<PAGE>   1

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

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

                                    FORM 10-Q

(Mark one)

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

                for the Quarterly Period Ended February 28, 1999

                                       OR

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

               for the transition period from ________ to ________

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

                        Commission File Number 000-22565

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

<TABLE>
<S>                                                       <C>
           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)
</TABLE>

       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 [X] NO [ ]

    The number of shares of the Registrant's Common Stock outstanding as of
February 28, 1999 was 28,398,222.

<PAGE>   2

                             ASPEC TECHNOLOGY, INC.

                                    FORM 10-Q

                     FOR THE QUARTER ENDED FEBRUARY 28, 1999

                                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 months ended February 28, 1999 and 1998................  3

           b)  Condensed Consolidated Balance Sheets at February 28, 1999 
               and November 30, 1998........................................  4

           c)  Condensed Consolidated Statements of Cash Flows for the 
               three months ended February 28, 1999 and 1998................  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................................................ 18

Item 6.    Exhibits and Reports on Form 8-K................................. 19


SIGNATURES.................................................................. 19
</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
                                                              FEBRUARY 28,
                                                         ----------------------
                                                           1999          1998
                                                         --------      --------
<S>                                                      <C>           <C>     
Revenue                                                  $  2,896      $  5,174
Cost of revenue                                             4,218         2,709
                                                         --------      --------
 
Gross profit                                               (1,322)        2,465
                                                         --------      --------
Operating expenses:
       Research and development                             1,152           431
       Sales and marketing                                  1,361         1,266
       General and administrative                           1,207           873
       Amortization - goodwill                                167            --
                                                         --------      --------
             Total operating expenses                       3,887         2,570
                                                         --------      --------

Income (loss) from operations                              (5,209)         (105)
Interest income, net                                          548            22
                                                         --------      --------

Income (loss) before income taxes                          (4,661)          (83)
Provision for income taxes                                     --           (32)
                                                         --------      --------

Net income (loss)                                          (4,661)          (51)
Accretion of redeemable preferred stock                        --           212
                                                         --------      --------
Income (loss) attributable to common stockholders        $ (4,661)     $   (263)
                                                         ========      ========
Basic earnings (loss) per share                          $  (0.17)     $  (0.01)
                                                         ========      ========
Shares used in basic per share calculation                 28,055        21,288
                                                         ========      ========
Diluted earnings (loss) per share                        $  (0.17)     $  (0.01)
                                                         ========      ========
Shares used in diluted per share calculation               28,055        21,288
                                                         ========      ========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                       3

<PAGE>   4

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


<TABLE>
<CAPTION>
                                     ASSETS
                                                       FEBRUARY 28,    NOV. 30,
                                                           1999          1998
                                                       -----------     --------
                                                       (UNAUDITED)        (1)
<S>                                                      <C>           <C>     
Current assets:
   Cash and equivalents                                  $ 36,121      $ 42,480
   Accounts receivable (net of allowances 
      of $1,243 and $1,271)
         Billed                                             4,507         5,165
         Unbilled                                           1,649         2,231
   Income taxes receivable                                    679           679
   Prepaid  expenses                                          947           882
   Inventory                                                  206           167
   Deferred income taxes                                    2,100         2,100
                                                         --------      --------
         Total current assets                              46,209        53,704
Property and equipment - net                               11,843        12,297
Investments                                                 3,169           840
Other assets                                                3,381         3,622
                                                         --------      --------

TOTAL                                                    $ 64,602      $ 70,463
                                                         ========      ========

                LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current liabilities:
   Accounts payable                                      $  3,596      $  3,326
   Accrued liabilities                                      1,942         3,104
   Customer advances                                        3,872         4,206
                                                         --------      --------
      Total current liabilities                             9,410        10,636

Deferred liabilities - rent                                    52            52
Other liabilities - long term                               1,000         1,000
                                                         --------      --------
      Total liabilities                                    10,462        11,688

Stockholders' equity (deficiency):
   Common stock                                            86,198        86,198
   Stockholders' notes receivable                            (181)         (184)
   Deferred stock compensation                                (47)          (70)
   Retained earnings (deficit)                            (31,830)      (27,169)
                                                         --------      --------
      Total stockholders' equity (deficiency)              54,140        58,775
                                                         --------      --------

TOTAL                                                    $ 64,602      $ 70,463
                                                         ========      ========
</TABLE>

(1)  The balance sheet at November 30, 1998 has been derived from the
     consolidated audited financial statements at that date.

     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>
                                                           THREE MONTHS ENDED
                                                               FEBRUARY 28,
                                                         ----------------------
                                                           1999          1998
                                                         --------      --------
<S>                                                      <C>           <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                        $ (4,661)     $    (51)
Adjustments from operating activities:
  Depreciation and amortization                             1,845           524
  Deferred income taxes                                        --          (699)
  Stock compensation expense                                   23            26
  Changes in assets and liabilities
    Accounts receivable:
      Billed                                                 (658)         (174)
      Unbilled                                               (582)       (1,051)
    Prepaid expenses and other assets                         (42)           75
    Inventory                                                  39            --
    Accounts payable                                         (270)         (185)
    Accrued liabilities                                     1,162            --
    Income taxes payable                                       --           597
    Customer advances                                         334         1,246
                                                         --------      --------
    NET CASH USED FOR OPERATING ACTIVITIES                 (2,810)          308
                                                         --------      --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment                      (1,223)         (380)
  Investment in joint venture corporation                  (2,329)           --
                                                         --------      --------
    NET CASH USED FOR INVESTING ACTIVITIES                 (3,552)         (380)
                                                         --------      --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Sale of common stock                                         --           229
  Collection of stockholder notes receivable                    3             9
                                                         --------      --------
    NET CASH PROVIDED BY FINANCING ACTIVITIES                   3           238
                                                         --------      --------

Net increase (decrease) in cash and equivalents            (6,359)          166
Cash and equivalents, beginning of period                  42,480         2,524
                                                         --------      --------
CASH AND EQUIVALENTS, END OF PERIOD                      $ 36,121      $  2,690
                                                         ========      ========

Supplemental disclosure of cash flow information:
  Cash paid for income taxes                             $     --      $    114
                                                         ========      ========
  Accretion of redeemable preferred stock                $     --      $    212
                                                         ========      ========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                       5

<PAGE>   6

                             ASPEC TECHNOLOGY, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


1.   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 months ended February 28,
1999 are not necessarily indicative of the results that may be expected for the
fiscal year ending November 30, 1999 or for any other period. The unaudited
condensed consolidated interim financial statements contained herein should be
read in conjunction with the audited financial statements and footnotes for the
year ended Novemer 30, 1998 included in the Company's Annual Report on Form 10-K
as filed with the Securities and Exchange Commission on February 16, 1999.


2.   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
                                                               FEBRUARY 28,
                                                         ----------------------
                                                           1999          1998
                                                         --------      --------
                                                               (UNAUDITED)
<S>                                                      <C>           <C>      
Net income (loss) attributable to common stockholders    $ (4,661)     $   (263)
                                                         --------      --------
Denominator-basic EPS common stock outstanding             28,055        21,288
                                                         --------      --------
Basic earnings (loss) per share                          $  (0.17)     $  (0.01)
                                                         --------      --------

Denominator-Diluted EPS:
     Denominator-Basic EPS                                 28,055        21,288
     Effect of dilutive securities:
         Weighted average common shares subject to
            repurchase rights                                  --            --
         Weighted average common share equivalents
            related to stock purchase rights and 
            options                                            --            --
                                                         --------      --------
                                                           28,055        21,288
                                                         --------      --------

Diluted earnings (loss) per share                        $  (0.17)     $  (0.01)
                                                         --------      --------
</TABLE>


                                       6

<PAGE>   7

3.   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.
Aspec implemented FAS 130 during the first quarter of fiscal 1999 and has
restated its prior periods to comply with the standard. There is no difference
between the Company's net loss and its total comprehensive income for the three
month periods ended February 28, 1998 and 1999.

     In June 1997, the FASB issued 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 this statement will not impact the Company's financial position,
results of operations or cash flows. SFAS No. 131 is effective for the Company's
1999 fiscal year that commenced December 1, 1998 with interim reporting required
in the second fiscal year.


4.   INVESTMENT

     The Company entered into a Joint Venture Agreement with certain Korean
investors dated December 18,1998, to establish a joint venture corporation in
South Korea named SLIM Technology Co., Ltd, for the purpose of developing and
providing design implementation technology for the design of ASIC and
semi-custom integrated circuits and providing design services for ASICs. The
Company invested $2.3 million in this joint venture representing a 40% interest
in SLIM Technology Co., Ltd.


5.   CONTINGENCIES

SUPERIOR COURT FOR THE STATE OF CALIFORNIA
On July 1, 1998, a class action lawsuit, Howard Jonas, et al. v. Aspec
Technology, Inc., et al., No. CV-775037 ("the Jonas Complaint"), was filed in
the Superior Court for the State of California, County of Santa Clara. The Jonas
Complaint alleged that Aspec and certain of its officers, directors, and the
underwriters of the Company's initial public offering, violated California
Corporations Code Sections 25400 and 25500, and California Business and
Professions Code Sections 17200 and 17500 by making false and misleading
statements about Aspec's financial condition. The action was purportedly brought
on behalf of all persons who purchased Aspec stock during the period from April
28, 1998 and June 25, 1998. On July 2, 1998, July 27, 1998, and August 17, 1998,
three additional complaints were filed in state court against Aspec and certain
of its officers, directors, entitled respectively, William Neuman, et al. v.
Aspec Technology, Inc., et al., No. CV-775089 ("the Neuman Complaint"); Martin
L. Klotz, on behalf of the Martin Klotz Defined Benefit Profit Sharing Plan, et
al. v. Aspec Technology, Inc., et al., No. CV-775591 ("the Klotz Complaint");
Glen O. Ressler and Thelma M. Ressler, et al,. v. Aspec Technology, Inc., et
al., No. CV-776065 ("the Ressler Complaint"). In addition to alleging the same
violations of the Corporations Code as the other three complaints, the Klotz
complaint also alleged violations of Sections 11, 12, and 15 of the Securities
Exchange Act of 1933, and a class period of April 28, 1998 through June 30,
1998. The complaints sought unspecified damages.

On January 29, 1999, the plaintiffs consolidated the pending class action cases
and filed a Consolidated Amended Complaint, styled Howard Jonas, et al. v. Aspec
Technology, Inc., et al., No. CV-775037. The Consolidated Amended Complaint,
purportedly brought on behalf of all persons who purchased Aspec's stock between
April 27, 1998 and June 30, 1998, alleges that Aspec and certain of its officers
and directors, as well as its underwriters, violated Sections 25400 and 25500 of
the California Corporations Code, as well as Sections 11 and 15 (except as to
the underwriters) of the Securities Act of 1933. The parties have agreed that
the defendants will have forty-five days to respond to the Consolidated Amended
Complaint.

Certain of the Company's current and former officers, directors and shareholder
entities were also named as defendants in a derivative lawsuit, Linda Willinger,
IRA, et al. v. Conrad Dell'Oca et al., No. CV-778007, which was filed on
November 12, 1998, in the Superior Court of Santa Clara County. The derivative
complaint is based on factual allegations substantially similar to those alleged
in the class action lawsuits.

UNITED STATES DISTRICT COURT
On October 16, 1998, plaintiffs agreed to voluntarily dismiss Kassover, et al.
v. Aspec Technology, Inc., et al, No. C 98-2604VRW, which was filed on June 30,
1998 in the United States District Court for the Northern District of California
against Aspec and certain 


                                       7

<PAGE>   8

of its officers and directors. The Complaint alleged that defendants violated 
Sections 11, 12, and 15 of the Securities Exchange Act of 1934 by failing to 
disclose certain facts about Aspec's financial condition between April 28, 1998
and June 30, 1998. On October 20, 1998, the Court dismissed the purported class 
action without prejudice.

NASDAQ INQUIRY
On September 4, 1998, the Company received an informal request for information
from the NASDAQ Listing Investigations Staff. NASDAQ requested information
concerning the Company's financial accounting and internal controls. The Company
has provided information in response to the informal inquiry. NASD held a
de-listing inquiry on December 17, 1998 at which the Company appeared through
counsel and provided information. On February 25, 1999, the Company was notified
by NASDAQ that the NASDAQ Listing's Qualification Panel (the "Panel") had
determined that the Company was currently complying with all requirements for
continued inclusion on the NASDAQ National Market and the Company's securities
will continue to be listed on the NASDAQ National Market.

SEC INQUIRY
In January 1999, the Company received an informal inquiry from the Securities
and Exchange Commission ("SEC"). The Company has provided information in
response to the SEC's inquiry.


                                       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."

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.

     Since the second half of fiscal 1998, the Company has had significantly
reduced revenues primarily due to the shift in industry pricing practice by a
major competitor from up-front license fees to a royalty based model. This
change is expected to continue to have a material adverse impact on the
Company's revenue in future quarters. Although the Company has taken actions to
reduce costs, the substantially reduced revenue levels have resulted in
significant operating losses for the past two quarters. These losses will
continue unless the Company is able to increase revenues or significantly reduce
its costs.

     The majority of the Company's revenue comes from 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. Late in the third quarter of fiscal 1998, one of
the Company's major competitors announced an agreement with a major foundry
whereby the foundry acquired cell libraries for a minimal up-front fee coupled
with a future royalty. This change in industry pricing practice has had and is
expected to continue to have a material adverse effect on the Company's revenue
and operating results.

     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%, 53%, and 65% of revenue in fiscal 1996, 1997
and 1998, respectively, and 57% and 28% of revenue for the first three months of
fiscal 1998 and 1999, respectively. International revenue decreased in the first
quarter of fiscal 1999 due to soft demand for the Company's products in Korea.
There can be no assurance when or if such conditions will improve. The Company
has also experienced a lengthening of the payment period for accounts
receivables from certain Asian-based customers. At February 28, 1999,
approximately 72% 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.

     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. The acquisition was completed in April 1998, was accounted for
using the purchase method and 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 evenly over a five-year period.

     In December 1998, the Company entered into a Joint Venture Agreement with
certain Korean investors to establish a joint venture corporation in South Korea
named SLIM Technology Co., Ltd, for the purpose of developing and providing
design implementation technology for the design of ASIC and semi-custom
integrated circuits and providing design services for ASICs. The Company
invested $2.3 million in this joint venture representing a 40% interest in SLIM
Technology Co., Ltd.


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
                                                               FEBRUARY 28
                                                          ---------------------
                                                            1999         1998
                                                          --------     --------
<S>                                                         <C>           <C>
Revenue                                                     100%          100%
Cost of revenue                                             146            52
                                                           ----          ----
Gross profit                                                (46)           48
Operating expenses:
       Research and development                              40             8
       Sales and marketing                                   47            25
       General and administrative                            41            17
       Amortization - goodwill                                6            --
                                                           ----          ----
             Total operating expenses                       134            50
                                                           ----          ----
Income (loss) from operations                              (180)           (2)
Interest income, net                                         19            --
                                                           ----          ----
Income (loss) before income taxes                          (161)           (2)
Provision for income taxes                                   --            (1)
                                                           ----          ----
Net income (loss)                                          (161)           (1)
Accretion of redeemable preferred stock                      --             4
                                                           ----          ----
Income (loss) attributable to common stockholders          (161%)          (5%)
                                                           ====          ====
</TABLE>


     Revenue. Revenue decreased by 44% from $5.2 million in the quarter ended
February 28, 1998 to $2.9 million in the quarter ended February 28, 1999. The
decline in revenue in the first three months of fiscal 1999 compared with the
same period in fiscal 1998 was primarily attributable to the shift in industry
pricing practice by a major competitor from up-front license fees to a royalty
based model that began in the second half of fiscal 1998. This change is
expected to continue to have a material adverse impact on the Company's revenue
in future quarters.


                                       10

<PAGE>   11

     International revenue accounted for 28% of revenue during the quarter ended
February 28, 1999 compared to 57% of revenue during the quarter ended February
28, 1998. International revenue decreased in the first quarter of fiscal 1999
due to soft demand for the Company's products in Korea. There can be no
assurance when or if such conditions will improve.

     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 56% from $2.7 million in the quarter ended February 28, 1998 to $4.2 million
in the quarter ended February 28, 1999. Cost of revenue as a percentage of
revenue was 52% and 146% for the quarters ended February 28, 1998 and 1999,
respectively. The absolute dollar increase in cost of revenue in the first
quarter of fiscal 1999 compared with the same period in fiscal 1998 was due to
(i) hiring of additional engineering personnel and related expenses associated
with customer funded development programs, (ii) 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 using outside programmers. Cost of revenue as a percentage of
revenue increased over the periods primarily due to substantially reduced
revenue and higher costs in the first quarter of fiscal 1999. The Company does
not expect cost of revenue to increase in absolute dollars in the remaining
quarters of fiscal 1999.

     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
167% from $0.4 million in the quarter ended February 28, 1998 to $1.2 million in
the quarter ended February 28, 1999. Research and development expense as a
percentage of revenue was 8% and 40% for the quarters ended February 28, 1998
and 1999, respectively. The absolute dollar increase in research and development
expenses in the first quarter of fiscal 1999 compared with the same period in
fiscal 1998 was due to increases in engineering personnel, including additional
SIS Microelectronics personnel, and related expenses. Research and development
expenses increased as a percentage of revenue due to higher expenses and
significantly reduced revenue in the first quarter of fiscal 1999.

     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 increased by 8% from $1.3 million in the quarter ended
February 28, 1998 to $1.4 million in the quarter ended February 28, 1999. Sales
and marketing expense increased as a percentage of revenue from 25% to 47% for
the quarters ended February 28, 1998 and 1999, respectively, primarily due to
lower revenues in the first quarter of fiscal 1999. The Company does not expect
sales and marketing expense to increase in absolute dollars in the remaining
quarters of fiscal 1999.

     General and administrative. General and administrative expenses increased
by 38% from $0.9 million in the quarter ended February 28, 1998 to $1.2 million
in the quarter ended February 28, 1999. This increase resulted primarily from
addition of new management and administrative personnel, and increased
administrative costs. Also, beginning in the second quarter of fiscal 1998, the
Company began amortizing the goodwill associated with the SIS acquisition over a
five-year period. General and administrative expenses increased as a percentage
of revenue from 17% to 41% for the quarter ended February 28, 1998 and 1999,
respectively, primarily due to lower revenues in the first quarter of fiscal
1999. The Company does not expect general and administrative expense to increase
in absolute dollars in the remaining quarters of fiscal 1999.

     The $0.7 million written off to purchased technology in the second quarter
of fiscal 1998 related to the acquisition of SIS Microelectronics (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 from $22,000 in the
quarter ended February 28, 1998 to $0.5 million in the quarter ended February
28, 1999. The absolute dollar increases in interest income in the first quarter
of fiscal 1999 compared with the same period in fiscal 1998, were due to
interest income earned on the proceeds from the Company's initial public
offering which was completed in May 1998.


                                       11

<PAGE>   12

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 provided net cash of $0.3 million in the
three month period ended February 28, 1998 and utilized net cash of $2.8 million
in the three month period ended February 28, 1999. Net cash used for operating
activities in the first quarter of fiscal 199 was mainly due to a net loss of
$4.7 million.

     Net cash used in investing activities was $0.4 million and $3.6 million in
the three month periods ended February 28, 1998 and 1999, respectively.
Investing activities for the first quarter of fiscal 1999 consisted primarily of
the investment in the joint venture and net purchases of property and equipment.

     Net cash provided by financing activities was $238,000 and $3,000 in the
three month periods ended February 28, 1998 and 1999, respectively.

     At February 28, 1999, the Company had cash and equivalents of $36.1
million. As of February 28, 1999, the Company had a retained deficit of $31.8
million and working capital of $36.8 million. The Company anticipates
approximately $2.0 million of capital expenditures over the next 12 months.

     The Company intends to continue to invest 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 incurred in connection with the defense, settlement or payment of any
damages with respect to the class action lawsuits pending against the Company
and related parties, the costs and timing of the Company's product development
efforts and the success of these development efforts, the costs and timing of
the Company's 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 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 also experienced a
significant operating loss for the fourth quarter of fiscal 1998 and the first
quarter of fiscal 1999. 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 continuation of the shift in industry pricing practice
from up-front license fees to a royalty based model; 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 retain its
existing 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.


                                       12

<PAGE>   13

     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 may involve a
significant commitment of capital with the attendant delays frequently
associated with authorization procedures for capital expenditures within
customer organizations. The Company's operating 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 would be materially
adversely affected.

     Dependence on Emergence of Merchant SIP Market. The market for merchant SIP
is new and emerging. The Company's ability to achieve 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 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. In this regard, late in the third quarter of
fiscal 1998, one of the Company's major competitors announced an agreement with
a major foundry whereby the foundry acquired cell libraries for a minimal
up-front fee coupled with a future royalty. This change in industry pricing
practice has had and is expected to continue to have a material adverse effect
on the Company's revenue and operating results.

     Retention of 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. A number of key members of the Company's management have
left the Company to pursue other opportunities. The Company's future success
will depend on its ability 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 a President/Chief Executive Officer
and several additional engineering personnel. The Company's failure to hire a
suitable President/Chief Executive Officer or to expand its engineering
organization in a timely manner could 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 April 1998, the Company acquired SIS Microelectronics in
exchange for the issuance of an aggregate of 400,000 shares of Common Stock. The
acquisition was accounted for using the purchase method and 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 remaining $3.3 million of the purchase price was
charged to goodwill and 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.

     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.


                                       13

<PAGE>   14

     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 materially adversely effected in the
quarter ended February 28, 1999 and in fiscal 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 1997, Tritech accounted for 10% of the
Company's revenue, and the Company's seven largest customers accounted for 48%
of the revenue. In fiscal 1998, Asahi Glass accounted for 13% of the Company's
revenue, and five of the Company's largest customers accounted for 43% of the
revenue. In the quarter ended February 28, 1999, Progate and National
Semiconductor accounted for 16% and 12% of the Company's revenue, respectively,
and five of the Company's largest customers accounted for 29% of the remaining
revenue. The Company anticipates that the majority of its revenue will be
derived from a relatively small number of customers 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%,
53% and 65% of revenue in fiscal 1996, 1997, 1998, respectively and 28% of
revenue for the first three months of fiscal 1999. International revenue
decreased in the first quarter of fiscal 1999 due to soft demand for the
Company's products in Korea. There can be no assurance when or if such
conditions will improve. The Company has also experienced a lengthening of the
payment period for accounts receivables from certain Asian-based customers. At
February 28, 1999, approximately 72% 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 


                                       14

<PAGE>   15

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. In this regard, the shift in industry practice from payment of
up-front license fees to a royalty based model had and will continue to have a
material adverse impact on the Company's revenue in future periods. The
Company's business, operating results and financial condition may also 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., Compass Design Automation
(a division of Avant!), Mentor Graphics, Cadence, Nurologic, Silicon Architects
(a division of Synopsys), and Duet Technology, Inc. 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 including cell libraries acquired from the Company's competitors. 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 has
resulted in a shift from up-front license fees to a royalty based model and in
price reductions and reduced operating margins which have 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 


                                       15

<PAGE>   16

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 February 28, 1999, 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 twelve 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, I/O GEN, 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, 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.

     Year 2000 Readiness Disclosure. 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 a year, computer systems and software used by many companies may need to be
upgraded to comply with such "Year 2000" requirements.

     The Company believes that there are four critical areas that require
planning and execution to insure that Year 2000 issues do not impose a
significant threat to the Company's operating ability. These areas are: (1) the
Company's product offerings (2) the computer hardware and software systems which
the Company purchases from outside suppliers and uses to produce its software
product offerings (3) the operating systems used by the Company's customers to
run our product offerings, and (4) the Company's internal operations and
facilities.


                                       16

<PAGE>   17

(1)  In terms of the effect of Year 2000 issues on the Company's product
     offerings, the software and library products, which comprise almost all of
     the Company's revenue, do not have specific date dependence. Therefore, the
     date code field is not used by the Company's products while operating in
     the customer's environment. This means that there should be no effect when
     the date changes to the year 2000 because it will be transparent to our
     products. We are in the process of testing our products to insure that the
     date change will have no effect. This testing should be completed by the
     middle of 1999.

(2)  All of Aspec's software development, whether done internally, or, in some
     instances, by outside subcontractors, is performed on workstations
     manufactured by Sun Microsystems. The Company is in the process of
     upgrading all workstations to the operating system specified by Sun
     Microsystems as Year 2000 compliant. The Company expects to complete this
     upgrade by June 1999 at a cost of approximately $300,000. If this upgrade
     cannot be completed in time, the Company would be forced to purchase new
     workstations. Costs to do this could run as high as $1.5 million.

(3)  The customer's operating systems that run Aspec's software and libraries
     may have issues that could hamper their operations. In this event, sales to
     these customers may be reduced until the customer has addressed his
     internal issues. Aspec sales and customer support personnel will work on
     Year 2000 issues to the extent allowed by the customer. All of the
     Company's customers are semiconductor manufacturers which tend to use
     relatively new computing systems that are Year 2000 tolerant, which should
     mitigate the risk in this area.

(4)  The Company is in the process of determing whether there may be additional
     Year 2000 issues with various computer software programs purchased from
     outside vendors for engineering and for accounting. It has identified the
     appropriate personnel to complete the evaluations and expects to have these
     reviews completed by June 1999.

     The Company estimates that the remaining costs to meet the internal Year
2000 plan should be between $100,000 to $300,000. These costs will be expensed
as incurred as normal operating expenditures. We do not expect the costs
relating to Year 2000 remediation to have a material effect on our results of
operations. In the event that there is a major problem with our software and
hardware development systems, the Company could incur substantial delays in
completing its contractual commitment to customers which would have a materially
adverse impact on our future financial results. At this time there is no way to
forecast the cost of the potential impact of this type of problem.

     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."


                                       17

<PAGE>   18

                           PART II. OTHER INFORMATION

Item 1. Legal Proceedings

SUPERIOR COURT FOR THE STATE OF CALIFORNIA
     On July 1, 1998, a class action lawsuit, Howard Jonas, et al. v. Aspec
Technology, Inc., et al., No. CV-775037 ("the Jonas Complaint"), was filed in
the Superior Court for the State of California, County of Santa Clara. The Jonas
Complaint alleged that Aspec and certain of its officers, directors, and the
underwriters of the Company's initial public offering, violated California
Corporations Code Sections 25400 and 25500, and California Business and
Professions Code Sections 17200 and 17500 by making false and misleading
statements about Aspec's financial condition. The action was purportedly brought
on behalf of all persons who purchased Aspec stock during the period from April
28, 1998 and June 25, 1998.

     On July 2, 1998, July 27, 1998, and August 17, 1998, three additional
complaints were filed in state court against Aspec and certain of its officers,
directors, entitled respectively, William Neuman, et al. v. Aspec Technology,
Inc., et al., No. CV-775089 ("the Neuman Complaint"), Martin L. Klotz, on behalf
of the Martin Klotz Defined Benefit Profit Sharing Plan, et al. v. Aspec
Technology, Inc., et al., No. CV-775591 ("the Klotz Complaint"), Glen O. Ressler
and Thelma M. Ressler, et al. v. Aspec Technology, Inc., et al., No. CV-776065
("the Ressler Complaint"). In addition to alleging the same violations of the
Corporations Code as the other three complaints, the Klotz complaint also
alleged violations of Sections 11, 12, and 15 of the Securities Exchange Act of
1933, and a class period of April 28, 1998 through June 30, 1998. The complaints
sought unspecified damages.

     On January 29, 1999, the plaintiffs consolidated the pending class action
cases and filed a Consolidated Amended Complaint, styled Howard Jonas, et al. v.
Aspec Technology, Inc., et al., No. CV-775037. The Consolidated Amended
Complaint, purportedly brought on behalf of all persons who purchased Aspec's
stock between April 27, 1998 and June 30, 1998, alleges that Aspec and certain
of its officers and directors, as well as its underwriters, violated Sections
25400 and 25500 of the California Corporations Code, as well as Sections 11 and
15 (except as to the underwriters) of the Securities Act of 1933. The parties
have agreed that the defendants will have forty-five days to respond to the
Consolidated Amended Complaint. Certain of the Company's current and former
officers, directors and shareholder entities were also named as defendants in a
derivative lawsuit, Linda Willinger, IRA, et al. v. Conrad Dell'Oca et al., No.
CV-778007, which was filed on November 12, 1998, in the Superior Court of Santa
Clara County. The derivative complaint is based on factual allegations
substantially similar to those alleged in the class action lawsuits.

UNITED STATES DISTRICT COURT
On October 16, 1998, plaintiffs agreed to voluntarily dismiss Kassover, et al.
v. Aspec Technology, Inc., et al, No. C 98-2604VRW, which was filed on June 30,
1998 in the United States District Court for the Northern District of California
against Aspec and certain of its officers and directors. The Complaint alleged
that defendants violated Sections 11, 12, and 15 of the Securities Exchange Act
of 1934 by failing to disclose certain facts about Aspec's financial condition
between April 28, 1998 and June 30, 1998. On October 20, 1998, the Court
dismissed the purported class action without prejudice.

NASDAQ INQUIRY
On September 4, 1998, the Company received an informal request for information
from the NASDAQ Listing Investigations Staff. NASDAQ requested information
concerning the Company's financial accounting and internal controls. The Company
has provided information in response to the informal inquiry. NASD held a
de-listing inquiry on December 17, 1998 at which the Company appeared through
counsel and provided information. On February 25, 1999, the Company was notified
by NASDAQ that the NASDAQ Listing's Qualification Panel (the "Panel") had
determined that the Company was currently complying with all requirements for
continued inclusion on the NASDAQ National Market and the Company's securities
will continue to be listed on the NASDAQ National Market.

SEC INQUIRY
In January 1999, the Company received an informal inquiry from the Enforcement
Division of the Securities and Exchange Commission ("SEC"). The Company has
provided information in response to the SEC's inquiry.


                                       18

<PAGE>   19

Item 6. Exhibits and Reports on Form 8-K

     (a) Exhibits

         27.1   Financial Data Schedule


    (b)  Reports on Form 8-K

         None


                                   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: April 14, 1999                    By: /s/ R. Michael O'Malley
                                        ------------------------------
                                        R. Michael O'Malley
                                        Chief Financial Officer and 
                                        Acting Chief Operating Officer


                                       19

<PAGE>   20

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBITS
--------
<S>            <C>
  27.1         Financial Data Schedule
</TABLE>


                                       20