<PAGE>
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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 October 1, 2000.
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: 0-28157
---------------------------------
Virata Corporation
(Exact name of Registrant as specified in its charter)
---------------------------------
Delaware 77-0521696
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2933 Bunker Hill Lane, Santa Clara, 95054
California (zip code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (408) 566-1000
---------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days Yes [X] No [_].
As of November 9, 2000, there were outstanding 62,836,207 shares of the
Registrant's Common Stock, par value $0.001.
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<PAGE>
VIRATA CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------
<C> <S> <C>
PART I. Financial Information
Item 1 Condensed Consolidated Financial Statements (unaudited)........ 3
Condensed Consolidated Balance Sheet as of October 1, 2000 and
April 2, 2000.................................................. 3
Condensed Consolidated Statement of Operations for the three
and six month periods ended October 1, 2000 and October 3,
1999........................................................... 4
Condensed Consolidated Statement of Cash Flows for the six
month periods ended October 1, 2000 and October 3, 1999........ 5
Notes to Condensed Consolidated Financial Statements........... 6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 13
Item 3 Quantitative and Qualitative Disclosure about Market Risk...... 34
PART II. Other Information
Item 1 Legal Proceedings.............................................. 35
Item 2 Changes in Securities and Use of Proceeds...................... 35
Item 3 Defaults Upon Senior Securities................................ 35
Item 4 Submission of Matters to a Vote of Security Holders............ 35
Item 5 Other Information.............................................. 36
Item 6 Exhibits and Reports on Form 8-K............................... 36
Signatures............................................................. 38
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1--Condensed Consolidated Financial Statements.
VIRATA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, unaudited)
<TABLE>
<CAPTION>
October 1, April 2,
2000 2000(A)
---------- --------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents............................... $ 133,579 $ 60,193
Short-term investments.................................. 394,330 18,006
Accounts receivable, net................................ 28,092 7,524
Inventories............................................. 10,577 409
Other current assets.................................... 2,832 2,895
---------- --------
Total current assets.................................. 569,410 89,027
Property and equipment, net............................... 10,099 3,222
Intangible assets......................................... 402,820 89,113
Investments............................................... 2,000 --
Other assets.............................................. 1,057 --
---------- --------
Total assets.......................................... $ 985,386 $181,362
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable........................................ $ 18,536 $ 4,887
Accrued liabilities..................................... 7,914 3,484
Accrued employee benefits............................... 3,900 2,555
Accrued National Insurance Contribution on options...... 8,244 4,471
Deferred revenue........................................ 4,889 2,215
Capital lease obligation, current....................... 1,325 784
---------- --------
Total current liabilities............................. 44,808 18,396
Capital lease obligation, long-term....................... 2,097 1,178
Other long-term liabilities............................... 209 --
---------- --------
Total liabilities..................................... 47,114 19,574
Stockholders' equity:
Common stock............................................ 63 23
Additional paid-in capital.............................. 1,137,048 238,857
Accumulated other comprehensive income.................. 791 335
Unearned stock compensation............................. (19,799) (691)
Accumulated deficit..................................... (179,831) (76,736)
---------- --------
Total stockholders' equity............................ 938,272 161,788
---------- --------
Total liabilities and stockholders' equity............ $ 985,386 $181,362
========== ========
</TABLE>
--------
(A) The information in this column is derived from the Company's audited
financial statements for the fiscal year ended April 2, 2000
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
VIRATA CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------- ----------------------
October 1, October 3, October 1, October 3,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Semiconductor.................... $ 36,158 $ 2,074 $ 57,623 $ 3,493
License.......................... 3,953 254 8,110 528
Services and royalty............. 1,183 435 2,151 808
Systems.......................... 913 249 2,019 848
-------- ------- --------- -------
Total revenues................. 42,207 3,012 69,903 5,677
-------- ------- --------- -------
Cost of revenues:
Semiconductor.................... 20,644 1,130 34,736 1,941
License.......................... 462 -- 586 --
Services and royalty............. 741 200 927 338
Systems.......................... 459 167 917 491
-------- ------- --------- -------
Total cost of revenues......... 22,306 1,497 37,166 2,770
-------- ------- --------- -------
Gross profit................... 19,901 1,515 32,737 2,907
-------- ------- --------- -------
Operating expenses:
Research and development......... 8,031 2,581 13,063 5,130
Selling and marketing............ 5,977 973 10,343 1,896
General and administrative....... 4,623 1,400 7,941 2,303
National Insurance Contribution
on options...................... 1,684 -- 4,204 --
Amortization of intangible
assets.......................... 16,571 176 26,520 370
Amortization of stock
compensation.................... 623 239 773 505
Acquired in-process research and
development..................... 79,892 -- 81,062 --
-------- ------- --------- -------
Total operating expenses....... 117,401 5,369 143,906 10,204
-------- ------- --------- -------
Loss from operations............... (97,500) (3,854) (111,169) (7,297)
Interest expense................... (148) (43) (243) (92)
Interest and other income
(expense), net.................... 7,338 (660) 8,317 (183)
-------- ------- --------- -------
Net loss....................... $(90,310) $(4,557) $(103,095) $(7,572)
======== ======= ========= =======
Basic and diluted net loss per
share......................... $ (1.56) $ (1.14) $ (1.94) $ (1.90)
======== ======= ========= =======
Weighted average common
shares--basic and diluted..... 57,711 3,994 53,064 3,988
======== ======= ========= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
VIRATA CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands, unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------
October 1, October 3,
2000 1999
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $ (103,095) $(7,572)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Provision for doubtful accounts and returns.......... 323 157
Acquired in-process research and development......... 81,062 --
Depreciation and amortization........................ 29,191 1,162
Amortization of stock compensation................... 773 505
Change in assets and liabilities (net of acquisition
balances):
Accounts receivable................................ (18,423) 914
Inventories........................................ (10,195) (430)
Other current assets............................... 1,226 (174)
Other assets....................................... (401) --
Accounts payable................................... 12,333 9
Accrued liabilities................................ 3,092 376
Accrued employee benefits.......................... 101 --
Accrued National Insurance Contribution on
options........................................... 4,204 --
Deferred revenue................................... 591 (22)
Other long-term liabilities........................ 101 --
----------- -------
Net cash provided by (used in) operating
activities...................................... 883 (5,075)
----------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of short-term investments....................... 1,945,373 1,001
Purchase of short-term investments................... (2,321,588) --
Purchase of investments.............................. (2,000) --
Purchase of property and equipment, net.............. (4,877) (299)
Cash used in acquisition, net of cash acquired....... (6,486) --
----------- -------
Net cash provided by (used in) investing
activities...................................... (389,578) 702
----------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock............... 462,471 37
Repayment of capital lease obligations............... (476) (414)
----------- -------
Net cash provided by (used in) financing
activities...................................... 461,995 (377)
----------- -------
Effect of exchange rate changes on cash................ 86 271
----------- -------
Net increase (decrease) in cash and cash equivalents... 73,386 (4,479)
Cash and cash equivalents at the beginning of the
period................................................ 60,193 8,616
----------- -------
Cash and cash equivalents at the end of the period..... $ 133,579 $ 4,137
=========== =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
VIRATA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Basis of Presentation
Virata Corporation (the "Company") was formed in 1993 as Advanced
Telecommunications Modules Limited, a corporation organized in the United
Kingdom, as a spin-off from Olivetti Research Laboratories. In February 1998,
the Company changed its name to Virata Limited. The Company is a provider of
solutions that integrate communication processors with a suite of software for
the digital subscriber line ("DSL") equipment market.
In July 1998, the Company completed its acquisition of RSA Communications,
Inc. ("RSA Communications"), a corporation organized in North Carolina. RSA
was subsequently renamed Virata Raleigh Corporation. In February 2000, the
Company completed the acquisition of D2 Technologies, Inc. ("D2
Technologies"), a company organized in California. On April 27, 2000, the
Company completed the acquisition of Inverness Systems Ltd. ("Inverness
Systems"), a corporation organized in Israel and a provider of networking
software solutions (see Note 6). On August 16, 2000, the Company completed the
acquisition of Agranat Systems, Inc. ("Agranat Systems"), a corporation
organized in Massachusetts and a supplier of web technologies and networking
management software (see Note 6). On August 22, 2000, the Company completed
the acquisition of Excess Bandwidth Corporation ("Excess Bandwidth"), a
corporation organized in California and a developer of advanced algorithms and
mixed- signal semiconductors for high-bandwidth symmetric DSL applications
(see Note 6).
In August 1999, Virata Corporation was created and, immediately prior to
its initial public offering ("IPO"), Virata Corporation became the holding
company of Virata Limited. The reorganization was accounted for on a
historical basis.
On November 16, 1999, the Company completed its IPO of 11,500,000 shares of
common stock, including the exercise of the underwriters' overallotment
option, at $7.00 per share. Total proceeds to the Company were $73.4 million,
net of commissions and offering costs
On July 13, 2000, the Company completed its follow-on offering of 6,855,000
shares of common stock, including the exercise of the underwriters'
overallotment option, at $71.00 per share. Total proceeds to the Company were
approximately $461 million, net of commissions and offering costs.
Effective October 3, 1999, the Company changed the fiscal year such that
each quarter ends on the Sunday closest to the calendar quarter end.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not contain all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements reflect all
adjustments, consisting of only normal recurring adjustments, considered
necessary for a fair presentation of the Company's financial condition as of
October 1, 2000, the results of its operations for the three and six months
ended October 1, 2000 and October 3, 1999, and its cash flows for the six
months ended October 1, 2000 and October 3, 1999. These financial statements
should be read in conjunction with the Company's audited financial statements,
including the notes thereto, and the other information set forth therein
included in the Company's Annual Report on Form 10-K for the fiscal year ended
April 2, 2000. Operating results for the three and six month periods ended
October 1, 2000 are not necessarily indicative of the operating results that
may be expected for the fiscal year ending April 1, 2001.
6
<PAGE>
VIRATA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 2--Revenue Recognition
Revenues from the sale of both semiconductors and systems are recognized
upon shipment to customers. Allowances are provided for estimated returns at
the time of shipment. The Company recognizes software license revenue under
Statement of Position ("SOP") 97-2, Software Revenue Recognition, and SOP 98-
9, Modification of SOP 97-2, Software Revenue Recognition, with Respect to
Certain Transactions. When contracts contain multiple elements and vendor-
specific objective evidence exists for all undelivered elements, the Company
accounts for the delivered elements in accordance with the "Residual Method"
prescribed by SOP 98-9. Software licenses are generally recognized as revenue
upon shipment of the software product. In the event the Company grants
customers the right to specified upgrades, license revenue is deferred until
delivery of the specific upgrade. If vendor-specific objective evidence of
fair value exists for the specified upgrade, then amount equals to this fair
value is deferred. If vendor- specific objective evidence of fair value for
the specified upgrade does not exist, the entire license fee is deferred until
the delivery of the specified upgrade. The Company recognizes revenues from
maintenance and support services provided to licensees ratably over the term
of the agreement, generally over one year, and recognizes revenues from design
services provided to customers as the services are performed.
Note 3--Earnings Per Share
Net loss per share
The Company computes net loss per share in accordance with Statement of
Financial Accounting Standards, ("SFAS") No. 128, "Earnings per Share" and SEC
Staff Accounting Bulletin ("SAB") No. 98. Under the provisions of SFAS No. 128
and SAB No. 98, basic and diluted net loss per share is computed by dividing
the net loss available to holders of common stock for the period by the
weighted average number of shares of common stock outstanding during the
period. The calculation of diluted net loss per share excludes potential
shares of common stock if their effect is anti-dilutive. Potential common
stock consists of shares of common stock issuable upon the exercise of stock
options and warrants and shares issuable upon conversion of the Series A, B,
C, and D convertible preferred stock.
Note 4--Investments
Short term investments consist of debt securities with original maturity
dates greater than ninety days. In accordance with SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," the Company's
investments are classified as available-for-sale, and are reported at fair
value at the balance sheet date. The unrealized gains and losses, net of
related taxes, are reported as a component of accumulated other comprehensive
income. Management determines the appropriate classification of debt
securities at the time of purchase and reassesses the classification at each
reporting date. Gains and losses on the sale of available-for-sale are
determined using the specific- identification method. The Company also holds
investment in restricted shares of technology companies. These non-marketable
shares are recorded at cost.
As of October 1, 2000 and April 2, 2000, the Company held $394.3 million
and $18.0 million of debt securities that were classified as short-term
investments on the Company's consolidated balance sheet. Debt securities
consisted primarily of commercial paper, and U.S. and foreign corporate debt
securities. Unrealized holding gains and losses of available-for-sale debt
securities were not significant and accordingly the amortized cost of these
securities approximated fair market value at October 1, 2000 and April 2,
2000. Contract maturities of these securities were within one year as of
October 1, 2000. Realized gains and losses on available-for-sale debt
securities were not significant for the three and six month periods ended
October 1, 2000 and October 3, 1999.
7
<PAGE>
VIRATA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 5--Balance Sheet Components (in thousands)
<TABLE>
<CAPTION>
April
October 1, 2,
2000 2000
----------- -------
(unaudited)
<S> <C> <C>
Accounts Receivable:
Gross.................................................... $ 28,718 $ 7,819
Allowance for doubtful accounts.......................... (626) (295)
-------- -------
$ 28,092 $ 7,524
======== =======
Property and equipment, net:
Office equipment......................................... $ 11,352 $ 4,727
Furniture and fixtures................................... 745 254
Automobiles.............................................. 40 --
Leasehold improvements................................... 912 440
Research and development equipment....................... 4,265 3,426
-------- -------
17,314 8,847
Less: Accumulated depreciation and amortization.......... (7,215) (5,625)
-------- -------
$ 10,099 $ 3,222
======== =======
Intangible assets:
Goodwill................................................. $317,506 $75,572
Assembled workforce...................................... 3,574 760
Contracts................................................ 5,961 1,006
Customer base............................................ 5,596 1,001
Technology............................................... 102,634 15,872
Tradename................................................ 60 --
-------- -------
435,331 94,211
Less: Accumulated amortization........................... (32,511) (5,098)
-------- -------
$402,820 $89,113
======== =======
</TABLE>
Note 6--Acquisitions
The Company acquired Inverness Systems on April 27, 2000. Inverness Systems
maintains offices in Kfar Saba, Israel, and in Marlborough, Massachusetts.
Inverness Systems is a software company with expertise spanning many
technologies, including ATM, voice over ATM, xDSL, IP Routing, Multi-Protocol
Label Switching or MPLS, Frame Relay and Network Simulation. Inverness
Systems' source code solutions and network simulation products are designed to
facilitate fast-to-market product development programs for advanced
communications products.
Under the terms of the purchase agreement, 2,006,440 shares of the
Company's common stock, with an aggregate value of approximately $77.6
million, based on the fair market value of the Company's common stock of
$38.67 per share, were exchanged for all of the issued and outstanding capital
stock of Inverness Systems. In addition, all of the outstanding options and
warrants to purchase shares of Inverness Systems' capital stock were exchanged
for options to purchase 517,896 shares of the Company's common stock with an
aggregate fair value of approximately $20.0 million. The Company valued the
options using the Black-Scholes option pricing model. Including direct
acquisition costs of approximately $750,000, the aggregate purchase price of
Inverness Systems was approximately $98.4 million. The acquisition has been
accounted for as a purchase business combination.
8
<PAGE>
VIRATA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On August 16, 2000, the Company acquired Agranat Systems, which has office
in Maynard, Massachusetts. Agranat Systems, Inc. is a leading provider of
embedded Web management solutions. Through the EmWeb family, Agranat Systems
delivers the software technology, development tools, and design support
enabling developers to create web-managed products. End users of these
products can remotely access, configure, and manage devices or applications
via the Internet using a standard web browser interface.
Under the terms of the purchase agreement, 430,188 shares of the Company's
common stock, with an aggregate value of approximately $23.7 million, based on
an the fair market value of its common stock of $55.08 per share, were
exchanged for all of the issued and outstanding capital stock of Agranat
Systems. In addition, all of the outstanding options and warrants to purchase
shares of Agranat Systems' capital stock were exchanged for options to
purchase 61,064 shares of the Company's common stock with an aggregate fair
value of approximately $3.3 million. The Company valued the options using the
Black-Scholes option pricing model. Including direct acquisition costs of
approximately $200,000, the aggregate purchase price of Agranat Systems was
approximately $27.2 million. The acquisition has been accounted for as a
purchase business combination.
On August 22, 2000, the Company acquired Excess Bandwidth, which has office
in Cupertino, California. Excess Bandwidth develops advanced algorithms for
high-bandwidth communications applications and implements these algorithms as
communications processors. Product plans include physical layer and mixed
signal semiconductors to address each of the modern symmetric DSL technologies
including SDSL, HDSL2 and G.shdsl.
Under the terms of the agreement, 5,702,731 shares of the Company's common
stock, with an aggregate value of approximately $285.0 million, based the fair
market value of its common stock of $49.98 per share, including 1,462,298
shares of the Company's common stock subjected to certain repurchase rights by
the Company, were exchanged for all of the issued and outstanding capital
stock of Excess Bandwidth. In addition, all of the outstanding options and
warrants to purchase shares of Excess Bandwidth's capital stock and other
stock-based compensation awards were exchanged for options to purchase 599,553
shares of the Company's common stock with an aggregate fair value of
approximately $24.9 million. The Company valued the options and warrants using
the Black-Scholes option pricing model. Including direct acquisition costs of
approximately $8.8 million, the aggregate purchase price of Excess Bandwidth
was approximately $318.7 million. The acquisition has been accounted for as a
purchase business combination.
Based on a valuation by an independent appraiser, the purchase prices of
the Inverness Systems, Agranat Systems and Excess Bandwidth were allocated as
follows:
<TABLE>
<CAPTION>
Inverness Agranat Excess
Systems Systems Bandwidth Total
--------- ------- --------- --------
<S> <C> <C> <C> <C>
Fair value of assets acquired and
liabilities assumed................... $ 1,417 $ (862) $ 2,892 $ 3,447
Assembled workforce.................... 580 730 1,504 2,814
Contracts.............................. -- 344 4,611 4,955
Customer base.......................... 1,140 3,455 -- 4,595
Technology............................. 9,510 8,826 68,426 86,762
Tradename.............................. 60 -- -- 60
In-process research and development.... 1,170 564 79,328 81,062
Deferred compensation resulting from
unvested options assumed.............. -- 1,346 17,304 18,650
Goodwill............................... 84,473 12,807 144,654 241,934
------- ------- -------- --------
Total................................ $98,350 $27,210 $318,719 $444,279
======= ======= ======== ========
</TABLE>
9
<PAGE>
VIRATA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Inverness Systems completed products were classified into three product
groups: ATM products, IP products and NetSIM products. The value of the
completed technology is based on the net cash flow forecast, discounted at a
cost of capital of 22.6%. The acquired in-process technology is related to IP
products, mainly MPLS. The value of the in-process technologies is also based
on the net cash flow forecast; however, discounted at a higher cost of capital
of 27.6% to reflect the uncertainty of its future use. The Company does not
consider it to have reached technological feasibility and, therefore, charged
it to operations upon acquisition.
Agranat Systems completed products were classified into two product groups:
EmWeb products and EmStack products. The value of the completed technology is
based on the net cash flow forecast, discounted at a cost of capital of 20%.
The acquired in-process technology is related to Universal Plug and Play
(UPnP) product. The value of the in-process technologies is also based on the
net cash flow forecast; however, discounted at a higher cost of capital of 25%
to reflect the uncertainty of its future use. The Company does not consider it
to have reached technological feasibility and, therefore, charged it to
operations upon acquisition.
Excess Bandwidth completed products were analog and digital chipsets
designed for the HDSL2 and SHDSL markets. The value of the completed
technology is based on the net cash flow forecast, discounted at a cost of
capital of 22.5%. The acquired in-process technology was classified into two
product groups: Chipsets for the CPE market, and Quadsets for the DSLAM
market. The value of the in-process technologies is also based on the net cash
flow forecast; however, discounted at a higher cost of capital of 25.0% for
the chipset technology and 27.5% for the Quadset technology to reflect the
uncertainty of its future use. The Company does not consider it to have
reached technological feasibility and, therefore, charged it to operations
upon acquisition.
The financial information for the three and six months ended October 1,
2000 includes the results of operation for Inverness Systems from April 28,
2000, the results of operation for Agranat Systems from August 17, 2000, and
the results of operation for Excess Bandwidth from August 23, 2000.
The following unaudited pro forma financial information presents the
consolidated results of the Company as if the acquisitions had occurred at the
beginning of each period, and includes adjustments for amortization of
intangible assets. This pro forma financial information is not intended to be
indicative of future results. Unaudited pro forma consolidated results of
operations are as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------- ----------------------
October
1, October 3, October 1, October 3,
2000 1999 2000 1999
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues......................... $ 42,409 $ 4,211 $ 71,025 $ 7,579
Net loss......................... (104,233) (29,057) (139,710) (56,495)
Basic and diluted net loss per
share........................... (1.73) (2.70) (2.45) (5.26)
</TABLE>
Note 7--National Insurance Contribution on Options
The charge for National Insurance Contribution on options is based on a tax
applied in the United Kingdom on the gain in our stock price for stock options
granted to our United Kingdom employees, both vested and unvested. The charge
is calculated on each option granted in the United Kingdom as the difference
between the market value of our common stock at the close of the period and
the exercise price of the option multiplied by a 12.2% tax rate. Due primarily
to the significant movement in our stock price from each reporting date, the
charges recorded during the three and six month periods ended October 1, 2000
were $1.7 million and $4.2 million, respectively. For the three months ended
October 1, 2000, the allocation of the $1.7 million charge by department is
approximately $400,000 to research and development, approximately $200,000 to
sales and
10
<PAGE>
VIRATA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
marketing, and approximately $1.1 million to general and administrative. For
the six months ended October 1, 2000, the allocation of the $4.2 million
charge by department is approximately $1.0 million to research and
development, approximately $700,000 to sales and marketing, and approximately
$2.5 million to general and administrative.
In October 2000, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board ("FASB") reached a consensus on Issue No. 00-16,
"Recognition and Measurement of Employer Payroll Taxes on Employee Stock-Based
Compensation", whereby employer payroll taxes should be recognized as a
liability when the tax obligation is triggered, which is generally the date
the stock option is exercised. To date, the Company has estimated and recorded
its liability for the National Insurance Contribution based upon total
outstanding stock options held by its employees in the United Kingdom.
Beginning in the quarter ending December 31, 2000, the Company will record an
additional liability only upon the exercise of options granted subsequent to
October 1, 2000 to employees in the United Kingdom.
Note 8--Comprehensive Loss (in thousands)
The components of comprehensive loss, net of tax, are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------- ----------------------
October 1, October 3, October 1, October 3,
2000 1999 2000 1999
---------- ---------- ---------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net loss..................... $(90,310) $(4,557) $(103,095) $(7,572)
Other comprehensive income:
Change in accumulated
currency translation
adjustments................ 128 548 456 193
-------- ------- --------- -------
Comprehensive net loss....... $(90,182) $(4,009) $(102,639) $(7,379)
======== ======= ========= =======
</TABLE>
Note 9--Stock Split
On March 21, 2000, the Company's Board of Directors approved a two-for-one
split of the Company's common stock that was applicable to stockholders of
record on May 4, 2000. The stock split, approved by the Company's stockholders
on May 1, 2000, was effective May 18, 2000. Unless specifically noted
otherwise, all references to share and per share data for all periods
presented have been adjusted to give effect to this split.
Note 10--Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities." SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. In July 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133." SFAS
No. 137 deferred the effective date of SFAS No. 133 until fiscal years
beginning after June 15, 2000. Virata will adopt SFAS No. 133 during its
fiscal year ending March 31, 2002. To date, Virata has not engaged in
derivative or hedging activities. The Company does not expect the adoption of
SFAS No. 133 to have a material effect on its results of operations.
In December 1999, the Securities and Exchange Commission issued SAB 101,
"Revenue Recognition in Financial Statements." SAB 101 summarizes certain of
the Staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. The Company does not expect the
adoption of SAB 101 to have a material effect on its results of operations.
11
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VIRATA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44") "Accounting
for Certain Transactions Involving Stock Compensation, an Interpretation of
APB Opinion No. 25". FIN 44 clarifies the application of Opinion No. 25 for
(a) the definition of employee for purposes of applying Opinion No. 25, (b)
the criteria for determining whether a plan qualifies as a noncompensatory
plan, (c) the accounting consequences of various modifications to the terms of
a previously fixed stock option or award, and (d) the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions cover specific events that
occur after either December 15, 1998, or January 12, 2000. The new rules
require the intrinsic value of the unvested awards be allocated to deferred
compensation and recognized as non-cash compensation expense over the
remaining future vesting period. The adoption of certain provisions of FIN 44
prior to March 31, 2000 did not have a material impact on the financial
statements. The Company has adopted these new rules for acquisitions accounted
for as purchase business combinations after July 1, 2000.
12
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ITEM 2--Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
Virata Corporation's ("Virata", "we" or the "Company") predecessor company,
Virata Limited, was formed in 1993 as Advanced Telecommunications Modules
Limited, a corporation organized in the United Kingdom, as a spin-out from the
Olivetti Research Laboratories (now AT&T Laboratories). Until 1995, we were a
development-stage company focused primarily on product development. From our
first production revenue shipment in April 1995 through March 1996, we focused
on developing and delivering ATM-based, board-level systems primarily for
local area network applications. In mid-1996, we began licensing our software
suite and selling our semiconductors to developers of broadband access
products. In September 1997, we ceased development of our systems products and
focused exclusively on expanding our software offering and developing
additional semiconductors for the broadband marketplace with a focus on the
digital subscriber line, or DSL, market. In February 1998, our predecessor
company changed its name to Virata Limited. In July 1998, Virata Limited
acquired RSA Communications, Inc., a corporation organized in North Carolina.
RSA Communications was subsequently renamed Virata Raleigh Corporation.
Effective October 3, 1999, Virata Limited changed its fiscal year such that
each quarter ends on the Sunday closest to the calendar quarter end.
On November 16, 1999, we completed a reorganization of Virata Limited,
pursuant to which:
. each of Virata Limited's previously outstanding ordinary and preference
shares were cancelled;
. Virata Limited issued 64,811,364 new ordinary shares to Virata
Corporation, a newly formed Delaware corporation, thereby becoming our
wholly-owned subsidiary;
. we assumed all of the outstanding options and warrants of Virata
Limited;
. we effected a 1 for 6.7 reverse stock split of our common stock; and
. we issued 29,344,096 shares of our common stock to the former
shareholders of Virata Limited.
The reorganization was effected pursuant to a share reconstruction under
Section 425 of the United Kingdom Companies Act of 1985.
On November 16, 1999, we completed our initial public offering of
11,500,000 shares of our common stock, including the exercise of the
underwriters' overallotment option, at $7.00 per share. Net proceeds to us
were $73.4 million.
On February 10, 2000, we completed the acquisition of D2 Technologies, a
provider of digital voice and telephony software solutions. On April 27, 2000,
we completed the acquisition of Inverness Systems, a provider of networking
software solutions. On August 16, 2000, we completed the acquisition of
Agranat Systems, a supplier of web technologies and networking management
software. On August 22, 2000, we completed the acquisition of Excess
Bandwidth, a developer of advanced algorithms and mixed-signal semiconductors
for high-bandwidth symmetric DSL applications.
On March 21, 2000, the Board of Directors approved a two-for-one split of
our common stock that was applicable to stockholders of record on May 4, 2000.
The stock split, approved by our stockholders on May 1, 2000, was effective
May 18, 2000. Unless specifically noted otherwise, all references to share and
per share data for all periods presented have been adjusted to give effect to
this split.
On July 13, 2000, we completed our follow-on offering of 6,855,000 shares
of our common stock, including the exercise of the underwriters' overallotment
option, at $71.00 per share. Total proceeds to us were approximately $461
million, net of commissions and offering costs. In addition, certain of our
stockholders sold an aggregate of 620,000 shares of our common stock in the
follow-on offering pursuant to the same terms on which the Company's shares
were sold.
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Our revenues to date have been concentrated with a small number of
customers. We expect this concentration to continue. For the three months
ended October 1, 2000, Westell Technologies accounted for 33.5% of our total
revenues. For the three months ended October 3, 1999, Orckit Communications
for 61.4% of our total revenues. For the six months ended October 1, 2000,
Westell Technologies accounted for 33.7% of our total revenues. For the six
months ended October 3, 1999, Orckit Communications and Com21 accounted for
51.5% and 11.6%, respectively, of our total revenues.
International revenues accounted for 41.1% of our total revenues for the
three months ended October 1, 2000, and 67.1% of our total revenues for the
three months ended October 3, 1999. For the six months ended October 1, 2000,
and October 3, 1999, international revenues accounted for 35.7% and 57.2%
respectively. Almost all of our international revenues are transacted in U.S.
dollars, which reduces our exposure to fluctuations in revenues attributable
to changes in foreign currency exchange rates. Our material costs are
denominated in U.S. dollars, and our operating expenses are primarily in U.S.
dollars, British pounds sterling, and Israeli shekel.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------- ---------------------
October 1, October 3, October 1, October 3,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues by Geographic Region
North America.................. 58.9% 32.9% 64.3% 42.8%
Asia........................... 24.5% 4.1% 24.4% 3.3%
Europe......................... 13.0% 1.7% 8.9% 2.4%
Israel......................... 3.6% 61.3% 2.4% 51.5%
</TABLE>
We recorded a charge for National Insurance Contribution on options based
on a tax applied in the United Kingdom on the gain in our stock price for
stock options granted to our United Kingdom employees, both vested and
unvested. The charge is calculated on each option granted in the United
Kingdom as the difference between the market value of our common stock at the
close of the period and the exercise price of the option multiplied by a 12.2%
tax rate. Due primarily to the significant movement in our stock price from
each reporting date, the charges recorded during the three and six month
periods ended October 1, 2000 were $1.7 million and
$4.2 million, respectively. For the three months ended October 1, 2000, the
allocation of the $1.7 million charge by department is approximately $400,000
to research and development, approximately $200,000 to sales and marketing,
and approximately $1.1 million to general and administrative. For the six
months ended October 1, 2000, the allocation of the $4.2 million charge by
department is approximately $1.0 million to research and development,
approximately $700,000 to sales and marketing, and approximately $2.5 million
to general and administrative.
In October 2000, EITF of the FASB reached a consensus on Issue No. 00-16,
"Recognition and Measurement of Employer Payroll Taxes on Employee Stock-Based
Compensation", whereby employer payroll taxes should be recognized as a
liability when the tax obligation is triggered, which is generally the date
the stock option is exercised. To date, the Company has estimated and recorded
its liability for the National Insurance Contribution based upon total
outstanding stock options held by its employees in the United Kingdom.
Beginning in the quarter ending December 31, 2000, the Company will record an
additional liability only upon the exercise of options granted subsequent to
October 1, 2000 to employees in the United Kingdom.
Our limited operating history in the DSL market makes it difficult to
forecast our future operating results accurately. To date, we have not
achieved profitability in any quarterly or annual period, and as of October 1,
2000, we had an accumulated deficit of $179.8 million. Although our total
revenues have grown in recent quarters, we cannot be certain that our total
revenues will increase at a rate sufficient to achieve and maintain
profitability.
14
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Forward-looking Statements
This Report contains a number forward-looking statements that reflect our
current views with respect to future events and financial performance. We use
words such as "anticipates," "believes," "expects," "future," and "intends,"
and similar expressions to identify forward-looking statements. You should not
place undue reliance on these forward-looking statements, which apply only as
of the date of this Quarterly Report. These forward-looking statements are
subject to risks and uncertainties that could cause actual results to differ
materially from historical results or our predictions. These risks are
described in "Risk Factors" below and elsewhere in this Quarterly Report.
Results of Operations
Total Revenues
Total revenues increased to $42.2 million for the three months ended
October 1, 2000, from $3.0 million for the three months ended October 3, 1999.
Total revenues increased to $69.9 million for the six months ended October 1,
2000, from $5.7 million for the six months ended October 3, 1999.
Semiconductor revenues increased to $36.2 million for the three months
ended October 1, 2000, compared to $2.1 million for the three months ended
October 3, 1999. For the six months ended October 1, 2000, semiconductor
revenues increased to $57.6 million, from $3.5 million for the six months
ended October 3, 1999. The increase is due to strong demand for DSL services,
which are being deployed globally by telecom service providers. As a growing
number of software licensees began initial trials and deployments of broadband
access devices, semiconductor revenues increased to 85.7% of total revenues
for the three months ended October 1, 2000, compared to 68.9% of total
revenues for the three months ended October 3, 1999. For the six months ended
October 1, 2000, semiconductor revenues increased to 82.4% of total revenues
compared to 61.5% of total revenues for the six months ended October 3, 1999.
License revenues increased to $4.0 million for the three months ended
October 1, 2000, from $254,000 for the three months ended October 3, 1999.
License revenues for the six months ended October 1, 2000 increased to $8.1
million, compared to $528,000 for the six months ended October 3, 1999.
License revenues also increased to 9.4% of total revenues for the three months
ended October 1, 2000, from 8.4% of total revenues for the three months ended
October 3, 1999. License revenues also increased to 11.6% of total revenues
for the six months ended October 1, 2000, compared to 9.3% of total revenues
for the six months ended October 3, 1999. The increase in license revenues
between the two three-month periods and the two six-month periods were
primarily a result of expanding our software licensee customer base and
additional license revenues earned by D2 Technologies, Inverness Systems and
Agranat Systems.
Services and royalty revenues increased to $1.2 million, or 2.8% of total
revenues, for the three months ended October 1, 2000, compared to $435,000, or
14.4% of total revenues, for the three months ended October 3, 1999. For the
six months ended October 1, 2000, services and royalty revenues increased to
$2.2 million, or 3.1% of total revenues, compared to $808,000, or 14.2% of
total revenues, for the six months ended October 3, 1999. The increase was due
primarily as a result of expanding our licensee customer base, including
additional licenses earned by D2 Technologies, Inverness Systems and Agranat
Systems, thus increasing our service revenues; and additional royalty revenues
generated by D2 Technologies, Inverness Systems and Agranat Systems.
Systems revenues increased to $913,000 for the three months ended October
1, 2000, compared to $249,000 for the three months ended October 3, 1999. For
the six months ended October 1, 2000, systems revenues increased to $2.0
million, compared to $848,000 for the six months ended October 3, 1999.
Although the systems revenues increased, systems revenue as a percentage of
total revenues decreased to 2.2% for the three months ended October 1, 2000
from 8.3% of total revenues for the three months ended October 3, 1999. For
the six
15
<PAGE>
months ended October 1, 2000, systems revenue as a percentage of total
revenues decreased to 2.9% from 14.9% of total revenues for the six months
ended October 3, 1999. This decrease was primarily due to our decision in
September 1997 to focus our sales and development efforts on semiconductor
devices for the DSL market.
Cost of Revenues and Gross Margin
Total cost of revenues consists primarily of costs paid to foundry vendors
to manufacture our semiconductors, costs attributable to design services,
software maintenance and operations expense. Cost of revenues increased to
$22.3 million, or 52.8% of total revenues, for the three months ended October
1, 2000, from $1.5 million, or 49.7% of total revenues, for the three months
ended October 3, 1999. Cost of revenues increased to $37.2 million, or 53.2%
of total revenues, for the six months ended October 1, 2000, from
$2.8 million, or 48.8% of total revenues, for the six months ended October 3,
1999.
Semiconductor gross margin decreased to 42.9% for the three months ended
October 1, 2000, from 45.5% for the three months ended October 3, 1999.
Semiconductor gross margin decreased to 39.7% for the six months ended October
1, 2000, from 44.4% for the six months ended October 3, 1999. The decrease in
semiconductor gross margin between the two three-month periods was due
principally to a continuing shift in product mix from our older Proton family
and Hydrogen product to the newer Helium products. The Helium products also
carried a lower average selling price than last year, resulting from increase
in production volume. The decrease in semiconductor gross margin between the
two six-month periods was primarily due to 1) a shift in product mix, 2) the
lower average selling price of Helium products, and 3) the impact of an
approximately $1.7 million inventory reserve for our older, lower margin
Hydrogen product. This end-of-life transition was successfully completed two
quarters earlier than we originally expected, allowing our customers to
accelerate the introduction of the newer, next-generation technology. We
believe our gross margin may continue to fluctuate, as semiconductors become a
greater percentage of total revenues, and because increased competition and
more consumer-oriented markets may put pressure on average selling price.
License gross margin was 88.3% for the three months ended October 1, 2000
and 92.8% for the six months ended October 1, 2000. This decrease was
primarily due to costs incurred with license contracts assumed following the
D2 Technologies, Inverness Systems, and Agranat Systems acquisitions. There
were no costs of revenues associated with our software license revenues for
the three and six months ended October 3, 1999.
Services and royalty gross margin was 37.4% for the three months ended
October 1, 2000 from 54.0% for the three months ended October 3, 1999.
Services and royalty gross margin was 56.9% for the six months ended October
1, 2000 from 58.2% for the six months ended October 3, 1999. The decrease in
services and royalty gross margins between the two three-month periods and the
two six-month periods were due to matching a portion of intangible
amortization expense reported as cost of service revenue against acquired
revenues from the D2 Technologies acquisition.
Systems gross margin increased to 49.7% for the three months ended October
1, 2000 from 32.9% for the three months ended October 3, 1999. Systems gross
margin increased to 54.6% for the six months ended October 1, 2000 from 42.1%
for the six months ended October 3, 1999. The increase was primarily due to
decreased operations support related to systems products and a narrower
systems product range.
Research and Development Expenses
Research and development expenses consist primarily of engineering staffing
costs and technology license fees. Research and development expenses increased
211.2% to $8.0 million for the three months ended October 1, 2000, from $2.6
million for the three months ended October 3, 1999. Research and development
expenses increased 154.6% to $13.1 million for the six months ended October 1,
2000, from $5.1 million for the six months ended October 3, 1999. The increase
was primarily due to the addition of research and development
16
<PAGE>
personnel as a result of accelerated new product development and the addition
of personnel as a result of the acquisitions of D2 Technologies, Inverness
Systems, Agranat Systems and Excess Bandwidth. For the three and six month
periods ended October 1, 2000, charges of approximately $400,000 and $1.0
million respectively were recorded for National Insurance Contribution on
options for the research and development group. This expense is listed
separately in our financial results and is calculated for stock options
granted to United Kingdom employees as the difference between the option
exercise price and the fair value of the underlying common stock at the
balance sheet date. See "National Insurance Contribution on Options" below.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of employee salaries, sales
commissions, travel and related costs, promotional materials and trade show
expenses. Sales and marketing expenses increased 514.3% to $6.0 million for
the three months ended October 1, 2000, from $973,000 for the three months
ended October 3, 1999. Sales and marketing expenses increased 445.5% to $10.3
million for the six months ended October 1, 2000, from $1.9 million for the
six months ended October 3, 1999. The increase was primarily due to the
addition of sales and marketing personnel and increased sales commissions
associated with higher revenues. In the three and six month periods ended
October 1, 2000, charges of approximately $200,000 and $700,000, respectively,
were recorded for National Insurance Contribution on options for the sales and
marketing group. See "National Insurance Contribution on Options" below.
General and Administrative Expenses
General and administrative expenses consist primarily of employee salaries
and costs associated with legal, accounting and other professional service
fees, bad debt expense as well as general corporate expenses. General and
administrative expenses increased 230.2% to $4.6 million for the three months
ended October 1, 2000, from $1.4 million for the three months ended October 3,
1999. General and administrative expenses increased 244.8% to $7.9 million for
the six months ended October 1, 2000, from $2.3 million for the six months
ended October 3, 1999. The increase was primarily due to increased staff and
the addition of costs as a result of being a publicly traded company. In the
three and six month periods ended October 1, 2000, charges of approximately
$1.1 million and $2.5 million, respectively, were recorded for National
Insurance Contribution on options for the general and administrative group.
See "National Insurance Contribution on Options" below.
National Insurance Contribution on Options
The charge for National Insurance Contribution on options is based on a tax
applied in the United Kingdom on the gain in our stock price for stock options
granted to our United Kingdom employees, both vested and unvested. The charge
is calculated on each option granted in the United Kingdom as the difference
between the market value of our common stock at the close of the period and
the exercise price of the option multiplied by a 12.2% tax rate. Due primarily
to the significant movement in our stock price from each reporting date, the
charges recorded during the three and six month periods ended October 1, 2000
were $1.7 million and $4.2 million, respectively. For the three months ended
October 1, 2000, the allocation of the $1.7 million charge by department is
approximately $400,000 to research and development, approximately $200,000 to
sales and marketing, and approximately $1.1 million to general and
administrative. For the six months ended October 1, 2000, the allocation of
the $4.2 million charge by department is approximately $1.0 million to
research and development, approximately $700,000 to sales and marketing, and
approximately $2.5 million to general and administrative.
In October 2000, EITF of the FASB reached a consensus on Issue No. 00-16,
"Recognition and Measurement of Employer Payroll Taxes on Employee Stock-Based
Compensation", whereby employer payroll taxes should be recognized as a
liability when the tax obligation is triggered, which is generally the date
the stock option is exercised. To date, the Company has estimated and recorded
its liability for the National Insurance Contribution based upon total
outstanding stock options held by its employees in the United Kingdom.
Beginning
17
<PAGE>
in the quarter ending December 31, 2000, the Company will record an additional
liability only upon the exercise of options granted subsequent to October 1,
2000 to employees in the United Kingdom.
Amortization of Intangible Assets
Amortization of intangible assets expense is related to the intangible
assets acquired in the July 1998 acquisition of RSA Communications, the
February 2000 acquisition of D2 Technologies, the April 2000 acquisition of
Inverness Systems, the August 2000 acquisitions of Agranat Systems and Excess
Bandwidth. Amortization of intangible assets for the three months ended
October 1, 2000 were approximately $16.6 million compared to $176,000 for the
three months ended October 3, 1999. Amortization of intangible assets for the
six months ended October 1, 2000 were approximately $26.5 million compared to
$370,000 for the six months ended October 3, 1999. The increase in both the
two three-month periods and the two six-month periods were primarily a result
of these recent acquisitions. We are amortizing the intangible assets over the
expected lives of the assets of between 24 to 60 months.
Amortization of Stock Compensation
Through October 1, 2000, we recorded a total of $23.3 million of unearned
stock compensation, of which approximately $18.6 million is related to the
assumption of unvested stock options from recent acquisitions of Excess
Bandwidth and Agranat Systems. We recognized amortization of stock
compensation of approximately $623,000 for the three months ended October 1,
2000, and $239,000 for the three months ended October 3, 1999. We recognized
amortization of stock compensation of approximately $773,000 for the six
months ended October 1, 2000, and $505,000 for the six months ended October 3,
1999. We are amortizing the unearned stock compensation over the vesting
period of the related options, generally 48 months.
Acquired In-Process Research and Development Expense
In connection with acquisitions completed during the six months ended
October 1, 2000, we recorded charges of $79.9 million and $81.1 million
associated with acquired in-process research and development for the three and
six month periods ended October 1, 2000, respectively. The amount was
determined by identifying research projects for which technological
feasibility had not been established and no alternative future uses existed as
of the respective acquisition dates. The values of these projects were charged
to operations at the time of acquisition.
The acquired in-process research and development for the three and six
month periods were attributable to the acquisition of the following companies:
$1.2 million to Inverness Systems in April 2000, $564,000 to Agranat Systems
in August 2000, and $79.3 million to Excess Bandwidth in August 2000. These
acquisitions were accounted for as purchase business combinations.
Interest Expense
Interest expense increased to $148,000 for the three months ended October
1, 2000 from approximately $43,000 for the three months ended October 3, 1999.
Interest expense also increased to $243,000 for the six months ended October
1, 2000 from $92,000 for the six months ended October 3, 1999. The increase in
interest expense was primarily due to interest expense associated with capital
equipment under our lease facility from acquisitions.
Interest and Other Income, Net
Interest and other income, net consists primarily of income earned on cash
and cash equivalents and short-term investments, and foreign exchange gains
and losses. Due to cash provided by our follow-on offering in July 2000, the
interest income for the three months ended October 1, 2000 increased to $7.3
million, from $59,000 for the three months ended October 3, 1999. Interest
income for the six months ended October 1, 2000 and
18
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October 3, 1999 was $8.4 million and $150,000, respectively. For the three and
six months ended October 1, 2000, foreign exchange gains were $82,000 and
$84,000. For the three and six months ended October 3, 1999, foreign exchange
losses were $719,000 and $333,000.
Liquidity and Capital Resources
We have financed our operations primarily through venture capital and
corporate investments in our convertible preferred stock and through our
initial public offering of common stock in November 1999, which have resulted
in approximately $142.0 million aggregate net proceeds to us. We completed a
follow-on offering of 6,855,000 shares of common stock, including the exercise
of the underwriters' overallotment option, at $71.00 per share on July 13,
2000. Total proceeds to us were approximately $461 million, net of commissions
and offering costs.
Our cash and cash equivalents together with our short-term investments
increased $449.7 million to $527.9 million for the six months ended October 1,
2000. The increase in these accounts was primarily due to cash generated from
public offerings. Our cash and cash equivalents increased $73.4 million to
$133.6 million for the six months ended October 1, 2000.
Net cash provided by operating activities for the six months ended October
1, 2000 of $883,000 was primarily due the provision for doubtful accounts and
returns of $323,000, depreciation and amortization of
$29.2 million, amortization of stock compensation of $773,000, acquired in-
process research and development expenses in connection with the acquisitions
of Inverness Systems, Agranat Systems and Excess Bandwidth of $81.1 million, a
decrease in other current assets of $1.2 million, and increases in accounts
payable, accrued liabilities, accrued employee benefits, accrued National
Insurance Contribution on options, deferred revenue and other long-term
liabilities of $12.3 million, $3.1 million, $101,000, $4.2 million, $591,000,
and $101,000, respectively. Net cash provided by operating activities for the
six months ended October 1, 2000 was partially offset by a net loss of $103.1
million, increases in accounts receivables, inventories, and other assets of
$18.4 million, $10.2 million, and $401,000 respectively. Net cash used in
operating activities for the six months ended October 3, 1999 of $5.1 million
was primarily due to net operating losses of $7.6 million, increases in
inventories and current assets of $430,000 and $174,000, and a decrease in
deferred revenue of $22,000, partially offset by provision for doubtful
accounts and returns of $157,000, depreciation and amortization of $1.2
million, amortization of stock compensation of $505,000, a decrease in
accounts receivable of $914,000, and increases in accounts payable and accrued
liabilities of $9,000 and $376,000.
Net cash used in investing activities was $389.6 million for the six months
ended October 1, 2000, which reflected $2.3 billion of purchase of short-term
investments, $2.0 million of purchase of investments, net purchases of
property and equipment of $4.8 million, and $6.5 million of cash used in
connection with our acquisitions of Inverness Systems, Agranat Systems, and
Excess Bandwidth, partially offset by sales of short-term investments of $1.9
billion. Net cash provided by investing activities was $702,000 for the six
months ended October 3, 1999, primarily due to sales of short-term investments
of $1.0 million, partially offset by net purchases of property and equipment
of $299,000.
Net cash provided by financing activities was $462.0 million for the six
months ended October 1, 2000. Net cash provided by financing activities was
attributable primarily to proceeds from the issuance of common stock through
our follow-on offering, employee stock purchase plan and employee stock option
plan of $462.5 million, partially offset by repayments on capital lease
obligations of $476,000. Net cash used by financing activities was $377,000
for the six months ended October 3, 1999 due to proceeds from issuance of
common stock of $37,000 less repayments on capital lease obligations of
$414,000.
Our working capital at October 1, 2000 was approximately $524.6 million as
compared to $70.6 million at April 2, 2000. Our current ratio increased to
12.7 to 1.0, as of October 2, 2000, from 4.8 to 1.0, as of April 2, 2000.
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We plan to continue to invest in our infrastructure, including information
systems, in order to gain efficiencies and meet the demands of our markets and
customers. We believe our current cash, cash equivalents, and short-term
investments will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for the next 12 months. Thereafter, if cash
generated from operations is insufficient to satisfy our long-term liquidity
requirements, we may seek to sell additional equity or debt securities or to
obtain an additional credit facility. If additional funds are raised through
the issuance of debt securities, these securities could have rights,
preferences and privileges senior to holders of common stock, and the terms of
any debt could impose restrictions on our operations. The sale of additional
equity or debt securities could result in additional dilution to our
stockholders, and additional financing may not be available in amounts or on
terms acceptable to us, if at all. If we are unable to obtain this additional
financing, we may be required to reduce the scope of our planned product
development and marketing efforts, which could harm our business, financial
condition and operating results.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133. "Accounting for Derivatives and
Hedging Activities." SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. In July 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133," SFAS
No. 137 deferred the effective date of SFAS No. 133 until fiscal years
beginning after June 15, 2000. Virata will adopt SFAS No. 133 during its
fiscal year ending March 31, 2002. To date, Virata has not engaged in
derivative or hedging activities. The Company does not expect the adoption of
SFAS No. 133 to have a material effect on its results of operations.
In December 1999, the Securities and Exchange Commission issued SAB 101,
"Revenue Recognition in Financial Statements." SAB 101 summarizes certain of
the Staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. The Company does not expect the
adoption of SAB 101 to have a material effect on its results of operations.
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44") "Accounting
for Certain Transactions Involving Stock Compensation, an Interpretation of
APB Opinion No. 25." FIN 44 clarifies the application of Opinion No. 25 for
(a) the definition of employee for purposes of applying Opinion No. 25, (b)
the criteria for determining whether a plan qualifies as a noncompensatory
plan, (c) the accounting consequences of various modifications to the terms of
a previously fixed stock option or award, and (d) the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions cover specific events that
occur after either December 15, 1998, or January 12, 2000. The new rules
require the intrinsic value of the unvested awards be allocated to deferred
compensation and recognized as non-cash compensation expense over the
remaining future vesting period. The adoption of certain provisions of FIN 44
prior to March 31, 2000 did not have a material impact on the financial
statements. The Company has adopted these new rules for acquisitions accounted
for as purchase business combinations after July 1, 2000.
Risk Factors
Risks Relating to Our Business
Because we have a limited operating history selling products to the digital
subscriber line, or DSL, market, we cannot be sure that we can successfully
implement our business strategy
We have not had a long history of selling our products to the DSL market or
generating significant revenues and many of our products have only recently
been introduced. Furthermore, we have limited historical financial data that
can be used in evaluating our business and our prospects and in projecting
future operating results. For example, we cannot forecast operating expenses
based on our historical results because they are limited, and we are instead
required to forecast expenses based in part on future revenue projections.
Most of our expenses are
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fixed in the short term and we may not be able to quickly reduce spending if
our revenue is lower than we had projected. Therefore net losses in a given
quarter could be greater than expected. In addition, our ability to forecast
accurately our quarterly revenue is limited, making it difficult to predict
the quarter in which sales will occur.
You must consider our prospects in light of the risks, expenses and
difficulties we might encounter because we are at an early stage of
development in a new and rapidly evolving market. Many of these risks are
described under the sub-headings below. We may not successfully address any or
all of these risks and our business strategy may not be successful.
Because we expect to continue to incur net losses, the price of our stock may
decline and we may not be able to implement our business strategy
We have not reported net income for any fiscal year since our incorporation
and have accumulated deficit of $179.8 million at October 1, 2000. We expect
to continue to incur net losses, and these losses may be substantial. Further,
we expect to incur substantial negative cash flow in the future. Accordingly,
our ability to continue to operate our business and implement our business
strategy may be hampered and the value of our stock may decline.
Because we may not be able to achieve or sustain profitability or positive
cash flow, the price of our stock may decline and we may not be able to
implement our business strategy
Due to our continuing substantial capital expenditures and product
development, sales, marketing and administrative expenses, we will need to
generate significant revenues to achieve profitability and positive cash flow.
We cannot be sure that we will be able to generate such revenues or achieve
profitability or positive cash flow. Even if we do achieve profitability and
positive cash flow, we may not be able to sustain or increase profitability or
cash flow on a quarterly or annual basis. Our ability to generate future
revenues will depend on a number of factors, many of which are beyond our
control. These factors include:
. the rate of market acceptance of high speed network access;
. the rate of market acceptance of our products and the demand for
equipment that incorporates our products;
. changes in industry standards governing DSL technologies;
. the extent and timing of new customer transactions;
. personnel changes, particularly those involving engineering and
technical personnel;
. regulatory developments; and
. general economic trends.
Due to these factors, we cannot forecast with any degree of accuracy what
our revenues will be in future periods and we may not be able to achieve or
sustain profitability or positive cash flow. Our ability to continue to
operate our business and implement our business strategy may thus be hampered
and the value of our stock may decline.
Because our operating results from quarter to quarter may fluctuate, the price
of our stock may decline
Our revenues, expenses and operating results have fluctuated in the past
and are likely to fluctuate significantly in the future on a quarterly and an
annual basis due to a number of factors, many of which are outside our
control. For example, our results of operations have been negatively affected
by the following:
. the loss of or decrease in sales to a major customer or failure to
complete significant transactions;
. the timing and size of semiconductor orders from, and shipments to, our
existing and new customers;
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. unexpected delays in introducing new or enhanced products, including
manufacturing delays;
. the volume and average cost of products manufactured; and
. the timing and size of expenses, including expenses of developing new
products and product improvements.
Accordingly, our revenues, expenses and results of operations could vary
significantly in the future, and you should not rely upon period-to-period
comparisons as indications of future performance. Such fluctuations may make
our stock unattractive to investors and result in a decline in the price of
our stock.
Because our business is dependent upon the broad deployment of DSL services by
telecommunications service providers, we may not be able to generate
substantial sales of our products if such deployment does not occur
Our products are incorporated in equipment that is targeted at end-users of
DSL technologies. Consequently, the success of our products may depend upon
the decision by telecommunications service providers to broadly deploy DSL
technologies and the timing of such deployment. If telecommunications service
providers do not offer DSL services on a timely basis or if there are
technical difficulties with the deployment of DSL services, sales of our
products may decline, which would have a negative effect on our results of
operations. Factors that may impact this deployment include:
. a prolonged approval process, including laboratory tests, technical
trials, marketing trials, initial commercial deployment and full
commercial deployment;
. the development of a viable business model for DSL services, including
the capability to market, sell, install and maintain DSL services;
. cost constraints, such as installation costs and space and power
requirements at the telecommunications service provider's central
office;
. evolving industry standards for DSL technologies; and
. government regulation.
Because our products are components of other equipment, if equipment
manufacturers do not incorporate our products in their equipment, we may not
be able to generate adequate sales of our products
Our products are not sold directly to the end-user; rather, they are
components of other products. As a result, we rely upon equipment
manufacturers to design our products into their equipment. We further rely on
this equipment to be successful. If equipment that incorporates our products
is not accepted in the marketplace, we may not achieve adequate sales volume
of our products, which would have a negative effect on our results of
operations.
Because the requirements of our customers frequently change, we may not be
able to anticipate trends in the markets for our products, which could result
in a decline in sales of our products
We must anticipate the price, performance and functionality requirements of
equipment manufacturers who design DSL equipment. We must also successfully
develop products that meet these requirements and make these products
available on a timely basis and in sufficient quantities. If we do not
anticipate trends in the DSL market and meet the requirements of manufacturers
of DSL equipment, we may be unable to generate substantial sales of our
products, which would have a negative effect on our results of operations.
While we have a strategy of licensing and partnering with as many key
participants in our markets as possible, some equipment manufacturers will be
more successful than others in developing and marketing their
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products that incorporate our semiconductor products and it is difficult for
us to predict which of these customers will generate revenues for us. Our
product sales are almost completely dependent upon the relative success of our
customers in the marketplace for high-speed network access equipment.
Because we depend on third party foundries to manufacture, assemble and test
our products, we may experience delays in receiving semiconductor devices
We do not own or operate a semiconductor fabrication facility. Rather, our
semiconductor devices are generally manufactured at independent foundries. We
intend to continue to rely on third-party foundries and other specialist
suppliers for all of our manufacturing, assembly and testing requirements.
However, these foundries are not obligated to supply products to us for any
specific period, in any specific quantity or at any specific price, except as
may be provided in a particular purchase order that has been accepted by one
of them. As a result, we cannot directly control semiconductor delivery
schedules, which could lead to product shortages, quality assurance problems
and increases in the costs of our products. In addition, we have occasionally
experienced delays in receiving semiconductor devices from foundries due to
foundry scheduling and process problems. To date, such delays have not had a
material effect on our results of operations. However, we may experience
delays in the future and we cannot be sure that we will be able to obtain
semiconductors within the time frames and in the volumes required by us at an
affordable cost or at all. Any disruption in the availability of
semiconductors or any problems associated with the delivery, quality or cost
of the fabrication assembly and testing of our products could significantly
hinder our ability to deliver our products to our customers and may result in
a decrease in sales of our products.
If the foundries we currently use are unable to provide us with
semiconductors, we may be required to seek a new manufacturer of our
semiconductors, and we cannot be certain that a new manufacturer of our
semiconductors will be available. Furthermore, switching to a new manufacturer
could require six months or more and would involve significant expense and
disruption to our business.
Because we depend on third party foundries, if there is a shortage in
worldwide foundry capacity, we may not be able to obtain sufficient
manufacturing capacity to meet our requirements
From time to time there may be shortages in worldwide foundry capacity due
to increases in semiconductor demand or other factors. In the event of such a
shortage, we may not be able to obtain a sufficient allocation of foundry
capacity to meet our product needs. In addition, such a shortage could
lengthen our products' manufacturing cycle and cause a delay in the shipments
of our products to our customers. This could ultimately lead to a loss of
sales of our products and have a negative effect on our results of operations.
Because we may be required to enter into financial and other arrangements with
foundries in order to secure foundry capacity, our earnings or the ownership
of our stockholders may be diluted
Allocation of a foundry's manufacturing capacity may be influenced by a
customer's size or the existence of a long-term agreement with the foundry. To
address foundry capacity constraints, other semiconductor suppliers that rely
on third-party foundries have utilized various arrangements, including equity
investments in or loans to independent component manufacturers, in exchange
for guaranteed production capacity, joint ventures to own and operate
foundries, or "take or pay" contracts that commit a company to purchase
specified quantities of components over extended periods. While we are not
currently a party to any of these arrangements, we may enter into such
arrangements in the future. We cannot be sure, however, that these
arrangements will be available to us on acceptable terms or at all. Any of
these arrangements could require us to commit substantial capital. The need to
commit substantial capital could require us to obtain additional debt or
equity financing, which could result in dilution to our earnings or the
ownership of our stockholders. We cannot be sure that this additional
financing, if required, would be available when needed or, if available, could
be obtained on terms acceptable to us.
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Because the manufacture of our products is complex, the foundries on which we
depend may not achieve the necessary yields or product reliability that our
business requires
The manufacture of our products is a highly complex and precise process,
requiring production in a highly controlled environment. Changes in
manufacturing processes or the inadvertent use of defective or contaminated
materials by a foundry could adversely affect the foundry's ability to achieve
acceptable manufacturing yields and product reliability. If the foundries we
currently use do not achieve the necessary yields or product reliability, our
customer relationships could suffer. This could ultimately lead to a loss of
sales of our products and have a negative effect on our results of operations.
Because we depend on a license from Advanced RISC Machines to manufacture
certain of our planned communicator processor products, our loss of or
inability to maintain the license could result in increased costs or delays in
the manufacturing of our products
Our communicator processor products feature embedded ARM RISC
microprocessors and, accordingly, are required to be manufactured under a
license from Advanced RISC Machines, or ARM, the owner of the intellectual
property to the ARM RISC microprocessor. In the past, we were required to use
foundries with an ARM license for the manufacture of our communicator
processor products. In June 1999, we obtained a per semiconductor design ARM
license, which means that we are now able to select foundry suppliers that
best meet our quality, delivery and cost objectives regardless of whether they
have their own ARM license or not. With this greater flexibility, we are able
to assume more of the manufacturing and quality control responsibilities,
including contracting for wafer processing, assembly and testing from separate
suppliers. If we lose or are unable to maintain the per semiconductor design
license, we would be required to seek alternative fabrication facilities in
our manufacturing of our communicator processor products. Without the ARM
license, the number of fabrication facilities we could use in our
manufacturing would be substantially reduced to those fabrication facilities
that themselves have been directly licensed by Advanced RISC Machines.
Accordingly, the loss of, or our inability to maintain the ARM license may
result in increased costs or delays in our ability to manufacture our products
and could harm our results of operations. In addition, ARM is only required to
indemnify us against intellectual property infringement claims up to a
specified dollar amount.
Because we rely on the technology of third parties, the loss of or inability
to obtain the third party technology could result in increased costs or delays
in the production or improvement of our products
We currently license technology of third parties to develop and manufacture
our products, including licenses from Advanced RISC Machines, Broadcom and
WindRiver. If any of these third party providers were to change their product
offerings or terminate our licenses, we would incur additional developmental
costs and, perhaps, delays in production, or be forced to modify our existing
or planned software product offerings, an expensive and time consuming
process. In addition, if the cost of any of these third party licenses or
products significantly increases, we could suffer a resulting increase in
costs or delays in our ability to manufacture our products or provide complete
customer solutions and this could harm our results of operations. We cannot be
sure that such third party licenses or substitutes will be available on
commercially favorable terms.
Because our customer base is concentrated, the loss of one or more of our
customers may result in a loss of a significant amount of our revenues
A relatively small number of customers account for a large percentage of
our total revenues. We expect this trend to continue. Our business will be
seriously harmed if we do not generate as much revenue as we expect from these
customers, experience a loss of any of our significant customers or suffer a
substantial reduction in orders from these customers. For the six months ended
October 1, 2000, Westell Technologies accounted for 33.7% of our total
revenues. For the six months ended October 3, 1999, Orckit Communications and
Com21 accounted for 51.5% and 11.6% of our total revenues, respectively. Our
future success depends in significant part upon the decision of our customers
to continue to purchase products from us. Furthermore, it is possible
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that equipment manufacturers may design and develop internally, or acquire,
their own semiconductor and software technology, rather than continue to
purchase semiconductors and software from third parties like us. If we are not
successful in maintaining relationships with key customers and winning new
customers, sales of our products may decline. In addition, because a
significant portion of our business has been and is expected to continue to be
derived from orders placed by a limited number of large customers, variations
in the timing of these orders can cause significant fluctuations in our
operating results.
Because manufacturers of DSL equipment may be reluctant to change their
sources of components, if we do not achieve design wins with manufacturers of
DSL equipment, we may be unable to secure sales from these customers in the
future
Once a manufacturer of DSL equipment has designed a supplier's
semiconductor and software into its products, the manufacturer may be
reluctant to change its source of semiconductors due to the significant costs
associated with qualifying a new supplier. Accordingly, our failure to achieve
design wins with manufacturers of DSL equipment which have chosen a
competitor's semiconductor could create barriers to future sales opportunities
with these manufacturers.
Because our customers are not subject to binding agreements, we cannot be
certain that we will sell any of our products
Achieving a design win with a customer does not create a binding commitment
from that customer to purchase our products. Rather, a design win is solely an
expression of interest by potential customers in purchasing our products and
is not supported by binding commitments of any nature. Accordingly, a customer
can choose at any time to discontinue using our products in their designs or
product development efforts. Even if our products are chosen to be
incorporated into a customer's products, we still may not realize significant
revenues from that customer if their products are not commercially successful.
Therefore, we cannot be sure that any design win will result in purchase
orders for our products, or that these purchase orders will not be later
canceled. Our inability to convert design wins into actual sales and any
cancellation of a purchase order could have a negative impact on our financial
condition and results of operations.
Because our customers may cancel orders, we may not be able to recoup expenses
incurred in anticipation of sales of our products
We work closely with our customers to determine their future product needs
and receive a rolling forecast for products. We have incurred and expect to
continue to incur expenses based upon these sales forecasts. However, our
customer purchase agreements generally contain no minimum purchase
requirements and customers typically purchase our products pursuant to short-
term purchase orders that may be canceled without charge if notice is given
within an agreed-upon period. Therefore, we cannot be sure that the actual
product revenues which we will receive will be commensurate with the level of
expenses that we will incur based on forecasts we receive from our customers
in any future period. As a result, cancellations, deferrals or reductions in
pending purchase orders could have a negative impact on our financial
condition and results of operations.
Because most of our revenues have been and will be derived from a limited
number of products, we may not be able to generate sufficient revenues to
sustain our business if any of these products fail to gain market acceptance
For the six months ended October 1, 2000, approximately 87.5%, 9.1% and
2.6%, respectively, of our semiconductor revenues were generated from sales of
our Helium, Hydrogen, and our Proton family products. We expect that our
Proton family and Hydrogen products will represent a diminishing proportion of
our total revenues while a substantial portion of our total revenues will be
derived from our Helium and Beryllium products in the foreseeable future.
Therefore, broad market acceptance of the Helium and Beryllium products is
critical to our success. We cannot be sure that our products will attain broad
market acceptance. The failure of our products to achieve broad market
acceptance could result in a decrease in our revenues, which would have a
negative impact on our results of operations and financial condition.
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Because our products typically have lengthy sales cycles, we may experience
substantial delays between incurring expenses related to research and
development and the generation of sales revenue and may not ultimately sell a
large volume of our products
It often takes more than one year, occasionally more than two years, for us
to realize volume shipments of our semiconductor products after we first
contact a customer. We first work with customers to achieve a design win,
which may take six months or longer, at which time we sell a source code
license. Our customers then complete the design, testing and evaluation of
their systems and begin the marketing process, a period which typically lasts
an additional three to six months or longer. As a result, a significant period
of time may elapse between our sales efforts and our realization of revenues,
if any, from volume purchasing of our products by our customers.
Because our products are complex, the detection of errors in our products may
be delayed, and if we deliver products with defects, our credibility will be
harmed, and the sales and market acceptance of our products may decrease
Our products are complex and may contain errors, defects and bugs when
introduced. If we deliver products with errors, defects or bugs, our
credibility and the market acceptance and sales of our products could be
significantly harmed. Furthermore, the nature of our products may also delay
the detection of any such error or defect. If our products contain errors,
defects and bugs, then we may be required to expend significant capital and
resources to alleviate these problems. This could result in the diversion of
technical and other resources from our other development efforts. Any actual
or perceived problems or delays may also adversely affect our ability to
attract or retain customers.
Because defects in our products may give rise to product liability claims
against us, we may be required to incur increased expenses and divert
management resources away from our operations
The existence of any defects, errors or failures in our products could lead
to product liability claims or lawsuits against us or against our customers.
In addition, we have agreed to indemnify certain of our customers in certain
limited circumstances against liability from defects in our products. A
successful product liability claim could result in substantial cost and divert
management's attention and resources, which would have a negative impact on
our financial condition and results of operations. Although we have not
experienced any product liability claims to date, the sale and support of our
products entail the risk of these claims.
Because we are introducing industry standard compliant chip sets, we may be
required to obtain licenses on adverse terms to sell industry standard
compliant chip sets
We have received correspondence, including a proposed licensing agreement,
from Amati Corporation (which was acquired by Texas Instruments) stating that
they believe that they own a number of patents that are required to be
compliant with the American National Standards Institute, or ANSI, standard
specification T1.413. This industry standard is based on the DMT line code. We
have introduced products that we believe are compliant with this industry
standard, and we may be required to obtain a license to these Amati patents.
We are currently evaluating Amati's patents and proposed licensing terms. If
these patents are valid and essential to the implementation of products that
are compliant with this industry standard, then Amati may be required to offer
us a license to use these patents on commercially reasonable, non-
discriminatory terms. If these patents are valid, but not essential to the
implementation of products that are compliant with this industry standard, and
they apply to our products and we do not modify our products so they become
non-infringing, then Amati would not be obligated to offer us a license on
reasonable terms or at all. If we are not able to agree on license terms and
as a result fail to obtain a required license, then we could be sued and
potentially be liable for substantial monetary damages or have the sale of our
products stopped by an injunction. We could also be subject to similar claims
like the Amati claim by third parties in the future.
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Because we have significant operations in countries outside of the United
States, we may be subject to political, economic and other conditions
affecting such countries that could result in increased operating expenses and
regulation of our products
Significant portions of our operations occur outside the United States. One
of our principal subsidiaries is incorporated under the laws of, and its
principal offices are located in, the United Kingdom. We also have a
subsidiary and sales office in Taipei, Taiwan and sales offices in several
other countries. In addition, on April 27, 2000, we completed the acquisition
of Inverness Systems, Ltd, a privately-held corporation based in Israel. Our
international operations are subject to a number of risks, including foreign
currency exchange rate fluctuations; longer sales cycles; multiple,
conflicting and changing governmental laws and regulations; protectionist laws
and business practices that favor local competition; difficulties in
collecting accounts receivable; and political and economic instability. In
addition, in September 1999, Taiwan was affected by a significant earthquake.
Recently there have been additional earthquakes and the risk of future
earthquakes is significant due to the proximity of major earthquake fault
lines in the area. Taiwan has also suffered from political unrest. Any future
earthquakes, fire, flooding or other natural disasters, political unrest,
labor strikes or work stoppages in Taiwan likely would result in the
disruption of our operations at that facility. Finally, as a result of our
acquisition of Inverness Systems, we are directly affected by the political,
economic and military conditions affecting Israel. Major hostilities involving
Israel, including current events, could significantly harm our business.
Israel's economy has been subject to numerous destabilizing factors, including
low foreign exchange reserves, fluctuations in world commodity prices,
military conflicts and civil unrest. Although Israel has entered into various
agreements with certain Arab countries and the Palestinian Authority, and
various declarations have been signed in connection with efforts to resolve
some of the economic and political problems in the Middle East, we cannot
predict whether or in what manner these problems will be resolved. In
addition, some of the officers and employees of Inverness are currently
obligated to perform annual reserve duty and are subject to being called to
active duty at any time under emergency circumstances. We cannot assess the
full impact of these requirements on our workforce or business should this
occur and we cannot predict the effect on us of any expansion or reduction of
their obligations.
Because we incur a charge for National Insurance Contribution on any gain in
the per share price of our stock for stock options granted to our United
Kingdom employees, a significant rise in our stock price may harm our results
of operations and cash flows
Under the laws of the United Kingdom, we must record a charge for National
Insurance Contribution on options incurred on any gain in our per share price
for stock options granted to our United Kingdom employees. The charge is
calculated in the United Kingdom as the difference between the market value of
our common stock at the close of the period and the exercise price of the
option multiplied by a 12.2% tax rate. The calculation is applied to all
options issued to our UK employees, vested and unvested. Due to the
significant movement in our per share price in the six months ended October 1,
2000, the charge recorded was $4.2 million, creating a cash payment obligation
payable upon exercise of vested options by a UK employee.
In October 2000, EITF of the FASB reached a consensus on Issue No. 00-16,
"Recognition and Measurement of Employer Payroll Taxes on Employee Stock-Based
Compensation", whereby employer payroll taxes should be recognized as a
liability when the tax obligation is triggered, which is generally the date
the stock option is exercised. To date, the Company has estimated and recorded
its liability for the National Insurance Contribution based upon total
outstanding stock options held by its employees in the United Kingdom.
Beginning in the quarter ending December 31, 2000, the Company will record an
additional liability only upon the exercise of options granted subsequent to
October 1, 2000 to employees in the United Kingdom. Accordingly, a significant
rise in our stock price may result in recorded charges that may harm our
results of operations and cash payment obligations.
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Because we sell a significant portion of our products in countries other than
the United States, we may be subject to political, economic and other
conditions affecting such countries that could result in increased reduced
revenue for our products
International revenues accounted for 35.7% of our total revenues for the
six months ended October 1, 2000. We expect that sales to our international
customers will continue to account for a significant portion of our total
revenues for at least the next 12 months. Accordingly, we are subject to the
political, economic and other conditions affecting countries or jurisdictions
other than the United States, including Israel, Europe and Asia. Any
interruption or curtailment of trade between the countries in which we operate
and their present trading partners, change in exchange rates or a significant
downturn in the political, economic or financial condition of these countries
could cause demand for and revenue from our products to decrease, cause our
costs of doing business to increase or subject us to increased regulation
including future import and export restrictions.
Because we have expanded rapidly and future expansion may be required, we may
lack the ability to manage this growth in our operations
We have rapidly and significantly expanded our operations, including the
number of our employees, the geographic scope of our activities and our
product offerings. Recently, we completed the acquisitions of D2 Technologies,
Inverness Systems, Excess Bandwidth, and Agranat Systems. Our continued
success will depend significantly on our ability to integrate these new
operations and new personnel. We expect that further significant expansion
will be required to address potential growth in our customer base and market
opportunities. If we are unable to manage growth effectively, we may not be
able to take advantage of market opportunities, develop or enhance our
products or our technical capabilities, execute our business plan or otherwise
respond to competitive pressures or unanticipated requirements. To
successfully manage the anticipated growth of our operations, we believe we
must effectively be able to:
. improve our existing and implement new operational, financial and
management information controls, reporting systems and procedures;
. hire, train and manage additional qualified personnel;
. expand and upgrade our core technologies; and
. effectively manage multiple relationships with our customers, suppliers
and other third parties.
Because Excess Bandwidth has not completed development of its chip designs, we
may not be able to effectively compete in the Symmetric DSL market
Excess Bandwidth has only recently begun testing of its first
communications processor designs. If the designs do not work as intended or
require substantial redesign, we may not be able to introduce these
communications processors as products and ship them to customers, or may be
delayed in our introduction of products. Excess Bandwidth's design of its
communications processors is dependent upon the efforts of Debajyoti Pal. The
loss of Dr. Pal's services for any reason would delay or prevent the
completion of the design of products by Excess Bandwidth. Excess Bandwidth
licenses the imbedded microprocessor for its communications processors from
MIPS Technologies, Inc. Loss of the MIPS license for any reason would require
a redesign of the communications processors currently under development by
Excess Bandwidth and could result in delay in introduction of products. If any
of these events occur we would not realize significant revenues from the
products under development by Excess Bandwidth.
We may engage in future acquisitions that could dilute our stockholders'
equity and harm our business, results of operations and financial condition
Recently, we completed the acquisitions of D2 Technologies, Inverness
Systems, Excess Bandwidth, and Agranat Systems.
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As part of our business strategy, from time to time, we expect to review
other opportunities to acquire and may acquire other businesses or products
that will complement our existing product offerings, augment our market
coverage or enhance our technological capabilities. Although we have no other
current agreements or negotiations underway with respect to any material
acquisitions, we may make additional acquisitions of businesses, products or
technologies in the future. However, we cannot be sure that we will be able to
locate suitable acquisition opportunities. The acquisitions that we have
completed, have agreed to complete and which we may complete in the future
could result in the following, any of which could seriously harm our results
of operations or the price of our stock:
. issuances of equity securities that would dilute our current
stockholder's percentages ownership;
. large one-time write-offs;
. the incurrence of debt and contingent liabilities;
. difficulties in the assimilation and integration of the operations,
personnel, technologies, products and the information systems of the
acquired companies;
. diversion of management's attention from other business concerns;
. contractual disputes;
. risks of entering geographic and business markets in which we have no or
only limited prior experience; and
. potential loss of key employees of acquired organizations.
Use of our products requires significant training and support and, because of
our limited resources, we may not be able to support the demand for our
products
The development of equipment using our products requires significant
training and support. If we are unable to provide this training and support
for our products, more time may be necessary to complete the implementation
process and customer satisfaction may be adversely affected. In addition, our
suppliers may not be able to meet increased demand for our products. We cannot
be sure that our systems, procedures or controls or those of our suppliers
will be adequate to support the anticipated growth in our operations or the
demand for our products. This may result in a decline in the sales of our
products and have a negative impact on our results of operations.
Our executive officers and key personnel are critical to our business, and
because there is significant competition for personnel in our industry, we may
not be able to attract and retain such qualified personnel
Our success depends to a significant degree upon the continued
contributions of our executive management team, and our technical, marketing,
sales customer support and product development personnel. The loss of
significant numbers of such personnel could significantly harm our business,
financial condition and results of operations. We do not have any life
insurance or other insurance covering the loss of any of our key employees.
Because our products are specialized and complex, our success depends upon
our ability to attract, train and retain qualified personnel, including
qualified technical, marketing and sales personnel. However, the competition
for personnel is intense and we may have difficulty attracting and retaining
such personnel. In addition, companies in the communications, software and
semiconductor industries have frequently made unfair hiring practices claims
against competitors who have hired away such companies' personnel. We cannot
be sure that these claims will not be made against us in the future as we seek
to hire qualified personnel, or that any of these claims would be decided in
our favor. We may incur substantial costs in defending ourselves against any
such claims, regardless of their merits.
29
<PAGE>
We have entered into employment agreements with our executive and certain
other key employees that provide for set terms of employment. In addition, all
of our employees in the United Kingdom and Israel have employment agreements
governed by the laws of the United Kingdom and Israel, respectively. Our
employment agreements do not contain anti-competition clauses.
Risks Relating to our Industry
Because the markets in which we compete are highly competitive and many of our
competitors have greater resources than we have, we cannot be certain that our
products will be accepted in the marketplace or capture market share
The market for software and communications semiconductor solutions is
intensely competitive and characterized by rapid technological change,
evolving standards, short product life cycles and price erosion. We expect
competition to intensify as current competitors expand their product offerings
and new competitors enter the market. Given the highly competitive environment
in which we operate, we cannot be sure that any competitive advantages enjoyed
by our products would be sufficient to establish and sustain our products in
the market. Any increase in price or other competition could result in erosion
of our market share, to the extent we have obtained market share, and would
have a negative impact on our financial condition and results of operations.
We cannot be sure that we will have the financial resources, technical
expertise or marketing and support capabilities to continue to compete
successfully.
We face competition from a variety of vendors, including software and
semiconductor companies, which generally vary in size and in the scope and
breadth of products and services offered. We also face competition from
customers' or prospective customers' own internal development efforts. Many of
the companies that compete, or may compete in the future, against us have
longer operating histories, greater name recognition, larger installed
customer bases and significantly greater financial, technical and marketing
resources. These competitors may also have pre-existing relationships with our
customers or potential customers. As a result, they may be able to introduce
new technologies, respond more quickly to changing customer requirements or
devote greater resources to the development, promotion and sale of their
products than we can. Our competitors may successfully integrate the
functionality of our software and communication processors into their products
and thereby render our products obsolete. Further, in the event of a
manufacturing capacity shortage, these competitors may be able to manufacture
products when we are unable to do so.
We believe our principal competitors include or will include Alcatel
Microelectronics, Analog Devices, Broadcom, Centillium Communications,
Conexant Systems, GlobeSpan, Intel, Lucent Technologies, Motorola and Texas
Instruments. In addition, there have been a number of announcements by other
semiconductor companies and smaller emerging companies that they intend to
enter the market segments adjacent to or addressed by our products.
Because the markets in which our customers compete are highly competitive, our
customers may not be successful and they may not continue to purchase our
products
Many of our customers face significant competition in their markets. If our
customers are unable to successfully market and sell their products which
incorporate our products, these customers may cease to purchase our products,
which may have a negative impact on our results of operations.
Because the markets in which we compete are subject to rapid changes, our
products may become obsolete or unmarketable
The markets for our products and services are characterized by rapidly
changing technology, short product life cycles, evolving industry standards,
changes in customer needs, growing competition and new product introductions.
If our product development and improvements take longer than planned, the
availability of our
30
<PAGE>
products would be delayed. Any such delay may render our products obsolete or
unmarketable, which would have a negative impact on our ability to sell our
products and our results of operations.
Because of changing customer requirements and emerging industry standards, we
may not be able to achieve broad market acceptance of our products
Our success is dependent, in part, on our ability, in a timely and cost-
effective manner, to:
. successfully develop, introduce and market new and enhanced products at
competitive prices in order to meet changing customer needs;
. respond effectively to new technological changes or new product
announcements by others;
. effectively use and offer leading technologies; and
. maintain close working relationships with our key customers.
We cannot be sure that we will be successful in these pursuits, that the
growth in demand will continue or that our products will achieve market
acceptance. Our failure to develop and introduce new products that are
compatible with industry standards and that satisfy customer requirements or
the failure of our products to achieve broad market acceptance could have a
negative impact on our ability to sell our products and our results of
operations.
Because the development of new products requires substantial time and expense,
we may not be able to recover our development costs
The pursuit of necessary technological advances and the development of new
products require substantial time and expense. Improvements to existing
products or the introduction of new products by us or our competitors have the
potential to replace or provide lower cost alternatives to our existing
products or render these products obsolete, unmarketable or inoperable. The
mere announcement of any improvement or new product could cause potential
customers to defer or cancel purchases of existing products and services.
Therefore, we cannot be sure that we will be able to recover the costs of the
development of our products or succeed in adapting our business to
advancements.
Because other high speed data transmission technologies may compete
effectively with digital subscriber line services, our products may not
achieve anticipated unit growth
DSL services are competing with a variety of different broadband data
transmission technologies, including cable modems, satellite and other
wireless technologies. If any technology that is competing with DSL technology
is more reliable, faster, less expensive or has other advantages over DSL
technology, then the demand for our semiconductors may decrease, which would
have a negative impact on our operating results.
Because price competition among our competitors and volume purchases by large
customers may result in a decrease in the average per unit selling price of
our products, our gross margins for our products may decline
We expect that price competition among our competitors and volume purchases
of our products at discounted prices will have a negative effect on our gross
margin for these products. We anticipate that average per unit selling prices
of DSL semiconductors will continue to decline as product technologies mature.
Since we do not manufacture our own products, we may be unable to reduce our
manufacturing costs in response to declining average per unit selling prices.
Many of our competitors are larger and have greater resources, and therefore
may be able to achieve greater economies of scale and would be less vulnerable
to price competition. Further, we expect that average per unit selling prices
of our products will decrease in the future due to volume discounts to our
large customers. These declines in average per unit selling prices will
generally lead to declines in our gross margins for these products.
31
<PAGE>
Because the measures on which we rely to protect our intellectual property
rights afford only limited protections, we may lose any competitive advantage
we may have
The measures on which we rely to protect our intellectual property afford
only limited protection and we cannot be certain that these safeguards will
adequately protect our intellectual property and other valuable competitive
information. In addition, the laws of some countries in which we sell or plan
to sell our products, including the Peoples' Republic of China, Korea and
certain other Asian countries, may not protect our proprietary rights as fully
as do the laws of the United States, the United Kingdom, or Israel. If we are
unable to adequately protect our proprietary rights, we may lose any
competitive advantage we may have over our competitors. This may have a
negative impact on sales of our products and our results of operations.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use trade secrets
or other information that we regard as proprietary. Our competitors may also
independently develop similar technologies. Moreover, through our
participation in various industry groups, we have entered into cross-licenses
for intellectual property necessary to the implementation of certain types of
standards-compliant products. Such cross-licenses may limit our ability to
enforce our intellectual property rights against competitors.
Because our industry is characterized by frequent litigation over intellectual
property rights, we may be required to incur substantial expenses and divert
management resources
The industries in which we compete are characterized by numerous
allegations of patent infringement among competitors. Such an infringement
claim could be asserted against us or by us in the future. The defense or
prosecution of any such claim could result in us incurring substantial
expenses and diverting significant management attention and other resources
away from our operations. In the event of an adverse result in any future
litigation or claim, we may be required to:
. pay substantial damages, including treble damages if we are held to have
willfully infringed on the intellectual property of another;
. halt the manufacture, use and sale of infringing products or technology;
. forfeit a competitive advantage;
. expend significant resources to develop non-infringing technology; or
. obtain licenses to the infringing technology, which may not be available
on commercially reasonable terms, or at all.
Because our products may be required to meet certain industry standards, we
may be required to pay substantial royalties to the owners of the intellectual
property underlying the standards
In order for us to comply with the International Telecommunications Union
V.34, V.90 and ADSL standards, the software embedded in our current and
planned future products may use the proprietary technology of various parties
advancing or promoting these standards. Where such owners are members of such
working group or union, they must provide a license upon reasonable terms,
which may include the payment of a reasonable royalty. However, if such owners
are not members of such working group or union, there may be no limit on the
terms or the amount of the royalty with respect to such proprietary
technology. As a result, the cumulative effect of the terms and royalties with
respect to the use of the proprietary technology necessary to meet such
industry standards could increase the cost of our products to the point that
they are no longer competitive and could limit our ability to meet certain
industry standards.
32
<PAGE>
Because our products and those of our customers are subject to government
regulations, changes in current or future laws or regulations could cause
sales of our products to decline
The jurisdiction of the Federal Communications Commission, or FCC, extends
to the entire U.S. communications industry, including our customers and their
products and services that incorporate our products. Future FCC regulations
affecting the U.S. communications services industry, our customers or our
products may have a negative effect on our business. For example, FCC
regulatory policies that affect the availability of data and Internet services
may impede our customers' penetration into certain markets or affect the
prices that they are able to charge. This may cause sales of our products to
decline. In addition, international regulatory bodies have introduced new
regulations for the communications industry. Delays caused by our compliance
with regulatory requirements may result in order cancellations or
postponements of product purchases by our customers, which would have a
negative impact on our results of operations and financial condition.
Because The Nasdaq Stock Market is likely to experience extreme price and
volume fluctuations, the price of our stock may decline even if our business
is doing well
The stock markets, and in particular The Nasdaq Stock Market, have
experienced extreme price and volume fluctuations that have affected and
continue to affect the market prices of equity securities of many technology
companies. These fluctuations often have been unrelated or disproportionate to
the operating performance of those companies. We also expect that the market
price of our common stock will fluctuate as a result of variations in our
quarterly operating results. These fluctuations may be exaggerated if the
trading volume of our common stock is low. In addition, due to the technology-
intensive and emerging nature of our business, the market price of our common
stock may rise and fall in response to:
. announcements of technological or competitive developments;
. acquisitions or strategic alliances by us or our competitors;
. the gain or loss of a significant customer or order; and
. changes in estimates of our financial performance or changes in
recommendations by securities analysts.
Accordingly, market fluctuations, as well as general economic, political
and market conditions such as recessions, interest rate changes or
international currency fluctuations, may negatively impact the market price of
our common stock.
Because of likely fluctuations in the price of our stock we may be subject to
class action litigation, which could distract management and result in
substantial costs
In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market price of their
securities. We may be the target of similar litigation in the future.
Securities litigation could result in substantial costs and divert
management's attention and resources from our operations and sales of our
products, which would have a negative impact on our financial condition and
results of operations.
33
<PAGE>
ITEM 3--Quantitative And Qualitative Disclosure About Market Risk.
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we may
invest in may be subject to market risk. This means that a change in
prevailing interest rates may cause the principal amount of the investment to
fluctuate. For example, if we hold a security that was issued with a fixed
interest rate at the then-prevailing rate and the prevailing interest rate
later rises, the principal amount of our investment will probably decline. To
minimize this risk in the future, we intend to maintain our portfolio of cash
equivalents and short-term investments in a variety of securities, including
commercial paper, money market funds, government and non-government debt
securities and certificates of deposit. In general, money market funds are not
subject to market risk because the interest paid on such funds fluctuates with
the prevailing interest rate. As of October 1, 2000, all of our investments
were in money market funds, certificates of deposits, corporate debt
securities or commercial paper.
We develop products in the United Kingdom, the United States and Israel and
sell products in North America, Asia, Israel and Europe. As a result, our
financial results could be affected by factors such as changes in foreign
currency exchange rates or weak economic conditions. A strengthening of the
dollar could make our products less competitive in foreign markets, since all
of our sales are currently made in U.S. dollars. Management believes that the
market risk associated with the Company's market risk sensitive instruments as
of October 1, 2000 is not material.
34
<PAGE>
PART II--OTHER INFORMATION
ITEM 1--Legal Proceedings.
None.
ITEM 2--Changes In Securities and Use of Proceeds.
Virata acquired Agranat Systems, Inc. on August 16, 2000. In connection
with the acquisition, the Company issued 430,188 shares of its common stock to
the shareholders of Agranat Systems in exchange for all of the issued and
outstanding capital stock of Agranat Systems. The shares were issued pursuant
to exemptions under Section 4 (2) of the Securities Act of 1933, as amended.
These sales were made in private transactions without general solicitation or
advertising. Also in connection with the acquisition, the Company assumed
options to purchase 61,064 shares of its common stock. Virata filed a
Registration Statement on Form S-8 with respect to the shares of its common
stock issuable upon exercise of such options on October 2, 2000.
Virata acquired Excess Bandwidth Corporation on August 22, 2000. In
connection with the acquisition, the Company issued 5,702,731 shares of its
common stock to the shareholders of Excess Bandwidth in exchange for all of
the issued and outstanding capital stock of Excess Bandwidth. The shares were
issued pursuant to exemptions under Section 3(a)(10) of the Securities Act of
1933, as amended. Also in connection with the acquisition, the Company assumed
options and warrants to purchase 599,553 shares of its common stock. The
Company filed a Registration Statement on Form S-8 with respect to the shares
of its common stock issuable upon exercise of such options on October 2, 2000.
ITEM 3--Defaults Upon Senior Securities.
None.
ITEM 4--Submission Of Matters To A Vote Of Security Holders.
The Company held its Annual Meeting of Shareholders on September 21, 2000.
At the meeting, the Company's stockholders approved the following matters:
1. The election of ten directors of the Company for the terms set forth for
each director's respective class or until his successor is duly elected
and qualified.
<TABLE>
<CAPTION>
Class Expiration of Term
----- ------------------
<S> <C>
Class 1 Date of the Annual Meeting of Stockholders in 2003
Class 2 Date of the Annual Meeting of Stockholders in 2002
Class 3 Date of the Annual Meeting of Stockholders in 2001
</TABLE>
<TABLE>
<CAPTION>
Class Votes For Withheld
----- ---------- ---------
<S> <C> <C> <C>
Charles Cotton 1 43,493,436 392,040
Peter Morris 1 43,532,570 352,906
Bandel Carano 1 43,546,919 338,557
Hermann Hauser 1 42,845,521 1,039,955
Marco De Benedetti 2 43,482,916 402,560
Gary Bloom 2 40,507,058 3,378,418
Professor Andrew Hopper 2 43,497,265 388,211
Martin Jackson 3 43,497,113 388,363
Patrick Sayer 3 43,546,767 338,709
Giuseppe Zocco 3 43,546,919 338,557
</TABLE>
35
<PAGE>
2. The Proposal to approve an amendment to the Company's Amended and Restated
1999 Stock Incentive Plan to increase the aggregate number of shares of
the common stock of the Company currently issuable thereunder from 9.6
million to 13.6 million shares.
<TABLE>
<CAPTION>
Votes
Votes For Against Withheld Abstentions Non-Votes
--------- ---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
31,213,217 2,481,233 0 486,772 9,704,254
3. The ratification of the selection of the firm of PricewaterhouseCoopers
LLP to serve as independent auditors of the Company for the fiscal year
ending April 1, 2001.
<CAPTION>
Votes
Votes For Against Withheld Abstentions Non-Votes
--------- ---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
31,741,271 12,138,899 0 5,306 0
</TABLE>
ITEM 5--Other Information.
None.
ITEM 6--Exhibits And Reports On Form 8-K.
<TABLE>
<CAPTION>
Exhibits
--------
<C> <S>
2.1 Agreement and Plan of Merger among Virata Corporation, Excess
Bandwidth Corporation, VC Acquisition, Inc., and Steve Dines, as
Securityholder Agent, dated as of June 20, 2000+*
2.2 Agreement and Plan of Merger dated as of July 24, 2000 among Virata
Corporation, Agranat Systems, Inc., Agranat Acquisition, Inc. and
Owen Robbins, as Securityholder Agent. +**
3.1 Amended and Restated Certificate of Incorporation of Virata
Corporation, as filed with the Secretary of State of State of
Delaware on November 17, 1999***
3.2 Certificate of Amendment of Amended and Restated Certificate of
Incorporation of Virata Corporation, as filed with the Secretary of
State of State of Delaware on May 2, 2000***
3.3 Amended and Restated Bylaws of Virata Corporation, as currently in
effect***
27.1 Financial Data Schedule
</TABLE>
--------
+ Filed without schedules
* Incorporated by reference to the Company's Current Report on Form 8-K
filed on June 22, 2000
** Incorporated by reference to the Company's Current Report on Form 8-K
filed on August 4, 2000
*** Incorporated by reference to the Company's Form 10-K for the fiscal year
ended April 2, 2000 filed on June 6, 2000
36
<PAGE>
Reports on Form 8-K
The Company filed four reports on Form 8-K during the three months ended
October 1, 2000. Information regarding the items reported on is as follows:
<TABLE>
<CAPTION>
Date Item Reported On
---- ----------------
<C> <S>
August 4, 2000 The Company announced its agreement to acquire Agranat
Systems, Inc.
August 7, 2000 The Company announced its financial results for the first
quarter of fiscal 2001 ended July 2, 2000.
August 30, 2000 The Company announced the completion of its acquisition of
Agranat Systems, Inc.
September 6, 2000 The Company announced the completion of its acquisition of
Excess Bandwidth Corporation.
</TABLE>
37
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
VIRATA CORPORATION
/s/ Charles Cotton
Date: November 14, 2000 By __________________________________
Charles Cotton
Chief Executive Officer
(Principal Executive Officer)
/s/ Andrew Vought
Date: November 14, 2000 By __________________________________
Andrew M. Vought
Chief Financial Officer,
Senior Vice President Finance and
Administration and Secretary
(Principal Accounting Officer)
38
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger among Virata Corporation, Excess
Bandwidth Corporation, VC Acquisition, Inc. and Steve Dines, as
Securityholder Agent, dated as of June 20, 2000+*
2.2 Agreement and Plan of Merger dated as of July 24, 2000 among Virata
Corporation, Agranat Systems, Inc., Agranat Acquisition, Inc. and
Owen Robbins, as Securityholder Agent.+**
3.1 Amended and Restated Certificate of Incorporation of Virata
Corporation as filed with the Secretary of State of the State of
Delaware on May 2, 2000***
3.2 Certificate of Amendment of Amended and Restated Certificate of
Incorporation of Virata Corporation, as filed with the Secretary of
State of State of Delaware on May 2, 2000***
3.3 Amended and Restated Bylaws of Virata Corporation, as currently in
effect***
27.1 Financial Data Schedule
</TABLE>
--------
+ Filed without schedules
* Incorporated by reference to the Company's Current Report on Form 8-K
filed on June 22, 2000
** Incorporated by reference to the Company's Current Report on Form 8-K
filed on August 4, 2000
*** Incorporated by reference to the Company's Form 10-K for the fiscal year
ended April 2, 2000 filed on June 6, 2000
