<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date Of Report (Date Of Earliest Event Reported): February 10, 2000
VIRATA CORPORATION
(Exact Name Of Registrant As Specified In Its Charter)
DELAWARE 000-28157 77-0521696
(State Or Other (Commission File Number) (IRS Employer
Jurisdiction Of Identification No.)
Incorporation)
2933 BUNKER HILL LANE, SUITE 201
SANTA CLARA, CALIFORNIA 95054
(Address Of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (408) 566-1000
================================================================================
1
<PAGE>
ITEM 2 -- Acquisition or Disposition of Assets.
On February 16, 2000, Virata Corporation, a Delaware corporation (the
"Registrant"), filed a Current Report on Form 8-K to report the registrant's
acquisition all of the outstanding capital stock of D2 Technologies, Inc., a
California corporation, on February 10, 2000, for an aggregate purchase price
of $90 million, based on an agreed upon price per share of Registrant's common
stock of $36.00 .
This amendment to the Registrant's Current Report on Form 8-K is being filed to
include the Financial Statements and Pro Forma Financial Information required by
Item 7 of Form 8-K.
ITEM 7 -- Financial Statements, Pro Forma And Exhibits.
(a) Financial Statements of Businesses Acquired.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ----------------------------------------
To the Board of Directors and Shareholders of D2 Technologies, Inc.:
We have audited the accompanying balance sheets of D2 Technologies, Inc. (a
California corporation) as of December 31, 1999 and 1998, and the related
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of D2 Technologies, Inc. as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
each of the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Los Angeles, California
January 26, 2000
2
<PAGE>
D2 TECHNOLOGIES, INC.
---------------------
BALANCE SHEETS
--------------
ASSETS
------
<TABLE>
<CAPTION>
December 31,
--------------------
1999 1998
---------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 611,573 $127,033
Accounts receivable, net of allowance for
doubtful accounts of $110,000 and $50,000
at December 31, 1999 and 1998, respectively 1,077,942 316,803
Note receivable - 10,000
Prepaid expenses and other current assets 74,046 8,000
Deferred tax asset 81,435 127,584
---------- --------
Total current assets 1,844,996 589,420
---------- --------
PROPERTY AND EQUIPMENT, net 82,217 40,606
---------- --------
DEPOSITS AND OTHER ASSETS 14,496 5,597
---------- --------
$1,941,709 $635,623
========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
D2 TECHNOLOGIES, INC.
---------------------
BALANCE SHEETS
--------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
December 31,
--------------------
1999 1998
---------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of notes payable to related
parties $ - $175,000
Accounts payable 69,684 5,844
Accrued profit sharing 70,000 30,109
Accrued commissions 35,633 293
Accrued expenses 116,169 54,640
Income taxes payable - 13,176
Deferred revenue 416,398 297,456
---------- --------
Total current liabilities 707,884 576,518
---------- --------
COMMITMENTS (Note 12)
SHAREHOLDERS' EQUITY:
Preferred stock, no par value:
Authorized --500,000 shares;
Issued and outstanding -- 500,000 shares
at December 31, 1999 1,000,000 -
Common stock, no par value:
Authorized --10,000,000 shares;
Issued and outstanding, -5,068,750 and
5,040,000 shares at December 31, 1999
and 1998, respectively 128,083 23,070
Retained earnings 105,742 36,035
---------- --------
1,233,825 59,105
---------- --------
$1,941,709 $635,623
========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
D2 TECHNOLOGIES, INC.
---------------------
STATEMENTS OF OPERATIONS
------------------------
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999
-----------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
NET REVENUES $2,668,198 $1,404,565 $1,078,090
COSTS AND EXPENSES 2,567,670 1,425,895 1,175,024
---------- ---------- ----------
Income (loss) from operations 100,528 (21,330) (96,934)
OTHER INCOME (EXPENSE):
Interest, net 1,268 (11,727) (8,384)
Other, net 14,860 3,711 (6,704)
---------- ---------- ----------
Income (loss) before provision for
(benefit from) income taxes 116,656 (29,346) (112,022)
PROVISION FOR (BENEFIT FROM)
INCOME TAXES 46,949 (47,379) (70,819)
---------- ---------- ----------
Net income (loss) $ 69,707 $ 18,033 $ (41,203)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
D2 TECHNOLOGIES, INC.
---------------------
STATEMENTS OF SHAREHOLDERS' EQUITY
----------------------------------
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999
-----------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock Common Stock
----------------------------- --------------------
Retained
Shares Amount Shares Amount Earnings Total
--------------- ------------ --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1996 - $ - 5,000,000 $ 20,270 $ 59,205 $ 79,475
Net loss - - - - (41,203) (41,203)
--------------- ------------ --------- -------- -------- ----------
BALANCE,
December 31, 1997 - - 5,000,000 20,270 18,002 38,272
Exercise of stock
options - - 40,000 2,800 - 2,800
Net income - - - - 18,033 18,033
--------------- ------------ --------- -------- -------- ----------
BALANCE,
December 31, 1998 - - 5,040,000 23,070 36,035 59,105
Conversion of note payable
to preferred stock 87,500 175,000 - - - 175,000
Issuance of preferred stock
for cash 412,500 825,000 - - - 825,000
Exercise of stock
options - - 28,750 2,013 - 2,013
Issuance of stock
options for services - - - 103,000 - 103,000
Net income - - - - 69,707 69,707
--------------- ------------ --------- -------- -------- ----------
BALANCE,
December 31, 1999 500,000 $1,000,000 5,068,750 $128,083 $105,742 $1,233,825
=============== ============ ========= ======== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
D2 TECHNOLOGIES, INC.
---------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999
-----------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 69,707 $ 18,033 $(41,203)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Depreciation 29,742 19,952 17,684
Deferred taxes 46,149 (69,715) (75,067)
Compensation expense in connection
with stock options issued for services 103,000 - -
Changes in operating assets
and liabilities:
Accounts receivable (761,139) (143,067) 117,640
Prepaid expenses and other
current assets (66,046) 17,359 (17,339)
Deposits and other assets (8,899) (3,398) 4,488
Accounts payable 63,840 2,776 (7,527)
Accrued expenses 136,760 50,540 (41,288)
Income taxes payable (13,176) 13,176 -
Deferred revenue 118,942 234,752 (37,746)
--------- --------- --------
Net cash provided by (used in)
operating activities (281,120) 140,408 (80,358)
--------- --------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and equipment (71,353) (18,336) (23,227)
Note receivable 10,000 (10,000) -
--------- --------- --------
Net cash used in investing activities (61,353) (28,336) (23,227)
--------- --------- --------
CASH FLOWS FROM FINANCING
ACTIVITES:
Exercise of stock options 2,013 2,800 -
Issuance of preferred stock 825,000 - -
Borrowings under notes payable to
related parties - - 100,000
Repayment of notes payable to
related parties - - (25,000)
--------- --------- --------
Net cash provided by financing activities 827,013 2,800 75,000
--------- --------- --------
NET INCREASE (DECREASE) IN CASH 484,540 114,872 (28,585)
CASH, beginning of year 127,033 12,161 40,746
--------- --------- --------
CASH, end of year $ 611,573 $ 127,033 $ 12,161
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
D2 TECHNOLOGIES, INC.
---------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1999
-----------------
1. Organization and Business
-------------------------
D2 Technologies, Inc. (the Company) was founded in 1993 in Santa Barbara,
California. The Company develops, markets and supports Digital Signal
Processing solutions for telephony products.
2. Summary of Significant Accounting Policies
------------------------------------------
a. Revenue Recognition
-------------------
The Company recognizes revenue for software licenses and post-contract
support services in accordance with the American Institute of Certified
Public Accountants (AICPA) Statement of Position (SOP) 97-2 "Software
Revenue Recognition," which supercedes SOP 91-1, "Software Revenue
Recognition" and Statement of Financial Accounting Standards (SFAS) No. 48,
"Revenue Recognition when Right of Return Exists."
Software license revenue is recorded at the time of shipment, net of
estimated allowances for product returns and uncollectable amounts. Post-
contract support is offered for a fixed fee and is recognized as revenue
over the term of the agreement.
The Company receives royalties from certain customers related to sales of
the customers' products that use the Company's software. Royalty revenue
is recorded in the period in which the Company's customers sell their
products to the final customer.
b. Software Development Costs
--------------------------
Under the provisions of SFAS No. 86 "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed," the Company is
required to capitalize software development costs when "technological
feasibility" of the product has been established and anticipated future
revenues assure recovery of the capitalized amounts. Because of the
relatively short time period between "technological feasibility" and
product release, the amount of software development costs available to be
capitalized are minimal and thus have not been capitalized.
c. Deferred Revenue
----------------
Deferred revenue primarily relates to post-contract support and service
agreements, which are billed in advance and are recognized as revenue over
the term of the agreement for support agreements and as services are
provided for service agreements.
d. Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is provided using
accelerated methods over estimated lives of five to seven years. The
Company capitalizes expenditures which materially increase asset lives and
charges ordinary repairs and maintenance to operations as incurred. When
assets are sold or otherwise disposed of, the cost and related accumulated
depreciation and amortization are removed from the accounts and any
resulting gain or loss is included in operations.
8
<PAGE>
e. Income Taxes
------------
The Company provides for income taxes using the liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes." Under SFAS
No. 109, deferred income tax assets and liabilities are computed based on
the temporary differences between the financial statement and income tax
basis of assets and liabilities using the currently enacted marginal income
tax rate.
Realization of the net deferred tax assets is dependent on generating
sufficient taxable income during the periods in which the temporary
differences will reverse. If realization is uncertain a valuation
allowance is recorded to state the net deferred tax assets at realizable
value.
f. Statements of Cash Flows
------------------------
The Company prepares its statements of cash flows using the indirect method
in accordance with SFAS No. 95, "Statement of Cash Flows."
g. 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.
3. Concentrations of Risk
----------------------
Financial instruments that subject the Company to credit risk consist primarily
of trade accounts receivable. The Company performs ongoing credit evaluations
of its customers and maintains an allowance for potential credit losses. At
times, various customers have accounts receivable balances greater than ten
percent of total accounts receivable. The Company had two and four customers
that had balances greater than ten percent of total accounts receivable at
December 31, 1999 and 1998, respectively. These concentrations are summarized
as follows:
1999 1998
---- ----
42% 29%
10% 27%
- 16%
- 15%
---- ----
52% 87%
==== ====
9
<PAGE>
For the years ended December 31, 1999, 1998 and 1997, the Company had several
customers with annual net revenues greater than 10 percent of total net revenues
for each respective year. These concentrations are summarized as follows:
1999 1998 1997
---- ---- ----
20% 29% 28%
16% 23% 16%
10% - 16%
- - 11%
- - 10%
---- ---- ----
46% 52% 81%
==== ==== ====
At times the Company holds cash balances at financial institutions in excess of
federally insured amounts. The Company's operations and the majority of the
Company's customers are located in the United States.
4. Property and Equipment
----------------------
Property and equipment consist of the following:
December 31,
---------------------
1999 1998
---------- ---------
Computer equipment $ 177,359 $111,948
Furniture and fixtures 17,753 11,811
--------- --------
195,112 123,759
Less -- accumulated depreciation (112,895) (83,153)
--------- --------
$ 82,217 $ 40,606
========= ========
5. Notes Payable to Related Parties
--------------------------------
As of December 31, 1998, the Company owed $175,000 to shareholders/officers
under various note payable agreements. The notes bore interest at eight percent
annually. In September 1999, these notes were converted to preferred stock (See
Note 8).
10
<PAGE>
6.
Income Taxes
------------
The provision for (benefit from) income taxes for the years ended December 31,
1999, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
Current:
Federal $ - $ 21,536 $ 3,448
State 800 800 800
------- -------- --------
800 22,336 4,248
------- -------- --------
Deferred 46,149 (69,715) (75,067)
------- -------- --------
$46,949 $(47,379) $(70,819)
======= ======== ========
</TABLE>
Differences between the provision (benefit) for income taxes and income taxes at
the statutory federal income tax rate for the years ended December 31, 1999,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- ---------------------- ----------------------
Amount Percentage Amount Percentage Amount Percentage
-------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income tax at statutory
federal rate $39,663 34.0% $ (9,978) (34.0)% $(38,087) (34.0)%
State income tax, net of
federal benefit 6,467 5.5 (1,627) (5.5) (6,210) (5.5)
Permanent differences 1,671 1.4 2,034 6.9 (119) (0.1)
R&D credits - - (31,512) (107.4) (13,808) (12.3)
Other (852) (0.7) (6,296) (21.4) (12,595) (11.3)
------- ---- -------- ------- -------- ------
$46,949 40.2% $(47,379) (161.4)% $(70,819) (63.2)%
======= ==== ======== ======= ======== ======
</TABLE>
The Company prepares its tax returns on a cash basis. As such, the components
of the net deferred tax asset or liability primarily consist of temporary
differences related to deferred revenue, reserves and other cash-to-accruals
adjustments.
The gross deferred tax assets (liabilities) at December 31, 1999 and 1998 are
as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Cash to accrual $ 318,683 $ 235,365
R&D credit carryforward 7,771 3,773
Deferred revenue 165,870 118,387
Allowance for doubtful accounts 43,818 19,900
Compensation related 40,685 --
--------- ---------
576,827 377,425
--------- ---------
Deferred tax liabilities:
Cash to accrual (490,971) (237,908)
Depreciation (4,421) (11,933)
--------- ---------
(495,392) (249,841)
--------- ---------
Net deferred tax asset $ 81,435 $ 127,584
========= =========
</TABLE>
11
<PAGE>
7. Related Party Transactions
--------------------------
The Company owns approximately 5.5 percent of the outstanding shares of one of
its customers. In addition, the Company's majority shareholder also holds
shares in this customer (the Related Entity). Due to uncertainty about the
realizability of the Company's investment in the Related Entity (recorded under
the cost method), the investment has been fully reserved in all periods
presented.
The Company recorded revenues from the Related Entity in the amounts of
$131,371, $361,118 and $262,595 in 1999, 1998 and 1997, respectively. The
Company had accounts receivable in the amounts of $18,063 and $6,692 from the
Related Entity at December 31, 1999 and 1998, respectively.
In 1997, the Company adopted a performance unit, or phantom stock plan (the
plan) to provide the Company's employees an incentive to work productively on
projects involving the Related Entity and to reward the Company's employees for
the successes of the Related Entity. Each performance unit entitled the
recipient to receive from the Company a cash payment in an amount equal to the
net selling price (as defined) of one share of the Related Entity's stock. The
Company has issued 252,667 of performance units through December 31, 1999.
Based on the estimated fair value of the Related Entity's stock at December 31,
1999, there are no amounts due in connection with these performance units at
December 31, 1999. The Company has not recorded any amounts in the accompanying
financial statements related to this plan.
The Company had notes payable to officers/shareholders of the Company (see Note
5).
8. Preferred Stock
---------------
In 1999, the Company amended its articles of incorporation to allow for the
issuance of 500,000 shares of preferred stock. The preferred stock has
liquidation preference over common stock in the amount of $2.00 per share, plus
any declared and unpaid dividends. Each share of preferred stock may be
converted, at the option of the holder, into one share of common stock. An
automatic conversion to common stock exists and would activate upon certain
predetermined conditions. Each share is entitled to voting rights equal with
one common share.
In 1999, the Company issued 412,500 shares of preferred stock for $825,000 and
converted a note payable in the amount of $175,000 to 87,500 additional shares
of preferred stock (see Note 5). As of December 31, 1999, none of the preferred
stock had been converted to common stock and no dividends had been declared or
paid.
9. Stock Options
-------------
Under its Tandem Stock Option Plan, the Company may grant incentive and non-
qualified stock options to employees, directors and others at the discretion of
the board of directors covering up to 1,200,000 shares of common stock. As of
December 31, 1999, 343,250 shares were available for future grant under the
plan. The Company generally grants options at prices not less than 100 percent
of the fair market value, as determined by the board of directors, at the date
of grant. The options granted have varied vesting periods.
12
<PAGE>
The table below summarizes the option activity for 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Weighted Exercisable
Weighted Average Fair Weighted
Number Average Value of Average
of Exercise Options Granted Exercise
Shares Price During the Year Exercisable Price
--------------------- ---------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Outstanding at December 31, 1996 170,000 $0.07
Granted 60,000 0.07 $0.03
======= ===== =====
Outstanding at December 31, 1997 230,000 0.07 110,311 $0.07
Granted 40,000 0.07 $0.02 ======= ====
Exercised (40,000) 0.07 =====
------- -----
Outstanding at December 31, 1998 230,000 0.07 126,144 $0.07
Granted 608,000 1.17 $0.42 ======= =====
Exercised (28,750) 0.07 =====
Cancelled (21,250) 0.07
------- -----
Outstanding at December 31, 1999 788,000 $0.90 184,270 $0.06
======= ===== ======= =====
</TABLE>
The table below summarizes information about options outstanding at December 31,
1999:
<TABLE>
<CAPTION>
Weighted Average
Range of Weighted Average Exercise Price of
Exercise Number Outstanding Remaining Options Number Exercisable
Prices at December 31, 1999 Contractual Life Outstanding at December 31, 1999
- -------- -------------------- ---------------- ----------------- --------------------
<S> <C> <C> <C> <C>
$0.01 30,000 1.6 years $0.01 30,000
$0.07 536,000 9.0 years $0.07 154,270
$0.50 120,000 9.7 years $0.50 -
$5.33 72,000 9.9 years $5.33 -
$8.00 30,000 10.0 years $8.00 -
------- ----- -------
788,000 $0.90 184,270
===== =======
</TABLE>
As permitted by SFAS No. 123 "Accounting for Stock-Based Compensation," the
Company continues to apply the accounting rules of Accounting Principles Board
(APB) No. 25 governing the recognition of compensation expense for employee
stock options. Such accounting rules measure compensation expense on the first
date at which both the exercise price and the number of shares are known.
Expense is only recognized in circumstances where the exercise price is less
than the fair market value at the measurement date. No such expense has been
recorded in the accompanying statements of operations.
13
<PAGE>
Under the requirements of SFAS No. 123 pro forma disclosure of compensation
expense using the fair value method is required to be disclosed if the Company
applies APB No. 25. Pro forma compensation has been computed by estimating the
fair value of options at the date of grant using the Black-Scholes option
pricing model.
The following assumptions were used in estimating the fair value of options:
1999 1998 1997
---- ---- ----
Expected life in years 7 7 7
Weighted average interest rate 5.62% 5.45% 6.09%
No dividend yield was used since the Company historically has not paid
dividends, and no volatility was used since the Company is privately held. Pro
forma additional compensation expense was immaterial in 1999, 1998 and 1997,
respectively.
In 1999, the Company issued 30,000 options to purchase common stock to a
consultant. The estimated fair value of these options was computed using the
Black-Scholes option pricing model. The Company recorded $103,000 of
compensation expense related to these options in 1999.
In connection with a merger agreement (see Note 14), all of the outstanding
options granted under the Tandem Stock Option Plan will be exchanged for options
to purchase common shares of the acquiring company.
10. Stock Split
-----------
In July 1999, the board of directors approved a ten to one split of the
Company's common stock. All shares for all periods presented have been
retroactively restated to give effect to the stock split.
11. Supplemental Disclosure of Cash Flow Information
------------------------------------------------
1999 1998 1997
-------- ------- -------
Cash paid for income taxes $ 35,176 $ 3,861 $16,000
Cash paid for interest 15,300 14,000 6,000
Non cash investing and financing activities:
Conversion of note payable
to preferred stock 175,000 - -
14
<PAGE>
12. Commitments
-----------
a. Lease Commitments
-----------------
The Company leases office space under non-cancelable operating lease
agreements expiring on January 31, 2002. Future minimum lease payments
under this agreement as of December 31, 1999 were as follows:
Years Ending December 31,
-------------------------
2000 $183,949
2001 219,740
2002 18,312
--------
Total $422,001
========
Rent expense under non-cancelable operating leases for the years ended
December 31, 1999, 1998 and 1997 was $108,325, $90,686 and $80,956,
respectively.
The Company subleased a portion of its office space to a third party.
Sublease revenue was $14,055, $10,172 and $4,107 for the years ended 1999,
1998 and 1997, respectively. The sublease agreement expired in November
1999.
b. Other Matters
-------------
In 1999, the Company entered into an agreement with a business partner to
jointly develop a product. As part of this agreement, the Company agreed
to purchase 250,000 shares of the business partner's stock at $1.00 per
share and the business partner agreed to purchase 125,000 shares of the
Company's stock at $2.00 per share. Pursuant to the terms of the
agreement, the Company has set aside 125,000 shares of common stock. As of
December 31, 1999, neither the Company nor the business partner had begun
performance under the agreement and none of the shares had been exchanged.
13. Profit Sharing Plan
-------------------
The Company has established a profit sharing program whereby employees can share
in the Company's pre-tax profit. Contributions are made pursuant to defined
terms and in no event exceed fifteen percent of the Company's pre-tax profit.
The Company recorded expense of $83,362, $22,788 and $7,321 in 1999, 1998 and
1997, respectively.
14. Subsequent Events
-----------------
On January 23, 2000, the Company entered in an agreement to be acquired through
a merger whereby the Company will exchange all outstanding shares for shares of
the acquiring company in a transaction valued at approximately $90 million as of
January 23, 2000.
From January 1 through January 26, 2000, the Company granted 369,000 options
under the Tandem Stock Option Plan and no specific plan with a weighted average
exercise price of $12.98.
15
<PAGE>
(b) Pro Forma Financial Information.
VIRATA CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(In thousands)
On February 10, 2000, Virata Corporation ("Virata") completed its acquisition of
D2 Technologies. Under the terms of the merger agreement, 2,198,413 shares of
Virata common stock were exchanged for all of the outstanding common stock of D2
Technologies. In addition, employee options to purchase shares of D2
Technologies common stock were exchanged for options to purchase 466,165 shares
of Virata common stock. This acquisition has been accounted for as a purchase
business combination in accordance with Accounting Principles Board ("APB")
Opinion No. 16, "Business Combinations." The aggregate purchase price is as
follows (in thousands):
Shares of Virata common stock $ 79,143
Options to purchase Virata common stock 13,566
Direct acquisition costs 4,200
--------
$ 96,909
========
Under the terms of APB Opinion No. 16, the aggregate purchase price will be
allocated to the net tangible and identifiable intangible assets acquired and
liabilities assumed on the basis of their estimated fair values on the effective
date of the merger.
The accompanying unaudited pro forma condensed combined balance sheet combines
the unaudited consolidated balance sheet of Virata as of January 2, 2000, with
the audited balance sheet of D2 Technologies as of December 31, 1999, and gives
effect to the acquisition of D2 Technologies as if it occurred on January 2,
2000.
The accompanying unaudited pro forma condensed combined statements of operations
combine Virata's unaudited statements of operations for the nine months ended
January 2, 2000 with D2 Technologies' unaudited statement of operations for the
nine months ended September 30, 1999, and Virata's unaudited statement of
operations for the fiscal year ended March 31, 1999 with D2 Technologies'
unaudited statement of operations for the year ended December 31, 1998 and gives
effect to the acquisition as if it occurred on April 1, 1998.
16
<PAGE>
VIRATA CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
Virata D2 Technologies Pro Forma Pro Forma
January 2, 2000 December 31, 1999 Adjustments Combined
---------------------------------------------------------------------------
(unaudited)
ASSETS
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 81,055 $ 612 $ 81,667
Accounts receivable, net 2,233 1,078 3,311
Inventories 1,374 -- 1,374
Other current assets 1,995 155 2,150
----------------- ---------------- ------------ --------------
Total current assets 86,657 1,845 88,502
Property and equipment, net 2,862 82 2,944
Intangible and other assets 2,768 15 90,351 A 93,134
----------------- ---------------- ------------ --------------
Total assets $ 92,287 $1,942 $ 90,351 $ 184,580
====================================================== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,895 $ 70 $ 2,965
Accrued liabilities 2,493 222 4,200 B 6,915
Deferred revenue 575 416 991
Capital lease obligation, current 946 -- 946
----------------- ---------------- ------------ --------------
Total current liabilities 6,909 708 4,200 11,817
Capital lease obligation, long-term 1,386 1,386
----------------- ---------------- ------------ --------------
Total liabilities 8,295 708 4,200 13,203
----------------- ---------------- ------------ --------------
Stockholders' equity:
Convertible preferred stock -- 1,000 (1,000) C --
Common stock 20 128 (126) C,D 22
Additional paid-in capital 145,463 -- 92,707 D 238,170
Accumulated other comprehensive income 932 -- 932
Unearned stock compensation (888) -- (888)
Accumulated deficit (61,535) 106 (5,430) C (66,859)
----------------- ---------------- ------------ --------------
Total stockholders' equity 83,992 1,234 86,151 171,377
----------------- ---------------- ------------ --------------
Total liabilities and stockholders'
equity $ 92,287 $1,942 $ 90,351 $ 184,580
==================================================== ==============
</TABLE>
The accompanying notes are an integral part of these pro forma condensed
combined financial statements.
17
<PAGE>
VIRATA CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------------
January 2, September 30,
2000 1999
Virata D2 Technologies Pro Forma Adjustments Pro Forma Combined
--------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues $ 9,746 $1,675 $ 11,421
Cost of revenues 4,690 -- 201 E 4,891
--------- ------------ -------- -----------
Gross profit 5,056 1,675 201 6,530
Operating expenses 16,307 1,577 16,928 E 34,812
--------- ------------ -------- -----------
Income (loss) from operations (11,251) 98 (17,129) (28,282)
--------- ------------ -------- -----------
Interest and other income (expense), net 344 7 351
--------- ------------ -------- -----------
Income (loss) before income taxes (10,907) 105 (17,129) (27,931)
Provision for income taxes 35 35
--------- ------------ -------- -----------
Net income (loss) $(10,907) $ 70 $(17,129) $(27,966)
========= ============ ======== ===========
Basic and diluted net loss per share $ (2.12) $ (3.81)
========= ===========
Weighted average common shares - basic and
diluted 5,139 F 7,337
========= ===========
</TABLE>
The accompanying notes are an integral part of these pro forma condensed
combined financial statements.
18
<PAGE>
VIRATA CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Twelve Months Ended
------------------------------------------------------------------------------
March 31, 1999 December 31, 1998
Virata D2 Technologies Pro Forma Adjustments Pro Forma Combined
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 9,256 $1,405 $ 10,661
Cost of revenues 3,997 -- 269 E 4,266
----------- --------- ---------- ------------
Gross profit 5,259 1,405 269 6,395
Operating expenses 24,010 1,426 22,571 E 48,007
----------- --------- ---------- ------------
Loss from operations (18,751) (21) (22,840) (41,612)
----------- --------- ---------- ------------
Interest and other income (expense), net 1,594 (8) 1,586
----------- --------- ---------- ------------
Income (loss) before income taxes (17,157) (29) (22,840) (40,026)
----------- --------- ---------- ------------
Benefit from income taxes (47) (47)
----------- --------- ---------- ------------
Net income (loss) (17,157) $ 18 $ (22,840) (39,979)
=========== ========= ========== ============
Basic and diluted net loss per share $ (1.33) $ (2.65)
=========== ============
Weighted average common shares - basic and
diluted 12,881 F 15,079
=========== ============
</TABLE>
The accompanying notes are an integral part of these pro forma condensed
combined financial statements.
19
<PAGE>
Note 1 - Pro Forma Adjustments and Assumptions
On February 10, 2000, Virata Corporation acquired D2 Technologies for a total
consideration of approximately $96.9 million comprising 2,198,413 shares of
the company's common stock valued at $79.1 million (based on an agreed upon
price per share of Virata Corporation's Common Stock),options to purchase
466,165 shares of Virata common stock valued at $13.6 million and other
acquisition costs aggregating approximately $4.2 million (see B below).
(A) To allocate the purchase price to the fair value of the acquired assets and
liabilities of D2 at January 2, 2000. This adjustment is for illustrative
pro forma purposes only. Actual fair values will be based on financial
information as of the date of acquisition (February 10, 2000). Assuming the
transaction had had occurred on January 2, 2000 the allocation would have
been as follows (in thousands):
Fair value of assets acquired and
liabilities assumed $ 1,234
Workforce-in-place 760
Customer base 1,001
Existing contracts 537
Non-competition agreements 469
Complete technology 15,872
In-process research and development 5,324
Goodwill 71,712
--------
Total $ 96,909
========
The valuation of intangible assets acquired was determined by an
independent third-party appraiser. The excess of purchase consideration
over tangible and identifiable intangible assets acquired and liabilities
assumed have been recorded as goodwill.
(B) To record the accrual of estimated expenses resulting from the acquisition.
These expenses (shown in thousands) include direct transaction costs,
primarily for financial advisory and legal fees. This amount is a
preliminary estimate only and is subject to change.
Financial advisory fees $3,573
Legal and accounting fees 627
------
Total $4,200
======
These costs are included as part of purchase consideration.
(C) To eliminate capital accounts of D2.
(D) To reflect the issuance of the Company's common stock and options for the
acquisition of D2.
(E) To record amortization expense of intangible assets resulting from the
purchase business combination of D2 as if the combination had occurred on
April 1, 1998, with estimated useful lives of two or four years. The $5.3
million allocated to in-process research and development was expensed upon
acquisition as technical feasibility had not been established.
(F) Basic and diluted net loss per share is computed using the weighted average
number of common shares outstanding during the period. Unaudited pro forma
combined basic and diluted net loss per share includes common stock issued
to D2 at the consummation of the acquisition.
20
<PAGE>
Signature
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 hereunto duly authorized.
Dated as of April 21, 2000
VIRATA CORPORATION
By: /s/ Andrew M. Vought
------------------------
Andrew M. Vought
Chief Financial Officer and Secretary
21
