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

                                   ----------

                                    FORM 10-Q

                                   ----------

(Mark One)

|X|   Quarterly report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934 for the period ended June 30, 2002

                                       OR

|_|   Transition report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934

Commission file number: 000-23649

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

           DELAWARE                                   77-0278185
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)

                                141 Caspian Court
                           Sunnyvale, California 94089
                    (Address of principal executive offices)

                         Telephone Number (408) 734-5600
              (Registrant's telephone number, including area code)

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                            Yes |X|       No |_|

As of August 12, 2002 there were 16,884,393 shares of the Registrant's Common
Stock outstanding.

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<PAGE>

                            ARTISAN COMPONENTS, INC.

                                    Form 10-Q

                                      INDEX

                                                                        Page No.
                                                                        --------

Cover Page ............................................................     1
Index .................................................................     2

PART I - Financial Information

   ITEM 1 - Financial statements

    Condensed Consolidated Balance Sheets as of June 30, 2002,
               unaudited, and September 30, 2001 ......................     3
    Condensed Consolidated Statements of Operations, unaudited, for
               the Three and Nine Months Ended June 30, 2002 and
               2001 ...................................................     4
    Condensed Consolidated Statements of Cash Flows, unaudited, for
               the Nine Months Ended June 30, 2002 and 2001 ...........     5
    Notes to Condensed Consolidated Financial Statements ..............     6

   ITEM 2 - Management's Discussion and Analysis of Financial
               Condition and Results of Operations ....................    11

   ITEM 3 - Quantitative and Qualitative Disclosures about Market
               Risk ...................................................    37

PART II - Other Information

   ITEM 1 - Legal Proceedings .........................................    38
   ITEM 2 - Changes in Security and Use of Proceeds ...................    38
   ITEM 3 - Defaults Upon Senior Securities ...........................    38
   ITEM 4 - Submission of Matters to a Vote of Security Holders .......    38
   ITEM 5 - Other Information .........................................    38
   ITEM 6 - Exhibits and Reports on Form 8-K ..........................    38

Signatures ............................................................    39


                                       2
<PAGE>

                            ARTISAN COMPONENTS, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                     (in thousands, except per share data)

                                                      June 30,    September 30,
                                                        2002          2001
                                                     -----------  -------------
                                                     (unaudited)
ASSETS
Current assets:
  Cash and cash equivalents ......................    $ 29,905      $ 31,592
  Marketable securities ..........................      18,372        10,737
  Contract receivables, net ......................       9,246         6,292
  Prepaid expenses and other current assets ......       2,430         1,545
                                                      --------      --------
    Total current assets .........................      59,953        50,166
Property and equipment, net ......................       3,534         4,422
Goodwill .........................................      13,741        12,715
Intangible assets, net ...........................       2,763         5,264
Other assets .....................................         410           459
                                                      --------      --------
    Total assets .................................    $ 80,401      $ 73,026
                                                      ========      ========

LIABILITIES AND STOCKHOLDERS'EQUITY
Current liabilities:
  Accounts payable and accrued expenses ..........    $  5,649      $  5,322
  Deferred revenue, current portion ..............       6,415         3,630
                                                      --------      --------
    Total current liabilities ....................      12,064         8,952
Deferred revenue .................................       1,150           173
Other liabilities ................................       1,216           516
                                                      --------      --------
    Total liabilities ............................      14,430         9,641
                                                      --------      --------

Stockholders' equity
  Common Stock, $0.001 par value:
    Authorized: 50,000;
    Issued and outstanding: 16,788 and 16,487
    shares at June 30, 2002 and September 30,
    2001, respectively ...........................          17            16
  Additional paid in capital .....................      75,790        73,511
  Accumulated deficit ............................      (9,836)      (10,142)
                                                      --------      --------
    Total stockholders' equity ...................      65,971        63,385
                                                      --------      --------
    Total liabilities and stockholders' equity ...    $ 80,401      $ 73,026
                                                      ========      ========

    The accompanying notes are an integral part of these unaudited condensed
                       consolidated financial statements.


                                       3
<PAGE>

                            ARTISAN COMPONENTS, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                      Three Months                Nine Months
                                                     Ended June 30,              Ended June 30,
                                                  --------------------      ----------------------
                                                     2002         2001          2002          2001
                                                  -------     --------      --------      --------
<S>                                               <C>         <C>           <C>           <C>
Revenue:
  License ...................................     $ 7,418     $  5,942      $ 18,509      $ 15,959
  Net royalty ...............................       2,545        1,170         7,026         3,402
                                                  -------     --------      --------      --------
    Total revenue ...........................       9,963        7,112        25,535        19,361
                                                  -------     --------      --------      --------

Costs and expenses:
  Cost of revenue ...........................       2,086        1,871         5,207         4,404
  Amortization of acquired technology .......         397          397         1,191           794
  Product development .......................       2,923        2,993         9,041         8,492
  Sales and marketing .......................       2,268        1,812         6,339         4,819
  General and administrative ................       1,172          762         2,374         2,087
  In process research and development .......          --           --            --         2,441
  Amortization of goodwill and other
  intangible assets .........................          95        1,627           285         3,242
                                                  -------     --------      --------      --------
    Total costs and expenses ................       8,941        9,462        24,437        26,279
                                                  -------     --------      --------      --------
Operating income (loss) .....................       1,022       (2,350)        1,098        (6,918)
Interest income and other, net ..............         195          412          (600)        1,900
                                                  -------     --------      --------      --------
Income (loss) before provision for income
taxes .......................................       1,217       (1,938)          498        (5,018)
Provision (benefit) for income taxes ........          75         (659)          192        (1,706)
                                                  -------     --------      --------      --------
Net income (loss) ...........................     $ 1,142     $ (1,279)     $    306      $ (3,312)
                                                  =======     ========      ========      ========
Basic net income (loss) per share ...........     $  0.07     $  (0.08)     $   0.02      $  (0.21)
                                                  =======     ========      ========      ========
Diluted net income (loss) per share .........     $  0.06     $  (0.08)     $   0.02      $  (0.21)
                                                  =======     ========      ========      ========

Shares used in computing:
  Basic net income (loss) per share .........      16,780       16,382        16,669        15,804
  Diluted net income (loss) per share .......      18,222       16,382        18,157        15,804
</TABLE>

    The accompanying notes are an integral part of these unaudited condensed
                       consolidated financial statements.


                                       4
<PAGE>

                            ARTISAN COMPONENTS, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                       Nine Months Ended
                                                                            June 30,
                                                                    ----------------------
                                                                        2002          2001
                                                                    --------      --------
<S>                                                                 <C>           <C>
Cash flows from operating activities:
  Net income (loss) ...........................................     $    306      $ (3,312)
  Adjustments to reconcile net income (loss) to net
    Cash provided by operating activities:
    Depreciation and amortization .............................        3,016         5,898
    Gain on sale of fixed assets ..............................           --            18
    Compensation expense related to options granted ...........           --             8
    In process research and development .......................           --         2,441
    Changes in assets and liabilities:
      Contract receivables, net ...............................       (2,954)       (3,399)
      Prepaid expenses and other assets .......................         (885)          446
      Deferred taxes ..........................................           --        (2,022)
      Other assets ............................................           49           (60)
      Accounts payable and accrued liabilities ................          327           827
      Deferred revenue and long-term liabilities ..............        4,462          (187)
                                                                    --------      --------
      Net cash provided by operating activities ...............        4,321           658
                                                                    --------      --------
Cash flows from investing activities:
  Purchase of property and equipment ..........................         (653)         (389)
  Proceeds from sale of property and equipment ................           --            50
  Acquisition of the Physical Library Business of Synopsys,
  net of cash acquired ........................................           --       (14,530)
  Purchase of marketable securities ...........................      (27,578)      (32,900)
  Proceeds from sale of marketable securities .................       19,943        33,009
                                                                    --------      --------
      Net cash used in investing activities ...................       (8,288)      (14,760)
                                                                    --------      --------
Cash flows from financing activities:
      Proceeds from issuance of common stock ..................        2,280         1,185
                                                                    --------      --------
      Net cash provided by financing activities ...............        2,280         1,185
                                                                    --------      --------

Net decrease in cash and cash equivalents .....................       (1,687)      (12,917)
Cash and cash equivalents, beginning of period ................       31,592        33,278
                                                                    --------      --------
Cash and cash equivalents, end of period ......................     $ 29,905      $ 20,361
                                                                    ========      ========

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
  Fixed assets acquired with accounts payable .................     $     --      $    206
  Issuance of common stock and assumption of obligations in
  connection with the acquisition of the Physical Library
  Business of Synopsys ........................................     $     --      $ 11,509
</TABLE>

    The accompanying notes are an integral part of these unaudited condensed
                       consolidated financial statements.


                                       5
<PAGE>

                            ARTISAN COMPONENTS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1. BASIS OF CONSOLIDATION AND PRESENTATION:

The accompanying unaudited condensed consolidated financial statements include
the accounts of Artisan Components, Inc. ("Artisan" or the "Company") and its
wholly owned subsidiaries after elimination of all inter-company transactions.
The Company's fiscal year ends September 30.

The accompanying unaudited condensed consolidated financial statements of
Artisan have been prepared in accordance with generally accepted accounting
principles in the United States of America ("GAAP") for interim financial
information and in accordance with the rules and regulations of the Securities
and Exchange Commission ("SEC"). Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The September 30, 2001 fiscal year end balance sheet data was derived from the
audited financial statements and does not include all disclosures required by
GAAP. Operating results for the three month and nine month periods ended June
30, 2002 are not necessarily indicative of the results that may be expected for
the fiscal year ending September 30, 2002 or any other future period. The
unaudited condensed consolidated interim financial statements contained herein
should be read in conjunction with the audited financial statements and
footnotes for the year ended September 30, 2001 included in the Company's Annual
Report on Form 10-K as filed with the SEC.

2. USE OF ESTIMATES

The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and to disclose contingent liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reported period. Actual results could differ from those estimates.

3. NET INCOME (LOSS) PER SHARE:

Basic and diluted net income (loss) per share are computed in accordance with
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per
Share" ("EPS"). Basic net income (loss) per share is computed by dividing net
income (loss) available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted net income (loss) per share is
computed giving effect to all dilutive potential common shares that were
outstanding during the period. Diluted EPS reflects the potential dilution that
would occur if outstanding securities to issue common stock were exercised or
converted to common stock. Dilutive potential common shares are not included
during periods in which the Company experienced a net loss, as the impact would
be anti-dilutive.


                                       6
<PAGE>

In accordance with the disclosure requirements of SFAS 128, a reconciliation of
the numerator and denominator of basic and diluted EPS is provided as follows
(in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                 Three Months               Nine Months
                                                Ended June 30,            Ended June 30,
                                             --------------------      --------------------
                                                2002         2001         2002         2001
                                             -------     --------      -------     --------
<S>                                          <C>         <C>           <C>         <C>
Numerator--Basic and Diluted
  Net income (loss) ....................     $ 1,142     $ (1,279)     $   306     $ (3,312)
                                             =======     ========      =======     ========
Denominator--Basic
  Common stock outstanding .............      16,780       16,382       16,669       15,804
                                             -------     --------      -------     --------
Basic net income (loss) per share ......     $  0.07     $  (0.08)     $  0.02     $  (0.21)
                                             =======     ========      =======     ========
Denominator--Diluted
  Denominator--Basic ...................      16,780       16,382       16,669       15,804
  Effect of Dilutive Securities
    Common stock options(1) ............       1,442           --        1,488           --
                                             -------     --------      -------     --------
                                              18,222       16,382       18,157       15,804
                                             -------     --------      -------     --------
Diluted net income (loss) per share ....     $  0.06     $  (0.08)     $  0.02     $  (0.21)
                                             =======     ========      =======     ========
</TABLE>

(1)   640,920 and 568,751 options to purchase shares of common stock were not
      included in the per share calculation in the three and nine month periods
      ended June 30, 2002, because they were anti-dilutive. Options to purchase
      3,903,481 shares of common stock were not included in the per share
      calculation in the three and nine month periods ended June 30, 2001,
      because they were anti-dilutive.

4. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

In June 2001, the Financial Accounting Standards Board issued SFAS No. 141
"Business Combinations" ("SFAS 141") and SFAS No. 142 "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
SFAS 141 also specifies the criteria applicable to intangible assets acquired in
a purchase method business combination to be recognized and reported apart from
goodwill. SFAS 142 requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead be tested for impairment, upon
initial adoption of the standard and then annually. SFAS 142 also requires that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and be reviewed for
impairment.

The Company adopted SFAS 142 effective October 1, 2001. As a result of the
adoption of SFAS 142 workforce intangibles of $1.0 million was reclassified as
goodwill and the Company ceased amortization of goodwill. As of October 1, 2001,
the net book value of these intangibles was $13.7 million and amortization of
$4.6 million was recorded for the year ended September 30, 2001.


                                       7
<PAGE>

A reconciliation of previously reported net loss and net loss per share to
amounts adjusted for goodwill amortization, net of related income tax is as
follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                          Three months Ended              Nine Months Ended        Year Ended
                                               June 30,                        June 30,             Sep. 30,
                                       -------------------------      -------------------------    ----------
                                          2002           2001            2002           2001         2001(1)
                                       ----------     ----------      ----------     ----------    ----------
<S>                                    <C>            <C>             <C>            <C>           <C>
Net Income/(loss)
 Reported net income/(loss) ......     $    1,142     $   (1,279)     $      306     $   (3,312)   $  (13,972)
 Add: Goodwill amortization,
      net of tax .................             --          1,012              --          2,016         3,672
                                       ----------     ----------      ----------     ----------    ----------

 Adjusted net loss ...............     $    1,142     $     (267)     $      306     $   (1,296)   $  (10,300)
                                       ==========     ==========      ==========     ==========    ==========
Net Income/(loss) Per Share:
 Basic, as reported ..............     $     0.07     $    (0.08)     $     0.02     $    (0.21)   $    (0.88)
 Add: Goodwill amortization,
      net of tax .................             --     $     0.06              --     $     0.13          0.23
                                       ----------     ----------      ----------     ----------    ----------
 Basic, adjusted .................     $     0.07     $    (0.02)     $     0.02     $    (0.08)   $    (0.65)
                                       ==========     ==========      ==========     ==========    ==========

Net Income/(loss) Per Share:
 Diluted, as reported ............     $     0.06     $    (0.08)     $     0.02     $    (0.21)   $    (0.88)
 Add: Goodwill amortization,
      net of tax .................             --     $     0.06              --     $     0.13          0.23
                                       ----------     ----------      ----------     ----------    ----------
 Diluted, adjusted ...............     $     0.06     $    (0.02)     $     0.02     $    (0.08)   $    (0.65)
                                       ==========     ==========      ==========     ==========    ==========

 Shares used in calculating:

  Basic net income/(loss) per share        16,780         16,382          16,669         15,804        15,965

  Diluted net income per share ...         18,222         16,382          18,157         15,804        15,965
</TABLE>

(1) In January 2001, the Company acquired the physical library business of
Synopsys. There was no financial impact on the previously reported net
income/(loss) and net income/(loss) per share amounts for the fiscal years ended
September 30, 2000 and 1999 as a result of the adoption of SFAS 142.

The Company has completed an impairment review required upon adoption of SFAS
142 and did not record any impairment charge with respect to its goodwill
intangibles. The Company also reviews its goodwill and other intangible assets
on a regularly basis during the year. The Company will complete the annual
review of goodwill and intangibles during the quarter ending September 30, 2002
and there can be no assurance that an impairment charge will not be necessary at
that time.

In October 2001, the FASB issued SFAS 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"), which is required to be applied
starting with fiscal years beginning after December 15, 2001. SFAS 144 requires,
among other things, the application of one accounting model for long-lived
assets that are impaired or to be disposed of by sale. The Company will adopt
SFAS 144 on October 1, 2002. The adoption of SFAS 144 is not expected to have a
significant impact on our financial position, results of operations or cash
flows.


                                       8
<PAGE>

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities"("SFAS 146"). SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." This Statement requires
that a liability for costs associated with an exit or disposal activity be
recognized and measured initially at fair value only when the liability is
incurred. The provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002. The Company is currently
assessing the impact of adopting SFAS 146 on its results of operations and
financial position.

5. COMPREHENSIVE INCOME (LOSS):

The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income ("SFAS 130")." SFAS 130 requires companies to
classify items of other comprehensive income by their nature in the financial
statements and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital in the equity
section of the balance sheet. Comprehensive income (loss) is comprised of the
Company's net income (loss) for the periods, unrealized gains (losses) on the
Company's investments and changes in foreign currency translation adjustments.
Comprehensive income (loss) approximates net income (loss) for the three and
nine month periods ended June 30, 2002 and 2001.

6. BUSINESS SEGMENT AND GEOGRAPHICAL INFORMATION:

The Company currently operates in one industry segment, the semiconductor
intellectual property segment. For financial reporting purposes, the Company
uses one measure of profitability for its business. The Company markets its
products to customers in North America, Europe and Asia.

<TABLE>
<CAPTION>
                                                Three Months            Nine Months
                                               Ended June 30,         Ended June 30,
                                             ------------------     -------------------
  ($ In Thousands) .....................       2002        2001        2002        2001
                                             ------     -------     -------     -------
<S>                                          <C>        <C>         <C>         <C>
Revenue from Unaffiliated Customers:

  North America ........................     $3,164     $ 2,754     $ 5,714     $ 5,764

  Asia .................................      5,592       2,948      16,476       7,303

  Japan ................................        425       1,290       1,061       5,372

  Europe ...............................        782         120       2,284         922
                                             ------     -------     -------     -------
                                             $9,963     $ 7,112     $25,535     $19,361
                                             ======     =======     =======     =======
</TABLE>

The Company has been dependent on a relatively small number of customers for a
large portion of our total revenue, although the customers comprising this group
have changed from time to time. In the three month period ended June 30, 2002,
Taiwan Semiconductor Manufacturing Company Ltd., or TSMC, accounted for 32% of
total revenue, Jazz Semiconductor, Inc. accounted for 13% of total revenue and
National Semiconductor Corporation, or NSC, accounted for 11% of the Company's


                                       9
<PAGE>

total revenue. In the three month period ended June 30, 2001, United
Microelectronics Corporation, or UMC, accounted for 19% of total revenue, NSC
accounted for 18% of total revenue, TSMC accounted for 15% of total and
Synopsys, Inc. accounted for 12% of total revenue. In the nine month period
ended June 30, 2002, TSMC accounted for 38% of total revenue. In the nine month
period ended June 30, 2001, TSMC accounted for 25% of total revenue and NSC
accounted for 10% of our total revenue.

7. LOSS ACCRUAL RELATED TO PREVIOUS FACILITY:

The Company continues to lease its previous office facility in Sunnyvale under a
non-cancelable lease that expires in 2004. The Company is actively seeking a
sub-tenant for this facility. As a result, at June 30, 2002 the Company had an
accrued loss of $1.3 million representing the committed lease payments net of
the estimated sublease income, the net book value of leasehold improvements of
the building and the estimated commission expenses relating to the sublease.
Should rental rates continue to decrease or should it take longer than expected
to sublease this facility, the actual loss could exceed this estimate.

8. STOCKHOLDER RIGHTS PLAN:

On December 12, 2001, the Company's board of directors adopted a stockholder
rights plan. Under this plan, the Company issued a dividend of one right for
each share of the Company's common stock held by stockholders of record as of
the close of business on January 8, 2002. Each right will initially entitle
stockholders to purchase a fractional share of the Company's preferred stock for
$115. However, the rights are not immediately exercisable. If a person or group
acquires, or announces a tender or exchange offer that would result in the
acquisition of a certain percentage of the Company's common stock, then, unless
the rights are redeemed by the Company for $0.001 per right, the rights will
become exercisable by all rights holders, except the acquiring person or group,
for shares of the Company's preferred stock or of the third party acquirer
having a value of twice the right's then-current exercise price.

These provisions are designed to encourage potential acquirers to negotiate with
the Company's board of directors and give the Company's board of directors an
opportunity to consider various alternatives to increase stockholder value.
These provisions are also intended to discourage certain tactics that may be
used in proxy contests. However, the issuance of preferred stock, the Company's
charter and bylaw provisions, the restrictions in Section 203 of the Delaware
General Corporation Law or the Company's stockholder rights plan could
discourage potential acquisition proposals and could delay or prevent a change
in control, which may adversely affect the market price of the Company's stock.
Such provisions and plans may also have the effect of preventing changes in the
Company's management.


                                       10
<PAGE>

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

The following discussion should be read in conjunction with the Unaudited
Condensed Consolidated Interim Financial Statements and the Notes thereto
included elsewhere herein and the audited consolidated financial statements
contained in our Annual Report on Form 10-K for the year ended September 30,
2001 as filed with the Securities and Exchange Commission. 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. The forward-looking statements contained
herein are based on current expectations and entail various risks and
uncertainties that could cause actual results to differ materially from those
expressed in such forward-looking statements. Forward-looking statements can
often be identified by the use of forward-looking words such as "may," "will,"
"could," "should," "expect," "believe," "anticipate," "estimate," "continue,"
"plan," "intend," "project," or other similar words.

OVERVIEW

We are a leading developer of high performance, high density and low power
embedded memory, standard cell and input/output intellectual property components
used for the design and manufacture of complex integrated circuits. We license
our products to semiconductor manufacturers and fabless semiconductor companies
for the design of integrated circuits used in complex, high volume applications,
such as portable computing devices, cellular phones, consumer multimedia
products, automotive electronics, personal computers and workstations.

We operate on a 52 week fiscal year ending September 30. Fiscal 2001 ended on
September 30, 2001 and fiscal 2002 will end on September 30, 2002. Our principal
executive offices are located in Sunnyvale, California.

The worldwide electronics industry slowdown has continued in fiscal 2002. This
slowdown, particularly in the semiconductor industry, has had and may continue
to have a material adverse effect on our results of operations.

HOW WE LICENSE OUR PRODUCTS

Our customers include foundries, which are companies that only manufacture
integrated circuits, and integrated device manufacturers, which are companies
that both design and manufacture integrated circuits. Foundries and integrated
device manufacturers invest significant resources in libraries that are designed
to match their specific manufacturing processes. Our intellectual property
components are designed to enable these companies to achieve the best
combination of performance, density, power and yield for a given manufacturing
process. Typically, a customer licenses one or more products designed for its
manufacturing process. These products are accompanied by layout databases,
software to support a customer's integrated circuit design tool environment and
design methodology documentation.

We license our products on a nonexclusive, worldwide basis to semiconductor
manufacturers and grant the manufacturer the right to distribute our
intellectual property components to their internal design teams and to their
application specific integrated circuit and fabless semiconductor customers. We
also generally grant the semiconductor manufacturer the right to distribute and
sublicense our intellectual property components to semiconductor design
companies that manufacture at their facility. We charge manufacturers a license
fee for customizing our products to their manufacturing process, if required,
and for the right to manufacture semiconductors


                                       11
<PAGE>

containing our products. In addition, manufacturers agree to pay us royalties
based on manufacturing volumes of integrated circuits that include our products.
Our customers also include semiconductor design companies that participate in
our library distribution program. We distribute our products to companies that
are customers of our licensed foundries. While the basic elements of the
libraries are distributed at no charge, design companies can pay us a direct
license and support fee to receive modified products and support from us. As
part of the license agreement that is entered into by the design companies to
obtain our products, the design companies agree to manufacture any semiconductor
design using any of these libraries at the particular foundry for which the
library was developed. The foundry then pays us a royalty based on the volume of
the foundry's sales containing our intellectual property.

In addition, we have several industry partner programs. Our industry partners
provide a wide variety of intellectual property solutions, design services and
tool support to streamline the design process for our library users. Through
these programs, we provide our products and support to over 200 companies who
agree to limit the use and distribution of such libraries to design companies
that are customers of foundries with which we have license agreements. These
design companies agree to manufacture the semiconductor designs using these
libraries at the particular foundry for which the library was developed. These
leading partner programs have given our products additional value as customers
demand streamlined and integrated design solutions to accelerate their time to
market.

CUSTOMER AND GEOGRAPHIC CONCENTRATION

We have been dependent on a relatively small number of customers for a
substantial portion of our total revenue, although the customers comprising this
group have changed from time to time. In the three month period ended June 30,
2002, Taiwan Semiconductor Manufacturing Company Ltd., or TSMC, accounted for
32% of our total revenue, Jazz Semiconductor, Inc., or Jazz, accounted for 13%
of our total revenue and National Semiconductor Corporation, or NSC, accounted
for 11% of our total revenue. In the three month period ended June 30, 2001, UMC
Group, or UMC, accounted for 19% of total revenue, NSC accounted for 18% of
total revenue, TSMC accounted for 15% of our total revenue and Synopsys, Inc.
accounted for 12% of our total revenue. In the nine month period ended June 30,
2002, TSMC accounted for 38% of our total revenue. In the nine month period
ended June 30, 2001, TSMC accounted for 25% of total revenue and NSC accounted
for 10% of our total revenue. We anticipate that our revenue will continue to
depend on a limited number of major customers for the foreseeable future,
although the companies considered to be major customers and the percentage of
revenue represented by each major customer may vary from period to period
depending on the addition of new contracts and the number of designs utilizing
our products.

Historically, a substantial portion of our total revenue has been derived from
customers outside the United States, primarily from Asia and, to a lesser
extent, Europe. International revenue as a percentage of our total revenue was
approximately 68% in the three month period ended June 30, 2002 and 61% in the
three month period ended June 30, 2001. International revenue as a percentage of
our total revenue was approximately 78% in the nine month period ended June 30,
2002 and 70% in the nine month period ended June 30, 2001. While we anticipate
that domestic revenue for the coming two quarters will increase as a percentage
of total revenue, we anticipate that international revenue will remain a
substantial portion of our total revenue in the future. To date, all of the
revenue from international customers has been denominated in U.S. dollars.


                                       12
<PAGE>

SOURCES OF REVENUE AND CRITICAL ACCOUNTING POLICIES REGARDING REVENUE
RECOGNITION

Our revenue recognition policy is a significant accounting policy for our
company because our revenue is a key component of our results of operations. In
addition, our revenue recognition determines the timing of certain expenses. We
follow specific and detailed guidelines in recognizing revenue in accordance
with the provisions of AICPA Statement of Position 97-2, "Software Revenue
Recognition" as amended by Statement of Position 98-4 and Statement of Position
98-9, as well as Statement of Position 81-1, "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts"; however, judgments may
affect the application of our revenue recognition policy. Revenue in any given
period is difficult to predict, and any shortfall in revenue or delay in
recognizing revenue could cause our operating results to vary significantly from
quarter to quarter and could result in future operating losses.

We recognize and report revenue in two separate categories: license revenue and
royalty revenue. License revenue is derived from license fees, maintenance fees
and support fees. License fees are derived from the purchase of a license for
our products. Maintenance fees are derived from maintenance contracts, which are
part of a licensing arrangement. Support fees are derived from arrangements with
customers of our licensed foundries to support the use of our libraries in their
designs. Royalty revenue is derived from fees associated with the volume of a
licensee's production and sales of semiconductors or wafers containing our
intellectual property.

LICENSE REVENUE

The license of our products to a semiconductor manufacturer typically involves a
sales cycle of three to nine months and often coincides with a customer's
migration to a new manufacturing process. Our contracts with semiconductor
manufacturers generally require them to pay a license fee to us ranging from
approximately $250,000 to $600,000 for each product delivered under a contract.
Our contracts generally require payment of a portion of the license fees upon
signing of the contract with the final payment due within 30 to 60 days after
the completion of customization, which generally takes six to nine months.

For all licenses, we use both a binding purchase order and signed license
agreement as evidence of the arrangement. Our standard payment terms require
that a portion of the total license fee be paid upon signing of the contract and
the remaining balance be paid within 30 to 60 days of product delivery. We do
not generally enter into extended payment terms. However, at the time the
transaction is entered into, we assess whether associated fees are fixed,
determinable and within normal payment terms. In the event that we conclude that
the fees are not fixed or determinable, we recognize revenue based on the lower
of the percentage of completion method or the amount of fees actually becoming
due.

The customization of our products generally takes six to nine months for a
substantial majority of our license revenue, and we use the percentage of
completion method to recognize revenue from the sale of licensed products. We
estimate the percentage of completion based on actual costs incurred to date as
a percentage of the estimated total costs required to complete the project.
Revenue recognized in any quarter is dependent on our progress toward completion


                                       13
<PAGE>

of projects in development. Significant management judgment and discretion is
used to estimate total project completion costs. Any changes in or deviation
from these estimates could have a material effect on the amount of revenue
recognized in any period.

We assess cash collections based on a number of factors, including past
transaction history with the customer and the credit worthiness of the customer.
In cases where a customer's credit worthiness is uncertain, we require a letter
of credit as assurance of payment. If we determine that collection of a fee is
not reasonably assured, we defer the revenue and recognize it at the time
collection becomes reasonably assured.

Our customers can purchase maintenance contracts, generally for one-year
periods. Under the terms of our maintenance agreements, our customers receive
any updates made by us during the maintenance period. We recognize revenue for
such contracts ratably over the contract period. For multiple element
transactions involving license fees and ongoing maintenance, we allocate a
portion of the fee to the ongoing maintenance contract based on the renewal
rates stated in the contracts.

We derive a substantial majority of our total revenue from license fees
associated with the sale of product licenses, including support and maintenance
fees. Together, these license fees and support and maintenance fees accounted
for 74% of total revenue in the three month period ended June 30, 2002, and 84%
of total revenue in the three month period ended June 30, 2001. These license
fees and support and maintenance fees accounted for 72% of total revenue in the
nine month period ended June 30, 2002 and 82% of total revenue in the nine month
period ended June 30, 2001. We expect that license revenue will continue to
account for a substantial portion of our total revenue for the foreseeable
future.

ROYALTY REVENUE

Royalty revenue is calculated based on unit sales by manufacturers of integrated
circuits or wafers containing our intellectual property components. Given that
we provide our products early in the customer's integrated circuit design
process, there is a significant delay between the time we deliver a product and
the time we receive royalty revenue, which commences when the semiconductors
incorporating our products are sold.

Royalty revenue is recognized based on royalty reports received from our
customers, generally on a one-quarter lag basis. According to contract terms, a
portion of each royalty payment is credited back to the customer's account for
use as payment of license fees for future orders placed with us. The remaining
portion of the royalty is reported as net royalty revenue. The amount of credits
that can be earned by a customer is limited to the cumulative amount of orders
placed by that customer for a given process technology. A customer has a limited
time to use the credits before they expire, generally approximately 18 months.
As a result, we defer any royalty revenue associated with our "credit-back"
program until the customer purchases additional licenses or the "credit-back"
expires, whichever is earlier. If the customer does not use the credits within
this period, we record the amount of expired credits as royalty revenue and no
longer have an obligation to provide any future products for such credits.
Royalty rates may vary among customers, and in certain cases, with respect to
specific process geometries, or product generations, may decline over time. Our
success will depend, in part, on our ability to generate royalty revenue from a
substantially larger number of designs and on many of these designs achieving
large manufacturing volumes.


                                       14
<PAGE>

To date, a substantial portion of our royalty revenue has been derived from one
customer, TSMC. In the three month period ended June 30, 2002, TSMC accounted
for 88% of net royalty revenue. In the nine month period ended June 30, 2002,
TSMC accounted for 90% of net royalty revenue. In the three month period ended
June 30, 2001, TSMC accounted for 76% of net royalty revenue. In the nine month
period ended June 30, 2001, TSMC accounted for 88% of net royalty revenue.

Net royalty revenue as a percentage of total revenue was 26% in the three month
period ended June 30, 2002, and 16% in the three month period ended June 30,
2001. Net royalty revenue as a percentage of total revenue was 28% in the nine
month period ended June 30, 2002 and 18% in the nine month period ended June 30,
2001. We expect royalty revenue to grow as a percentage of total revenue;
however, we expect that royalty revenue as a percentage of total revenue may
vary significantly from quarter to quarter. For example, net royalty as a
percentage of revenue was 26% in the third quarter of fiscal 2002, 31% in the
second quarter of fiscal 2002 and 26% in the first quarter of fiscal 2002.

OTHER CRITICAL ACCOUNTING POLICIES

ACCOUNTING FOR INCOME TAXES

We record a valuation allowance to reduce our deferred tax assets to the amount
that is more likely than not to be realized. We consider historical levels of
income, expectations and risks associated with estimates of future taxable
income and ongoing prudent and feasible tax planning strategies in assessing the
need for the valuation allowance. As of June 30, 2002, we recorded a full
valuation allowance against our deferred tax assets. Should we determine that we
would be able to realize all or part of the deferred tax asset in the future, an
adjustment to the net deferred tax asset would increase income in the period
such determination was made.

GOODWILL

We have completed an acquisition that resulted in goodwill, which affects the
amount of possible impairment expense that we will incur. The determination of
the value of goodwill requires management to make estimates and assumptions that
affect our consolidated financial statements. In assessing the recoverability of
our goodwill, management must make assumptions regarding estimated future cash
flows and other factors to determine fair value of the respective assets. If
these estimates or their related assumptions change in the future, we may be
required to record impairment charges for these assets. On October 1, 2001, we
adopted Statement of Financial Accounting Standards No.142, "Goodwill and Other
Intangible Assets," and were required to analyze our goodwill for impairment.
Our initial impairment review did not indicate a need for an impairment charge
at October 1, 2001. We will complete the annual review of goodwill and
intangibles during the quarter ending September 30, 2002 and there can be no
assurance that an impairment charge will not be necessary at that time.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

We maintain an allowance for doubtful accounts for estimated losses resulting
from the inability of customers to make required payments. The allowance for
doubtful accounts is evaluated periodically based on the aging of accounts
receivable, the financial condition of customers and their payment history,
historical write-off experience and other assumptions.

IMPACT OF FUTURE ACCOUNTING RULE CHANGES

Future changes in accounting pronouncements, including those affecting revenue
recognition, could require us to change our methods of revenue recognition.


                                       15
<PAGE>

These changes could cause us to defer revenue from current periods to subsequent
periods or accelerate recognition of deferred revenue to current periods.

RESULTS OF OPERATIONS

The worldwide electronics industry slowdown has continued in fiscal 2002. This
slowdown, particularly in the semiconductor industry, has had and may continue
to have a material adverse effect on our results of operations.

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

<TABLE>
<CAPTION>
                                                 Three Months              Nine Months
                                                Ended June 30,            Ended June 30,
                                              ------------------       -------------------
                                                2002        2001         2002         2001
                                              ------      ------       ------       ------
<S>                                            <C>         <C>          <C>          <C>
Revenue:
  License ...............................       74.5%       83.5%        72.5%        82.4%
  Net royalty ...........................       25.5        16.5         27.5         17.6
                                              ------      ------       ------       ------
      Total revenue .....................      100.0       100.0        100.0        100.0
                                              ------      ------       ------       ------

Costs and expenses:
  Cost of revenue .......................       20.9        26.3         20.4         22.7
  Amortization of acquired technology ...        4.0         5.6          4.7          4.1
  Product development ...................       29.3        42.1         35.4         43.9
  Sales and marketing ...................       22.8        25.5         24.8         24.9
  General and administrative ............       11.8        10.7          9.3         10.8
  In process research and development ...         --          --           --         12.6
  Amortization of goodwill and
    other intangible assets .............        1.0        22.9          1.1         16.7
                                              ------      ------       ------       ------
      Total costs and expenses ..........       89.8       133.1         95.7        135.7
                                              ------      ------       ------       ------
Operating income (loss) .................       10.2       (33.1)         4.3        (35.7)
Other income, net .......................        2.0         5.8         (2.3)         9.8
                                              ------      ------       ------       ------
Income (loss) before provision
  for income taxes ......................       12.2       (27.3)         2.0        (25.9)
Provision (benefit) for income
  taxes .................................        0.7        (9.3)         0.8         (8.8)
                                              ------      ------       ------       ------
Net income (loss) .......................       11.5%      (18.0)%        1.2%       (17.1)%
                                              ======      ======       ======       ======
</TABLE>


                                       16
<PAGE>

REVENUE

<TABLE>
<CAPTION>
                                   Three Months Ended                       Nine Months Ended
                                        June 30,                                June 30,
                            --------------------------------        ----------------------------------
($ In Thousands)              2002   Inc/(Dec)          2001           2002   Inc/(Dec)           2001
                            ------   --------         ------        -------   --------         -------
<S>                         <C>           <C>         <C>           <C>            <C>         <C>
License ............        $7,418         25%        $5,942        $18,509         16%        $15,959
Net royalty ........         2,545        118%         1,170          7,026        107%          3,402
                            ------                    ------        -------                    -------
Total revenue ......        $9,963         40%        $7,112        $25,535         32%        $19,361
                            ======                    ======        =======                    =======
</TABLE>

Total revenue increased 40% in the three month period ended June 30, 2002, as
compared to the three month period ended June 30, 2001, primarily due to an
increase in license revenue for the Company's memory products and support and
maintenance, as well as higher net royalty revenue. Total revenue increased 32%
in the nine month period ended June 30, 2002, as compared to the nine month
period ended June 30, 2001, primarily due to increases in license revenue for
the Company's memory products and support and maintenance, as well as higher net
royalty revenue.

In April 2002, we entered into a multi-year licensing agreement with
International Business Machines Corporation, or IBM, under which we will
customize a variety of our library products for IBM. This agreement had no
significant financial impact on the period covered by this report.

Gross royalty revenue is calculated based on per unit sales by our customers of
integrated circuits or wafers containing our IP components. Total gross
royalties for the three month period ended June 30, 2002 were $3.6 million and
total gross royalties for the three month period ended June 30, 2001 were $1.6
million. Total gross royalties for the nine month period ended June 30, 2002
were $10.0 million and total gross royalties for the nine month period ended
June 30, 2001 were $4.9 million. From gross royalties, a portion was credited
back to the customer's account for use as payment of license fees for future
orders to be placed with us. The remaining portion of gross royalty revenue was
reported as net royalty revenue. Net royalty revenue increased as a percentage
of total revenue from 16% for the three months ended June 30, 2001 to 26% for
the three months ended June 30, 2002, primarily due to increased net royalty
revenue in the latter period.

COSTS AND EXPENSES

<TABLE>
<CAPTION>
                                       Three Months Ended                       Nine Months Ended
                                            June 30,                                June 30,
                                --------------------------------        ----------------------------------
($ In Thousands)                  2002   Inc/(Dec)          2001           2002   Inc/(Dec)           2001
                                ------   --------         ------        -------   --------         -------
<S>                             <C>            <C>        <C>           <C>             <C>        <C>
Cost of revenue ........        $2,086         11%        $1,871        $ 5,207         18%        $ 4,404
Amortization of acquired
technology .............           397          0%           397          1,191         50%            794
Product development ....         2,923         (2)%        2,993          9,041          6%          8,492
                                ------                    ------        -------                    -------
Engineering costs ......        $5,406          3%        $5,261        $15,439         13%        $13,690
                                ======                    ======        =======                    =======
</TABLE>

Engineering costs are allocated between cost of revenue and product development
expenses. Engineering efforts devoted to developing products as part of specific
customer projects are recognized as cost of revenue. The balance of engineering
costs, incurred for general development of Artisan's technology, is charged to
product development. Engineering costs generally are expensed as incurred.

Engineering costs increased 3% in the three month period ended June 30, 2002 as
compared to the three month period ended June 30, 2001. Engineering costs
increased 13% in the nine month period ended June 30, 2002 as compared to the


                                       17
<PAGE>

nine month period ended June 30, 2001. The absolute dollar increase in
engineering costs of $1.7 million was primarily due to an increase in headcount
and personnel expenses of $891,000, increased allocated leasing costs associated
with the relocation of our principal offices of $731,000 and increased use of
outside services of $350,000, partially offset by a decrease in software tool
maintenance costs of $584,000. The increase in engineering headcount-related
costs in the nine month period ended June 30, 2002 as compared to the nine month
period ended June 30, 2001, was primarily due to our acquisition of the
personnel associated with the physical library business of Synopsys Inc.

Cost of revenue increased 11% in the three month period ended June 30, 2002 as
compared to the three month period ended June 30, 2001. Cost of revenue
increased 18% in the nine month period ended June 30, 2002 as compared to the
nine month period ended June 30, 2001. The absolute dollar increase of cost of
revenue of $803,000 in the nine month period ended June 30, 2002, as compared to
the nine month period ended June 30, 2001 was due to increased engineering hours
allocated to revenue generating projects of $568,000, increased warranty expense
of $70,000, and an increase in the use of outside services of $164,000.

Product development expenses were approximately the same in the three month
period ended June 30, 2002 as compared to the three month period ended June 30,
2001. Product development expenses increased 6% in the nine month period ended
June 30, 2002 as compared to the nine month period ended June 30, 2001. The
absolute dollar increase of $549,000 in the nine month period ended June 30,
2002, as compared to the nine month period ended June 30, 2001, was due to an
increase in headcount and personnel expenses of $891,000, increased allocated
leasing costs associated with the relocation of our principal offices of
$731,000, increased use of outside services of $186,000, partially offset by a
decrease in software tool maintenance costs of $584,000 and increased
engineering hours allocated to revenue generating projects of $441,000. We
expect that product development expenses will continue to increase in absolute
dollars.

<TABLE>
<CAPTION>
                                   Three Months Ended                       Nine Months Ended
                                        June 30,                                June 30,
                            --------------------------------        ----------------------------------
($ In Thousands)              2002   Inc/(Dec)          2001           2002   Inc/(Dec)           2001
                            ------   --------         ------        -------   --------         -------
<S>                         <C>            <C>        <C>           <C>             <C>        <C>
Sales and marketing
expense ............        $2,268         25%        $1,812        $ 6,339         32%        $ 4,819
                            ======                    ======        =======                    =======
</TABLE>

Sales and marketing expenses include salaries, commissions, travel expenses and
costs associated with trade shows, advertising and other marketing efforts.
Sales and marketing expenses increased by 25% in the three month period ended
June 30, 2002, compared to the three month period ended June 30, 2001. The
increase in absolute dollars in sales and marketing expenses of $456,000 in the
three month period ended June 30, 2002, as compared with the three month period
ended June 30, 2001, was primarily attributable to an increase in headcount and
personnel expenses of $470,000, increased allocated leasing costs associated
with the relocation of our principal offices of $87,000 and increased outside
services of $45,000, partially offset by decreased marketing program expenses of
$64,000 and decreased travel expenses of $15,000. Sales and marketing expenses
increased by 32% in the nine month period ended June 30, 2002, as compared to
the nine month period ended June 30, 2001. The increase in absolute dollars in
sales and marketing expenses of $1.5 million in the nine month period ended June
30, 2002, as compared with the nine month period ended June 30, 2001, was
primarily


                                       18
<PAGE>

attributable to an increase in headcount and personnel expenses of $1.2 million,
an increase in commission expense of $192,000 and increased allocated leasing
costs associated with the relocation of our principal offices of $276,000,
partially offset by decreased marketing program expenses of $198,000. We expect
sales and marketing expenses to grow in absolute dollars in future periods.

<TABLE>
<CAPTION>
                                   Three Months Ended                       Nine Months Ended
                                        June 30,                                June 30,
                            --------------------------------        ----------------------------------
($ In Thousands)              2002   Inc/(Dec)          2001           2002   Inc/(Dec)           2001
                            ------   --------         ------        -------   --------         -------
<S>                         <C>            <C>        <C>           <C>             <C>        <C>
General and administrative
expenses .................  $1,172         54%        $  762        $ 2,374         14%        $ 2,087
                            ======                    ======        =======                    =======
</TABLE>

General and administrative expenses increased 54% in the three month period
ended June 30, 2002 as compared to the three month period ended June 30, 2001.
The absolute dollar increase in general and administrative expenses of $410,000
in the three month period ended June 30, 2002, as compared to the three month
period ended June 30, 2001, was due to increased directors and officers'
insurance, legal and accounting costs of $157,000, increased personnel related
costs of $135,000 and increased allocated leasing costs associated with the
relocation of our principal offices of $24,000 and an increase in the provision
for doubtful accounts of $65,000. General and administrative expenses increased
14% in the nine months ended June 30, 2002 as compared to the nine month period
ended June 30, 2001. The absolute dollar increase in general and administrative
expenses of $287,000 in the nine month period ended June 30, 2002, as compared
to the nine month period ended June 30, 2001, was due to increased legal costs
of $328,000, increased directors and officers' insurance of $99,000, increased
accounting costs of $37,000, increased personnel related costs of $145,000,
increased allocated leasing costs associated with the relocation of our
principal offices of $70,000 and increased other costs of $22,000, partially
offset by a reduction in the provision for doubtful accounts resulting from
collection activities of $342,000 and decreased costs of outside services of
$70,000. We expect general and administrative expenses to grow in absolute
dollars in future periods.

<TABLE>
<CAPTION>
                                             Three Months Ended                       Nine Months Ended
                                                  June 30,                                June 30,
                                      --------------------------------        ----------------------------------
($ In Thousands)                        2002   Inc/(Dec)          2001           2002   Inc/(Dec)           2001
                                      ------   --------         ------        -------   --------         -------
<S>                                   <C>           <C>         <C>           <C>            <C>         <C>
Amortization of acquired
technology .................          $  397          0%        $  397        $ 1,191         50%        $   794
Amortization of goodwill and
other intangible assets.....              95        (94)%        1,627            285        (91)%         3,242
In process research and
development ................              --        N/A             --             --       (100)%         2,441
                                      ------                    ------        -------                    -------
Acquisition-related
expenses ...................          $  492        (76)%       $2,024        $ 1,476        (77)%       $ 6,477
                                      ======                    ======        =======                    =======
</TABLE>

The amortization of acquired technology and goodwill and other intangible
assets, as well as the one-time charge for in process research and development
are due to the acquisition of the physical library business of Synopsys. We
adopted FAS 142 effective October 1, 2001. Therefore, we have ceased
amortization of goodwill and the workforce intangible. The decrease in
acquisition related expenses of $1.5 million in the three month period ended
June 30, 2002 and $5.0 million in the nine month period ended June 30, 2002, as


                                       19
<PAGE>

compared to the corresponding periods in fiscal 2001, was due to the adoption of
FAS 142.

OTHER INCOME

<TABLE>
<CAPTION>
                                   Three Months Ended                       Nine Months Ended
                                        June 30,                                June 30,
                            --------------------------------        ----------------------------------
($ In Thousands)              2002   Inc/(Dec)          2001           2002   Inc/(Dec)           2001
                            ------   --------         ------        -------   --------         -------
<S>                         <C>           <C>         <C>           <C>            <C>        <C>
Interest and other income
(expense), net ..........   $  195        (53)%       $  412        $  (600)       (132)%      $ 1,900
                            ======                    ======        =======                    =======
</TABLE>

Other income of $195,000 in the three month period ended June 30, 2002 and other
expense of $600,000 in the nine month period ended June 30, 2002 were primarily
due to lower interest rates in interest income and an additional accrual related
to an increase in the anticipated loss related to our previous office facility.
Other income of $412,000 in the three month period ended June 30, 2001 and $1.9
million in the nine month period ended June 30, 2001 were primarily due to
interest income on our investment portfolio. Interest income has declined
significantly in both the three and nine month periods ended June 30, 2002, due
to lower interest rates.

INCOME TAXES

<TABLE>
<CAPTION>
                                   Three Months Ended                       Nine Months Ended
                                        June 30,                                June 30,
                            --------------------------------        ----------------------------------
($ In Thousands)              2002   Inc/(Dec)          2001           2002   Inc/(Dec)           2001
                            ------   --------         ------        -------   --------         -------
<S>                         <C>           <C>         <C>           <C>            <C>         <C>
Provision (benefit) for
income taxes ..........     $   75        111%        $ (659)       $   192        111%        $(1,706)
                            ======                    ======        =======                    =======
</TABLE>

We recorded a tax provision of $75,000 during the three months ended June 30,
2002 versus a tax benefit of $659,000 during the three months ended June 30,
2001. We recorded a tax provision of $192,000 during the nine month period ended
June 30, 2002 versus a tax benefit of $1.7 million during the nine month period
ended June 30, 2001. The provisions for taxes in the three and nine month
periods ended June 30, 2002 were due to foreign taxes withheld for which no tax
benefit could be taken in the U.S. and U.S. alternate minimum tax.

LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations primarily from license and royalty revenue
received from inception to June 30, 2002, the net proceeds of $27.1 million from
our February 1998 initial public offering of Common Stock, the net proceeds of
$15.8 million from our April 1998 secondary offering of Common Stock and, to a
lesser extent, the proceeds of approximately $7.7 million from the sale of
Preferred Stock and a warrant.

Net cash provided by operating activities was $4.3 million in the nine month
period ended June 30, 2002 and $658,000 in the nine month period ended June 30,
2001. Net cash provided by operating activities in the nine month period ended
June 30, 2002 was primarily due to our net income, an increase in deferred
revenue and long-term liabilities, an increase in accounts payable, other
liabilities, and depreciation and amortization; partially offset by a decrease
in the provision for doubtful accounts, an increase in net contract receivables
and an increase


                                       20
<PAGE>

in prepaid expenses and other assets. Net cash provided by operating activities
in the nine month period ended June 30, 2001 was primarily due to non-cash
charges associated with depreciation and amortization, amortization of goodwill
and other intangible assets, and the one-time charge for in process research and
development related to the acquisition of the Physical Library Business of
Synopsys and an increase in accounts payable and accrued liabilities; partially
offset by our net loss, an increase in contract receivables and an increase in
deferred taxes.

Net cash used in investing activities was $8.3 million in the nine month period
ended June 30, 2002 and $14.8 million in the nine month period ended June 30,
2001. In the nine month period ended June 30, 2002, investing activities
consisted primarily of net purchases of marketable securities and acquisition of
property and equipment. In the nine month period ended June 30, 2001, investing
activities consisted primarily of the acquisition of the Physical Library
Business of Synopsys and the purchase of property and equipment, partially
offset by net sales of marketable securities.

Net cash provided by financing activities was $2.3 million in the nine month
period ended June 30, 2002 and $1.2 million in the nine month period ended June
30, 2001. Net cash provided by financing activities in both periods consisted of
proceeds from the issuance of common stock to employees upon the exercise of
stock options and the purchase of stock through the employee stock purchase
plan.

At June 30, 2002, we had cash, cash equivalents and current marketable
securities of $48.3 million and working capital of $47.9 million. The following
table represents our future commitments under minimum annual lease payments as
of June 30, 2002:

      Fourth quarter of Fiscal 2002 ......................         $   447
      Fiscal 2003 ........................................           2,285
      Fiscal 2004 ........................................           2,427
      Fiscal 2005 ........................................           1,930
      Fiscal 2006 and thereafter .........................           6,092
                                                                   -------
      Total minimum annual lease payments ................         $13,181

We rent our current office facility in Sunnyvale under a noncancelable operating
lease that expires in 2008. Under the terms of the lease, we issued a letter of
credit in the amount of $284,000, representing the security deposit. The letter
of credit was cancelled in April 2002. Under the terms of the lease, we are
responsible for a proportionate amount of taxes, insurance and common area
maintenance costs.

We continue to lease our previous office facility in Sunnyvale under a
non-cancelable lease that expires in 2004. We are actively seeking a sub-tenant
for this building. As a result, at June 30, 2002 we have an accrued loss of $1.3
million representing the committed lease payments net of the estimated sublease
income, the net book value of leasehold improvements of the building and the
estimated commission expenses relating to the sublease. Should rental rates
continue to decrease or should it take longer than expected to sublease this
facility, the actual loss could exceed this estimate.

We entered into a new lease for 1,218 square feet of office space for our sales
office in Tokyo, Japan. The term of this lease is 24 months and it expires in
2004.

We expect to finance these future commitments using existing cash resources and
cash flow generated from future operations.


                                       21
<PAGE>

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 and timing
of expansion of product development efforts and the success of these development
efforts, the costs and timing of expansion of sales and marketing activities,
the extent to which 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 and royalty revenue, available borrowings under
line of credit arrangements and other factors. We believe that our current cash
and investment balances and any cash generated from operations and from
available or future debt financing will be sufficient to meet our operating and
capital requirements for at least the next 12 months. However, from time to
time, we may be required to raise additional funds through public or private
financing, strategic relationships or other arrangements. There can be no
assurance that such funding, if needed, will be available on terms attractive to
us, or at all. Furthermore, any additional equity financing may be dilutive to
stockholders, and debt financing, if available, may involve restrictive
covenants. Strategic arrangements, if necessary to raise additional funds, may
require us to relinquish our rights to certain of our technologies or products.
Our failure to raise capital when needed could have a material adverse effect on
our business, operating results and financial condition.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board issued SFAS No. 141
"Business Combinations" ("SFAS 141") and SFAS No. 142 "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS 141 requires that the purchase method Of
accounting be used for all business combinations initiated after June 30, 2001.
SFAS 141 also specifies the criteria applicable to intangible assets acquired in
a purchase method business combination to be recognized and reported apart from
goodwill. SFAS 142 requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead be tested for impairment, upon
initial adoption of the standard and then annually. SFAS 142 also requires that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and be reviewed for
impairment.

We adopted SFAS 142 effective October 1, 2001. As a result of the adoption of
SFAS 142 workforce intangibles of $1.0 million were reclassified as goodwill. In
addition we have ceased amortization of goodwill and the workforce intangible
assumed into goodwill. As of October 1, 2001, the net book value of these
intangibles was $13.7 million and amortization of $4.6 million was recorded for
the year ended September 30, 2001.

We have also completed an impairment review required upon adoption of SFAS 142
and did not record any impairment charge with respect to our goodwill
intangibles. We also review our goodwill and other intangible assets on a
regularly basis during the year. We will complete the annual review of goodwill
and intangibles during the quarter ending September 30, 2002, and there can be
no assurance that an impairment charge will not be necessary at that time.

In October 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"), which is required to be applied
starting with fiscal years beginning after December 12, 2001. SFAS 144 requires,
among


                                       22
<PAGE>

other things, the application of one accounting model for long-lived assets that
are impaired or to be disposed of by sale. We will adopt SFAS 144 on October 1,
2002. The adoption of SFAS 144 is not expected to have a significant impact on
our results of operations and financial position.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." This Statement requires
that a liability for costs associated with an exit or disposal activity be
recognized and measured initially at fair value only when the liability is
incurred. The provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002. We are currently
assessing the impact of adopting SFAS 146 on our results of operations and
financial position.

FACTORS AFFECTING FUTURE OPERATING RESULTS

OUR BUSINESS DEPENDS ON CONTINUED DEMAND FOR COMPLEX SYSTEM-ON-A-CHIP
SEMICONDUCTORS AND THE ELECTRONIC EQUIPMENT THAT INCORPORATE THEM

Our business is substantially dependent on the adoption of our technology by
semiconductor manufacturers and on an increasing demand for products requiring
complex system-on-a-chip integrated circuits, such as portable computing
devices, cellular phones, consumer multimedia products, automotive electronics,
personal computers and workstations. A system-on-a-chip is a semiconductor that
includes the computing, memory and communications components that previously had
been available only on separate chips. Our business is subject to many risks
beyond our control that influence the success of our customers including, among
others, competition faced by each customer in its particular industry, market
acceptance of the customer's products that incorporate our technology, the
engineering, sales and marketing capabilities of the customer and the financial
and other resources of the customer. Demand for our products may also be
affected by mergers in the semiconductor and related industries, which may
reduce the aggregate level of purchases of our products and services by the
combined companies. If there is faltering growth in the semiconductor and
related industries, a reduced number of design starts, shifts in the types of
integrated circuits manufactured, tightening of customers' operating budgets or
consolidation among our customers, our business could suffer.

The semiconductor and electronics products industries are characterized by rapid
technological change, frequent introductions of new products, 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
semiconductor design projects often decreases. Revenue generated from licensing
depends in large part on the rate at which semiconductor manufacturers adopt new
product generations, which, in turn, is affected by the level of demand for
semiconductors. Revenue generated from royalties depends on production and sale
of integrated circuits or wafers that incorporate our technology. If the
semiconductor and electronics products industries experience a downturn, then
our business could suffer.


                                       23
<PAGE>

THE SEMICONDUCTOR INDUSTRY IS CYCLICAL IN NATURE AND A GENERAL ECONOMIC DOWNTURN
IN THE UNITED STATES OR ABROAD MAY REDUCE OUR REVENUE AND HARM OUR BUSINESS

The primary customers for our IP components are semiconductor design and
manufacturing companies. Any significant downturn in our customers' markets, or
domestic and global conditions which result in the reduction of research and
development budgets or the delay of software purchases by our customers would
likely result in a decline in demand for our IP components and services and
could harm our business. In addition, the markets for semiconductor products are
cyclical. For example, in previous years certain Asian countries have
experienced significant economic difficulties, including currency devaluation
and instability, business failures and a depressed business environment. These
difficulties have coincided with a significant downturn in the semiconductor
market, resulting in reduced budgets for chip design tools which, in turn, has
negatively impacted us.

The semiconductor industry suffered a sharp decline in orders and revenue in
2001 and this weakness has continued in 2002. Many semiconductor manufacturers
and vendors of products incorporating semiconductors have announced earnings
shortfalls and employee layoffs. Overall, customer spending tightened. These
conditions have negatively affected our business, and will continue to do so in
the future if these conditions persist. The outlook for the electronics industry
is uncertain and it is very difficult to predict how long the current downturn
will last.

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE, WHICH COULD CAUSE OUR STOCK PRICE
TO DECLINE

Our operating results have fluctuated in the past as a result of a number of
factors including:

      o     the relatively large size and small number of customer orders we
            receive during a given period;

      o     the timing of customer orders, including the capital budgeting and
            purchasing cycles of our customers;

      o     the size and timing of production by our customers of chips
            containing our IP components;

      o     the gain or loss by us of a large semiconductor manufacturing
            customer or the gain or loss by such customer of a major order of
            chips containing our IP components;

      o     delays in the design process due to changes by a customer to its
            order after it is placed;

      o     our progress on contracts that are billed and recognized to revenue
            on a percentage of completion basis, which represent a substantial
            majority of our contracts and have completion periods of three to
            six months;

      o     the accuracy of our estimates for project completion costs and costs
            incurred to date, which estimates involve significant management
            judgment and discretion;

      o     the length of our sales cycle;

      o     our ability to develop, introduce and market new products and
            product enhancements;


                                       24
<PAGE>

      o     the timing of our new product announcements and introductions and
            those of our competitors;

      o     market acceptance of our products; and

      o     fluctuations in the demand for semiconductors and end user products
            that incorporate semiconductors.

Our future revenue may fluctuate from quarter to quarter and on an annual basis
as a result of these and other factors. Our expense levels are based in part on
our expectations regarding future revenue. If revenue is below our expectations
in any quarter and we are not able to adjust spending in a timely manner, the
negative effect of such shortfall may be increased. We intend to continue our
investment in research and development as well as in product promotion,
licensing and support programs in an effort to maximize the growth of future
royalties. Accordingly, it is likely that in some future quarters our operating
results will be below the expectations of public market analysts and investors,
which could cause our stock price to decline, perhaps substantially.

WE HAVE INCURRED OPERATING LOSSES IN RECENT PERIODS AND MAY BE UNABLE TO
MAINTAIN PROFITABILITY

Although we were profitable in the three month period ended June 30, 2002, we
incurred net operating losses in the first six months of fiscal 2002, and in
fiscal years 2001 and 1999. If our revenue in future periods increases more
slowly than we expect or not at all, we may not maintain profitability. In
addition, most of our operating expenses are fixed in the short term, so any
shortfall in anticipated revenue in a given period could significantly reduce
our operating results below expectations. We expect to continue to incur
significant expenses in connection with funding for research and development,
operational and administrative activities and expansion of our sales and
marketing efforts. As a result, we will need to increase revenue to maintain
profitability. We may be unable to sustain or increase profitability on a
quarterly or annual basis. If we fail to maintain profitability, our business
and financial condition would suffer, we could lose the benefit of tax credits
and other deferred tax assets and our stock price could decline.

WE HAVE RELIED AND EXPECT TO CONTINUE TO RELY ON ROYALTIES AS A KEY COMPONENT OF
OUR BUSINESS MODEL AND IF WE FAIL TO REALIZE EXPECTED ROYALTIES OUR BUSINESS
WILL SUFFER

Royalty payments are calculated based on per unit sales by our customers of
integrated circuits or wafers containing our IP components. We received our
first royalty revenue in the third quarter of fiscal 1999. We believe that our
long-term success is substantially dependent on future royalties.

We face risks inherent in a royalty based business model, such as the rate of
incorporation of our IP components into semiconductor designs, the rate of
adoption of our IP components by semiconductor manufacturers, and the demand for
products incorporating such integrated circuits. Additionally, our ability to
forecast and realize royalty revenue is limited by factors that are beyond our
control. Such factors include the timing of the manufacture of royalty-bearing
integrated circuits, the price charged by semiconductor manufacturers to their
customers for royalty-bearing integrated circuits, and the quantity of
royalty-bearing integrated circuits ordered and actually manufactured. Even if
our IP components are used in a product that achieves commercial success, the
royalty rate that we negotiate with our customers varies, and in certain cases,
with respect to specific process geometries, or product generations, declines
over time. Accordingly, on a period-to-period basis, royalty revenue as a
percentage


                                       25
<PAGE>

of total revenue may vary significantly. Net royalty revenue as a percentage of
total revenue was 26% in the third quarter of fiscal 2002, 31% in the second
quarter of fiscal 2002, and 26% in the first quarter of fiscal 2002.

There is significant delay and uncertainty between the delivery of our IP
components and the generation of royalty revenue. In addition to the factors
described above, this delay and uncertainty is due to the delivery and
application of our products early in the integrated circuit design process and
delays in our recognition of royalty revenue. We recognize royalty revenue in
the quarter in which we receive a royalty report from a customer, provided that
other conditions to revenue recognition have been satisfied. As a result, our
recognition of royalty revenue typically lags behind the quarter in which the
related chip is sold by our customer by at least one quarter. We cannot be
certain that our business strategy will be successful in expanding the number of
royalty bearing contracts with customers, nor can we be certain that we will
receive significant royalty revenue in the future.

We also face risks relating to the accuracy and completeness of the royalty
collection process. Our ability to generate royalty revenue depends, in part, on
our ability to negotiate, structure, monitor and enforce agreements for the
determination and payment of royalties. We have only limited experience and
systems in place to conduct reviews of the accuracy of the royalty reports we
receive from our licensees. We have the right to audit the records of
semiconductor manufacturers who license our products to help ensure the
integrity of their royalty reporting systems; however, such audits may only be
conducted periodically and may be at our expense. We cannot be certain that the
costs incurred by us to improve our systems and processes and in conducting
these audits will not exceed the royalties that result from these efforts.

IF THE MARKET FOR THIRD PARTY IP COMPONENTS DOES NOT EXPAND, OUR BUSINESS MAY
SUFFER

Our ability to achieve sustained revenue growth and profitability in the future
will depend on the continued development of the market for third party IP
components and, to a large extent, on the demand for system-on-a-chip integrated
circuits. System-on-a-chip integrated circuits are characterized by rapid
technological change and competition from an increasing number of alternate
design strategies such as combining multiple chips to create a
system-on-package. We cannot be certain that the market for third party IP
components and system-on-a-chip integrated circuits will continue to develop or
grow at a rate sufficient to support our business. If either of these markets
fails to grow or develops slower than expected, then our business will suffer. A
significant majority of our existing and potential customers currently rely on
components developed internally and/or by other vendors. Our future growth, if
any, is dependent on the adoption of, and increased reliance on, third party
design components by both existing and potential customers.

WE CONTINUE TO EXPERIENCE INTENSE COMPETITION FROM OTHER IP COMPONENT AND
ELECTRONIC DESIGN AUTOMATION COMPANIES, AND THIS COMPETITION COULD NEGATIVELY
AFFECT OUR BUSINESS AND OUR REVENUES

Our strategy of targeting semiconductor manufacturers that participate in, or
may enter, the system-on-a-chip market requires us to compete in intensely
competitive markets. Within the third party IP component market, we compete
primarily against Nurlogic Design, Inc., Virage Logic Corporation and Virtual
Silicon Technology, Inc. In addition, we may face competition from consulting
firms and companies that typically have operated in the generic library segment
of the market and that now seek to offer customized IP components as
enhancements to their generic solutions.


                                       26
<PAGE>

We also face significant competition from internal design groups of
semiconductor manufacturers that have expanded their manufacturing capabilities
and portfolio of IP components to participate in the system-on-a-chip market.
These internal design groups compete with us for access to the parent's IP
component requisitions and may eventually compete with us to supply IP
components to third parties on a merchant basis. If internal design groups
expand their product offerings to compete directly with our products or actively
seek to participate as vendors in the IP component market by selling to third
party semiconductor manufacturers, then our revenue and operating results could
be negatively affected. We also face competition from vendors that supply
electronic design automation, or EDA, software tools. We cannot be certain that
we will be able to compete successfully against such EDA companies.

We expect competition to increase in the future from existing competitors and
from new market entrants with products that may be less expensive than ours or
that may provide better performance or additional features not currently
provided by our products. Many of our current and potential competitors have
substantially greater financial, technical, manufacturing, marketing,
distribution and other resources, greater name recognition and market presence,
longer operating histories, lower cost structures and larger customer bases than
us. As a result, they may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements. In addition, some of our
principal competitors maintain their own design tools and IP component libraries
which allow them to offer a single vendor solution. Internal design groups
provide IP components developed to utilize the qualities of a given
manufacturing process, and may therefore benefit from certain capacity, cost and
technical advantages.

In connection with our acquisition of the physical library business of Synopsys
in January 2001, Synopsys agreed that it would not engage in the development,
sale, marketing or support of certain IP components for a period of two years
commencing in January 2001. This restriction is subject to early termination
upon the occurrence of certain events, including but not limited to a sale of
our company. If, upon termination of this restriction, Synopsys elects to engage
in the development, sale, marketing or support of IP components that compete
with our IP components, our revenue and operating results could be negatively
affected. Synopsys recently acquired Avant! Corporation, including its physical
library business, and must either sell or terminate that business. We may not be
able to enforce our rights to require Synopsys to sell Avant!'s physical library
business before the non-compete period terminates, if at all.

Our ability to compete successfully in the market for IP components will depend
upon numerous factors, many of which are beyond our control including, but not
limited to:

      o     our success in designing new products;

      o     our ability to implement new designs at smaller process geometries;

      o     access to adequate EDA tools (many of which are licensed from our
            current or potential competitors);

      o     the price, quality and timing of our new product introductions and
            those of our competitors;

      o     the emergence of new IP component interchangeability standards;


                                       27
<PAGE>

      o     the widespread licensing of IP components by semiconductor
            manufacturers or their design groups to third party manufacturers;

      o     our ability to protect our IP;

      o     market acceptance of our IP components;

      o     success of competitive products; and

      o     continued market acceptance of products using system-on-a-chip
            integrated circuits and industry and general economic conditions.

We cannot be certain that we will be able to compete successfully in the market
for third party IP components.

IF WE FAIL TO ENHANCE OUR IP COMPONENT LIBRARIES AND DEVELOP AND INTRODUCE NEW
PRODUCTS ON A TIMELY BASIS, WE MAY NOT BE ABLE TO ADDRESS THE NEEDS OF OUR
CUSTOMERS, OUR TECHNOLOGY MAY BECOME OBSOLETE AND OUR RESULTS OF OPERATIONS MAY
BE HARMED

Our customers compete in the semiconductor industry, which is subject to rapid
technological change, frequent introductions of new products, short product life
cycles, changes in customer demands and requirements and evolving industry
standards. The development of new manufacturing processes, 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 new product
introductions, emerging manufacturing process technologies and other
technological developments in the semiconductor industry. If we fail to
anticipate or adequately respond to changes in manufacturing processes or
customer requirements, or if we experience significant delays in product
development, our business and operating results will be negatively affected. We
cannot be certain that we will avoid difficulties that could delay or prevent
the successful introduction, development and sale of new or enhanced products or
that such new or enhanced products will achieve market acceptance. If we do not
satisfy our delivery commitments, then we could also be exposed to litigation or
claims from our customers. Any such claim could have a material negative effect
on our business, which could cause our stock price to decline.

From time to time, we have experienced delays in the progress of certain
projects, and we may continue to experience such delays in the future. Any delay
or failure to achieve progress could result in damage to customer relationships
and our reputation, underutilization of engineering resources, delay in the
market acceptance of our products and a decline in revenue, any of which could
negatively affect our business.

OUR SALES CYCLE IS UNPREDICTABLE AND MAY BE MORE THAN TWELVE MONTHS, SO WE MAY
FAIL TO ADEQUATELY ADJUST OUR EXPENSES TO ANTICIPATED REVENUE IN ANY GIVEN
PERIOD OR MEET MARKET EXPECTATIONS

The license of our products typically involves a significant commitment of
capital by the customer and a purchase will often be timed to coincide with a
customer's migration to a new manufacturing process. Potential customers
generally commit significant resources to an evaluation of available IP or IP
solutions and require that we expend substantial time, effort and resources to
educate them about the value of our products. Despite these efforts, potential


                                       28
<PAGE>

customers may select an alternate solution or delay or forego a license of our
products. Once we receive and accept an order from a customer, we must commit
significant resources to customizing our products for the customer's
manufacturing process. This customization is complex and time consuming and is
subject to a number of risks over which we have little or no control. These
risks include the customer's alterations of its manufacturing process or the
timing of its migration to a new process. Typically, this customization takes
from six to nine months to complete. A substantial majority of our contracts are
billed and recognized to revenue on a percentage of completion basis. Our
revenue recognition and cost management practices are based on estimates for
project completion costs and costs incurred to date. Accordingly, if there are
delays in product customization, our operating results could suffer. As a
result, the sales cycle for our products is long, typically ranging from three
to nine months. Our ability to forecast the timing and scope of specific sales
is limited.

Due to the significant dollar amounts represented by a single customer order,
the timing of the receipt of an order can have a significant impact on our
revenue for a particular period. Because our revenue is concentrated among a
small number of customers, a decline or a delay in the recognition of revenue
from one customer in a period may cause our operating results in such period to
be negatively affected. The unpredictability of our sales cycle makes it
difficult to plan our expenses and forecast our results of operations for any
given period. If we do not correctly predict the timing of our customers'
purchases, then the amount of revenue we recognize in a given quarter could be
negatively impacted, which could harm our operating results. If we fail to
obtain new orders from customers or fail to collect outstanding accounts
receivable our business will be negatively affected.

If we were to experience a delay in our orders, it could harm our ability to
meet our forecasts or investors' expectations for a given quarter and ultimately
result in the decrease of our stock price. Further, if our sales cycle
unexpectedly lengthens in general, it would negatively affect the timing of our
revenue recognition, which would cause us to fail to meet market expectations
and our stock price to suffer.

WE FACE RISKS FROM FOREIGN OPERATIONS, WHICH COULD REDUCE OUR OPERATING RESULTS
AND HARM OUR FINANCIAL CONDITION

Historically, a large portion of our total revenue has been revenue from outside
of the United States. International revenue as a percentage of our total revenue
was approximately 68% in the three month period ended June 30, 2002 and 64% in
the three month period ended June 30, 2001. International revenue as a
percentage of our total revenue was approximately 78% in the nine month period
ended June 30, 2002 and 71% in the nine month period ended June 30, 2001. We
anticipate that international revenue will remain a substantial portion of our
total revenue in the future. To date, all of the revenue from international
customers has been denominated in U.S. dollars. If our competitors denominate
their sales in a currency that becomes relatively inexpensive in comparison to
the U.S. dollar, then we may experience fewer orders from international
customers whose business is based primarily on the less expensive currency. In
addition, present or future dislocations with respect to international financial
markets may materially harm our business.

Our international activity and dependence on customers outside the United States
involves a number of risks including:

      o     the impact of possible recessions in economies outside the United
            States;


                                       29
<PAGE>

      o     political and economic instability, including such instability
            related to terrorist attacks in the United States or abroad;

      o     exchange rate fluctuations;

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

      o     compliance with, and unexpected changes in regulatory requirements,
            which could prevent us from delivering our products into markets
            outside the United States;

      o     reduced or limited protection for IP rights;

      o     export license requirements;

      o     difficulties and costs of staffing and managing foreign operations;
            and

      o     tariffs and other trade barriers and potentially adverse tax
            consequences.

If we are unable to sustain or increase revenue derived from international
customers or minimize the foregoing risks, our business will be materially and
negatively affected, which could cause our stock price to decline.

WE HAVE RELIED AND EXPECT TO CONTINUE TO RELY ON LICENSE REVENUE FOR A
SUBSTANTIAL PORTION OF OUR REVENUE, AND A DECLINE IN SALES OF LICENSES COULD
CAUSE OUR INCOME TO DECLINE

We derive a substantial majority of all our revenue from license fees associated
with the sales of our products, including support and maintenance fees. License
fees accounted for 74% of total revenue for the three months ended June 30, 2002
and 84% of total revenue the three months ended June 30, 2001. License fees
accounted for 72% of total revenue in the nine month period ended June 30, 2002
and 82% of total revenue in the nine month period ended June 30, 2001. We expect
that license revenue will continue to account for a substantial portion of our
revenue for the foreseeable future. We cannot be certain that we will continue
to derive sufficient revenue from license revenue. If license revenue were to
decline, our business would suffer in the short term, and our royalty revenue
may decline in the long term as fewer semiconductors incorporate our products.
Our future license revenue will depend in part on the successful development,
introduction and customer acceptance of new products.

BECAUSE WE RELY ON A RELATIVELY SMALL NUMBER OF CUSTOMERS FOR A LARGE PORTION OF
OUR REVENUE, OUR REVENUE COULD DECLINE IF OUR EXISTING CUSTOMERS DO NOT CONTINUE
TO PURCHASE AND USE OUR PRODUCTS

We have been dependent on a relatively small number of customers for a large
portion of our total revenue, although the customers comprising this group have
changed from time to time. In the three month period ended June 30, 2002, TSMC
accounted for 32% of total revenue, Jazz accounted for 13% of total revenue and
NSC accounted for 11% of our total revenue. In the three month period ended June
30, 2001, UMC accounted for 19% of total revenue, NSC accounted for 18% of total
revenue, TSMC accounted for 15% of total revenue and Synopsys, Inc. accounted
for 12% of total revenue. In the nine month period ended June 30, 2002, TSMC
accounted for 38% of total revenue. In the nine month period ended June 30,
2001, TSMC accounted for 25% of total revenue and NSC accounted for 10% of our
total revenue. In addition, TSMC accounted for 88% of our net royalty revenue in
the


                                       30
<PAGE>

three month period ended June 30, 2002, and 76% of our net royalty revenue in
the three month period ended June 30, 2001. In the nine month period ended June
30, 2002, TSMC accounted for 90% of net royalty revenue and in the nine month
period ended June 30, 2001, TSMC accounted for 88% of net royalty revenue. We
anticipate that our revenue will continue to depend on a limited number of major
customers for the foreseeable future. The companies considered to be our major
customers and the percentage of revenue represented by each major customer may
vary from period to period depending on the addition of new contracts and the
number of designs produced that utilize our products.

None of our customers has a written agreement with us that obligates it to
license future generations of products or new products from us, and we cannot be
certain that any customer will license IP components from us in the future. In
addition, we cannot be certain that any of our customers will produce products
incorporating our technology or that, if such production occurs, they will
generate significant royalty revenue. If one or more of our major customers
stops licensing our products, reduces their orders, fails to pay license or
royalty fees due or does not produce products containing our IP components, then
our operating results could be materially and negatively affected.

We face numerous risks in successfully obtaining orders from customers on terms
consistent with our business model, including, among others, the lengthy and
expensive process of building a relationship with a potential customer before
reaching an agreement with such party to license our products; persuading large
semiconductor manufacturers to work with, to rely for critical technology on,
and to disclose proprietary information to a smaller company, such as ours, and
persuading potential customers to bear certain development costs associated with
development of customized components. There are a relatively limited number of
semiconductor manufacturers to which we can license our technology in a manner
consistent with our business model and we cannot be certain that such
manufacturers will rely on merchant IP components or adopt our products.

IF WE LOSE ANY OF OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT, TRAIN AND RETAIN
QUALIFIED PERSONNEL, OUR ABILITY TO MANAGE OUR BUSINESS AND CONTINUE OUR GROWTH
WOULD BE NEGATIVELY IMPACTED

Our success depends in large part on the continued contributions of our key
management, engineering, sales and marketing personnel, many of whom are highly
skilled and would be difficult to replace. None of our senior management or key
technical personnel is bound by a written employment contract to remain with us
for a specified period. In addition, we do not currently maintain key man life
insurance covering our key personnel. Our success also depends on our ability to
attract, train and retain highly skilled managerial, engineering, sales,
marketing and finance personnel and on the abilities of new personnel to
function effectively, both individually and as a group. If we are unable to
effectively integrate and utilize newly hired management, sales or engineering
personnel, the execution of our business strategy may be impeded and our
business could suffer. Competition for personnel is intense, and we cannot be
certain that we will be successful in attracting and retaining effective
personnel. If we lose the services of any key personnel, are unable to attract
or retain qualified personnel in the future or experience delays in the
integration of new personnel, our business and operations will suffer.


                                       31
<PAGE>

OUR HISTORICAL GROWTH AND ACQUISITION OF CERTAIN ASSETS OF SYNOPSYS' PHYSICAL
LIBRARY BUSINESS HAVE PLACED, AND FUTURE ACQUISITIONS MIGHT PLACE A SIGNIFICANT
STRAIN ON OUR MANAGEMENT SYSTEMS AND RESOURCES AND WE MAY BE UNABLE TO
EFFECTIVELY CONTROL OUR COSTS AND IMPLEMENT OUR BUSINESS STRATEGIES AS A RESULT

Our ability to license our products and manage our business successfully in a
rapidly evolving market requires an effective planning and management process.
Our historical growth and our acquisition of certain assets and personnel from
Synopsys in January 2001 have placed, and future acquisitions might place, a
significant strain on our managerial, operational and financial resources.

We may continue to make investments in complementary companies, products or
technologies. If we buy a company or a division of a company, we may experience
difficulty assimilating that company or division's personnel and operations
which could negatively affect our operating results. In addition, the key
personnel of the acquired company may decide not to work for us. Furthermore, we
may have to incur debt or issue equity securities as we have in past
acquisitions to pay for any future acquisition, the issuance of which would be
dilutive to our existing stockholders.

Our customers rely heavily on our technological expertise in designing, testing
and manufacturing products incorporating our IP components. Relationships with
new customers generally require significant engineering support. As a result,
any increase in the demand for our products will increase the strain on our
personnel, particularly our engineers. Our financial and management controls,
reporting systems and procedures are also limited. Our future growth, if any,
will depend on our ability to continue to implement and improve operational,
financial and management information and control systems on a timely basis. If
we fail to do so, our business could be harmed. We cannot be certain that our
systems, procedures and controls will be adequate to support our operations or
that our management will be able to achieve the rapid execution necessary to
successfully implement our business plan. We also cannot be sure that our
revenue will continue to grow at a sufficient rate to absorb the costs
associated with increased personnel.

IF WE ARE NOT ABLE TO EFFECTIVELY DEVELOP THE PHYSICAL LIBRARY ASSETS WE
ACQUIRED FROM SYNOPSYS, OUR BUSINESS WILL SUFFER

We continue to develop the physical library assets we acquired from Synopsys and
work towards the effective utilization of the additional workforce we also
acquired. We face continuing risks as a result of this acquisition including,
but not limited to, difficulty in realizing the potential financial or strategic
benefits of the acquisition; and disruption of our ongoing business. If we are
not able to successfully develop and exploit the assets acquired to enhance our
products, our business, revenue and operating results could be negatively
affected in future periods, which may cause our stock price to decline. In
addition, if the value of other intangible assets acquired becomes impaired, we
may be required to write down the value of such assets, which would negatively
affect our financial results.

IF WE ARE NOT ABLE TO PRESERVE THE VALUE OF THE IP INCLUDED IN OUR PRODUCTS, OUR
BUSINESS WILL SUFFER

We rely primarily on a combination of nondisclosure agreements and other
contractual provisions and patent, trademark, trade secret and copyright law to
protect our proprietary rights. If we fail to enforce our patents, trademarks or
copyrights or to protect our trade secrets, our business could suffer, which
could cause our stock price to decline. We cannot be certain that our IP rights
can be successfully asserted in the future or will not be invalidated,
circumvented or challenged.

In certain instances, we have elected to rely on trade secret law rather than
patent law to protect our proprietary technology. However, trade secrets are
difficult to protect. We protect our proprietary technology and processes, in


                                       32
<PAGE>

part, through confidentiality agreements with our employees and customers. We
cannot be certain that these contracts have not and will not be breached, that
we will have adequate remedies for any breach, or that our trade secrets will
not otherwise become known or be independently discovered by competitors. In
addition, effective trade secret protection may be unavailable or limited in
certain foreign countries.

AN INFRINGEMENT CLAIM OR A SIGNIFICANT DAMAGE AWARD WOULD ADVERSELY IMPACT OUR
OPERATING RESULTS

Substantial litigation and threats of litigation regarding IP rights exist in
our industry. From time to time, third parties, including our competitors, may
assert patent, copyright and other IP rights to technologies that are important
to our business. We cannot be certain that we would ultimately prevail in any
such dispute or be able to license any valid and infringed patents from third
parties on commercially reasonable terms. Any infringement claim brought against
us, regardless of the duration, outcome or size of damage award, could:

      o     result in substantial cost to us;

      o     divert our management's attention and resources;

      o     be time consuming to defend;

      o     result in substantial damage awards;

      o     cause product shipment delays; or

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

Any infringement claim or other litigation against or by us could have a
material negative affect on our business, which could cause our stock price to
decline.

In any potential dispute involving our IP, our customers and strategic partners
could also become the target of litigation. This could trigger our technical
support and indemnification obligations in our license agreements, which could
result in substantial expense to us. In addition to the time and expense
required for us to supply such support or indemnification to our customers and
strategic partners, any such litigation could severely disrupt or shut down the
business of our customers and strategic partners, which in turn would hurt our
relations with our customers and strategic partners and cause licenses for our
products to decrease.

DEFECTS IN OUR PROPRIETARY TECHNOLOGIES AND IP COMPONENTS COULD DECREASE OUR
REVENUE AND OUR COMPETITIVE MARKET SHARE

If the IP components we provide to a customer contain defects that increase our
customer's cost of goods sold and time to market, these defects could
significantly decrease the market acceptance of our IP components. Any actual or
perceived defects with our products may also hinder our ability to attract or
retain industry partners or customers, leading to a decrease in our revenue.
These defects are frequently found during the period following introduction of
new proprietary technologies or enhancements to existing proprietary
technologies. Our IP components may contain errors not discovered until after
customer utilization of the IP components provided by us. If our products
contain errors or defects, it could require us to expend significant resources


                                       33
<PAGE>

to alleviate these problems, which could result in the diversion of technical
and other resources from our other development efforts.

OUR FUTURE CAPITAL NEEDS MAY REQUIRE THAT WE SEEK ADDITIONAL DEBT OR EQUITY
FUNDING WHICH, IF NOT AVAILABLE, COULD CAUSE OUR BUSINESS TO SUFFER

We intend to continue to invest heavily 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 and timing of expansion of product development efforts and the success
of these development efforts;

      o     the costs and timing of expansion of sales and marketing activities;

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

      o     competing technological and market developments;

      o     the costs involved in maintaining and enforcing patent claims and
            other IP rights;

      o     the level and timing of license and royalty revenue; and

      o     available borrowings under line of credit arrangements and other
            factors.

From time to time, we may be required to raise additional funds through public
or private financing, strategic relationships or other arrangements. We cannot
be certain that such funding, if needed, will be available on attractive terms,
or at all. Furthermore, any additional equity financing may be dilutive to
stockholders, and debt financing, if available, may involve restrictive
covenants. Strategic arrangements, if necessary to raise additional funds, may
require us to relinquish our rights to certain of our technologies or products.
If we fail to raise capital when needed, our business will be negatively
affected, which could cause our stock price to decline.

SEMICONDUCTOR FABRICATION FACILITIES ARE SUBJECT TO RISK OF NATURAL DISASTERS,
WHICH, IF THEY WERE TO OCCUR, COULD HARM OUR REVENUE

Semiconductor fabrication facilities have in the past experienced major
reductions in foundry capacity due to earthquakes in Taiwan, Japan and
California. For example, in 1999 Taiwan experienced several earthquakes which
impacted foundries due to power outages, physical damage and employee
dislocation. The royalty component of our revenue is directly related to the
manufacture and sale of semiconductors containing our IP components, and, as a
result, our business could suffer if a major customer's manufacturing capacity
was adversely affected by a natural disaster such as an earthquake, fire,
tornado or flood.

OUR STOCK WILL LIKELY BE SUBJECT TO SUBSTANTIAL PRICE AND VOLUME FLUCTUATIONS
DUE TO A NUMBER OF FACTORS, MANY OF WHICH WILL BE BEYOND OUR CONTROL, AND THOSE
FLUCTUATIONS MAY PREVENT OUR STOCKHOLDERS FROM RESELLING OUR COMMON STOCK AT A
PROFIT

The trading price of our common stock has in the past been and could in the
future be subject to significant fluctuations in response to:

      o     quarterly variations in our results of operations;


                                       34
<PAGE>

      o     announcements regarding our product developments;

      o     announcements of technological innovations or new products by us,
            our customers or competitors;

      o     release of reports by securities analysts;

      o     sales or the perception in the market of possible sales of a large
            number of shares of our common stock by our directors, officers,
            employees or principal stockholders;

      o     changes in security analysts' recommendations; and

      o     developments or disputes concerning patents or proprietary rights or
            other events.

If our revenues and results of operations are below the expectations of public
market securities analysts or investors, then significant fluctuations in the
market price of our common stock could occur. In addition, the securities
markets have, from time to time, experienced significant price and volume
fluctuations, which have particularly affected the market prices for high
technology companies and which often are unrelated and disproportionate to the
operating performance of particular companies. These broad market fluctuations,
as well as general economic, political and market conditions, may negatively
affect the market price of our common stock. In the past, following periods of
volatility in the market price of a company's stock, securities class action
litigation has occurred against that company. Such litigation could result in
substantial costs and would at a minimum divert management's attention and
resources, which could have a material negative effect on our business, which
could further reduce our stock price. Any adverse decision in such litigation
could also subject us to significant liabilities.

OUR CHARTER DOCUMENTS, DELAWARE LAW AND OUR STOCKHOLDER RIGHTS PLAN CONTAIN
PROVISIONS THAT MAY INHIBIT POTENTIAL ACQUISITION BIDS, WHICH MAY ADVERSELY
AFFECT THE MARKET PRICE OF OUR COMMON STOCK, DISCOURAGE MERGER OFFERS OR PREVENT
CHANGES IN OUR MANAGEMENT

Our board of directors has the authority to issue up to 5,000,000 shares of
preferred stock and to determine the rights, preferences, privileges and
restrictions, including voting rights, of such shares without any further vote
or action by our stockholders. If we issue any of these shares of preferred
stock in the future, the rights of holders of our common stock may be negatively
affected. If we issue preferred stock, a change of control of our company could
be delayed, deferred or prevented. We have no current plans to issue shares of
preferred stock.

Section 203 of the Delaware General Corporation Law restricts certain business
combinations with any "interested stockholder" as defined by that statute. In
addition, our certificate of incorporation and bylaws contain certain other
provisions that may have the effect of delaying, deferring or preventing a
change of control. These provisions include:

      o     cumulative voting for the election of directors;

      o     the elimination of actions by written consent of stockholders; and


                                       35
<PAGE>

      o     the establishment of an advance notice procedure for stockholder
            proposals and director nominations to be acted upon at annual
            meetings of the stockholders.

On December 12, 2001, our board of directors adopted a stockholder rights plan.
Under this plan, we issued a dividend of one right for each share of our common
stock held by stockholders of record as of the close of business on January 8,
2002. Each right will initially entitle stockholders to purchase a fractional
share of our preferred stock for $115. However, the rights are not immediately
exercisable. If a person or group acquires, or announces a tender or exchange
offer that would result in the acquisition of a certain percentage of our common
stock, then, unless the rights are redeemed by us for $0.001 per right, the
rights will become exercisable by all rights holders, except the acquiring
person or group, for shares of our preferred stock or of the third party
acquirer having a value of twice the right's then-current exercise price.

These provisions are designed to encourage potential acquirors to negotiate with
our board of directors and give our board of directors an opportunity to
consider various alternatives to increase stockholder value. These provisions
are also intended to discourage certain tactics that may be used in proxy
contests. However, the potential issuance of preferred stock, our charter and
bylaw provisions, the restrictions in Section 203 of the Delaware General
Corporation Law and our stockholder rights plan could discourage potential
acquisition proposals and could delay or prevent a change in control, which may
adversely affect the market price of our stock. Such provisions and plans may
also have the effect of preventing changes in our management.

FUTURE CHANGES IN ACCOUNTING STANDARDS, SPECIFICALLY CHANGES AFFECTING METHODS
OF REVENUE RECOGNITION, COULD CAUSE ADVERSE UNEXPECTED REVENUE FLUCTUATIONS

Future changes in accounting standards including those affecting revenue
recognition, could require us to change our accounting policies. If a change in
accounting standards caused us to defer of revenue recognized in current periods
to subsequent periods or accelerate recognition of deferred revenue to current
periods, we may not meet securities analysts and investors' expectations. Any
such shortfalls could have an adverse impact on our stock price.


                                       36
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to the impact of interest rate changes and changes in the market
values of our investments.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relate primarily to
our investment portfolio. We have not used derivative financial instruments in
our investment portfolio. We invest our excess cash in debt instruments issued
by high-quality corporate issuers and the U.S. Government and, by policy, limit
the amount of credit exposure to any one issuer. As stated in our policy, we are
averse to principal loss and seek to preserve our invested funds by limiting
default risk, market risk and reinvestment risk. We mitigate default risk by
investing in high credit quality securities and by positioning our portfolio to
respond appropriately to a significant reduction in a credit rating of any
investment issuer or guarantor. The portfolio includes only marketable
securities with active secondary or resale markets to ensure portfolio
liquidity.

Investments in both fixed and floating rate interest-earning instruments carry a
degree of interest rate risk. Fixed rate securities may have their fair market
value adversely impacted due to rising interest rates, while floating rate
securities may produce less income than expected if interest rates fall. Due in
part to these factors, our future investment income may fall short of
expectations due to changes in interest rates or we may suffer losses in
principal if forced to sell securities which have declined in market value due
to changes in interest rates.

The table below presents the carrying value and related weighted average
interest rates for our investment portfolio. The carrying values approximate
fair values at June 30, 2002 and September 30, 2001. All investments mature in
one year or less.

<TABLE>
<CAPTION>
                                CARRYING     AVERAGE RATE     CARRYING     AVERAGE RATE
                                VALUE AT     OF RETURN AT     VALUE AT     OF RETURN AT
                                JUNE 30,       JUNE 30,    SEPTEMBER 30,   SEPTEMBER 30,
                                  2002           2002           2001            2001
                             --------------  ------------  --------------  -------------
                             (IN THOUSANDS)  (ANNUALIZED)  (IN THOUSANDS)   (ANNUALIZED)
<S>                             <C>              <C>           <C>              <C>
INVESTMENT SECURITIES:

Cash Equivalents -
    variable rate .........     $ 6,049          0.7%          $ 3,708          3.2%
Money market funds -
    variable rate .........         187          1.6%              121          3.2%
Cash Equivalents -
    fixed rate ............      23,669          1.9%           27,763          4.0%
Short-term investments -
    fixed rate ............      18,372          2.3%           10,737          4.1%
                                -------                        -------
Total .....................     $48,277                        $42,329
                                =======                        =======
</TABLE>


                                       37
<PAGE>

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

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

None.

ITEM 5. OTHER INFORMATION

In accord with Section 10A(i)(2) of the Securities Exchange Act of 1934, as
added by Section 202 of the Sarbanes-Oxley Act of 2002, the Company is
responsible for listing the non-audit services approved in the three months
ended June 30, 2002 by the Company's Audit Committee to be performed by the
Company's external auditor. Non-audit services are defined in the law as
services other than those provided in connection with an audit or a review of
the financial statements of the Company. The non-audit services approved by the
Audit Committee in the three months ended June 30, 2002 are each considered by
the Company to be audit-related services, which are closely related to the
financial audit process. The non-audit services performed by the Company's
external auditor during the three months ended June 30, 2002 were each approved
by the Audit Committee. During the three months ended June 30, 2002, the Audit
Committee approved engagements of PricewaterhouseCoopers LLP, the Company's
external auditor, for the following non-audit services: tax services; services
related to the formation and qualification of a foreign subsidiary of the
Company; and work on the Company's resale registration statement on Form S-3.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a)   Exhibits

      Exhibit 99.1  Certification Pursuant To 18 U.S.C. Section 1350, As
                    Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of
                    2002

(b)   Reports on Form 8-K.

None.


                                       38
<PAGE>

                                   SIGNATURES

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

Dated: August 14, 2002

                             ARTISAN COMPONENTS, INC.
                                    (Registrant)


                                        By: /s/ Mark R. Templeton
                                            ------------------------------------
                                            Mark R. Templeton
                                            President, Chief Executive Officer
                                            and Director (Principal Executive
                                            Officer)


                                        By: /s/ Joy E. Leo
                                            ------------------------------------
                                            Joy E. Leo
                                            Vice President, Finance and
                                            Administration, Chief Financial
                                            Officer and Secretary (Principal
                                            Financial and Accounting Officer)


                                       39
<PAGE>

                                  EXHIBIT INDEX

EXHIBIT
NUMBER      DESCRIPTION

99.1        Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
            Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002


                                       40