<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date Of Report (Date Of Earliest Event Reported): August 16, 2000
VIRATA CORPORATION
(Exact Name Of Registrant As Specified In Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 000-28157 77-0521696
(State Or Other Jurisdiction Of (Commission File Number) (IRS Employer Identification No.)
Incorporation)
</TABLE>
2933 BUNKER HILL LANE, SUITE 201
SANTA CLARA, CALIFORNIA 95054
(Address Of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (408) 566-1000
================================================================================
<PAGE>
ITEM 2 -- Acquisition or Disposition of Assets.
On August 30, 2000, Virata Corporation, a Delaware corporation (the
"Registrant"), filed a Current Report on Form 8-K to report the Registrant's
acquisition of all of the outstanding capital stock of Agranat Systems, Inc., a
Massachusetts corporation. On August 16, 2000, Virata completed the acquisition
for an aggregate purchase price of approximately $27.2 million, paid in the form
of the Registrant's common stock. The purchase price was based on a fair market
value per share of the Registrant's common stock of $55.07.
This amendment to the Registrant's Current Report on Form 8-K is being filed to
include the Financial Statements and Pro Forma Financial Information required by
Item 7 of Form 8-K.
ITEM 7 -- Financial Statements, Pro Forma And Exhibits.
(a) Financial Statements of Businesses Acquired.
The financial statements of Excess Bandwidth Corporation have been included
within the Registrants Registration Statement on Form S-1 (No. 333-39912)
Report of Independent Accountants
To the Board of Directors and Stockholders of
Agranat Systems, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of changes in redeemable preferred stock and stockholders' deficit
and of cash flows present fairly, in all material respects, the financial
position of Agranat Systems, Inc. (the "Company") at December 31, 1999 and 1998,
and the results of its operations and its cash flows for each of the two years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
June 22, 2000, except for Note K,
as to which the date is July 24, 2000
<PAGE>
Agranat Systems, Inc.
Balance Sheets
December 31, 1999 and 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 53,431 $ 259,030
Investments - 100,000
Accounts receivable, net of allowance for doubtful accounts of
$20,000 at December 31, 1999 and 1998 197,667 277,070
Prepaid expenses and other current assets 17,373 56,769
------------ ------------
Total current assets 268,471 692,869
------------ ------------
Property and equipment, net 149,723 185,185
Other assets 30,592 30,000
------------ ------------
Total assets $ 448,786 $ 908,054
------------ ------------
Liabilities, Redeemable Preferred Stock and
Stockholders' Deficit
Current liabilities:
Accounts payable 91,282 122,354
Accrued expenses 330,238 193,235
Notes payable 42,387 -
Due to bank 18,000 -
Current portion of long-term obligations 393 1,779
Deferred revenue 250,603 215,249
Customer deposit 76,800 76,800
------------ ------------
Total current liabilities 809,703 609,417
Long-term obligations, less current portion - 749
Commitments and contingencies (Notes A, H, I and J)
Redeemable preferred stock:
Series A convertible mandatorily redeemable preferred stock, $.01
par value; with 759,953 and 621,779 shares authorized; 656,322
and 621,779 shares issued and outstanding at December 31, 1999
and 1998, respectively 1,614,361 1,425,861
Series B convertible mandatorily redeemable preferred stock, $.01
par value; 92,116 shares authorized, issued and outstanding at
December 31, 1999 191,929 -
------------ ------------
Total redeemable preferred stock 1,806,290 1,425,861
Stockholders' deficit:
Common stock, $.001 par value; authorized 2,500,000 shares,
1,362,175 and 1,297,900 shares issued and outstanding
at December 31, 1999 and 1998, respectively 1,352 1,298
Treasury stock, at cost; 151,250 shares at December 31, 1999 (650) -
Accumulated deficit (2,167,909) (1,129,271)
------------ ------------
Total stockholders' deficit (2,167,207) (1,127,973)
------------ ------------
Total liabilities, redeemable preferred stock and
stockholders' deficit $ 448,786 $ 908,054
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Agranat Systems, Inc.
Statements of Operations
For the Years Ended December 31, 1999 and 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Revenues $1,892,352 $1,734,488
Cost of revenues 497,810 135,996
---------- ----------
Gross profit 1,394,542 1,598,492
---------- ----------
Operating expenses:
Product development and engineering 711,051 726,712
Selling and marketing 1,175,248 1,021,614
General and administrative 426,631 398,047
---------- ----------
Total operating expenses 2,312,930 2,146,373
Loss from operations (918,388) (547,881)
Other income (expense), net (1,058) 15,567
Interest income (expense), net (21,530) 13,337
---------- ----------
Loss before income tax expense (940,976) (518,977)
Provision for income taxes 456 10,976
---------- ----------
Net loss $ (941,432) $ (529,953)
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Preferred Stock and Stockholders' Deficit
December 31, 1999 and 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series A Series B
Convertible Mandatorily Convertible Mandatorily
Redeemable Redeemable
Preferred stock Preferred stock
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Balance at December 31, 1997 621,779 $ 1,317,861
Exercise of stock options
Accrued cumulative dividends for Series A preferred stock 108,000
Net loss
-------- ---------- ------- ---------
Balance at December 31, 1998 621,779 1,425,861
Issuance of Series B preferred stock 92,116 $ 200,000
Issuance of warrants (12,071)
Exercise of stock options
Conversion of promissory notes to
Series A preferred stock 34,543 75,000
Accrued cumulative dividends for Series A and B
preferred stock 113,500 4,000
Purchase of treasury stock
Net loss
-------- ---------- ------- ---------
Balance at December 31, 1999 656,322 $ 1,614,361 92,116 $ 191,929
======== =========== ======= =========
<CAPTION>
Common Stock Treasury Stock
Shares Amount Shares Cost
<S> <C> <C> <C> <C>
Balance at December 31, 1997 1,098,000 $ 1,098
Exercise of stock options 199,900 200
Accrued cumulative dividends for Series A preferred stock
Net loss
---------- ------- -------- ------
Balance at December 31, 1998 1,297,900 1,298
Issuance of Series B preferred stock
Issuance of warrants
Exercise of stock options 54,275 54
Conversion of promissory notes to
Series A preferred stock
Accrued cumulative dividends for Series A and B
preferred stock
Purchase of treasury stock 151,250 $ (650)
Net loss
---------- ------- -------- ------
Balance at December 31, 1999 1,362,175 $ 1,352 151,250 $ (650)
========== ======= ======== ======
<CAPTION>
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Deficit
Balance at December 31, 1997 $ (492,176) (491,078)
Exercise of stock options $ 858 1,058
Accrued cumulative dividends for Series A preferred stock (858) (107,142) (108,000)
Net loss (529,953) (529,953)
------- ----------- -----------
Balance at December 31, 1998 (1,129,271) (1,127,973)
Issuance of Series B preferred stock
Issuance of warrants 12,071 12,071
Exercise of stock options 8,223 8,277
Conversion of promissory notes to
Series A preferred stock -
Accrued cumulative dividends for Series A and B
preferred stock (8,223) (109,277) (117,500)
Purchase of treasury stock (650)
Net loss (941,432) (941,432)
------- ----------- -----------
Balance at December 31, 1999 $ - $(2,167,909) $(2,167,207)
======= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Agranat Systems, Inc.
Statements of Cash Flows
For the Years Ended December 31, 1999 and 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (941,432) $ (529,953)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 40,339 28,158
Bad debt provision - 20,000
(Gain) loss on sale of equipment 1,058 (15,567)
Changes in operating assets and liabilities:
Accounts receivable 79,404 (197,987)
Prepaid expenses and other assets 38,804 (67,033)
Accounts payable (31,072) 116,295
Accrued expenses 137,003 107,058
Deferred revenue and customer deposits 35,354 220,382
---------- ----------
Net cash used in operating activities (640,542) (318,647)
---------- ----------
Cash flows from investing activities:
Purchase of investments - (100,000)
Maturity of investments 100,000 -
Purchase of property and equipment (4,049) (153,997)
Proceeds from sale of equipment 500 20,525
---------- ----------
Net cash provided by (used in) investing activities 96,451 (233,472)
---------- ----------
Cash flows from financing activities:
Proceeds from exercise of stock options 8,277 1,058
Proceeds from issuance of preferred stock 200,000 -
Proceeds from issuance of promissory notes 75,000 -
Purchase of treasury stock (650)
Proceeds from line of credit 40,000 -
Proceeds from accounts receivable factoring 18,000 -
Repayment of capital lease (2,135) (15,192)
---------- ----------
Net cash provided by (used in) financing activities 338,492 (14,134)
---------- ----------
Net decrease in cash and cash equivalents (205,599) (566,253)
Cash and cash equivalents, beginning of year 259,030 825,283
---------- ----------
Cash and cash equivalents, end of year $ 53,431 $ 259,030
---------- ----------
Supplemental cash flow information:
Interest paid $ 16,825 $ 1,575
Income taxes paid $ 456 $ 10,976
Supplemental disclosure of noncash investing and financing activities:
Equipment acquired under capital lease $ 2,260 $ -
Conversion of promissory notes to preferred stock $ 75,000 $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Agranat Systems, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------
A. Nature of Business
Agranat Systems, Inc. (the "Company") was incorporated in January 1991. The
Company develops and licenses a portable, real-time, embedded Web server
and development architecture for Web-managed products.
The accompanying financial statements have been prepared on a basis which
contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. The Company has generated
limited revenues and incurred losses from operations since inception. The
future viability of the Company is dependent on its ability to obtain
additional customer orders, enhance development and commercialization of
its products, and manage its expenditures in order to maintain positive
cash and working capital through the year ending December 31, 2000. The
Company will require increased customer orders in order to continue its
planned operations beyond fiscal 2001. Management has the intent and
ability to manage expenditures, if necessary, and believes that, based on
its ability to generate a significant order from one customer subsequent to
December 31, 1999, will be able to meet its obligations in the normal
course of business through December 31, 2000.
B. Summary of Significant Accounting Policies
Cash, Cash Equivalents and Investments
The Company considers all highly liquid financial instruments purchased
with a maturity at acquisition of 90 days or less to be cash equivalents.
Cash equivalents are valued at cost plus accrued interest which
approximates fair value. Investments in debt securities are carried at
amortized cost which approximates fair value.
Property and Equipment
Property and equipment are stated at cost. The Company provides for
depreciation and amortization using the straight-line method over their
estimated useful lives as follows:
Estimated
Asset classification useful life
Furniture and fixtures 7 years
Office and computer equipment 5 years
Leasehold improvements 5 years
Repairs and maintenance are charged to expense as incurred. Upon retirement
or sale, the cost of the asset disposed of and the related accumulated
depreciation are removed from the accounts and any resulting gain or loss
is credited or charged to income.
Revenue Recognition
Revenue from software license fees is recognized upon execution of a
contract and the completion of all delivery obligations provided that
collectibility is deemed probable. Revenue from maintenance contracts is
recognized ratably over the term of the contract, which is typically twelve
months. Consulting service revenue is recognized when services are
performed. Customer deposit at December 31, 1999 represents an amount
payable to a customer due to the termination of a contract for consulting
services.
<PAGE>
Agranat Systems, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------
Income Taxes
The Company follows the liability method for accounting for income taxes.
Under this method, deferred tax assets and liabilities are recognized based
on temporary differences between the financial statement and tax basis of
assets and liabilities using current statutory tax rates. A valuation
allowance is required to offset any deferred tax assets if, based upon
weighted available evidence, it is more likely than not that some or all of
the deferred tax assets will not be realized.
Software Development
Research and development costs are charged to expense as incurred.
Capitalization of software development costs begins upon establishment of
technological feasibility and ceases when the product is available for
general release to customers. Amortization of capitalized software costs is
recognized on a straight-line basis over the estimated economic lives of
the related products or the amount computed using the ratio of current
gross revenues for a product to the total of current and anticipated future
gross revenues for that product, whichever is greater. The Company has not
capitalized any software development costs as the eligible amounts were
immaterial.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Concentrations of Credit Risk
The Company's financial instruments that are exposed to concentration of
credit risk consist primarily of cash equivalents and trade receivables.
The Company maintains its cash accounts primarily with one bank, insured by
the F.D.I.C. up to $100,000. Trade receivables do not represent significant
concentration of credit risk to the Company due to the variety of customers
and markets into which the Company's products are sold. No single customer
accounted for a significant amount of the Company's sales or accounts
receivable in 1999 or 1998. The Company's allowance for uncollectible
accounts was $20,000 at December 31, 1999 and 1998. To date, the Company
has not experienced any losses resulting from uncollectible accounts.
Risks and Uncertainties
The Company's ability to attain profitable operations is dependent upon a
number of risk factors. The Company is subject to risks common to companies
in the software industry including, but not limited to, the development, by
the Company or its competitors, of new technological innovations, need for
additional funding, dependence on key personnel, risks related to
information technology and protection of proprietary technology.
Historically, the Company's revenues been derived from sales of one product
and the performance of consulting services to a limited number of customers
in a limited number of industries. The ability of the Company to generate
additional revenues and cash flows is dependent upon its ability to
continue to develop and enhance its products, attract additional customers
in existing and new markets for its product and services.
<PAGE>
Agranat Systems, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------
C. Property and Equipment
Property and equipment consists of the following at December 31,
1999 and 1998:
1999 1998
Furniture and fixtures $ 83,347 $ 83,347
Office and computer equipment 151,218 149,253
Leasehold improvements 1,715 1,715
--------- ---------
236,280 234,315
Accumulated depreciation and amortization (86,557) (49,130)
--------- ---------
Property and equipment, net $ 149,723 $ 185,185
--------- ---------
D. Income Taxes
No provision for income taxes is recorded due to the Company's net losses.
Net deferred tax assets result from temporary differences in the
recognition of expenses for financial statements and income tax purposes. A
full valuation allowance for the net deferred tax assets has been provided
due to the uncertainty surrounding the realization of these assets.
Components of the net deferred tax asset at December 31, 1999 and 1998 are
as follows:
1999 1998
Capitalized R&D expenses $ 373,900 $ 118,600
Net operating loss carryforwards 165,100 144,300
Depreciation and amortization (9,500) (5,400)
Accrual to cash adjustment 207,800 110,300
R&D credits 56,300 10,100
Foreign tax credit 10,500 10,500
--------- ---------
Gross deferred tax assets 804,100 388,400
Valuation allowance (804,100) (388,400)
--------- ---------
Net deferred tax asset $ - $ -
--------- ---------
At December 31, 1999, the Company has net operating loss carryforwards to
offset income taxes of approximately $412,000 which begin to expire in 2013
and 2003, for federal and state tax purposes, respectively. Foreign tax
credits and R&D credits expire in 2004 and 2013, respectively. Under
federal tax laws, certain changes in ownership, which may not be within the
Company's control, may restrict future utilization of these carryforwards.
<PAGE>
Agranat Systems, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------
E. Stockholders' Equity
Common Stock
Common stockholders are entitled to one vote for each share held, and to
receive dividends if and when declared by the Board of Directors and
subject to and qualified by the rights of holders of the Preferred Stock.
The Company has not declared any common stock dividends since inception. At
December 31, 1999, treasury stock consisted of 150,000 shares purchased by
the Company from the founding shareholder and president and remaining 1,250
shares were purchased from an employee shareholder upon termination of
employment.
Redeemable Preferred Stock
Redeemable preferred stock consists of:
Series A, $.001 par value, $2.171176841 per share liquidating
preference plus unpaid dividends accruing at $0.17369415 per share on
an annual basis. 759,953 designated, 656,322 issued and outstanding
shares at December 31, 1999.
Series B, $.001 par value, three times $2.171176841 per share
liquidating preference plus unpaid dividends accruing at $0.17369415
per share on an annual basis. 92,116 designated, issued and
outstanding shares at December 31, 1999.
In October 1999, the Company issued 92,116 shares of Series B
convertible redeemable preferred stock, for proceeds of $200,000.
Voting
Preferred stockholders are entitled to votes equal to the number
of shares of common stock into which the preferred stock is
convertible.
Conversion
The holders of Series A and Series B Preferred Stock are
entitled, at any time, to convert any shares of Series A and
Series B Preferred Stock into the same number of fully paid and
nonassessable shares of common stock. In addition, the preferred
stock will convert immediately prior to the closing of an initial
public offering of the Company's common stock, which results in
aggregate net proceeds top the Company exceeding $10,000,000 and
a per share price of at least $6.51353052 per share.
Cumulative Dividends
The Series A and B Preferred Stockholders are each entitled to
receive dividends at a per annum rate of $0.17369415 per share,
appropriately adjusted for stock dividends or splits, when and if
declared by the Company's Board of Directors. Through December
31, 1999, no dividends have been declared by the Company. The
preferred stockholders are entitled to receive all cumulative
unpaid dividends prior to the payment of any dividends on the
Company's common stock. At January 31, 2000 dividends in arrears
on Series A and Series B were $221,500 and $4,000, respectively.
Mandatory Redemption Rights
On September 30, 2002, September 30, 2003 and September 30, 2004,
the Company is required to redeem any outstanding shares of
Series A and Series B Preferred Stock at 33 1/3%, 50% and 100%,
respectively. The redemption price is equal to $2.171176841 per
share plus all accrued and unpaid dividends, if any, whether or
not declared.
<PAGE>
Agranat Systems, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------
Liquidation
In the event of any liquidation, dissolution or winding up of the
Company, the holders of the Series A Preferred Stock are entitled to
receive a liquidation amount before any distribution of the Series A
Preferred Stock are entitled to receive a liquidation amount before
any distribution or payment is made to any junior stock. The holders
of Series A Preferred Stock are entitled to receive an amount equal to
the greater of: (i) $2.171176841 per share plus any accruing dividends
unpaid and any other dividends declared but unpaid, or (ii) an amount
payable had each share been converted to common stock pursuant to
Series A Preferred Stock agreement. Series A Preferred Stock shall
rank on liquidation junior to the Series B Preferred Stock.
Upon any liquidation, dissolution or winding up of the Company, the
holders of the Series B Preferred Stock have the option to (i) receive
a liquidation preference of three times $2.171176841 per share
(subject to adjustments), or (ii) convert the Series B Preferred Stock
to common stock in the same fashion as the Series A Preferred Stock.
Series B Preferred Stockholders are ranked senior to the Series A
Preferred Stockholders and will receive distribution prior to holders
of Series A Preferred Stock.
Warrants
Pursuant to the issuance of Series B Preferred Stock in October 1999, the
Company issued warrants to purchase 301,104 shares of its common stock at a
price of $.10 per share, subject to certain anti-dilution adjustments.
These warrants are fully vested, exercisable at the option of the holders,
in whole or in part, and expire in October 8, 2009. The value of the
warrants was estimated based on the minimum value method.
Stock Restriction Agreements
The Company entered into Stock Restriction Agreements related to common
stock owned by certain directors and employees which give the Company the
right of first refusal to purchase the shares of a stockholder who intends
to sell them to a third party. An aggregate of 1,070,000 shares of common
stock at $.001 per share were issued pursuant to these agreements.
F. Stock Option Plan
At December 31, 1999, the Company had one stock option plan, the 1996 Stock
Option Plan (the "Plan") which is administered by the Board of Directors.
The Plan provides for the issuance of a maximum of 944,400 shares of Common
Stock.
Awards granted under the Plan may include incentive stock options,
nonqualified stock options, and restricted stock. For incentive stock
options (ISO's), the exercise price must be greater than or equal to the
fair market value of a share of Company stock on the date the ISO is
granted.
At December 31, 1999, all stock options have been granted with an exercise
price equivalent to the estimated fair value of the common stock as
established by the Company's Board of Directors. Stock options become
exercisable in varying installments as determined by the Board of Directors
at the time of grant. Options granted prior to the issuance of Series B
Preferred Stock generally become exercisable in equal annual installments
over four years after the date of grant and expire ten years after the date
of grant. Options granted subsequent to the issuance of Series B Preferred
Stock generally become exercisable in equal monthly installments over four
years after the date of grant and expire ten years after the date of grant.
<PAGE>
Agranat Systems, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------
In the event of a sale merger or acquisition of the Company which results
in a change of control of the Company, the vesting of options granted
subsequent to the issuance of Series B Preferred Stock, will automatically
be accelerated to 50% of the outstanding options.
The Company adopted the disclosure only provisions of SFAS 123, "Accounting
for Stock-Based Compensation" and has applied APB Opinion 25, "Accounting
for Stock Issued to Employees," and related Interpretations in accounting
for its stock option plans. Accordingly, no compensation cost has been
recognized in the Company's financial statements for its stock option plan
under SFAS 123. Had compensation cost for the Company's stock-based
compensation plans been determined based on the fair value at the grant
dates as calculated in accordance with SFAS 123, the Company's net loss for
the year ended December 31, 1999 and 1998 would have been increased as
indicated below:
1999 1998
Net loss:
As reported $ (956,432) $ (529,953)
Pro forma $ (960,071) $ (531,930)
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. Each year's grants are expensed over a number
of future years, commencing with awards granted in 1995 and additional
awards in future years are anticipated.
The fair value of each stock option is estimated on the date of grant using
the minimum value method option-pricing model with the following weighted-
average assumptions: an expected life of five years, no volatility, no
dividends and a risk free interest rate of 5.82% and 5.42% for 1999 and
1998, respectively. The weighted-average fair value of options granted were
$.18 and $.40 for 1999 and 1998, respectively. A summary of the status of
the Company's stock option plan as of December 31, 1999 is presented below:
Weighted
average
Number of exercise
shares price
Balance at December 31, 1997 341,600 $ .06
Granted 48,000 .40
Exercised (199,900) 0.004
Canceled - -
---------
Balance at December 31, 1998 189,700 .21
Granted 628,000 .18
Exercised (77,900) .10
Canceled (172,300) .25
---------
Balance at December 31, 1999 567,500 $ .18
---------
<PAGE>
Agranat Systems, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------- ---------------------------
Weighted Weighted Weighted
Range of average average average
exercise Number remaining exercise Number exercise
prices outstanding contract life price exercisable price
<S> <C> <C> <C> <C> <C>
$ .001 7,000 6.98 $ .001 7,000 $ .001
.100 399,375 9.75 .100 - -
.174 15,000 7.32 .174 7,500 .174
.400 146,125 8.89 .400 3,750 .400
-------------- -------- ------ ------ ------- ------
$ .001 - $.400 567,500 9.39 $ .170 18,250 $ .150
-------------- -------- ------ ------ ------- ------
</TABLE>
G. Benefit Plan
The Company sponsors a simplified defined contribution plan for
substantially all full-time employees. The Company's contribution is at the
discretion of the employer and allocation is based on participant's
compensation. The Company contributed $1,533 and $2,273 to the plan in 1999
and 1998, respectively.
H. Commitments
The Company leases its principal office and engineering facility under a
noncancelable operating lease that expires in September 2005. Future
minimum lease payments under the operating leases at December 31, 1999:
Operating
leases
2000 $ 241,146
2001 272,526
2002 275,625
2003 275,625
2004 275,625
----------
Total minimum lease payments $1,340,547
----------
Rent expense was approximately $226,000 and $59,000 for the year ended
December 31, 1999 and 1998, respectively.
In October of 1999, the Company entered into a sublease agreement for a
portion of its office space at its main headquarters. The lease term was
four months and terminated in January 2000. The sublease was extended on a
month-to-month basis subsequent to January 2000.
In December of 1999, the Company entered into a one-year capital lease for
$2,260.
<PAGE>
Agranat Systems, Inc.
Notes to Financial Statements
--------------------------------------------------------------------------------
I. Factoring Arrangement
In March 1999, the Company entered into an agreement to sell with recourse,
on an ongoing basis, selected accounts receivable to a financial
institution. Accounts receivable sold and subject to repurchase under this
program are included in liabilities in the accompanying balance sheet in
the amount of $18,000 as of December 31, 1999. The Company receives 80% and
the Silicon Valley retains a reserve of 20% of the receivable value upon
approval. The Company pays an 0.75% administration fee based upon the
original amount of the factored receivable and incurs interest at 1.75% per
month unless terminated by the Company or financial institution.
J. Related Party Transactions
The Company has a revolving line of credit with a bank under which it could
borrow up to $40,000 with interest at the bank's prime rate (8.5% at
December 31, 1999). Borrowings are payable on June 14, 2000 and are secured
by assets provided by the president, a major shareholder of the Company. At
December 31, 1999, $40,000 was outstanding under this line of credit.
In 1999, the Company issued two convertible promissory notes to immediate
family members of the President, a major shareholder, for $50,000 and
$25,000. The notes were converted into 34,543 shares of Series A Preferred
Stock in September 1999.
In 1998, the Company sold an asset to the President, a major shareholder.
The asset had a net book value of $4,958 and was sold for $20,525. The
Company recorded a gain on the sale of $15,567 which is included in other
income.
K. Subsequent Event
On July 24, 2000, the Company entered into an Agreement and Plan of Merger
under which all of the common and preferred stock of the Company will be
converted into the common stock of the acquiring entity.
<PAGE>
(b) Pro Forma Financial Information.
VIRATA CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(In thousands)
On August 16, 2000, Virata Corporation ("Virata") completed its acquisition of
Agranat Systems, Inc. ("Agranat Systems"). Under the terms of the merger
agreement, 430,188 shares of Virata common stock were exchanged for all of the
outstanding capital stock of Agranat Systems. In addition, employee options to
purchase shares of Agranat Systems common stock were exchanged for options to
purchase 61,064 shares of Virata common stock.
On August 22, 2000, Virata completed its acquisition of Excess Bandwidth
Corporation ("Excess Bandwidth"). Under the terms of the merger agreement,
5,702,731 shares of Virata common stock were exchanged for all of the
outstanding capital stock of Excess Bandwidth. In addition, options and
warrants to purchase shares of Excess Bandwidth common stock were exchanged
for options and warrants to purchase 599,553 shares of Virata common stock.
The acquisitions have been accounted for as purchase business combinations in
accordance with Accounting Principles Board ("APB") Opinion No. 16, "Business
Combinations." The aggregate purchase price of the acquisitions is as follows
(in thousands):
<TABLE>
<CAPTION>
Agranat Systems Excess Bandwidth Total
------------------- -------------------- ------------------
<S> <C> <C> <C>
Shares of Virata common stock $23,693 $285,030 $308,723
Options and warrants to purchase Virata
common stock 3,317 24,889 28,206
Direct acquisition costs 200 8,800 9,000
------- -------- --------
Total $27,210 $318,719 $345,929
======= ======== ========
</TABLE>
Under the terms of APB Opinion No. 16, the aggregate purchase price will be
allocated to the net tangible and identifiable intangible assets acquired and
liabilities assumed on the basis of their estimated fair values on the effective
date of the merger.
The accompanying unaudited pro forma condensed combined balance sheet combines
the unaudited consolidated balance sheet of Virata as of July 2, 2000, with the
unaudited balance sheets of Agranat Systems and Excess Bandwidth, each as of
June 30, 2000, and gives effect to the acquisitions as if they occurred on July
2, 2000.
The accompanying unaudited pro forma statement of operations for the three
months ended July 2, 2000 combines Virata's unaudited consolidated statement of
operations for the three month period ended July 2, 2000 with Agranat Systems'
unaudited statement of operations for the three month period ended March 31,
2000 and Excess Bandwidth's unaudited statements of operations for the three
month period ended June 30, 2000 and gives effect to the acquisitions as if they
occurred on April 3, 2000.
The accompanying unaudited pro forma condensed combined statement of operations
for the year ended April 2, 2000 combines Virata's audited consolidated
statement of operations for the year ended April 2, 2000 with Agranat Systems'
audited statement of operations for the year ended December 31, 1999 and Excess
Bandwidth's audited statement of operations for the year ended March 31, 2000
and gives effect to the acquisitions as if they occurred on April 1, 1999.
<PAGE>
VIRATA CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
Virata Agranat Systems Excess Bandwidth Pro Forma Pro Forma
July 2, 2000 June 30, 2000 June 30, 2000 Adjustments Combined
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 54,251 $ 81 $ 5,396 $ 59,728
Short-term investments 18,115 -- 18,115
Accounts receivable, net 16,219 545 -- 16,764
Inventories 2,284 -- -- 2,284
Other current assets 2,828 62 546 3,436
--------- -------- --------- --------- ----------
Total current assets 93,697 688 5,942 100,327
Property and equipment, net 4,328 137 3,090 7,555
Intangible assets 174,844 -- -- 241,547 A 416,391
Other assets 2,768 30 627 1,049
--------- -------- --------- --------- ----------
Total assets $ 273,261 $ 855 $ 9,659 $ 241,547 $ 525,322
========= ======== ========= ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,890 $ 213 $ 893 $ 9,996
Accrued liabilities 2,493 247 251 9,000 B 12,613
Accrued employee benefits 2,763 119 152 3,034
Accrued National Insurance
Contribution on options 6,718 -- -- 6,718
Deferred revenue 2,130 549 -- 2,679
Capital lease obligation, current 686 -- 669 1,355
--------- -------- --------- --------- ----------
Total current liabilities 24,302 1,128 1,965 9,000 36,395
Capital lease obligation, long-term 968 -- 1,581 2,549
--------- -------- --------- --------- ----------
Total liabilities 25,270 1,128 3,546 9,000 38,944
--------- -------- --------- --------- ----------
Stockholders' equity:
Common stock 49 1 349 (344) C,D 55
Convertible preferred stock -- 120 15,868 (15,988) C --
Accumulated dividends -- (70) -- 70 C --
Additional paid-in capital 337,340 1,564 5,859 329,500 C,D 674,263
Dividends payable - preferred
stock -- 225 -- (225) C --
Accumulated other comprehensive
income 664 -- -- -- 664
Unearned stock compensation (541) -- (5,638) (13,012) C,D (19,191)
Accumulated deficit (89,521) (2,113) (10,325) (67,454) C,E (169,413)
--------- -------- --------- --------- ----------
Total stockholders'
equity 247,991 (273 ) 6,113 232,547 486,378
--------- -------- --------- --------- ----------
Total liabilities and
stockholders' equity $ 273,261 $ 855 $ 9,659 $ 241,547 $ 525,322
========= ======== ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these pro forma condensed
combined financial statements.
<PAGE>
VIRATA CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------
July 2, 2000 March 31, 2000 June 30, 2000
Virata Pro Forma Pro Forma
Corporation Agranat Systems Excess Bandwidth Adjustments Combined
-------------------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 27,696 $ 323 $ -- $ 28,019
Cost of revenues 14,860 56 -- 14,916
---------------------------------------------------------------- -----------
Gross profit 12,836 267 -- -- 13,103
Operating expenses 26,505 433 3,143 18,271 F,G 48,352
---------------------------------------------------------------- -----------
Income (loss) from operations (13,669) (166) (3,143) (18,271) (35,249)
Interest and other income
(expense), net 884 (5) 30 909
---------------------------------------------------------------- -----------
Income (loss) before income taxes (12,785) (171) (3,113) (18,271) (34,340)
Provision for income taxes -- -- -- --
---------------------------------------------------------------- -----------
Net income (loss) $ (12,785) $ (171) $ (3,113) $(18,271) $ (34,340)
================================================================ ===========
Basic and diluted net loss per
share $ (0.26) $ (0.65)
=============== ===========
Weighted average common shares -
basic and diluted 48,417 4,651 H 53,068
=============== =========== ===========
</TABLE>
The accompanying notes are an integral part of these pro forma condensed
combined financial statements.
<PAGE>
VIRATA CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Twelve Months Ended
--------------------------------------------------
July 2, 2000 March 31, 2000 June 30, 2000
Virata Pro Forma Pro Forma
Corporation Agranat Systems Excess Bandwidth Adjustments Combined
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 21,777 $ 1,892 $ -- $ 23,669
Cost of revenues 11,239 497 -- 11,736
----------------------------------------------------------------- -----------
Gross profit 10,538 1,395 -- -- 11,933
Operating expenses 38,856 2,313 7,643 73,086 F,G 121,898
----------------------------------------------------------------- -----------
Income (loss) from operations (28,318) (918) (7,643) (73,086) (109,965)
Interest and other income
(expense), net 2,210 (23) 13 2,200
----------------------------------------------------------------- -----------
Income (loss) before income taxes (26,108) (941) (7,630) (73,086) (107,765)
Provision for income taxes -- -- -- --
----------------------------------------------------------------- -----------
Net income (loss) $ (26,108) $ (941) $ (7,630) $ (73,086) $ (107,765)
================================================================= ===========
Basic and diluted net loss per
share $ (1.40) $ (4.62)
============== ===========
Weighted average common shares -
basic and diluted 18,672 4,651 H 23,323
============== ========== ===========
</TABLE>
The accompanying notes are an integral part of these pro forma condensed
combined financial statements.
<PAGE>
Note 1 - Pro Forma Adjustments and Assumptions
The valuations of intangible assets acquired were based on independent
appraisals. Assuming that the acquisitions had occurred on July 2, 2000, the
purchase price allocations would have been as follows:
<TABLE>
<CAPTION>
Agranat Systems Excess Bandwidth Total
-------------------- --------------------- -------------
<S> <C> <C> <C>
Fair value of assets acquired and liabilities assumed $ (273) $ 6,113 $ 5,840
Workforce-in-place 730 1,504 2,234
Customer base 3,455 -- 3,455
Complete technology 9,170 68,426 77,596
In-process research and development 564 79,328 79,892
Deferred compensation resulting from
unvested options assumed 1,346 17,304 18,650
Goodwill 12,218 146,044 158,262
-------- --------- --------
Total $ 27,210 $ 318,719 $345,929
======== ========= ========
</TABLE>
(A) To reflect the recording of intangible assets associated with the
acquisitions of Agranat Systems and Excess Bandwidth.
(B) To reflect the accrual of estimated direct expenses resulting from the
acquisitions. These costs are primarily for financial advisory,
accounting and legal fees. The actual amounts ultimately incurred could
differ from the estimated amounts. The estimated expenses are reflected
in the unaudited combined balance sheet as a component of the purchase
price.
(C) To eliminate shareholders' equity accounts of Agranat Systems and Excess
Bandwidth.
(D) To reflect the issuance of the Virata's common stock and options for the
acquisitions of Agranat Systems and Excess Bandwidth.
(E) To reflect the write off of In-process research and development acquired
on the acquisitions of Agranat Systems and Excess Bandwidth.
(F) To reflect the amortization expense of intangible assets resulting from
the acquisitions of Agranat Systems and Excess Bandwidth, using estimated
useful lives of between three and five years and as if the acquisitions
occurred on April 1, 1999 and April 3, 2000 for the one year and three
month period ended April 2, 2000 and July 2, 2000, respectively.
(G) To reflect the amortization of unearned stock compensation arising from
the assumption of options of Agranat Systems and Excess Bandwidth,
generally over four years and as if the acquisitions occurred on April 1,
1999 and April 3, 2000 for the one year and three month period ended
April 2, 2000 and July 2, 2000, respectively.
(H) Pro forma weighted average shares used in the calculation of Virata pro
forma combined net loss per share have been computed by adding Virata's
historical weighted average shares outstanding to common shares issued
for the acquisitions of Agranat Systems and Excess Bandwidth. Pro forma
weighted average shares excludes shares issued that are subject to
repurchase by Virata.
<PAGE>
(c) Exhibits.
EX-23.1 Consent of Independent Accountants
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated as of October 30, 2000
VIRATA CORPORATION
By: /s/ Andrew M. Vought
--------------------------
Andrew M. Vought
Chief Financial Officer and Secretary
