AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 10, 2001

REGISTRATION NO. 333-45504
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 6

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

SIMPLEX SOLUTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------

DELAWARE 7371 56-1918734
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)

521 ALMANOR AVENUE
SUNNYVALE, CALIFORNIA 94085
(408) 617-6100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

PENELOPE A. HERSCHER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
SIMPLEX SOLUTIONS, INC.
521 ALMANOR AVENUE
SUNNYVALE, CALIFORNIA 94085
(408) 617-6100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------

COPIES TO:

LARRY W. SONSINI, ESQ. JUSTIN L. BASTIAN, ESQ.
ROBERT SANCHEZ, ESQ. AMIE PETERS, ESQ.
WILSON SONSINI GOODRICH & ROSATI MONICA HEEMIN CHA, ESQ.
PROFESSIONAL CORPORATION MORRISON & FOERSTER LLP
650 PAGE MILL ROAD 755 PAGE MILL ROAD
PALO ALTO, CA 94304 PALO ALTO, CA 94304
(650) 493-9300 (650) 813-5600

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:

As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] __________

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING OFFERS TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED APRIL 10, 2001.

4,000,000 Shares

SIMPLEX SOLUTIONS, INC. LOGO

Common Stock

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

Prior to this offering, there has been no public market for our common
stock. The initial public offering price of the common stock is expected to be
between $10.00 and $12.00 per share. We have applied to have our common stock
quoted on The Nasdaq Stock Market's National Market under the symbol "SPLX".

The underwriters have an option to purchase a maximum of 600,000 additional
shares to cover over-allotments of shares.

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 6.

UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC COMMISSIONS SIMPLEX
--------------- ------------- -----------

Per Share............................................ $ $ $
Total................................................ $ $ $

Delivery of the shares of common stock will be made on or about ,
2001.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

CREDIT SUISSE FIRST BOSTON
ROBERTSON STEPHENS
SG COWEN

The date of this prospectus is , 2001
3

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

TABLE OF CONTENTS

PAGE
----

PROSPECTUS SUMMARY.................. 1
RISK FACTORS........................ 6
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS........ 17
USE OF PROCEEDS..................... 18
DIVIDEND POLICY..................... 18
CAPITALIZATION...................... 19
DILUTION............................ 20
SELECTED CONSOLIDATED FINANCIAL
DATA.............................. 21
SELECTED PRO FORMA CONSOLIDATED
FINANCIAL DATA.................... 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................... 25

PAGE
----

BUSINESS............................ 45
MANAGEMENT.......................... 63
CERTAIN TRANSACTIONS................ 73
PRINCIPAL STOCKHOLDERS.............. 76
DESCRIPTION OF CAPITAL STOCK........ 78
SHARES ELIGIBLE FOR FUTURE SALE..... 81
UNITED STATES TAX CONSEQUENCES TO
NON-U.S. HOLDERS.................. 83
UNDERWRITING........................ 86
NOTICE TO CANADIAN RESIDENTS........ 89
LEGAL MATTERS....................... 90
EXPERTS............................. 90
WHERE YOU CAN FIND ADDITIONAL
INFORMATION....................... 90
INDEX TO FINANCIAL STATEMENTS....... F-1

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

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE ON THIS DOCUMENT.
------------------

Except as otherwise indicated, information in this prospectus is based on
the following assumptions:

- a one-for-three reverse stock split of our common stock;

- the conversion of all outstanding shares of our convertible preferred
stock into 4,188,791 shares of common stock upon the closing of this
offering. If the initial public offering price is below $11.25 per share,
additional shares of our common stock will be issued upon conversion of
the outstanding shares of preferred stock. For example, if the initial
public offering price is $10.00, the total number of shares of our common
stock that will be issued upon conversion of the preferred stock will be
4,218,210, and if the initial public offering price is $9.00 the total
number of shares of our common stock that will be issued upon conversion
of the preferred stock will be 4,268,587;

- the filing of a certificate of incorporation upon the consummation of
this offering; and

- no exercise of the underwriters' over-allotment option to purchase
600,000 shares.

Unless the context indicates otherwise, the terms "we," "us" and "our"
refer to Simplex Solutions, Inc., Altius Solutions, Inc., acquired in October
2000, and Snaketech S.A., acquired in March 2000.

DEALER PROSPECTUS DELIVERY OBLIGATION

UNTIL , 2001 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
4

PROSPECTUS SUMMARY

SIMPLEX SOLUTIONS, INC.

We provide software and services for integrated circuit design and
verification to enable our communications, computer and consumer products
customers to achieve first-time production success and rapid delivery of complex
system-on-chip. System-on-chip refers to an integrated circuit that includes
computing, memory and communications components that previously had been
available only on separate chips. Our customers can gain a competitive advantage
by using our products and services in advance of manufacture to design and
verify integrated circuits that will perform as intended, taking into account
the complex effects of deep-submicron semiconductor physics. This competitive
advantage manifests itself in our customers' ability to deliver greater
functionality in smaller and faster chips for networking, computing and wireless
products. Customers successfully using our products include chip and system
vendors such as AMD, ATI Technologies, Cadence Design Systems, Conexant Systems,
Inc., Infineon, Intel Corporation, LSI Logic, Matrox Graphics, Philips
Semiconductors, Silicon Graphics, Inc., Sony Corporation, STMicroelectronics,
Sun Microsystems, Texas Instruments Incorporated, Toshiba and Vitesse
Semiconductor. Each of these customers accounted for over $1,000,000 in revenue
during the last ten quarters.

Semiconductor, consumer electronics and other technology product
manufacturers depend on their ability to launch products successfully and cost
effectively within narrow market windows. First-mover advantage when introducing
new products can be vital to capturing dominant market share for a given product
segment, making the efficiency of design and manufacturing processes critical to
competitive positioning. Delays caused by unanticipated design flaws can force
product launch postponement or cancellation, resulting in the failure of
products, divisions and even companies.

At the same time, demand for portable, power-efficient and high-performance
electronic products, such as cell phones, has driven chip manufacturers to
design complex system-on-chip with small feature sizes reaching 0.18 micron and
below, referred to as deep submicron. Feature size relates to the size of an
integrated circuit's components and is measured in microns, or millionths of a
meter. These system-on-chip integrate digital components, such as
microprocessors and memory, together with analog components, such as
radio-frequency receivers and analog-to-digital converters, into a single chip.
According to the Integrated Circuit Engineering Corporation report
(ICE -- 2000), the worldwide market for system-on-chip and application-specific
integrated circuits is expected to grow from $23 billion in 1999 to $64 billion
in 2004. Of this total market in North America, Dataquest estimates that the
percentage of chips manufactured at or below 0.18 micron will grow from less
than 10% of all chips manufactured in 1999 to over 85% of all chips manufactured
in 2004.

Using smaller feature sizes allows increased design functionality on a
single chip but results in numerous constraints imposed by semiconductor
physics. These constraints often exceed the capabilities of traditional design
software and can result in expensive design and manufacturing iterations. In
addition, designers are sometimes unable to diagnose and address design flaws
that cause their chips to fail. The Collett International Research, Inc. 1999
and 2000 surveys report that, over each of the last two years, approximately
one-half of the chips released to manufacture in North America required more
than one manufacturing iteration prior to production ramp-up.

Our system-on-chip verification software and services are designed to
provide comprehensive, high-speed verification that an integrated circuit will
perform as intended, taking into account the complex effects of deep submicron
semiconductor physics. Our design foundry services provide design implementation
to help our customers facilitate first-to-market delivery of system-on-chip
designs. Using our products and services, our customers can eliminate
manufacturing iterations by avoiding potential design flaws early in the design
cycle. Eliminating iterations provides our customers with both significant
savings in manufacturing costs and reduced time-to-market.

1
5

The benefits we provide are the result of our expertise in chip design, computer
science algorithms and software engineering, and include:

- Advancing deep submicron integrated circuit design and manufacture: Our
full-chip analysis capabilities are designed to enable electrical
correctness throughout the design process. Integrated circuits with deep
submicron feature sizes, or geometries, have electrical requirements,
including power integrity, timing integrity, signal integrity and
reliability that must be satisfied for a deep submicron chip to function
as intended. Our products are designed to facilitate DSM closure early in
the design process. DSM closure is the point in the deep submicron
integrated chip design cycle where these electrical requirements are met.
Although our products may be used to design chips with any feature size,
at 0.18 micron and below design complexity reaches a point where our
customers find the use of our products to be vital.

- Accelerating product time-to-market: Our software and services accelerate
time-to-market by helping designers deliver integrated circuits that
function as intended, with fewer costly design and manufacturing
iterations.

- Delivering lower cost per chip: Our products increase design process
efficiency, resulting in lower production costs, increased chip
reliability and reduced end-product maintenance costs.

Our customers use our products to design integrated circuits such as
microprocessors, application-specific integrated circuits, digital signal
processors and high-end graphics processors for many equipment markets including
computers, networking, wireless and communications. In addition, we have
developed strategic relationships with semiconductor manufacturers and software
vendors in our customers' supply chain to integrate our software and services
throughout our customers' design-through-production cycle. For example, we work
with semiconductor manufacturers, or foundries, to measure the accuracy of our
products and to obtain access to the most advanced semiconductor processes.
These foundries include Chartered Semiconductor Manufacturing, IBM, NEC,
Toshiba, Taiwan Semiconductor Manufacturing and United Microelectronics. Many of
these foundries have recommended the use of our products to their customers to
help ensure high-quality results from manufacturing. We also participate in
software integration programs with Cadence Design Systems, Mentor Graphics and
Synopsys.

Our principal executive offices are located at 521 Almanor Avenue,
Sunnyvale, California 94085, and our telephone number is (408) 617-6100. Our
website is located at www.simplex.com. The information contained on our website
does not constitute part of this prospectus.

2
6

THE OFFERING

Common stock offered by Simplex
Solutions............................... 4,000,000 shares

Common stock to be outstanding after
this offering........................... 14,419,462 shares

Use of proceeds......................... Working capital and general
corporate purposes, including
repayment of debt, prepayment of
rent and facilities improvements,
and for acquisition opportunities
that may arise in the future.

Proposed Nasdaq National Market
Symbol.................................. SPLX

The number of shares to be outstanding upon completion of this offering is
based on shares outstanding as of March 31, 2001. This number excludes:

- 4,585,401 shares of common stock authorized for issuance under our 1995
Stock Plan, of which 2,285,140 shares were subject to outstanding
options;

- 851,753 shares of common stock assumed and authorized for issuance under
the Altius 1999 Stock Plan, of which 383,955 shares were subject to
outstanding options;

- 112,307 shares of preferred stock subject to outstanding warrants at a
weighted average exercise price of $2.72 per share, which will
automatically convert to 37,434 shares of common stock upon consummation
of the offering; and

- 2,091 shares of common stock subject to outstanding warrants at a
weighted average exercise price of $1.91 per share.

3
7

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following summary consolidated statements of operations data and
consolidated cash flow data sets forth our historical information for the years
ended September 30, 1998, 1999 and 2000 and the six months ended March 31, 2000
and 2001. The pro forma balance sheet data as of March 31, 2001 reflects the
conversion of all outstanding preferred stock and warrants into common stock and
warrants upon the closing of the initial public offering. The pro forma, as
adjusted balance sheet data gives effect to the assumed net proceeds from the
sale of 4,000,000 shares of common stock in this offering at an assumed price of
$11.00 per share.

YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED
(REVISED) MARCH 31,
--------------------------- -------------------------
1998 1999 2000 2000 2001
------- ------- ------- ----------- -----------

CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Total revenue.............................. $ 6,537 $10,881 $22,817 $ 9,393 $20,829
Gross profit............................... 5,640 8,811 18,914 7,942 14,345
Total operating expenses................... 13,167 15,930 25,110 13,370 21,084
Operating loss............................. (7,527) (7,119) (6,196) (5,428) (6,739)
Net loss................................... (7,215) (7,041) (6,722) (5,627) (7,175)

Basic and diluted net loss per share....... $ (4.64) $ (3.62) $ (2.40) $ (2.52) $ (1.30)
------- ------- ------- ------- -------
Number of shares used in calculation of
basic and diluted net loss per share..... 1,557 1,944 2,801 2,236 5,508
------- ------- ------- ------- -------

Pro forma basic and diluted net loss per
share.................................... $ (0.96) $ (0.74)
------- -------
Number of shares used in calculation of pro
forma basic and diluted net loss per
share.................................... 6,984 9,691
------- -------

OTHER FINANCIAL DATA (UNAUDITED)(1):
Gross profit excluding non-cash charges.... $ 5,640 $ 8,811 $19,334 $ 8,051 $16,047
Total operating expenses excluding non-cash
charges.................................. 12,669 15,917 18,160 7,755 15,392
Operating income (loss) excluding non-cash
charges.................................. (7,029) (7,106) 1,174 296 655
Net income (loss) excluding non-cash
charges.................................. (6,717) (7,028) 648 97 219

4
8

AS OF MARCH 31, 2001
-----------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
--------- ------- -----------
(REVISED)

CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 7,373 $ 7,373 $48,101
Working capital............................................. 2,618 2,618 43,346
Total assets................................................ 52,255 52,255 91,175
Convertible preferred stock and warrants.................... 24,251 -- --
Total common stock and other stockholders' equity........... 11,356 35,607 74,527

YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED
(REVISED) MARCH 31,
-------------------------- -------------------------
1998 1999 2000 2000 2001
------- ------- ------ ----------- -----------

CONSOLIDATED CASH FLOW DATA:
Net cash (used in) provided by operating
activities................................ $(6,522) $(5,384) $1,565 $1,113 $(3,622)
Net cash (used in) provided by investing
activities................................ (1,082) (696) 807 1,430 913
Net cash provided by financing activities... 11,368 3,243 871 244 2,635

5
9

RISK FACTORS

Any investment in our common stock involves a high degree of risk. You
should consider carefully the following information about risks, together with
the other information contained in this prospectus, before you decide whether to
buy our common stock. If any of the following risks actually occur, our
business, results of operations and financial condition could suffer
significantly. In any such case, the market price of our common stock could
decline, and you may lose all or part of the money you paid to buy our common
stock.

RISKS RELATED TO OUR BUSINESS

WE HAVE A HISTORY OF LOSSES AND WE HAVE ACCUMULATED A DEFICIT OF $35.7 MILLION
AS OF MARCH 31, 2001. IF WE FAIL TO ACHIEVE AND TO MAINTAIN PROFITABILITY IN THE
FUTURE, INVESTORS COULD LOSE CONFIDENCE IN THE VALUE OF OUR STOCK WHICH COULD
CAUSE IT TO DECLINE.

We have spent significant funds to date to develop and to refine our
current technologies and services and to develop our sales and marketing
resources. If we are unable to execute on our strategy to become profitable, our
stock price could be negatively affected. We have incurred significant operating
losses in the past and have not yet achieved profitability. As of March 31,
2001, we had an accumulated deficit of $35.7 million. In addition, we expect to
continue to invest significantly in our next-generation research and development
projects and to continue to hire additional people in all areas of our company
to support our growing business. As a result of these factors, to achieve
profitability we will need, among other matters, to increase our customer base
and to increase the number of and amounts of products and services purchased by
our customers. We cannot assure you that we will be able to increase our revenue
or operating efficiencies in this manner or otherwise and achieve and maintain
profitability. Because we expect to continue to increase our investment in new
areas of our business, our investment could outpace growth in our revenue, thus
preventing our ability to achieve and maintain profitability. If we are unable
to achieve and maintain profitability, our stock price could be materially
adversely affected.

OUR RECENT ACQUISITIONS HAVE, AND FUTURE ACQUISITIONS COULD, REQUIRE SIGNIFICANT
MANAGEMENT ATTENTION AND MIGHT FURTHER DISTRACT OUR MANAGEMENT AND DISRUPT OUR
BUSINESS.

We acquired Snaketech, S.A., a French societe anonyme, in March 2000 and
Altius Solutions, Inc. in October 2000. If we fail to successfully integrate
Snaketech, Altius, or any future acquisition into our company, the revenue and
operating results of the combined company would decline. To realize the benefits
of these recent acquisitions, we must successfully integrate both companies'
research and development facilities into our existing operations despite
differences in culture, language and legal environments, such as the mandated 35
hour work week in France, specific work rules covering the Altius Japan office,
and different tax treatments related to the issuance of equity to employees.
Such integration has required and will continue to require significant time and
resources to manage; we may not be able to manage such integration successfully.
If our customers are uncertain about our ability to operate on a combined basis,
they could delay or cancel orders for our products. We intend to continue to
make investments in complementary companies, products or technologies. If we buy
a company or a division of a company, we could have difficulty in 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 INDUSTRIES ARE CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE. IF WE FAIL TO
DESIGN NEW PRODUCTS THAT GAIN MARKET ACCEPTANCE, IT WILL RESULT IN REDUCED GROSS
MARGINS AND LOSS OF MARKET SHARE.

The semiconductor and design software industries are characterized by rapid
technological change, frequent new product introductions and evolving industry
standards. The introduction of products

6
10

embodying new technologies and the emergence of new industry standards can
render existing products obsolete and unmarketable. We devote a substantial
amount of our resources to research and development to enable us to enhance
current products and develop new technologies. If we fail to enhance our current
products and develop and introduce new generations of technology and products on
a timely basis, we will not be able to address the increasingly sophisticated
needs of our customers and our results of operations will be harmed. In
addition, if we develop new products that do not achieve market acceptance, we
may not be able to recoup development and marketing expenses, which could lead
to a loss of market share which could harm our results of operations. For
example, we have been developing new physical design intellectual property which
we expect to announce to the market in the second half of 2001. We cannot assure
you that we will be successful in developing and marketing this new technology,
future product enhancements or new products that respond to technological
change, that we will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of these products, or that
our new products and product enhancements will achieve market acceptance. If we
are unable to develop, introduce and successfully market products and services
in a timely manner in response to changing market conditions or customer
requirements, our business, operating results and financial condition might be
materially and adversely affected.

IF CHIP DESIGNERS AND MANUFACTURERS DO NOT INTEGRATE OUR SOFTWARE INTO EXISTING
SOFTWARE AND DESIGN FLOWS OR IF OTHER SOFTWARE COMPANIES DO NOT COOPERATE IN
INTEGRATING OUR PRODUCTS WITH THEIR PRODUCTS, DEMAND FOR OUR PRODUCTS MAY
DECREASE.

To successfully implement our business strategy, we must provide products
that can be integrated with the software of other design software companies.
Execution of our business strategy is dependent upon our ability to develop
superior products and cooperative relationships with competitors so that they
work with us to integrate our software into a customers' design flow. Most of
these bigger design software companies offer software intended to address a
larger part of the market, including software which offers similar functionality
as our software at highly discounted prices. Therefore, to market our products,
we must both convince our customers of the technological superiority of our
products and convince our competitors to cooperate in integrating our software
with their products that provide different functionality. Currently, we have
integrated our software with the existing software of Cadence, Mentor Graphics,
Synopsys and other interoperability partners. If we are unable to convince
customers to adopt our software solutions over those of competitors offering a
broader set of products or if we are unable to convince other semiconductor
companies to cooperate in integrating our software with theirs to meet the
complete demands of chip designers and manufacturers, our business and operating
results will suffer.

IF OUR PRODUCTS DO NOT PERFORM AS EXPECTED, OUR REPUTATION COULD BE NEGATIVELY
AFFECTED, WE COULD LOSE MARKET SHARE AND OUR GROWTH RATE COULD BE NEGATIVELY
IMPACTED.

If the software that we provide to our customers in the future performs
poorly, contains errors or defects or is otherwise unreliable, our customers
would likely be dissatisfied. Any failure or poor performance of our products
could result in:

- delayed or lost revenue;

- hindered market acceptance of our products due to adverse customer
reaction;

- negative publicity or loss of reputation regarding us and our products
and services;

- diversion of research and development and management resources; and

- claims for substantial damages against us.

7
11

THE SALES CYCLE FOR OUR PRODUCTS AND SERVICES GENERALLY LASTS IN EXCESS OF THREE
MONTHS AND IS UNPREDICTABLE. THIS LONG AND UNPREDICTABLE SALES CYCLE MAKES IT
DIFFICULT TO PLAN OUR EXPENSES AND FORECAST OUR RESULTS OF OPERATIONS FOR ANY
GIVEN PERIOD. OUR FAILURE TO ADEQUATELY MATCH OUR EXPENSES TO ANTICIPATED
REVENUE IN ANY GIVEN PERIOD COULD CAUSE US NOT TO MEET MARKET EXPECTATIONS WHICH
COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR STOCK PRICE.

The period between our initial contact with a potential customer and their
purchase of our products and services is relatively long making it difficult to
predict the quarter in which a particular sale will occur and to plan our
expenditures accordingly. If we do not correctly predict the timing of our
sales, the amount of revenue we recognize in that quarter could be negatively
impacted, which could negatively effect our operating results. Our sales cycle
is long due to several factors, including:

- limited access to key decision-makers of potential customers to authorize
the adoption of our products;

- long periods of time for potential customers to perform technical
evaluations of our products and validation of the integration flow of our
products with their existing products;

- the significant investment of resources required by a customer to
purchase and integrate our products;

- budget cycles of our customers which affect the timing of purchases; and

- delay of purchases due to announcements or planned introductions of new
products by us or our competitors.

The delay or failure to complete large orders and sales in a particular
quarter could significantly reduce revenue in that quarter, as well as
subsequent quarters over which revenue for the sale would likely be recognized.
If our sales cycle unexpectedly lengthens in general or for one or more large
orders, it would adversely affect the timing of our revenue, could cause us not
to meet research analysts expectations and cause our stock price to suffer. If
we were to experience a delay on a large order, it could harm our ability to
meet our forecasts for a given quarter.

OUR MAINTENANCE OF OPERATIONS IN SEVERAL DIFFERENT COUNTRIES EXPOSES US TO RISKS
INHERENT IN DOING BUSINESS ON AN INTERNATIONAL LEVEL THAT COULD NEGATIVELY
IMPACT OUR RESULTS OF OPERATIONS.

We currently operate Simplex Solutions, S.A. in France, Simplex Solutions
K.K. in Japan, Simplex Solutions U.K. Limited in the United Kingdom and Simplex
Solutions GmbH in Germany. Maintenance of these entities subjects us to risks of
conducting business internationally which could harm our business, financial
condition and results of operations. These risks include, among others:

- proper maintenance of corporate formalities for our international
entities;

- the uncertainty of Japanese sales due to the typically lengthy Japanese
sales cycle;

- potential adverse tax consequences, including restrictions on
repatriation of earnings and taxation of equity compensation for
employees and consultants;

- foreign currency exchange rate fluctuations;

- greater difficulty in collecting accounts receivable; and

- burdens of complying with foreign laws, particularly with respect to
intellectual property.

We generated 28% of our consolidated revenue from sales outside of North
America for the six months ended March 31, 2000 and 50% of our consolidated
revenue from sales outside North America for the six months ended March 31,
2001. On a fiscal year basis, we generated 23% of our consolidated revenue from
sales outside of North America in fiscal 1999 and 34% of our consolidated
revenue from sales outside North America in fiscal 2000. A significant
proportion of our international sales to date have been denominated in U.S.
dollars. As a result, an increase in the value of the U.S. dollar relative to

8
12

foreign currencies could increase the relative costs of our overseas operations
which could substantially reduce our operating margins. Any of the above could
negatively affect our results of operations.

IF WE FAIL TO MANAGE OUR RAPID GROWTH SUCCESSFULLY, OUR INFRASTRUCTURE,
MANAGEMENT AND RESOURCES COULD BE STRAINED AND OUR ABILITY TO EFFECTIVELY MANAGE
OUR BUSINESS COULD BE DIMINISHED AND OUR RESULTS OF OPERATIONS COULD SUFFER.

We have grown rapidly since our inception and to be successful we need to
grow quickly in the future. Any failure to manage this growth could strain our
resources, which would impede our ability to increase revenue and achieve
profitability. For example, the number of our employees increased from 69 at
September 1999 to 186 at March 2001. This increase in personnel was accompanied
by increased resources and management time focused on infrastructure, training
and integration. We expect this growth in personnel to continue and require us
to relocate to larger and more expensive corporate offices within a year.
Further, future expansion could be expensive and strain our infrastructure,
management and other resources. To manage growth effectively, we must:

- maintain a high level of customer service and support;

- improve our management, financial and information systems and controls;

- manage and expand our sales operations, which are in several locations;
and

- hire, train, manage and integrate new personnel.

There will be additional demands on our customer service support, research
and development, sales and marketing and administrative resources as we try to
increase our product and service offerings and expand our target markets. The
strains imposed by these demands are magnified by our relatively limited
operating history. If we cannot manage our growth effectively, our business and
results of operations could be adversely affected.

BECAUSE 10 CUSTOMERS REPRESENTED 65% OF OUR TOTAL REVENUE FOR THE SIX MONTHS
ENDED MARCH 31, 2001, THE LOSS OF ANY OF THESE CUSTOMERS COULD SUBSTANTIALLY
ADVERSELY IMPACT OUR REVENUE.

We currently derive, and we expect to continue to derive, a large
percentage of our total revenue from a relatively small number of customers. If
any of these customers terminates or substantially diminishes its relationship
with us, our revenue could decline significantly. Revenue concentration among
our largest customers is as follows:

- our 10 largest customers accounted for approximately 62% of our revenue
for the six months ended March 31, 2000 and approximately 65% of our
revenue for the six months ended March 31, 2001;

- our 10 largest customers accounted for approximately 53% of our revenue
in both fiscal 1999 and fiscal 2000;

- our largest single customer in fiscal 2000, Toshiba, accounted for
approximately 22% of our revenue for the six months ended March 31, 2000,
approximately 6% of our revenue for the six months ended March 31, 2001,
approximately 5% of our revenue in fiscal 1999 and approximately 18% of
our revenue in fiscal 2000; and

- as a result of our acquisition of Altius Solutions, Inc. in October 2000,
on a consolidated basis for fiscal 2000, revenue from Sony Semiconductor
accounted for approximately 25% of our revenue for the six months ended
March 31, 2001 and approximately 13% of our pro forma revenue in fiscal
2000, after giving effect to our acquisition of Altius. See "Selected Pro
Forma Consolidated Financial Data" beginning on page 23.

The loss of significant revenue from any of our major customers could
negatively impact our results of operations, or limit our ability to execute our
strategy. We expect that we will continue to be dependent upon a limited number
of customers for a significant portion of our revenue in future periods.

9
13

BECAUSE MANY OF OUR CURRENT COMPETITORS HAVE MORE MARKET SHARE THAN WE DO AND
PRE-EXISTING RELATIONSHIPS WITH OUR POTENTIAL CUSTOMERS, WE MIGHT NOT BE ABLE TO
ACHIEVE SUFFICIENT MARKET PENETRATION TO ACHIEVE OR SUSTAIN PROFITABILITY OR BE
ABLE TO GAIN ADDITIONAL MARKET SHARE.

Many of our competitors have substantially greater financial, customer
support, technical and marketing resources, larger customer bases, longer
operating histories, greater name recognition and more established relationships
in the industry than we do. We cannot be sure that we will have the resources or
expertise to compete successfully in the future. If we are unable to gain
additional market share due to their pre-existing relationships with our
potential customers, our operating results could be harmed. The design software
industry is comprised of companies that offer software products that are used to
facilitate the chip design process. Our products are used to facilitate complex
deep submicron chip designs. Our competitors who offer products that are used
for other segments of the chip design process often bundle their products
together to offer discounts on products competitive with those we offer, making
it extremely attractive for our customers or potential customers to use
alternative products to ours. In addition, these competitors may not support our
effort to integrate our products into their existing software. These competitors
include such companies as Avant!, Cadence, Mentor Graphics and Synopsys. Since
these competitors offer a more comprehensive range of products than we do, they
are often able to respond more quickly or price more effectively to take
advantage of new or changing opportunities and respond to new technologies and
customer requirements. If we lose such opportunities to our competitors, our
results of operations could be harmed.

AS THE DEEP SUBMICRON MARKET CONTINUES TO GROW, COMPETITORS WILL LIKELY INCREASE
THEIR FOCUS ON THIS MARKET AND APPLY SUBSTANTIALLY GREATER RESOURCES TO THE
DEVELOPMENT AND DISTRIBUTION OF DESIGN SOFTWARE DIRECTLY COMPETITIVE WITH OUR
SOFTWARE.

We currently encounter direct competition from competitors such as Avant!,
Cadence, Mentor Graphics and Synopsys for design software at deep submicron
geometries. If the market for design software at 0.18 micron geometries and
below continues to grow, some of our competitors may increase their focus on
offering design software directly competitive with ours, whether by internal
development, external development or acquisition. If competition for software
competitive with ours increases, our competitors may attempt to keep us from
integrating our software with theirs, making it more difficult for our customers
to adopt our software in their design flows. If such increased competition were
to result in resistance to integration of our software with those of our
competitors, our business would be harmed.

IF WE CANNOT CONTINUALLY ATTRACT AND RETAIN SUFFICIENT SALES, MARKETING AND
TECHNICAL PERSONNEL, OUR RESULTS OF OPERATIONS WILL BE HARMED.

Our future success depends on our continuing ability to attract and retain
highly qualified technical personnel, particularly engineers, and qualified
sales and marketing personnel. If we cannot attract and retain the necessary
individuals we may not be able to continue our innovation and sell our products
which could negatively affect our operating results. For instance, during fiscal
1999 and fiscal 2000, we experienced significant difficulty in hiring and
retaining engineers qualified to support our current products and develop next
generation technologies. We partially addressed our hiring needs through the
acquisitions of Altius and Snaketech. Appropriate acquisition targets may not be
available in the future and we might not otherwise be able to find adequate
personnel. In addition, we have previously experienced significant turnover in
our sales force. Any future turnover might adversely impact our revenue. If we
are unable to hire and retain qualified personnel in the future, which is
particularly difficult in Silicon Valley, our business could be seriously harmed
and our operating results could suffer.

10
14

IF WE LOSE ANY OF OUR KEY PERSONNEL, OUR ABILITY TO MANAGE OUR BUSINESS AND
CONTINUE OUR GROWTH WOULD BE NEGATIVELY IMPACTED.

Our future success depends upon the continued service of our executive
officers and other key personnel, and their ability to work together. Of
particular importance to our continued operation are:

- Penelope A. Herscher, Chairman and Chief Executive Officer;

- Aki Fujimura, President and Chief Operating Officer;

- Aurangzeb Khan, Executive Vice President and General Manager;

- Luis P. Buhler, Chief Financial Officer;

- Steven L. Teig, Chief Technical Officer; and

- James D. Behrens, Executive Vice President of Worldwide Field Operations.

Searching for replacements for our key management could divert management's
time and result in increased operating expenses. Most of our executive officers
or key employees are not bound by an employment agreement for any specific term
and we do not maintain any key person life insurance policies. If we lose the
services of one or more of our executive officers or key employees, or if one or
more of them decide to join a competitor or otherwise compete directly or
indirectly with us, our business could be seriously harmed.

ANY INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY ADEQUATELY COULD IMPAIR OUR
COMPETITIVE ADVANTAGE, DIVERT MANAGEMENT ATTENTION, REQUIRE ADDITIONAL
INTELLECTUAL PROPERTY TO BE DEVELOPED AND/OR CAUSE US TO INCUR EXPENSES TO
ENFORCE OUR RIGHTS.

Because our products are based on the technology in our software, our
success depends on our ability to protect our intellectual property. If we are
not able to successfully protect our technology domestically and abroad, our
results of operations could suffer. We rely on a combination of patent,
copyright, trademark and trade secrets to establish and protect our intellectual
property rights. In addition, we seek to avoid disclosure of our trade secrets
through a number of means, including requiring those with access to our
intellectual property to execute nondisclosure agreements with us and
restricting access to our technology. We currently have one issued U.S. patent
and we have several patent applications pending relating to our technology. We
cannot provide any assurance that these applications will be granted. In
addition, we cannot assure that, even if granted, third parties have not or will
not develop competitive technologies or products without infringing our current
patent or any future patents, or that such patents would be held valid and
enforceable by a court having jurisdiction over a dispute involving such
patents. If such patents are not held valid our use of technology under such
patents could result in a claim of infringement and we may be unable to license
the patented technology on commercially reasonable terms, or at all. If we are
unable to obtain licenses to technology embedded in our software our business
would be materially harmed. Despite our efforts to protect our intellectual
property, unauthorized parties, including employees may attempt to copy our
software or obtain and use information we regard as proprietary. Policing
unauthorized use of software is difficult, especially internationally. The laws
of some foreign countries in which we do business do not protect our
intellectual property to as great an extent as do the laws of the United States.
Patent infringement and trade secret misappropriation litigation is highly
visible and increasing in our industry. As a result of all these factors, our
means of protecting our intellectual property may not be adequate and our
competitors may independently develop similar technology, duplicate our products
or design around our intellectual property.

11
15

IF WE ARE UNABLE TO CONTINUE TO LICENSE KEY THIRD-PARTY TECHNOLOGY, OUR BUSINESS
WOULD BE SIGNIFICANTLY HARMED.

We currently license certain third-party technologies that are critical to
our software products. For instance, we currently have license agreements with
Computational Applications and System Integration, Inc., Digital Semiconductor
(a business unit of Digital Equipment Corporation which has been acquired by
Compaq Computer Corporation) and Chris Terman (an independent contractor who was
formerly engaged by us) that are important to our current software products.
These and other third-party licenses are generally perpetual but may be
terminated upon a material breach, including failure to protect the underlying
intellectual property. Some of these technologies would be difficult or
impossible to replace in the short term. The loss of the use of these
technologies would prevent us from selling a significant portion of our software
products, which would materially reduce our revenue and significantly harm our
business.

IF THIRD PARTIES ASSERT, REGARDLESS OF MERIT, THAT OUR TECHNOLOGIES INFRINGE
THEIR INTELLECTUAL PROPERTY RIGHTS, OUR REPUTATION AND ABILITY TO LICENSE OR
SELL OUR PRODUCTS COULD BE HARMED.

We expect that, like other software developers, we may increasingly be
subject to infringement claims for our verification software and proprietary
technologies. These claims could injure our reputation and decrease or inhibit
our ability to license or sell our products. On November 1, 2000 we received a
written notice of alleged infringement from Sequence Design, Inc., and on March
15, 2001 we received further written notice that legal action is imminent. Based
on a review of the relevant intellectual property, we believe this infringement
allegation by Sequence to be without merit. If this allegation results in a
lawsuit we intend to defend ourselves vigorously. However, because of the
uncertainties of litigation, if this matter proceeds to litigation we cannot
assure you that we would ultimately prevail. A final judgment rendered against
us in litigation on this matter will have a significant negative impact on our
revenue and will have a material adverse effect on our business. Further, claims
of infringement relating to our intellectual property, or technology we license
from third parties, regardless of merit, might be costly and time-consuming to
defend against, could divert management's attention from the day to day
operations of our company and could seriously harm our ability to develop and
market our products and manage our daily operations. Our customer contracts
generally require us to indemnify customers for losses resulting from third
party infringement claims resulting from the use of our products. Thus, in
addition to any claims brought directly against us, we could be responsible to
indemnify customers for claims brought against them. The competitive nature of
the semiconductor industry and the importance of our software products to our
customers' design flows and competitors' businesses may contribute to a higher
likelihood of being subject to third party claims of infringement.

IF WE NEED TO RAISE ADDITIONAL FUNDS IN THE FORESEEABLE FUTURE TO FUND OUR
OPERATIONS OR FUTURE ACQUISITIONS, THEY MIGHT NOT BE AVAILABLE TO US, ON
FAVORABLE TERMS OR AT ALL, AND IF UNAVAILABLE, COULD IMPAIR OUR ABILITY TO RUN
OUR BUSINESS.

We anticipate that our cash resources will be sufficient to meet our
currently predicted working capital and capital expenditure requirements for at
least the next 18 months. We might, however, need to raise additional funds
through public or private financings, strategic relationships or other
arrangements to do any of the following:

- develop next-generation technologies or enhance current products;

- fund additional sales and marketing programs;

- acquire complementary businesses or technologies;

- hire additional personnel;

- expand our operations faster than currently anticipated; or

- respond to competitive pressures in our industry.

If we are unable to fund such potential business requirements, our results
of operations could be harmed.

12
16

POWER OUTAGES IN CALIFORNIA MAY ADVERSELY AFFECT US.

We conduct most of our operations in the state of California and rely on a
continuous power supply to conduct operations. California's current energy
crisis could substantially disrupt our operations and increase our expenses.
California has recently implemented, and may in the future continue to
implement, rolling blackouts throughout the state. If blackouts interrupt our
power supply, we may be temporarily unable to continue operations at our
facilities. Any extended interruption in our ability to continue operations at
our facilities could delay the development of our products and disrupt
communications with our customers, suppliers or manufacturing operations. Future
interruptions could damage our reputation and could result in lost revenue,
either of which could substantially harm our business and results of operations.
Furthermore, shortages in wholesale electricity supplies have caused power
prices to increase. If wholesale prices continue to increase, our operating
expenses will likely increase which will have a negative effect on our operating
results.

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

Future changes in accounting policies including those affecting revenue
recognition, could require the company to change its methods of revenue
recognition. Such changes could cause deferment of revenue recognized in current
periods to subsequent periods or accelerated recognition of deferred revenue to
current periods, each of which could cause shortfalls in meeting securities
analysts and investors' expectations. Any such shortfalls could have an adverse
impact on our stock price.

RISKS RELATED TO OUR INDUSTRY

IF THE INDUSTRIES INTO WHICH WE SELL OUR PRODUCTS EXPERIENCE RECESSION OR OTHER
CYCLICAL EFFECTS IMPACTING OUR CUSTOMERS' RESEARCH AND DEVELOPMENT BUDGETS, OUR
OPERATING RESULTS COULD BE NEGATIVELY IMPACTED.

The primary customers for our products are semiconductor design and
manufacturing companies. Any significant downturn in our customers' markets, in
particular, or in general economic conditions which result in the cut back of
research and development budgets or the delay of software purchases would likely
result in a reduction in demand for our products and services and could harm our
business. In addition, the markets for semiconductor products are cyclical. For
example, in recent years certain Asian countries have experienced significant
economic difficulties, including currency devaluation and instability, business
failures and a depressed business environment. These difficulties triggered a
significant downturn in the semiconductor market, resulting in reduced budgets
for chip design tools which, in turn, negatively impacted us. Our business is
harmed when research and development budgets of our customers are curtailed or
when software purchases by our customers are delayed. In addition, the
electronics industry has historically been subject to seasonal and cyclical
fluctuations in demand for its products, and this trend may continue in the
future. Such industry downturns have been, and may continue to be, characterized
by diminished product demand, excess manufacturing capacity and subsequent
erosion of average selling prices.

IF WE ARE UNABLE TO EFFECTIVELY MANAGE OUR RESOURCES IN ANTICIPATION OF THE
EXPECTED SEASONALITY OF OUR REVENUE, OUR QUARTERLY OPERATING RESULTS MAY SUFFER
AND OUR STOCK PRICE MAY DECLINE.

We expect to experience significant seasonal variations in our revenue due
to sales incentives that result in increased sales efforts at the end of the
fiscal year. These seasonal trends materially affect our quarter to quarter
operating results, which, if not effectively managed, could negatively impact
our stock price. Based on our limited operating history, we expect that our
revenue in the first quarter each year will typically be lower than revenue in
other quarters. If we are unable to effectively manage our resources in
anticipation of the seasonality of our revenue and the costs we expect to incur
during periods of lower revenue, our operating results might be lower than
anticipated by investors. This would likely cause the trading price of our stock
to fall.

13
17

IF WE FAIL TO MAINTAIN COMPETITIVE STOCK OPTION PACKAGES FOR OUR EMPLOYEES, OR
IF OUR STOCK DECLINES MATERIALLY FOR A PROTRACTED PERIOD OF TIME, WE MIGHT HAVE
DIFFICULTY RETAINING OUR EMPLOYEES, PARTICULARLY IN THE SILICON VALLEY, AND OUR
BUSINESS MAY BE HARMED.

In today's competitive technology industry, employment decisions of highly
skilled personnel are influenced by stock option packages, which offer
incentives above traditional compensation only where there is a consistent,
long-term upward trend over time of a company's stock price. If our stock price
declines due to market conditions, investors' perceptions of the technology
industry or managerial or performance problems we have, our stock option
incentives may lose value to key employees and we may lose such employees or be
forced to grant additional options to retain such employees, which could result
in the following material adverse consequences to us:

- loss of employees due to negative impact on our option packages;

- immediate and substantial dilution to investors resulting from the grant
of additional options necessary to retain employees; and

- potential compensation charges against the company which could negatively
impact our operating results.

WE MIGHT BECOME SUBJECT TO LITIGATION BY COMPETITORS OR PRIOR EMPLOYEES, WHICH
COULD BE COSTLY TO DEFEND AND COULD DIVERT MANAGEMENT'S ATTENTION FROM FOCUSING
ON OUR BUSINESS AND OPERATIONS.

We may be subject to claims by competitors for infringement of their
intellectual property or prior employees for human resources-related claims. Our
insurance is limited to specific amounts per claim depending on the type of
claim involved. A successful liability claim brought against us in excess of
corresponding insurance coverage could be costly, which would harm our business,
financial condition and results of operations.

RISKS RELATED TO THIS OFFERING

YOU WILL BE RELYING ON OUR MANAGEMENT'S JUDGMENT, WITH WHICH YOU MAY DISAGREE,
REGARDING THE USE OF PROCEEDS FROM THIS OFFERING.

We do not have a definitive quantified plan with respect to the use of the
net proceeds of this offering and have not committed the substantial majority of
these proceeds to any particular purpose, as more fully described in "Use of
Proceeds." Accordingly, our management will have broad discretion with respect
to the use of the net proceeds from this offering and investors will be relying
on the judgment of our management regarding the application of these proceeds.
These investments may not yield a favorable return. We have only made
preliminary determinations as to the amount of net proceeds to be used based
upon our current expectations regarding our financial performance and business
needs over the foreseeable future. These expectations may prove to be
inaccurate, as our financial performance may differ from our current
expectations or our business needs may change as our business and the industry
we address evolve. As a result, the proceeds we receive in this offering may be
used in a manner significantly different from our current allocation plans.

NEW INVESTORS WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION OF APPROXIMATELY
$7.74 PER SHARE, ASSUMING AN INITIAL OFFERING PRICE OF $11.00 PER SHARE.

We expect the initial public offering price to be substantially higher than
the net tangible book value per share of our common stock. The pro forma net
tangible book value of a share of common stock purchased at an assumed initial
public offering price of $11.00 per share will be only $3.26. Additional
dilution may be incurred if holders of stock options, whether currently
outstanding or subsequently granted, exercise their options or if warrantholders
exercise their warrants to purchase common stock. See "Dilution" for a more
complete description.

14
18

THE LARGE NUMBER OF SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD
DEPRESS OUR STOCK PRICE.

Upon completion of this offering, based upon shares outstanding as of March
31, 2001, and an assumed offering price of $11.00 per share, we will have
14,419,462 shares of our common stock outstanding, of which:

- all of the 4,000,000 shares we are selling in this offering may be resold
in the public market immediately other than shares purchased by
affiliates;

- another 10,419,462 shares are subject to the lock-up agreements described
in "Underwriting" and will become available for resale in the public
market beginning 180 days after the date of this prospectus;

Beginning 180 days after the date of this prospectus, approximately
1,836,315 additional shares subject to vested options will become available for
sale in the public market. Further, shares issued in a merger, if any, will be
subject to similar lock-up agreements as those described in "Underwriting" and
will become available for resale in the public market beginning 180 days after
the date of this prospectus; and

In addition, some of our current stockholders have "demand" and/or
"piggyback" registration rights in connection with future offerings of our
common stock. "Demand" rights enable the holders to demand that their shares be
registered and may require us to file a registration statement under the
Securities Act at our expense. "Piggyback" rights provide for notice to the
relevant holders of our stock if we propose to register any of our securities
under the Securities Act, and grant such holders the right to include their
shares in the registration statement. All holders of registrable securities have
agreed not to exercise their registration rights until 180 days following the
date of this prospectus without the consent of Credit Suisse First Boston
Corporation.

As restrictions on resale end, our stock price could drop significantly if
the holders of these restricted shares sell them or are perceived by the market
as intending to sell them. These sales also might make it more difficult for us
to sell equity securities in the future at a time and at a price that we deem
appropriate.

OUR PRINCIPAL STOCKHOLDERS CAN EXERCISE A CONTROLLING INFLUENCE OVER OUR
BUSINESS AFFAIRS AND THEY MAY MAKE BUSINESS DECISIONS WITH WHICH YOU DISAGREE
THAT WILL AFFECT THE VALUE OF YOUR INVESTMENT.

Our executive officers, directors and entities affiliated with them will,
in the aggregate, beneficially own approximately 30% of our common stock
following this offering. If they were to act together, these stockholders would
be able to exercise control over most matters requiring approval by our
stockholders, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may also have the effect
of delaying or preventing a change in control of our company, which could cause
our stock price to drop. These actions may be taken even if they are opposed by
the other investors, including those who purchase shares in this offering.

OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD MAKE IT MORE DIFFICULT FOR A THIRD
PARTY TO ACQUIRE US, AND DISCOURAGE A TAKEOVER.

Provisions of our certificate of incorporation, bylaws, and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
would benefit our stockholders. See "Description of Capital Stock-Anti-Takeover
Effects of Provisions of the Certificate of Incorporation, and Bylaws and of
Delaware Law" for a more complete description of these provisions.

15
19

NEGOTIATIONS BETWEEN THE UNDERWRITERS AND US WILL DETERMINE THE INITIAL PUBLIC
OFFERING PRICE OF OUR COMMON STOCK, BUT THE MARKET PRICE FOR OUR COMMON STOCK
MAY BE VOLATILE, AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT OR ABOVE THE
INITIAL PUBLIC OFFERING PRICE.

The initial public offering price of our common stock may vary from the
market price of our common stock following this offering. The market price of
our common stock may fluctuate in response to various factors, some of which are
beyond our control. Such factors include:

- changes in market valuations of our competitors or other technology
companies;

- actual or anticipated fluctuations in our operating results;

- technological advances in our industry either by us or our competitors;

- loss of key personnel;

- sale of significant amounts of our common stock or other securities in
the open market; and

- volume fluctuations, which are common for technology companies.

General economic conditions, such as recession or interest rate or currency
rate fluctuations in the United States or abroad, could negatively affect the
market price of our common stock. Please see "Underwriting." In addition, there
has not been a public market for our common stock. We cannot predict the extent
to which investor interest in our company will lead to the development of an
active, liquid trading market.

MARKET PRICES OF TECHNOLOGY COMPANIES HAVE BEEN HIGHLY VOLATILE AND THE MARKET
FOR OUR STOCK MAY BE VOLATILE AS WELL.

The stock market has experienced significant price and trading volume
fluctuations, and the market prices of technology companies generally have been
extremely volatile and have recently experienced sharp declines. Recent initial
public offerings by technology companies have been accompanied by exceptional
share price and trading volume changes in the first days and weeks after the
securities were released for public trading. Investors may not be able to resell
their shares at or above the initial public offering price. In the past,
following periods of volatility in the market price of a public company's
securities, securities class action litigation has often been instituted against
that company. Such litigation could result in substantial costs and a diversion
of management's attention and resources.

16
20

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve inherent
risks and uncertainties. These statements relate to our future plans,
objectives, expectations and intentions. We use words such as "expect,"
"anticipate," "project," "believe," "plan," "intend," "future" and other similar
expressions to identify forward-looking statements. You should not place undue
reliance on these forward-looking statements. Our actual results may differ
materially from those anticipated in these forward-looking statements. Factors
that could contribute to differences include, but are not limited to, those
discussed in "Risk Factors" and elsewhere in this prospectus.

You should rely only on the information contained in this prospectus when
making a decision about whether to invest in our common stock. We have not
authorized anyone to provide you with information different from that contained
in this prospectus. We are offering to sell, and seeking offers to buy, shares
of our common stock only in jurisdictions where offers and sales are permitted.
The information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of when this prospectus or any shares of our common
stock is delivered.

17
21

USE OF PROCEEDS

The net proceeds to us from the sale of the 4,000,000 shares of common
stock in this offering are estimated to be approximately $38.9 million, or
approximately $45.1 million if the underwriters exercise their over-allotment
option in full, after deducting the underwriting discounts and commissions and
estimated offering expenses.

The principal purposes of this offering are to facilitate growth in
operations, to obtain additional working capital, to create a public market for
our common stock and to facilitate future access by us to public markets. We
expect to use approximately $5.0 million for debt repayment under our credit
facility with Transamerica Business Credit Corporation. Borrowings under this
credit facility bear interest at a minimum rate of 9.0% (of which, $2.5 million
bears interest at 12.25% and approximately $2.5 million bears interest at 10.50%
interest, as of March 31, 2001), and matures on May 31, 2001, subject to
automatic renewal and early termination. Debt incurred under this credit
facility was used primarily for working capital and general corporate purposes.
We expect to use approximately $3.0 million for rent and improvements relating
to new facilities required for expansion. We plan to use the balance of the net
proceeds for cash reserves to strengthen our balance sheet, and if the need
arises, for working capital and general corporate purposes. The amounts that we
expend for these purposes will depend on a number of factors, including, among
other things:

- market acceptance of our new products;

- the success of our current research and development efforts;

- future revenue growth;

- the amount of cash, if any, we generate from operations;

- marketing and sales activities; and

- competition

In addition, we may use a portion of the net proceeds to acquire complementary
products, technologies or businesses; however, we currently have no commitments
or agreements and are not involved in any negotiations to do so. Pending use of
the net proceeds of this offering, we intend to invest the net proceeds in
short-term, interest-bearing, investment-grade securities.

We do not have a definitive quantified plan with respect to the use of the
net proceeds of this offering. As a result, our management will have broad
discretion with respect to their use, and investors will be relying on the
judgement of our management regarding the application of these proceeds. In
addition, any investments, capital expenditures, cash acquisitions or other
application of the use of proceeds we make may not produce the anticipated
results.

DIVIDEND POLICY

We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future. Our existing line of credit, among other borrowing
arrangements, prohibit the payment of cash dividends.

18
22

CAPITALIZATION

The following table sets forth our total capitalization as of March 31,
2001:

- on an actual basis after giving effect to the one-for-three reverse stock
split of our common stock;

- on a pro forma basis to reflect the automatic conversion of all
outstanding shares of convertible preferred stock into 4,188,791 shares
of common stock upon the closing of this offering assuming an initial
public offering price of $11.00 per share; and

- on a pro forma as adjusted basis to reflect the sale of 4,000,000 shares
of common stock at an assumed initial public offering price of $11.00 per
share in this offering, after deducting underwriting discounts and
commissions and estimated offering expenses to be paid by us, and the
amendment to our certificate of incorporation upon completion of this
offering to decrease the shares of our common stock authorized for
issuance to 38,000,000 and to decrease the shares of our preferred stock
authorized for issuance to 10,000,000.

You should read this information together with the consolidated financial
statements and related notes appearing elsewhere in this prospectus.

MARCH 31, 2001
----------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
-------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)

Notes payable and capital lease obligations, net of current
portion.................................................. $ 204 $ 204 $ 204
-------- -------- --------
Convertible preferred stock and warrants, $0.001 par value;
14,000,000 shares authorized, 12,546,255 shares issued
and outstanding, actual; no shares, issued and
outstanding pro forma; 10,000,000 shares authorized, and
no shares issued and outstanding, pro forma, as
adjusted................................................. 24,251 -- --
-------- -------- --------
Common stock and other stockholders' equity:
Common stock; $0.001 par value, 44,000,000 shares
authorized, 6,230,671 shares issued and outstanding,
actual; 10,419,462 shares issued and outstanding, pro
forma; and 38,000,000 shares authorized, and
14,419,462 shares issued and outstanding pro forma, as
adjusted.............................................. 6 10 14
Additional paid-in capital............................... 57,178 81,425 120,341
Notes receivable from stockholders....................... (1,289) (1,289) (1,289)
Unearned stock-based compensation........................ (8,824) (8,824) (8,824)
Accumulated deficit...................................... (35,715) (35,715) (35,715)
-------- -------- --------
Total common stock and other stockholders' equity..... 11,356 35,607 74,527
-------- -------- --------
Total capitalization.................................. $ 35,811 $ 35,811 $ 74,731
======== ======== ========

This table does not include:

- 2,285,140 shares subject to outstanding options as of March 31, 2001 at a
weighted average exercise price of $7.82 per share;

- 383,955 shares subject to outstanding options as of March 31, 2001 under
the Altius 1999 Stock Plan at a weighted average exercise price of
$13.22;

- 1,353,372 additional shares available for grant as of March 31, 2001
under our 1995 and 1999 Stock Plan;

- 112,307 shares of preferred stock, subject to outstanding warrants as of
March 31, 2001 at a weighted average exercise price of $2.72 per share,
which will automatically convert to 37,434 shares of common stock upon
consummation of the offering;

- 2,091 shares of common stock subject to outstanding warrants as of March
31, 2001 at a weighted average exercise price of $1.91 per share; and

Upon completion of this offering, each outstanding share of convertible
preferred stock will convert into two shares of common stock.

19
23

DILUTION

Our pro forma net tangible book value as of March 31, 2001 was
approximately $6.3 million, or $0.60 per share of common stock. Pro forma net
tangible book value per share is determined by dividing our tangible book value
(total tangible assets less total liabilities) by the number of outstanding
shares of common stock at that date after giving effect to the conversion of all
outstanding shares of our preferred stock into 4,188,791 shares of common stock
upon the closing of this offering. Dilution in net tangible book value per share
represents the difference between the amount per share paid by purchasers of our
common stock in this offering and the net tangible book value per share of our
common stock immediately afterwards. After giving effect to the sale of the
4,000,000 shares of our common stock offered at an assumed initial public
offering price of $11.00 per share and after deducting underwriting discounts
and commissions and estimated offering expenses, our pro forma net tangible book
value, as adjusted at March 31, 2001 would have been approximately $47.0
million, or $3.26 per share. This represents an immediate increase in the pro
forma net tangible book value of $2.66 per share to existing stockholders and an
immediate dilution of $7.74 per share to new investors purchasing shares at the
initial public offering price. The following table illustrates the per share
dilution:

Assumed initial public offering price per share............. $11.00
Pro forma net tangible book value per share as of March
31, 2001............................................... $0.60
Increase in pro forma tangible book value, as adjusted,
per share attributable to new investors................ 2.66
-----
Pro forma net tangible book value per share after this
offering.................................................. 3.26
------
Dilution per share to new investors......................... $ 7.74
======

The following table summarizes, on a pro forma basis as of March 31, 2001,
the differences between the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by the
existing stockholders and by the new public investors based upon an assumed
initial public offering price of $11.00 per share before deducting underwriting
discounts and commissions and estimated offering expenses and after giving
effect to the conversion of all outstanding shares of our preferred stock into
shares of common stock upon the closing of this offering:

SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------

Existing stockholders............. 10,419,462 72.2% $ 62,826,000 58.8% $ 6.03
New public investors.............. 4,000,000 27.8% 44,000,000 41.2% $11.00
---------- ----- ------------ -----
Total........................... 14,419,462 100.0% $106,826,000 100.0%
========== ===== ============ =====

If the underwriters over-allotment option is exercised in full, the number
of shares held by new investors will increase to 4,600,000, or 30.6%, of the
total shares of common stock outstanding after this offering.

The above discussion and tables assume no exercise of stock options or
warrants outstanding as of March 31, 2001. To the extent that any of these
options or warrants are exercised, there will be further dilution to the new
public investors.

20
24

SELECTED CONSOLIDATED FINANCIAL DATA

You should read the following selected consolidated statements of operations
data and consolidated statements of cash flow data in conjunction with our
consolidated financial statements and related notes and Management's Discussion
and Analysis of Financial Condition and Results of Operations contained in this
prospectus. The consolidated statement of operations data and consolidated
statements of cash flow data for the years ended September 30, 1998, 1999 and
2000 and the balance sheet data as of September 30, 1999 and 2000 have been
derived from our audited consolidated financial statements that are included
elsewhere in this prospectus. The consolidated statement of operations and
consolidated statements of cash flow data for the six months periods ended March
31, 2000 and 2001 included elsewhere in this prospectus are derived from our
unaudited consolidated financial statements that include, in the opinion of our
management, all normally recurring adjustments necessary for a fair presentation
for such periods. Historical results are not necessarily indicative of results
to be expected in any future period.

YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED
(REVISED) MARCH 31,
------------------------------------------------------ -------------------------
1996 1997 1998 1999 2000 2000 2001
----------- ------- --------- ------- -------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENTS OF OPERATIONS DATA:
Net revenue:
License.................................... $ -- $ 2,751 $ 5,385 $ 7,704 $ 14,679 $ 6,346 $10,472
Services................................... 224 250 1,152 3,177 8,138 3,047 10,357
------- ------- ------- ------- -------- ------- -------
Total revenue............................ 224 3,001 6,537 10,881 22,817 9,393 20,829
------- ------- ------- ------- -------- ------- -------
Costs of revenue:
License.................................... -- 512 458 96 258 51 252
Services................................... 3 198 439 1,974 3,645 1,400 6,232
------- ------- ------- ------- -------- ------- -------
Total cost of revenue.................... 3 710 897 2,070 3,903 1,451 6,484
------- ------- ------- ------- -------- ------- -------
Gross profit................................. 221 2,291 5,640 8,811 18,914 7,942 14,345
------- ------- ------- ------- -------- ------- -------
Operating expenses:
Research and development................... 1,443 3,166 5,060 6,387 5,341 2,110 6,625
Selling and marketing...................... 463 3,394 6,288 7,314 10,635 4,609 8,227
General and administrative................. 528 1,009 1,819 2,229 3,725 1,651 3,180
Amortization of goodwill and other
intangibles.............................. -- -- -- -- 409 -- 3,052
In-process and acquired research and
development.............................. -- -- -- -- 5,000 5,000 --
------- ------- ------- ------- -------- ------- -------
Total operating expenses................. 2,434 7,569 13,167 15,930 25,110 13,370 21,084
------- ------- ------- ------- -------- ------- -------
Operating loss............................... (2,213) (5,278) (7,527) (7,119) (6,196) (5,428) (6,739)
Interest and other income (expense), net..... 22 100 312 78 (284) (115) (116)
------- ------- ------- ------- -------- ------- -------
Loss before income tax....................... 2,191 (5,178) (7,215) (7,041) (6,480) (5,543) (6,855)
Income tax expense........................... -- -- -- -- (242) (84) (320)
------- ------- ------- ------- -------- ------- -------
Net loss..................................... $(2,191) $(5,178) $(7,215) $(7,041) $ (6,722) $(5,627) $(7,175)
======= ======= ======= ======= ======== ======= =======
Basic and diluted net loss per share......... $ (2.25) $ (4.16) $ (4.64) $ (3.62) $ (2.40) $ (2.52) $ (1.30)
======= ======= ======= ======= ======== ======= =======
Number of shares used in calculation of basic
and diluted net loss per share............. 974 1,245 1,557 1,944 2,801 2,236 5,508
======= ======= ======= ======= ======== ======= =======

OTHER FINANCIAL DATA (UNAUDITED)(1):
Gross profit excluding non-cash charges(a)... $ 221 $ 2,291 $ 5,640 $ 8,811 $ 19,334 $ 8,051 $16,047
Total operating expenses excluding non-cash
charges(b)................................. $ 2,434 $ 7,562 $12,669 $15,917 $ 18,160 $ 7,755 $15,392
Operating income (loss) excluding non-cash
charges(c)................................. $(2,213) $(5,271) $(7,029) $(7,106) $ 1,174 $ 296 $ 655
Net income (loss) excluding non-cash
charges(d)................................. $(2,191) $(5,171) $(6,717) $(7,028) $ 648 $ 97 $ 219

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

(1) In the Other Financial Data table above, we present gross profit, total
operating expenses, operating income (loss) and net income (loss) as
adjusted to exclude the following non-cash charges: stock-based compensation
expense, in-process research and development charges, and amortization of
goodwill and other intangibles. We consider these measures to be useful as
they provide an additional basis upon which to evaluate our ability to fund
our operations, growth and other capital expenditures. However, these
measures are not indicators of performance under generally accepted
accounting principles and may not be comparable to information reported by
other companies. Further, these measures do not replace gross profit, total
operating expenses, operating income (loss) and net income (loss) as
indicators of our operating performance or cash flow as a measure of
liquidity. For example, as indicated above, our operating income excluding
non-cash charges for the six months ended March 31, 2001 was $655,000, as
compared to our net cash used in operating activities for the same period
which, as indicated below, was $3.6 million. The difference is primarily due
to our assumption of Altius' existing current liabilities which we paid down
after the acquisition, as well as our use of cash to finance current assets
net of current liabilities of our business. In addition, we believe that
these measures are typically used by financial analysts when comparing and
evaluating companies in our industry. With respect to stock-based
compensation expense, we believe that offering equity as a portion of
compensation helps to align the interests of our employees with the
interests of our stockholders. As a result, we expect equity will continue
to be a part of the compensation we offer our employees. However, we do not
currently intend to grant options with exercise prices below fair market
value. Further, we do not have a policy with respect to the repricing of
stock options or the grant of cash bonuses if the market price of our stock
falls below the exercise prices of our granted options. For a reconciliation
of these Other Financial Data items to those reported under generally
accepted accounting principles, see "Reconciliation between reported
Statement of Operations Data and the amounts shown as Other Financial Data"
below.

21
25

SEPTEMBER 30,
(REVISED)
------------------------------------------------------- MARCH 31,
1996 1997 1998 1999 2000 2001
----------- ------- --------- -------- -------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)

CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments......... $ 2,081 $ 3,277 $ 7,041 $ 4,466 $ 7,447 $ 7,373
Working capital........................................... 1,800 2,360 6,631 3,382 2,669 2,618
Total assets.............................................. 2,736 6,261 10,727 11,803 22,516 52,255
Convertible preferred stock and warrants.................. 4,404 11,044 23,333 24,184 24,251 24,251
Total common stock and other stockholder's equity
(deficit)............................................... (2,276) (7,414) (14,854) (21,651) (14,332) 11,356

YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED
(REVISED) MARCH 31,
---------------------------- -------------------------
1998 1999 2000 2000 2001
--------- ------- ------ ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

CONSOLIDATED CASH FLOW DATA:
Net cash (used in) provided by operating activities......... $(6,522) $(5,384) $1,565 $1,113 $(3,622)
Net cash (used in) provided by investing activities......... (1,082) (696) 807 1,430 913
Net cash provided by financing activities................... 11,368 3,243 871 244 2,635

SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
(REVISED) (REVISED)
------------------------------------------------------ -------------------------
1996 1997 1998 1999 2000 2000 2001
----------- ------- --------- ------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

RECONCILIATION BETWEEN REPORTED STATEMENT OF
OPERATIONS DATA AND THE AMOUNTS SHOWN AS
OTHER FINANCIAL DATA (UNAUDITED):

(a) Gross profit............................. $ 221 $ 2,291 $ 5,640 $ 8,811 $ 18,914 $ 7,942 $14,345
Amortization of acquired technology.... -- -- -- -- 166 -- 226
Stock-based compensation............... -- -- -- -- 254 109 1,476
------- ------- ------- ------- -------- ------- -------
Gross profit excluding non-cash
charges............................ $ 221 $ 2,291 $ 5,640 $ 8,811 $ 19,334 $ 8,051 $16,047
======= ======= ======= ======= ======== ======= =======

(b) Total operating expenses. $ 2,434 $ 7,569 $ 13,167 $15,930 $ 25,110 $ 13,370 $ 21,084

Amortization of goodwill and other
intangibles.......................... -- -- -- -- (409) -- (3,052)
In-process and acquired research and
development.......................... -- -- -- -- (5,000) (5,000) --
Stock-based compensation............... -- (7) (498) (13) (1,541) (615) (2,640)
------- ------- ------- ------- -------- ------- -------
Total operating expenses excluding
non-cash charges................... $ 2,434 $ 7,562 $12,669 $15,917 $ 18,160 $ 7,755 $15,392
======= ======= ======= ======= ======== ======= =======

(c) Operating income (loss).................. $(2,213) $(5,278) $(7,527) $(7,119) $ (6,196) $(5,428) $(6,739)
Amortization of goodwill and other
intangibles.......................... -- -- -- -- 575 -- 3,278
In-process and acquired research and
development.......................... -- -- -- -- 5,000 5,000 --
Stock-based compensation............... -- 7 498 13 1,795 724 4,116
------- ------- ------- ------- -------- ------- -------
Total operating income (loss)
excluding non-cash charges......... $ 2,213 $(5,271) $(7,029) $(7,106) $ 1,174 $ 296 $ 655
======= ======= ======= ======= ======== ======= =======

(d) Net loss................................. $(2,191) $(5,178) $(7,215) $(7,041) $ (6,722) $(5,627) $(7,175)
Amortization of goodwill and other
intangibles.......................... -- -- -- -- 575 -- 3,278
In-process and acquired research and
development.......................... -- -- -- -- 5,000 5,000 --
Stock-based compensation............... -- 7 498 13 1,795 724 4,116
------- ------- ------- ------- -------- ------- -------
Net income (loss) excluding non-cash
charges............................ $(2,191) $(5,171) $(6,717) $(7,028) $ 648 $ 97 $ 219
======= ======= ======= ======= ======== ======= =======

22
26

SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA

The pro forma statement of operations data for the year ended September 30,
2000 is derived from the unaudited pro forma combined financial information,
which reflect the acquisition of Snaketech and Altius as if such acquisitions
had occurred on October 1, 1999. The pro forma statement of operations data is
presented for informational purposes only and may not be indicative of the
operating results that would have been achieved had the transactions been in
effect as of the beginning of the period presented and should not be construed
as being representative of future operating results.

YEAR ENDED
SEPTEMBER 30, 2000
------------------
(IN THOUSANDS,
EXCEPT PER
SHARE DATA)

PRO FORMA STATEMENT OF OPERATIONS DATA:
Net revenue................................................. $ 31,681
Cost of revenue............................................. 11,482
--------
Gross profit................................................ 20,199
--------
Operating expenses:
Research and development.................................. 8,094
Sales and marketing....................................... 13,034
General and administrative................................ 5,673
Amortization of goodwill and other intangibles............ 6,128
--------
Total operating expenses............................... 32,929
--------
Operating loss.............................................. (12,730)
Interest and other income (expense), net.................... 389
Interest expense............................................ (515)
--------
Loss before income taxes.................................... (12,856)
Income tax expense.......................................... (745)
--------
Net loss.................................................... $(13,601)
========
Basic and diluted net loss per share........................ $ (1.47)
========
Shares used in computing pro forma basic and diluted net
loss per share............................................ 9,270
========

OTHER PRO FORMA FINANCIAL DATA(1):
Gross profit excluding non-cash charges(a).................. $ 23,672
Total operating expenses excluding non-cash charges(b)...... $ 22,721
Operating income excluding non-cash charges(c).............. $ 951
Net income excluding non-cash charges(d).................... $ 80

- ---------------
(1) In the Other Financial Data table above, we present gross profit, total
operating expenses, operating income (loss) and net income (loss) as
adjusted to exclude the following non-cash charges: stock-based compensation
expense, in-process and acquired research and development charges, and
amortization of goodwill and other intangibles. For a discussion of why we
believe these measures are helpful to an understanding of our operations,
see "Selected Consolidated Financial Data" beginning on page 21.

23
27

RECONCILIATION BETWEEN PRO FORMA STATEMENTS OF OPERATIONS DATA AND THE AMOUNTS
SHOWN AS OTHER PRO FORMA FINANCIAL DATA

(a) Gross profit............................................ $ 20,199
Amortization of acquired technology................... 453
Stock-based compensation.............................. 3,020
--------
Gross profit excluding non-cash charges............. $ 23,672
========

(b) Total operating expenses................................ $ 32,929
Amortization of goodwill and other intangibles........ (6,128)
Stock-based compensation.............................. (4,080)
--------
Total operating expenses excluding non-cash
charges............................................. $ 22,721
========

(c) Operating loss.......................................... $(12,730)
Amortization of goodwill and other intangibles........ 6,581
Stock-based compensation.............................. 7,100
--------
Operating income excluding non-cash charges......... $ 951
========

(d) Net loss................................................ $(13,601)
Amortization of goodwill and other intangibles........ 6,581
Stock-based compensation.............................. 7,100
--------
Net income excluding non-cash charges............... $ 80
========

24
28

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Our actual results could differ materially from those discussed in the
forward-looking statements contained in this section. The following discussion
and analysis of our financial condition and results of operations should be read
in conjunction with "Selected Financial Data" and our consolidated financial
statements and notes thereto appearing elsewhere in this prospectus.

OVERVIEW

We provide software and services for integrated circuit design and
verification to enable our communications, computer and consumer products
customers to achieve first-time production success and rapid delivery of complex
system-on-chip. Our products and services are designed to enable our customers
to rapidly deliver high-quality system-on-chip with geometries at and below 0.18
micron.

From our incorporation in April 1995 until we shipped our first product in
November 1996, we primarily focused our activities on conducting research and
development for our software products. In November 1996, we shipped our first
product suite which included Fire & Ice and the predecessor to VoltageStorm SoC.
In March 1999, we shipped VoltageStorm along with the ElectronStorm, ClockStorm
and SI Report options. During the last two years, we have substantially extended
and improved our products. In September 1999, we shipped our next-generation
proprietary modeling product, Fire & Ice QX, that resulted in a 100x speedup
over the prior version. In May 2000, we introduced our next-generation power
integrity product, VoltageStorm SoC, which addresses the unique challenges of
system-on-chip design earlier in our customers' design flow.

In March 2000, we acquired all the outstanding capital stock of Snaketech
S.A., or Snaketech, in exchange for a total of approximately 929,000 shares of
common stock and options to purchase approximately 104,000 shares of our common
stock. The acquisition of Snaketech added SubstrateStorm to our SoC verification
product family. The acquisition was accounted for using the purchase method of
accounting.

In October 2000, we acquired Altius Solutions, Inc., which is now our
wholly owned subsidiary, in exchange for a total of approximately 2.6 million
shares of our common stock and options to purchase approximately 384,000 shares
of our common stock. Through our acquisition of Altius, we now provide design
foundry services which enable accelerated chip development. Altius was
incorporated in March 1998, and received its first revenue for system-on-chip
design services in March 1999. Past growth and results of business and
operations are not necessarily indicative of future performance. We have
accounted for this transaction under the purchase method of accounting.

Source of Revenue

We derive our revenue from software licenses, maintenance, consulting,
design foundry services, training and the development of technologies under
research and development contracts. Our end customers include microprocessor
companies, embedded memory or digital signal processor suppliers, design and
engineering service companies, application-specific integrated circuit vendors
and application-specific standard products companies building high-end graphics,
networking, wireless and communications systems.

25
29

Our total revenue in the fiscal years ended September 30, 1999 and 2000,
and the 12 months ended March 31, 2001 were comprised of the following:

12 MONTHS ENDED
1999 2000 MARCH 31, 2001
---- ---- -----------------

License Revenue.
Term licenses (more than 3 years).................... 49% 39% 24%
Term license (3 years or less)....................... -- 7% 12%
Time-based licenses.................................. 22% 19% 19%
Service Revenue.
Maintenance services................................. 17% 19% 19%
Consulting and training services..................... 8% 8% 5%
Design foundry and research and development
services.......................................... 4% 8% 21%

License Revenue

We generate our revenue under time-based licenses where revenue is
recognized ratably and term licenses where revenue is recognized at time of
shipment. Our time-based licenses are typically 1 year or less and can be
renewed or remixed periodically. Our term licenses are typically for 3 or 20
years. We intend to increase the percentage of revenue derived from our
time-based licenses and our 3-year term licenses. License revenue was 68% of
total revenue for the six months ended March 31, 2000 and 50% of total revenue
for the six months ended March 31, 2001 reflecting the Altius acquisition and
related increases in design foundry services. License revenue was 71% of total
revenue in fiscal 1999 and 64% of our total revenue in fiscal year 2000.

Services

Services revenue is generated from:

- maintenance services;

- short-term consulting and training;

- research and development contracts; and

- design foundry services.

Maintenance is sold to customers with term licenses and is renewed by
customers on an annual basis. We perform short-term consulting for and provide
training to end customers. We also have a research and development project with
one customer. Service revenue accounted for 32% of our total revenue for the six
months ended March 31, 2000 and 50% of our total revenue for the six months
ended March 31, 2001 reflecting the Altius acquisition and related increases in
design foundry services. Services revenue accounted for 29% of our total revenue
in fiscal 1999 and 36% of our total revenue in fiscal 2000.

International Revenue

We have international sales offices located in the United Kingdom, France,
and Japan. North American sales offices are located in North Carolina, Texas and
California. We also use distributors and sales agents in Taiwan and Korea. Our
sales outside of North America accounted for 28% of our total revenue for the
six months ended March 31, 2000, 50% of total revenue for the six months ended
March 31, 2001, 23% of our total revenue in fiscal 1999 and 34% of our total
revenue in fiscal 2000.

26
30

Revenue Recognition

We report revenue in two categories: license revenue and services revenue.
License revenue is derived from product sales to end users and distributors.
Services revenue is derived from providing design foundry services, consulting
and training, maintenance and support services to end users and under research
and development contracts.

We recognize revenue in accordance with the American Institute of Certified
Public Accountants Statement of Position 97-2, Software Revenue Recognition, as
amended by Statement of Position 98-4, Deferral of the Effective Date of Certain
Provisions of SOP 97-2, ("SOP 97-2") and Statement of Position 98-9,
Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain
Transactions. License revenue is derived from term and time-based licenses.
License revenue from term licenses is recognized upon shipment of the product,
if an executed agreement or purchase order has been received, the fee is fixed
and determinable and collection is deemed probable. We do not generally include
acceptance criteria or rights of return in our arrangements.

For contracts with multiple obligations (e.g., product licenses,
maintenance and other services), we allocate revenue to each component of the
contract based on vendor specific objective evidence of its fair value, which is
based on either the price when each component is sold separately, or the renewal
rates for maintenance in future years as specified in the arrangement. We
recognize revenue allocated to undelivered products and services when the
criteria for revenue set forth above are met.

License and maintenance revenue from time-based licenses for a term of one
year or less is recognized ratably over the period of the license, as
maintenance for these licenses is never sold separately from the license.

Services revenue from consulting, installation and training is recognized
as the related services are performed, when collectibility is probable and the
fee is fixed and determinable. Revenue from maintenance and support agreements
are deferred and recognized on a straight-line basis over the term of the
related agreement. Payments of maintenance fees are generally made in advance
and are nonrefundable.

Prior to the adoption of SOP 97-2, we recognized revenue from the sale of
product licenses upon shipment if remaining obligations were insignificant,
collections of resulting accounts receivable was probable and product returns
reasonably estimable.

We recognize revenues derived from research and development contracts in
accordance with American Institute of Certified Public Accountants Statement of
Position No. 68, Research and Development Arrangements and Statement of Position
No. 81-1, Contract Accounting under the percentage-of-completion method of
accounting based on the estimated stage of completion of individual contracts.
We recognize revenues from design foundry engineering contracts in accordance
with Statement of Position No. 81-1, Contract Accounting under the
percentage-of-completion method.

Deferred revenue primarily consists of maintenance and support services
under maintenance contracts and unearned revenue on time-based licenses. For
design foundry engineering and research and development contracts, deferred
revenue represents the excess of amounts invoiced over the revenue recognized.
Deferred revenue fluctuates at each period end in accordance with the mix of
contracts entered into.

Cost of Revenue

Cost of license revenue consists primarily of the expenses related to
royalties, amortization and maintenance related to purchased or licensed
technologies. We deliver our product and associated documentation
electronically. Cost of services revenue consists primarily of personnel
expenses, including stock-based compensation expense, costs related to outside
consultants, travel and overhead expenses related to program management,
software installation, customer and technical support and fees for sub-
contractors and training.

27
31

Operating Expenses

Operating expenses consist of research and development expenses, selling
and marketing expenses, general and administrative expenses, stock-based
compensation expenses, amortization of acquired intangibles and in-process
research and development expenses. We allocate the total costs for overhead and
facilities based on headcount to each of the functional areas that use the
relevant services. These allocated charges include general overhead items such
as building rent, equipment-leasing costs, telecommunications charges and
depreciation expense.

Research and Development

Research and development costs consist primarily of expenses related to the
development of new functionality and upgrades of our software and to the
amortization of acquired intangibles. These expenses include compensation and
benefits, including stock-based compensation expense, for software developers,
quality assurance personnel and for third-party contract development costs.

Sales and Marketing

Sales and marketing expenses consist primarily of compensation and
benefits, including stock-based compensation expense, for direct sales and
marketing personnel, travel cost, public relations, sales and other promotional
materials, trade shows, advertising and other sales and marketing programs.

General and Administrative

General and administrative expenses consist primarily of compensation and
benefits, including stock-based compensation expense, for general and
administrative employees and fees for professional advisors.

Amortization of Goodwill and Other Intangibles

Amortization of goodwill and other intangibles arises through our
acquisitions of Snaketech and Altius. These acquisitions were accounted for as a
purchase and, accordingly, the purchase price has been allocated to the tangible
and intangible assets acquired and liabilities assumed on the basis of their
respective fair values on the acquisition dates. Goodwill and other intangible
assets are amortized on a straight-line basis over their respective estimated
useful lives from three to seven years.

Stock-based Compensation

During the six months ended March 31, 2001 we recorded an unearned
stock-based compensation charge of $10.7 million, $10.3 million of which related
to the stock options assumed in connection with the acquisition of Altius in
October 2000. During the year ended September 30, 2000 we granted stock options
and issued restricted stock to our officers, employees and consultants at prices
deemed to be below the estimated fair value of the underlying common stock. As a
result, we recorded an unearned stock-based compensation charge of $4.0 million
for the year ended September 30, 2000. For employees, such amount represents the
difference at the grant date between the exercise price of each stock option
granted or the purchase price for each share of restricted stock and the fair
market value of the underlying common stock. This amount is being amortized,
using the accelerated vesting method, over the vesting period of the options or
restricted stock, generally four years. Stock-based compensation related to
consultants is measured on a fair-value basis using the Black-Scholes option
pricing methodology.

POTENTIAL EFFECTS OF CALIFORNIA POWER SHORTAGE.

Beginning in January 2001, our facilities in the State of California are
currently subject to potential electrical blackouts as a consequence of a
shortage of available electrical power. In the event these blackouts continue or
increase in severity, they could disrupt the operations of our California
facilities. We do not carry sufficient business interruption insurance to
compensate us for losses that may occur and any losses or damages incurred by us
could have a material adverse effect on our business.

28
32

RESULTS OF OPERATIONS

The following table presents certain financial data as a percentage of
total revenue for the periods indicated:

SIX MONTHS
YEARS ENDED ENDED
SEPTEMBER 30, MARCH 31,
------------------------- ------------
1998 1999 2000 2000 2001
--------- ---- ---- ---- ----
(REVISED)

Net revenue:
License............................................ 82% 71% 64% 68% 50%
Services........................................... 18 29 36 32 50
---- --- --- --- ---
Total revenue................................... 100 100 100 100 100
---- --- --- --- ---
Cost of revenue:
License............................................ 7 1 1 1 1
Services........................................... 7 18 16 15 30
---- --- --- --- ---
Total cost of revenue........................... 14 19 17 16 31
---- --- --- --- ---
Gross profit......................................... 86 81 83 84 69
---- --- --- --- ---
Operating expenses:
Research and development........................... 77 59 23 22 32
Sales and marketing................................ 96 67 47 49 39
General and administrative......................... 28 20 16 18 15
Amortization of goodwill and other intangibles..... -- -- 2 -- 15
In-process and acquired research and development... -- -- 22 53 --
---- --- --- --- ---
Total operating expenses........................ 201 146 110 142 101
---- --- --- --- ---
Operating income (loss).............................. (115) (65) (27) (58) (32)
---- --- --- --- ---
Interest and other income (expense), net............. 5 -- (2) (2) (2)
---- --- --- --- ---
Net loss............................................. (110)% (65)% (29)% (60)% (34)%
==== === === === ===

OTHER FINANCIAL DATA(1):
Gross profit excluding non-cash charges.............. 86% 81% 85% 86% 77%
Total operating expenses excluding non-cash
charges............................................ 194 146 80 83 74
Operating income (loss) excluding non-cash charges... (108) (65) 5 3 3
Net income (loss) excluding non-cash charges......... (103) (65) 3 1 1

SIX MONTHS ENDED MARCH 31, 2000 AND 2001

Revenue

Total Revenue. Total revenue increased 122% from $9.4 million for the six
months ended March 31, 2000 to $20.8 million for the six months ended March 31,
2001. Toshiba accounted for approximately 22% and Cadence accounted for
approximately 10% of total revenue for the six months ended March 31, 2000. Sony
accounted for approximately 25% of total revenue for the six months ended March
31, 2001. As a percentage of total revenue, license revenue accounted for 68%
for the six months ended March 31, 2000 and 50% for the six months ended March
31, 2001. Total revenue from sales to customers outside North America accounted
for 28% of total revenue for the six months ended March 31, 2000 and 50% of
total revenue for the six months ended March 31, 2001.

29
33

License Revenue. License revenue increased 65% from $6.3 million for the
six months ended March 31, 2000 to $10.5 million for the six months ended March
31, 2001 due to the increased demand for our existing products as chip
manufacturers require more chip designs with small features sizes reaching 0.18
micron and below.

Service Revenue. Service revenue increased 239% from $3.0 million for the
six months ended March 31, 2000 to $10.4 million for the six months ended March
31, 2001. This increase was due primarily to approximately $5.4 million in
revenue from our design foundry services which resulted from our acquisition of
Altius on October 4, 2000 and approximately $1.8 million increase in maintenance
and other support of our customers.

Cost of Revenue

SIX MONTHS ENDED
MARCH 31,
Licenses. --------------------------
2000 2001
----------- -----------
(UNAUDITED) (UNAUDITED)

Other cost of license...................................... $51 $ 26
Amortization of acquired technology........................ -- 226
--- ----
Cost of license....................................... $51 $252
--- ----

Excluding amortization of acquired technology, cost of license decreased
49% from $51,000 for the six months ended March 31, 2000 to $26,000 for the six
months ended March 31, 2001, due to lower royalties incurred. As a percentage of
license revenue, cost of licenses, excluding amortization of acquired
technology, was 0.8% for the six months ended March 31, 2000 and 0.2% for the
six months ended March 31, 2001. Including amortization of acquired technology
of $226,000 for the six months ended March 31, 2001, cost of license increased
to $252,000, or 2.4% of license revenue. We incurred no amortization of acquired
technology for the six months ended March 31, 2000.

SIX MONTHS ENDED
MARCH 31,
Services. --------------------------
2000 2001
----------- -----------
(UNAUDITED) (UNAUDITED)

Other cost of services..................................... $1,291 $4,756
Stock-based compensation................................... 109 1,476
------ ------
Cost of services...................................... $1,400 $6,232
------ ------

Excluding stock-based compensation expense, cost of services increased 268%
from $1.3 million for the six months ended March 31, 2000 to $4.8 million for
the six months ended March 31, 2001. This increase was due to additional costs
incurred for the new design foundry service resulting from the Altius
acquisition. As a percentage of service revenue, cost of service, excluding
stock-based compensation expense, was 42% for the six months ended March 31,
2000 and 46% for the six months ended March 31, 2001. Including stock-based
compensation expense of $109,000 for the six months ended March 31, 2000, cost
of services were $1.4 million, or 46% of service revenue. Including stock-based
compensation expense of $1.5 million for the six months ended March 31, 2001,
cost of service increased to $6.2 million, or 60% of service revenue.

Operating Expenses

SIX MONTHS ENDED
MARCH 31,
Research and Development. --------------------------
2000 2001
----------- -----------
(UNAUDITED) (UNAUDITED)

Other research and development............................. $1,956 $5,459
Stock-based compensation................................... 154 1,166
------ ------
Research and development.............................. $2,110 $6,625
------ ------

30
34

Excluding stock-based compensation expense and amortization of intangibles,
research and development expense increased 179% from $2.0 million for the six
months ended March 31, 2000 to $5.5 million for the six months ended March 31,
2001. This increase resulted from the hiring of new employees and the headcount
increase related to the acquisition of Snaketech in March 2000 and the
acquisition of Altius in October 2000. As a percentage of total revenue,
research and development expenses, excluding stock-based compensation expense
and amortization of intangibles, were 21% for the six months ended March 31,
2000 and 26% for the six months ended March 31, 2001. This reflects our
continued effort to invest in research and development to expand our technology
and product leadership. Including stock-based compensation expense of $1.2
million for the six months ended March 31, 2001, research and development
expense increased to $6.6 million, or 32% of total revenue. We incurred $154,000
stock-based compensation expense in the research and development expense for the
six months ended March 31, 2000. We believe that continued increase in our
investment in research and development is necessary to expand our market
presence and to expand the technology and product leadership. Therefore, we
expect that research and development expenses will increase in the future.

SIX MONTHS ENDED
MARCH 31,
Sales and Marketing. --------------------------
2000 2001
----------- -----------
(UNAUDITED) (UNAUDITED)

Other sales and marketing.................................. $4,511 $7,541
Stock-based compensation................................... 98 686
------ ------
Sales and marketing................................... $4,609 $8,227
------ ------

Excluding stock-based compensation expense, sales and marketing expense
increased 67% from $4.5 million for the six months ended March 31, 2000 to $7.5
million for the six months ended March 31, 2001. This increase resulted from
increased compensation expense due to the expansion of our sales and marketing
organization, including the effect of the Snaketech and Altius acquisitions. As
a percentage of total revenue, sales and marketing expenses, excluding
stock-based compensation expense, declined from 48% for the six months ended
March 31, 2000 to 36% for the six months ended March 31, 2001, due to increases
in total revenue exceeding the rate of expenses. Including stock-based
compensation expense of $686,000 for the six months ended March 31, 2001, sales
and marketing expenses increased to $8.2 million, or 39% of total revenue. We
incurred $98,000 stock-based compensation expense for the six months ended March
31, 2000.

General and Administrative.

SIX MONTHS ENDED
MARCH 31,
--------------------------
2000 2001
----------- -----------
(UNAUDITED) (UNAUDITED)

Other general and administrative........................... $1,288 $2,392
Stock-based compensation................................... 363 788
------ ------
General and administrative............................ $1,651 $3,180
------ ------

Excluding stock-based compensation, general and administrative expense
increased 85% from $1.3 million for the six months ended March 31, 2000 to $2.4
million for the six months ended March 31, 2001. This increase was due to
increased recruiting expenses and increased headcount including expenses related
to the Altius acquisition. As a percentage of total revenue, general and
administrative expenses, excluding stock-based compensation expense, were 14%
for the six months ended March 31, 2000 and 11% for the six months ended March
31, 2001, due to the increase in total revenue exceeding that of expenses.
Including stock-based compensation expense of $363,000 for the six months ended
March 31, 2000, general and administrative expense was $1.7 million, or 18% of
total revenue. Including stock-based compensation expense of $788,000 for the
six months ended March 31, 2001, general and administrative expense increased to
$3.2 million, or 15% of total revenue. We expect general and administrative
expenses to continue to increase as a result of expenses associated with being a
public company, including annual

31
35

and other reporting costs, increased director and officer liability insurance,
investor relations programs and accounting and legal fees. Such expenses,
however, are expected to decline as a percentage of total revenue.

Stock-based Compensation. We recorded an unearned stock-based compensation
charge of $4.0 million for the six months ended March 31, 2000 and $10.7 million
for the six months ended March 31, 2001. Of the $10.7 million unearned
stock-based compensation charge, $10.3 million was related to the options
assumed from the Altius acquisition in October 2000. Amortization of stock-based
compensation was $724,000 for the six months ended March 31, 2000 and $4.1
million for the six months ended March 31, 2001 of which $1.5 million was
recorded as a cost of service. The expense has been allocated to its respective
category under cost of revenue, research and development, sales and marketing
and general and administrative.

Amortization of Goodwill and Other Intangibles. Amortization of goodwill
and other intangibles was $3.3 million for the six months ended March 31, 2001,
of which $226,000 was allocated to cost of license. Amortization of goodwill and
other intangibles relates to the acquisition of Snaketech in March 2000 and the
acquisition of Altius in October 2000. No amortization expense was recorded for
the six months ended March 31, 2000.

Net Interest and Other Income (Expense). Net interest and other expense was
$115,000 for the six months ended March 31, 2000 and $116,000 for the six months
ended March 31, 2001. Net interest and other expense for the six months ended
March 31, 2001 includes interest incurred on our line of credit and capital
leases, foreign withholding taxes, amortization of debt discount and foreign
currency translation loss, offset by interest income earned on our cash and cash
equivalent balances.

YEARS ENDED SEPTEMBER 30, 1999 AND 2000

Revenue

Total Revenue. Total revenue increased 110% from $10.9 million for the year
ended September 30, 1999 to $22.8 million for the year ended September 30, 2000.
Our contracts with Toshiba accounted for 18% of total revenue for the year ended
September 30, 2000. As a percentage of total revenue, license revenue accounted
for 71% for the year ended September 30, 1999 and 64% for the year ended
September 30, 2000. Total revenue from sales to customers outside North America
accounted for 23% of total revenue for the year ended September 30, 1999 and 34%
of total revenue for the year ended September 30, 2000. We expect that revenue
derived from overseas customers will continue to account for a significant
portion of our future revenue.

License Revenue. License revenue increased 91% from $7.7 million for the
year ended September 30, 1999 to $14.7 million for the year ended September 30,
2000 due to the introduction of next generation models of our primary products
as well as an increase in the demand for our existing products primarily due to
technological advances in our industry which we expect to continue.

Services Revenue. Services revenue increased 156% from $3.2 million for the
year ended September 30, 1999 to $8.1 million for the year ended September 30,
2000. This increase was due to an approximately $3.6 million increase in
maintenance and other support of our customers and approximately $1.3 million
increase in revenue related to our research contract.

Cost of Revenue

YEAR ENDED
SEPTEMBER 30,
Licenses. --------------
1999 2000
----- -----

Other cost of license....................................... $96 $ 92
Amortization of acquired technology......................... -- 166
--- ----
Cost of license........................................ $96 $258
--- ----

32
36

Excluding amortization of acquired technology, cost of licenses decreased
4% from $96,000 for the year ended September 30, 1999 to $92,000 for the year
ended September 30, 2000, due to lower royalties incurred. As a percentage of
licenses revenue, cost of licenses, excluding amortization of acquired
technology were 1.2% for the year ended September 30, 1999, and 0.6% for the
year ended September 30, 2000. Including amortization of acquired technology of
$166,000 for the year ended September 30, 2000, cost of license increased to
$258,000, or 1.8% of license revenue. We incurred no amortization of acquired
technology for the year ended September 30, 1999.

YEAR ENDED
SEPTEMBER 30,
Services. ----------------
1999 2000
------ ------

Other cost of services...................................... $1,974 $3,391
Stock-based compensation.................................... -- 254
------ ------
Cost of services....................................... $1,974 $3,645
------ ------

Excluding stock-based compensation expense, cost of services increased 72%
from $2.0 million in the year ended September 30, 1999 to $3.4 million in the
year ended September 30, 2000, due to cost of services related to our research
contract offset by a cost-saving program that included a decrease in the use of
outside consultants utilized for application engineering in early fiscal 1999.
As a percentage of services revenue, cost of services, excluding stock-based
compensation expense, was 62% for the year ended September 30, 1999, and 42% for
the year ended September 30, 2000. Including stock-based compensation expense of
$254,000 for the year ended September 30, 2000, cost of service increased to
$3.6 million, or 45% of service revenue. We incurred no stock-based compensation
expense for the year ended September 30, 1999.

Operating Expenses

YEAR ENDED
SEPTEMBER 30,
Research and Development. ----------------
1999 2000
------ ------

Other research and development.............................. $6,378 $4,966
Stock-based compensation.................................... 9 375
------ ------
Research and development............................... $6,387 $5,341
------ ------

Excluding stock-based compensation expense and amortization of intangibles,
research and development expenses decreased 22% from $6.4 million for the year
ended September 30, 1999 to $5.0 million for the year ended September 30, 2000.
During the second quarter of fiscal 1999, we limited the use of higher-priced
outside consultants resulting in lower expenses. We started increasing the level
of staffing for research and development after the acquisition of Snaketech in
the quarter ended March 31, 2000. As a percentage of total revenue, research and
development expenses, excluding stock-based compensation expense and
amortization of intangibles, were 59% for the year ended September 30, 1999 and
22% for the year ended September 30, 2000, attributable to increases in total
revenue and lower expenses. Including stock-based compensation expense of
$375,000 for the year ended September 30, 2000, research and development expense
increased to $5.3 million, or 23% of total revenue. We incurred $9,000
stock-based compensation expense for the year ended September 30, 1999.

YEAR ENDED
SEPTEMBER 30,
Sales and Marketing. -----------------
1999 2000
------ -------

Other sales and marketing................................... $7,314 $10,373
Stock-based compensation.................................... -- 262
------ -------
Sales and marketing.................................... $7,314 $10,635
------ -------

Excluding stock-based compensation expense, sales and marketing expenses
increased 42% from $7.3 million for the year ended September 30, 1999 to $10.4
million for the year ended September 30,

33
37

2000. Approximately $2.1 million of this increase was due to the addition of
sales personnel and increased commissions paid. As a percentage of total
revenue, sales and marketing expenses, excluding stock-based compensation
expense, were 67% for the year ended September 30, 1999 and 45% for the year
ended September 30, 2000, due to the growth of revenue outpacing the increase of
sales and marketing expenses. Including stock-based compensation expense of
$262,000 for the year ended September 30, 2000, sales and marketing expense
increased to $10.6 million, or 47% of total revenue. We incurred no stock-based
compensation expense for the year ended September 30, 1999.

YEAR ENDED
SEPTEMBER 30,
General and Administrative. ----------------
1999 2000
------ ------

Other general and administrative............................ $2,225 $2,821
Stock-based compensation.................................... 4 904
------ ------
General and administrative............................. $2,229 $3,725
------ ------

Excluding stock-based compensation expense, general and administrative
expenses increased 27% from $2.2 million for the year ended September 30, 1999
to $2.8 million for the year ended September 30, 2000 due to the addition of
personnel and increased use of consultants and third party advisors. As a
percentage of total revenue, general and administrative expenses, excluding
stock-based compensation expense, were 20% for the year ended September 30, 1999
and 12% for the year ended September 30, 2000. Including stock-based
compensation expense of $904,000 for the year ended September 30, 2000, general
and administrative expense increased to $3.7 million, or 16% of total revenue.
We incurred $4,000 of stock-based compensation expense for the year ended
September 30, 1999.

Amortization of Goodwill and Other Intangibles. Amortization of acquired
intangibles was $0.6 million for the year ended September 30, 2000, of which
$166,000 was allocated to cost of license. The total amortization related to the
acquisition of Snaketech in March 2000. No amortization expense was recorded in
the year ended September 30, 1999.

Stock-based Compensation. We recorded an unearned stock-based compensation
charge of $4.0 million for the year ended September 30, 2000 and $20,000 for the
year ended September 30, 1999. Stock-based compensation expense was $1.8 million
for the year ended September 30, 2000 and $13,000 for the year ended September
30, 1999. This stock-based compensation expense has been allocated to its
respective category under cost of revenue, research and development, sales and
marketing and general and administrative. This increased expense resulted from
the increased level of stock option grants and restricted stock issuances and
increases in the deemed fair market value of the underlying common stock.

In-process and Acquired Research and Development. On March 31, 2000, we
acquired Snaketech. In connection with this acquisition, $1.1 million of
in-process research and development has been allocated based on established
valuation techniques using the incremental expected cash flows. At the date of
the acquisition, this amount was expensed as a non-recurring charge as the
in-process technology had not yet reached technological feasibility and had no
alternative future use. Snaketech had one major in-process research and
development project relating to the development of chip design software in
progress at the time of the acquisition. We have completed the Snaketech
in-process project and continue to use it to assist in developing our own next
generation chip design technology. We do not expect to complete our new
technology until at least Spring 2001. We cannot assure you that our chip design
technology will be completed in our expected time frame, if at all, or that we
will receive any incremental cash flow benefits from the acquired in-process
technology.

In addition, Simplex also acquired a place and route development tool which
will be used exclusively in the development of one of Simplex' products. The
development tool was valued based upon Simplex' estimate of fair value. In
assigning fair value, Simplex considered its market value if the product were
separately sold, its value if the product were sold or licensed by Snaketech, as
well as Simplex' planned usage. As the development tool had no probable
alternative future use, Simplex expensed the full fair market value of $3.9
million upon purchase.

34
38

Net Interest and Other Income (Expense). Net interest and other income was
$78,000 for the year ended September 30, 1999 and a net expense of $284,000 for
the year ended September 30, 2000. Net interest and other expense for the year
ended September 30, 2000 includes interest expense incurred on our line of
credit and capital leases, foreign withholding taxes, amortization of debt
discount and foreign currency translation loss, offset by interest income earned
on our cash, cash equivalent and short-term investment balances. We utilized the
line of credit starting June 1999.

Income Taxes. During the year ended September 30, 2000, Simplex incurred
foreign taxes of $242,000. To date, we have never paid significant U.S. federal
or state income taxes and, at September 30, 2000, had net federal operating loss
carryforwards of approximately $18.7 million. We have a full valuation allowance
to the extent of all deferred tax assets since it is more likely than not that
we will not realize any benefit from these assets.

YEARS ENDED SEPTEMBER 30, 1998 AND 1999

Revenue

Total Revenue. Total revenue increased 66% from $6.5 million in fiscal 1998
to $10.9 million in fiscal 1999. AMD accounted for 12.6% and Sun Microsystems
accounted for 11.1% of total revenue in fiscal 1998. No customer accounted for
more than 10% of total revenue in fiscal 1999. As a percentage of total revenue,
license revenue accounted for 82% in fiscal 1998 and 71% in fiscal 1999. Total
revenue from sales to customers outside North America accounted for 10% of total
revenue in fiscal 1998 and 23% of total revenue in fiscal 1999.

License Revenue. License revenue increased 43% from $5.4 million in fiscal
1998 to $7.7 million in fiscal 1999. This increase was attributable to expansion
of our distribution channels both in North America and internationally during
fiscal 1999.

Services Revenue. Services revenue increased 176% from $1.2 million in
fiscal 1998 to $3.2 million in fiscal 1999. The increase was primarily
attributable to approximately $1.5 million in additional maintenance and other
support in connection with the continued growth of the installed base of
customers licensing our products and approximately $500,000 in research and
development contract revenue. Most of our customers have purchased annual
maintenance contracts on initial licenses and have renewed such contracts upon
expiration.

Cost of Revenue

Licenses.

Cost of licenses decreased from $458,000 in fiscal 1998 to $96,000 in
fiscal 1999. As a percentage of license revenue, cost of product licenses were
9% in fiscal 1998 and 1% in fiscal 1999. The decrease in absolute dollars was
principally due to reduced sales of older products which continued to incur
royalty costs. We expect the cost of licenses to continue to decline as a
percentage of total revenue.

Services.

Cost of services increased from $439,000 in fiscal 1998 to $2.0 million in
fiscal 1999. As a percentage of services revenue, cost of services were 38% in
fiscal 1998 and 62% in fiscal 1999. The increase in fiscal 1999 was a result of
the expansion of application engineering that focuses on the provision of
maintenance and support services.

35
39

Operating Expenses

YEAR ENDED
SEPTEMBER 30,
Research and Development. -------------------
1998 1999
--------- ------

Other research and development.............................. $5,038 $6,378
Stock-based compensation.................................... 22 9
------ ------
Research and development............................... $5,060 $6,387
------ ------

Excluding stock-based compensation expense, research and development
expenses increased by 26% from $5.0 million in fiscal 1998 to $6.4 million in
fiscal 1999. This increase was attributable to an approximately $1.6 million
increase in engineering compensation and benefits, offset by a reduction of
high-priced outside consultant expenses. As a percentage of total revenue,
research and development expenses were 77% of total revenue in fiscal 1998 and
59% of total revenue in 1999. The decrease was attributable to an increase in
total revenue. Total stock-based compensation expense was $22,000 for the year
ended September 30, 1998 and $9,000 for the year ended September 30, 1999.

YEAR ENDED
SEPTEMBER 30,
Sales and Marketing. -------------------
1998 1999
--------- ------

Other sales and marketing................................... $6,288 $7,314
Stock-based compensation.................................... -- --
------ ------
Sales and marketing.................................... $6,288 $7,314
------ ------

Sales and marketing expenses increased by 16% from $6.3 million in fiscal
1998 to $7.3 million in fiscal 1999. As a percentage of total revenue, sales and
marketing expenses were 96% of total revenue in fiscal 1998 and 67% of total
revenue in fiscal 1999. Sales and marketing expenses increased due to the
expansion of our worldwide direct sales and marketing organization. During
fiscal 1999, we established direct sales and support offices in the United
States, Europe, Taiwan and Japan.

YEAR ENDED
SEPTEMBER 30,
General and Administrative. -------------------
1998 1999
--------- ------

Other general and administrative............................ $1,343 $2,225
Stock-based compensation.................................... 476 4
------ ------
General and administrative............................. $1,819 $2,229
------ ------

Excluding stock-based compensation expense, general and administrative
expenses increased 66% from $1.3 million in fiscal 1998 to $2.2 million in
fiscal 1999. As a percentage of total revenue, general and administrative
expenses were 28% of total revenue in fiscal 1998 and 20% of total revenue in
fiscal 1999. This increase resulted from the addition of new management and
administrative personnel to support our growth. Total stock-based compensation
expense was $476,000 for the year ended September 30, 1998 and $4,000 for the
year ended September 30, 1999.

Additionally, as originally reported, we recorded approximately $65,000 in
compensation expense related to a severance agreement. The 1998 financial
statements have been revised to properly reflect the expense associated with
this agreement, which charge increased by $384,500 for the year ended September
30, 1998 to $449,500.

Stock-based Compensation. We recorded an unearned stock-based compensation
charge of $45,000 in fiscal 1998 and $20,000 in fiscal 1999. Amortization of
stock-based compensation was $49,000 in fiscal 1998 and $13,000 in fiscal 1999.
This expense resulted from stock options granted to non-employees.

Net Interest and Other Income (Expense). Net interest and other income
decreased from $312,000 in fiscal 1998 to $78,000 in fiscal 1999. This decrease
was due to decreased cash and cash equivalent balances.

36
40

QUARTERLY RESULTS OF OPERATIONS

The following table presents our unaudited quarterly results of operations
in dollar amounts and as a percentage of total revenues for the eight quarters
ended March 31, 2001. You should read the following table in conjunction with
our consolidated financial statements and the notes related thereto. This table
includes all adjustments, consisting only of normal recurring adjustments, that
we consider necessary for a fair presentation of our financial position and
operating results for the quarters presented. You should not draw any
conclusions about our future results from our quarterly results of operations.

QUARTER ENDED
(REVISED)
------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1999 1999 1999 2000 2000 2000
-------- ------------- ------------ --------- -------- -------------
(IN THOUSANDS)

STATEMENT OF OPERATIONS
DATA:
Net revenue:
License................... $ 2,006 $2,714 $3,192 $ 3,154 $ 3,983 $ 4,350
Services.................. 662 1,491 1,050 1,997 2,169 2,922
------- ------ ------ ------- ------- -------
Total revenue............. 2,668 4,205 4,242 5,151 6,152 7,272
------- ------ ------ ------- ------- -------
Cost of revenue:
License................... 3 74 24 27 107 100
Services.................. 400 401 579 821 1,053 1,192
------- ------ ------ ------- ------- -------
Total cost of revenue..... 403 475 603 848 1,160 1,292
------- ------ ------ ------- ------- -------
Gross profit............... 2,265 3,730 3,639 4,303 4,992 5,980
------- ------ ------ ------- ------- -------
Research and development... 1,640 1,419 911 1,199 1,614 1,617
Sales and marketing........ 1,677 1,838 2,022 2,587 2,589 3,437
General and
administrative............ 543 531 655 996 1,042 1,032
Amortization of goodwill
and other intangibles..... -- -- -- -- 203 206
In-process and acquired
research and
development............... -- -- -- 5,000 -- --
------- ------ ------ ------- ------- -------
Total operating
expenses................ 3,860 3,788 3,588 9,782 5,448 6,292
------- ------ ------ ------- ------- -------
Operating income (loss).... (1,595) (58) 51 (5,479) (456) (312)
Other (expense) income..... 47 (103) (83) (116) (129) (198)
------- ------ ------ ------- ------- -------
Net loss................... $(1,548) $ (161) $ (32) $(5,595) $ (585) $ (510)
======= ====== ====== ======= ======= =======
OTHER FINANCIAL DATA(1):
Gross profit excluding
non-cash charges(a)....... $ 2,265 $3,730 $3,639 $ 4,412 $ 5,152 $ 6,131
Total operating expenses
excluding non-cash
charges(b)................ $ 3,856 $3,783 $3,559 $ 4,196 $ 4,787 $ 5,615
Operating income (loss)
excluding non-cash
charges(c)................ $(1,591) $ (53) $ 80 $ 216 $ 365 $ 516
Net income (loss) excluding
non-cash charges(d)....... $(1,544) $ (156) $ (3) $ 100 $ 236 $ 318

QUARTER ENDED
(REVISED)
-------------------------
DECEMBER 31, MARCH 31,
2000 2001
------------- ---------
(IN THOUSANDS)

STATEMENT OF OPERATIONS
DATA:
Net revenue:
License................... $ 4,281 $ 6,191
Services.................. 4,893 5,464
------- -------
Total revenue............. 9,174 11,655
------- -------
Cost of revenue:
License................... 115 137
Services.................. 3,174 3,058
------- -------
Total cost of revenue..... 3,289 3,195
------- -------
Gross profit............... 5,885 8,460
------- -------
Research and development... 2,932 3,693
Sales and marketing........ 3,576 4,651
General and
administrative............ 1,789 1,391
Amortization of goodwill
and other intangibles..... 1,526 1,526
In-process and acquired
research and
development............... -- --
------- -------
Total operating
expenses................ 9,823 11,261
------- -------
Operating income (loss).... ( 3,938) (2,801)
Other (expense) income..... (197) (239)
------- -------
Net loss................... $(4,135) $(3,040)
======= =======
OTHER FINANCIAL DATA(1):
Gross profit excluding
non-cash charges(a)....... $ 6,737 $ 9,310
Total operating expenses
excluding non-cash
charges(b)................ $ 6,491 $ 8,901
Operating income (loss)
excluding non-cash
charges(c)................ $ 246 $ 409
Net income (loss) excluding
non-cash charges(d)....... $ 49 $ 170

37
41

CONSOLIDATED CASH FLOW
DATA:
Net cash (used in) provided
by operating activities... $(1,129) $ (636) $ 709 $ 404 $(1,351) $ 1,803
Net cash (used in) provided
by investing activities... $ (54) $ 307 $ (875) $ 2,305 $ (246) $ (377)
Net cash (used in) provided
by financing activities... $ 2,567 $ 17 $ 110 $ 134 $ 658 $ (31)

RECONCILIATION BETWEEN
REPORTED STATEMENT OF
OPERATIONS DATA AND THE
AMOUNT SHOWN AS OTHER
FINANCIAL DATA:
(a) Gross profit........... $ 2,265 $3,730 $3,639 $ 4,303 $ 4,992 $ 5,980
Amortization of acquired
technology.............. -- -- -- -- 83 83
Stock-based
compensation............ -- -- -- 109 77 68
------- ------ ------ ------- ------- -------
Gross profit excluding
non-cash charges...... $ 2,265 $3,730 $3,639 $ 4,412 $ 5,152 $ 6,131
======= ====== ====== ======= ======= =======
(b) Total operating
expenses.................. $ 3,860 $3,788 $3,588 $ 9,782 $ 5,448 $ 6,292
Amortization of goodwill
and other intangibles... -- -- -- -- (203) (206)
In-process and acquired
research and
development............. -- -- -- (5,000) -- --
Stock-based
compensation............ (4) (5) (29) (586) (458) (471)
------- ------ ------ ------- ------- -------
Total operating expenses
excluding non-cash
charges............... $ 3,856 $3,783 $3,559 $ 4,196 $ 4,787 $ 5,615
======= ====== ====== ======= ======= =======
(c) Operating income
(loss).................... $(1,595) $ (58) $ 51 $(5,479) $ (456) $ (312)
Amortization of goodwill
and other intangibles... -- -- -- -- 286 289
In-process and acquired
research and
development............. -- -- -- 5,000 -- --
Stock-based
compensation............ 4 5 29 695 535 539
------- ------ ------ ------- ------- -------
Operating income (loss)
excluding non-cash
charges............... $(1,591) $ (53) $ 80 $ 216 $ 365 $ 516
======= ====== ====== ======= ======= =======
(d) Net loss............... $(1,548) $ (161) $ (32) $(5,595) $ (585) $ (510)
Amortization of goodwill
and other intangibles... -- -- -- -- 286 289
In-process and acquired
research and
development............. -- -- -- 5,000 -- --
Stock-based
compensation............ 4 5 29 695 535 539
------- ------ ------ ------- ------- -------
Net income (loss)
excluding non-cash
charges............... $(1,544) $ (156) $ (3) $ 100 $ 236 $ 318
======= ====== ====== ======= ======= =======

QUARTER ENDED
(REVISED)
------------------------
DECEMBER 31, MARCH 31,
2000 2001
------------ ---------
(IN THOUSANDS)

CONSOLIDATED CASH FLOW
DATA:
Net cash (used in) provided
by operating activities... $(3,861) $ 239
Net cash (used in) provided
by investing activities... $ 1,452 $ (539)
Net cash (used in) provided
by financing activities... $ 38 $ 2,597
RECONCILIATION BETWEEN
REPORTED STATEMENT OF
OPERATIONS DATA AND THE
AMOUNT SHOWN AS OTHER
FINANCIAL DATA:
(a) Gross profit........... $ 5,885 $ 8,460
Amortization of acquired
technology.............. 113 113
Stock-based
compensation............ 739 737
------- -------
Gross profit excluding
non-cash charges...... $ 6,737 $ 9,310
======= =======
(b) Total operating
expenses.................. $ 9,823 $11,261
Amortization of goodwill
and other intangibles... (1,526) (1,526)
In-process and acquired
research and
development............. -- --
Stock-based
compensation............ (1,806) (834)
------- -------
Total operating expenses
excluding non-cash
charges............... $ 6,491 $ 8,901
======= =======
(c) Operating income
(loss).................... $(3,938) $(2,801)
Amortization of goodwill
and other intangibles... 1,639 1,639
In-process and acquired
research and
development............. -- --
Stock-based
compensation............ 2,545 1,571
------- -------
Operating income (loss)
excluding non-cash
charges............... $ 246 $ 409
======= =======
(d) Net loss............... $(4,135) $(3,040)
Amortization of goodwill
and other intangibles... 1,639 1,639
In-process and acquired
research and
development............. --
Stock-based
compensation............ 2,545 1,571
------- -------
Net income (loss)
excluding non-cash
charges............... $ 49 $ 170
======= =======

38
42

AS A PERCENTAGE OF TOTAL
REVENUE:
Net revenue:
License................... 75% 65% 75% 61% 65% 60%
Services.................. 25 35 25 39 35 40
------- ------ ------ ------- ------- -------
Total revenue............. 100 100 100 100 100 100
------- ------ ------ ------- ------- -------
Cost of revenue:
License................... -- 2 1 1 1 1
Services.................. 15 10 13 16 17 16
------- ------ ------ ------- ------- -------
Total cost of revenue..... 15 12 14 17 18 17
------- ------ ------ ------- ------- -------
Gross profit............... 85 88 86 83 82 83
------- ------ ------ ------- ------- -------
Research and development... 61 33 21 23 26 22
Sales and marketing........ 63 44 48 50 42 47
General and
administrative............ 21 12 16 20 17 14
Amortization of goodwill
and other intangibles..... -- -- -- -- 3 3
In-process and acquired
research and
development............... -- -- -- 97 -- --
------- ------ ------ ------- ------- -------
Total operating
expenses................ 145 89 85 190 88 86
------- ------ ------ ------- ------- -------
Operating income (loss).... (60) (1) 1 (107) (6) (3)
Other (expense) income..... 2 (3) (2) (2) (2) (3)
------- ------ ------ ------- ------- -------
Net loss................... (58)% (4)% (1)% (109)% (8)% (6)%
======= ====== ====== ======= ======= =======
OTHER FINANCIAL DATA
PERCENTAGES:(1)
Gross profit excluding
non-cash charges.......... 85% 89% 86% 86% 84% 84%
Total operating expense
excluding non-cash
charges................... 145% 90% 84% 82% 78% 77%
Operating income (loss)
excluding non-cash
charges................... (60)% (1)% 2% 4% 6% 7%
Net loss excluding non-cash
charges................... (58)% (4)% 0% 2% 4% 4%

QUARTER ENDED
(REVISED)
-------------------------
DECEMBER 31, MARCH 31,
2000 2001
------------- ---------

AS A PERCENTAGE OF TOTAL
REVENUE:
Net revenue:
License................... 47% 53%
Services.................. 53 47
------- -------
Total revenue............. 100 100
------- -------
Cost of revenue:
License................... 1 1
Services.................. 35 26
------- -------
Total cost of revenue..... 36 27
------- -------
Gross profit............... 64 73
------- -------
Research and development... 32 32
Sales and marketing........ 39 40
General and
administrative............ 20 12
Amortization of goodwill
and other intangibles..... 17 13
In-process and acquired
research and
development............... -- --
------- -------
Total operating
expenses................ 108 97
------- -------
Operating income (loss).... (44) (24)
Other (expense) income..... (2) (2)
------- -------
Net loss................... (46)% (26)%
======= =======
OTHER FINANCIAL DATA
PERCENTAGES:(1)
Gross profit excluding
non-cash charges.......... 73% 80%
Total operating expense
excluding non-cash
charges................... 71% 76%
Operating income (loss)
excluding non-cash
charges................... 2% 4%
Net loss excluding non-cash
charges................... 0% 1%

- ---------------
(1) In the Other Financial Data table above, we present gross profit, total
operating expenses, operating income (loss) and net income (loss) as
adjusted to exclude the following non-cash charges: stock-based
compensation expense, in-process and acquired research and development
charges, and amortization of goodwill and other intangibles. For a
discussion of why we believe these measures are helpful to an
understanding of our operations, see "Selected Consolidated Financial
Data" beginning on page 21.

License revenue increased from $2.0 million in the fiscal quarter ended
June 30, 1999 to $2.7 million in the fiscal quarter ended September 30, 1999.
This increase was due primarily to new product shipments of Fire & Ice QX and
increased sales efforts. In the quarter ended December 31, 2000, service revenue
increased approximately $2.0 million as compared to the preceding quarter. This
increase resulted primarily from revenue generated from our design foundry
services due to the acquisition of Altius on October 4, 2000. In the quarter
ended March 31, 2001, service revenue increased approximately $0.6 million as
compared to the preceding quarter. This increase resulted from the continued
increase revenue generated from our design foundry services. Commissions
represent a significant portion of our sales force compensation, which is
structured to strongly incentivize sale closures for both licenses and services
prior to year end. As a result, we expect that sales efforts will continue to
intensify in the fiscal fourth quarter, which could result in our revenue being
flat or slightly down in the subsequent fiscal first quarter.

During the March 31, 1999 quarter, we began a cost-savings program which
included a shift away from the utilization of higher cost consulting personnel
to in-house employees. As a result, research and development, sales and
marketing and general and administrative expenses each began to decrease in the
following quarter. In-process research and development expenses of $5.0 million
in the quarter ended March 31, 2000 resulted from the Snaketech acquisition.
During the quarters ended June 30, 2000 and September 30, 2000, we recognized
amortization expenses of $0.5 million in each quarter related to the

39
43

acquisition, of which $83,000 was charged to cost of license for each quarter.
Excluding stock-based compensation expense and amortization of intangibles,
total cost of license, services and operating expenses increased from $6.8
million in the quarter ended September 30, 2000 to $11.2 million in the quarter
ended December 31, 2000. This increase resulted primarily from increased
headcount and other expenses as a result of the Altius acquisition on October 4,
2000.

Provision for Income Taxes

To date, we have only incurred a minimal amount of foreign taxes. No
provision for federal and state income taxes has been recorded since inception
because we have experienced significant net losses, which have resulted in
federal and state operating loss carryforwards of approximately $18.7 million at
September 30, 2000. In light of our cumulative operating losses, we have
provided a full valuation allowance for all deferred tax assets as we are
presently unable to conclude that it is more likely than not that the deferred
tax asset will be realized.

Liquidity and Capital Resources

Since inception, we have financed our operations primarily through private
sales of preferred stock in aggregate of approximately $24.3 million, internally
generated funds, and the use of our line of credit with Transamerica Business
Credit Corporation. As of March 31, 2001, we had $7.4 million of cash and cash
equivalents. As of March 31, 2001, we had $5.0 million outstanding under our
$5.0 million credit facility with Transamerica. Borrowing under this credit
facility bears interest at a minimum rate of 9.0% (12.25% for the $2.5 million
non-formula loan and 10.50% for the $2.5 million formula loan as of March 31,
2001). We anticipate using available cash to fund growth in operations and for
working capital.

Net cash used in operating activities was $3.6 million for the six months
ended March 31, 2001, including payment of liabilities assumed in the Altius
transaction. This was partially offset by the acquisition of $2.3 million of
cash from Altius that is reported in cash flows from investing activities. Cash
used in operations includes approximately $1.3 million in charges related to
this offering. Net cash provided by operating activities was $1.1 million for
the six months ended March 31, 2000 and $1.6 million for the year ended
September 30, 2000. Net cash used in operating activities was $5.4 million in
fiscal 1999 and $6.5 million in fiscal 1998.

Net cash provided by investing activities was $0.9 million for the six
months ended March 31, 2001 and $1.4 million for six months ended March 31,
2000. Net cash provided by investing activities was $807,000 for the year ended
September 30, 2000. Net cash used in investing activities was $696,000 in fiscal
1999 and $1.1 million in fiscal 1998. Net cash provided by investing activities
consisted primarily of cash received in the acquisition of Snaketech and Altius
and the proceeds from available-for-sale securities. Cash used in investing
activities consists primarily of purchases of property and equipment.

Net cash provided by financing activities was $2.6 million for the six
months ended March 31, 2001, $244,000 for the six months ended March 31, 2000,
$0.9 million for fiscal 2000, $3.2 million in fiscal 1999 and $11.4 million in
fiscal 1998. Cash provided by financing activities during these periods was
primarily due to proceeds from the issuance of preferred stock and common stock,
stock options exercised by employees and borrowings under our line of credit
facility.

We currently anticipate that our available cash resources combined with the
cash generated from operations will be sufficient to meet our anticipated
working capital and capital expenditure requirements for at least the next 18
months. We do not have a definitive quantified plan with respect to the use of
the net proceeds of this offering. As a result, our management will have broad
discretion with respect to the use of the net proceeds from this offering, and
investors will be relying on the judgement of our management regarding the
application of these proceeds. If cash generated from operations is insufficient
to satisfy our liquidity requirements, we may need to raise additional funds to
finance more rapid expansion, to develop new or enhance existing services or
products, to respond to competitive pressures or to acquire complementary
products, businesses or technologies. If additional funds are raised through the

40
44

issuance of equity or convertible debt securities, the percentage ownership of
our stockholders will be reduced and such securities may have rights,
preferences or privileges senior to those of our stockholders.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"), which establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
133 requires that all derivatives be recognized at fair value in the financial
position, and that the corresponding gains or losses be reported either in the
statement of operations or as a component of comprehensive income, depending on
the type of hedging relationship that exists. SFAS 133, as amended is effective
for fiscal years beginning after June 15, 2000. There was no significant impact
from the adoption of this standard.

In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101, Revenue Recognition ("SAB 101"), which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB 101 outlines the basic criteria that must be
met to recognize revenue and provides guidance on disclosure related to revenue
recognition policies. We believe that our company currently complies with SAB
101.

In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation -- an Interpretation of APB 25
(the "Interpretation"). This Interpretation clarifies (a) the definition of an
employee for purposes of applying APB 25, (b) the criteria for determining
whether a stock plan qualifies as a non-compensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation is effective July 1, 2000,
but certain conclusions in this Interpretation cover specific events that occur
after either December 15, 1998, or January 12, 2000. To the extent that this
Interpretation covers events occurring during the period after December 15,
1998, or January 12, 2000, but before the effective date of July 1, 2000, the
effects of applying this Interpretation are recognized on a prospective basis
from July 1, 2000. There was not a significant impact of the adoption of this
Interpretation on the consolidated financial statements.

Qualitative and Quantitative Disclosures about Market Risk

We develop products in the United States and France and sell our products
globally, through our direct sales force and independent distributors. Our
products are sold primarily in North America, Europe and Japan. Most of our
sales are currently denominated in U.S. dollars; however we anticipate an
increasing amount of sales to be denominated in the Japanese yen and possibly
the euro. As a result, our financial results may be directly affected by changes
in foreign currency exchange rates and weak economic conditions in foreign
markets.

We currently do not invest in, or hold for trading or other purposes, any
financial instruments subject to market risk. As of March 31, 2001, we had $7.4
million of cash and cash equivalents. Our interest income is sensitive to
changes in the general level of United States interest rates and any declines of
interest rates over time would reduce our interest income from our portfolio. As
of March 31, 2001, we had total debt of $5.4 million, most of which accrues
interest based on the prime rate. Therefore, we are subject to exposure to
interest rate risk for these borrowings based on fluctuations in the prime rate.
However, as we expect to repay the outstanding debts with the proceeds of this
offering, we do not expect our exposure to market risk from changes in interest
rates to be material.

41
45

ALTIUS RESULTS OF OPERATIONS

In October 2000, we acquired Altius Solutions, Inc., which is now our
wholly owned subsidiary. Through our acquisition of Altius, we now provide
design foundry services which enable accelerated chip development. Altius was
incorporated in December 1998, and received its first revenue for system-on-chip
design services in March 1999. Past growth and results of business and
operations are not necessarily indicative of future performance. This
transaction is accounted for under the purchase method of accounting.

The following table presents certain Altius financial data derived from
audited financial statements for the year ended December 31, 1999 and for the
nine months ended September 30, 2000, and from unaudited financial statements
for the nine month periods ended September 30, 1999. In the opinion of
management, the unaudited statements have been prepared on substantially the
same basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial information for the periods presented. This
information should be read in conjunction with the financial statements and
notes to those financial statements included elsewhere in this prospectus (in
thousands):

NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ---------------------
1999 1999 2000
------------ ----------- ------
(UNAUDITED)

STATEMENTS OF OPERATIONS DATA:
Revenue:
System-on-chip design services........................... $2,037 $ 993 $6,528
License.................................................. 441 424 39
Maintenance and other services........................... 541 395 398
------ ------ ------
Total revenue......................................... 3,019 1,812 6,965
------ ------ ------
Cost of revenue:
System-on-chip design services........................... 1,711 849 3,426
License.................................................. 51 51 77
Maintenance and other services........................... -- -- 59
------ ------ ------
Total cost of revenue................................. 1,762 900 3,562
------ ------ ------
Gross profit............................................... 1,257 912 3,403
------ ------ ------
Operating expenses:
Research and development................................. 497 396 333
Sales and marketing...................................... 363 288 752
General and administrative............................... 180 103 1,297
Stock-based compensation................................. 63 25 230
------ ------ ------
Total operating expenses.............................. 1,103 812 2,612
------ ------ ------
Operating profit........................................... 154 100 791
Other income (expense), net................................ 40 15 48
------ ------ ------
Income before income taxes................................. 194 115 839
Provision for income taxes................................. 95 56 409
------ ------ ------
Net income................................................. $ 99 $ 59 $ 430
====== ====== ======

RESULTS OF OPERATIONS FOR ALTIUS SOLUTIONS, INC.

Nine Months Ended September 30, 1999 and 2000

Total Revenue. Total revenue increased from $1.8 million for the nine
months ended September 30, 1999 to $7.0 million for the nine months ended
September 30, 2000. One customer accounted for 46% of total revenues for the
nine months ended September 30, 1999. Two customers accounted for 65% of total
revenue for the nine months ended September 30, 2000. As a percentage of total
revenue, design services revenue accounted for 55% in the nine months ended
September 30, 1999 and 94% in the nine months ended September 30, 2000. Total
revenue from sales to customers outside the United States accounted for 18% of
total revenue for the nine months ended September 30, 1999, 64% of total revenue
for the nine months ended September 30, 2000.

42
46

System-on-Chip Design Services Revenue. System-on-Chip Design services
revenue increased from $1.0 million for the nine months ended September 30, 1999
to $6.5 million for the nine months ended September 30, 2000 as Altius achieved
increased market adoption of its initial services.

License Revenue. License revenue decreased from $424,000 for the nine
months ended September 30, 1999 to $39,000 for the nine months ended September
30, 2000. The decrease in license revenue was due to the cessation of sales of
third party owned software. Altius commenced shipping its software product, IP
Station on September 27, 2000, and recorded the sale in deferred revenue.

Maintenance and Other Services Revenue. Maintenance and other services
revenue increased from $395,000 for the nine months ended September 30, 1999 to
$398,000 for the nine months ended September 30, 2000 due to assuming
maintenance services for the installed base of third party license products. The
third party license products were assumed by Altius starting in the quarter
ended June 30, 1999.

Cost of Revenue

System-on-Chip Design Services. Cost of system-on-chip design services
increased from $849,000 for the nine months ended September 30, 1999 to $3.4
million for the nine months ended September 30, 2000 due to approximately
$155,000 in increased licensing fees associated with software design tools, $2.0
million in increased compensation and benefits expense and $462,000 in increased
overhead allocation. As a percentage of system-on-chip design services revenue,
cost of design services were 86% for the nine months ended September 30, 1999
and 53% for the nine months ended September 30, 2000.

Licenses. Cost of licenses increased from $51,000 for the nine months ended
September 30, 1999 to $77,000 for the nine months ended September 30, 2000. The
costs consisted of royalty payments to a third party and overhead allocation. As
a percentage of licenses revenue, cost of licenses were 12% for the nine months
ended September 30, 1999, and 196% for the nine months ended September 30, 2000.

Maintenance and Other Services. Cost of maintenance and other services
increased to $59,000 for the nine months ended September 30, 2000 due to the
addition of a customer service platform, including hot-line and on-site
installation assistance services.

Operating Expenses

Research and Development. Research and development expenses decreased from
$396,000 for the nine months ended September 30, 1999 to $333,000 for the nine
months ended September 30, 2000. During the first quarter of fiscal 2000, one of
Altius' software projects achieved technological feasibility and, as a result,
we capitalized approximately $667,000 of research and development costs. As a
percentage of total revenue, research and development expenses were 22% for the
nine months ended September 30, 1999 and 5% for the nine months ended September
30, 2000. The decrease was attributable to the commencement of capitalization of
research and development in accordance with the requirements of United States
generally accepted accounting principles.

Sales and Marketing. Sales and marketing expenses increased from $288,000
for the nine months ended September 30, 1999 to $752,000 for the nine months
ended September 30, 2000 due to approximately $278,000 in increased compensation
for sales personnel, $186,000 in increased cost incurred for trade show expenses
and overhead allocation. As a percentage of total revenue, sales and marketing
expenses were 16% for the nine months ended September 30, 1999 and 11% for the
nine months ended September 30, 2000. The decrease as a percentage of total
revenue is due to the higher levels of total revenue.

General and Administrative. General and administrative expenses increased
from $103,000 for the nine months ended September 30, 1999 to $1,297,000 for the
nine months ended September 30, 2000 due to approximately $516,000 for costs
related to mergers and acquisitions, $500,000 in increased compensation and
benefit expenses and $178,000 in increased overhead allocation. As a percentage
of total

43
47

revenue, general and administrative expenses were 6% for the nine months ended
September 30, 1999 and 19% for the nine months September 30, 2000.

Stock-based Compensation. Altius recorded unearned compensation of $592,000
for the nine months ended September 30, 1999 and $530,000 for the nine months
ended September 30, 2000. Amortization of stock-based compensation was $25,000
for the nine months ended September 30, 1999; $230,000 for the nine months ended
September 30, 2000. This expense resulted from stock options granted to
employees at exercise prices less than deemed fair market value.

Interest and Other Income (Expense), net. Interest and other income
(expense), net increased from $15,000 for the nine months ended September 30,
1999 to $48,000 for the nine months ended September 30, 2000. Interest and other
income (expense), net for the nine months ended September 30, 1999 consists of
interest earned on Altius' money market investments, partially offset by
interest expenses incurred on a term loan.

44
48

BUSINESS

INTRODUCTION

We provide software and services for the design and verification of
integrated circuits to enable our communications, computer and consumer products
customers to achieve first-time production success and rapid delivery of complex
system-on-chip. A system-on-chip is an integrated circuit that includes the
computing, memory and communications components that previously had been
available only on separate chips. Our customers use our products and services
prior to manufacture to design and verify the integrated circuits to help ensure
that the integrated circuits will perform as intended, taking into account the
complex effects of deep-submicron semiconductor physics.

Demand for electronic products that are portable, power-efficient and
high-performance, such as cell phones, has driven chip manufacturers to design
complex system-on-chip with small feature sizes reaching 0.18 micron and below.
These system-on-chip integrate digital components, such as microprocessors and
memory, together with analog components, such as radio-frequency receivers and
analog-to-digital converters, into a single chip. Successful development and
commercialization of system-on-chip require the design and manufacture of
integrated circuits with increasingly small feature sizes. Designing system-on-
chip with these small feature sizes magnifies semiconductor physics constraints,
which presents significant challenges to designers and traditional design
software. Sometimes, designers are unable to diagnose and therefore to correct
the design decisions that cause their designs to fail.

INDUSTRY BACKGROUND

Advances in the communications and electronics industries have stimulated
consumer and business demand for communications and networking equipment,
desktop computers, handheld computing wireless devices and other
semiconductor-powered products. Demand for system-on-chip is increasing
dramatically as manufacturers seek to remain competitive by rapidly introducing
products with higher performance, lower cost and smaller size. According to the
Integrated Circuit Engineering Corporation report (ICE -- 2000), the worldwide
market for system-on-chip and application-specific integrated circuits is
expected to grow from $23 billion in 1999 to $64 billion in 2004.

Breakthrough Chip Design Technology

Successful development and commercialization of system-on-chip designs
require the design and manufacture of integrated circuits with extremely small
features, or geometries. Feature size, which is measured in millionths of a
meter, or microns, refers to the size of physical structures that underlie a
semiconductor device's transistors and the wires, or interconnect, that connect
these transistors. The configuration of the transistors and interconnect
together make up the chip's geometry.

Advances in chip manufacturing technology have reduced feature sizes from
3.0 micron in 1980 to 0.18 micron and below in today's advanced semiconductors.
Integrated circuit geometries at or below 0.18 micron are commonly referred to
as deep submicron geometries. Reductions in feature size make it possible to
increase the number of transistors on each chip dramatically, producing
corresponding increases in integrated circuit computing power and functionality.
According to Dataquest, 35% of integrated circuits manufactured in 2000
incorporate geometries at or below 0.18 micron geometries, with continuing
adoption expected to grow to 85% by 2004. Dataquest also reports that in 1999,
less than 3% of engineers were doing designs with more than 10 million
transistors on a given chip and projects the first introduction of 0.10 micron
products that will allow designs with up to 600 million transistors (100 million
gates) by early 2002.

45
49

The New Era of Physics-Dominated Chip Design

Designing system-on-chip with geometries at 0.18 micron and below presents
major challenges both to designers and to traditional design software, making it
extremely difficult to build chips that function as intended. As geometries
shrink, chip devices and interconnect become so densely packed that the
different components of a chip interact in unintended ways and impact the proper
functioning of the whole chip. These unintended interactions, which are
negligible at larger geometries and thus have traditionally been ignored in chip
design, are particularly acute at geometries of 0.18 micron and below. As
designs become more dense, accurate analysis, or modeling, of interconnect
signal transmission becomes fundamental to first-time production success of
complex integrated circuits.

The laws of semiconductor physics ultimately dictate an integrated
circuit's behavior. Yet, properly accounting for the effects of semiconductor
physics at 0.18 micron and below represents a significant barrier to the
successful manufacture of today's deep submicron designs. Historically, chip
design focused on modeling the electrical properties of transistors alone in
order to predict chip performance and functionality, primarily because the
effects of other components at larger geometries were negligible. However, due
to the interrelated nature of electrical current flow across an integrated
circuit's transistors, interconnect and underlying silicon structure at deep
submicron geometries, modeling the entire semiconductor chip, including
transistors, interconnect and the underlying silicon, or substrate structure,
has become essential to timely, cost-effective chip production.
[Heading: "Physical Cross-Section of an IC" Graphic: representation of the
physical cross-section of an IC, including the interconnect, device and
substrate layers. Description of cross section: "Internet & Device & Substrate"]

GRAPHIC

SUBMICRON INTERCONNECT (0.35 MICRON) DEEP SUBMICRON INTERCONNECT (0.18 MICRON)

Discontinuity Between Manufacturing Capability and Effective Design. The
chip industry's ability to manufacture integrated circuits at deep submicron
geometries has surpassed designers' ability to reliably deliver designs that
function as intended once manufactured in such densely configured geometries.
The continued move to deep submicron has had an inordinate impact on design and
manufacturing process efficiency including, but not limited to:

- increasing the likelihood of prototype failure;

- diminishing the ability to predict chip performance;

- lowering manufacturing yield;

- decreasing the reliability of end-products used by customers over time;
and

- increasing run-time for analysis and completion of complex designs.

To avoid these adverse effects, chip designers have increasingly recognized
a need for improved design methodologies and enabling technologies that can
analyze deep submicron effects on all of the chip's components without
sacrificing speed or accuracy. As a result, full-chip analysis has become
critical due to the interrelated nature of electrical current flow across an
integrated circuit's transistors, interconnect and underlying silicon structure.
Segmented analyses of separate system-on-chip components and regions are
frequently too inaccurate to ensure that new integrated circuits will be fully
operational.

46
50

Specific factors that govern chip performance include:

- Power Integrity: Each subsection of an integrated circuit requires a
consistent voltage supply for proper operation. Localized reductions or
fluctuations in voltage can result in total chip failure, analogous to a
"blackout," or failure to operate at intended speeds, analogous to a
"brownout." Because electrical current follows the path of least
resistance, the current flowing across an integrated circuit may be drawn
from one section to another in an unexpected way, making full-chip
analysis essential. Most currently available technologies lack the
capacity to analyze all sections of the chip simultaneously, which limits
their ability to detect potential power integrity problems.

- Timing Integrity: A chip's proper operation requires internal signals to
arrive at intended device locations at precise time intervals. Timing
analysis requires accurate modeling of the electrical properties of the
chip's interconnect in order to predict the arrival time of these signals
correctly. As geometries shrink, the interconnect physics become more
difficult to model, and proper signal arrival times thus become
increasingly difficult to predict. Inaccuracies in timing of the arrival
of the signals produce errors in chip function or insufficient
performance. Most currently available technology lacks an adequate
ability to model the interconnect physics for the full chip at practical
speeds.

- Signal Integrity: When many signals operate in close proximity at
extremely high speeds, current flowing through one wire can disrupt the
current flow in an adjacent wire, causing unintended interference between
signals and possibly even chip failure. Similarly, in designs with both
digital and analog components, or mixed-signal designs, current
fluctuations caused by the switching of digital components can
unexpectedly flow through the underlying silicon structure on which the
transistors and interconnect are placed. This can affect signal levels in
an unintended manner, causing the chip to fail. Most currently available
technology lacks the ability to build accurate models of the substrate
and interconnect physics or the flow of current and so fails to detect
such unanticipated and unintended current flow.

- Reliability: Decreasing the width of the interconnect increases the
probability that the interconnect will be designed without sufficient
capacity to carry the intended current flow over time, ultimately causing
wires to break and chips to fail. Because a chip might not immediately
fail, faulty design is not always immediately evident. Therefore, proper
design tools are needed to ensure that the interconnect can support the
expected operating current of the chip over its anticipated lifetime.
Most currently available technology lacks the capacity to analyze current
flow across the entire chip, resulting in an inability to predict and to
detect where breakages will occur.

Trend of Market Disaggregation. The semiconductor industry is comprised of
three major segments: system design, silicon engineering and semiconductor
manufacturing. Over the last ten years, the semiconductor industry has been
disaggregating these activities. In the early stages of this disaggregation,
many companies began to outsource semiconductor manufacturing, focusing instead
on system design and silicon engineering, also referred to as design
implementation, in an effort to reduce the costs and risks associated with
increasingly complex semiconductor fabrication. This outsourcing of
semiconductor manufacturing led to the rise of silicon foundries, which
concentrate exclusively on the manufacture of semiconductor chips. As the
complexities of designing a system-on-chip increase, many semiconductor
companies have chosen to outsource silicon engineering as well. This trend
towards outsourcing design implementation is reflected in the emergence of
design foundries, which aim to reduce the risk of designing complex chips under
aggressive time-to-market constraints. As a result, today's integrated circuits
are created in concept by semiconductor and systems companies, implemented by
design foundries and manufactured by silicon foundries.

47
51

SYSTEM-ON-CHIP DESIGN FLOW

[Graphic: depiction of the design process of systems-on-chips and the
shifting away of the design process from traditional semiconductor companies to
system companies]

GRAPHIC

Business Challenges Facing System-on-Chip Design Companies

Time-to-Market Delays. In today's increasingly competitive high-technology
economy, the inability to launch products successfully and cost-effectively into
narrow market windows can mean the success or failure of products, divisions and
even companies. First-mover advantage in introducing new products can be vital
to capturing dominant market share for a given product segment, making the
efficiency of design and manufacturing processes critical to competitive
positioning. Delays introduced by unanticipated design flaws can force product
launch postponement or cancellation. As integrated circuit geometries have
reached 0.18 micron and below, the percentage of defective chips has increased
dramatically. The Collett International Research, Inc. 2000 survey reports that
in 1999, 48% of all chips released to manufacture in North America required more
than one manufacturing iteration prior to production ramp-up. Design decisions
that cause chips to fail are frequently not identified until significant
manufacturing resources have been committed. As deep submicron design becomes
more prevalent, design companies are increasingly experiencing time-to-market
delays along with an increased incidence of design flaws.

Increased Incidence of Design Flaws Identified after Manufacturing. The
lack of accurate verification software used throughout the design and final
testing, or sign-off verification, processes has increased the incidence of
manufactured design flaws. Whether design flaws are evident upon initial
manufacture or become evident over time with a product's use, the costs
associated with integrated circuit redesign and remanufacture are significant.
Dataquest estimates that direct, non-recurring engineering costs per 0.18 micron
system-on-chip design are $500,000.

Managing the complexity of deep submicron effects has emerged as a critical
barrier to the design and first-time production success of system-on-chip with
the desired levels of performance. Advances in manufacturing technologies alone
can no longer mitigate the increased risk of delayed system-on-chip product
introduction or failure without corresponding advances in design technologies.
As a result, the chip design industry must integrate advanced methodologies and
software products that manage design complexity and that incorporate full-chip
deep submicron effects into all aspects of their design process.

OUR SOLUTION

Our system-on-chip verification software and services are designed to
provide comprehensive, high-speed verification that an integrated circuit will
perform as designed, taking into account the complex effects of deep submicron
semiconductor physics. Our design foundry services provide design implementation
to help our customers achieve first-to-market delivery of system-on-chip
designs. We believe our customers can gain a competitive advantage by using our
products in advance of manufacture to verify that the chip design will perform
as intended. The advantages of our platform, which stem from our expertise in
chip design, computer science algorithms and software engineering, include the
following key benefits:

Enabling Deep Submicron Chip Design and Manufacture. Our design technology
is engineered to analyze deep submicron effects throughout an integrated circuit
without sacrificing speed or accuracy. In

48
52

the environment of increasingly complex chip designs and correspondingly
increased system-on-chip design requirements, we believe that we enable
electrical correctness throughout the full chip during the design process. Our
modeling and analysis capabilities are designed to enable our customers to
verify the integrity of their designs prior to completing the design process and
manufacturing the chip. A number of chips designed with current technology fail
without designers locating the cause of such fatal failures. We believe our
products provide our customers with a competitive advantage in the design and
delivery of high-performance chips.

Accelerating Time-to-Market. Using our products, we believe our customers
can accelerate their time-to-market by incorporating deep submicron effects
during the design cycle, not simply after the designs are released to
manufacture, thus preventing unanticipated design and manufacture iterations.
Our software and services help to provide customers with designs ready for
production volume, thus avoiding a significant delay and the corresponding loss
of revenue for the design supplier.

Lowering Cost per Chip. By reducing design iterations for each design, our
products help enable faster, more efficient design processes that substantially
reduce production costs. Designers using our products test their chip designs
during the design cycle. Our software is designed to limit the number of
iterations required to design a reliable chip, thereby decreasing both the
production cost per chip and the opportunity cost of time spent redesigning
instead of innovating.

Our software and services offer the following key attributes:

- Comprehensive Platform for System-on-Chip, or SoC, Verification. We
provide software products that model the entire semiconductor and enable
the delivery of designs with increased power integrity, timing integrity,
signal integrity, and reliability. These products analyze complete
system-on-chip designs without compromising speed or accuracy, enabling
our customers to design and to test complex integrated circuits.

- High-performance and High-accuracy Verification. Our products have the
capacity and speed to verify the full chip without partitioning it into
smaller blocks. Without full-chip analysis, it is difficult to predict
whether electricity will flow throughout a chip as intended. Our products
also capture the higher accuracy of transistor-level models in the
simpler gate-level at which transistors are grouped into blocks.
Gate-level refers to the simplified representation of frequently used
groups of transistors. As a result, we provide our customers with
transistor-level accuracy at gate-level speeds.

- Advanced Design Services for System-on-Chip Implementation. We offer
services designed to help our customers be first-to-market by delivering
electrically correct integrated circuits. A combination of our
verification and design software and proprietary design methodology
enables our design team to complete complex system-on-chip designs which
have been verified for electrical correctness in advance of manufacture.

- Integrated Total Solution with Semiconductor Manufacturing
Foundries. Anticipating the essential role physics would play in the chip
design process, we are one of the first in the industry to create and to
market an integration program with silicon foundries. Our program enables
our research and development staff to work on site at silicon foundries
to develop and to certify models of the foundries' semiconductor
processes. These models are then integrated with our existing software
products for use by our customers who outsource their manufacturing to
these foundries. Our program provides us with validation that our
software is accurate and scalable. It also gives us a first-hand look at
the manufacturers' present and future technologies enabling us to focus
our innovation in areas that will serve our customers' needs. The
resulting models are made available to our customers for use during
system-on-chip design verification. To date, Chartered Semiconductor
Manufacturing, IBM Corporation, NEC, Toshiba, TSMC and UMC are among the
members of our integration program.

49
53

STRATEGY

Our objective is to make our customers more successful by enabling them to
design system-on-chip designs with ever decreasing geometries. In order to
achieve this objective, we employ a number of strategies:

Broaden Customer Service Offering. Because we view the continuing
disaggregation of the semiconductor industry as an opportunity for silicon
engineering, we have begun complementing our verification software and services
with design services. As an example of this strategy, we acquired Altius
Solutions, a system-on-chip design service company in October 2000. To further
enhance this strategy, we have been developing new physical design intellectual
property which we expect to introduce to the market in 2001. We intend to
provide our customers with a more complete solution for their design needs by
combining design services, physical design, intellectual property and
system-on-chip verification software.

Extend Market Leadership into Newer Products. We intend to use our
leadership in these system-on-chip verification markets to introduce newer
software products to our customers. In our experience, once customers have
adopted our power integrity products, they are more likely to adopt our other
products.

Broaden Addressable Markets. We intend to expand our design capacity to
develop broader market acceptance of our system-on-chip design foundry products.
As system-on-chip design becomes more prevalent, both system-on-chip design and
deep submicron physics expertise will become increasingly vital to the
successful design of integrated circuits. We intend to leverage our expertise to
help customers not only verify but also create new chip designs and design
techniques. In addition, we anticipate that many companies will find it valuable
to outsource design capability due to the high cost of keeping up with changing
technology.

Continue our Commitment to Quality and Customer Satisfaction. We focus on
the development of high-quality software, and we have a strong emphasis on
customer service. We believe our customer support services are highly regarded
in the industry not only for our ability to integrate products from a variety of
vendors, but also for our proactive working relationships with chip
manufacturers and designers. We focus on the development of quality software
without the need for additional development time. This Quality-on-Time(TM)
approach to software development is a key component to customer satisfaction
with our software and services. Through our intensive focus on company-wide
quality, our engineering and support resources have the freedom to devote more
time and energy to innovation.

Advance and Develop Strategic Relationships. We intend to expand our
industry-partner relationships with technology leaders to deliver to our
customers further integration of the technologies and design capabilities
critical to successful system-on-chip design and production. We intend to
continue to develop relationships with leading semiconductor manufacturers such
as IBM, TSMC and UMC for the next generation of our integration program. In
addition, we intend to expand our integration relationships with leading design
tool vendors to provide customers with integrated software solutions using our
products as well as the products of other vendors.

Pursue Strategic Acquisitions; Invest in Next-Generation Technology. We
intend to acquire strategic technology that will broaden our product offerings
into related markets or will expand or improve our customer solutions.

EXECUTION OF HISTORICAL GROWTH STRATEGY

From our inception in 1995 through the first quarter of fiscal 1997, our
strategy focused primarily on the research and development of early versions of
our current products. In fiscal year 1997, we established our domestic sales
capability and shipped our first product suite, which included Fire & Ice, the
predecessor to Fire & Ice QX and Thunder & Lightning, the predecessor to
VoltageStorm SoC. Beginning in fiscal year 1998, our strategy focused on
expanding market penetration of our existing products, growth in our sales force
and continued development of new technologies. In fiscal years 1998 through 2000
our strategy focused on obtaining system-on-chip verification leadership,
increasing our product offering and enhancing our market penetration.

50
54

Our execution of our strategy yielded measurable tangible results. In
fiscal years 1999 and 2000, we developed and strengthened our market position
within the application-specific integrated circuit, or ASIC, and integrated
device manufacturer, or IDM, markets through our global direct sales force,
becoming a leading provider of system-on-chip verification software. During 1999
and 2000, we released several enhancements to our major products including the
addition of reliability, signal integrity and timing integrity capabilities, and
the launch of our new product, Fire & Ice QX. In March 2000, we added a new
product SubstrateStorm, which analyzes the electrical effects of current flowing
through the underlying silicon structure. In 1998 and 1999, we opened offices in
the United Kingdom, France and Japan to expand penetration of the semiconductor
design market in these regions while simultaneously increasing support and close
working relationships with our customers.

TECHNOLOGY

The adoption of geometries at 0.18 micron and below has widened the gap
between the performance potential of chip manufacturing technology and the
designers' ability to create high-performance designs. Because preparing an
integrated circuit design for manufacture is increasingly expensive and time-
consuming, it has become even more critical to design with electrically correct
methodology and to verify in advance that each chip, once manufactured, will
work as specified. Further, the rapid emergence of system-on-chip design styles
has introduced new requirements for design tools and methodologies that overcome
the limitations of previously available solutions.

To satisfy these requirements, we create software models that capture the
intricate details of semiconductor physics that are relevant to real-world
integrated circuit designs. Our analysis tools then apply these models
efficiently to a full chip, providing the designer with an accurate assessment
of the expected performance and reliability of an integrated circuit before
manufacturing. It is only by bridging the disparate disciplines of semiconductor
physics, computer science and chip design that we have been able to develop our
innovative technologies, and our strong emphasis on advanced software
engineering methodologies has resulted in the rapid development of high-quality
software products.

Semiconductor Physics. An integrated circuit's behavior is ultimately
dictated by the laws of semiconductor physics. The complexity of the interaction
between different components of an integrated circuit increases with higher
design speeds and dense geometries, and phenomena such as crosstalk, voltage
drops, and noise become severe. The continuing, dramatic increase in the number
of devices on a chip concomitantly increases the likelihood of deep
submicron-related design failures.

Our technical staff has a significant breadth and depth of experience, both
in industry and academia, at modeling semiconductor physics. Our expertise
manifests itself in the correlation of our models to silicon. To keep our
products and the designs we create at the forefront of semiconductor technology,
we maintain close relationships with semiconductor manufacturers worldwide,
providing us with ongoing access to the leading experts in the field and to the
most advanced fabrication technologies.

Computer Science and Software Engineering. The rapidly rising complexity of
today's deep submicron integrated circuits can pose an overwhelming challenge to
both the designer and traditional design software, making it extremely difficult
to prevent chip failure. For example, the power grid on a typical chip today is
more than ten times as complex as the power grids of just five or six years ago,
and transistors now switch more than one billion times per second on the
highest-performance chips. Even with today's fast computers, accurately
analyzing tens of millions of wires overnight can be very difficult. We address
this problem through continual innovation in computer science. For example, our
unique technologies for computational geometry, including the QIC engine and our
adaptive substrate grid, and our matrix solver provide high speed and capacity,
while the adaptive analytical modeling technology provides high accuracy. Our
extensive computer science expertise draws from disciplines as diverse as
cartography, aeronautics, computational chemistry, statistics and electronics.

51
55

Chip Design and Manufacturing. The design and manufacture of today's
integrated circuits involves dozens of complex steps, each of which contains
potential sources of error. A thorough understanding of each step and its
consequence is necessary to design deep submicron chips that work upon first
manufacture and to develop effective verification solutions. Our organization
includes design engineers, software developers, salespeople, applications
engineers and marketing and executive staff, who apply our broad expertise in
both chip design and fabrication in developing our products and in building
relationships with our customers.

The intersection of these three key disciplines, physics, software and
design, is the foundation on which we have built and continue to build our
diverse technologies. Our principal technologies and algorithms are listed
below.

SELECTED PROPRIETARY TECHNOLOGIES

- --------------------------------------------------------------------------------------------
TECHNOLOGY DESCRIPTION BENEFITS

- --------------------------------------------------------------------------------------------
QIC Engine Novel geometry data Faster interconnect modeling and
processing power integrity analysis
Modeling of more than 10 million gates
overnight on one processor
From approximately 200,000 to over 400,000
nets
per hour on a single processor
- --------------------------------------------------------------------------------------------
Lightning High-capacity matrix Automatic computation of current
solver distribution
Solving networks with more than 200 million
resistors overnight
Capacity to handle designs of more than
120 million transistors
- --------------------------------------------------------------------------------------------
Thunder Dynamic circuit High-capacity for full chip simulation
simulation 100x faster than the industry standard SPICE
- --------------------------------------------------------------------------------------------
Accura Static power Vector-independent solution
estimation Statistical power estimation technology
Combined speed and accuracy
- --------------------------------------------------------------------------------------------
Adaptive Analytical Wire modeling Accuracy to a standard deviation of 4%
3D Extraction versus silicon
From approximately 200,000 to over 400,000
nets
per hour on a single processor
- --------------------------------------------------------------------------------------------
Self-Adjusting Grid Self-adjusting grid High-accuracy substrate modeling
generation for 100x improved performance over fixed-grid
substrate modeling solution
- --------------------------------------------------------------------------------------------
COSMIC Semiconductor process Capacitance measurement on silicon to
characterization femtofarad (10(-15) F) precision
Certified models to foundry customers
A standard for evaluating and tuning
software
models
- --------------------------------------------------------------------------------------------

52
56

PROPRIETARY SOFTWARE METHODOLOGIES

- --------------------------------------------------------------------------------------------
TECHNOLOGY DESCRIPTION BENEFITS

- --------------------------------------------------------------------------------------------
DFT Design for testability Improves software quality and
(software engineering reliability
technology) Increases software development
productivity
- --------------------------------------------------------------------------------------------
APIGen(TM) Automatic code Accelerates software development
generation cycles
Reduces common software errors
- --------------------------------------------------------------------------------------------
QoT(TM) Quality-on-Time High quality of software on schedule
Enhances internal efficiency
Software product management with quality on
time
- --------------------------------------------------------------------------------------------
ECSM(TM) Effective current Improves performance of
source model characterization
Accuracy within 2% of SPICE
- --------------------------------------------------------------------------------------------

53
57

SYSTEM-ON-CHIP DESIGN PROCESS OVERVIEW

[Graphic: depiction of the design process of systems-on-chips and the
shifting away of the design process from traditional semiconductor companies to
system companies]

GRAPHIC

System-on-Chip Design Flow

In today's system-on-chip design methodology, the chip design flow involves
the following steps:

System Design. In the system-level design phase, the designer specifies the
architecture and overall design of an integrated circuit, partitioning the
proposed system into hardware and software components and defining which
hardware is appropriate.

Design Implementation. Design implementation is an implementation phase
that maps the system design into a physical representation that can be
manufactured. Once design implementation is complete, physical verification is
necessary to ensure that the manufactured chip will function correctly.

SoC Verification. The system-on-chip verification, or SoC verification,
step certifies that the results of design implementation are electrically
correct for manufacturing.

Simplex SoC Verification Process

Our verification software and services can be used to perform
system-on-chip verification both concurrently during the design implementation
tasks and as part of the final verification procedures prior to semiconductor
manufacturing. When used concurrently, system-on-chip verification software
provides early feedback to the designers in order for them to reach deep
submicron, or DSM, closure. DSM closure is the point in the deep submicron chip
design cycle where deep submicron-related problems are corrected, and power
integrity, timing integrity, signal integrity and reliability goals are met.
Used in final verification procedures prior to semiconductor manufacturing, our
system-on-chip verification software and services provide the last opportunity
to ensure the integrity of the design before the expensive manufacturing process
begins.

54
58

SOC VERIFICATION PROCESS

[Graphic: rendition of systems-on-chip verification consisting of the three
major steps: technology characterization, interconnect, device, and substrate
modeling; and the combination of power integrity, timing integrity, signal
integrity and reliability]

GRAPHIC

SoC verification consists of three major steps: technology
characterization; interconnect, device, and silicon structure modeling; and the
combination of power integrity, timing integrity, signal integrity and
reliability analysis.

Technology Characterization. Our technology characterization constructs
models by simulating the semiconductor process using highly accurate field
solvers, which are high-resolution simulators of the physics of electromagnetic
fields. This characterization step is an essential part of the process because
it provides correlation between silicon and the software models used by the SoC
verification software. This task is performed in close cooperation with the
semiconductor manufacturers to benefit from the expertise of their process
engineers.

Interconnect, Device and Substrate Modeling. The electrical properties of
the chip's interconnect, devices and underlying silicon structure, or substrate,
must be modeled in order to perform power integrity, timing integrity, signal
and reliability verifications. This modeling must be accurate for meaningful
verification. Our modeling software is designed to simultaneously deliver the
accuracy, speed and capacity required to create the models that describe the
electrical behavior of integrated circuits.

Power Integrity. To verify whether electricity will flow as intended
throughout the entire chip, it is essential to perform full-chip analysis with
transistor-level accuracy. Our products are designed to model integrated
circuits at the transistor level with the efficiency and performance of modeling
them at gate level. Gate level refers to a simplified representation of
frequently used groups of transistors for faster analysis. Our solution is
integrated at various points in the chip design flow to provide early feedback
as well as final verification.

Timing Integrity. The timing integrity of complex integrated circuits with
geometries at or below 0.18 micron is dictated by the performance of the
interconnect. Timing analysis products, such as those provided by our
interoperability partners, require the combination of accurate models of an
integrated circuit's interconnect with accurate delay calculation in order to
predict chip timing behavior. By providing both transistor-level and gate-level
interconnect modeling, we address the timing integrity needs of each segment of
the semiconductor community.

Signal Integrity. Frequently, noise problems, or interference between
signals, are incorrectly diagnosed as manufacturing problems as they can be
intermittent, appearing only on certain chips when tested at certain operating
speeds. Identifying and modeling noise propagation through complex integrated
circuits is essential to ensure the performance and functionality of both
mixed-signal and high-performance digital designs. Our signal integrity
verification product is designed to perform a detailed, transistor-level
analysis of the noise propagation through the interconnect and the underlying
silicon structure, providing an accurate measure of circuit noise behavior. This
technology is critical for radio-frequency, mixed-signal and high-end digital
chip designs.

Reliability. The increasing operating frequencies of today's integrated
circuits, when combined with the reduction of power supply levels, introduce
significant electromigration risks. Electromigration is an excessive wear of the
interconnect, potentially resulting in breakage due to the high density of
current flow. Identifying portions of the design where the current density is
excessive and can cause reliability problems is an extremely complex task. The
technologies in our reliability product are designed to analyze the complete
current flows through both signal and supply wires, providing feedback to
designers so they can improve design reliability.

55
59

PRODUCTS

We currently provide several products that address our customers'
system-on-chip design and verification needs. Since different customers
encounter different combinations of challenges in their designs, we often
provide integrated bundles of our various products and their options in an
attempt to address their needs. These bundles are sold to customers in different
configurations and at different price points, depending on a customer's needs.
Although customers frequently purchase these bundles, we have organized the
component products in the table below by their estimated impact on fiscal 2000
revenue, ranging from largest to smallest.

Our products address the needs of system-on-chip design and verification as
described in this table:

- ------------------------------------------------------------------------------------------------------------
PRODUCT FEATURES SEGMENTS BENEFITS
- ------------------------------------------------------------------------------------------------------------

SOC VERIFICATION PRODUCTS
- ------------------------------------------------------------------------------------------------------------
VOLTAGESTORM SOC, Power grid voltage and Power Integrity and Large design capacity (over
First customer shipment electromigration for IC Reliability 100 million transistors)
in March 1999 designs Production-proven technology
Static and dynamic analysis
- ------------------------------------------------------------------------------------------------------------
FIRE & ICE QX, Modeling interconnect in Interconnect and Designed for high throughput
First customer shipment integrated circuits for Device Modeling and unlimited capacity
in September 1999 timing integrity 4% standard deviation to
silicon
- ------------------------------------------------------------------------------------------------------------
SUBSTRATESTORM, Integrated circuit Substrate Modeling Estimate of interference
First customer shipment modeling and noise Signal Integrity between sensitive analog and
in September 2000 analysis for radio- noisy digital circuitry
frequency, analog and Support of most advanced
mixed-signal designs semiconductor processes
Graphical user interface for
identifying noise-critical
path
- ------------------------------------------------------------------------------------------------------------
OTHER ANALYSIS PRODUCTS
- ------------------------------------------------------------------------------------------------------------
ELECTRONSTORM option, Electromigration analysis Reliability Full-chip reliability solution
First customer shipment option to VoltageStorm Identification of design flaws
in March 1999 SoC affecting integrated circuits'
longevity and manufacturing
yields
- ------------------------------------------------------------------------------------------------------------
CLOCKSTORM option, High-speed clock analysis Timing Integrity Transistor-level analysis
First customer shipment option to VoltageStorm providing timing accuracy
in March 1999 SoC within 10% of industry-
standard SPICE
Designed to analyze complex
design styles
Accounting for non-uniformity
of power distribution
- ------------------------------------------------------------------------------------------------------------
SI REPORT option, Noise Analysis option to Signal Integrity Automatic calculation of
First customer shipment Fire & Ice QX worst-case noise conditions
in March 1999 on full-chip
Full integration for high
performance and reduced data
file size
- ------------------------------------------------------------------------------------------------------------
IP STATION, Analysis for system-on- Timing Integrity Automatic IP characterization
First customer shipment chip electrical sign-off Power Integrity Accurate within 2% of SPICE
in September 2000 Signal Integrity Function recognition for
complete automation
- ------------------------------------------------------------------------------------------------------------

56
60

SERVICES

We provide services in addition to our software products to enable our
customers to produce working chips while focusing primarily on system-level
design. Reflecting our emphasis on customer satisfaction and proficiency in the
use of our software products, we offer design and verification services to help
our customers realize the full potential of our software, thereby increasing the
adoption of our technology. We also offer design foundry services that aim to
enable our customers to create their most complex, system-on-chip designs. We
have organized the services in the table below in decreasing order of their
strategic importance to the business.

- ----------------------------------------------------------------------------------------------------------
SERVICES DESCRIPTION BENEFITS
- ----------------------------------------------------------------------------------------------------------
Contract Silicon Contract chip design Targeted use of our expertise on critical
Engineering designs
Electrically correct designs
Fast turnaround from design to successful
manufacture
- ----------------------------------------------------------------------------------------------------------
SoC Verification Single or multiple full- Targeted use of our expertise on critical
Services chip verification designs
Fast adoption/rollout of our products and
solutions
Additional support to meet customer's project
schedules
- ----------------------------------------------------------------------------------------------------------
Technology Integration Software integration in Custom integration for improved efficiency
Services integrated circuit design Fast adoption/rollout of the technology
flow Custom interface to third-party solutions
Available for end customers and software vendors
- ----------------------------------------------------------------------------------------------------------
Research Services Contract research Development of specialized technology on a
contract basis
- ----------------------------------------------------------------------------------------------------------

CUSTOMERS

We have customers in each segment of the semiconductor community,
including:

- design and engineering services;

- microprocessor suppliers;

- embedded-memory manufacturers and designers;

- digital signal processor, or DSP, suppliers;

- application-specific integrated circuit, or ASIC, vendors;

- application-specific standard products, or ASSP;

- high-end graphics; and

- networking, wireless and communications systems.

57
61

These customers provided license, maintenance or design services revenue of
more than $200,000 in 1999 and 2000 combined, on a pro forma basis after giving
effect to the acquisition of Altius from December 1998 (date of inception).

CUSTOMERS

HIGH-PERFORMANCE DATA DESIGN AND WIRELESS, NETWORKING
PROCESSING/HIGH-END GRAPHICS ENGINEERING SERVICES ASIC SUPPLIERS AND COMMUNICATIONS
- ----------------------------------- ---------------------- --------------------- ----------------------

3DFX Cadence Design Systems Infineon Technologies Adaptec
Advanced Micro Devices Ingenuus Corporation AG Conexant Systems
ATI Technologies Quadic Systems Kawasaki Steel Cypress Semiconductor
Broadcom Corporation Corporation empowerTel Networks
Cirrus Logic LSI Logic ICS
Fujitsu Lucent Lara Networks
HAL Computer Systems Matsushita Mitel Semiconductor
Matrox Electronics NEC Corporation MMC Networks
Systems Philips Oren Semiconductor
MIPS Technologies Semiconductor* PLX Technology
PMC Sierra, Inc. STMicroelectronics Rosun Technologies
Quickturn -- a Toshiba Transwitch
Cadence division Vitesse Semiconductor
S3 Incorporated
Silicon Graphics
SiliconMotion
Silicon Storage Technology
Silicon Value
Sony Semiconductor
Stream Machine
Sun Microsystems
Texas Instruments

* a division of Royal Philips Electronics.

Toshiba is both a customer of our software technology and participates with
us in the development of new technology. As our largest customer, Toshiba
accounted for approximately 18% of our total revenue in fiscal 2000.

CUSTOMER CASE STUDIES

STMICROELECTRONICS. STMicroelectronics (formerly SGS-THOMSON
Microelectronics) is the second-largest global supplier of analog and
mixed-signal ASSPs and ASICs.

Business challenge. In order to exploit the potential of semiconductor
processes, STMicroelectronics must continue to develop designs that incorporate
the most advanced fabrication technologies. As feature sizes continue to
decrease, a major barrier to successful integration of mixed-signal circuits is
interference between the highly sensitive analog circuitry and the digital
blocks residing on the same chip.

Solution. After evaluating the different solutions available on the market,
STMicroelectronics chose Simplex's substrate modeling and analysis tools for
their speed and accuracy in simulating interference caused by substrate noise.
STMicroelectronics now includes SubstrateStorm in their standard 0.18 micron
CMOS, BiCMOS and RFCMOS design kits, and several of their design teams have
already deployed these tools in their production design flows.
STMicroelectronics has successfully applied Simplex's technologies to several
mixed-signal designs, one of which is an advanced, single-chip, satellite radio
frequency receiver for cable television. Simplex's verification tools helped the
design team achieve first-time silicon success.

58
62

TOSHIBA. Toshiba Semiconductor Company is one of the world's leading
manufacturers and suppliers of semiconductor products including LSIs,
microprocessors and controllers, and advanced memory products, in addition to
discrete and bipolar components.

Business challenge. Toshiba realized that the tools they used for 0.35 and
0.25 micron designs were not sufficient to meet the challenges they faced
designing for their 0.18 and 0.14 micron, system-level integration ASIC family
featuring embedded DRAM and CPU cores. Toshiba recognized that power integrity
and timing integrity were primary issues for deep submicron design as it became
increasingly difficult to predict whether their integrated circuits would work
once manufactured.

Solution. Consequently, Toshiba chose to integrate Simplex's VoltageStorm
SoC and Fire & Ice QX, into their design flow for their 0.18 and 0.14 micron SLI
ASIC family to address the power integrity problems and to increase their
efficiency and performance by avoiding excessive overdesign. We believe that it
would be virtually impossible for Toshiba's design teams to produce chips in
these advanced technologies today without the use of Simplex tools.

CONEXANT. Conexant Systems is the world's largest company focused
exclusively on providing semiconductor products for communications electronics.

Business challenge. Developing highly complex ASSPs in the most advanced
process technologies, Conexant design teams require advanced design tools in
order to reduce their time to market while creating high-performance,
differentiated products. When Conexant designers started to adopt 0.18 micron
process technologies, they could no longer guarantee the timing integrity of
their designs from within their design flow.

Solution. After an extensive evaluation of the products targeting their
needs, Conexant selected Simplex's Fire & Ice QX technology, which combined the
performance, capacity and accuracy levels required for their advanced chip
designs. Today, Conexant guarantees the timing integrity of the most demanding
digital integrated circuits they develop using Simplex tools.

SUN MICROSYSTEMS. Sun Microsystems is the leading provider of
industrial-strength hardware, software and services that power the Internet. The
Processor Product Group of Sun Microsystems is responsible for the development
of high-performance microprocessor solutions, including the company's flagship
UltraSPARC(TM) processor products. The UltraSPARC processors leverage a unique
combination of semiconductor design expertise and industry leading
functionality; powering systems that interact seamlessly in complex,
multifaceted networked environments that demand nothing less than peak
performance.

Business challenge. Sun's chip designers are at the forefront of the
intensely competitive high-performance microprocessor market by developing
UltraSPARC processors that incorporate the most advanced deep sub-micron
fabrication technology and expand design limits. The deep submicron technology
presents new challenges in the physical design verification of power integrity
and signal integrity.

Solution. Following a complete evaluation of the physical verification
solutions available, Sun Microsystems has adopted Simplex's physical design
verification solutions as a vital part of its design methodology for next
generation UltraSPARC processor products. Sun depends on Simplex's products to
verify chip designs for power integrity, signal integrity and reliability using
Voltage Storm, Fire & Ice Qx and ElectronStorm during final signoff of the
design.

STRATEGIC ALLIANCES

Through our wide network of industry partners, we seek to ensure complete
interoperability of our software products with those of our partners to
facilitate faster adoption and increased ease of use.

Interoperability. We have interoperability alliances with Mentor Graphics
Corp., Magma Design Automation, Monterey Design Automation, Silicon Perspective
Corp., Cadence Design Systems and Synopsys, Inc. The alliance companies have
entered into licensing arrangements with us for the sole purpose of development
and testing interfaces to ensure compatibility. By working closely with the
leading providers of complementary technologies, we provide seamless integration
with our products. These

59
63

alliances range from interoperability programs, for validation of our products'
interoperability, to relationships through which customer-specific applications
are jointly developed.

Foundry. We have developed relationships with Toshiba Corporation,
International Business Machines Corp. (IBM), NEC Corporation, Taiwan
Semiconductor Manufacturing Co. Ltd. (TSMC), Chartered Semiconductor
Manufacturing Ltd., United MicroElectronics Corp. (UMC) and the COSMIC program.
Our alliances with these leading foundries and semiconductor companies worldwide
allows us to demonstrate the accuracy of our chip verification products by
gaining access to silicon measurements of process parameters. By jointly
developing and supporting accurate models of the most commonly-used
semiconductor processes, we provide our mutual customers with validated
verification products. Part of our close relationship with foundries revolves
around our integration program.

Integration Program. Our integration program with semiconductor industry
leaders creates standards for measurement and characterization of interconnect
on silicon. Leading semiconductor vendors have successfully used our integration
standard to manufacture test chips and to validate the accuracy of our chip
verification tools. To date, we have completed test chips with Chartered
Semiconductor Manufacturing, IBM, NEC, TSMC and UMC Group.

Interoperability relationships Artisan Components Magma Design Automation
Mentor Graphics Silicon Perspective
Monterey Design Systems Synopsys
Cadence Design Systems
Foundry relationships Chartered Semiconductor IBM
Manufacturing Taiwan Semiconductor
NEC Manufacturing Co.
Toshiba
United Microelectronics

SALES AND MARKETING

We sell and market our services primarily through a direct sales force. In
fiscal 2000, our sales and marketing expenses were $10.4 million, excluding
stock-based compensation. Our sales force consists of salespeople, pre-sales
application engineers and post-sales application engineers. As of March 31,
2001, we had 51 sales and marketing employees of which 34 are located in the
United States, 12 are located in Europe and 5 are located elsewhere. We intend
to expand our direct sales organization to all major global markets;
specifically, we intend to focus expansion in Europe and Asia.

We focus our marketing efforts on achieving brand recognition, market
awareness and sales campaign support. We currently market our services through
direct advertising and targeted events, including trade shows, conferences,
technical publications and live and web-based seminars. Our current customers
provide references, and we feature customer recommendations in our promotional
activities.

RESEARCH AND DEVELOPMENT

From our inception through the first quarter of fiscal 1997, our operations
were primarily focused on research and development related to the development of
our early analysis and extraction products. In fiscal 2000, our research and
development expenses were $5.0 million or 22% of revenue, excluding stock-based
compensation and amortization of intangibles. In fiscal 1999, our research and
development expenses were $6.4 million or 59% of revenue and in fiscal 1998, our
research and development expenses were $5.1 million or 77% of revenue. As of
March 31, 2001, we had 73 employees in our research and development team of
which 47 are located in the United States, 20 are located in Europe and 6 are
located elsewhere. We have made use of modern networking and communications
technologies to maintain close working relationships with our geographically
remote developers, and we intend to continue recruiting developers worldwide.
Research and development capabilities are essential to our strategy to enhance
and expand our products and services. We have invested, and expect to continue
to invest, significant resources

60
64

in creating a structured process for undertaking all of our research and
development and have recruited personnel with the appropriate computer science
and software engineering experience. The complexity of system-on-chip design and
verification at deep submicron levels requires expertise in semiconductor
physics, computer science and software engineering, as well as chip design and
manufacturing. We believe that the multidisciplinary expertise of our team of
scientists and engineers will continue to advance our market and technological
leadership.

COMPETITION

We compete with suppliers of software for the design of integrated
circuits. We believe that the key competitive factors in this market are product
capabilities and performance, quality, price, interoperability and a reputation
for technical excellence and integrity. We believe that we compete favorably
with respect to each of these factors.

We compete with domestic and international suppliers of software for chip
design. Our principal competitors include Avant!, Cadence Design Systems, Mentor
Graphics and Synopsys.

Many of our competitors have longer operating histories and presence in key
markets, great name recognition, access to larger customer bases and
significantly greater financial, sales and marketing, technical and other
resources. As a result, our competitors may be able to adapt more quickly to new
or emerging technologies and changes in customer requirements or to devote
greater resources to the development, promotion and sale of their products.
Current and potential competitors have established or might establish financial
or strategic relationships among themselves or with existing or potential
customers or third parties. Accordingly, new competitors or alliances among
existing competitors might emerge and rapidly acquire significant market share.
In addition, our competitors might develop technologies in the future that more
effectively address the design of integrated circuits at deep submicron levels
at a lower cost.

RECENT ACQUISITIONS

In March 2000, we acquired Snaketech S.A., a provider of products and
services for complex integrated circuit design, which is now our wholly owned
subsidiary. Following this transaction, Snaketech was renamed Simplex S.A.
Simplex S.A. currently provides sales and marketing support for our products
that address the underlying silicon structure of an integrated circuits as well
as research and development services.

In October 2000 we acquired Altius Solutions, Inc., a provider of
semiconductor design foundry services to various semiconductor manufacturers,
which is now our wholly owned subsidiary. Pursuant to the terms of this
transaction, we issued approximately 2.6 million shares of our common stock to
former Altius stockholders and granted options to purchase approximately 384,000
shares of our common stock to former Altius option holders. As a result of this
acquisition, on a consolidated basis for fiscal 2000 the largest customer of our
design foundry services is Sony Semiconductor. Revenue from Sony Semiconductor
accounted for approximately 13% of our pro forma revenue in fiscal 2000. See
"Selected Pro Forma Consolidated Financial Data" beginning on page 23.

INTELLECTUAL PROPERTY

We regard the protection of our copyrights, service marks, trademarks and
trade secrets and other intellectual property rights as critical to our future
success. We rely on various intellectual property laws and contractual
restrictions, such as confidentiality and nondisclosure agreements and licensing
arrangements, to protect our proprietary rights in products and services. The
license agreements with our customers limit their rights to the technologies
that we offer and develop for our customers. In addition, we seek to avoid
disclosure of our trade secrets through a number of means, including requiring
those persons with access to our proprietary information to execute
nondisclosure agreements and restricting access to such information.

61
65

We also rely on technologies that we license from third parties. For
instance, in 1998, we entered into a license agreement with Computational
Applications and System Integration, Inc. to incorporate certain of their
technologies into some of our products. In 1995, we also entered into license
agreements with Digital Semiconductor (a business unit of Digital Equipment
Corporation) and Chris Terman (an independent contractor who was formerly
engaged by us). These licenses are perpetual but may be terminated upon a
material breach, including a failure to protect the underlying intellectual
property. Each of these license agreements provides us with complementary
technologies from parties with specific expertise which we believe is an
effective means of expanding the features and functionality of our products.
These licenses might not continue to be available to us on commercially
reasonable terms in the future, if at all. As a result, we might be required to
develop or obtain substitute technology at additional cost.

We have applied for registration of the following trademarks: ClockStorm,
COSMIC, ElectronStorm, SignalStorm, Simplex Solutions and VoltageStorm. Fire &
Ice QX is our registered trademark. We currently have one patent issued which
expires in December 2017 and 19 patent applications filed in connection with our
existing products and technologies and our technologies and intellectual
property in development.

EMPLOYEES

As of March 31, 2001, we had 186 employees, including 51 in sales and
marketing, 73 in research and development, 37 in design service and post sales
support and 25 in general and administrative. None of our employees is
represented by a labor union. We have never experienced a work stoppage and
believe our relationship with our employees is good.

FACILITIES

Our headquarters includes approximately 30,000 square feet in Sunnyvale,
California pursuant to a lease that expires May 31, 2002. Although we believe
our facilities are adequate for our needs in the intermediate term, due to the
rapid growth of our employee base we might need either to lease or to find
alternative facilities in order to accommodate future expansion. In addition, we
have sales offices in Texas and North Carolina, and we lease space in the United
Kingdom, France and Japan.

LEGAL PROCEEDINGS

We are not currently a party to any litigation. On November 1, 2000, we
received written notice from Sequence Design, Inc. claiming that one of our
current products allegedly infringes a patent held by Sequence. On March 15,
2001, we received further written notice from Sequence indicating that legal
action is imminent. Based on a thorough review of the intellectual property at
issue, we believe this infringement allegation by Sequence to be without merit.
However, because of the uncertainties of litigation, if this matter proceeds to
litigation we cannot assure you that we would ultimately prevail or that this
matter will not materially impact our business.

62
66

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The names, ages and positions of our executive officers and directors as of
March 31, 2001 are as follows:

NAME AGE POSITION
---- --- --------

Penelope A. Herscher........ 40 Chief Executive Officer and Chairman of the Board of Directors
Aki Fujimura................ 42 President, Chief Operating Officer and Director
Aurangzeb Khan.............. 44 Executive Vice President and General Manager
James D. Behrens............ 49 Executive Vice President, Worldwide Field Operations
Luis P. Buhler.............. 48 Chief Financial Officer
Steven L. Teig.............. 39 Chief Technical Officer
Joseph B. Costello(1)....... 47 Director
Harvey C. Jones, 48 Director
Jr.(1)(2).................
F. Gibson Myers, Jr.(2)..... 59 Director
A. Richard Newton(1)(2)..... 49 Director
Larry W. Sonsini............ 60 Director

- ---------------
(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

Penelope A. Herscher has served as our Chief Executive Officer since April
1996. From May 1996 to July 2000 Ms. Herscher served as our President. In July
2000, Ms. Herscher was appointed Chairman of our Board of Directors. From June
1988 to April 1996 Ms. Herscher held several management positions at Synopsys,
Inc., an electronic design automation company, including Director of Product
Marketing, Vice President of Marketing and Vice President and General Manager.
Ms. Herscher serves on the board of directors of both Mizbiz.com Inc. and the
EDA Consortium. Ms. Herscher holds a B.A. in mathematics from Cambridge
University in England.

Aki Fujimura has served as our Chief Operating Officer and as a member of
our Board of Directors since August 1997. In July 2000, Mr. Fujimura was
appointed our President. From April 1993 to October 1996, Mr. Fujimura served on
the Board of Directors and as Vice President for Pure Software, a developer of
automated software quality products and services. Mr. Fujimura serves on the
Board of Directors of Bristol Technology Inc. Mr. Fujimura holds a B.S. and an
M.S. in electronic engineering and computer science from the Massachusetts
Institute of Technology.

Aurangzeb Khan has served as our Executive Vice President and General
Manager since October 2000. Mr. Khan co-founded Altius and has served as its
President and Chief Executive Officer since March 1999. From February 1996 to
March 1999, Mr. Khan was Vice President, Silicon Engineering at Cirrus Logic,
Inc. From October 1983 to February 1996, Mr. Khan held various positions at
Tandem Computers, Inc., including Director of Engineering, Technology & CAD
Development. Prior to October 1983, Mr. Khan served as Senior Design Engineer,
SRAM Development, for Fairchild Semiconductor Corp. Mr. Khan holds an M.S. in
Engineering Management and an M.S. in Electrical Engineering from Stanford
University, a B.S. in Electrical Engineering and Computer Sciences and a B.S. in
Nuclear Engineering from University of California, Berkeley, and a B.Sc. in
Physics and Mathematics (with highest honors) from University of Punjab.

James D. Behrens has served as our Vice President of Worldwide Field
Operations since April 2000. From August 1999 to April 2000, Mr. Behrens served
as President and Chief Executive Officer of Snaketech, S.A., which we acquired
in March 2000. From January 1999 to August 1999, Mr. Behrens served as a partner
at Quanah Consulting. From February 1998 to January 1999, Mr. Behrens served as
Vice President of Business Development for Aspec Technology, Inc. (now Ingenuus
Corporation), a provider of electronic design automation software tools. From
August 1997 to February 1998 Mr. Behrens

63
67

served as President of SIS Microelectronics, which was acquired by Aspec
Technology in February 1998. From November 1989 to March 1997 Mr. Behrens held
various management roles at Cadence Design Systems, Inc. Mr. Behrens holds a
B.S. in chemistry from Colorado State University.

Luis P. Buhler has served as our Chief Financial Officer since January
1999. From February 1998 to January 1999, Mr. Buhler served as a consultant and
as a principal at Rockledge Associates, a finance and public affairs consulting
firm. From January 1997 to February 1998, Mr. Buhler served as Deputy Secretary
for Economic Development at the California Trade and Commerce Agency, which
included acting as Executive Director for California Infrastructure and Economic
Development Bank. From August 1988 to September 1996, Mr. Buhler held several
positions at Trans Ocean Ltd., an international equipment leasing company,
including Vice President of International Marketing and Vice President
Treasurer. Mr. Buhler holds a B.A. in economics and an M.B.A. from Stanford
University and an M.A. in Urban Studies from Occidental College.

Steven L. Teig has served as our Chief Technical Officer since August 1998.
From April 1995 to August 1998, Mr. Teig served as Vice-President, Advanced
Technology at CombiChem, Inc., a drug discovery company, where he developed
their core Discovery Engine technology. In June 1989, Mr. Teig co-founded BioCAD
Corporation, the commercial developer of the Catalyst drug discovery software,
and served as its Chief Technical Officer until its merger with Molecular
Simulations Inc. in August 1994. Thereafter, Mr. Teig served as President and
Chief Technical Officer of Entropix Corp., a subsidiary of Molecular
Simulations, from August 1994 through April 1995. Mr. Teig holds a B.S.E. in
Electrical Engineering and Computer Science from Princeton University.

Joseph B. Costello has served on our Board of Directors since March 2000.
Mr. Costello has served as President and Chief Executive Officer of think3, Inc.
since January 1998. Prior to joining think3, from September 1984 to November
1997, Mr. Costello was president and CEO of Cadence Design Systems, Inc., a
provider of electronic design automation products and services. Mr. Costello
holds a B.S. in mathematics and physics from Harvey Mudd College, an M.S. in
physics from Yale University and an M.S. in physics from the University of
California, Berkeley. Mr. Costello serves on the boards of Zamba Corporation, a
consulting and systems integration company focused on the customer care market,
Calico Commerce Inc., a provider of seller-focused electronic commerce software,
and Saba Software, a provider of software and services to businesses and
governments for the creation of global networks. Mr. Costello serves on the
board of directors of several private companies.

Harvey C. Jones, Jr. has served on our Board of Directors since December
1995. From December 1987 through February 1998, Mr. Jones held various positions
at Synopsys Inc., a developer of electronic design automation software, where he
served as President through December 1992, Chief Executive Officer until January
1994 and as Executive Chairman of the Board until February 1998. Prior to
joining Synopsys, Mr. Jones served as President and Chief Executive Officer of
Daisy Systems Limited, a computer-aided engineering company he co-founded in
1981. Mr. Jones is a director of nVidia, Remedy, Numerical Technologies Inc. and
Synopsys. Mr. Jones also serves on the board of directors of several private
companies. Mr. Jones holds a B.S. in mathematics and computer sciences from
Georgetown University and an M.S. in management from MIT's Sloan School of
Management.

F. Gibson Myers, Jr. has served on our Board of Directors since July 1995.
Mr. Myers serves as a partner emeritus of the Mayfield Fund, which he joined in
1970. Mr. Myers serves on the board of directors of Latitude Communications,
Inc., a provider of enterprise e-conferencing solutions and SpectraLink
Corporation, a provider of on premises wireless telephone systems. Mr. Myers
holds an A.B. in engineering from Dartmouth University and an M.B.A. from
Stanford University.

A. Richard Newton has served on our Board of Directors since July 1995. Mr.
Newton has been a professor at the University of California at Berkeley since
1979 in the Department of Electrical Engineering and Computer Sciences and
currently serves as Dean of the College of Engineering. Mr. Newton has served as
a Venture Partner at the Mayfield Fund since 1998. From November 1994 to July
1995, Professor Newton was the acting President and CEO of Silicon Light
Machines (formerly Echelle, Inc), a private company which is developing display
systems based on the application of

64
68

micromachined silicon light-valves. Mr. Newton is a director of Synopsys and
several private companies. Mr. Newton holds B.Eng. and M.Eng.Sci degrees from
the University of Melbourne, Australia and a Ph.D. degree from the University of
California at Berkeley in 1978.

Larry W. Sonsini has served on our Board of Directors since June 1998. Mr.
Sonsini has been an attorney with the law firm of Wilson Sonsini Goodrich &
Rosati, Professional Corporation, since 1966 and currently serves as the
Chairman and CEO of the firm. Mr. Sonsini also serves as a director of Brocade
Communications Systems, Inc., Commerce One, Inc., Echelon Corporation, Lattice
Semiconductor Corporation, LSI Logic Corporation, Novell, Inc., Pixar Animation
Studios and Tibco Software, Inc. Mr. Sonsini received A.B. and L.L.B. degrees
from the University of California, Berkeley.

CLASSIFIED BOARD

Our certificate of incorporation provides for a classified board of
directors consisting of three classes of directors, each serving staggered
three-year terms. As a result, a portion of our board of directors will be
elected each year. To implement the classified structure, prior to the
consummation of the offering, one of the nominees to the board will be elected
to a one-year term, three will be elected to two-year terms and three will be
elected to three-year terms. Thereafter, directors will be elected for
three-year terms. Larry W. Sonsini has been designated a Class I director whose
term expires at the 2001 annual meeting of stockholders. F. Gibson Myers, Jr.,
Penelope A. Herscher and A. Richard Newton have been designated Class II
directors whose term expires at the 2002 annual meeting of stockholders. Harvey
C. Jones, Jr., Joseph B. Costello and Aki Fujimura have been designated Class
III directors whose term expires at the 2003 annual meeting of stockholders. For
more information on the classified board, see the section entitled "Description
of Capital Stock -- Anti-takeover Effects of Provisions of the Certificate of
Incorporation, and Bylaws and of Delaware Law."

Executive officers are appointed by the board of directors and serve until
their successors have been duly elected and qualified. There are no family
relationships among any of our directors, officers or key employees.

BOARD COMMITTEES

On May 13, 1998, our board of directors designated a Compensation Committee
and on September 7, 2000 an Audit Committee. Prior thereto, there were no such
committees of the board of directors and decisions regarding the compensation of
executive officers were made by the board of directors as a whole. The
Compensation Committee, which consists of Messrs. Jones, Myers and Newton, makes
recommendations to the board of directors concerning the compensation of our
officers and directors and the administration of our 1995 Stock Plan, 1999 Stock
Plan, 2001 Incentive Stock Plan and 2001 Employee Stock Purchase Plan. The Audit
Committee, which consists of Messrs. Jones, Newton and Costello, reviews our
financial controls, evaluates the scope of the annual audit, reviews audit
results, consults with management and our independent auditors prior to the
presentation of financial statements to stockholders and, as appropriate,
initiates inquiries into aspects of our internal accounting controls and
financial affairs.

DIRECTOR COMPENSATION

Directors currently do not receive any cash compensation from us for their
services as members of our board of directors. Directors are eligible to receive
common stock grants or stock options pursuant to guidelines established by the
board of directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee currently consists of Messrs. Jones, Myers and
Newton. Prior to the formation of the Compensation Committee, the board of
directors performed the functions typically assigned to a compensation
committee. Each of Ms. Herscher and Mr. Fujimura participated in the board's
deliberations concerning the compensation of officers other than themselves. No
member of the

65
69

Compensation Committee and none of our executive officers has a relationship
that would constitute an interlocking relationship with executive officers and
directors of another entity.

EXECUTIVE COMPENSATION

The following table sets forth in summary form information concerning the
compensation paid by us during the fiscal year ended September 30, 2000 to our
Chief Executive Officer and our other executive officers who earned more than
$100,000 during the fiscal year. In this prospectus, these individuals are
referred to as the named executive officers.

SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION
AWARDS
ANNUAL ----------------
COMPENSATION RESTRICTED SECURITIES
----------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS OPTIONS(1) COMPENSATION
--------------------------- ---- -------- ------ ------------ ---------------- ------------

Penelope A. Herscher............ 2000 $183,000 $ -- $200 66,666 $ 5,658(2)
Chief Executive Officer and
Chairman of the Board of
Directors
Aki Fujimura.................... 2000 183,000 1,236 200 66,666 85,106(3)
President, Chief Operating
Officer and Director
Steven L. Teig.................. 2000 168,750 -- 200 83,332 37,423(4)
Chief Technical Officer
Luis P. Buhler.................. 2000 160,398 -- 200 25,000 27,684(5)
Chief Financial Officer
James D. Behrens................ 2000 92,500 -- -- 94,939 38,015(6)
Executive Vice President of
Worldwide Operations

- ---------------
(1) Information regarding the number of options granted consists of all options
granted in the fiscal year ended September 30, 2000.

(2) Includes $4,947 in health insurance premiums and $711 in life insurance
premiums.

(3) Includes forgiveness of $82,031 of indebtedness in accordance with the terms
of a promissory note issued by Mr. Fujimura in favor of us dated February
12, 1998. Also includes $2,489 in health insurance premiums and $586 in life
insurance premiums.

(4) Includes $34,805 as a performance bonus for meeting milestones. Also
includes $2,032 in health insurance premiums and $586 in life insurance
premiums.

(5) Includes $24,609 as a performance bonus for meeting milestones. Also
includes $2,489 in health insurance premiums and $586 in life insurance
premiums.

(6) Includes $20,781 as a performance bonus for meeting milestones. Also
includes $1,838 in health insurance premiums, $396 in life insurance
premiums and $15,000 in housing assistance.

66
70

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth, as to the named executive officers,
information concerning stock options granted during the fiscal year ended
September 30, 2000.

The information regarding stock options granted to the named executive
officers as a percentage of total options granted to employees in the fiscal
year, as disclosed in the table, is based upon options to purchase an aggregate
of 1,441,168 shares of common stock that were granted to all employees as a
group, including the named executive officers, in the fiscal year ended
September 30, 2000.

INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATE
SECURITIES TOTAL OPTIONS AVERAGE OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------
GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
---------- ------------- --------- ---------- ----------- -------------

Penelope A. Herscher...... 66,666(1) 4.63% $ 6.00 1/19/10 $794,515 $1,502,063
Aki Fujimura.............. 66,666(1) 4.63 6.00 1/19/10 794,515 1,502,063
Steven L. Teig............ 83,332(2) 5.78 6.00 1/19/10 993,138 1,877,567
Luis P. Buhler............ 25,000(1) 1.73 6.00 1/19/10 297,946 563,279
James D. Behrens.......... 94,939(3) 6.59 11.55 3/28/10 604,556 1,612,175

- -------------
(1) These options vest at the rate of 1/48 of the shares at the end of each
month from the vesting commencement date. These options expire ten years
from their date of grant and are subject to continued service as an employee
or consultant.

(2) Includes options to purchase 41,666 shares which vest at the rate of 1/48 at
the end of each month. Also includes options to purchase 41,666 shares which
vest at the rate of 1/48 at the end of each month beginning one year from
the vesting commencement date. These options expire ten years from their
date of grant and are subject to continued service as an employee or
consultant.

(3) Includes options to purchase 36,592 shares which vest at the rate of 1/4 of
shares beginning one year from the vesting commencement date and 1/48 at the
end of each month thereafter. Also includes options to purchase 58,347
shares which vest immediately upon grant. These options expire ten years
from their date of grant and are subject to continued service as an employee
or consultant.

The potential realizable value is calculated based on the term for the
option, which is 10 years and a per share price of $11.00 and assumed rates of
stock appreciation of 5% and 10%, compounded annually. The assumed rates of
appreciation are prescribed by the Securities and Exchange Commission for
illustrative purposes only and are not intended to forecast or predict future
stock prices. Actual gains, if any, on stock option exercises will be dependent
on the future performance of our common stock.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

VALUE OF
SHARES NUMBER OF OPTIONS AT IN-THE-MONEY
ACQUIRED SEPTEMBER 30, 2000 OPTIONS(2)
ON OPTIONS VALUE -------------------- --------------------
NAME EXERCISE REALIZED(1) VESTED UNVESTED VESTED UNVESTED
---- ---------- ----------- ------- --------- -------- --------

Penelope A. Herscher....... -- $ -- 59,722 90,277 $444,443 $555,551
Aki Fujimura............... -- -- 28,264 75,069 159,141 375,722
Steven L. Teig............. -- -- 63,054 141,944 466,217 869,568
Luis P. Buhler............. 19,444 97,220 12,500 59,722 62,500 298,610
James D. Behrens........... -- -- 58,347 36,592 -- --

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

(1) Equal to exercised shares times assumed initial public offering price of
$11.00 per share less the aggregate exercise price per share.

(2) Based upon the assumed initial public offering price of $11.00 per share
less the aggregate exercise price per share.

67
71

COMPENSATION PLANS

Amended and Restated 1995 Stock Plan

Our amended and restated 1995 Stock Plan was adopted by our board of
directors and approved by our stockholders in September 1995. The maximum number
of shares that may be issued under the 1995 Stock Plan is 4,585,401 shares of
our common stock. As of March 31, 2001, options to purchase 2,285,140 shares of
our common stock were outstanding with a weighted average exercise price of
$7.82 per share, 1,483,023 shares subject to options had been exercised and
885,574 shares were available for future grant. Our board of directors has
decided that upon completion of this offering no further options will be granted
under the 1995 Stock Plan. However, the provisions of our 1995 Stock Plan will
still govern outstanding options. The 1995 Stock Plan provides for the grant of
incentive stock options, within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, referred to as the Code, to our employees, and
for the grant of nonstatutory stock options and stock purchase rights to our
employees, directors and consultants. Additionally, we adopted a sub-plan
pursuant to the 1995 Stock Plan that allows us to grant options to our French
employees allowing such employees to receive preferential treatment under French
tax laws. In the event of our merger with or into another corporation where the
successor corporation issues its securities to our stockholders or a sale of
substantially all of our assets, the successor corporation will assume or
substitute each option or stock purchase right. If the successor corporation
refuses to assume or substitute for outstanding options or stock purchase
rights, such options or stock purchase rights will terminate upon the
consummation of such merger or sale of assets.

2001 Incentive Stock Plan

Our board of directors will adopt the 2001 Incentive Stock Plan, or 2001
Stock Plan, in April 2001 and our stockholders will approve our 2001 Stock Plan
before the completion of this offering. Our 2001 Stock Plan provides for the
grant of incentive stock options, within the meaning of Section 422 of the Code,
to our employees, and for the grant of nonstatutory stock options and stock
purchase rights to our employees, directors and consultants.

Number of Shares of Common Stock Available under the 2001 Stock Plan. As of
April 2001, a total of 2,400,000 shares of our common stock were reserved for
issuance pursuant to the 2001 Stock Plan, of which no options were issued and
outstanding as of that date. The 2001 Stock Plan will become effective on the
completion of this offering. At that time, the remaining shares reserved under
the 1995 Stock Plan will be transferred to the 2001 Stock Plan and no further
grants will be made under the 1995 Stock Plan. In addition, our 2001 Stock Plan
provides for annual increases in the number of shares available for issuance
under our 2001 Stock Plan on the first day of each fiscal year, beginning with
our fiscal year 2002, equal to the lesser of (i) 5% of the outstanding shares of
common stock on the first day of our fiscal year, (ii) 2,500,000 shares or (iii)
an amount our board may determine.

Administration of the 2001 Stock Plan. Our board of directors or a
committee of our board administers the 2001 Stock Plan. In the case of options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code, the committee will consist of two or more "outside
directors" within the meaning of Section 162(m) of the Code. The administrator
has the power to determine the terms of the options or stock purchase rights
granted, including the exercise price, the number of shares subject to each
option or stock purchase right, the exercisability of the options and the form
of consideration payable upon exercise.

Options. The administrator determines the exercise price of options granted
under the 2001 Stock Plan, but with respect to nonstatutory stock options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code and all incentive stock options, the exercise price
must at least be equal to the fair market value of our common stock on the date
of grant. The term of an incentive stock option generally may not exceed ten
years and the administrator determines the term of all other options.

68
72

No optionee may be granted an option to purchase more than 500,000 shares
in any fiscal year. In connection with his or her initial service, an optionee
may be granted an additional option to purchase up to 1,000,000 shares.

After termination of one of our employees, directors or consultants, he or
she may exercise his or her option for the period of time stated in the option
agreement. Generally, if termination is due to death or disability, the option
will remain exercisable for 12 months. In all other cases, the option will
generally remain exercisable for 3 months. However, an option may never be
exercised later than the expiration of its term.

Stock Purchase Rights. The administrator determines the exercise price of
stock purchase rights granted under our 2001 Stock Plan. Unless the
administrator determines otherwise, the restricted stock purchase agreement will
grant us a repurchase option that we may exercise upon the voluntary or
involuntary termination of the purchaser's service with us for any reason
(including death or disability). The purchase price for shares we repurchase
will generally be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to us. The administrator
determines the rate at which our repurchase option will lapse.

Transferability of Options and Stock Purchase Rights. Our 2001 Stock Plan
generally does not allow for the transfer of options or stock purchase rights
and only the optionee may exercise an option and stock purchase right during his
or her lifetime.

French Sub-Plan. The 2001 Stock Plan has an addendum that will apply to
options granted to our French employees allowing us and the employees granted
options under its terms to receive preferential tax treatment under French tax
laws. The addendum provides that options may not be granted for less than fair
market value on the date of grant. To receive the preferential treatment,
holders of options must not sell the shares subject to the option for a
statutorily mandated period of time from the date of grant, which is currently 5
years. The addendum will be effective for 5 years from the effective date of the
2001 Stock Plan. In most other respects the options granted under the addendum
will have the same terms as options not granted under the addendum.

Adjustments upon Merger or Asset Sale. Our 2001 Stock Plan provides that in
the event of our merger with or into another corporation or a sale of
substantially all of our assets, the successor corporation will assume or
substitute an equivalent option or right for each outstanding option or stock
purchase right. If following the assumption or substitution of an option
automatically granted to one of our outside directors any such outside director
is terminated other than by his or her voluntary resignation, then he or she
will have the right to exercise the option as to all of the shares subject to
the option, including shares which would not otherwise be exercisable.

If there is no assumption or substitution of outstanding options or stock
purchase rights, the administrator will provide notice to the optionee that he
or she has the right to exercise the option or stock purchase right as to all of
the shares subject to the option or stock purchase right, including shares which
would not otherwise be exercisable, for a period of 15 days from the date of the
notice. The option or stock purchase right will terminate upon the expiration of
the 15-day period.

Amendment and Termination of our 2001 Stock Plan. Our 2001 Stock Plan will
automatically terminate in 2011, unless we terminate it sooner. In addition, our
board of directors has the authority to amend, suspend or terminate the 2001
Stock Plan provided it does not adversely affect any option previously granted
under it.

Altius 1999 Stock Plan

In connection with the Altius acquisition, we assumed all outstanding
options issued under the Altius 1999 Stock Plan as of October 4, 2000. These
assumed options became options to purchase an aggregate of 383,955 shares of our
common stock and warrants to purchase 2,091 shares of our common stock. All
material terms of the Altius options are the same as the terms of our 1995 Stock
Plan and 2001 Incentive Stock Plan as described above.

69
73

2001 Employee Stock Purchase Plan

Concurrently with this offering, we intend to establish an Employee Stock
Purchase Plan, or Purchase Plan.

Number of Shares of Common Stock Available under the Purchase Plan. A total
of 500,000 shares of our common stock will be made available for sale. In
addition, our Employee Stock Purchase Plan provides for annual increases in the
number of shares available for issuance under the Employee Stock Purchase Plan
on the first day of each fiscal year, beginning with our fiscal year 2002, equal
to the lesser of (i) 3% of the outstanding shares of our common stock on the
first day of the fiscal year, (ii) 1,200,000 shares, or (iii) such other amount
as may be determined by our board of directors.

Administration of the Purchase Plan. Our board of directors or a committee
of our board administers the Purchase Plan. Our board of directors or its
committee has full and exclusive authority to interpret the terms of the
Employee Stock Purchase Plan and determine eligibility.

Eligibility to Participate. All of our employees are eligible to
participate if they are customarily employed by us or any participating
subsidiary for at least 20 hours per week and more than five months in any
calendar year. However, an employee may not be granted an option to purchase
stock if such employee:

- immediately after grant owns stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock or of
any subsidiary, or

- whose rights to purchase stock under all of our employee stock purchase
plans and of our subsidiary accrues at a rate that exceeds $25,000 worth
of stock for each calendar year.

Offering Periods and Contributions. Our Employee Stock Purchase Plan is
intended to qualify under Section 423 of the Code and contains consecutive,
overlapping 24-month offering periods. Each offering period includes four
6-month purchase periods. The offering periods generally start on the first
trading day on or after May 1 and November 1 of each year, except for the first
such offering period which will commence on the first trading day on or after
the effective date of this offering and will end on the first trading day on or
after the earlier of (i) May 1, 2003 or (ii) 27 months from the beginning of the
first offering period.

Our Employee Stock Purchase Plan permits participants to purchase common
stock through payroll deductions of up to 15% of their eligible compensation
which includes a participant's base, 50% commissions and bonuses but exclusive
of other compensation or remuneration paid directly to the employee. A
participant may purchase a maximum of 1,250 shares during a 6-month purchase
period.

Purchase of Shares. Amounts deducted and accumulated by the participant are
used to purchase shares of our common stock at the end of each six-month
purchase period. The price is 85% of the lower of the fair market value of our
common stock at the beginning of an offering period or on the exercise date. If
the fair market value at the end of a purchase period is less than the fair
market value at the beginning of the offering period, participants will be
withdrawn from the current offering period following their purchase of shares on
the purchase date and will be automatically re-enrolled in a new offering
period. Participants may end their participation at any time during an offering
period, and will be paid their payroll deductions to date. Upon termination, an
employee may participate for up to 3 months following such termination. Upon the
expiration of such 3 month period, participation shall automatically end.

Transferability of Rights. A participant may not transfer rights granted
under the Employee Stock Purchase Plan other than by will, the laws of descent
and distribution or as otherwise provided under the Purchase Plan.

Adjustments upon Merger or Change of Control. In the event of our merger or
change of control, a successor corporation may assume or substitute each
outstanding option. If the successor corporation

70
74

refuses to assume or substitute for the outstanding options, the offering period
then in progress will be shortened, and a new exercise date will be set.

Amendment and Termination of the Purchase Plan. Our board of directors has
the authority to amend or terminate our Purchase Plan, except that, subject to
certain exceptions described in the Purchase Plan, no such action may adversely
affect any outstanding rights to purchase stock under our Purchase Plan.

401(k) RETIREMENT PLAN

On October 1, 1996, we adopted the Simplex 401(k) Retirement Plan, which
covers all of our eligible employees who have attained the age of 21 and have
completed one month of service with us. The 401(k) Plan currently excludes from
participation employees of affiliated employers, collectively bargained
employees and nonresident alien employees. The 401(k) Plan is intended to
qualify under Sections 401(a) of the Internal Revenue Code and the 401(k) Plan
trust is intended to qualify under Section 501(a) of the Internal Revenue Code.
All contributions to the 401(k) Plan by eligible employees, and the investment
earnings thereon, are not taxable to such employees until withdrawn and are 100%
vested immediately. Our eligible employees may elect to reduce their current
compensation up to the maximum statutorily prescribed annual limit, and to have
such salary reductions contributed on their behalf to the 401(k) Plan and
related trust.

LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS

Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for any of the
following:

- any breach of their duty of loyalty to the corporation or its
stockholders;

- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or

- any transaction from which the director derived an improper personal
benefit.

This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.

Our certificate of incorporation provides that we are authorized to
indemnify our directors and executive officers and may indemnify our other
officers and employees and other agents to the fullest extent permitted by
Delaware law. We believe that indemnification under our certificate of
incorporation covers at least negligence and gross negligence on the part of
indemnified parties. Our bylaws permit us to secure insurance on behalf of any
officer, director, employee or other agent for any liability arising out of his
or her actions in their capacity as an officer, director, employee or other
agent, regardless of whether we would have the power to indemnify him or her
under Delaware law.

In addition to the indemnification provided for in our certificate of
incorporation, we have entered into agreements to indemnify our directors and
executive officers. These agreements, among other things, require us to
indemnify these directors and executive officers for certain expenses, including
attorney's fees, judgments, fines and settlement amounts incurred by these
persons in any action or proceeding, including any action by or in our right,
arising out of that person's services as a director or executive officer for us,
any subsidiary of ours or any other company or enterprise to which the person
provides services at our request.

The limited liability and indemnification provisions in our certificate of
incorporation and bylaws may discourage stockholders from bringing a lawsuit
against our directors for breach of their fiduciary duty and may reduce the
likelihood of derivative litigation against our directors and officers, even
though a

71
75

derivative action, if successful, might otherwise benefit us and our
stockholders. A stockholder's investment in us may be adversely affected to the
extent we pay the costs of settlement or damage awards against our directors and
executive officers under these indemnification provisions.

At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification would be
required or permitted. We are not aware of any pending or threatened litigation
or proceeding that might result in a claim for such indemnification. We believe
that these provisions and agreements are necessary to attract and retain
qualified directors and executive officers.

72
76

CERTAIN TRANSACTIONS

PREFERRED STOCK SALES

In March 1997, we sold an aggregate of 2,213,781 shares of Series D
Preferred Stock, at a purchase price of $3.36 per share, and sold warrants to
acquire 20,000 shares of Series D Preferred Stock, at an exercise price of $3.36
per share which was exercised in September 2000. If we sell shares in this
offering below a certain price, holders of our Series D Preferred Stock will
receive additional shares of our common stock. In April 1998, we sold an
aggregate of 3,253,336 shares of Series E Preferred Stock, at a purchase price
of $3.75 per share, and sold warrants to acquire Series E Preferred Stock, at an
exercise price of $3.75 per share. If we sell shares in this offering below a
certain price, holders of our Series E Preferred Stock will receive additional
shares of our common stock. In addition, holders of our Series E Preferred Stock
hold a right to purchase in this offering an amount of our common stock equal to
one-fourth of the shares of our common stock issuable upon conversion of the
Series E Preferred Stock held by such holders immediately prior to this
offering. This right is subject to an aggregate limit for all holders of Series
E Preferred Stock equal to three (3%) percent of the total amount of our common
stock issued in this offering.

The following directors, officers, 5% stockholders and their respective
family members purchased shares in the following preferred stock financings:

NO. OF NO. OF
SHARES OF SHARES OF
SERIES D SERIES E AGGREGATE
PURCHASER PREFERRED PREFERRED TOTAL CONSIDERATION
--------- --------- --------- --------- -------------

Harvey C. Jones, Jr.(1) 27,407 -- 27,407 $ 92,088
Penelope A. Herscher(2) 100,000 -- 100,000 336,000
Aki Fujimura Trust U/D/T Dated October 31, 1996(3) 200,000 -- 200,000 672,000
Entities affiliated with Mayfield Fund:(4)
Mayfield Associates Fund II 34,738 13,333 48,071 166,718
Mayfield VII 660,021 253,334 913,355 3,167,673
Intel Corporation(5) -- 1,866,667 1,866,667 7,000,001

- ---------------
(1) Harvey C. Jones, Jr. is a director of Simplex.

(2) Penelope A. Herscher is the Chairman and Chief Executive Officer of Simplex.

(3) Aki Fujimura, the President and Chief Operating Officer of Simplex and a
director of Simplex, is the Trustee of the Aki Fujimura Trust U/D/T dated
October 31, 1996.

(4) Entities affiliated with Mayfield Fund are a holder of more than 5% of our
stock in the aggregate. F. Gibson Myers, Jr., one of our directors, is a
partner emeritus at Mayfield Fund.

(5) Intel Corporation is a holder of more than 5% of our stock in the aggregate.

As a result of the one for three reverse stock split and provisions of our
amended and restated certificate of incorporation, each three shares of
preferred stock will automatically convert into one share of common stock upon
consummation of the Offering.

COMMON STOCK SALES

On February 12, 1998, we sold 250,000 shares of our common stock to Aki
Fujimura, our President, Chief Operating Officer and Director, at a purchase
price of $2.04 per share. Mr. Fujimura paid for his shares with a promissory
note in the amount of $509,250 and $750 in cash. On March 30, 1999, we sold
47,222 shares of our common stock to Mr. Fujimura at a purchase price of $6.00
per share. Mr. Fujimura paid for his shares with a promissory note in the amount
of $283,334. Mr. Fujimura's shares are subject to a repurchase option by us. Our
repurchase right lapses 25% after the date of the respective agreements and
1/48 each month thereafter. See "Loans to Executive Officers and Directors" for
more information.

On May 26, 1998, we sold 33,333 shares of our common stock to Shashank Goel
at a purchase price of $10.13 per share. Mr. Goel paid for his shares with a
Loan and Pledge Agreement.

73
77

On January 19, 1999, we sold 64,375 shares of our common stock to Steven L.
Teig, our Chief Technical Officer, at a purchase price of $3.75 per share. Mr.
Teig paid for his shares with a promissory note in the amount of $241,406. We
have the right to repurchase Mr. Teig's shares at their original purchase price
of $3.75 per share in the event of voluntary or involuntary termination of
employment with us. Our repurchase right lapsed as to 20% of the shares on
August 1, 1999 and has and will continue to lapse as to 1/60 of the total number
of shares at the end of each month thereafter. See "Loans to Executive Officers
and Directors" for more information.

On March 30, 1999, we sold 33,333 shares of our common stock to Luis P.
Buhler, our Chief Financial Officer, at a purchase price of $6.00 per share. Mr.
Buhler paid for his shares with a promissory note in the amount of $200,000. We
have the right to repurchase Mr. Buhler's shares at their original purchase
price of $6.00 per share in the event of voluntary or involuntary termination of
employment with us. Our repurchase right lapsed as to 25% of the shares on
January 26, 2000 and has and will continue to lapse as to 1/48 of the total
number of shares at the end of each month thereafter. See "Loans to Executive
Officers and Directors" for more information.

In connection with the above transactions, we entered into an agreement
with the investors providing for registration rights with respect to these
shares. For more information regarding this agreement, see "Description of
Capital Stock -- Registration Rights."

In October 2000, we acquired Altius Solutions, Inc., now our wholly owned
subsidiary, in exchange for an aggregate of 2,551,434 shares of common stock.
Joseph B. Costello, one of our directors, was a director of Altius. Mr. Costello
received 261,406 shares of our common stock in exchange for shares of Altius
capital stock he owned.

SALES TO STOCKHOLDERS

Intel Corporation, a holder of more than 5% of our stock in the aggregate,
through a division of Intel (formerly Level One Communications), purchased
products and services totaling $217,500 in fiscal year 1999 and $349,175 in
fiscal 2000.

EXECUTIVE OFFICER EMPLOYMENT ARRANGEMENTS

In March 2000, we entered into an offer letter with James D. Behrens, our
Executive Vice President, Worldwide Field Operations, pursuant to which we
agreed to pay Mr. Behrens a base salary of $175,000. Mr. Behrens' employment
with us is on an at-will basis.

We entered into management continuity agreements with our named executive
officers, Penelope A. Herscher, Aki Fujimura, Steven L. Teig and Luis P. Buhler.
These agreements provide that, except for Luis P. Buhler, in the event that we
terminate the employment of such executive officers other than for cause within
six months of a change in control, our repurchase option with respect to any
unvested shares of our common stock shall partially lapse and such executive
officer shall become vested as to that number of shares that would have vested
as of the date twelve months after the date of termination. If such executive
officer continues to be employed by us six months following a change in control,
he or she will be entitled to twelve months from such date of accelerated
vesting. Under our management continuity agreement with Luis P. Buhler, Mr.
Buhler is entitled to the greater of (i) twelve months of accelerated vesting or
(ii) 50,000 shares in the event of his continued employment six months following
a change in control. Under these management continuity agreements, the
accelerated vesting provisions may become null and void if the non-employee
Board members unanimously determine that any acceleration would preclude pooling
of interest accounting for any business combination involving a change of
control.

In September 2000 in connection with the merger with Altius, we entered
into an employment agreement with Aurangzeb Khan, our Executive Vice President
and General Manager, pursuant to which we agreed to pay Mr. Khan a base salary
of $195,603. Under the agreement, Mr. Khan is entitled to participate in our
Management by Objectives Bonus Program at an annual level of thirty-five percent
or higher. In addition, if Mr. Khan is terminated involuntarily for any reason
other than for cause, Mr. Khan

74
78

is entitled to receive a severance payment equal to twenty-four months of his
base salary as then in effect and accelerated vesting of shares that would have
vested as of the date twelve months after the date of termination. Mr. Khan's
employment with us is on an at-will basis.

LOANS TO EXECUTIVE OFFICERS AND DIRECTORS

On February 12, 1998, Aki Fujimura borrowed $509,250 from us pursuant to a
Pledge and Security Agreement, Secured Loan Agreement and full recourse Secured
Promissory Note to exercise his warrant to purchase 250,000 shares of our common
stock. This loan is payable on termination or cessation of employment with us,
accrues interest at a rate of 6.0% per annum is forgiven up to $375,000, $93,750
of which was forgiven August 13, 1998 and an additional $7,812.50 has been and
will be forgiven on a monthly basis until $375,000 has been forgiven as long as
Mr. Fujimura remains employed with us. The $509,250 loan is secured by the
250,000 shares of our common stock. As long as Mr. Fujimura remains employed by
us, $375,000 of this loan will be forgiven by August 13, 2001. On March 30,
1999, Mr. Fujimura borrowed $283,334 from us pursuant to a full recourse
Promissory Note and Security Agreement to purchase 47,222 shares of our common
stock. The loan accrues interest at a rate of 4.83% per annum, is secured by
47,222 shares of our common stock and is payable upon termination or cessation
of employment with us, and in any event no later than March 30, 2004.

On January 19, 1999, Steven L. Teig borrowed $241,406 from us pursuant to a
full recourse Promissory Note and Security Agreement to purchase 64,375 shares
of our common stock. The loan accrues interest at a rate of 4.64% per annum, is
secured by 64,375 shares of our common stock and is payable upon termination or
cessation of employment with us, and in any event no later than January 19,
2004.

On March 30, 1999, Luis P. Buhler borrowed $200,000 from us pursuant to a
full recourse Promissory Note and Security Agreement to purchase 33,333 shares
of our common stock. The loan accrues interest at a rate of 4.83% per annum, is
secured by 33,333 shares of our common stock and the entire unpaid balance is
payable upon termination or cessation of employment with us, and in any event no
later than March 30, 2004.

On May 26, 1998, Shashank Goel, pursuant to a severance arrangement,
borrowed $556,190 from us pursuant to a Loan and Pledge Agreement in exchange
for our option to purchase 33,333 shares of our common stock of the 56,666
shares pledged as collateral. The non-recourse loan accrues interest at a rate
of 5.69% per annum, is secured by 56,666 shares of our common stock and is
payable on or before the earlier of (i) May 15, 2002 or (ii) one year after the
closing of this offering, in both cases subject to prepayment obligations under
certain circumstances.

CERTAIN BUSINESS RELATIONSHIPS

Larry Sonsini, a partner of Wilson Sonsini Goodrich & Rosati, a
professional corporation, which currently acts as our outside counsel is also a
member of our board of directors. In addition, Mr. Sonsini owns stock options
currently exercisable to acquire 8,333 shares of our common stock.

75
79

PRINCIPAL STOCKHOLDERS

The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of March 31, 2001, and as adjusted
to reflect the sale of common stock offered hereby, by the following:

- each stockholder known by us to own beneficially more than 5% of our
common stock;

- each of our executive officers named in the compensation table above;

- each of our directors; and

- all directors and executive officers as a group.

As of March 31, 2001, there would have been 10,412,732 shares of our common
stock outstanding, assuming that all outstanding preferred stock has been
converted into common stock. Except as otherwise indicated, we believe that the
beneficial owners of the common stock listed below, based on the information
furnished by such owners, have sole voting power and investment power with
respect to such shares. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission. In computing the number of
shares beneficially owned by a person and the percent ownership of that person,
shares of common stock subject to options or warrants held by that person that
are currently exercisable or that will become exercisable within 60 days after
March 31, 2001 are deemed outstanding, while such shares are not deemed
outstanding for the purposes of computing percent ownership of any other person.
Unless otherwise indicated in the footnotes below, the persons and entities
named in the table have sole voting and investment power with respect to all
shares beneficially owned, subject to community property laws where applicable.
The address for those individuals for which an address is not otherwise
indicated is c/o Simplex Solutions, Inc., 521 Almanor Avenue, Sunnyvale, CA
94085.

PERCENTAGE OF SHARES
OUTSTANDING(2)
NUMBER OF SHARES ---------------------------------
NAME AND ADDRESS BENEFICIALLY OWNED(1) BEFORE OFFERING AFTER OFFERING
---------------- --------------------- --------------- --------------

Entities affiliated with Mayfield Fund, F.
Gibson Myers, Jr.(1)........................ 2,315,588 22.2% 16.1%
2800 Sand Hill Road
Menlo Park, CA 94025
Intel Corporation(2).......................... 622,221 6.0 4.3
2625 Walsh Avenue SC4
Santa Clara, CA 95052
Penelope A. Herscher(3)....................... 356,084 3.4 2.5
Aki Fujimura(4)............................... 390,586 3.7 2.7
Steven L. Teig(5)............................. 153,511 1.5 1.1
Luis P. Buhler(6)............................. 82,531 * *
Joseph B. Costello(7)......................... 382,715 3.7 2.6
Harvey C. Jones, Jr........................... 119,371 1.1 *
A. Richard Newton(8).......................... 110,237 1.1 *
Larry W. Sonsini(9)........................... 8,333 * *
James D. Behrens(10).......................... 73,881 * *
Aurangzeb Khan(11)............................ 393,517 3.7 2.7
All directors and officers as a group (11
persons)(12)................................ 2,070,767 19.0 13.9

- ---------------
* Less than 1% of the outstanding shares of common stock.

(1) Includes 115,776 shares held by Mayfield Associates Fund II, a California
Limited Partnership and 2,199,812 shares held by Mayfield VII, a California
Limited Partnership. F. Gibson Myers, Jr. is a member of our board of
directors and a partner emeritus of Mayfield Fund. Mr. Myers disclaims
beneficial ownership of all the shares held by the entities affiliated with
Mayfield Fund except to the extent of his pecuniary interest therein. The
following natural persons exercise voting and/or dispositive powers for the
shares held by Mayfield Fund: F. Gibson Myers, Jr., A. Grant

76
80

Heidrich, III, Michael J. Levinthal, William D. Unger, Wendell G. Van Auken,
III, Kevin A. Fong, and Yogen K. Dalal.

(2) Includes 622,221 shares held by Intel Corporation. The following person
exercises voting and/or dispositive powers for the shares held by Intel
Corporation: M&A Portfolio Manager.

(3) Includes 84,722 shares issuable upon the exercise of currently exercisable
stock options and options exercisable within sixty days of March 31, 2001;
also includes 6,664 shares held by Penelope Herscher as custodian for
Melanie Herscher and Sebastian Herscher.

(4) Includes 44,999 shares issuable upon the exercise of currently exercisable
stock options and options exercisable within sixty days of March 31, 2001;
also includes 278,888 shares held by Aki Fujimura as trustee for the Aki
Fujimura Trust U/D/T dated October 31, 1996 of which 78,935 shares are
subject to a lapsing right of repurchase by the Company, subject to
continued employment.

(5) Includes 94,303 shares issuable upon the exercise of currently exercisable
stock options and options exercisable within sixty days of March 31, 2001;
also includes 31,115 shares subject to a lapsing right of repurchase by the
Company, subject to continued employment.

(6) Includes 29,721 shares issuable upon the exercise of currently exercisable
stock options and options exercisable within sixty days of March 31, 2001;
also includes 15,972 shares subject to a lapsing right of repurchase by the
Company, subject to continued employment.

(7) Includes 16,041 shares issuable upon the exercise of currently exercisable
stock options and options exercisable within sixty days of March 31, 2001.

(8) Includes 8,333 shares issuable upon the exercise of currently exercisable
stock options and options exercisable within sixty days of March 31, 2001.

(9) Includes 8,333 shares issuable upon the exercise of currently exercisable
stock options and options exercisable within sixty days of March 31, 2001.

(10) Includes 73,881 shares issuable upon the exercise of currently exercisable
stock options and options exercisable within sixty days as of March 31,
2001.

(11)Includes 132,111 shares issuable upon the exercise of currently exercisable
stock options and options exercisable within sixty days of March 31, 2001.

(12) Includes 126,022 shares subject to a right of repurchase by the Company
which lapses over time, subject to continued employment.

77
81

DESCRIPTION OF CAPITAL STOCK

AUTHORIZED AND OUTSTANDING CAPITAL STOCK

Our authorized capital stock as of March 31, 2001 consisted of 44,000,000
shares of common stock, and 14,000,000 shares of preferred stock. As of March
31, 2001, there were outstanding 6,230,671 shares of common stock and 12,546,255
shares of preferred stock. These shares were held of record by a total of 345
stockholders.

Upon the closing of this offering and subject to stockholder approval:

- our certificate of incorporation will be amended and restated to provide
for total authorized capital consisting of 38,000,000 shares of common
stock and 10,000,000 shares of preferred stock; and

- all shares of preferred stock will convert into common stock, and a total
of 10,419,462 shares of common stock and no shares of preferred stock
will be outstanding, based on the number of shares outstanding as of
March 31, 2001 and assuming no exercise of the underwriters'
over-allotment option.

Common Stock

The holders of our common stock are entitled to receive dividends as may be
declared by our board of directors and paid out of legally available funds.
Holders of shares of common stock are entitled to one vote per share upon all
matters upon which stockholders have the right to vote. Cumulative voting of
shares is not permitted. In the event of a voluntary or involuntary liquidation,
dissolution or winding-up of the Company, the holders of our common stock are
entitled to receive and share ratably in all assets remaining available for
distribution to stockholders after payment of any preferential amounts to which
the holders of preferred stock may be entitled. Our common stock has no
preemptive rights and is not redeemable, assessable or entitled to the benefits
of any sinking fund. Shares of our common stock are not convertible into any
other security. All outstanding shares of our common stock are, and the common
stock to be issued in this offering will be validly issued, fully paid and
nonassessable.

Preferred Stock

Upon the closing of this offering, each outstanding share of preferred
stock will automatically convert into one share of common stock. Pursuant to an
amended and restated certificate of incorporation to be filed upon the closing
date, a total of 10,000,000 shares of preferred stock will be authorized for
issuance, none of which has been designated in any series. Our board of
directors is authorized, without further stockholder action, to authorize and
issue any of the 10,000,000 undesignated shares of preferred stock in one or
more series and to fix the voting rights, liquidation preferences, dividend
rights, repurchase rights, conversion rights, preemption rights, redemption
rights and terms, including sinking fund provisions and certain other rights and
preferences of such shares of our preferred stock. The issuance of any class or
series of preferred stock could adversely affect the rights of the holders of
common stock by restricting dividends on, diluting the power of, impairing the
liquidation rights of common stock, or delaying, deferring or preventing a
change in control of us. We have no present plans to issue any preferred stock.

Warrants

In connection with debt arrangements, we issued to Comdisco Ventures
warrants to purchase a total of 25,640 shares of Series B Preferred Stock before
our 3-for-1 reverse stock split at an exercise price of $0.78 per share on
September 26, 1995 and 20,000 shares of Series C Preferred Stock at an exercise
price of $1.75 per share on March 1, 1997. Following the closing of this
offering, the warrants automatically will become exercisable for a similar
number of shares of common stock at the same exercise price per share. Comdisco
may exercise this amount in whole or in part at any time prior to the expiration
of the warrant. The warrant issued in connection with the Series B Preferred
Stock Financing shall terminate on the later of September 26, 2002 or three
years from the date of this offering, whichever is longer. The warrant

78
82

issued in connection with the Series C Preferred Stock Financing shall be
exercisable for a period of one year from the effective date of this offering.

In connection with our credit facility lease with Transamerica Business
Credit Corporation, or TBCC Funding Trust II, on June 29, 1999 we issued to
Transamerica a warrant to purchase 66,667 shares of Series E Preferred Stock at
an exercise price of $3.75 per share. This warrant shall expire on June 29, 2006
or on the later of (i) thirty days after Transamerica receives written notice
specifying the terms and conditions of a change of control or dissolution of us
or (ii) the closing date of such change of control or dissolution.

In connection with our acquisition of Altius Solutions, Inc., we have
assumed a warrant to Silicon Valley Bank which was issued on November 1, 1999,
to purchase a total of 2,091 shares of common stock at an exercise price of
$1.91 per share. This warrant shall expire on November 1, 2004.

REGISTRATION RIGHTS

Pursuant to registration rights agreements we entered into with holders of
7,052,360 shares of our common stock, assuming conversion of all outstanding
shares of preferred stock, and the holders of all outstanding warrants, the
holders of these shares are entitled to registration rights regarding these
shares. The registration rights provide that if we propose to register any
securities under the Securities Act, either for our own account or for the
account of other security holders exercising registration rights, they are
entitled to notice of the registration and are entitled to include shares of
their common stock in the registration. This right is subject to conditions and
limitations, including the right of the underwriters in an offering to limit the
number of shares included in the registration. The holders certain of these
shares may also require us to file up to two registration statements under the
Securities Act at our expense with respect to their shares of common stock. We
are required to use our best efforts to effect this registration, subject to
conditions and limitations. Furthermore, the holders of these shares may require
us to file additional registration statements on Form S-3, subject to conditions
and limitations. These rights terminate the earlier of five years after the
effective date of this offering, the date on which all securities holding
registration rights have been sold, or when a holder is able to sell all its
shares pursuant to Rule 144 under the Securities Act in any 90-day period. All
holders of registrable securities have agreed not to exercise their registration
rights until 180 days following the date of this prospectus without the consent
of Credit Suisse First Boston Corporation.

ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, AND
BYLAWS AND OF DELAWARE LAW

Some provisions of Delaware law and our certificate of incorporation and
bylaws could make the following more difficult:

- acquisition of us by means of a tender offer,

- acquisition of us by means of a proxy contest or otherwise, or

- removal of our incumbent officers and directors.

These provisions, summarized below, are expected to discourage coercive
takeover practices and inadequate takeover bids. These provisions are also
designed to encourage persons seeking to acquire control of us to first
negotiate with our board of directors. We believe that the benefits of increased
protection of our potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging such proposals because negotiation of such
proposals could result in an improvement of their terms.

Stockholder Meetings. Under our bylaws, only the board of directors, the
chairman of the board and the president may call special meetings of
stockholders.

Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates

79
83

for election as directors, other than nominations made by or at the direction of
the board of directors or a committee of the board of directors.

Delaware Anti-Takeover Law. We are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203 prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years following the date
the person became an interested stockholder, unless the "business combination"
or the transaction in which the person became an interested stockholder is
approved in a prescribed manner. Generally, a "business combination" includes a
merger, asset or stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. Generally, an "interested stockholder" is
a person who, together with affiliates and associates, owns or within three
years prior to the determination of interested stockholder status, did own, 15%
or more of a corporation's voting stock. The existence of this provision may
have an anti-takeover effect with respect to transactions not approved in
advance by the board of directors, including discouraging attempts that might
result in a premium over the market price for the shares of common stock held by
stockholders.

Elimination of Stockholder Action By Written Consent. Our certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting.

Election and Removal of Directors. Our board of directors is divided into
three classes. The directors in each class will serve for a three-year term, one
class being elected each year by our stockholders. For more information on the
classified board, see the section entitled "Classified Board." This system of
electing and removing directors may tend to discourage a third party from making
a tender offer or otherwise attempting to obtain control of us because it
generally makes it more difficult for stockholders to replace a majority of the
directors.

Elimination of Cumulative Voting. Our certificate of incorporation and
bylaws do not provide for cumulative voting in the election of directors.
Cumulative voting provides for a minority stockholder to vote a portion or all
of its shares for one or more candidates for seats on the board of directors.
Without cumulative voting, a minority stockholder will not be able to gain as
many seats on our board of directors based on the number of shares of our stock
that such stockholder holds than if cumulative voting were permitted. The
elimination of cumulative voting makes it more difficult for a minority
stockholder to gain a seat on our board of directors to influence the board of
directors' decision regarding a takeover.

Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of us. These and other provisions may have the effect
of deferring hostile takeovers or delaying changes in control or management of
us.

Amendment of Charter Provisions. The amendment of any of the above
provisions would require approval by holders of at least 80% of the outstanding
common stock.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is LaSalle Bank N.A.
National Association.

LISTING

We have applied to list our common stock on the Nasdaq Stock Market's
National Market under the symbol SPLX.

80
84

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, we will have an aggregate of 14,419,462
shares of common stock outstanding assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or outstanding
warrants after March 31, 2001. Of these outstanding shares, the 4,000,000 shares
sold in this offering will be freely tradable without restriction under the
Securities Act, unless purchased by our "affiliates," as that term is defined in
Rule 144 under the Securities Act. Substantially all shares of our stock
outstanding prior to this offering are subject to the lock-up agreements
described in "Underwriting." Beginning 180 days after the date of this
prospectus and upon the expiration of the lock-up agreements, approximately
10,419,462 additional shares will be available for sale in the public market,
subject in some cases to compliance with the volume and other limitations of
Rule 144. The following table shows when the shares will be available for sale
in the public market.

NUMBER OF SHARES
ELIGIBLE FOR SALE COMMENT
- ----------------- -------

4,000,000 After the date of this prospectus, freely tradable shares
sold in this offering.
7,080,088 After 180 days from the date of this prospectus, the
180-day lock-up terminates and these shares will be
immediately saleable in compliance with Rule 144 (subject in
some cases to volume limitations).
2,838,663 After 180 days from the date of this prospectus, the
180-day lock-up terminates and these shares will be
immediately saleable in compliance with Rule 144(k) (subject
in some cases to a restriction on transfer due to a right of
repurchase by us).
453,281 After 180 days from the date of this prospectus, the
180-day lock-up terminates and these shares will be
immediately saleable in compliance with Rule 701 (subject in
some cases to a restriction on transfer due to a right of
repurchase by us).
47,430 After 180 days from the date of this prospectus,
restricted securities that are held for less than one year
and are not yet saleable in compliance with Rule 144 until
such one year holding period has been met.

Beginning 180 days after the date of this prospectus, approximately
1,836,315 additional shares subject to vested options will become available for
sale in the public market.

RULE 144

In general, under Rule 144 a person, or persons whose shares are
aggregated, who has beneficially owned shares for at least one year is entitled
to sell within any three-month period commencing 90 days after the date of this
prospectus a number of shares that does not exceed the greater of:

- 1% of the then outstanding shares of our common stock, or approximately
144,195 shares immediately after this offering, or

- the average weekly trading volume during the four calendar weeks
preceding such sale, subject to the filing of a Form 144 with respect to
the sale.

A person, or persons whose shares are aggregated, who is not deemed to have
been our affiliate at any time during the 90 days immediately preceding the sale
who has beneficially owned his or her shares for at least two years is entitled
to sell these shares pursuant to Rule 144(k) without regard to the limitations
described above. Affiliates must always sell pursuant to Rule 144, even after
the applicable holding periods have been satisfied.

We cannot estimate the number of shares that will be sold under Rule 144,
as this will depend on the market price for our common stock, the personal
circumstances of the sellers and other factors. Prior to this offering, there
has been no public market for our common stock, and there can be no assurance
that a significant public market for our common stock will develop or be
sustained after this offering. Any future

81
85

sale of substantial amounts of our common stock in the open market may adversely
affect the market price of our common stock.

STOCK OPTIONS

We intend to file a registration statement on Form S-8 under the Securities
Act to register 5,569,095 shares of our common stock that are subject to
outstanding options or reserved for issuance under our 1995 Stock Plan, 1999
Stock Plan, 2001 Incentive Stock Plan and our 2001 Employee Stock Purchase Plan
within 180 days after the date of this prospectus, thus permitting the resale of
these shares by nonaffiliates in the public market without restriction under the
Securities Act.

WARRANTS

Upon consummation of the initial public offering, warrants to purchase up
to 39,525 shares of our common stock will remain outstanding all of which will
have the registration rights described in the section entitled "Description of
Capital Stock -- Registration Rights."

RULE 701

Any of our employees or consultants who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus. As of March 31, 2001, the holders of options exercisable for
approximately 1,817,064 shares of our common stock will be eligible to sell
their shares in reliance upon Rule 701 or pursuant to the Form S-8 upon the
expiration of the 180-day lockup period.

REGISTRATION RIGHTS

After this offering, the holders of 7,052,360 shares of our common stock
will be entitled to rights with respect to registration of their shares under
the Securities Act. Registration of these shares under the Securities Act would
result in these shares becoming freely tradable without restriction under the
Securities Act, except for shares purchased by our affiliates. All holders of
registrable securities have agreed not to exercise their registration rights
until 180 days following the date of this prospectus without the consent of
Credit Suisse First Boston Corporation. See "Description of Capital
Stock -- Registration Rights."

82
86

UNITED STATES TAX CONSEQUENCES TO NON-U.S. HOLDERS

The following general discussion summarizes some of the material United
States Federal income and estate tax consequences of the ownership and
disposition of our common stock by a non-U.S. holder of common stock. A
"non-U.S. holder" generally is a holder of common stock that is not, for United
States Federal income tax purposes, any of the following:

- a citizen or resident of the United States;

- a corporation, partnership or other entity created or organized in or
under the laws of the United States or any of its potential subdivisions;

- an estate, the income of which is subject to U.S. Federal income taxation
regardless of its source; or

- a trust whose administration is subject to the primary supervision of a
U.S. court, and which has one or more U.S. persons who have the authority
to control all substantial decisions of the trust.

If you are an individual, you may be deemed to be a resident alien, if you
are present in the United States for at least 31 days in the calendar year and
for an aggregate of at least 183 days during a three-year period ending in the
current calendar year (counting for such purposes all of the days present in the
current year, one-third of the days present in the immediately preceding year,
and one-sixth of the days present in the second preceding year). A resident
alien is subject to United States Federal income tax as if such individual was a
citizen of the United States.

If a partnership is a beneficial owner of our common stock, the tax
treatment of a partner will generally depend upon the status of the partner and
upon the activities of the partnership. If you are a partner of a partnership
holding common stock, you should consult your tax advisor about the U.S. tax
consequences of holding and disposing of shares of our common stock.

This discussion is limited to non-U.S. holders who hold our common stock as
a capital asset. This discussion does not consider all aspects of U.S. Federal
income and estate taxation or the specific facts and circumstances that may be
relevant to particular non-U.S. holders in light of their particular
circumstances, such as insurance companies, tax-exempt organizations, financial
institutions, broker-dealers or persons who hold our common stock as part of a
risk reduction transaction, and does not address the treatment of those holders
under the laws of any state, local or foreign taxing jurisdiction. In addition,
this discussion does not address any special tax provisions which may apply to
you if you relinquished United States citizenship or residence. Further, the
discussion is based on provisions of the United States Internal Revenue Code of
1986, as amended, or the "Code," Treasury regulations under the Code, and
administrative and judicial interpretations of the Code as in effect on the date
of this prospectus. All of these authorities are subject to change or different
interpretation on a possibly retroactive basis.

EACH PROSPECTIVE HOLDER IS URGED TO CONSULT ITS TAX ADVISOR WITH RESPECT TO
THE UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSEQUENCES OF ACQUIRING,
HOLDING AND DISPOSING OF COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES THAT MAY
ARISE UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION.

DIVIDENDS

Dividends, if any, paid to a non-U.S. holder of common stock generally will
be subject to United States Federal withholding tax at a 30% rate or a lower
rate as may be specified by an applicable income tax treaty. Dividends that are
effectively connected with the non-U.S. holder's conduct of a trade or business
within the United States (and if an income tax treaty applies, are attributable
to a United States permanent establishment of such non-U.S. holder) will not be
subject to withholding tax provided that such non-U.S. holder complies with
applicable certification and disclosure requirements. Instead, the "effectively
connected" dividends will be subject to U.S. Federal income tax on a net basis
at applicable graduated rates in the same manner as dividends paid to United
States citizens, resident aliens and domestic United States corporations. Any
effectively connected dividends received by a corporate non-U.S.

83
87

holder may also, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or a lower rate as may be specified by an
applicable income tax treaty.

Under recently finalized United States Treasury regulations that will
generally be effective for distributions after December 31, 2000, or the "Final
Withholding Regulations," a non-U.S. holder of common stock who wishes to claim
the benefit of an applicable treaty rate is required to satisfy applicable
certification requirements. Other certification requirements may apply, for
example to a partnership or other flow-through entity through which the non-U.S.
holder owns common stock.

A non-U.S. holder of common stock that is eligible for a reduced rate of
United States withholding tax under a tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund with
the United States Internal Revenue Service.

GAIN ON DISPOSITION OF COMMON STOCK

A non-U.S. holder generally will not be subject to United States Federal
income tax for gain recognized on a sale or other disposition of common stock
unless one of the following conditions is satisfied:

- the gain is effectively connected with a trade or business conducted by
the non-U.S. holder in the United States (and, if an income tax treaty
applies, is attributable to a permanent establishment maintained in the
United States by such non-U.S. holder). The non-U.S. holder will, unless
an applicable treaty provides otherwise, be taxed on its net gain derived
from the sale or other disposition under regular graduated U.S. Federal
income tax rates. Effectively connected gains realized by a corporate
non-U.S. holder may also, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or a lower rate as may be
specified by an applicable income tax treaty;

- in the case of a non-U.S. holder who is an individual and holds the
common stock as a capital asset, the holder is present in the United
States for 183 or more days in the taxable year of the sale or other
disposition and certain other conditions exist;

- we are or have been a "United States real property holding corporation"
for U.S. Federal income tax purposes within the shorter of the five-year
period preceding such disposition or such non-U.S. holder's holding
period. We believe that we are not currently, and are not likely to
become, a "United States real property holding corporation" for U.S.
Federal income tax purposes. If we were to become a "United States real
property holding corporation," under currently effective United States
Treasury regulations, any gain recognized by a non-U.S. holder still
would not be subject to U.S. Federal income tax if the shares were
considered to be "regularly traded on an established securities market,"
and the non-U.S. holder did not hold, directly or indirectly at any time
during the shorter of the periods described above, more than 5% of our
common stock; or

FEDERAL ESTATE TAX CONSEQUENCES

Common stock held by an individual non-U.S. holder at the time of death
will be included in such holder's gross estate for U.S. Federal estate tax
purposes, and may be subject to U.S. Federal estate tax, unless an applicable
estate tax treaty provides otherwise.

INFORMATION REPORTING AND BACKUP WITHHOLDING

We must report annually to the United States Internal Revenue Service and
to each non-U.S. holder the amount of dividends paid to, and the tax withheld
with respect to, such holder, regardless of whether any tax was actually
withheld. This information may also be made available to the tax authorities in
the non-U.S. holder's country of residence. Payment of dividends is subject to
United States backup withholding at a rate of 31% unless the holder certifies
its non-United States status under penalties of perjury or otherwise establishes
an exemption.

84
88

In general, under the Final Withholding Regulations, United States
information reporting and backup withholding requirements also will not apply to
a payment made outside the United States of the proceeds of a sale of common
stock to or through an office outside the United States of a non-United States
broker. However, United States information reporting, but not backup
withholding, requirements will apply to a payment made outside the United States
of the proceeds of a sale of common stock through an office outside the United
States of a broker that, for United States Federal Income tax purposes, is a
United States person, a "controlled foreign corporation," or a foreign person
that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States, or, in the case of payments
made after December 31, 2000, a foreign partnership that at any time during its
tax year either is engaged in the conduct of a trade or business in the United
States or has as partners one or more United States persons that, in the
aggregate, hold more than 50% of the income or capital interest in the
partnership, unless the broker has documentary evidence in its records that the
holder or beneficial owner is a non-United States person or the holder or
beneficial owner otherwise establishes an exemption. Payment of the proceeds of
the sale of common stock to or through a United States office of a broker is
currently subject to both United States backup withholding and information
reporting unless the holder certifies its non-United States status under
penalties of perjury or otherwise establishes an exemption.

Backup withholding is not an additional tax. Amounts withheld under the
backup withholding rules are generally allowable as a refund or credit against
such non-U.S. holder's Federal income tax liability, if any, provided that the
required information is furnished to the Internal Revenue Service.

85
89

UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2001, we have agreed to sell to the
underwriters named below, for whom Credit Suisse First Boston Corporation,
Robertson Stephens, Inc. and SG Cowen Securities Corporation are acting as
representatives the following respective numbers of shares of common stock:

NUMBER
UNDERWRITER OF SHARES
----------- ---------

Credit Suisse First Boston Corporation......................
Robertson Stephens, Inc. ...................................
SG Cowen Securities Corporation.............................
---------
Total..................................................... 4,000,000
=========

The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering may be terminated.

We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 600,000 additional shares at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.

The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a selling concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering the
representatives may change the public offering price and concession and discount
to broker/dealers.

The following table summarizes the compensation and estimated expenses we
will pay:

PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------

Underwriting Discounts and Commissions paid
by us.................................... $ $ $ $
Expenses payable by us..................... $ $ $ $

The representatives have informed us that the underwriters do not expect
discretionary sales to exceed 5% of the shares of common stock being offered.

We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any offer, sale, pledge, disposition or filing,
without the prior written consent of Credit Suisse First Boston Corporation for
a period of 180 days after the date of this prospectus, except the filing of a
registration statement on Form S-8 under the Securities Act, grants of options
to purchase shares of common stock under the plans disclosed in this prospectus
and existing on the date of this prospectus, issuances of shares of common stock
pursuant to the exercise of employee stock options outstanding on the date of
this prospectus and securities issued in connection with an acquisition, merger
or similar transaction.

Our officers and directors, holders of substantially all of our outstanding
common stock, holders of our preferred stock and warrants, have agreed that they
will not offer, sell, contract to sell, pledge or otherwise dispose of, directly
or indirectly, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, enter into a
transaction which would have the same effect, or enter into any swap, hedge or
other arrangement that transfers, in whole or in

86
90

part, any of the economic consequences of ownership of our common stock, whether
any of these transactions are to be settled by delivery of our common stock or
other securities, in cash or otherwise, or publicly disclose the intention to
make any offer, sale, pledge or disposition, or to enter into any transaction,
swap, hedge or other arrangement, without, in each case, the prior written
consent of Credit Suisse First Boston Corporation for a period of 180 days after
the date of this prospectus. Credit Suisse First Boston Corporation has no
current intention of releasing us, our officers, directors or stockholders from
these obligations.

The underwriters have reserved for sale at the initial public offering
price up to shares of the common stock for employees, directors
and other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for sale
to the general public in the offering will be reduced to the extent these
persons purchase the reserved shares. Any reserved shares not so purchased will
be offered by the underwriters to the general public on the same terms as the
other shares.

We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments that the underwriters may be required
to make in that respect.

We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "SPLX".

Prior to the offering, there has been no public market for the common
stock. The initial public offering price for the common stock will be determined
by negotiation between us and the underwriters, and does not reflect the market
price for the common stock following the offering. The principal factors
considered in determining the initial public offering price will include:

- the information in this prospectus and otherwise available to the
underwriters;

- market conditions for initial public offerings;

- the history of and prospects for the industry in which we will compete;

- the ability of our management;

- our prospects for future earnings;

- the present state of our development and our current financial condition;

- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies; and

- the general condition of the securities markets at the time of this
offering.

We cannot be sure that the initial public offering price will correspond to
the price at which the common stock will trade in the public market following
this offering or that an active trading market for the common stock will develop
and continue after this offering.

In connection with the offering the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934.

- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.

- Over-allotment involves sales by the underwriters of shares in excess of
the number of shares the underwriters are obligated to purchase, which
creates a syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered short
position, the number of shares over-alloted by the underwriters is not
greater than the number of shares that they may purchase in the
over-allotment option. In a naked short position, the number of shares
involved is greater than the number of shares in the over-allotment
option. The underwriters may

87
91

close out any short position by either exercising their over-allotment
option and/or purchasing shares in the open market.

- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of shares to
close out the short position, the underwriters will consider, among other
things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. If the underwriters sell more shares than could be
covered by the over-allotment option, a naked short position, the
position can only be closed out by buying shares in the open market. A
naked short position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of the shares
in the open market after pricing that could adversely affect investors
who purchase in the offering.

- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty bids
may have the effect of raising or maintaining the market price of the common
stock or preventing or retarding a decline in the market price of the common
stock. As a result, the price of the common stock may be higher than the price
that might otherwise exist in the open market. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.

A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make internet distributions on the same
basis as other allocations. Credit Suisse First Boston Corporation may effect an
on-line distribution through its affiliate, CSFBdirect Inc., an on-line
broker/dealer, as a selling group member.

88
92

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are made. Any resale of the common stock in Canada must
be made under applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made under available
statutory exemptions or under a discretionary exemption granted by the
applicable Canadian securities regulatory authority. Purchasers are advised to
seek legal advice prior to any resale of the common stock.

REPRESENTATIONS OF PURCHASERS

By purchasing common stock in Canada and accepting a purchase confirmation
a purchaser is representing to us and the dealer from whom the purchase
confirmation is received that:

- the purchaser is entitled under applicable provincial securities laws to
purchase the common stock without the benefit of a prospectus qualified
under those securities laws;

- where required by law, the purchaser is purchasing as principal and not
as agent; and

- the purchaser has reviewed the text above under "Resale Restrictions".

RIGHTS OF ACTION (ONTARIO PURCHASERS)

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.

ENFORCEMENT OF LEGAL RIGHTS

All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.

NOTICE TO BRITISH COLUMBIA RESIDENTS

A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser pursuant to this offering. The report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one report must
be filed for common stock acquired on the same date and under the same
prospectus exemption.

TAXATION AND ELIGIBILITY FOR INVESTMENT

Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and about the eligibility of the common
stock for investment by the purchaser under relevant Canadian legislation.

89
93

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California and for the underwriters by Morrison & Foerster LLP, Palo Alto,
California. At the close of this offering, WS Investments, an investment
partnership composed of some current and former members of and persons
associated with Wilson Sonsini Goodrich & Rosati, a Professional Corporation,
including Larry W. Sonsini and Robert Sanchez, will beneficially own a total of
8,333 shares of our common stock.

EXPERTS

The consolidated financial statements of Simplex Solutions, Inc. as of
September 30, 2000 and 1999 and for each of the three years in the period ended
September 30, 2000 included in this prospectus have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.

The consolidated financial statements of Snaketech S.A. as of December 31,
1999 and 1998 and for the two years then ended included in this prospectus have
been so included in reliance on the report of Befec-Price Waterhouse,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

The financial statements of Altius Solutions, Inc. as of September 30, 2000
and for the nine-month period then ended included in this prospectus have been
so included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.

The financial statements of Altius Solutions, Inc. as of and for the year
ended December 31, 1999 included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and have been so included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offer hereby. This prospectus does not contain all of the information set forth
in the registration statement and the exhibits and schedules filed as part of
the registration statement. For further information with respect to us and our
common stock, we refer you to the registration statement and the exhibits and
schedules filed as a part of the registration statement. Statements contained in
this prospectus concerning the contents of any contract or any other document
are not necessarily complete. If a contract or document has been filed as an
exhibit to the registration statement, we refer you to the copy of the contract
or document that has been filed. Each statement in this prospectus relating to a
contract or document filed as an exhibit is qualified in all respects by the
filed exhibit. The reports and other information we file with the SEC can be
inspected and copied at the public reference facilities that the SEC maintains
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
regional offices located at 7 World Trade Center, 13th Floor, New York, New York
10048, and Suite 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661. Copies of these materials can be obtained at prescribed
rates from the Public Reference Section of the SEC at the principal offices of
the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information regarding the operation of the public reference room by calling
1(800) SEC-0330. The SEC also maintains a web site (http://www.sec.gov) that
makes available the reports and other information we have filed with the SEC.

Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the SEC. These periodic reports, proxy statements and other

90
94

information will be available for inspection and copying at the SEC's public
reference rooms and the website of the SEC referred to above.

We intend to provide our stockholders with annual reports containing, among
other information, financial statements audited by an independent public
accounting firm and to make available to our stockholders quarterly reports
containing unaudited financial data for the first three quarters of each fiscal
year.

91
95

INDEX TO FINANCIAL STATEMENTS

PAGE
----

SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Convertible Preferred Stock and
Stockholders' Deficit..................................... F-5
Consolidated Statements of Cash Flows....................... F-9
Notes to Consolidated Financial Statements.................. F-10

SNAKETECH S.A.
Report of Independent Accountants........................... F-30
Consolidated Balance Sheets................................. F-31
Consolidated Statements of Operations....................... F-32
Consolidated Statements of Shareholders' Equity (Deficit)... F-33
Consolidated Statements of Cash Flows....................... F-34
Notes to Consolidated Financial Statements.................. F-35

ALTIUS SOLUTIONS, INC.
Report of Independent Accountants........................... F-43
Independent Auditors' Report................................ F-44
Balance Sheets.............................................. F-45
Statements of Income........................................ F-46
Statements of Convertible Preferred Stock, and Stockholders'
Equity and Comprehensive Income........................... F-47
Statements of Cash Flows.................................... F-48
Notes to Financial Statements............................... F-49

PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
Pro Forma Overview.......................................... F-56
Pro Forma Combined Statements of Operations (unaudited)..... F-57

F-1
96

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Simplex Solutions, Inc.

The reverse stock-split described in Note 16 to the financial statements
has not been consummated at April 2, 2001. When it is consummated, we will be in
a position to furnish the following report:

"In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of convertible preferred
stock and stockholders' deficit, and of cash flows present fairly, in all
material respects, the financial position of Simplex Solutions, Inc. and
subsidiaries as of September 30, 1999 and 2000, and the results of their
operations and their cash flows for each of the three years in the period
ended September 30, 2000, in conformity with accounting principles
generally accepted in the United States of America. These financial
statements are the responsibility of Simplex Solutions, Inc.'s management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial statements
in accordance with auditing standards generally accepted in the United
States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

As discussed in Note 15 to the financial statements, the financial
statements have been revised to reflect additional charges related to an
employee severance arrangement and purchased research and development
costs."

PRICEWATERHOUSECOOPERS LLP

San Jose, California

October 23, 2000, except for Note 15,
as to which the date is March 14, 2001
and the second paragraph of Note 16
and the fifth paragraph of Note 10, as
to which the date is April 2, 2001.

F-2
97

SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS, AS REVISED)

PRO FORMA
CONVERTIBLE
PREFERRED
STOCK AND
STOCKHOLDERS'
SEPTEMBER 30, EQUITY
------------------- MARCH 31, MARCH 31,
1999 2000 2001 2001
-------- -------- ----------- -------------
(UNAUDITED) (UNAUDITED)

ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,204 $ 7,447 $ 7,373
Short-term investments.................................... 262 -- --
Accounts receivable, net of allowance for doubtful
accounts of $171, $185 and $91 respectively............. 5,416 7,142 10,566
Prepaid expenses and other current assets................. 350 356 1,001
-------- -------- --------
Total current assets.................................... 10,232 14,945 18,940
Property and equipment, net................................. 1,218 1,742 3,453
Other assets................................................ 353 891 2,349
Intangible assets, net...................................... -- 4,938 27,513
-------- -------- --------
Total assets............................................ $ 11,803 $ 22,516 $ 52,255
======== ======== ========

LIABILITIES, CONVERTIBLE PREFERRED STOCK AND WARRANTS AND
COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of capital lease obligations.............. $ 102 $ 29 $ 31
Current portion of notes payable.......................... -- 58 162
Line of credit, net of discount........................... -- 2,442 4,981
Accounts payable.......................................... 315 741 1,783
Accrued liabilities....................................... 539 594 768
Accrued payroll and related expenses...................... 1,533 2,758 2,480
Deferred revenue.......................................... 4,361 5,654 6,117
-------- -------- --------
Total current liabilities............................... 6,850 12,276 16,322
Capital lease obligations, net of current portion........... 56 23 4
Line of credit, net of discount............................. 2,364 -- --
Notes payable............................................... -- 298 200
Other liabilities........................................... -- -- 122
-------- -------- --------
Total liabilities....................................... 9,270 12,597 16,648
-------- -------- --------
Commitments and contingencies (Note 10)
Convertible preferred stock and warrants, $0.001 par value:
Authorized: 14,000,000 shares
Issued and outstanding: 12,526,255 shares at September 30,
1999, 12,546,255 shares at September 30, 2000 and at
March 31, 2001 (unaudited) and no shares at March 31,
2001 (pro forma, unaudited) (Aggregate liquidation value
$24,131)................................................ 24,184 24,251 24,251 $ --
-------- -------- -------- --------
Common stock and other stockholders' equity (deficit):
Common stock, $0.001 par value:
Authorized: 44,000,000 shares
Issued and outstanding: 2,441,363 shares at September 30,
1999, 3,657,110 shares at September 30, 2000 and
6,230,671 shares at March 31, 2001 (unaudited) and
10,412,732 shares at March 31, 2001 (pro forma,
unaudited).............................................. 3 4 6 10
Additional paid-in capital................................ 1,485 17,744 57,178 81,425
Notes receivable from stockholders........................ (1,307) (1,293) (1,289) (1,289)
Unearned stock-based compensation......................... (16) (2,247) (8,824) (8,824)
Accumulated other comprehensive income.................... 2 -- -- --
Accumulated deficit....................................... (21,818) (28,540) (35,715) (35,715)
-------- -------- -------- --------
Total common stock and other stockholders' equity
(deficit)............................................. (21,651) (14,332) 11,356 $ 35,607
-------- -------- -------- ========
Total liabilities, convertible preferred stock and
warrants and common stock and other stockholders'
equity (deficit)...................................... $ 11,803 $ 22,516 $ 52,255
======== ======== ========

The accompanying notes are an integral part of these consolidated financial
statements.
F-3
98

SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

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

SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------- --------------------------
1998 1999 2000 2000 2001
--------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)

Net revenue:
License............................................... $ 5,385 $ 7,704 $14,679 $ 6,346 $10,472
Services.............................................. 1,152 3,177 8,138 3,047 10,357
------- ------- ------- ------- -------
Total revenue....................................... 6,537 10,881 22,817 9,393 20,829
------- ------- ------- ------- -------
Cost of revenue:
Other cost of license................................. 458 96 92 51 26
Amortization of acquired technology................... -- -- 166 -- 226
------- ------- ------- ------- -------
Cost of license....................................... 458 96 258 51 252
------- ------- ------- ------- -------
Other cost of services................................ 439 1,974 3,391 1,291 4,756
Stock-based compensation.............................. -- -- 254 109 1,476
------- ------- ------- ------- -------
Cost of services...................................... 439 1,974 3,645 1,400 6,232
------- ------- ------- ------- -------
Total cost of revenue............................... 897 2,070 3,903 1,451 6,484
------- ------- ------- ------- -------
Gross profit............................................ 5,640 8,811 18,914 7,942 14,345
------- ------- ------- ------- -------
Operating expenses:
Research and development:
Other research and development........................ 5,038 6,378 4,966 1,956 5,459
Stock-based compensation.............................. 22 9 375 154 1,166
------- ------- ------- ------- -------
5,060 6,387 5,341 2,110 6,625
------- ------- ------- ------- -------
Sales and marketing:
Other sales and marketing............................. 6,288 7,314 10,373 4,511 7,541
Stock-based compensation.............................. -- -- 262 98 686
------- ------- ------- ------- -------
6,288 7,314 10,635 4,609 8,227
------- ------- ------- ------- -------
General and administrative:
Other general and administrative...................... 1,343 2,225 2,821 1,288 2,392
Stock-based compensation.............................. 476 4 904 363 788
------- ------- ------- ------- -------
1,819 2,229 3,725 1,651 3,180
------- ------- ------- ------- -------
Amortization of goodwill and other intangibles.......... -- -- 409 -- 3,052
In-process and acquired research and development........ -- -- 5,000 5,000 --
------- ------- ------- ------- -------
Total operating expenses............................ 13,167 15,930 25,110 13,370 21,084
------- ------- ------- ------- -------
Operating income (loss)................................. (7,527) (7,119) (6,196) (5,428) (6,739)
Interest and other income (expense), net................ 343 211 178 120 124
Interest expense........................................ (31) (133) (462) (235) (240)
------- ------- ------- ------- -------
Loss before income taxes................................ (7,215) (7,041) (6,480) (5,543) (6,855)
Income tax expense...................................... -- -- (242) (84) (320)
------- ------- ------- ------- -------
Net loss................................................ $(7,215) $(7,041) $(6,722) $(5,627) $(7,175)
======= ======= ======= ======= =======

Basic and diluted net loss per share.................... $ (4.64) $ (3.62) $ (2.40) $ (2.52) $ (1.30)
======= ======= ======= ======= =======
Number of shares used in calculation of basic and
diluted net loss per share............................ 1,557 1,944 2,801 2,236 5,508
======= ======= ======= ======= =======
Pro forma basic and diluted net loss
per share............................................. $ (0.96) $ (0.74)
======= =======
Number of shares used in calculation of pro forma basic
and diluted net loss per share........................ 6,984 9,691
======= =======

The accompanying notes are an integral part of these consolidated financial
statements.
F-4
99

SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

CONVERTIBLE NOTES NOTES
PREFERRED STOCK RECEIVABLE COMMON STOCK ADDITIONAL RECEIVABLE UNEARNED
-------------------- FROM ------------------ PAID-IN FROM STOCK-BASED
SHARES AMOUNT STOCKHOLDERS SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION
---------- ------- ------------ --------- ------ ---------- ------------ ------------

Balances, October 1,
1997................... 9,022,919 $11,044 $ -- 2,056,366 $ 2 $ 159 $ -- $(13)
Issuance of Series E
convertible preferred
stock, net of issuance
costs of $55........... 3,503,336 12,985 (672) -- -- -- -- --
Issuance of common stock
in exchange for note
receivable............. -- -- -- 250,000 -- 509 (509) --
Amortization of
stockholder note
forgiven............... -- -- -- -- -- -- 101 --
Interest accrued from
stockholder notes
receivable............. -- -- (24) -- -- -- (29) --
Note receivable from
stockholder............ -- -- -- -- -- -- (171) --
Issuance of common stock
pursuant to exercise of
stock options.......... -- -- -- 48,456 -- 44 -- --
Repurchase of restricted
common stock........... -- -- -- (14,619) -- (3) -- --
Repurchase of founder
common stock........... -- -- -- (110,880) -- (246) -- --
Issuance of restricted
common stock in
exchange for cash...... -- -- -- 13,333 -- 30 -- --
Issuance of stock options
to non-employees in
exchange for
services............... -- -- -- -- -- 45 -- (45)
Stock-based compensation
expense................ -- -- -- -- -- -- -- 49
Net loss................. -- -- -- -- -- -- -- --
---------- ------- ----- --------- --- ----- ----- ----
Balances, September 30,
1998 (revised)......... 12,526,255 $24,029 $(696) 2,242,656 $ 2 $ 538 $(608) $ (9)
---------- ------- ----- --------- --- ----- ----- ----

ACCUMULATED
OTHER TOTAL
COMPREHENSIVE ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
INCOME DEFICIT LOSS DEFICIT
------------- ----------- ------------- -------------

Balances, October 1,
1997................... $ -- $ (7,562) $ -- $ (7,414)
Issuance of Series E
convertible preferred
stock, net of issuance
costs of $55........... -- -- -- --
Issuance of common stock
in exchange for note
receivable............. -- -- -- --
Amortization of
stockholder note
forgiven............... -- -- -- 101
Interest accrued from
stockholder notes
receivable............. -- -- -- (29)
Note receivable from
stockholder............ -- -- -- (171)
Issuance of common stock
pursuant to exercise of
stock options.......... -- -- -- 44
Repurchase of restricted
common stock........... -- -- -- (3)
Repurchase of founder
common stock........... -- -- -- (246)
Issuance of restricted
common stock in
exchange for cash...... -- -- -- 30
Issuance of stock options
to non-employees in
exchange for
services............... -- -- -- --
Stock-based compensation
expense................ -- -- -- 49
Net loss................. -- (7,215) $ (7,215) (7,215)
---- -------- ======== --------
Balances, September 30,
1998 (revised)......... $ -- $(14,777) $(14,854)
---- -------- --------

F-5
100

SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

CONVERTIBLE NOTES NOTES
PREFERRED STOCK RECEIVABLE COMMON STOCK ADDITIONAL RECEIVABLE UNEARNED
-------------------- FROM ------------------- PAID-IN FROM STOCK-BASED
SHARES AMOUNT STOCKHOLDERS SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION
---------- ------- ------------ ---------- ------ ---------- ------------ ------------

Balances, September 30,
1998 (revised)......... 12,526,255 $24,029 $(696) 2,242,656 $ 2 $ 538 $ (608) $ (9)
Repayment of stockholder
note receivable........ -- -- 696 -- -- -- -- --
Issuance of restricted
common stock in
exchange for notes
receivable............. -- -- -- 144,931 -- 725 (725) --
Interest accrued from
stockholder notes
receivable............. -- -- -- -- -- -- (68) --
Amortization of
stockholder note
forgiven............... -- -- -- -- -- -- 94 --
Repurchase of restricted
common stock........... -- -- -- (34,003) -- (13) -- --
Issuance of common stock
pursuant to exercise of
stock options.......... -- -- -- 74,446 1 165 -- --
Warrants granted in
consideration for
capital lease
financing.............. -- 155 -- -- -- -- -- --
Issuance of restricted
common stock in
exchange for cash...... -- -- -- 13,333 -- 50 -- --
Issuance of stock options
to non-employees in
exchange for
services............... -- -- -- -- -- 20 -- (20)
Stock-based compensation
expense................ -- -- -- -- -- -- -- 13
Comprehensive loss
Net loss................. -- -- -- -- -- -- -- --
Unrealized gain on
investments............ -- -- -- -- -- -- -- --
---------- ------- ----- ---------- --- ------- ------- -------
Comprehensive loss.......
Balances September 30,
1999(revised).......... 12,526,255 $24,184 $ -- 2,441,363 $ 3 $ 1,485 $(1,307) $ (16)
---------- ------- ----- ---------- --- ------- ------- -------

ACCUMULATED
OTHER TOTAL
COMPREHENSIVE ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
INCOME DEFICIT LOSS DEFICIT
------------- ----------- ------------- -------------

Balances, September 30,
1998 (revised)......... $ -- $(14,777) $ -- $(14,854)
Repayment of stockholder
note receivable........ -- -- -- --
Issuance of restricted
common stock in
exchange for notes
receivable............. -- -- -- --
Interest accrued from
stockholder notes
receivable............. -- -- -- (68)
Amortization of
stockholder note
forgiven............... -- -- -- 94
Repurchase of restricted
common stock........... -- -- -- (13)
Issuance of common stock
pursuant to exercise of
stock options.......... -- -- -- 166
Warrants granted in
consideration for
capital lease
financing.............. -- -- -- --
Issuance of restricted
common stock in
exchange for cash...... -- -- -- 50
Issuance of stock options
to non-employees in
exchange for
services............... -- -- -- --
Stock-based compensation
expense................ -- -- -- 13
Comprehensive loss
Net loss................. -- (7,041) (7,041) (7,041)
Unrealized gain on
investments............ 2 -- 2 2
------ -------- -------- --------
Comprehensive loss....... $ (7,039)
========
Balances September 30,
1999(revised).......... $ 2 $(21,818) $(21,651)
------ -------- --------

F-6
101

SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

Balances, September 30,
1999 (revised)......... 12,526,255 $24,184 $ -- 2,441,363 $ 3 $ 1,485 $(1,307) $ (16)
Repayment of stockholder
note receivable........ -- -- -- -- -- -- 16 --
Interest accrued from
stockholder notes
receivable............. -- -- -- -- -- -- (95) --
Amortization of
stockholder note
forgiven............... -- -- -- -- -- -- 93 --
Issuance of common stock
pursuant to exercise of
stock options.......... -- -- -- 276,665 -- 854 -- --
Issuance of common stock
in connection with
acquisition of
Snaketech.............. -- -- -- 928,983 1 10,729 -- --
Issuance of fully vested
common stock options in
connection with
acquisition of
Snaketech.............. -- -- -- -- -- 609 -- --
Issuance of restricted
common stock in
exchange for cash...... -- -- -- 6,666 -- 40 -- --
Issuance of preferred
stock pursuant to
exercise of warrants... 20,000 67 -- -- -- -- -- --
Repurchase of restricted
common stock........... -- -- -- (100) -- -- -- --
Issuance of restricted
common stock in
exchange for
services............... -- -- -- 3,533 -- 31 -- (31)
Unearned stock-based
compensation........... -- -- -- -- -- 3,996 -- (3,996)
Stock-based compensation
expense................ -- -- -- -- -- -- -- 1,796
Net loss................. -- -- -- -- -- -- -- --
Realized loss on
investments............ -- -- -- -- -- -- -- --
---------- ------- ----- ---------- --- ------- ------- --------
Comprehensive loss.......
Balances, September 30,
2000 (revised)......... 12,546,255 $24,251 $ -- 3,657,110 $ 4 $17,744 $(1,293) $ (2,247)
---------- ------- ----- ---------- --- ------- ------- --------

ACCUMULATED
OTHER TOTAL
COMPREHENSIVE ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
INCOME DEFICIT LOSS DEFICIT
------------- ----------- ------------- -------------

Balances, September 30,
1999 (revised)......... $ 2 $(21,818) $ -- $(21,651)
Repayment of stockholder
note receivable........ -- -- -- 16
Interest accrued from
stockholder notes
receivable............. -- -- -- (95)
Amortization of
stockholder note
forgiven............... -- -- -- 93
Issuance of common stock
pursuant to exercise of
stock options.......... -- -- -- 854
Issuance of common stock
in connection with
acquisition of
Snaketech.............. -- -- -- 10,730
Issuance of fully vested
common stock options in
connection with
acquisition of
Snaketech.............. -- -- -- 609
Issuance of restricted
common stock in
exchange for cash...... -- -- -- 40
Issuance of preferred
stock pursuant to
exercise of warrants... -- -- -- --
Repurchase of restricted
common stock........... -- -- -- --
Issuance of restricted
common stock in
exchange for
services............... -- -- -- --
Unearned stock-based
compensation........... -- -- -- --
Stock-based compensation
expense................ -- -- -- 1,796
Net loss................. -- (6,722) (6,722) (6,722)
Realized loss on
investments............ (2) -- (2) (2)
------ -------- -------- --------
Comprehensive loss....... $ (6,724)
========
Balances, September 30,
2000 (revised)......... -- $(28,540) $(14,332)
------ -------- --------

F-7
102

SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

(INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 2001 IS UNAUDITED)

Balances, September 30,
2000 (revised)......... 12,546,255 $24,251 $ -- 3,657,110 $ 4 $17,744 $(1,293) $ (2,247)
Interest accrued from
stockholder notes
receivable............. -- -- -- -- -- -- (44) --
Amortization of
stockholder note
forgiven............... -- -- -- -- -- -- 48 --
Issuance of common stock
pursuant to exercise of
stock options.......... -- -- -- 22,127 -- 146 -- --
Issuance of common stock
in connection with
acquisition of Altius
Solutions, Inc......... -- -- -- 2,551,434 2 25,460 -- --
Assumption of common
stock warrant in
connection with
acquisition of Altius
Solutions, Inc......... -- -- -- -- -- 27 -- --
Issuance of common stock
options in connection
with acquisition of
Altius Solutions,
Inc.................... -- -- -- -- -- 3,108 -- --
Unearned stock-based
compensation........... -- -- -- -- -- 10,693 -- (10,693)
Stock-based compensation
expense................ -- -- -- -- -- -- -- 4,116
Net loss................. -- -- -- -- -- -- -- --
---------- ------- ----- ---------- --- ------- ------- --------
Comprehensive loss.......
Balances, March 31, 2001
(unaudited)............ 12,546,255 $24,251 $ -- 6,230,671 $ 6 $57,178 $(1,289) $ (8,824)
========== ======= ===== ========== === ======= ======= ========

ACCUMULATED
OTHER TOTAL
COMPREHENSIVE ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
INCOME DEFICIT LOSS DEFICIT
------------- ----------- ------------- -------------

Balances, September 30,
2000 (revised)......... $ -- $(28,540) $ -- $(14,332)
Interest accrued from
stockholder notes
receivable............. -- -- -- (44)
Amortization of
stockholder note
forgiven............... -- -- -- 48
Issuance of common stock
pursuant to exercise of
stock options.......... -- -- -- 146
Issuance of common stock
in connection with
acquisition of Altius
Solutions, Inc......... -- -- -- 25,462
Assumption of common
stock warrant in
connection with
acquisition of Altius
Solutions, Inc......... -- -- -- 27
Issuance of common stock
options in connection
with acquisition of
Altius Solutions,
Inc.................... -- -- -- 3,108
Unearned stock-based
compensation........... -- -- -- --
Stock-based compensation
expense................ -- -- -- 4,116
Net loss................. -- (7,175) (7,175) (7,175)
------ -------- -------- --------
Comprehensive loss....... $ (7,175)
========
Balances, March 31, 2001
(unaudited)............ $ -- $(35,715) $ 11,356
====== ======== ========

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

F-8
103

SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, AS REVISED)

SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
---------------------------- -------------------
1998 1999 2000 2000 2001
------- ------- -------- -------- --------
(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(7,215) $(7,041) $ (6,722) $ (5,627) $ (7,175)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Amortization of discount on lease financing and line of
credit................................................ 20 19 83 39 39
Stock-based compensation................................ 434 13 1,795 721 4,116
Interest accrued on stockholder note receivable......... (53) (68) (95) (37) (44)
Allowance for doubtful accounts......................... 10 161 14 (16) (94)
Depreciation and amortization of tangible assets........ 777 907 843 708 756
Amortization of stockholder note forgiven............... 101 94 93 25 48
Amortization of goodwill and other intangibles.......... -- -- 575 -- 3,278
In-process and acquired research and development tool... -- -- 5,000 5,000 --
Rental income paid for by waiver of deposit............. -- -- -- -- (56)
Changes in operating assets and liabilities net of
effects of acquisition:
Accounts receivable................................... (383) (3,888) (1,607) (409) (1,190)
Prepaid expenses and other current assets............. (4) (259) 198 (31) (481)
Other assets.......................................... (20) (17) (538) (9) (1,322)
Accounts payable...................................... (60) 96 189 75 876
Accrued liabilities; including payroll and related
expenses............................................ 87 948 486 37 (2,589)
Deferred revenue...................................... (216) 3,651 1,251 637 216
------- ------- -------- -------- --------
Net cash (used in) provided by operating
activities........................................ (6,522) (5,384) 1,565 1,113 (3,622)
------- ------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received from acquisition of Snaketech and Altius.... -- -- 1,591 1,591 2,307
Acquisition of property and equipment..................... (782) (436) (1,044) (421) (1,394)
Proceeds from available-for-sale securities............... -- 404 1,066 1,066 --
Purchase of certificate of deposit........................ (300) -- -- -- --
Purchase of available-for-sale securities................. -- (664) (806) (806) --
------- ------- -------- -------- --------
Net cash (used in) provided by investing
activities........................................ (1,082) (696) 807 1,430 913
------- ------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit.............................. -- 2,500 -- -- 2,500
Proceeds from issuance of convertible preferred stock..... 12,313 -- 67 -- --
Proceeds from issuance of common stock.................... 73 216 894 315 146
Repurchase of common stock................................ (249) (13) -- -- --
Repayment of borrowings under capital lease obligations
and line of credit...................................... (213) (156) (106) (71) (11)
Payments from (loans to) stockholders..................... (556) 696 16 -- --
------- ------- -------- -------- --------
Net cash provided by financing activities........... 11,368 3,243 871 244 2,635
------- ------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 3,764 (2,837) 3,243 2,787 (74)
Cash and cash equivalents at beginning of period............ 3,277 7,041 4,204 4,204 7,447
------- ------- -------- -------- --------
Cash and cash equivalents at end of period.................. $ 7,041 $ 4,204 $ 7,447 $ 6,991 $ 7,373
======= ======= ======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 31 $ 106 $ 379 $ 162 $ 123
Assets acquired under capital lease....................... -- 119 -- -- --
Issuance of common stock for stockholder note
receivable.............................................. 509 725 -- -- --
Warrants granted for financing services................... -- 155 -- -- --
Issuance of preferred stock in exchange for stockholder
note.................................................... 672 -- -- -- --
Issuance of restricted common stock in exchange for
services................................................ -- -- 31 -- --
Unearned stock-based compensation......................... 45 20 3,996 3,249 10,693
ASSETS ACQUIRED AND LIABILITIES ASSUMED IN CONNECTION WITH
ACQUISITION OF SNAKETECH:
Fair value of assets acquired............................. $ 7,676 $ 7,676
In-process and acquired research and development tool..... 5,000 5,000
Cash received............................................. 1,591 1,591
Common stock and fully vested common stock options
issued.................................................. (11,339) (11,339)
-------- --------
Liabilities assumed................................... $ 2,928 $ 2,928
======== ========
ASSETS ACQUIRED AND LIABILITIES ASSUMED IN CONNECTION WITH
ACQUISITION OF ALTIUS SOLUTIONS, INC.:
Fair value of assets acquired............................. $ 29,748
Cash received............................................. 2,307
Common stock and fully vested common stock options
issued.................................................. (28,597)
--------
Liabilities assumed................................... $ 3,458
========

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

F-9
104

SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION RELATING TO THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001 IS
UNAUDITED)

NOTE 1 -- FORMATION AND BUSINESS OF THE COMPANY:

Simplex Solutions, Inc. ("Simplex") was incorporated in the State of
Delaware in April 1995. Simplex provides software and services that enable the
design and first-time production success of complex integrated circuits for
computer, communications, and consumer products. Simplex' products are designed
to enable its customers to deliver timely, competitive systems-on-chips
implemented in deep submicron technologies.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
Simplex and its wholly owned subsidiaries, Simplex Solutions UK Ltd., Simplex
Solutions S.A.R.L., Simplex Solutions GmbH, Simplex Solutions KK, Simplex
Solutions, S.A. (together "Simplex"). All material intercompany balances and
transactions have been eliminated.

INTERIM FINANCIAL STATEMENTS (UNAUDITED)

The financial statements as of March 31, 2001 and for the six months ended
March 31, 2000 and 2001 are unaudited but have been prepared in accordance with
generally accepted accounting principles for interim financial statements and
the rules of the Securities and Exchange Commission and do not include all
disclosures required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) necessary for a fair presentation have been
included. The results of operations of any interim period are not necessarily
indicative of the results of operations for the full year.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

FOREIGN CURRENCY TRANSLATION

The functional currency of Simplex' foreign subsidiaries is the U.S.
dollar. Accordingly, the financial statements of those subsidiaries, which are
maintained in the local currency, are remeasured into U.S. dollars in accordance
with Statement of Financial Accounting Standards No. 52, Foreign Currency
Translation. Exchange gains or losses from remeasurement of monetary assets and
liabilities that are not denominated in U.S. dollars were not material for any
period presented and are included in the consolidated statements of operations.

CASH AND CASH EQUIVALENTS

Simplex considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents, except those held
as collateral for Simplex' lease arrangement (Note 10).

F-10
105
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001 IS
UNAUDITED)

SHORT-TERM INVESTMENTS

Investments with original maturities greater than three months and
remaining maturities of less than one year are classified as short-term
investments. Short-term investments, which are classified as available-for-sale,
consist of commercial paper and are reported at fair value. The cost of
securities sold is determined using the specific identification method when
computing realized gains and losses. Fair value is determined using available
market information. At September 30, 2000 and at March 31, 2001, there were no
short-term investments or investments with maturities greater than one year.

BUSINESS RISKS AND CONCENTRATION OF CREDIT RISK

Simplex' licenses and services are concentrated in the area of enabling
companies to design complex integrated circuits. This industry is characterized
by rapid technological advances, changes in customer requirements and evolving
industry standards.

Any failure by Simplex to anticipate or respond adequately to technological
changes in its industry, changes in customer requirements or changes in industry
standards could have a material adverse effect on Simplex' business and
operating results.

Financial instruments which potentially subject Simplex to concentrations
of credit risk consist primarily of cash, cash equivalents and accounts
receivable. Simplex places its cash and cash equivalents with two major
financial institutions. Deposits at any time may exceed federally insured
limits. For accounts receivable, Simplex performs ongoing credit evaluations of
its customers' financial condition and does not require collateral. Simplex
maintains allowances for potential credit losses and such losses have been
within management's expectations.

At September 30, 1999, three customers each accounted for 10%, 11%, and
16%, respectively, of aggregate accounts receivable; at September 30, 2000,
three customers each accounted for 10%, 11%, and 15%, respectively, of aggregate
accounts receivable; at March 31, 2001 one customer accounted for 18% of
aggregate accounts receivable. Two customers each accounted for 13% and 11%,
respectively, of total revenue for the year ended September 30, 1998. No
customers accounted for greater than 10% of the total revenue for the year ended
September 30 1999. Revenue from one customer accounted for 15% of total revenue
for the year ended September 30, 2000, exclusive of revenue of 3% sold to this
customer through a distributor. One customer accounted for 10% of total revenue
for the six months ended March 31, 2001.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of certain of Simplex' financial instruments including
cash and cash equivalents, accounts receivable, accounts payable, notes payable,
and line of credit approximate fair value.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the related assets,
generally three to five years. Leased assets are amortized on a straight-line
basis over the lesser of the estimated useful life or the lease term.

Maintenance and repairs are charged to expense as incurred. When assets are
sold or retired, the cost and related accumulated depreciation are removed from
the accounts and any resulting gain or loss is included in operations.

F-11
106
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001 IS
UNAUDITED)

INTANGIBLE ASSETS

Intangible assets include goodwill, assembled workforce and acquired
technology from the acquisition of Snaketech, S.A. ("Snaketech") and Altius
Solutions, Inc. ("Altius") (see Note 3). Goodwill and other intangible assets
are amortized on a straight-line basis over the estimated periods of benefit,
which are as follow:

Goodwill.......................................... 5 years
Acquired technology............................... 3-5 years
Assembled workforce............................... 3-7 years

IMPAIRMENT OF LONG-LIVED ASSETS

Simplex evaluates the recoverability of long-lived assets, goodwill related
to those assets and enterprise goodwill in accordance with Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of ("SFAS No. 121").
SFAS No. 121 requires recognition of impairment of long-lived assets upon the
occurrence of certain events and in the event the net book value of such assets
exceeds the future undiscounted cash flows attributable to such assets.

REVENUE RECOGNITION

Simplex' reports revenue in two categories; license and services revenue.
License revenue is derived from product sales to end users and distributors.
Services revenue is derived from providing consulting, training, maintenance and
support services to end users, research and development services, and
customization services related to software.

Simplex recognizes revenue in accordance with the American Institute of
Certified Public Accountants Statement of Position 97-2, Software Revenue
Recognition, as amended by Statement of Position 98-4, Deferral of the Effective
Date of Certain Provisions of SOP 97-2, ("SOP 97-2") and Statement of Position
98-9, Modification of SOP 97-2, Software Revenue Recognition With Respect to
Certain Transactions. License revenue is derived from term and time-based
licenses. Time-based licenses are for a period of 1 year or less. Term licenses
are typically for a period of 3 to 20 years. License revenue of term licenses is
recognized upon shipment of the license, if an executed agreement or purchase
order has been received, a signed license agreement exists, the fee is fixed and
determinable and collection is deemed probable. All licenses commence upon
execution of a Simplex license agreement. Simplex' standard payment terms are
net 30. Simplex does not generally include acceptance criteria or rights of
return in its arrangements. When acceptance criteria or rights of return are
included in these license arrangements, revenue is deferred until acceptance is
received or the rights of return expire.

For contracts with multiple obligations (e.g., product licenses,
maintenance and other services), and which do not involve significant
customization or modification of software, Simplex allocates revenue to each
component of the contract based on vendor specific objective evidence of its
fair value, which is based on either the price when each component is sold
separately, or the renewal rates for maintenance in future years. Vendor
specific objective evidence exists for maintenance, consulting and training
based upon a history of separate sales of these services. As Simplex has not
generally sold its licenses separately, it uses the residual method to determine
the allocation of revenue to the license portion of multiple-element
arrangements and, as such, no revenue is recognized until delivery. Simplex
recognizes revenue allocated to undelivered products when the criteria for
product revenue set forth above are met.

F-12
107
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001 IS
UNAUDITED)

License and maintenance revenue from time-based licenses are recognized
ratably over the period of the license as vendor specific objective evidence of
the fair value of the maintenance is not established, as maintenance for these
licenses is never sold separately from the license.

Services revenue from consulting and training are recognized as the related
services are performed, when collectibility is probable and the fee is fixed and
determinable. Revenue from maintenance and support agreements is deferred and
recognized on a straight-line basis over the period of the related agreement.
Payments of maintenance fees are generally made in advance and are
nonrefundable.

Simplex adopted SOP 97-2 on April 1, 1998. Prior to the adoption of SOP
97-2, Simplex recognized revenue from the sale of products upon shipment if
remaining obligations were insignificant, collection of the resulting accounts
receivable was probable and product returns reasonably estimable. There was no
material impact on the financial statements upon the adoption of SOP 97-2.

Simplex recognizes service revenue derived from long-term research and
development contracts in accordance with Statement of Financial Accounting
Standard No. 68, Research and Development Arrangements and SOP 81-1, Accounting
for Performance of Construction-Type and Certain Production-Type Contracts,
("SOP 81-1") under the percentage-of-completion method of accounting based on
the estimated stage of completion of individual contracts. Simplex currently has
only one long-term research and development contract. Revenue recorded related
to this contract amounted to $1.7 million for the year ended September 30, 2000
and $708,000 for the six months ended March 31, 2001.

Simplex also recognizes service and license revenue for contracts which
require significant customization or modification of its software under SOP
81-1, using the percentage-of-completion method based on the estimated stage of
completion of the individual contracts. To date, such arrangements have been
minimal.

Deferred revenue primarily consists of maintenance and support services
under maintenance contracts and unearned revenue on time-based licenses.

ADVERTISING

Simplex expenses advertising costs as they are incurred. For the years
ended September 1998, 1999 and 2000, advertising expense was $22,992, $140,554
and $0, respectively and for the six months ended March 31, 2001 was $27,835.

INCOME TAXES

Simplex accounts for income taxes using the liability method whereby
deferred tax assets and liabilities are determined based on the differences
between financial reporting and tax bases of assets and liabilities and measured
at tax rates that will be in effect when the differences are expected to
reverse. Valuation allowances are established when necessary to reduce deferred
tax assets where it is more likely than not the deferred tax assets will not be
realized.

STOCK-BASED COMPENSATION

Simplex has elected to adopt the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation,
("SFAS No. 123"). Simplex accounts for stock-based compensation using Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, ("APB
No. 25") and, accordingly, pro forma disclosures required under SFAS No. 123
have been presented. Under APB No. 25, compensation expense is based on the
difference, if any, on the date of the grant, between the deemed fair value of
Simplex common stock and the exercise price of the

F-13
108
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001 IS
UNAUDITED)

option. Additionally, pursuant to Emerging Issues Task Force Issue 96-18, ("EITF
96-18") Accounting for Equity Instruments that are issued to other than
Employees for Acquiring, or in conjunction with Selling, Goods or Services,
equity instruments issued to non-employees are measured at fair value over the
period of performance using the Black-Scholes option pricing model.

RESEARCH AND DEVELOPMENT EXPENDITURES

Costs related to research, design and development of products are charged
to research and development expense as incurred. Software development costs are
capitalized beginning when a product's technological feasibility has been
established and ending when a product is available for general release to
customers. To date, attaining technological feasibility and general release have
substantially coincided. As a result, Simplex has not capitalized any software
development costs.

NET LOSS PER SHARE

Simplex computes net loss per share in accordance with Statement of
Financial Accounting Standards No. 128, Earnings per Share, ("SFAS No. 128").
Under the provisions of SFAS No. 128, basic net loss per share is computed by
dividing the net loss available to common stockholders for the period by the
weighted average number of common shares outstanding during the period. Diluted
net income (loss) per share is computed by dividing the net loss for the period
by the weighted average number of common and dilutive common equivalent shares
outstanding during the period. For all periods presented, options, warrants and
convertible preferred stock were not included in the computation of diluted net
loss per share because the effect would be antidilutive.

A reconciliation of shares used in the calculation of basic and diluted net
loss per share follows (in thousands, except per share amounts):

SIX MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
----------------------------- -----------------
1998 1999 2000 2000 2001
--------- ------- ------- ------- -------
(UNAUDITED)

Basic and diluted net loss per share:
Numerator:
Net loss.................................... $(7,215) $(7,041) $(6,722) $(5,627) $(7,175)
======= ======= ======= ======= =======
Denominator:
Weighted average common shares
outstanding............................... 2,137 2,369 3,055 2,531 6,180
Weighted average unvested common shares
subject to repurchase..................... (580) (425) (254) (295) (672)
------- ------- ------- ------- -------
Denominator for basic and diluted
calculation............................... 1,557 1,944 2,801 2,236 5,508
======= ======= ======= ======= =======
Basic and diluted net loss per share
attributable to common stockholders....... $ (4.64) $ (3.62) $ (2.40) $ (2.32) $ (1.30)
======= ======= ======= ======= =======
Antidilutive securities including options,
warrants unvested common stock and
preferred stock not included in net loss
per share calculations.................... 5,045 5,303 6,339 6,261 6,348
======= ======= ======= ======= =======

PRO FORMA NET LOSS PER SHARE (UNAUDITED)

Pro forma basic and diluted net loss per share for the year ended September
30, 2000 and six months ended March 31, 2001 is computed using the weighted
average number of common shares outstanding,

F-14
109
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001 IS
UNAUDITED)

including the pro forma effects of the conversion of convertible preferred stock
into common stock on an as-if-converted basis. Common equivalent shares,
composed of common shares issuable upon the exercise of stock options and
warrants, are not included in pro forma diluted net loss per share as such
shares are antidilutive.

The following table sets forth the computation of pro forma basic and
diluted net loss per share (in thousands, except per share amounts):

SIX MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
2000 2001
------------- ----------
(UNAUDITED)

Numerator:
Net loss............................................ $(6,722) $(7,175)
======= =======
Denominator:
Shares used in computing basic and diluted net loss
per share........................................ 2,801 5,508
Adjustment to reflect assumed conversion of all
preferred stock from date of issuance............ 4,183 4,183
------- -------
Shares used in computing pro forma basic and diluted
net loss per share............................... 6,984 9,691
======= =======
Basic and diluted pro forma net loss per share........ $ (0.96) $ (0.74)
======= =======
Antidilutive securities including options and warrants
not included in pro forma net loss per share
calculation......................................... 2,164 4,155
======= =======

PRO FORMA MARCH 31, 2001 (UNAUDITED)

Pro forma convertible preferred stock and stockholders' equity includes the
pro forma effect of the conversion of convertible preferred stock and warrants
into common stock and warrants effective prior to the closing of the offering on
an as-if-converted basis.

COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) includes unrealized gains and losses on
available for sale securities that are excluded from net loss and reflected
instead in stockholders' equity (deficit).

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"), which establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
133 requires that all derivatives be recognized at fair value in the financial
statements, and that the corresponding gains or losses be reported either in the
statement of operations or as a component of comprehensive income, depending on
the type of hedging relationship that exists. SFAS 133, as amended, is effective
for fiscal years beginning after June 15, 2000. There was no significant impact
from the adoption of this pronouncement.

F-15
110
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001 IS
UNAUDITED)

that must be met to recognize revenue and provides guidance on disclosure
related to revenue recognition policies. Simplex believes that it currently
complies with SAB 101.

In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation -- an Interpretation of APB 25
(the "Interpretation"). This Interpretation clarifies (a) the definition of an
employee for purposes of applying APB 25, (b) the criteria for determining
whether a stock plan qualifies as a non-compensatory plan, (c) the accounting
consequences of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation is effective July 1, 2000,
but certain conclusions in this Interpretation cover specific events that occur
after either December 15, 1998, or January 12, 2000. To the extent that this
Interpretation covers events occurring during the period after December 15,
1998, or January 12, 2000, but before the effective date of July 1, 2000, the
effects of applying this Interpretation are recognized on a prospective basis
from July 1, 2000. There was not a significant impact to Simplex from adoption
of the Interpretation.

NOTE 3 -- ACQUISITION:

In March 2000, Simplex acquired all of the common stock and outstanding
options to purchase common stock of Snaketech for a purchase price of
approximately $11.8 million, which consisted of 928,983 shares of Simplex'
common stock, options to purchase approximately 104,000 shares of Simplex common
stock, and related acquisition expenses totaling approximately $442,000. Simplex
valued its stock issued based upon the then deemed fair market value of $11.55
from a contemporaneous appraisal which aggregated $10,729,935. Options to
purchase Simplex stock issued to replace outstanding options were reflected at
fair-value, using the Black-Scholes option pricing model method. The fair market
value of options issued amounted to $608,707 and was calculated using the
following assumptions: option term, 3 years; volatility 70%; risk-free rate of
return 6.47% and fair-market value of Simplex stock of $11.55. Snaketech was
incorporated in 1996 in France as a developer and marketer of high-performance
physical design solutions for integrated circuits. The acquisition was accounted
for as a purchase and accordingly, the purchase price has been allocated to the
tangible and intangible assets acquired and liabilities assumed on the basis of
their respective fair values on the acquisition date. The allocation of the
purchase price is summarized below (in thousands):

Acquired technology......................................... $ 1,200
Assembled workforce......................................... 700
Goodwill.................................................... 3,613
In-process and acquired research and development............ 5,000
Property and equipment...................................... 303
Net current assets.......................................... 1,014
-------
Total purchase price.............................. $11,830
=======

The excess of the purchase price over the fair value of the net tangible
and identifiable intangible assets acquired has been recorded as goodwill.

In October 2000, Simplex acquired Altius Solutions, Inc., which provides
system-on-chip design foundry services. Simplex issued 2,551,434 shares of
common stock to Altius stockholders in exchange for their shares of Altius
common and preferred stock.

The acquisition was accounted for as a purchase and accordingly, the
purchase price has been allocated to the tangible and intangible assets acquired
and liabilities assumed on the basis of their

F-16
111
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001 IS
UNAUDITED)

respective fair values on the acquisition date. The allocation of the purchase
price is summarized below (in thousands):

Acquired technology......................................... $ 600
Assembled workforce......................................... 2,000
Goodwill.................................................... 23,184
Net current assets.......................................... 3,135
-------
$28,919
=======

The following unaudited pro forma financial information reflects the
results of operations for the year ended September 30, 2000 as if the
acquisitions of Snaketech and Altius had occurred on October 1, 1999,
respectively, and after giving effect to purchase accounting adjustments. These
pro forma results have been prepared for comparative purposes only and do not
purport to be indicative of what operating results would have been had the
acquisition actually taken place on October 1, 1999, and may not be indicative
of future operating results (in thousands, except per share amounts):

YEAR ENDED
SEPTEMBER 30,
2000
-------------
(UNAUDITED)

Net revenue................................................. $ 31,681
Operating loss.............................................. (12,730)
Pro forma basic and diluted net loss per share.............. $ (1.47)

NOTE 4 -- IN-PROCESS RESEARCH AND DEVELOPMENT AND PURCHASED RESEARCH AND
DEVELOPMENT:

In connection with the acquisition of Snaketech in March 2000 (see Note 3),
Simplex incurred purchased in-process research and development costs of $1.1
million. The fair values of Snaketech's existing products, as well as the
technology currently under development were determined using the income
approach, which discounts expected future cash flows from the acquired
in-process technology to present value. The discount rates used in the present
value calculations were derived from a weighted average cost of capital of 21%,
adjusted upward by a premium of 5% for the in-process project from the Snaketech
acquisition to reflect additional risks inherent in the development lifecycle.
Although Simplex expects to achieve certain expense reductions as a result of
integrating the acquired in-process technology, the valuation assumptions do not
include any expense reductions in the amounts allocated to in-process research
and development. The in-process software product acquired is of reasonable
complexity and its final integration into Simplex products is uncertain. Should
the product not be successfully integrated into Simplex products, or if such
development efforts go beyond the timeframe estimated by management, Simplex
will not receive the full benefits anticipated from the acquisition. Benefit
from development efforts, if any, are not expected to commence until after
fiscal 2001. The percent complete, the estimated cost to complete and the value
assigned for the Snaketech project included in-process research and development
is as follows:

ESTIMATED ESTIMATED
PERCENT COST TO VALUE
PROJECT COMPLETION COMPLETE ASSIGNED
------- ---------- --------- ----------

A................................................ 80.8% $300,000 $1,100,000

F-17
112
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001 IS
UNAUDITED)

usage. As the development tool had no probable alternative future use, Simplex
expensed the full fair market value of $3.9 million upon purchase.

NOTE 5 -- PROPERTY AND EQUIPMENT:

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

SEPTEMBER 30,
------------------- MARCH 31,
1999 2000 2001
------- -------- -----------
(UNAUDITED)

Land and buildings.................................... $ -- $ 94 $ 94
Computer software and equipment....................... 2,770 3,810 5,962
Furniture and fixtures................................ 292 397 598
Leasehold improvements................................ 175 331 445
------- ------- -------
3,237 4,632 7,099
Less: Accumulated depreciation and amortization....... (2,019) (2,890) (3,646)
------- ------- -------
$ 1,218 $ 1,742 $ 3,453
======= ======= =======

NOTE 6 -- INTANGIBLE ASSETS:

Intangible assets consist of the following (in thousands):

SEPTEMBER 30,
------------------ MARCH 31,
1999 2000 2001
------- ------- -----------
(UNAUDITED)

Acquired technology................................... $ -- $ 1,200 $ 1,800
Assembled workforce................................... -- 700 2,700
Goodwill.............................................. -- 3,613 26,866
------- ------- -------
-- 5,513 31,366
Less: Accumulated amortization........................ -- (575) (3,853)
------- ------- -------
$ -- $ 4,938 $27,513
======= ======= =======

NOTE 7 -- LINE OF CREDIT AND NOTES PAYABLE:

At September 30, 2000, Simplex had $2,500,000 outstanding under a
$5,000,000 revolving line of credit which consists of a $2,500,000 non-formula
based amount and a $2,500,000 amount available based on 85% of Simplex's
eligible accounts receivable, as defined and determined by the lender. The
$2,441,775 outstanding balance, which is presented net of discount of $58,225,
is due May 31, 2001, subject to automatic renewal. Interest is due monthly at
2.0% and 3.75% above the highest base rate for the formula-based amount and the
non-formula-based amount, respectively, with a minimum interest rate of 9.0%,
(13.25% for non-formula and 11.5% for formula at September 30, 2000). The line
of credit is collateralized by all of Simplex' assets.

In connection with the revolving line of credit, Simplex granted the lender
a warrant to purchase 66,667 shares of Series E preferred stock at $3.75 per
share as described more fully in Note 8.

At September 30, 2000, Simplex had a note payable of $265,800 which had
been assumed from Snaketech. Snaketech had been granted two interest free
advances from the French government for software development projects, repayable
in three non-equal installments commencing March 31, 2001. If the development
project is unsuccessful as determined by the Agence Nationale de Valorisation de
la

F-18
113
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001 IS
UNAUDITED)

Recherche ("ANVAR"), repayment of all or a portion of the advances will not be
required. Conversely, if the development project is successful, Simplex is
obligated to repay the loan. Simplex believes these projects were successful and
therefore reported these advances as repayable loans at September 30, 2000.

At September 30, 2000, Simplex also had $89,843 outstanding for a $107,206
note entered into in September 1999 by Snaketech. This note is repayable in
monthly installments over 15 years at a fixed interest rate of 4.25% per annum.
This loan is guaranteed by Snaketech and collateralized by a building owned by a
subsidiary of Snaketech.

Future maturities for the line of credit and notes payable as of September
30, 2000 are as follows (in thousands):

YEAR ENDING
SEPTEMBER 30,
-------------

2001...................................................... $ 2,559
2002...................................................... 105
2003...................................................... 118
2004...................................................... 5
2005...................................................... 6
Thereafter................................................ 63
-------
2,856
Less: discount............................................ (58)
Less: current portion..................................... (2,500)
-------
Long-term portion......................................... $ 298
=======

NOTE 8 -- CONVERTIBLE PREFERRED STOCK:

At September 30, 2000, the proceeds, terms and liquidation values of Series
A, B, C, D and E preferred stock are as follows:

COMMON STOCK
NET ISSUED AND RESERVED FOR LIQUIDATION
SERIES PROCEEDS AUTHORIZED OUTSTANDING CONVERSION VALUE
------ ----------- ---------- ----------- ------------ -----------

A $ 1,101,561 4,278,854 4,278,854 1,426,288 $ 1,112,502
B 1,244,797 1,625,924 1,600,284 533,428 1,248,222
C 2,056,936 1,200,000 1,180,000 393,336 2,065,000
D 7,482,462 2,250,000 2,233,781 744,594 7,505,504
E 12,145,180 4,000,000 3,253,336 1,084,448 12,200,010
Warrants 220,459 -- -- -- --
Undesignated -- 645,222 -- -- --
----------- ---------- ---------- ---------- -----------
$24,251,395 14,000,000 12,546,255 4,182,094 $24,131,238
=========== ========== ========== ========== ===========

VOTING RIGHTS

Simplex' Series A, B, C, D and E preferred stock have voting rights equal
to the number of common shares into which each preferred share converts. Each
share of Series A, B, C, D and E preferred stock is convertible into common
stock on a one-for-two basis, subject to certain adjustments as described in the
Preferred Stock Purchase Agreements. Conversion is automatic upon the effective
date of an initial public offering of common stock for which the aggregate
proceeds are not less than $7,500,000 and the offering price is not less than
$9.00 per share of common stock.

F-19
114
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001 IS
UNAUDITED)

DIVIDENDS

The holders of the Series A, B, C, D and E preferred stock are also
entitled to registration rights as described in the preferred stock purchase
agreement and receive annual dividends of $0.0208, $0.0624, $0.14, $0.2688 and
$0.30 per share for Series A, B, C, D and E preferred stock, respectively,
whenever funds are legally available and when declared by the Board of
Directors. Preferred dividends are noncumulative and are in preference to any
common stock dividends. As of September 30, 2000, no dividends have been
declared.

LIQUIDATION

In the event of any liquidation, dissolution, or winding up of Simplex,
either voluntary or involuntary, the holders of the then outstanding Series A,
B, C, D and E preferred stock are entitled to receive, prior and in preference
to any distribution of any of the assets or surplus funds of the corporation to
the holders of the common stock, the amount of $0.26, $0.78, $1.75, $3.36 and
$3.75 per share for Series A, B, C, D and E preferred stock, respectively, plus
all declared but unpaid dividends for each share of preferred stock. If, upon
occurrence of such event, the assets and funds thus distributed among the
holders of the preferred stock shall be insufficient to permit the payment to
such holders to the full preferential amount, then the entire assets and funds
of Simplex legally available for distribution will be distributed ratably among
the holders of the preferred stock in proportion to their liquidation preference
(as defined). Any reorganization, merger or consolidation which results in the
transfer of 50% or more of the then outstanding voting power of Simplex shall be
treated as a liquidation event.

WARRANTS

Simplex has issued warrants in connection with the extension of its capital
equipment lease line and facility lease, to purchase up to 25,640 shares of
Series B preferred stock and 20,000 shares of Series C preferred stock, at $0.78
and $1.75 per share, respectively. As of September 30, 2000, these warrants are
exercisable at any time and generally expire upon execution of an initial public
offering.

Simplex valued the warrants using the Black-Scholes option pricing model
and the following assumptions: dividend yield of 0%, volatility of 55%,
risk-free interest rates of 6.42% and 6.58% and terms of 5 years. The fair value
of their warrants was recorded as a discount against the leases and are being
amortized over the life of the leases using the effective interest method.

On June 29, 1999, in conjunction with the revolving line of credit, Simplex
granted warrants to purchase 66,667 shares of Simplex' Series E preferred stock
at $3.75 per share. Using the Black-Scholes option pricing model, Simplex
determined that the fair value of the warrants was $155,268 at the date of
grant. The significant assumptions made in determining fair value were
volatility of 55%, risk-free interest rate of 6.05%, dividend yield of 0% and an
expected life of 7 years. The warrants have been recorded as a discount on the
borrowing under the line of credit and will be amortized to interest expense
over the term of the line of credit. For the years ended September 30, 1999 and
2000 Simplex recorded an expense of $19,408 and $77,635, respectively. The total
unamortized discount at September 30, 2000 was $58,225. The warrant expires the
earlier of June 29, 2006 or thirty days after a substantial change of control as
defined in the agreement. If the current market price (as defined by the
agreement) at the date of exercise is greater than the exercise price, in lieu
of exercising the warrants, the lender may elect to receive shares of preferred
stock equal to the value of equivalent shares as determined by a formula in the
agreement subject to adjustment for stock splits and other recapitalizations.

F-20
115
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001 IS
UNAUDITED)

NOTE 9 -- STOCKHOLDERS' EQUITY (DEFICIT):

NOTES RECEIVABLE FROM STOCKHOLDERS

On February 12, 1998, Simplex entered into a promissory note agreement with
an employee in the amount of $509,250 which bears interest at the rate of 6% per
annum with principal and interest due on February 12, 2002, unless forgiven by
Simplex. Under the terms of the note, Simplex shall forgive up to a total of
$375,000 of the outstanding principal of this note at the rate of $93,750 one
year from the vesting date (August 1997) and $7,813 each month thereafter until
a total of $375,000 has been forgiven. This note is a full recourse note
collateralized by certain shares of Simplex' common stock. The note becomes due
and payable immediately upon termination of the employment relationship.

Also on February 12, 1998 Simplex issued 200,000 shares of Series D
preferred stock in exchange for a note receivable for $671,800. This note was
repaid on March 5, 1999.

On May 26, 1998, Simplex entered into a settlement agreement with a former
employee, under which Simplex loaned $556,191 to the former employee. The loan
bears interest at the rate of 5.69% per annum, is a non-recourse obligation and
is due on the earlier of May 15, 2002 or one year after the closing of Simplex'
initial public offering in one lump sum of cash or shares of Simplex common
stock. The loan is collateralized by 56,666 shares of Simplex common stock owned
by the former employee. In addition, Simplex paid the former employee
approximately $106,000 in consideration for an option granted by the former
employee to Simplex to purchase up to 33,333 shares of common stock of the
56,666 owned by him at $6.75 per share. The option terminates on the earlier of
May 15, 2002 or the closing of Simplex' initial public offering. As the loan
agreement is non-recourse, the excess of this price over the deemed fair market
value of $449,500 has been reflected as compensation expense.

In January 1999, Simplex accepted a full recourse promissory note from an
executive of Simplex in the amount of $241,406 collateralized by 64,375 shares
of restricted common stock. Such note is due no later than January 19, 2004 and
bears interest at 4.63% per annum.

In March 1999, Simplex accepted full recourse promissory notes from two
executives of Simplex in the amounts of $283,334 and $200,000 collateralized by
47,222 and 33,333 shares of restricted common stock. Such notes are due no later
than March 30, 2004 and bear interest at 4.84% per annum.

COMMON STOCK

Simplex issued shares of its common stock to the founders and others under
stock purchase agreements. Each share of common stock is entitled to one vote.
The holders of common stock are also entitled to receive dividends whenever
funds are legally available and when declared by the Board of Directors, subject
to the prior rights of holders of all classes of stock outstanding.

WARRANTS

In connection with the acquisition of Altius, Simplex assumed a warrant to
purchase a total of 2,091 shares of common stock at an exercise price of $1.91
per share which expires on November 1, 2004. The fair value of the warrant was
calculated using the Black-Scholes option pricing model and regarded as part of
the purchase price.

COMMON STOCK SUBJECT TO REPURCHASE

Simplex, from inception to September 30, 2000 has issued approximately
1,706,000 shares of common stock to the founders and others that were subject to
repurchase by Simplex. Simplex has the right to repurchase unvested shares at
book value, or the value paid per share by the original purchaser, which is

F-21
116
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001 IS
UNAUDITED)

intended to approximate fair value at the time of issuance. Vesting is generally
over four years on a monthly basis. All common stock subject to repurchase has
been issued out of the 1995 Stock Option Plan (the "Plan") except the founder's
shares. Stock purchase rights of 158,264 and 10,200 were granted under the Plan
during the years ended September 30, 1999 and 2000, respectively. As of March
31, 2001, 1,740,667 shares were subject to repurchase by Simplex.

At September 30, 2000, Simplex had reserved shares of common stock for
future issuance as follows (in thousands):

Convertible preferred stock................................. 4,182
Warrants.................................................... 40
Stock option plan........................................... 2,526
-----
6,748
=====

1995 STOCK OPTION PLAN

In 1995, Simplex adopted the 1995 Stock Option Plan, which was subsequently
amended and restated as of March 2000 by the Board of Directors to include a
sub-division called the 2000 Stock Plan (together "the Plans").

Under the Plans, Simplex has reserved 3,918,733 shares of common stock for
the grant of stock purchase rights and stock options to employees, directors or
consultants under the terms and provisions established by the Board of
Directors.

Options granted under the Plans have a term of ten years measured from the
grant date and are initially unvested. Participants either vest in the option
shares granted over a four-year period with (i) twenty-five percent of the
option shares vesting upon the completion of one year of service and (ii) the
balance of the option shares in thirty-six successive equal monthly installments
upon the completion of each additional month of service, over a four year period
with forty-eight successive equal monthly installments upon the completion of
additional month of service, or over a five-year period with (i) twenty percent
of the option shares vesting upon the completion of one year of service and (ii)
the balance of the option shares in forty-eight successive equal monthly
installments upon the completion of each additional month of service.

Under the Plan, incentive stock options may be granted at prices not lower
than fair market value at the date of grant or 110% of the fair market value if
the optionee, immediately prior to the grant, owns stock representing 10% or
more of the voting power or value of all securities. Nonstatutory options may be
granted at prices not lower than 85% of fair market value at the date of grant
or 110% of the fair market value if the optionee, immediately prior to the
grant, owns stock representing 10% or more of the voting power or value of all
securities. Stock options granted under the Plan are exercisable and vest at
such times and under such conditions as determined by the Board of Directors.
Stock options generally expire from five to ten years from date of grant. Stock
purchase rights are subject to repurchase by Simplex at such times as determined
by the Board of Directors, typically four years.

1999 ALTIUS STOCK PLAN

In connection with the Altius acquisition, Simplex assumed all outstanding
options issued under the 1999 Altius Stock Plan. These assumed options became
options to purchase an aggregate of 383,955 shares of Simplex' common stock. All
material terms of the Altius options are the same as the terms of Simplex' 1995
Stock Option Plan.

F-22
117
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001 IS
UNAUDITED)

A summary of the status of Simplex' stock option plans as of September 30,
1998, 1999 and 2000 and March 31, 2001, and changes during the periods ended on
these dates is presented below:

OPTIONS OUTSTANDING
------------------------
WEIGHTED
AVERAGE
OPTIONS NUMBER EXERCISE
AVAILABLE OF OPTIONS PRICE
FOR GRANT OUTSTANDING PER SHARE
---------- ----------- ---------

Balances, October 1, 1997................................ 539,580 368,234 $ 0.75

Additional shares reserved............................... 333,333 -- --
Restricted stock granted................................. (263,333) -- $ 2.04
Options granted.......................................... (647,000) 647,000 $ 2.97
Options canceled......................................... 118,842 (118,842) $ 1.02
Options exercised........................................ -- (48,456) $ 0.90
Restricted stock repurchased............................. 14,619 $ 0.21
---------- ----------

Balances, September 30, 1998............................. 96,041 847,936 $ 2.40

Additional shares reserved............................... 666,667 -- --
Restricted stock granted................................. (158,264) -- $ 4.89
Options granted.......................................... (513,223) 513,223 $ 5.46
Options canceled......................................... 202,714 (202,714) $ 4.38
Options exercised........................................ -- (74,446) $ 2.25
Restricted stock repurchased............................. 34,003 -- $ 0.42
---------- ----------

Balances, September 30, 1999............................. 327,938 1,083,999 $ 3.48

Additional shares reserved............................... 1,401,002 -- --
Restricted stock granted................................. (10,200) -- $ 3.93
Options granted.......................................... (1,441,168) 1,441,168 $ 8.82
Options canceled......................................... 122,362 (122,362) $ 6.51
Options exercised........................................ -- (276,665) $ 3.09
Restricted stock repurchased............................. 100 -- $ 6.00
---------- ----------
Balances, September 30, 2000............................. 400,034 2,126,140 $ 6.99
Additional options authorized due to assumption of 1999
Altius stock option plan............................... 851,753 -- --
Additional shares reserved............................... 666,667 -- --
Options granted.......................................... (278,233) 278,233 $14.01
Options granted in connection with acquisition of Altius
Solutions, Inc......................................... (383,955) 383,955 $13.22
Options cancelled........................................ 97,106 (97,106) $ 6.63
Options exercised........................................ -- (22,127) $ 4.10
---------- ----------
Balances, March 31, 2001 (unaudited)..................... 1,353,372 2,669,095 $ 8.60
========== ==========

F-23
118
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001 IS
UNAUDITED)

The options outstanding and currently exercisable by exercise price at
September 30, 2000 are as follows:

OPTIONS OUTSTANDING AT SEPTEMBER 30, 2000 OPTIONS EXERCISABLE AT
------------------------------------------- SEPTEMBER 30, 2000
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE (IN YEARS) PRICE EXERCISABLE PRICE
-------- ------------ ---------------- --------- ----------- --------

$0.09 - $0.54 37,151 5.54 $0.297 31,125 $ 0.252
$1.02 - $2.04 149,183 7.24 $2.004 79,579 $ 2.025
$2.25 - $3.00 106,029 7.61 $2.904 59,362 $ 2.913
$ 3.75 241,640 5.75 $3.75 101,886 $ 3.75
$ 6.00 913,698 9.07 $6.00 161,231 $ 6.00
$11.55 656,439 9.57 $11.55 98,575 $11.55
$14.01 22,000 9.96 $14.01 -- $14.01
--------- -------
2,126,140 531,758 $ 5.31
========= =======

Options exercisable at September 30, 1997, 1998 and 1999 were 44,465,
121,583, and 325,989, respectively.

STOCK-BASED COMPENSATION

In connection with certain stock option grants to employees during the year
ended September 30, 2000, Simplex recorded stock-based compensation
approximating $3,944,000, which is being amortized in accordance with FASB
Interpretation No. 28 over the vesting periods of the related options, which is
generally four years. In addition, Simplex also recorded a deferred charge in
connection with options granted to non-employees, approximating $52,000 which
will be adjusted over the period of performance in accordance with EITF 96-18.
Stock-based compensation amortization recognized during the year ended September
30, 2000 totaled $1,795,399.

An additional $10,693,000 charge was recorded for the six months ended
March 31, 2001, of which $10,289,000 was in relation to restricted common stock
and unvested options assumed in connection with the acquisition of Altius.
Stock-based compensation amortization recognized during the six months ended
March 31, 2001 totaled $4,116,000.

FAIR VALUE DISCLOSURE

The following information concerning Simplex stock option plans is provided
in accordance with SFAS No. 123. Simplex accounts for such plans in accordance
with APB No. 25.

F-24
119
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001 IS
UNAUDITED)

The fair value of each option grant has been estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions for grants:

YEAR ENDED
SEPTEMBER 30,
---------------------------------
1998 1999 2000
------- ------- -----------

Risk-free interest rate..................................... 5.23% 4.74% 5.93%
Expected life............................................... 5 years 5 years 5 years
Dividend yield.............................................. -- -- --
Expected volatility......................................... 0% 0% 0%
Weighted average fair value................................. $ 0.69 $ 1.38 $ 5.01

For purposes of pro forma disclosures, the estimated fair value of the
options are amortized over the option's vesting period. Pro forma information
follows (in thousands, except per share amounts):

YEAR ENDED
SEPTEMBER 30,
-------------------------------
1998 1999 2000
--------- ------- -------

Net loss.................................................... $(7,215) $(7,041) $(6,722)
======= ======= =======
Net loss -- SFAS 123 adjusted............................... $(7,331) $(7,415) $(8,079)
======= ======= =======
Net loss per share -- as reported basic and diluted......... $ (4.64) $ (3.62) $ (2.40)
======= ======= =======
Net loss per share -- SFAS 123 adjusted basic and diluted... $ (4.71) $ (3.81) $ (2.88)
======= ======= =======

The effects of applying SFAS No. 123 in this pro forma disclosure may not
be indicative of future amounts. Additional awards in future periods are
anticipated.

NOTE 10 -- COMMITMENTS AND CONTINGENCIES:

Simplex leases administrative, engineering and sales facilities in the
United States, United Kingdom, France and Japan under noncancelable operating
leases that expire at various dates through 2005. Simplex is generally
responsible for insurance and property taxes. Simplex' primary lease in
Sunnyvale, California is subject to annual payment increases based on the
consumer price index. Simplex also leases computer equipment under leases
classified as capital leases.

Simplex leases its office facilities and certain office equipment under
noncancelable operating leases which expire through May 2002. Simplex is
responsible for certain taxes, maintenance costs and insurance under the leases.
Under the terms of the facility lease agreement, Simplex is obligated to provide
the lessor with a letter of credit of approximately $300,000. The letter of
credit is collateralized by a certificate of deposit, which is included in other
assets.

F-25
120
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001 IS
UNAUDITED)

At September 30, 2000, the aggregate future minimum lease payments under
all noncancelable leases are as follows (in thousands):

CAPITAL OPERATING
YEAR ENDING SEPTEMBER 30, LEASES LEASES
------------------------- ------- ---------

2001................................................... $ 40 $ 183
2002................................................... 24 697
2003................................................... -- 288
---- ------
Total minimum lease payments................................ 64 $1,168
======
Less: Amount representing interest.......................... (6)
Amount representing discount................................ (6)
----
Present value of capital lease obligations.................. 52
Current portion............................................. (29)
----
Long-term portion........................................... $ 23
====

Rent expense in the years ended September 30, 1998, 1999 and 2000 and six
months ended March 31, 2001 was $671,521, $744,167 and $789,621 and $730,082,
respectively.

On November 1, 2000, Simplex received written notice from a third party
claiming that one of the Company's current products allegedly infringes a patent
held by such party. In addition, on March 15, 2001, Simplex received further
written notice that legal action is imminent. Based upon a thorough review of
the intellectual property issue, Simplex believes that the allegation of
infringement by such third party is without merit. However, because of the
uncertainties of the legal process, if this matter leads to litigation there can
be no assurance that this matter will not materially impact the Company.

NOTE 11 -- INCOME TAXES:

Net income (loss) allocable to United States and foreign sources are as
follows (in thousands):

YEAR ENDED
SEPTEMBER 30,
-------------------------------
1998 1999 2000
--------- ------- -------
(REVISED)

United States......................................... $(7,215) $(7,100) $(5,975)
Foreign............................................... -- 59 (747)
------- ------- -------
$(7,215) $(7,041) $(6,722)
======= ======= =======

F-26
121
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001 IS
UNAUDITED)

The components of deferred tax assets as of September 30, 1998, 1999 and
2000 are as follows (in thousands):

SEPTEMBER 30,
------------------------------
1998 1999 2000
------- ------- --------

Capitalized costs.................................... $ 307 $ 424 $ 259
Accrued liabilities.................................. 316 672 162
Research and development credit...................... 676 1,525 2,406
Net operating loss................................... 3,956 7,091 7,000
Property and equipment............................... 99 176 89
Other................................................ 20 -- 398
------- ------- --------
Total deferred tax assets............................ 5,374 9,888 10,314
Valuation allowance.................................. (5,374) (9,888) (10,314)
------- ------- --------
$ -- $ -- $ --
======= ======= ========

In accordance with generally accepted accounting principles, a valuation
allowance must be established for a deferred tax asset if it is uncertain that a
tax benefit may be realized from the asset in the future. Simplex has
established a valuation allowance to the full extent of its deferred tax assets
since it is not certain that a benefit can be realized in the future due to
Simplex's recurring operating losses.

The change in the valuation allowance was $2,844,000, $4,514,000 and
$426,000 for the years ended September 30, 1998, 1999 and 2000, respectively.

Simplex had federal and state net operating loss carryforwards of
approximately $18.7 million at September 30, 2000. Simplex's federal and state
net operating loss carryforwards will expire beginning in the year 2010 and
2002, respectively, if not utilized. Simplex also has federal and state research
and development credits of approximately $1.1 million and $957,000,
respectively, which expire in years commencing 2010 through 2020 if not used.

The Tax Reform Act of 1986 limits the use of net operating loss and tax
credit carryforwards in certain situations where changes occur in the stock
ownership of a company. In the event Simplex has a change in ownership,
utilization of the carryforwards could be restricted.

The expected U.S. Federal statutory income tax rate (34%) differs from the
effective tax rate as follows:

SEPTEMBER 30,
-----------------------
1998 1999 2000
----- ----- -----

U.S. Federal income tax benefit at statutory rates.......... (34.0)% (34.0)% (34.0)%
Permanent differences/Research and development credits...... (2.0) (24.0) 35.0
State income tax benefit, net of federal benefit............ (6.0) (6.0) (6.0)
Foreign tax................................................. 0.0 0.0 5.0
Change in valuation allowance............................... 42.0 64.0 10.0
----- ----- -----
0.0% 0.0% 10.0%
===== ===== =====

Tax expense for the year ended September 30, 2000 was limited to foreign
taxes of $242,000, all of which were currently payable.

F-27
122
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001 IS
UNAUDITED)

NOTE 12 -- EMPLOYEE RETIREMENT PLAN:

Simplex maintains a 401(k) plan for its employees. The plan allows eligible
employees to defer up to 15% of their earnings, not to exceed the statutory
amount per year on a pretax basis through contributions to the plan. The plan
provides for employer contributions at the discretion of the Board of Directors;
however, no such contributions were made during the years ended September 30,
1998, 1999 and 2000.

NOTE 13 -- SEGMENT INFORMATION:

Simplex operates in a single business segment, the development and
licensing of software products and the provision of services to companies which
are used to verify the design of integrated circuits. Simplex uses only one
measure of profitability. Operations of Simplex' overseas subsidiaries consist
of license revenue and services.

Information regarding geographic areas at September 30, 1998, 1999, and
2000 and for each of the years then ended is as follows (in thousands):

NORTH AMERICA EUROPE ASIA ELIMINATIONS TOTAL
------------- ------ ------ ------------ -------

September 30, 1998 and for the year
then ended:
Revenue from unaffiliated
customers......................... $ 5,864 $ 407 $ 266 -- $ 6,537
======= ====== ====== == =======
Long-lived assets.................... $ 1,906 -- -- -- $ 1,906
======= ====== ====== == =======
September 30, 1999 and for the year
then ended:
Revenue from unaffiliated
customers......................... $ 8,325 $1,665 $ 891 -- $10,881
======= ====== ====== == =======
Long-lived assets.................... $ 1,535 $ 28 $ 8 -- $ 1,571
======= ====== ====== == =======
September 30, 2000 and for the year
then ended:
Revenue from unaffiliated
customers......................... $15,041 $3,379 $4,397 -- $22,817
======= ====== ====== == =======
Long-lived assets.................... $ 6,830 $ 445 $ 296 -- $ 7,571
======= ====== ====== == =======

Revenue from external customers are attributed based upon the geographic
location of the customer. European revenue is principally from the United
Kingdom, and revenue in Asia is principally from Japan.

NOTE 14 -- RELATED PARTIES:

During the year ended September 30, 2000, Simplex sold software amounting
to $269,000 to Altius Solutions, Inc., a company with which it had entered into
a definitive merger agreement and subsequently purchased in October 2000.

A partner in a law firm which operates as Simplex' general counsel is a
member of the Board of Directors. This firm provided legal services amounting to
approximately $704,000 to Simplex for the year ended September 30, 2000.

Simplex sold certain licenses and maintenance to a subsidiary of a
corporation which also was a 6% shareholder. Such sales amounted to $217,500 and
$349,175 for the years ended September 30, 1999 and 2000, respectively.

F-28
123
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE SIX MONTHS ENDED MARCH 31, 2000 AND 2001 IS
UNAUDITED)

NOTE 15 -- REVISIONS TO FINANCIAL STATEMENTS

In connection with Simplex' registration process, revisions were made to
the financial statements included in Simplex' preliminary filings as follows:

As originally reported, Simplex recorded approximately $65,000 in
compensation expense related to an employee severance arrangement under which
Simplex loaned $556,191 to the former employee (Note 9). The 1998 financial
statements have been revised to properly reflect the expense associated with
this arrangement, which charge increased compensation expense by $384,500 for
the year ended September 30, 1998. Therefore, the previously reported net loss
of $6,830,000, or $4.38 per share, was increased to $7,215,000, or $4.64 per
share.

As originally reported, Simplex deferred a development tool and commenced
amortization in the financial statements for the year ended September 30, 2000.
Those financial statements have been revised to immediately expense this
development tool upon purchase in accordance with SFAS No. 2, "Accounting for
Research and Development Costs" as it had no probable alternative future use.
Therefore, the previously reported net loss of $4,772,000, or $1.71 per share,
was increased to $6,722,000, or $2.40 per share.

NOTE 16 -- SUBSEQUENT EVENTS:

ACQUISITION

On October 4, 2000, Simplex acquired Altius Solutions, Inc., which provides
systems-on-chip design foundry services. Simplex issued approximately 2,551,000
shares of common stock, subject to adjustment, to Altius stockholders in
exchange for their shares of Altius common and preferred stock. Simplex also
reserved approximately 384,000 of its options for issuance to holders of Altius
options and warrants. This transaction will be accounted for under the purchase
method of accounting.

STOCK SPLIT

On January 8, 2001, the stockholders approved a reverse-split of Simplex'
stock on a ratio of one for two, which was subsequently amended on April 2, 2001
to a ratio of one for three. Completion of this split is subject to approval by
the Delaware Secretary of State. All references in the financial statements to
shares and per share amounts have been restated to give effect to this
reverse-split.

LINE OF CREDIT (UNAUDITED)

On February 23, 2001, Simplex borrowed an additional $2,500,000 under the
$5,000,000 revolving line of credit, of which $2,500,000 was outstanding as of
September 30, 2000. This additional $2,500,000 is due May 31, 2001 and is
subject to automatic renewal. Interest is due monthly at 2.0% above the highest
base rate, with a minimum interest rate of 9% (10.5% at March 31, 2001). The
line of credit is collateralized by all of Simplex' assets.

F-29
124

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
Snaketech S.A.

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of shareholders' equity
(deficit), and of cash flows present fairly, in all material respects, the
financial position of Snaketech S.A. and its subsidiaries as of December 31,
1998 and 1999, and the results of their operations and their cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States. These consolidated financial statements are the
responsibility of Snaketech S.A.'s management; our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We
conducted our audits of these consolidated financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

August 17, 2000
Befec-Price Waterhouse

Olivier Auscher

F-30
125

SNAKETECH S.A.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31,
------------------------
1998 1999
--------- -----------

ASSETS
Current assets:
Cash and cash equivalents................................. $ 376,151 $ 2,284,141
Accounts receivable....................................... 217,541 333,752
Prepaid expenses and other current assets................. 26,993 115,781
--------- -----------
Total current assets................................... 620,685 2,733,674
Property and equipment, net................................. 87,089 318,929
--------- -----------
$ 707,774 $ 3,052,603
========= ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings, current....................................... $ 124,509 $ 5,566
Accounts payable.......................................... 210,557 330,811
Accrued liabilities....................................... 14,530 30,133
Deferred revenue.......................................... 249,618 853,979
--------- -----------
Total current liabilities.............................. 599,214 1,220,489
Borrowings, non current..................................... -- 360,999
--------- -----------
599,214 1,581,488
--------- -----------
Commitments (see Note 5)
Shareholders' equity:
Common stock (4,275 and 6,015,000 shares issued and
outstanding in 1998 and 1999 respectively)............. 71,833 130,141
Additional paid in capital................................ 661,367 3,488,730
Unearned stock compensation............................... -- (48,623)
Accumulated deficit....................................... (648,325) (1,966,819)
Other comprehensive income (loss)......................... 23,685 (132,314)
--------- -----------
Total shareholders' equity............................. 108,560 1,471,115
--------- -----------
$ 707,774 $ 3,052,603
========= ===========

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

F-31
126

SNAKETECH S.A.

CONSOLIDATED STATEMENTS OF OPERATIONS

YEAR ENDED
DECEMBER 31,
-------------------------
1998 1999
---------- -----------

Revenue:
Software licenses......................................... $ 380,784 $ 597,433
Services.................................................. 32,302 102,302
Development fee........................................... 175,914 159,524
---------- -----------
Total revenue.......................................... 589,000 859,259
---------- -----------
Cost of revenue:
Cost of software licenses................................. 5,827 5,330
Cost of services.......................................... 17,301 46,827
Cost of development fee................................... -- --
---------- -----------
Cost of revenue........................................ 23,128 52,157
---------- -----------
Gross profit................................................ 565,872 807,102
---------- -----------
Operating expenses:
Research and development (exclusive of stock based
compensation of $0 in 1998 and $1,950 in 1999)......... 567,844 747,981
Sales and marketing (exclusive of stock based compensation
of $0 in 1998 and $659 in 1999......................... 195,032 516,228
General and administrative (exclusive of stock based
compensation of $0 in 1998 and $258 in 1999)........... 365,044 962,193
Stock-based compensation expense.......................... -- 2,867
---------- -----------
Total operating expenses............................... 1,127,920 2,229,269
---------- -----------
Loss from operations........................................ (562,048) (1,422,167)
Interest income (expense)................................... (670) 103,849
Other expenses, net......................................... (148) (176)
---------- -----------
Net loss.................................................... (562,866) (1,318,494)
Other comprehensive income (loss)........................... 23,685 (155,999)
---------- -----------
Comprehensive loss.......................................... $ (539,181) $(1,474,493)
========== ===========

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

F-32
127

SNAKETECH S.A.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

COMMON STOCK UNEARNED OTHER
-------------------- ADDITIONAL STOCK-BASED ACCUMULATED COMPREHENSIVE
SHARES AMOUNT PAID-IN CAPITAL COST DEFICIT INCOME (LOSS) TOTAL
--------- -------- --------------- ------------ ----------- ------------- -----------

Balances, December 31, 1997... 2,500 $ 41,749 $ -- $ -- $ (85,459) $ -- $ (43,710)
Issuance of common stock...... 1,775 30,084 661,367 -- -- -- 691,451
Net loss...................... -- -- -- -- (562,866) -- (562,866)
Other comprehensive income.... -- -- -- -- -- 23,685 23,685
--------- -------- ---------- -------- ----------- --------- -----------
Balances, December 31, 1998... 4,275 71,833 661,367 -- (648,325) 23,685 108,560
Issuance of common stock...... 6,010,725 58,308 2,775,873 -- -- -- 2,834,181
Deferred compensation cost.... -- -- 51,490 (51,490) -- -- --
Amortization of unearned
compensation................ -- -- -- 2,867 -- -- 2,867
Net loss...................... -- -- -- -- (1,318,494) -- (1,318,494)
Other comprehensive loss...... -- -- -- -- -- (155,999) (155,999)
--------- -------- ---------- -------- ----------- --------- -----------
Balances, December 31, 1999... 6,015,000 $130,141 $3,488,730 $(48,623) $(1,966,819) $(132,314) $ 1,471,115
========= ======== ========== ======== =========== ========= ===========

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

F-33
128

SNAKETECH S.A.

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEAR ENDED
DECEMBER 31,
------------------------
1998 1999
--------- -----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(562,866) $(1,318,494)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization.......................... 25,777 53,702
Profit on disposal of fixed assets..................... -- (815)
Changes in operating assets and liabilities:
Increase in accounts receivable...................... (180,597) (227,572)
Increase in prepaid expenses and other current
assets.............................................. (17,318) (14,409)
Increase in accounts payable......................... 84,746 133,807
Increase in accrued liabilities...................... 14,040 26,296
Increase in deferred revenue......................... 156,436 635,313
--------- -----------
Net cash used in operating activities............. (479,782) (712,172)
--------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (78,023) (301,415)
Sale of property and equipment............................ -- 1,845
--------- -----------
Net cash used in investing activities............. (78,023) (299,570)
--------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 691,451 2,834,181
Cash received from new borrowings......................... 119,195 274,114
Loan repayments........................................... (44,023) (1,353)
--------- -----------
Net cash provided by financing activities......... 766,623 3,106,942
--------- -----------
Effect of exchange rate differences on cash and cash
equivalents............................................... 34,392 (187,210)
Net increase in cash and cash equivalents................... 243,210 1,907,990
Cash and cash equivalents at the beginning of the year...... 132,941 376,151
--------- -----------
Cash and cash equivalents at the end of the year............ $ 376,151 $ 2,284,141
========= ===========

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

F-34
129

SNAKETECH S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- FORMATION AND BUSINESS OF THE COMPANY:

Snaketech S.A. ("Snaketech") was founded in Voiron, France in January 1996
to develop products and deliver services to companies which develop integrated
circuit designs in the deep submicron era. These products and services enable
Snaketech's customers to verify the design of integrated circuits. Snaketech's
customers are mainly located in Europe and Asia.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of
the Snaketech and its wholly owned subsidiaries, Snaketech Corporation and SCI
Parvimmo. All material intercompany balances and transactions have been
eliminated in consolidation.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

Snaketech considers all highly liquid debt instruments including commercial
paper, money market funds and certificates of deposits with an original maturity
of three months or less at the date of purchase to be cash equivalents.

The portfolio of cash and cash equivalents consisted of the following (in
thousands):

DECEMBER 31,
----------------------
1998 1999
-------- ----------

Cash................................................. $376,151 $ 579,309
Money market funds................................... -- 1,704,832
-------- ----------
$376,151 $2,284,141
======== ==========

FAIR VALUE OF FINANCIAL INSTRUMENTS

The reported amounts of certain of Snaketech's financial instruments
including cash and cash equivalents, accounts receivable, accounts payable and
accrued liabilities approximate fair value due to their short maturities. The
reported amounts of loans payable approximate fair value due to their current
market interest rates.

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the company to
concentrations of credit risk consist primarily of cash, money market accounts
and accounts receivable. Cash and money market funds are held primarily in one
financial institution.

Snaketech performs ongoing credit evaluations within the context of the
industry in which it operates, does not require collateral and maintains
reserves for potential credit losses on customer accounts when

F-35
130
SNAKETECH S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

deemed necessary. To date, such losses have been within management's
expectations. Revenue and receivables are concentrated among a limited number of
customers.

The following table sets forth customers comprising 10% or more of
Snaketech's total revenue for each of the period presented:

YEAR ENDED
DECEMBER 31,
------------
CUSTOMER 1998 1999
-------- ---- ----

A......................................................... 17% 12%
B......................................................... 17% --
C......................................................... 17% --
D......................................................... 10% --
E......................................................... -- 23%

At December 31, 1998, two customers accounted for 21% of total accounts
receivable. At December 31, 1999, three customers accounted for 34% of total
accounts receivable.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and are depreciated on a
straight-line basis over the estimated useful lives of the related assets, 20
years for buildings and generally 3 to 5 years for other fixed assets. Gains and
losses upon asset disposal are taken into income in the year of disposal.
Maintenance and repairs are charged to operations as incurred.

REVENUE RECOGNITION

Snaketech derives revenue from two sources as follows: (i) software license
revenue and (ii) services revenue which include consulting, training services
and customer support. Effective January 1, 1998, Snaketech adopted SOP 97-2,
Software Revenue Recognition, with the exception of the provision deferred by
SOP 98-4, Deferral of the Effective Date of a Provision of SOP 97-2. In
accordance with the adopted provisions of SOP 97-2, Snaketech records revenue
from licensing of software products to end-users when a license agreement is
signed by both parties, the fee is fixed and determinable, collection is
probable and delivery of the product has occurred. Snaketech's business practice
is to provide payment terms that range from thirty days to one year from the
invoice date. Accordingly, payment terms that exceed one year are not considered
fixed and determinable and revenue is recognized as payments become due. When
contracts contain multiple elements, and for which vendor specific objective
evidence ("VSOE") of fair value exists for the undelivered elements, Snaketech
recognizes revenue for the delivered elements based upon the residual method.
Undelivered elements consist primarily of postcontract customer support ("PCS")
and other services such as consulting and training. VSOE is established based on
the price charged when the element is sold separately. Snaketech recognizes
revenue allocated to maintenance and support ratably over the period of the
maintenance and the support contracts, respectively, which is generally twelve
months. For revenue allocated to consulting services, such as training,
Snaketech recognizes revenue as the related services are performed. To date,
Snaketech has not been able to establish VSOE for undelivered elements.
Therefore, revenues for license contracts with multiple elements have been
recognized ratably over the term of the PCS period.

Snaketech also received non refundable funds from governmental and
nongovernmental organizations. Each payment received is recognized ratably over
the period of the project.

F-36
131
SNAKETECH S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

COMPREHENSIVE INCOME (LOSS)

For the years ended December 31, 1998 and 1999, comprehensive income (loss)
represents net income (loss) plus foreign currency translation adjustments which
are included in shareholders' equity but not in net income (loss).

INCOME TAXES

Snaketech has accounted for income taxes using an asset and liability
approach which requires the recognition of taxes payable or refundable for the
current year and deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in Snaketech's financial
statements or tax returns. The measurement of current and deferred tax
liabilities and assets are based on provisions of the enacted tax law. The
measurement of deferred tax assets is reduced, if necessary, by the amount of
any tax benefits that, based on available evidence, are not expected to be
realized.

SOFTWARE DEVELOPMENT COSTS

Costs related to research, design and development of products are charged
to research and development expenses as incurred. Under Statement of Financial
Accounting Standards ("SFAS") No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed, software development costs
are capitalized beginning when a product's technological feasibility has been
established and ending when a product is available for general release to
customers. During the years ended December 31, 1998 and 1999, the establishment
of technological feasibility of the Snaketech's product and general release
substantially coincided. As a result, no software production costs were
capitalized since costs meeting the requirements of SFAS No. 86 were not
significant.

STOCK-BASED COMPENSATION

Snaketech accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion ("APB") No.
25, Accounting for Stock Issued to Employees, and complies with the disclosures
provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Under APB
No. 25, compensation expense is based on the difference, if any, on the date of
grant, between the fair value of Snaketech's common stock and the exercise price
of the option. SFAS No. 123 defines a "fair value" based method of accounting
for an employee stock option or similar equity investment. The pro forma
disclosures of the difference between the compensation expense included in net
loss and the related cost measured by the fair value method are presented in
Note 9.

FOREIGN CURRENCY TRANSLATION

Assets and liabilities of foreign operations where the functional currency
is the local currency, are translated into French franc at the balance sheet
date exchange rate. Revenues and expenses are translated at the average rate
prevailing during the period. The related gains and losses from translation are
recorded as a translation adjustment in a separate component of shareholders'
equity.

Although the French Franc is the functional currency of Snaketech, these
financial statements have been presented using the U.S. Dollar as the reporting
currency.

ADVERTISING COSTS

Snaketech expenses advertising costs as they are incurred. Advertising
expense was $14,500 and $17,358 for the year ended December 31, 1998 and 1999,
respectively.

F-37
132
SNAKETECH S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes a new model for accounting of derivatives and hedging activities and
supercedes and amends a number of existing accounting standards. SFAS No. 133
requires that all derivatives be recognized in the balance sheet at their fair
market value and the corresponding derivative gains or losses be either reported
in the statement of operations or as a deferred item depending on the type of
hedge relationship that exists with respect to such derivatives. In July 1999,
the Financial Accounting Standards Board issued SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133. SFAS No. 133 deferred the effective date until the
quarter ending June 30, 2000. Snaketech does not believe that the adoption of
this pronouncement will have a material impact on its financial condition or
results of operations.

In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-9 (SOP 98-9), Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions. SOP 98-9 requires use
of the "residual method" when there is vendor-specific objective evidence of
fair value of all undelivered elements in a multiple element arrangement,
vendor-specific objective evidence of fair value does not exist for the
delivered element(s) and all other revenue criteria of SOP 97-2 are met. SOP
98-9 is effective December 15, 1998 to the extent that it extends the deferral
of certain passages of SOP 97-2, Software Revenue Recognition, previously
extended by SOP 98-4, Deferral of the Effective Date of a Provision of SOP 97-2,
Software Revenue Recognition. All other provisions of SOP 98-9 are effective for
transactions entered into in fiscal years beginning after March 15, 1999.
Snaketech believes that it currently complies with SOP 98-9.

In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation -- an Interpretation of APB 25
(the "Interpretation"). This Interpretation clarifies (a) the definition of an
employee for purposes of applying APB 25, (b) the criteria for determining
whether a stock plan qualifies as a non-compensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation is effective July 1, 2000,
but certain conclusions in this Interpretation cover specific events that occur
after either December 15, 1998, or January 12, 2000. To the extent that this
Interpretation covers events occurring during the period after December 15,
1998, or January 12, 2000, but before the effective date of July 1, 2000, the
effects of applying this Interpretation are recognized on a prospective basis
from July 1, 2000. This Interpretation is not expected to affect Snaketech due
to its acquisition (Note 10).

NOTE 3 -- PROPERTY AND EQUIPMENT:

DECEMBER 31,
--------------------
1998 1999
-------- --------

Land and buildings..................................... $ -- $101,080
Computer equipment..................................... 87,940 159,713
Software............................................... 21,044 48,030
Office furniture and other assets...................... 15,752 89,726
-------- --------
124,736 398,549
Less: Accumulated depreciation and amortization........ (37,647) (79,620)
-------- --------
$ 87,089 $318,929
======== ========

Depreciation and amortization expense was $25,777 and $53,702 for the years
ended December 31, 1998 and 1999, respectively.
F-38
133
SNAKETECH S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4 -- BORROWINGS:

Snaketech had a line of credit of $124,509 and $259,359 at December 31,
1998 and 1999, respectively. Snaketech was granted two interest-free government
advances for software development projects, repayable in three non-equal
installments commencing March 31, 2001. If the development project is deemed
successful, as determined by the Agence Nationale de Valorisation de la
Recherche ("ANVAR"), the funds received will not be entirely repayable.
Conversely, if the development project is successful, Snaketech is obligated to
repay the loan. Such determination should be made after June 30, 2000. Snaketech
expects that these projects will be deemed successful. Snaketech has reported
these advances as repayable loans.

In September 1999, SCI Parvimmo obtained a loan of $107,206, repayable in
monthly installments over 15 years at a fixed interest rate of 4.25% per annum.
This loan is guaranteed by Snaketech and collateralized by the building owned by
SCI Parvimmo.

Future maturities for the loan and the line of credit as of December 31,
1999 are as follows:

YEAR ENDING
DECEMBER 31,
------------

2000...................................................... $ 5,566
2001...................................................... 66,767
2002...................................................... 120,609
2003...................................................... 90,228
2004...................................................... 6,254
Thereafter................................................ 77,141
--------
366,565
Less: Current portion..................................... (5,566)
--------
Long-term portion......................................... $360,999
========

NOTE 5 -- COMMITMENTS:

Snaketech leases part of its office facilities under noncancelable
operating leases which expire through July 2008. Future minimum rental payments
as of December 31, 1999 are $14,592 per annum (excluding taxes), indexed to
inflation.

Rent expense was $2,644 and $14,621 for the years ended December 30, 1998
and 1999, respectively.

NOTE 6 -- SHAREHOLDERS' EQUITY:

Snaketech's common stock consists of 4,275 shares and 6,015,000 shares at
December 31, 1998 and 1999 respectively. These shares are all of the same class
and were converted from French francs to Euro during 1999, at which point the
number of shares was multiplied by 1000.

F-39
134
SNAKETECH S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 -- INCOME TAXES:

The components of deferred tax assets and liabilities as of December 31,
1998 and 1999 are as follows:

YEAR ENDED DECEMBER 31,
------------------------
1998 1999
---------- ----------

Capitalized start-up costs........................... $ 3,249 $ 2,469
Net operating loss................................... 110,584 827,847
Depreciation......................................... 785 4,300
--------- ---------
Net deferred tax assets.............................. 114,618 834,616
Valuation allowance.................................. (114,618) (834,616)
--------- ---------
Net.................................................. $ -- $ --
========= =========

In accordance with generally accepted accounting principles, a valuation
allowance must be established for a deferred tax asset if it is uncertain that a
tax benefit may be realized from the asset in the future. Snaketech has
established a valuation allowance to the full extent of its deferred tax assets
since it is not certain that a benefit can be realized in the future due to
Snaketech's recurring operating losses.

The change in the valuation allowance was $114,618 and $719,998 for the
years ended December 31, 1998 and 1999, respectively.

Snaketech has loss carryforwards of $45,335, $341,939 and $418,320 which
expire in 2003, 2004 and 2013, respectively, if not used beforehand to offset
taxable income. Additionally, Snaketech had operating loss of $22,253 at
December 31, 1999, which can be carryforwarded indefinitely.

NOTE 8 -- EMPLOYEE RETIREMENT PLAN:

The costs of retirement for the employees of the Snaketech and SCI Parvimmo
are covered by the State Pension system and any additional costs to be borne by
Snaketech are not considered significant.

There is no employee retirement plan for the employees of Snaketech.

NOTE 9 -- STOCK OPTION PLAN:

Snaketech has a stock option plan (the "Plan") under which 925,000 shares
of Snaketech's common stock could be issued following the exercise of stock
options to employees, directors, or consultant under terms and provisions
established by the Board of Directors.

Under the Plan, incentive options may be granted at prices not lower than
95% and no higher than 100% of the price set up as the basis of the last capital
increase voted by the Board of Directors prior to the grant. Stock options
granted under the Plan vest during the four year period with a maximum of 25%
per year after the date of grant. Stock options expire four years from date of
grant.

In addition to the stock option plan, 125,250 stock purchase rights and
none were granted during the year ended December 31, 1999 and 1998 respectively.
The exercise price of these stock purchase rights is $1.55 per share. Stock
purchase rights are exercisable and vest at such times and under such conditions
as determined by the Board of Directors.

F-40
135
SNAKETECH S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table summarizes activity under Snaketech's stock option
plan:

OPTIONS OUTSTANDING
---------------------------------
WEIGHTED
OPTIONS AVERAGE
AVAILABLE NUMBER OF EXERCISE
FOR GRANT SHARES PRICE AMOUNT
--------- --------- -------- --------

Balances, December 31, 1998....................... -- -- $ -- $ --

Additional shares to be issued.................... 925,000
Options granted................................... -- 701,500 1,395 978,747
Options cancelled................................. -- -- -- --
Options repurchased............................... -- -- -- --
Options exercised................................. -- -- -- --
------- ------- ------ --------
Balances, December 31, 1999....................... 925,000 701,500 $1,395 $978,747
======= ======= ====== ========

The following table summarizes information concerning outstanding vested
and exercisable options as of December 31, 1999:

OPTIONS OUTSTANDING
------------------------------
WEIGHTED
AVERAGE
REMAINING
EXERCISE NUMBER CONTRACTUAL
PRICE OUTSTANDING LIFE (IN YEARS)
-------- ----------- ---------------

$0.615............................................. 61,200 3.1
$1.469............................................. 430,000 3.8
$1.469............................................. 210,300 3.9
-------
701,500
=======

At December 31, 1999, there are no options vested or exercisable.

FAIR VALUE DISCLOSURES

Pro forma information regarding net loss and net loss per share is required
by SFAS No. 123, which also requires that the information be determined as if
Snaketech has accounted for its employee stock options granted under the fair
value method. The fair value for these options was estimated using the
Black-Scholes option pricing model.

Snaketech calculated the minimum fair value of each option grant on the
date of grants using the Black-Scholes option pricing method as prescribed by
SFAS No. 123 using the following assumptions:

1999
----

Risk-free rates............................................. 4.88%
Expected lives (in years)................................... 4.0
Dividend yield.............................................. 0.0%
Expected volatility......................................... 0.0%

The weighted average fair value of the options granted in 1999 was $0.30.

F-41
136
SNAKETECH S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Had compensation costs been determined based upon the fair value at the
grant date for awards under these plans, consistent with the methodology
prescribed under SFAS No. 123, Snaketech's pro forma net loss under SFAS No. 123
would have been (in thousands, except per share data):

YEAR ENDED DECEMBER 31,
------------------------
1998 1999
--------- -----------

Net loss
As reported............................................... $(562,866) $(1,318,494)
Pro forma................................................. $(562,866) $(1,330,306)

UNEARNED STOCK-BASED COMPENSATION

In connection with certain stock option grants, Snaketech recognized
unearned compensation which is being amortized over the vesting periods of the
related options, usually 48 months. The total unearned compensation recorded by
Snaketech from January 1, 1998 through December 31, 1999 was $51,490.
Amortization expense recognized during the year ended December 31, 1998 and 1999
was $nil and $2,867, respectively.

NOTE 10 -- SUBSEQUENT EVENT:

In March 2000, Simplex Solutions, Inc. ("Simplex") acquired all of the
common stock and outstanding options of Snaketech for a purchase price of
approximately $11.8 million, which consisted of 2,786,966 shares of Simplex
common stock and 311,003 options to purchase Simplex common stock, exclusive of
acquisition expenses.

F-42
137

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Altius Solutions, Inc.

In our opinion, the accompanying balance sheet and the related statements
of income, of convertible preferred stock, of stockholders' equity and
comprehensive income, and of cash flows present fairly, in all material
respects, the financial position of Altius Solutions, Inc. as of September 30,
2000, and the results of its operations and its cash flows for the nine-month
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of Altius Solutions, Inc.'s management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with auditing
standards generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

PRICEWATERHOUSECOOPERS LLP

San Jose, California
October 23, 2000

F-43
138

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders'
of Altius Solutions, Inc.:

We have audited the accompanying balance sheet of Altius Solutions, Inc.
(the "Company") as of December 31, 1999, and the related statements of income,
convertible preferred stock and stockholders' equity and comprehensive income
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

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

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Altius Solutions, Inc. at December 31, 1999,
and the results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.

Deloitte & Touche LLP

San Jose, California
September 8, 2000

F-44
139

ALTIUS SOLUTIONS, INC.

BALANCE SHEETS

DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------

ASSETS
Current assets:
Cash and cash equivalents................................. $1,600,965 $2,793,769
Accounts receivable....................................... 1,384,833 2,139,708
Prepaid expenses and other current assets................. 193,643 164,189
Deferred tax assets....................................... 8,500 260,000
---------- ----------
Total current assets.............................. 3,187,941 5,357,666
Software and equipment, net................................. 766,665 1,740,339
Other assets................................................ 28,667 135,553
---------- ----------
Total............................................. $3,983,273 $7,233,558
========== ==========
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Accounts payable.......................................... $ 456,166 $ 165,900
Current portion of long-term obligations.................. 38,817 486,815
Accrued expenses.......................................... 366,699 1,756,456
Deferred revenue.......................................... 344,686 827,292
Other current liabilities................................. 29,687 17,012
---------- ----------
Total current liabilities......................... 1,236,055 3,253,475
Deferred tax liabilities.................................... -- 326,000
Long-term obligations....................................... 150,218 --
Other liabilities........................................... -- 178,942
Commitments (Note 7)
Convertible preferred stock -- $0.001 par value; 9,000,000
shares authorized; 8,812,500 shares issued and outstanding
(liquidation preference
$2,350,000)............................................... 2,350,000 2,350,000
Stockholders' equity:
Common stock -- $0.001 par value; 26,000,000 shares
authorized; 6,140,625 and 9,488,625 shares issued and
outstanding at December 31, 1999 and September 30,
2000, respectively..................................... 653,750 1,412,600
Deferred stock compensation............................... (558,000) (857,850)
Accumulated other comprehensive income.................... 51,804 40,936
Retained earnings......................................... 99,446 529,455
---------- ----------
Total stockholders' equity........................ 247,000 1,125,141
---------- ----------
Total............................................. $3,983,273 $7,233,558
========== ==========

See notes to financial statements.

F-45
140

ALTIUS SOLUTIONS, INC.

STATEMENTS OF INCOME

NINE MONTHS
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, -------------------------
1999 1999 2000
------------ ----------- ----------
(UNAUDITED)

Revenue:
Design services..................................... $2,036,900 $ 992,900 $6,528,197
Licenses............................................ 441,379 424,000 39,296
Maintenance and other services...................... 540,979 394,770 397,809
---------- ---------- ----------
Total revenues.............................. 3,019,258 1,811,670 6,965,302
Cost of revenue:
Design Services..................................... 1,710,858 848,717 3,426,278
Licenses............................................ 51,000 51,000 76,922
Maintenance and other services...................... -- -- 58,922
---------- ---------- ----------
Total cost of revenue....................... 1,761,858 899,717 3,562,122
---------- ---------- ----------
Gross profit.......................................... 1,257,400 911,953 3,403,180
---------- ---------- ----------
Operating expenses:
Research and development (exclusive of non-cash
compensation shown below)........................ 497,037 396,143 332,721
Sales and marketing (exclusive of non-cash
compensation shown below)........................ 363,420 287,759 752,099
General and administrative (exclusive of non-cash
compensation shown below)........................ 179,799 102,627 1,296,996
Stock-based compensation(*)......................... 63,000 25,000 230,250
---------- ---------- ----------
Total operating expenses.................... 1,103,256 811,529 2,612,066
---------- ---------- ----------
Operating profit...................................... 154,144 100,424 791,114
Other income:
Interest and other income (expense), net............ 25,982 14,936 58,759
Interest expense.................................... (689) -- (35,849)
Other income........................................ 15,009 -- 24,985
---------- ---------- ----------
Total other income.......................... 40,302 14,936 47,895
---------- ---------- ----------
Income before taxes................................... 194,446 115,360 839,009
Provision for income taxes............................ 95,000 56,000 409,000
---------- ---------- ----------
Net income............................................ $ 99,446 $ 59,360 $ 430,009
========== ========== ==========
(*)Stock-based compensation:
Cost of revenue.................................... $ 40,000 $ 16,000 $ 118,150
Research and development........................... 11,000 5,000 63,600
Sales and marketing................................ 8,000 3,000 21,200
General and administrative......................... 4,000 1,000 27,300
---------- ---------- ----------
Total....................................... $ 63,000 $ 25,000 $ 230,250
========== ========== ==========

See notes to financial statements.

F-46
141

ALTIUS SOLUTIONS, INC.

STATEMENTS OF CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME

STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
CONVERTIBLE ACCUMULATED
PREFERRED STOCK COMMON STOCK DEFERRED OTHER
---------------------- ---------------------- STOCK COMPREHENSIVE RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT COMPENSATION INCOME EARNINGS EQUITY
--------- ---------- --------- ---------- ------------ ------------- -------- -------------

Balance,
January 1, 1999.... -- $ -- -- $ -- $ -- $ -- $ -- $ --
Issuance of stock.... 8,812,500 2,350,000 6,140,625 32,750 -- -- 32,750
Stock option
grants............. -- -- -- 621,000 (621,000) -- -- --
Amortization of
deferred stock
compensation....... -- -- -- -- 63,000 -- -- 63,000
Currency translation
adjustment......... -- -- -- -- 51,804 -- 51,804
Net income........... -- -- -- -- -- -- 99,446 99,446
--------- ---------- --------- ---------- --------- ------- -------- ----------
Balance,
December 31, 1999.. 8,812,500 2,350,000 6,140,625 653,750 (558,000) 51,804 99,446 247,000
Stock option
grants............. -- -- -- 530,100 (530,100) -- --
Amortization of
deferred stock
compensation....... -- -- -- -- 230,250 -- -- 230,250
Exercise of stock
options............ -- -- 3,348,000 228,750 -- -- -- 228,750
Currency translation
adjustment......... -- -- -- -- (10,868) -- (10,868)
Net income........... -- -- -- -- -- -- 430,009 430,009
--------- ---------- --------- ---------- --------- ------- -------- ----------
Balance,
September 30,
2000............... 8,812,500 $2,350,000 9,488,625 $1,412,600 $(857,850) $40,936 $529,455 $1,125,141
========= ========== ========= ========== ========= ======= ======== ==========

COMPREHENSIVE
INCOME
-------------

Balance,
January 1, 1999.... $ --
Issuance of stock.... --
Stock option
grants............. --
Amortization of
deferred stock
compensation....... --
Currency translation
adjustment......... 51,804
Net income........... 99,446
--------
$151,250
========
Balance,
December 31, 1999..
Stock option
grants............. --
Amortization of
deferred stock
compensation....... --
Exercise of stock
options............ --
Currency translation
adjustment......... $(10,868)
Net income........... 430,009
--------
$419,141
========
Balance,
September 30,
2000...............

See notes to financial statements.

F-47
142

ALTIUS SOLUTIONS, INC.

STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30
DECEMBER 31, --------------------------
1999 1999 2000
------------ ----------- -----------
(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 99,446 $ 59,360 $ 430,009
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization.................. 69,856 29,328 257,380
Deferred taxes................................. (8,500) -- 74,500
Stock-based compensation expense............... 63,000 25,000 230,250
Changes in assets and liabilities:
Accounts receivable.......................... (1,363,529) (1,393,128) (754,875)
Prepaid expenses and other current assets.... (192,956) (90,323) 21,538
Accounts payable............................. 52,119 108,224 107,036
Other assets................................. (28,667) -- (106,886)
Accrued expenses............................. 347,604 116,882 1,389,757
Deferred revenue............................. 332,343 370,433 482,606
Other current liabilities.................... 47,324 -- (12,675)
Other liabilities............................ -- -- 178,942
----------- ----------- -----------
Net cash provided by (used) in operating
activities.............................. (581,960) (774,224) 2,297,582
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of software and equipment................ (401,012) (232,261) (1,628,356)
----------- ----------- -----------
Net cash used in investing activities..... (401,012) (232,261) (1,628,356)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock................ 32,750 32,750 228,750
Proceeds from sale of preferred stock............. 2,350,000 2,230,000 --
Proceeds from equipment loan...................... 189,035 -- 395,169
Repayments on equipment loan...................... -- -- (97,389)
----------- ----------- -----------
Net cash provided by financing
activities.............................. 2,571,785 2,262,750 526,530
----------- ----------- -----------
CASH EFFECTS OF FOREIGN CURRENCY TRANSLATION........ 12,152 (8,463) (2,952)
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS........... 1,600,965 1,247,802 1,192,804
Cash and cash equivalents, beginning of period.... -- -- 1,600,965
----------- ----------- -----------
Cash and cash equivalents, end of period.......... $ 1,600,965 $ 1,247,802 $ 2,793,769
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid..................................... $ 689 $ -- $ 35,849
=========== =========== ===========
Income taxes paid................................. $ 85,800 $ 800 $ 360,000
=========== =========== ===========
Fixed assets purchased included in accounts
payable........................................ $ 397,302 $ -- $ --
=========== =========== ===========

See notes to financial statements.

F-48
143

ALTIUS SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION

Altius Solutions, Inc. ("Altius") was incorporated in California on
December 17, 1998. Altius provides system-on-chip ("SOC") design foundry
services, focused on first-to-market and first-to-volume SOC design delivery and
software products which enable accelerated development of complex SOC's. Altius
is headquartered in Santa Clara, California. In addition, Altius operates a
sales and research and development office in Yokohama, Japan.

2. SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION Altius recognizes revenue in accordance with the
American Institute of Certified Public Accountants Statement of Position 97-2,
Software Revenue Recognition, as amended by Statement of Position 98-4, Deferral
of the Effective Date of Certain Provisions of SOP 97-2, ("SOP 97-2") and
Statement of Position 98-9, Modification of SOP 97-2, Software Revenue
Recognition With Respect to Certain Transactions. License revenue is recognized
upon delivery of a software license file, which allows the customer to use
software downloaded from Altius' website, and assuming all revenue recognition
criteria set forth in SOP 97-2 have been met. Revenue from optional software
maintenance contracts are recognized on a straight line basis over the life of
the maintenance agreement. For contracts with multiple obligations (e.g.,
product licenses, maintenance and other services), and which do not involve
significant customization or modification of software, Altius allocates revenue
to each component of the contract based on vendor specific objective evidence of
its fair value, which is based on either the price when each component is sold
separately, or the renewal rates for maintenance in future years as specified in
the arrangement. Altius recognizes revenue allocated to undelivered products
when the criteria for product revenue set forth above are met. Engineering
consulting services represent (i) engineering contracts with the objective of
completion of specific tasks, or (ii) engineering contracts committing Altius
engineering capacity for specified periods of time. For those engineering
contracts relating to the completion of specific tasks, revenue is recognized
based on the percentage of completion of the overall contract. For engineering
contracts representing commitment of Altius engineering capacity, revenue is
recognized as services are rendered over the length of the contract. When the
amount invoiced exceeds the revenue recognized, the excess is reported as
deferred revenue in the financial statements.

INTERIM FINANCIAL STATEMENTS (UNAUDITED) -- The consolidated statements of
operations and of cash flows for the nine months ended September 30, 1999 are
unaudited but have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial statements and the
rules of the Securities and Exchange Commission and do not include all
disclosures required by accounting principles generally accepted in the United
States for annual financial statements. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation have been included. The results of operations for any interim
period are not necessarily indicative of the results of operations for the full
year.

USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Significant estimates used in the financial statements include the
estimates of (i) collectibility of accounts receivable and (ii) revenue
recognition as a percentage of completion method.

CONCENTRATIONS -- Financial instruments that potentially subject Altius to
concentration of credit risk consist principally of cash and cash equivalents,
which are on deposit with financial institutions, and accounts receivable, with
two customers representing 43% and 25% of the balance at December 31, 1999

F-49
144
ALTIUS SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

and four customers representing 35%, 25%, 14% and 14% of the balance at
September 30, 2000. In addition, Altius had two customers which represented 10%
or more of the total revenues (42% and 17%) for the year ended December 31, 1999
and two customers which represented 10% or more of the total revenues (52% and
12%) for the nine month period ended September 30, 2000.

FAIR VALUE OF FINANCIAL INSTRUMENTS -- The fair value of the Company's cash
and cash equivalents, accounts receivable, accounts payable and accrued expenses
approximate their carrying value due to the short maturity or market rate
structure of those instruments.

SOFTWARE AND EQUIPMENT -- Software and equipment purchased is stated at
cost and is depreciated using the straight-line method over estimated useful
lives of three to five years.

INCOME TAXES -- Altius accounts for income taxes using an asset and
liability approach. Deferred tax liabilities are recognized for future taxable
amounts and deferred tax assets are recognized for future deductions, net of a
valuation allowance to reduce net deferred tax assets to amounts that are more
likely than not to be realized.

RESEARCH AND DEVELOPMENT -- Research and development costs relate to the
development of a computer software product. In accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software To Be Sold, Leased or Otherwise Marketed," costs are expensed as
incurred until technological feasibility has been established.

Capitalization of computer software development costs begins upon the
establishment of technological feasibility, which is generally the completion of
a working model. Software development costs capitalized were $667,029 at
September 30, 2000. No software development costs were capitalized during 1999.
Amortization of computer software development costs is computed on a
straight-line method over the software's estimated economic life of
approximately three years.

No software amortization expense for software development costs was
recorded for the nine month period ended September 30, 2000 as the product was
not available for general release to customers until the end of the period.

TRANSLATION OF FOREIGN CURRENCIES -- The Japanese yen is the functional
currency for Altius' international operations. Gains and losses from translation
of the foreign division's financial statements are reported as other
comprehensive income within the statement of stockholders' equity. Net gains and
losses from foreign currency transactions are included in the determination of
net income.

STOCK-BASED COMPENSATION -- Altius accounts for its stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Altius provides additional pro forma disclosures as required under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation," ("SFAS 123").

COMPREHENSIVE INCOME -- Altius adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), for the year
ended December 31, 1999. SFAS No. 130 requires that an enterprise report, by
major component and as a single total, the change in its net assets during the
period from nonowner sources. Altius has presented its total comprehensive
income in the statements of stockholders' equity.

F-50
145
ALTIUS SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS -- In June 1998, the Financial Accounting
Standards Board (the "FASB") issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS
133"), which establishes new standards of accounting and reporting for
derivative instruments and hedging activities. SFAS 133 requires that all
derivatives be recognized at fair value in the statement of financial position,
and that the corresponding gains or losses be reported either in the statement
of operations or as a component of comprehensive income, depending on the type
of hedging relationship that exists. SFAS 133, as amended, is effective for
fiscal years beginning after June 15, 2000. We are assessing the potential
impact of this pronouncement on the financial statements, however, we do not
expect any significant impact.

In December 1999, the SEC issued Staff Accounting Bulletin 101, Revenue
Recognition ("SAB 101"), which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance on disclosure related to revenue recognition policies.
Altius believes that it currently complies with SAB 101.

In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation -- An Interpretation of APB 25
(the "Interpretation"). This Interpretation clarifies (a) the definition of an
employee for purposes of applying APB 25, (b) the criteria for determining
whether a stock plan qualifies as a non-compensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation became effective July 1,
2000, but certain conclusions in this Interpretation cover specific events that
occur after either December 15, 1998 or January 12, 2000. To the extent that
this Interpretation covers events occurring during the period after December 15,
1998 or January 12, 2000, but before the effective date of July 1, 2000, the
effects of applying this Interpretation will be applied prospectively. The
adoption of the provisions of this Interpretation did not have a material impact
on the financial statements.

RECLASSIFICATIONS -- Certain reclassifications have been made to previously
reported amounts in order to conform to current period classification.

3. BALANCE SHEET COMPONENTS

Software and equipment consists of:

DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------

Software................................................... $584,040 $1,607,096
Computer equipment......................................... 193,608 377,297
Office furniture and fixtures.............................. 59,770 84,079
-------- ----------
Total software and equipment............................... 837,418 2,068,472
Less accumulated depreciation.............................. (70,753) (328,133)
-------- ----------
Software and equipment, net...................... $766,665 $1,740,339
======== ==========

Accrued expenses consist of:

DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------

Payroll and related expenses............................... $103,527 $1,327,930
Other accrued expenses..................................... 263,172 428,526
-------- ----------
$366,699 $1,756,456
======== ==========

F-51
146
ALTIUS SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. INCOME TAXES

The provision for income taxes as of December 31, 1999 and September 30,
2000 consists of the following:

DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------

Current:
Federal.................................................. $ 82,500 $271,000
State.................................................... 21,000 63,000
-------- --------
103,500 334,000
Deferred:
Federal benefit.......................................... (7,500) 65,000
State benefit............................................ (1,000) 10,000
-------- --------
Total provision.................................. $ 95,000 $409,000
======== ========

Altius' actual effective tax rate differs from the U.S. statutory income
tax rate as follows:

DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------

U.S. federal statutory rate................................ 35% 34%
Stock-based compensation expense........................... 11 8
State taxes net of federal tax benefit..................... 2 6
Other...................................................... 1 1
-- --
49% 49%
== ==

Altius' deferred tax balances at December 31, 1999 and September 30, 2000
are as follows:

Deferred tax assets:
Accrued liabilities and reserves......................... $6,500 $ 112,000
Deferred revenue......................................... -- 148,000
Research and development credits......................... 2,500 --
------ ---------
Total deferred tax assets................................ 9,000 260,000
Deferred tax liabilities................................... (500) (326,000)
------ ---------
Deferred tax assets (liabilities) -- net......... $8,500 $ (66,000)
====== =========

At September 30, 2000 and December 31, 1999, Altius has not recorded a
valuation allowance. Realization of the deferred tax assets is dependent on
generating sufficient taxable income prior to the expiration of such benefits.
Although realization is not assured, management believes it is more likely than
not that the deferred tax assets will be realized. The deferred tax assets
considered realizable could be reduced if estimates of future taxable income
during the carryforward periods are reduced.

At September 30, 2000 and December 31, 1999, Altius had federal research
tax credits of $0 and $2,500, respectively which expire beginning in 2020.

5. LONG TERM OBLIGATIONS

EQUIPMENT LOAN -- At September 30, 2000, Altius had $486,815 outstanding on
a $700,000 equipment line of credit. Borrowings under the equipment line of
credit bear interest at the bank's prime rate (9.5% at September 30, 2000) plus
0.5% and are collateralized by substantially all of Altius' software and
equipment. Repayment terms of the equipment loan required 36 equal monthly
installments of principal, plus accrued interest, beginning May 1, 2000. The
balance of $486,815 plus accrued interest, outstanding at September 30, 2000 was
repaid in full subsequent to the period end.

F-52
147
ALTIUS SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

CONVERTIBLE PREFERRED STOCK -- Altius' Series A preferred stock is
convertible, at the option of the holder, into an equivalent number of common
shares at the conversion price ($0.26 at September 30, 2000). In addition, the
holders of Series A preferred shares are entitled to receive, prior to the
holders of the Altius' common stock, payment of dividends or, upon liquidation,
return of contributed capital. Significant terms of the outstanding preferred
stock are as follows:

- Each share of Series A preferred stock is convertible into shares of
common stock on a one-for-one basis, subject to adjustment in certain
instances, at the option of the shareholder. Such shares will be
converted automatically upon the sale of Altius' common stock pursuant to
a registration statement under the Securities Act of 1933 meeting certain
criteria or the affirmative vote of the holders of a majority of the
shares of preferred stock outstanding at the time of such vote.

- Each share of Series A preferred stock has voting rights equivalent to
the number of shares of common stock into which it is convertible.

- Series A preferred shareholders are entitled to receive noncumulative
dividends as declared by the Altius Board of Directors out of any assets
legally available, prior to and in preference to any declaration or
payment of any dividend on the common stock. No dividends have been
declared as of September 30, 2000.

- A change in control of the Company is deemed, under certain
circumstances, to be a liquidation event and entitle the preferred
shareholders a return of contributed capital.

COMMON STOCK -- Common stock issued to the Altius' founders is subject to
repurchase agreements whereby Altius has the option to repurchase unvested
shares at the original price upon termination of employment. 1,535,156 shares
were vested upon issuance and the remaining shares, 4,605,469, vest equally over
three years. At September 30, 2000, 2,106,445 shares of common stock were
subject to repurchase by the Company.

In November 1999, the Altius Board of Directors authorized a 1.5 to 1 split
of common and preferred stock authorized and issued. Additionally, in March
2000, the Altius Board of Directors authorized a 5 to 4 split of common and
preferred stock authorized and issued. All share amounts have been restated to
give effect to such stock splits.

COMMON STOCK RESERVED -- At September 30, 2000, Altius has reserved the
following number of shares of common stock for future issuance:

Conversion of Series A preferred stock...................... 11,250,000
Exercise of stock options................................... 2,761,375
Conversion of warrants...................................... 15,000
----------
Total............................................. 14,026,375
==========

STOCK OPTION PLAN -- Under Altius' 1999 Stock Option Plan (the "1999
Plan"), Altius may grant options to purchase up to 2,761,375 shares of common
stock to employees, directors and consultants with exercise prices at the fair
market value of the common stock for incentive stock options. The options
generally expire ten years from the date of issuance, depending on the
recipient, and vest over four years.

F-53
148
ALTIUS SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

A summary of stock option activity is as follows:

OPTIONS OUTSTANDING
---------------------
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
---------- --------

Balance, January 1, 1999.................................... -- $ --
Options granted............................................. 2,956,875 $0.03
----------
Balance, December 31, 1999.................................. 2,956,875 $0.03
Options granted............................................. 3,145,313 $1.67
Options exercised........................................... (3,348,000) $0.07
----------
Balance, September 30, 2000................................. 2,754,188 $1.85
==========

As of September 30, 2000, 2,461,542 of the shares issued were unvested and
were subject to repurchase.

DEFERRED STOCK COMPENSATION -- During the period ended September 30, 2000
and in the year ended December 31, 1999, in connection with the grant of certain
stock options to employees, Altius recorded deferred stock compensation which
represents the difference between the exercise price of the options and the
estimated fair value of Altius's common stock on the date of grant. Such amounts
are being amortized on a straight-line basis over the vesting period of the
related options, generally 48 months.

The following table summarizes information as of September 30, 2000
concerning currently outstanding options:

OPTIONS OUTSTANDING
----------------------------------- OPTIONS EXERCISABLE
WEIGHTED --------------------
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OF CONTRACTUAL EXERCISE OF EXERCISE
PRICE SHARES LIFE (YEARS) PRICE SHARES PRICE
-------- --------- ------------ -------- --------- --------

$0.03....................................... -- 8.79 $0.03 -- $0.03
$0.08....................................... 65,625 9.13 $0.08 65,625 $0.08
$0.16....................................... 62,500 9.42 $0.16 62,500 $0.16
$0.60....................................... 40,000 9.79 $0.60 40,000 $0.60
$1.95....................................... 2,586,063 10.00 $1.95 2,586,063 $1.95
--------- ---------
2,754,188 2,754,188
========= =========

At December 31, 1999 2,956,875 shares were exercisable at a weighted
average price of $0.03.

ADDITIONAL STOCK PLAN INFORMATION -- SFAS 123 requires the disclosure of
pro forma net income and earnings per share had Altius adopted the fair value
method as of the beginning of fiscal 1999. Under SFAS 123, the fair value of
stock-based awards to employees is calculated through the use of option pricing
models, even though these models were developed to estimate the fair value of
freely tradable, fully transferable options without vesting restrictions, which
significantly differ from Altius' stock option awards. These models also require
subjective assumptions, including the expected time to exercise, which greatly
affect the calculated values. Altius' calculations were made using the minimum
value method with the following weighted average assumptions: expected life, 4
years; risk free interest rates, averaging 5.9% in 1999; and no dividends during
the expected term. The weighted average fair value of options granted for the
year ended December 31, 1999 and for the nine months ended September 30, 2000
was $0.22 and $0.41, respectively. Altius' calculations are based on a single
option valuation approach and forfeitures are recognized as they occur. Pro
forma net income, had the computed fair values of the 1999 and 2000

F-54
149
ALTIUS SOLUTIONS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

awards been amortized to expense over the vesting period of the awards, is
$94,446 and $318,990 respectively.

7. COMMITMENTS AND CONTINGENCIES

Altius leases its facilities under a noncancelable operating lease
expiring in 2004. Altius also sublet certain property for the period from
October 2000 to September 2003. The terms of the sublease included payment
of a refundable deposit, which is included in other liabilities. Rent
expense was approximately $224,000 for the period ended September 30, 2000.
In addition, Altius is committed to payments under certain noncancelable
software license agreements which expire through 2002.

Future minimum lease payments for the operating lease and software
license agreements including future minimum sublease rental receipts under
noncancelable operating lease are as follows:

OPERATING SUBLEASE
YEARS ENDED SEPTEMBER 30, LEASES INCOME
------------------------- ---------- ----------

2001................................................ $1,824,683 $ 691,200
2002................................................ 1,594,772 719,280
2003................................................ 1,215,852 747,360
2004................................................ 1,264,530 --
---------- ----------
Total minimum lease payments and sublease
income.................................. $5,899,837 $2,157,840
========== ==========

8. SUBSEQUENT EVENTS

On October 2, 2000, Altius repaid its equipment loan amounting $486,815
plus accrued interest outstanding as of September 30, 2000.

In October 2000, Altius was acquired by Simplex Solutions, Inc.,
("Simplex") a company which provides software and services that enable the
design and first-time productions success of integrated-circuits.

9. RELATED PARTY TRANSACTIONS

During the year ended December 31, 1999 and nine month period ended
September 30, 2000 Altius made purchases from Simplex, of $133,000 and $269,000,
respectively.

During the nine month period ended September 30, 2000 Altius made purchases
from a company, where the President and CEO is a member of the Board of
Directors, of $84,000. There were no such purchases made during the year ended
December 31, 1999.

F-55
150

SIMPLEX SOLUTIONS, INC.

PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION

OVERVIEW

Simplex completed the acquisition of all the outstanding capital stock of
Snaketech in March 2000. The acquisition was accounted for using the purchase
method of accounting and, accordingly, the net assets and results of operations
of Snaketech have been included in Simplex' consolidated financial statements
since the acquisition date.

The purchase consideration was approximately $11.8 million which consisted
of approximately 0.9 million shares of Simplex' common stock, options to
purchase 103,368 shares of Simplex' common stock and related acquisition
expenses totaling approximately $442,000.

The total purchase price was allocated as follows (in thousands):

Intangible assets........................................... $ 1,900
Goodwill.................................................... 3,613
In-process research and development......................... 5,000
Property and equipment...................................... 303
Net current assets.......................................... 1,014
-------
$11,830
=======

In October 2000, Simplex completed the acquisition of all the outstanding
capital stock of Altius, under which Simplex issued approximately 2.5 million
shares of common stock and reserved approximately 384,000 of its options, for
issuance to the holders of Altius stock and options. The transaction was
accounted for under the purchase method of accounting and, accordingly, the net
assets and results of operations of Altius have been included in Simplex'
consolidated financial statements since the acquisition date.

The purchase consideration was approximately $28.9 million, excluding $10.3
million for the intrinsic value of unvested stock options, and consisted of
approximately 2.5 million shares of Simplex' common stock and options to
purchase approximately 384,000 shares of Simplex' common stock. Included in the
2.5 million shares granted are approximately 0.7 million shares subject to
repurchase.

In respect of the proposed acquisition of Altius, the purchase price
allocation, was as follows (in thousands):

Acquired technology......................................... $ 600
Acquired workforce.......................................... 2,000
Goodwill.................................................... 23,184
Other net assets acquired (at fair value)................... 3,135
-------
$28,919
=======

The following unaudited pro forma combined consolidated financial
statements of operations for the year ended September 30, 2000 and gives effect
to the acquisitions as if they had occurred on October 1, 1999.

The unaudited pro forma combined consolidated statements of operations are
not necessarily indicative of the operating results that would have been
achieved had the transactions been in effect as of the beginning of the period
presented and should not be construed as being representative of future
operating results.

The historical financial statements of Simplex, Snaketech and Altius are
included elsewhere in this prospectus and the unaudited pro forma financial
information presented herein should be read in conjunction with those financial
statements and related notes.

F-56
151

SIMPLEX SOLUTIONS, INC.

PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

YEAR ENDED
SEPTEMBER 30, 2000
------------------------------------------------------------------------------------------
SIMPLEX SIMPLEX
SNAKETECH(1) SIMPLEX ADJUSTMENTS PRO FORMA ALTIUS(2) ADJUSTMENTS PRO FORMA
------------ ------- ----------- --------- --------- ----------- ---------

Net revenue................ $ 691 $22,817 $ -- $ 23,508 $8,173 $ -- $ 31,681
Cost of revenue............ 17 3,903 167(A) 4,087 4,509 2,886(B)(E) 11,482
------- ------- ------- -------- ------ -------- --------
Gross profit............... 674 18,914 (167) 19,421 3,664 (2,886) 20,199
------- ------- ------- -------- ------ -------- --------
Operating expenses:
Research and
development............ 429 5,341 -- 5,770 593 1,731(E) 8,094
Sales and marketing...... 918 10,635 -- 11,553 828 653(E) 13,034
General and
administrative......... 578 3,725 -- 4,303 1,215 155(E) 5,673
Amortization of acquired
intangibles............ -- 409 415(A) 824 -- 5,304(B) 6,128
Stock-based
compensation........... 2 -- (2) -- 262 (262)(E) --
In-process and acquired
research and
development............ -- 5,000 (5,000)(D) -- -- -- --
------- ------- ------- -------- ------ -------- --------
Total operating
expenses............. 1,927 25,110 (4,587) 22,450 2,898 7,581 32,929
------- ------- ------- -------- ------ -------- --------
Operating loss............. (1,253) (6,196) (4,754) (3,029) 766 (10,467)) (12,730)
Interest and other income
(expense), net........... 78 178 -- 256 133 -- 389
Interest expense........... 7 (462) -- (455) (60) -- (515)
------- ------- ------- -------- ------ -------- --------
Net loss before taxes...... (1,168) (6,480) (4,754) (3,228) 839 (10,467) (12,856)
Income tax expense......... -- (242) -- (242) (503) -- (745)
------- ------- ------- -------- ------ -------- --------
Net loss................... $(1,168) $(6,722) $(4,754) $ (3,470) $ 336 $(10,467) $(13,601)
======= ======= ======= ======== ====== ======== ========
Pro forma basic and diluted
net loss per share....... $ (1.47)(C)
--------
Number of shares used in
calculation of pro forma
basic and diluted net
loss per share........... 9,270
--------
Amortization of stock-based compensation is allocated to the following expenses:
Cost of revenue....................................................................................... $ 3,020
Research and development.............................................................................. 2,106
Sales and marketing................................................................................... 915
General and administrative............................................................................ 1,059
--------
$ 7,100
========

- ---------------
(1) The pro forma statement of operations amounts for Snaketech has been
presented based upon a September 30, 2000 year end rather than a December
31, 2000 year end, which was Snaketech's fiscal year end. In addition, the
amounts presented are net of Snaketech revenue since acquired by Simplex,
which are already included in Simplex' results.

(2) The pro forma statement of operations amounts for Altius have been presented
based upon a September 30, 2000 year end, rather than a December 31, 2000
year end, which was Altius fiscal year end.

The following adjustments were applied to the historical financial
statements to arrive at the pro forma financial information.

(A) The pro forma Simplex statements of operations for the year ended
September 30, 2000 were adjusted to record the amortization of
goodwill and other intangible assets related to

F-57
152

Simplex' acquisition of Snaketech as if the transaction occurred on
October 1, 1999 as follows:

AMORTIZATION
EXPENSE
--------------
YEAR ENDED
AMORTIZATION SEPTEMBER 30,
AMOUNT PERIOD 2000
-------------- ------------ --------------
(IN THOUSANDS) (IN THOUSANDS)

Assembled workforce................. $ 700 7 years $ 100
Acquired technology................. 1,200 3 - 4 years 335
Goodwill............................ 3,613 5 years 723
------
$1,158
======

A total of $334,000 of such amortization is allocated to cost of
sales, with $824,000 included in operating expenses.

(B) The pro forma statements of operations statement for the year ended
September 30, 2000 was adjusted to record the amortization of
goodwill related to Simplex acquisition of Altius as if the
transaction occurred on October 1, 1999. To account for the
acquisition the following assumptions have been made:

(a) the issuance of 2.5 million shares of Simplex' common stock.

(b) the grant of vested and unvested options to purchase
approximately 384,000 shares of Simplex' common stock which, in
accordance with Financial Accounting Standards Board,
Interpretation No. 44, have been valued at their fair value,
using the Black-Scholes option pricing model, and recorded as
part of the purchase price. Excluded from this valuation and
included in unearned stock based compensation is the intrinsic
value of unvested options and restricted common stock.

AMORTIZATION AMORTIZATION
AMOUNT PERIOD EXPENSE
-------------- ------------ --------------
(IN THOUSANDS) (IN THOUSANDS)

Assembled workforce................. $2,000 3 years $ 667
Acquired technology................. 600 5 years 120
Goodwill............................ 23,184 5 years 4,637
------
$5,424
======

A total of $120,000 of such amortization is allocated to cost of
sales, with the remainder, $5,304,000 allocated to operating
expenses.

(d) Estimated costs of acquisition of approximately $323,000.

(C) Pro forma basic and diluted net loss per share for the year ended
September 30, 2000 is computed using the weighted average number of
common shares outstanding, including the proforma effects of the
conversion of Simplex's convertible preferred stock as if such
conversion occurred on October 1, 1999.

(D) In-process and acquired research and development is removed from the
pro-forma results of operations since the charge is non-recurring.

(E) Represents amortization of unearned stock-based compensation arising
from the allocation of the intrinsic value of the unvested options
issued in connection with the acquisition of Altius pursuant to FIN
44.

F-58
153
DESCRIPTION OF GRAPHICS FOR INSIDE FRONT COVER

In the top left hand section of the page appears the phrase, "Simplex provides
design and verification software and services to enable first-time silicon
success of complex systems-on-chip." To the right of this phrase appear three
rectangular graphics of portions of semiconductor chips. In the center of the
page is one large semiconductor chip with different colors in different areas of
the chip. In the bottom left hand corner of the page is the word "Simplex,"
which is the Company's logo. To the right of the Simplex logo are two more
rectangular graphics of portions of semiconductor chips.

DESCRIPTION OF GRAPHICS FOR BACK COVER

In the right hand corner of the page is the Simplex logo. In the center of the
page under the logo, broken into three lines, is the phrase, "Simplex SoC Design
Foundry: On-Schedule Silicon Engineering of Complex System-on-Chip Designs."
Centered under this phrase is a large square graphic of a semiconductor chip,
with different colors in different areas of the chip. Centered below this large
graphic in two lines is the phrase, "Sony Computer Entertainment Inc.'s Graphics
Synthesizer(R) I-32 Chip Silicon Engineering by Simplex's SoC Design Foundry
Team in 2000."
154

[SIMPLEX SOLUTIONS, INC. LOGO]
155

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fee.

AMOUNT
TO BE PAID
----------

SEC Registration Fee........................................ $ 13,200
NASD Fee.................................................... 5,500
Nasdaq National Market Listing Fee.......................... 5,000
Printing and Engraving...................................... 200,000
Legal Fees and Expenses..................................... 600,000
Accounting Fees and Expenses................................ 1,100,000
Blue Sky Fees and Expenses.................................. 5,000
Transfer Agent Fees......................................... 15,000
Miscellaneous............................................... 56,300
----------
Total..................................................... $2,000,000
==========

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's certificate of incorporation includes a provision that eliminates
the personal liability of its directors for monetary damages for breach or
alleged breach of their duty of care to the Company or its stockholders. In
addition, as permitted by Section 145 of the Delaware General Corporation Law,
the certificate of incorporation of the Registrant provides, inter alia, that
each person who is made a party or is threatened to be made a party to or
otherwise involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she is or was a director or officer of the Company or, while a
director or officer of the Company, is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a director
or officer or in any other capacity while serving as a director or officer, is
authorized to be indemnified and held harmless by the Company to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended, against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) reasonably incurred or suffered by such indemnitee in
connection therewith and such indemnification shall continue as to an
indemnitee's heirs, executors and administrators; provided, however, that,
except with respect to the proceedings brought by an indemnitee to enforce
rights to indemnification (subject to certain restrictions and as more fully
described in the Registrant's certificate of incorporation), the Company shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Company. The right to
indemnification conferred in the Registrant's certificate of incorporation
includes the right to be paid by the Company the expenses incurred in connection
with any such proceeding in advance of its final disposition; provided, however,
that, if and to the extent that the Delaware General Corporation Law requires,
such an advancement of expenses incurred by an indemnitee in his or her capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service with respect to an employee benefit plan, shall be made only
upon delivery to the Company of an undertaking by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal that

II-1
156

such indemnitee is not entitled to be indemnified for such expenses under the
Company's certificate of incorporation or otherwise.

The Registrant's policy is to enter into indemnification agreements with
each of its directors and executive officers that provide the maximum indemnity
allowed to directors and executive officers by Section 145 of the Delaware
General Corporation Law and the Bylaws, as well as certain additional procedural
protections. In addition, such indemnity agreements provide that directors and
executive officers will be indemnified to the fullest possible extent not
prohibited by law against all expenses (including attorney's fees) and
settlement amounts paid or incurred by them in any action or proceeding,
including any derivative action by or in the right of the Registrant, on account
of their services as directors or executive officers of the Registrant or as
directors or officers of any other company or enterprise when they are serving
in such capacities at the request of the Registrant. Pursuant to the indemnity
agreements, the Company will not be obligated to indemnify or advance expenses
to an indemnified party with respect to proceedings or claims initiated by the
indemnified party and not by way of defense, except with respect to proceedings
specifically authorized by the Board of Directors or brought to enforce a right
to indemnification under such indemnity agreement, the Company's certificate of
incorporation, Bylaws or any statute or law, or as otherwise required under
Section 145 of the Delaware General Corporation Law. Also under the indemnity
agreements, the Company is not obligated to indemnify the indemnified party for
(i) any expenses incurred by the indemnified party with respect to any
proceeding instituted by the indemnified party to enforce or interpret the
agreement, if a court of competent jurisdiction determines that each of the
material assertions made by the indemnified party in such proceeding was not
made in good faith or was frivolous, (ii) acts, omissions or transactions on the
part of the indemnified party from which such party may not be relieved of
liability under applicable law or (iii) expenses and the payment of profits
arising from the purchase and sale by the indemnified party of securities in
violation of Section 16(b) of the Exchange Act, or any similar or successor
statute.

The indemnification provisions in the certificate of incorporation and the
indemnification agreements entered into between the Registrant and its directors
and executive officers, may be sufficiently broad to permit indemnification of
the Registrant's officers and directors for liabilities arising under the
Securities Act.

Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:

EXHIBIT
NUMBER DOCUMENT
- ------- --------

1.1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the
Registrant
Form of Amended and Restated Certificate of Incorporation of
the Registrant
10.1 Form of Indemnification Agreement entered into by the
Registrant with each of its directors and executive officers
3.3 Bylaws of the Registrant

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Within the last three years, we have issued the following unregistered
securities:

(a) On April 6, May 6 and June 6, 1998, we sold an aggregate of
3,253,336 shares of our Series E Preferred Stock to a group of six (6)
private investors for an aggregate purchase price of $12,200,010 which was
paid in cash. We believe the sale of the shares were exempt from
registration by virtue of Section 4(2) of the Securities Act and Rule 506
of Regulation D promulgated thereunder. The purchasers (i) represented to
us that they were accredited investors within the definition of Rule 501 of
Regulation D, (ii) represented to us that they understood that the
securities were restricted and must be held for an indefinite period of
time, (iii) represented to us that they were acquiring the shares for
investment for their own account and not with a view to the distribution
thereof and (iv) were afforded the opportunity to ask questions of our
management.

II-2
157

(b) On February 12, 1998, we sold 250,000 shares of our common stock
to Aki Fujimura, our President, Chief Operating Officer and Director, at a
purchase price of $2.04 per share. Mr. Fujimura paid for his shares with a
promissory note in the amount of $509,250 and $750 in cash. On March 30,
1999, we sold 47,222 shares of our common stock to Mr. Fujimura at a
purchase price of $6.00 per share. We believe the sale was exempt from
registration by virtue of Section 4(2) of the Securities Act and Rule 506
of Regulation D promulgated thereunder. The purchaser: (I) represented to
us that he understood that the securities were restricted and must be held
for an indefinite period of time, (II) represented to us that he was
acquiring the shares for investment for their own account and not with a
view to distribution thereof and (III) were afforded the opportunities to
ask questions of management.

(c) On January 19, 1999, we sold 64,375 shares of our common stock to
Steven L. Teig, our Chief Technical Officer, at a purchase price of $3.75
per share. Mr. Teig paid for his shares with a promissory note in the
amount of $241,406. We believe the sale was exempt from registration by
virtue of Section 4(2) of the Securities Act and Rule 506 of Regulation D
promulgated thereunder. The purchaser: (I) represented to us that he
understood that the securities were restricted and must be held for an
indefinite period of time, (II) represented to us that he was acquiring the
shares for investment for their own account and not with a view to
distribution thereof and (III) were afforded the opportunities to ask
questions of management.

(d) On March 30, 1999, we sold 33,333 shares of our common stock to
Luis P. Buhler, our Chief Financial Officer, at a purchase price of $6.00
per share. Mr. Buhler paid for his shares with a promissory note in the
amount of $200,000. We believe the sale was exempt from registration by
virtue of Section 4(2) of the Securities Act and Rule 506 of Regulation D
promulgated thereunder. The purchaser: (I) represented to us that he
understood that the securities were restricted and must be held for an
indefinite period of time, (II) represented to us that he was acquiring the
shares for investment for their own account and not with a view to
distribution thereof and (III) were afforded the opportunities to ask
questions of management.

(e) From September 1999 through March 31, 2001, we sold an aggregate
of 268,543 shares of our common stock for an aggregate consideration of
$855,029 pursuant to the exercise of options granted to certain of our
employees, directors and consultants under our 1995 Stock Plan. We believe
the sales were exempt from registration by virtue of Rule 701 promulgated
under Section 3(b) of the Securities Act because they were each
transactions pursuant to a compensatory benefit plan or a written contract
relating to compensation.

(f) From September 1999 through March 31, 2001, we sold an aggregate
of 39,575 shares of our common stock for an aggregate consideration of
$158,254 pursuant to the exercise of options granted to certain of our
directors and officers under our 1995 Stock Plan. We believe the sales were
exempt from registration by virtue of Section 4(2) of the Securities Act
and Rule 506 of Regulation D promulgated thereunder. The purchasers were
accredited investors within the meaning of Rule 501 of Regulation D.

(g) From September 1999 through March 31, 2001, we sold an aggregate
of 14,156 shares of our common stock for an aggregate consideration of
$127,655 pursuant to the exercise of options exempt from registration by
virtue of Regulation S.

(h) On June 29, 1999, we granted a warrant to purchase aggregate of
66,667 shares of our Series E Preferred Stock to TBCC Funding Trust II. We
believe the sales were exempt from registration by virtue of Section 4(2)
of the Securities Act and Rule 506 of Regulation D promulgated thereunder.
The purchasers were accredited investors within the meaning of Rule 501 of
Regulation D.

(i) On March 31, 2000, we issued an aggregate of 928,983 shares of our
common stock in conjunction with the acquisition of all of the outstanding
capital stock of Snaketech S.A. We believe the sales were exempt from
registration by virtue of Section 4(2) of the Securities Act, Rule 506 of

II-3
158

Regulation D promulgated thereunder and Regulation S. Sales to former
Snaketech stockholders who are resident in the United States were made in
reliance on Rule 506 of Regulation D. All such United States residents were
accredited investors within the meaning of Rule 501 of Regulation D. Sales
to former Snaketech stockholders who are resident outside the United States
were made in reliance on Regulation S. Each such non-United States resident
has agreed in writing to resale restrictions that prohibit resale of our
securities other than in compliance with the provisions of Regulation S.

(j) On October 4, 2000, we issued an aggregate of 2,551,434 shares of
our common stock in connection with our acquisition of all of the
outstanding capital stock of Altius Solutions, Inc. We believe the sales
were exempt from registration by virtue of Section 4(2) of the Securities
Act, Rule 506 of Regulation D promulgated thereunder and Regulation S.
Sales to former Altius stockholders who are resident in the United States
were made in reliance on Rule 506 of Regulation D. Of these former Altius
stockholders, fewer than 35 in the aggregate were not accredited investors
within the meaning of Rule 501 of Regulation D and all former Altius
stockholders were provided appropriate information pursuant to an
information statement as required by Rule 502(b) of Regulation D. Sales to
former Altius stockholders who are resident outside the United States were
made in reliance on Regulation S. Each such non-United States resident has
agreed in writing to resale restrictions that prohibit resale of our
securities other than in compliance with the provisions of Regulation S.

(k) On October 4, 2000, in connection with our acquisition of Altius,
we assumed a warrant to Silicon Valley Bank to purchase a total of 2,091
shares of common stock at an exercise price per share of $1.91 per share.
We believe the sales were exempt from registration by virtue of Section
4(2) of the Securities Act. The purchaser was an accredited investor within
the meaning of Rule 501 of Regulation D.

None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and we believe that each
transaction was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or Rule
701 pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701. The recipients in such
transactions represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
adequate access to information about the Company.

In particular, the securities described in the Preferred Stock financings
and warrant issuances are owned in their entirety by individuals or large
institutional investors who (A) represented to us that they were "accredited
investors" within the definition of Rule 501 of Regulation D, familiar with
investing in private companies, (B) represented to us that they understood that
the securities they were purchasing were restricted and the risk of possible
loss associated with their investment, (C) represented to us that they were
familiar with our history and business, (D) received our recent financial
information and (E) were afforded the opportunity to ask questions of our
management. Each of the investors had expressed previous interest to our
officers and directors in making an investment in us when an opportunity was
available, and such investors were contacted only on a one-on-one basis without
any general solicitation or advertising of the investment opportunity.
Accordingly, we believe that the each of the foregoing transactions was exempt
from the registration requirements of the Securities Act by virtue of Section
4(2) thereof.

II-4
159

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

EXHIBIT EXHIBIT DESCRIPTION
- ------- -------------------

1.1** Form of Underwriting Agreement
2.1** Form of Share Purchase Agreement by and among Simplex and
Snaketech S.A. dated as of March 13, 2000
2.2** Agreement and Plan of Reorganization by and among Simplex,
Altius Solutions and certain additional parties dated as of
October 4, 2000
3.1** Amended and Restated Certificate of Incorporation of the
Registrant
3.2** Form of Amended and Restated Certificate of Incorporation of
the Registrant
3.3** Bylaws of the Registrant
3.4** Form of Amended and Restated Bylaws of the Registrant
3.5** Certificate of Amendment of the Certificate of Incorporation
of the Registrant
3.6** Form of Certificate of Amendment of the Registrant
4.1* Form of Registrant's Common Stock Certificate
5.1** Form of Opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, regarding legality of the
securities being issued
10.1** Form of Indemnification Agreement entered into by and
between the Registrant and each of its directors and
executive officers
10.2** Form of Management Continuity Agreement entered into by and
between the Registrant and certain of its officers
10.3** 1995 Stock Plan
10.4** 2001 Incentive Stock Plan
10.5** 2001 Employee Stock Purchase Plan
10.6** Series E Preferred Stock Agreement of the Registrant dated
April 6, 1998
10.7** Fourth Amended and Restated Rights Agreement of the
Registrant dated April 6, 1998
10.8** Registration Rights Agreement dated March 31, 2000 by and
between the Registrant and Shareholders of Snaketech S.A.
10.9** Restricted Stock Purchase Agreement, Promissory Note and
Stock Pledge Agreement of Aki Fujimura dated February 12,
1998
10.10** Form of Promissory Note of the Registrant
10.11** Lease agreement by and between the Registrant and 525
Almanor LLC dated March 1997
10.12** Consent of Collett International Inc.
10.13** First Consent of Gartner Group
10.14** Second Consent of Gartner Group
10.15** Consent of Integrated Circuit Engineering Corporation
10.16** Restricted Stock Purchase Agreement, Promissory Note and
Stock Pledge Agreement of Aki Fujimura dated March 30, 1999
10.17** Restricted Stock Purchase Agreement, Promissory Note and
Stock Pledge Agreement of Steven Teig dated January 19, 1999
10.18** Restricted Stock Purchase Agreement, Promissory Note and
Stock Pledge Agreement of Luis Buhler dated March 30, 1999
10.19+** Software License Agreement between the Registrant and
Computational Applications and System Integration, Inc.
dated July 15, 1998
10.20+** Software License Agreement between the Registrant and
Digital Semiconductor (a business unit of Digital Equipment
Corporation which has been acquired by Compaq Computer
Corporation) dated September 21, 1995
10.21+** Cross License Agreement between the Registrant and Chris
Terman dated July 24, 1995
10.22** Offer Letter between the Registrant and James Behrens dated
February 28, 2000
10.23** Employment Agreement between the Registrant and Aurangzeb
Khan dated September 8, 2000
10.24** Management Continuity exhibit between the Registrant and
Luis Buhler dated January 20, 1999

II-5
160

EXHIBIT EXHIBIT DESCRIPTION
- ------- -------------------

10.25 Consent of Sony Computer Entertainment, Inc.
23.1** Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
23.3 Consent of Befec-Price Waterhouse, Independent Accountants
23.4 Consent of Deloitte & Touche LLP, Independent Auditors
24.1 Power of Attorney (see page II-10)

- ---------------
* To be filed by amendment.
** Previously filed.
+ Confidential Treatment requested.

(b) FINANCIAL STATEMENT SCHEDULES

Schedule II -- Valuation and Qualifying Accounts.

II-6
161

REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Stockholders of Simplex Solutions, Inc.

In connection with our audits of the consolidated financial statements of
Simplex Solutions, Inc. as of September 30, 1999 and 2000, and for each of the
three years in the period ended September 30, 2000, which consolidated financial
statements are included in the Prospectus, we have also audited the financial
statement schedule listed in Item 16(b) herein. In our opinion, this financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.

PricewaterhouseCoopers LLP

San Jose, California
October 23, 2000

II-7
162

SIMPLEX SOLUTIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

BALANCE AT BALANCE AT
BEGINNING ADDITIONS END
OF YEAR (DEDUCTIONS) WRITE-OFFS OF YEAR
---------- ------------ ---------- ----------

Allowance for doubtful accounts:
Year ended September 30, 1998................ $ 0 $ 10 $-- $ 10
Year ended September 30, 1999................ 10 161 -- 171
Year ended September 30, 2000................ 171 14 -- 185
Valuation allowance for deferred tax assets:
Year ended September 30, 1998................ $2,530 $2,844 $-- $ 5,374
Year ended September 30, 1999................ 5,374 4,514 -- 9,888
Year ended September 30, 2000................ 9,888 426 -- 10,314

II-8
163

ITEM 17. UNDERTAKINGS

The undersigned hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referenced in Item 14 of this Registration
Statement or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-9
164

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 6 to Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Sunnyvale, State of California, on the tenth day of April, 2001.

SIMPLEX SOLUTIONS, INC.

By: /s/ PENELOPE A. HERSCHER
------------------------------------
Penelope A. Herscher,
Chief Executive Officer and Chairman
of the Board of Directors

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED THIS
AMENDMENT NO. 6 TO REGISTRATION STATEMENT ON FORM S-1 HAS BEEN SIGNED BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ PENELOPE A. HERSCHER Chief Executive Officer and April 10, 2001
- ----------------------------------------------------- Chairman of the Board of
Penelope A. Herscher Directors (Principal
Executive Officer)

* President, Chief Operating April 10, 2001
- ----------------------------------------------------- Officer and Director
Aki Fujimura

/s/ LUIS P. BUHLER Chief Financial Officer April 10, 2001
- ----------------------------------------------------- (Principal Financial and
Luis P. Buhler Accounting Officer)

* Director April 10, 2001
- -----------------------------------------------------
Joseph B. Costello

* Director April 10, 2001
- -----------------------------------------------------
Harvey C. Jones, Jr.

* Director April 10, 2001
- -----------------------------------------------------
F. Gibson Myers, Jr.

* Director April 10, 2001
- -----------------------------------------------------
A. Richard Newton

* Director April 10, 2001
- -----------------------------------------------------
Larry W. Sonsini

*By: /s/ LUIS P. BUHLER
- -----------------------------------------------------
Luis P. Buhler
Attorney-in-Fact

II-10
165

EXHIBIT INDEX

EXHIBIT EXHIBIT DESCRIPTION
- ------- -------------------

1.1** Form of Underwriting Agreement
2.1** Form of Share Purchase Agreement by and among Simplex and
SnakeTech S.A. dated as of March 13, 2000
2.2** Agreement and Plan of Reorganization by and among Simplex,
Altius Solutions and certain additional parties dated as of
October 4, 2000
3.1** Amended and Restated Certificate of Incorporation of the
Registrant
3.2** Form of Amended and Restated Certificate of Incorporation of
the Registrant
3.3** Bylaws of the Registrant
3.4** Form of Amended and Restated Bylaws of the Registrant
3.5** Certificate of Amendment of the Certificate of Incorporation
of the Registrant
3.6** Form of Certificate of Amendment of the Registrant
4.1* Form of Registrant's Common Stock Certificate
5.1** Form of Opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, regarding legality of the
securities being issued
10.1** Form of Indemnification Agreement entered into by and
between the Registrant and each of its directors and
executive officers
10.2** Form of Management Continuity Agreement entered into by and
between the Registrant and certain of its officers
10.3** 1995 Stock Plan
10.4** 2001 Incentive Stock Plan
10.5** 2001 Employee Stock Purchase Plan
10.6** Series E Preferred Stock Agreement of the Registrant dated
April 6, 1998
10.7** Fourth Amended and Restated Rights Agreement of the
Registrant dated April 6, 1998
10.8** Registration Rights Agreement dated March 31, 2000 by and
between the Registrant and Shareholders of SnakeTech S.A.
10.9** Restricted Stock Purchase Agreement, Promissory Note and
Stock Pledge Agreement of Aki Fujimura dated February 12,
1998
10.10** Form of Promissory Note of the Registrant
10.11** Lease agreement by and between the Registrant and 525
Almanor LLC dated March 1997
10.12** Consent of Collett International Inc.
10.13** First Consent of Gartner Group
10.14** Second Consent of Gartner Group
10.15** Consent of Integrated Circuit Engineering Corporation
10.16** Restricted Stock Purchase Agreement, Promissory Note and
Stock Pledge Agreement of Aki Fujimura dated March 30, 1999
10.17** Restricted Stock Purchase Agreement, Promissory Note and
Stock Pledge Agreement of Steven Teig dated January 19, 1999
10.18** Restricted Stock Purchase Agreement, Promissory Note and
Stock Pledge Agreement of Luis Buhler dated March 30, 1999
10.19+** Software License Agreement between the Registrant and
Computational Applications and System Integration, Inc.
dated July 15, 1998
10.20+** Software License Agreement between the Registrant and
Digital Semiconductor (a business unit of Digital Equipment
Corporation which has been acquired by Compaq Computer
Corporation) dated September 21, 1995
10.21+** Cross License Agreement between the Registrant and Chris
Terman dated July 24, 1995
10.22** Offer Letter between the Registrant and James Behrens dated
February 28, 2000
10.23** Employment Agreement between the Registrant and Aurangzeb
Kahn dated September 8, 2000

166

EXHIBIT EXHIBIT DESCRIPTION
- ------- -------------------

10.24** Management Continuity exhibit between the Registrant and
Luis Buhler dated January 20, 1999
10.25 Consent of Sony Computer Entertainment, Inc.
23.1** Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Befec-Price Waterhouse, Independent Accountants
23.4 Consent of Deloitte & Touche LLP, Independent Auditors
24.1 Power of Attorney (see page II-10)

- ---------------
* To be filed by amendment.

** Previously filed.

+ Confidential Treatment requested.