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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                   FORM 10-K
                            ------------------------

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

                  FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1999

                                       OR

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

         FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .

                             ASPEC TECHNOLOGY, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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                   DELAWARE                                      77-0298386
       (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NO.)

     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:

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             TITLE OF EACH CLASS                 NAME OF EACH EXCHANGE ON WHICH REGISTERED
---------------------------------------------- ----------------------------------------------
   COMMON STOCK PAR VALUE $0.001 PER SHARE                 NASDAQ NATIONAL MARKET
</TABLE>

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                                      NONE
                                (TITLE OF CLASS)

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

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

     The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing price of such stock on November 30, 1999,
as reported by the Nasdaq National Market, was approximately $67 million. Shares
of Common Stock held by each officer and director and by each person who owns 5%
or more of the outstanding Common Stock have been excluded in that such persons
may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.

     The number of outstanding shares of the registrant's Common Stock on
November 30, 1999 was 34,300,190.

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                           INCORPORATED BY REFERENCE

     Portions of the Proxy Statement for the Registrant's 2000 Annual Meeting of
Stockholders to be held on April 27, 2000 are incorporated by reference in Part
III of this Form 10-K.

                               TABLE OF CONTENTS

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                                PART I
Item 1.   Business....................................................    3
Item 2.   Properties..................................................   13
Item 3.   Legal Proceedings...........................................   13
Item 4.   Submission of Matters to a Vote of Security Holders.........   15

                               PART II
Item 5.   Market for the Registrant's Common Equity and Related
          Stockholder Matters.........................................   16
Item 6.   Selected Consolidated Financial Data........................   17
Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations...................................   18
Item 8.   Financial Statements and Supplementary Data.................   33
Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure....................................   56

                               PART III
Item 10.  Directors and Executive Officers of the Registrant..........   56
Item 11.  Executive Compensation......................................   56
Item 12.  Security Ownership of Certain Beneficial Owners and
          Management..................................................   56
Item 13.  Certain Relationships and Related Transactions..............   56

                               PART IV
Item 14.  Exhibits, Financial Statement Schedules and Reports on Form
          8-K.........................................................   57

SIGNATURES............................................................   59
</TABLE>

     When used in this Report, the words "expects," "anticipates," "believes,"
"estimates" and similar expressions are intended to identify 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.
Such forward-looking statements, which include:

     - statements concerning the timing of new product introductions;

     - the functionality and availability of products under development; demand
       for or pricing of the Company's products;

     - the percentage of export sales and

     - sales to key customers; are subject to risks and uncertainties, including
       those set forth in Item 1 of Part I and in Item 7 of Part II hereof
       entitled "Certain Factors Which May Affect the Company's Business or
       Future Operating Results" and elsewhere in this Report, that could cause
       actual results to differ materially from those projected in the
       forward-looking statements. These forward-looking statements speak only
       as of the date of this Report. The Company expressly disclaims any
       obligation or undertaking to release publicly any updates or revisions to
       any forward-looking statements contained herein to reflect any change in
       the Company's expectations with regard thereto or to reflect any change
       in events, conditions or circumstances on which any such forward-looking
       statement is based, in whole or in part.

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                                     PART I

ITEM 1. BUSINESS

INTRODUCTION

     During 2000, we will undergo a fundamental and rapid shift in our business
with the major focus on Internet-enabled, business-to-business content
management software applications that automate Inter-Enterprise Collaboration
("IEC"). This will move us away from our historical business of semiconductor
intellectual property ("SIP") library development and design tools and services
business ("SIP Business"). The primary impetus for this business shift is a
declining revenue stream as competitive pressure makes SIP libraries nearly free
commodities. We will continue in our efforts to provide innovative Electronic
Design Automation (EDA) software solutions which address the toughest problems
in deep submicron design and verification for integrated circuits ("IC").

     These shifts in business emphasis are being achieved by tailoring Aspec's
talent pool to the rapidly emerging trends and realities of an Internet
dominated economy that is gaining favor among high technology customers. We
believe that these same trends will migrate to other complex manufacturing
domains and will facilitate rapid growth in the total available market for many
years. According to Gartner Group, the worldwide business-to-business e-commerce
market reached $145 billion in 1999 and is expected to surpass $7.29 trillion by
2004.

     We have historically been a leading provider of merchant SIP libraries and
design tools and services used for developing high-performance, complex IC,
including system-on-a-chip ICs ("SOC"). Our SIP consists of: cell libraries,
tools, design methodologies and related engineering services which, when used in
conjunction with EDA tools, simplify the process of designing complex ICs. Our
products include SIP libraries which consist of logic functions based on gate
array/embedded array or standard cell, I/Os and memories. We offer SIP design
tools to ensure that various commercially available EDA tools work together to
accurately depict the IC design in silicon and to enable the portability of
designs. Our SIP design tools include memory compilers which allow customers to
generate memory libraries as well as AdverPro software which is designed to
manage the design process, provide an accurate timing function across EDA tools
and help ensure compliance with proper design procedures.

     We also offer various design consulting services on a per project basis. In
September 1999, our design consulting services group was spun out as Ascent
Design Corporation ("Ascent"), a wholly owned subsidiary.

     In addition, system level design consulting services are provided through
SIS Microelectronics Corporation ("SIS"), a wholly owned subsidiary located in
Longmont, Colorado, which was acquired in April 1998. SIS delivers integrated
system-level silicon solutions combining SIS's extensive experience in chip
design and implementation with proprietary and partner IP. SIS also provides
higher-level intellectual property ("IP") cores and IC's used in the printer and
imaging industry. SIS offers a varied mix of IC technology, IP and design
expertise needed for timely, cost effective system solutions. SIS is targeting
the embedded processor market for IP development, which includes laser printers,
communications, and mass storage devices. The first proprietary products shipped
in 1994 are being used in high-end laser printers. SIS has forged alliances with
the leading EDA, IP and silicon suppliers to provide access to our
client/partners with a wide portfolio of the essential IP building blocks
required to implement cost effective silicon solutions. SIS has expanded our
capabilities to include firmware and software to support the growing list of
embedded processors used by our clients and partners. In fiscal 1999 SIS
accounted for 34% of our revenue.

     Our historical SIP Business experienced declining revenues and lost money
in fiscal 1999. This was caused in part by the competitive pressure of "free
libraries" being offered by competitors in the library business under a royalty
based business model in late 1998. Under this business model, standard libraries
are provided free of a licensing fee with royalties being paid to the library
supplier by the foundries when the customer's IC, which was designed using the
library, reaches volume production. However, only a relatively small number of
IC design starts reach volume production and the time delay for payment could be
a year or more. In addition, some royalties are paid pro-rata based on IC area
and the maximum royalties to be paid to

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all library suppliers are capped. SIP libraries essentially have become a free
commodity. The design services business also experienced declining revenues due
to off-shore competition based in foreign countries which have a much lower
labor rate and cost structure.

     It became apparent in fiscal 1999 that we could not sustain or grow the
business based on SIP libraries and design tools and services. We needed to
diversify our business and establish a new business direction in order to regain
profitability and growth. The best way to leverage our knowledge and experience
in silicon process, design methodology and Electronic Design Automation tool
expertise was for us to develop Silicon Intelligent-TM -- EDA design tools that
address current gaps and inadequacies in design technology and that increase
design productivity.

     Improved electronic design tools are only part of the solution to achieving
significantly increased productivity gains in the design process. Potentially
greater gains in productivity and time-to-market can be achieved through the
automation and management of various product processes, from initial product
development to end of life. There currently is a large and growing demand for
Internet-enabled, easily deployable, scalable, and manageable,
business-to-business Inter Enterprise Collaboration (IEC) content management
software solutions for the emerging e-commerce content supply chain.

     Our new mission, as a result of these dynamics and marketplace paradigms,
is to establish a significant market position as a supplier of innovative
software applications which dramatically increase productivity and achieve a
high rate of return on investment by leveraging human expertise already present
in the organization. To achieve this mission, we have adopted the following
strategy:

     1) Sell our SIP Business and transform Aspec into a software company. To
        implement this strategy, we have announced that we have signed a
        definitive agreement, subject to the approval of our Board of Directors,
        to sell our SIP Business which includes our traditional SIP library
        business unit, Ascent and SIS.

     2) Provide Internet-enabled, business-to-business, inter-enterprise
        collaboration applications which shorten time-to-market, improve
        adaptability and increase operational excellence by developing,
        capturing, transferring, sharing and leveraging corporate expertise
        required to deliver and maintain IEC content management throughout the
        entire content supply chain. To implement this strategy in December
        1999, we acquired Inbox Software ("Inbox") whose products provide fully
        automated solutions for the mission-critical, business-to-business,
        e-commerce product content and management processes.

     3) Provide innovative Silicon Intelligent Electronic Design Automation
        (EDA) software solutions which address the toughest problems in deep
        submicron (less than 0.5-micron feature size) design and verification
        for complex Integrated Circuits (IC) and SOC systems. To implement this
        strategy, we have acquired Chip & Chip Inc., Verilux Design Corporation
        and Novo Systems Corporation which are providers of Silicon Intelligent
        EDA tools.

     4) Maintain focus on technological innovation, market growth and create
        strategic relationships in order to grow the IEC content management
        business.

IEC CONTENT MANAGEMENT PRODUCTS AND SERVICES

     Inter-Enterprise Collaboration (IEC) is a powerful new business concept
enabled by the coalescence of mature relational content based management
technologies with the swift empowerment of instant communications on the
Internet. The global Internet revolution is forcing companies to move from data
sharing to externalized process integration. There is a renewed focus on
processes, particularly in the realm of personalization of content between
companies and customers, partners, and suppliers. This is especially true in the
manufacturing arena where automation has focused on product design, not content
management and distribution. The manufacturing industry is dependent on process
for regional and global manufacturing quality control. For these businesses,
content management must be an enabler, not a barrier to rapid adaptability and
operational excellence.

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     With an IEC-enabled manufacturing process, for example, the chief designer
for a product manufacturer can generate a master plan of a new design and, in
short order, begin simultaneous manufacturing of the new design in factories
around the world. The steps of acquiring various raw materials and components,
distributing them to the factories, bringing them to inventory, programming the
automated assembly equipment, and adjusting individual production schedules are
all handled by the IEC applications. The entire content supply chain is
involved, including the traditional product design and supply chain management
to customer service. Because IEC applications virtually eliminate the human
errors associated with current methods, while leveraging human expertise on how
to get things done, our main attractions as a manufacturing technology are rapid
time to revenue, extraordinary product quality and sharply reduced cost of
customer service.

     The IEC model can be applied to various industries to improve time to
revenue, increase product quality, and reduce the cost of customer service.

     Inbox's products provide automated Internet-enabled, business-to-business,
IEC content management applications which shorten time-to-market by developing,
capturing, transferring, sharing and leveraging the corporate expertise required
to deliver and maintain content throughout the content supply chain. The
customers for these products include anyone looking for competitive advantage by
leveraging the expertise inherent in their people and processes (e.g.:
vertically integrated self-sufficient manufacturers as well as horizontally
integrated teams of vendors.) Inbox's IEC content management software provides
integrated workflow and immediate, ease-of-use functionality. The software
improves the ability of Internet-connected manufacturing supply chains to
communicate and collaborate on new product designs and product changes. For
example, an Engineering Change Order ("ECO") for a product modification can be
automatically routed on a real time basis through an integrated work flow
approval process and instantly communicated over the Internet to the "virtual
Inbox" of the manufacturing organization, which may be a separate company
located anywhere in the world along with other companies in the supply chain.
Inbox products are the first enterprise-class solutions for automating the
product change process for both large and mid-tier companies. Our products set a
new standard for functionality, flexibility and ease-of-use enabling customers
to transform the product change process into a highly optimized, value-added
business system.

     Inbox products also manage business processes, controlling the way people
create and modify content and addressing the impact of tasks on content.
Specifically, Inbox software products:

     1. Manage what happens to the data when someone works on it.

     A product may go through hundreds of design changes during the course of
     development, each involving far-reaching modifications to the underlying
     engineering content. Inbox software acts as the engineer's working
     environment, capturing all new and changed content as it is generated,
     maintaining a record of which version it is, recalling it on demand and
     effectively keeping track of the engineer's every move. The software allows
     reference to any documents, file and form and facilitates access by other
     members of the design team and supports the concurrent engineering
     principle. For example, although only one user can be working on a master
     design, colleagues working on the same project can be instantly notified
     that an updated 'master' design is available, and reference copies of it
     will be inserted automatically in each collaborator's "Inbox". A given
     document or bill of materials ("BOM") can be worked on only by the user to
     whom it is logged out, but the content can be looked at and copied by
     everyone with the necessary access permission.

     2. Manage the flow of data between people.

     Inbox products make it easy for design team members to share meaningful
     groups of documents, as well as move work around from department to
     department, or from individual to individual in logically organized
     bundles. During the development of a product, many thousands of parts may
     need to be designed. For each part, files need to be created, modified,
     viewed, checked and approved by many different people, perhaps several
     times over. Each part may call for different development techniques and
     different types of content. Since work on any of these master files will
     have a potential impact on other related files, there needs to be
     continuous cross-checking, modification, resubmission and rechecking.

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     Bringing order to this highly complex workflow is what Inbox products do
     best. In particular, the software keeps track of the thousands of
     individual decisions that determine who does what next. The software allows
     the up-to-date status of the entire task, with all supporting content, to
     be tracked and viewed by authorized individuals at all times. Communication
     within the development team is enhanced. When content and files are passed
     around, they can be accompanied by instructions, notes and comments,
     eliminating human error and misinterpretations. Inbox products have
     'redlining' capability and the ability for annotating files with the
     electronic equivalent of 'post-it' notes.

     3. Track all the events and movements that happen during the history of a
        project.

     In addition to keeping comprehensive database records of the current state
     of the project, Inbox products also record the states and milestones the
     project has been through. The software provides a valuable source of
     process audit trail content which is a fundamental requirement for
     conformance to international quality management standards such as ISO9000,
     EN29000 and BS5750. This level of historical tracking, as well as providing
     comprehensive auditing, also permits the active monitoring of individual
     performance -- invaluable during time-critical projects.

     Inbox's products dramatically increase design productivity by maximizing
     the time-to-market benefits of concurrent engineering while maintaining
     control of product content and distributing it automatically to the people
     who need it -- when they need it. Master data is held only in a secure
     'vault' where its integrity can be assured and all changes to it are
     monitored, controlled and recorded. Duplicate reference copies of the
     master data can be distributed freely to users in various departments or
     companies for design, analysis and approval. The new data is then released
     back into the vault. When a 'change' is made to content, a modified copy of
     the content is signed, dated, and stored in the vault alongside the old
     content which remains in its original form as a permanent record.

     Inbox's products address the critical need to integrate IEC content supply
chain management using the Internet with suppliers and overall management of
information. These products include:

     - ecFlow -- Solution for Engineering Change Management

     - dcFlow -- Solution of Documentation Change Management

     - npFlow -- New Product Introduction Program Management

     Inbox products have application beyond our current high technology
customers and address a much larger market of midsize to Fortune 500
manufacturing companies. Wherever manufactured products change rapidly, have
extended supply chains with or without outsourcing and experience abbreviated
life cycles due to continuous improvements, Inbox's Flow series can provide a
strategic solution.

     The advantage of the Inbox software is our combination of flexible
applications and a revolutionary components-based workflow technology, which
allows companies to bring Inbox's software online faster, for a much lower price
than competitors. Our goal is to rapidly increase this market penetration on a
global basis through verticalization. Certain industries, such as the automotive
for example, have common traits that can be addressed as a group to increase the
attractiveness of Inbox products within the industry. Verticalized versions of
Inbox are being prepared for launch during 2000 and beyond.

  Consulting Services

     We provide a variety of services that help integrate the Inbox products
into the customer's design environments and customize the products to fit the
customer's business processes. We believe that the need for such services will
increase rapidly as IEC products earn market share.

  Maintenance Services

     We offer standard support services, which include product updates,
telephone and internet support and metrics reporting. Custom support services
are also available, including standard support services plus technical
management, application and educational services.

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EDA PRODUCTS AND SERVICES

     We are currently developing Electronic Design Automation (EDA) software
products and will provide related services which enable engineers to design,
analyze, interconnect and verify integrated circuits. Our EDA products are
focussed on the fabrication of "deep submicron" integrated circuits that are
quickly becoming most prevalent.

     The term "deep submicron" refers to an IC manufacturing process that has
transistor gate lengths under 0.35m (micron), and generally denotes the most
difficult and challenging region for designers. Advances in the deep submicron
area require increasingly sophisticated EDA tools that enable the precise
determination of the physical characteristics of a design prior to commitment to
manufacturing. We have concentrated EDA tool development into those areas of
design automation which offer engineers the greatest leverage toward successful
volume manufacturing capabilities.

     Our EDA business unit ("EDA Business") was formed with the acquisition and
merger of Chip & Chip, Inc. in September 1999, Verilux Design Corporation in
September 1999 and Novo Systems Corporation in October 1999. These three EDA
companies were acquired to address the most challenging problems in EDA. Each
generation of semiconductor process advance brings new challenges in how
integrated circuit designers model, integrate, simulate, and verify the entire
chip and Systems-on-a-Chip ("SOC")). These challenges provide significant new
opportunities that will launch next generation EDA tools. In the sub-0.18-micron
generations, the challenge has become how to efficiently integrate complex, yet
subtle, device and interconnect physics into EDA software that can effectively
handle millions of transistors. We believe that our deep understanding of these
device physics issues combined with our extensive experience in semiconductor
process technology will provide advanced EDA tools to solve key design problems.

     The technologies these companies have brought to Aspec include:

     - Deep sub micron analysis of interconnect properties;

     - Cross talk analysis of deep Submicron designs which includes Resistance
       (R), Capacitance (C) and Inductance (I);

     - Electrostatic Discharge and Latch-up analysis of I/O cells; and

     - High level Verification and Test Bench development.

  Deep Sub Micron Physical Analysis and Verification

     These set of tools will assist in the analysis of deep submicron ("DSM")
interconnect models and assist in the optimization of process yield and overall
performance.

     Due to the extremely small geometries of DSM, gate delay is no longer the
predominate component of circuit delay which impacts the overall performance of
the device. Interconnect between devices now have the greatest impact on overall
device delay and therefore performance. Aspec's initial suite of DSM physical
analysis tools will assist in the development of very accurate interconnect
models for DSM designs. These tools are currently in development. Designers can
then use this model for estimation of interconnect delay for floor planning or
circuit analysis. Our EDA software products which will provide these
capabilities include:

     - X-Savior (Fast 3D Full-Chip Crosstalk Analyzer)

     - SWIM (Statistically based Worstcase Interconnect Model generator)

     - InterCal (Interconnect Delay Calculator for early design stage) will be
       the first available technology to address statistically-based worst case
       interconnect modeling for deep submicron designs.

     X-Savior will serve an increasingly important niche market space known as
crosstalk analysis. As transistor counts climb and engineers continue to
increase the mix of digital and analog circuits on ever-larger
systems-on-a-chip, noise generated by one microregion can cause improper
operation of logic circuitry in an adjacent microregion. Engineers have long
understood the need for crosstalk analysis to eliminate negative effects, but
have been constrained to deal with it due to excessively long run times for
analysis tools. If

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crosstalk is not eliminated prior to manufacturing, back-end test may reveal
serious system-level issues which prevent entire wafer lots from reaching the
market.

     X-Savior will provide fast, full-chip crosstalk screening and analysis. The
software delivers run times that are typically 15 times faster than other tools.
Importantly, the software performs three-dimensional analysis. X-Savior is
compatible with the most popular content based file formats employed worldwide
and runs on similarly popular workstations. The output is a crosstalk violation
report plus a netlist in SPICE or DSPF format. The report and netlist facilitate
rapid correction of microregion design issues. X-Savior is in development and is
currently scheduled for release in the Fourth Quarter, 2000.

     The Statistically-based Worst case Interconnect Model (SWIM) generator and
Interconnect delay Calculator (InterCal) products will give semiconductor
manufacturers the ability to enhance performance, maximize capacity, optimize
power consumption and improve overall yield by allowing designers to create and
use more accurate worst case interconnect models. On-chip interconnect delay is
considered the key determinant of the overall performance of an integrated
circuit. Although it may not seem important, the time it takes for electrons to
travel between transistors has become a major factor in DSM design. Because
transistor counts have climbed into the millions, the accumulation of signal
delays now account for the majority of total system delays. Clearly, engineers
must have tools that deliver high quality delay statistics related to the
process as well as to the geometry of design. SWIM will provide fast, accurate
and flexible analysis that is easy to use. The output enables the engineer to
directly address those regions of chip design that cause higher-than-expected
delay by offering factual guidance on process variations such as dielectric
thickness and metallization width, and physical variations such as resistance
and capacitance.

     InterCal is similar but is intended for use very early in the design stage
of an integrated circuit. It allows engineers to estimate load conditions that
enable calculation of driver values for a specific interconnect load. This in
turn determines transistor sizes and related power consumption issues. InterCal
effectively eliminates the need to redesign chips which fail to correctly
deliver sufficient drive current for important interconnect nets. SWIM and
InterCal provide extremely accurate 2-D and 3-D statistically-based worst case
interconnect modeling and pre-layout interconnect content for deep submicron
design and process development. Most manufacturers use worst case process
variations (skew corner worst case model), which provide pessimistic models, and
therefore cause wide, unrealistic design margins for chip designers. By using
statistically-based worst case interconnect modeling, an accurate estimation can
be made of the process variation and therefore designers can take greater
advantage of deep submicron technology without the risk of failing chips. By
using SWIM and InterCal, engineers will now be able to accurately model
interconnect using worst case modeling techniques without sacrificing
performance, capacity or yield.

     With the number of designs targeted for 0.18um technology and below
increasing over the next four years, the demand for SWIM and InterCal type
technology is also forecasted to grow. With the high cost of wafer fab
development and optimization, semiconductor manufacturers can now leverage more
out of each technology generation through more accurate modeling techniques such
as SWIM. Both SWIM and InterCal are in development and currently scheduled for
release in the Second Quarter of 2000.

  System Level Verification and Test Bench Environments

     Test Bench development, re-use and management continues to be a critical
factor for large system level IC designs. In the Third Quarter of 2000, we will
be introducing a suite of tools that will provide a verification environment to
address the verification and test bench issues.

     Novo Systems currently provide worldwide maintenance and support for Zycad
accelerators and these customers will continue to be supported in the future.
Updates and upgrades to current customers using existing Zycad accelerators and
software will continue to be available via local support and the Internet.

CUSTOMERS

     Our historical principal customers for our SIP Business include ASIC and
foundry companies, EDA companies, electronic system companies and IC companies.
We have been dependent on a relatively small

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number of customers for a substantial portion of our annual revenue. In fiscal
1997, Tritech accounted for 10% of our revenue, and our seven largest customers
accounted for 43% of our revenue. In fiscal 1998, Asahi Glass accounted for 13%
of our revenue and five of our largest customers accounted for 43% of our
revenue. In fiscal 1999, one customer accounted for 17% of our revenue, and our
five largest customers accounted for 44% of our revenue. We anticipate that the
majority of our revenue will be derived from a relatively small number of
customers through at least fiscal 2000.

     Our principal customers for our Inbox Software products include our
traditional high technology customer base for our SIP Business in addition to
manufacturing companies, and also any company with a process for IEC content
management. Since Inbox was acquired in December 1999, Inbox did not contribute
to our revenue in fiscal 1999.

     Our principal customers for our EDA products will be the same high
technology customer base as our SIP Business. Our EDA products are still under
development and did not contribute to our revenue in fiscal 1999.

     None of our customers have a written agreement with us that obligates it to
license additional products or to renew our maintenance agreement, and there can
be no assurance that any customer will purchase additional software licenses or
renew our maintenance agreement. The loss of one or more of our major customers,
or reduced orders by one or more of such customers, could materially adversely
affect our business, operating results and financial condition. The results of
our SIP Business which we intend to sell, are not indicative of our future
results. See "Other Factors Affecting Future Operating Results -- Customer
Concentration; Dependence on Customers in Asia."

SALES, MARKETING AND CUSTOMER SUPPORT

     Our current customers for our historical SIP Business are principally
located in North America, Japan, Korea, and Taiwan. We market our products
primarily through our direct sales force. A significant portion of our EDA
customers are located in Asia. Our current customers for our Inbox products are
principally located in North America and we expect potential sales growth in
Europe and Asia. We employ highly skilled engineers and technical sales persons
capable of serving the sophisticated needs of our customers. In addition to our
direct sales and marketing efforts, we participate in industry trade shows and
seminars to promote the adoption of our products. In parts of Asia, we market
our products primarily through a limited number of independent distributors that
license and service our products in these markets. We also support these
distributors with technical, sales and management personnel.

     A significant portion of our revenue is derived from customers outside the
United States, and we anticipate that international revenue will continue to
account for a significant portion of our total revenue. Revenue from customers
outside the United States, substantially all of whom are located in Asia,
accounted for 53%, 54% and 32% of revenue in fiscal 1997, 1998 and 1999,
respectively. Although we do not believe that we experienced any material
adverse impact in revenue as a result of the financial dislocations that
occurred in certain Asian countries during 1998 and 1999, we have experienced a
lengthening of the payment period for accounts receivables from certain
Asian-based customers. At November 30, 1999, approximately 71% of our accounts
receivable (including unbilled receivables) were from Asian-based customers.
Although we currently believe, based in part on continuing discussions with
these customers, that our existing accounting reserves are adequate given the
estimated exposure related to all of our 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 our ability to collect our accounts
receivable or on our business, operating results and financial condition. The
results of our historical SIP Business which we intend to sell, are not
indicative of our future results.

     Our international business involves a number of risks, including the impact
of possible recessionary environments in foreign economies, political and
economic instability, cancellation of maintenance contracts, 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,
                                        9
<PAGE>   10

export license requirements, tariffs and other trade barriers and potentially
adverse tax consequences. Although we price our products and services in United
States dollars, currency exchange fluctuations could have a material adverse
effect on our business to the extent that our pricing is not competitive with
products priced in local currencies. We do not currently hedge against foreign
currency fluctuations. See "Other Factors Affecting Future Operating
Results -- Risks Associated With International Operations." We license all of
our products to customers under nonexclusive agreements that do not transfer
title and that restrict use of the products to specified purposes. We offer
customers the option of licensing our products enterprise-wide or for use at a
particular site or on designated computers at specific sites. License fees are
dependent on the type of license, product mix and number of copies of each
product subject to the license.

     We provide customers with technical support as well as training and
consulting services. We believe that a high level of customer service and
support is important to the adoption and successful utilization of our products.
Our customers typically pay an additional fee for maintenance agreements that
entitle them to technical support and periodic product upgrades. We also offer
additional training and consulting services on a fee basis. To address technical
issues, we have established a technical support group comprised of field and
headquarters applications engineers who understand the design methodologies of
our customers. Through our technical support group, we provide customers with
software updates, documentation updates and assistance with problem
identification and resolution.

RESEARCH AND DEVELOPMENT

     We believe that our future competitive position will depend in large part
on our ability to quickly and cost effectively develop new products, maintain
and enhance our current product line, maintain technological competitiveness and
meet an expanding range of customer requirements. During fiscal 1997, 1998 and
1999, research and development expenses were $1.2 million, $2.6 million and $5.6
million, respectively. In addition to research and development expenses,
engineering efforts devoted to developing products for which revenue is
recognized on a percentage of completion basis are recognized as cost of
revenue. As a result of our engineering efforts and acquisitions, we have a
substantial base of technology, which we are able to reuse in other product
offerings. We expect to continue to devote significant resources to our various
engineering efforts. To date, all product development costs have been expensed
as incurred. Our research and development efforts are focused on continued
development of our Inbox and EDA products.

     Our products are 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, our future
success will depend on our ability to continue to enhance our existing products
and to develop and introduce new products that satisfy increasingly
sophisticated customer requirements and that keep pace with product
introductions by our competitors. Any failure by us 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 our business, operating results and financial condition. There can be
no assurance that we will be successful in our product development efforts, that
we 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. We have in the past
experienced delays in the release dates of certain of our products. If release
dates of any new significant products or product enhancements are delayed, our
business, operating results and financial condition would be materially
adversely affected. We could also be exposed to litigation or claims from our
customers in the event we do not satisfy our delivery commitments. There can be
no assurance that any such claim will not have a material adverse effect on our
business, operating results and financial condition. See "Other Factors
Affecting Future Operating Results -- Dependence Upon Continuous Product
Development; Risk of Product Delays."

COMPETITION

     Our historical competitors in our SIP Business include Artisan Components,
Inc., Compass Design Automation (a division of Avant!), Mentor Graphics, Cadence
Design Systems, Nurologic, and Silicon
                                       10
<PAGE>   11

Architects (a division of Synopsys Inc.) Our principal competitors for our EDA
products include Cadence Design Corporation, Avant!, Mentor Graphics
Corporation, and Synopsys Inc.; and Agile Software, Opentext, Documentum and
Matrix One for the Inbox products. We also experience significant indirect
competition from the engineering departments of potential customers that
maintain and develop internally, EDA design tools and IEC content management
software systems. It is also likely that increased competition could come from
large companies such as Microsoft Corporation. Increased competition could
eventually result in price reductions or reduced operating margins which could
materially adversely affect our business, operating results and financial
condition. Many of our potential competitors have significantly greater
financial, technical, marketing and other resources than us. 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 we can. There can be no
assurance that we will be able to compete successfully against current or future
competitors or that competitive pressures will not materially adversely affect
our business, operating results and financial condition. We believe the
principal elements of competition in our markets are the range of EDA tools and
IEC content management technologies supported, technological leadership, product
functionality, the level of technical support provided, software reliability and
price. We believe that we compete favorably with respect to each of these
factors. See "Other Factors Affecting Future Operating Results -- Competition."

PROPRIETARY RIGHTS

     Our success is dependent on our ability to protect our proprietary
technology. We rely upon a combination of copyright, patent, trade secret and
trademark laws to protect our proprietary technology. We enter into
confidentiality agreements with our employees, distributors and customers and
limit access to and distribution of the source code to our software and other
proprietary information. There can be no assurance that the steps taken by us in
this regard will be adequate to prevent misappropriation of our technology or
that our competitors will not independently develop technologies that are
substantially equivalent or superior to our technology. Any such
misappropriation of our technology or development of competitive technologies
could have a material adverse effect on our business, operating results and
financial condition. Despite our efforts to protect our proprietary rights,
there can be no assurance that we will be able to protect our proprietary rights
against unauthorized third-party copying or use, and attempts may be made to
copy or reverse engineer aspects of our products or to obtain and use
information that we regard as proprietary. Policing the unauthorized use of our
products is difficult and we could incur substantial costs in protecting and
enforcing our intellectual property rights. Litigation may be necessary in the
future to enforce our intellectual property rights, to protect our 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 our business, operating results and
financial condition.

     As of November 30, 1999, we held six U.S. patents for our SIP Business
which expire from 2013 to 2015 and had two U.S. patent applications pending. We
currently do not have any patents issued for our Inbox or EDA products. We also
have twelve patent applications pending for our SIP Business in various foreign
jurisdictions. These patents and pending applications for our SIP Business will
be transferred with the business assets upon the closing of the sale of the SIP
Business. We have several patent applications under consideration for our Inbox
and EDA products. We expect to continue to file patent applications where
appropriate to protect our proprietary technologies; however, we believe that
our continued success depends primarily on factors such as the technological
skills and innovation of our personnel rather than on our patents. We have
registered the trademarks Aspec Technology, ABOND, HDEA, I/O GEN, and Mastergen
and have 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 be issued 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 us.
Moreover, there can be no assurance that any patent or trademark rights will be
upheld in the future or that we will be able to preserve any of our other
intellectual property rights. In addition, the laws of certain countries in
which our products are licensed or distributed do not protect our products and

                                       11
<PAGE>   12

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, we may from time to time receive
notices from third parties claiming infringement by our products of third-party
proprietary rights. While we are not currently subject to any such claim, we
believe that our products could increasingly be subject to such claims as the
market for our products grows and as more competitors enter the market. Any such
claim, with or without merit, could result in significant litigation costs and
require us to enter into royalty and licensing agreements, which could have a
material adverse effect on our business, operating results and financial
condition. Such royalty and licensing agreements, if required, may not be
available on terms acceptable by us or at all. See "Other Factors Affecting
Future Operating Results -- Limited Protection of Proprietary Rights."

EMPLOYEES

     As of November 30, 1999, we had 91 employees, including 51 in operations,
12 in research and development, 11 in sales and marketing and 17 in finance and
administration. None of our employees are represented by a collective bargaining
agreement, nor have we experienced any work stoppage. We consider our relations
with our employees to be good.

EXECUTIVE OFFICERS

     Our executive officers and their ages as of November 30, 1999 are as
follows:

<TABLE>
<CAPTION>
                  NAME                     AGE                         POSITION
                  ----                     ---                         --------
<S>                                        <C>   <C>
Conrad J. Dell'Oca(1)....................  58    Chairman of the Board and Director
Michael J. Carroll(1)....................  56    President and Chief Executive Officer and Director
Raymond Grammer..........................  62    Chief Financial Officer
Douglas E. Klint.........................  49    Vice President, Secretary, and General Counsel
John R. Walsh............................  56    Vice President, Operations, EDA Division
Ronald K, Bell(2)(3).....................  56    Director
David K. Lam (2)(3)......................  56    Director
</TABLE>

---------------
(1) Member of the Option Committee

(2) Member of the Compensation Committee

(3) Member of the Audit Committee

BACKGROUND OF EXECUTIVE OFFICERS

     Conrad Dell'Oca has served as Chairman of the Board since February 1997. He
also served as Chief Executive Officer and President from February 1992 to
January 1999. From May 1981 to 1991, Mr. Dell'Oca was Vice President, Research
and Development of LSI Logic Corporation ("LSI Logic"), a semiconductor
manufacturer. Mr. Dell'Oca received a B.A.Sc. and M.A.Sc. in Engineering Physics
and a Ph.D. in Electrical Engineering from the University of British Columbia.

     Michael J. Carroll has served as President and Chief Executive Officer and
a Director of Aspec since October 1999. From December 1994 to December 1998, Mr.
Carroll served as Group President of the Preco Electronics Division of Preco,
Inc., a manufacturing company. Mr. Carroll also served as President of Sensym,
Inc., a subsidiary of BTR, Ltd. from July 1992 to December 1994. Mr. Carroll
received a B.S. degree in business and industrial management from San Jose State
University in 1965.

     Douglas E. Klint has served as Vice President, Secretary and General
Counsel of Aspec since August 1998. Mr. Klint has also served as Acting
President and Acting Chief Executive Officer from January 1999 to October 1999.
From December 1994 to August 1998, Mr. Klint served as Vice President, Secretary
and General Counsel of GateField Corporation, which develops and sells field
programmable gate arrays. From December 1984 to December 1994, Mr. Klint served
as Vice President, Secretary and General Counsel of

                                       12
<PAGE>   13

Zycad Corporation which developed and sold EDA hardware and software. Mr. Klint
received a B.A. degree in Economics and Business Administration from Gustavus
Adolphus College in Minnesota in 1972 and a Juris Doctor degree from the William
Mitchell College of Law in 1976.

     Raymond Grammer has served as Chief Financial Officer of Aspec since
October 1999. From December 1997 to October 1999, Mr. Grammer served as Chief
Financial Officer of Eclipse International, Inc. an intellectual property
company. From June 1991 to December 1997, Mr. Grammer served as Chief Financial
Officer of ICELabs, Inc., an electronics company. Mr. Grammer received his B.S.
degree in 1959 from the University of Illinois.

     John R. Walsh has served as Vice President Operations, EDA Division, of
Aspec since October 1999. From October 1997 to October 1999, he served as
President and Chief Executive Officer of Novo Systems Corporation. From February
1991 to October 1997, Mr. Walsh served as Vice President, Customer Support, of
Zycad Corporation, a manufacturer of hardware accelerators.

     Ronald K. Bell has been a director of Aspec since March 1999. Mr. Bell has
served as Vice President, Communications Products of Micro Linear Corporation,
an analog and mixed semiconductor company, since June 1999. From February 1998
to June 1999, Mr. Bell was Chief Executive Officer of Equator Technologies,
Inc., a multimedia processor company. From October 1997 to 1998, Mr. Bell was
Vice President, Engineering and Chief Operations Officer at Equator
Technologies, Inc. From November 1995 to 1997, he was Vice President, Advanced
Architecture and Consumer Products Divisions and General Manager, Consumer
Products Division of LSI Logic. Mr. Bell received a B.S. in Electrical
Engineering and a M.S. in Computer Science from the University of Utah.

     David K. Lam has served as director of Aspec since August 1999. Mr. Lam has
served as Chairman of the David Lam Group, a management consulting firm for high
growth technology companies, since 1988. Dr. Lam is currently a director of
Integrated Telecom Express, Inc. and Tru-Si Technologies, Inc.

     Officers serve at the discretion of the Board and are appointed annually.
There are no family relationships between our directors or officers.

ITEM 2. PROPERTIES

     We occupy approximately 29,000 square feet of office space in Sunnyvale,
California, pursuant to a lease which expires in November 2001. As a result of
our acquisition of Inbox Software, we also occupy approximately 7072 square feet
of office space in Milpitas, California under a lease which expires in April
2003. In addition, we also occupy approximately 9,600 square feet of office
space in Longmont, Colorado under a lease which expires in February 2002 as a
result of our acquisition of SIS Microelectronics. We also maintain sales
offices in Boca Raton, Florida, San Diego, California and Tokyo, Japan. We
believe that our existing facilities are adequate for our current needs.

ITEM 3. LEGAL PROCEEDINGS

SUPERIOR COURT FOR THE STATE OF CALIFORNIA

     CLASS ACTION LAWSUIT

     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 our officers, directors and the
underwriters of our 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 through 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 our officers,
directors, entitled respectively, William Neuman, et al. v. Aspec Technology,
Inc., et al., No. CV-775089; 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.
                                       13
<PAGE>   14

Ressler, et al., v. Aspec Technology, Inc., et al. No. CV-776065. In addition to
alleging the same violations of the Corporations Code as the three other
complaints, the Klotz Complaint also alleged violations of Sections 11, 12, and
15 of the Securities 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 was purportedly brought on behalf of all persons who purchased Aspec's
stock between April 27, 1998 and June 30, 1998, alleged that Aspec and certain
of our officers and directors, as well as our underwriters, violated Sections
25400 and 25500 of the California Corporations Code, and Sections 11 and 15 of
the Securities Act of 1933 (except as to the underwriters). On June 7, 1999,
Aspec and certain of the individual defendants filed demurrers to the
Consolidated Complaint. On June 9, 1999, the plaintiffs filed a motion for
summary adjudication of their claims against Aspec under Section 11 of the
Securities Act. The plaintiffs also moved to certify a plaintiff class.

     On August 26, 1999, the court heard argument on the defendants' demurrers.
The court sustained the demurrers in part and overruled them in part.
Specifically, the court held that the plaintiffs had not pleaded their claims
under California Corporations Code Section 25400 with sufficient particularity
and granted plaintiffs leave to amend this claim. The court overruled the
defendants' demurrers to the Section 11 claim. Following that hearing,
plaintiffs withdrew their motion for summary adjudication. Thereafter,
plaintiffs filed their First Amended Class Action Complaint, under seal, on
October 18, 1999.

     On January 11, 2000, the defendants filed demurrers to Count I of the First
Amended Complaint, which alleged claims under California Corporations Code
Sections 25400/25500. The Aspec Defendants demurred to Count I on the basis that
plaintiffs had not pleaded facts demonstrating that the defendants had acted
with scienter. The Aspec Defendants also moved to strike certain allegations in
the complaint. The motions were fully briefed, and the court heard oral argument
on defendants' demurrers and motion to strike and plaintiffs' motion for class
certification on February 24, 2000. The court overruled the defendants'
demurrers, denied the motion to strike, and took the motion for class
certification under submission.

     DERIVATIVE LAWSUIT

     Certain of our current and former officers, directors and shareholder
entities were also named as defendants in a derivative lawsuit styled Linda
Willinger, IRA, et al. v. Conrad Dell'Oca et al., No. CV-778007, filed on
November 12, 1998, in the Superior Court of Santa Clara County. The derivative
action alleges facts similar to those in the class action and also alleges that
certain of the directors caused us to conduct the initial public offering in
order to redeem preferred stock they owned or in which they had a beneficial
interest. Aspec filed a demurrer to that Complaint on June 8, 1999 on behalf of
certain of the officer and director defendants and nominal defendant, Aspec.
Thereafter, the plaintiffs requested the defendants' assent to the dismissal of
their complaint and the filing of an amended complaint. Plaintiffs filed their
First Amended Shareholders' Derivative Complaint on September 2, 1999.

     The Aspec Defendants demurred to that complaint on November 12, 1999 on the
basis that the nominal plaintiffs had failed to make a demand on the Board of
Directors before filing the derivative lawsuit, and that they had also failed to
plead sufficient facts to excuse a pre-suit demand. After the matter was fully
briefed, the court heard argument on January 25, 2000. On January 27, 2000, the
court sustained the defendants' demurrers with sixty days' leave to amend.
Therefore, plaintiffs' amended complaint presently is due to be filed on March
28, 2000.

     OTHER LITIGATION

     On June 21, 1999, a lawsuit entitled Cadabra Design Technology, Inc. v.
Aspec Technology, Inc., No. CV 782691, was filed in the Superior Court, Santa
Clara County. Plaintiff's complaint sought damages in the amount of $1,594,000
for an alleged breach of a commercial software licensing agreement entered into
by Cadabra Design Technology, Inc. and the Company on or about August 18, 1998.
On August 6, 1999, we answered the complaint -- denying liability and asserting
various affirmative defenses -- and filed a cross-
                                       14
<PAGE>   15

complaint seeking damages according to proof and equitable relief for breach of
contract, conversion, and negligent misrepresentation on the part of Cadabra
Design Technology, Inc. On February 16, 2000, the parties executed a Settlement
Agreement and General Release in the case, pursuant to which we will pay Cadabra
$600,000 in full and final satisfaction of all claims related to the parties'
software licensing agreement. On February 22, 2000, Cadabra filed with the court
a Notice of Settlement and Conditional Dismissal, and has agreed and represented
to the court that it will file a request for dismissal within five days after
receiving the aforementioned settlement payment. This settlement has been
accrued for as of November 30, 1999.

     Aspec Technology, Inc. v Compaq Computers, Inc. was filed on December 28,
1998 in the Superior Court of California, Santa Clara County, No. CV778943. By
our complaint, we sought to collect the principal sum of $403,344, plus
interest, attorney's fees and costs, from Compaq, alleging that Compaq had
breached a contract to purchase certain of Aspec's library software. Compaq
filed a counter claim alleging that we had breached the contract by failing to
deliver in functional form the promised software on the schedule promised, as
well as alleging fraudulent misrepresentation relating to the contract. The
counter claim alleges unspecified damages in excess of $25,000. Documents have
been exchanged and certain written discovery has been undertaken, but no
testimony has been taken in the case. Compaq has offered to settle the matter by
paying us $175,000. Aspec has not accepted the offer and we are continuing to
discuss resolution with Compaq. Trial is scheduled for April 24, 2000.

     On September 23, 1999, a lawsuit entitled Lesley Nemeth v. Aspec Technology
Inc., was filed in Superior Court, Santa Clara County, No. DC383204. Plaintiff
is a former consultant to us who seeks in her complaint damages in the sum of
$12,600 plus interest and attorney's fees. On November 23, 1999 the court
ordered the matter to binding arbitration administered by the American
Arbitration Association. We are awaiting plaintiff's filing of the arbitration
claim.

NASDAQ INQUIRY

     On September 4, 1998, we received an informal request for information from
the NASDAQ Listing Investigations Staff. NASDAQ requested information concerning
our financial accounting and internal controls. We have provided information in
response to the informal inquiry. NASD held a de-listing inquiry on December 17,
1998 at which we appeared through counsel and provided information. As of
February 25, 1999, the NASD has determined that we would remain listed on the
NASDAQ.

SEC INQUIRY

     In January 1999, we received an informal inquiry from the Securities and
Exchange Commission ("SEC") Staff which we believe relates to our restatement of
our financial statements in 1998. We are continuing to provide information in
response to the SEC's requests.

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

     There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1999.

                                       15
<PAGE>   16

                                    PART II

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

MARKET FOR COMMON STOCK

     Our Common Stock has been quoted on the Nasdaq National Market since our
initial public offering in April 1998. Prior to such date, there was no public
market for the Common Stock. The following table sets forth, for the fiscal
quarters indicated, the high and low sale prices per share for the Common Stock
as reported on the Nasdaq National Market. These prices are over-the-counter
market quotations which reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
Our Common Stock is currently quoted under the symbol "ASPC."

<TABLE>
<CAPTION>
                                                              FISCAL YEAR ENDED
                                                                 NOVEMBER 30,
                                                                     1999
                                                              ------------------
                                                               HIGH        LOW
                                                              -------    -------
<S>                                                           <C>        <C>
Fourth quarter (from September 1, 1999 to November 30,
  1999).....................................................   $2.06      $0.78
Third quarter (from June 1, 1999 to August 31, 1999)........    1.00       0.56
Second quarter (from March 1, 1999 to May 31, 1999).........    1.47       0.66
First quarter (from December 1, 1998 to February 28,
  1999).....................................................    2.16       1.13
</TABLE>

<TABLE>
<CAPTION>
                                                              FISCAL YEAR ENDED
                                                                 NOVEMBER 30,
                                                                     1998
                                                              ------------------
                                                               HIGH        LOW
                                                              -------    -------
<S>                                                           <C>        <C>
Fourth quarter (from September 1, 1998 to November 30,
  1998).....................................................  $  4.25    $  1.50
Third quarter (from June 1, 1998 to August 31, 1998)........   11.625      2.125
Second quarter (from April 25, 1998 to May 31, 1998)........    15.50      12.25
</TABLE>

HOLDERS OF RECORD

     As of November 30, 1999, there were approximately 2,334 beneficial holders
of our Common Stock.

DIVIDENDS

     We have never declared or paid cash dividends. We currently intend to
retain any earnings for use our its business and do not anticipate paying any
cash dividends on our capital stock in the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

     On September 1, 1999, in connection with our acquisition of Chip & Chip,
Inc., we issued an aggregate of 2,000,000 shares of our Common Stock to the Chip
& Chip, Inc. shareholders. The shares were issued pursuant to Section 4(2) and
Regulation D promulgated under the Securities Act of 1933, as amended.

     On September 1, 1999, in connection with our acquisition of Verilux Design
Corporation, we issued an aggregate of 2,127,400 shares of our Common Stock to
the Verilux Design Corporation shareholders. The shares were issued pursuant to
Section 4(2) and Regulation D promulgated under the Securities Act of 1933, as
amended.

     On October 20, 1999, in connection with our acquisition of Novo Systems
Corporation, we issued an aggregate of 1,600,000 shares of our Common Stock to
the Novo Systems Corporation shareholders. The shares were issued pursuant to
Section 4(2) and Regulation D promulgated under the Securities Act of 1933, as
amended.

     On December 3, 1999, in connection with our acquisition of Inbox Software,
we issued 2,400,000 shares of our Common Stock to the Inbox shareholders. The
shares were issued pursuant to Section 4(2) and Regulation D promulgated under
the Securities Act of 1933, as amended.

                                       16
<PAGE>   17

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                    FISCAL YEAR ENDED NOVEMBER 30,
                                         -----------------------------------------------------
                                          1995       1996       1997        1998        1999
                                         -------    -------    -------    --------    --------
                                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                      <C>        <C>        <C>        <C>         <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
  Revenue..............................  $ 6,640    $14,999    $20,278    $ 23,090    $  7,463
  Cost of revenue......................    2,307      4,702      8,763      16,688      13,379
                                         -------    -------    -------    --------    --------
  Gross profit (loss)..................    4,333     10,297     11,515       6,402      (5,916)
                                         -------    -------    -------    --------    --------
  Operating expenses:
     Research and development..........      445        921      1,190       2,640       5,564
     Sales and marketing...............    1,387      3,526      6,537       5,952       3,724
     General and administrative........    1,093      1,994      2,363       4,576       6,284
     Write-off of purchased
       technology......................       --         --         --         700       3,097
     Amortization -- Goodwill..........       --         --         --         418       1,081
     Write down of software............       --         --         --          --       1,799
                                         -------    -------    -------    --------    --------
          Total operating expenses.....    2,925      6,441     10,090      14,286      21,377
                                         -------    -------    -------    --------    --------
  Income (Loss) from operations........    1,408      3,856      1,425      (7,884)    (27,293)
  Equity losses from joint venture.....       --         --         --          --        (574)
  Interest income, net.................       56        310        173       1,614       1,610
                                         -------    -------    -------    --------    --------
  Income (Loss) before income taxes....    1,464      4,166      1,598      (6,270)    (26,257)
  Provision for income taxes...........      585      1,708        639         264          41
                                         -------    -------    -------    --------    --------
  Net income (loss)....................      879      2,458        959      (6,534)    (26,298)
  Accretion of redeemable preferred
     stock.............................       --        392        823       4,328          --
                                         -------    -------    -------    --------    --------
  Income (loss) attributable to common
     stockholders......................  $   879    $ 2,066    $   136    $(10,862)   $(26,298)
                                         =======    =======    =======    ========    ========
  Diluted earnings (loss) per
     share(1)..........................  $  0.04    $  0.09    $  0.01    $  (0.43)   $  (0.91)
                                         =======    =======    =======    ========    ========
  Diluted average shares outstanding...   20,172     22,397     22,585      25,258      28,831
                                         =======    =======    =======    ========    ========
</TABLE>

<TABLE>
<CAPTION>
                                                    FISCAL YEAR ENDED NOVEMBER 30,
                                         -----------------------------------------------------
                                          1995        1996        1997       1998       1999
                                         -------    --------    --------    -------    -------
                                                            (IN THOUSANDS)
<S>                                      <C>        <C>         <C>         <C>        <C>
CONSOLIDATED BALANCE SHEET DATA:
  Working capital......................  $   944    $  3,544    $  3,077    $43,068    $19,646
  Total assets.........................    5,046      15,866      14,905     70,463     45,759
  Long term obligations................       --          --          --      1,052        324
  Redeemable Preferred Stock...........       --      13,345      14,168         --         --
  Redeemable Common Stock..............       --       7,116       7,116         --         --
  Total stockholders' equity
     (deficiency)......................    1,798     (14,223)    (13,859)    58,775     35,941
</TABLE>

---------------
(1) See Note 16 of Notes to Consolidated Financial Statements for an explanation
    of the determination of shares used in computing earnings per share.

                                       17
<PAGE>   18

ITEM 7. 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 Semiconductor Integrated Circuits ("ICs") ICs. Through fiscal 1992, we
were principally engaged in the development of our first products and the
establishment of customer relationships. We recognized our 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 our
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, we also expanded our development efforts. By fiscal 1996, we
had enhanced our 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 currently consists primarily of license fees for our SIP products
and design services. A license is required for each foundry used by the customer
as well as for each process technology employed. We also realize revenue from
service and maintenance fees. Typically a customer licenses a bundle of products
which is accompanied by documentation and training. The license of our 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.

     Our historical SIP Business experienced declining revenues and lost money
in fiscal 1998 and 1999. This was caused in part by the competitive pressure of
"free libraries" being offered by competitors in the library business under a
royalty based business model introduced in late 1998. SIP libraries essentially
became a free commodity. The design services business also experienced declining
revenues due to off-shore competition based in foreign countries which have a
much lower labor rate and cost structure.

     It became apparent in fiscal 1999 that we could not sustain or grow the
business based on SIP libraries and design services. We needed to diversify our
business and establish a new business direction in order to regain profitability
and growth. The best way to leverage our knowledge and experience in silicon
process, design methodology and Electronic Design Automation ("EDA") software
tool expertise was for us to develop Silicon Intelligent - TM -- EDA design
tools that address current gaps and inadequacies in semiconductor design
technology and that increase semiconductor design productivity.

     As part of our strategy to develop silicon intelligent EDA design tools, in
June 1999, we entered into an agreement to acquire Verilux Design Corporation in
exchange for the issuance of an aggregate of 2,127,400 shares of Common Stock
and $872,600 cash. Verilux Design is an EDA company located in Santa Clara,
California and had 5 employees. The acquisition was completed in September 1999,
was accounted for using the purchase method and resulted in a charge to
in-process research and development of $1.4 million in our fiscal quarter ended
November 30, 1999. We recorded $1.2 million of goodwill as part of this
acquisition which will be amortized evenly over a five-year period.

     We also entered into an agreement to acquire Chip & Chip, Inc. in July 1999
in exchange for the issuance of an aggregate of 2,000,000 shares of Common Stock
and $800,000 cash. Chip & Chip is an EDA product company located in Santa Clara,
California and had 5 employees. The acquisition was completed in

                                       18
<PAGE>   19

September 1999, was accounted for using the purchase method and resulted in a
charge to in-process research and development of $1.0 million in our fiscal
quarter ended November, 1999. We recorded $1.6 million of goodwill as part of
this acquisition which will be amortized evenly over a five-year period.

     We also entered into an agreement to acquire Novo Systems Corporation in
October 1999 in exchange for the issuance of an aggregate of 1,600,000 shares of
Common Stock and $1,000,000 cash. Novo Systems is an EDA product and services
company located in Milpitas, California and had 23 employees. The acquisition
was completed in October 1999, was accounted for using the purchase method and
resulted in a charge to in-process research and development of $0.7 million in
our fiscal quarter ended November, 1999. No goodwill was recorded as part of
this acquisition.

     As part of our strategy to enter the Inter Enterprise Collaboration ("IEC")
content management market, we entered into an agreement to acquire Inbox
Software, Inc. ("Inbox") in November 1999 in exchange for the issuance of an
aggregate of 1,205,866 shares of Common Stock, the assumption of 1,194,134
options and $7,640,000 cash. Inbox is an IEC content management company located
in Milpitas, California and had 21 employees. The acquisition was completed in
December 1999, and was accounted for using the purchase method, Inbox had
revenues for fiscal 1999 of $0.3 million and a net loss of $2.4 million.

     A significant portion of our revenue was recognized on a percentage of
completion method based upon actual costs incurred. The completion period
typically ranges from one to three months. Accordingly, revenue in any quarter
is dependent on progress towards completion of projects. We have 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 our reputation,

     - diversion of engineering resources or

     - a delay in the market acceptance of our products,

     Any of which could have a material adverse effect on our 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, our business, operating results and
financial condition could be materially adversely affected.

     With the transition of our business to concentrating on EDA and IEC
software products, the majority of our future revenue will likely consist of
software license revenue and related consulting and maintenance services
revenue.

     Engineering efforts devoted to developing products or providing services
for which revenue is recognized on a percentage of completion basis are recorded
as cost of revenue. Engineering efforts devoted to developing our core
technology and products not requiring adaptation are recorded as research and
development expense. As a result of our engineering efforts and acquisitions, we
have a substantial base of technology, which we are able to reuse in other
product offerings. We expect to continue to devote significant resources to our
various engineering efforts.

     A significant portion of our revenue is derived from customers outside the
United States, and we anticipate that international revenue will continue to
account for a significant portion of our total revenue. Revenue from customers
outside the United States, substantially all of whom are located in Asia,
accounted for 53%, 54% and 32% of revenue in fiscal 1997, 1998 and 1999,
respectively. Although we do not believe that we experienced any material
adverse impact in revenue as a result of the financial dislocations that
occurred in certain Asian countries during 1997, 1998 and 1999, we have
experienced a lengthening of the payment period for accounts receivables from
certain Asian-based customers. At November 30, 1999, approximately 72% of our
accounts receivable (including unbilled receivables) were from Asian-based
customers. Although we currently believe, based in part on continuing
discussions with these customers, that our existing accounting reserves are
adequate given the estimated exposure related to all of its accounts receivable,
there can be no

                                       19
<PAGE>   20

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 our ability to collect its accounts
receivable or on its business, operating results and financial condition.

     Our 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 we price our products and services mainly in United States
dollars, currency exchange fluctuations could have a material adverse effect on
our business to the extent that our pricing is not competitive with products
priced in local currencies. The results of the Novo Systems Japanese subsidiary
are maintained in Japanese yen and translated into United States dollars. We do
not currently hedge against foreign currency fluctuations. See "Other Factors
Affecting Future Operating Results -- Risks Associated With International
Operations."

                                       20
<PAGE>   21

RESULTS OF OPERATIONS

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

YEARS ENDED NOVEMBER 30, 1998 AND 1999

                             ASPEC TECHNOLOGY, INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                          YEAR ENDED NOVEMBER 30, 1999
                                    ($000'S)

<TABLE>
<CAPTION>
                                                                  SIS MICRO-
                                                     ASPEC     ELECTRONICS INC.     EDA       TOTAL
                                                    -------    ----------------    ------    -------
<S>                                                 <C>        <C>                 <C>       <C>
Revenue...........................................    4,779         2,513             171      7,463
Cost of revenue...................................   11,557         1,728              94     13,379
                                                    -------         -----          ------    -------
  Gross (loss) profit.............................   (6,778)          785              77     (5,916)
Operating expenses:
  Research and development........................    4,682           569             313      5,564
  Sales and marketing.............................    3,658            74              (8)     3,724
  General and administrative......................    5,141           614             357      6,112
  Write off in process research and development...                                  3,097      3,097
  Write off software..............................    1,799                                    1,799
  Amortization -- goodwill........................      669           172             240      1,081
                                                    -------         -----          ------    -------
          Total operating expenses................   15,949         1,429           3,999     21,377
Loss from operations..............................  (22,727)         (644)         (3,922)   (27,293)
Interest and other income, net....................    1,617             5             (12)     1,610
Equity losses from joint venture..................     (574)                                    (574)
                                                    -------         -----          ------    -------
Loss before income taxes..........................  (21,684)         (639)         (3,934)   (26,257)
Provision for income taxes........................       41                                       41
                                                    -------         -----          ------    -------
Net loss..........................................  (21,725)         (639)         (3,934)   (26,298)
                                                    =======         =====          ======    =======
</TABLE>

                             ASPEC TECHNOLOGY, INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                          YEAR ENDED NOVEMBER 30, 1999
                                 (PERCENTAGES)

<TABLE>
<CAPTION>
                                                                   SIS MICRO-
                                                      ASPEC     ELECTRONICS INC.     EDA      TOTAL
                                                     -------    ----------------    ------    -----
<S>                                                  <C>        <C>                 <C>       <C>
Revenue............................................    100%            100%            100%    100%
Cost of revenue....................................    242              69              55     179
                                                      ----            ----          ------    ----
  Gross (loss) profit..............................   (142)             31              45     (79)
Operating expenses:
  Research and development.........................     98              23             184      75
  Sales and marketing..............................     77               3              (5)     50
  General and administrative.......................    108              24             210      82
  Write off in process research and development....     --              --           1,822      42
  Write off software...............................     37              --              --      24
  Amortization -- goodwill.........................     14               7             141      14
                                                      ----            ----          ------    ----
          Total operating expenses.................    334              57           2,352     287
Loss from operations...............................   (476)            (26)         (2,307)   (366)
Interest and other income, net.....................     34               1              (7)     22
Equity losses from joint venture...................    (12)             --              --      (8)
                                                      ----            ----          ------    ----
Loss before income taxes...........................   (454)            (25)         (2,314)   (352)
Provision for income taxes.........................      1              --              --       1
                                                      ----            ----          ------    ----
Net loss...........................................   (455)%           (25)%        (2,314)%  (353)%
                                                      ====            ====          ======    ====
</TABLE>

                                       21
<PAGE>   22

                             ASPEC TECHNOLOGY, INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                          YEAR ENDED NOVEMBER 30, 1998
                                    ($000'S)

<TABLE>
<CAPTION>
                                                                   SIS MICRO-
                                                      ASPEC     ELECTRONICS INC.    EDA     TOTAL
                                                     -------    ----------------    ---    -------
<S>                                                  <C>        <C>                 <C>    <C>
Revenue............................................  22,527             563         --      23,090
Cost of revenue....................................  15,966             722         --      16,688
                                                     ------          ------         --     -------
  Gross profit (loss)..............................   6,561            (159)        --       6,402
Operating expenses:
  Research and development.........................   2,205             435         --       2,640
  Sales and marketing..............................   5,952              --         --       5,952
  General and administrative.......................   4,206             370         --       4,576
  Write off in process research and development....     700              --         --         700
  Amortization -- goodwill.........................     418              --         --         148
                                                     ------          ------         --     -------
          Total operating expenses.................  13,481             805         --      14,286
Loss from operations...............................  (6,920)           (964)        --      (7,884)
Interest and other income, net.....................   1,601              13         --       1,614
Equity losses from joint venture...................      --              --         --          --
                                                     ------          ------         --     -------
Loss before income taxes...........................  (5,319)           (951)        --      (6,270)
Provision for income taxes.........................      76             188         --         264
                                                     ------          ------         --     -------
Net loss...........................................  (5,395)         (1,139)        --      (6,534)
Accretion of redeemable preferred stock............   4,328              --         --       4,328
                                                     ------          ------         --     -------
Net Loss attributable to common stockholders.......  (9,723)         (1,139)        --     (10,862)
                                                     ======          ======         ==     =======
</TABLE>

                             ASPEC TECHNOLOGY, INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                          YEAR ENDED NOVEMBER 30, 1998
                                 (PERCENTAGES)

<TABLE>
<CAPTION>
                                                                       SIS MICRO-
                                                                      ELECTRONICS
                                                             ASPEC        INC.        EDA    TOTAL
                                                             -----    ------------    ---    -----
<S>                                                          <C>      <C>             <C>    <C>
Revenue....................................................   100%         100%        --     100%
Cost of revenue............................................    71          128         --      72
                                                              ---         ----        ---     ---
  Gross profit (loss)......................................    29          (28)        --      28
Operating expenses:
  Research and development.................................    10           77         --      11
  Sales and marketing......................................    26           --         --      26
  General and administrative...............................    19           66         --      20
  Write off in process research and development............     3           --         --       3
  Amortization -- goodwill.................................     2           --         --       2
                                                              ---         ----        ---     ---
          Total operating expenses.........................    60          143         --      62
Loss from operations.......................................   (31)        (171)        --     (34)
Interest and other income, net.............................     7            2         --       7
Loss before income taxes...................................   (24)        (169)        --     (27)
Provision for income taxes.................................    --           33         --       1
                                                              ---         ----        ---     ---
Net loss...................................................   (24)        (202)        --     (28)
Accretion of redeemable preferred stock....................    19           --                 19
                                                                                              ---
Net loss attributable to common stockholders...............   (43)%       (202)%       --     (47)%
                                                              ===         ====        ===     ===
</TABLE>

     As of November 30, 1999, the Company operated in two segments, Aspec
Technology, Inc. and SIS Microelectronics, Inc. SIS is treated as a separate
segment since SIS has separate financial information and

                                       22
<PAGE>   23

this is reported directly to the Chief Executive Officer. For fiscal 1999, Novo,
Verilux and Chip & Chip are included together in EDA in the above tables. The
"Aspec" column includes the results of the historical Aspec SIS business as well
as corporate expenses not specifically attributable to a particular segment.

     The consolidated results for the fourth quarter of 1999 and for the fiscal
year ended November 30, 1999, include the results of Verilux and Chip & Chip
since their acquisition on September 2, 1999. The results from Novo Systems are
included for the period from October 20, 1999 through fiscal year ended November
30, 1999.

     The activities of Verilux and Chip & Chip before and during the fourth
quarter of 1999 involved R&D expenditures and general administrative expenses.

     Novo Systems activities for the period from October 20, 1999 through fiscal
year ended November 30, 1999, involved mainly activities surrounding Zycad
maintenance support.

     Revenues. Revenue for Aspec decreased by 79% from $22.5 million in fiscal
1998 to $4.8 million in fiscal 1999. The decline in revenue in fiscal 1999
compared with fiscal 1998 was primarily attributable to continued decline of our
SIP and design services businesses. Also, in the fourth quarter, 1999 we decided
to refocus our efforts on our new EDA business further contributing to a decline
in revenue from our SIP businesses.

     International revenue for Aspec accounted for 32% of revenue in fiscal 1999
compared to 65% of revenue in fiscal 1998.

     Revenue for SIS increased by 316% from $0.6 million in fiscal 1998 to $2.5
million in fiscal 1999. This increase in revenue in fiscal 1999 compared with
fiscal 1998 was attributable to an increase in product and service offerings.
International revenue for SIS accounted for 5% of revenue in fiscal 1999 and
fiscal 1998.

     Revenue from our EDA Business for the period since the date of the
acquisitions through fiscal year ended November 30, 1999 were $0.17 million
derived from maintenance services.

     Cost of revenue. Cost of revenue for Aspec 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 decreased
by 28% from $16.0 million in fiscal 1998 to $11.6 million in fiscal 1999. Cost
of revenue as a percentage of revenue was 71% and 242% in fiscal 1998 and fiscal
1999, respectively. The absolute dollar decreases in cost of revenue and the
increases in cost of revenue as a percentage of revenue in fiscal 1999, compared
with fiscal 1998, were due to,

     - reduced headcount (e.g., turnover and reduction in force), and

     - significantly decreased revenue levels.

Due primarily to these factors, our gross margin percentage was adversely
effected in fiscal 1999. We expect 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.

     Cost of revenue for SIS primarily represents the cost of personnel and
other operating expenses incurred in the development and production of products
and services to customers. Cost of revenue increased by 142% from $0.7 million
in fiscal 1998 to $1.7 million in fiscal 1999. Cost of revenue as a percent of
revenue was 128% and 69% in fiscal 1998 and fiscal 1999, respectively. The
absolute dollar decrease in cost of revenue and the increase in cost of revenue
as a percentage of revenue in fiscal 1999 compared with fiscal 1998, were due
primarily to the decrease in revenue levels. Cost of revenue for the EDA
Business was insignificant.

     Research and development. Research and development expenses represent the
cost of engineering personnel and other operating expenses incurred in the
development and enhancement of our core technology and products not requiring
significant adaptation. Research and development expenses for Aspec increased by
114% from $2.2 million in fiscal 1998 to $4.7 million in fiscal 1999. Research
and development expense as a percentage of revenue was 10% and 98% in fiscal
1998 and fiscal 1999, respectively. The absolute dollar increases in research
and development expenses and the increases in research and development costs as
a

                                       23
<PAGE>   24

percentage of revenue in fiscal 1999, compared with fiscal 1998, were primarily
due to increased work on internal SIP business rather than standard libraries
during fiscal 1999 as well as investment in the acquired EDA products during the
fourth quarter of fiscal 1999. We expect research and development expense to
increase in absolute dollars in fiscal 2000.

     Research and development expenses for SIS increased by 50% from $0.4
million in fiscal 1998 to $0.6 million in fiscal 1999. Research and development
expense as a percentage of revenue was 77% and 23% in fiscal 1998 and fiscal
1999, respectively. The absolute dollar increase in research and development
expenses and the decrease in research and development expenses as a percentage
of revenue in fiscal 1999, compared with fiscal 1998, were due to investments in
new products and an increase in revenue.

     Research and development expense for the EDA Business was $0.3 million
since the date of acquisition through fiscal year ended November 30, 1999.

     Sales and marketing. Sales and marketing expenses consist of salaries and
commissions paid to internal sales and marketing personnel and sales
representatives, promotional costs and related operating expenses. Sales and
marketing expenses for Aspec decreased by 40% from $6.0 million in fiscal 1998
to $3.6 million in fiscal 1999. Sales and marketing expense as a percentage of
revenue was 26% and 77% in fiscal 1998 and fiscal 1999, respectively. The
absolute dollar decreases in sales and marketing expenses in fiscal 1999,
compared with fiscal 1998, were due to decreased headcount as well as less
expenses and commissions due to lower sales volume.

     Sales and marketing expenses for SIS and the EDA Business were
insignificant for fiscal years 1998 and 1999.

     General and administrative. General and administrative expenses for Aspec,
which includes all corporate, general and administrative expenses, increased by
21% from $4.2 million in fiscal 1998 to $5.1 million in fiscal 1999. General and
administrative expenses as a percentage of revenue was 19% and 108% in fiscal
1998 and fiscal 1999, respectively. The absolute dollar increases in general and
administrative expenses and the increases in general and administrative expenses
as a percentage of revenue in fiscal 1999, compared with fiscal 1998, were due
to increased legal fees resulting from the lawsuits, as well as an increase in
the bad debt expense.

     General and administrative expenses for SIS increased by 50% from $0.4
million in fiscal 1998 to $0.6 million in 1999. General and administrative
expenses as a percentage of revenue were 66% and 24% in fiscal 1998 and fiscal
1999, respectively. The absolute dollar increase in general and administrative
expenses and the decrease in general and administrative as a percentage of
revenue in fiscal 1999, compared with fiscal 1998, were due primarily to an
increase in shared expenses and increased revenue.

     General and administrative expenses for the EDA Business were $0.4 million
from the date of acquisition through fiscal year ended November 30, 1999.

     The $3.1 million written off to purchased technology in fiscal 1999 related
to the acquisitions of Novo Systems, Chip & Chip, and Verilux (see Note 6 to the
Condensed Consolidated Financial Statements). The Company recorded $2.9 million
of goodwill as part of these acquisitions which will be amortized evenly over a
five-year period.

     A one-time charge of $1.8 million was incurred to write down the third
party software tools used in the SIP Business to their realizable value.

     Interest income, net. Net interest income for Aspec remained relatively
flat at $1.6 million in both fiscal 1998 and fiscal 1999. Net interest income as
a percentage of revenue was 7% and 34% in fiscal 1998 and 1999, respectively.
SIS had no interest income in either fiscal 1998 or fiscal 1999.

     Foreign Currency. Balance sheet accounts of Novo Systems' foreign
subsidiary in Japan are translated into U.S. dollars at exchange rates
prevailing at balance sheet dates. Revenue, costs and expenses are translated
into U.S. dollars at average rates for the period. Gains and losses resulting
from foreign exchange transactions are included in the statement of operations
and were not significant during the period presented.

                                       24
<PAGE>   25

     Provision for income taxes. The provision for income taxes for Aspec was
$76 thousand and $41 thousand in the fiscal years 1998 and 1999, respectively.
Excluding the impact of the one-time non-deductible write-off of purchased
technology, write down of software and the increase in valuation allowance
recorded against deferred tax assets, the effective tax rate was (1)% for fiscal
1999, compared with 38% in fiscal 1998. The difference between our effective tax
rate and the U.S. federal statutory income tax rate is primarily due the tax
effect of purchased technology that is non-deductible for tax purposes, the
valuation allowance recorded against deferred assets and state taxes net of
federal benefit. The provision for income taxes for SIS for fiscal 1998 was
$188,000. There was no provision for fiscal 1999.

YEARS ENDED NOVEMBER 30, 1997 AND 1998

<TABLE>
<CAPTION>
                                                                YEAR ENDED
                                                               NOVEMBER 30,
                                                              --------------
                                                              1998      1997
                                                              ----      ----
<S>                                                           <C>       <C>
Revenue.....................................................  100%      100%
Cost of revenue.............................................   72        43
                                                              ---       ---
Gross profit................................................   28        57
Operating expenses:
  Research and development..................................   11         6
  Sales and marketing.......................................   26        32
  General and administrative................................   20        12
  Write-off of purchased technology.........................    3        --
  Amortization -- Goodwill..................................    2        --
                                                              ---       ---
          Total operating expenses..........................   62        50
                                                              ---       ---
(Loss) income from operations...............................  (34)        7
Interest and other income, net..............................    7         1
Equity losses from joint venture............................   --        --
                                                              ---       ---
(Loss) income before income taxes...........................  (27)        8
Provision for income taxes..................................    1         3
                                                              ---       ---
Net (loss) income...........................................  (28)        5
Accretion of redeemable preferred stock.....................   19         4
                                                              ---       ---
Net (Loss) income attributable to common stockholders.......  (47)%       1%
                                                              ===       ===
</TABLE>

     Revenues. Revenue for Aspec increased by 14% from $20.3 million in fiscal
1997 to $22.5 million in fiscal 1998. The growth in revenue in fiscal 1998
compared with fiscal 1997 was primarily attributable to our termination of a
relationship with a foreign distributor which resulted in $2.9 million of
revenues being recognized in the third quarter of fiscal 1998.

     International revenue for Aspec accounted for 65% of revenue in fiscal 1998
compared to 53% of revenue in fiscal 1997.

     SIS was acquired in 1998 and no financial results for SIS were included for
fiscal year 1997.

     Cost of revenue. Cost of revenue increased by 82% from $8.8 million in
fiscal 1997 to $16.0 million in fiscal 1998. Cost of revenue as a percentage of
revenue was 43% and 71% in fiscal 1997 and fiscal 1998, respectively. The
absolute dollar increases in cost of revenue and the increases in cost of
revenue as a percentage of revenue in fiscal 1998, compared with fiscal 1997,
were due to:

     - hiring of additional engineering personnel and related expenses
       associated with customer funded development programs,

     - start-up costs associated with our chip design service group,

     - costs of the additional personnel who joined us as a result of the
       acquisition of SIS Microelectronics,

     - costs of using outside programmers, and

                                       25
<PAGE>   26

     - costs of rework under maintenance resulting from process technology
       changes implemented by semiconductor foundries for which we had developed
       process-related performance data which required recalculation and/or
       recharacterization. Such rework was provided as part of customer
       maintenance contracts.

     Due primarily to these five factors, our gross margin percentage was
adversely effected in fiscal 1998. Research and development. Research and
development expenses for Aspec increased by 83% from $1.2 million in fiscal 1997
to $2.2 million in fiscal 1998. Research and development expense as a percentage
of revenue was 6% and 10% in fiscal 1997 and fiscal 1998, respectively. The
absolute dollar increases in research and development expenses and the increases
in research and development costs as a percentage of revenue in fiscal 1998,
compared with fiscal 1997, were due to increases in engineering personnel,
including additional SIS Microelectronics personnel, and related expenses.

     Sales and marketing. Sales and marketing expenses for Aspec decreased by 9%
from $6.5 million in fiscal 1997 to $5.9 million in fiscal 1998. Sales and
marketing expense as a percentage of revenue was 32% and 26% in fiscal 1997 and
fiscal 1998, respectively. The absolute dollar decreases in sales and marketing
expenses in fiscal 1998, compared with fiscal 1997, were due to:

     - higher Asian representative sales commissions in fiscal 1997 that did not
       recur in fiscal 1998,

     - reduced personnel costs as certain field application engineers were
       transferred into engineering, and

     - decreased advertising and sales promotions.

     General and administrative. General and administrative expenses for Aspec
increased by 75% from $2.4 million in fiscal 1997 to $4.2 million in fiscal
1998. General and administrative expenses as a percentage of revenue were 12%
and 19% in fiscal 1997 and fiscal 1998, respectively. The absolute dollar
increases in general and administrative expenses and the increases in general
and administrative expenses as a percentage of revenue in fiscal 1998, compared
with fiscal 1997, were due to:

     - addition of new management and administrative personnel and increased
       administrative costs, and

     - a $1.0 million increase in the Company's bad debt reserve.

     The $0.7 million written off to purchased technology in 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. Net interest income for Aspec increased by 700% from
$0.2 million in fiscal 1997 to $1.6 million in fiscal 1998. Net interest income
as a percentage of revenue was 1% and 7% in fiscal 1997 and 1998, respectively.
The absolute dollar increases in interest income in fiscal 1998, compared with
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 for income taxes. The provision for income taxes for Aspec was
$0.6 million and $76 thousand in the fiscal years 1997 and 1998, respectively.
Excluding the impact of the one-time non-deductible write-off of purchased
technology and the increase in valuation allowance recorded against deferred tax
assets, the effective tax rate was 38% for fiscal 1998, compared with 40% in
fiscal 1997. The difference between our effective tax rate and the U.S. federal
statutory income tax rate is primarily due to the tax effect of purchased
technology that is non-deductible for tax purposes, the valuation allowance
recorded against deferred assets and state taxes net of federal benefit. At
November 30, 1998, we had a deferred tax asset of approximately $4.7 million. We
believed that sufficient uncertainty existed regarding the realizability of the
deferred tax asset, other than to the extent of taxes available from carryback
of current losses, such that a valuation allowance of $2.6 million was provided
against the deferred tax asset.

                                       26
<PAGE>   27

LIQUIDITY AND CAPITAL RESOURCES

     We have funded our operations primarily from license revenue and the net
proceeds of $71.9 million from the initial public offering of Common Stock in
May 1998.

     Our operating activities utilized net cash of $0.7 million, $2.1 million,
and $10.0 million in fiscal 1997, 1998, and 1999, respectively. Net cash used in
fiscal 1997 for operating activities was mainly due to changes in income tax
related assets and liabilities. Net cash used in fiscal 1998 was mainly due to
the net loss and increases in accounts receivable. Net cash used in fiscal 1999
was primarily due to the net loss.

     Net cash used in investing activities was $3.2 million, $11.4 million, and
$6.3 million in fiscal 1997, 1998, and 1999, respectively. Investing activities
consisted primarily of acquisitions and purchases of software licenses and
equipment.

     Net cash provided by financing activities was $0.1 million and $53.5
million in fiscal 1997 and fiscal 1998 respectively, and utilized $2.2 million
in fiscal 1999. In fiscal 1998, financing activities consisted primarily of the
sale of our Common Stock in its initial public offering. In fiscal 1999, cash
utilized in financing activities consisted primarily of the purchase of Treasury
Stock.

     At November 30, 1999, we had cash and equivalents of $23.9 million. As of
November 30, 1999, we had a retained deficit of $53.5 million and working
capital of $19.6 million. We anticipate approximately $1.5 million for capital
expenditures over the next 12 months.

     On February 24, 2000 we announced the sale of the SIP Business which is
subject to the approval of our Board of Directors, and which will close in three
phases over through April 2000. The purchase price will be paid in cash and is
subject to adjustment at closing. Upon the successful closing of this sale, the
Company will be receiving additional cash. Financial details will be disclosed
after closing.

     The Company has suffered recurring losses for the years ended November 30,
1998 and 1999. Aspec's continued existence is dependent on our ability to
achieve profitable operations. We intend to continue to invest in the
development of new products and enhancements to our existing products. Our
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
       us and related parties,

     - the costs and timing of our product development efforts and the success
       of these development efforts,

     - the costs and timing of our sales and marketing activities,

     - the extent to which our 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. We believe that our current cash and investment balances
       together with any cash generated from operations will be sufficient to
       meet our operating and capital requirements for at least the next 12
       months.

     We may require additional funds in the future and there is a risk that
financing may not be on terms favorable to us, if available at all.

OTHER FACTORS AFFECTING FUTURE OPERATING RESULTS

     Our Future Operating Results are Expected to Fluctuate and We Depend Upon
Timely Project Completion. Our 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:
                                       27
<PAGE>   28

     - the size and timing of customer orders,

     - our ability to achieve progress on percentage of completion contracts,

     - the length of our sales cycle,

     - the timing of new product announcements and introductions by us and our
       competitors,

     - our ability to successfully develop, introduce and market new products
       and product enhancements,

     - market acceptance of our products,

     - the cancellation or delay of orders from major customers,

     - the level of changes to customer requirements due to specific changes
       requested by customers,

     - our ability to retain our existing personnel and hire additional
       personnel, and

     - general economic conditions.

     These and other factors could have a material adverse effect on our
business, operating results and financial condition.

     A significant portion of our revenue is recognized on a percentage of
completion method based upon actual costs incurred. The completion period
typically ranges from one to three months. Accordingly, revenue in any quarter
is dependent on progress towards completion of the project by us. We have 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 our reputation, diversion of engineering resources or a delay
in the market acceptance of our products, any of which could have a material
adverse effect on our 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, our
business, operating results and financial condition could be materially
adversely affected.

     A customer's license of our products may involve a significant commitment
of capital with the attendant delays frequently associated with authorization
procedures for capital expenditures within customer organizations. Our operating
expenses will be based in part on our expectations of future revenue from
product licenses. Accordingly, if we do not realize its expected revenues, our
business, operating results, and financial condition would be materially
adversely affected.

     We Need to Manage Growth and Retain Key Personnel. The growth of our
business and expansion of our customer base has placed, and is expected to
continue to place, a significant strain on our management and operations. Our
future success will depend on our ability to identify, attract, hire and retain
skilled employees and to hire replacements for employees that leave us. In this
regard, we have successfully recruited a President/Chief Executive Officer,
Chief Financial Officer, and several additional key management personnel.

     We Have Risks Associated With the Acquisitions and Potential
Acquisitions. As part of our strategy to expand our engineering design services
capability, in April 1998, we acquired 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. 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 our 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.

     As part of our strategy to develop silicon intelligent EDA design tools, in
June 1999, we entered into an agreement to acquire Verilux Design Corporation in
exchange for the issuance of an aggregate of 2,127,400 shares of Common Stock
and $872,600 cash. Verilux Design is an EDA company located in Santa Clara,
California and had 5 employees. The acquisition was completed in September 1999,
was accounted for using the purchase method and resulted in a charge to
in-process research and development of $1.4 million in
                                       28
<PAGE>   29

our fiscal quarter ended November, 1999. We recorded $1.2 million of goodwill as
part of this acquisition which will be amortized evenly over a five-year period.

     We also entered into an agreement to acquire Chip & Chip, Inc. in July 1999
in exchange for the issuance of an aggregate of 2,000,000 shares of Common Stock
and $800,000 cash. Chip & Chip is an EDA product company located in Santa Clara,
California and had 5 employees. The acquisition was completed in September 1999,
was accounted for using the purchase method and resulted in a charge to
in-process research and development of $1.0 million in our fiscal quarter ended
November, 1999. We recorded $1.6 million of goodwill as part of this acquisition
which will be amortized evenly over a five-year period.

     We also entered into an agreement to acquire Novo Systems Corporation in
October 1999 in exchange for the issuance of an aggregate of 1,600,000 shares of
Common Stock and $1,000,000 cash. Novo Systems is an EDA product and services
company located in Milpitas, California and had 23 employees. The acquisition
was completed in October 1999, was accounted for using the purchase method and
resulted in a charge to in-process research and development of $0.7 million in
our fiscal quarter ended November, 1999. No goodwill was recorded as part of
this acquisition.

     As part of our strategy to enter the IEC content management market, we
entered into an agreement to acquire Inbox Software Inc. ("Inbox") in November
1999 in exchange for the issuance of an aggregate of 1,205,866 shares of Common
Stock, the assumption of 1,194,134 options and $7,640,000 in cash. Inbox is an
IEC content management company located in Milpitas, California and had 21
employees. The acquisition was completed in December 1999, and was accounted for
using the purchase method. Inbox had revenues for fiscal 1999 of $0.3 million
and a net loss of $2.4 million.

     From time to time, we expect to evaluate other potential acquisitions to
build our SIP expertise. There can be no assurance that:

     - we will be able to identify attractive acquisition candidates,

     - that we will be able to successfully complete any such acquisition, or

     - that we will be able to integrate any acquired company with our other
       operations.

     In connection with the acquisitions of SIS Microelectronics, Verilux
Design, Chip & Chip, Novo Systems and Inbox or other potential acquisitions, the
failure to successfully and efficiently integrate new employees and operations
of the acquired company with our existing employees and operations or to
successfully manage an acquired company could materially adversely effect our
business, operating results, and financial condition.

     The EDA Market is Dominated by a Few Large Companies. With the acquisition
of Verilux Design, Chip & Chip and Novo Systems we are entering the EDA market
with products that compete against those of large, well established companies.
The EDA market is difficult to penetrate and is dominated by four large
companies who collectively have 65% of the EDA market.

     We Depend Upon Continuous Product Development and have the Risk of Product
Delays. Our customers are 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, our future success will depend on our ability to continue to
enhance our 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
                                       29
<PAGE>   30

companies, emerging process technologies and other technological developments in
the semiconductor industry. Any failure by us 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 our business, operating results and financial condition. In this
regard, our gross margin was adversely effected in fiscal 1998 and fiscal 1999,
in part due to process technology changes implemented by the semiconductor
foundries for which we had developed process-related performance data which
required recalculation and/or recharacterization. There can be no assurance that
we will be successful in our product development efforts:

     - we could experience difficulties that could delay or prevent the
       successful development, introduction and sale of new or enhanced products
       or,

     - such new or enhanced products may not achieve market acceptance.

     We have in the past experienced delays in the release dates of certain of
our products. If release dates of any new significant products or product
enhancements are delayed, our business, operating results and financial
condition would be materially adversely affected. We could also be exposed to
litigation or claims from our customers in the event we do not satisfy our
delivery commitments. There can be no assurance that any such claim will not
have a material adverse effect on our business, operating results and financial
condition.

     Our Customers are Concentrated and We Depend on Customers in Asia. We have
been dependent on a relatively small number of customers for a substantial
portion of our annual revenue. In fiscal 1997, Tritech accounted for 10% of
revenue, and our seven largest customers accounted for 48% of our revenue. In
fiscal 1998, Asahi Glass accounted for 13% of our revenue, and five of our
largest customers accounted for 43% of the revenue. In fiscal 1999, one customer
accounted for 17% of our revenue, and five of our largest customers accounted
for 44% of the revenue. We anticipate that sales to customers in Asia will
continue to account for a significant portion of the our revenue. None of our
customers has a written agreement with us that obligates us to license
additional products or to renew our maintenance agreement, and there can be no
assurance that any customer will license additional products or renew our
maintenance agreement. The loss of one or more of our major customers, or
reduced orders by one or more of such customers, could materially adversely
affect our business, operating results and financial condition.

     We Have Financial Risks Associated With Our International Operations. A
significant portion of our revenue is derived from customers outside the United
States, and we anticipate that international revenue will continue to account
for a significant portion of our total revenue. Revenue from customers outside
the United States, substantially all of whom are located in Asia, accounted for
53%, 65% and 32% of revenue in fiscal 1997, 1998, 1999, respectively. Although
we do not believe that we experienced any material adverse impact in revenue as
a result of the financial dislocations that occurred in certain Asian countries
during 1997, 1998, and 1998, we have experienced a lengthening of the payment
period for accounts receivables from certain Asian-based customers. At November
30, 1999, approximately 71% of our accounts receivable (including unbilled
receivables) were from Asian-based customers. Although we currently believe,
based in part on continuing discussions with these customers, that our existing
accounting reserves are adequate given the estimated exposure related to all of
our 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:

     - our ability to collect our accounts receivable,

     - our business,

     - operating results, and

     - financial condition.

                                       30
<PAGE>   31

     Our 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 receivable collection periods, and

     - greater difficulty in accounts receivable collection from 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 we price our products and services mainly in United States dollars,
currency exchange fluctuations could have a material adverse effect on our
business to the extent that our pricing is not competitive with products priced
in local currencies. Significant operations of Aspec, in the future, will be
conducted in foreign currencies, primarily Japanese yen. Unexpected changes in
the exchange rates for the foreign currencies could result in significant
fluctuations in the foreign currency translation gains and losses in future
periods. We do not currently hedge against foreign currency fluctuations.

     We Depend Upon the Semiconductor and Electronics Industries. We are
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 our products is influenced by the
level of design efforts by our customers, and factors negatively affecting any
of these industries could have a material adverse effect on our 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 will
have a material adverse impact on our revenue in future periods. Our 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.

     Our Products Have Potential for Product Defects. Complex products such as
those offered by us may contain undetected errors, defects or "bugs." There can
be no assurance that, despite significant testing by us and by current and
potential customers, errors will not be found in products or enhancements to
existing products after commencement of commercial shipments. We do not
presently maintain insurance with respect to potential damages due to errors or
defects in its products. Although we have 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 our business,
operating results and financial condition.

                                       31
<PAGE>   32

     We Depend on Key Personnel. Our business depends in significant part on the
continued service of our 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 our business, operating results and financial
condition. None of our executive officers have an employment agreement with us.
We believe that our future business results will also depend in significant part
upon our 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. We have currently
engaged in a search for several additional engineering personnel. There can be
no assurance we will be successful in identifying, attracting and retaining such
personnel, and the failure to do so could have a material adverse effect on our
business, operating results and financial condition.

Year 2000 Compliance is still a Risk

     During 1999, we completed the process of preparing for the Year 2000 date
change. This process involved assessing, testing and remediation of all
significant information technology ("IT") and non-IT systems, identifying and
communicating with customers, suppliers and other critical service providers to
determine if entities with which we transact business had an effective plan in
place to address the Year 2000 issue, and determining the extent of our
vulnerability to the failure of third parties to remediate their own Year 2000
issue.

     To date, we have not experienced any significant business disruptions as a
result of the Year 2000 issue. In addition, we have not been informed of any
such problems experienced by its our customers, suppliers and other critical
service providers. Although considered unlikely, it is too soon to conclude that
there will not be any problems arising from the Year 2000 issue, particularly at
some of our customers, suppliers and other critical service providers. We will
continue to monitor all business processes throughout 2000 to address any issues
and ensure all processes continue to function properly. Contingency plans to
address potential risks in the event of Year 2000 failures will be developed as
needed.

     As of December 31, 1999, the cost of the Year 2000 project totaled
$146,000. We do not expect to incur significant costs during 2000 related to
ongoing monitoring and support activities for the Year 2000 issue.

     Our Share Price is Volatile. Since our initial public offering in April
1998, the market price of our Common Stock has been highly volatile and is
expected to be significantly affected by factors such as:

     - actual or anticipated fluctuations in our operating results,

     - our 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 us or our 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 us and certain of our
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 our business, operating results and financial
condition. See "Part I -- Item 3 -- Legal Proceedings."

                                       32
<PAGE>   33

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S>                                                           <C>
Report of Independent Accountants...........................   34
Financial Statements:
Consolidated Balance Sheets
  As of November 30, 1999, and November 30, 1998............   35
Consolidated Statements of Operations
  For Fiscal Years Ended November 30, 1999, November 30,
  1998 and November 30, 1997................................   36
Consolidated Statements of Stockholders' Equity (Deficiency)
  For Fiscal Years Ended November 30, 1999, November 30,
  1998 and November 30, 1997................................   37
Consolidated Statements of Cash Flows
  For Fiscal Years Ended November 30, 1999, November 30,
  1998 and November 30, 1997................................   38
Notes to Financial Statements...............................   39
Financial Statement Schedules -- Schedule II -- Valuation
  and Qualifying Accounts and Revenues
  For Fiscal Years Ended November 30, 1999, November 30,
  1998 and November 30, 1997................................   57
</TABLE>

                                       33
<PAGE>   34

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Aspec Technology, Inc.

     In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Aspec Technology, Inc., and its subsidiaries at November 30, 1999
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended November 30, 1999 in conformity with
accounting principles generally accepted in the United States. In addition, in
our opinion, the financial statement schedule listed in the accompanying index
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements. These
financial statements and financial statement schedule are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

     The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1 of the
financial statements, the Company has incurred significant losses from
operations that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to this matter are also described in Note
1. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.

PRICEWATERHOUSECOOPERS LLP

San Jose, California
February 24, 2000

                                       34
<PAGE>   35

                             ASPEC TECHNOLOGY, INC.

                          CONSOLIDATED BALANCE SHEETS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                  NOVEMBER 30,
                                                              --------------------
                                                                1999        1998
                                                              --------    --------
<S>                                                           <C>         <C>
Current Assets:
  Cash and cash equivalents.................................  $ 23,884    $ 42,480
  Accounts receivable
     (net of allowances of $1,229 in 1999 and $1,271 in
      1998)
     Billed.................................................     2,367       5,165
     Unbilled...............................................        32       2,231
  Income taxes receivable...................................     2,100         679
  Prepaid expenses..........................................       665         882
  Inventory.................................................        92         167
  Deferred income taxes -- net..............................        --       2,100
                                                              --------    --------
          Total current assets..............................    29,140      53,704
Property and equipment -- net...............................     6,451      12,297
Goodwill and other intangible assets........................     6,914       3,226
Loan to related party.......................................       430          --
Investments and other assets................................     2,824       1,236
                                                              --------    --------
          Total Assets......................................  $ 45,759    $ 70,463
                                                              ========    ========

                      LIABILITIES AND STOCKHOLDERS' EQUITY:

Current liabilities:
  Accounts payable..........................................  $  2,676    $  3,326
  Accrued liabilities.......................................     2,960       3,104
  Bank loan.................................................       222          --
  Customer advances.........................................     3,636       4,206
                                                              --------    --------
          Total current liabilities.........................     9,494      10,636
Other liabilities -- long term..............................       324       1,052
                                                              --------    --------
          Total liabilities.................................     9,818      11,688
                                                              --------    --------
Commitments and contingencies (Notes 9, 10 and 17)
Stockholders' equity:
  Preferred stock, $0.001 par value; 5,000 authorized; none
     outstanding............................................        --          --
  Common stock, $.001 par value; 75,000 shares authorized;
     shares outstanding:
     1999 -- 34,300; 1998 -- 28,399.........................    91,551      86,198
  Treasury stock; 1999 -- 2,135 shares......................    (1,987)         --
  Stockholders notes receivable.............................      (156)       (184)
  Deferred stock compensation...............................        --         (70)
  Retained deficit..........................................   (53,467)    (27,169)
                                                              --------    --------
          Total stockholders' equity........................    35,941      58,775
                                                              --------    --------
          Total Liabilities and Stockholders' Equity........  $ 45,759    $ 70,463
                                                              ========    ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                       35
<PAGE>   36

                             ASPEC TECHNOLOGY, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                  YEAR ENDED NOVEMBER 30,
                                                              -------------------------------
                                                                1999        1998       1997
                                                              --------    --------    -------
<S>                                                           <C>         <C>         <C>
Revenue.....................................................  $  7,463    $ 23,090    $20,278
Cost of revenue.............................................    13,379      16,688      8,763
                                                              --------    --------    -------
Gross (loss) profit.........................................    (5,916)      6,402     11,515
                                                              --------    --------    -------
Operating expenses:
  Research and development..................................     5,564       2,640      1,190
  Sales and marketing.......................................     3,724       5,952      6,537
  General and administrative................................     6,112       4,576      2,363
  Write-off of purchased technology.........................     3,097         700         --
  Amortization -- Goodwill and other intangible assets......     1,081         418         --
  Write down of software....................................     1,799          --         --
                                                              --------    --------    -------
          Total operating expenses..........................    21,377      14,286     10,090
                                                              --------    --------    -------
(Loss) income from operations...............................   (27,293)     (7,884)     1,425
Interest and other income, net..............................     1,610       1,614        173
Equity losses from joint venture............................      (574)         --         --
                                                              --------    --------    -------
Net (loss) income before income taxes.......................   (26,257)     (6,270)     1,598
Provision for income taxes..................................        41         264        639
                                                              --------    --------    -------
Net (loss) income...........................................   (26,298)     (6,534)       959
Accretion of redeemable preferred stock.....................        --       4,328        823
                                                              --------    --------    -------
Net (loss) income attributable to common stockholders.......  $(26,298)   $(10,862)   $   136
                                                              ========    ========    =======
Basic (loss) earnings per share.............................  $  (0.91)   $  (0.43)   $  0.01
                                                              ========    ========    =======
Basic average shares outstanding............................    28,831      25,258     21,365
                                                              ========    ========    =======
Diluted (loss) earnings per share...........................  $  (0.91)   $  (0.43)   $  0.01
                                                              ========    ========    =======
Diluted average shares outstanding..........................    28,831      25,258     22,585
                                                              ========    ========    =======
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                       36
<PAGE>   37

                             ASPEC TECHNOLOGY, INC.

          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                                     TOTAL
                                    COMMON STOCK      TREASURY STOCK     STOCKHOLDER     DEFERRED                STOCKHOLDERS'
                                  ----------------   -----------------      NOTES         STOCK       RETAINED   (DEFICIENCY)
                                  SHARES   AMOUNT    SHARES    AMOUNT    RECEIVABLE    COMPENSATION   DEFICIT       EQUITY
                                  ------   -------   -------   -------   -----------   ------------   --------   -------------
<S>                               <C>      <C>       <C>       <C>       <C>           <C>            <C>        <C>
Balances, November 30, 1996.....  17,941     3,344        --        --       (648)         (476)       (16,443)     (14,223)
Issuance of common stock under
  stock option plans............       2        10        --        --         --            --             --           10
Repurchase of common stock from
  employees.....................    (709)     (440)       --        --        239           197             --           (4)
Accretion of redeemable
  preferred stock...............      --        --        --        --         --            --           (823)        (823)
Collection of stockholders notes
  receivable....................      --        --        --        --        108            --             --          108
Amortization of deferred stock
  compensation..................      --        --        --        --         --           114                         114
Net income......................      --        --        --        --         --            --            959          959
                                  ------   -------   -------   -------      -----         -----       --------     --------
Balances, November 30, 1997.....  17,234     2,914        --        --       (301)         (165)       (16,307)     (13,859)
Issuance of common stock under
  stock option plans, net of
  repurchases...................     (14)      277        --        --         16            17             --          310
Accretion of redeemable
  preferred stock...............      --        --        --        --         --            --           (212)        (212)
Collection of stockholders notes
  receivable....................      --        --        --        --        101            --             --          101
Amortization of deferred stock
  compensation..................      --        --        --        --         --            78             --           78
Conversion of redeemable common
  stock.........................   4,779     7,116        --        --         --            --             --        7,116
Issuance of common stock, net of
  issuance costs................   6,000    71,891        --        --         --            --             --       71,891
Purchase of SIS
  Microelectronics..............     400     4,000        --        --         --            --             --        4,000
Redemption of preferred stock...                                                                        (4,116)      (4,116)
Net loss........................      --        --        --        --         --            --         (6,534)      (6,534)
                                  ------   -------   -------   -------      -----         -----       --------     --------
Balances, November 30, 1998.....  28,399   $86,198        --   $    --      $(184)        $ (70)      $(27,169)    $ 58,775
Purchase of Verilux.............   2,127     1,893        --        --         --            --             --        1,893
Purchase of Chip & Chip.........   2,000     1,780        --        --         --            --             --        1,780
Purchase of Novo Systems........   1,600     1,536        --        --         --            --             --        1,536
Issuance of common stock under
  stock purchase plans, net of
  repurchases...................     174       144        --        --         --            --             --          144
Collection of stockholders'
  notes receivable..............      --        --        --        --         28            --             --           28
Amortization of deferred stock
  compensation..................      --        --        --        --         --            70             --           70
Purchase of treasury stock......      --        --    (2,135)   (1,987)        --            --             --       (1,987)
Net loss........................      --        --        --        --         --            --        (26,298)     (26,298)
                                  ------   -------   -------   -------      -----         -----       --------     --------
Balances, November 30, 1999.....  34,300   $91,551   $(2,135)  $(1,987)     $(156)           --       $(53,467)    $ 35,941
                                  ======   =======   =======   =======      =====         =====       ========     ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                       37
<PAGE>   38

                             ASPEC TECHNOLOGY, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 YEAR ENDED NOVEMBER 30,
                                                              -----------------------------
                                                                1999       1998      1997
                                                              --------   --------   -------
<S>                                                           <C>        <C>        <C>
Cash flows from operating activities:
Net (loss) income...........................................  $(26,298)  $ (6,534)  $   959
Adjustments to reconcile net (loss) income to net cash used
  for operating activities:
  Write-down of software....................................     1,799         --        --
  Write-off of purchased technology.........................     3,097        700        --
  Depreciation and amortization.............................     7,119      3,980     1,570
  Provision for doubtful accounts...........................       817      1,150        --
  Equity loss from joint venture............................       574         --        --
  Stock compensation expense................................        70         78       114
  Changes in assets and liabilities, net of assets and
    liabilities acquired:
    Accounts receivable.....................................     5,051     (3,480)      945
    Prepaid expenses and other assets.......................       381       (420)       52
    Deferred Income taxes...................................     2,100        842    (2,226)
    Inventory...............................................        82        (68)       --
    Other assets............................................       115         --        --
    Accounts payable........................................    (1,379)     2,306      (140)
    Accrued liabilities.....................................      (767)        76       442
    Net income tax asset/liability..........................    (1,421)    (1,000)   (1,729)
    Other long term liabilities.............................      (728)        --        --
    Customer advances.......................................      (768)       227      (721)
                                                              --------   --------   -------
      Net cash used for operating activities................   (10,156)    (2,143)     (734)
                                                              --------   --------   -------
Cash flows from investing activities:
  Purchases of property and equipment.......................    (1,846)   (10,504)   (3,197)
  Acquisition of SIS Microelectronics, net of cash
    acquired................................................        --         26        --
  Acquisition of Verilux, net of cash acquired..............      (830)        --        --
  Acquisition of Novo, net of cash acquired.................      (487)        --        --
  Acquisition of Chip & Chip, net of cash acquired..........      (796)        --        --
  Investment in Slim Technology.............................    (2,329)        --        --
  Purchase of non marketable equity securities..............        --       (916)       --
                                                              --------   --------   -------
      Net cash used for investing activities................    (6,288)   (11,394)   (3,197)
                                                              --------   --------   -------
Cash flows from financing activities:
  Sale of common stock......................................       144     72,215        10
  Purchase of treasury stock................................    (1,987)        --        --
  Redemption of redeemable preferred stock..................        --    (18,495)       --
  Repayment of borrowings...................................        --       (314)       --
  Repurchase of common stock................................        --        (14)       (4)
  Loan to related party.....................................      (430)        --        --
  Collection of stockholder notes receivable................        28        101       108
                                                              --------   --------   -------
    Net cash provided by financing activities...............    (2,245)    53,493       114
                                                              --------   --------   -------
Effective exchange rate changes on cash and cash
  equivalents...............................................        93         --        --
Net (decrease) increase in cash and equivalents.............   (18,596)    39,956    (3,817)
Cash and equivalents, beginning of period...................    42,480      2,524     6,341
                                                              --------   --------   -------
Cash and cash equivalents, end of period....................  $ 23,884   $ 42,480   $ 2,524
                                                              ========   ========   =======
Supplemental disclosure of cash flow information:
  Cash paid for income taxes................................  $     31   $    549   $ 4,594
                                                              ========   ========   =======
Supplemental disclosure of non-cash investing & financing
  activities:
  Accretion of redeemable preferred stock...................  $     --   $  4,328   $   823
                                                              ========   ========   =======
  Long term payable for acquisition of equipment............  $     --   $  1,000   $    --
                                                              ========   ========   =======
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                       38
<PAGE>   39

                             ASPEC TECHNOLOGY, INC.

                       NOTES TO THE FINANCIAL STATEMENTS

 1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

     Business -- Through the end of fiscal 1999, Aspec Technology, Inc. and its
consolidated subsidiaries ("Aspec" or "the Company") was a provider of merchant
semiconductor intellectual property ('SIP") solutions for high-performance,
complex IC designs, including System-on-a-chip IC's. As described in Note 6 to
the financial statements, the Company acquired three Electronic Design
Automation ("EDA") companies, during the fourth quarter of fiscal 1999.
Subsequent to year end, as described in Note 18, the Company acquired Inbox
Software Corporation, a company providing business-to-business software
solutions. As described as in Note 18, in February 2000, the Company entered
into an agreement to sell its SIP business, subject to the approval of the Aspec
Board of Directors.

     Basis of Presentation -- During fiscal 1999, the Company utilized
approximately $10.1 million of cash in its operations and had cash and cash
equivalents of $23.9 million as of November 30, 1999. As described in Note 18,
the Company, subsequent to year end, acquired Inbox Software Corporation and has
utilized a further $7.6 million of cash as part of this acquisition. The Company
also made three acquisitions during the fourth quarter of fiscal 1999. All of
these acquired businesses have yet to generate significant revenues. The Company
has suffered recurring losses for the years ended November 30, 1999 and 1998
which raise substantial doubt about the ability of the Company to continue as a
going concern. Aspec's continued existence is dependent on its ability to
achieve profitable operations. Management plans to generate positive cash flows
from operations through the successful development and marketing of their
products. Also management intends to consummate the sale of its SIP business as
outlined in Note 18 to generate additional cash. Since there is no assurance
that management will complete their plans, there is substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that may result from the outcome of this
uncertainty.

     Principles of Consolidation -- The consolidated financial statements
include the accounts of Aspec Technology, Inc. and its wholly owned
subsidiaries, SIS Microelectronics, Inc. Aspec Technology, Inc. (Barbados), Chip
& Chip, Inc., Verilux, Inc., Novo Systems, Corp. and its subsidiary, Zycad TSS
KK (Japan). Intercompany accounts and transactions are eliminated.

     Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates,
and such differences may be material to the financial statements.

     Cash Equivalents -- Cash equivalents consist of short-term highly liquid
debt investments with original maturities of 90 days or less.

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

     Amortization of Goodwill and Intangibles -- Goodwill is amortized on a
straight-line basis over five years. Other intangible assets are amortized on a
straight-line basis over two or three years.

     Impairment of Assets -- The Company has adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The statement
sets forth guidance as to when to recognize an impairment of long-lived assets,
including goodwill, and how to measure such an impairment. The methodology set
forth in SFAS No. 121 is not significantly different from the Company's prior
policy and therefore, the adoption of SFAS No. 121 did not have a significant
impact on the consolidated financial statements as far as it relates to
impairment of long-

                                       39
<PAGE>   40
                             ASPEC TECHNOLOGY, INC.

                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

lived assets used in operations. SFAS No. 121 also addresses the accounting for
long-lived assets to be disposed of and requires these assets to be carried at
the lower of cost or fair market value. (See Note 4).

     Software Development Costs -- Development costs incurred in the research
and development of new software products and enhancements to existing software
products are expensed as incurred until technological feasibility has been
established, at which time certain development costs required to attain general
production release would be capitalized. To date, the Company's software
development has essentially been completed concurrent with the establishment of
technological feasibility, and, accordingly, no costs have been capitalized.

     Fair Value of Financial Instruments -- SFAS 107 "Disclosure About Fair
Value of Financial Instruments", requires certain disclosures regarding the fair
value of financial instruments. Cash and cash equivalents, accounts receivable,
bank loan, loan to related party, accounts payable and accrued liabilities are
reflected in the consolidated financial statements at cost which approximates
fair market values because of the short-term maturity of these instruments.

     Concentration of Credit Risk -- Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash
and cash equivalents and accounts receivable. Management believes the credit
risk associated with such instruments is minimal. An allowance for doubtful
accounts is recorded to reduce gross accounts receivable to their net realizable
value.

     Revenue Recognition -- A substantial portion of the Company's license
revenue has been recognized on a percentage of completion basis based upon
actual costs incurred since Aspec's products typically involve levels of
adaptation or completion. License terms typically include a payment upon
execution of the agreement with further payments upon completion of milestones.
Revenue is recognized ratably as the work is performed on the project. Billings
in excess of revenue are recorded as customer advances, while revenues in excess
of billings are recorded as unbilled receivables. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses are
determined. The time required to adapt a product for a specific customer
application generally ranges from three to twelve months. License revenue for
products not requiring adaptation is recognized upon delivery and when
collection is reasonably assured.

     The Company adopted the provision of Statement of Position 97-2, or SOP
97-2, "Software Revenue Recognition," as amended by Statement of Position 98-4,
"Deferral of the Effective Date of Certain Provisions of SOP 97-2," effective
December 1, 1998. SOP 97-2 supersedes Statement of Position 91-1, "Software
Revenue Recognition," and delineates the accounting for software product and
maintenance revenue. Under SOP 97-2, the Company recognizes product revenue upon
shipment if a signed contract exists, the fee is fixed and determinable,
collection of the resulting receivable is probable and product returns are
reasonably estimable. In 1998 and 1997, the Company's revenue recognition policy
was significantly the same as set forth above.

     Revenue from support and maintenance contracts is deferred as customer
advances and recognized ratably over the term of the agreement, which is
typically one year.

     Royalty revenues are earned and recognized in the period reported by the
customer or when cash is received.

     Research and Development Costs -- Research and development costs are
expensed as incurred. Such costs were approximately $5,564,000, $2,640,000 and
$1,190,000 in the years ended November 30, 1999, 1998 and 1997 respectively.

     Inventory Valuation -- Inventories comprise goods held for resale and are
valued at cost. Cost is determined using the first-in, first-out (FIFO) method.

     Income Taxes -- The Company accounts for income taxes using the liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences of temporary differences between the financial

                                       40
<PAGE>   41
                             ASPEC TECHNOLOGY, INC.

                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

statement carrying amounts and the tax bases of assets and liabilities.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.

     Foreign Currency Translation -- The functional currency for the majority of
foreign operations is the applicable local currency. The translation from the
applicable local currency to US dollars is performed for balance sheet accounts
using current exchange rates in effect at the balance sheet date and for revenue
and expense accounts using an average exchange rate during the period. The
resulting translation adjustments are recorded as a component of other
comprehensive income. To date, such amounts have been insignificant. Gains or
losses resulting from foreign currency transactions are included in other
income.

     Investments -- Investments in significant 20 to 50 percent-owned affiliates
are accounted for using the equity method of accounting, whereby the investment
is carried at cost of acquisition, plus the Company's equity in undistributed
earnings or losses since acquisition. Impairments are recognized when management
determines that the investment or equity in earnings is not realizable.
Investments in less than twenty percent owned affiliates are accounted for at
cost, less permanent impairments, (see Note 5).

     Stock Compensation -- The Company accounts for stock-based awards granted
to employees based on the intrinsic value method in accordance with APB Opinion
No. 25, "Accounting for Stock Issued to Employees". The Company complies with
the disclosure requirements of FAS 123, "Accounting for Stock Issued to
Employees" (see Note 14).

     Earnings Per Share -- Basic and diluted earnings per share are computed in
accordance with 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 common shares less shares subject to
repurchase rights outstanding 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 (See Note 16).

     Comprehensive Income -- In June 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No.
130 establishes standards for reporting and displaying comprehensive income and
its components in the financial statements. It does not require a specific
format for the statement, but requires the Company to display an amount
representing total comprehensive income for the period in the financial
statement. The Company has adopted SFAS No. 130, however, to date the Company
has had no significant components of other comprehensive income.

     Segment Reporting -- In June 1997, the FASB issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for reporting information about operating segments in
annual financial statements and requires the reporting of selected information
about operating segments in interim financial reports issued to stockholders.

     The Company adopted SFAS No. 131 during fiscal 1999 (see Note 11). This
statement requires that a public business enterprise report financial and
descriptive information about it's reporting operating segments. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources for segments.

     SFAS 131 also establishes standards for related disclosure about products
and services, geographic areas and major customers.

                                       41
<PAGE>   42
                             ASPEC TECHNOLOGY, INC.

                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

     Reclassifications -- Certain prior year balances have been reclassified to
conform with the current year financial statement presentation. These
reclassifications have no effect on reported net (loss) income or stockholders'
equity.

     Recent Pronouncements -- In March 1998, the Accounting Standards Executive
Committee issued SOP 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," which is effective for fiscal years
beginning after December 15, 1998. SOP 98-1 provides guidance on accounting for
costs of computer software developed or obtained for internal use. The
pronouncement will not have a material impact on the Company.

     In April 1998, the American Institute of Certified Public Accountants
issued SOP 98-5, "Reporting on the Costs of Start-Up Activities." This standard
requires companies to expense the costs of start-up activities and organization
costs as incurred. In general, SOP 98-5 is effective for fiscal years beginning
after December 15, 1998. The Company does not expect SOP 98-5 to impact their
results of operations.

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Investments and Hedging Activities." The statement
establishes accounting and reporting standards requiring that every derivative
instrument be recorded on the balance sheet as either an asset or liability
measured at its fair value. The statement also requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS No. 133, as amended, is effective for
fiscal years beginning after June 15, 2000. The Company is currently evaluating
the impact of SFAS No. 133.

 2. BUSINESS RISKS AND CREDIT CONCENTRATIONS

     The Company operates in an intensely competitive industry that has been
characterized by rapid technological change, short product life cycles, cyclical
market patterns and heightened foreign and domestic competition. Significant
technological changes in the industry could affect operating results adversely.

     The Company markets and sells its technology to a narrow base of customers,
that are primarily designers and manufacturers of integrated circuits, and
generally do not require collateral. At November 30, 1999, three customers
respectively accounted for 28%, 14% and 13% of gross accounts receivable. At
November 30, 1998, one customer accounted for 31% of gross accounts receivables.
A significant proportion of the Company's revenues are derived from customers in
Asia, a region experiencing economic volatility. The Company has experienced a
lengthening of the payment period for accounts receivables from certain
Asian-based customers. Approximately 72% and 74% of gross accounts receivable
(including unbilled receivables) were from Asian-based customers at November 30,
1999 and 1998 respectively.

 3. PROPERTY AND EQUIPMENT

     Property and equipment consists of (in thousands):

<TABLE>
<CAPTION>
                                                             NOVEMBER 30,
                                                          -------------------
                                                            1999       1998
                                                          --------    -------
<S>                                                       <C>         <C>
Computer equipment and software.........................  $ 18,102    $17,700
Office and other equipment..............................       822      1,022
                                                          --------    -------
                                                            18,924     18,722
Less accumulated depreciation and amortization..........   (12,473)    (6,425)
                                                          --------    -------
                                                          $  6,451    $12,297
                                                          ========    =======
</TABLE>

     Depreciation and amortization expense associated with these assets was $6.0
million, $3.6 million, and $1.6 million for the fiscal years 1999, 1998, and
1997, respectively.

                                       42
<PAGE>   43
                             ASPEC TECHNOLOGY, INC.

                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

     The Company recorded an impairment charge of $1.8 million during the fourth
quarter of fiscal 1999 for a write down of certain software assets related to
its SIP businesses (see Note 4).

 4. IMPAIRMENT OF ASSETS

     On February 23, 2000 the Company signed an agreement to sell to DII Group
its SIP businesses, which is subject to Board approval. See subsequent events
footnotes for more details relating to the sale (Note 18).

     Pursuant to SFAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of", the Company evaluated the
recoverability of its assets to be disposed of, including software licenses.
Based on the analysis, the total sales price for the software licenses was $6
million. The net book value of software at November 30, 1999 was $6.1 million
and, after excluding the net book value of software that will not be transferred
and the cost of transfer, the impairment was evaluated to be $1.8 million, which
was recorded as of November 30, 1999.

 5. INVESTMENTS

     During the first quarter of fiscal 1999 the Company purchased a 40 percent
interest in Slim Technology Co, Ltd, (Slim Tech), a Korean company, at a cost of
$2.3 million. Slim Tech performs semiconductor design services for Korea-based
customers. This investment is accounted for using the equity method. The
Company's share of the net assets of the company was $1,739,000 at November 30,
1999.

     The Company also holds an investment of $840,000 in Virage Logic, Inc.,
(Virage), a privately held company. The Company's ownership interest in Virage
is less than 20% at November 30, 1999 and is accounted for under the cost
method.

 6. ACQUISITIONS

SIS MICROELECTRONICS

     In fiscal 1998, the Company purchased all of the capital stock of SIS
Microelectronics for 400,000 shares of Aspec stock at $10 each, for a total
value of $4,000,000. Transaction costs were $148,000.

     In conjunction with the acquisition, which was accounted for as a purchase,
assets acquired and liabilities assumed were as follows (in thousands):

<TABLE>
<S>                                                           <C>
Fair value of assets acquired...............................  $4,390
Liabilities assumed.........................................     942
                                                              ------
  Net assets acquired.......................................   3,448
                                                              ------
  Purchased technology, expenses............................     700
                                                              ------
     Purchase price.........................................  $4,148
                                                              ======
</TABLE>

     The balance sheet, statements of operations and cash flows were
consolidated as from April 13, 1998.

     A total of $700,000 was expensed to the Statement of Operations as value
assigned to in-process research and development projects. There were two
projects in process at the date of acquisition, one of which was 62% complete
and one of which was 16% complete.

CHIP & CHIP, INC.

     In fiscal 1999, the Company purchased certain of the assets and liabilities
of Chip & Chip, Inc. for 2 million shares of Aspec stock and cash of $800,000
for a total consideration of $2.6 million. Transaction costs were $25,000.

                                       43
<PAGE>   44
                             ASPEC TECHNOLOGY, INC.

                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

     In conjunction with the acquisition, which was accounted for as a purchase,
assets acquired and liabilities assumed were as follows (in thousands):

<TABLE>
<S>                                                           <C>
Fair value of assets acquired...............................  $1,863
Liabilities assumed.........................................     292
                                                              ------
  Net assets acquired.......................................   1,571
  Purchased technology, expenses............................   1,034
                                                              ------
          Purchase price....................................  $2,605
                                                              ======
</TABLE>

     The balance sheet statement of operations and cash flows were consolidated
as from September 2, 1999.

     A total of $1,034,000 was expensed to the Statement of Operations as value
assigned to in-process research and development projects. There were four
projects in process at the date of acquisition, two of which were 39% complete
and two of which were 13% complete.

VERILUX DESIGN TECHNOLOGY, INC.

     In fiscal 1999, the Company acquired certain assets and liabilities of
Verilux Design Technology, Inc. for 2,127,400 shares of Aspec stock and cash of
$872,600 for a total consideration of $2.8 million. Transaction costs were
$25,000.

     In conjunction with the acquisition, which was accounted for as a purchase,
assets acquired and liabilities assumed were as follows (in thousands):

<TABLE>
<S>                                                           <C>
Fair value of assets acquired...............................  $1,431
Liabilities assumed.........................................      73
                                                              ------
  Net assets acquired.......................................   1,358
  Purchased technology, expenses............................   1,433
                                                              ------
          Purchase price....................................  $2,791
                                                              ======
</TABLE>

     The balance sheet statement of operations and cash flows were consolidated
as from September 2, 1999.

     A total of $1,433,000 was expensed to the Statement of Operations as value
assigned to in-process research and development projects. There were four
projects in process at the date of acquisition, two of which were 51% complete
and two of which were 33% complete.

NOVO SYSTEMS CORPORATION

     In fiscal 1999, the Company purchased certain of the assets and liabilities
of Novo Systems Corporation for 1.6 million shares of Aspec stock and cash of $1
million for a total consideration of $2.6 million. Transaction costs were
$50,000.

     In conjunction with the acquisition, which was accounted for as a purchase,
assets acquired and liabilities assumed were as follows (in thousands):

<TABLE>
<S>                                                           <C>
Fair value of assets acquired...............................  $3,551
Liabilities assumed.........................................   1,665
                                                              ------
  Nets assets acquired......................................   1,886
  Purchased technology, expenses............................     700
                                                              ------
          Purchase price....................................  $2,586
                                                              ======
</TABLE>

     The balance sheet, statement of operations and cash flows were consolidated
as from October 21, 1999.

                                       44
<PAGE>   45
                             ASPEC TECHNOLOGY, INC.

                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

     A total of $700,000 was expensed to the Statement of Operations as value
assigned to in-process research and development projects. There was one project
in process at the date of acquisition which was 25% complete.

     As a result of these four acquisitions during fiscal 1998 and 1999, the
Company has recorded goodwill and other intangible assets, consisting of (in
thousands):

<TABLE>
<CAPTION>
                                                                   AS OF
                                                                NOVEMBER 30,
                                                              ----------------
                                                               1999      1998
                                                              ------    ------
<S>                                                           <C>       <C>
Goodwill....................................................  $4,979    $2,925
Acquired workforce..........................................     645        95
Developed technology........................................     498       206
Core technology.............................................     715        --
Other.......................................................      77        --
                                                              ------    ------
                                                               6,914     3,226
                                                              ======    ======
</TABLE>

     Amounts allocated to goodwill and other intangible costs from the above
acquisitions are being amortized over two to five years from the date of
acquisition.

  Pro Forma Disclosure of Significant Acquisitions (Unaudited)

     The following summary, prepared on a pro forma basis, combines the
consolidated results of operations of the Company as if Chip & Chip, Inc.,
Verilux Design Technology, Inc., and Novo Systems Corporation had been purchased
by Aspec as of the beginning of each period presented, after including the
impact of certain adjustments, such as increased amortization expense due to
recording intangible assets. The one time charges to expense for the fair value
of the In-Process Research and Development have been excluded from the unaudited
pro forma results since these are non-recurring charges.

<TABLE>
<CAPTION>
                                                              IN THOUSANDS, EXCEPT SHARE DATA
                                                              --------------------------------
                                                                  1999               1998
                                                              -------------      -------------
<S>                                                           <C>                <C>
Revenues....................................................    $ 11,341           $ 26,929
Net Loss....................................................    $(23,151)          $(11,367)
Basic and diluted net Loss per share........................       (0.69)             (0.37)
</TABLE>

     The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire period
presented and are not intended to be a projection of future results.

 7. LOAN TO RELATED PARTY

     During the fourth quarter of fiscal 1999, the Company made a bridge loan to
Inbox Software, Inc., (Inbox). This loan is unsecured, bears no interest and is
repayable on demand. The Company subsequently acquired Inbox on December 3, 1999
(see Note 18).

                                       45
<PAGE>   46
                             ASPEC TECHNOLOGY, INC.

                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

 8. ACCRUED LIABILITIES

     Accrued liabilities consist of (in thousands):

<TABLE>
<CAPTION>
                                                                NOVEMBER 30,
                                                              ----------------
                                                               1999      1998
                                                              ------    ------
<S>                                                           <C>       <C>
Accrued compensation, severance and related benefits........  $1,068    $1,445
Accrued commissions to outside sales representatives........      --       285
Other.......................................................   1,892     1,374
                                                              ------    ------
                                                              $2,960    $3,104
                                                              ======    ======
</TABLE>

     Included in Long term liabilities is $272,000, representing an accrual for
severance pay. The severance payments are being made bi-monthly over a period
ending in fiscal 2001.

 9. BANK LOANS

     As part of the purchase consideration for the acquisition of Chip & Chip,
the Company assumed borrowings of $220,000 under a bank loan, plus $2,000 in
accrued interest. The loan bore interest at 9.25% and was repaid during December
1999.

10. LEASE COMMITMENTS

     The Company leases its primary operating facility under a noncancelable
operating lease agreement, which expires in November 2001. Rent expense incurred
under operating leases was approximately $664,000, $585,000, and $465,000 for
the years ended November 30, 1999, 1998, and 1997, respectively.

     Future minimum lease commitments under operating leases as of November 30,
1999 are as follows (in thousands):

<TABLE>
<CAPTION>
                    YEAR ENDING
                    NOVEMBER 30,
                    ------------
<S>                                                   <C>
  2000..............................................  $  671
  2001..............................................     540
  2002..............................................      21
                                                      ------
          Total minimum lease payments..............  $1,232
                                                      ======
</TABLE>

     The following lease commitments have been acquired with the purchase of
Inbox Software, Inc., on December 3, 1999 (see Note 18):

<TABLE>
<CAPTION>
                     YEAR ENDING
                     NOVEMBER 30,
                     ------------
<S>                                                     <C>
  2000................................................  $181
  2001................................................   188
  2002................................................   196
  Thereafter..........................................    74
                                                        ----
          Total minimum lease payments................  $639
                                                        ====
</TABLE>

11. SEGMENT AND GEOGRAPHIC INFORMATION

     As of November 30, 1999, the Company operated in two segments, Aspec
Technology, Inc. and SIS Microelectronics, Inc. SIS is treated as a separate
segment since SIS has separate financial information and

                                       46
<PAGE>   47
                             ASPEC TECHNOLOGY, INC.

                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

this is reported directly to the Chief Executive Officer. For fiscal 1999, Novo,
Verilux and Chip & Chip represent immaterial segments and are included together
in "other" in the accompanying table.

     The table below presents financial information for the two reportable
segments for the two fiscal years ended November 30, 1999. For the fiscal year
ended November 30, 1997, there was only one reportable segment as SIS
Microelectronics, Inc. was acquired during the fiscal year ended November 30,
1998.

<TABLE>
<CAPTION>
                                     SIS MICROSYSTEMS,
                                           INC.           ASPEC    OTHER    CORPORATE    TOTAL
                                     -----------------   -------   ------   ---------   -------
<S>                                  <C>                 <C>       <C>      <C>         <C>
1999
Revenues...........................        2,513           4,780      170        --       7,463
Loss before interest and tax.......         (644)        (15,939)  (3,922)   (6,788)    (27,293)
Depreciation and amortization......          305           6,320      494                 7,119
Assets.............................        3,526           8,545    8,462    25,226      45,759
Capital expenditures on long-lived
  assets...........................          185           1,661       --        --       1,846
1998                                          --              --       --        --
Revenues...........................           81          23,009       --        --      23,090
Loss before interest and tax.......         (352)           (794)      --    (6,738)     (7,884)
Depreciation and amortization......           73           3,907       --        --       3,980
Assets.............................        3,911          22,301       --    44,251      70,463
Capital expenditures on long-lived
  assets...........................           71          10,433       --        --      10,504
</TABLE>

     A reconciliation of earnings before interest and taxes to income before
taxes is as follows:

<TABLE>
<CAPTION>
                                                            YEAR ENDED NOVEMBER 30,
                                                           --------------------------
                                                            1999       1998     1997
                                                           -------    ------    -----
<S>                                                        <C>        <C>       <C>
(Loss) earnings before interest and taxes................  (27,293)   (7,884)   1,425
Interest income..........................................    1,560     1,622      173
Interest expense.........................................       (2)       (8)      --
Other charges (net)......................................     (522)       --       --
                                                           -------    ------    -----
          (Loss) earnings before income taxes............  (26,257)   (6,270)   1,598
                                                           =======    ======    =====
</TABLE>

     Enterprise-wide information is provided in accordance with SFAS No. 131.
Revenue is by country, based on the location of the customer. All property and
equipment, except for an immaterial amount, is based in the United States and
therefore is not disclosed below. Geographic revenue for the three years ended
November 30, 1999 is as follows:

<TABLE>
<CAPTION>
                                                             YEAR ENDED NOVEMBER 30,
                                                            -------------------------
                                                            1999      1998      1997
                                                            -----    ------    ------
<S>                                                         <C>      <C>       <C>
United States.............................................  5,066    10,582     9,565
Asia......................................................  2,188    11,557     9,812
Other International.......................................    209       951       901
                                                            -----    ------    ------
          Total...........................................  7,463    23,090    20,278
                                                            =====    ======    ======
</TABLE>

     Major Customers And International Sales -- In fiscal 1999, one customer
accounted for approximately 17% of revenue. In fiscal 1998 and 1997 one customer
accounted for 13% and 10%, respectively of revenues. Export sales to Asia
accounted for 29%, 57%, and 48% of total revenue in fiscal 1999, 1998, and 1997,
respectively.

                                       47
<PAGE>   48
                             ASPEC TECHNOLOGY, INC.

                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

12. REDEEMABLE PREFERRED STOCK

     During fiscal 1996, the Board of Directors authorized and designated
130,385 shares of Series A redeemable preferred stock. In May and June 1996, the
Company sold an aggregate of 130,378 shares of Series A redeemable preferred
stock at $100 per share, resulting in net proceeds of approximately $12,953,000.

     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.

     The aggregate liquidation and redemption value of the Company's outstanding
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 and the redeemable preferred shares were redeemed.

13. STOCKHOLDERS' EQUITY (DEFICIENCY)

     Treasury Stock -- In the second quarter of 1999, the Company began
acquiring shares of its common stock in connection with a stock repurchase
program that authorizes it to repurchase up to $2 million of common shares from
time to time on the open market or pursuant to negotiated transactions at price
levels the Company deems attractive. The Company purchased 2,135 million shares
of common stock in 1999 at an aggregate cost of $1.987 million. The purpose of
the stock repurchase program is to help the Company achieve their long-term goal
of enhancing stockholder value.

     When the treasury shares are reissued, any excess of the average
acquisition cost of the shares over the proceeds from reissuance will be charged
to retained earnings.

14. EMPLOYEE STOCK AND OTHER BENEFIT PLANS

  Employee Stock Plans

     In 1996, the Board of Directors adopted the 1996 Stock Option Plan (the
1996 Plan). Under this plan, 4,500,000 shares have been reserved for issuance to
directors, officers, employees and consultants to the Company at prices not less
than the fair market value for incentive stock options. At the 1999 Annual
Stockholders Meeting, the stockholders approved an increase of the shares
reserved for issuance under the 1996 Plan to 6,500,000. These options generally
expire five to ten years from the date of grant. Incentive and nonstatutory
options normally vest and become exercisable at an annual rate of 25%.

     In 1997, the Board of Directors adopted the Company's 1997 Director Option
Plan (the Director Plan) and reserved 250,000 shares of common stock for grants
of options to each outside director. The Director Plan provides for the
automatic grant to outside directors of an option to purchase 25,000 shares of
common stock at the time the director joins the board and an option to purchase
5,000 shares of common stock upon the outside director's annual reelection to
the Board.

                                       48
<PAGE>   49
                             ASPEC TECHNOLOGY, INC.

                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

     A summary of activity under the 1996 Plan and the Director Plan between
December 1, 1996 and November 30, 1999, is as follows (in thousands, except per
share data):

<TABLE>
<CAPTION>
                                                                       OUTSTANDING OPTIONS
                                                     -------------------------------------------------------
                                          SHARES                                                 WEIGHTED
                                         AVAILABLE    NUMBER        EXERCISE      AGGREGATE      AVERAGE
                                         FOR GRANT   OF SHARES       PRICE          PRICE     EXERCISE PRICE
                                         ---------   ---------   --------------   ---------   --------------
<S>                                      <C>         <C>         <C>              <C>         <C>
Balances November 30, 1996.............    3,951         541     $2.20 - $ 4.25      2,130        $3.94
Options reserved under the Director
  Plan.................................      250          --           --               --           --
  Options granted......................   (1,372)      1,372     $5.00 - $ 8.50     10,400        $7.58
  Options canceled.....................      462        (462)    $2.20 - $ 8.00     (2,684)       $5.81
  Options exercised....................       --          (2)        $ 5.00            (10)       $5.00
                                          ------      ------                      --------
Balances November 30, 1997.............    3,291       1,449     $2.20 - $ 8.50      9,836        $6.79
  Options granted......................   (5,758)      5,758     $2.06 - $13.37     42,487        $7.38
  Options canceled.....................    4,291      (4,291)    $2.20 - $13.37    (34,986)       $8.15
  Options exercised....................       --         (73)    $2.20 - $ 8.00       (314)       $4.38
                                          ------      ------                      --------
Balances November 30, 1998.............    1,824       2,843     $2.06 - $11.00     17,023        $6.03
Options reserved under the 1996 Plan...    2,000          --           --               --           --
  Options granted......................   (5,700)      5,700     $0.69 - $ 2.00      6,808        $1.19
  Options canceled.....................    3,685      (3,685)    $0.75 - $11.00    (17,993)       $4.86
  Options exercised....................       --          --                            --           --
                                          ------      ------                      --------
Balances November 30, 1999.............    1,809       4,858     $0.69 - $ 8.50   $  5,838        $1.22
                                          ======      ======                      ========
</TABLE>

     At November 30, 1999, approximately 1,559,000 shares were available for
future grant under the 1996 Plan. At November 30, 1999, 250,000 shares were
available for future grant under the 1997 Director Option Plan.

     The weighted average fair value of rights or options granted in fiscal
1997, 1998, and 1999 was $2.11, $5.26 and $1.19, respectively. 144,339, 353,290,
and 207,961 options were exercisable at November 30, 1997, 1998 and 1999
respectively.

     In connection with certain issuances of stock rights or options under the
Plans, the Company recorded stock compensation for the difference between the
deemed fair value for accounting purposes and the issuance or exercise price.
Such amounts are amortized to expense over the related vesting periods.

     Additional information regarding options outstanding as of November 30,
1999 is as follows:

<TABLE>
<CAPTION>
                              OPTIONS OUTSTANDING                    EXERCISABLE OPTIONS
                  --------------------------------------------   ----------------------------
                                WEIGHTED AVE.
                                  REMAINING
   RANGE OF         NUMBER       CONTRACTUAL    WEIGHTED AVE.      NUMBER      WEIGHTED AVE.
EXERCISE PRICES   OUTSTANDING    LIFE (YRS)     EXERCISE PRICE   EXERCISABLE   EXERCISE PRICE
---------------   -----------   -------------   --------------   -----------   --------------
<S>               <C>           <C>             <C>              <C>           <C>
$0.69 - $1.00      3,672,000         9.7            $0.89           93,719         $0.91
$1.25 - $1.40        110,000         9.1             1.35               --            --
$2.00 - $2.13        995,354         9.0             2.00           73,367          2.00
$4.25 - $6.38         40,750         7.2             4.87           23,375          4.64
$6.80 - $8.50         39,500         7.5             7.83           17,500          7.81
                   ---------         ---            -----          -------         -----
                   4,857,604         9.5            $1.22          207,961         $2.29
                   =========         ===            =====          =======         =====
</TABLE>

     Additional Stock Plan Information -- Effective for fiscal 1997, the Company
was required to adopt the disclosure requirements of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123). SFAS 123 defines a fair value method of accounting for stock-based

                                       49
<PAGE>   50
                             ASPEC TECHNOLOGY, INC.

                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

compensation awards to employees. The Company has elected to continue to follow
the provisions of Accounting Principals Board No. 25, "Accounting for Stock
Issued to Employees," and its related interpretations.

     SFAS 123 requires that the fair value of stock-based awards to employees be
calculated through the use of option pricing models, even though such models
were developed to estimate the fair value of freely tradable, fully transferable
options without vesting restrictions, which significantly differ from the
Company's stock option awards. These models also require subjective assumptions,
which greatly affect the calculated values. The Company's calculations were made
using the Black-Scholes option pricing model with the following weighted average
assumptions: expected life, five years; 100% stock volatility; risk free
interest rate, approximately 6.1% in 1997, and 6.0% in 1998 and 4.47% - 5.88% in
1999; and no dividend payments during the expected term. Forfeitures are
recognized as they occur. If the computed fair values of the awards had been
amortized to expense over the vesting period of the awards, pro forma income
attributable to common stockholders and diluted earnings per share would have
been approximately a loss of $819,000 (or ($0.04) per share) in 1997, a loss of
$13.1 million (or ($0.52) per share) in 1998, and a loss of $27.1 million or
($0.94) per share in 1999.

     Employee Stock Purchase Plan -- In April 1998, the Company adopted the 1997
Employee Stock Purchase Plan (the "Purchase Plan") and reserved 500,000 shares
of common stock for issuance under the Purchase Plan plus annual increases equal
to the lesser of

     - the shares underlying options granted in the immediately preceding year
       or

     - a lesser amount determined by the Board) for sale to employees thereunder
       at a price no less than 85% of the lower of the fair market value at the
       beginning of the six-month offering period or the end of such offering.

     The Purchase Plan authorizes the granting of stock purchase rights to
eligible employees during two-year offering periods with exercise dates once a
year in the first year and approximately every six months thereafter. The first
offering period commenced in April 1998 and ended on March 31, 1999, and the
second offering period commenced in April 1999 and ended on September 30, 1999.
Shares are purchased through employee payroll deductions at purchase prices
equal to 85% of the lesser of the fair market value of the Common Stock at
either the first day of each offering period or the date of purchase. As of
November 30, 1999, 174,968 shares had been issued under the Purchase Plan at an
average price of $0.82 per share.

     The estimated fair value of purchase rights under the Company's Purchase
Plan is determined using the Black-Scholes pricing model with the following
assumptions for the year ended November 30, 1999; risk-free interest
rate -- 5.5%, expected average life -- 0.9 years, expected volatility -- 100%
and no expected dividends. The weighted average per share fair value of purchase
rights under the Purchase Plan during fiscal 1999 was $0.825.

     Employee Benefit Plan -- The Company has established a 401(k) tax-deferred
savings plan. Employees meeting the eligibility requirements, as defined, may
contribute specified percentages of their salaries. The Company has not
contributed to the plan to date.

                                       50
<PAGE>   51
                             ASPEC TECHNOLOGY, INC.

                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

15. INCOME TAXES

     The provision for income taxes for the years ended November 30 consists of
(in thousands):

<TABLE>
<CAPTION>
                                                         1999       1998       1997
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
(Loss) income before income taxes.....................  (26,257)    (6,270)     1,598
                                                        =======    =======    =======
Current:
  Federal.............................................  $(2,100)   $  (632)   $ 1,884
  State...............................................        4         --        401
  Foreign.............................................       37        266        580
                                                        -------    -------    -------
          Total current...............................   (2,059)      (366)     2,865
                                                        -------    -------    -------
Deferred:
  Federal.............................................    1,790        583     (1,894)
  State...............................................      310         47       (332)
                                                        -------    -------    -------
          Total deferred..............................    2,100        630     (2,226)
                                                        -------    -------    -------
          Total provision for income taxes............  $    41    $   264    $   639
                                                        =======    =======    =======
</TABLE>

     The provision for income taxes differs from the amounts computed by
applying the statutory federal income tax rate to income before taxes as a
result of the following (in thousands):

<TABLE>
<CAPTION>
                                                            1999       1998      1997
                                                           -------    -------    ----
<S>                                                        <C>        <C>        <C>
Income tax (benefit) expense.............................  $(8,927)   $(2,119)   $543
In Process R&D...........................................    1,404         --      --
State income taxes, net of federal benefit...............        4       (367)     81
Increase in valuation allowance..........................    7,328      2,601      --
Other....................................................      232        149      15
                                                           -------    -------    ----
          Total provision for income taxes...............  $    41    $   264    $639
                                                           =======    =======    ====
</TABLE>

     The deferred tax assets valuation allowance at November 30, 1999 is
attributed to U.S. federal and state deferred tax assets, which result primarily
from the tax effect of future reversing temporary differences. Management
believes that the realization of deferred tax assets was not assured at November
30, 1999. Significant components of the Company's deferred tax assets were as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                 NOVEMBER 30,
                                                         ----------------------------
                                                          1999       1998       1997
                                                         -------    -------    ------
<S>                                                      <C>        <C>        <C>
Deferred tax assets:
  Net operating loss...................................  $ 5,525    $ 1,075    $   --
  Expenses not currently deductible....................    2,530      3,026     2,730
  Depreciation and amortization........................       43        191        --
  Tax credit carryforwards.............................    1,831        409        --
                                                         -------    -------    ------
  Deferred tax assets..................................    9,929      4,701     2,730
  Less: valuation allowance............................   (9,929)    (2,601)       --
                                                         -------    -------    ------
Net deferred tax assets................................  $    --    $ 2,100    $2,730
                                                         =======    =======    ======
</TABLE>

                                       51
<PAGE>   52
                             ASPEC TECHNOLOGY, INC.

                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

16. (LOSS) EARNINGS PER SHARE

     In accordance with the disclosure requirements of SFAS 128, a
reconciliation of the numerator and denominator of basic and diluted (loss)
earnings per share is provided as follows (in thousands, except per share
amounts). For the purposes of the (loss) earnings per share compilation, net
loss has been reduced by the amount of the periodic accretion for redeemable
preferred stock in fiscal 1997 and 1998.

<TABLE>
<CAPTION>
                                                                  YEAR ENDED NOVEMBER 30,
                                                              -------------------------------
                                                                1999        1998       1997
                                                              --------    --------    -------
<S>                                                           <C>         <C>         <C>
Numerator -- Basic and diluted (loss) earnings per share
  Net (loss) income attributable to common stockholders.....  $(26,298)   $(10,862)   $   136
                                                              ========    ========    =======
Denominator -- Basic (loss) earnings per share
  Weighted average Common stock outstanding.................    28,831      25,258     21,365
                                                              ========    ========    =======
Basic (loss) earnings per share.............................  $  (0.91)   $  (0.43)   $  0.01
                                                              ========    ========    =======
Denominator -- Diluted (loss) earnings per share
  Weighted average Denominator -- Basic (loss) earnings per
     share..................................................    28,831      25,258     21,365
  Effect of dilutive securities:
     Common shares subject to repurchase rights.............        --          --        978
     Stock purchase rights and options......................        --          --        242
                                                              --------    --------    -------
                                                              $ 28,831    $ 25,258    $22,585
                                                              ========    ========    =======
Diluted (loss) earnings per share...........................  $  (0.91)   $  (0.43)   $  0.01
                                                              ========    ========    =======
</TABLE>

     Stock options to purchase 4,864,000 shares of common stock, at prices
ranging from $0.75 to $8.00 per share were outstanding at November 30, 1999, but
were not included in the computation of diluted earnings per share because they
were antidilutive. 243,000 common shares subject to repurchase rights were
similarly excluded. At November 30, 1998, 2,893,000 shares of common stock (at
prices ranging from $2.06 to $11.00 per share) were outstanding, but were not
included as they were anti-dilutive. 423,000 common shares subject to repurchase
rights were similarly excluded because they were anti-dilutive.

17. LEGAL PROCEEDINGS

SUPERIOR COURT FOR THE STATE OF CALIFORNIA

     CLASS ACTION LAWSUITS

     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 through 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 three other complaints, the
Klotz Complaint also alleged violations of Sections 11, 12, and 15 of the
Securities Act of 1933, and a class period of April 28, 1998 through June 30,
1998. The complaints sought unspecified damages.

                                       52
<PAGE>   53
                             ASPEC TECHNOLOGY, INC.

                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

     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, and Sections 11 and 15 of
the Securities Act of 1933 (except as to the underwriters). On June 7, 1999,
Aspec and certain of the individual defendants filed demurrers to the
Consolidated Complaint. On June 9, 1999, the plaintiffs filed a motion for
summary adjudication of their claims against Aspec under Section 11 of the
Securities Act. The plaintiffs also moved to certify a plaintiff class.

     On August 26, 1999, the court heard argument on the defendants' demurrers.
The court sustained the demurrers in part and overruled them in part.
Specifically, the court held that the plaintiffs had not pleaded their claims
under California Corporations Code Section 25400 with sufficient particularity
and granted plaintiffs leave to amend this claim. The court overruled the
defendants' demurrers to the Section 11 claim. Following that hearing,
plaintiffs withdrew their motion for summary adjudication. Thereafter,
plaintiffs filed their First Amended Class Action Complaint, under seal, on
October 18, 1999.

     On January 11, 2000, the defendants filed demurrers to Count I of the First
Amended Complaint which alleged claims under California Corporations Code
Sections 25400/25500. The Aspec Defendants demurred to Count I on the basis that
plaintiffs had not pleaded facts demonstrating that the defendants had acted
with scienter. The Aspec Defendants also moved to strike certain allegations in
the complaint. Plaintiffs filed their oppositions to these motions on February
1, 2000; the defendants' reply memoranda was filed on February 15, 2000. A
hearing on defendants' demurrers and plaintiffs' motion for class certification
is scheduled for February 24, 2000.

     DERIVATIVE LAWSUIT

     Certain of the Company's current and former officers, directors and
shareholder entities were also named as defendants in a derivative lawsuit
styled Linda Willinger, IRA, et al. v. Conrad Dell'Oca et al., No. CV-778007,
filed on November 12, 1998, in the Superior Court of Santa Clara County. The
derivative action alleges facts similar to those in the class action and also
alleges that certain of the directors caused the Company to conduct the initial
public offering in order to redeem certain preferred stock. Aspec filed a
demurrer to that Complaint on June 8, 1999 on behalf of certain of the officer
and director defendants and nominal defendant, Aspec. Thereafter, the plaintiffs
requested the defendants' assent to the dismissal of their complaint and the
filing of an amended complaint. Plaintiffs filed their First Amended
Shareholders' Derivative Complaint on September 2, 1999.

     The Aspec Defendants demurred to that complaint on November 12, 1999, on
the basis that the nominal plaintiffs had failed to make a demand on the Board
of Directors before filing the derivative lawsuit, and that they had also failed
to plead sufficient facts to excuse a pre-suit demand. After the matter was
fully briefed, the court heard argument on January 25, 2000. On January 27,
2000, the court sustained the defendants' demurrers with sixty days' leave to
amend. Therefore, plaintiffs' amended complaint presently is due to be filed on
March 28, 2000.

     OTHER LITIGATION

     On June 21, 1999, a lawsuit entitled Cadabra Design Technology, Inc. v.
Aspec Technology, Inc., No. CV-782691, was filed in the Superior Court, County
of Santa Clara. Plaintiff's complaint seeks damages in the amount of $1,594,000
for an alleged breach of a commercial software licensing agreement entered into
by Cadabra Design Technology, Inc. and the Company on or about August 18, 1998.
On August 6, 1999, the Company answered the complaint -- denying liability and
asserting various affirmative defenses -- and filed a cross-complaint seeking
damages according to proof and equitable relief for breach of contract,
conversion,
                                       53
<PAGE>   54
                             ASPEC TECHNOLOGY, INC.

                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

and negligent misrepresentation on the part of Cadabra Design Technology. On
February 16, 2000, the parties executed a Settlement Agreement and General
Release in the case, pursuant to which the company shall pay Cadabra $600,000 in
full and final satisfaction of all claims related to the parties' software
licensing agreement. On February 22, 2000, Cadabra filed with the court a Notice
of Settlement and Conditional Dismissal, and has agreed and represented to the
court that it will file a request for dismissal within five days after receiving
the aforementioned settlement payment. This settlement has been accrued for as
of November 30, 1999.

     Aspec Technology, Inc. v. Compaq Computers, Inc. was filed on December 28,
1998 in the Superior Court of California, Santa Clara County, No. CV778943. By
the Company's complaint, they sought to collect the principal sum of $403,344,
plus interest, attorney's fees and costs, from Compaq, alleging that Compaq had
breached a contract to purchase certain of Aspec's library software. Compaq
filed a counter claim alleging that the Company had breached the contract by
failing to deliver in functional form the promised software on the schedule
promised, as well as alleging fraudulent misrepresentation relating to the
contract. The counter claim alleges unspecified damages in excess of $25,000.
Documents have been exchanged and certain written discovery has been undertaken,
but no testimony has been taken in the case. Compaq has offered to settle the
matter by paying Aspec $175,000. Aspec has not accepted the offer and is
continuing to discuss resolution with Compaq. Trial is scheduled for April 24,
2000.

     On September 23, 1999, a lawsuit entitled Lesley Nemeth v. Aspec Technology
Inc., was filed in Superior Court, County of Santa Clara No. DC 383204.
Plaintiff is a former consultant to Aspec who seeks in her complaint, damages in
the sum of $12,600 plus interest and attorney's fees. On November 23, 1999 the
court ordered the matter to binding arbitration administered by the American
Arbitration Association. The Company is awaiting plaintiff's filing of the
arbitration claim.

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. As of February 25, 1999, the NASD
determined that the Company would remain listed on the NASDAQ.

SEC INQUIRY

     In January 1999, the Company received an informal inquiry from the
Securities and Exchange Commission ("SEC") Staff which the Company believes
relates to the restatement of the Company's financial statements in 1998. The
Company continues to provide information in response to the SEC requests.

     Certain provisions of the Company's Certificate of Incorporation and
indemnification agreements between the Company and its officers require the
Company to advance to such officers ongoing legal expenses of defending the
above lawsuits and may require the Company to indemnify them against judgments
rendered on certain claims. The Company expects to incur significant legal
expenses on its behalf and on behalf of such officers in connection with this
litigation. In addition, defending this litigation has resulted, and will likely
continue to result, in the diversion of management's attention from the day to
day operations of the business. There can be no assurance that this stockholder
litigation will be resolved in the Company's favor. An adverse result,
settlement or prolonged litigation would have a material adverse effect on the
business, financial condition or results of operations. The Company is currently
unable to estimate the range of potential loss associated with these legal
proceedings.

                                       54
<PAGE>   55
                             ASPEC TECHNOLOGY, INC.

                 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

18. SUBSEQUENT EVENTS (UNAUDITED)

ACQUISITION OF INBOX SOFTWARE, INC.

     On December 3, 1999, the Company purchased all of the capital stock of
Inbox Software, Inc. for 1,205,866 shares of Aspec stock at $3.59 each and cash
of $7.64 million. In addition, Aspec assumed 1,194,134 options at $3.43 each.
The options have an exercise price of $0.18 per share. The conversion ratio for
common stock options was 0.844 Aspec options for each Inbox option held. The
converted options maintain their original vesting schedule. Total consideration
was $16.2 million. Transaction costs were $95,000. In conjunction with the
acquisition, which was accounted for as a purchase, assets acquired and
liabilities assumed were as follows (in thousands):

<TABLE>
<S>                                                           <C>
Fair value of assets acquired...............................  $17,233
Liabilities assumed.........................................    1,998
                                                              -------
  Net assets acquired.......................................   15,235
  Purchased technology expenses.............................      925
                                                              -------
     Purchase price.........................................   16,160
                                                              =======
</TABLE>

     The balance sheet, statement of operations and cash flows were consolidated
as from December 4, 1999. Aspec recorded $17 million of goodwill and other
intangible assets which are being amortized over two to five years.

     A total of $925,000 was expensed to the statement of operations as value
assigned to the In Process Research and Development projects. There were two
projects in process at the date of acquisition, one of which was 55% complete
and one which was 25% complete.

SALE OF BUSINESSES

     On February 24, 2000, the Company entered into an Asset Purchase Agreement
with DII Semiconductor, Inc. ("DII") whereby they will sell all of their
existing System IP business composing the cell library and design services
business located in Sunnyvale, CA and its wholly owned design services
subsidiary, SIS Microelectronics located in Longmont, CO.

     Under the terms of the Agreement, the sale will comprise three separate
phases:

          (1) On February 24, 2000 the first closing took place where certain
     fixed assets and rights to Aspec Intellectual Property were sold to DII for
     a total consideration of $2 million. At the same time a Transitional
     Services Agreement was entered into whereby the Company agreed to contract
     the employees of the System IP business to DII through the second closing
     date, for the purpose of evaluating and updating the intellectual property
     that is to be sold to DII as part of the second closing.

          (2) On April 2000 the second closing will occur and the employees of
     the System IP business will then transfer to the employment of DII. At this
     time a further $3.5 million will be payable by DII under this Agreement.

          (3) The third closing will be at a date mutually selected by both
     parties but in no event will be later than June 1, 2000. At this time the
     remaining fixed assets, comprising essentially software, will be sold to
     DII for a total consideration of $6 million payable in six equal
     installments on or before the 30th day of the first month of the six fiscal
     quarter beginning with the quarter after the third closing date.

     Either party may terminate the Agreement if the conditions to the
obligations as set forth within the Agreement have not been satisfied by June 1,
2000.

     The Asset Purchase Agreement must be ratified by the Aspec Board of
Directors to be effective. The next such meeting is scheduled for March 2000.

                                       55
<PAGE>   56

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

     Not applicable.

                                    PART III

     Certain information required by Part III is omitted from this Report on
Form 10-K in that the Registrant will file its definitive Proxy Statement for
its Annual Meeting of Stockholders to be held on April 24, 2000, pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended (the "Proxy
Statement"), not later than 120 days after the end of the fiscal year covered by
this Report, and certain information included in the Proxy Statement is
incorporated herein by reference.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     (a) Executive Officers -- See the section entitled "Executive Officers" in
Part I, Item 1 hereof.

     (b) Directors -- The information required by this Item is incorporated by
reference to the section entitled "Election of Directors" in the Proxy
Statement.

     The disclosure required by Item 405 of Regulation S-K is incorporated by
reference to the section entitled "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

     The information required by this Item is incorporated by reference to the
sections entitled "Compensation of Executive Officers" and "Compensation of
Directors" in the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this Item is incorporated by reference to the
sections entitled "Principal Share Ownership" and "Security Ownership of
Management" in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this Item is incorporated by reference to the
section entitled "Certain Transactions" in the Proxy Statement.

                                       56
<PAGE>   57

                                    PART IV

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

(a) List of documents filed as part of this Report.

     1. FINANCIAL STATEMENTS

     The following consolidated financial statements of Aspec Technology, Inc.
are contained in Part II, Item 8 of this Report on Form 10-K:

Report of Independent Accountants
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders' Equity (Deficiency)
Notes to Consolidated Financial Statements

     2. FINANCIAL STATEMENT SCHEDULE

     Schedule II -- Valuation and Qualifying Accounts and Reserves

     -- Allowance for Doubtful Accounts

     -- Valuation Allowance for Deferred Tax Assets

     All other schedules for which provision is made in the Applicable
Accounting Regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.

                             ASPEC TECHNOLOGY, INC.

         SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

<TABLE>
<CAPTION>
                                                       BALANCE    ADDITIONS
                                                         AT       CHARGED TO
                                                      BEGINNING   COSTS AND                  BALANCE AT
                    DESCRIPTION                       OF PERIOD    EXPENSES    DEDUCTIONS   END OF PERIOD
                    -----------                       ---------   ----------   ----------   -------------
<S>                                                   <C>         <C>          <C>          <C>
Allowance for Doubtful Accounts
  November 30, 1997.................................      300          --           --            300
  November 30, 1998.................................      300       1,150         (179)         1,271
  November 30, 1999.................................    1,271         817         (859)         1,229

Valuation Allowance for Deferred Tax Assets
  November 30, 1997.................................       --          --           --             --
  November 30, 1998.................................       --       2,601           --          2,601
  November 30, 1999.................................    2,601       7,308           --          9,909
</TABLE>

                                       57
<PAGE>   58

     3. REPORTS ON FORM 8-K

     No reports on Form 8-K were filed by the registrant during the quarter
ended November 30, 1999.

EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                       DESCRIPTION OF DOCUMENT
-------                       -----------------------
<C>         <S>
  3.1(1)    Restated Certificate of Incorporation of Registrant.
  3.3(1)    Bylaws of Registrant.
  4.2(1)    Form of Common Stock Certificate.
 10.1(1)    Form of Indemnification Agreement.
 10.2(1)*   1996 Stock Plan, as amended, and form of Stock Option
            Agreement.
 10.3(1)*   1997 Employee Stock Purchase Plan, as amended, and form of
            Subscription Agreement.
 10.4(1)*   1997 Director Stock Option Plan and form of Director Option
            Agreement.
 10.5       Agreement and Plan of Reorganization dated as of July 29,
            1999 among the Registrant, Merger Sub, Verilux Design
            Corporation and certain shareholders of Verilux Design.
 10.6       Agreement and Plan of Reorganization dated as of July 30,
            1999 among the Registrant, Merger Sub, Chip & Chip, Inc.,
            and certain shareholders of Chip & Chip, Inc.
 10.7       Agreement and Plan of Reorganization dated as of October 20,
            1999 among the Registrant, Merger Sub, Novo Systems
            Corporation, and certain shareholders of Novo Systems
            Corporation.
 21.1(1)    Subsidiaries of the Registrant.
 23.1       Consent of Independent Accountants.
 24.1       Power of Attorney (see page 54).
 27.1       Financial Data Schedule.
</TABLE>

---------------
 *  Management contract or compensatory plan or arrangement required to be filed
    as an exhibit to this Report on Form 10-K pursuant to form 14(c) of this
    report.

(1) Incorporated by reference to an exhibit of the same number filed with the
    Company's Registration Statement on Form S-1 (File No. 333-22913) which
    became effective with the Securities and Exchange Commission on April 27,
    1998.

                                       58
<PAGE>   59

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Santa Clara, State of California, on the 2nd day of March, 2000.

                                          ASPEC TECHNOLOGY, INC.

                                          By:      /s/ RAYMOND GRAMMER
                                            ------------------------------------
                                                      Raymond Grammer
                                                  Chief Financial Officer

                               POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Raymond Grammer, and each of them
acting individually, as his or her attorney-in-fact, each with full power of
substitution, for him or her in any and all capacities, to sign any and all
amendments to this Report on Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorney to any and all amendments to said Report.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below on March 2, 2000 by the
following persons on behalf of the Registrant and in the capacities indicated.

<TABLE>
<CAPTION>
                  SIGNATURE                                        TITLE
                  ---------                                        -----
<S>                                            <C>

           /s/ MICHAEL J. CARROLL                President and Chief Executive Officer and
---------------------------------------------     Director (Principal Executive Officer)
            (Michael J. Carroll)

             /s/ RAYMOND GRAMMER               Chief Financial Officer (Principal Financial
---------------------------------------------             and Accounting Officer)
              (Raymond Grammer)

           /s/ CONRAD J. DELL'OCA                   Chairman of the Board and Director
---------------------------------------------
            (Conrad J. Dell'Oca)

             /s/ RONALD K. BELL                                  Director
---------------------------------------------
              (Ronald K. Bell)

              /s/ DAVID K. LAM                                   Director
---------------------------------------------
               (David K. Lam)
</TABLE>

                                       59
<PAGE>   60

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                       DESCRIPTION OF DOCUMENT
-------                       -----------------------
<C>         <S>
  3.1(1)    Restated Certificate of Incorporation of Registrant.
  3.3(1)    Bylaws of Registrant.
  4.2(1)    Form of Common Stock Certificate.
 10.1(1)    Form of Indemnification Agreement.
 10.2(1)*   1996 Stock Plan, as amended, and form of Stock Option
            Agreement.
 10.3(1)*   1997 Employee Stock Purchase Plan, as amended, and form of
            Subscription Agreement.
 10.4(1)*   1997 Director Stock Option Plan and form of Director Option
            Agreement.
 10.5       Agreement and Plan of Reorganization dated as of July 29,
            1999 among the Registrant, Merger Sub, Verilux Design
            Corporation and certain shareholders of Verilux Design.
 10.6       Agreement and Plan of Reorganization dated as of July 30,
            1999 among the Registrant, Merger Sub, Chip & Chip, Inc.,
            and certain shareholders of Chip & Chip, Inc.
 10.7       Agreement and Plan of Reorganization dated as of October 20,
            1999 among the Registrant, Merger Sub, Novo Systems
            Corporation, and certain shareholders of Novo Systems
            Corporation.
 21.1(1)    Subsidiaries of the Registrant.
 23.1       Consent of Independent Accountants.
 24.1       Power of Attorney (see page 54).
 27.1       Financial Data Schedule.
</TABLE>

---------------
 *  Management contract or compensatory plan or arrangement required to be filed
    as an exhibit to this Report on Form 10-K pursuant to form 14(c) of this
    report.

(1) Incorporated by reference to an exhibit of the same number filed with the
    Company's Registration Statement on Form S-1 (File No. 333-22913) which
    became effective with the Securities and Exchange Commission on April 27,
    1998.