILIATION OF EARNINGS PER SHARE

On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share." In accordance with SFAS No. 128,
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,
                                                          --------------------------- --------------------------
                                                              1999           1998          1999          1998
                                                          ------------     ---------    ----------     ---------
<S>                                                      <C>              <C>          <C>            <C>
Numerator:
   Net income (loss)                                      $    (1,004)     $   1,455    $  (3,238)     $   2,857
                                                          ------------     ---------    ----------     ---------
                                                          ------------     ---------    ----------     ---------
Denominator:
   Denominator for basic earnings (loss) per share
     weighted average shares                                    15,621        15,058        15,666        14,984

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

   Denominator for diluted earnings (loss) per share            15,621        16,285        15,666        16,240
                                                          ------------     ---------    ----------     ---------
                                                          ------------     ---------    ----------     ---------

Net income (loss) per share - basic                       $     (0.06)     $    0.10    $   (0.21)     $    0.19
                                                          ------------     ---------    ----------     ---------
                                                          ------------     ---------    ----------     ---------

Net income (loss) per share - diluted                     $     (0.06)     $    0.09    $   (0.21)     $    0.18
                                                          ------------     ---------    ----------     ---------
                                                          ------------     ---------    ----------     ---------
</TABLE>

4.       BUSINESS SEGMENTS, EXPORTS AND MAJOR CUSTOMERS:

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

<TABLE>
<CAPTION>
                                                       For the Three Months         For the Six Months
                                                           Ended June 30,             Ended June 30,
                                                    ---------------------------  ------------------------
                                                          1999      1998             1999      1998
                                                         ------    ------           ------    ------
<S>                                                      <C>       <C>              <C>       <C>
          Europe....................................     $1,664    $1,701           $2,922    $2,859
          Japan.....................................      1,715     3,994            2,721     1,678
          Other Asia Pacific........................        100       654              201       501

As a Percentage of Total Revenue:
          Europe....................................       23.2%     15.4%            20.9%     13.4%
          Japan.....................................       23.9      36.3             19.4       7.9
          Other Asia Pacific........................        1.4       5.9              1.4       2.3
</TABLE>

Sales through one distributor accounted for 23.5%, 17.7%, 24.3%, and 19.3% of
the Company's total revenue for the three months ended June 30, 1999 and
1998, and for the six months ended June 30, 1999 and 1998, respectively.
Sales to Credence Systems Corporation ("CSC") accounted for 23.2% and 27.0%
of the Company's total revenue for the three and six months ended June 31,
1998. Such revenue included $2.9 million of Visual Testbench license sales
made pursuant to an OEM agreement with CSC. As of December 31, 1998, CSC had
fully satisfied its obligation to purchase Visual Testbench Licenses pursuant
to the OEM agreement and the Company does not expect to receive any
additional revenue from sales of Visual Testbench licenses. The Company did
not receive any revenue from CSC for the six months ended June 30, 1999.
Revenue generated pursuant to another OEM agreement accounted for 10.7%,
7.5%, 12.6%, and 7.2% of the Company's total revenue for the three months
ended June 30, 1999 and 1998 and for the six months ended June 30, 1999 and
1998, respectively.  Foreign operations of Summit Design (EDA) Ltd. accounted
for less than 10% of total revenue of the Company for the three and six
months ended June 30, 1999. Identifiable assets of the Company's Israeli
subsidiary were less than 10% of total assets at December 31, 1998.

                                      -7-
<PAGE>

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

IMPORTANT NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Words such as "anticipates," "expects," "intends," "plans," "believes,"
"seeks," "estimates" and similar expressions identify such forward-looking
statements. These forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward-looking statements. Factors which could cause actual
results to differ materially include those set forth in the following
discussion, and, in particular, the risks discussed below under the subheading
"Additional Risk Factors that Could Affect Operating Results and Market Price of
Stock." Unless required by law, the Company undertakes no obligation to update
publicly any forward-looking statements.

OVERVIEW

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

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

Revenue consists primarily of fees for licenses of the Company's software
products, maintenance and customer training. Product license revenue is derived
from the sale of software licenses to distributors and end-users. Revenue from
the sale of software licenses is recognized upon shipment of the product if
remaining vendor obligations are insignificant and collection of the resulting
receivable is probable, otherwise revenue from such software products is
deferred until such time as vendor obligations are met. Maintenance revenue is
deferred and recognized ratably over the term of the maintenance agreement,
which is typically 12 months. Revenue from customer training is recognized when
the service is performed. Revenue earned on software arrangements involving
multiple elements is allocated to each element based on vendor-specific
objective evidence (VSOE) of the fair value of the various elements within the
arrangement. The Company sells its products through a direct sales force in
North America and selected European countries and through distributors in the
Company's other international markets. Revenue from product sales through
distributors is recognized net of the associated distributor discounts. Fees
received for granting distribution rights are deferred and recognized ratably
over the term of the distribution agreement.


                                      -8-
<PAGE>

Although the Company has not adopted a formal return policy, the Company
generally reimburses customers in full for returned products. Estimated sales
returns are recorded when the related revenue is recognized.

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

The Company entered into a joint venture with Anam, effective April 1, 1996,
pursuant to which the joint venture corporation (Summit Asia, Ltd. ("Summit
Asia")) acquired exclusive rights to sell, distribute and support all of the
Company's products in the Asia-Pacific regions, 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 Asia Pacific region,
excluding Japan. SDA granted distribution rights to the Company's products to
ADC for the Asia Pacific region, excluding Japan. In December 1998, SDA
cancelled ADC's distribution rights in all areas except Korea and granted
non-exclusive distribution rights to Semiconductor Technologies Australia
("STA") for the Asia Pacific region, excluding Japan and Korea. For the six
months ended June 30, 1999 and 1998, sales through SDA accounted for 1.4% and
3.1% 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 share of the earnings and
losses of SDA and ADC are recognized as income or losses in the Company's income
statement in "Other income, net." The Company does not expect SDA or ADC to
recognize a profit for the foreseeable future and thus does not expect to
recognize income from its investment in SDA or ADC for the foreseeable future,
if at all. There can be no assurance that the restructuring will result in SDA
or ADC becoming profitable or that revenue attributable to sales in the Asia
Pacific region, excluding Japan, would increase.

Approximately 48.4%, 37.8%, 47.7%, and 35.1% of the Company's total revenue
for the three months ended June 30, 1999 and 1998, and for the six months
ended June 30, 1999 and 1998, respectively, were attributable to sales made
outside the United States, which includes the Asia Pacific region and Europe.
Approximately, 25.3%, 22.4%, 26.8% and 21.7% of the Company's revenue for the
three months ended June 30, 1999 and 1998, and for the six months ended June
30, 1999 and 1998, respectively, were attributable to sales made in the Asia
Pacific region. Approximately 23.2%, 15.4%, 20.9%, and 13.4% of the Company's
revenue for the three months ended June 30, 1999 and 1998, and for the six
months ended June 30, 1999 and 1998, respectively, were attributable to sales
made in Europe. The increase in the percentage of revenue from sales made
outside the United States in 1999 is primarily the result of a decrease in
domestic sales made to Credence Systems Corporation ("CSC") in 1998 pursuant
to an OEM agreement. As of December 31, 1998, CSC had satisfied its
obligations under the OEM agreement and the Company will not receive any
additional revenue pursuant to the OEM agreement. The Company expects that
international revenue will continue to represent a significant portion of its
total revenue. The Company's international revenue is currently denominated
in U.S. dollars. As a result, increases in the value of the U.S. dollar
relative to foreign currencies could make the Company's products more
expensive and, therefore, potentially less competitive in those markets. The
Company pays the expenses of its international operations in local

                                      -9-
<PAGE>

currencies and does not engage in hedging transactions with respect to such
obligations. International sales and operations are subject to numerous
risks, including tariff regulations and other trade barriers, requirements
for licenses, particularly with respect to the export of certain
technologies, collectability of accounts receivable, changes in regulatory
requirements, difficulties in staffing and managing foreign operations and
extended payment terms. There can be no assurance that such factors will not
have a material adverse effect on the Company's future international sales
and operations and, consequently, on the Company's business, financial
condition, results of operations or cash flows. In addition, financial
markets and economies in the Asia Pacific region have been experiencing
adverse economic conditions. Demand for and sales of the Company's products
in the Asia Pacific region have continued to decrease and there can be no
assurance that such adverse economic conditions will not worsen. In June
1999, the Company lowered Seiko's specified quotas due to the adverse
economic conditions in the Asia Pacific Region. As a result, Summit expects
sales through Seiko to decrease for at least the current and following two
quarters and revenue attributable to sales in the Asia Pacific region to
decrease.(1)

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

Effective July 1, 1997, the Company sold substantially all of the assets used in
its business of developing and marketing its Test Development Series "TDS"
Products (the "Asset Sale") to CSC. 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 since June 30, 1997.

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

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

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

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


                                      -10-
<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 issued
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. 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.

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


                                      -11-
<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
                                                         ------------------------    ------------------------
                                                            1999          1998          1999          1998
                                                         ----------    ----------    ----------    ----------
<S>                                                      <C>           <C>           <C>           <C>
Revenue:
     Product licenses..........................             63.3 %        77.9 %        61.5 %        78.5 %
     Maintenance and services..................             36.7          21.3          38.5          20.6
     Other.....................................                -           0.8             -           0.9
                                                           -----         -----         -----         -----
          Total revenue........................            100.0         100.0         100.0         100.0
Cost of revenue:
     Product licenses..........................              1.8           1.1           1.8           1.5
     Amortization of purchased technologies....              4.8           2.5           4.3           2.4
     Maintenance and services..................              2.3           1.5           2.4           1.5
                                                           -----         -----         -----         -----
          Total cost of revenue................              8.9           5.1           8.5           5.4
          Gross profit.........................             91.1          94.9          91.5          94.6
Operating expenses:
     Research and development..................             34.7          27.0          36.9          27.6
     Sales and marketing.......................             44.3          29.6          43.5          29.5
     General and administrative ...............             19.1           9.8          18.1          10.0
     Amortization of goodwill and other
        intangibles............................              9.7           6.3          10.0           6.5
     Non-recurring charges (a).................                -           2.1           9.6           1.1
                                                           -----         -----         -----         -----
          Total operating expenses.............            107.8          74.8         118.1          74.7
                                                           -----         -----         -----         -----
Income (loss) from operations..................            (16.7)         20.1         (26.6)         19.9
Other income (expense), net....................              2.7           1.9           3.5           2.3
                                                           -----         -----         -----         -----
Income (loss) before income taxes..............            (14.0)           22         (23.1)         22.2
Income (loss) tax provision....................                -           8.7           0.0           8.8
                                                           -----         -----         -----         -----
                                                           -----         -----         -----         -----
Net income                                                 (14.0)%        13.3 %       (23.1)%        13.4 %
                                                           -----         -----         -----         -----
                                                           -----         -----         -----         -----
</TABLE>

(a)  Non-recurring charges of $1.3 million for the six months ended June 30,
     1999 relate to severance obligations to certain management personnel, which
     will be paid in future periods. Non-recurring charges of $227,000 for the
     three and six months ended June 30, 1998 relate to the acquisition of
     ProSoft.


TOTAL REVENUE

Total revenue decreased by 34.8% from $11 million for the three months ended
June 30, 1998 to $7.2 million for the three months ended June 30, 1999. Sales
through one distributor accounted for 23.5%, 17.7%, 24.3%, and 19.3% of the
Company's total revenue for the three months ended June 30, 1999 and 1998,
and for the six months ended June 30, 1999 and 1998, respectively. Sales to
CSC accounted for 23.2% and 27.0% of the Company's total revenue for the
three and six months ended June 31, 1998. Such revenue included $2.9 million
of Visual Testbench license sales made pursuant to an OEM agreement with CSC.
As of December 31, 1998, CSC had fully satisfied its obligation to purchase
Visual Testbench Licenses pursuant to the OEM agreement and the Company does
not expect to receive any additional revenue from sales of Visual Testbench.
The Company did not receive any revenue from CSC for the six months ended
June 30, 1999. Revenue generated pursuant to another OEM agreement accounted
for 10.7%, 7.5%, 12.6%, and 7.2% of the Company's total revenue for the three
months ended June 30, 1999 and 1998 and for the six months ended June 30,
1999 and 1998, respectively.

                                     -12-
<PAGE>

REVENUE

PRODUCT LICENSES REVENUE

The Company's product licenses revenue is derived from license fees from the
Company's HLDA products. Product licenses revenue decreased by 46.9% from $8.6
million for the three months ended June 30, 1998 to $4.5 million for the three
months ended June 30, 1999. Product licenses revenue decreased by 48.7% from
$16.8 million for the six months ended June 30, 1998 to $8.6 million for the six
months ended June 30, 1999. The decrease in product licenses revenue was
primarily attributable to the Company ceasing to receive revenue from CSC
pursuant to the OEM Agreement. The decrease was also attributable to decreased
sales as a result of the Company hiring fewer sales and marketing personnel than
planned in the fourth quarter of 1998 and the first two quarters of 1999 and
attrition in the existing sales force during the first two quarters of 1999.

MAINTENANCE AND SERVICES REVENUE

The Company's maintenance and services revenue is derived from maintenance
contracts related to the Company's HLDA products and training classes offered to
purchasers of the Company's software products. Maintenance and services revenue
increased 12.2% from $2.3 million for the three months ended June 30, 1998 to
$2.6 million for the three months ended June 30, 1999. Maintenance and services
revenue increased 22.3% from $4.4 million for the six months ended June 30, 1998
to $5.4 million for the six months ended June 30, 1999. This increase is
primarily attributable to maintenance contract renewals by the installed base of
HLDA customers, and to a lesser extent from non-recurring engineering services
provided to one customer, which is not expected to reoccur.

OTHER REVENUE

Other revenue consists of revenue from one-time technology sales and fees
received for granting distribution rights. Other revenue decreased 100% from
$91,000 for the three months ended June 30, 1998 to $0 for the three months
ended June 30, 1999. Other revenue decreased 100% from $183,000 for the six
months ended June 30, 1998 to $0 for the six months ended June 30, 1999.
Although the Company renewed a significant distribution agreement the renewal
did not include additional fees. As a result, the distribution rights fees paid
at the inception of the agreement and amortized into revenue at $91,000 each
quarter over the agreement period were no longer a source of other revenue as of
December 31, 1998.

COST OF REVENUE

COST OF PRODUCT LICENSES REVENUE

Cost of product licenses revenue includes product packaging, software
documentation, labor and other costs associated with handling, packaging and
shipping product and other production related costs. The cost of product
licenses revenue increased 7.6% from $118,000 for the three months ended June
30, 1998 to $127,000 for the three months ended June 30, 1999. The cost of
product licenses revenue decreased 17.0% from $311,000 for the six months ended
June 30, 1998 to $258,000 for the six months ended June 30, 1999. As a
percentage of product licenses revenue, the cost of product licenses revenue
increased from 1.4% of product license revenue for the three months ended June
30, 1998 to 2.8% of product license revenue for the three months ended June 30,
1999. As a percentage of product licenses revenue, the cost of product licenses
revenue increased from 1.9% of product license revenue for the six months ended
June 30, 1998 to 3.0% of product license revenue for the six months ended June
30, 1999. This increase as a percentage of product license revenue was primarily
due to fixed costs spread over decreased product license revenue.


                                     -13-
<PAGE>

COST OF MAINTENANCE AND SERVICES REVENUE

Cost of maintenance and services revenue, which consists primarily of personnel
costs for customer support and training classes offered to purchasers of the
Company's products, increased 24.7% from $279,000 for the three months ended
June 30, 1998 to $348,000 for the three months ended June 30, 1999. Cost of
maintenance and services revenue increased 20.2% from $504,000 for the six
months ended June 30, 1998 to $606,000 for the six months ended June 30, 1999.
As a percentage of maintenance and services revenue, the cost of maintenance and
services revenue increased from 11.9% for the three months ended June 30, 1998
to 13.2% for the three months ended June 30, 1999. As a percentage of
maintenance and services revenue, the cost of maintenance and services revenue
decreased from 11.4% for the six months ended June 30, 1998 to 11.2% for the six
months ended June 30, 1999. The increase in the cost of maintenance and services
revenue as a percentage of revenue, and in actual dollars, for the three months
ended June 30, 1999 over the same period in 1998 was due primarily to additional
costs incurred in the three months ended June 30, 1999 related to the
distribution of a major upgrade to customers with maintenance contracts. The
decrease in the cost of maintenance and services revenue as a percent of revenue
for the six months ended June 30, 1999 over the same period in 1998 was
primarily the result of increased maintenance and services revenue in 1999.

AMORTIZATION OF PURCHASED TECHNOLOGIES

The Company recorded $2.4 million of purchased technologies (intangibles) as
part of the SimTech acquisition which are being amortized to cost of revenue on
a straight-line basis over periods ranging from two to five years beginning
September 9, 1997. The Company expensed approximately $166,000 for the three
months ended June 30, 1999 and 1998. The Company expensed approximately $331,000
for the six months ended June 30, 1999 and 1998, respectively.


OPERATING EXPENSES

RESEARCH AND DEVELOPMENT

Research and development expenses consist of the engineering and operations
support costs of developing new products and enhancements to existing products
and performing quality assurance activities. Research and development expenses
decreased 16.4% from $3.0 million for the three months ended June 30, 1998 to
$2.5 million for the three months ended June 30, 1999. Research and development
expenses decreased 12.5% from $5.9 million for the six months ended June 30,
1998 to $5.1 million for the six months ended June 30, 1999. Research and
development expenses for the three and six months ended June 30, 1998 included
$550,000 and $1,100,000, respectively, of compensation expense recorded in
connection with the Company's acquisition of SimTech in September 1997.

The Company recorded a total of $4.4 million of compensation expense for
shares issued as part of the acquisition which were contingent upon continued
employment and were being expensed as the employment obligation lapsed. This
expense was being recorded on a straight-line basis over the two year
employment obligation period. However, in December 1998, the employment
agreements to which this contingent compensation related were amended to
eliminate the continued employment obligation and at that time, the remaining
unrecorded compensation was expensed. Excluding the $550,000 compensation
expense recorded in the three months ended June 30, 1998, research and
development expense increased 2% from $2.4 million for the three months ended
June 30, 1998 to $2.5 million for the same period in 1999. Excluding the
$1,100,000 compensation expense recorded in the six months ended June 30,
1998, research and development expense increased 7.5% from $4.8 million for
the six months ended June 30, 1998 to $5.2 million for the same period in
1999.


                                     -14-
<PAGE>

As a percentage of total revenue, research and development expenses increased
from 27.0% and 27.6% for the three and six months ended June 31, 1998,
respectively, to 34.7% and 36.9% for the three and six months ended June 30,
1999, respectively. The increase in research and development expenses as a
percent of revenue is the result of a decrease in total revenues for the three
and six months ended June 30, 1999. The Company continues to believe that
significant investment in research and development is required to remain
competitive in its markets, and the Company therefore anticipates that research
and development expense will increase in absolute dollars in future periods, but
may vary as a percent of revenue. (1)

SALES AND MARKETING

Sales and marketing expenses, consisting primarily of salaries, commissions and
promotional costs, decreased 2.4% from $3.3 million for the three months ended
June 30, 1998 to $3.2 million for the three months ended June 30, 1999. Sales
and marketing expenses decreased 3.5% from $6.3 million for the six months ended
June 30, 1998 to $6.1 million for the six months ended June 30, 1999. This
decrease was primarily attributable to the Company hiring fewer sales and
marketing personnel than planned in the fourth quarter of 1998 and the first two
quarters of 1999 and attrition in the existing sales force during the first
quarter of 1999.

As a percentage of total revenue, sales and marketing expenses increased from
29.6% for the three months ended June 30, 1998 to 44.3% for the three months
ended June 30, 1999. As a percentage of total revenue, sales and marketing
expenses increased from 29.5% for the six months ended June 30, 1998 to 43.5%
for the six months ended June 30, 1999. The increase as a percentage of total
revenue was primarily attributable to the decrease in total revenue for 1999. In
the future, the Company expects sales and marketing expenses to continue to
increase in absolute dollars, in part due to the hiring of additional sales and
marketing personnel.(2)

GENERAL AND ADMINISTRATIVE

General and administrative expenses consist primarily of the corporate, finance,
human resource, information services, administrative, and legal and accounting
expenses of the Company. General and administrative expenses increased 27.1%
from $1.1 million for the three months ended June 30, 1998, to $1.4 million for
the three months ended June 30, 1999. General and administrative expenses
increased 18.6% from $2.1 million for the six months ended June 30, 1998, to
$2.5 million for the six months ended June 30, 1999. As a percentage of total
revenue, general and administrative expenses increased from 9.8% for the three
months ended June 30, 1998 to 19.1% for the three months ended June 30, 1999. As
a percentage of total revenue, general and administrative expenses increased
from 10.0% for the six months ended June 30, 1998 to 18.1% for the six months
ended June 30, 1999. The increase in general and administrative expenses as a
percentage of total revenue and in actual dollars was primarily attributable to
the addition of four positions and the cost of the CEO search.


AMORTIZATION OF INTANGIBLES AND GOODWILL

The Company recorded $4.1 million in intangibles (excluding $2.4 million of
purchased technologies) and $3.8 million of goodwill as part of the SimTech
acquisition which are being amortized to expense on a straight-line basis
over periods ranging from two to five years beginning September 9, 1997. The
Company expensed $697,000 for the three months ended June 30, 1999 and 1998,
respectively. The Company expensed approximately $1.4 million for the six
months ended June 30, 1999 and 1998, respectively.

---------------
(2) This sentence is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock" commencing on
page 19 for a discussion of factors that could affect future performance.


                                     -15-
<PAGE>

NON-RECURRING CHARGES

During the six months ended June 30, 1999, the Company recorded $1.3 million in
non-recurring charges related to severance obligations for certain management
personnel. For the three months ended June 30, 1998 the Company incurred
one-time charges of $227,000 related to the acquisition of ProSoft.

INTEREST EXPENSE

Interest expense remained constant at $1,000 for the three months ended June 30,
1999 and 1998. Interest expense also remained constant at $2,000 for the six
months ended June 30, 1999 and 1998. The Company incurred no interest expense
associated with the Company's bank line of credit for the three and six months
ended June 30, 1999 and 1998.

OTHER INCOME, NET

Other income consists of interest income associated with available cash
balances, gains or losses from the sale of property and equipment, the Company's
pro rata share of the earnings and losses of SDA and ADC and foreign exchange
rate differences resulting from paying operating expenses of foreign operations
in the local currency. Other income was approximately $195,000, $204,000,
$488,000, and $492,000 for the three months ended June 30, 1999 and 1998 and for
the six months ended June 30, 1999 and 1998, respectively.

INCOME TAX PROVISION

The income tax provision decreased from $958,000 for the three months ended June
30, 1998 to $0 for the three months ended June 30, 1999. The income tax
provision decreased from $1.9 million for the six months ended June 30, 1998 to
$0 for the six months ended June 30, 1999. The 1998 income tax provision
reflects the Company's estimated consolidated tax rate for federal, state and
foreign taxes of approximately 40% of taxable income. The Company's estimated
effective rate for the year ending December 31, 1999 is 0%, as the Company does
not expect to generate either taxable income or net operating losses in 1999.

EFFECTIVE CORPORATE TAX RATES

Prior to 1996, the Company had experienced losses for income tax purposes in the
United States. As of December 31, 1998, the Company has recognized the benefit
of its U.S. net operating loss carryforwards and tax credit carryforwards in
their financial statements.

The Company's Israeli operations 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.


                                     -16-
<PAGE>

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

The Company is also subject to risk that United States and foreign tax laws and
rates may change in a future period or periods, and that any such changes may
materially adversely affect the Company's 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, 1999, the
Company had approximately $24.0 million in cash and cash equivalents.
Additionally, the Company had a $1.0 million bank line of credit, which expired
on April 30, 1999. At April 30, 1999, the Company had no borrowings outstanding
under this line of credit and subsequently did not renew the line.

As of June 30, 1999, the Company has loaned $2.5 million to an independent
software company pursuant to a secured loan agreement entered into during
July 1997. Borrowings under the agreement bear interest at prime plus 2%.

As of June 30, 1999, the Company had working capital of approximately $22.4
million.

For the six months ended June 30, 1999, net cash used in operating activities
was approximately $2.6 million. For the six months ended June 30, 1998, net cash
generated by operating activities was approximately $7.4 million. Cash used in
operations for the six months ended June 30, 1999 resulted primarily from a net
loss offset by depreciation, amortization, and a decrease in accrued
liabilities.

Net cash used in investing activities was approximately $1.2 million and $2.1
million for the six months ended June 30, 1999 and 1998, respectively. Net cash
used in investing activities was related to the acquisition of furniture and
equipment and a loan to an independent software company for the six months ended
June 30, 1999 and 1998. Net cash used in investing activities also included
loans to a joint venture for the six months ended June 30, 1998.

Net cash generated by financing activities was approximately $177,000 for the
six months ended June 30, 1999. Net cash used by financing activities was
approximately $505,000 for the six months ended June 30, 1998. For the six
months ended June 30, 1999, financing activity cash was primarily generated by
proceeds from the issuance of common stock through stock options plans, offset
by payments of debt obligations and capital leases. For the six months ended
June 30, 1998 the use of cash was primarily from repurchasing 162,500 shares of
the Company's common stock, less proceeds from the issuance of common stock and
a tax benefit from option exercises.

The Company presently believes that its current cash and cash equivalents
will satisfy the Company's anticipated working capital and other cash
requirements for at least the next 12 months.(2)

----------------
(2) This sentence is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock" commencing on
page 19 for a discussion of factors that could affect future performance.


                                     -17-
<PAGE>

YEAR 2000

The Year 2000 issue results from computer programs written using two, rather
than four, digits to define the applicable year. These computer programs may
recognize a date using "00" as the year 1900 instead of 2000 and cause system
failures or miscalculations, material disruptions of business operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business operations. If the Company,
its significant customers, suppliers, service providers and other related third
parties fail to take the necessary steps to correct or replace these problematic
computer programs, the Year 2000 issue could have a material adverse effect on
the Company. The Company cannot, however, quantify the impact at this time.

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

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

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

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

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

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

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

Concurrent with performing the above steps, the Company will make certain
investments in systems, applications and products to address Year 2000 issues.
The Company has not tracked internal resources dedicated to the resolution of
the Year 2000 issue and, therefore, is unable to quantify internal costs


                                     -18-
<PAGE>

incurred to date that are associated with the Year 2000 issue. The Company has,
however, hired external consultants to resolve internal information system
issues related to the resolution of the Year 2000 issue. Identifiable
expenditures for these consultants were approximately $250,000 through December
31, 1998. Expenditures to resolve Year 2000 issues are not expected to be
material and are expected to be funded through cash generated from operations.

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


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

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

FACTORS WHICH MAY CAUSE THE COMPANY'S OPERATING RESULTS TO FLUCTUATE. The
Company's quarterly operating results and cash flows have fluctuated in the past
and have fluctuated significantly in certain quarters. Such fluctuations
resulted from several factors including the size and timing of orders, the
incurrence of a large one-time charge as a result of an acquisition, seasonal
factors, the rate of acceptance of new products, product, customer and channel
mix, and lengthy sales cycles. These fluctuations are likely to continue in
future periods as a result of the factors discussed above and potentially due to
corporate acquisitions and consolidations and the integration of acquired
entities and the incurrence of any large one-time charges as a result of any
acquisitions, the timing of new product announcements and introductions by the
Company and its competitors, the 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.

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

SHORTFALLS IN REVENUE COULD ADVERSELY IMPACT QUARTERLY OPERATING RESULTS. 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. Because a high percentage of the Company's expenses are
relatively fixed in the near term, if revenue in any quarter is below
expectations, expenditure levels could be disproportionately high as a
percentage of revenue and the Company's operating results would be materially
adversely affected.


                                     -19-
<PAGE>

OPERATING RESULTS LIKELY TO FLUCTUATE. Based upon the factors described above,
the Company believes that its quarterly revenue, expenses and operating results
are likely to vary significantly from quarter to quarter, that period-to-period
comparisons of its operating results are not necessarily meaningful and that, as
a result, such comparisons should not be relied upon as indications of the
Company's future performance. Additionally, as of December 31, 1998, CSC had
satisfied its obligation to purchase a minimum number of Visual Testbench
licenses pursuant to an OEM agreement entered into in July 1997, and the Company
does not expect to receive any additional revenue from sales of Visual Testbench
to CSC. The Company will need to replace this revenue and the failure of the
Company to replace this revenue would have a material adverse affect on the
Company's operating results. In addition, the Company operates with high gross
margins and as such, a downturn in revenue has had a significant impact on
income from operations and net income. Due to the foregoing or other factors,
the Company's results of operations were below investors' and market makers'
expectations for the quarter ended June 30, 1999 and are likely to be below
investors' and market makers' expectations in other quarters, which could have a
severe adverse effect on the market price of the Company's Common Stock.

DEPENDENCE ON HLDA PRODUCTS

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


UNCERTAINTY OF BROAD MARKET ACCEPTANCE OF HLDA PRODUCTS

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

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

Traditionally, EDA customers have been risk averse in accepting new design
methodologies. Because many of the Company'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.


                                     -20-
<PAGE>

COMPETITION

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

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

DEPENDENCE ON ELECTRONICS INDUSTRY MARKET

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


                                      -21-
<PAGE>

DEPENDENCE ON THIRD PARTIES FOR PRODUCT INTEROPERABILITY

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

NEW PRODUCTS AND TECHNOLOGICAL CHANGE; EVOLVING INDUSTRY STANDARDS

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

RISKS OF SOFTWARE DEFECTS

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

DEPENDENCE ON DISTRIBUTORS

The Company relies on distributors for licensing and support of its products
outside of North America. Approximately 41.9%, 24.9%, 23.1%, 28.7% and 45.6% of
the Company's revenue for the six months ended June 30, 1999 and 1998 and for
the years ended December 31, 1998, 1997 and 1996, respectively, were
attributable to sales made through distributors. Effective April 1, 1996, the
Company entered into a joint venture with Anam pursuant to which the joint
venture corporation, Summit Asia, acquired exclusive rights


                                     -22-
<PAGE>

to sell, distribute and support all of the Company's products in the Asia
Pacific region, excluding Japan. In April 1998, the joint venture
corporation, Summit Asia, which is headquartered in Korea, was renamed Asia
Design Corporation ("ADC"). In May 1998, the Company exchanged a portion of
its ownership in ADC for ownership in another company located in Hong Kong,
renamed 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. In
December 1998, SDA cancelled ADC's distribution rights in all areas except
Korea and granted non-exclusive distribution rights to Semiconductor
Technologies Australia ("STA") for the Asia Pacific region excluding Japan
and Korea. There can be no assurance that this restructuring will result in
SDA or ADC becoming profitable or that revenue attributable to sales in the
Asia Pacific region, excluding Japan, would increase. In addition, in the
first quarter of 1996, the Company entered into a three-year, exclusive
distribution agreement for its HLDA products in Japan with Seiko. The
agreement is renewable for successive five-year terms by mutual agreement of
the Company and Seiko and is terminable by either party for breach. The
agreement was renewed for an additional five-year term, which began in
February 1999. In the event Seiko fails to meet specified quotas for two or
more quarterly periods, exclusivity can be terminated by the Company, subject
to Seiko's right to pay a specified fee to maintain exclusivity. Sales
through Seiko accounted for 24.3%, 19.3%, 17.8%, 14.5%, and 15.1%, of the
Company's total revenue for the six months ended June 30, 1999 and 1998 and
for the years ended December 31, 1998, 1997, and 1996, respectively. In June
1999, the Company lowered Seiko's specified quotas due to the adverse
economic conditions in the Asia Pacific Region. As a result, Summit expects
sales through Seiko to decrease for at least the current and following two
quarters and revenue attributable to sales in the Asia Pacific region to
decrease.

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

INTERNATIONAL SALES AND OPERATIONS

Approximately 47.7%, 35.1%, 35.8%, 33.2%, and 49.8% of the Company's revenue
for the six months ended June 30, 1999 and 1998 and for the years ended
December 31, 1998, 1997 and 1996, respectively, were attributable to sales
made outside the United States, which includes the Asia Pacific region and
Europe. Approximately, 26.8%, 21.7%, 21.9%, 22.3%, and 34.3% of the Company's
revenue for the six months ended June 30, 1999 and 1998 and for the years
ended December 31, 1998, 1997 and 1996, respectively, were attributable to
sales made in the Asia Pacific region and approximately 20.9%, 13.4%, 13.9%,
11.4% and 15.5% of the Company's revenue for the six months ended June 30,
1999 and 1998 and for the years ended December 31, 1998, 1997 and 1996,
respectively, were attributable to sales made in Europe. The Company expects
that international revenue will continue to represent a significant portion
of its total revenue. The Company's international revenue is currently
denominated in U.S. dollars. As a result, increases in the value of the U.S.
dollar relative to foreign currencies could make the Company's products more
expensive and, therefore, potentially less competitive in those markets. The
Company pays the expenses of its international operations in local currencies
and does not engage in hedging transactions with respect to such obligations.
International sales and operations are subject to numerous risks, including
tariff regulations and other trade barriers, requirements for licenses,
particularly with respect to the export of

                                     -23-
<PAGE>

certain technologies, collectability of accounts receivable, changes in
regulatory requirements, difficulties in staffing and managing foreign
operations and extended payment terms. There can be no assurance that such
factors will not have a material adverse effect on the Company's future
international sales and operations and, consequently, on the Company's
business, financial condition, results of operations or cash flows. In
addition, financial markets and economies in the Asia Pacific region have
been experiencing adverse economic conditions. Demand for and sales of the
Company's products in the Asia Pacific region have continued to decrease and
there can be no assurance that such adverse economic conditions will not
worsen or that demand for and sales of the Company's products in such region
will not further decrease.

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

The Company'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. The Company expects
any such growth will place a significant strain on its operational resources and
systems. Failure to effectively manage any such growth would have a material
adverse effect on the Company's business, financial condition, results of
operations or cash flows.

The Company has consummated a series of acquisitions including the acquisition
of TriQuest in February 1997, SimTech in September 1997, and ProSoft in June
1998 and regularly evaluates acquisition opportunities. Future acquisitions by
the Company, if any, could result in potentially dilutive issuances of equity
securities, the incurrence of debt and contingent liabilities, amortization
expenses related to goodwill and other intangible assets, and large one-time
charges which could materially adversely affect the Company's results of
operations. Product and technology acquisitions entail numerous risks, including
difficulties in the assimilation of acquired operations, technologies and
products, diversion of management's attention to other business concerns, risks
of entering markets in which the Company has no or limited prior experience and
potential loss of key employees of acquired companies. The Company's management
has had limited experience in assimilating acquired organizations and products
into the Company's operations. No assurance can be given as to the ability of
the Company to integrate successfully any operations, personnel or products that
have been acquired or that might be acquired in the future, and the failure of
the Company to do so could have a material adverse effect on the Company's
results of operations.

OPERATIONS IN ISRAEL

RISKS ASSOCIATED WITH OPERATING IN ISRAEL. The Company's research and
development operations related to its Visual HDL products are located in Israel
and may be affected by economic, political and military conditions in that
country. Accordingly, the Company's business, financial condition and results of
operations could be materially adversely affected if hostilities involving
Israel should occur. This risk is heightened due to the restrictions on the
Company's ability to manufacture or transfer outside of Israel any technology
developed under research and development grants from the government of Israel as
described in "--Israeli Research, Development and Marketing Grants." In
addition, while all of the Company's sales are denominated in U.S. dollars, a
portion of the Company's annual costs and expenses in Israel are paid in Israeli
currency. These costs and expenses were approximately $5.2, $4.7 and $4.3
million in 1998, 1997 and 1996, respectively. Payment in Israeli currency
subjects the Company to foreign currency fluctuations


                                      -24-
<PAGE>

and to economic pressures resulting from Israel's generally high rate of
inflation, which has been approximately 9%, 7% and 11% during 1998, 1997, and
1996, respectively. The Company's primary expense, which is paid in Israeli
currency, is employee salaries for research and development activities. As a
result, an increase in the value of Israeli currency in comparison to the
U.S. dollar could increase the cost of research and development expenses and
general and administrative expenses. There can be no assurance that currency
fluctuations, changes in the rate of inflation in Israel or any of the other
aforementioned factors will not have a material adverse effect on the
Company's business, financial condition, results of operations, or cash
flows. In addition, coordination with and management of the Israeli
operations requires the Company to address differences in culture,
regulations and time zones. Failure to successfully address these differences
could be disruptive to the Company's operations.

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

DEPENDENCE ON KEY PERSONNEL

The Company's success will continue to depend in large part on its key
technical and management personnel and its ability to 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. The Company recently
entered into a new employment agreement with C. Albert Koob, the Company's
Chief Financial Officer. Mr. Koob's employment agreement provides that he is
entitled to certain guaranteed severance payments and has been provided an
incentive to remain with the Company through December 31, 1999 or such
earlier date that a permanent Chief Executive Officer or Chief Financial
Officer has begun working at the Company.

                                     -25-
<PAGE>

However, there can be no assurance that Mr. Koob will continue his employment
until such date. Mr. Gerhard, the Company's former Chief Executive Officer
resigned from his positions with the Company as of June 30, 1999. William V.
Botts, a director of the Company, is currently serving as the Company's
Interim Chief Executive Officer while the Company seeks a permanent Chief
Executive Officer. The Company's failure to timely hire suitable replacements
for Mr. Gerhard or Mr. Koob could have a material adverse effect on the
Company.

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. 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.

NEED TO EXPAND SALES AND MARKETING ORGANIZATIONS

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

ISRAELI RESEARCH, DEVELOPMENT AND MARKETING GRANTS

The Company's Israeli subsidiary obtained research and development grants from
the Chief Scientist in the Israeli Ministry of Industry and Trade of
approximately $232,000 and $608,000 in 1993 and 1995, respectively. As of
December 31, 1997, all amounts have been repaid. The terms of the grants
prohibit the manufacture of products developed under these grants outside of
Israel and the transfer of the technology developed pursuant to these grants to
any person, without the prior written consent of the Chief Scientist. The
Company's Visual HDL for VHDL products have been developed under grants from the
Chief Scientist and thus are subject to these restrictions. If the Company is
unable to obtain the consent of the government of Israel, the Company would be
unable to take advantage of potential economic benefits such as lower taxes,
lower labor and other manufacturing costs and advanced research and development
facilities that may be available if such technology and manufacturing operations
could be transferred to locations outside of Israel. In addition, the Company
would be unable to minimize risks particular to operations in Israel, such as
hostilities involving Israel. Although the Company is eligible to apply for
additional grants from the Chief Scientist, it has no present plans to do so.
The Company received a Marketing Fund Grant from the Israeli Ministry of
Industry and Trade for an aggregate of $423,000. The grant must be repaid at the
rate of 3% of the increase in exports over the 1993 export level of all Israeli
products, until repaid. As of June 30, 1999, approximately $92,000 was
outstanding under the grant.

LIMITATIONS ON PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

NO ASSURANCE THAT EFFORTS TO PROTECT PROPRIETARY TECHNOLOGY WILL SUCCEED. The
Company's success depends in part upon its proprietary technology. The Company
relies on a combination of copyright, trademark and trade secret laws,
confidentiality procedures, licensing arrangements and technical means to
establish and


                                     -26-
<PAGE>

protect its proprietary rights. As part of its confidentiality procedures,
the Company generally enters into non-disclosure agreements with its
employees, distributors and corporate partners, and limits access to, and
distribution of, its software, documentation and other proprietary
information. In addition, the Company's products are protected by hardware
locks and software encryption techniques designed to deter unauthorized use
and copying. Despite these precautions, it may be possible for a third party
to copy or otherwise obtain and use the Company's products or technology
without authorization, or to develop similar technology independently.

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

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

POSSIBLE VOLATILITY OF STOCK PRICE

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

YEAR 2000

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 effect on the Company's operating
results. There can be no assurance, however, that there will not be a delay in,
or increased costs associated with, implementation of any such modifications and
inability to implement such modifications could have an adverse effect on the
Company's future operating results.


                                     -27-
<PAGE>

ITEM 3      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

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

The Company is also exposed to foreign exchange rate fluctuations as they relate
to operating expenses as the financial results of foreign subsidiaries are
translated into U.S. dollars in consolidation. As exchange rates vary, these
results, when translated, may vary from expectations and adversely impact
overall expected profitability. The effect of foreign exchange rate fluctuations
on the Company in 1999 was not material.

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


                                     -28-
<PAGE>

PART II

Item 1.  Legal Proceedings

         Not applicable

Item 2.  Changes in Securities

         Not applicable

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 on May 26, 1999. Each of these
matters was approved by a majority of the shares present at the meeting.

  1. The election of two Class II director to serve for a term of three years:

<TABLE>
<CAPTION>
                            VOTES FOR          VOTES WITHHELD
CLASS II DIRECTORS          ---------          --------------
<S>                        <C>                 <C>
 William V. Botts          10,717,760                693,221
 Barbara M. Karmel         10,717,560                693,421
</TABLE>

  2. The amendment of the Company's 1994 Stock Plan to increase the number of
      shares reserved for issuance thereunder by 625,000 shares:

<TABLE>
<CAPTION>
          VOTES FOR           VOTES AGAINST      VOTES WITHHELD
          ---------           -------------      --------------
          <S>                 <C>                <C>
          7,773,819           3,599,506             37,656
</TABLE>

  3. The amendment of the Company's 1996 Employee Stock Purchase Plan to
      increase the number of shares reserved for issuance thereunder by 150,000
      shares:

<TABLE>
<CAPTION>
          VOTES FOR           VOTES AGAINST      VOTES WITHHELD
          ---------           -------------      --------------
          <S>                 <C>                <C>
          11,108,697          242,720                59,564
</TABLE>

  4. The ratification of the appointment of PricewaterhouseCoopers LLP as the
      independent accountants for the Company for the fiscal year ending
      December 31, 1999:

<TABLE>
<CAPTION>
          VOTES FOR           VOTES AGAINST      VOTES WITHHELD
          ---------           -------------      --------------
          <S>                 <C>                <C>
          11,356,271          41,531                 13,179
</TABLE>

Item 5.  Other Information

         Not applicable

Item 6.  Exhibits and Reports on Form 8-K

         (a) Exhibits

             10.6      Employment Agreement between between the Registrant and
                       C. Albert Koob dated as of July 30, 1999.

             10.7      Employment agreement between the Registrant and Richard
                       Davenport dated __, 1999.

             10.9      Employment agreement between the Registrant and Eric
                       Benayoun dated February 25, 1999.

             10.10     Employment agreement between the Registrant and Moshe Guy
                       dated February 25, 1999.

             27.1      Financial Data Schedule

         (b) Reports on Form 8-K

             On June 11, 1999, the Company filed a Current Report on Form 8-K
             dated June 11, 1999 in connection with the resignation of Larry
             Gerhard, Chairman and Chief Executive Officer.


                                     -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, 1999


                                     -30-
<PAGE>

EXHIBIT INDEX

<TABLE>
<S>             <C>
EXHIBIT 10.6    Employment agreement between the Registrant and C. Albert Koob
                dated July 30, 1999.

EXHIBIT 10.7    Employment agreement between the Registrant and Richard
                Davenport dated February 25, 1999.

EXHIBIT 10.9    Employment agreement between the Registrant and Eric Benhayoun
                dated February 25, 1999.

EXHIBIT 10.10   Employment agreement between the Registrant and Moshe Guy dated
                February 25, 1999.

EXHIBIT  27.1   Financial Data Schedule

</TABLE>


                                     -31-