<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                 ---------------

                                   FORM 10-Q/A
(Mark one)

         [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934 for the Quarterly Period Ended
                  May 31, 1998

                                       OR

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

              for the transition period from ________ to ________

                                ----------------
                        Commission File Number 000-22565

                             ASPEC TECHNOLOGY, INC.
             (Exact name of Registrant as specified in its charter)

                 DELAWARE                                   77-0298386
      (State or other jurisdiction of                   (I.R.S. Employer
      incorporation or organization)                   Identification Number)

    830 E. ARQUES AVENUE, SUNNYVALE, CA                        94086
  (Address of principal executive offices)                   (Zip code)

       Registrant's telephone number, including area code: (408) 774-2199
           Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $0.001 Par Value

    Indicate by check mark whether the Registrant (1) has filed all reports 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 [ ] NO [X]*

    The number of shares of the Registrant's Common Stock outstanding as of May
31, 1998 was 28,441,569.

* The Registrant became subject to the filing requirements of the Exchange Act
on April 27, 1998 in connection with the initial public offering of its Common
Stock.

    AMENDED FILING OF FORM 10-Q FOR THE THREE-MONTH PERIOD ENDED MAY 31, 1998
     RESTATEMENT OF FINANCIAL STATEMENTS AND CHANGES TO CERTAIN INFORMATION

On October 9, 1998, the Company announced that after consultation with its new
independent public accountants, the Company expected to restate its financial
statements. The procedures undertaken by the Company to determine the extent of
the restatement have resulted in the restatement of its financial statements for
the two years ended November 30, 1996 and 1997 and the fiscal quarters ended
February 28, 1998 and May 31, 1998 (see Note 1 to the Unaudited Consolidated
Financial Statements).

General information in the originally filed Form 10-Q was presented as of the
original filing date or earlier, as indicated. Unless otherwise stated, such
information has not been updated in this amended filing.

Financial statements and related disclosures contained in this amended filing
reflect, where appropriate, changes to conform to the restatement.


<PAGE>   2

                             ASPEC TECHNOLOGY, INC.

                                   FORM 10-Q/A

                       FOR THE QUARTER ENDED MAY 31, 1998

                                TABLE OF CONTENTS




<TABLE>
<CAPTION>
                                                                                                                            PAGE
<S>            <C>                                                                                                         <C>     
PART I.         FINANCIAL INFORMATION

Item 1.         Condensed Consolidated Financial Statements

                a)    Condensed Consolidated Statements of Income for the three and six months ended May 31, 1998 and
                      1997................................................................................................   3

                b)    Condensed Consolidated Balance Sheets at May 31, 1998 and November 30, 1997.........................   4

                c)    Condensed Consolidated Statements of Cash Flows for the six months ended May 31, 1998 and 1997......   5

                d)    Notes to Condensed Consolidated Financial Statements................................................   6

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


PART II.        OTHER INFORMATION

Item 1.         Legal Proceedings.........................................................................................  19

Item 2.         Change in Securities and Use of Proceeds..................................................................  19

Item 6.         Exhibits and Reports on Form 8-K..........................................................................  20


SIGNATURES................................................................................................................  21
</TABLE>




                                       2

<PAGE>   3

                          PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

                             ASPEC TECHNOLOGY, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                         QUARTER ENDED                     SIX MONTHS ENDED
                                                             MAY 31,                          MAY 31,
                                                    -------------------------         -------------------------
                                                      1998             1997             1998             1997
                                                    --------         --------         --------         --------
<S>                                                 <C>              <C>              <C>              <C>     
Revenue                                             $  5,283         $  4,973         $ 10,457         $  8,952
Cost of revenue                                        3,505            2,078            6,214            3,728
                                                    --------         --------         --------         --------

Gross profit                                           1,778            2,895            4,243            5,224
                                                    --------         --------         --------         --------
Operating expenses:
       Research and development                          533              288              964              586
       Sales and marketing                             1,461            1,836            2,727            3,350
       General and administrative                        720              534            1,593              930
       Write-off of purchased technology                 700               --              700               --
                                                    --------         --------         --------         --------
             Total operating expenses                  3,414            2,658            5,984            4,866
                                                    --------         --------         --------         --------

Income (loss) from operations                         (1,636)             237           (1,741)             358
Interest income, net                                     318               39              340              128
                                                    --------         --------         --------         --------

Income (loss) before income taxes                     (1,318)             276           (1,401)             486
Provision (benefit) for income taxes                    (235)             110             (267)             194
                                                    --------         --------         --------         --------

Net income (loss)                                     (1,083)             166           (1,134)             292
Accretion of redeemable preferred stock                4,116              204            4,328              406
                                                    --------         --------         --------         --------
Income (loss) attributable to common
     stockholders                                   $ (5,199)        $    (38)        $ (5,462)        $   (114)
                                                    ========         ========         ========         ========
Basic earnings (loss) per share                     $  (0.22)        $   0.00         $  (0.24)        $  (0.01)
                                                    ========         ========         ========         ========
Shares used in basic per share calculation            23,835           21,426           22,561           21,905
                                                    ========         ========         ========         ========
Diluted earnings (loss) per share                   $  (0.22)        $   0.00         $  (0.24)        $  (0.01)
                                                    ========         ========         ========         ========
Shares used in diluted per share calculation          23,835           21,426           22,561           21,905
                                                    ========         ========         ========         ========
</TABLE>


See accompanying notes to condensed consolidated financial statements.



                                       3

<PAGE>   4

                             ASPEC TECHNOLOGY, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
                                   (UNAUDITED)


                                     ASSETS


<TABLE>
<CAPTION>
                                                                    MAY 31,         NOV. 30,
                                                                     1998             1997
                                                                   --------         --------
<S>                                                                <C>              <C>     
Current assets:
   Cash and equivalents                                            $ 52,485         $  2,524
   Accounts receivable (net of allowances of $700 and $300)
      Billed                                                          8,085            6,996
      Unbilled                                                        3,510              948
   Prepaid  expenses                                                  1,039              507
   Inventory                                                            112               --
   Deferred income taxes                                              4,434            2,730
                                                                   --------         --------
      Total current assets                                           69,665           13,705
Property and equipment - net                                          5,180            4,105
Other assets                                                          4,119              243
                                                                   --------         --------

TOTAL                                                              $ 78,964         $ 18,053
                                                                   ========         ========

                LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current liabilities:
   Accounts payable                                                $  2,346         $    801
   Accrued liabilities                                                2,866            2,379
   Income taxes payable                                                 855              321
   Customer advances                                                  8,480            7,127
                                                                   --------         --------
      Total current liabilities                                      14,547           10,628

Deferred income taxes                                                   267               --
                                                                   --------         --------
      Total liabilities                                              14,814           10,628

Series A redeemable preferred stock                                      --           14,168
Redeemable common stock                                                  --            7,116

Stockholders' equity (deficiency):
   Common stock                                                      86,237            2,914
   Stockholders' notes receivable                                      (200)            (301)
   Deferred stock compensation                                         (118)            (165)
   Retained earnings (deficit)                                      (21,769)         (16,307)
                                                                   --------         --------
      Total stockholders' equity (deficiency)                        64,150          (13,859)
                                                                   --------         --------
TOTAL                                                              $ 78,964         $ 18,053
                                                                   ========         ========
</TABLE>


See accompanying notes to condensed consolidated financial statements.



                                       4

<PAGE>   5

                             ASPEC TECHNOLOGY, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                            SIX MONTHS ENDED
                                                                                                 MAY 31,
                                                                                        -------------------------
                                                                                          1998             1997
                                                                                        --------         --------
<S>                                                                                     <C>              <C>     
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                                       $ (1,134)        $    292
Adjustments from operating activities:
  Write-off of purchased technology                                                          700               --
  Depreciation and amortization                                                            1,219              666
  Deferred income taxes                                                                   (1,720)            (708)
  Stock compensation expense                                                                  37               73
  Changes in assets and liabilities
    Accounts receivable:
      Billed                                                                                (818)          (2,689)
      Unbilled                                                                            (2,562)            (694)
    Prepaid expenses                                                                        (514)             (87)
    Inventory                                                                                (13)              --
    Accounts payable                                                                       1,360              458
    Accrued liabilities                                                                      350              329
    Income taxes payable                                                                     534           (1,687)
    Customer advances                                                                      1,353            1,978
                                                                                        --------         --------
    NET CASH USED FOR OPERATING ACTIVITIES                                                (1,208)          (2,069)
                                                                                        --------         --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment                                                     (2,105)          (2,052)
  Cash acquired, net of cash payments for purchase of SIS                                     26               --
Microelectronics
  Other assets                                                                              (258)             (51)
                                                                                        --------         --------
    NET CASH USED FOR INVESTING ACTIVITIES                                                (2,337)          (2,103)
                                                                                        --------         --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Sale of common stock                                                                    72,226               --
  Redemption of redeemable preferred stock                                               (18,495)              --
  Repayment of borrowings                                                                   (314)              --
  Repurchase of common stock                                                                 (12)              --
  Collection of stockholder notes receivable                                                 101               92
                                                                                        --------         --------
    NET CASH PROVIDED BY FINANCING ACTIVITIES                                             53,506               92
                                                                                        --------         --------
Net increase (decrease) in cash and equivalents                                           49,961           (4,080)
Cash and equivalents, beginning of period                                                  2,524            6,341
                                                                                        --------         --------
CASH AND EQUIVALENTS, END OF PERIOD                                                     $ 52,485         $  2,261
                                                                                        ========         ========

Supplemental disclosure of cash flow information:
  Cash paid for income taxes                                                            $    919         $  2,588
                                                                                        ========         ========

  Accretion of redeemable preferred stock                                               $  4,328         $    406
                                                                                        ========         ========

The Company purchased all of the capital stock of SIS Microelectronics for Aspec
stock of $4,000,000 plus transaction costs of $148,000. In conjunction with the
acquisition, assets acquired and liabilities assumed were as follows:

  Fair value of assets acquired, including purchased technology                         $  4,390
  Liabilities assumed                                                                        942
                                                                                        --------
    Net assets acquired                                                                    3,448
    Purchased technology (expensed)                                                          700
      Purchase price                                                                    $  4,148
                                                                                        ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.



                                       5

<PAGE>   6



                             ASPEC TECHNOLOGY, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


1. RESTATEMENT OF FINANCIAL STATEMENTS

    Subsequent to the filing of its Quarterly Report on Form 10-Q for the
quarter ended May 31, 1998 with the Securities and Exchange Commission, Aspec
Technology, Inc. ("Aspec" or the "Company"), after consultation with its new
independent accountants, PricewaterhouseCoopers LLP ("PwC"), determined to
restate its financial results for the fiscal years ended November 30, 1996 and
1997 and for the fiscal quarters ended February 28, 1998 and May 31, 1998. The
restatement relates principally to the timing of revenue recognized on certain
of the Company's contracts and, in the May 31, 1998 quarter, to a revision of
the amount of the in-process research and development charge related to the
Company's acquisition of SIS Microelectronics from $3.7 million to $0.7 million.
Specifically, the revenue adjustments relate to three principal areas: (i)
changes due to revisions in the estimated progress on contracts that were
accounted for on a percentage of completion basis, (ii) the deferral of
previously recognized revenue on a distribution contract and (iii) the
accounting for exchange rights on a specific contract.

    As a result of the restatement, the financial statements under Item 1 in the
Index of this Form 10-Q/A have been restated as summarized below:


<TABLE>
<CAPTION>
                                                          QUARTER ENDED                  QUARTER ENDED
                                                           MAY 31, 1998                   MAY 31, 1997
                                                   --------------------------      --------------------------
                                                   AS REPORTED       RESTATED      AS REPORTED       RESTATED
                                                   -----------       --------      -----------       --------
<S>                                                  <C>             <C>             <C>             <C>    
         Revenue                                     $ 8,034         $ 5,283         $ 5,042         $ 4,973
         Income (loss) from operations                (2,075)         (1,636)            306             237
         Provision (benefit) for income taxes            770            (235)            138             110
         Net income (loss)                            (2,527)         (1,083)            207             166
         Income (loss) attributable to common         (6,643)         (5,199)              3             (38)
         stockholders

         Net income (loss) per share                 $ (0.28)        $ (0.22)        $ (0.00)        $ (0.00)
                                                     =======         =======         =======         =======
</TABLE>


<TABLE>
<CAPTION>
                                                               SIX MONTHS ENDED                   SIX MONTHS ENDED
                                                                  MAY 31, 1998                       MAY 31, 1997
                                                           ---------------------------        -------------------------
                                                           AS REPORTED        RESTATED        AS REPORTED      RESTATED
                                                           -----------        --------        -----------      --------
<S>                                                        <C>               <C>             <C>              <C>     
         Revenue                                             $ 14,959         $ 10,457         $ 10,720        $  8,952
         Income (loss) from operations                           (429)          (1,741)           2,126             358
         Provision (benefit) for income taxes                   1,437             (267)             902             194
         Net income (loss)                                     (1,526)          (1,134)           1,352             292
         Income   (loss)   attributable   to   common          (5,854)          (5,462)             946            (114)
         stockholders

         Net income (loss) per share                         $  (0.26)        $  (0.24)        $   0.04        $  (0.01)
                                                             ========         ========         ========        ========
</TABLE>


2. BASIS OF PRESENTATION

    The accompanying unaudited condensed consolidated financial statements of
the Company have been prepared in accordance with generally accepted accounting
principles ("GAAP") for interim financial information and in accordance with
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by GAAP for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three and six-month periods ended
May 31, 1998 are not necessarily indicative of the results that may be expected
for the fiscal year ending November 30, 1998 or for any other period.






                                       6
<PAGE>   7


3. EARNINGS PER SHARE (EPS) DISCLOSURES

    The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS 128). All earnings per share (EPS) data for prior
periods have been restated to conform with SFAS 128.

    SFAS 128 requires a dual presentation of basic and diluted EPS. Basic EPS
excludes dilution and is computed by dividing net income attributable to common
stockholders by the weighted average of common shares outstanding (excluding
shares subject to repurchase rights) for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. Such securities are
not included in loss periods as they would be antidilutive.

    A reconciliation of the numerator and denominator of basic and diluted EPS
is provided as follows (in thousands, except per share amounts):


<TABLE>
<CAPTION>
                                                                              QUARTER ENDED                 SIX MONTHS ENDED
                                                                                 MAY 31,                        MAY 31,
                                                                         -----------------------       -----------------------
                                                                           1998           1997           1998           1997
                                                                         --------       --------       --------       --------
                                                                                                (UNAUDITED)
<S>                                                                      <C>            <C>            <C>            <C>      
         Net income (loss) attributable to common stockholders           $ (5,199)      $    (38)      $ (5,462)      $   (114)
                                                                         --------       --------       --------       --------
         Denominator-basic EPS common stock outstanding                    23,835         21,426         22,561         21,905
                                                                         --------       --------       --------       --------

         Basic earnings (loss) per share                                 $  (0.22)      $   0.00       $  (0.24)      $  (0.01)
                                                                         --------       --------       --------       --------

         Denominator-Diluted EPS:
              Denominator-Basic EPS                                        23,835         21,426         22,561         21,905
              Effect of dilutive securities:
                  Weighted average common shares  subject  to                  --             --             --             --
                      repurchase rights
                  Weighted average common share equivalents related
                      to stock purchase rights and options                     --             --             --             --
                                                                         --------       --------       --------       --------
                                                                           23,835         21,426         22,561         21,905
                                                                         --------       --------       --------       --------

         Diluted earnings (loss) per share                               $  (0.22)      $   0.00       $  (0.24)      $  (0.01)
                                                                         --------       --------       --------       --------
</TABLE>


4. NEW ACCOUNTING STANDARDS

    In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which requires an enterprise to report, by major components and as a
single total, the change in net assets during the period from nonowner sources;
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which establishes annual and interim reporting standards for an
enterprise's business segments and related disclosures about its products,
services, geographic areas and major customers. Adoption of these statements
will not impact the Company's financial position, results of operations or cash
flows. Both statements are effective for fiscal years beginning after December
15, 1997, with earlier application permitted.


5. BUSINESS COMBINATIONS

    In April 1998, the Company completed its purchase of SIS Microelectronics,
Inc. ("SIS Microelectronics"), an engineering design services company located in
Longmont, Colorado in exchange for the issuance of an aggregate 400,000 shares
of Common Stock. As part of this transaction, the Company originally recorded
expenses of approximately $3.7 million of in-process research and development in
the second quarter of fiscal 1998. As a result of the restatement of the
Company's financial results, the amount of the in-process research and
development expense was reduced to $0.7 million. The Company recorded $3.3
million of goodwill as part of this acquisition which will be amortized evenly
over a five-year period.





                                       7
<PAGE>   8



6. STOCKHOLDERS' EQUITY

    On May 1, 1998, the Company completed the public offering of 6,000,000
shares of Common Stock through a Registration Statement declared effective by
the Securities and Exchange Commission on April 27, 1998.

    In May and June 1996, the Company issued an aggregate of 130,378 shares of
its Series A Redeemable Preferred Stock. The aggregate liquidation and
redemption value of the Series A Redeemable Preferred Stock was approximately
$18.5 million at May 6, 1998. In connection with the redemption of all
outstanding shares of such Series A Redeemable Preferred Stock from the proceeds
of the Company's initial public offering in May 1998, as required by the terms
of such shares, the difference between the book value and the redemption value
of approximately $4.1 million was recorded as accretion for Preferred Stock when
determining income attributable to common stockholders and earnings per share.
This $4.1 million of accretion was recorded in the second quarter of fiscal 1998
when the offering was completed.

    During May and June 1996, the Company sold an aggregate of 4,778,804 shares
of redeemable common stock to the preferred stock investors for net proceeds of
approximately $7,116,000. Under a stockholder rights agreement, these investors
had a put option, exercisable at any time after the seventh anniversary of the
agreement, to require the Company to repurchase for cash all of the common
shares held by such investors at a price determined based upon the then market
value of the Company divided by the number of common shares outstanding. This
right terminated upon the IPO. The holders of these shares have certain
registration rights.

    A number of securities class actions have been filed against the Company and
certain of its officers and directors. One federal complaint was filed in the
United States District Court for the Northern District of California; other
complaints were filed in the Superior Court of Santa Clara County. The lawsuits
concern the Company's financial results for the second quarter of fiscal 1998
and were filed on behalf of persons who purchased the Company's stock between
April 28,1998 and June 30, 1998. The complaints allege violations of state
and/or federal securities laws arising out of alleged misstatements and
omissions to state material facts about the Company in the April 27, 1998
Prospectus filed in connection with the Company's initial public offering of
Common Stock. The Company believes that the actions are without merit and
intends to defend against them vigorously. Nevertheless, litigation is subject
to inherent uncertainties, and thus there can be no assurance that these suits
will be resolved favorably to the Company or will not have a material adverse
effect on the Company's financial condition and results of operations.





                                       8
<PAGE>   9

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

The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
are based on current expectations and include various risks and uncertainties
that could cause actual results to differ materially from those projected in the
forward-looking statements. Such risks and uncertainties are set forth below and
under "Other Factors Affecting Future Operating Results."

As a result of the restatement of the Company's financial statements for the
first and second quarters of fiscal 1998 and the fiscal years 1996 and 1997,
certain information contained in this item has been changed from that which
appeared in the Company's originally filed Form 10-Q for the quarter ended May
31, 1998 (see Note 1 of Notes to Condensed Consolidated Financial Statements).
Readers should carefully review the "Revenues" and "Other Factors Affecting
Future Operating Results" sections included herein to reflect current events.


COMPANY OVERVIEW

    Aspec was founded in December 1991 to develop, market and support
semiconductor intellectual property ("SIP") to enable customers to develop
complex ICs. Through fiscal 1992, the Company was principally engaged in the
development of its first products and the establishment of customer
relationships. The Company recognized its initial revenue in fiscal 1993 as SIP
products were completed for customers designing gate array-based ASICs. In
fiscal 1993, 1994 and 1995, a substantial portion of the Company's revenue was
derived from the license of SIP products to vertically integrated semiconductor
manufacturers that were seeking to enter the merchant ASIC market. During these
years, the Company also expanded its development efforts. By fiscal 1996, the
Company had enhanced its SIP products for gate array-based ICs and had developed
SIP products for standard cell-based ICs supporting a number of foundry
processes. These developments allowed the Company to expand its customer base to
include other integrated semiconductor companies, fabless semiconductor
companies, electronics systems manufacturers and distributors that sell to such
entities.

    Revenue consists primarily of license fees for the Company's SIP products. A
license is required for each foundry used by the customer as well as for each
process technology employed. The Company also realizes revenue from service and
maintenance fees. Typically a customer licenses a bundle of products which is
accompanied by documentation and training. The license of the Company's products
typically involves a lengthy sales cycle of up to 12 months because the license
generally involves a significant commitment of capital by the customer and
because Aspec's SIP is either replacing a customer's proprietary SIP or
introducing entirely new SIP. These SIP products are licensed to customers on a
per design basis, a per site basis or an enterprise basis. The price for a
typical bundle of products ranges from approximately $200,000 on a per design
basis to over $2.0 million on an enterprise basis.

    A significant portion of the Company's revenue is recognized on a percentage
of completion method based upon actual costs incurred. The completion period
typically ranges from three months to a year. Accordingly, revenue in any
quarter is dependent on progress towards completion of projects by the Company.
The Company has in the past experienced delays in the progress of certain
projects, and there can be no assurance that such delays will not occur with
respect to future projects. Any delay or failure to achieve such progress could
result in a delay in the ability to bill for or collect payment for work
previously performed, damage to customer relationships and the Company's
reputation, diversion of engineering resources or a delay in the market
acceptance of the Company's products, any of which could have a material adverse
effect on the Company's business, operating results and financial condition. In
addition, these contracts may generally be canceled without cause, and if a
customer cancels or delays performance under any such contracts, the Company's
business, operating results and financial condition could be materially
adversely affected.

    Engineering efforts devoted to developing products for which revenue is
recognized on a percentage of completion basis are recorded as cost of revenue.
Engineering efforts devoted to developing the Company's core technology and
products not requiring adaptation are recorded as research and development
expense. As a result of its engineering efforts, the Company has developed a
substantial base of technology, which the Company is able to reuse in other
product offerings. The Company expects to continue to devote significant
resources to its various engineering efforts.





                                       9
<PAGE>   10


    A significant portion of the Company's revenue is derived from customers
outside the United States, and the Company anticipates that international
revenue will continue to account for a significant portion of its total revenue.
Revenue from customers outside the United States, substantially all of whom are
located in Asia, accounted for 54.1%, 65.4% and 52.8% of revenue in fiscal 1995,
1996 and 1997, respectively, and 56.0% and 56.1% of revenue for the first six
months of fiscal 1997 and 1998, respectively. Although the Company does not
believe that it experienced any material adverse impact in revenue as a result
of the financial dislocations that occurred in certain Asian countries during
1997 and 1998, it has experienced a lengthening of the payment period for
accounts receivables from certain Asian-based customers. At May 31, 1998,
approximately 67.6% of the Company's accounts receivable (including unbilled
receivables) were from Asian-based customers. Although the Company currently
believes, based in part on continuing discussions with these customers, that its
existing accounting reserves are adequate given the estimated exposure related
to all of its accounts receivable, there can be no assurance that such
accounting reserves will prove to be adequate nor that present or future
dislocations in Asian countries or elsewhere or other factors will not have a
material adverse effect on the Company's ability to collect its accounts
receivable or on its business, operating results and financial condition.

    The Company's international business involves a number of risks, including
the impact of possible recessionary environments in foreign economies, political
and economic instability, exchange rate fluctuations, longer receivables
collection periods and greater difficulty in accounts receivable collection from
distributors and customers, difficulty in managing distributors or sales
representatives, unexpected changes in regulatory requirements, reduced or
limited protection for intellectual property rights, export license
requirements, tariffs and other trade barriers and potentially adverse tax
consequences. Although the Company prices its products and services in United
States dollars, currency exchange fluctuations could have a material adverse
effect on the Company's business to the extent that the Company's pricing is not
competitive with products priced in local currencies. The Company does not
currently hedge against foreign currency fluctuations. See "Other Factors
Affecting Future Operating Results --Risks Associated With International
Operations."

    In May and June 1996, the Company issued an aggregate of 130,378 shares of
its Series A Redeemable Preferred Stock. The aggregate liquidation and
redemption value of the Series A Redeemable Preferred Stock was approximately
$18.5 million at May 6, 1998. In connection with the redemption of all
outstanding shares of such Series A Redeemable Preferred Stock from the proceeds
of the Company's initial public offering in May 1998, as required by the terms
of such shares, the difference between the book value and the redemption value
of approximately $4.1 million was recorded as accretion for Preferred Stock when
determining income attributable to common stockholders and earnings per share.
This $4.1 million of accretion was recorded in the second quarter of fiscal 1998
when the offering was completed. See Notes 5 and 6 of Notes to Condensed
Consolidated Financial Statements.

    As part of the Company's strategy to expand its engineering design services
capability, in March 1998, the Company entered into an agreement to acquire SIS
Microelectronics in exchange for the issuance of an aggregate of 400,000 shares
of Common Stock. SIS Microelectronics is an engineering design services company
located in Longmont, Colorado, has 17 employees and recorded revenues of
approximately $1.7 million for its fiscal year ended December 31, 1997. The
acquisition was completed in April 1998, was accounted for using the purchase
method and originally resulted in a charge to in-process research and
development of $3.7 million in the Company's fiscal quarter ended May 31, 1998.
As a result of the restatement of the Company's financial results, the charge to
in-process research and development expense was reduced to $0.7 million. The
Company recorded $3.3 million of goodwill as part of this acquisition which will
be amortized evenly over a five-year period. The Company has no prior experience
with acquisitions and there can be no assurance that the Company will be able to
retain the key employees of SIS Microelectronics or successfully integrate the
operations of SIS Microelectronics. The charge from the SIS Microelectronics
acquisition, in addition to the $4.1 million of accretion of the Series A
Redeemable Preferred Stock, increased the loss attributable to common
stockholders in the second quarter of fiscal 1998. See "Other Factors Affecting
Future Operating Results -- Risks Associated With SIS Microelectronics
Acquisition; Other Potential Acquisitions."





                                       10
<PAGE>   11



RESULTS OF OPERATIONS

    The following table sets forth for the periods indicated selected statements
of operations data as a percentage of revenue:


<TABLE>
<CAPTION>
                                                                       QUARTER ENDED             SIX MONTHS ENDED
                                                                          MAY 31                      MAY 31
                                                                   -------------------          -------------------
                                                                   1998           1997          1998          1997
                                                                   ----           ----          ----           ----
<S>                                                               <C>            <C>           <C>            <C> 
         Revenue                                                    100%           100%          100%           100%
         Cost of revenue                                             66             42            59             42
                                                                   ----           ----          ----           ----
         Gross profit                                                34             58            41             58
         Operating expenses:
                Research and development                             10              6             9              7
                Sales and marketing                                  28             36            26             37
                General and administrative                           14             11            15             10
                Write-off of purchased technology                    13             --             7             --
                                                                   ----           ----          ----           ----
                      Total operating expenses                       65             53            57             54
                                                                   ----           ----          ----           ----
         Income (loss) from operations                              (31)             5           (16)             4
         Interest income, net                                         6              1             3              1
                                                                   ----           ----          ----           ----
         Income (loss) before income taxes                          (25)             6           (13)             5
         Provision for income taxes                                  (4)             2            (2)             2
                                                                   ----           ----          ----           ----
         Net income (loss)                                          (21)             4           (11)             3
         Accretion of redeemable preferred stock                     78              4            41              5
                                                                   ----           ----          ----           ----
         Income (loss) attributable to common stockholders          (99%)            0%          (52%)           (2%)
                                                                   ====           ====          ====           ====
</TABLE>


    Revenues. Revenue increased by 6% from $5.0 million in the quarter ended May
31, 1997 to $5.3 million in the quarter ended May 31, 1998. Revenue increased by
17% from $9.0 million in the six-month period ended May 31, 1997 to $10.5
million in the six-month period ended May 31, 1998. The growth in revenue in the
second quarter and first half of fiscal 1998 compared with the same periods in
fiscal 1997 was primarily attributable to the Company's continued expansion of
its sales of standard cell-based products to a broader customer base.

    International revenue accounted for 56.1% of revenue in the six-month period
ended May 31, 1998 compared to 56.0% of revenue in the six-month period ended
May 31, 1997. International revenue accounted for 55.1% of revenue during the
quarter ended May 31, 1998 compared to 58.9% of revenue during the quarter ended
May 31, 1997.

    Cost of revenue. Cost of revenue primarily represents the costs of personnel
and other operating expenses incurred in the development and production of SIP
products to customer specifications. Cost of revenue increased by 69% from $2.1
million in the quarter ended May 31, 1997 to $3.5 million in the quarter ended
May 31, 1998. Cost of revenue increased by 67% from $3.7 million in the
six-month period ended May 31, 1997 to $6.2 million in the six-month period
ended May 31, 1998. Cost of revenue as a percentage of revenue was 42% and 66%
for the quarters ended May 31, 1997 and 1998, respectively, and 42% and 59% for
the six-month periods ended May 31, 1997 and 1998, respectively. The absolute
dollar increases in cost of revenue and the increases in cost of revenue as a
percentage of revenue in the second quarter and first half of fiscal 1998
compared with the same periods in fiscal 1997 were due to (i) hiring of
additional engineering personnel and related expenses associated with customer
funded development programs, (ii) start-up costs associated with the Company's
chip design service group, (iii) costs of the additional personnel who joined
the Company as a result of the acquisition of SIS Microelectronics and (iv)
costs of rework resulting from process technology changes implemented by
semiconductor foundries for which the Company had developed process-related
performance data which required recalculation and/or recharacterization. Due
primarily to these four factors, the Company's gross margin was adversely
effected in the quarter ended May 31, 1998. The Company expects cost of revenue
as a percentage of revenue to fluctuate in future periods depending on the mix
between development program revenues and revenues from previously developed
products.

    Research and development. Research and development expenses represent the
cost of engineering personnel and other operating expenses incurred in the
development and enhancement of the Company's core technology and products not
requiring significant adaptation. Research and development expenses increased by
85% from $0.3 million in the quarter ended May 31, 1997 to $0.5 million in the
quarter ended May 31, 1998. Research and development expense increased by 65%
from $0.6 million in the six-month period ended May 31, 1997 to $1.0 million in
the six-month period ended May 31, 1998. Research and development expense as a
percentage of revenue was 6% and 10% for the quarters ended May 31, 1997 and
1998, respectively, and 7% and 9% for the six-month periods ended May 31, 1997
and 1998, respectively. The absolute dollar increases in research and
development expenses in the second quarter and first half of fiscal 1998
compared with the same periods in fiscal 1997 were due to increases in
engineering personnel and related expenses. The Company expects research and
development expense to increase in absolute dollars in future



                                       11
<PAGE>   12


periods as the Company expands its engineering efforts. The expected increase in
the Company's research and development expense could have a material adverse
effect on the Company's business, operating results and financial condition if
the Company's revenue does not also increase.

    Sales and marketing. Sales and marketing expenses consist of salaries,
commissions paid to internal sales and marketing personnel and sales
representatives, promotional costs and related operating expenses. Sales and
marketing expenses decreased by 20% from $1.8 million in the quarter ended May
31, 1997 to $1.5 million in the quarter ended May 31, 1998. Sales and marketing
expenses decreased by 19% from $3.4 million in the six-month period ended May
31, 1997 to $2.7 million in the six-month period ended May 31, 1998. Sales and
marketing expenses as a percentage of revenue was 36% and 28% for the quarters
ended May 31, 1997 and 1998, respectively, and 37% and 26% for the six-month
periods ended May 31, 1997 and 1998, respectively. The absolute dollar decreases
in sales and marketing expenses in the second quarter and first half of fiscal
1998 compared with the same periods in fiscal 1997, were due to higher Asian
representative sales commissions in the second quarter and first half of fiscal
1997 that did not recur in the fiscal 1998 periods and due to reduced personnel
costs as certain field application engineers were transferred into engineering.
The Company expects sales and marketing expense to increase in absolute dollars
in future periods as the Company expands its sales and marketing efforts. The
expected increase in the Company's sales and marketing expense could have a
material adverse effect on the Company's business, operating results and
financial condition if the Company's revenue does not also increase.

    General and administrative. General and administrative expenses increased by
35% from $0.5 million in the quarter ended May 31, 1997 to $0.7 million in the
quarter ended May 31, 1998. General and administrative expenses increased by 71%
from $0.9 million in the six-month period ended May 31, 1997 to $1.6 million in
the six-month period ended May 31, 1998. These increases resulted primarily from
addition of new management and administrative personnel and increased
administrative costs to support the Company's growth. Also, the Company began
amortizing the goodwill associated with the SIS acquisition in the second
quarter of 1998. General and administrative expenses as a percentage of revenue
was 11% and 14% for the quarters ended May 31, 1997 and 1998, respectively. As a
percentage of revenue, general and administrative expenses increased over these
three-month periods as such expenses increased at a higher rate than revenues.
General and administrative expenses as a percentage of revenue was 10% and 15%
for the six-month periods ended May 31, 1997 and 1998, respectively. The
increase in general and administrative expense as a percentage of revenue in the
first half of fiscal 1998 was primarily attributable to a $0.4 million increase
in the Company's bad debt reserve recorded in the first quarter of fiscal 1998.
The Company expects general and administrative expense to increase in absolute
dollars in future periods as the Company expands its operations. The expected
increase in the Company's general and administrative expense could have a
material adverse effect on the Company's business, operating results and
financial condition if the Company's revenue does not also increase.

    As a result of the restatement of the Company's financial results, the
amount of the write-off to purchased technology in the second quarter of fiscal
1998 related to the acquisition of SIS Microelectronics was reduced to $0.7
million (see Note 5 to the Condensed Consolidated Financial Statements). The
Company recorded $3.3 million of goodwill as part of this acquisition which will
be amortized evenly over a five-year period.

    Interest income, net. Interest income, net increased by 715% from $39,000 in
the quarter ended May 31, 1997 to $0.3 million in the quarter ended May 31,
1998. Interest income increased 166% from $0.1 million in the six-month period
ended May 31, 1997 to $0.3 million in the six-month period ended May 31, 1998.
Interest income as a percentage of revenue was 1% and 6% for the quarters ended
May 31, 1997 and 1998, respectively, and 1% and 3% for the six-month periods
ended May 31, 1997 and 1998, respectively. The absolute dollar increases in
interest income in the second quarter and first half of fiscal 1998 compared
with the same periods in fiscal 1997, were due to interest income earned on the
proceeds from the Company's initial public offering which was completed in May
1998.

    Provision (benefit) for income taxes. The provision (benefit) for income
taxes was $0.1 million and $(0.2) million for the quarters ended May 31, 1997
and 1998, respectively, and $0.2 million and $(0.3) million in the six-month
periods ended May 31, 1997 and 1998, respectively. Excluding the impact of the
one-time non-deductible write-off of purchased technology, the effective tax
rate remained constant at 38.0% in the second quarter and first half of fiscal
1998, compared with 40% in both the second quarter and the first half of fiscal
1997. The provision (benefit) for income taxes differs from the statutory rate
applied to pretax income because the write-off of purchased technology is not
deductible for income tax purposes. State taxes, net of federal benefit, and the
foreign sales corporation benefit also impacted the provision (benefit) for
income taxes.





                                       12
<PAGE>   13


Liquidity and Capital Resources

    The Company has funded its operations primarily from license revenue and the
net proceeds of $71.9 million from its initial public offering of Common Stock
in May 1998.

    The Company's operating activities utilized net cash of $2.1 million in the
six-month period ended May 31, 1997 and utilized net cash of $1.2 million in the
six-month period ended May 31, 1998. Net cash used for operating activities in
both periods was mainly due to increases in accounts receivable.

    Net cash used in investing activities was $2.1 million and $2.3 million in
the six-month periods ended May 31, 1997 and 1998, respectively. Investing
activities consisted primarily of net purchases of property and equipment.

    Net cash provided by financing activities was $92,000 and $53.5 million in
the six-month periods ended May 31, 1997 and 1998, respectively. In the six
month period ended May 31, 1998, financing activities consisted primarily of the
sale of the Company's Common Stock in its initial public offering.

    At May 31, 1998, the Company had cash and equivalents of $52.5 million. As
of May 31, 1998, the Company had retained deficit of $21.8 million and working
capital of $55.1 million. The Company anticipates approximately $10.0 million
for capital expenditures over the next 12 months.

    The Company intends to continue to invest heavily in the development of new
products and enhancements to its existing products. The Company's future
liquidity and capital requirements will depend upon numerous factors, including
the costs and timing of expansion of product development efforts and the success
of these development efforts, the costs and timing of expansion of sales and
marketing activities, the extent to which the Company's existing and new
products gain market acceptance, competing technological and market
developments, the costs involved in maintaining and enforcing patent claims and
other intellectual property rights, the level and timing of license revenue,
available borrowings under line of credit arrangements and other factors. The
Company believes that its current cash and investment balances together with any
cash generated from operations will be sufficient to meet the Company's
operating and capital requirements for at least the next 12 months.

Other Factors Affecting Future Operating Results

     Restatement of Financial Statements. As previously announced, the Company's
restatement of its consolidated financial statements for fiscal years 1996 and
1997 and the first and second quarters of fiscal 1998 reflects reductions in
reported earned revenue for those years and resulted in a loss from operations
for the first and second quarters of fiscal 1998. The Company's public
announcement of the pending restatement of its financial statements, the delay
in reporting its third quarter results for fiscal 1998 while the restatement was
being compiled and the related uncertainty regarding the Company's business have
adversely affected the Company's financial condition and the price of the
Company's common stock. These factors and other matters described herein have
had, and will continue to have, a material adverse effect on the Company's
business, including its financial condition and results of operations.

    Fluctuations in Future Operating Results; Dependence Upon Timely Project
Completion. The Company's operating results have fluctuated in the past and are
expected to fluctuate significantly on a quarterly and annual basis in the
future as a result of a number of factors including the size and timing of
customer orders; the Company's ability to achieve progress on percentage of
completion contracts; the length of the Company's sales cycle; the timing of new
product announcements and introductions by the Company and its competitors; the
Company's ability to successfully develop, introduce and market new products and
product enhancements; market acceptance of the Company's products; the
cancellation or delay of orders from major customers; the level of changes to
customer requirements due to process specific changes requested by customers or
changes in design rules or process technologies at semiconductor foundries, the
Company's ability to hire additional personnel; and general economic conditions.
These and other factors could have a material adverse effect on the Company's
business, operating results and financial condition. In addition, it is likely
that in some future quarter the Company's operating results may be below the
expectations of public market analysts and investors. In such event, the price
of the Company's Common Stock would likely decline, perhaps substantially.




                                       13
<PAGE>   14


    A significant portion of the Company's revenue is recognized on a percentage
of completion method based upon actual costs incurred. The completion period
typically ranges from three months to a year. Accordingly, revenue in any
quarter is dependent on progress towards completion of the project by the
Company. The Company has in the past experienced delays in the progress of
certain projects and there can be no assurance that such delays will not occur
with respect to future projects. Any delay or failure to achieve such progress
could result in a delay in the ability to bill for or collect payment for work
previously performed, damage to customer relationships and the Company's
reputation, diversion of engineering resources or a delay in the market
acceptance of the Company's products, any of which could have a material adverse
effect on the Company's business, operating results and financial condition. In
addition, these contracts may generally be canceled without cause, and if a
customer cancels or delays performance under any such contracts, the Company's
business, operating results and financial condition could be materially
adversely affected. A customer's license of the Company's products generally
involves a significant commitment of capital with the attendant delays
frequently associated with authorization procedures for substantial capital
expenditures within customer organizations. The Company plans to increase its
operating expenses in order to enhance certain of its existing products and to
develop additional cell libraries for emerging design processes. The Company
also plans to increase its sales and marketing expenses in an attempt to broaden
its customer base. These expenses will be based in part on the Company's
expectations of future revenue from product licenses. Accordingly, if the
Company does not realize its expected revenues, its business, operating results
and financial condition could be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

    Dependence on Emergence of Merchant SIP Market. The market for merchant SIP
is new and emerging. The Company's ability to achieve sustained revenue growth
and profitability in the future will depend on the continued development of this
market and, to a large extent, on the level of demand for complex ICs, including
system-on-a-chip designs. There can be no assurance that the merchant SIP market
will continue to develop or grow at a rate sufficient to support the Company's
business. If this market fails to grow or develops slower than expected, the
Company's business, operating results and financial condition would be
materially adversely affected. To date, the Company's SIP products have been
licensed only by a limited number of customers. Many of the Company's existing
and potential customers currently rely on SIP developed internally or offered by
other vendors. The Company's future growth will be dependent on the adoption of,
and increased reliance on, merchant SIP by both existing and potential
customers. Moreover, if the Company's products do not achieve broad market
acceptance, the Company's business, operating results and financial condition
would be materially adversely affected.

    Management of Growth; Significant Anticipated Hiring Needs. The Company's
business has grown significantly with revenue increasing from $6.6 million in
fiscal 1995 to $15 million in fiscal 1996 to $20.3 million in fiscal 1997.
Revenue for the first six months of fiscal 1998 was $10.5 million. The growth of
the Company's business and expansion of its customer base has placed, and is
expected to continue to place, a significant strain on the Company's management
and operations. A number of key members of the Company's management, including
its Chief Operating Officer and Chief Financial Officer and its Vice Presidents
of Marketing, Business Development and Design Services, joined the Company after
January 1998, and certain other executive officers have joined the Company
during the year. The Company's future success will depend on its ability to
integrate its new officers and to identify, attract, hire and retain skilled
employees and to hire replacements for employees that leave the Company. In this
regard, the Company is actively recruiting several additional engineering
personnel. The Company's failure to continue to expand its engineering
organization in a timely manner could result in delays in the progress on
percentage of completion contracts and the Company's research and development
efforts, either of which could have a material adverse effect on the Company's
business, operating results and financial condition.

    The Company's expansion has also resulted in substantial growth in the
number of its employees and the burden placed upon its financial, accounting and
operating systems, resulting in increased responsibility for both existing and
new management personnel. In this regard, the number of employees at the Company
increased from 46 at the end of fiscal 1995 to 121 at November 30, 1997 and 163
at May 31, 1998. The Company is in the process of hiring additional accounting
and financial personnel and in establishing and upgrading its financial and
accounting systems and procedures to support its growth. Because experienced
accounting and financial personnel are in great demand, there can be no
assurance that the Company will be able to identify, attract and retain such
personnel. The Company's future operating results will depend on the ability of
its management and other key employees to implement and improve its systems for
operations, financial control and information management, and to recruit, train
and manage its overall employee base. In particular, the Company's ability to
effectively manage and support any future growth will be substantially dependent
on its ability to improve its financial and management controls, reporting and
order entry systems and other procedures on a timely basis. The Company also
expects to increase its customer support operations to the extent the installed
base of the Company's products continues to grow and to recruit additional
personnel to expand its design services capabilities. There can be no assurance
that the Company will be able to manage or continue to manage its recent or any
future growth successfully or to implement and



                                       14
<PAGE>   15


maintain adequate financial and management controls and procedures, and any
inability to do so would have a material adverse effect on the Company's
business, operating results and financial condition.

    Risks Associated With SIS Microelectronics Acquisition; Other Potential
Acquisitions. As part of the Company's strategy to expand its engineering design
services capability, in March 1998, the Company entered into an agreement to
acquire SIS Microelectronics in exchange for the issuance of an aggregate of
400,000 shares of Common Stock. SIS Microelectronics is an engineering design
services company located in Longmont, Colorado, has 17 employees and recorded
revenues of approximately $1.7 million for its fiscal year ended December 31,
1997. The acquisition was completed in April 1998, was accounted for using the
purchase method and, after the restatement of the Company's financial results,
resulted in a charge to in-process research and development of $0.7 million in
the Company's fiscal quarter ended May 31, 1998. The Company recorded $3.3
million of goodwill as part of this acquisition which will be amortized over a
five-year period. The Company has no prior experience with acquisitions and
there can be no assurance that the Company will be able to retain the key
employees of SIS Microelectronics or successfully integrate the operations of
SIS Microelectronics. The charge from the SIS Microelectronics acquisition, in
addition to the $4.1 million of accretion of the Series A Redeemable Preferred
Stock, resulted in a loss attributable to common stockholders and a loss per
share in the second quarter of fiscal 1998.

    From time to time, the Company expects to evaluate other potential
acquisitions to build its SIP expertise. There can be no assurance that the
Company will be able to identify attractive acquisition candidates, that it will
be able to successfully complete any such acquisition or that it will be able to
integrate any acquired company with its other operations. In connection with the
acquisition of SIS Microelectronics or potential acquisitions of other
companies, the failure to successfully and efficiently integrate new employees
and operations of the acquired company with the Company's existing employees and
operations or to successfully manage an acquired company located in a different
geographical location could materially adversely effect the Company's business,
operating results and financial condition.

    Risks Associated with Engineering Services Business. One of the Company's
strategies is to increase its revenue from collaborative engineering services.
The engineering services business is subject to a number of risks, including
potential competition from numerous other engineering service companies and the
ability to attract and retain qualified engineering personnel. There can be no
assurance that the Company can successfully expand its collaborative engineering
services, and the failure to do so could have a material adverse effect on the
Company's business, operating results and financial condition.

    Dependence Upon Continuous Product Development; Risk of Product Delays. The
Company's customers operate in the semiconductor industry, which is subject to
rapid technological change, frequent introductions of new products, short
product life cycles, changes in customer demands and requirements and evolving
industry standards. The introduction of products embodying new technologies and
the emergence of new industry standards can render existing products obsolete
and unmarketable. Accordingly, the Company's future success will depend on its
ability to continue to enhance its existing products and to develop and
introduce new products that satisfy increasingly sophisticated customer
requirements and that keep pace with product introductions by EDA tool
companies, emerging process technologies and other technological developments in
the semiconductor industry. Any failure by the Company to anticipate or respond
adequately to changes in technology or customer requirements, or any significant
delays in product development or introduction, would have a material adverse
effect on the Company's business, operating results and financial condition. In
this regard, the Company's gross margin was adversely effected in the quarter
ended May 31, 1998 in part due to process technology changes implemented by the
semiconductor foundries for which the Company had developed process-related
performance data which required recalculation and/or recharacterization. There
can be no assurance that the Company will be successful in its product
development efforts, that the Company will not experience difficulties that
could delay or prevent the successful development, introduction and sale of new
or enhanced products or that such new or enhanced products will achieve market
acceptance. The Company has in the past experienced delays in the release dates
of certain of its products. If release dates of any new significant products or
product enhancements are delayed, the Company's business, operating results and
financial condition would be materially adversely affected. The Company could
also be exposed to litigation or claims from its customers in the event it does
not satisfy its delivery commitments. There can be no assurance that any such
claim will not have a material adverse effect on the Company's business,
operating results and financial condition.

    Customer Concentration; Dependence on Customers in Asia. The Company has
been dependent on a relatively small number of customers for a substantial
portion of its annual revenue. In fiscal 1995, Samsung Electronics, National
Semiconductor and Yamaha accounted for 18.2%, 17.3% and 15.1%, respectively, of
the Company's revenue. In fiscal 1996, Yamaha accounted for 10.4% of the
Company's revenue, and the Company's six largest customers accounted for 50% of
the Company's revenue. In fiscal 1997, Tritech



                                       15
<PAGE>   16


accounted for 10.3% of revenue and seven customers located in Asia accounted for
41.1% of revenue and seven domestic customers accounted for 26.6% of revenue.
The Company anticipates that the majority of its revenue will be derived from a
relatively small number of customers through at least fiscal 1998 and that sales
to customers in Asia will continue to account for a significant portion of the
Company's revenue. None of the Company's customers has a written agreement with
the Company that obligates it to license additional products or to renew its
maintenance agreement, and there can be no assurance that any customer will
license additional SIP products or renew its maintenance agreement. The loss of
one or more of the Company's major customers, or reduced orders by one or more
of such customers, could materially adversely affect the Company's business,
operating results and financial condition.

    Risks Associated With International Operations. A significant portion of the
Company's revenue is derived from customers outside the United States, and the
Company anticipates that international revenue will continue to account for a
significant portion of its total revenue. Revenue from customers outside the
United States, substantially all of whom are located in Asia, accounted for
54.1%, 65.4% and 52.8% of revenue in fiscal 1995, 1996, 1997, respectively and
56.1% and 55.1% of revenue for the first six months and second quarter of fiscal
1998, respectively. Although the Company does not believe that it experienced
any material adverse impact in revenue as a result of the financial dislocations
that occurred in certain Asian countries during 1997 and 1998, it has
experienced a lengthening of the payment period for accounts receivables from
certain Asian-based customers. At May 31, 1998, approximately 67.6% of the
Company's accounts receivable (including unbilled receivables) were from
Asian-based customers. Although the Company currently believes, based in part on
continuing discussions with these customers, that its existing accounting
reserves are adequate given the estimated exposure related to all of its
accounts receivable, there can be no assurance that such accounting reserves
will prove to be adequate nor that present or future dislocations in Asian
countries or elsewhere or other factors will not have a material adverse effect
on the Company's ability to collect its accounts receivable or on its business,
operating results and financial condition.

    The Company's international business involves a number of risks, including
the impact of possible recessionary environments in foreign economies, political
and economic instability, exchange rate fluctuations, longer receivables
collection periods and greater difficulty in accounts receivable collection from
distributors and customers, difficulty in managing distributors or sales
representatives, unexpected changes in regulatory requirements, reduced or
limited protection for intellectual property rights, export license
requirements, tariffs and other trade barriers and potentially adverse tax
consequences. Although the Company prices its products and services in United
States dollars, currency exchange fluctuations could have a material adverse
effect on the Company's business to the extent that the Company's pricing is not
competitive with products priced in local currencies. The Company does not
currently hedge against foreign currency fluctuations.

    Export Control Matters. In May 1997, the Company was advised by the U.S.
Department of Commerce, Bureau of Export Administration (the "DOC") and the
United States Attorney's Office for the Northern District of California that an
investigation had been initiated with respect to the possible violation of U.S.
export laws by the Company and certain of its employees. In August 1997, the
Company was orally informed that the investigation had been closed, and no
action has been brought against the Company or, to the Company's knowledge, its
employees or former employees. The investigation and related diversion of
management time and attention and legal and other costs and expenses had a
material adverse impact on the Company's business and results of operations in
the second and third quarters of fiscal 1997. Although the Company engaged
special counsel with expertise in export matters and has taken steps to help
ensure compliance with export laws, there can be no assurance that the Company
will not be subject to the same or a similar investigation in the future.

    Dependence Upon Semiconductor and Electronics Industries. The Company is
dependent upon the semiconductor and electronics industries. Each of these
industries is characterized by rapid technological change, short product life
cycles, fluctuations in manufacturing capacity and pricing and gross margin
pressures. Each of these industries is highly cyclical and has periodically
experienced significant downturns, often in connection with or in anticipation
of decline in general economic conditions during which the number of new IC
design projects often decreases. Revenue from new licenses of the Company's
products is influenced by the level of design efforts by its customers, and
factors negatively affecting any of these industries could have a material
adverse effect on the Company's business, operating results and financial
condition. The Company's business, operating results and financial condition may
fluctuate in the future from period to period as a consequence of general
economic conditions in the semiconductor or electronics industry.

    Competition. Although the market for merchant SIP is new and emerging and
the Company has few direct competitors, the Company expects that the market for
its products will become increasingly competitive in the future. The Company's
current competitors include Artisan Components, Inc., Cascade Design Automation
(a subsidiary of Oki Semiconductor Ltd.), Compass



                                       16
<PAGE>   17


Design Automation (a division of Avant!), Mentor Graphics and Silicon Architects
(a division of Synopsys). Duet Technology, Inc., a design services company,
recently acquired Cascade Design Automation. The Company also experiences
significant indirect competition from the engineering departments of potential
customers that maintain and develop internally developed SIP. Certain of the
Company's other potential customers rely on proprietary SIP developed and
maintained by ASIC vendors. In addition, certain semiconductor foundries
currently offer or may in the future offer one or more elements of a SIP
solution. The Company's potential competitors also include a number of large
vertically integrated semiconductor companies and numerous EDA software
companies that may develop SIP products that compete with those of the Company.
To the extent the Company expands its capability to offer design services, it
could also experience competition from numerous small design engineering firms
and from large public companies that also offer such services. Increased
competition could eventually result in price reductions or reduced operating
margins which could materially adversely affect the Company's business,
operating results and financial condition. Many of the Company's potential
competitors have significantly greater financial, technical, marketing and other
resources than the Company. As a result, they may be able to respond more
quickly to new or emerging technologies and to changes in customer requirements,
or to devote greater resources to the development, promotion and sale of their
products than can the Company. There can be no assurance that the Company will
be able to compete successfully against current or future competitors or that
competitive pressures will not materially adversely affect the Company's
business, operating results and financial condition. The Company believes the
principal elements of competition in its market are the range of EDA tools and
process technologies supported, technological leadership, product functionality,
the level of technical support provided, software reliability and price. The
Company believes that it competes favorably with respect to each of these
factors.

    Limited Protection of Proprietary Rights. The Company's success is dependent
on its ability to protect its proprietary technology. The Company relies upon a
combination of copyright, patent, trade secret and trademark laws to protect its
proprietary technology. The Company enters into confidentiality agreements with
its employees, distributors and customers and limits access to and distribution
of the source code to its software and other proprietary information. There can
be no assurance that the steps taken by the Company in this regard will be
adequate to prevent misappropriation of its technology or that the Company's
competitors will not independently develop technologies that are substantially
equivalent or superior to the Company's technology. Any such misappropriation of
the Company's technology or development of competitive technologies could have a
material adverse effect on the Company's business, operating results and
financial condition. Despite the Company's efforts to protect its proprietary
rights, there can be no assurance that the Company will be able to protect its
proprietary rights against unauthorized third-party copying or use, and attempts
may be made to copy or reverse engineer aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. Policing the
unauthorized use of the Company's products is difficult and the Company could
incur substantial costs in protecting and enforcing its intellectual property
rights. Litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's trade secrets or to
determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, operating
results and financial condition.

    As of May 31, 1998, the Company held six U.S. patents which expire from 2013
to 2015 and had two U.S. patent applications pending. The Company also has 12
patent applications pending in various foreign jurisdictions. The Company
expects to continue to file patent applications where appropriate to protect its
proprietary technologies; however, the Company believes that its continued
success depends primarily on factors such as the technological skills and
innovation of its personnel rather than on its patents. The Company has
registered the trademarks Aspec Technology, ABOND, HDEA and Mastergen and has
one trademark application pending in the United States. The process of seeking
patent and trademark protection can be expensive and time consuming. There can
be no assurance that patents or trademarks will issue from pending or future
applications or that, if issued, such patents or trademarks will not be
challenged, invalidated or circumvented, or that rights granted thereunder will
provide meaningful protection or other commercial advantage to the Company.
Moreover, there can be no assurance that any patent or trademark rights will be
upheld in the future or that the Company will be able to preserve any of its
other intellectual property rights. In addition, the laws of certain countries
in which the Company's products are distributed do not protect the Company's
products and intellectual property rights to the same extent as the laws of the
United States. Accordingly, effective trademark, copyright and patent protection
may be unavailable in certain foreign countries.

    As is common in the technology industry, the Company may from time to time
receive notices from third parties claiming infringement by the Company's
products of third-party proprietary rights. While the Company is not currently
subject to any such claim, the Company believes that its products could
increasingly be subject to such claims as the market for its products grows and
as more competitors enter the market. Any such claim, with or without merit,
could result in significant litigation costs and require the Company to enter
into royalty and licensing agreements, which could have a material adverse
effect on the Company's business,



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operating results and financial condition. Such royalty and licensing
agreements, if required, may not be available on terms acceptable by the Company
or at all.

    Potential for Product Defects. Complex products such as those offered by the
Company may contain undetected errors, defects or "bugs." There can be no
assurance that, despite significant testing by the Company and by current and
potential customers, errors will not be found in products or enhancements to
existing products after commencement of commercial shipments. The Company does
not presently maintain insurance with respect to potential damages due to errors
or defects in its products. Although the Company has not experienced material
adverse effects resulting from any such errors or defects to date, there can be
no assurance that errors or defects will not be discovered in the future,
potentially causing delays in product introduction and shipments or requiring
design modifications that could materially adversely affect the Company's
business, operating results and financial condition.

    Dependence on Key Personnel. The Company's business depends in significant
part on the continued service of the Company's executive officers and other
senior management and key employees, including certain technical, managerial and
marketing personnel. The loss of the services of any of these individuals or
groups of individuals could have a material adverse effect on the Company's
business, operating results and financial condition. None of the Company's
executive officers has an employment agreement with the Company. The Company
believes that its future business results will also depend in significant part
upon its ability to identify, attract, motivate and retain additional highly
skilled technical, managerial and marketing personnel. Competition for such
personnel in the computer software industry is intense. The Company is currently
engaged in a search for several additional engineering personnel. There can be
no assurance the Company will be successful in identifying, attracting and
retaining such personnel, and the failure to do so could have a material adverse
effect on the Company's business, operating results and financial condition.

    Year 2000 Compliance. Many currently installed computer systems and software
products are coded to accept only two digit entries in the date code field.
These date code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, in less than two years,
computer systems and software used by many companies may need to be upgraded to
comply with such "Year 2000" requirements. Although the Company has conducted an
internal review of such matters and believes that its products and internal
systems are Year 2000 compliant, the Company believes that the purchasing
patterns of customers and potential customers may be affected by Year 2000
issues as companies expend significant resources to upgrade their current
software systems for Year 2000 compliance. These expenditures may result in
reduced funds available to purchase products such as those offered by the
Company, which could have a material adverse effect on the Company's business,
operating results and financial condition.

    Volatility of Share Price. Since the Company's initial public offering in
April 1998, the market price of the Company's Common Stock has been highly
volatile and is expected to be significantly affected by factors such as actual
or anticipated fluctuations in the Company's operating results, the Company's
failure to meet or exceed published earnings estimates, changes in earnings
estimates or recommendations by securities analysts, announcements of
technological innovations, new products or new contracts by the Company or its
existing or potential competitors, developments with respect to patents,
copyrights or proprietary rights, conditions and trends in the EDA,
semiconductor or electronics industries, adoption of new accounting standards
affecting the software industry, general market conditions and other factors. In
addition, the stock market has from time to time experienced significant price
and volume fluctuations that have particularly affected the market prices for
the common stocks of technology companies which have often been unrelated to the
operating performance of such companies. These broad market fluctuations may
materially adversely affect the market price of the Common Stock. In June 1998,
securities class action litigation was filed against the Company and certain of
its executive officers and directors. Such litigation could result in
substantial costs and a diversion of management's attention and resources, which
could have a material adverse effect upon the Company's business, operating
results and financial condition. See "Part II - Item 1 - Legal Proceedings."





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                           PART II. OTHER INFORMATION

Item 1.             Legal Proceedings

    A number of securities class actions have been filed against the Company and
certain of its officers and directors. One federal complaint was filed in the
United States District Court for the Northern District of California; other
complaints were filed in the Superior Court of Santa Clara County. The lawsuits
concern the Company's financial results for the second quarter of fiscal 1998
and were filed on behalf of persons who purchased the Company's stock between
April 28,1998 and June 30, 1998. The complaints allege violations of state
and/or federal securities laws arising out of alleged misstatements and
omissions to state material facts about the Company in the April 27, 1998
Prospectus filed in connection with the Company's initial public offering of
Common Stock. The Company believes that the actions are without merit and
intends to defend against them vigorously. Nevertheless, litigation is subject
to inherent uncertainties, and thus there can be no assurance that these suits
will be resolved favorably to the Company or will not have a material adverse
effect on the Company's financial condition and results of operations.

Item 2.             Changes in Securities and Use of Proceeds

    On April 28, 1998, the Company completed the sale of 6,000,000 Common Shares
at a per share price of $13.00 in a firm commitment underwriting public
offering. The offering was effected pursuant to a Registration Statement on Form
S-1 (Registration No. 333-22913), which the United States Securities and
Exchange Commission declared effective on April 27, 1998. Hambrecht and Quist
LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated were the lead
underwriters for the offering.

    Of the $78,000,000 in aggregate proceeds raised by the Company in connection
with the April 1998 offering, (i) $5,460,000 was paid to underwriters in
connection with underwriting discounts, and (ii) approximately $600,000 was paid
by the Company in connection with offering expenses, printing fees, filing fees,
and legal fees. The legal fees included approximately $200,000 in legal fees to
Wilson Sonsini Goodrich & Rosati, Professional Corporation ("WSG&R"), counsel to
the Corporation. Jeffrey D. Saper, a member of WSG&R is Secretary and a director
of the Company. Of the net proceeds of approximately $71.9 million, the Company
used approximately $18.5 million to redeem all outstanding shares of the
Company's Series A Redeemable Preferred Stock as required by the terms of such
shares. The Company paid Summit Ventures IV, L.P. and Summit Investors III, L.P.
an aggregate of approximately $9.2 million in connection with the redemption of
an aggregate of 64,544 shares of Series A Redeemable Preferred Stock. Walter G.
Kortschak, a director of the Company, is a general partner of Stamps, Woodsum &
Co. IV and Summit Investors III, L.P. Stamps, Woodsum & Co. IV is the general
partner of Summit Partners IV, L.P. Summit Partners IV, L.P. is the general
partner of Summit Ventures IV, L.P. The Company paid WK Technology Fund, WK
Technology Fund II and WK Technology Fund III an aggregate of approximately $9.2
million in connection with the redemption of an aggregate of 64,544 shares of
Series A Redeemable Preferred Stock. Y.S. Fu, a director of the Company, is a
partner of WK Technology Fund, WK Technology Fund II and WK Technology Fund III.
The Company paid Jeffrey D. Saper approximately $69,000 in connection with the
redemption of 484 shares of Series A Redeemable Preferred Stock. The Company
paid certain members of WSG&R and investment partnerships of which such persons
are partners approximately $23,000 in connection with the redemption of 161
shares of Series A Redeemable Preferred Stock. The Company paid the counsel to
the purchasers of Series A Redeemable Preferred Stock approximately $91,000 in
connection with the redemption of 645 shares of Series A Redeemable Preferred
Stock. There were no other direct or indirect payments to directors or officers
of the Company or any other person or entity. Except for approximately $1.2
million used for working capital requirements and purchases of computer
equipment and software, none of the offering proceeds have been used for the
construction of plant, building or facilities or the purchase or installation of
machinery or equipment or for purchases of real estate or the acquisition of
other businesses. The Company is currently investing the net offering proceeds
for future use as additional working capital. Such net proceeds have been
invested in short-term, interest bearing, investment grade securities. A portion
of the net proceeds may be used for the acquisition of technologies, businesses
or products that are complementary to those of the Company.




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<PAGE>   20



Item 6.             Exhibits and Reports on Form 8-K

    (a) Exhibits

       27.1          Financial Data Schedule

    (b) Reports on Form 8-K

    There were no reports filed on Form 8-K during the quarter ended May 31,
1998. However, on June 29, 1998, the Company filed a Form 8-K with the
Securities and Exchange Commission relating to the acquisition of SIS
Microelectronics, Inc.






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                                   SIGNATURES

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



                                                 ASPEC TECHNOLOGY, INC.

Date:     December 17, 1998                 By:  /s/ CONRAD DELL'OCA
                                                 -----------------------------
                                                 Conrad Dell'Oca
                                                 President and Acting
                                                 Principal Accounting Officer



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                                INDEX TO EXHIBITS

EXHIBITS

27.1           Financial Data Schedule





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