<PAGE>

================================================================================

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

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

                                   FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                  For the fiscal year ended December 31, 2001

                                      or

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

      For the transition period from ________________ to ________________

                       Commission file number: 000-31545

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

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

                 California                         77-0368779
        (State or other jurisdiction             (I.R.S. Employer
     of incorporation or organization)        Identification Number)

             935 Stewart Drive,
           Sunnyvale, California                      94085
      (Address of Principal Executive               (Zip Code)
                  Offices)

      Registrant's telephone number, including area code: (408) 215-6000

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

          Securities registered pursuant to Section 12(b) of the Act:

                                          Name of each exchange
                 Title of each class       on which registered
                 -------------------      ---------------------
                        None                      None

          Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, no par value

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

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

   The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on February
26, 2002 as reported on the Nasdaq National Market, was approximately
$76,746,064. Shares of Common Stock held by each executive officer and director
and by each person who owns 5% or more of the outstanding Common Stock have
been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.

   As of February 26, 2002, the registrant had outstanding 25,087,281 shares of
Common Stock.

                      DOCUMENTS INCORPORATED BY REFERENCE

   The Registrant has incorporated by reference into Part III of this Annual
Report on Form 10-K portions of its Proxy Statement for its 2002 Annual Meeting
of Shareholders.

================================================================================

<PAGE>

                                    PART I

ITEM 1.  BUSINESS

   This Annual Report on Form 10-K, the exhibits hereto and the information
incorporated by reference herein contain "forward looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and such forward looking statements involve risks
and uncertainties. When used in this Report, the words "may," "will," "should,"
"believe," "expects," "anticipates," and "estimates" and similar expressions
are intended to identify forward looking statements. Such statements are
subject to risks and uncertainties that could cause actual results to differ
materially from those projected. These risks and uncertainties include those
discussed below and those discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" or incorporated by reference
herein. Synplicity(R), Inc. ("we", "us" or "Synplicity") undertakes no
obligation to publicly release any revisions to these forward looking
statements to reflect events or circumstances after the date this Annual Report
on Form 10-K is filed with the Securities and Exchange Commission or to reflect
the occurrence of unanticipated events.

Overview

   We are a leading provider of software products that enable the rapid and
effective design and verification of large, complex semiconductors used in
networking and communications, computer and peripheral, consumer and
military/aerospace electronics systems. Our synthesis software performs
essential steps in the process of designing semiconductors such as field
programmable gate arrays ("FPGAs"), application specific integrated circuits
("ASICs") and system on a chip ASICs that also include a microprocessor
("SoCs"). We employ proprietary logic synthesis, physical synthesis and debug
intellectual property insertion technology to simplify, improve and accelerate
the design and verification of large complex FPGAs, ASICs and SoCs. We believe
our software products, coupled with our expert customer support, enable our
customers to meet performance goals and decrease the time to market of their
products.

Industry Background

   Manufacturers of networking and communications, computer and peripheral,
consumer and military/aerospace electronics systems employ a wide variety of
advanced semiconductors, including ASICs and SoCs and increasingly,
programmable semiconductors in their products. Unlike standard, off the shelf
semiconductors, ASICs, SoCs and programmable semiconductors, such as FPGAs, are
tailored to perform specific functions defined by electronic product designers.
ASICs and SoCs are semiconductors that are customized prior to manufacture to
perform a specific function, whereas FPGAs are customized, or programmed, after
the semiconductors are manufactured. ASICs, SoCs and FPGAs are used to
implement proprietary intellectual property and to provide the equipment
manufacturer's products with enhanced performance, flexibility and
differentiation from those of competitors. ASICs and SoCs can achieve higher
performance, lower power consumption and lower unit cost when produced in
volume than FPGAs. However, ASICs and SoCs have longer development cycles as
well as lengthy and expensive custom fabrication processes prior to shipment.
FPGAs provide equipment manufacturers with the ability to create and modify
semiconductor designs quickly and easily and make changes even after the
product is used by the customer. This ease of creation and modification helps
electronics manufacturers meet time to market requirements by shortening
development times. In this respect, FPGAs provide equipment manufacturers with
the ability to get to market quickly and the flexibility to update their
products to address rapidly changing industry and interoperability standards.
We believe that the expanded capacity and performance of ASICs and SoCs and the
relative ease of use, design flexibility and shortened time to market of FPGAs
will continue to fuel growth in the use of these semiconductors in electronic
equipment. The capacity of FPGAs, ASICs and SoCs has increased in accordance
with Moore's law, which predicts that the functional capacity of semiconductors
will double approximately every 18 months. The advanced manufacturing processes
that facilitate these capacity increases also improve performance and further
expand the breadth of applications for which the semiconductors can be used.

                                      2

<PAGE>

  Challenges of designing FPGAs, ASICs and SoCs for networking and
  communications, computer and peripheral, consumer and military/aerospace
  electronics systems

   As higher capacity, more complex FPGAs, ASICs and SoCs are used in the
design of electronic equipment, they often require significant resources to
design and test their functionality. Large semiconductor designs require more
time to develop and test, which may limit the equipment manufacturer's ability
to get to market quickly. While state of the art semiconductors are designed to
achieve high performance standards, reaching these performance goals can
require time consuming design processes. Electronic product designers seek
design solutions that increase productivity, are easy to learn and use and
produce high performance designs. To achieve these objectives, electronic
product designers, including equipment manufacturers using FPGAs, ASICs and
SoCs, have recognized the advantage of software solutions, which address
critical steps in the development cycle.

   To date, these software solutions have focused on several functions in the
development cycle including:

   . Logic synthesis.  Logic synthesis software compiles a high level textual
     description of the desired function of a semiconductor into an optimized
     network of elements, each of which is known as a logic or memory element.
     Because the logic and memory elements must interact and exhibit high
     performance, logic synthesis is critical to reduce the number of required
     components and improve the frequency at which the semiconductor can be
     operated.

   . Physical synthesis.  Physical synthesis software combines the function of
     logic synthesis software with some of the functions of placement and
     routing software. Placement and routing software processes the optimized
     description of the semiconductor created by logic synthesis to place the
     logic and memory elements in locations on the semiconductor and to assign
     routes for wires between those placed elements. The goal is to keep wires
     short in order to maximize performance. Because a physical synthesis
     system controls the locations of elements, it can more easily identify
     performance limitations and fix them with a combination of placement
     changes and logic synthesis optimizations.

   . Verification.  Verification software uses the information about the
     functions of the semiconductor to test whether it will perform as
     intended. For example, with ASICs, the designer must verify whether the
     semiconductor will perform as intended and whether the proposed design
     works with other components of the resulting product, such as software or
     a communication module. Mistakes not identified prior to chip manufacture
     are costly and require weeks or months for correction.

Our Solution

   We are a leading provider of software products that enable the rapid and
effective design and verification of FPGAs, ASICs and SoCs for use in
networking and communications, computer and peripheral, consumer and
military/aerospace electronics systems. Our software solutions improve
performance and shorten development times for complex FPGAs, ASICs and SoCs by
simplifying, improving and automating key logic synthesis, physical synthesis
and verification functions. Our products utilize a number of sophisticated
mathematical algorithms, electrical engineering techniques and advanced
software operations.

   A key feature of our products is their ability to generate and display
concurrently three views of a semiconductor design--the textual design
description, a highly abstract graphical representation of the design
description and an optimized, detailed diagram showing the various elements of
the semiconductor design. As the designer changes the textual description, the
changes are automatically reflected in the other two views. These alternate
representations aid the designer to manipulate and optimize the design and
diagnose problems. Our software products also provide the following features
and benefits to our customers and their electronic product designers:

   Design goal achievement.  Our products enable designers to design products
quickly and intuitively that meet or exceed their semiconductor performance and
capacity utilization goals. Efficient and cost-effective

                                      3

<PAGE>

manufacturing of a semiconductor depends on full utilization of the
semiconductor's capacity. Users specify design constraints through our
graphical user interface and then use our products to automatically process the
design to achieve function, performance and capacity goals. The complex
optimization operations that our products perform employ the most advanced
features of the target semiconductor and result in a highly optimized design
that improves performance of the electronic equipment. As a result, our
solutions may also enable designers to use less costly semiconductors to
achieve the same performance goals, thus reducing costs.

   Accelerated time to market.  Electronic product designers require time
efficient solutions. Our products optimize small designs in seconds and large
designs in hours or even minutes, which we believe is significantly faster than
alternative software. Reduced run time significantly shortens time to market
because logic synthesis, physical synthesis and verification are typically
performed repeatedly during the design process. In addition, our products allow
designers to select an optimal design from various design possibilities in the
same amount of time that alternative software would require to evaluate a
single solution.

   Ease of use.  Our products are designed to be easy to install, learn and
use. The user enters only easily acquired and understood information that is
specific to the design. Our products employ complex algorithms, but their
sophistication makes the designers' work simpler. Both experienced and novice
users value our products because they provide highly optimized designs that
require a minimum level of effort as compared with conventional approaches. We
believe our solutions' ease of use and graphical representations make them
accessible to a larger group of designers without sacrificing quality of
results or achievement of design goals.

   Capacity for complex designs.  We believe our products provide significant
advantages for designing FPGAs, ASICs and SoCs that contain large numbers of
transistors. Our products can implement designs for the largest available FPGAs
by incorporating algorithms that increase run time linearly with design size,
as opposed to nonlinearly with alternative software products. Synplify Pro(R),
our leading FPGA synthesis product, enhances electronic product designer
productivity, as well as the performance for complex designs. Amplify(R)
Physical Optimizer(TM) is intended specifically for large FPGA designs and
incorporates specialized features for optimizing these designs that can improve
performance by up to 35%. Certify(R), our ASIC and SoC verification product,
includes features that enable designers to validate large designs using high
speed prototypes. Without these prototypes, ASIC and SoC designers may elect
not to undertake a large design because it cannot be adequately tested.
Synplify ASIC(TM), our newest product, is capable of processing designs as
large as two million gates in a single entity, saving time and improving
results.

   Comprehensive customer support.  Because of the complex nature of our
customers' design activities, support services are an integral part of our
solution. We emphasize rapid resolution of customer questions by staffing our
customer support operation with knowledgeable engineers. These engineers, who
have substantial design experience with the entire design flow, answer incoming
support requests from our customers. We have provided our customer service
organization with sufficient resources to assist our staff to achieve our goal
of responding to customer problems within 24 hours. We also make available
through our web site information regarding support solutions, problem
submission and problem status.

Products and Customer Support

   We develop and market software products for the rapid and effective design
and verification of FPGAs, ASICs and SoCs. Our products facilitate the creation
of high performance designs and enable the fast time to market required by our
customers in the networking and communications, computer and peripheral,
consumer and military/aerospace electronics systems markets. Our logic
synthesis, physical synthesis and verification products enable electronic
product designers to reduce overall design time. We have developed and will
continue to improve our customer support organization.

                                      4

<PAGE>

  Synplify(R) and Synplify Pro Solutions

   In 1995, we introduced Synplify, our logic synthesis product which enables
customers to implement their designs in FPGAs quickly and easily. In May 2000,
we launched Synplify Pro, our advanced FPGA logic synthesis product
incorporating improved productivity features and offering enhanced results.
According to Dataquest, a market research firm, Synplicity's FPGA synthesis
products attained a 45% market share in 2000. We believe that we increased our
market share in 2001. To perform logic synthesis, our Synplify and Synplify Pro
software employ proprietary optimization algorithms, which we call Behavior
Extracting Synthesis Technology(R). Our Synplify and Synplify Pro products take
advantage of any specialized features provided by the FPGA manufacturers that
improve performance for a particular design. Logic synthesis software products
transform a high level design specification into a format comprised of logic
elements and wires interconnecting those elements that is ready for
implementation in a semiconductor. Logic synthesis is a primary determinant of
FPGA, ASIC or SoC design performance. As a result, logic synthesis has a
significant impact on the overall performance of the electronic system in which
the FPGA, ASIC or SoC resides. We believe that our Synplify and Synplify Pro
products have the industry's highest performance results on the basis of speed
and capacity utilization of the resulting FPGA. In addition, our Synplify Pro
solution automatically identifies and restructures certain types of control
circuits to achieve better performance.

   Because logic synthesis is performed multiple times during the design
process, the less time synthesis requires, the more quickly the engineer can
complete the design process. We believe our Synplify and Synplify Pro products
have the industry's fastest run times. We employ algorithms that scale linearly
in run time with the size of the design. Small designs can be synthesized in
seconds and designs for the newest, largest FPGAs can be synthesized in hours
or even minutes. Synplify and Synplify Pro software require only the input of
readily available design data. This information is entered via a simple to use
graphical user interface, which allows designers to specify all design
constraints in a single location quickly and intuitively. We believe that our
experienced customers embraced our Synplify product because it does not
sacrifice performance in order to achieve ease of use and short design times.

  HDL Analyst(R) Solution

   In 1997, we introduced HDL Analyst, a software product that is available as
an option to our Synplify product and is incorporated into most of our other
products. A key feature of our HDL Analyst product is its ability to generate
and display concurrently three views of a semiconductor design--the textual
design description, a highly abstract graphical representation of the design
description and an optimized, detailed diagram showing the various elements of
the semiconductor design. As the designer changes the textual description, the
changes are automatically reflected in the other two views. Our HDL Analyst
software enables designers to quickly identify performance bottlenecks and
identify other opportunities for improvement.

  Certify and Certify SC(TM) Solutions

   In 1999, we introduced Certify, a software product for verification of ASICs
and SoCs using prototypes consisting of multiple FPGAs. Our Certify software
enables design teams to create hardware prototypes early in the design process
so that design changes are easier and less costly. Our Certify software also
assists customers in verifying that the final system will work as specified,
will work with system level software and will meet customer requirements.
Customers who use our Certify software to define their prototypes can begin
system integration, software verification, chip verification and system
verification earlier than other approaches to functional verification. Our
Certify solution can process multimillion gate designs in a single pass without
the complex scripts commonly required by ASIC or SoC synthesis products.

   Our Certify software was the first commercially available verification
product incorporating synthesis and that enables the user to create prototypes
directly from the user's textual design specification. Our Certify product also
incorporates debug intellectual property insertion technology allowing
insertion of additional

                                      5

<PAGE>

hardware for monitoring the behavior of the prototype without changes to the
source HDL for the design. We believe our Certify product is easier to use than
alternative solutions. Being able to operate the prototype at or near the speed
of the final product can be very important for ASIC and SoC verification. Other
available approaches, such as logic simulation software, emulation systems or
reconfigurable prototyping systems, cannot run at a sufficient performance
level for many applications, such as mobile telephony, optical switching or
streaming video in real time. Our Certify solution enables designers to create
prototypes that operate at or near the speed of the final product and at
substantially higher frequencies than other available approaches by using our
proprietary embedded synthesis technology that optimizes the final prototype
performance. Our Certify software achieves high performance for a multi-FPGA
semiconductor prototype by optimizing all FPGAs in the prototype simultaneously.

   In March 2001, we introduced a new member of the Certify verification
software family--Certify SC. Our Certify SC software is intended for creating
ASIC and intellectual property prototypes on a single FPGA, and providing
advanced hardware diagnostic capabilities to FPGA designers. Certify SC
software delivers features that facilitate the implementation of an ASIC design
on a single FPGA and provides engineers with the means to inspect an operating
FPGA to verify correct operation. We believe both FPGA and ASIC designers can
benefit from this capability, which includes the ability to incorporate
specialized diagnostic circuits into a design. FPGA manufacturers Altera and
Xilinx provide the diagnostic circuits for this application.

  Amplify Physical Optimizer Solution

   In March 2000, we introduced Amplify Physical Optimizer, a software product
specifically created for designing large, complex FPGAs. The key innovation and
differentiating feature of Amplify Physical Optimizer is the method by which it
uses and improves physical implementation information provided by the designer
during the synthesis process to produce a faster semiconductor. We believe that
Amplify Physical Optimizer is the industry's first commercially available
physical synthesis product for FPGA design. In October 2001, we introduced our
second generation of physical synthesis algorithms. Named TOPS(TM), for Total
Optimization Physical Synthesis(TM), it is based on significant new algorithmic
developments that produce precise physical placement while performing
optimization of logic on critical paths. By performing detailed placement of
logic, the TOPS technology is able to achieve even more predictable timing
estimations, thus reducing the number of iterations required to close on
timing. The user provides this physical implementation information through a
graphical user interface, and our Amplify Physical Optimizer utilizes this
information to improve design performance by up to 40%.

   We believe Amplify Physical Optimizer improves time to market. Without
physical optimizations, users must undertake numerous time consuming iterations
of design, constraint and software option changes in hopes of creating a design
that has the desired performance and functionality. Our goal is to enable
designers to use Amplify Physical Optimizer to achieve successful design
specification in much less time.

   FPGA components are sold in performance grades. An FPGA offering marginally
higher performance may cost substantially more than the next lower grade. We
believe that Amplify Physical Optimizer assists designers to use less expensive
components to meet the same design requirements.

   As design sizes increase, there is a trend toward group designs of a single
FPGA in which portions of the design are allocated to different persons. When
the design is assembled, a performance bottleneck may result if the
independently designed portions of the semiconductor do not operate smoothly
together. Amplify Physical Optimizer has features that assist a group of
designers to collaborate on a single, large FPGA design. We believe these
features result in collaborative designs that achieve higher performance than
would otherwise be possible.

  Synplify ASIC Solution

   In June 2001, we introduced Synplify ASIC, our logic synthesis product for
ASIC and SoC design. Our Synplify ASIC product offers high design capacity as
demonstrated by its ability to process designs up to

                                      6

<PAGE>

two million gates in a single compilation. The leading competitive offering
requires customers to disassemble the design into a large number of smaller
blocks, process each of these independently and then reassemble the result.
This requires a great deal of extra effort which is eliminated in the Synplify
ASIC synthesis approach. In addition, processing the design as a single large
entity reveals further opportunities for optimization which can improve chip
performance or reduce chip costs. Also, we believe our Synplify ASIC software
processes designs up to 15 times faster than the leading competitive product,
reducing synthesis times and boosting designer productivity.

   In addition to the ease-of-use advantage afforded by its high capacity,
Synplify ASIC software is also easy to learn. Synplify ASIC software employs an
intuitive, graphical user interface and incorporates a high degree of
automation which renders the product easy to learn and use. Combining Synplify
ASIC software with Synplify Pro software and Certify software yields a unique
capability to process a textual design description for implementation in an
FPGA, multiple FPGAs or an ASIC.

  Customer support

   Our products are designed to be utilized quickly and effectively by our
customers and to minimize the level of support from us for the designer to be
productive. Our customers use our products along with design software from
semiconductor manufacturers and from other third party design software
developers. The overall semiconductor design process is complex, and our
customers may seek assistance with various aspects of the semiconductor design
process from us. We believe that high quality customer support of our
customers' activities is important to the success of our business. We have
developed and expect to continue to improve our comprehensive support
organization to manage customer accounts. We provide support for our products
primarily from our Sunnyvale, California and Bangalore, India locations. In the
long term, we plan to expand existing and establish additional support sites
outside of the United States to support customers in those markets.

   We provide technical support to our customers through maintenance and
support services. The first year of maintenance and support is generally sold
when the customer purchases a product license. Thereafter, customers may
annually elect to renew maintenance. In 2001, the majority of our customers
that were receiving maintenance elected to renew their maintenance with us. We
price our maintenance service at 20% of the list license fee on a per license
basis. Maintenance service provides us with a valuable, ongoing revenue stream.

   We believe that the majority of our customers will continue to renew
maintenance because the rate of innovation in the FPGA industry is high, and
equipment manufacturers expect us to support the latest components as soon as
they are available. Customers paying maintenance receive software updates for
new FPGA components when we make these updates available. In the past, we have
issued at least two new updates to our products per year. These frequent
releases typically include support for new components and enable our customers
to optimize their designs or create prototypes using those components. We work
closely with leading FPGA manufacturers to incorporate support for new
components as quickly as possible.

   Our support organization may assist customers with product installation and
configuration. However, our support organization devotes a majority of its
efforts to assisting customers to resolve complicated design and software
questions that can arise from the customers' design tasks. We generally respond
to customer support requests within 24 hours. Effective execution of these
tasks requires highly skilled engineers familiar with our customers' design
tasks as well as familiarity with third party products that may be used by the
customer in conjunction with our products. Our support staff consists of
engineers with substantial design experience. We generally provide our support
via electronic mail, our web site, facsimile and telephone.

Customers

   As of December 31, 2001, we had over 1,600 customers distributed over
networking and communications, computer and peripheral, consumer products,
semiconductor and military and aerospace segments. Of that total,

                                      7

<PAGE>

more than 300 were first time customers in 2001. Our customers often buy
licenses for a single location, department or division, and then, based upon
the initial success of the products, later expand their use of our products
into other parts of their organizations. We believe we can sell our existing
products more extensively within our existing customer sites and sell them new
products as we expand our product line. We will continue to pursue enterprise
wide sales as appropriate. In 2001, 2000 and 1999, no end-user customer
comprised more than 5% of our revenue.

Marketing and Sales

  Marketing

   We focus our marketing efforts to create awareness for our products and
generate leads for our sales organization. Our strategy is to distinguish our
products by their high level of design performance, ease of use and time to
market advantages. We employ a wide variety of communication channels to inform
customers and potential customers about our products. These channels include
our web site, print and web advertising, public relations, web based seminars,
live seminars, trade shows and electronic mail notification to customers about
new product releases.

  Direct sales

   We employ a multi-channel approach to sell our products. We license our
software products primarily through our direct sales organization, as well as
distributors, resellers and other strategic partners. Our direct sales efforts
target customers who design semiconductors for networking and communications,
computer and peripheral, consumer and military/aerospace electronics systems.

   As of December 31, 2001, our direct sales staff consisted of 84 employees
based in 18 sales offices. Direct sales accounted for approximately 86% of our
total revenue in 2001, 79% of our total revenue in 2000 and 72% of our total
revenue in 1999. Our sales teams generally include a sales manager,
applications engineer and telesales representative for each territory. Our
direct sales contacts often obtain a trial evaluation license of our product
from our web site. A telesales representative prequalifies the potential
customer. Our sales managers target middle management during the sales cycle,
while our application engineer focuses on the end user to demonstrate that our
products address the customer's specific needs. The direct sales team also
relies on distribution and strategic partners for demand creation and leads.
Our typical sales cycle varies by product from two weeks to several months,
with our ASIC products generally having longer cycles than our FPGA products.

   We currently have domestic direct sales offices in or near Sunnyvale,
California; San Diego/Newport Beach, California; Redmond, Washington; Boulder,
Colorado; Austin, Texas; Chicago, Illinois; Durham, North Carolina; Bel Air,
Maryland; Andover, Massachusetts. We also have international direct sales
offices in or near Bracknell, England; Aix-en-Provence, France; Munich,
Germany; Venray, Netherlands; Netanya, Israel; Bangalore, India; Tokyo, Japan;
Seoul, South Korea; and Hsinchu City, Taiwan.

  Indirect sales

   In addition to our direct sales strategy, we have established indirect sales
channels through distributors and other resellers. Our relationships with
distributors play a critical role in extending our reach to more customers.
Distribution is key in either assisting our direct sales staff or by being our
sole sales and support representatives in territories that include portions of
Europe and Asia. Our international distributors and other resellers typically
perform marketing, sales and technical support functions in their respective
country or region. We actively train our international distributors in both
product and sales methods. Each one may distribute directly to the customer,
via other resellers or through a mixture of both channels. Our distributor
agreements do not provide for rights of return, stock rotation or price
protection for the distributor. Revenue from distribution was approximately 9%
of our total revenue in 2001, 14% of our total revenue in 2000 and 20% of our
total revenue in 1999. We also generate some revenue through certain FPGA
manufacturers as discussed below.

                                      8

<PAGE>

Strategic Relationships

   Our strategic partners include FPGA manufacturers, FPGA distributors and
semiconductor design software companies, which provide information that assists
us with the successful development and distribution of our software solutions.

   FPGA manufacturers.  Our FPGA manufacturer partners work closely with us
before each product release to ensure that our products perform optimally with
their FPGAs. We rely on these FPGA manufacturers to provide us advance
information and answer detailed questions about their FPGA components and
software. Our FPGA partners currently include Actel(R) Corporation, Altera(R)
Corporation, Atmel(R) Corporation, Lattice(R) Semiconductor Corporation,
QuickLogic(R) Corporation and Xilinx(R), Inc. Actel, Lattice and QuickLogic
also resell a limited feature version of our Synplify product. These reselling
relationships provide a strong endorsement of our products, expand our sales
channels and serve to introduce our products to a large number of potential
customers. These FPGA manufacturers generated approximately 5% of our total
revenue in each of 2001, 2000 and 1999.

   FPGA distributors.  Insight(R) Electronics, Inc. and Arrow(R) Electronics,
Inc. refer customers to us and we conduct joint marketing activities with them.
These distributors are of high strategic value to us because they also
distribute the most widely used FPGAs from Xilinx.

   Semiconductor design software companies.  We work with semiconductor design
software company partners to integrate our complementary products with theirs
to create a more complete, easier to use set of design solutions for the
benefit of our mutual customers. Our semiconductor design software company
partners include those whose products perform functions such as design entry,
simulation, analysis, hardware prototyping and simulation acceleration
hardware. We have agreements with Cadence(R) Design Systems, Inc., under which
Cadence resells our Synplify, HDL Analyst and Certify products in combination
with some of its products. We resell versions of Cadence's Affirma(TM)
simulators bundled with our products. We also have reselling agreements in
place with Aldec(R) Corporation and TransLogic(R) Corporation under which we
resell their simulation and design entry products, respectively. We are also
developing relationships with ASIC design software companies. For example, in
the fourth quarter of 2001, we announced a joint development agreement with
Verplex(R) Systems, Inc. aimed at insuring that our products function
effectively together.

Technology and Research and Development

  Technology

   Our products are used to design FPGAs, ASICs and SoCs, and we believe our
products are easier to use and produce superior results more rapidly than
alternative solutions. In addition, our core technology platform enables us to
produce innovative products quickly. These product and development
characteristics are made possible by our proprietary technology. Selected
features of our technology include:

   Behavior Extracting Synthesis Technology.  Our products are designed with
our proprietary technology to recognize and locate common circuit building
blocks within designs and maintain high level representations of these blocks
throughout the synthesis process. Other synthesis products use circuit
representations that maintain detailed level representations of the design, but
lose important information. By maintaining behavioral information that
describes a semiconductor's function throughout synthesis, we believe our
synthesis products make better overall optimizations, which result in better
circuit performance.

   Physical synthesis innovations.  Achieving superior performance in large
FPGAs requires solving specialized problems not encountered in smaller FPGAs.
We have invented and submitted applications for patents related to algorithms
that solve many of these problems. These algorithms, including our new TOPS
algorithms, involve combining synthesis with processes that are normally
applied later in the semiconductor

                                      9

<PAGE>

design process. This combination is termed physical synthesis, and we believe
that we are the first to offer products based on this technology to FPGA
designers.

   Fast, memory efficient algorithms.  Long run times are a commonly
encountered barrier to processing large designs. Because synthesis is performed
repeatedly during the design process, fast run times are an important time to
market determinant. All of the algorithms employed in our products were
carefully selected and implemented for fast run times and efficient memory
utilization. These algorithms' run times increase linearly as design size
increases, as opposed to nonlinearly with other software products.

   Embedded electrical engineering knowledge.  Synthesis and optimization of
complex circuits are accomplished through a large collection of algorithms and
heuristics. For any given circuit, the application of these algorithms requires
many decisions including, for example, which algorithms to use and in what
order to apply them. Implementing a synthesis product is considerably easier if
the user is required to make these types of decisions. However, this places the
burden of understanding the effects of synthesis algorithms on the user and
results in a difficult to use product. Instead, we build products with a level
of automation for making these decisions by embedding a high degree of
electrical engineering knowledge in the products so that optimization decisions
are performed automatically.

  Research and development

   We believe that strong product development capabilities are essential to our
strategy of enhancing our core technology, developing additional applications
and increasing the competitiveness of our product offerings. We have invested
significant time and resources in creating a structured process for undertaking
all product development projects. This process involves key functional groups
within our company and is designed to provide a framework for defining and
addressing the steps required to bring product concepts and development
projects to market successfully. Our product development strategy emphasizes
rapid innovation and product releases.

   We have actively recruited key computer engineers and software developers
with expertise and degrees in computer science, electrical engineering and
other engineering disciplines. As of December 31, 2001, we had 136 employees
engaged in research and development activities and related customer support
services. Our research and development expenses were $19.4 million in 2001,
$13.3 million in 2000 and $8.0 million in 1999.

Intellectual Property

   Our software products rely on our internally developed intellectual property
and other proprietary rights. We rely primarily on a combination of patent,
copyright, trademark and trade secret laws, confidentiality procedures and
contractual provisions to protect our intellectual property and other
proprietary rights. However, we believe that these measures afford only limited
protection. We license our software products primarily under shrink wrap
licenses that are included as part of the product packaging. Shrink wrap
licenses are not negotiated with or signed by individual customers, and purport
to take effect upon the opening of the product package or use of the software
license key. The legal enforceability of shrink wrap licenses is uncertain in
many jurisdictions. We also generally enter into confidentiality agreements
with our employees and technical consultants. Despite our efforts to protect
our proprietary rights, unauthorized parties may attempt to copy aspects of our
products or obtain and use information that we regard as proprietary. Policing
unauthorized use of our products is difficult and we are unable to determine
the extent to which piracy of our software products exists. In addition, the
laws of some foreign countries do not protect our proprietary rights as fully
as do the laws of the United States.

   We are not aware that our products employ technologies that infringe any
valid proprietary rights of third parties. We expect that software product
developers will increasingly be subject to infringement claims as the number of
products and competitors in our industry segment grows and the functionality of
products in different industry segments overlaps. From time to time third
parties have claimed that our products violate their

                                      10

<PAGE>

proprietary rights but none of these claims has resulted in litigation or
material expense. Any infringement claims, with or without merit, could:

   . be time consuming to defend;

   . result in costly litigation or damage awards;

   . divert management's attention and resources;

   . cause product shipment delays; or

   . require us to enter into royalty or licensing agreements.

   These royalty or licensing agreements may not be available on terms
acceptable to us, if at all.

Competition

   We compete in markets that are intensely competitive and rapidly evolving.
We face competition primarily from semiconductor design software companies that
provide software suites to perform a variety of design functions for all types
of semiconductors. We have experienced and expect to continue to experience
increased competition from current and potential competitors, many of which
have significantly greater financial, technical, marketing and other resources.

   Companies offering competitive products vary in scope and breadth. Our
competitors include:

   . providers of single solution products for logic synthesis, simulation and
     graphic design entry, such as Mentor Graphics(R) Corporation, through its
     Exemplar Logic(R) division;

   . programmable semiconductor manufacturers, such as Altera, Lattice and
     Xilinx;

   . providers of general purpose synthesis and compiler software such as
     Cadence, Mentor Graphics and Synopsys(R), Inc.

   . providers of software design suites that include synthesis products such
     as Protel(R) International Ltd.; and

   . providers of verification software and hardware products such as Aptix(R)
     Corporation, Cadence, IKOS(R) Systems, Inc., Mentor Graphics and Synopsys.

   While all of these companies compete with us, some also market or sell our
products.

   We believe the principal factors that will draw end customers to a
semiconductor design software product, including logic synthesis, physical
synthesis and verification products, include:

   . high performance and quality;

   . short run time;

   . ease of use;

   . depth and breadth of product features;

   . high quality customer support;

   . frequency of product updates;

   . conformance to industry standards; and

   . price.

   We believe that we compete favorably on these factors. However, we expect
competition in the semiconductor design software market for FPGAs, ASICs and
SoCs to increase significantly as new companies

                                      11

<PAGE>

enter the market and current competitors expand their product lines and
services. Many of these potential competitors are likely to enjoy substantial
competitive advantages, including greater resources that can be devoted to the
development, promotion and sale of their products. In addition, these potential
competitors may have more established sales channels, greater software
development experience and/or greater name recognition.

Employees

   As of December 31, 2001, we had 266 employees, of whom 136 were engaged in
research and development and related customer support services, 84 in sales, 19
in marketing and 27 in finance, administration and operations. None of our
employees is represented by a labor union. We have not experienced any work
stoppages and consider our relations with our employees to be good.

Executive Officers

   Our officers and their ages as of December 31, 2001 are as follows:

<TABLE>
<CAPTION>
 Name                Age Position
 ----                --- --------
 <S>                 <C> <C>
 Bernard Aronson.... 71  Chief Executive Officer, President and Director
 Kenneth S. McElvain 42  Chief Technology Officer, Vice President and Director
 Alisa Yaffa........ 38  Chairman of the Board of Directors, Vice President of
                           Intellectual Property and Secretary
 Douglas S. Miller.. 44  Vice President of Finance and Chief Financial Officer
 Robert J. Erickson. 47  Vice President of Engineering
 Andrew Haines...... 52  Vice President of Marketing
 Gary Meyers........ 37  Vice President of Worldwide Sales
</TABLE>

   Bernard Aronson has served as our Chief Executive Officer, President and a
Director since July 1997. From February to July 1997, Mr. Aronson served as
Senior Vice President and Co-General Manager of the EPIC Technology Group at
Synopsys, a semiconductor design software company. From July 1991 to February
1997, Mr. Aronson served as President of EPIC Design Technology, Inc., a
semiconductor design software company, and also served as a Director of EPIC
from March 1992 to February 1997, until its merger with Synopsys. From March
1990 to August 1991, Mr. Aronson served as Executive Vice President of Zoran
Corporation, a semiconductor company. From 1987 to January 1990, he served as
President of ICI Array Technology, Inc., a contract assembly company. From 1976
to 1987, Mr. Aronson served as President of Pico Design, Inc., a semiconductor
chip design company that he founded and which became a wholly owned subsidiary
of Motorola in 1979. Mr. Aronson also serves as a member of the board of
directors of Nassda Corporation, an electronic design automation software
company. Mr. Aronson holds a Bachelor of Science degree in Electrical
Engineering from the City University of New York.

   Kenneth S. McElvain, one of our co-founders, has served as our Chief
Technology Officer, Vice President and Director since inception. Mr. McElvain
also served as our President from our inception to January 1996, and our Chief
Executive Officer from January 1996 to July 1997. From March 1990 to January
1994, Mr. McElvain was a manager of the logic and timing optimization group and
chief architect of the AutoLogic logic synthesis product at Mentor Graphics, a
semiconductor design software company. From April 1984 to March 1990,
Mr. McElvain was a senior member of technical staff and the originator of the
AutoLogic logic synthesis product at Silicon Compilers, Inc., an intellectual
property and semiconductor design software company that had been acquired by
Mentor Graphics. From July 1980 to April 1984, Mr. McElvain served as a
mainframe designer at Hewlett Packard Company. Mr. McElvain holds a Bachelor of
Arts degree in Mathematics and a Bachelor of Science degree in Computer Science
from Washington State University.

   Alisa Yaffa, one of our co-founders, has served as our Chairman of the Board
of Directors, Vice President of Intellectual Property and Secretary since March
1997, October 1998 and our inception, respectively. Ms. Yaffa

                                      12

<PAGE>

also served as our Chief Executive Officer from our inception to January 1996
and our President from January 1996 to July 1997. From inception to October
1998, Ms. Yaffa served as Chief Financial Officer of our company. Prior to
joining our company, Ms. Yaffa served in various technical and marketing roles
at Cadence, a semiconductor design software company, Mentor Graphics, EDA
Systems, Inc., a design framework software company, and VLSI Technology, Inc.,
a semiconductor manufacturer that was subsequently acquired by Philips
Semiconductor. Ms. Yaffa holds a Bachelor of Arts degree in Applied Mathematics
and Computer Science from University of California at Berkeley.

   Douglas S. Miller has served as our Vice President of Finance and Chief
Financial Officer since October 1998. From June 1998 to September 1998, Mr.
Miller was a self-employed financial consultant. From April 1997 to May 1998,
Mr. Miller served as Vice President and Chief Financial Officer of 3Dlabs, Inc.
a graphics semiconductor company. From October 1991 to April 1997, Mr. Miller
served as a partner at Ernst & Young LLP, a professional services organization,
and from July 1985 to September 1991, Mr. Miller served as a manager at Ernst &
Young LLP. Mr. Miller is a certified public accountant. He holds a Bachelor of
Science degree in Accounting from Santa Clara University.

   Robert J. Erickson has served as our Vice President of Engineering since
April 1998. From June 1997 to April 1998, Mr. Erickson was a principal of
Vermilion DA, a semiconductor design software consulting firm. From May 1984 to
June 1997, Mr. Erickson served in various positions including a director of
engineering at Mentor Graphics. Mr. Erickson holds Bachelor of Arts degrees in
Physics and Electrical Engineering from Rice University and a Master of Science
degree in Electrical Engineering from Stanford University.

   Andrew Haines has served as our Vice President of Marketing since November
1996. Prior to joining our company, Mr. Haines was active as President and
founder of Page Mill Marketing, Inc., a marketing consulting company, from
February 1995 to November 1996. Previously, Mr. Haines acted as Director of
Marketing for Actel, an FPGA company, from 1987 to 1993. Mr. Haines also held a
variety of marketing positions at VLSI Technology and Intel Corporation. Mr.
Haines holds a Bachelor of Science degree in Physics from the University of
Wisconsin, Madison.

   Gary Meyers has served as our Vice President of Worldwide Sales since
November 1999 and was Vice President of North American Sales from January 1999
to November 1999. Mr. Meyers joined Synplicity in January 1998 where he served
as Western Area Sales Manager until January 1999. From 1988 through 1997,
Mr. Meyers served in various senior sales and marketing roles at LSI Logic, a
semiconductor company, including from 1996 to 1997 as Director of Marketing of
the Communications Products Division, and from 1994 to 1996 as Major Account
Sales Manager. Mr. Meyers holds a Bachelor of Science degree in Electrical
Engineering from the University of Maryland and a Masters of Business
Administration degree from the University of California at Los Angeles.

                                      13

<PAGE>

ITEM 2.  PROPERTIES

   Our principal offices are located in a leased 34,200 square foot facility in
Sunnyvale, California and house the majority of our research and development
and related customer support services employees, as well as all marketing,
administration and finance employees. In addition, we lease a 3,900 square foot
development, support and sales center in Bangalore, India, a 3,000 square foot
sales office in Andover, Massachusetts, a 3,000 square foot sales facility in
Tokyo, Japan, a 1,400 square foot sales and development office in Boulder,
Colorado, a 1,300 square foot sales office in Austin, Texas and a 1,100 square
foot sales and support office in Bracknell, United Kingdom. We also lease sales
or development offices of 1,000 square feet or less, in or near Newport Beach
and San Diego, California; Beaverton, Oregon; Redmond, Washington; Chicago,
Illinois; Durham, North Carolina; Bel Air, Maryland; Munich, Germany;
Aix-en-Provence and Montpellier, France; Venray, Netherlands; Netanya, Israel;
Seoul, South Korea; and Hsinchu City, Taiwan. Other than our Sunnyvale,
Beaverton, Boulder, Austin, Andover, Montpellier, Venray, Netanya, Banagalore
and Tokyo offices, none of the leases for our offices is more than 12 months in
duration. Our lease for the Sunnyvale facility expires in September 2002. We
will need to either extend our existing lease or relocate our principal offices
to a new facility during 2002. We expect that our other current leased
facilities will be substantially sufficient for our needs for 2002. However, we
may choose to expand certain existing sales offices or establish new ones
during the year.

ITEM 3.  LEGAL PROCEEDINGS

   We are not currently involved in any material litigation.

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

   None.

                                      14

<PAGE>

                                    PART II

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

                    PRICE RANGE OF SYNPLICITY COMMON STOCK

   Our common stock has been traded on the Nasdaq National Market under the
symbol "SYNP" since October 12, 2000. The following table sets forth for the
period indicated the high and low sale prices for the common stock, as reported
by the Nasdaq National Market.

<TABLE>
<CAPTION>
                                                        High   Low
                                                       ------ ------
            <S>                                        <C>    <C>
            Fiscal Year Ended December 31, 2001
               First Quarter.......................... $19.81 $11.75
               Second Quarter......................... $18.96 $ 9.87
               Third Quarter.......................... $ 9.74 $ 5.00
               Fourth Quarter......................... $13.49 $ 5.20

            Fiscal Year Ended December 31, 2000
               Fourth Quarter (from October 12, 2000). $16.00 $ 8.00
</TABLE>

   On December 31, 2001, the last reported sale price of our common stock on
the Nasdaq National Market was $13.49 per share. As of February 26, 2002 there
were approximately 178 holders of record of our common stock.

                                DIVIDEND POLICY

   To date, we have paid no cash dividends on our common stock, and have no
current intentions to do so.

                                      15

<PAGE>

ITEM 6:  SELECTED CONSOLIDATED FINANCIAL DATA

   The selected consolidated financial data below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and our consolidated financial statements and notes thereto. The
selected consolidated statement of operations data for the years ended December
31, 2001, 2000 and 1999, and the selected consolidated balance sheet data as of
December 31, 2001 and 2000, are derived from, and are qualified by reference
to, the audited consolidated financial statements included elsewhere in this
Annual Report on Form 10-K.

   The selected consolidated statement of operations data for the years ended
December 31, 1998 and 1997 and the selected consolidated balance sheet data as
of December 31, 1999, 1998 and 1997 are derived from, and qualified by
reference to, audited consolidated financial statements that are not included
in this Annual Report on Form 10-K.

   The historical results presented below are not necessarily indicative of
future results.

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                     -------------------------------------------
                                                      2001     2000     1999     1998     1997
                                                     -------  -------  -------  -------  -------
                                                        (in thousands, except per share data)
<S>                                                  <C>      <C>      <C>      <C>      <C>
Consolidated Statement of Operations Data:
Revenue:
License............................................. $32,126  $25,006  $13,019  $ 8,373  $ 4,679
Maintenance.........................................  17,076    9,584    5,156    2,655      775
                                                     -------  -------  -------  -------  -------
   Total revenue....................................  49,202   34,590   18,175   11,028    5,454
Cost of revenue:
Cost of license.....................................     237      246      239      148       97
Cost of maintenance.................................   1,918    1,537    1,187      531       64
                                                     -------  -------  -------  -------  -------
   Total cost of revenue............................   2,155    1,783    1,426      679      161
                                                     -------  -------  -------  -------  -------
Gross profit........................................  47,047   32,807   16,749   10,349    5,293
Operating expenses:
Research and development............................  19,353   13,286    8,018    4,031    1,054
Sales and marketing.................................  21,500   18,293   12,903    8,317    3,970
General and administrative..........................   5,493    3,570    2,586    1,620      788
Stock-based compensation............................   1,012      952      175       --       --
                                                     -------  -------  -------  -------  -------
   Total operating expenses.........................  47,358   36,101   23,682   13,968    5,812
                                                     -------  -------  -------  -------  -------
Loss from operations................................    (311)  (3,294)  (6,933)  (3,619)    (519)
Other income (expense), net.........................   1,922      647       (7)     (19)      47
                                                     -------  -------  -------  -------  -------
Income (loss) before income taxes...................   1,611   (2,647)  (6,940)  (3,638)    (472)
Provision for income taxes..........................     304       --       --       --       --
                                                     -------  -------  -------  -------  -------
Net income (loss)................................... $ 1,307  $(2,647) $(6,940) $(3,638) $  (472)
                                                     =======  =======  =======  =======  =======
Basic and diluted net income (loss) per common share $  0.05  $ (0.16) $ (0.52) $ (0.29) $ (0.04)
                                                     =======  =======  =======  =======  =======
Shares used in basic per share calculation..........  24,422   16,115   13,227   12,451   11,954
                                                     =======  =======  =======  =======  =======
Shares used in diluted per share calculation........  27,205   16,115   13,227   12,451   11,954
                                                     =======  =======  =======  =======  =======

                                                                     December 31,
                                                     -------------------------------------------
                                                      2001     2000     1999     1998     1997
                                                     -------  -------  -------  -------  -------
                                                                    (in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments... $47,873  $36,535  $ 2,633  $ 1,193  $ 2,314
Working capital (deficit)........................... $39,876  $30,652  $(2,363) $(1,273) $ 1,619
Total assets........................................ $59,905  $51,963  $ 9,119  $ 6,509  $ 4,434
Long term obligations, less current portion......... $    --  $   196  $   720  $ 2,343  $   403
Total shareholders' equity (deficit)................ $43,727  $38,291  $  (734) $(1,660) $ 1,939
</TABLE>

                                      16

<PAGE>

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

   Certain statements in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" are forward-looking statements.
These statements relate to future events or our future financial performance
and involve known and unknown risks, uncertainties and other factors that may
cause our or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by the
forward-looking statements. These risks and other factors include those listed
under "Factors Affecting Future Operating Results" and elsewhere in this Annual
Report on Form 10-K. In some cases, you can identify forward-looking statements
by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," "continue" or
the negative of these terms or other comparable terminology. Forward-looking
statements include, but are not limited to: the statements under "Critical
Accounting Policies and Estimates" regarding the financial statements included
in this Annual Report, the recognition of future revenue from the sale of
perpetual and time-based licenses and additional allowances; the statements
under "Years Ended December 31, 2001 and 2000--Cost of revenue" regarding the
cost of license revenue and the cost of maintenance revenue; the statements
under "Results of Operations--Operating expenses" regarding the growth of
research and development, sales and marketing, and general and administrative
expenses; the statements in the last paragraph under "Liquidity and Capital
Resources" concerning the anticipated spending for capital additions for the
remainder of 2002, the sufficiency of our available resources to meet cash
requirements and the factors which will determine our future cash requirements;
and the statements in "Factors Affecting Future Operating Results." These
statements are only predictions. Actual events or results may differ
materially. In evaluating these statements, you should specifically consider
various factors, including the risks outlined under "Factors Affecting Future
Operating Results." These factors may cause our actual results to differ
materially from any forward-looking statement.

   Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
forward-looking statements. We are under no duty to update any of the
forward-looking statements after the date of this Annual Report on Form 10-K to
conform our prior statements to actual results.

   You should read the following discussion and analysis in conjunction with
our audited consolidated financial statements and the related notes thereto
included in this Annual Report on Form 10-K.

Overview

   We operate in one segment, the development and licensing of software
products that are used in the design and verification of semiconductors. We
market and sell our products throughout North America, principally the U.S., as
well as in Europe, Japan and the rest of Asia, which comprise international
activities. Our revenue from sales outside North America represented
approximately 24%, 21% and 20% of our total revenue in 2001, 2000 and 1999,
respectively. Our products include: our Synplify product, an FPGA logic
synthesis product; our HDL Analyst product, a complementary product to the
Synplify solution which provides graphical representation and design analysis;
our Certify product, an ASIC and SoC verification product; our Amplify Physical
Optimizer product, which we believe is the only physical synthesis product for
FPGAs; our Synplify Pro product, an advanced FPGA logic synthesis product; our
Certify SC product, a tool aimed at ASIC and intellectual property prototyping
on a single FPGA, or debugging large FPGA designs; and our Synplify ASIC
product, a timing-driven ASIC synthesis product optimized to improve
productivity for the majority of ASIC designers.

                                      17

<PAGE>

   We primarily sell perpetual licenses to use our software products and also
sell related maintenance services, therefore our revenue consists of license
and maintenance revenue. Historically, we have generated the majority of our
total revenue from licenses. However, as a result of our growing installed
customer base, maintenance revenue has increased as a percent of total revenue.
We have also begun to sell time-based licenses to use our software products.

Critical Accounting Policies and Estimates

   Our discussion and analysis of our financial condition and results of
operations are based upon our audited consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
and we evaluate these estimates on an on-going basis. Actual results may differ
from these estimates under different assumptions or conditions.

  Revenue Recognition

   For each sale of a perpetual license, we defer the recognition of revenue
until a purchase order is received from the customer, delivery of the product
and license key has occurred, the fee is fixed or determinable, collection of
the fee is probable and there are no remaining obligations by us. Once all of
the above conditions have been met, we recognize license revenue based upon the
residual method after all elements other than maintenance have been delivered
as prescribed by Statement of Position 98-9, Modification of SOP No. 97-2 with
Respect to Certain Transactions. Assessing whether or not collection of the fee
is probable requires certain judgments which we base on the analysis provided
by our credit review procedures. Furthermore, revenue on arrangements with
extended payment terms that have met all other required revenue recognition
criteria are recognized as payments are received, and sales to distributors and
resellers are generally recognized when the distributor or reseller has resold
the product to an end user and we have received payment from them.

   A substantial majority of customers who license our products also purchase
maintenance annually, which we offer at 20% of the list price of the license.
Customers purchasing maintenance receive unspecified product updates and
electronic, internet-based technical support and telephone support. We
recognize revenue from maintenance ratably over the maintenance period, which
is typically one year.

   We also sell time-based licenses to use our software products for specified
periods of time. Revenue from time-based licenses is allocated to license and
maintenance revenue and recognized ratably over the period of the license as we
do not have vendor specific objective evidence of fair value of maintenance
since maintenance for these licenses is not priced or offered separately. In
addition, we have provided a limited feature version of one of our products to
certain FPGA manufacturers for distribution to their customers. As part of
these agreements we have certain maintenance and support obligations to the
FPGA manufacturer. Revenue on these arrangements is also allocated to license
and maintenance revenue and recognized ratably over the period of each
arrangement, as we do not have vendor specific objective evidence of fair value
of maintenance since maintenance for these arrangements is not priced or
offered separately.

  Allowance for Doubtful Accounts

   We maintain an allowance for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.

                                      18

<PAGE>

Results of Operations

   The following table sets forth the results of our operations expressed as a
percent of total revenue. Our historical operating results are not necessarily
indicative of the results for any future period.

<TABLE>
<CAPTION>
                                                Year Ended December 31,
                                                ---------------------
                                                2001    2000    1999
                                                -----   -----   -----
        <S>                                     <C>     <C>     <C>
        Revenue:
        License................................  65.3 %  72.3 %  71.6 %
        Maintenance............................  34.7    27.7    28.4
                                                -----   -----   -----
           Total revenue....................... 100.0   100.0   100.0
        Cost of revenue:
        Cost of license........................   0.5     0.7     1.3
        Cost of maintenance....................   3.9     4.5     6.5
                                                -----   -----   -----
           Total cost of revenue...............   4.4     5.2     7.8
                                                -----   -----   -----
        Gross margin...........................  95.6    94.8    92.2
        Operating expenses:
        Research and development...............  39.3    38.4    44.1
        Sales and marketing....................  43.7    52.9    71.0
        General and administrative.............  11.2    10.3    14.3
        Stock-based compensation...............   2.1     2.8     1.0
                                                -----   -----   -----
           Total operating expenses............  96.3   104.4   130.4
        Loss from operations...................  (0.6)   (9.6)  (38.2)
        Other income (expense), net............   3.9     1.9      --
                                                -----   -----   -----
        Income (loss) before income taxes......   3.3    (7.7)  (38.2)
                                                -----   -----   -----
        Provision for income taxes.............   0.6      --      --
                                                -----   -----   -----
        Net income (loss)......................   2.7 %  (7.7)% (38.2)%
                                                =====   =====   =====
</TABLE>

Years Ended December 31, 2001 and 2000

  Total revenue

   Our total revenue increased by 42.2% to $49.2 million for 2001 from $34.6
million for 2000. This increase was primarily attributable to the release of
certain new products which began contributing to revenue in the second quarter
of 2000, a stronger direct sales presence internationally and an increase in
sales to our existing customers. We expect that we will not maintain such
historical rates of revenue growth during 2002. Historically, we have generated
the majority of our total revenue from licenses. However, during 2001, as a
result of our growing installed customer base, maintenance revenue increased as
a percent of total revenue.

   License revenue.  License revenue increased by 28.5% to $32.1 million for
2001 from $25.0 million for 2000. This increase was primarily due to a full
year of sales of our Amplify and Synplify Pro products which began contributing
to revenue in the second quarter of 2000, as well as stronger revenues from
Europe and Japan.

   Maintenance revenue.  Our maintenance revenue increased by 78.2% to $17.1
million for 2001 from $9.6 million for 2000. This increase was attributable to
an increase in perpetual license sales with which we generally sell one year of
maintenance support services, offset somewhat by a lower overall rate of
maintenance renewal in 2001 compared to 2000.

  Cost of revenue

   Cost of license revenue.  Cost of license revenue includes product
packaging, software documentation and other costs associated with shipping, as
well as royalties due from us to third parties. Our cost of license revenue

                                      19

<PAGE>

decreased 3.7% to $237,000 for 2001 from $246,000 for 2000. Higher costs were
incurred in 2000 due to documentation costs for a major product release as well
as a greater amount of documentation shipped to customers. As a percent of
license revenue, the cost of license revenue decreased to 0.7% for 2001 from
1.0% for 2000, primarily due to savings achieved in software documentation and
shipping costs. We expect that both the cost of license revenue in dollars and
the cost of license revenue as a percent of license revenue will not vary
significantly in 2002 from 2001.

   Cost of maintenance revenue.   Cost of maintenance revenue consists
primarily of personnel and other expenses related to providing maintenance
support to our customers. Cost of maintenance revenue increased 24.8% to $1.9
million for 2001 from $1.5 million for 2000. This increase was primarily caused
by the hiring of additional customer support personnel to provide improved
levels of support to a growing installed customer base. We expect that the cost
of maintenance revenue in dollars will not continue to grow at such historical
rates during 2002. As a percent of maintenance revenue, the cost of maintenance
revenue decreased to 11.2% for 2001 from 16.0% for 2000, primarily due to the
increase in maintenance revenue during 2001. We do not expect that the cost of
maintenance as a percent of maintenance revenue will vary significantly in 2002
from 2001.

  Operating expenses

   Research and development.   Our research and development expenses increased
45.7% to $19.4 million for 2001 from $13.3 million for 2000. This increase was
primarily attributable to an increased headcount of software engineers we
employed for the enhancement of existing products and the development of new
products. We expect that research and development expenses in 2002 will not
continue to grow at such historical rates. As a percent of total revenue,
research and development expenses increased to 39.3% for 2001 from 38.4% for
2000 due to the engineering personnel costs increasing at a higher rate than
revenue.

   Sales and marketing.   Our sales and marketing expenses increased 17.5% to
$21.5 million for 2001 from $18.3 million for 2000. This increase was primarily
due to the expansion of our sales offices, particularly in Japan and other
parts of Asia, as well as higher spending on tradeshows and public relations.
We do not expect that sales and marketing expenses in 2002 will continue to
grow at such historical rates as we expect to add only a limited number of
sales resources, mainly in Europe and Asia. As a percent of total revenue,
sales and marketing expenses decreased to 43.7% for 2001 from 52.9% for 2000,
primarily due to the increase in total revenue.

   General and administrative.   Our general and administrative expenses
increased 53.9% to $5.5 million for 2001 from $3.6 million for 2000. As a
percent of total revenue, general and administrative expenses increased to
11.2% for 2001 from 10.3% for 2000. These increases were the result of hiring
additional finance and operations personnel, increased insurance expenses and
increased legal, accounting, consulting and other costs associated with being a
public company. We do not expect general and administrative expenses in 2002 to
increase at such historical rates.

   Stock-based compensation.   Stock-based compensation expense was $1.0
million for 2001 and $952,000 for 2000. Stock-based compensation expense for
2001 related to the following: cost of maintenance revenue of $33,000, research
and development expenses of $423,000, sales and marketing expenses of $408,000
and general and administrative expenses of $148,000. Stock-based compensation
expense for 2000 related to the following: cost of maintenance revenue of
$28,000, research and development expenses of $464,000, sales and marketing
expenses of $403,000 and general and administrative expenses of $57,000. The
remaining deferred stock-based compensation at December 31, 2001 is expected to
be amortized as follows: $709,000 in 2002, $502,000 in 2003, $290,000 in 2004
and the balance thereafter. Subsequent terminations of option holders may
reduce future stock-based compensation.


                                      20

<PAGE>

  Other income, net

   Other income, net increased 197% to $1.9 million for 2001 from $647,000 for
2000, primarily as a result of higher interest income from increased cash and
investment balances. The increased cash and investment balances were a result
of cash proceeds from our initial public offering in October 2000, as well as
cash generated from operations. In addition, we recorded a nonrecurring gain on
the sale of long-term investments of approximately $72,000 during 2001.

  Income Taxes

   We recorded a tax provision of $304,000 for 2001 which represented federal
and state minimum taxes as well as foreign income taxes on international
subsidiaries. We incurred a loss in 2000 and, therefore, no provision was
recorded in that year.

   As of December 31, 2001, we had approximately $4.4 million of federal net
operating loss carryforwards for tax reporting purposes available to offset
future taxable income. These net operating loss carryforwards expire beginning
in 2012. We have not recognized any benefit from the future use of loss
carryforwards for these periods or for any other period since inception because
of uncertainty surrounding their realization. The amount of net operating
losses that we can utilize may be limited under tax regulations in
circumstances including a cumulative stock ownership change of more than 50%
over a three year period.

Years Ended December 31, 2000 and 1999

  Total revenue

   Our total revenue increased by 90.3% to $34.6 million for 2000 from $18.2
million for 1999. This increase was primarily attributable to an increase in
sales to our existing customers resulting in substantial growth in license and
maintenance revenue, as well as an increase in our customer base.

   License revenue.  License revenue increased by 92.1% to $25.0 million for
2000 from $13.0 million for 1999. The increase in revenue was primarily
attributable to increased market acceptance of our Synplify, Synplify Pro and
HDL Analyst products, and to a lesser degree, the introduction of our Certify
product in 1999 and Amplify product in 2000. The increase also reflects the
results from a larger and more productive sales force.

   Maintenance revenue.  Our maintenance revenue increased by 85.9% to $9.6
million for 2000 from $5.2 million for 1999. The increase in maintenance
revenue was primarily attributable to the increase in perpetual license sales
to new and existing customers, in connection with which we generally sell one
year of maintenance support services, as well as an increase in revenue from
customers renewing maintenance support services.

  Cost of revenue

   Cost of license revenue.  Our cost of license revenue increased 2.9% to
$246,000 for 2000 from $239,000 for 1999. This increase was due primarily to
the larger volume of unit shipments during 2000. As a percent of license
revenue, the cost of license revenue decreased to 1.0% for 2000 from 1.8% for
1999, primarily due to efficiencies achieved on a greater volume of product
shipments.

   Cost of maintenance revenue.  Our cost of maintenance revenue increased
29.5% to $1.5 million for 2000 from $1.2 million for 1999. This increase was
primarily attributable to increased hiring of customer support personnel to
provide improved levels of service to our growing customer base. As a percent
of maintenance revenue, the cost of maintenance revenue decreased to 16.0% for
2000 from 23.0% for 1999. The decrease in the cost of maintenance revenue as a
percent of maintenance revenue was primarily due to the increased volume of
maintenance renewal in 2000.

                                      21

<PAGE>

  Operating expenses

   Research and development.  Our research and development expenses increased
65.7% to $13.3 million for 2000 from $8.0 million for 1999. This increase was
primarily attributable to an increased headcount of software engineers we
employed for the enhancement of existing products and the development of new
products. As a percent of total revenue, research and development expenses
decreased to 38.4% for 2000 from 44.1% for 1999. This decrease in research and
development expenses as a percent of total revenue was primarily attributable
to the increase in total revenue for 2000.

   Sales and marketing.  Our sales and marketing expenses increased 41.8% to
$18.3 million for 2000 from $12.9 million for 1999. This increase was primarily
due to the hiring of additional sales and marketing personnel, increases in
commissions due to increased sales and the expansion of our sales offices,
particularly in Europe. As a percent of total revenue, sales and marketing
expenses decreased to 52.9% for 2000 from 71.0% for 1999. The decrease in sales
and marketing expenses as a percent of total revenue was primarily attributable
to the increase in total revenue for 2000.

   General and administrative.  Our general and administrative expenses
increased 38.1% to $3.6 million for 2000 from $2.6 million for 1999. This
increase in general and administrative expenses was primarily attributable to
the hiring of additional finance and operations personnel, as well as increased
legal, accounting and other consulting fees. As a percent of total revenue,
general and administrative expenses decreased to 10.3% for 2000 from 14.2% for
1999. The decrease in general and administrative expenses as a percent of total
revenue was primarily attributable to the increase in total revenue for 2000.

   Stock-based compensation.  Stock-based compensation expense was $952,000 for
2000 and $175,000 for 1999. Stock-based compensation expense for 2000 related
to the following: cost of maintenance revenue of $28,000, research and
development expenses of $464,000, sales and marketing expenses of $403,000 and
general and administrative expenses of $57,000. Stock-based compensation
expense for 1999 related to the following: cost of maintenance revenue of
$5,000, research and development expenses of $113,000, sales and marketing
expenses of $55,000 and general and administrative expenses of $2,000.

  Other income (expense), net

   Our other income (expense), net increased to other income of $647,000 for
2000 from other expense of $7,000 for 1999, primarily as a result of increased
interest income on higher levels of cash, cash equivalent and investment
balances.

Liquidity and Capital Resources

   As of December 31, 2001, we had cash and cash equivalents of $16.9 million,
short-term investments of $31.0 million, an accumulated deficit of $12.5
million and working capital of $39.9 million. Net cash provided by operating
activities was $6.1 million and $419,000 for 2001 and 2000, respectively, and
net cash used in operating activities was $3.4 million for 1999.

   Net cash used in investing activities was $16.6 million, $18.4 million and
$1.3 million for 2001, 2000 and 1999, respectively. Net cash used in investing
activities during 2001 and 2000 was primarily for investments of cash received
from our initial public offering and cash generated from operations, as well as
purchases of computers, software and furniture as we expanded operations. Net
cash used in investing activities during 1999 was for purchases of computers,
software and furniture. We expect to use approximately $3.0 million of cash to
purchase property and equipment during 2002.

   Net cash provided by financing activities was $2.7 million, $39.8 million
and $6.1 million for 2001, 2000 and 1999, respectively. In 2001, net cash
provided by financing activities was primarily from the sale of common

                                      22

<PAGE>

stock as employees exercised stock options and purchased shares through our
employee stock purchase plan. In 2000, net cash provided by financing
activities was primarily due to the sale of Series C preferred stock in March
2000 and the sale of common stock during our initial public offering in October
2000. In 1999, net cash provided by financing activities was primarily due to
the sale of Series B preferred stock.

   The following summarizes our contractual obligations as of December 31,
2001, and the effect such obligations are expected to have on our liquidity and
cash flow in future periods:

<TABLE>
<CAPTION>
                                                        Payments Due by Year
                                                       -----------------------
                                                        2002  2003 2004 Total
                                                       ------ ---- ---- ------
                                                           (in thousands)
  <S>                                                  <C>    <C>  <C>  <C>
  Operating Leases.................................... $1,663 $253 $10  $1,926
  Capital Leases......................................     75   --  --      75
                                                       ------ ---- ---  ------
     Total............................................ $1,738 $253 $10  $2,001
                                                       ====== ==== ===  ======
</TABLE>

   The amount representing interest on the capital leases for 2002 is $4,000.
The present value of future minimum lease payments on the capital lease is
$71,000, all of which is a current liability.

   We have a $3.0 million line of credit with Silicon Valley Bank with an
interest rate equal to the prime rate. The line of credit expires in March 2002
and we are currently in the process of renewing the line. Advances under the
line of credit are limited to a specified percent of eligible accounts
receivable as defined in the line of credit agreement. As of December 31, 2001,
we had no borrowings outstanding under this line of credit and had available
borrowings under the line of approximately $3.0 million. We are subject to
financial ratio and other covenants in connection with this line of credit and
were in compliance with the covenants as of December 31, 2001.

   Our future liquidity and capital requirements will depend on numerous
factors, including:

   . the amount, type and timing of product sales;

   . the extent to which our existing and new products gain market acceptance;

   . the extent to which customers continue to renew annual maintenance;

   . the cost and timing of expansion of product development efforts and the
     success of these development efforts;

   . the cost and timing of expansion of sales and marketing activities; and

   . available borrowings under line of credit arrangements.

   We believe that our cash and investments balance of $47.9 million as of
December 31, 2001 will be sufficient to meet our operating and capital
requirements through at least 2002. However, it is possible that we may require
additional financing within this period. For example, we intend to continue to
invest significantly in the development of new products and enhancements to our
existing products. In addition, even if we have sufficient funds to meet our
anticipated cash needs during 2002, we may need to raise additional funds
beyond this time. We may be required to raise those funds through public or
private financings, strategic relationships or other arrangements. We cannot
assure that such funding, if needed, will be available on terms attractive to
us, or at all. Furthermore, any additional equity financing may be dilutive to
shareholders, and debt financing, if available, may involve restrictive
covenants. If we fail to raise capital when needed, our failure could have a
negative impact on our profitability and our ability to pursue our business
strategy.

                                      23

<PAGE>

Recent Accounting Pronouncements

   In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, Business Combinations
("SFAS 141"). SFAS 141 establishes new standards for accounting and reporting
for business combinations and will require that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
Use of the pooling-of-interests method will be prohibited. We expect to adopt
this statement during the first quarter of fiscal 2002 and do not believe that
the adoption will have a material effect on our operating results or financial
position as we have had no business combinations to date.

   In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets ("SFAS 142"), which supersedes
APB Opinion No. 17, Intangible Assets. SFAS 142 establishes new standards for
goodwill, including the elimination of goodwill amortization to be replaced
with methods of periodically evaluating goodwill for impairment. We expect to
adopt this statement during the first quarter of fiscal 2002 and do not believe
that the adoption will have a material effect on our operating results or
financial position.

   In October 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS
144"), which supersedes Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of ("SFAS 121"). The objective of SFAS 144 is to develop one
accounting model based on the framework established in SFAS 121 for long-lived
assets to be disposed of by sale, and to address significant implementation
issues. We expect to adopt this statement during the first quarter of fiscal
2002 and do not believe that the adoption will have a material affect on our
operating results or financial position.

Factors Affecting Future Operating Results

Our sales and operating results have been, and may continue to be, negatively
impacted by the recent adverse economic conditions in North America, as well as
outside of North America

   We have experienced negative effects from the recent economic slowdown in
North America and other parts of the world. Substantial uncertainty remains as
to the future economic climate for many of our customers. Many of our customers
continue to tightly control spending, making it more difficult for us to sell
our products to them. We have seen delayed and canceled purchase orders,
weakness in sales to startup companies and extension of payment terms by
certain customers. While these conditions have heavily affected networking and
communications companies, we have seen these conditions also affect the broader
base of our customers including systems companies and integrated circuit
companies. All of these trends have affected our business in North America, and
to an extent, our business in Europe and other international locations. This
has resulted in a lower level of demand for all of our products as well as
longer sales cycles. This slowdown could continue or worsen, and may further
extend to other geographic regions. A continuation or further decline of
current economic conditions, or extension of such conditions to other
geographic regions or industries, would continue to adversely impact our
business.

We have a history of losses and may experience losses in the future, which
could result in the market price of our common stock declining

   Since our inception, we have incurred significant net losses, including net
losses of $2.6 million in 2000 and $6.9 million in 1999. We expect to continue
to incur significant levels of research and development, sales and marketing
and general and administrative expenses. Therefore, although we achieved
profitability in 2001, we will need to generate significant revenue to maintain
profitability in future periods. If we do not maintain profitability, the
market price of our common stock may decline, perhaps substantially.

                                      24

<PAGE>

   Our expenses may increase in the next 12 months as we:

   . continue to incur research and development expenses to enhance our
     existing products and technologies;

   . attempt to develop additional logic synthesis, physical synthesis or other
     products;

   . expand our direct sales force outside North America;

   . may increase the size of our customer support organization and begin to
     provide consulting services; and

   . may reduce the cost control measures put in place during 2001 and early
     2002.

   Any failure to significantly increase our new product bookings and revenue
as we implement our product and distribution strategies would also harm our
ability to maintain profitability and could negatively impact the market price
of our common stock.

We may not be able to increase our revenue at rates that meet the expectations
of investment analysts and others, or revenues could decline, which could cause
our stock price to decline

   Our annual rates of revenue growth were 42% in 2001, 90% in 2000 and 65% in
1999. We anticipate that we will not maintain our historical rates of revenue
growth in 2002. As our revenue base grows larger, it will be difficult to
maintain high percentage increases over time. If we fail to introduce new
products or enhanced versions of existing products when expected, our revenue
growth could be negatively affected. Growing competition and our inexperience
in selling our products to customers that design ASICs and SoCs could also
adversely affect our revenue growth. Our revenue could decline as a result of
technological changes that negatively affect the demand for FPGAs, ASICs and
SOCs. In addition, we have recently seen, and expect to continue to see, an
increase in the number and dollar amount of time-based license agreements
entered into. These agreements generally have terms from one to three years and
we recognize revenue from them ratably over the term of the agreements. This
could affect our expected revenue growth due to the delayed revenue recognition
for such licenses versus our perpetual licenses. Any significant decrease in
our rate of revenue growth, or a decline in revenues, would likely result in a
decrease in our stock price because our revenue may fail to meet the
expectations of investment analysts and others.

Our common stock may be subject to substantial price and volume fluctuations
due to a number of factors, many of which will be beyond our control, which may
prevent our shareholders from reselling our common stock at a profit

   The securities markets recently have experienced significant price and
volume fluctuations and the market prices of the securities of technology
companies have been especially volatile. This market volatility, as well as
general economic, market or political conditions, could reduce the market price
of our common stock regardless of our operating performance. In addition, our
operating results could be below the expectations of investment analysts and
investors, and in response the market price of our common stock could decrease
significantly. In the past, companies that have experienced volatility in the
market price of their stock have been the object of securities class action
litigation. If we were the object of securities class action litigation, it
could result in substantial costs, liabilities and a diversion of management's
attention and resources.

Our quarterly operating results and stock price may fluctuate, because our
ability to accurately forecast our quarterly sales is limited, our costs are
relatively fixed in the short term and we expect our business to be affected by
seasonality

   Because of the rapidly evolving market for FPGAs, ASICs and SOCs, our
ability to accurately forecast our quarterly sales is limited, which makes it
difficult to predict the quarterly revenue that we will recognize. In addition,
the time to initiate and complete a sale for our FPGA products is generally
short, and our ability to foresee and react to changes in customer demand for
our products may be limited and therefore inaccurate. Most of our costs are for
personnel and facilities, which are relatively fixed in the short term. If we
have a shortfall in revenue in relation to our expectations, we may be unable
to reduce our expenses quickly to avoid lower

                                      25

<PAGE>

quarterly operating results. Consequently, our quarterly operating results
could fluctuate, and the fluctuations could adversely affect the market price
of our common stock.

   In addition, we expect to experience fluctuations in the sale of licenses
for our products due to seasonality. For example, we expect that sales may
decline during the summer months, particularly in European markets. We have
experienced and anticipate we will continue to experience relatively lower
product bookings in our first fiscal quarter due to patterns in the capital
budgeting and purchasing cycles of our current and prospective customers and
the economic incentives for our sales force. These factors may lead to
fluctuations in our quarterly operating results. It is difficult for us to
evaluate the degree to which these capital budgeting and customer purchasing
cycle variations and sales incentives may reduce our sales because our revenue
growth during the past few years may have largely overshadowed these factors in
previous periods.

We have relied and expect to continue to rely on sales of our Synplify,
Synplify Pro and HDL Analyst products for a substantial portion of our license
revenue, and a decline in sales of these products could cause our license
revenue to decline

   Historically, we have derived substantially all of our revenue from sales of
our Synplify, Synplify Pro and HDL Analyst products. License revenue for our
Synplify, Synplify Pro and HDL Analyst products accounted for approximately
82%, 83% and 93% of our license revenue in 2001, 2000 and 1999, respectively.
We expect that the revenue from these products will continue to account for a
majority of our license revenue for at least the next fiscal year. Any factors
adversely affecting the pricing of our licenses or demand for our Synplify,
Synplify Pro and HDL Analyst products, including competition or technological
change, could cause our license revenue to decline and our business to suffer.
Factors that may affect sales of our Synplify, Synplify Pro and HDL Analyst
products, some of which are beyond our control, include the following:

  .   general economic factors including economic slowdowns and recessions, in
      both domestic and foreign markets;

  .   the growth and changing requirements of the programmable semiconductor
      market, particularly with respect to FPGAs;

  .   the performance, quality, price and total cost of ownership of our
      software products relative to other logic synthesis products for FPGAs;
      and

  .   the maintenance and enhancement of our existing relationships with
      leading manufacturers of FPGAs, which may provide us advance information
      or detailed data about those vendors' FPGAs and software.

We may not succeed in developing, marketing and selling new logic synthesis,
physical synthesis and verification products, and our operating results may
decline as a result

   We intend to develop additional logic synthesis, physical synthesis and
verification products that leverage our core capabilities. We also intend to
develop new features for our existing products. Developing new products and new
features for existing products that meet the needs of electronic product
designers requires significant investments in research and development. If we
fail to successfully develop, market and sell new products and enhance our
current products, our operating results will decline.

   We introduced our Certify product in 1999, our Amplify Physical Optimizer
product in March 2000 and our Synplify Pro product in May 2000. We will need to
continue to increase sales of these products in order to grow our revenue and
profitability. We introduced our Certify SC product in May 2001 and our
Synplify ASIC product in June 2001, both of which began contributing to revenue
on a limited basis in the second half of 2001. Our future growth and
profitability will depend on our ability to gain market acceptance of our newly
introduced products, especially our ASIC synthesis product. In addition, sales
of our ASIC synthesis product may depend on a dedicated sales force that we
have only recently begun to provide, or may require substantial training of our
existing sales force. We cannot be certain that our Certify SC product or other
new products, or our entry into the ASIC logic synthesis product market or
other new markets, will be successful. If customers do not accept and widely
adopt such newly introduced products, our operating results could decline.

                                      26

<PAGE>

Our revenue could decline substantially if our existing customers do not
continue to purchase additional licenses or maintenance from us

   We rely on sales of additional licenses to our existing customers, as well
as annual maintenance renewals for our products. Additional license sales to
our existing customers represented approximately 75%, 73% and 45% of our
license revenue in 2001, 2000 and 1999, respectively. If we fail to sell
additional licenses for our products to our existing customers, we would
experience a material decline in revenue. Even if we are successful in selling
our products to new customers, the rate of growth of our revenue could be
harmed if our existing customers do not continue to purchase a substantial
number of additional licenses from us or fail to renew their maintenance. We
have recently seen a decline in our maintenance renewal rate. If we continue to
experience this decline, our maintenance revenue could decline.

If we continue to experience any increase in the length of our sales cycle, our
quarterly operating results could become more unpredictable and our stock price
may decline as a result

   We experience sales cycles, or the time between an initial customer contact
and completion of a sale, of generally two weeks to four months, depending on
the FPGA product. As a result of the current economic slowdown, we have
experienced an increase in the length of our sales cycle. In particular, we
have seen a lengthening of sales cycles in North America and Europe. If we
continue to experience such an increase in the length of our sales cycle, our
quarterly operating results could suffer and our stock price could decline as a
result. In addition, for all of our products, customers often purchase a small
number of licenses and then incrementally increase the number of licenses over
time. If customers were to implement enterprise-wide evaluation programs or
purchase products for the entire organization at one time, our sales cycle
could lengthen and our revenue could be more unpredictable from quarter to
quarter. We do not have sufficient historical experience selling our Certify SC
product to determine how the sales cycle for this product will affect our
revenue; however, the sales cycle could be longer than we expect and could
result in unpredictability in our revenue from quarter to quarter. The sales
cycle for our Certify product and our new Synplify ASIC product is expected to
be longer than that of our FPGA products, which could result in additional
unpredictability of our quarterly revenue.

Our business depends on continued demand for networking and communications
equipment and other complex electronic equipment that incorporate FPGAs, ASICs
or SoCs, and our revenue may suffer if demand for this equipment continues to
decline

   Demand for networking and communications equipment has declined during the
last 18 months due to reduced capital spending and delays in network
build-outs. In addition, demand for networking and communications equipment may
decline as a result of highly publicized financial difficulties and
bankruptcies of internet service providers and telecommunications companies
such as Global Crossings. Also, potential consumers of networking and
communications equipment, such as communications companies, may use or modify
existing types of equipment and never adopt networking and communications
equipment. If the business of networking and communications equipment
manufacturers continues to decline, our revenue and business will suffer
because our products are used to design the FPGAs, ASICs and SoCs that are an
integral part of networking and communications equipment.

The markets for FPGAs, ASICs and SoCs are evolving rapidly and if these markets
do not develop and expand as we anticipate, our revenue may not grow because
our products may not be needed

   We expect that the majority of our revenue will continue to come from sales
of our logic synthesis, physical synthesis and verification products. We depend
on the growing use of logic synthesis products to design FPGAs for use in
networking and communications equipment and other applications. If the role of
FPGAs in communications infrastructure equipment and computer networking
equipment does not increase, or decreases, our revenue would decline. The FPGA
market may not grow if customers choose to use other semiconductors that might
be more affordable or available with shorter time-to-market schedules. This
could cause electronic

                                      27

<PAGE>

equipment manufacturers to limit the number of new FPGAs they design and would
reduce their need for our products. We also depend on the continued adoption of
ASICs and SoCs in order for our revenue to increase. If demand for our software
products were to decline, we may choose to lower the prices of our products or
we may sell fewer licenses and have lower maintenance renewal rates. In
addition, if equipment manufacturers do not widely adopt the use of FPGAs, or
if there is a wide acceptance of alternative semiconductors that provide
enhanced capabilities, the market price of our stock could decline due to our
lower operating results or investors' assessment that the growth potential for
sales of our licenses is limited.

   The markets for FPGAs, ASICs and SoCs are evolving rapidly and we cannot
predict their potential sizes or future growth rates. Our success in generating
revenue in these evolving markets will depend on, among other things, our
ability to:

   . educate potential designers, networking and communications equipment
     manufacturers and other electronics companies about the benefits of FPGAs,
     ASICs and SoCs and the use of logic synthesis, physical synthesis and
     verification products to design them;

   . establish and maintain relationships with leading FPGA manufacturers,
     electronic equipment designers, networking and communications equipment
     manufacturers and other electronics companies, and maintain and enhance
     our relationships with our other customers;

   . predict and base our products on technology that ultimately becomes
     industry standard; and

   . penetrate the ASIC synthesis marketplace with our new ASIC synthesis
     product.

We depend on our marketing, product development and sales relationships with
leading FPGA manufacturers, and if these relationships suffer, we may have
difficulty introducing and selling our FPGA synthesis products and our revenue
could decline

   We believe that our success in maintaining acceptance in FPGA markets
depends in part on our ability to maintain or further develop our strategic
marketing, product development and sales relationships with leading FPGA
manufacturers, including Altera and Xilinx. We believe our relationships with
leading FPGA manufacturers are important in validating our technology,
facilitating broad market acceptance of our FPGA synthesis products and
enhancing our sales, marketing and distribution capabilities. For example, we
attempt to coordinate our product offerings with the future releases of
Altera's and Xilinx's FPGA components and software. If we are unable to
maintain and enhance our existing relationships with Altera and Xilinx and
develop a similar relationship with other major FPGA vendors, we may have
difficulty selling our FPGA synthesis products or we may not be able to
introduce products on a timely basis that capitalize on new FPGA component
characteristics or software feature enhancements. These manufacturers may also
compete in the FPGA product market by developing their own synthesis products.
For example, Xilinx has begun selling a synthesis product that could be
competitive with our Synplify product. These manufacturers may adversely impact
the price of our FPGA synthesis products through the expansion of their
distribution of our competitors' products. Either of these developments could
harm our business and financial prospects.

We need to develop our marketing, sales and ASIC library development
relationships with leading ASIC manufacturers, and if these relationships are
not developed, we may have difficulty introducing and selling our ASIC
synthesis products and our revenue could be negatively impacted

   We believe that our success in penetrating the ASIC market depends in part
on our ability to develop our strategic marketing, sales and ASIC library
development relationships with leading ASIC manufacturers. We believe
relationships with leading ASIC manufacturers are important in validating our
technology, facilitating broad market acceptance of our ASIC synthesis products
and enhancing our sales, marketing and distribution capabilities. For example,
we have recently announced strategic relationships with ASIC vendors Fujitsu(R)
Limited and Chip Express(R) to support our Synplify ASIC product. The companies
will work with us to integrate our software into their ASIC design flows. If we
are unable to continue to develop such relationships or do not do

                                      28

<PAGE>

so in a timely manner, we may have difficulty selling our ASIC synthesis
products. In addition, we may not be able to enhance our products in a timely
manner to capitalize on new ASIC component characteristics or software feature
enhancements, which could prevent our revenue from increasing.

Sales of FPGA components may be harmed due to natural disasters or political
unrest and as a result, sales of our products may decline if events occur that
limit the ability of FPGA manufacturers to manufacture and ship their products

   We believe that a majority of all FPGA components is produced in Taiwan by
foundry partners of leading FPGA manufacturers. These foundry and manufacturing
activities are located in areas that have been seismically active, as
demonstrated by the earthquakes that occurred in Taiwan during the fall of
1999. If a major earthquake affecting key FPGA manufacturing locations occurs
in the future, leading FPGA manufacturers' operations may be disrupted. In
addition, tensions between the governments of Taiwan and the People's Republic
of China could disrupt operations of FPGA manufacturers' foundry partners if
military conflict were to occur between the People's Republic of China and
Taiwan, a state of emergency were declared in Taiwan or civil unrest were to
erupt in Taiwan. These types of disruptions could result in FPGA manufacturers'
inability to ship products in a timely manner, and, as a result, demand for our
products may be reduced and our business would suffer.

Because we rely on channel partners to sell a portion of our products, our
revenue could decline if our existing channel partners do not continue to
purchase products from us

   We utilize semiconductor distributors Insight Electronics LLC and Arrow
Electronics to refer customers to us, which account for a portion of our
license sales in North America. A portion of our sales outside North America
and Japan are conducted through our channel partners. Sales to our channel
partners accounted for approximately 9%, 14% and 20% of our total revenue in
2001, 2000 and 1999, respectively. If we fail to sell our products through our
existing channel partners, we would experience a material decline in revenue.
We cannot be certain that we will be able to attract channel partners that
market our products effectively or provide timely and cost-effective customer
support and service. Even if we are successful in selling our products through
new channel partners, the rate of growth of our total revenue could be harmed
if our existing channel partners do not continue to sell our products. In the
past, we have terminated our relationships with certain channel partners for
poor performance. None of our existing channel partners is obligated to
continue selling our products. We face the risk that one or more of our channel
partners will not continue to represent our products or that our channel
partners will not devote a sufficient amount of effort and resources to selling
our products in their territories.

If we are unable to continue to expand our customer support organization, we
may not be able to retain our existing customers or attract new customers, and
our revenues could decline as a result

   We plan to continue to increase our customer support staff on a limited
basis to support new customers and the expanding needs of our existing
customers. If our level of hiring is not adequate and we are unable to expand
our customer support organization to sufficiently meet the needs of our
customers, we may not be able to retain our existing customers, customers may
not renew their maintenance or we may not be able to attract new customers.

We may not be able to effectively compete against other providers of products
that design FPGAs, ASICs and SoCs as a result of their greater financial
resources and distribution channels, which could cause our sales to decline

   We face significant competition from larger companies that market suites of
semiconductor design software products that address all or almost all steps of
semiconductor design or that incorporate intellectual property components for
semiconductors. These competitors have greater financial resources and name
recognition than we do. We believe that Cadence, Mentor Graphics Corporation
and Synopsys, Inc., each of which is also currently competing with us by
marketing certain logic synthesis or verification products, could also introduce

                                      29

<PAGE>

new suites of products or individual products that include the functionality we
currently provide in our products and at lower prices or they may otherwise
have more favorable relationships with customers. If these or other vendors
provide lower cost logic synthesis, physical synthesis or verification products
that outperform our products in addition to having broader applications of
their existing product lines, our products could become unmarketable. Even if
our competitors' standard products offer functionality equivalent to ours, we
face a substantial risk that a significant number of customers would elect to
pay a premium for similar functionality rather than purchase products from a
less well-known vendor. We may face competition in the future from established
FPGA manufacturers that compete in the design software market, such as Altera
or Xilinx, or from emerging software companies. Increased competition may
negatively affect our business and future operating results by leading to price
reductions, higher selling expenses or a reduction in our market share.

Our products are subject to rapid technological change and could be rendered
obsolete and unmarketable

   The semiconductor design software market is characterized by rapid
technological change, frequent new product introductions and enhancements,
uncertain product life cycles, changes in customer demands and evolving
industry standards. Our products could be rendered obsolete if design products
based on new technologies are introduced or new industry standards emerge. For
example, if customers widely adopt new engineering languages to describe their
semiconductor designs and our products fail to support those languages
adequately, our business will suffer.

We may not be able to compete effectively if our products are delayed or do not
incorporate new specifications, and if we cannot compete effectively, our
business could be damaged

   Our future success depends on our ability to enhance existing products,
develop and introduce new products, satisfy customer requirements, meet
industry standards and achieve market acceptance. We may not successfully
identify new product opportunities or develop and bring new products to market
in a timely and cost-effective manner. Significant delays in new product
releases or significant problems or delays in enhancing existing products or
implementing new products to keep pace with new FPGA specifications or ASIC
features could seriously damage our business. We have, from time to time,
experienced delays in the scheduled introduction of new and enhanced products
and we may experience similar delays in the future.

We may sell fewer products and our revenue may decline if other vendors'
products are no longer compatible with ours or other vendors bundle their
products with those of our competitors and sell them at lower prices

   Our ability to sell our products depends in part on the compatibility of our
products with other vendors' semiconductor design software and verification
hardware products. These vendors may change their products so that they will no
longer be compatible with our products. Some vendors already bundle their
products with other logic synthesis, physical synthesis or verification
products and sell the bundle at lower prices, and more vendors may do so in the
future. As a result, this may negatively affect our ability to offer
commercially viable or competitive products.

Our revenue could be reduced if large semiconductor design software companies
make acquisitions in order to join their extensive distribution capabilities
with our competitors' products

   Large semiconductor design software vendors, such as Cadence, Mentor
Graphics and Synopsys, may also acquire or establish cooperative relationships
with our other current competitors, including private companies. Because large
semiconductor design software vendors have significant financial and
organizational resources, they may be able to further penetrate the logic
synthesis, physical synthesis or verification markets by leveraging the
technology and expertise of smaller companies and utilizing their own extensive
distribution channels. We expect that the semiconductor design software product
industry will continue to consolidate. For example, during 2001, Synopsys
entered into an agreement to acquire Avant!(R) Corporation. It is possible that
new competitors or

                                      30

<PAGE>

alliances among competitors may emerge and rapidly acquire significant market
share, which would harm our business and financial prospects.

We may not be able to preserve the value of our products' intellectual property
rights because we do not have an extensive patent portfolio, and other vendors
could challenge our intellectual property rights

   Our products are differentiated from those of our competitors by our
internally developed technology that is incorporated into our products. If we
fail to protect our intellectual property rights, other vendors could sell
logic synthesis, physical synthesis or verification products with features
similar to ours, and this could reduce demand for our products. We protect our
intellectual property rights through a combination of copyright, trade secret
and trademark laws. We have filed and/or been issued a limited number of patent
applications. We generally enter into confidentiality or license agreements
with our employees, consultants and corporate partners, and generally seek to
control access to our intellectual property rights and the distribution of our
logic synthesis, physical synthesis and verification products, documentation
and other proprietary information. However, we believe that these measures
afford only limited protection. Others may develop technologies that are
similar or superior to our technology or design around the copyrights and trade
secrets we own. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise improperly obtain and use
our products or technology. Policing unauthorized use of our products is
difficult and expensive, and we cannot be certain that the steps we have taken
will prevent misappropriation of our technology, particularly in foreign
countries where the laws may not protect our proprietary rights as fully as
those in the United States. For example, with respect to our sales and support
operations in India, Indian laws do not protect proprietary rights to the same
extent as the United States, and Indian statutory law does not protect service
marks. Our means of protecting our proprietary rights may be inadequate.

Our operating results would suffer if we were subject to a protracted
infringement claim or a significant damage award

   Substantial litigation and threats of litigation regarding intellectual
property rights exist in our industry. We expect that logic synthesis, physical
synthesis and verification products may be increasingly subject to third-party
infringement claims as the number of competitors in our industry segment grows
and the functionality of products in different industry segments overlaps. We
are not aware that our products employ technology that infringes any valid
proprietary rights of third parties. However, third parties may claim that we
infringe their intellectual property rights. Any claims, with or without merit,
could:

   . be time consuming to defend;

   . result in costly litigation and/or damage awards;

   . divert our management's attention and resources;

   . cause product shipment delays; or

   . require us to seek to enter into royalty or licensing agreements.

   These royalty or licensing agreements may not be available on terms
acceptable to us, if at all. A successful claim of product infringement against
us or our failure or inability to license the infringed or similar technology
could adversely affect our business because we would not be able to sell the
impacted product without exposing ourselves to litigation risk and damages.
Furthermore, redevelopment of the product so as to avoid infringement would
cause us to incur significant additional expense. Although we maintain business
insurance, it would not cover an infringement claim, and we would be required
to pay any damages and legal expenses from a successful claim ourselves.

                                      31

<PAGE>

Our recent growth has placed a significant strain on our management, systems
and resources, and we may be unable to effectively control our costs and
implement our business strategies as a result

   We have continued to increase the scope of our operations and our headcount
has grown substantially. Our total number of employees increased to 266 as of
December 31, 2001 from 210 as of December 31, 2000 and 140 as of December 31,
1999. Our productivity and the quality of our products may be adversely
affected if we do not integrate, train and motivate our new employees quickly
and effectively. We also cannot be sure that our revenue will continue to grow
at a sufficient rate to absorb the costs associated with a larger overall
headcount, as well as training and recruiting expenses.

   We expect that any future growth we experience will continue to place a
significant strain on our management, systems and resources. To manage any
future growth of our operations, we may be required to:

   . hire, train, manage and retain additional qualified personnel;

   . improve existing and implement new operational, financial and management
     information controls, reporting systems and procedures; and

   . establish relationships with additional suppliers and corporate partners
     and maintain our existing relationships.

We rely on the services of key personnel, and those persons' knowledge of our
business and technical expertise would be difficult to replace

   Our products and technologies are complex and we rely on experienced and
knowledgeable research and development, customer support and sales personnel.
In particular, we depend substantially on the continued service of Bernard
Aronson, our President and Chief Executive Officer, Kenneth S. McElvain, our
Chief Technology Officer, Vice President and a founder, and Robert Erickson,
our Vice President of Engineering. There are a limited number of qualified
people with the technical skills and understanding of FPGAs, ASICs and SoCs
necessary to our business, and if we are unable to retain or find suitable
replacements for any turnover in our engineering and sales organizations, our
business could be adversely affected. In addition, although we maintain key
person life insurance on Mr. McElvain, we do not maintain key person life
insurance on any of our other employees and the amount of the policy on Mr.
McElvain may be inadequate to compensate us for his loss.

Because our strategy to expand our international operations is subject to
uncertainties, we may not be able to expand our presence in international
markets or generate a significant level of revenue from those foreign markets

   Customers outside North America accounted for approximately $11.8 million,
$7.1 million and $3.6 million of our total revenue in 2001, 2000 and 1999,
respectively. The dollar amount of our international sales must grow
substantially in order for us to maintain profitability. We have increased our
international sales activities, but we still have limited experience marketing
and directly selling our products internationally. In the second quarter of
2001, we started seeing a slowdown of orders in Europe and other international
locations. A continuation or further decline in these economic conditions, or
an extension of such conditions to more international locations, would
adversely impact our business.

   We have international sales offices in the United Kingdom, France, Germany,
the Netherlands, Israel, India, Japan, Korea and Taiwan. We also rely on
indirect sales in Asia, Europe and elsewhere. Our sales contracts generally
provide for payment for our products in United States dollars. However, on
January 1, 2001, we began direct sales to our customers in Japan in yen and
expect all such future sales there will be denominated in yen. Our expenses
incurred in foreign locations are generally denominated in the respective local
currency. To date we have not undertaken any foreign currency hedging
transactions, and as a result, our future revenue and

                                      32

<PAGE>

expense levels from international operations may be unpredictable due to
exchange rate fluctuations. Our international operations are subject to other
risks, including:

   . relatively higher personnel and operating costs which may not result in
     additional revenue;

   . revenue may not be sufficient to cover the expenses associated with
     establishing a new or expanded international location;

   . the impact of local economic conditions, such as interest rate increases
     or inflation, which may lead to higher cost of capital and slower demand
     for products;

   . greater difficulty in accounts receivable collection and longer collection
     periods;

   . unexpected changes in regulatory requirements, including government
     ownership of communications systems, laws relating to use of and sales
     over the internet or tariffs;

   . difficulties and costs of staffing and managing foreign operations;

   . reduced protection for intellectual property rights in some countries;

   . potentially adverse tax consequences, including taxes due on the exercise
     of stock options or purchase of shares under employee plans by foreign
     employees and the impact of expiry of tax holidays or applicability of
     withholding taxes;

   . foreign currency fluctuations; and

   . political instability, which may limit production of FPGAs and/or ASICs in
     Asia or reduce government or private sector spending on networking and
     communications equipment.

Significant errors in our products or the failure of our products to conform to
specifications could result in our customers demanding refunds from us or
asserting claims for damages against us

   Because our logic synthesis, physical synthesis and verification products
are complex, our products could fail to perform as anticipated or produce
semiconductors that contain errors that are undetected at any point in the
customers' design cycle. While we continually test our products for errors and
work with users through our customer support service organization to identify
and correct errors in our software and other product problems, errors in our
products may be found in the future. Although a number of these errors may
prove to be immaterial, many of these errors could be significant. The
detection of any significant errors may result in:

   . the loss of or delay in market acceptance and sales of our products;

   . delays in shipping dates for our products;

   . diversion of development resources from new products to fix errors in
     existing products;

   . injury to our reputation;

   . costs of corrective actions or returns of defective products;

   . reduction in maintenance renewal rates; or

   . product liability claims or damage awards.

   Occasionally, we have warranted that our products will operate in accordance
with specified customer requirements. If our products fail to conform to these
specifications, customers could demand a refund for the purchase price or
assert and collect on claims for damages. Although we maintain general business
insurance, our coverage does not extend to product liability claims and we
cannot assure that our resources would be sufficient to pay a damages award if
one were to arise.

   Moreover, because our products are used in connection with other vendors'
products that are used to design complex FPGAs, ASICs and SoCs, significant
liability claims may be asserted against us if our products do not

                                      33

<PAGE>

work properly, individually or with other vendors' products for which we also
do not maintain insurance. Our agreements with customers typically contain
provisions intended to limit our exposure to liability claims. However, these
limitations may not preclude all potential claims and we do not insure against
such liabilities. Regardless of their merit, liability claims could require us
to spend significant time and money in litigation and divert management's
attention from other business pursuits. If successful, a product liability
claim could require us to pay significant damages. Any claims, whether or not
successful, could seriously damage our reputation and our business.

Our officers and persons affiliated with our directors hold a substantial
portion of our stock and could reject mergers or other business combinations
that a shareholder may believe to be desirable

   As of December 31, 2001, our directors, officers and individuals or entities
affiliated with our directors beneficially own approximately 61% of our
outstanding common stock as a group. Acting together, these shareholders would
be able to significantly influence all matters that our shareholders vote upon,
including the election of directors or the rejection of a merger or other
business combination that other shareholders may believe to be desirable.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   We develop products in the United States and sell those products primarily
in North America, Europe and Japan. Our revenue from sales outside North
America was approximately 24%, 21% and 20% of our total revenue in 2001, 2000
and 1999, respectively. As a result, our financial results could be affected by
factors such as changes in foreign currency exchange rates or weak economic
conditions in foreign markets. With the exception of sales in Japan, our sales
are generally made in U.S. dollars, thus a strengthening of the U.S. dollar
could make our products less competitive in foreign markets. The functional
currency for our foreign subsidiaries excluding Japan is the United States
dollar. Beginning January 1, 2001, the functional currency of our Japanese
subsidiary is the yen. The effects of translation of our foreign subsidiaries
for which the U.S. dollar is the functional currency are included in the
results of operations, and to date have not been material. The effects of
translation of our Japanese subsidiary are included in shareholders' equity and
to date have not been material. Historically, our exposure to foreign exchange
fluctuations has been minimal; however, as our international sales and
operations have expanded, our exposure to foreign currency fluctuations has
increased, particularly in Japan. To date, we have not undertaken any hedging
actions to reduce our exposure to changes in foreign currency exchange rates.

   Our interest income is sensitive to changes in the general level of U.S.
interest rates, particularly since the majority of our investments are in
short-term instruments. Due to the nature of our short-term investments, we
have concluded that we do not have material market risk exposure.

   Our investment policy requires us to invest funds in excess of current
operating requirements in:

   . obligations of the U.S. government and its agencies;

   . investment grade state and local government obligations;

   . securities of U.S. corporations rated A1 or P1 by Standard & Poors' or the
     Moody's equivalents; and/or

   . money market funds, deposits or notes issued or guaranteed by U.S. and
     non-U.S. commercial banks meeting certain credit rating and net worth
     requirements with maturities of less than two years.

   As of December 31, 2001, our cash equivalents consisted primarily of money
market funds, U.S. government agency notes and certificates of deposit, and our
short-term investments consisted primarily of corporate notes, U.S. government
agency notes and certificates of deposit.

                                      34

<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   The Company's consolidated financial statements and the independent
auditors' report appear on pages 37 through 55 of this Annual Report.

Quarterly Data (unaudited)

<TABLE>
<CAPTION>
                                                        Quarter Ended
                          ------------------------------------------------------------------------
                          Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
                            2001     2001      2001     2001     2000     2000      2000     2000
                          -------- --------- -------- -------- -------- --------- -------- --------
                                            (in thousands, except per share data)
<S>                       <C>      <C>       <C>      <C>      <C>      <C>       <C>      <C>
Revenue:
   License............... $ 7,362   $ 7,599  $ 8,287  $ 8,879  $ 8,530   $6,722    $5,807  $ 3,947
   Maintenance...........   4,683     4,483    4,188    3,721    3,000    2,478     2,231    1,875
                          -------   -------  -------  -------  -------   ------    ------  -------
       Total revenue.....  12,045    12,082   12,475   12,600   11,530    9,200     8,038    5,822
Gross profit.............  11,506    11,514   11,929   12,098   11,048    8,672     7,680    5,407
Net income (loss)........ $   125   $   328  $    98  $   756  $   341   $ (161)   $ (980) $(1,847)

Earnings per share:
   Basic................. $   .01   $   .01  $    --  $   .03  $   .02   $ (.01)   $ (.07) $  (.14)
   Diluted............... $    --   $   .01  $    --  $   .03  $   .01   $ (.01)   $ (.07) $  (.14)
</TABLE>

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

   Not applicable.

                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

   The information required by this item concerning the Company's directors is
incorporated by reference to the sections captioned "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" contained in the
Company's Proxy Statement related to the 2002 Annual Meeting of Shareholders,
to be filed by the Company with the Securities and Exchange Commission within
120 days of the end of the Company's fiscal year pursuant to General
Instruction G(3) of Form 10-K (the "Proxy Statement"). Certain information
required by this item concerning executive officers is set forth in Part I of
this Report in "Business--Management" and certain other information required by
this item is incorporated by reference from the section captioned
"Section 16(a) Beneficial Ownership Reporting Compliance" contained in the
Proxy Statement.

ITEM 11.  EXECUTIVE COMPENSATION

   The information required by this item is incorporated by reference to the
section captioned "Executive Compensation and Other Matters" contained in the
Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   The information required by this item is incorporated by reference to the
sections captioned "Security Ownership of Certain Beneficial Owners and
Management" and "Record Date; Outstanding Shares" contained in the Proxy
Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   The information required by this item is incorporated by reference to the
sections captioned "Compensation Committee Interlocks and Insider
Participation" and "Certain Transactions" contained in the Proxy Statement.

                                      35

<PAGE>

                                    PART IV

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

   (a)(1) Financial Statements

   The following consolidated financial statements are included in this Annual
Report on Form 10-K:

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
 <S>                                                                      <C>
 Report of Ernst & Young LLP, Independent Auditors.......................  37
 Consolidated Financial Statements:
 Consolidated Balance Sheets.............................................  38
 Consolidated Statements of Operations...................................  39
 Consolidated Statements of Shareholders' Equity (Net Capital Deficiency)  40
 Consolidated Statements of Cash Flows...................................  41
 Notes to Consolidated Financial Statements..............................  42
</TABLE>

                                      36

<PAGE>

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Synplicity, Inc.

   We have audited the accompanying consolidated balance sheets of Synplicity,
Inc. (the "Company") as of December 31, 2001 and 2000, and the related
consolidated statements of operations, shareholders equity (net capital
deficiency), and cash flows for each of the three years in the period ended
December 31, 2001. Our audits also included the financial statement schedule
listed in the index appearing under Item 14(a)(2) of the Annual Report on Form
10-K. These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

   In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Synplicity,
Inc. at December 31, 2001 and 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.

                                          /s/   ERNST & YOUNG LLP

Palo Alto, California
January 18, 2002

                                      37

<PAGE>

                               SYNPLICITY, INC.
                          CONSOLIDATED BALANCE SHEETS
                       (in thousands, except share data)


<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                                        ------------------
                                                                                          2001      2000
                                                                                        --------  --------
<S>                                                                                     <C>       <C>
Assets:
Current assets:
   Cash and cash equivalents........................................................... $ 16,855  $ 24,452
   Short-term investments..............................................................   31,018    12,083
   Accounts receivable, less allowances of $633 and $487 at December 31, 2001 and
     2000, respectively................................................................    7,286     6,479
   Other current assets................................................................      895     1,114
                                                                                        --------  --------
       Total current assets............................................................   56,054    44,128
   Long-term investments...............................................................       --     4,688
   Property and equipment, net.........................................................    3,283     2,466
   Other assets........................................................................      568       681
                                                                                        --------  --------
       Total assets.................................................................... $ 59,905  $ 51,963
                                                                                        ========  ========

Liabilities and Shareholders' Equity:
Current liabilities:
   Accounts payable and accrued liabilities............................................    2,977     3,274
   Accrued compensation................................................................    2,138     2,345
   Deferred revenue....................................................................   10,992     7,782
   Current portion of capital lease obligations........................................       71        75
                                                                                        --------  --------
       Total current liabilities.......................................................   16,178    13,476
   Long-term note payable to shareholder...............................................       --       125
   Long-term portion of capital lease obligations......................................       --        71

Commitments and contingencies
Shareholders' equity:
   Preferred stock, no par value, issuable in series: 10,000,000 shares authorized; no
     shares issued and outstanding at December 31, 2001 and 2000.......................       --        --
   Common stock, no par value: 110,000,000 shares authorized; 24,969,461 and
     24,254,283 shares issued and outstanding at December 31, 2001 and December 31,
     2000, respectively................................................................   54,109    51,388
Additional paid-in capital.............................................................    3,694     3,838
Notes receivable from officers.........................................................     (294)     (468)
Deferred stock-based compensation......................................................   (1,501)   (2,657)
Accumulated deficit....................................................................  (12,503)  (13,810)
Accumulated other comprehensive income.................................................      222        --
                                                                                        --------  --------
       Total shareholders' equity......................................................   43,727    38,291
                                                                                        --------  --------
       Total liabilities and shareholders' equity...................................... $ 59,905  $ 51,963
                                                                                        ========  ========
</TABLE>

                            See accompanying notes.

                                      38

<PAGE>

                               SYNPLICITY, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                      Year Ended December 31,
 -                                                -------------------------------
                                                    2001        2000      1999
                                                   -------     -------   -------
 <S>                                              <C>         <C>       <C>
 Revenue:
 License......................................... $32,126     $25,006   $13,019
 Maintenance.....................................  17,076       9,584     5,156
                                                   -------     -------   -------
    Total revenue...............................   49,202      34,590    18,175
 Cost of revenue:
 Cost of license.................................     237         246       239
 Cost of maintenance.............................   1,918       1,537     1,187
                                                   -------     -------   -------
    Total cost of revenue.......................    2,155       1,783     1,426
                                                   -------     -------   -------
 Gross profit....................................  47,047      32,807    16,749
 Operating expenses:
 Research and development........................  19,353      13,286     8,018
 Sales and marketing.............................  21,500      18,293    12,903
 General and administrative......................   5,493       3,570     2,586
 Stock-based compensation(1).....................   1,012         952       175
                                                   -------     -------   -------
    Total operating expenses....................   47,358      36,101    23,682
                                                   -------     -------   -------
 Loss from operations............................    (311)     (3,294)    6,933)
 Other income (expense), net.....................   1,922         647        (7)
                                                   -------     -------   -------
 Income (loss) before income taxes...............   1,611      (2,647)   (6,940)
 Provision for income taxes......................     304          --        --
                                                   -------     -------   -------
    Net income (loss)...........................  $ 1,307     $(2,647)  $(6,940)
                                                   =======     =======   =======
 Basic and diluted net loss per common share..... $  0.05     $ (0.16)  $ (0.52)
                                                   =======     =======   =======
 Shares used in basic per share calculation......  24,422      16,115    13,227
                                                   =======     =======   =======
 Shares used in diluted per share calculation....  27,205      16,115    13,227
                                                   =======     =======   =======
 --------
 (1)  Amortization of deferred stock-based compensation relates to the following:

                                                    2001        2000      1999
                                                   -------     -------   -------
    Cost of maintenance revenue.................. $    33     $    28   $     5
    Research and development.....................     423         464       113
    Sales and marketing..........................     408         403        55
    General and administrative...................     148          57         2
                                                   -------     -------   -------
        Total.................................... $ 1,012     $   952   $   175
                                                   =======     =======   =======
</TABLE>

                            See accompanying notes.

                                      39

<PAGE>

                               SYNPLICITY, INC.
   CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
                                (in thousands)

<TABLE>
<CAPTION>

                                                                     Convertible                                Notes
                                                                   Preferred Stock   Common Stock  Additional Receivable
                                                                  ----------------  --------------  Paid-in      From
                                                                  Shares   Amount   Shares Amount   Capital    Officers
                                                                  ------  --------  ------ ------- ---------- ----------
<S>                                                               <C>     <C>       <C>    <C>     <C>        <C>
Balance at December 31, 1998.....................................    889  $  1,974  13,766 $   847   $   54     $(312)
   Issuance of Series B preferred stock, net of $96 of issuance
    costs........................................................  1,754     7,404      --      --       --        --
   Issuance of common stock upon exercise of stock options.......     --        --     583     443       --      (156)
   Deferred compensation.........................................     --        --      --      --    2,397        --
   Amortization of deferred stock-based compensation.............     --        --      --      --       --        --
   Net loss (comprehensive loss).................................     --        --      --      --       --        --
                                                                  ------  --------  ------ -------   ------     -----
Balance at December 31, 1999.....................................  2,643     9,378  14,349   1,290    2,451      (468)
   Issuance of Series C preferred stock, net of $20 of issuance
    costs........................................................    772     5,480      --      --       --        --
   Issuance of common stock upon exercise of stock options.......     --        --     856   1,480       --        --
   Issuance of common stock upon conversion of preferred
    stock........................................................ (3,415)  (14,858)  4,304  14,858       --        --
   Issuance of common stock in connection with initial public
    offering, net of $4,200 of issuance costs....................     --        --   4,745  33,760       --        --
   Deferred stock-based compensation.............................     --        --      --      --    1,387        --
   Amortization of deferred stock-based compensation.............     --        --      --      --       --        --
   Net loss (comprehensive loss).................................     --        --      --      --       --        --
                                                                  ------  --------  ------ -------   ------     -----
Balance at December 31, 2000.....................................     --        --  24,254  51,388    3,838      (468)
   Issuance of common stock from stock option exercises, our
    employee stock purchase plan and warrants exercised..........     --        --     715   2,721       --        --
   Repayment of notes receivable from officers...................     --        --      --      --       --       174
   Amortization of deferred stock-based compensation.............     --        --      --      --       --        --
   Deferred stock-based compensation adjustment for canceled
    options......................................................     --        --      --      --     (144)       --
   Comprehensive income:
    Net income...................................................     --        --      --      --       --        --
    Other comprehensive income:
      Foreign currency translation adjustments...................     --        --      --      --       --        --
      Net change in unrealized gain on investments...............     --        --      --      --       --        --

    Total other comprehensive income.............................

   Total comprehensive income....................................
                                                                  ------  --------  ------ -------   ------     -----
Balance at December 31, 2001.....................................     --  $     --  24,969 $54,109   $3,694     $(294)
                                                                  ======  ========  ====== =======   ======     =====
</TABLE>
<TABLE>
<CAPTION>
                                                                                                             Total
                                                                                            Accumulated  Shareholders'
                                                                    Deferred                   Other      Equity (Net
                                                                  Stock-based  Accumulated Comprehensive    Capital
                                                                  Compensation   Deficit      Income      Deficiency)
                                                                  ------------ ----------- ------------- -------------
<S>                                                               <C>          <C>         <C>           <C>
Balance at December 31, 1998.....................................   $    --     $ (4,223)      $ --         $(1,660)
   Issuance of Series B preferred stock, net of $96 of issuance
    costs........................................................        --           --         --           7,404
   Issuance of common stock upon exercise of stock options.......        --           --         --             287
   Deferred compensation.........................................    (2,397)          --         --              --
   Amortization of deferred stock-based compensation.............       175           --         --             175
   Net loss (comprehensive loss).................................        --       (6,940)        --          (6,940)
                                                                    -------     --------       ----         -------
Balance at December 31, 1999.....................................    (2,222)     (11,163)        --            (734)
   Issuance of Series C preferred stock, net of $20 of issuance
    costs........................................................        --           --         --           5,480
   Issuance of common stock upon exercise of stock options.......        --           --         --           1,480
   Issuance of common stock upon conversion of preferred
    stock........................................................        --           --         --              --
   Issuance of common stock in connection with initial public
    offering, net of $4,200 of issuance costs....................        --           --         --          33,760
   Deferred stock-based compensation.............................    (1,387)          --         --              --
   Amortization of deferred stock-based compensation.............       952           --         --             952
   Net loss (comprehensive loss).................................        --       (2,647)        --          (2,647)
                                                                    -------     --------       ----         -------
Balance at December 31, 2000.....................................    (2,657)     (13,810)        --          38,291
   Issuance of common stock from stock option exercises, our
    employee stock purchase plan and warrants exercised..........        --           --         --           2,721
   Repayment of notes receivable from officers...................        --           --         --             174
   Amortization of deferred stock-based compensation.............     1,012           --         --           1,012
   Deferred stock-based compensation adjustment for canceled
    options......................................................       144           --         --              --
   Comprehensive income:
    Net income...................................................        --        1,307         --           1,307
    Other comprehensive income:
      Foreign currency translation adjustments...................        --           --        118             118
      Net change in unrealized gain on investments...............        --           --        104             104
                                                                                                            -------
    Total other comprehensive income.............................                                               222
                                                                                                            -------
   Total comprehensive income....................................                                             1,529
                                                                    -------     --------       ----         -------
Balance at December 31, 2001.....................................   $(1,501)    $(12,503)      $222         $43,727
                                                                    =======     ========       ====         =======
</TABLE>

                            See accompanying notes.

                                      40

<PAGE>

                               SYNPLICITY, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)


<TABLE>
<CAPTION>
                                                                                            Year Ended December 31,
                                                                                          ---------------------------
                                                                                            2001      2000     1999
                                                                                          --------  --------  -------
<S>                                                                                       <C>       <C>       <C>
Operating activities
Net income (loss)........................................................................ $  1,307  $ (2,647) $(6,940)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
    Depreciation.........................................................................    1,669     1,169      946
    Amortization of deferred stock-based compensation....................................    1,012       952      175
    Gain on sale of investments..........................................................      (72)       --       --
    Changes in operating assets and liabilities:
       Accounts receivable...............................................................     (807)   (2,811)    (426)
       Other current assets..............................................................      219      (645)    (350)
       Other assets......................................................................      113      (322)     (52)
       Accounts payable and accrued liabilities..........................................     (297)      619    1,629
       Accrued compensation..............................................................     (207)    1,761     (267)
       Deferred revenue..................................................................    3,210     2,343    1,913
                                                                                          --------  --------  -------
          Net cash provided by (used in) operating activities............................    6,147       419   (3,372)
                                                                                          --------  --------  -------
Investing activities
Purchases of property and equipment......................................................   (2,486)   (1,645)  (1,287)
Purchases of short-term investments......................................................  (52,231)  (16,620)      --
Purchases of long-term investments.......................................................   (1,418)   (4,688)      --
Maturities of short-term investments.....................................................   33,400     4,537       --
Sale of long-term investments............................................................    6,178        --       --
                                                                                          --------  --------  -------
          Net cash used in investing activities..........................................  (16,557)  (18,416)  (1,287)
                                                                                          --------  --------  -------
Financing activities
Borrowing under revolving line of credit.................................................       --     2,000       --
Repayment of revolving line of credit....................................................       --    (2,000)      --
Proceeds from capital lease obligations..................................................       --       201
Payments on capital lease obligations....................................................      (75)   (1,105)  (1,341)
Proceeds from sale of common stock.......................................................    2,721    35,240      286
Proceeds from issuance of preferred stock................................................       --     5,480    7,404
Proceeds from notes payable to officers..................................................       --        --      400
Repayment of notes payable to officers...................................................       --        --     (650)
Repayment of note payable to shareholder.................................................     (125)       --       --
Payments received on notes receivable from officers......................................      174        --       --
                                                                                          --------  --------  -------
          Net cash provided by financing activities......................................    2,695    39,816    6,099
                                                                                          --------  --------  -------
Effect of exchange rate changes on cash..................................................      118        --       --
                                                                                          --------  --------  -------
Net increase (decrease) in cash and cash equivalents.....................................   (7,597)   21,819    1,440
Cash and cash equivalents at beginning of period.........................................   24,452     2,633    1,193
                                                                                          --------  --------  -------
Cash and cash equivalents at end of period............................................... $ 16,855  $ 24,452  $ 2,633
                                                                                          ========  ========  =======
Supplemental disclosure of cash flow information
Cash paid for interest................................................................... $     40  $    132  $   136
                                                                                          ========  ========  =======
Cash paid for income taxes............................................................... $    214  $     --  $    --
                                                                                          ========  ========  =======
Supplemental schedule of noncash financing activities
Issuance of common stock in exchange for notes receivable from officers.................. $     --  $     --  $   156
                                                                                          ========  ========  =======
Deferred compensation related to stock options........................................... $   (144) $  1,387  $ 2,397
                                                                                          ========  ========  =======
</TABLE>

                            See accompanying notes.


                                      41

<PAGE>

                               SYNPLICITY, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  Summary of Significant Accounting Policies

  Organization and Business

   Synplicity, Inc. ("we" or "us") was incorporated on February 1, 1994 in the
State of California. We are a leading provider of software products that enable
the rapid and effective design and verification of semiconductors used in
networking and communications, computer and peripheral, consumer and
military/aerospace electronics systems.

  Principles of Consolidation

   The consolidated financial statements include the accounts of our company
and our wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.

  Foreign Currency Translation

   The functional currency of our foreign subsidiaries is the United States
dollar, with the exception of our Japanese subsidiary. Beginning January 1,
2001, our Japanese subsidiary adopted the yen as its functional currency. For
our foreign subsidiaries for which the U.S. dollar is the functional currency,
assets and liabilities denominated in foreign currencies are translated at the
month-end exchange rate, except for non-monetary assets and liabilities such as
property and equipment,which are translated at historical rates. Revenues and
expenses are translated at the average exchange rate for the period, except for
expenses related to those balance sheet items that are translated using
historical rates. Adjustments resulting from these translations are included in
our results of operations. For our Japanese subsidiary, assets and liabilities
are denominated in yen and translated at the month-end exchange rate, and
equity balances are translated at historical rates. Revenues and expenses are
translated at the average exchange rate for the period. Adjustments resulting
from these translations are included in shareholders' equity. To date, we have
not entered into foreign currency forward exchange contracts.

  Use of Estimates

   The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and the accompanying notes. For example, estimates and assumptions are used in
recognizing or deferring revenue, and in maintaining our allowance for doubtful
accounts. Actual results could differ from these estimates.

  Concentration of Credit Risk

   We distribute our products through our direct sales force and third-party
distributors principally in North America, mainly the United States, as well as
in Europe, Japan and the rest of Asia. We generally do not require collateral.
We maintain an allowance for doubtful accounts for estimated potential credit
losses, and such losses to date have not been material.

   No customer or distributor accounted for 10% or more of total revenue for
the years ended December 31, 2001, 2000 and 1999.

   Sales to customers outside of North America accounted for $11.8 million,
$7.1 million and $3.6 million of our total revenue in the years ended December
31, 2001, 2000 and 1999, respectively.

                                      42

<PAGE>

                               SYNPLICITY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Cash Equivalents and Investments

   All of our cash equivalents and investments are classified as
available-for-sale and are reported at fair value. Unrealized gains and losses
(determined as the difference between the recorded amount of the investment and
its fair value) are reported in shareholders' equity as a component of
accumulated other comprehensive income, net of tax, if any. The fair value of
the investments is based on quoted market prices. Realized gains and losses are
included in other income. Investments that have maturities of three months or
less at the date of purchase are considered cash equivalents, while investments
that have maturities greater than three months at the date of purchase are
considered either short-term investments if they mature within twelve months of
the balance sheet date, or long-term investments if they mature beyond twelve
months of the balance sheet date. The cost of securities sold is based upon the
specific identification method.

  Property and Equipment

   Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the respective assets, generally three years to seven years.

  Impairment of Long-Lived Assets

   In accordance with the provisions of Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of ("SFAS 121"), we review long-lived assets,
including property and equipment, for impairment whenever events or changes in
business circumstances indicate that the carrying amounts of the assets may not
be fully recoverable. Under SFAS 121, an impairment loss would be recognized
when estimated undiscounted future cash flows expected to result from the use
of the asset and its eventual disposition are less than its carrying amount.
Impairment, if any, is assessed using discounted cash flows. Through December
31, 2001, we did not have any such losses.

  Revenue Recognition

   We primarily sell perpetual licenses to use our software products and sell
related maintenance services. For each sale of a perpetual license, we defer
the recognition of revenue until a purchase order is received from the
customer, delivery of the product and license key has occurred, the fee is
fixed and determinable, collection of the fee is probable based on completed
credit review procedures and there are no remaining obligations by us. Once all
of the above conditions have been met, we recognize license revenue based upon
the residual method after all elements other than maintenance have been
delivered as prescribed by Statement of Position 98-9, Modification of SOP No.
97-2 with Respect to Certain Transactions. Assessing whether or not collection
of the fee is probable requires certain judgments which we base on the analysis
provided by our credit review procedures. Furthermore, revenue on arrangements
with extended payment terms that have met all other required revenue
recognition criteria are recognized as payments are received, and sales to
distributors and resellers are generally recognized when the distributor or
reseller has resold the product to an end user and we have received payment
from them.

   We offer maintenance to customers, which requires us to perform continuing
service and support and allows customers to receive unspecified product
upgrades. In accordance with paragraph 10 of Statement of Position 97-2,
Software Revenue Recognition, vendor specific objective evidence of fair value
of maintenance is determined by reference to the price the customer will be
required to pay when maintenance is sold separately (that is, the renewal
rate), which is based on the price established by us and our history of
charging our customers for maintenance renewals. In general, maintenance is
offered at 20% of the list license price of the product. Under the residual
method, the list price of the maintenance is deferred and any discount on the
sale is allocated

                                      43

<PAGE>

                               SYNPLICITY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

to the delivered elements. The maintenance term is typically one year in
duration and maintenance revenue is recognized ratably over the maintenance
term.

   We also sell time-based licenses to use our software products for specified
periods of time. Revenue from time-based licenses is allocated to license and
maintenance revenue and recognized ratably over the period of the license as we
do not have vendor specific objective evidence of fair value of maintenance
since maintenance for these licenses is not priced or offered separately. In
addition, we have provided a limited feature version of one of our products to
certain field programmable gate array ("FPGA") manufacturers for distribution
to their customers. As part of these agreements we have certain maintenance and
support obligations to the FPGA manufacturer. Revenue on these arrangements is
also allocated to license and maintenance revenue and recognized ratably over
the period of each arrangement, as we do not have vendor specific objective
evidence of fair value of maintenance since maintenance for these arrangements
is not priced or offered separately.

  Product Development Costs

   Statement of Financial Accounting Standards No. 86, Accounting for the Costs
of Computer Software to Be Sold, Leased, or Otherwise Marketed, requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on our product development
process, technological feasibility is established upon completion of a working
model. Costs we incurred between completion of the working model and the point
at which the product is ready for general release have been insignificant.
Therefore, all product development costs have been charged to operations as
incurred.

  Advertising

   Costs related to advertising are expensed as incurred. Advertising expense
for the years ended December 31, 2001, 2000 and 1999 was $691,000, $659,000 and
$490,000, respectively.

  Stock-Based Compensation

   As permitted by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS 123"), we account for employee
stock based compensation in accordance with Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees ("APB 25"), and related
interpretations. Under APB 25, when the exercise price of our employee stock
options equals the market price of the underlying stock on the date of grant,
no compensation expense is recognized.

   Any deferred stock compensation calculated according to APB 25 is amortized
over the vesting period of the individual options, generally four years, using
the graded vesting method. The graded vesting method provides for vesting of
portions for the overall awards at interim dates and results in greater vesting
in earlier years than straight-line.

   All stock-based awards to non-employees are accounted for at their fair
value, as calculated using the Black-Scholes model, in accordance with SFAS 123
and Emerging Issues Task Force Consensus No. 96-18. Stock-based awards to
non-employees not immediately vested are subject to periodic revaluation over
their vesting terms.

  Stock Split

   On July 27, 2000, we effected a two-for-three reverse split of our common
stock and preferred stock. All share and per share information included in
these financial statements have been adjusted to reflect this reverse stock
split.

                                      44

<PAGE>

                               SYNPLICITY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Accumulated Other Comprehensive Income

   We apply Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS 130"). SFAS 130 establishes rules for the reporting
and display of comprehensive income and its components, which include
unrealized gains and losses on available-for-sale securities and foreign
currency translation adjustments. For the years ended December 31, 2000 and
1999, our comprehensive loss was the same as net loss as there were no
adjustments reported in shareholders' equity that were included in the
computation. For the year ended December 31, 2001, the components of
comprehensive income have been included in the Statement of Shareholders'
Equity (Net Capital Deficiency).

  Segment Information

   We follow Statement of Financial Accounting Standards No. 131, Disclosures
About Segments of an Enterprise and Related Information ("SFAS 131"). SFAS 131
establishes standards for the way that public business enterprises report
information about operating segments in interim financial reports. SFAS 131
also establishes standards for related disclosures about products and services,
geographic areas and major customers. We operate in only one industry segment,
the development and licensing of software products that are used in the design
and verification of semiconductors.

  Recently Issued Accounting Standards

   In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, Business Combinations
("SFAS 141"). SFAS 141 establishes new standards for accounting and reporting
for business combinations and will require that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
Use of the pooling-of-interests method will be prohibited. We expect to adopt
this statement during the first quarter of fiscal 2002 and do not believe that
the adoption will have a material effect on our operating results or financial
position as we have had no business combinations to date.

   In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets ("SFAS 142"), which supersedes
APB Opinion No. 17, Intangible Assets. SFAS 142 establishes new standards for
goodwill, including the elimination of goodwill amortization to be replaced
with methods of periodically evaluating goodwill for impairment. We expect to
adopt this statement during the first quarter of fiscal 2002 and do not believe
that the adoption will have a material effect on our operating results or
financial position.

   In October 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS
144"), which supersedes Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of ("SFAS 121"). The objective of SFAS 144 is to develop one
accounting model based on the framework established in SFAS 121 for long-lived
assets to be disposed of by sale, and to address significant implementation
issues. We expect to adopt this statement during the first quarter of fiscal
2002 and do not believe that the adoption will have a material affect on our
operating results or financial position.

                                      45

<PAGE>

                               SYNPLICITY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


2.  Financial Instruments

   Available-for-sale securities were as follows as of December 31, 2001 and
2000 (in thousands):

<TABLE>
<CAPTION>
                                                     Unrealized  Fair Market
                                              Cost   Gain (Loss)    Value
                                             ------- ----------- -----------
    <S>                                      <C>     <C>         <C>
    2001
    Cash equivalents:
       Money market funds................... $ 5,352    $ --       $ 5,352
       U.S. government agency notes.........   4,795       1         4,796
       Certificate of Deposit...............   2,000      --         2,000
                                             -------    ----       -------
           Total cash equivalents........... $12,147    $  1       $12,148
                                             =======    ====       =======
    Short-term investments:
       U.S. government agency notes......... $23,023    $ 81       $23,104
       Corporate notes......................   6,884      20         6,904
       Certificate of Deposit...............   1,008       2         1,010
                                             -------    ----       -------
           Total short-term investments..... $30,915    $103       $31,018
                                             =======    ====       =======
    2000
    Cash equivalents:
       Money market funds................... $ 9,420      --       $ 9,420
       U.S. government agency notes.........   9,997      --         9,997
       Commercial paper.....................   3,963      --         3,963
                                             -------    ----       -------
           Total cash equivalents........... $23,380      --       $23,380
                                             =======    ====       =======
    Short-term investments:
       U.S. government agency notes......... $ 8,012      --       $ 8,012
       Corporate notes......................   4,071      --         4,071
                                             -------    ----       -------
           Total short-term investments..... $12,083      --       $12,083
                                             =======    ====       =======
    Long-term investments:
       U.S. government agency notes......... $ 3,105      --       $ 3,105
       Corporate notes......................   1,583      --         1,583
                                             -------    ----       -------
           Total long-term investments...... $ 4,688      --       $ 4,688
                                             =======    ====       =======
</TABLE>

   Unrealized gains and losses on cash equivalents and investments were
immaterial for the year ended December 31, 2000.

                                      46

<PAGE>

                               SYNPLICITY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


3.  Property and Equipment

   Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                December 31,
                                              ----------------
                                               2001     2000
                                              -------  -------
                <S>                           <C>      <C>
                Computer hardware............ $ 4,178  $ 2,365
                Computer software............   1,088      768
                Furniture and fixtures.......   1,851    1,557
                Leasehold improvements.......     410      351
                                              -------  -------
                                                7,527    5,041
                Less accumulated depreciation  (4,244)  (2,575)
                                              -------  -------
                                              $ 3,283  $ 2,466
                                              =======  =======
</TABLE>

4.  Commitments and Contingencies

  Operating Leases

   We lease our corporate facility in Sunnyvale, California and lease a number
of sales offices in various states as well as in certain other countries. In
October 1999, we entered into a new corporate facility lease expiring in
September 2002. We also have operating leases for certain of our equipment
under an equipment lease financing agreement as described below. Rent expense
was $2.3 million, $1.8 million and $875,000 for the years ended December 31,
2001, 2000 and 1999, respectively.

  Long-Term Debt

   In April 1997, we entered into a business loan agreement with a commercial
bank which was amended in September 1998. The agreement provides for a $3.0
million revolving line of credit, a $1.0 million equipment advance and a
$400,000 straight line of credit. The lines of credit are collateralized by
substantially all of our assets other than equipment purchased with the
equipment advance. Under the terms of the agreement, we are required to
maintain certain financial covenants. As of December 31, 2001, we were in
compliance with each of the required covenants.

   The revolving line of credit agreement allows us to borrow up to $3.0
million. Borrowings under this line of credit bear interest at the bank's prime
rate and there was no outstanding debt related to this line of credit at
December 31, 2001 or 2000. The agreement expires in March 2002 and we are
currently in the process of renewing the line.

   The equipment advance allowed us to borrow up to $1.0 million, subject to
certain limits based on financial covenants. We borrowed on this line until
September 1999. Borrowings under the equipment advance bore interest at the
bank's prime rate plus 0.25%. We utilized all $1.0 million of the equipment
advance. During 2000, we repaid the remaining principal balance.

   The straight line of credit agreement allowed us to borrow up to $400,000 to
purchase equipment. Borrowings under this line of credit bore interest at the
bank's prime rate plus 0.5%. We utilized all $400,000 of this line. During
2000, we repaid the remaining principal balance.

   In November 1999, we entered into an equipment lease financing agreement
with a lessor that provides for leasing of up to $1.5 million of equipment,
including up to $450,000 of software and tenant improvements. All

                                      47

<PAGE>

                               SYNPLICITY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

scheduled leases are payable in 36 equal monthly installments. Based on the
terms of the individual leases, the leases are treated as either operating or
capital. Additionally, we granted the lessor fully vested warrants to purchase
up to 14,035 shares of common stock at $4.28 per share, which were exercised
during 2001. At December 31, 2001 and 2000, $71,000 and $146,000, respectively,
of capital leases were outstanding under this agreement. All of the amount
outstanding as of December 31, 2001 is due during 2002. The equipment
capitalized under this agreement had a cost of approximately $201,000 and
accumulated depreciation of approximately $151,000 and $84,000 as of December
31, 2001 and 2000, respectively. As of December 31, 2001 the availability of
additional borrowings under this agreement had been terminated.

  Future Payments

   The future contractual obligations at December 31, 2001 are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                      Payments Due By Year
                                                     -----------------------
                                                      2002  2003 2004 Total
   -                                                 ------ ---- ---- ------
   <S>                                               <C>    <C>  <C>  <C>
   Operating Leases................................. $1,663 $253 $10  $1,926
   Capital Leases...................................     75   --  --      75
                                                     ------ ---- ---  ------
      Total......................................... $1,738 $253 $10  $ 2001
                                                     ====== ==== ===  ======
</TABLE>

   The amount representing interest on the capital leases for 2002 is $4,000.
The present value of future minimum lease payments on the capital lease is
$71,000, all of which is a current liability.

  Legal Proceedings

   From time to time, we are subject to legal proceedings and claims in the
ordinary course of business. We are not currently aware of any legal
proceedings or claims that we believe will have, individually or in the
aggregate, a material adverse effect on our business, results of operations and
financial condition.

5.  Related Party Notes

   In September 1998, we received two full-recourse notes from one of our
officers with a principal amount totaling $312,000. The proceeds were used to
purchase shares of our common stock, which were pledged as collateral for the
notes. Principal and interest are due and payable upon the earlier of September
2003, when the corresponding stock is sold or 90 days after the termination of
the officer's employment with us. The notes accrue interest at the rate of 5.5%
per annum and are accounted for in shareholders' equity. During 2001, $18,000
of the principal amount was repaid, leaving an outstanding principal balance of
$294,000 as of December 31, 2001.

   In November and December 1999, we received two full-recourse notes from one
of our officers with a principal amount totaling $156,250. The proceeds were
used to purchase shares of our stock which were pledged as collateral for the
notes. Principal and interest are due and payable upon the earliest of five
years from the date of the notes, when the corresponding stock is sold or 90
days after the termination of the officer's employment with us. The notes
accrued interest at the rate of 6.2% per annum and are accounted for in
shareholder's equity. During 2001, the notes were repaid in full.

   In November 1995, we issued a note to a shareholder with a principal amount
of $125,000. All principal was due and payable on October 31, 2002, and simple
interest of 6.11% was due at the end of each calendar year. During 2001, we
repaid the note in full.

                                      48

<PAGE>

                               SYNPLICITY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


6.  Net Income (Loss) Per Share

   In accordance with Statement of Financial Accounting Standards No. 128, we
have computed basic net income (loss) per share using the weighted-average
number of shares of common stock outstanding during the period, less the
weighted-average number of shares of common stock that are subject to
repurchase. Diluted net income (loss) per share includes the impact of options
and warrants to purchase common stock, if dilutive.

   The following table presents the calculation of basic and diluted net income
(loss) per share (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                            Years Ended December 31,
                                                                           -------------------------
                                                                            2001     2000     1999
                                                                           -------  -------  -------
<S>                                                                        <C>      <C>      <C>
Net income (loss)......................................................... $ 1,307  $(2,647) $(6,940)
                                                                           -------  -------  -------
Basic weighted average shares:
   Weighted-average shares of common stock outstanding....................  24,613   16,833   14,098
   Less: weighted-average shares subject to repurchase....................    (191)    (718)    (871)
                                                                           -------  -------  -------
   Weighted-average shares used in computing basic net income (loss) per
     share................................................................  24,422   16,115   13,227
                                                                           =======  =======  =======
Basic net income (loss) per common share.................................. $  0.05  $ (0.16) $ (0.52)
                                                                           =======  =======  =======
Diluted weighted average shares:
   Shares used above......................................................  24,422   16,115   13,227
   Add back: weighted-average shares subject to repurchase................     191       --       --
   Effect of dilutive securities:
       Stock options......................................................   2,589       --       --
       Warrants...........................................................       3       --       --
                                                                           -------  -------  -------
   Weighted-average shares used in computing diluted net income per share.  27,205   16,115   13,227
                                                                           =======  =======  =======
Diluted net income (loss) per common share................................ $  0.05  $ (0.16) $ (0.52)
                                                                           =======  =======  =======
</TABLE>

   We have excluded all convertible preferred stock, warrants, outstanding
stock options and shares subject to repurchase by us from the calculation of
diluted net loss per share for the years ended December 31, 2000 and 1999,
which aggregated 4,242,464 shares and 4,023,277 shares, respectively, because
all such securities were antidilutive. Weighted average options outstanding to
purchase 871,045 shares of common stock for the year ended December 31, 2001
were not included in the computation of diluted net income per share because
the effect would be antidilutive. Such securities, had they been dilutive,
would have been included in the computation of diluted net income (loss) per
share using the treasury stock method.

7.  Shareholders' Equity

  Preferred Stock

   Convertible preferred stock has no par value and is issuable in series, with
rights and preferences designated by series. In October 1996, we sold 888,885
shares of convertible Series A preferred stock to private investors for an
aggregate price of $2.0 million. Each share of Series A preferred stock was
convertible into two shares of common stock at the option of the holder. In
March 1999, we sold 1,754,384 shares of convertible Series B preferred stock to
investors at $4.28 per share for an aggregate price of $7.5 million. Each share
of Series B preferred stock was convertible into one share of common stock at
the option of the holder. In March 2000, we sold 771,929 shares of convertible
Series C preferred stock to investors at $7.13 per share for an aggregate price

                                      49

<PAGE>

                               SYNPLICITY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

of $5.5 million. Each share of Series C preferred stock was convertible into
one share of common stock at the option of the holder. Concurrent with the
closing of the initial public offering of our common stock in October 2000, all
of the then outstanding shares of Series A, B and C preferred stock
automatically converted into 4,304,092 shares of common stock. At December 31,
2001 and 2000, there are no shares outstanding and 10,000,000 shares authorized
for issuance.

  Common Stock

   In April 2000, our Board of Directors and shareholders approved an amendment
to our articles of incorporation to authorize us to issue up to 110,000,000
shares of our common stock.

   In October 2000, we sold 4,300,000 shares of common stock in an initial
public offering at a price of $8.00 per share. We sold an additional 445,000
shares of common stock at a price of $8.00 per share in November 2000 to cover
over-allotments. Net proceeds from all shares sold, less underwriting discounts
and related expenses, were approximately $33.7 million.

   To date, we have sold a total of 1,560,668 shares of common stock to
employees in connection with restricted stock purchase agreements. These
agreements allow us to repurchase unvested shares in the event that the
employee is no longer employed by us. As of December 31, 2001 and 2000, 72,567
shares and 330,483 shares, respectively, were subject to repurchase.

   We have reserved shares of common stock for issuance at December 31, 2001 as
follows:

<TABLE>
                    <S>                            <C>
                    Stock Options:
                       Options outstanding........ 5,990,202
                       Reserved for future grants. 2,121,296
                    Employee Stock Purchase Plan..   865,040
                                                   ---------
                                                   8,976,538
                                                   =========
</TABLE>

  2000 Employee Stock Purchase Plan

   In April 2000, the Board of Directors adopted the 2000 Employee Stock
Purchase Plan (the "Purchase Plan"). A total of 666,666 shares of our common
stock were initially reserved for issuance under the Purchase Plan. The
Purchase Plan permits eligible employees to purchase common stock at a discount
up to a maximum of 12% of their compensation through payroll deductions during
defined offering periods. The Purchase Plan is implemented in a series of
overlapping 24 month offering periods, and each offering period consists of
four six-month purchase periods. The price at which stock is purchased under
the Purchase Plan is equal to 85% of the fair market value of the common stock
on the first day of the offering period or the last day of the purchase period,
whichever is lower. In addition, the Purchase Plan provides for annual
increases in the number of shares available for issuance under the Purchase
Plan on the first business day of each year, equal to the least of 666,666
shares, 2.0% of the outstanding shares of common stock on the last day of the
prior fiscal year or such amount as may be determined by the Board.

  Stock Options

   As described below, we have three stock option plans (collectively, the
"Option Plans") under which incentive stock options and/or nonstatutory options
may be granted to our employees, consultants, and directors. Options are
granted under the Option Plans at prices not less than the fair value on the
date of the grant. Stock

                                      50

<PAGE>

                               SYNPLICITY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

options to new employees generally vest and become exercisable in the amount of
25% of the total number of shares after one year and on a ratable basis over
the subsequent 36 months. The options generally expire in ten years. However,
in the case of incentive stock options granted to an optionee who, at the time
the option is granted, owns stock representing more than 10% of the voting
power of any class of our stock, the term of the option is five years from the
date of grant and the per share exercise price is 110% of the fair market value
on the date of grant.

   Under the 1995 Stock Option Plan (the "1995 Plan") we were authorized to
issue 7,400,000 shares of common stock for the grant of options. In 2000, our
Board of Directors approved the termination of the 1995 Plan as to future
option grants to be effective October 2000. The remaining 200,207 authorized
shares available for grant out of the 1995 Plan expired. In the future, any
options from the 1995 Plan that are canceled will not be available for re-grant.

   In 2000, our Board of Directors adopted the 2000 Stock Option Plan (the
"2000 Plan") and authorized an initial amount of 2,666,666 shares of common
stock for grant under the 2000 Plan. The authorized shares available for
issuance increase on the first business day of each year by the least of
2,333,333 shares, 5% of the outstanding shares of common stock on the last day
of the prior fiscal year or such amount as may be determined by our Board.

   In 2000, our Board of Directors adopted the 2000 Director Option Plan (the
"Director Plan") and authorized an initial amount of 100,000 shares of common
stock for grant under the Director Plan. Each nonemployee director who does not
own, or represent a party who owns, 1% or more of our outstanding common stock
is automatically granted a nonstatutory stock option to purchase 40,000 shares
of common stock on the date on which such person first becomes a director. At
the first board meeting following each annual shareholders meeting, each
nonemployee director then in office for over six months is automatically
granted a nonstatutory option to purchase an additional 10,000 shares of common
stock. The Director Plan will terminate in April 2010, unless terminated
earlier in accordance with the provisions of the Director Plan. In addition,
the Director Plan provides for annual increases in the number of shares
available for issuance on the first business day of each year equal to the
least of 100,000 shares, fifteen one hundredths of one percent of the
outstanding shares of common stock on the last day of the prior fiscal year or
such amount as may be determined by our Board.

   A summary of option activity under the Option Plans is as follows:

<TABLE>
<CAPTION>
                                                  Options Outstanding
                                          ------------------------------------
                                                                     Weighted-
                               Shares                                 Average
                              Available   Number of   Exercise Price Exercise
                              for Grant    Shares       Per Share      Price
                              ----------  ---------  --------------- ---------
 <S>                          <C>         <C>        <C>             <C>
 Balance at December 31, 1999  1,715,794  3,334,580   $ 0.02-$3.75    $ 1.67
 Additional authorization....  2,766,666         --             --        --
 Options granted............. (1,948,974) 1,948,974   $5.10-$14.38    $ 8.20
 Options exercised...........         --   (855,548)  $0.15-$ 6.00    $ 1.73
 Options canceled............    299,387   (299,387)  $0.15-$11.00    $ 2.91
 Authorized shares expired...   (200,207)        --             --        --
                              ----------  ---------
 Balance at December 31, 2000  2,632,666  4,128,619   $0.15-$14.38    $ 2.70
 Additional authorization....  1,249,095         --             --        --
 Options granted............. (1,813,311) 1,813,311   $5.60-$18.90    $11.04
 Options exercised...........         --   (419,016)  $0.15-$ 6.75    $ 1.82
 Options canceled............    180,708   (180,708)  $0.15-$17.24    $ 8.14
 Authorized shares expired...   (127,862)        --             --        --
                              ----------  ---------
 Balance at December 31, 2001  2,121,296  5,342,206   $0.15-$18.90    $ 6.58
                              ==========  =========
</TABLE>

                                      51

<PAGE>

                               SYNPLICITY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   In December 1999, we granted options to purchase an aggregate of 674,662
shares of common stock at an exercise price of $3.75 per share that were
outside of the Option Plans. As of December 31, 2001 and 2000, options to
purchase 647,996 shares were outstanding.

   The following table summarizes information about all stock options
outstanding at December 31, 2001:

<TABLE>
<CAPTION>
                                Options Outstanding         Options Exercisable
                         --------------------------------- ---------------------
                                      Weighted-
                                       Average   Weighted-             Weighted-
                                      Remaining   Average               Average
                           Number    Contractual Exercise    Number    Exercise
Range of Exercise Prices Outstanding    Life       Price   Exercisable   Price
------------------------ ----------- ----------- --------- ----------- ---------
                                     (In years)
<S>                      <C>         <C>         <C>       <C>         <C>
     $0.15-$1.80........  1,049,765     6.19      $ 1.26      833,782   $ 1.12
     $1.95-$2.93........    797,742     7.48      $ 2.46      419,687   $ 2.43
     $3.75-$6.15........  1,126,196     8.16      $ 4.51      209,064   $ 5.04
     $6.20-$7.95........    875,732     9.19      $ 6.61      124,065   $ 6.56
     $8.00-$11.12.......  1,132,734     8.87      $ 9.82      263,338   $ 9.65
     $11.94-$18.90......  1,008,033     9.14      $14.05       84,976   $13.18
                          ---------                         ---------
                          5,990,202     8.17      $ 6.58    1,934,912   $ 3.87
                          =========                         =========
</TABLE>

  Stock-Based Compensation

   During the years ended December 31, 2000 and 1999, we recorded deferred
stock-based compensation of $1.4 million and $2.4 million, respectively,
representing the difference between the exercise prices and the deemed fair
value of our common stock on the dates these stock options were granted. The
total deferred stock-based compensation of $3.8 million is being amortized by
charges to operations on a graded vesting method over the vesting periods of
the respective options, generally four years. We recorded amortization of
deferred stock- based compensation of approximately $1.0 million, $952,000 and
$175,000 for the years ended December 31, 2001, 2000 and 1999, respectively. We
recorded a reduction to deferred stock-based compensation of $144,000 for the
year ended December 31, 2001 as a result of stock options that were canceled.
At December 31, 2001, we had a total of $1.5 million remaining to be amortized
over the corresponding vesting period of the respective options. The remaining
deferred stock-based compensation at December 31, 2001 is expected to be
amortized as follows: $709,000 for the year ending December 31, 2002, $502,000
for the year ending December 31, 2003 and $290,000 for the year ending December
31, 2004 and the balance thereafter. Subsequent terminations of option holders
may reduce future stock-based compensation.

   We have elected to follow APB 25 and related interpretations in accounting
for our employee stock-based compensation plans. Because the exercise price of
our employee stock options equals the market price of the underlying stock on
the date of grant, no compensation expense is generally recognized. Pro forma
information regarding net loss has been determined as if we had accounted for
our employee stock options under the fair value method prescribed by SFAS 123.
The resulting effect on pro forma net loss disclosed is not likely to be
representative of the effects on net loss on a pro forma basis in future years,
due to additional grants and years of vesting in subsequent years. For the
years ended December 31, 2001 and 2000, the fair value of our stock-based
awards to employees was estimated at the date of grant using the Black-Scholes
option pricing model. For the year ended December 31, 1999, the fair value of
our stock-based awards to employees was estimated at the date

                                      52

<PAGE>

                               SYNPLICITY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

of grant using the minimum value method. For each of the three years ended
December 31, 2001, the following weighted-average assumptions were used in the
estimations:

<TABLE>
<CAPTION>
                                                      Years Ended December 31,
                                                      -----------------------
                                                       2001       2000   1999
                                                       -----     -----  -----
    <S>                                               <C>        <C>    <C>
    Stock Options:
    --------------
    Expected life (years)............................     4          4      4
    Volatility.......................................    98%        75%     0%
    Risk-free interest rate..........................     4%         6%     6%
    Dividend yield...................................    --         --     --
    Weighted average fair value of options granted... $7.84      $4.95  $0.72

    Employee Stock Purchase Plan:
    -----------------------------
    Expected life (years)............................  1.28         --     --
    Volatility.......................................    98%        --     --
    Risk-free interest rate..........................     2%        --     --
    Dividend yield...................................    --         --     --
    Weighted average fair value of options granted... $4.65         --     --
</TABLE>

   For pro forma purposes, the estimated fair value of our stock-based awards
to employees is amortized over the options' vesting period. Pro forma
information follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                   Years Ended December 31,
                                                  -------------------------
                                                   2001     2000     1999
                                                  -------  -------  -------
   <S>                                            <C>      <C>      <C>
   Net income (loss):
    As reported.................................. $ 1,307  $(2,647) $(6,940)
                                                  =======  =======  =======
    Pro forma.................................... $(5,310) $(4,083) $(7,192)
                                                  =======  =======  =======
   Basic and diluted net income (loss) per share:
    As reported.................................. $  0.05  $ (0.16) $ (0.52)
                                                  =======  =======  =======
    Pro forma.................................... $ (0.22) $ (0.25) $ (0.54)
                                                  =======  =======  =======
</TABLE>

   The fair value of options granted to consultants during the years ended
December 31, 2000 and 1999 were determined using the Black-Scholes model with
the following weighted average assumptions: risk-free interest rate of 6%,
contractual life of 4-10 years, dividend yield of zero and expected volatility
of 60%. The resulting compensation expense was immaterial.

  Stock Repurchase Program

   In October 2001, our Board of Directors authorized a stock repurchase
program of up to one million shares of our common stock over a 12 month period.
Shares will be repurchased in the open market at times and prices we consider
appropriate. The timing of purchases and the exact number of shares to be
purchased will depend on market conditions. Common shares reacquired are
intended to be used for general corporate purposes. As of December 31, 2001, we
had not repurchased any shares under this program.

                                      53

<PAGE>

                               SYNPLICITY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


8.  Income Taxes

   Income (loss) before income taxes and provision for income taxes consist of
the following (in thousands):

<TABLE>
<CAPTION>
                                               Years Ended December 31,
                                               ------------------------
                                                2001    2000     1999
                                               ------  -------  -------
       <S>                                     <C>     <C>      <C>
       Income (loss) before income taxes:
          United States....................... $2,382  $(1,539) $(6,940)
          Foreign.............................   (771)  (1,108)      --
                                               ------  -------  -------
       Total income (loss) before income taxes $1,611  $(2,647) $(6,940)
                                               ======  =======  =======
       Provision for income taxes:
          Current:
              Federal......................... $   76  $    --  $    --
              State...........................     53       --       --
              Foreign.........................    175       --       --
                                               ------  -------  -------
       Total provision for income taxes....... $  304  $    --  $    --
                                               ======  =======  =======
</TABLE>

   We had no provision for taxes in 2000 and 1999 because we incurred a loss
for both income tax and financial reporting purposes in those years.

   The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income (loss) before income taxes. The
sources and tax effects of the differences are as follows (in thousands):

<TABLE>
<CAPTION>
                                              Years Ended December 31,
                                              -----------------------
                                               2001     2000   1999
                                              -----    -----  -------
            <S>                               <C>      <C>    <C>
            Expected tax at 35%.............. $ 563    $(926) $(2,429)
            State income taxes...............    53       --       --
            Foreign income taxes.............   175       --       --
            Deferred compensation............   354       --       --
            Federal alternative minimum taxes    76       --       --
            (Benefited) Unbenefited losses...  (917)     926    2,429
                                              -----    -----  -------
                                              $ 304    $  --  $    --
                                              =====    =====  =======
</TABLE>

   As of December 31, 2001, we had federal net operating loss carryforwards of
approximately $4.4 million. The federal net operating loss carryforwards will
expire beginning in 2012, if not utilized. Additionally, as of December 31,
2001, we have $1.5 million of federal research and development tax credits
which expire beginning in 2012, if not utilized. Utilization of the net
operating losses and credits may be subject to a substantial annual limitation
due to the ownership change limitations provided by the Internal Revenue Code
of 1986, as amended, and similar state provisions. The annual limitation may
result in the expiration of net operating losses and credits before utilization.

                                      54

<PAGE>

                               SYNPLICITY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets for financial reporting and the amount
used for income tax purposes. Significant components of deferred tax assets are
as follows (in thousands):

<TABLE>
<CAPTION>
                                                            December 31,
                                                          ----------------
                                                           2001     2000
                                                          -------  -------
    <S>                                                   <C>      <C>
    Deferred tax assets:
       Net operating loss carryforwards.................. $ 1,500  $ 3,400
       Research credit carryforwards (federal and state).   2,300    1,400
       Capitalized research expenses.....................     500      600
       Other.............................................     900      800
                                                          -------  -------
    Total deferred tax assets............................   5,200    6,200
    Valuation allowances.................................  (5,200)  (6,200)
                                                          -------  -------
    Net deferred taxes................................... $    --  $    --
                                                          =======  =======
</TABLE>

9.  Industry and Geographic Segment Information

   The following table presents enterprise-wide sales to external customers and
long-lived assets by geographic areas (in thousands):

<TABLE>
<CAPTION>
                                             Years Ended December 31,
                                             ------------------------
                                               2001    2000    1999
                                             -------  ------- -------
          <S>                                <C>      <C>     <C>
          Total revenues:
             North America.................. $37,451  $27,447 $14,550
             Europe, Middle East............   6,825    4,505   1,728
             Asia...........................   4,926    2,638   1,897
                                             -------  ------- -------
                                             $49,202  $34,590 $18,175
                                             =======  ======= =======
          Long-lived assets (at period end):
             North America.................. $ 2,981  $ 2,255 $ 2,178
             Europe, Middle East............     286      219     166
             Asia...........................     584      673       5
                                             -------  ------- -------
                                             $ 3,851  $ 3,147 $ 2,349
                                             =======  ======= =======
</TABLE>

   Revenues by geographic area are based on the location of customers.

10.  Employee Benefit Plan

   We have a 401(k) Plan in which all United States employees age 21 or over
are eligible to participate. Participants may defer up to 15% of their gross
salary into the 401(k) Plan, subject to certain 401(k) Plan restrictions. We
provide matching contributions of 50% of the first 4% contributed by the
participants up to a maximum of $1,000 per employee per year, which totaled
$170,000, $150,000 and $120,000 for the years ended December 31, 2001, 2000 and
1999, respectively.

                                      55

<PAGE>

   (a)(2) Financial Statement Schedules

   Schedule II--Valuation and Qualifying Accounts and Reserves (see page 59)

   Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

   (a)(3) Exhibits

<TABLE>
<C>       <S>
3.1.1*    Articles of Incorporation of the Registrant
3.2*      Bylaws of the Registrant
4.1*      Specimen Common Stock Certificate
4.2*      Amended and Restated Registration Rights Agreement dated March 31, 2000 by and among the
          Registrant and certain shareholders of the Registrant
10.1*     Form of Indemnification Agreement between the Registrant and each of its directors and officers
10.2*     Amended and Restated 1995 Stock Option Plan
10.2.1*   Form of Option Agreement under the 1995 Stock Option Plan
10.3*     2000 Stock Option Plan
10.3.1*   Form of Option Agreement under the 2000 Stock Option Plan
10.4*     2000 Director Option Plan
10.4.1*   Form of Option Agreement under 2000 Director Option Plan
10.5*     2000 Employee Stock Purchase Plan
10.5.1*   Form of Subscription Agreement under the 2000 Employee Stock Purchase Plan
10.8*     Employment Agreement dated November 22, 1996 between Registrant and Andrew Haines
10.9*+    Software OEM License Agreement dated December 23, 1997 by and among Registrant, Cadence
          Design Systems, Inc. and Cadence Design Systems (Ireland) Limited
10.9.1*   Amendment 1 to Software OEM License Agreement dated August 1, 1998 by and among
          Registrant, Cadence Design Systems, Inc. and Cadence Design Systems (Ireland) Limited
10.9.2*+  Amendment 2 to Software OEM License Agreement dated December 17, 1999 by and among
          Registrant, Cadence Design Systems, Inc. and Cadence Design Systems (Ireland) Limited
10.9.3    Amendment 3 to Software OEM License Agreement dated December 17, 1999 by and among
          Registrant, Cadence Design Systems, Inc. and Cadence Design Systems (Ireland) Limited
10.9.4+   Amendment 4 to Software OEM License Agreement dated December 17, 1999 by and among
          Registrant, Cadence Design Systems, Inc. and Cadence Design Systems (Ireland) Limited
10.10*    Employment Agreement dated June 19, 1997 between Registrant and Bernard Aronson
10.11*    Employment Agreement dated April 17, 1998 between Registrant and Robert J. Erickson
10.12*    Promissory Note and Security Agreement dated September 3, 1998 between Registrant and Robert
          J. Erickson
10.13*    Employment Agreement dated October 1, 1998 between Registrant and Douglas S. Miller
10.14*+   Distributor Agreement dated April 1, 1999 between Registrant and Insight Enterprises Inc.
10.14.1** Addendum 4 to Distributor Agreement dated April 1, 1999 between Registrant and Insight
          Electronics, Inc.
10.15*    Sublease dated August 25, 1999 between Registrant and Proxim, Inc. for the 935 Stewart Drive,
          Sunnyvale, California office
10.17*    Lease dated July 15, 1999 between Registrant and Anthony Buxton and R. Robert Reading,
          Trustees of Tactician Realty Trust for the 305 North Main Street, Andover, Massachusetts office
10.20*    Lease dated January 27, 2000 between Registrant and Information Technology Park Ltd. For the
          International Tech Park, Bangalore, India office
10.21*    Lease dated June 1, 2000 between Registrant and Becker Family Limited Partnership for the 8217
          Shoal Creek Blvd., Austin, Texas office
10.22*+   Distribution Agreement dated April 1, 1999 between Registrant and Wyle Electronics
10.22.1** Addendum 3 to Distributor Agreement dated April 1, 1999 between Registrant and Wyle
          Electronics
</TABLE>

                                      56

<PAGE>

<TABLE>
<C>      <S>
10.23*   Amended and Restated Loan Security Agreement dated September 9, 1998 between Registrant
         and Silicon Valley Bank
10.23.1* Loan Modification Agreement dated December 15, 1999 between Registrant and Silicon Valley
         Bank
10.24    Lease dated March 28, 2001 between Registrant and Tebo Development Company for the 4720
         Table Mesa Drive, Suite G-100, Boulder, Colorado office
23.1     Consent of Ernst & Young LLP, Independent Auditors
24.1     Power of Attorney (see page 58)
</TABLE>
--------
+  Portions of the exhibit have been omitted pursuant to a request for
   confidential treatment and the omitted portions have been separately filed
   with the Commission.
*  Filed as an exhibit to the Company's Registration Statement on Form S-1
   (File No. 333-42146) as declared effective by the Securities and Exchange
   Commission on October 12, 2000.
** Filed as an exhibit to the Company's Annual Report on Form 10-K (File No.
   000-31545) for the fiscal year ended December 31, 2000.

   (b) Reports on Form 8-K. The Company did not file any reports on Form 8-K
during the three months ended December 31, 2001.

   (c) Exhibits. See Item 14(a)(3) above.

   (d) Financial Statement Schedules. See Item 14(a)(2) above.

                                      57

<PAGE>

                                  SIGNATURES

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

                                               SYNPLICITY, INC.

                                               By:      /s/ BERNARD ARONSON
                                                   -----------------------------
                                                          Bernard Aronson
                                                    President, Chief Executive
                                                       Officer and Director

Date: March 22, 2002

                               POWER OF ATTORNEY

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

   Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:

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

  /s/ BERNARD ARONSON   President, Chief Executive    March 22, 2002
-----------------------   Officer and Director
    Bernard Aronson       (Principal Executive
                          Officer)

 /s/ DOUGLAS S. MILLER  Vice President of Finance and March 22, 2002
-----------------------   Chief Financial Officer
   Douglas S. Miller      (Principal Accounting
                          Officer)

/s/ KENNETH S. MCELVAIN Chief Technology Officer,     March 22, 2002
-----------------------   Vice President and Director
  Kenneth S. McElvain

    /s/ ALISA YAFFA     Chairman of the Board, Vice   March 22, 2002
-----------------------   President of Intellectual
      Alisa Yaffa         Property and Secretary

    /s/ PRAHBU GOEL     Director                      March 22, 2002
-----------------------
      Prahbu Goel

   /s/ DENNIS SEGERS    Director                      March 22, 2002
-----------------------
     Dennis Segers

 /s/ SCOTT J. STALLARD  Director                      March 22, 2002
-----------------------
   Scott J. Stallard

                                      58

<PAGE>

                                  SCHEDULE II

                VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                                (in thousands)

<TABLE>
<CAPTION>
                                      Balance  Additions   Amounts   Balance
                                        at      Charged    Written   at End
                                     Beginning    to     Off, Net of   of
                                     of Period  Expense  Recoveries  Period
                                     --------- --------- ----------- -------
    <S>                              <C>       <C>       <C>         <C>
    Allowance for Doubtful Accounts:
    2001............................   $487      $356       $210      $633
    2000............................   $395      $ 92       $ --      $487
    1999............................   $315      $ 80       $ --      $395
</TABLE>


                                      59

<PAGE>

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibits
---------
<C>       <S>
3.1.1*    Articles of Incorporation of the Registrant
3.2*      Bylaws of the Registrant
4.1*      Specimen Common Stock Certificate
4.2*      Amended and Restated Registration Rights Agreement dated March 31, 2000 by and among the
          Registrant and certain shareholders of the Registrant
10.1*     Form of Indemnification Agreement between the Registrant and each of its directors and officers
10.2*     Amended and Restated 1995 Stock Option Plan
10.2.1*   Form of Option Agreement under the 1995 Stock Option Plan
10.3*     2000 Stock Option Plan
10.3.1*   Form of Option Agreement under the 2000 Stock Option Plan
10.4*     2000 Director Option Plan
10.4.1*   Form of Option Agreement under 2000 Director Option Plan
10.5*     2000 Employee Stock Purchase Plan
10.5.1*   Form of Subscription Agreement under the 2000 Employee Stock Purchase Plan
10.8*     Employment Agreement dated November 22, 1996 between Registrant and Andrew Haines
10.9*+    Software OEM License Agreement dated December 23, 1997 by and among Registrant, Cadence
          Design Systems, Inc. and Cadence Design Systems (Ireland) Limited
10.9.1*   Amendment 1 to Software OEM License Agreement dated August 1, 1998 by and among Registrant,
          Cadence Design Systems, Inc. and Cadence Design Systems (Ireland) Limited
10.9.2*+  Amendment 2 to Software OEM License Agreement dated December 17, 1999 by and among
          Registrant, Cadence Design Systems, Inc. and Cadence Design Systems (Ireland) Limited
10.9.3    Amendment 3 to Software OEM License Agreement dated December 17, 1999 by and among
          Registrant, Cadence Design Systems, Inc. and Cadence Design Systems (Ireland) Limited
10.9.4+   Amendment 4 to Software OEM License Agreement dated December 17, 1999 by and among
          Registrant, Cadence Design Systems, Inc. and Cadence Design Systems (Ireland) Limited
10.10*    Employment Agreement dated June 19, 1997 between Registrant and Bernard Aronson
10.11*    Employment Agreement dated April 17, 1998 between Registrant and Robert J. Erickson
10.12*    Promissory Note and Security Agreement dated September 3, 1998 between Registrant and Robert J.
          Erickson
10.13*    Employment Agreement dated October 1, 1998 between Registrant and Douglas S. Miller
10.14*+   Distributor Agreement dated April 1, 1999 between Registrant and Insight Enterprises Inc.
10.14.1** Addendum 4 to Distributor Agreement dated April 1, 1999 between Registrant and Insight
          Enterprises Inc.
10.15*    Sublease dated August 25, 1999 between Registrant and Proxim, Inc. for the 935 Stewart Drive,
          Sunnyvale, California office
10.17*    Lease dated July 15, 1999 between Registrant and Anthony Buxton and R. Robert Reading, Trustees
          of Tactician Realty Trust for the 305 North Main Street, Andover, Massachusetts office
10.20*    Lease dated January 27, 2000 between Registrant and Information Technology Park Ltd. for the
          International Tech Park, Bangalore, India office
10.21*    Lease dated June 1, 2000 between Registrant and Becker Family Limited Partnership for the
          8217 Shoal Creek Blvd., Austin, Texas office
10.22*+   Distribution Agreement dated April 1, 1999 between Registrant and Wyle Electronics
10.22.1** Addendum 3 to Distributor Agreement dated April 1, 1999 between Registrant and Wyle Electronics
10.23*    Amended and Restated Loan Security Agreement dated September 9, 1998 between Registrant and
          Silicon Valley Bank
10.23.1*  Loan Modification Agreement dated December 15, 1999 between Registrant and Silicon Valley
          Bank
10.24     Lease dated March 28, 2001 between Registrant and Tebo Development Company for the
          4720 Table Mesa Drive, Suite G-100, Boulder, Colorado office
23.1      Consent of Ernst & Young LLP, Independent Auditors
24.1      Power of Attorney (see page 58)
</TABLE>

<PAGE>

--------
+  Portions of the exhibit have been omitted pursuant to a request for
   confidential treatment and the omitted portions have been separately filed
   with the Commission.
*  Filed as an exhibit to the Company's Registration Statement on Form S-1
   (File No. 333-42146) as declared effective by the Securities and Exchange
   Commission on October 12, 2000.
** Filed as an exhibit to the Company's Annual Report on Form 10-K (File No.
   000-31545) for the fiscal year ended December 31, 2000.