<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 September 30, 1998 or

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

Commission file number:  000-20923

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

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

                            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 November 11, 1998, the Registrant had outstanding 15,393,609 shares of
Common Stock.

<PAGE>

                              SUMMIT DESIGN, INC.
                                     INDEX

<TABLE>

PART I     FINANCIAL INFORMATION

<S>      <C>                                                                            <C>
Item 1   Condensed Consolidated Financial Statements

         Condensed Consolidated Balance Sheets as of September 30, 1998
         (unaudited) and December 31, 1997.                                             3

         Condensed Consolidated Statements of Operations for the
         three month periods ended September 30, 1998 and 1997 and for
         the nine month periods ended September 30, 1998 and 1997 (unaudited).          4

         Condensed Consolidated Statements of Cash Flows for
         the nine month periods ended September 30, 1998 and 1997 (unaudited).          5

         Notes to Condensed Consolidated Financial Statements.                          6

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

PART II     OTHER INFORMATION

Item 1   Not Applicable

Item 2   Not Applicable

Item 3   Not Applicable

Item 4   Not Applicable

Item 5   Not Applicable

Item 6   Exhibits and Reports on Form 8-K                                              28

Signature                                                                              29

Exhibit Index                                                                          30
</TABLE>



                                      -2-
<PAGE>

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


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

Current assets:
   Cash and cash equivalents....................          $  24,662                $  19,973
   Accounts receivable, net.....................              7,654                    5,131
   Prepaid expenses and other...................                789                      540
   Deferred income taxes........................              1,268                    1,209
                                                          ---------                ---------
     Total current assets.......................             34,373                   26,853

Furniture and equipment, net....................              3,659                    2,698
Intangibles, net................................              1,252                    1,622
Deferred taxes..................................                555                      533
Notes receivable................................              1,420                      565
Deposits and other assets.......................                723                      490
                                                          ---------                ---------
        Total assets............................          $  41,982                $  32,761
                                                          ---------                ---------
                                                          ---------                ---------

                  LIABILITIES
Current liabilities:
   Long-term debt, current portion..............                 81                $     134
   Capital lease obligation, current portion....                 46                       49
   Accounts payable.............................              1,746                    1,210
   Accrued liabilities..........................              6,642                    5,182
   Deferred revenue.............................              4,872                    5,674
                                                          ---------                ---------
     Total current liabilities..................             13,387                   12,249

Long-term debt, less current portion............                156                      194
Capital lease obligations, less current portion.                  8                       43
Deferred revenue, less current portion..........                161                        -
                                                          ---------                ---------
     Total liabilities..........................             13,712                   12,486
                                                          ---------                ---------

Commitments and contingencies

              STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value. Authorized
5,000 shares; no shares issued and outstanding                    -                        -
Common stock, $.01 par value. Authorized 30,000 
shares; issued and outstanding 15,330 shares at 
September 30, 1998 and 15,841 shares
at December 31, 1997. ..........................                153                      159
Additional paid-in capital......................             39,911                   51,797
Treasury stock , at cost, 939 shares at
December 31, 1997...............................                  -                 (11,555)
Accumulated deficit.............................           (11,794)                 (20,126)
                                                          ---------                ---------
     Total stockholders' equity.................             28,270                   20,275
                                                          ---------                ---------
        Total liabilities and stockholders' 
        equity .................................          $  41,982                $  32,761
                                                          ---------                ---------
                                                          ---------                ---------
</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             Nine Months Ended
                                                               September 30,                 September 30,
                                                          ---------------------         ---------------------
                                                            1998         1997             1998         1997  
                                                            -----        ----             ----         ----  
<S>                                                       <C>          <C>              <C>         <C>      
Revenue:                                                                                                     
   Product licenses.................................      $  8,705     $  6,444         $ 25,480    $  16,951
   Maintenance and services.........................         2,518        1,374            6,929        4,300
   Other............................................            91           91              274          358
                                                          --------    ---------         --------    ---------
     Total revenue..................................        11,314        7,909           32,683       21,609
                                                                                                             
Cost of revenue:                                                                                             
   Product licenses.................................           264          184              748          533
   Maintenance and services.........................           268          171              773          423
                                                          --------    ---------         --------    ---------
     Total cost of revenue..........................           532          355            1,521          956
                                                          --------    ---------         --------    ---------
        Gross profit................................        10,782        7,554           31,162       20,653
                                                                                                             
Operating expenses:                                                                                          
   Research and development.........................         2,471        1,634            7,278        4,761
   Sales and marketing..............................         3,235        2,705            9,540        7,820
   General and administrative.......................         1,160          962            3,602        3,023
   In-process technology............................            --       19,937               --       19,937
                                                          --------    ---------         --------    ---------
     Total operating expenses.......................         6,866       25,238           20,420       35,541
                                                                                                             
Income(loss) from operations........................         3,916     (17,684)           10,742     (14,888)
                                                                                                             
Other income, net...................................           297          346              789          786
Gain on sale of product line........................            --        5,569               --        5,569
                                                          --------    ---------         --------    ---------
Income(loss) before income taxes....................         4,213     (11,769)           11,531      (8,533)
Income tax provision................................         1,180          640            3,199          820
                                                          --------    ---------         --------    ---------
Net income(loss)  ..................................      $  3,033    $(12,409)         $  8,332    $ (9,353)
                                                          --------    ---------         --------    ---------
                                                          --------    ---------         --------    ---------

                                                                                                             
Earnings(loss) per share:                                                                                    
     Basic   .......................................      $   0.20    $  (0.86)         $   0.55    $  (0.66)
                                                          --------    ---------         --------    ---------
                                                          --------    ---------         --------    ---------
     Diluted  ......................................      $   0.19    $  (0.86)         $   0.51    $  (0.66)
                                                          --------    ---------         --------    ---------
                                                          --------    ---------         --------    ---------
Number of shares used in computing 
Earnings(loss) per share:
     Basic   .......................................        15,245       14,456           15,072       14,245
     Diluted .......................................        16,100       14,456           16,208       14,245
</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>
                                                                         Nine Months Ended
                                                                           September 30,
                                                                     --------------------------
                                                                          1998           1997
                                                                     -------------   ----------
<S>                                                                    <C>             <C>     
Cash flows from operating activities:
     Net income(loss).....................................             $  8,332        $(9,353)
     Adjustments to reconcile net income to net cash
        Provided by operating activities:
          Depreciation and amortization...................                1,219             635
          Loss on asset disposition.......................                    -             (1)
          Deferred taxes..................................                 (81)           (537)
          Gain on sale of product line....................                    -         (5,569)
          Write-off of in-process technology..............                    -          19,937
          Equity in losses and elimination of intercompany
             profits of unconsolidated joint venture......                  420               -
          Changes in assets and liabilities:
               Accounts receivable........................              (2,523)             861
               Prepaid expenses and other.................                (249)            (27)
               Accounts payable...........................                  536             436
               Accrued liabilities........................                1,460           1,743
               Deferred revenue...........................                (641)           1,294
               Other, net.................................                   97            (75)
                                                                       --------         -------
     Net cash provided by operating activities............                8,570           9,344
                                                                       --------         -------
Cash flows from investing activities:
     Additions to furniture and equipment.................              (1,810)         (1,266)
     Acquisitions, net of cash received...................                    -         (3,819)
     Proceeds from sale of product line, net..............                    -           4,643
     Proceeds from sale of assets.........................                    -               8
     Loan to joint venture................................                (750)               -
     Notes receivable, net..................                              (855)           (490)
                                                                       --------         -------
        Net cash used in investing activities.............              (3,415)           (924)
                                                                       --------         -------
Cash flows from financing activities:
     Issuance of common stock, net of issuance costs......                1,118             700
     Tax benefit of option exercises......................                  875               -
     Payments to acquire treasury stock...................              (2,330)        (11,555)
     Principal payments of debt obligations...............                 (91)            (81)
     Principal payments of capital lease obligations......                 (38)            (61)
                                                                       --------         -------
        Net cash used in financing activities.............                (466)        (10,997)
                                                                       --------         -------
        Increase(decrease) in cash and cash equivalents...                4,689         (2,577)
Cash and cash equivalents, beginning of period............               19,973          19,801
                                                                       --------         -------
Cash and cash equivalents, end of period..................             $ 24,662         $17,224
                                                                       --------         -------
                                                                       --------         -------
Supplemental disclosure of cash flow information: 
     Cash paid during the period for:
          Interest........................................             $      3         $    10
          Income taxes....................................                2,063             104
Supplemental disclosure of non-cash financing activities:
     Retirement of treasury stock.........................               11,555               -
Acquisition, net of cash acquired:
     Net current assets other than cash acquired..........                   -          (1,600)
     Furniture and equipment..............................                   -              377
     In-process technology................................                   -           19,937
     Purchased technology and intangibles.................                   -            1,772
     Stock issued     ....................................                   -         (16,667)
     Cash used, net of cash acquired......................                   -          (3,819)
</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, 1997, 1996 and 1995 included in the 
Company's Form 10-K filed for December 31, 1997.

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

2.   ACQUISITION OF PROSOFT OY

On June 30, 1998, the Company acquired ProSoft Oy ("ProSoft"), a Company 
located in Finland. ProSoft develops software tools used to verify embedded 
systems software prior to the availability of a hardware prototype. The 
aggregate consideration for the acquisition (including shares of common stock 
reserved for issuance upon exercise of ProSoft options which were exchanged 
for options of the Company) was 248,334 shares of common stock. The 
transaction was accounted for as a "pooling of interests" in accordance with 
generally accepted accounting principles. In compliance with such principles, 
the Company's financial statements have been restated to include the accounts 
of ProSoft as if the acquisition had occurred at the beginning of the first 
period presented. The effect of the combination did not have a material 
impact on the net sales and net income of the combined entity.

3.   SOFTWARE REVENUE RECOGNITION

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

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

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


                                      -6-
<PAGE>

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

4.   BALANCE SHEET COMPONENTS (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                        September 30, 1998     December 31, 1997
                                                        ------------------     -----------------
                                                            (Unaudited)  

<S>                                                           <C>                   <C>
Accounts receivable:
   Trade receivables...............................                $ 8,079               $ 5,723
   Less allowance for doubtful accounts............                  (425)                 (592)
                                                        ------------------     -----------------
                                                                   $ 7,654               $ 5,131
                                                        ------------------     -----------------
                                                        ------------------     -----------------

Furniture and equipment:
   Office furniture equipment .....................                  $ 941               $   596
   Computer equipment..............................                  4,999                 3,679
   Leasehold improvements..........................                    197                    66
                                                        ------------------     -----------------
                                                                     6,137                 4,341
Less: accumulated depreciation and amortization....                (2,478)               (1,643)
                                                        ------------------     -----------------
                                                                   $ 3,659               $ 2,698
                                                        ------------------     -----------------
                                                        ------------------     -----------------

Accrued expenses:
   Payroll and related benefits....................                $ 3,565               $ 2,887
   Sales and marketing.............................                  1,236                   435
   Accounting and legal............................                    238                   260
   Federal and state income taxes payable..........                  1,084                   819
   Sales taxes payable.............................                     86                   114
   Other  .........................................                    433                   667
                                                        ------------------     -----------------
     Total accrued expenses........................                $ 6,642               $ 5,182
                                                        ------------------     -----------------
                                                        ------------------     -----------------
</TABLE>


                                      -7-
<PAGE>

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

5.   RECONCILIATION OF EARNINGS PER SHARE

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



<TABLE>
<CAPTION>
                                                          Three months ended                    Nine months ended
                                                              September 30,                        September 30,
                                                       --------------------------           ---------------------------
                                                         1998              1997               1998              1997
                                                         ----              ----               ----              ----
<S>                                                    <C>              <C>                <C>               <C>
Numerator:
   Net income (loss)                                   $  3,033         $(12,409)          $   8,332         $ (9,353)
                                                       --------         ---------          ---------         ---------
                                                       --------         ---------          ---------         ---------
Denominator:                                                                                                          
   Denominator for basic earnings per share                                                                           
     weighted average shares                             15,245            14,456             15,072            14,245
   Effect of dilutive securities:                                                                                     
     Employee stock options                                 855                 -              1,136                 -
                                                       --------         ---------          ---------         ---------
   Denominator for diluted earnings per share            16,100            14,465             16,208            14,425
                                                       --------         ---------          ---------         ---------
                                                       --------         ---------          ---------         ---------
Net income per share - basic                           $   0.20         $  (0.86)          $    0.55         $  (0.66)
                                                       --------         ---------          ---------         ---------
                                                       --------         ---------          ---------         ---------
Net income per share - diluted                         $   0.19         $  (0.86)          $    0.51         $  (0.66)
                                                       --------         ---------          ---------         ---------
                                                       --------         ---------          ---------         ---------
</TABLE>

Options to purchase 923,000 and 869,000 shares of common stock at various 
prices were outstanding during the three and nine months periods ended 
September 30, 1997, respectively, but were not included in the computation of 
diluted EPS because their effect on EPS for the three and nine months ended 
September 30, 1997, respectively, would have been antidilutive.

6.   IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

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

7.   SUBSEQUENT EVENT

On September 20, 1998, the Company entered into a definitive agreement to 
acquire OrCAD, Inc. ("OrCAD") a publicly traded software company 
headquartered in Beaverton, Oregon. Pursuant to the agreement, each 
outstanding share will be exchanged for 1.05 shares of Summit Common Stock 
upon the closing of the transaction. In addition, the Company will assume all 
options outstanding under OrCAD's stock option plans. The merger, which is 
intended to be to accounted for as a pooling of interests, is subject to the 
approval of OrCad's and the Company's stockholders and standard closing 
conditions.

                                      -8-
<PAGE>

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

IMPORTANT NOTE ABOUT FORWARD LOOKING STATEMENTS

The following discussion contains forward looking statements within the 
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the 
Securities Exchange Act of 1934. Predictions of future events are inherently 
uncertain. Actual events could differ materially from those predicted in the 
forward looking statements as a result of the risks set forth in the 
following discussion, and, in the particular, the risks discussed below under 
the subheading "Additional Risk Factors that Could Affect Operating Results 
and Market Price of Stock."

OVERVIEW

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

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

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

Summit generated net losses in 1993, 1994 and 1995, as a result of investing 
heavily in research and development as well as developing a direct sales 
channel for new products. In 1996, this investment generated increased 
revenues, which resulted in net income. The net loss in 1997 was a result of 
a $19.9 million charge for in-process technology related to the SimTech 
acquisition. For the nine months ended September 30, 1998, Summit has 
continued to increase revenues and operating margins and, as a result, has 
generated net income for the period. Summit operates with high gross margins 
and, as such, a downturn in revenue could have a significant impact on income 
from operations and net income.

Revenue consists primarily of fees for licenses of the Company's software 
products, maintenance and customer training. 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 vendor obligations 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 

                                      -9-
<PAGE>

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 when 
sales to a third party or end user are completed. Fees received for granting 
distribution rights are deferred and recognized ratably over the term of the 
distribution agreement. Although the Company has not adopted a formal return 
policy, the Company generally reimburses customers in full for returned 
products. Estimated sales returns are recorded when the related revenue is 
recognized.

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

The Company entered into a joint venture with Anam, effective April 1, 1996, 
pursuant to which the joint venture corporation (Summit Design Asia, Ltd. 
("Summit Asia")) acquired exclusive rights to sell, distribute and support 
all of Summit's products in the Asia-Pacific region, excluding Japan. Prior 
to that date, Anam was an independent distributor of the Company's products 
in Korea. In April 1998, the joint venture corporation, Summit Asia, which is 
headquartered in Korea, was renamed Asia Design Corporation ("ADC"). In May 
1998, the Company exchanged a portion of its ownership in ADC for ownership 
in another company located in Hong Kong, Summit Design Asia, Ltd. ("SDA"). 
SDA also acquired an equity investment in ADC. In June 1998, the Company and 
Anam each loaned SDA $750,000, which is guaranteed by ADC. SDA acquired from 
ADC the exclusive rights to sell, distribute and support the Company's 
products in the Asia-Pacific region, excluding Japan. SDA granted 
distribution rights to the Company's products to ADC for the Asia Pacific 
region, excluding Japan. For the three months ended September 30, 1998 and 
1997, sales through SDA and ADC combined accounted for 0.6% and 1.2% of the 
Company's revenue, respectively. For the nine months ended September 30, 1998 
and 1997, sales through SDA and ADC combined accounted for 2.2% and 2.9% of 
the Company's revenue, respectively.

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

Approximately 39%, 26%, 36% and 38% of the Company's total revenue for the 
three months ended September 30, 1998 and 1997, and for the nine months ended 
September 30, 1998 and 1997, respectively, were attributable to sales made 
outside the United States, which includes the Asia Pacific region and Europe. 
Approximately 27%, 18%, 23% and 26% of the Company's revenue for the three 
months ended September 30, 1998 and 1997, and for the nine months ended 
September 30, 1998 and 1997, respectively, were attributable to sales made in 
the Asia Pacific region and approximately 12%, 8%, 13% and 12% of the 
Company's revenue for the three months ended September 30, 1998 and 1997, and 
for the nine months ended September 30, 1998 and 1997, respectively were 
attributable to sales made in Europe. The decline in the percentage of 
revenue from sales made outside the United States in 1998 is primarily the 
result of (1) domestic sales to one customer, (2) the loss of Design to Test 
product sales in the last half of 1997 as a result of the sale of the product 
line, which had a strong international market, and (3) the addition of 
revenue from products acquired in the SimTech acquisition which had a 
principally domestic market. The Company expects that international revenue 
will continue to represent a significant portion of its total revenue. The 
Company's international revenue is currently denominated in U.S. dollars. As 
a result, increases in the value of the U.S. dollar relative to foreign 
currencies could make the Company's products more expensive and, therefore, 
potentially less competitive in 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 

                                     -10-
<PAGE>

with respect to the export of certain technologies, collectibility of 
accounts receivable, changes in regulatory requirements, difficulties in 
staffing and managing foreign operations and extended payment terms. In 
addition, financial markets and economies in the Asia Pacific region have 
been experiencing adverse economic conditions. While such diverse economic 
conditions have not materially adversely affected Summit's sales in the Asia 
Pacific region to date, there can be no assurance that the current economic 
conditions will not worsen or that demand for Summit's products in such 
region will not flatten or decrease in the future.(1)

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

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

The Company maintained exclusive rights to its Visual Testbench technology 
and CSC agreed to purchase a minimum of $16,000,000 of Visual Testbench 
licenses over a thirty-month period beginning July 1997, subject to specified 
quarterly maximums and certain additional conditions, and $2,000,000 of 
maintenance over an eighteen month period beginning July 1997. As of 
September 30, 1998, the Company has sold $13.6 million of Visual Testbench 
licenses pursuant to this agreement. At the completion of the thirty month 
period, under certain conditions, CSC may obtain shared ownership to Visual 
Testbench for sales into the ATE marketplace.

On September 9, 1997, the Company acquired SimTech, a company that develops 
and distributes hardware-software co-verification, code coverage and HDL 
debugging software. The aggregate consideration for the acquisition 
(including shares of common stock reserved for issuance upon exercise of 
SimTech options assumed by the Company) was 1,980,000 shares of Summit common 
stock and $3,875,000 in cash. The transaction was accounted for using the 
purchase method of accounting. Accordingly, the results of operations for the 
period from September 9, 1997 are included in the consolidated statements of 
operations. The purchase price was allocated to the net assets acquired based 
on their estimated fair market values at the date of acquisition. The fair 
value of tangible assets acquired and liabilities assumed were $1.3 million 
and $2.2 million, respectively. In addition, $19.9 million was allocated to 
in-process technology which had not reached technological feasibility and had 
no probable alternative uses, which the Company expensed as of the 
acquisition date. The remainder of the purchase price was allocated to 
purchased technology ($1,037,000) and identifiable intangibles ($735,000), 
which are being amortized on a straight line basis over three and five years 
respectively.

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

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

On June 30, 1998 the Company completed its acquisition of ProSoft. ProSoft 
develops software tools used to verify embedded systems software prior to the 
availability of a hardware prototype. 

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


                                     -11-
<PAGE>

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.

RECENT DEVELOPMENTS

On September 20, 1998, the Company entered into a definitive agreement to 
acquire OrCAD, Inc. ("OrCAD") a publicly traded software company 
headquartered in Beaverton, Oregon. Pursuant to the agreement, each 
outstanding share of OrCAD Common Stock will be exchanged for 1.05 shares of 
Summit Common Stock upon the closing of the transaction. In addition, the 
Company will assume all options outstanding under OrCAD's stock option plans. 
The merger, which is intended to be accounted for as a pooling of interests 
is subject to the approval of OrCAD's and the Company's stockholders and 
standard closing conditions.

In addition to the risks stated below in "Additional Risk Factors That Could 
Affect Operating Results and Market Price of Stock", if the Company's 
proposed acquisition of OrCAD (the "Merger") is consummated, the Company's 
operating results will be subject to the following additional risks:

UNCERTAINTIES RELATING TO INTEGRATION OF OPERATIONS AND PRODUCT OFFERINGS.  
The successful combination of Summit and OrCAD will require substantial 
attention from management.  The anticipated benefits of the Merger will not 
be achieved unless the operations of OrCAD are successfully combined with 
those of Summit in a timely manner.  The difficulties of assimilation may be 
increased by the need to retain and integrate personnel and to combine 
different corporate cultures.  The successful combination of the two 
companies will also require integration of the companies' information systems 
and other infrastructure, integration of the companies' product offerings and 
the coordination of their research and development and sales and marketing 
efforts.  In addition, the process of combining the two organizations could 
cause the interruption of, or a loss of momentum in, the activities of either 
or both of the companies' businesses and certain customers may defer 
purchasing decisions as they evaluate Summit's plans for integrating or 
separately supporting the combined company's product offerings..  The 
diversion of the attention of management from the day-to day operations of 
the combined company or difficulties encountered in the transition and 
integration process, could have a material adverse effect on the business, 
financial condition and results of operations of the combined company.

Each of Summit and OrCAD has consummated several combinations in recent years 
and the Merger, if approved, would be the largest such combination for either 
company.  The difficulties of integrating Summit's and OrCAD's businesses may 
be exacerbated by the size and number of prior business combinations.  There 
can be no assurance that products, technologies, distribution channels, key 
personnel and businesses of previously acquired companies will be effectively 
integrated into the combined company's business or product offerings or that 
such integration will not adversely affect the combined company's business, 
financial condition or results of operations.  The failure to integrate such 
acquisitions successfully could have a material adverse effect on the 
business, financial condition and results of operations of the combined 
company.

SUBSTANTIAL EXPENSES RESULTING FROM THE MERGER.  The negotiation and 
implementation of the Merger will result in significant pre-tax expenses to 
Summit and OrCAD. Excluding costs associated with combining the operations of 
the two companies (which are currently unknown), Summit's and OrCAD's pre-tax 
expenses are estimated at approximately $4.5 million, primarily consisting of 
financial advisors' fees, employee severance payments, attorney's fees and 
accountant fees.(2)  There can be no assurance as to the aggregate amount of 
such expenses or that unanticipated contingencies will not occur that will 
substantially increase the costs of combining the operations of the two 
companies.  In any event, costs associated with the Merger are expected to 
negatively impact results of operations in the quarter in which the Merger 
closes, which the Company currently expects will be the fourth quarter of 
1998.(2)  In addition, it is expected that after the Merger, the combined 
company will incur additional significant expenses associated with 
integrating the companies, which is not current estimable.

DEPENDENCE ON RETENTION AND INTEGRATION OF KEY EMPLOYEES.  The success of the 
combined company is dependent, in part, on the retention and integration of 
key management, technical , marketing , sales and customer support personnel 
of Summit and OrCAD. The success of the combined company will especially 
depend on the retention of members of senior management during the 
transitional period following the Merger.  There can be no assurance that 
such executives will remain with the combined company prior to or for any 
specified period after the Merger.  The loss of such services could adversely 
affect the combined company's business and financial results.


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

                                     -12-

<PAGE>

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                  Three Months Ended           Nine Months Ended
                                                     September 30,               September 30
                                                 ------------------------    ------------------------
                                                  1998          1997          1998          1997
                                                 ----------    ----------    ----------    ----------
<S>                                                <C>           <C>           <C>            <C>
Revenue:
     Product licenses..........................     76.9%         81.5%         78.0%          78.4%
     Maintenance and services..................     22.3          17.4          21.2           19.9
     Other   ..................................      0.8           1.1           0.8            1.7
                                                   -----         -----         -----          -----
          Total revenue........................    100.0         100.0         100.0          100.0
Cost of revenue:                                                              
     Product licenses..........................      2.3           2.3           2.3            2.5
     Maintenance and services..................      2.4           2.2           2.4            2.0
                                                   -----         -----         -----          -----
          Total cost of revenue................      4.7           4.5           4.7            4.5
                                                   -----         -----         -----          -----
          Gross profit.........................     95.3          95.5          95.3           95.5
Operating expenses:                                                           
     Research and development..................     21.8          20.6          22.3           22.0
     Sales and marketing.......................     28.6          34.2          29.2           36.2
     General and administrative  (a)(b)........     10.3          12.2          11.0           14.0
     In-process technology.....................        -         252.1             -           92.3
                                                   -----         -----         -----          -----
          Total operating expenses.............     60.7         319.1          62.5          164.5
                                                   -----         -----         -----          -----
Income(loss) from operations...................     34.6       (223.6)          32.8         (69.0)
Other income, net..............................      2.6           4.4           2.3            3.6
Gain on sale of product line...................        -          70.4           0.2           25.8
                                                   -----         -----         -----          -----
Income(loss) before income taxes...............     37.2       (148.8)          35.3         (39.6)
Income tax provision...........................     10.4           8.1           9.8            3.8
                                                   -----         -----         -----          -----
Net income(loss) ..............................     26.8%      (156.9)%         25.5%        (43.4)%
                                                   -----         -----         -----          -----
                                                   -----         -----         -----          -----
</TABLE>

(a)  General and administrative expenses for the nine months ended September 30,
     1997 include a one-time charge of $379,000 (1.7% of revenue) for costs
     relating to the acquisition of TriQuest.

(b)  General and administrative expenses for the nine months ended September 30,
     1998 include a one-time charge of $227,000 (0.7% of revenue), relating to
     the acquisition of ProSoft.

TOTAL REVENUE

Total revenue increased by 43.1% from $7.9 million for the three months ended 
September 30, 1997 to $11.3 million for the three months ended September 30, 
1998 and total revenue increase by 51.2% from $21.6 million for the nine 
months ended September 30, 1997 to $32.7 million for the nine months ended 
September 30, 1998. Sales through one distributor accounted for 13.2% and 
12.2% of the Company's total revenue for the three months ended September 30, 
1998 and 1997, respectively. Sales through the same distributor accounted for 
14.0% and 12.8% of the Company's total revenue for the nine months ended 
September 30, 1998 and 1997, respectively. Sales to CSC accounted for 22.1% 
and 25.2% of the Company's total revenue for the three and nine month periods 
ended September 30, 1998, respectively. Such revenue included $2.5 million 
and $8.2 million of Visual Testbench license sales made pursuant to the 
Company's contract with CSC for the three and nine months ended September 30, 
1998, respectively. See "Overview." Sales to CSC accounted for 41.1% of total 
revenue for the three months ended September 30, 1997 and 24.9% of the total 
revenue for the nine months ended September 30, 1997.

                                     -13-
<PAGE>

REVENUE

PRODUCT LICENSES REVENUE

The Company's product licenses revenue is derived from license fees from the 
Company's HLDA Plus products and additionally from Design to Test products 
through June 30, 1997. Product licenses revenue increased 35.1% from $6.4 
million for the three months ended September 30, 1997 to $8.7 million for the 
three months ended September 30, 1998 and increased 50.3% from $17.0 million 
for the nine months ended September 30, 1997 to $25.5 million for the nine 
months ended September 30, 1998. Due to the sale of the TDS product line in 
July of 1997, revenue from HLDA Plus products accounted for 100% of product 
licenses revenue for the three and nine months ended September 30, 1998. 
During the three months ended September 30, 1997, HLDA Plus revenues also
accounted for 100% of product license revenue. During the nine months ended 
September 30, 1997, HLDA Plus and Design to Test revenues accounted for 87.9% 
and 12.1% of product and license revenue, respectively.

HLDA Plus product license revenue increased 71.0% from $14.9 million for the 
nine months ended September 30, 1997 to $25.5 million for the nine months 
ended September 30, 1998. The increase was primarily attributable to sales 
of Visual Testbench and Visual to CSC, and, to a lesser extent, sales of the 
VirSim and VeriCov products that were not shipping in the comparable period 
in 1997, and growth in the installed base of HLDA Plus customers. Sales to 
the single customer are expected to continue over the next five quarters 
pursuant to contractual arrangements with the customer. (2)

MAINTENANCE AND SERVICES REVENUE

The Company's maintenance and services revenue is derived from maintenance 
contracts related to the Company's HLDA products, consulting services, and 
training classes offered to purchasers of the Company's software products. 
Maintenance and services revenue increased 83.3% from $1.4 million for the 
three months ended September 30, 1997 to $2.5 million for the three months 
ended September 30, 1998, and increased 61.1% from $4.3 million for the nine 
months ended September 30, 1997 to $6.9 million for the nine months ended 
September 30, 1998. The increase is primarily attributable to maintenance 
contracts for Verification products acquired in the SimTech acquisition, a 
maintenance contract with one customer, and an increase in the installed base 
of HLDA Plus customers over the previous comparable period. Additionally, 
such revenue for the nine months ended September 30, 1997 included $1.4 
million Design to Test maintenance revenue for which there was no comparable 
revenue for the nine months ended September 30, 1998, due to the sale of the 
TDS product line as of July 1, 1997.

OTHER REVENUE

Other revenue consists of fees received for granting distribution rights. 
Other revenue remained constant at $91,000 for the three months ended 
September 30, 1998 and 1997 and decreased 23.5% from $358,000 for the nine 
months ended September 30, 1997 to $274,000 for the nine months ended 
September 30, 1998. In May 1997, a distribution agreement expired; and, as a 
result, the distribution rights fees paid at the inception of the agreement 
and amortized into revenue at $50,000 each quarter over the agreement period 
are no longer a source of other revenue. No material costs were associated 
with other revenue for the three and nine months ended September 30, 1998 and 
1997.

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


                                     -14-
<PAGE>

COST OF REVENUE

COST OF PRODUCT LICENSES REVENUE

Cost of product licenses revenue includes product packaging, software 
documentation, labor and other costs associated with handling, packaging and 
shipping product and other production related costs plus the amortization of 
purchased technology acquired in the SimTech purchase. The cost of product 
licenses revenue increased 43.5% from $184,000 for the three months ended 
September 30, 1997 to $264,000 for the three months ended September 30, 1998, 
and increased 40.3% from $533,000 for the nine months ended September 30, 
1997 to $748,000 for the nine months ended September 30, 1998. This increase 
is primarily attributable to amortization of purchased technology included in 
the three and nine months ended September 30, 1998 relating to the purchase 
of SimTech in September of 1997. As a percentage of product licenses revenue, 
the cost of product licenses revenue increased from 2.9% of product licenses 
revenue for the three months ended September 30, 1997 to 3.0% of product 
licenses revenue for the three months ended September 30, 1998, and decreased 
from 3.1% of product licenses revenue for the nine months ended September 30, 
1997 to 2.9% of product licenses revenue for the nine months ended September 
30, 1998. The 0.1% to 0.2% fluctuation in the cost of product license revenue 
as a percent of product license revenue is primarily the result of 
incremental changes in fixed costs leveraged across increased product license 
revenue.

COST OF MAINTENANCE AND SERVICES REVENUE

Cost of maintenance and services revenue, which consists primarily of 
personnel costs for customer support consulting and training classes offered 
to purchasers of the Company's products, increased 56.7% from $171,000 for 
the three months ended September 30, 1997 to $268,000 for the three months 
ended September 30, 1998, and increased 82.7% from $423,000 for the nine 
months ended September 30, 1997 to $773,000 for the nine months ended 
September 30, 1998. As a percentage of maintenance and services revenue, the 
cost of maintenance and services revenue decreased from 12.4% for the three 
months ended September 30, 1997 to 10.6% for the three months ended September 
30, 1998 and increased from 9.8% for the nine months ended September 30, 1997 
to 11.2% for the nine months ended September 30, 1998. The decrease as a 
percentage of maintenance and services revenue for the three months ended 
September 30, 1998, is due to fixed costs being leveraged over increased 
revenue. The increase as a percentage of maintenance and services revenue for 
the nine months ended September 30, 1998 is due to the Company operating at 
below forecasted staffing levels during the first half of 1997.

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT

Research and development expenses consist of the engineering and operations 
support costs of developing new products and enhancements to existing 
products and performing quality assurance activities. Research and 
development expenses increased 51.2% from $1.6 million for the three months 
ended September 30, 1997 to $2.5 million for the three months ended September 
30, 1998 and increased 52.9% from $4.8 million for the nine months ended 
September 30, 1997 to $7.3 million for the nine months ended September 30, 
1998. As a percentage of total revenue, research and development expenses 
increased from 20.7% for the three months ended September 30, 1997 to 21.8% 
for the three months ended September 30, 1998, and increased from 22.0% for 
the nine months ended September 30, 1997 to 22.3% for the nine months ended 
September 30, 1998. The Company's research and development staff increased to 
95 at September 30, 1998. This increase is primarily attributable to the 
addition of engineers through the acquisition of SimTech in September of 1997 
and the hiring of additional engineers, less a decrease of engineers due to 
the sale of the TDS product line in July of 1997. The Company continues to 
believe that significant investment in research and development is required 
to remain competitive in its markets, and the Company therefore anticipates 
that 


                                     -15-
<PAGE>

research and development expense will increase in absolute dollars in future 
periods, but may vary as a percent of revenue.(2)

SALES AND MARKETING

Sales and marketing expenses, consisting primarily of salaries, commissions 
and promotional costs, increased 19.6% from $2.7 million for the three months 
ended September 30, 1997 to $3.2 million for the three months ended September 
30, 1998 and increased 22.0% from $7.8 million for the nine months ended 
September 30, 1997 to $9.5 million for the nine months ended September 30, 
1998. The increase over 1997 was attributable to expenses related to the 
marketing of new products acquired with the purchase of SimTech and 
additional commissions directly related to the increase in gross sales over 
the comparable period in 1997. As a percentage of total revenue, sales and 
marketing expenses decreased from 34.2% for the three months ended September 
30, 1997 to 28.6% for the three months ended September 30, 1998, and 
decreased from 36.2% for the nine months ended September 30, 1997 to 29.2% 
for the nine months ended September 30, 1998. The decrease as a percentage of 
revenue was primarily attributable to the increase in total revenue for 1998. 
In the future, the Company expects sales and marketing expenses to continue 
to increase in absolute dollars.(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 20.6% from $962,000 for the three months ended September 30, 1997, 
to $1.2 million for the three months ended September 30, 1998, and increased 
19.2% from $3.0 million for the nine months ended September 30, 1997, which 
includes $379,000 one-time charge for costs associated with the acquisition 
of TriQuest, to $3.6 million for the nine months ended September 30, 1998, 
which includes a $227,000 one-time charge for costs associated with the 
acquisition of ProSoft. Excluding one-time charges, expenses increased by 
$731,000 (27.6%) for the nine months ended September 30, 1998, as compared to 
the same period in the prior year. As a percentage of total revenue, 
excluding the one time charges, general and administrative expenses decreased 
from 12.2% for the three months ended September 30, 1997 to 10.3% for the 
three months ended September 30, 1998, and decreased from 12.2% for the nine 
months ended September 30, 1997 to 10.3% for the nine months ended September 
30, 1998. The decrease as a percentage of total revenue was attributable to 
the increase in total revenue in 1998. The Company expects general and 
administrative expenses to increase in absolute dollars to support future 
sales and operations.(2)

ACQUIRED IN-PROCESS TECHNOLOGY

For the three months ended September 30, 1997, $19.9 million of the purchase 
price for the acquisition of Simulation Technologies, Corp. ($20.9 million) 
was allocated to in-process technology and accordingly, was expensed as of 
the acquisition date (September 9, 1997). The amount allocated to the 
in-process technology represented the purchased in-process technology that 
had not yet reached technological feasibility and had no alternative future 
use.

The value assigned to purchased in-process technology was related primarily 
to two research projects for which technological feasibility had not been 
established, V-CPU ($12.6 million) and HDL Score ($6.6 million). The value 
was determined by estimating the costs to develop the purchased in-process 
technology into commercially viable products; estimating the resulting net 
cash flows from the sale of products resulting from the completion of such 
projects; and discounting the net cash flows back to their present value.

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

The estimated revenues are based on Summit management's estimates of market 
size and growth (which are supported by independent market data), expected 
trends in technology and the nature and expected timing of new product 
introductions by Summit.

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

Discounting the net cash flows back to their present value is based on the 
weighted average cost of capital (WACC). The WACC calculation produces the 
average required rate of return of an investment in an operating enterprise, 
based on various required rates of return from investments in various areas 
of that enterprise. The WACC assumed for SimTech as a corporate enterprise is 
23%. The discount rate used in discounting the net cash flows from purchased 
in-process technology for V-CPU and HDL Score was 30%. This discount rate 
used was higher than the WACC due to the inherent uncertainties in the 
estimates described above including the uncertainty surrounding the 
successful development of the purchased in-process technology, the useful 
life of such technology, the profitability levels of such technology and the 
uncertainty of technological advances unknown at the time.

Summit introduced the V-CPU 2.0 hardware/software co-verification product in 
the second quarter of 1998, approximately five months later than originally 
anticipated. A market requirement for extensive embedded system component 
interfaces called bus functional models ("BFM") and instruction set 
simulators ("ISS") was underestimated in the introduction schedule resulting 
in the aforementioned delay. Summit introduced the HDL Score product in the 
second quarter of 1998 approximately four months later than originally 
anticipated due to delays in completing the control logic support 
functionality that was essential for product introduction to take place. 
Although these delays affected the timing of the realization of revenue from 
these products as originally estimated by Summit. Summit believes the 
aggregate revenue streams originally anticipated from these products will be 
realised and that there has been no material change in expected return on 
investment related to these products.(2) However, there can be no assurance 
that Summit will realize revenue for V-CPU and HDL Score in the amounts 
estimated, and actual revenue realized from either or both of these products 
may be significantly lower than expected.

-----
(1) 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 factorsthat could affect future performance.

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


                                     -16-
<PAGE>

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 $346,000 for the 
three months ended September 30, 1997 and $297,000 for the three months ended 
September 30, 1998 and $786,000 for the nine months ended September 30, 1997 
and $789,000 for the nine months ended September 30, 1998. The decrease in 
other income was primarily due to declining interest rates on the Company's 
cash holdings and a charge for the Company's share of the losses of the Asian 
joint venture.

GAIN ON SALE OF TDS PRODUCT LINE

On July 11, 1997 the Company sold substantially all of the assets used in its 
business of developing and marketing its Test Development Series "TDS" 
Products to Credence Systems Corporation ("CSC") for $5 million. CSC assumed 
certain liabilities, including the Company's obligations under TDS 
maintenance contracts entered into prior to the closing. The Company has 
recorded a gain on the sale of $5,569,000 for the three and nine months ended 
September 30, 1997.

INCOME TAX PROVISION

The income tax provision increased from $640,000 for the three months ended 
September 30, 1997 to $1.2 million for the three months ended September 30, 
1998 and from $820,000 for the nine months ended September 30, 1997 to $3.2 
million for the nine months ended September 30, 1998. The provision for the 
three and nine months ended September 30, 1997 reflects an effective rate of 
5.6% of taxable income and is comprised of federal alternative minimum tax 
and Israeli income taxes. In 1997, the Company utilized net operating loss 
carryforwards to offset a considerable portion of U.S. federal and state 
taxable income. The 1998 income tax provision reflects the Company's expected 
annualized consolidated tax rate for federal, state and foreign taxes of 
approximately 28% of taxable income. The difference between the Company's 
expected effective rate and the statutory rate for the year ending December 
31, 1998 is primarily due to reduced tax rates on the Company's income 
generated from operations in Israel.

VARIABILITY OF OPERATING RESULTS

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

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


                                     -17-
<PAGE>

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

EFFECTIVE CORPORATE TAX RATES

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

The Company's Israeli operations are performed entirely by Summit Design (EDA) 
Ltd., which is a separate taxable Israeli entity. The Company's existing 
Israeli production facility has been granted "Approved Enterprise" status 
under the Israeli Investment Law, for the Encouragement of Capital 
Investments, 1959 (the "Investment Law"). Taxable income of a company derived 
from an "Approved Enterprise" is eligible for certain tax benefits, including 
significant income tax rate reductions for up to seven years following the 
first year in which the "Approved Enterprise" has Israeli taxable income 
(after using any available net operating losses). The period of benefits 
cannot extend beyond 12 years from the year of commencement of operations or 
14 years from the year in which approval was granted, whichever is earlier. 
The tax benefits derived from a certificate of approval for an "Approved 
Enterprise" relate only to taxable income attributable to such "Approved 
Enterprise" and are conditioned upon fulfillment of the conditions stipulated 
by the Investment Law, the regulations promulgated thereunder and the criteria 
set forth in the certificate of approval. In the event of a failure by the 
Company to comply with these conditions, the tax benefits could be canceled, 
in whole or in part, and the Company would be required to refund the amount of 
the canceled benefits, adjusted for inflation and interest. No "Approved 
Enterprise" tax benefits had been realized by Summit from its Israeli 
operations as of December 31, 1995 since the Israeli operations were still 
incurring losses at that time. During 1996, Summit realized income of $1.4 
million from its Israeli operations and "Approved Enterprise" tax benefits of 
$53,000. During 1997, Summit realized income of $2.7 million from its Israeli 
operations and "Approved Enterprise" tax benefits of $702,000. 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 Company has foreign income tax net operating losses of approximately $5.6 
million at December 31, 1997. These foreign losses were generated in Israel 
over several years and have not yet received final assessment from the 
Israeli government. Consequently, management is uncertain as to the 
availability of a substantial portion of such foreign loss carryforwards.

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

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations primarily through a public offering 
in 1996, the private placement of capital stock, as well as capital equipment 
leases, borrowings under its bank line of credit, Israeli research and 
development grants and cash generated from operations. As of September 30, 
1998, the Company had approximately $24.7 million in cash and cash 
equivalents and a $1.0 million bank line of credit with a major financial 
institution ("the Bank"). The line of credit expires on April 30, 1999. 
Borrowings thereunder accrue interest at specified percentages above the 
prime lending rate based on the Company's ratio of debt to tangible net 
worth. Advances under the line of credit are limited to a specified 
percentage of eligible accounts 


                                     -18-
<PAGE>

receivable (as defined in the line of credit). Borrowings under the line of 
credit are collateralized by the Company's accounts receivable, inventory and 
general intangible assets, including its intellectual property rights. As of 
September 30, 1998 the Company had no borrowings outstanding under this line 
of credit.

The Company is obligated to lend up to $2.5 million to an independent 
software development company pursuant to a secured loan agreement entered 
into during July 1997. Borrowings under the agreement bear interest at prime 
plus 2%.

As of September 30, 1998, the Company had working capital of approximately 
$21.0 million.

Net cash generated by operating activities was approximately $8.6 million and 
$9.3 million for the nine months ended September 30, 1998 and 1997, 
respectively. Cash generated by operating activities resulted primarily from 
profitable operations, and an increase in accrued liabilities partially 
offset by an increase in accounts receivable for the nine months ended 
September 30, 1998 and primarily from profitable operations plus an increase 
in accounts payable, accrued liabilities, deferred revenue and a decrease in 
accounts receivable for the nine months ended September 30, 1997.

Net cash used in investing activities was approximately $3.4 million and 
$924,000 for the nine months ended September 30, 1998 and 1997, respectively. 
Net cash used in investing activities was related to the acquisition of 
furniture and equipment and loans to an unconsolidated joint venture and the 
software development company pursuant to the July 1997 loan agreement for the 
nine months ended September 30, 1998 and was primarily due to the acquisition 
of SimTech in September 1997 and the purchase of furniture and equipment less 
the cash provided from the sale of the TDS product line for the nine months 
ended September 30, 1997.

Net cash used by financing activities was approximately $466,000 and $11.0 
million for the nine months ended September 30, 1998 and 1997. For the nine 
months ended September 30, 1998 the use of cash was primarily from the 
repurchase of common stock, less the issuance of common stock and a tax 
benefit from option exercises. For the nine months ended September 30, 1997, 
the cash used in financing activities was primarily due to the purchase of 
treasury stock less the issuance of common stock.

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

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

FLUCTUATIONS IN QUARTERLY RESULTS

Summit has experienced significant quarterly fluctuations in operating 
results and cash flows and it is likely that these fluctuations will continue 
in future periods. These fluctuations have been, and may in the future be, 
caused by a number of factors, including the rate of acceptance of new 
products, corporate acquisitions and consolidations and the integration of 
acquired entities and the incurrence of any large one-time charges as a 
result of any acquisitions, product quality, product, customer and channel 
mix, the size and timing of orders, lengthy sales cycles, the timing of new 
product announcements and introductions by the Company and its competitors, 
seasonal factors, rescheduling or cancellation of customer orders, the 
Company's ability to continue to develop and introduce new products and 
product enhancements on a timely basis, the level of competition, purchasing 
and payment patterns, pricing policies of the Company and its competitors, 
product quality issues, currency fluctuations and general economic conditions.

Summit generated net losses in 1993, 1994 and 1995, as a result of investing 
heavily in research and development as well as developing a direct sales 
channel for new products. The net loss in 1997 was a result of a $19.9 
million charge for in-process technology related to the acquisition of 
Simulation Technologies Corp. ("SimTech"). For the nine months ended 
September 30, 1998, Summit has continued to increase revenues and operating 
margins and, as a result, has generated net income for the period. Summit 
operates with high gross margins, and as such, a downturn in revenue could 
have a significant impact on income from operations and net income, and could 
potentially generate a net loss.

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


                                     -19-
<PAGE>

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

PRODUCT CONCENTRATION; UNCERTAINTY OF MARKET ACCEPTANCE OF HLDA

Prior to July 1997, the Company's revenue was predominantly derived from two 
product lines, Visual HDL, which includes Visual HDL for VHDL and Visual HDL 
for Verilog, and TDS. Effective July 1, 1997, as a result of the Asset Sale, 
TDS products ceased to be a source of revenue. With the acquisition of 
TriQuest in February 1997, SimTech in September 1997, and ProSoft in June 
1998, the Company also derives revenue from verification products which 
include hardware-software co-verification, code coverage, and HDL debugging 
products as well as analysis, verification and RTL optimization tools.

The Company believes that HLDA Plus products will continue to account for 
substantially all of its revenue in the future. As a result, factors 
adversely affecting sales of these products, including increased competition, 
inability to successfully introduce enhanced or improved versions of these 
products, product quality issues and technological change, could have a 
material adverse effect on the Company's business, financial condition and 
results of operations.

The Company's future success depends primarily upon the market acceptance of 
its existing and future HLDA Plus products. The Company commercially shipped 
its first HLDA Plus product, Visual HDL for VHDL, in the first quarter of 
1994. For the nine months ended September 30, 1998 and 1997 and the years 
ended December 31, 1997, 1996 and 1995, respectively, revenue from HLDA Plus 
products and related maintenance contracts represented 100%, 83.7%, 76.5%, 
63.5%, and 43.6%, respectively, of the Company's total revenue. The Company's 
HLDA products incorporate certain unique design methodologies and thus 
represent a departure from industry standards for design creation and 
verification. The Company believes that broad market acceptance of its HLDA 
products will depend on several factors, including the ability to 
significantly enhance design productivity, ease of use, interoperability with 
existing EDA tools, price and the customer's assessment of the Company's 
financial resources and its technical, managerial, service and support 
expertise. The Company also depends on its distributors to assist the Company 
in gaining market acceptance of its products. There can be no assurance that 
sufficient priority will be given by the Company's distributors to marketing 
the Company's products or whether such distributors will continue to offer 
the Company's products. There can be no assurance that the Company's HLDA 
products will achieve broad market acceptance. A decline in the demand for, 
or the failure to achieve broad market acceptance of, the Company's HLDA 
products will have a material adverse effect on the Company's business, 
financial condition, results of operations or cash flows.

                                     -20-
<PAGE>

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

Traditionally, EDA customers have been risk averse in accepting new design 
methodologies. Because many of Summit's tools embody new design 
methodologies, this risk aversion on the part of potential customers presents 
an ongoing marketing and sales challenge to the Company and makes the 
introduction and acceptance of new products unpredictable. The Company's 
Visual Testbench product, introduced in the fourth quarter of 1995, provides 
a new methodology and requires a change in the traditional design flow for 
creating IC test programs. The Company anticipates a lengthy period of test 
marketing for the Visual Testbench product. Accordingly, the Company cannot 
predict the extent, to which it will realize revenue from Visual Testbench in 
excess of the revenue expected to be received pursuant to an OEM agreement 
entered into in July 1997. As part of this agreement, CSC must purchase a 
minimum of $16.0 million of Visual Testbench licenses over a thirty month 
period beginning in July 1997. As of September 30, 1998 the Company had sold 
$13.6 million of Visual Testbench licenses pursuant to this agreement. The 
Company will need to replace this revenue when the $16.0 million purchase 
obligation is satisfied and the failure of the Company to replace this 
revenue would have a material adverse affect on the Company's operating 
results.

COMPETITION

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

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


                                     -21-
<PAGE>

DEPENDENCE ON ELECTRONICS INDUSTRY MARKET

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

DEPENDENCE ON THIRD PARTIES FOR PRODUCT INTEROPERABILITY

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

NEW PRODUCTS AND TECHNOLOGICAL CHANGE; EVOLVING INDUSTRY STANDARDS

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

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


                                     -22-
<PAGE>

DEPENDENCE ON DISTRIBUTORS

The Company relies on distributors for licensing and support of its products 
outside of North America. Approximately 18%, 34%, 29%, 46% and 42% of the 
Company's revenue for the nine months ended September 30, 1998 and 1997and the 
years ended December 31, 1997, 1996 and 1995, respectively, were attributable 
to sales made through distributors. Effective April 1, 1996 the Company 
entered into a joint venture with Anam pursuant to which the joint venture 
corporation Summit Asia acquired exclusive rights to sell, distribute and 
support all of the Company's products in the Asia-Pacific region, excluding 
Japan. Prior to that date, Anam was an independent distributor of the 
Company's products. In April 1998, the joint venture corporation, Summit Asia, 
which is headquartered in Korea, was renamed Asia Design Corporation "ADC." In 
May 1998, the 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 has 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. There can be no assurance that this restructuring will result in Summit 
Asia or ADC becoming profitable or that revenue attributable to sales in the 
Asia Pacific region, excluding Japan, would increase. During the first quarter 
of 1997, the Company entered into a distribution agreement with ATE pursuant 
to which ATE was granted exclusive rights to sell, distribute and support 
Summit's Visual Testbench products within Japan until March 1999, subject to 
the Company's ability to terminate the relationship if ATE fails to meet 
quarterly sales objectives. The agreement may also be terminated by either 
party for breach. In addition, in the first quarter of 1996, the Company 
entered into a three-year, exclusive distribution agreement for its HLDA 
products in Japan with Seiko. In the event Seiko fails to meet specified 
quotas for two or more quarterly periods, exclusivity can be terminated by 
Summit, subject to Seiko's right to pay a specified fee to maintain 
exclusivity. The agreement is renewable for successive five-year terms by 
mutual agreement of the Company and Seiko and is terminable by either party 
for breach. Sales through Seiko accounted for 13%, 12%, 14% and 13% of the 
Company's total revenue for the three months ended September 30, 1998 and 1997 
and for the nine months ended September 30, 1998 and 1997. For the nine months 
ended September 30, 1998 and the year ended December 31, 1997, all sales of 
the Company's products in the Asia-Pacific region were through Seiko, SDA, ADC 
and ATE.

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

INTERNATIONAL SALES AND OPERATIONS

Approximately 36%, 38%, 34%, 50% and 52% of the Company's revenue for the 
nine months ended September 30, 1998 and 1997 and the years ended December 
31, 1997, 1996 and 1995, respectively, were attributable to sales made 
outside the United States, which includes the Asia Pacific region and Europe. 
Approximately 27%, 18%, 23% and 26% of the Company's revenue for the three 
month ended September 30, 1998 and 1997, and for the nine months ended 
September 30, 1998 and 1997, respectively, were attributable to sales made in 
the Asia Pacific region and approximately 12%, 8%, 13% and 12% of the 
Company's revenue for the three months ended September 30, 1998 and 1997, and 
for the nine months ended September 30, 1998 and 1997, 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 

                                     -23-
<PAGE>

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

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

MANAGEMENT OF GROWTH AND ACQUISITIONS

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

Summit has consummated a series of acquisitions since 1997, including the 
acquisition of TriQuest in February 1997, SimTech in September 1997, and 
ProSoft in June 1998. As a result of these acquisitions, Summit's operating 
expenses have increased and are expected to continue to increase. There can 
be no assurance that the integration of TriQuest's, SimTech's, or ProSoft's 
business can be successfully completed in a timely fashion, or at all, or 
that the revenues from TriQuest, SimTech, and ProSoft will be sufficient to 
support the costs associated with the acquired businesses, without adversely 
affecting Summit's operating margins. Any failure to successfully complete 
the integration in a timely fashion or to generate sufficient revenues from 
the acquired business could have a material adverse effect on Summit's 
business, financial condition, results of operations or cash flows. In 
addition, Summit regularly evaluates acquisition opportunities. Future 
acquisitions by Summit could result in potentially dilutive 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 concern, risks of entering markets in which Summit has no or limited 
prior experience and potential loss of key employees of acquired companies. 
Summit's management has had limited experience in assimilating acquired 
organizations and products into Summit's operations. No assurance can be 
given as to the ability of Summit to integrate successfully any operations, 
personnel or products that have been acquired or that might be acquired in 
the future, and the failure of Summit to do so could have a material adverse 
effect on Summit's results of operations.

OPERATIONS IN ISRAEL

The Company's research and development operations related to its HLDA 
products are located in Israel and may be affected by economic, political and 
military conditions in that country. Accordingly, the Company's 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 


                                     -24-
<PAGE>

from the government of Israel as described in "--Israeli Research, 
Development and Marketing Grants." In addition, while all of the Company's 
sales are denominated in U.S. dollars, a portion of the Company's annual 
costs and expenses in Israel are paid in Israeli currency. These costs and 
expenses were approximately $4.7, $4.3 and $4.3 million in 1997, 1996 and 
1995, respectively. Payment in Israeli currency subjects the Company to 
foreign currency fluctuations and to economic pressures resulting from 
Israel's generally high rate of inflation, which has been approximately 7%, 
11% and 8% during 1997, 1996, and 1995, respectively. The Company's primary 
expense which is paid in Israeli currency is employee salaries for research 
and development activities. As a result, an increase in the value of Israeli 
currency in comparison to the U.S. dollar could increase the cost of research 
and development expenses and general and administrative expenses. There can 
be no assurance that currency fluctuations, changes in the rate of inflation 
in Israel or any of the other aforementioned factors will not have a material 
adverse effect on the Company's business, financial condition, results of 
operations, or cash flows. In addition, coordination with and management of 
the Israeli operations requires the Company to address differences in 
culture, regulations and time zones. Failure to successfully address these 
differences could be disruptive to the Company's operations.

The Company's Israeli production facility has been granted the status of an 
"Approved Enterprise" under the Israeli Investment Law for the Encouragement 
of Capital Investments, 1959 (the "Investment Law"). Taxable income of a 
company derived from an "Approved Enterprise" is eligible for certain tax 
benefits, including significant income tax rate reductions for up to seven 
years following the first year in which the "Approved Enterprise" has Israeli 
taxable income (after using any available net operating losses). The period 
of benefits cannot extend beyond 12 years from the year of commencement of 
operations or 14 years from the year in which approval was granted, whichever 
is earlier. The tax benefits derived from a certificate of approval for an 
"Approved Enterprise" relate only to taxable income attributable to such 
"Approved Enterprise" and are conditioned upon fulfillment of the conditions 
stipulated by the Investment Law, the regulations promulgated thereunder and 
the criteria set forth in the certificate of approval. In the event of a 
failure by the Company to comply with these conditions, the tax benefits 
could be canceled, in whole or in part, and the Company would be required to 
refund the amount of the canceled benefits, adjusted for inflation and 
interest. No "Approved Enterprise" tax benefits had been realized by Summit 
from its Israeli operations as of December 31, 1995 since the Israeli 
operations were still incurring losses at that time. During 1996, Summit 
realized income of $1.4 million from its Israeli operations and "Approved 
Enterprise" tax benefits of $53,000. During 1997, Summit realized income of 
$2.7 million from its Israeli operations and "Approved Enterprise" tax 
benefits of $702,000. 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 future success depends in large part on the continued service 
of its key technical and management personnel and its ability to continue to 
attract and retain highly-skilled technical, sales and marketing and 
management personnel. The Company has entered into employment agreements with 
certain of its executive officers, however, such agreements do not guarantee 
the services of these employees and do not contain non-competition 
provisions. Competition for personnel in the software industry in general, 
and the EDA industry in particular, is intense, and the Company has at times 
in the past experienced difficulty in recruiting qualified personnel. There 
can be no assurance that the Company will retain its key personnel or that it 
will be successful in attracting and retaining other qualified technical, 
sales and marketing and management personnel in the future. The loss of any 
key employees or the inability to attract and retain additional qualified 
personnel may have a material adverse effect on the Company's business, 
financial condition, results of operations or cash flows. The Company has 
obtained a $1 million "key person" life insurance policy on its 
President/Chief Executive Officer. Additions of new personnel and departures 
of existing personnel, particularly in key positions, can be disruptive and 
can result in departures of additional personnel, which could have a material 
adverse effect on the Company's business, financial condition, results of 
operations or cash flows.

ISRAELI RESEARCH, DEVELOPMENT AND MARKETING GRANTS

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


                                     -25-
<PAGE>

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 September 30, 1998, approximately 
$187,000 was outstanding under the grant.

LIMITATIONS ON PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

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

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

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

POSSIBLE VOLATILITY OF STOCK PRICE

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.


                                     -26-
<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 causing material disruptions of business 
operations, including among other things, a temporary inability to process 
transactions, send invoices, or engage in similar normal business operations. 
If Summit, its significant customers, suppliers, service providers and other 
related third parties fail to take the necessary steps to correct or replace 
these problematic computer programs, the Year 2000 issue could have a 
material adverse effect on Summit. Summit cannot, however, quantify the 
impact at this time.

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

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

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

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

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

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

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

    Subsequent to performing the above steps, Summit will make certain 
investments in systems, applications and products to address Year 2000 
issues. Summit has not tracked internal resources dedicated to the resolution 
of the Year 2000 issue and, therefore, is unable to quantify internal costs 
incurred to date that are associated with the Year 2000 issue. Summit has, 
however, hired external consultants to resolve internal information system 
issues related to the resolution of the Year 2000 issue. Identifiable 
expenditures for these investments were approximately $170,000 through June 
30,1998. These expenditures are not expected to be material in the future. 
Investments to address the Year 2000 issue have been, and are expected to be, 
funded through cash generated from operations.

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



                                     -27-
<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

         Not applicable

Item 5.  Other Information

         Not applicable

Item 6   Exhibits and Reports on Form 8-K



         (a)  Exhibits

              27.1         Financial Data Schedule

         (b)  Reports on Form 8-K

              On September 30, 1998, the Company filed a report on Form 8-K
              dated September 20, 1998 in conjunction with the execution of a 
              definitive Agreement to acquire OrCAD.




                                     -28-
<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:  November 13, 1998


                                     -29-
<PAGE>

EXHIBIT INDEX

EXHIBIT  27.1     Financial Data Schedule










                                     -30-