10-Q 1 f71198e10-q.txt FORM 10-Q QUARTERLY PERIOD ENDED FEBRUARY 28, 2001 1 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q ------------------------ (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________ . COMMISSION FILE NUMBER 000-22565 INGENUUS CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 77-0298386 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 830 E. ARQUES AVENUE, SUNNYVALE, CA 94085 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 774-2199 Indicate by check mark whether the Registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares of the Registrant's Common Stock outstanding as of February 28, 2001 was 36,810,745. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2 INGENUUS CORPORATION FORM 10-Q FOR THE QUARTER ENDED FEBRUARY 28, 2001 TABLE OF CONTENTS

PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements................. 1 a) Condensed Consolidated Statements of Operations for the 1 three ~~and nine~~ months ended ~~August~~February 3128, ~~2000~~2001 and ~~1999~~February 29, 2000..................................................... 1 b) Condensed Consolidated Balance Sheets at ~~August~~February 3128, ~~2000~~2 2001 and November 30, ~~1999~~2000........................................ 2 c) Condensed Consolidated Statements of Cash Flows for the ~~Nine~~3 three months ended ~~August~~February 3128, ~~2000~~2001 and ~~1999~~February 29, 2000..................................................... 3 d) Notes to Condensed Consolidated Financial Statements..... 4 Item 2. Management's Discussion and Analysis of Financial Condition 11 and Results of Continuing and Discontinued Operations....... 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................... 2122 Item 6. Exhibits ~~and Reports on Form 8-K~~.................................................... 2325 SIGNATURES........................................................... 2426

i 3 PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INGENUUS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)

QUARTER ENDED ~~NINE MONTHS ENDED AUGUST 31, AUGUST 31,~~ ------------------ ----------~~----------~~ ~~2000~~FEBRUARY ~~1999~~28, ~~2000~~FEBRUARY ~~1999~~29, 2001 2000 ------- ------- -------- ----~~----~~ Revenue..................................................... $ ~~1,211~~707 $ --310 ~~$ 2,797 $ --~~ Cost of revenue............................................. ~~638~~572 --229 ~~1,960~~ -- ------- ------- ~~-------- --------~~ Gross profit................................................ ~~573~~135 --81 ~~837~~ -- ------- ------- ~~-------- --------~~ Operating expenses: Research and development.................................. ~~971~~952 ~~-- 2~~1,~~918~~176 -- Sales and marketing....................................... ~~853~~924 --119 ~~1,773 --~~ General and administrative................................ 1,~~042~~234 ~~613 5,188~~ 2,~~654~~336 Write-off inof ~~process~~purchased ~~research and development~~technology......................... -- -- 925 -- Amortization -- goodwill.................................. 1,~~223~~074 ~~-- 3~~1,~~700~~240 -- ------- ------- ~~-------- --------~~ Total operating expenses.......................... 4,~~089~~184 ~~613 14~~5,~~504~~796 ~~2,654~~------- ------- Loss from operations........................................ (34,~~516~~049) (~~613) (13~~5,~~667~~715) ~~(2,654)~~ Interest and other income, net.................... ~~242 348 645 1,270 Equity losses from joint venture~~..........~~........~~ --89 ~~(170)~~228 ~~(67)~~Gain (~~585~~Loss) ~~-------~~on ~~-------~~sale ~~--------~~of ~~-------- Loss from continuing operations~~investment................... ~~(3,274) (435) (13,089) (1,969) Loss from discontinued operations~~........~~.........~~ 2,380 -- ~~(4,636)~~Equity ~~(3,623)~~losses ~~(13,697)~~from ~~(Loss)/gain~~joint ~~on disposal of discontinued operations~~venture............................~~..........~~ ~~(70)~~ -- ~~5,363~~(67) ------- ------- ~~--------~~Loss ~~--------~~from ~~Net~~continuing ~~loss~~operations.............................~~.............~~ $(31,~~344~~580) $(5,~~071~~554) ~~$(11,349)~~Loss ~~$(15,666)~~from ~~=======~~discontinued ~~======= ======== ======== EARNINGS PER SHARE -- BASIC Continuing~~ operations............................. $-- (~~0.09~~2,414) $Provision ~~(0.02)~~for $income (0taxes.~~36) $ (0~~.~~07) Loss from discontinued operations~~................. ~~-- (0~~.~~16) (0~~.~~10) (0~~.~~49) Gain on disposal of discontinued operations~~............ -- -- ~~0.15~~------- ------- Net loss ~~per share~~................................ (0.~~09) (0~~.~~18)~~.................. (~~0.31~~1,580) (~~0.56~~7,968) EARNINGS (LOSS) PER SHARE -- BASIC AND DILUTED Continuing operations............................. (0.~~09) (0~~.~~02) (0~~.~~36) (0~~.~~07) Loss from discontinued operations~~......~~...........~~ --$ (0.1604) ~~(0.10)~~$ (0.4916) ~~Gain~~Discontinued ~~on disposal of discontinued~~ operations....... ~~-- -- 0~~.~~15 -- Net loss per share~~.............................~~...~~ ~~(0.09)~~$ (0.1800) ~~(0.31)~~$ (0.5606) ~~Shares~~Net ~~used~~loss ~~in basic~~ per share ~~calculation........~~attributable ~~36,668~~to ~~27,680~~common ~~36,123 27,945 Shares used in diluted per share calculation -- continuing operations~~stockholders...... $ (0.~~.....~~04) ~~36,668~~$ ~~27,680~~(0.22) ~~36,123~~======= ~~27,945~~======= Shares used in basic and diluted per share calculation ~~-- loss from discontinued operations~~......~~................................~~ 36,~~668~~803 2735,~~680~~463 ~~36,123~~======= ~~27,945 Shares used in diluted per share calculation -- gain on disposal of discontinued operations...................................... -- -- 37,060 --~~=======

See accompanying notes to condensed consolidated financial statements. 1 4 INGENUUS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ASSETS

~~AUGUST~~FEBRUARY 3128, NOVEMBER 30, 2001 2000 ~~1999(1)~~ ------------ ------------ (UNAUDITED) Current assets: Cash and cash equivalents................................. $ 97,~~592~~495 $ 238,~~884~~789 ~~Accounts~~Short-term ~~receivable, net~~investments.................................... ~~877~~4,916 25,~~399~~972 Accounts receivable, (net of allowance)................... 596 553 Income taxes receivable................................... 2,~~100~~089 2,~~100~~089 ~~Other~~Note receivable........................................... 42,~~762~~914 ~~665~~3,833 Prepaid expenses and other current assets................. ~~245~~153 92186 -------- -------- Total current assets.............................. 1718,~~576~~163 2921,~~140~~422 Property and equipment, -- net................................. ~~1,062~~643 ~~6,451~~808 Goodwill and other ~~intangibles~~intangible assets........................ 13,469 14,542 Restricted cash............................................. ~~16,280~~106 ~~6,914~~106 ~~Loan~~Net toassets ~~related~~of ~~party~~Chip & Chip...................................~~....~~ --1,401 ~~430~~1,401 Investments and other assets................................ ~~14,550~~144 ~~2,824~~175 -------- -------- ~~TOTAL~~Total assets......................................~~.......~~ $ 4933,~~468~~926 $ 4538,~~759~~454 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 1,~~371~~267 $ 21,~~676~~682 Accrued ~~and other current~~ liabilities..................... ~~3,204 2,960 Customer and other advances~~..................~~.............~~ ~~465~~4,305 36,~~636~~040 ~~Bank~~Deferred ~~loan~~revenue..........................................~~.......~~ --488 ~~222~~527 -------- -------- Total current liabilities......................... 56,~~040~~060 98,~~494~~249 Other liabilities, -- long term................................ ~~292~~219 ~~324~~219 -------- -------- Total liabilities................................. 56,~~332~~279 98,~~818~~468 -------- -------- Commitments and contingencies Stockholders' equity: Common stock.............................................. 102,~~394~~579 91102,~~551~~577 ~~Notes~~Treasury ~~receivable~~stock............................................ (273,085) (~~156~~3,085) ~~Comprehensive~~Accumulated ~~income......................................~~other ~~9,037~~comprehensive ~~-- Treasury stock~~income....................~~........................~~ (24,~~452)~~396 (15,~~987)~~132 Accumulated deficit....................................... (6476,~~816~~243) (5374,~~467~~638) -------- -------- Total stockholders' equity........................ 4427,~~136~~647 3529,~~941~~986 -------- -------- ~~TOTAL~~Total liabilities and stockholders' equity........~~.....................................~~ $ 4933,~~468~~926 $ 4538,~~759~~454 ======== ========

See accompanying notes to condensed consolidated financial statements. 2 5 INGENUUS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)

~~NINE~~QUARTER ~~MONTHS~~ ENDED ---------------------------- ~~AUGUST~~FEBRUARY 3128, ~~AUGUST~~FEBRUARY 3129, 2001 2000 ~~1999~~ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................. $(111,~~349~~580) $ (157,~~666~~968) ~~Deduct~~Adjustments from operating activities: ~~Gain~~Realized gain on ~~disposal~~Virage ofLogic ~~discontinued operations~~shares...................... (52,~~363~~380) -- ~~Losses between year~~Write-~~end~~off ~~and~~purchase ~~the measurement date~~technology............................. -- 925 Gain on sale of fixed assets.............................. ~~(999)~~2 -- ~~--------~~Equity ~~-------- Net~~ loss from ~~continuing~~joint ~~operations~~venture............................ ~~(17,711) (15,666)~~ --~~------~~ ~~--------~~67 ~~Adjustments from operating activities:~~ Depreciation and amortization............................. 61,~~162~~237 52,~~409~~906 ~~Loss~~Changes onin ~~disposal~~assets ofand ~~fixed~~liabilities ~~assets~~Accounts receivable: Billed....................... ~~(86) -- Equity losses from joint venture~~.......................... --(43) ~~585~~1,629 ~~Stock compensation expenses~~Unbilled............................................... -- 96(120) ~~Changes~~Prepaid inexpenses ~~assets~~ and ~~liabilities~~other ~~Accounts~~current ~~receivable~~assets................. (17) (149) Inventory................. ~~1,522 3,841 Prepaid expenses and other current assets~~................................ -- (~~132~~28) ~~1,174~~ Accounts payable.......................................... (~~1,305~~415) (~~586~~1,450) Accrued and other liabilities............................. (1,~~122~~736) (~~765~~311) Customer advances......................................... ~~1,118~~ (~~860~~39) 1,920 -------- -------- Net cash used for operating activities ~~of continuing operations~~............~~...............~~ (114,~~554~~971) (62,~~772~~579) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Inbox -- ~~net~~Net of cash ~~acquired~~....................... -- (7,603) --Net ~~Overdraft~~proceeds ~~disposed~~from ofsale ~~, net~~ of ~~cash~~discontinued ~~acquired -- Chip & Chip~~operations.........~~..........................................~~ 241,000 ~~Purchases~~-- ofProceeds ~~property~~from ~~and~~-- ~~equipment~~Virage Logic shares....................... (2,~~765)~~700 ~~(2,054)~~-- ~~Sale~~Purchases of property and equipment.......................~~.....~~ ~~296~~ -- ~~Investment in joint venture corporation................... --~~ (~~2,329~~473) -------- -------- Net cash provided/(used )for investing activities ~~of continuing operations~~...................................... ~~(10~~3,~~048)~~700 (48,~~383~~076) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock.................... ~~399~~2 75239 ~~Repurchase of common stock................................ -- (927)~~ Collection of stockholder notes receivable................~~............~~ ~~(44)~~-- 998 -------- -------- Net cash provided by ~~(used for)~~ financing activities ~~of continuing operations~~.........~~....~~ ~~355~~2 ~~(843)~~337 -------- -------- ~~Operating~~Effective ~~cashflow~~exchange ~~from~~rate ~~discontinued~~changes ~~operations~~on cash and cash equivalents............................................... ~~6,955~~(25) -- Net decrease in cash and equivalents........................ (211,~~247~~294) (1110,~~998~~318) Cash and ~~cash~~ equivalents, beginning of period................... 8,789 23,884 ~~42,480~~ -------- -------- Cash and ~~cash~~ equivalents, end of period......................... $ 97,~~592~~495 $ 3013,~~482~~566 ======== ========

See accompanying notes to condensed consolidated financial statements. 3 6 INGENUUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Ingenuus Corporation (the "Company") have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") for interim financial information and in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended February 28, 2001 are not necessarily indicative of the results that may be expected for the fiscal year ending November 30, 2001 or for any other period. The unaudited condensed consolidated interim financial statements contained herein should be read in conjunction with the audited financial statements and footnotes for the year ended November 30, 2000 included in the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission on February 28, 2001. 2. DISCONTINUED OPERATIONS On April 6, 2000, the Company sold its semiconductor intellectual property, library development and design tools and service business ("SIP Business") to DII Semiconductor Inc. ("DII") for $11.3 million ($5.5 million in cash and $972,000 due every quarter for the next six quarters beginning July 30, 2000). As a result, the operations of the SIP Business have been classified as discontinued operations in the accompanying Condensed Consolidated Financial Statements and related Notes. Revenues for the SIP Business were $1.3 million for the first quarter of fiscal 2000. 3. EARNINGS PER SHARE (EPS) DISCLOSURES Basic EPS excludes dilution and is computed by dividing net income attributable to common stockholders by the weighted average of common shares outstanding (excluding shares subject to repurchase rights) for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. A reconciliation of the numerator and denominator of basic and diluted EPS is provided as follows (in thousands, except per share amounts):

QUARTER ENDED ~~NINE MONTHS ENDED AUGUST 31, AUGUST 31,~~ ------------------ ----------~~----------~~ ~~2000~~FEBRUARY ~~1999~~28, ~~2000~~FEBRUARY ~~1999~~29, 2001 2000 ------- ------- -------- ----~~----~~ (UNAUDITED) ~~(UNAUDITED)~~ Loss from continuing operations..................... $(31,~~274~~580) $ (~~435) $(13~~5,~~089~~554) ~~$ (1,969)~~ Loss from discontinued operations................. ~~-- (4,636) (3,623) (13,697) (Loss)/gain on disposal of discontinued operations~~..~~....................................~~ ~~(70)~~ -- ~~5,363 -- ------- ------- -------- -------- Loss attributed to discontinued operations........~~ (~~70) (4~~2,~~636~~414) ~~1,740 (13,697)~~ ------- ------- ~~-------- --------~~ Net loss............................................ $(31,~~344~~580) $(57,~~071~~968) ~~$(11,349) $(15,666)~~ ======= ======= ~~======== ========~~ Denominator -- Basic and diluted EPS common stock outstanding....................................... 36,~~668~~803 2735,~~680~~463 ~~36,123 27,945~~ ------- ------- ~~-------- --------~~ EARNINGS PER SHARE -- BASIC AND DILUTED Loss from continuing operations................... ~~$ (0~~.~~09) $ (0~~.~~02)~~ $ (0.3604) $ (0.0716) Loss from discontinued operations................. ~~-- (0~~.~~16) (0~~.~~10)~~ ~~(0.49) Gain on disposal of discontinued operations.......~~ -- ~~-- 0.15 -- Net loss per share................................~~ (0.0906) ~~(0.18) (0.31) (0.56) DENOMINATOR~~ -- ~~DILUTED EPS Denominator~~ -- ~~Basic EPS.......................... 36,668 27,680 36,123 27,945 Effect of dilutive securities Weighted average common share equivalents related to purchase rights and options.......~~ -- -- ~~937~~ -- ------- ~~-------~~Net ~~-------- -------- 36,668 27,680 37,060 27,945 ======= ======= ======== ======== EARNINGS PER SHARE -- DILUTED Loss from continuing operations~~loss................... ~~$ (0~~.~~09) $ (0~~.~~02) $ (0~~.~~36) $ (0~~.~~07) Loss from discontinued operations~~................. ~~-- (0~~.~~16) (0~~.~~10) (0~~.~~49) Gain on disposal of discontinued operations~~.~~......~~ --$ ~~-- 0.15 -- Net loss per share................................~~ (0.0904) ~~(0.18)~~$ (0.3122) ~~(0.56)~~======= =======

4 7 INGENUUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 4. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 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. In July 1999, the Financial Accounting Standard Boards issued SFAS No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of SFAS No. 133." SFAS 137 deferred the effective date of SFAS 133 until the first fiscal quarter of the fiscal year beginning after June 15, 2000. The Company adopted SFAS 133 in the first quarter of fiscal 2001. The adoption of SFAS 133 and SFAS 137 is not expected to have a material effect on the Company's financial position or results of operations. In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. Management does not expect the adoption of SAB 101 to have a material effect on the Company's financial position or results of operations. The Company adopted SAB 101 in the first quarter of fiscal 2001. In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation -- an Interpretation of APB 25." FIN 44 becomes effective July 1, 2000, but certain conclusions cover specific events that occur after either December 15, 1998 or January 12, 2000. 5. COMPREHENSIVE INCOME (LOSS) The Company follows the provisions of SFAS No. 130, "Reporting Comprehensive Income." This statement requires companies to classify items of other comprehensive income by their components in the financial statements and display the accumulated balance of other comprehensive income separately from retained earnings in the equity section of a statement of financial position. The Company's total comprehensive income (loss) was as follows (in thousands):

QUARTER ENDED ~~NINE MONTHS ENDED AUGUST 31, AUGUST 31,~~ ---------------- ------------~~------~~ ~~2000~~FEBRUARY ~~1999~~28, ~~2000~~FEBRUARY ~~1999~~29, 2001 2000 ------ ------ ------- ------- Net ~~loss~~Loss............................................ (31,~~344~~580) (57,~~071~~968) ~~(11,349) (15,666)~~ Other comprehensive income: Realized gain -- previously recognized.............. (1,942) -- Unrealized holding gain on available-for-sale marketable securities............................... 91,~~037~~238 -- ~~9,037~~ -- ------ ------ ~~------- -------~~ Comprehensive ~~income~~Income/(~~loss~~Loss)......................... ~~5,693~~ (~~5,071) (~~2,~~312~~284) (157,~~666~~968) ====== ====== ~~======= =======~~

6. INVESTMENTS Investment in Virage Logic In fiscal 1998, the Company made a private equity investment in Virage Logic Corp. ("Virage"), for an aggregate cost of $0.8 million. As of November 30, 1999 this investment was carried at cost in the balance sheet as the Company's ownership interest in Virage was less than 20%. The equity securities comprising this 5 8 INGENUUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) investment have been publicly traded since Virage completed an initial public offering of its Common Stock in August 2000. As of February 28, 2001, the investment is held at fair value and is classified in current assets, as the Company intends to realize this investment in the short term. As of the quarter ended February 28, 2001, the Company sold 200,000 of the 525,000 shares held, for $2.7 million. The unrealized gain of $4.4 million is recognized in other comprehensive income, in accordance with SFAS 115, "Accounting for certain investments in debt and equity securities". Subsequent to the quarter ended February 28, 2001, the Company sold an additional 100,000 of the shares for $1.5 million. Impairment of Investment in Slim Technology During the first quarter of fiscal 1999, the Company purchased a 40% interest in Slim Technology Co, Ltd., a Korean company ("Slim Tech"), at a cost of $2.3 million. Slim Tech performs semiconductor design services for Korean customers. With the disposal of the SIP business in April 2000 and the Company's new focus as a software business to business collaborative commerce company, the investment in Slim Tech was no longer strategic to the Company's operations, and as a result, the Board of Directors authorized management to sell the investment. Based on a number of factors, including the failure to find a buyer for the investment and recurring operating losses generated from the investment, and in accordance with the provisions of APB 18 "The Equity Method of Accounting for Investments in Common Stock", management assessed that there had been a permanent decline in the value of this investment. An impairment charge of $1.7 million was recorded in fiscal 2000 to write down the value of the investment. 7. SALE OF CHIP & CHIP, INC. On June 13, 2000, the Company entered into an Asset Purchase Agreement with the Management of Chip & Chip, part of the Electronic Design Automation ("EDA") segment of the company. Chip & Chip Management purchased the assets and certain liabilities of Chip & Chip Inc. ("Chip & Chip"), for $2,580,000, (payable in three installments over the next two years). The proceeds are secured on 1 million Ingenuus shares and 0.7 million fully vested options held by Chip & Chip management, and 1 million shares of Chip & Chip. The gain of $292,000 from the sale has been deferred and will be recognized as the payments are received. The Company received the first installment of the sales consideration on the due date in the fourth quarter of fiscal 2000, $242,000 in cash and $633,000 by surrendering 500,000 shares of Ingenuus stock to the Company. The remaining two equal installments are due in October 2001 and July 2002. 8. SEGMENT AND GEOGRAPHIC INFORMATION As of February 28, 2001, the Company operated in two segments, EDA and Ingenuus. The EDA segment includes the development and sale of software tools for Electronic Design Automation, related to Verilux Design Technology ("Verilux"). The Ingenuus segment includes the business to business collaborative commerce solutions related to Inbox Software, Inc. ("Inbox"), as well as the hardware and software maintenance services related to Novo Systems ("Novo"). For the three months ended February 28, 2001, Verilux is included in the EDA segment and Novo and Inbox are included in the Ingenuus segment. The activities of Verilux and Chip & Chip for the three months ended February 29, 2000 involved primarily research and development ("R&D") expenditures and general administrative expenses. The activities of the Ingenuus segment for the three months ended February 28, 2001, excluding amortization of goodwill, involved mainly activities surrounding product sales, system maintenance revenue, R&D expenditures and general administrative expenses. 6 9 INGENUUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)

EDA INGENUUS COMPANY ------- -------- -------- THREE MONTHS ENDED ~~AUGUST~~FEBRUARY 3128, ~~2000~~2001 Revenue................................................. $ ~~260~~261 $ ~~951~~446 $ ~~1,211~~707 Loss from operations.................................... ~~(112)~~17 (34,~~404~~066) (34,~~516~~049) Depreciation and Amortization...........................~~.............~~ ~~130~~78 1,~~093~~159 1,~~223~~237 Assets.................................................. ~~1,051~~888 4833,~~417~~038 4933,~~468~~926 Capital expenditures on long-lived assets............... -- ~~156~~-- ~~156~~-- ~~NINE~~THREE MONTHS ENDED ~~AUGUST~~FEBRUARY 3129, 2000 Revenue................................................. $ ~~535~~-- $ ~~2,262~~310 $ ~~2,797~~310 Loss from operations.................................... (~~1,244~~486) (125,~~423~~229) (135,~~667~~715) Depreciation and Amortization...........................~~.............~~ ~~504~~195 31,~~196~~045 31,~~700~~240 Assets.................................................. 12,~~051~~843 4845,~~417~~447 4948,~~468~~290 Capital expenditures on long-lived assets............... 319 ~~299~~143 ~~618~~462

Enterprise-wide information is provided in accordance with SFAS No. 131. Revenue is by country, based on the location of the customer. All property and equipment, except for an immaterial amount, is based in the United States and therefore is not disclosed below. Geographic revenue for each of the three month periods ended February 28, 2001 and February 29, 2000 is as follows (in thousands):

QUARTER ENDED ---------------------------- ~~AUGUST~~FEBRUARY 3128, ~~MAY~~FEBRUARY 3129, ~~2000~~2001 2000 ------------ ------------ United States.......................................~~.....~~ $172 ~~638~~ $160 ~~733~~ Asia................................................~~.....~~ ~~562~~520 ~~507~~147 Other International.................................~~.....~~ 1115 363 ------ ------ Total.....................................~~.....~~ $~~1,211~~707 $~~1,276~~310 ====== ======

Major Customers -- For the quarter ended February 28, 2001 revenue from five customers accounted for 35.3%, 15%, 12%, 10.2%, and 5% for a total of 77.5%. For the quarter ended February 29, 2000 five customers accounted for 46.8%, 15.6%, 5.6%, 5.4% and 4.9% for a total of 78.3%. 9. CONTINGENCIES CLASS ACTION LAWSUITS On July 1, 1998, a class action lawsuit, Howard Jonas, et al. v. Aspec Technology, Inc., et al., No. CV-775037 ("the Jonas Complaint"), was filed in the Superior Court for the State of California, County of Santa Clara. The Jonas Complaint alleged that Aspec Technology, Inc. (now know as Ingenuus Corporation, the "Company") and certain of its officers, directors and the underwriters of the Company's initial public offering, violated California Corporations Code Sections 25400 and 25500, and California Business and Professions Code Sections 17200 and 17500 by making false and misleading statements about the Company's financial condition. The action was purportedly brought on behalf of all persons who purchased the Company's stock during the period from April 28, 1998 through June 25, 1998. On July 2, 1998, July 27, 1998, and August 17, 1998, three additional complaints were filed in state court against the Company and certain of its officers, directors, entitled respectively, William Neuman, et al. v. Aspec Technology, Inc., et al., No. CV-775089 ("the Neuman Complaint"); Martin L. Klotz, on behalf of the Martin Klotz Defined Benefit Profit Sharing Plan, et al. v. Aspec Technology, Inc., et al., No. CV-775591 ("the Klotz Complaint"); Glen O. Ressler and Thelma M. Ressler, et al., v. Aspec Technology, Inc., et al.,. No. CV-776065 ("the Ressler Complaint"). In addition to alleging the same violations of the Corporations Code as the three other complaints, the Klotz Complaint also alleged violations of Sections 11, 12, and 15 of the Securities Act of 7 10 INGENUUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 1933, and a class period of April 28, 1998 through June 30, 1998. The complaints sought unspecified damages. A fifth similar complaint, filed in federal court, was later dismissed. On January 29, 1999, the plaintiffs consolidated the pending class action cases and filed a Consolidated Amended Complaint, styled Howard Jonas, et al. v. Aspec Technology, Inc., et al., No. CV-775037. The Consolidated Amended Complaint, purportedly brought on behalf of all persons who purchased the Company's stock between April 27, 1998 and June 30, 1998, alleges that the Company and certain of its officers and directors, as well as its underwriters, violated Sections 25400 and 25500 of the California Corporations Code, and Sections 11 and 15 of the Securities Act of 1933 (except as to the underwriters). On June 7, 1999, the Company and certain of the individual defendants ("the Aspec Defendants") filed demurrers to the Consolidated Complaint. On June 9, 1999, the plaintiffs filed a motion for summary adjudication of their claims against the Company under Section 11 of the Securities Act. The plaintiffs also moved to certify a plaintiff class. On August 26, 1999, the court heard argument on the defendants' demurrers. The court sustained the demurrers in part and overruled them in part. Specifically, the court held that the plaintiffs had not pleaded their claims under California Corporations Code Section 25400 with sufficient particularity and granted plaintiffs leave to amend this claim. The court overruled the defendants' demurrers to the Section 11 claim. Thereafter, plaintiffs withdrew their motion for summary adjudication. Plaintiffs filed their First Amended Class Action Complaint, under seal, on October 18, 1999. On January 11, 2000, the defendants filed demurrers to Count I of the First Amended Complaint which alleged claims under California Corporations Code Sections 25400 and 25500. The Aspec Defendants demurred to Count I on the basis that plaintiffs had not pleaded facts demonstrating that the defendants had acted with scienter. The Aspec Defendants also moved to strike certain allegations in the complaint. The motions were fully briefed, and the court heard oral arguments on defendants' demurrers and motion to strike, and plaintiffs' motion for class certification on February 24, 2000. The court overruled the defendants' demurrers, denied the motion to strike and took the motion for class certification under submission. Thereafter, on March 13, 2000, the Aspec Defendants answered the plaintiffs' unverified complaint, generally denying all allegations and asserting affirmative defense. On March 16, 2000, the court certified a plaintiff class and appointed Representative Plaintiffs. On that same date, the court found, sua sponte, that the case is complex, and pursuant to a pilot program implemented in the Superior Court for Santa Clara County, assigned it to a single judge for all purposes. The Representative Plaintiffs thereafter re-noticed their motion for summary adjudication of the Section 11 claim: however, that motion has not been heard. On or about December 1, 2000, the Aspec Defendants, the underwriter, Representative Plaintiffs and non-party Deloitte & Touche LLP, the Company's former auditor, executed a Memorandum of Understanding, with the objective of settling the class action litigation. Although the settlement is not final, and is subject to preliminary and final court approval, the agreement calls for the Company to pay $1.4 million into the settlement fund and upon final approval of the settlement by the court, to issue 1.75 million shares of Company common stock to the plaintiff class. As of November 30, 2000, the settlement cost has been accrued, including the stock element, using a price of $0.50 per share, the fair market value of the Company's common stock at November 30, 2000. DERIVATIVE LAWSUIT Certain of the Company's current and former officers, directors and shareholder entities were also named as defendants in a derivative lawsuit styled Linda Willinger, IRA, et al. v. Conrad Dell'Oca et al., No. CV-778007, filed on November 12, 1998, in the Superior Court of Santa Clara County. The derivative 8 11 INGENUUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) action alleges facts similar to those in the class action and also alleges that certain of the directors caused the Company to conduct the initial public offering in order to redeem certain preferred stock. The Company filed a demurrer to that Complaint on June 8, 1999 on behalf of certain of the officer and director defendants and the Company, which has been named as nominal defendant ("the Aspec Derivative Defendants"). Thereafter, the Derivative Plaintiffs requested that the Aspec Derivative Defendants' assent to the dismissal of their complaint and the filing of an amended complaint. Derivative Plaintiffs filed their First Amended Shareholders' Derivative Complaint on September 2, 1999. The Aspec Derivative Defendants demurred to that complaint on November 12, 1999, on the basis that the nominal plaintiffs had failed to make a demand on the Board of Directors before filing the derivative lawsuit, and that they had also failed to plead sufficient facts to excuse a pre-suit demand. After the matter was fully briefed, the court heard argument on January 25, 2000. On January 27, 2000, the court sustained the Aspec Derivative Defendants' demurrers with sixty days' leave to amend. The parties later stipulated that the plaintiffs would have additional time in which to file an amended complaint, as well as to re-notice a motion to compel the production of electronically-stored documents and records from the Company and to notice the deposition of a witness from the Company to testify concerning the storage of such documents and records. On or about December 1, 2000, certain of the Aspec Derivative Defendants, including nominal defendant, the Company, the plaintiffs, and non-party Deloitte & Touche LLP, the Company's former auditor, executed a Memorandum of Understanding, with the objective of settling the derivative litigation. Although the settlement is not final, and is subject to preliminary and final court approval, the Company has agreed to make certain changes to its Audit Committee Charter, and to pay $395,000 in plaintiffs' legal fees and expenses. As of November 30, 2000, the settlement cost has been accrued. As of March 13, 2001, the settlement has been paid. On February 23, 2001, at a hearing before Judge Conrad Rushing, the parties advised the Court that they had reached agreement on a Stipulation of Settlement, which they provided to the Court. The settlement would fully and finally settle and resolve the derivative litigation, including a dismissal of the action with prejudice as to all defendants. The Stipulation requires the Company to pay the derivative plaintiffs' attorneys' fees in the amount of $395,000, as well as to make certain changes to the Company's audit committee charter. Upon the effective date, which includes the occurrence of the effective date of a separate Stipulation of Settlement to be agreed upon and approved by the Court in the Class Action, the parties to the Stipulation in the derivative litigation will release one another from claims arising from or relating to the derivative action, as set forth in the Stipulation. Thereafter, on March 6, 2001, the Court entered an Order approving the Stipulation of Settlement and dismissing the matter with prejudice as to all defendants. OTHER LITIGATION On June 21, 1999, a lawsuit entitled Cadabra Design Technology, Inc. v. Aspec Technology, Inc., No. CV-782691, was filed in the Superior Court, County of Santa Clara. Plaintiff's complaint sought damages in excess of $1 million for an alleged breach of a commercial software licensing agreement entered into by Cadabra Design Technology, Inc. ("Cadabra") and the Company on or about August 18, 1998. On August 6, 1999, the Company answered the complaint -- denying liability and asserting various affirmative defenses -- and filed a cross-complaint seeking damages according to proof and equitable relief for breach of contract, conversion, and negligent misrepresentation on the part of Cadabra. On February 16, 2000, the parties executed a Settlement Agreement and General Release in the case, pursuant to which the Company paid Cadabra $600,000 in full and final satisfaction of all claims related to the parties' software licensing agreement. On March 1, 2000, the case was dismissed in accordance with the parties' Settlement Agreement. 9 12 INGENUUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) Aspec Technology, Inc. v. Compaq Computers, Inc. was filed on December 28, 1998 in the Superior Court of California, Santa Clara County, No. CV778943. By the Company's complaint, they sought to collect the principal sum of $403,344, plus interest, attorneys' fees and costs, from Compaq, alleging that Compaq had breached a contract to purchase certain of the Company's library software. Compaq filed a counter claim alleging that the Company had breached the contract by failing to deliver in functional form the promised software on the schedule promised, as well as alleging fraudulent misrepresentation relating to the contract. The counter claim alleges unspecified damages in excess of $25,000. A settlement was entered into under which Compaq paid the Company $185,000. Dismissals of the lawsuit have been filed with the court by all parties. On September 23, 1999, a lawsuit entitled Lesley Nemeth v. Aspec Technology Inc., was filed in Superior Court, County of Santa Clara No. DC 383204. Plaintiff is a former consultant to the Company who seeks in her complaint damages in the sum of $12,600 plus interest and attorneys' fees. On November 23, 1999 the court ordered the matter to binding arbitration administered by the American Arbitration Association ("AAA"). Plaintiff filed her arbitration claim with the AAA on or about March 2, 2000. An arbitrator was appointed, and the arbitration was scheduled for September 8, 2000. The arbitration date was suspended by the AAA, and, as of this time, has not been rescheduled. The court case was dismissed by the court for failure by the plaintiff to appear at an arbitration review conference. Plaintiff has filed a motion to vacate the dismissal. Certain provisions of the Company's Certificate of Incorporation and indemnification agreements between the Company and its officers require the Company to advance to such officers ongoing legal expenses of defending the above lawsuits and may require the Company to indemnify them against judgments rendered on certain claims. The Company may incur significant legal expenses on its behalf and on behalf of such officers in connection with this litigation. In addition, defending this litigation has resulted, and will likely continue to result, in the diversion of management's attention from the day to day operations of the business. There can be no assurance that this stockholder litigation will be resolved in the Company's favor. An adverse result, settlement or prolonged litigation would have a material adverse effect on the business, financial condition, results of operations or cashflows. NASDAQ INQUIRY On September 4, 1998, the Company received an informal request for information from the NASDAQ Listing Investigations Staff. NASDAQ requested information concerning the Company's financial accounting and internal controls. The Company has provided information in response to the informal inquiry. NASDAQ held a de-listing inquiry on December 17, 1998 at which the Company appeared through counsel and provided information. As of February 25, 1999, NASDAQ determined that the Company would remain listed on the NASDAQ. On December 19, 2000, the Company received notice from NASDAQ that the Company's common stock had failed to maintain a minimum bid price of $1.00 over the prior thirty (30) consecutive trading days as required by the Market Place Rule 4450(a)(5)(the "Rule"). The Company had until March 19, 2001 to regain compliance with the Rule or the Company's common stock would be subject to delisting from NASDAQ. Regaining compliance required, in part, that the Company's common stock trade at of above the $1.00 minimum price for ten (10) consecutive trading days. On March 20, 2001, the Company received a NASDAQ Staff Determination letter (the "Staff Determination") indicating that the Company failed to regain compliance with the Rule and that the Company's common stock is, therefore, subject to delisting from NASDAQ. The Company has requested a hearing before a NASDAQ Listing Qualifications Panel (the "Panel") to review the Staff Determination. 10 13 INGENUUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) There can be no assurance that the Panel will grant the Company's request for continued listing on NASDAQ. SEC INQUIRY In January 1999, the Company received an informal inquiry from the Securities and Exchange Commission ("SEC") Staff that the Company believes relates to the restatement of the Company's financial statements in 1998. The Company provided information in response to the SEC requests through March 1999 and has received no inquiries from the SEC since that time. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION This section -- Management's Discussion and Analysis of Financial Condition and Results of Operations -- contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations and include various risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties are set forth below and under "Other Factors Affecting Future Operating Results." COMPANY OVERVIEW During 2000, Ingenuus Corporation underwent a fundamental and rapid shift in business when it changed its name from Aspec Technology to Ingenuus Corporation ("the Company"), and sold its Semiconductor Intellectual Property ("SIP") business. The Company's SIP libraries consisted of logic functions based on gate array/embedded array or standard cell, I/Os and memories. SIP design tools included memory compilers, which allowed customers to generate memory libraries, as well as AdverPro software that managed the design process, provided an accurate timing function across Electronic Design Automation ("EDA") tools, and helped ensure compliance through proper design procedures. Along with the sale of its SIP libraries, the Company sold SIS Microelectronics Corporation ("SIS"), which had been acquired in April 1998 and had accounted for 34% of the Company's revenue in 1999. SIS delivered integrated system-level silicon solutions that combined the Company's extensive chip design experience with proprietary and partner intellectual property. The Company turned to EDA tools that would help engineers solve design problems. In late 1999, the Company purchased three research and development companies including Chip & Chip Inc. ("Chip & Chip"), Verilux Design Technology ("Verilux") and Novo Systems ("Novo") for their technology and expertise. Additionally, the Company purchased Inbox Software, Inc. ("Inbox"), a business-to-business software company that provided an automated product capable of managing document and engineering changes. In June 2000, the Company sold Chip & Chip and is currently attempting to sell Verilux. Using Inbox and the power of the Internet, the Company retooled existing technology into the Manufacturing Change Manager(TM) ("MCM") solution that allows manufacturers to take control and command of the manufacturing change lifecycle. Today, all of the Company's energy is focused on MCM and complimentary new products. The Company's core competency is providing manufacturing centric, automated 11 14 INGENUUS CORPORATION solutions that enable users to collaborate and share intellectual production and process data enterprise wide through the use of the Internet providing faster time to market. CLIENTS AND PARTNERS Many world-class manufacturing companies have started to enjoy the benefits of taking control and command of the entire manufacturing process, such as: - CIDCO Communications - Eaton Automotive - Elantec Semiconductor - Hello Direct - Invensys - Lucent Technologies - Mattson Technology - Pericom Semiconductor - Symmetricom We have established alliances with such top industry leaders as i2, Oracle and FileNet. In addition, we are a member of the Supply-Chain Council, an industry organization established in 1996 to create standards and improve supply chain processes among manufacturers, suppliers, distributors and retailers. THE MARKET We are focusing on change management generally associated with Collaborative Product Commerce ("CPC"), a second-generation e-business strategy surrounding the entire lifecycle of a product. The audience for such software is discrete and process manufacturers who want to communicate with supply chains around the world in a whole new way. Traditionally, information along the manufacturing supply chain has remained internal, with parts and pieces being divided among various groups that make up the manufacturing process. Many of these companies use the Internet during the process, but only as a publishing medium. ABOUT CPC AND C-COMMERCE Electronic Commerce, now globally accepted as e-commerce, is the electronic trade of goods and services. Over the past several years, e-commerce has enabled companies to conduct business online with secure and scalable order capture, management and routing. More and more people are using e-commerce to purchase products through the Internet. Electronic Data Interchange ("EDI"), or the electronic communication of business transactions between organizations, formed the foundation of e-commerce. Collaborative commerce, or c-commerce as it is commonly accepted throughout the world, is the second generation of e-commerce solutions, providing the value and power of its predecessor. While e-commerce focuses on cost reduction, c-commerce focuses on new revenue opportunities by building more innovative products to market faster than the competition. Collaborative Product Commerce ("CPC") is a class of software and services that uses internet technology to permit individuals, no matter what role they have in the commercialization of a product, no matter what computer-based tools they use, no matter where they are located geographically, or within the supply net, to collaboratively share intellectual data improving the development, manufacture and management of products throughout the entire life cycle. CPC delivers two primary benefits; it improves quality and 12 15 INGENUUS CORPORATION capability by connecting islands or pockets of product knowledge into a single, extended experience base; and it collapses time and distance variables using the Internet to gain faster time to market. INTRODUCING THE MANUFACTURING CHANGE MANAGER(TM) MCM handles the life cycle of changes initiated from almost any point in the supply chain, including: - Customer change request/order ("CCR/CCO") - Supplier change request/order ("SCR/SCO") - Manufacturing change order ("MCO") - ISO change request/order ("ICR/ICO") - Engineering change request/order ("ECR/ECO") - Variation change order ("VCO") - Continuous Improvement Initiatives ("CII") - Cost of change ("COC") With MCM, the manufacturing change process is automated, from start to finish. The process happens in real time over the Internet. MCM manages change from various sources, including manufacturers, suppliers, engineers, purchasers, quality control, ISO, customers, employee change requests and other types of change. CONSULTING SERVICES While MCM is expected to be our main revenue source in 2001, professional service consultants will help clients define and refine internal change management processes, and help them better leverage their technology. Some professional services include: - System architecture and design - Ingenuus software installation and configuration - Enterprise Resource Planning ("ERP") integration. (ERP consists of large relational databases that generate data based on their own language.) - Computer Aided Design ("CAD") integration - Data conversion - Product training Costs for these professional consulting services are fixed. The process involves a review of the total project, the development of a phased implementation schedule, and project planning specific to the client's environment. MAINTENANCE SERVICES Ingenuus Maintenance Services We offer standard support services, which include product updates, telephone and Internet support. Custom support services are also available, including standard support services plus technical management, application and educational services. 13 16 INGENUUS CORPORATION RESULTS OF CONTINUING OPERATIONS OPERATING SEGMENTS As of February 28, 2001, the Company operated in two segments, EDA and Ingenuus. For the quarter ended February 29, 2000, Verilux and Chip & Chip (prior to the sale on June 14, 2000) are included together in EDA in the tables below, and Novo and Inbox are included with Ingenuus. The Company's EDA business unit was formed with the acquisition and merger of Chip & Chip and Verilux in September 1999. These two EDA companies were acquired to address the most challenging problems in EDA. Each generation of semiconductor process advance brings new challenges in how integrated circuit designers model, integrate, simulate, and verify the entire chip and Systems on Chip ("SOC"). The Company's Ingenuus business unit was formed with the acquisition and merger of Novo in October 1999 and Inbox in December 1999. Inbox's products provide automated Internet-enabled, business-to-business, IEC content management applications which shorten time-to-market by developing, capturing, transferring, sharing and leveraging the corporate expertise required to deliver and maintain content throughout the content supply chain whereas Novo provides system maintenance services. Ingenuus segment's activities for the three month period ended February 28, 2001, excluding amortization of goodwill, involved primarily activities surrounding product revenues from Inbox business, system maintenance revenue from the Novo business, research and development expenditures, sales and marketing and general administrative expenses. RESULTS OF CONTINUING OPERATIONS The following table sets forth selected statements of operations data expressed both in dollars (in thousands) and as a percentage of revenue for the three months ended February 28, 2001 compared to the three months ended February 29, 2000: INGENUUS CORPORATION SEGMENTED STATEMENT OF OPERATIONS QUARTER ENDED FEBRUARY 28, 2001 DOLLARS (IN THOUSANDS) (UNAUDITED)

EDA INGENUUS COMPANY ----- -------- ------- ~~($000'S) (UNAUDITED)~~ Revenue..................................................... $261 ~~260~~ $ ~~951~~446 $ ~~1,211~~707 Cost of revenue............................................. 65-- ~~573~~572 ~~638~~572 ----- ------- ------- Gross profit (loss).........................................~~...~~ ~~195~~261 ~~378~~(126) ~~573~~135 ----- ------- ------- Operating expenses: Research and development.................................. ~~177~~169 ~~794~~783 ~~971~~952 Sales and marketing....................................... -- ~~853~~924 ~~853~~924 General and administrative................................ -- 1,~~042~~234 1,~~042~~234 Amortization -- goodwill.................................. ~~130~~75 ~~1,093~~999 1,~~223~~074 ----- ------- ------- Total operating expenses.......................... ~~307~~244 3,~~782~~940 4,~~089~~184 Profit/(Loss) from operations...............................~~.....~~ ~~(112)~~17 (34,~~404~~066) (34,~~516~~049) Interest and other income, net.............................. -- ~~242~~89 ~~242~~89 Gain on sale of investment.................................. -- 2,380 2,380 ---- ------- ------- Profit/(Loss) from continuing operations....................~~.....~~ ~~(112)~~17 (31,~~162~~597) (31,~~274~~580) Profit/(Loss) onfrom ~~disposal of~~ discontinued operations.................. -- ~~(70)~~-- -- Profit/(70Loss) on disposal of discontinued operations........ -- -- -- ---- ------- ------- Net ~~loss~~Profit/(Loss).................................~~...............~~ $~~(112)~~ 17 $(31,~~232~~597) $(31,~~344~~580) ===== ======= =======

14 17 INGENUUS CORPORATION SEGMENTED STATEMENT OF OPERATIONS QUARTER ENDED FEBRUARY 28, 2001 (PERCENTAGES) (UNAUDITED)

EDA INGENUUS COMPANY ----- -------- ------- ~~($000'S) (UNAUDITED)~~ Revenue..................................................... $100% ~~275~~100% $100% ~~1,001 $ 1,276~~ Cost of revenue............................................. 67-- ~~1,026~~128% ~~1,093~~81% ----- ----~~---~~ ----~~---~~ Gross profit (loss)......................................... ~~208~~100% (2528)% ~~183~~19% ----- ----~~---~~ ----~~---~~ Operating expenses: Research and development.................................. ~~467~~65% ~~304~~176% ~~771~~134% Sales and marketing....................................... -- ~~802~~207% ~~802~~131% General and administrative................................ -- ~~1,810~~277% ~~1,810~~175% Amortization -- goodwill.................................. ~~179~~28% ~~1,058~~224% ~~1,237~~152% ----- ----~~---~~ ----~~---~~ Total operating expenses.......................... ~~646~~93% ~~3,974~~883% ~~4,620~~592% Profit/(Loss) from operations...............................~~.....~~ ~~(438)~~7% (~~3,999~~912)% (~~4,437~~573)% Interest and other income, net.............................. -- ~~177~~20% ~~177~~13% Gain on sale of investment.................................. -- 534% 337% --- ----~~---~~ ----~~---~~ Profit/(Loss) from continuing operations....................~~.....~~ 7% (~~438~~358)% (~~3,822~~223)% Profit/(~~4,260~~Loss) ~~Loss~~ from discontinued operations..................~~.....~~ -- ~~(1,209)~~-- -- Profit/(~~1,209~~Loss) ~~Gain~~ on disposal of discontinued operations........~~.....~~ -- ~~5,433 5,433~~ -- --- --- ---- ----~~---~~ Net ~~income~~Profit/(~~loss~~Loss).................................~~......~~ $7% (~~438~~358)% ~~$ 402 $~~ (36223)% ===== ====~~===~~ ====~~===~~

INGENUUS CORPORATION SEGMENTED STATEMENT OF OPERATIONS QUARTER ENDED FEBRUARY 29, 2000 DOLLARS (IN THOUSANDS) (UNAUDITED)

~~EXHIBITS~~EDA INGENUUS COMPANY ----- -------- 27------- Revenue..................................................... $ -- $ 310 $ 310 Cost of revenue............................................. -- 229 229 ----- ------- ------- Gross profit (loss)......................................... -- 81 81 ----- ------- ------- Operating expenses: Research and development.................................. 304 872 1,176 ~~Financial~~Sales ~~Data~~and ~~Schedule~~marketing....................................... -- 119 119 General and administrative................................ -- 2,336 2,336 Write off In process research and development............. -- 925 925 Amortization -- goodwill.................................. 181 1,059 1,240 ----- ------- ------- Total operating expenses.......................... 485 5,311 5,796 Loss from operations........................................ (485) (5,230) (5,715) Interest and other income, net.............................. (4) 232 228 Gain on sale of investment.................................. -- -- -- Losses from joint venture................................... -- (67) (67) ----- ------- ------- Loss from continuing operations............................. (489) (5,065) (5,554) Loss from discontinued operations........................... -- (2,414) (2,414) Loss on disposal of discontinued operations................. -- -- -- ----- ------- ------- Net loss.......................................... $(489) $(7,479) $(7,968) ===== ======= =======

15 18 INGENUUS CORPORATION SEGMENTED STATEMENT OF OPERATIONS QUARTER ENDED FEBRUARY 29, 2000 (PERCENTAGES) (UNAUDITED)

Revenue. Revenue for Ingenuus increased by 44% from $310,000 in the quarter ended February 29, 2000 to $446,000 in the quarter ended February 28, 2001. Revenue from the EDA segment for the quarter ended February 28, 2001 was $261,000 and resulted from the sale of Verilux products. Cost of revenue. Cost of revenue for Ingenuus primarily represents the costs of products, personnel and other operating expenses incurred in the implementation phase of the Inbox product. Cost of revenue as a percentage of revenue increased by 54% from 74% of revenue in the quarter ended February 29, 2000 to 128% of revenue in the quarter ended February 28, 2001. The increase was due to the fact that the volume of products sold was lower than anticipated. Ingenuus Corporation has built up a professional and customer services team for the anticipated revenue. Research and development. Research and development expenses represent the cost of engineering personnel and other operating expenses incurred in the development and enhancement of our core technology. Research and development expenses for Ingenuus decreased by 11% from $872,000 in the quarter ended February 29, 2000 to $783,000 in the quarter ended February 28, 2001. Research and development expenses as a percentage of revenue was 176% in the quarter ended February 28, 2001 compared to 281% in the quarter ended February 29, 2000. This decrease in research and development expenses in the quarter ended February 28, 2001 was primarily due to the fact that Ingenuus consolidated the R&D departments from Novo and Inbox and streamlined the department. Research and development expenses for the EDA segment decreased by 55% from $304,000 in the quarter ended February 29, 2000 to $169,000 in the quarter ended February 28, 2001. The decrease in research and development expenses in the first quarter of fiscal 2001, compared with the first quarter of fiscal 2000, was primarily due to the sale of Chip & Chip in June of 2000. 16 19 Sales and marketing. Sales and marketing expenses consist of salaries and commissions paid to internal sales and marketing personnel and sales representatives, promotional costs and related operating expenses. Sales and marketing expenses for Ingenuus increased by 676% from $119,000 in the quarter ended February 29, 2000 to $924,000 in the quarter ended February 28, 2001. Sales and marketing expense as a percentage of revenue was 38% in the quarter ended February 29, 2000 and 131% in the quarter ended February 28, 2001. The absolute dollar increase in sales and marketing expenses in the quarter ended February 28, 2001, compared with the quarter ended February 29, 2000, was due to an increase in marketing expenses relating to promotion of our Ingenuus products. General and administrative. General and administrative expenses consist of salaries and expenses related to executives, corporate finance, legal and human resources departments. General and administrative expenses decreased by 47% from $2.3 million in the quarter ended February 29, 2000 to $1.2 million in the quarter ended February 28, 2001. General and administrative expenses as a percentage of revenue was 753% in the quarter ended February 29, 2000 and 175% in the quarter ended February 28, 2001. The absolute dollar decrease in general and administrative expenses in the quarter ended February 28, 2001, compared with the quarter ended February 29, 2000, was due to decreased professional service fees. The Company also recorded $1.1 million in amortization expenses in the first quarter of fiscal 2001, and $1.2 million in the first quarter of fiscal 2000, related to acquisitions in the last two years. Interest, and other income net. Net interest and other income for the Company decreased 61% from $228,000 in the three months ended February 29, 2000 to $89,000 in the three months ended February 28, 2001, due to the decline in the cash balance. Foreign Currency. Balance sheet accounts of Ingenuus' foreign subsidiary in Japan are translated into U.S. dollars at exchange rates prevailing at balance sheet dates. Revenue, costs and expenses are translated into U.S. dollars at average rates for the period. Gains and losses resulting from foreign exchange transactions are included in the statement of operations and were not significant during the period presented. LIQUIDITY AND CAPITAL RESOURCES We have funded our operations primarily from license revenue and the net proceeds of $71.9 million from the initial public offering of our common stock in May 1998. Our operating activities utilized net cash of $5.0 million in first quarter ended February 28, 2001 and $2.6 million in first quarter ended February 29, 2000. Net cash used in first quarter ended February 28, 2001 and first quarter ended February 29, 2000 was due to the significant net losses incurred. Net cash provided in investing activities was $3.7 million, in the three month period ending February 28, 2001. Net cash used in investing activities was $8.1 million, in the three month period ending February 29, 2000 respectively. Investing activities included monies received from the sale of our discontinued business and the sale of shares of Virage Logic in the first quarter ended February 28, 2001. Net cash used in first quarter February 29, 2000 consisted primarily of the investment in Inbox and net purchases of property and equipment. Net cash provided by financing activities was $2,000 and $337,000 in the three month periods ended February 28, 2001 and February 29, 2000, respectively. At February 28, 2001, we had cash and cash equivalents of $7.5 million. As of February 28, 2001, we had a retained deficit of $76.2 million and working capital of $12.1 million. We have suffered recurring losses in fiscal 2000, 1999 and 1998. Our continued existence is dependent on our ability to achieve profitable operations. We intend to continue to invest in the development of new products and enhancements to our existing products. Our future liquidity and capital requirements will depend upon numerous factors, including: - the costs and timing of our product development efforts and the success of these development efforts, - the costs and timing of our sales and marketing activities, 17 20 - the extent to which our existing and new products gain market acceptance, - competing technological and market developments, and - the costs involved in maintaining and enforcing patent claims and other intellectual property rights. Based on our budget, we believe that our current cash and investment balances together with any cash generated from operations will be sufficient to meet our operating and capital requirements for at least the next 12 months. We may require additional funds in the future and there is a risk that financing may not be on terms favorable to us, if available at all. OTHER FACTORS AFFECTING FUTURE OPERATING RESULTS POSSIBLE CHALLENGES TO SUCCESS FUTURE SUCCESS OF THE MCM PRODUCT In January 2001, we formally introduced Manufacturing Change Manager(TM)("MCM"), a software program that allows members of the manufacturing supply chain to communicate and collaborate using the Internet as a fully integrated and automated system. Our future depends on our ability to enhance and expand the existing MCM product, and to introduce new products as technology allows. There is still no assurance that we will be successful in marketing the MCM product. We may also experience release delays that are costly and can result in adverse financial conditions and possible litigation. Other possible risks include, but are not limited to: - Failure of the Internet, - Manufacturers resisting change, - Companies and customers being strapped for cash due to inflation or other economic shifts, - Miscalculating the need for the MCM product if manufacturers are not ready to enjoy the benefits of a fully automated system, - Misappropriation of Company's technology or copyright infringement; and - Diversion of resources due to litigation, including propriety rights issues. COMPETITION We must deliver the MCM product to the marketplace before a competing company provides a similar whole solution. If a competitor with better name recognition were to produce a comprehensive manufacturing change product, it could have an adverse affect on our financial condition. ESTABLISHING THE NAME IN THE INDUSTRY We are a small, relatively unknown company and, as such, we are a new player in the manufacturing change marketplace. There may be resistance to purchasing a product from such a new player because there may be concern about our viability. If customers resist the idea of having an unknown company supply their manufacturing change needs, such resistance could have an adverse affect on our financial condition. ESTABLISHING A FIRM CUSTOMER BASE If our sales team is not successful in closing sales with major manufacturers, this will have an adverse effect on our overall sales plan and on the financial condition of the company. We depend on these sales. MANUFACTURING INDUSTRY MAY RESIST CHANGE Manufacturers have invested substantial funds in systems that are already in place and may resist the idea of a basic platform, fearing that it may be not flexible enough to meet their individual needs. Such resistance may have an adverse affect on our financial condition. 18 21 WE NEED TO BE VIGILANT IN OUR SEARCH FOR PRODUCT DEFECTS Like any new software product, the MCM software may have some "bugs" or defects that could appear after a company has purchased and installed the software. Such occurrences could have an adverse affect on our financial condition because the customer may be unsatisfied, there may be additional labor costs incurred involved in fixing it, and shipments of other products may be delayed. We have not experienced material adverse effects resulting from any such errors or defects. A RECESSION OR ECONOMIC DOWNFALL If a recession or economic downfall occurs, it will mean difficult times for most companies and may have an adverse affect on our financial condition. RISKS FOR INTERNATIONAL BUSINESS While we continue to market our products to the international market, there are a number of risks inherent when dealing with foreign companies. Some of those risks include: - Economic recessions and political instability, - Exchange rate fluctuations, - Extended accounts receivables and difficulty collecting, - Difficulty in managing both sales representatives and distributors, - Unexpected changes in regulatory requirements, - Reduced or limited protection for intellectual property rights, - Export license requirements and documentation, and - Tariffs and possible adverse tax consequences. OUR FUTURE OPERATING RESULTS ARE EXPECTED TO FLUCTUATE AND WE DEPEND UPON TIMELY PROJECT COMPLETION Our operating results have fluctuated in the past and are expected to fluctuate significantly on a quarterly and annual basis in the future as a result of a number of factors including: - the size and timing of customer orders, - the length of our sales cycle, - the timing of new product announcements and introductions by us and our competitors, - our ability to successfully develop, introduce and market new products and product enhancements, - market acceptance of our products, - the cancellation or delay of orders from major customers, - the level of changes to customer requirements due to specific changes requested by customers, - our ability to retain our existing personnel and hire additional personnel, and - general economic conditions. These and other factors could have a material adverse effect on our business, operating results and financial condition. In addition, our contracts may generally be canceled without cause, and if a customer cancels or delays performance under any such contracts, our business, operating results and financial condition could be materially adversely affected. 19 22 A customer's license of our products may involve a significant commitment of capital with the attendant delays frequently associated with authorization procedures for capital expenditures within customer organizations. Our operating expenses will be based in part on our expectations of future revenue from product licenses. Accordingly, if we do not realize our expected revenues, our business, operating results, and financial condition could be materially adversely affected. WE NEED TO MANAGE GROWTH AND INTEGRATE AND RETAIN NEW EMPLOYEES The growth of our business and expansion of our customer base has placed, and is expected to continue to place, a significant strain on our management and operations. From time to time, we expect to evaluate potential acquisitions to build our expertise. There can be no assurance that: - we will be able to identify attractive acquisition candidates, - that we will be able to successfully complete any such acquisition, or - that we will be able to integrate any acquired company with our other operations. In connection with potential acquisitions, the failure to successfully and efficiently integrate new employees and operations of the acquired company with our existing employees and operations or to successfully manage an acquired company could materially adversely effect our business, operating results, and financial condition. WE DEPEND UPON CONTINUOUS PRODUCT DEVELOPMENT AND HAVE THE RISK OF PRODUCT DELAYS Our customers are subject to: - rapid technological change, - frequent introductions of new products, - short product life cycles, - changes in customer demands and requirements, and - evolving industry standards. WE DEPEND ON KEY PERSONNEL Our business depends in significant part on the continued service of our executive officers and other senior management and key employees, including certain technical, managerial and marketing personnel. The loss of the services of any of these individuals or groups of individuals could have a material adverse effect on our business, operating results and financial condition. None of our executive officers have an employment agreement with us. We believe that our future business results will depend in significant part upon our ability to identify, attract, motivate and retain additional highly skilled technical, managerial and marketing personnel. In addition we believe our future success will depend on our ability to identify, attract, hire and retain skilled employees and our ability to hire replacements for employees that leave us. Competition for such personnel in the computer software industry is intense. We have currently engaged in a search for several additional engineering personnel. There can be no assurance we will be successful in identifying, attracting and retaining such personnel, and the failure to do so could have a material adverse effect on our business, operating results and financial condition. 20 23 OUR SHARE PRICE IS VOLATILE Since our initial public offering in April 1998, the market price of our Common Stock has been highly volatile and is expected to be significantly affected by factors such as: - actual or anticipated fluctuations in our operating results, - our failure to meet or exceed published earnings estimates, - changes in earnings estimates or recommendations by securities analysts, - announcements of technological innovations, - new products or new contracts by us or our existing or potential competitors, - developments with respect to patents, copyrights or proprietary rights, - adoption of new accounting standards affecting the software industry, and - general market conditions. In addition, the stock market has from time to time experienced significant price and volume fluctuations that have particularly affected the market prices for the common stocks of technology companies which have often been unrelated to the operating performance of such companies. These broad market fluctuations may materially adversely affect the market price of our common stock. In June 1998, securities class action litigation was filed against us and certain of our executive officers and directors. The parties have entered into a settlement agreement, but preliminary and final court approvals have not yet been granted. See Item 1 -- Legal Proceedings 21 24 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS CLASS ACTION LAWSUITS On July 1, 1998, a class action lawsuit, Howard Jonas, et al. v. Aspec Technology, Inc., et al., No. CV-775037 ("the Jonas Complaint"), was filed in the Superior Court for the State of California, County of Santa Clara. The Jonas Complaint alleged that Aspec Technology, Inc. (now know as Ingenuus Corporation, the "Company") and certain of its officers, directors and the underwriters of the Company's initial public offering, violated California Corporations Code Sections 25400 and 25500, and California Business and Professions Code Sections 17200 and 17500 by making false and misleading statements about the Company's financial condition. The action was purportedly brought on behalf of all persons who purchased the Company's stock during the period from April 28, 1998 through June 25, 1998. On July 2, 1998, July 27, 1998, and August 17, 1998, three additional complaints were filed in state court against the Company and certain of its officers, directors, entitled respectively, William Neuman, et al. v. Aspec Technology, Inc., et al., No. CV-775089 ("the Neuman Complaint"); Martin L. Klotz, on behalf of the Martin Klotz Defined Benefit Profit Sharing Plan, et al. v. Aspec Technology, Inc., et al., No. CV-775591 ("the Klotz Complaint"); Glen O. Ressler and Thelma M. Ressler, et al., v. Aspec Technology, Inc., et al.,. No. CV-776065 ("the Ressler Complaint"). In addition to alleging the same violations of the Corporations Code as the three other complaints, the Klotz Complaint also alleged violations of Sections 11, 12, and 15 of the Securities Act of 1933, and a class period of April 28, 1998 through June 30, 1998. The complaints sought unspecified damages. A fifth similar complaint, filed in federal court, was later dismissed. On January 29, 1999, the plaintiffs consolidated the pending class action cases and filed a Consolidated Amended Complaint, styled Howard Jonas, et al. v. Aspec Technology, Inc., et al., No. CV-775037. The Consolidated Amended Complaint, purportedly brought on behalf of all persons who purchased the Company's stock between April 27, 1998 and June 30, 1998, alleges that the Company and certain of its officers and directors, as well as its underwriters, violated Sections 25400 and 25500 of the California Corporations Code, and Sections 11 and 15 of the Securities Act of 1933 (except as to the underwriters). On June 7, 1999, the Company and certain of the individual defendants ("the Aspec Defendants") filed demurrers to the Consolidated Complaint. On June 9, 1999, the plaintiffs filed a motion for summary adjudication of their claims against the Company under Section 11 of the Securities Act. The plaintiffs also moved to certify a plaintiff class. On August 26, 1999, the court heard argument on the defendants' demurrers. The court sustained the demurrers in part and overruled them in part. Specifically, the court held that the plaintiffs had not pleaded their claims under California Corporations Code Section 25400 with sufficient particularity and granted plaintiffs leave to amend this claim. The court overruled the defendants' demurrers to the Section 11 claim. Thereafter, plaintiffs withdrew their motion for summary adjudication. Plaintiffs filed their First Amended Class Action Complaint, under seal, on October 18, 1999. On January 11, 2000, the defendants filed demurrers to Count I of the First Amended Complaint which alleged claims under California Corporations Code Sections 25400 and 25500. The Aspec Defendants demurred to Count I on the basis that plaintiffs had not pleaded facts demonstrating that the defendants had acted with scienter. The Aspec Defendants also moved to strike certain allegations in the complaint. The motions were fully briefed, and the court heard oral arguments on defendants' demurrers and motion to strike, and plaintiffs' motion for class certification on February 24, 2000. The court overruled the defendants' demurrers, denied the motion to strike and took the motion for class certification under submission. Thereafter, on March 13, 2000, the Aspec Defendants answered the plaintiffs' unverified complaint, generally denying all allegations and asserting affirmative defense. On March 16, 2000, the court certified a plaintiff class and appointed Representative Plaintiffs. On that same date, the court found, sua sponte, that the case is complex, and pursuant to a pilot program implemented in the Superior Court for Santa Clara County, assigned it to a single judge for all purposes. The 22 25 Representative Plaintiffs thereafter re-noticed their motion for summary adjudication of the Section 11 claim: however, that motion has not been heard. On or about December 1, 2000, the Aspec Defendants, the underwriter, Representative Plaintiffs and non-party Deloitte & Touche LLP, the Company's former auditor, executed a Memorandum of Understanding, with the objective of settling the class action litigation. Although the settlement is not final, and is subject to preliminary and final court approval, the agreement calls for the Company to pay $1.4 million into the settlement fund and upon final approval of the settlement by the court, to issue 1.75 million shares of Company common stock to the plaintiff class. As of November 30, 2000, the settlement cost has been accrued, including the stock element, using a price of $0.50 per share, the fair market value of the Company's common stock at November 30, 2000. DERIVATIVE LAWSUIT Certain of the Company's current and former officers, directors and shareholder entities were also named as defendants in a derivative lawsuit styled Linda Willinger, IRA, et al. v. Conrad Dell'Oca et al., No. CV-778007, filed on November 12, 1998, in the Superior Court of Santa Clara County. The derivative action alleges facts similar to those in the class action and also alleges that certain of the directors caused the Company to conduct the initial public offering in order to redeem certain preferred stock. The Company filed a demurrer to that Complaint on June 8, 1999 on behalf of certain of the officer and director defendants and the Company, which has been named as nominal defendant ("the Aspec Derivative Defendants"). Thereafter, the Derivative Plaintiffs requested that the Aspec Derivative Defendants' assent to the dismissal of their complaint and the filing of an amended complaint. Derivative Plaintiffs filed their First Amended Shareholders' Derivative Complaint on September 2, 1999. The Aspec Derivative Defendants demurred to that complaint on November 12, 1999, on the basis that the nominal plaintiffs had failed to make a demand on the Board of Directors before filing the derivative lawsuit, and that they had also failed to plead sufficient facts to excuse a pre-suit demand. After the matter was fully briefed, the court heard argument on January 25, 2000. On January 27, 2000, the court sustained the Aspec Derivative Defendants' demurrers with sixty days' leave to amend. The parties later stipulated that the plaintiffs would have additional time in which to file an amended complaint, as well as to re-notice a motion to compel the production of electronically-stored documents and records from the Company and to notice the deposition of a witness from the Company to testify concerning the storage of such documents and records. On or about December 1, 2000, certain of the Aspec Derivative Defendants, including nominal defendant, the Company, the plaintiffs, and non-party Deloitte & Touche LLP, the Company's former auditor, executed a Memorandum of Understanding, with the objective of settling the derivative litigation. Although the settlement is not final, and is subject to preliminary and final court approval, the Company has agreed to make certain changes to its Audit Committee Charter, and to pay $395,000 in plaintiffs' legal fees and expenses. As of November 30, 2000, the settlement cost has been accrued. As of March 13, 2001, the settlement has been paid. On February 23, 2001, at a hearing before Judge Conrad Rushing, the parties advised the Court that they had reached agreement on a Stipulation of Settlement, which they provided to the Court. The settlement would fully and finally settle and resolve the derivative litigation, including a dismissal of the action with prejudice as to all defendants. The Stipulation requires the Company to pay the derivative plaintiffs' attorneys' fees in the amount of $395,000, as well as to make certain changes to the Company's audit committee charter. Upon the effective date, which includes the occurrence of the effective date of a separate Stipulation of Settlement to be agreed upon and approved by the Court in the Class Action, the parties to the Stipulation in the derivative litigation will release one another from claims arising from or relating to the derivative action, as set forth in the Stipulation. Thereafter, on March 6, 2001, the Court entered an Order approving the Stipulation of Settlement and dismissing the matter with prejudice as to all defendants. 23 26 OTHER LITIGATION On June 21, 1999, a lawsuit entitled Cadabra Design Technology, Inc. v. Aspec Technology, Inc., No. CV-782691, was filed in the Superior Court, County of Santa Clara. Plaintiff's complaint sought damages in excess of $1 million for an alleged breach of a commercial software licensing agreement entered into by Cadabra Design Technology, Inc. ("Cadabra") and the Company on or about August 18, 1998. On August 6, 1999, the Company answered the complaint -- denying liability and asserting various affirmative defenses -- and filed a cross-complaint seeking damages according to proof and equitable relief for breach of contract, conversion, and negligent misrepresentation on the part of Cadabra. On February 16, 2000, the parties executed a Settlement Agreement and General Release in the case, pursuant to which the Company paid Cadabra $600,000 in full and final satisfaction of all claims related to the parties' software licensing agreement. On March 1, 2000, the case was dismissed in accordance with the parties' Settlement Agreement. Aspec Technology, Inc. v. Compaq Computers, Inc. was filed on December 28, 1998 in the Superior Court of California, Santa Clara County, No. CV778943. By the Company's complaint, they sought to collect the principal sum of $403,344, plus interest, attorneys' fees and costs, from Compaq, alleging that Compaq had breached a contract to purchase certain of the Company's library software. Compaq filed a counter claim alleging that the Company had breached the contract by failing to deliver in functional form the promised software on the schedule promised, as well as alleging fraudulent misrepresentation relating to the contract. The counter claim alleges unspecified damages in excess of $25,000. A settlement was entered into under which Compaq paid the Company $185,000. Dismissals of the lawsuit have been filed with the court by all parties. On September 23, 1999, a lawsuit entitled Lesley Nemeth v. Aspec Technology Inc., was filed in Superior Court, County of Santa Clara No. DC 383204. Plaintiff is a former consultant to the Company who seeks in her complaint damages in the sum of $12,600 plus interest and attorneys' fees. On November 23, 1999 the court ordered the matter to binding arbitration administered by the American Arbitration Association ("AAA"). Plaintiff filed her arbitration claim with the AAA on or about March 2, 2000. An arbitrator was appointed, and the arbitration was scheduled for September 8, 2000. The arbitration date was suspended by the AAA, and, as of this time, has not been rescheduled. The court case was dismissed by the court for failure by the plaintiff to appear at an arbitration review conference. Plaintiff has filed a motion to vacate the dismissal. Certain provisions of the Company's Certificate of Incorporation and indemnification agreements between the Company and its officers require the Company to advance to such officers ongoing legal expenses of defending the above lawsuits and may require the Company to indemnify them against judgments rendered on certain claims. The Company may incur significant legal expenses on its behalf and on behalf of such officers in connection with this litigation. In addition, defending this litigation has resulted, and will likely continue to result, in the diversion of management's attention from the day to day operations of the business. There can be no assurance that this stockholder litigation will be resolved in the Company's favor. An adverse result, settlement or prolonged litigation would have a material adverse effect on the business, financial condition, results of operations or cashflows. NASDAQ INQUIRY On September 4, 1998, the Company received an informal request for information from the NASDAQ Listing Investigations Staff. NASDAQ requested information concerning the Company's financial accounting and internal controls. The Company has provided information in response to the informal inquiry. NASDAQ held a de-listing inquiry on December 17, 1998 at which the Company appeared through counsel and provided information. As of February 25, 1999, NASDAQ determined that the Company would remain listed on the NASDAQ. On December 19, 2000, the Company received notice from NASDAQ that the Company's common stock had failed to maintain a minimum bid price of $1.00 over the prior thirty (30) consecutive trading days as required by the Market Place Rule 4450(a)(5)(the "Rule"). The Company had until March 19, 2001 to regain compliance with the Rule or the Company's common stock would be subject to delisting from 24 27 NASDAQ. Regaining compliance required, in part, that the Company's common stock trade at or above the $1.00 minimum price for ten (10) consecutive trading days. On March 20, 2001, the Company received a NASDAQ Staff Determination letter (the "Staff Determination") indicating that the Company failed to regain compliance with the Rule and that the Company's common stock is, therefore, subject to delisting from NASDAQ. The Company has requested a hearing before a NASDAQ Listing Qualifications Panel (the "Panel") to review the Staff Determination. There can be no assurance that the Panel will grant the Company's request for continued listing on NASDAQ. SEC INQUIRY In January 1999, the Company received an informal inquiry from the Securities and Exchange Commission ("SEC") Staff that the Company believes relates to the restatement of the Company's financial statements in 1998. The Company provided information in response to the SEC requests through March 1999 and has received no inquiries from the SEC since that time. ITEM 6. EXHIBITS (a) Exhibits ~~10.18 Ingenuus Corporation 2000 Amended and Restated Stock Option Plan~~

25 28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INGENUUS CORPORATION By: /s/ DOUGLAS E. KLINT ------------------------------------ Douglas E. Klint Vice President, Secretary, and General Counsel Date: April 11, 2001 26 29 INDEX TO EXHIBITS ~~10.18 Ingenuus Corporation 2000 Amended and Restated Stock Option Plan~~

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