<PAGE>

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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                   FORM 10-K

(MARK ONE)

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
   OF 1934

For the fiscal year ended April 1, 2001.

OR

[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
   ACT OF 1934

For the transition period from             to             .

                        Commission File Number: 0-28157

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

                               Virata Corporation
             (Exact name of Registrant as specified in its charter)

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

<TABLE>
<S>                                            <C>
                  Delaware                                       77-0521696
          (State of Incorporation)                   (IRS Employer Identification No.)
</TABLE>

            2700 San Tomas Expressway, Santa Clara, California 95051
          (Address of principal executive offices, including zip code)

       Registrant's telephone number, including area code: (408) 566-1000

          Securities Registered Pursuant To Section 12(b) Of The Act:

<TABLE>
<S>                                            <C>
             Title of each class                 Name of each exchange on which registered
             -------------------                 -----------------------------------------
                    None                                            None
</TABLE>

          Securities Registered Pursuant To Section 12(g) Of The Act:
                        Common Stock, $0.001 par value.

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

   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 [_]

   Indicate by a check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]

   The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of June 6, 2001, was approximately $595 million (based upon the
closing price for shares of the Registrant's Common Stock as reported by the
Nasdaq National Market for the last trading date prior to that date). Shares of
Common Stock held by each executive officer, director and holder of 5% or more
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.

   As of June 6, 2001, approximately 63,774,685 shares of the Registrant's
Common Stock, $0.001 par value, were outstanding.

                      Documents Incorporated by Reference:

   Portions of the definitive proxy statement for the Registrant's 2001 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof.

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<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          Page
                                                                         Number
                                                                         ------
 <C>      <S>                                                            <C>
 PART I

 Item 1   Business....................................................      1
 Item 2   Properties..................................................     32
 Item 3   Legal Proceedings...........................................     32
 Item 4   Submission Of Matters To A Vote Of Security Holders.........     32

 PART II

 Item 5   Market For Registrant's Common Stock And Related Stockholder     33
          Matters.....................................................
 Item 6   Selected Financial Data.....................................     34
 Item 7   Management's Discussion and Analysis of Results of
          Operations and Financial Condition..........................     36
 Item 7A  Quantitative and Qualitative Disclosures About Market Risk..     49
 Item 8   Financial Statements and Supplementary Data.................     51
 Item 9   Changes In and Disagreements With Accountants On Accounting
          and Financial Disclosure....................................     76

 PART III

 Item 10  Directors and Executive Officers of the Registrant..........     76
 Item 11  Executive Compensation......................................     76
 Item 12  Security Ownership of Certain Beneficial Owners and              76
          Management..................................................
 Item 13  Certain Relationships and Related Transactions..............     76

 PART IV

 Item 14  Exhibits, Financial Statement, Schedules and Reports on Form     76
          8-K.........................................................
</TABLE>

                                      (i)
<PAGE>

                                     PART I

ITEM 1--Business.

   In addition to historical information, this Annual Report on Form 10-K
contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ significantly from the results discussed in these
forward-looking statements. Factors that could contribute to such differences
include those discussed below and in "Risk Factors," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," as
well as those discussed elsewhere in this Annual Report.

Introduction

   Virata Corporation ("Virata" or "we") provides communications processors and
DSL physical-layer chips combined with integrated software modules to
manufacturers of equipment utilizing digital subscriber line, or DSL, and
broadband wireless technologies. These "integrated software on silicon"(TM)
product solutions enable our customers to develop a diverse range of equipment,
including modems, gateways, routers, fixed wireless receivers and base stations
targeted at the voice and high-speed data network access, or broadband, market.
We believe our systems expertise, products and support services enable
equipment manufacturers to simplify product development, reduce the time it
takes for products to reach the market and focus resources on product
differentiation and enhancement. We outsource the manufacturing of our
semiconductors, which allows us to focus our resources on the design,
development and marketing of our products.

   We were formed in 1993 as a spin-out from the Olivetti Research Laboratories
(now AT&T Laboratories) and until 1995, we were a development-stage company
focused primarily on product development. We initially focused on developing
and delivering ATM-based, board-level systems primarily for local area network
applications. However, 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 DSL market.

   In July 1998, we acquired RSA Communications, Inc. On November 16, 1999, we
reorganized our corporate structure and completed our initial public offering.
On February 10, 2000, we completed our acquisition of D2 Technologies Inc., a
provider of digital voice and telephony software solutions. On April 27, 2000
we completed our acquisition of Inverness Systems Ltd., a provider of
networking software solutions. On August 16, 2000, we completed our acquisition
of Agranat Systems, Inc., a provider of Web managed software products. On
August 22, 2000, we completed our acquisition of Excess Bandwidth Corporation,
a developer of symmetrical DSL physical-layer chips.

   On March 21, 2000, our Board of Directors approved a two-for-one split of
Virata's common stock that was applicable to stockholders of record on May 4,
2000. The stock split, approved by the Virata'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.

   On July 13, 2000, we completed our 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 Virata were approximately $461 million,
net of commissions and offering costs.

Industry Background

   The amount of data being carried over the Internet and private
communications networks has grown dramatically in recent years and is expected
to continue as the number of users accessing networks increases and as
businesses and consumers demand richer content and more complex applications
for activities, such as telecommuting, electronic commerce and interactive
media. These activities require the transmission of large amounts of data
which, in turn, requires high-speed, broadband data access services for end
users to obtain data reliably and within practical time constraints.

                                       1
<PAGE>

   To meet the demand for high-speed, broadband data transmission, network
service providers continue to install high-bandwidth fiber optic transmission
equipment, high-speed switches and core routers in the Internet backbone and in
interoffice networks. While this network backbone is capable of delivering data
at very high speeds, an access bottleneck exists between the telephone
companies' central offices and the end users' premises. The copper line
connections between the telecommunications service provider's central office
and the end user are commonly known as the local loop, or the last mile. The
last mile infrastructure was originally designed for low-speed analog voice
traffic, rather than high-speed digital data transmission. As a result, access
to the Internet and private communications networks over the copper wire
infrastructure of the last mile has typically been limited to data transmission
rates of up to 56 Kbps using standard dial-up analog modems, or 128 Kbps using
integrated services digital network, or ISDN, modems. At these rates, several
minutes may be required to access a media rich website, and several hours may
be required to transfer or download large files.

   In an effort to provide greater bandwidth in the local loop, network service
providers are deploying higher speed access services, such as frame relay or
T1/E1. However, the historical pricing structure has limited such services to
larger businesses. The passage of the Federal Telecommunications Act of 1996
started to change this historical pricing structure, as it intensified the
competitive environment by requiring incumbent local exchange carriers, or
ILECs, to lease portions of their networks, including the local loop, to other
telecommunications service providers. These changes in competitive structures
coincided with the maturation of DSL technology, enabling high-bandwidth data
networking over the existing local loop copper infrastructure. As a result, a
number of US companies are now deploying high-speed services using DSL
technologies. The growing deployment of high speed cable modems by cable system
operators provides additional pressure on the ILECs to accelerate their roll-
outs of competitively priced broadband services. Finally, and most visible
recently, with the intensifying competitive pressures in conventional telephone
services including long-distance telephony, telephone companies have been
turning to DSL services as a way to create a new source of revenue that
leverages their existing copper plant investment and customer relationships.
The requirement for new revenue flows is worldwide, resulting in the spread in
calendar 2000 of mass market deployments of DSL from North America to Europe
and Asia.

   DSL enables data transmission speeds of 128 kilobits per second, or Kbps, to
52 megabits per second, or Mbps, using the existing local loop copper wire
infrastructure. DSL delivers "always on" availability, eliminating the tedious
dial-up process associated with traditional analog modem technologies. It is a
point-to-point technology that connects the end user to a telecommunications
service provider's central office or to an intermediate hub. DSL equipment is
deployed at each end of the copper wire and the transmission speed depends on
the length and condition of the existing wire as well as the capabilities of
the DSL equipment.

   Data, voice and video can all be delivered over DSL, enabling service
providers to offer a wide range of new value-add services. To date, the focus
has been on the application of DSL technologies to deliver high-speed access to
the Internet. Within that domain, there is now significant pressure for
additional functionality in the form of access provided, notably: 1) IP-routing
at the access point, which enables the customer to use multiple-PCs or other
terminals for Internet access, and 2) Data Security (which itself is most
easily implemented as part of IP-router). These pressures for additional
functionality drive demand for the sophisticated, easy-to-use cost-effective
communications processing which Virata provides. Even more exciting
opportunities lie ahead with the introduction of voice and video over DSL
services. Home and office gateways that include voice telephony capabilities--
typically known as Integrated Access Devices or IADs--can deliver multiple
lines of toll-quality voice over a single twisted copper pair to the home or
business. Voice over DSL requires sophisticated voice processing algorithms,
highly capable call-control software to support the interface to the public
telephone system and advanced user features, as well as specially tuned and
extended network protocol software to ensure toll-quality audio. While the
technical challenges of voice IADs are substantial, voice support is fast
becoming the next major requirement for DSL equipment manufacturers.

                                       2
<PAGE>

   We believe that DSL implementations offer several attractive benefits over
other broadband technologies, including:

  .  Dedicated bandwidth. Some alternative high-speed data transmission
     solutions, such as cable, are shared-media systems where many users are
     attached to the same cable loop. As a result, existing users may suffer
     performance degradation or security breaches as new users are added to
     the network. Because each DSL connection is dedicated to a single user,
     DSL does not suffer from this kind of service degradation and enables a
     higher level of security.

  .  Broad coverage. As large numbers of businesses and homes in developed
     countries have installed copper telephone wire connections, DSL
     technologies can be made available to a large percentage of potential
     end users.

  .  Low cost. Because DSL uses the existing local loop connection, it is
     generally less expensive to deploy than other high-speed data
     transmission technologies. In addition, recent advances in technology
     development, industry standardization and competition are further
     enabling widespread, low-cost deployment of DSL.

  .  Scalable to customer requirements. DSL technology enables service
     providers to regulate the transmission speed for individual customers,
     allowing tiered pricing at various service levels. Service providers can
     then more efficiently segment their customer base.

  .  Natural upgrade from analog modems. DSL modems use the same phone port
     as analog modems, providing the user with a simple upgrade path.

   Fixed wireless serves similar needs to those served by DSL. First, and most
importantly, it provides high speed data access to the Internet. Second, it is
capable in some circumstances of supporting advanced applications such as
voice. We believe fixed wireless is most often deployed in the following
circumstances:

  .  If copper loop infrastructure is unsuitable, and in particular if the
     copper local loop is more than 18,000 feet long, then DSL cannot be
     used. Fixed wireless provides a cost effective way to serve those
     customers who are beyond the range of DSL technologies.

  .  In a sparsely populated area, it may be more effective to provide
     wireless than DSL broadband service.

  .  If there is a scarcity of copper local loop, then it can be quicker to
     deploy wireless because it does not involve placing physical
     infrastructure in the ground. This is often seen in emerging-economy
     markets.

  .  For service providers who neither own nor have access to fixed-line
     local loop infrastructure, fixed wireless enables them to create a
     broadband local loop product offering.

   Fixed wireless communications processing requirements are similar in many
respects to those of DSL communications processing, allowing Virata to leverage
its core investments in DSL communications processing technology into the
supplementary opportunity of fixed wireless.

   Equipment manufacturers encounter a number of challenges in their effort to
meet the demands of the growing broadband local-loop market. These challenges
include constantly evolving technology and networking standards, an expanding
range of feature expectations and shorter product life-cycles. To meet these
challenges and reduce the time it takes for their products to reach the market,
equipment manufacturers are increasingly relying on multiple third-party
vendors to deliver critical component building blocks that can be incorporated
into a complete DSL product.

   The analog front end receives and transmits the electronic signal and
converts that signal to either analog or digital streams. The physical layer
semiconductor, or PHY, together with its software, establishes, maintains and
controls the digital encoding and decoding of the signal and ensures reliable
transmission of information over the copper wire infrastructure. The layer 2
and 3 processor, combined with complex, multifunctional software modules, is
responsible for managing the addressing, routing, switching and protocol
conversions needed to encapsulate and route information packets.

                                       3
<PAGE>

   The integration of these individual components from multiple third-party
vendors can be a complex, time consuming and costly process. While today there
are a number of vendors which deliver a portion of either the hardware or
software building blocks, an opportunity exists for a supplier capable of
delivering higher levels of integration of both semiconductor and software
components.

The Virata Solution

   We provide a solution that combines communications processors and DSL PHYs
with integrated software modules to manufacturers of equipment utilizing DSL
and broadband wireless technologies. We believe that our systems expertise,
"integrated software on silicon"(TM) product solutions and support services
will enable our customers to simplify product development, reduce the time it
takes for products to reach the market and focus resources on product
differentiation and enhancement. Our communications processors perform system
functions that require real-time processing speed and are technically mature
and are thus less likely to change as standards evolve. Our proprietary
software is used for protocol processing, management and control of network and
semiconductor interfaces, allowing our communications processors to be fine
tuned or fully customized for specific applications. This approach delivers
off-the-shelf functionality for rapid development, scalability from single PCs
to complex edge routers and flexibility to add new features and quickly respond
to evolving standards. Key features of our solution include:

  .  Flexible design. Our products are based on a flexible design that
     simplifies the addition of features. This design enables new services
     such as voice, video and security to be added incrementally as broadband
     solutions evolve.

  .  High levels of feature integration. We offer semiconductor solutions
     which are PHY-independent or include a DSL PHY either integrated or as
     part of a chipset. Our PHY-independent devices use generic, industry
     standard interfaces that attach to any third party DSL physical layer
     semiconductor and some fixed wireless physical layer semiconductors,
     which are the other primary semiconductor components required for
     broadband access communications equipment. By being PHY-independent,
     these products offer OEMs the maximum flexibility to choose the PHY to
     match a wide array of applications within the broadband local loop. We
     believe that our PHY-included products, which incorporate a DSL PHY, are
     the most integrated DSL equipment solutions currently available and
     offer OEMs the most cost-effective solution for DSL equipment designs.

  .  Compelling price/performance. By designing software to run only on our
     semiconductors, we are able to achieve efficiency in silicon area and
     code size. The combination of these features results in high
     performance, low power consumption and compelling price/performance.

  .  Standards compliant. Our products are compliant with relevant ADSL
     Forum, ATM Forum, IETF, ITU and other industry standards. Such standards
     evolve over time and our products are designed to accommodate such
     changes.

   We believe our customers receive the following key benefits from using our
solutions:

  .  Faster time-to-market. Fewer building blocks to integrate results in
     shorter development and test cycles, lower engineering risks, faster
     product introduction and reduced development costs.

  .  Reduced product cost. Eliminating costly external components and
     reducing board space leads to lower product cost.

  .  Differentiation. Our customers' engineering resources can be focused on
     product differentiation through value-added features and innovations,
     rather than on elements contained in our solution.

  .  Platform for multiple products. Our modular software and hardware
     architecture enables the design of multiple products using different
     subsets of our modular software.

  .  Re-usability. As we add features and capabilities to our communications
     processors and software modules, software extensions developed by our
     customers can continue to be used on future generations of their
     products.

                                       4
<PAGE>

The Virata Strategy

   Our objective is to be the leading provider of communications processors
integrated with a comprehensive suite of related software to manufacturers of
voice and high-speed data network access equipment. Key elements of our
strategy include:

  .  Initial focus on DSL. We have extensive expertise in providing solutions
     that integrate communications processors with software for the content
     and connection enabling layers of the broadband communications network.
     While our core technologies are capable of supporting a number of
     broadband access alternatives, we have chosen to initially focus on the
     DSL market.

  .  License our software to all customers. By standardizing on our software,
     our customers build a foundation for integrating additional
     functionality and designing next generation products. We believe that
     once a customer employs our architecture and experiences the benefits of
     our systems expertise, we become that customer's preferred partner for
     future products.

  .  Leverage our flexible design. Our integrated solution provides us
     substantial flexibility to extend our existing products, whether at the
     software or semiconductor level, to meet evolving standards and features
     required by the market. This approach allows our customers to achieve
     faster time-to-market, lower development costs and focus engineering
     resources on proprietary product feature development.

  .  Deliver market-leading features and functionality, such as voice over
     DSL and network quality of service solutions. We are building on our
     core technologies to add market leading features and functionality,
     enhancing the value of our products. The first set of added features we
     are developing includes voice over DSL and network quality of service
     solutions.

  .  Pursue strategic acquisitions. Our strategy is to enhance our growth
     capability by pursuing selective acquisitions. This strategy allows us
     to more rapidly obtain complementary technologies and engineering talent
     and to access certain markets and key customer relationships. Consistent
     with this strategy, we have made a number of acquisitions to date,
     including RSA Communications, D2 Technologies, Inverness Systems,
     Agranat Systems and Excess Bandwidth. We believe completing further
     selective acquisitions will be important to remain competitive as a
     complete solutions provider to manufacturers of broadband access
     equipment.

  .  Leverage products and technologies into adjacent market spaces. Where
     our products and technology portfolio can be effectively leveraged into
     opportunities that are additional to DSL, we will seek to expand its
     revenues and net margin dollars by pursuing said opportunities. Our
     involvement in the fixed wireless broadband local loop is a current
     example.

Products

   We specialize in communications processors that are integrated with a
comprehensive suite of software for broadband local loop, including DSL,
equipment manufacturers. We offer solutions which are either PHY-independent or
include a DSL PHY. Our PHY-independent communications processors perform the
critical content encapsulation and content routing functionality required in
broadband local loop equipment, which is commonly referred to as layer 2 and
layer 3 processing. Our system combines multiple elements required for managing
the addressing, routing, switching and protocol conversions needed to
encapsulate and route information packets. Our PHY-inclusive solutions
incorporate all the functionality of the PHY-independent products together with
a DSL PHY all on the same semiconductor. This choice of a PHY-independent or
PHY-inclusive product, each featuring integration of a communications processor
and software, provides our customers a comprehensive, tested, self sufficient
solution that replaces semiconductors, software and support previously sourced
from multiple vendors.

 Semiconductor Products

   We offer four families of semiconductors products: the PHY-independent
communications processors; the PHY-integrated communications processors; non-
integrated PHY chips; and voice DSPs.

                                       5
<PAGE>

   In the PHY-independent communications processor part of the product range,
we feature products which combine dual CPUs for processing, hardware-
accelerators for additional performance, peripheral integration including PCI,
USB, and Ethernet, and flexible expansion interfaces to enable customers to add
capabilities such as home wireless networking.

<TABLE>
<CAPTION>
                                                                                     Introduction
Product                  Interfaces                    Target Applications               Date
-------                  ----------------------------  ----------------------------  ------------
<S>                      <C>                           <C>                           <C>
Helium.................. USB, Utopia 1/2, ADSL         DSL external modems,           June 1999
                         T1.432, EPB, HDLC and         gateways, routers, DSLAMs
                         10BaseT Ethernet              and DLC line cards

Lithium................. PCI, Utopia 1/2 and ADSL      DSL internal and external     October 1999
                         T1.432                        modems, gateways and set-top
                                                       boxes

Helium 200.............. USB, Utopia 1/2, ADSL         DSL external modems,          January 2001
                         T1.432, EPB, PCMCIA HDLC and  gateways, routers, DSLAMs
                         10/100 MII                    and DLC line cards

Helium 210.............. USB, Utopia 1/2, ADSL         DSL external modems,          January 2001
                         T1.432, EPB, PCMCIA HDLC,     gateways, routers, DSLAMs
                         10/100 MII and 10/100         and DLC line cards
                         Ethernet
</TABLE>

   We have also developed a new generation of products that combine ADSL PHY
layer processing along with the layer 2 and layer 3 functionality of Helium and
Lithium into a single highly integrated device. The first PHY-inclusive product
we have developed for this market is Beryllium. Beryllium is offered with a
separate analog front end semiconductor called Neon.

<TABLE>
<CAPTION>
                                                                                     Introduction
Product                  Interfaces                    Target Applications               Date
-------                  ----------------------------  ----------------------------  ------------
<S>                      <C>                           <C>                           <C>
Beryllium............... ADSL, PCI, USB and MII        ADSL external bridges,         March 2000
                         interfaces (for 10/100        routers and gateways
                         Ethernet and homephone-line
                         networking)

Neon.................... AFE-interface                 Analog front end for use      October 2000
                                                       with Beryllium
</TABLE>

   Beryllium takes the communications processing capabilities of Helium and
Lithium and adds an on-chip ADSL transceiver or PHY, eliminating a large and
expensive component from ADSL equipment. Representing the industry's first
"ADSL home router on a chip," we believe Beryllium can lower equipment costs by
a substantial amount. Using a Virata-patented invention, Beryllium has also
delivered superior performance at longer distances from the central office
versus the current generation of ADSL routers in performance tests undertaken
by Virata.

   Beryllium provides a highly integrated solution for ADSL bridges and
routers, with the ability to provide local area interfaces such as 10/100
Ethernet, HomePNA (using home telephone wiring for the home network), home
powerline, and home wireless. It is also well suited for voice IADs.

   Additionally, we market non-integrated PHY semiconductors, notably the
Aluminum 200 SHDSL. SHDSL is a new form of DSL that differs from ADSL
principally in providing symmetric (same data rate from the Internet and to the
Internet) service where ADSL provides asymmetric (higher data rate from the
Internet than to the Internet). SHDSL is also easier to "repeater" over very
long distances. SHDSL is finding its principal market in providing DSL service
to business, while ADSL is used primarily to provide consumer DSL. Aluminum 200
offers unique benefits of long reach, high performance, and high noise
tolerance in comparison to other SHDSL PHYs in the market. The product can be
sold on its own, but more typically is purchased as part of a chipset including
a Virata PHY-independent communications processor and networking software,
enabling a remarkably complete SHDSL equipment solution to be built using our
technology.

<TABLE>
<CAPTION>
                                                                                     Introduction
Product                  Interfaces                    Target Applications               Date
-------                  ----------------------------  ----------------------------  ------------
<S>                      <C>                           <C>                           <C>
Aluminum 200............ Serial data, 8-bit host,      SHDSL modems, bridges,          May 2001
                         Utopia, AFE-interface         routers
                                                       and gateways

Aluminum 200 AFE........ AFE-interface                 Analog front end for use        May 2001
                                                       with Aluminum 200
</TABLE>


                                       6
<PAGE>

   We market TI-compatible "Magnesium" voice DSP bundled with our industry-
leading voice-processing software. Magnesium, with its voice software, can be
purchased as a standalone product, but is most commonly purchased as part of a
chipset including a Virata communications processor and networking software.
The Magnesium plus Helium chipset plus comprehensive is marketed as "Azurite",
a solution for DSL voice IADs.

<TABLE>
<CAPTION>
                                                                                     Introduction
Product                  Interfaces                    Target Applications               Date
-------                  ----------------------------  ----------------------------  ------------
<S>                      <C>                           <C>                           <C>
Magnesium 02............ TDM and HPI                   Voice Processing                May 2000

Magnesium 04............ TDM and HPI                   Voice Processing                May 2000

Magnesium 09............ TDM and HPI                   Voice Processing                May 2000
</TABLE>

 Products Under Development

   We are developing new PHY-independent, PHY-inclusive and non-integrated PHY
semiconductors with higher feature content such as voice, video and security
capabilities and higher performance levels to meet the ever increasing demands
of broadband equipment manufacturers.

 Software

   Our extensive suite of software is key to providing flexible, off-the-shelf
communications processing solutions. Multiple software modules deliver
management and support for functions at the link, protocol and physical layers.
These modules either operate on top of ATMOS, our operating system kernel,
which is optimized for communications applications that run on ARM RISC
microprocessors, or on top of VxWorks, a general purpose and widely used
operating system kernel from Wind River Systems. The software provides our
customers a ready-to-deploy menu of over 50 modules to meet their specific
product requirements. Together, these modules complete a customized,
sophisticated system that supports multiple functions including quality of
service, system management, bridging, tunneling, address translation, signaling
and routing. Addition of the communications algorithms for the ITU DSL
standards complements the layer 2 and layer 3 code for our PHY-inclusive
solutions. We also offer customers a full set of software development tools
including compilers, linkers and other special-purpose tools.

   We are also expanding our software to address the increasing need for
security by adding firewall and IPSec capability, and to increase the
manageability of equipment built using our technology with software that
includes an embedded web server, auto-configuration of DSL services (T-37 and
OpenDSL), and the Universal Plug-and-Play ("UPnP").

   Certain Virata software modules, notably Virata's implementation of an
embedded web server ("EmWeb"), the universal plug-and-play protocol for
automatic configuration of networked devices (UPnP), an advanced IP-switching
stack (MPLS), and some voice algorithm software, have applicability beyond the
markets directly addressed by Virata's semiconductors. Accordingly, where
Virata sees long term business value, Virata sells these software items as
"Standalone Software Products", with the goals of both increasing revenues and
also spreading Virata's technology as widely as possible, which in turn assists
the company in addressing end-to-end networking issues as well as deepening
some important customer relationships.

Design and Support Services

   We offer a number of designs and support services which we believe add
substantial value to our product offerings. Our key services are detailed
below:

 Reference Design Services

   Our Customer Services and Solutions group specializes in speeding customers'
time to market by developing reference designs featuring board-level hardware
and software products from third parties.

                                       7
<PAGE>

Examples include modem solutions featuring ADSL PHYs supplied by ST
Microelectronics. We recently introduced a home-wireless router design kit
which teams our Helium processor with 802.11b wireless LAN technology from
Intersil.

 Technical Support Services

   Once customers have purchased a license for our software, they desire to
quickly and efficiently commence product development. We assist our customers
by providing training in the use of our semiconductors and software development
systems. Our Technical Advice Center delivers technical assistance to customers
and manages our extranet site, which is accessible to all of our customers,
through which we deliver new software and documentation and take action on bug
reports. Our technical consultants, field application engineers (FAEs) and, as
appropriate, development engineers assist our customers throughout the product
development cycle, and may include formal and informal design reviews.

 Evaluation Systems

   We help our customers accelerate their product development programs by
designing a board-level evaluation system for each application specific
standard parts ("ASSP") product. Typically, each time a new ASSP is introduced,
an evaluation system featuring the new product is made available to our
customers simultaneously with the first release to customers of the new
semiconductor. This approach provides an effective way for our customers to
evaluate the new semiconductor and its software while enabling designers to add
their own functionality.

Technology

   A key element of our success is our technology expertise which spans
physical, networking layer, protocol layer and voice processing and systems-
level knowledge. Our semiconductor and software architectures are designed to
enable the rapid, flexible development of new products to meet the evolving
feature, performance and standards compliance demands of the broadband access
market. A single-chip, multi-processor architecture was chosen as the most
flexible and cost-efficient approach to the complex challenge of satisfying the
requirements of:

  .  layer 2 and 3 processing for broad application across the different DSL
     technologies when used in conjunction with physical layer transceivers
     from third party vendors;

  .  integration of layer 2 and 3 processing with DSL processing on a single
     communications processor;

  .  processing support for an evolving range of services and applications
     such as high speed Internet access, corporate routing, voice services,
     security and encryption for Virtual Private Networks, or VPNs, and video
     distribution; and

  .  broad application of our solutions whether used in modems close-coupled
     to PCs, Internet appliances, remote gateways and routers, DSLAMs or
     DLCs.

   We believe the core of our technology expertise is delivered to our
customers through our ASSP architecture, software architecture, communications
algorithms, digital signal processing, ATM, Frame and Internet protocol
processing voice algorithms and systems-level expertise.

 ASSP Architecture

   Our current ASSP architecture is specifically designed to meet the
performance and feature demands for broadband access equipment. This
architecture provides the flexibility for application in a wide range of
customer premises equipment without the need for additional processing support.
For example, when used inside or close coupled to a PC, our ASSPs and software
place minimal demands on the host PC processor freeing it to focus on its own
operating system and application software support. We believe this approach
results in improved user satisfaction through enhanced PC reliability and
better performance, and minimized support costs for PC suppliers and service
providers.

                                       8
<PAGE>

   The architecture is based on a dual bus structure. One bus connects the
embedded ARM RISC processors used for protocol processing, network processing
and other control functions with a wide range of physical interfaces. These
physical interfaces support connection of our communications processors to
other semiconductors and memory systems as well as to external devices such as
PCs and Ethernet hubs. The second bus supports DSPs and other specialized
processors required for on-chip DSL PHY-layer processing, voice or video
processing. Both buses access common resources such as an SDRAM controller, an
interprocessor gateway, processor registers and debugging facilities.

   This architecture makes it possible for us to quickly develop new ASSPs to
meet evolving standards and the application demands of the market.

 Software Architecture

   By simultaneously developing the software and semiconductor architectures,
we have achieved tight software/semiconductor integration. This results in
better system performance, smaller chip size, fewer lines of code and lower
memory requirements than is possible through the complex alternative of
assembling, integrating and testing functionally equivalent software elements
from multiple off-the-shelf sources. Our software architecture partitions the
processing requirements into time critical and non-time critical tasks. All
time critical code is optimized to run on the network processor ensuring the
high performance required for low latency and control of external interfaces. A
compact real-time operating system kernel, either ATMOS or VxWorks controls
processing on the protocol processor.

   The modular construction of the software architecture makes it easier to add
further functionality. This facilitates rapid development and release of new
software features.

 Communications Algorithms and Digital Signal Processing

   Communications algorithms are the processes and techniques used to transform
a digital data stream to and from a specially conditioned signal suitable for
transmission across copper telephone wires. We have extensive experience in the
physical-layer issues involved in developing and implementing the algorithms
required for this conditioning, and have leveraged that expertise to develop
the solutions required for the ITU DSL standards. PHY layer code is executed in
our Beryllium communications processor using a compact, low power DSP supported
by fixed function hardware blocks, and in our SHDSL Aluminum 200 product by a
RISC processor supported by parameterized hardware blocks.

 Voice Algorithms and Digital Signal Processing

   Advanced telephony and voice solutions also require DSP algorithms which we
access through our recent acquisition of D2 Technologies. Algorithms include
basic encoding such as G.711 and G.726; advanced encoding such as G.723, G.728
and G.729; echo cancellation including single and multi reflector G.168; fax
relay; and voicemail capability. The G.xxx algorithm implementations are based
on ITU standards, and achieve an industry leading level of algorithmic
performance measured in DSP millions-of-instructions-per-second, or MIPS, for a
given number of voice channels, saving customers money by enabling them to use
less powerful DSPs than they would otherwise have to for their applications.
Voice algorithms typically run on a DSP external to our communications
processor. Our communications processors include interfaces that allow them to
seamlessly connect to popular voice DSPs including the C54xx series from Texas
Instruments.

 ATM, Frame and Internet Protocol Processing

   The ATM processing software manages, channels, buffers and shapes ATM cells
and utilizes the custom hardware filters in the semiconductors to achieve the
optimum trade-off between software flexibility and hardware performance. To
support transmission of frame encapsulated data, our software supplies drivers
for Ethernet and HDLC as well as a variety of methods for encapsulating frames
over ATM. The software

                                       9
<PAGE>

management capabilities for layer 3 processing include TCP/IP, IP routing,
network address translation, IP configuration and tunneling. The acquisition of
Inverness Systems broadens and deepens our existing software through the
addition of Frame Relay, advanced IP routing and MPLS capabilities.

 Management and Ease-of-Use Software

   Enabling products to be easy to install and use is a key benefit for
consumers, and is also key for service providers responsible for product
rollout and support. Accordingly, we provide software to address these issues
including--autoconfiguration implementations of the DSL Forum's TR-0037 and
OpenDSL standards; embedded web-server for user monitoring and configuration;
and UPnP for remote automated configuration by and of PCs and other network
terminals.

 Systems-Level Expertise

   We have accumulated experience designing systems-level products that meet
the technical challenges of the local loop environment and of interoperability
with products from other suppliers. This know-how is embedded in our products.
Our customers additionally benefit from this experience during their product
architecture and design milestone reviews.

Customers

   We sell our products to established telecommunications equipment vendors,
modem manufacturers and broadband access equipment companies, including 67
customers who have licensed our software. However, we depend on a relatively
small number of customers for a large percentage of our revenues. For the
fiscal year ended April 1, 2001, our largest customers in terms of revenue
included (in alphabetical order): Ambit, Arescom, Aztech, Efficient Networks,
Ericsson, Orckit Communications, Siemens, TECOM, Westell Technologies, and Xavi
Technologies. In addition, we do not have purchase orders with any of our
customers that obligate them to continue to purchase our products and any of
these customers could cease purchasing our products at any time.

   Our ASSPs are employed by our customers in the following representative
product types:

  .  DSL modems which are connected to a PC via a USB or Ethernet link;

  .  Gateways and routers; and

  .  DSLAMs and DLCs.

   We depend on a relatively small number of customers for a large percentage
of our revenues. Westell Technologies and Siemens accounted for 19.6% and
14.6%, respectively, of our total revenues for the fiscal year ended April 1,
2001. We do not have purchase orders with any of our customers that obligate
them to continue to purchase our products and these customers could cease
purchasing our products at any time. As of April 1, 2001 and April 2, 2000, our
backlog were approximately $24.5 million and $24.9 million, respectively,
including the backlog for semiconductors, which were approximately $20.0
million and $20.5 million, respectively.

   International revenues, from customers located outside of the United States,
accounted for 49.6% of our total revenues for the fiscal year ended April 1,
2001, 43.6% for the fiscal year ended April 2, 2000, and 40.3% for the fiscal
year ended March 31, 1999. For the fiscal year ended April 1, 2001, sales from
customers in Germany and Taiwan represented 15.9% and 13.1% of total revenues,
respectively. For the fiscal year ended April 2, 2000, sales from customers in
Israel represented 23.3% of total revenues. For the fiscal year ended March 31,
1999, sales from customers in Israel represented 16.5% of total revenues.
However, 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.

                                       10
<PAGE>

Sales and Marketing

   Our sales and marketing strategy is to license our software and secure
design wins with industry leaders in emerging high growth segments of the
broadband access equipment market. We typically license our software to a
customer at the time we achieve an initial design win. Following training, the
customer then designs products incorporating our communications processors,
which they purchase separately from us. As a result, prior to completing the
license agreement, our FAEs and development engineers often act as consultants
to customers to assist them with their architectural decisions. We generally
employ a direct sales model to build a close relationship with customers both
prior to and following the execution of a license. In foreign countries such as
Korea, Japan, China and certain South American countries, we work with
representative firms.

   Generally, our sales team consists of qualified engineers who are located in
California, Massachusetts, Illinois, Texas, North Carolina, Canada, the United
Kingdom, Germany, Israel, Taiwan, Hong Kong, Singapore, Korea and Japan
providing coverage of the U.S., Europe and Asia. The sales team is supported by
FAEs and development engineers that work directly with customers on their new
product developments.

   We manage a number of marketing programs designed to communicate our
capabilities and benefits to broadband access equipment manufacturers. Our
Internet site is an important marketing tool where a wide range of information
is available including product information, white papers, application notes,
press releases, contributed articles and presentations. In addition we
participate in industry trade shows, technical conferences and technology
seminars, conduct press tours and publish technical articles in industry
journals.

Research and Development

   As of June 6, 2001, we had 258 employees engaged in research and development
based in California, Massachusetts, North Carolina, England and Israel. Of
these employees, 134 have advanced degrees, including 27 with Ph.D.s. Several
individuals were early developers in analog modem software, voice algorithms,
IP telephony and ATM technologies.

   Since mid-1998, we have invested a significant portion of our research and
development expenditures in the development of Beryllium and Boron and
associated software to address the ADSL market. Consistent with our strategy to
enhance our capabilities by pursuing selective acquisitions, we acquired D2
Technologies, Inverness Systems, Agranat Systems and Excess Bandwidth, each of
which creates new market opportunities for us. We believe that we must continue
to innovate, extend the range and enhance our products and services to maintain
our leadership position. We cannot be sure that our research and development
efforts will result in the introduction of a new product or product
enhancements or that any new product will achieve market acceptance. We will
invest further to expand our research and development staff and capabilities.
Our research and development expenditures were $37.7 million, $15.0 million and
$9.3 million for the fiscal years ended April 1, 2001, April 2, 2000, and March
31, 1999, respectively.

Manufacturing

   We outsource the wafer manufacturing, assembly, testing, warehousing and
shipment of all of our semiconductors. This fabless semiconductor model allows
us to focus our resources on the design, development, marketing and sales of
our products. Our Helium and Lithium communications processors, our Magnesium
line of voice processors and our Neon AFE (analog front end) product, have all
been sourced from high-quality suppliers that deliver fully assembled and
tested products. For our Beryllium, Helium 200 and Helium 210 communications
processors, and our Aluminum 200 g.shdsl PHY and accompanying Aluminum 200 AFE,
we separately outsource the wafer fabrication, assembly and test functions from
different contractors. Employing the services of the world's two top wafer
foundries, as well as the skills of two of the world's foremost assembly and
test suppliers, has served to dramatically improve manufacturing efficiencies
and lower overall product costs.

                                       11
<PAGE>

   The Helium and Lithium ASSP products incorporate embedded ARM RISC
microprocessors and are supplied by companies that have an ARM license. In June
1999, we entered into a per semiconductor design license agreement with ARM,
the worldwide leader in silicon intellectual property, which allows us to
select foundry suppliers that best meet our quality, delivery and cost
objectives. Our Beryllium, Helium 200 and Helium 210 communications processors
are supplied by United Microelectronics Corporation ("UMC") under the
provisions of the ARM license. We additionally and similarly have licensed
microprocessor cores from MIPS to enable Virata to choose it's preferred
worldwide supplier with respect to wafer fabricating our symmetric family of
products; in this case, Taiwan Semiconductor Manufacturing Company, Ltd
("TSMC"). We have expanded our operations team so that we are able to assume
more of the manufacturing and quality control responsibilities as well as
develop and maintain contractor relationships with multiple suppliers. Given
our reliance on third party suppliers, including semiconductor foundries, for
substantially all of our semiconductor requirements, we have taken action to
better ensure that we can obtain products within the time frames and in the
volumes required by us at an affordable cost. For example, we have a guaranteed
capacity and pricing commitment from both UMC and TSMC, which covers all
Virata-required wafers through calendar 2001. However, on some occasions we
have experienced delays and may in the future experience delays in receiving
semiconductors from these foundries. Any problems associated with the delivery,
quality or cost of the assembly and testing of our products could impact our
business, financial condition and results of operations.

   Our inventory storage and warehousing function is contracted to a global
freight forwarding service provider. We also drop ship from several of our
third party manufacturing locations, enabling more timely product delivery to
our worldwide customer base. Our ordering systems undergo continual business-
process-level improvements, resulting in shortened order commit lead times and
product sourcing cycle times.

   We only employ standard processes at high-quality, high-volume
manufacturers. We have undergone third party quality and reliability
evaluations of our products, which resulted in the successful certification of
our semiconductors for high-volume, commodity-type applications. Virata was
ISO-9002 certified in 2000 for a three-year period, and recently successfully
passed its one-year surveillance audit.

Competition

   The communications semiconductor market is intensely competitive and
characterized by rapid technological change, evolving standards, short product
life cycles and price erosion. Major competitive factors in the market we
address include technical innovation, product features and performance, level
of integration, reliability, price, total system cost, time-to-market, customer
support and reputation. We believe that while today no other single company
offers a competing integrated solution, there is competition with respect to
individual elements of our solution. We also believe that competition may
increase substantially as the introduction of new technologies and potential
regulatory changes create new opportunities for established and emerging
companies.

   We face competition from semiconductor device suppliers, software
development companies and vertically integrated telecommunications equipment
vendors. We believe our principal competitors for each of our products include:

  .  Helium and Lithium, our PHY-independent ASSPs: devices from Intel, Texas
     Instruments and Motorola;

  .  Beryllium, our PHY-inclusive, ADSL products: devices from Alcatel
     Microelectronics, Analog Devices, Centillium Technology, Mindspeed,
     GlobeSpan, Lucent Technologies and Texas Instruments;

  .  Software: operating systems and software stacks from Wind River Systems
     and its recently acquired subsidiary, Integrated Systems; and networking
     and protocol layer software from, Microsoft; Intel and Mindspeed; and
     voice software from Broadcom through their 1999 acquisition of Hothaus
     and Texas Instruments through their 1999 acquisition of Telogy.

                                       12
<PAGE>

   In addition, there have been a number of announcements by other
semiconductor companies that they intend to enter the market segments adjacent
to or addressed by our products, including Broadcom and Ishoni as Helium and
Lithium competitors, GlobeSpan as a Beryllium competitor, and Linux shareware
as a software competitor.

   Many of the companies that compete, or may compete against us in the future,
have longer operating histories, greater name recognition, larger installed
customer bases and significantly greater financial, technical and/or marketing
resources. As a result, they may be able to respond more quickly to changing
customer circumstances or to devote greater resources to the development,
promotion and sale of their products than we can. We cannot be sure that our
current or future competitors will not develop and introduce new products that
will be priced lower, provide superior performance or achieve greater market
acceptance than our products. Furthermore, current or potential competitors
have established, or may establish, cooperative relationships among themselves
or with third parties to increase the ability of their products to address the
needs of our prospective customers. Accordingly, it is possible that new
alliances among our competitors will emerge and rapidly acquire market share,
which would harm our business.

   In addition, many of our customers and potential customers have substantial
technological capabilities and financial resources. Some customers have already
developed, or in the future may develop, technologies that will compete
directly with our products and services. Because these companies do not
purchase all of their semiconductors from suppliers such as us, if they
displace our customers in the equipment market, our customers would no longer
need our products, and our business, financial condition and results of
operations would be seriously harmed.

   Given the highly competitive environment in which we operate, we cannot be
sure that any current competitive advantages enjoyed by our products will be
sufficient to establish or sustain our position in the market. Any increase in
price from our suppliers or other competition could result in erosion of our
market share and could harm our business, 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.

Intellectual Property

   We rely primarily on a combination of patents, copyrights, trademarks, trade
secret laws, contractual provisions, licenses and maskwork protection to
protect our intellectual property. We also enter into confidentiality
agreements with our employees, consultants and customers and seek to control
access to, and distribution of, our other proprietary information. However,
these measures afford only limited protection. There is no guarantee that such
safeguards will protect our intellectual property and other valuable
competitive information.

   Our success depends significantly upon our ability to protect our
intellectual property. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our products or obtain and
use information that we regard as proprietary. Our competitors may also
independently develop similar technologies. In addition, in the past,
competitors have recruited our employees who have had access to our proprietary
technologies, processes and operations. Our competitors' recruiting efforts,
which we expect will continue, expose us to the risk that such employees will
misappropriate our intellectual property. Furthermore, the laws of some foreign
countries do not protect our proprietary rights as fully as do the laws of the
United States. Many U.S. companies have encountered substantial infringement
problems in such countries, some of which are countries in which we have sold
and continue to sell products. There is a risk that our means of protecting our
proprietary rights may not be adequate. Our failure to adequately protect our
proprietary rights may seriously harm our business.

   As of June 20, 2001, we have been granted ten patents in the United States,
with a number of counterpart patents in other countries. In addition, we have
28 patent applications pending in the United States. We also

                                       13
<PAGE>

have counterpart patent applications pending in various countries including the
United Kingdom and a number of countries in Europe and Asia. These patents may
never be issued. Even if these patents are issued, taken together with our
existing patents, they may not provide sufficiently broad protection to protect
our proprietary rights, or they may prove to be unenforceable. We also utilize
unpatented proprietary know-how and trade secrets and employ various methods to
protect our trade secrets and know-how.

   From time to time, we may desire or be required to renew or to obtain
licenses from others in order to further develop and market commercially viable
products effectively. We cannot be sure that any necessary licenses will be
available or will be available on reasonable terms.

   We have registered and/or filed for registration a number of the following
trademarks in the United States and a number of countries in Europe and Asia:
"Virata," "ATMOS" and "ATOM", Virata Logo, "ISOS," "Integrated Software On
Silicon". "Proton," "Hydrogen," "Helium," "Lithium," "Beryllium," "Boron" and
"Neon" are also trademarks of Virata Corporation.

Employees

   As of June 6, 2001, we had 408 full-time employees and contractors in our
worldwide operations. Of that total, 258 were primarily engaged in engineering,
72 were engaged in sales and marketing, 14 were engaged in our manufacturing
operations and the remainder were engaged in information technology, financial
and administrative functions. As of June 6, 2001, our employees were employed
at the following locations:

  .  258 of our employees were employed in North America;

  .  92 of our employees were employed in the United Kingdom and Europe;

  .  43 of our employees were employed in Israel;

  .  15 of our employees were employed in Asia;

   None of our employees are covered by, nor are we a party to, any collective
bargaining agreement. We believe our employee relations are good.

                                       14
<PAGE>

Executive Officers and Directors

   As of June 6, 2001, the executive officers and directors of Virata were as
follows:

<TABLE>
<CAPTION>
   Name                          Age Position
   ----------------------------  --- -------------------------------------
   <C>                           <C> <S>
   Charles Cotton..............   54 Chief Executive Officer and Director
   Andrew Vought...............   46 Senior Vice President, Finance, Chief
                                     Financial Officer and Secretary
   Martin Jackson..............   41 Chief Technology Officer and Director
   Thomas Cooper...............   52 Senior Vice President, Corporate
                                     Development
   John Graham.................   51 Vice President, Human Resources
   Duncan Greatwood............   33 Vice President, Marketing
   Daniel Karr.................   41 Vice President, Worldwide Sales
   Arthur Miller...............   54 Vice President, Worldwide Engineering
   Dr. Hermann Hauser..........   52 Chairman of the Board
   Marco De Benedetti..........   39 Director
   Gary Bloom..................   40 Director
   Professor Andrew Hopper.....   48 Director
   Peter Morris................   45 Director
   Patrick Sayer...............   43 Director
   Giuseppe Zocco..............   35 Director
</TABLE>

   Charles Cotton has been our Chief Executive Officer and a member of our
board of directors since September 1997. Mr. Cotton joined us in January 1995,
first as a consultant, and then in August 1995 as our General Manager, Europe,
and was subsequently promoted to Chief Operating Officer in July 1996. From
January 1991 to December 1995, Mr. Cotton was an independent consultant. In
1990, he served as Chief Executive Officer of Shandwick Europe, a public
relations consulting firm. From 1988 to 1989, Mr. Cotton served as President of
Thermal Scientific and as a Director of its parent company, Thermal Scientific
plc. From 1983 to 1986, he served in a variety of international marketing and
operations functions for Sinclair Research. Mr. Cotton holds an honors degree
in Physics from Oxford University.

   Andrew Vought joined us in May 1996 as Chief Financial Officer and Secretary
and was named Senior Vice President of Finance in September 1997. From January
1995 to May 1996, Mr. Vought founded and served as a General Partner of
Cheyenne Capital Corporation, a private venture capital firm. From May 1990 to
July 1994, Mr. Vought served as Chief Financial Officer of Micro Power Systems,
an analog semiconductor company. Mr. Vought has also held senior finance and
manufacturing management positions with Diasonics and the European
semiconductor operations of Texas Instruments. Mr. Vought serves on the board
of directors of SCM Microsystems Inc. a supplier of digital access control and
connectivity solutions. Mr. Vought holds a M.B.A. from the Harvard Business
School and a B.S. in Finance and a B.A. in Environmental Studies from the
University of Pennsylvania.

   Martin Jackson is our Chief Technology Officer and has directed new product
development since joining us in April 1994. Prior to joining us, Mr. Jackson
was a co-founder and Vice President of Technology of EO-formerly Active Book
Company. Mr. Jackson also co-founded Tadpole Technology, a developer of high
performance computer boards. Mr. Jackson is acknowledged as a leader in the
application of asynchronous transfer mode technology for provisioning broadband
in the local loop and serves on the board of directors of the DSL Forum. Mr.
Jackson holds an M.A. in Electrical Sciences from the University of Cambridge.

   Thomas Cooper is our Senior Vice President, Corporate Development and has
been employed by us in various capacities since December 1994. Prior to joining
us, Mr. Cooper served as Vice President of Distribution for Network Equipment
Technologies Inc., an early entrant into in the asynchronous transfer mode
market, from 1992 to December 1994. He holds a M.B.A. from the University of
Toledo (Ohio) and a B.A. in English from Hamilton College.

                                       15
<PAGE>

   John Graham joined us in July 2000 as Vice President--Human Resources. Prior
to joining us Mr. Graham was the Resourcing & Development Director at Marconi
Plc, before which he held the same position with BAE Systems where he worked
from 1991 to 1998. Mr. Graham was the HR & Customer Services Director at Orange
the mobile network company, prior to which he held senior HR positions in the
automotive and computer industries, he also ran a Recruitment & Search
Consultancy. Mr. Graham holds an honors degree in Management Sciences from the
University of Manchester Institute of Science & Technology.

   Duncan Greatwood became our Vice President, Marketing, and previously served
as our Vice President, European Sales since joining us in November 1997. Prior
to joining us, Mr. Greatwood held a variety of management positions in the
software engineering and marketing functions of Madge Networks, a network
equipment company, from 1989 to November 1997. At Madge Networks, Mr. Greatwood
was responsible for activities in the areas of voice-over-IP (Internet
Protocol) and multiservice networking. Mr. Greatwood holds a degree in
Mathematics from Oxford University and a M.B.A. from London Business School.

   Daniel Karr became our Vice President, Worldwide Sales in August 1999. Prior
to joining us, Mr. Karr was Vice President of Worldwide Sales at S3, a supplier
of multimedia hardware and software for the PC market, from April 1996 to
August 1999. From January 1988 to April 1996, Mr. Karr held various positions
at Cirrus Logic, a manufacturer of integrated circuits, where his last position
was Sales Director. Mr. Karr earned a B.A. in Physics and Mathematics from
Linfield College.

   Arthur Miller joined Virata in October 2000 as Vice President of Product
Development Integration and was promoted to Vice President of Worldwide
Engineering in January 2001. Prior to joining us, Mr. Miller was Vice President
of Marketing for ZiLOG's communications business from January 2000 through
September 2000. From 1984 through 1999, Mr. Miller held senior management
positions with Motorola, most recently as Director of Business Development for
their Data Communications and Networking Businesses in the U.S. and Europe,
Middle East and Africa. Prior to joining Motorola, Mr. Miller held management
positions with Texas Instruments. Mr. Miller holds a B.S. in Math from the USAF
Academy; an MS EE from Massachusetts Institute of Technology (MIT); and an MBA
from St. Edwards University.

   Dr. Hermann Hauser is one of our co-founders and has served as our Chairman
since March 1993. Mr. Hauser also serves as a member of the Executive Committee
of the Board of Directors. Dr. Hauser's principal occupation is Director of
Amadeus Capital Partners Ltd., a venture capital fund management company a
position he has held since December 1997. Dr. Hauser has also co-founded more
than 20 other high technology companies, including Acorn Computer Group plc, EO
Ltd., Harlequin, IXI Ltd., Vocalis, Electronic Share Information, Advanced
Displays Limited and SynGenix. Dr. Hauser holds a Ph.D. in Physics from
Cambridge University.

   Marco De Benedetti has served as a member of our board of directors since
July 1994. Mr. De Benedetti has been the Chairman and Managing Director of
Telecom Italia Mobile S.p.A., Europe's largest cellular phone operator since
July 1999. Prior to joining Telecom Italia Mobile, Mr. De Benedetti was
chairman of Infostrada S.p.A., a company controlled by Olivetti operating as an
alternative fixed line carrier in Italy from 1996 to July 1999. From 1990 to
1996, Mr. De Benedetti held various positions in the Olivetti Group where he
became Marketing Director in 1995. Prior to joining Olivetti in 1990, Mr. De
Benedetti worked for the investment bank Wasserstein, Perella & Co. in mergers
and acquisitions from 1987 to 1989. Mr. De Benedetti holds a M.B.A. from the
Wharton School of the University of Pennsylvania and a B.S. in Economics and
History from Wesleyan University.

   Gary Bloom has served as a member of our board of directors since February
1999. Mr. Bloom also serves as a member of the Compensation Committee of the
Broad of Directors. Mr. Bloom has been the Chief Executive Officer, President
and a director of Veritas Software since November 2000. Prior to that time,
Mr. Bloom served as Executive Vice President of Oracle Corporation and was
employed by Oracle from September 1986 to November 2000. Mr. Bloom received a
B.S. in Computer Science from California Polytechnic State University at San
Luis Obispo.

                                       16
<PAGE>

   Professor Andrew Hopper is one of our co-founders and has served as a member
of our board of directors since March 1993. Since November 1997, Professor
Hopper has been the Professor of Communications Engineering within the
Department of Engineering at Cambridge University and prior to that he was a
Reader. Since 1986, Professor Hopper has also been the Managing Director of the
Olivetti Research Laboratory, now AT&T Laboratories-Cambridge. Professor Hopper
is considered one of the early developers of asynchronous transfer mode
technology and has over 20 years experience in networking, computer systems and
multimedia. Professor Hopper is also involved with the commercialization of
technology with a number of Cambridge-area firms. Professor Hopper is a Fellow
of the Royal Academy of Engineering and holds a Ph.D. from Cambridge
University.

   Peter T. Morris has served as a member of our board of directors since May
1995. Mr. Morris also serves as a member of the Executive Committee and the
Audit Committee of the Board of Directors. Mr. Morris is a General Partner of
New Enterprise Associates, a private venture capital firm, in Menlo Park,
California, where he has been employed since 1992. Mr. Morris specializes in
information technologies, with a focus on communications and the Internet. His
current board memberships include Gadzoox Networks Inc., Packeteer Inc. and
several private companies. Before joining New Enterprise Associates, Mr. Morris
served in various capacities with Telebit Corporation from 1987 to 1991. Prior
to that he was with Montgomery Securities, an investment bank, from 1985 to
1987, and Bain & Company, a management consultancy firm, from 1980 to 1982. Mr.
Morris holds a M.B.A. and a B.S. in Electrical Engineering from Stanford
University.

   Patrick Sayer has served as a member of our board of directors since June
1998. Mr. Sayer also serves as a member of the Audit Committee of the Board of
Directors. Mr. Sayer is a Managing Director at Lazard, a leading global
investment bank, where he has overseen the Internet and Technology sector since
1999. Since 1995, Mr. Sayer has also held the position of General Partner in
Lazard (Paris). Mr. Sayer has worked within Lazard since 1992, holding
positions in the international advisory group, the corporate finance department
and the mergers and acquisitions department. In addition, Mr. Sayer is a
director and an investment advisor of AZEO, a public holding company, and is a
director of the following public companies: Sidel, Ipsos, Infogrames
Entertainment, and Oberthur Card Systems. Mr. Sayer is a graduate of Ecole
Polytechnique and Ecole des Mines de Paris.

   Giuseppe Zocco has served as a member of our board of directors since June
1998. Mr. Zocco also serves as a member of both the Audit Committee and the
Compensation Committee of the Board of Directors. Mr. Zocco is a General
Partner of Index Ventures, a private venture capital firm based in Geneva,
Switzerland, which he joined in 1996. Prior to joining Index Ventures, Mr.
Zocco was a management consultant with McKinsey & Company from 1988 to 1996,
working in several of its European offices and its EuroCenter, a special
consulting unit focused on Pan-European clients. Mr. Zocco holds a M.B.A. from
Stanford Business School, a B.A. in Finance from Bocconi University in Milan,
and an I.E.P. from the London Business School. He is a director of Belle
Systems A/S and Evolve Software, Inc.

 Director Resignation

   Bandel Carano resigned as a director effective May 12, 2001. The Board of
Directors accepted his resignation on May 22, 2001. The seat is currently
vacant.

                                       17
<PAGE>

Risk Factors

   The risks described below and the other information included in this Annual
Report should be carefully considered. The risks and uncertainties described
below are not the only ones facing us. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also impair our
business operations. If any of the following risks actually occur, our
business, financial condition or results of operations could be harmed. These
risk factors are not intended to represent a complete list of the general or
specific risk factors that may affect us.

 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 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 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
accurately forecast our revenue going forward is limited which makes it
difficult to predict in which quarter 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 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

   We have not reported an operating profit for any fiscal year since our
incorporation and have an accumulated deficit of $248.5 million at April 1,
2001. We expect to continue to incur net losses, and these losses may be
substantial. 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.

                                      18
<PAGE>

 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;

  .  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 to develop 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 DSL deployments may utilize an alternative CPE solution, we may not be
 able to generate substantial sales of our products and our results of
 operations may be negatively impacted

   Even if telecommunications service providers broadly deploy DSL
technologies, such deployments may move away from bridges and routers as the
dominate CPE solution and utilize low-end USB modems or another solution where
our products are not required or our market share is substantially smaller. In
such an event, if we are unable to attain or increase our market share with
respect to the alternative deployment solution, then the demand for our
products may decrease, which would have a negative impact on our operating
results. In addition, even if we are able to participate in the market, the
margins we realize in connection with any such alternative solution may be
substantially less than the margins we currently realize. A significant
decrease in our margins would have a negative impact on our results of
operations.

                                       19
<PAGE>

 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 fail to 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 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.

                                      20
<PAGE>

 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.

 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 needed access to technology of third parties to
develop and manufacture our products, including licenses from Advanced RISC
Machines, Broadcom, and Wind River Systems, Inc. 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

                                      21
<PAGE>

planned software product offerings. 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 fiscal year
ended April 1, 2001, Westell Technologies and Siemens accounted for 19.6% and
14.6%, respectively, of our total revenues. For the fiscal year ended
April 2, 2000, Orckit Communications and Westell Technologies accounted for
23.1% and 15.1%, respectively, of our total revenues. For the fiscal year
ended March 31, 1999, Com21 and Orckit Communications accounted for 22.6% and
15.7%, respectively, of our total revenues. However, in order to minimize
customers' inventory build up and maintain our strong customer relationships,
we decided in December 2000 to reschedule and/or cancel semiconductor
shipments that our customers had contractually agreed to receive in the six
months ended April 1, 2001 and to revise the shipment schedule of the
remaining products to Westell Technologies and to a limited number of our
other customers in Asia and the United States. Our future success depends in
significant part upon the decision of our customers to continue to purchase
products from us. Furthermore, it is possible that equipment manufacturers may
design and develop internally, or acquire, their own semiconductor technology,
rather than continue to purchase semiconductors 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 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.
In December 2000, we rescheduled and/or cancelled semiconductor shipments that
our customers had contractually agreed to receive in the six months ended
April 1, 2001 and revised the shipment schedule of the remaining products to
Westell Technologies and to a limited number of our other customers in Asia
and the United States. 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.

                                      22
<PAGE>

 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 fiscal year ended April 1, 2001, approximately 95.5% of our
semiconductor revenues were generated from sales of our Helium products. For
the fiscal year ended April 2, 2000, approximately 44.6%, 30.9%, and 24.5%,
respectively, of our semiconductor revenues were generated from sales of our
Helium, Hydrogen, and Proton Family products. We expect that a substantial
portion of our total revenues will continue to be derived from our Helium,
Helium derivatives and Beryllium. Therefore, broad market acceptance of the
Helium, Helium derivatives and Beryllium 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.

 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.

                                      23
<PAGE>

 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.

 Because we have significant operations in countries outside of the US, 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, Israel is
currently experiencing political and civil unrest. 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 in the Israeli armed forces and are subject to

                                      24
<PAGE>

being called to active duty at any time under emergency circumstances. We
cannot assess or predict the full impact of these obligations on our workforce
or business.

 Because we incur a charge for National Insurance Contribution on any gain in
 the per share price of our stock for stock options exercised by 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, 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. Through October 1, 2000, we estimated and
recorded this liability for the National Insurance Contribution based upon
total outstanding stock options held by its employees in the United Kingdom.
Beginning in the quarter ended December 31, 2000, we began recording an
additional liability only upon the exercise of options granted subsequent to
October 1, 2000 to employees in the United Kingdom. No additional liability
was recorded in the six month period ended April 1, 2001. Accordingly, a
significant rise in our stock price may result in recorded charges that may
harm our results of operations and cash payment obligations.

 Because we sell a significant portion of our products in countries other than
 the US, we may be subject to political, economic and other conditions
 affecting such countries that could result in decreased revenue for our
 products

   International revenues accounted for 49.6% of our total revenues for the
fiscal year ended April 1, 2001, 43.6% for the fiscal year ended April 2,
2000, and 40.3% for the fiscal year ended March 31, 1999. 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;

                                      25
<PAGE>

  .  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 acquisition of D2 Technologies, Inverness
Systems, Excess Bandwidth and Agranat Systems.

   As part of our business strategy, from time to time, we expect to review
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 current agreements
or negotiations underway with respect to any material acquisitions, we may
make acquisitions of businesses, products or technologies in the future.
However, we cannot be sure that we will be able to locate suitable acquisition
opportunities. Future acquisitions by us could result in the following, any of
which could seriously harm our results of operations or the price of our
stock:

  .  issuance of equity securities that would dilute our current
     stockholders' percentages of 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

                                      26
<PAGE>

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.

   We have entered into employment agreements with our executive officers 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.
Our employment agreements do not contain anti-competition clauses.

 Because the markets in which we compete are highly competitive, and many of
 our competitors have greater resources us, 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.

                                      27
<PAGE>

   We believe our principal competitors include or will include Alcatel
Microelectronics, Analog Devices, Broadcom, Centillium Communications,
Mindspeed, 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, including
Broadcom and Ishoni as Helium and Lithium competitors, GlobeSpan as a Beryllium
competitor, and Linux shareware as software competitor.

 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 that
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 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 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 has the
potential to provide lower cost alternatives to our existing products or to
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.

                                       28
<PAGE>

 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, the 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 than us, 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.

 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 our incurrence of substantial
expenses and may divert 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;

                                      29
<PAGE>

  .  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.

   Virata has recently been apprised of a lawsuit filed in the Federal
Republic of Germany by QPSX Europe GmbH ("QPSX") against Siemens
A.G.("Siemens"), for infringement of a European patent QPSX claims to have the
right to enforce. Siemens is a licensee of Virata's wholly-owned subsidiary,
Virata Israel (formerly Inverness Systems Ltd.), with respect to certain
software. The license agreement between Virata Israel and Siemens provides for
the indemnification of Siemens against claims of infringement based on
Siemens' use of Virata Israel's software. Virata is presently investigating
the nature and scope of QPSX's claims and whether indemnification of Siemens
is warranted. As yet, Virata has made no determination regarding indemnity and
Siemens has not invoked any right of indemnity. QPSX has informed Virata that
it believes the lawsuit has a litigation value estimated at $54.6 million.
Virata has made no determination of the value of the litigation. If Virata
determines that indemnification of Siemens is appropriate, it intends to
vigorously defend the QPSX lawsuit.

 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.

 Because our products and those of our customers are subject to government
 regulations, changes in current 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

                                      30
<PAGE>

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.

                                       31
<PAGE>

ITEM 2--Properties.

   In April 2001, we signed a lease agreement for a new corporate headquarters
in Santa Clara, California, consisting of approximately 47,432 square feet of
office and laboratory space. The lease commenced in June 2001 and expires in
August 2004. Our corporate headquarters include administration, sales and
marketing, research and development, and operations functions. We also lease
the following space for our other facilities:

<TABLE>
<CAPTION>
                                 Total Square
   Locations                       Footage    Principal Use           Expiration Date
   ----------------------------  ------------ ---------------------   ----------------
   <C>                           <C>          <S>                     <C>
   Cambridge, England..........     31,043    Office and laboratory   March 2021
                                              space
   Raleigh, North Carolina.....     42,972    Office and laboratory   November 2010
                                              space
   Santa Barbara, California...     11,909    Office and laboratory   January 2002 and
                                              space                   April 2002
   Kfar Saba, Israel...........     30,440    Office and laboratory   April 2006
                                              space
   Maynard, Massachusetts......     17,489    Office and laboratory   September 2005
                                              space

   In addition, we lease various sales and marketing facilities in the United
States, Japan, Taiwan, Hong Kong and several other countries.

   We have subleased or are actively seeking subtenants for our former
operating locations in Cambridge, England, Raleigh, North Carolina, and
Cupertino, California still under lease as follows:

<CAPTION>
                                 Total Square
   Locations                       Footage    Sublease Status         Expiration Date
   ----------------------------  ------------ ---------------------   ----------------
   <C>                           <C>          <S>                     <C>
   Cambridge, England..........     16,120    50% subleased           August 2005
   Raleigh, North Carolina.....     12,944    100% subleased          November 2003
   Cupertino, California.......     21,580    Seeking subtenants      January 2007
</TABLE>

   We believe that our current facilities, together with planned expansions,
will be adequate for at least the next twelve months.

ITEM 3--Legal Proceedings.

   We are not currently a party to any material legal proceedings, nor to our
knowledge, is any such proceeding contemplated by governmental authorities.

ITEM 4--Submission of Matters to A Vote of Security Holders.

   None.

                                       32
<PAGE>

                                    PART II

ITEM 5--Market For Registrant's Common Stock and Related Stockholder Matters.

   Our common stock began trading on The Nasdaq Stock Market's National Market
under the symbol "VRTA" effective November 17, 1999. Prior to that date, there
was no public market for our Common Stock. The following table sets forth the
range of high and low prices for our common stock for each period indicated
adjusted to reflect the two-for-one split effective May 18, 2000:

<TABLE>
<CAPTION>
                                                                  High    Low
                                                                 ------- ------
   <S>                                                           <C>     <C>
   Fiscal Year Ending April 2, 2000
   Third Quarter (beginning November 17, 1999).................. $ 20.50 $12.00
   Fourth Quarter............................................... $111.00 $13.50

   Fiscal Year Ending April 1, 2001
   First Quarter................................................ $ 72.06 $30.00
   Second Quarter............................................... $ 85.56 $46.00
   Third Quarter................................................ $ 71.00 $ 6.81
   Fourth Quarter............................................... $ 17.63 $ 8.38
</TABLE>

   The last reported sale price for our common stock on the Nasdaq National
Market was $10.27 per share on June 6, 2001. As of June 6, 2001, there were
approximately 285 holders of record of our common stock.

   We have never declared nor paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for use in the operation and
expansion of our business, and we do not anticipate paying any cash dividends
on our capital stock in the foreseeable future.

                                       33
<PAGE>

ITEM 6--Selected Financial Data.

                      SELECTED CONSOLIDATED FINANCIAL DATA

   The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and related notes
beginning on page 51 of this Annual Report and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on page 36
of this Annual Report. The selected consolidated statement of operations data
for each of the three fiscal years ended April 1, 2001, April 2, 2000, and
March 31, 1999, and the selected consolidated balance sheet data as of
April 1, 2001 and April 2, 2000 are derived from, and qualified by reference
to, the audited consolidated financial statements included elsewhere in this
Annual Report. The selected consolidated statement of operations data for the
fiscal years ended March 31, 1998, and 1997, and selected consolidated balance
sheet data as of March 31, 1999, 1998, and 1997 are derived from audited
financial statements not included in this Annual Report. Information for the
fiscal year ended March 31, 1999 includes the results of operations for
RSA Communications since July 17, 1998, the closing date of the acquisition.
Information for the fiscal year ended April 2, 2000 includes the results of
operations of D2 Technologies since February 10, 2000, the closing date of the
acquisition. Information for the fiscal year ended April 1, 2001 includes the
results of operations of Inverness Systems since April 27, 2000, the results of
operations of Agranat Systems since August 16, 2000, and the results of
operations of Excess Bandwidth since August 22, 2000, the closing dates of the
acquisitions.

   Effective October 3, 1999, we changed our fiscal year such that each quarter
ends on the Sunday closest to calendar quarter end.

                                       34
<PAGE>

<TABLE>
<CAPTION>
                                                Year Ended
                             ----------------------------------------------------
                             April 1,   April 2,  March 31,  March 31,  March 31,
                               2001       2000      1999       1998       1997
                             ---------  --------  ---------  ---------  ---------
                                  (in thousands, except per share data)
<S>                          <C>        <C>       <C>        <C>        <C>
Consolidated Statement of
 Operations Data
Revenues:
 Semiconductor.............. $ 102,765  $ 14,041  $  2,784   $    505    $   --
 License....................    14,916     3,717     1,628      1,570        971
 Services and royalty.......     6,122     1,724     2,367      1,206      1,134
 Systems....................     2,470     2,295     2,477      5,650      4,848
                             ---------  --------  --------   --------    -------
   Total revenues...........   126,273    21,777     9,256      8,931      6,953
                             ---------  --------  --------   --------    -------
Cost of revenues:
 Semiconductor..............    72,523     9,651     2,421        325        --
 License....................       687       107       --         --         --
 Services and royalty.......     1,172       701       528        192        185
 Systems....................     1,296       780     1,048      3,270      3,754
                             ---------  --------  --------   --------    -------
   Total cost of revenues...    75,678    11,239     3,997      3,787      3,939
                             ---------  --------  --------   --------    -------
 Gross profit...............    50,595    10,538     5,259      5,144      3,014
                             ---------  --------  --------   --------    -------
Operating expenses:
 Research and development:
 National Insurance
  Contribution on options...       751     2,036       --         --         --
 Amortization of stock
  compensation..............     2,310       630       929        215        --
 Other research and
  development...............    34,626    12,331     8,323      3,987      3,518
                             ---------  --------  --------   --------    -------
   Total research and
    development.............    37,687    14,997     9,252      4,202      3,518
                             ---------  --------  --------   --------    -------
 Sales and marketing:
 National Insurance
  Contribution on options...       619       961       --         --         --
 Amortization of stock
  compensation..............       681       118       219         80        --
 Other sales and
  marketing.................    22,168     5,350     2,917      4,076      4,753
                             ---------  --------  --------   --------    -------
   Total sales and
    marketing...............    23,468     6,429     3,136      4,156      4,753
                             ---------  --------  --------   --------    -------
 General and administrative:
 National Insurance
  Contribution on options...     1,953     1,474       --         --         --
 Amortization of stock
  compensation..............       432       159       246        104        --
 Other general and
  administrative............    19,549     5,976     5,567      4,917      3,410
                             ---------  --------  --------   --------    -------
   Total general and
    administrative..........    21,934     7,609     5,813      5,021      3,410
                             ---------  --------  --------   --------    -------
 Restructuring costs........       --        --        --       1,871        --
                             ---------  --------  --------   --------    -------
 Amortization of intangible
  assets....................    81,995     4,497       549        --         --
                             ---------  --------  --------   --------    -------
 Acquired in-process
  research and development..    81,062     5,324     5,260        --         --
                             ---------  --------  --------   --------    -------
   Total operating
    expenses................   246,146    38,856    24,010     15,250     11,681
                             ---------  --------  --------   --------    -------
Loss from operations........  (195,551)  (28,318)  (18,751)   (10,106)    (8,667)
Interest and other income
 (expense), net.............    23,775     2,210     1,594       (172)       127
                             ---------  --------  --------   --------    -------
Net loss.................... $(171,776) $(26,108) $(17,157)  $(10,278)   $(8,540)
                             =========  ========  ========   ========    =======
Net loss per share
 Basic and diluted.......... $   (2.98) $  (1.40) $  (4.46)  $  (3.00)   $ (2.68)
                             =========  ========  ========   ========    =======
 Weighted average shares....    57,714    18,672     3,845      3,428      3,186
                             =========  ========  ========   ========    =======

<CAPTION>
                             April 1,   April 2,  March 31,  March 31,  March 31,
                               2001       2000      1999       1998       1997
                             ---------  --------  ---------  ---------  ---------
                                              (in thousands)
<S>                          <C>        <C>       <C>        <C>        <C>
Consolidated Balance Sheet
 Data
Cash and cash equivalents... $ 321,923  $ 60,193  $  8,616   $    767    $ 3,752
Working capital.............   497,099    70,631     8,042     (3,653)     6,346
Total assets................   904,897   181,362    19,187      5,950     12,066
Total long term liabilities
 ...........................     1,678     1,178     1,130        738        875
Total stockholders' equity
 (deficit) .................   873,984   161,788    12,719     (3,085)     6,857
</TABLE>

                                       35
<PAGE>

ITEM 7--Management's Discussion and Analysis of Results of Operations and
Financial Condition.

   This section of this Annual Report includes a number of 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 Annual
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" and elsewhere in
this Annual Report.

Overview

   Virata Corporation ("Virata" or "we") provides communications processors and
DSL physical-layer chips combined with integrated software modules to
manufacturers of equipment utilizing digital subscriber line, or DSL, and
broadband wireless technologies. These "integrated software on silicon"(TM)
product solutions enable our customers to develop a diverse range of equipment,
including modems, gateways, routers, fixed wireless receivers and base stations
targeted at the voice and high-speed data network access, or broadband, market.
We believe our systems expertise, products and support services enable
equipment manufacturers to simplify product development, reduce the time it
takes for products to reach the market and focus resources on product
differentiation and enhancement. We outsource the manufacturing of our
semiconductors, which allows us to focus our resources on the design,
development and marketing of our products.

   We were formed in 1993 as a spin-out from the Olivetti Research Laboratories
(now AT&T Laboratories) and until 1995, we were a development-stage company
focused primarily on product development. We initially focused on developing
and delivering ATM-based, board-level systems primarily for local area network
applications. However, 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 July 1998, we acquired RSA Communications, Inc. On November 16, 1999, we
reorganized our corporate structure and completed our initial public offering.
On February 10, 2000, we completed our acquisition of D2 Technologies Inc., a
provider of digital voice and telephony software solutions. On April 27, 2000
we completed our acquisition of Inverness Systems Ltd., a provider of
networking software solutions. On August 16, 2000, we completed our acquisition
of Agranat Systems, Inc., a provider of Web managed software products. On
August 22, 2000, we completed our acquisition of Excess Bandwidth Corporation,
a developer of symmetrical DSL physical-layer chips. Effective October 3, 1999,
we changed our fiscal year such that each quarter ends on the Sunday closest to
the calendar quarter end.

   On March 21, 2000, our Board of Directors approved a two-for-one split of
Virata's common stock that was applicable to stockholders of record on May 4,
2000. The stock split, approved by the Virata'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.

   On July 13, 2000, we completed our 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 Virata were approximately $461 million,
net of commissions and offering costs.

   We generate revenues from sales of semiconductors, systems-level products,
software licenses, maintenance, royalties and design services. Semiconductor
revenues have come from two sources, our Proton family of application specific
integrated circuit ("ASIC") products and our ATOM family of application
specific standard parts ("ASSP"). Original equipment manufacturers, or OEMs,
license our software, which permits them to purchase our semiconductors for use
in their products. We support our licensee customers through the sale of
maintenance contracts and design services. Since September 1997, we have sold
our

                                       36
<PAGE>

systems-level products primarily to one customer. Due to our principal customer
discontinuing the use of our systems products in fiscal year 2001, our systems-
level products will consist only of sales of board-level evaluation systems
featuring our latest ASSP products.

   We generally employ a direct sales model to build a close relationship with
customers both prior to and following the execution of a license. In foreign
countries such as Korea, Japan, China and certain South American countries, we
work with representative firms.

   It usually 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
purchases of our products by our customers. We generally sell our products
based on individual purchase orders. Our customers are not obligated by long-
term contracts to purchase our semiconductors and can generally cancel or
reschedule orders upon short notice. As of April 1, 2001 and April 2, 2000, our
backlog were approximately $24.5 million and $24.9 million, respectively,
including the backlog for semiconductors, which were approximately $20.0
million and $20.5 million, respectively.

   Achieving a design win with a customer does not create a binding commitment
from that customer to purchase our products. Rather, it is a decision by a
customer to use our products in the design process of their products. 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 may still not realize significant
revenues from that customer if their products are not commercially successful.
We have a strategy of licensing and partnering with as many key participants in
our markets as possible, and we have achieved a significant number of design
wins. Nevertheless, some customers will be more successful than others in
developing and marketing their products that incorporate our semiconductor
products, and it is difficult for us to predict which of these customers will
generate revenues for us. Our semiconductor product sales are almost completely
dependent upon the relative success of our customers in the marketplace for
broadband access products.

   We have spent considerable resources developing our Beryllium and Helium
derivative products for the ADSL market, and we are just beginning to work with
potential customers for this product. Our future success will depend, in part,
on the success of Beryllium and the Helium derivative products.

   Our revenues to date have been concentrated with a small number of
customers. We expect this concentration to continue. For the fiscal year ended
April 1, 2001, Westell Technologies and Siemens accounted for 19.6% and 14.6%,
respectively, of our total revenues. For the fiscal year ended April 2, 2000,
Orckit Communications and Westell Technologies accounted for 23.1% and 15.1%,
respectively, of our total revenues. For the fiscal year ended March 31, 1999,
Com21 and Orckit Communications accounted for 22.6% and 15.7%, respectively, of
our total revenues. However, in order to minimize customers' inventory build up
and maintain our strong customer relationships, we decided in December 2000 to
reschedule and/or cancel certain semiconductor shipments that our customers had
contractually agreed to receive in the six months ended April 1, 2001, and to
revise the shipment schedule of the remaining products to Westell Technologies
and to a limited number of our other customers in Asia and the United States.

   International revenues, from customers located outside of the United States,
accounted for 49.6% of our total revenues for the fiscal year ended April 1,
2001, 43.6% for the fiscal year ended April 2, 2000, and 40.3% for the fiscal
year ended March 31, 1999. For the fiscal year ended April 1, 2001, sales from
customers in Germany and Taiwan represented 15.9% and 13.1% of total revenues,
respectively. For the fiscal year ended April 2, 2000, sales from customers in
Israel represented 23.3% of total revenues. For the fiscal year ended March 31,
1999, sales from customers in Israel represented 16.5% of total revenues.
However, 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. However, we experience risks
inherent in

                                       37
<PAGE>

international business. These risks include extended collection time for
receivables, reduced ability to enforce contractual obligations and reduced
protection of our intellectual property. Our material costs are denominated in
U.S. dollars, and our operating expenses are primarily in U.S. dollars, British
pounds sterling, and new Israeli shekels.

<TABLE>
<CAPTION>
                                                          Fiscal Year Ended
                                                     ---------------------------
                                                     April 1, April 2, March 31,
                                                       2001     2000     1999
                                                     -------- -------- ---------
     <S>                                             <C>      <C>      <C>
     Revenues by Geographic Region
     North America..................................   50.4%    56.4%    59.7%
     Asia...........................................   21.3%    11.0%    10.0%
     Europe/Israel..................................   28.3%    32.6%    30.3%
</TABLE>

   Our gross margin has fluctuated significantly due primarily to product mix.
For the fiscal year ended April 1, 2001, our semiconductor gross margin was
29.4%, our license gross margin was 95.4%, our services and royalty gross
margin was 80.9% and our systems gross margin was 47.5%. For the fiscal year
ended April 2, 2000, our semiconductor gross margin was 31.3%, our license
gross margin was 97.1%, our services and royalty gross margin was 59.3% and our
systems gross margin was 66.0%. We believe our gross margin may continue to
fluctuate because we expect the introduction of new semiconductor products,
increased competition and more consumer-oriented markets may impact pricing.

   Since inception, we have invested heavily in research and development and
have built a worldwide sales force and administration infrastructure, which has
contributed to net losses. Additionally, we have chosen to operate principally
in the following locations: Cambridge, England; Kfar Saba, Israel; Raleigh,
North Carolina; Santa Barbara, California; Maynard, Massachusetts; Santa
Clara/Cupertino, California. We believe that our strategy of locating research
and development in Cambridge, Raleigh, Maynard, Cupertino and Santa Barbara,
has provided access to high quality engineers and contributed to low turnover.
However, we incur higher general and administrative expenses associated with
multi-site operations. We plan to continue to invest to exploit market
opportunities and revenues may not increase at a rate sufficient to achieve and
maintain profitability. In September 1997, we implemented a new business
strategy and reduced the resources allocated to the systems line of business.
We sold our systems products to one principal customer in fiscal year ended
April 1, 2001. The systems revenues for the fiscal year ended April 1, 2001
were $2.5 million. However, we will no longer ship the products to this
customer as they have discontinued the use of our system products.

   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 April 1, 2001, we
had an accumulated deficit of $248.5 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.

Acquisitions

   A key element of our business strategy involves expansion through the
acquisition of businesses, products or technologies that allow us to reduce the
time required to develop new technologies and products and bring them to
market, complement our existing product offerings, expand our market coverage,
increase our engineering workforce or enhance our technological capabilities.
We will continue to evaluate opportunities for strategic acquisitions from time
to time, and may make additional acquisitions in the future.

   During fiscal year 2001, we completed three acquisitions that were accounted
for as purchase transactions, for aggregate consideration of $444.3 million.
These acquisitions included Inverness Systems, a provider of networking
software solutions; Agranat Systems, a supplier of web technologies and
networking management software; and Excess Bandwidth, a developer of advanced
algorithms and mixed-signal semiconductors for high-bandwidth symmetric DSL
applications. Because each of these acquisitions was accounted for as a
purchase transaction, the accompanying consolidated financial statements
include the results of operations of the acquired companies incurred after
their respective acquisition dates.

                                       38
<PAGE>

   The acquisitions are summarized below (in millions). See Note 4 of the Notes
to the Consolidated Financial Statements.
<TABLE>
<CAPTION>
                       Valuation of                       Fair Value of                Identified
           Acquisition Consideration                       Net Assets                  Intangible   Deferred
 Company      Date      at Closing      Consideration       Acquired    IPR&D Goodwill   Assets   Compensation
---------  ----------- ------------- -------------------- ------------- ----- -------- ---------- ------------
<S>        <C>         <C>           <C>                  <C>           <C>   <C>      <C>        <C>
Inverness  April 2000      $98.4     2.0 million shares,      $1.4      $1.2   $84.5     $11.3        $--
Systems                              0.5 million options

Agranat    August 2000      27.2     0.4 million shares,      (0.9)      0.6    12.8      13.4         1.3
Systems                              0.06 million options

Excess     August 2000     318.7     5.7 million shares,       2.9      79.3   144.7      74.5        17.3
Bandwidth                            0.6 million options
</TABLE>

Recent Developments

 Stockholder Rights Plan

   On May 8, 2001, Virata adopted a Stockholder Rights Plan and declared a
nontaxable dividend of one "right" on each outstanding share of Virata's common
stock to Stockholders of record as of May 9, 2001.

 Director Resignation

   Bandel Carano, a director of Virata, resigned effective May 12, 2001. On May
22, 2001, the Board of Directors accepted his resignation. The seat is
currently vacant.

                                       39
<PAGE>

Results of Operations

   The following table sets forth, for the periods presented, certain data from
our consolidated statement of operations expressed as a percentage of total
revenues.

<TABLE>
<CAPTION>
                                                          Year Ended
                                                  -----------------------------
                                                  April 1,  April 2,  March 31,
                                                    2001      2000      1999
                                                  --------  --------  ---------
<S>                                               <C>       <C>       <C>
As a Percentage of Total Revenues
Revenues:
 Semiconductor...................................    81.4 %    64.5 %    30.1 %
 License.........................................    11.8      17.0      17.6
 Services and royalty............................     4.8       8.0      25.5
 Systems.........................................     2.0      10.5      26.8
                                                   ------    ------    ------
    Total revenues...............................   100.0     100.0     100.0
                                                   ------    ------    ------
Cost of revenues:
 Semiconductor...................................    57.4      44.3      26.2
 License.........................................     0.6       0.5       --
 Services and royalty............................     0.9       3.2       5.7
 Systems.........................................     1.0       3.6      11.3
                                                   ------    ------    ------
    Total cost of revenues.......................    59.9      51.6      43.2
                                                   ------    ------    ------
 Gross profit....................................    40.1      48.4      56.8
                                                   ------    ------    ------
Operating expenses:
 Research and development:
  National Insurance Contribution on options.....     0.6       9.3       --
  Amortization of stock compensation.............     1.8       3.0      10.0
  Other research and development.................    27.4      56.6      89.9
                                                   ------    ------    ------
    Total research and development...............    29.8      68.9      99.9
                                                   ------    ------    ------
 Sales and marketing:
  National Insurance Contribution on options.....     0.5       4.4       --
  Amortization of stock compensation.............     0.5       0.5       2.4
  Other sales and marketing......................    17.6      24.6      31.5
                                                   ------    ------    ------
    Total sales and marketing....................    18.6      29.5      33.9
                                                   ------    ------    ------
 General and administrative:
  National Insurance Contribution on options.....     1.6       6.8       --
  Amortization of stock compensation.............     0.3       0.7       2.7
  Other general and administrative...............    15.5      27.4      60.2
                                                   ------    ------    ------
    Total general and administrative.............    17.4      34.9      62.9
                                                   ------    ------    ------
 Amortization of intangible assets...............    64.9      20.6       5.9
                                                   ------    ------    ------
 Acquired in-process research and development....    64.2      24.5      56.8
                                                   ------    ------    ------
    Total operating expenses.....................   194.9     178.4     259.4
                                                   ------    ------    ------
Loss from operations.............................  (154.8)   (130.0)   (202.6)
Interest and other income (expense), net.........    18.8      10.1      17.2
                                                   ------    ------    ------
Net loss.........................................  (136.0)%  (119.9)%  (185.4)%
                                                   ======    ======    ======
</TABLE>

                                       40
<PAGE>

Fiscal Years Ended April 1, 2001, April 2, 2000, and March 31, 1999

 Total Revenues

   Total revenues increased to $126.3 million for the fiscal year ended April
1, 2001, from $21.8 million for the fiscal year ended April 2, 2000. Total
revenues increased to $21.8 million for the fiscal year ended April 2, 2000,
from $9.3 million for the fiscal year ended March 31, 1999.

   Semiconductor revenues increased to $102.8 million for the fiscal year ended
April 1, 2001, compared to $14.0 million for fiscal year ended April 2, 2000.
For the fiscal year ended April 2, 2000, semiconductor revenues increased to
$14.0 million, from $2.8 million for the fiscal year ended March 31, 1999. A
significant factor that contributed to this revenue growth included the 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
81.4% of total revenues for the fiscal year ended April 1, 2001, compared to
64.5% of total revenues for the fiscal year ended April 2, 2000. For the fiscal
year ended April 1, 2000, semiconductor revenues increased to 64.5% of total
revenues compared to 30.1% of total revenues for the fiscal year ended March
31, 1999.

   License revenues increased to $14.9 million, or 11.8% of total revenues, for
the fiscal year ended April 1, 2001, from $3.7 million, or 17.0% of total
revenues, for the fiscal year ended April 2, 2000. Significant factors that
contributed to this revenue growth include availability of new products,
expanding software licensee customer base, additional revenues from the
acquisitions of Inverness Systems in April 2000, and Agranat Systems in August
2000, and recording a full year of revenue from the acquisition of D2
Technologies completed in February 2000. License revenues for the fiscal year
ended April 2, 2000 increased to $3.7 million, or 17.0% or total revenues,
compared to $1.6 million, or 17.6% of total revenues, for the fiscal year ended
March 31, 1999. The increases in license revenues were primarily a result of
expanding our software licensee customer base and additional license revenues
from the acquisition of D2 Technologies.

   Services and royalty revenues increased to $6.1 million, or 4.8% of total
revenues, for the fiscal year ended April 1, 2001, compared to $1.7 million, or
8.0% of total revenues, for the fiscal year ended April 2, 2000. The increase
was due primarily to the expansion of our licensee customer base, thus
increasing our service revenues; and additional related service and royalty
revenues generated by acquisitions of D2 Technologies, Inverness Systems and
Agranat Systems. For the fiscal year ended April 1, 2000, services and royalty
revenues decreased to $ 1.7 million, or 8.0% of total revenues, compared to
$2.4 million, or 25.5% of total revenues, for the fiscal year ended March 31,
1999. The change is due primarily to the reduction in royalty revenues from two
customers.

   Systems revenues increased 7.6% to $2.5 million for the fiscal year ended
April 1, 2001, compared to $2.3 million for the fiscal year ended April 2,
2000. Although the systems revenues increased, systems revenue as a percentage
of total revenues decreased to 2.0% for the fiscal year ended April 1, 2001
from 10.5% of total revenues for the fiscal year ended April 2, 2000. For the
fiscal year ended April 2, 2000, systems revenues decreased 7.3% to $2.3
million, compared to $2.5 million for the fiscal year ended March 31, 1999. For
the fiscal year ended April 2, 2000, systems revenue as a percentage of total
revenues decreased to 10.5% from 26.8% of total revenues for the fiscal year
ended March 31, 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. We sold our systems products to one principal
customer in fiscal years ended April 1, 2001 and April 2, 2001. However, we
will no longer ship the products to this customer as they have discontinued the
use of our system products. We expect the systems revenues to decrease
significantly.

 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 and
software maintenance and operations expense. Cost of

                                       41
<PAGE>

revenues increased to $75.7 million, or 59.9% of total revenues, for the fiscal
year ended April 1, 2001, from $11.2 million, or 51.6% of total revenues, for
the fiscal year ended April 2, 2000. Cost of revenues increased to $11.2
million, or 51.6% of total revenues, for the fiscal year ended April 2, 2000,
from $4.0 million, or 43.2% of total revenues, for the fiscal year ended March
31, 1999.

   Semiconductor gross margin decreased to 29.4% for the fiscal year ended
April 1, 2001, compared to 31.3% for the fiscal year ended April 2, 2000. The
decrease primarily reflected a combination of the following factors: 1) the
impact of a $9.3 million provision for excess and obsolete inventory related
primarily to our Helium products, due to the rescheduled or cancelled customer
shipments, and approximately $1.7 million inventory provision was related to
the end-of-life transition for our older Hydrogen product, 2) a shift in
product mix, and 3) the lower average selling price of Helium products
resulting from an increase in sales to higher volume customers. Semiconductor
gross margin increased to 31.3% for the fiscal year ended April 2, 2000, from
13.0% for fiscal year ended March 31, 1999. The increase was primarily due to
product mix and an increase in sales volume. 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 the average selling prices of our semiconductors.

   Software license gross margin was 95.4% for the fiscal year ended April 1,
2001, compared to 97.1% for the fiscal year ended April 2, 2000. There were no
costs of revenues associated with our software license revenues for the fiscal
year ended March 31, 1999. This decrease was primarily due to costs incurred
with license contracts assumed following the D2 Technologies, Inverness
Systems, and Agranat Systems acquisitions.

   Services and royalty gross margin was 80.9% for the fiscal year ended April
1, 2001 compared to 59.3% for the fiscal year ended April 2, 2000. The increase
in services and royalty gross margins between was the result of a favorable mix
of design services revenues and higher margin royalty revenues following the D2
Technologies, Inverness Systems and Agranat Systems acquisitions. Services and
royalty revenues gross margin decreased to 59.3% for the fiscal year ended
April 2, 2000, from 77.7% for the fiscal year ended March 31, 1999 as a result
of costs incurred for design services and higher mix of design services
revenues as higher margin royalty revenues decreased.

   Systems gross margin decreased to 47.5% for the fiscal year ended April 1,
2001, compared to 66.0% for the fiscal year ended April 2, 2000. Systems gross
margin improved to 65.9% for the fiscal year ended April 2, 2000 from 57.7% for
the fiscal year ended March 31, 1999. The decrease in systems margin was
primarily due to fixed operations support related to systems products and a
narrower systems product range. Due to our principal customer discontinuing the
use of our systems products in fiscal year 2001, our systems gross margin will
consist only of sales of board-level evaluation systems featuring our latest
ASSP products.

 Research and Development Expenses

   Research and development expenses consist primarily of engineering staffing
costs and technology license fees. Research and development expenses increased
151.3% to $37.7 million for the fiscal year ended April 1, 2001, from $15.0
million for the fiscal year ended April 2, 2000. Research and development
expenses increased 62.1% to $15.0 million for the fiscal year ended April 2,
2000, from $9.3 million for the fiscal year ended March 31, 1999. The increase
was primarily due to the addition of research and development 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 fiscal years ended April 1, 2001, April 2, 2000 and March 31, 1999,
we recognized amortization of stock compensation of approximately $2.3 million,
$0.6 million, and $0.9 million, respectively, for the research and development
group. See "Amortization of Stock Compensation" below. For the fiscal years
ended April 1, 2001 and April 2, 2000, charges of approximately $0.8 million
and $2.0 million, respectively, were recorded for National Insurance
Contribution on options for the research and development group. This expense is
listed

                                       42
<PAGE>

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 close of the period.
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 265.0% to $23.5 million for
fiscal year ended April 1, 2001, from $6.4 million for the fiscal year ended
April 2, 2000. Sales and marketing expenses increased 105.0% to $6.4 million
for fiscal year ended April 2, 2000, from $3.1 million for the fiscal year
ended March 31, 1999. The increase was primarily due to the addition of sales
and marketing personnel and increased sales commissions associated with higher
revenues.

   For the fiscal years ended April 1, 2001, April 2, 2000 and March 31, 1999,
we recognized amortization of stock compensation of approximately $0.7 million,
$0.1 million, and $0.2 million, respectively, for the sales and marketing
group. See "Amortization of Stock Compensation" below. For the fiscal years
ended April 1, 2001 and April 2, 2000, charges of approximately $0.6 million
and $1.0 million, 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 188.3% to $21.9 million for fiscal year ended
April 1, 2001, from $7.6 million for the fiscal year ended April 2, 2000.
General and administrative expenses increased 30.9% to $7.6 million for fiscal
year ended April 2, 2000, from $5.8 million for the fiscal year ended March 31,
1999. The increase was primarily attributable to the to increased staff,
inclusion of current expenses related to the former D2 Technologies, Inverness
Systems, Agranat Systems and Excess Bandwidth, the businesses acquired in year
2000, and the additional costs of being a publicly traded company.

   For the fiscal years ended April 1, 2001, April 2, 2000 and March 31, 1999,
we recognized amortization of stock compensation of approximately $0.4 million,
$0.2 million, and $0.2 million, respectively, for the general and
administrative group. See "Amortization of Stock Compensation" below. For the
fiscal years ended April 1, 2001 and April 2, 2000, charges of approximately
$2.0 million and $1.5 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

   We recorded a charge for National Insurance Contribution on options which 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 requirement to book this charge came into effect on April 5,
1999. 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 six month period ended October 1, 2000
and the fiscal year ended April 2, 2000 were $4.2 million and $4.5 million,
respectively.

   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. Through October 1, 2000, Virata estimated and
recorded its liability for the National Insurance Contribution based upon

                                       43
<PAGE>

total outstanding stock options held by its employees in the United Kingdom.
Beginning in the quarter ended December 31, 2000, Virata began recording an
additional liability only upon the exercise of options granted subsequent to
October 1, 2000 to employees in the United Kingdom. No additional liability was
recorded in the six month period ended April 1, 2001.

 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, and the August 2000 acquisitions of Agranat Systems and
Excess Bandwidth. Amortization of intangible assets for the fiscal year ended
April 1, 2001 was $82.0 million, compared to $4.5 million for the fiscal year
ended April 1, 2000, and $0.5 million for the fiscal year ended March 31, 1999.
The year to year increase was 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 April 1, 2001, we recorded a total of $21.0 million of unearned
stock compensation, of which approximately $18.7 million is related to the
assumption of unvested stock options from the recent acquisitions of Excess
Bandwidth and Agranat Systems. We recognized amortization of stock compensation
of $3.4 million for the fiscal year ended April 1, 2001, $0.9 million for the
fiscal year ended April 2, 2000, and $1.4 million for the fiscal year ended
March 31, 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 fiscal year ended April
1, 2001, we recorded charges of $81.1 million associated with acquired in-
process research and development for the fiscal year ended April 1, 2001. 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 fiscal year ended
April 1, 2001 was 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. The acquired
in-process research and development of $5.3 million for the fiscal year ended
April 2, 2000 was attributable to the acquisition of D2 Technologies, which
occurred in February 2000. The acquired in-process research and development of
$5.3 million for the fiscal year ended March 31, 1999 was attributable to the
acquisition of RSA Communications, which occurred in July 1998. These
acquisitions were accounted for as purchase business combinations. Also see
Note 4 of the Notes to the Consolidated Financial Statements.

 Interest Expense

   Interest expense increased to $401,000 for fiscal year ended April 1, 2001,
compared to $200,000 and $155,000 for the fiscal years ended April 2, 2000 and
March 31, 1999. The interest expense was primarily related to interest
associated with capital equipment under lease. The increase in interest expense
is due to additional capital lease obligations assumed from the Excess
Bandwidth acquisition in August 2000.

 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 fiscal year ended April 1, 2001 increased to $24.4
million, compared to $1.6 million for the fiscal year ended April 2, 2000, and
$786,000 for the fiscal year ended March 31, 1999.

                                       44
<PAGE>

For the fiscal year ended April 1, 2001, foreign exchange gain was $158,000.
For the fiscal year ended April 2, 2000, foreign exchange gain was $543,000 and
an income tax refund was $ 39,000. For the fiscal year ended March 31, 1999 the
foreign exchange gain was $432,000, and an income tax refund was $531,000.
Losses at RSA Communications, subsequent to its acquisition, allowed for the
income tax refund.

 Income Taxes

   Since inception, we have incurred net losses for federal and state tax
purposes and have not recognized any tax provision or benefit. At April 1,
2001, we had approximately $62.2 million, $45.4 million and $20.5 million in
federal, state and foreign net operating loss carryforwards, respectively, to
reduce future taxable income. The net operating loss carryforwards expire
between 2002 and 2020 for both federal and state purposes, if not utilized. The
foreign net operating loss will be carryforward indefinitely.

   As of April 1, 2001, we had deferred tax assets of $9.2 million, which were
fully offset by a valuation allowance. Deferred tax assets consist principally
of the federal and state net operating loss carryforwards, capitalized start-up
expenditures, accruals and reserves not currently deductible for tax purposes,
research and development credits and foreign tax credit carryforwards. Due to
uncertainty surrounding the realization of the favorable tax attributes in the
future tax returns, we have established a 100% valuation allowance against our
deferred tax assets. Accordingly, no tax benefit was recorded in the
accompanying consolidated statements of operations.

   Our ability to use its federal and state net operating loss carryforwards
and tax credit carry forwards to offset future taxable income and future taxes,
respectively, may be subjected to restrictions due to equity transactions that
result in changes in ownership as defined by Internal Revenue Code Section 382
and 383, under the Tax Reform Act of 1986.

Quarterly Results of Operations

   The following table sets forth our consolidated operating results for each
of the five quarters ended April 1, 2001. This data has been derived from
unaudited consolidated financial statements that, in the opinion of our
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of this information when read in
conjunction with our annual audited consolidated financial statements and notes
thereto appearing elsewhere in this Annual Report. These operating results are
not necessarily indicative of results of any future period.

                                       45
<PAGE>

<TABLE>
<CAPTION>
                                           Three Months Ended
                              ------------------------------------------------
                              April 1,  Dec 31,    Oct 1,   July 2,   April 2,
                                2001      2000      2000      2000      2000
                              --------  --------  --------  --------  --------
                                             (in thousands)
<S>                           <C>       <C>       <C>       <C>       <C>
Consolidated Statement of
 Operations Data
Revenues:
 Semiconductor............... $ 15,132  $ 30,010  $ 36,158  $ 21,465  $  8,118
 License.....................    2,013     4,793     3,953     4,157     2,195
 Services and royalty........    2,119     1,852     1,183       968       609
 Systems.....................       92       359       913     1,106     1,109
                              --------  --------  --------  --------  --------
    Total revenues...........   19,356    37,014    42,207    27,696    12,031
                              --------  --------  --------  --------  --------
Cost of revenues:
 Semiconductor...............   16,450    21,337    20,644    14,092     6,051
 License.....................       12        89       462       124       107
 Services and royalty........      112       133       741       186       217
 Systems.....................       84       295       459       458       174
                              --------  --------  --------  --------  --------
    Total cost of revenues...   16,658    21,854    22,306    14,860     6,549
                              --------  --------  --------  --------  --------
 Gross profit................    2,698    15,160    19,901    12,836     5,482
                              --------  --------  --------  --------  --------
Operating expenses:
 Research and development:
  National Insurance
   Contribution on options...     (201)      --        352       600     2,036
  Amortization of stock
   compensation..............      605     1,227       428        50       120
  Other research and
   development...............   12,070     9,493     8,031     5,032     4,156
                              --------  --------  --------  --------  --------
    Total research and
     development.............   12,474    10,720     8,811     5,682     6,312
                              --------  --------  --------  --------  --------
 Sales and marketing:
  National Insurance
   Contribution on options...     (162)      --        236       545       961
  Amortization of stock
   compensation..............      243       275       113        50        42
  Other sales and marketing..    6,206     5,619     5,977     4,366     2,262
                              --------  --------  --------  --------  --------
    Total sales and
     marketing...............    6,287     5,894     6,326     4,961     3,265
                              --------  --------  --------  --------  --------
 General and administrative:
  National Insurance
   Contribution on options...     (518)      --      1,096     1,375     1,474
  Amortization of stock
   compensation..............      146       154        82        50        34
  Other general and
   administrative............    5,992     5,616     4,623     3,318     2,196
                              --------  --------  --------  --------  --------
    Total general and
     administrative..........    5,620     5,770     5,801     4,743     3,704
                              --------  --------  --------  --------  --------
 Amortization of intangible
  assets.....................   27,606    27,869    16,571     9,949     3,944
                              --------  --------  --------  --------  --------
 Acquired in-process research
  and development............      --        --     79,892     1,170     5,324
                              --------  --------  --------  --------  --------
    Total operating
     expenses................   51,987    50,253   117,401    26,505    22,549
                              --------  --------  --------  --------  --------
Loss from operations.........  (49,289)  (35,093)  (97,500)  (13,669)  (17,067)
Interest and other income
 (expense), net..............    7,322     8,379     7,190       884     1,866
                              --------  --------  --------  --------  --------
Net loss..................... $(41,967) $(26,714) $(90,310) $(12,785) $(15,201)
                              ========  ========  ========  ========  ========
</TABLE>


                                       46
<PAGE>

<TABLE>
<CAPTION>
                                            Three Months Ended
                                 ---------------------------------------------
                                 April 1,  Dec 31,  Oct 1,   July 2,  April 2,
                                   2001     2000     2000     2000      2000
                                 --------  -------  ------   -------  --------
                                              (in thousands)
<S>                              <C>       <C>      <C>      <C>      <C>
As a Percentage of Total
 Revenues
Revenues:
 Semiconductor..................    78.2 %   81.1 %   85.7 %   77.5 %    67.5 %
 License........................    10.4     12.9      9.4     15.0      18.2
 Services and royalty...........    10.9      5.0      2.8      3.5       5.1
 Systems........................     0.5      1.0      2.1      4.0       9.2
                                  ------    -----   ------    -----    ------
    Total revenues..............   100.0    100.0    100.0    100.0     100.0
                                  ------    -----   ------    -----    ------
Cost of revenues:
 Semiconductor..................    85.0     57.6     48.9     50.9      50.3
 License........................     0.1      0.2      1.1      0.4       0.9
 Services and royalty...........     0.6      0.4      1.8      0.7       1.8
 Systems........................     0.4      0.8      1.1      1.7       1.4
                                  ------    -----   ------    -----    ------
    Total cost of revenues......    86.1     59.0     52.8     53.7      54.4
                                  ------    -----   ------    -----    ------
 Gross profit...................    13.9     41.0     47.2     46.3      45.6
                                  ------    -----   ------    -----    ------
Operating expenses:
 Research and development:
  National Insurance
   Contribution on options......    (1.0)     --       0.8      2.1      16.9
  Amortization of stock
   compensation.................     3.1      3.3      1.0      0.2       1.0
  Other research and
   development..................    62.3     25.7     19.0     18.2      34.5
                                  ------    -----   ------    -----    ------
    Total research and
     development................    64.4     29.0     20.9     20.5      52.4
                                  ------    -----   ------    -----    ------
 Sales and marketing:
  National Insurance
   Contribution on options......    (0.8)     --       0.6      2.0       8.0
  Amortization of stock
   compensation.................     1.2      0.7      0.3      0.2       0.3
  Other sales and marketing.....    32.1     15.2     14.1     15.7      18.8
                                  ------    -----   ------    -----    ------
    Total sales and marketing...    32.5     15.9     15.0     17.9      27.1
                                  ------    -----   ------    -----    ------
 General and administrative:
  National Insurance
   Contribution on options......    (2.7)     --       2.6      5.0      12.3
  Amortization of stock
   compensation.................     0.7      0.4      0.2      0.2       0.3
  Other general and
   administrative...............    31.0     15.2     10.9     12.0      18.2
                                  ------    -----   ------    -----    ------
    Total general and
     administrative.............    29.0     15.6     13.7     17.1      30.8
                                  ------    -----   ------    -----    ------
 Amortization of intangible
  assets........................   142.6     75.3     39.3     35.9      32.8
                                  ------    -----   ------    -----    ------
 Acquired in-process research
  and development...............     --       --     189.3      4.2      44.3
                                  ------    -----   ------    -----    ------
    Total operating expenses....   268.6    135.8    278.2     95.7     187.4
                                  ------    -----   ------    -----    ------
Loss from operations............  (254.6)   (94.8)  (231.0)   (49.4)   (141.8)
Interest and other income
 (expense), net.................    37.8     22.6     17.0      3.2      15.5
                                  ------    -----   ------    -----    ------
Net loss........................  (216.8)%  (72.2)% (214.0)%  (46.2)%  (126.3)%
                                  ======    =====   ======    =====    ======
</TABLE>

Liquidity and Capital Resources

   We have financed our operations primarily through venture capital, corporate
investments, and through public offerings of common stock. On November 16,
1999, we completed our initial public offering of 11,500,000 shares of common
stock, including the exercise of the underwriters' overallotment option, at
$7.00 per share. Total proceeds to us were approximately $73.0 million, net of
commissions and offering costs.

                                       47
<PAGE>

On July 13, 2000, 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. 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 $409.7 million to $487.9 million for the fiscal year ended April 1,
2001. The increase in these accounts was primarily due to cash generated from
our July 2000 follow-on offering. Our cash and cash equivalents increased
$261.7 million to $321.9 million for the fiscal year ended April 1, 2001. The
increase in these accounts was primarily due to cash generated from our
November 1999 initial public offering.

   Our working capital on April 1, 2001 was approximately $497.1 million as
compared to $70.6 million on April 2, 2000. Our current ratio increased to 18.0
to 1, as of April 1, 2001, from 4.8 to 1, as of April 2, 2000.

   Net cash used in operating activities for the fiscal year ended April 1,
2001 of $21.5 million was primarily due to a net loss of $171.8 million,
decrease in accrued liabilities of $2.1 million, and increases in accounts
receivables, inventories, other assets of $4.7 million, $19.3 million, and $5.5
million, respectively. This was partially offset by depreciation and
amortization of $89.6 million, amortization of stock compensation of
$3.4 million, acquired in-process research and development expenses in
connection with the acquisitions of Inverness Systems, Agranat Systems and
Excess Bandwidth of $81.1 million, and increases in accounts payable, and
accrued National Insurance Contribution on options of $4.1 million, and $3.2
million, respectively. Net cash used in operating activities for the fiscal
year ended April 2, 2000 of $7.0 million was primarily due to net operating
losses of $26.1 million, an increase in accounts receivables and other current
assets of $4.2 million and $1.6 million respectively, partially offset by
depreciation and amortization of $6.3 million, acquired in-process research and
development expenses of $5.3 million in connection with the acquisition of D2
Technologies, and increases in accounts payable, accrued liabilities, accrued
employee benefits, accrued National Insurance Contribution on options expense,
and deferred revenue of $2.8 million, $2.2 million, $1.7 million, $4.5 million,
and $1.3 million, respectively. Net cash used in operating activities for the
fiscal year ended March 31, 1999 of $9.5 million was primarily due to net
operating losses of $17.2 million and a decrease in accrued liabilities of $2.1
million, partially offset by depreciation and amortization of $1.7 million,
acquired in-process research and development expenses of $5.3 million in
connection with the acquisition of RSA Communications, amortization of stock
compensation of $1.4 million and a provision for doubtful accounts of $1.5
million.

   Net cash used in investing activities was $179.7 million for the fiscal year
ended April 1, 2001, which reflected the net purchase of short-term investments
of $147.9 million, purchases of investments of $9.6 million, net purchases of
property and equipment of $15.7 million, and $6.5 million of cash used in
connection with our acquisitions of Inverness Systems, Agranat Systems, and
Excess Bandwidth. Net cash used in investing activities was $22.1 million for
the fiscal year ended April 2, 2000, which reflected the net purchase of short-
term investments of $17.0 million, $3.6 million of cash paid in connection with
our acquisition of D2 Technologies net of cash acquired, and net purchases of
property and equipment of $1.4 million. Net cash used in investing activities
was $8.3 million for the fiscal year ended March 31, 1999, which reflected
purchases of property and equipment of $2.1 million, the net cash paid in
connection with the acquisition of RSA Communications of $5.1 million and the
purchase of short-term investments of $1.0 million.

   Net cash provided by financing activities was $463.1 million for the fiscal
year ended April 1, 2001, 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 $464.3 million, partially offset by
repayments on capital lease obligations of $1.1 million. Net cash provided by
financing activities was $81.1 million for the fiscal year ended April 2, 2000,
primarily due to proceeds from the issuance of common stock through our initial
public offering and employee stock option plan of $74.1 million, issuance of
convertible preferred stock of $8.0 million, partially offset by repayments on
capital lease obligations of $1.0 million. Net cash provided by

                                       48
<PAGE>

financing activities was $25.6 million for the fiscal year ended March 31,
1999, primarily due to proceeds from the issuance of convertible preferred
stock of $25.1 million, proceeds from equipment lease financing of
$1.2 million, less repayments on capital lease obligations and bank borrowings
of $0.7 million.

   We had outstanding capital commitments totaling approximately $1.4 million
as of April 1, 2001, primarily related to our infrastructure. 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 Statement of Financial Accounting Standards
("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 the year ending March 31, 2002. To date, Virata have not
engaged in derivative or hedging activities. Virata does not expect the
adoption of SFAS No. 133 to have a material effect on its financial position or
results of operations.

ITEM 7A--Quantitative and Qualitative Disclosures 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 maintain our portfolio of cash equivalents and short-term
investments in a variety of securities, including commercial paper, money
market funds, government and corporate debt securities and certificates of
deposit. As of April 1, 2001, all of our short-term investments are government
or corporate debt securities or high quality commercial paper. In addition,
contract maturities of these securities were within one year as of April 1,
2001. See Note 2 of the "Notes to Consolidated Financial Statements".

   We also have investments in restricted shares of privately-held technology
companies. These non-marketable shares are recorded at cost, and are classified
on the balance sheet as non-current assets. We do not hold these securities for
speculative or trading purposes. We make investments in key business partners
and other industry participants in order to establish important strategic
relationships, expand existing relationships and achieve a return on our
investment. These investments are inherently risky as the markets for the
technologies or products these companies have under development are typically
in the early stages and may never materialize. As such, we could lose our
entire investment in these companies. As of April 1, 2001, the fair value of
these investments was $9.6 million.

                                       49
<PAGE>

   We develop products in the United Kingdom, Israel and the United States and
sell 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. Currently, we incur non-dollar denominated
operating costs in Europe, Israel and Asia, as well as net assets located in
these geographies. At April 1, 2001, approximately 5.2% of our net assets were
recorded in non-dollar currencies. We did not purchase nor hold derivative
financial instruments as of April 1, 2001.

   Management believes that the market risk associated with Virata's market
risk sensitive instruments as of April 1, 2001 is not significant.

                                       50
<PAGE>

ITEM 8--Financial Statements and Supplementary Data.

                               VIRATA CORPORATION

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                      Page No.
                                                                      --------
<S>                                                                   <C>
Financial Statements:

Report of Independent Accountants....................................    52

Consolidated Balance Sheet at April 1, 2001 and April 2, 2000........    53

Consolidated Statement of Operations for the Years Ended April 1,
 2001, April 2, 2000, and March 31, 1999.............................    54

Consolidated Statement of Stockholders' Equity (Deficit) for the
 Years Ended April 1, 2001, April 2, 2000, and March 31, 1999........    55

Consolidated Statement of Cash Flows for the Years Ended April 1,
 2001, April 2, 2000, and March 31, 1999.............................    56

Notes to Consolidated Financial Statements...........................    57

Financial Statement Schedule:

Schedule II--Valuation and Qualifying Accounts for the Years Ended
 April 1, 2001, April 2, 2000, and March 31, 1999....................    82
</TABLE>

   Schedules other than those listed above have been omitted since either they
are not required or the information is included in the financial statements
included herewith.

                                       51
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Virata Corporation

   In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Virata Corporation and its subsidiaries at April 1, 2001 and April
2, 2000, and the results of their operations and their cash flows for each of
the three years in the period ended April 1, 2001, in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion expressed above.

/s/ PricewaterhouseCoopers LLP

San Jose, California
April 25, 2001

                                       52
<PAGE>

                               VIRATA CORPORATION

                           CONSOLIDATED BALANCE SHEET
                (in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                           April 1,   April 2,
                                                             2001       2000
                                                          ----------  --------
                         ASSETS
                         ------
<S>                                                       <C>         <C>
Current assets:
  Cash and cash equivalents.............................. $  321,923  $ 60,193
  Short-term investments.................................    166,007    18,006
  Accounts receivable, net of allowance for doubtful
   accounts and returns of $848 and $295, respectively...     14,093     7,524
  Inventories............................................     19,664       409
  Other current assets...................................      4,647     2,895
                                                          ----------  --------
    Total current assets.................................    526,334    89,027
Property and equipment, net..............................     15,881     3,222
Intangible assets........................................    346,947    89,113
Investments..............................................      9,640       --
Other assets.............................................      6,095       --
                                                          ----------  --------
    Total assets......................................... $  904,897  $181,362
                                                          ==========  ========

<CAPTION>
          LIABILITIES AND STOCKHOLDERS' EQUITY
          ------------------------------------
<S>                                                       <C>         <C>
Current liabilities:
  Accounts payable....................................... $   10,167  $  4,887
  Accrued liabilities....................................      2,372     3,484
  Accrued employee benefits..............................      4,591     2,555
  Accrued National Insurance Contribution on options.....      6,945     4,471
  Deferred revenue.......................................      3,809     2,215
  Capital lease obligations, current.....................      1,351       784
                                                          ----------  --------
    Total current liabilities............................     29,235    18,396

Capital lease obligations, long-term.....................      1,367     1,178
Other long-term liabilities..............................        311       --
                                                          ----------  --------
    Total liabilities....................................     30,913    19,574
                                                          ----------  --------

Commitments (Note 8)

Stockholders' equity:
  Preferred stock, $0.001 par value; 5,000,000 shares
   authorized; no shares issued or outstanding...........        --        --
  Common stock, $0.001 par value; 450,000,000 shares
   authorized; 63,354,039 and 46,568,006 shares issued
   and outstanding.......................................         63        47
  Additional paid-in capital.............................  1,136,581   238,833
  Accumulated other comprehensive income.................        752       335
  Unearned stock compensation............................    (14,900)     (691)
  Accumulated deficit....................................   (248,512)  (76,736)
                                                          ----------  --------
    Total stockholders' equity...........................    873,984   161,788
                                                          ----------  --------
    Total liabilities and stockholders' equity........... $  904,897  $181,362
                                                          ==========  ========
</TABLE>

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

                                       53
<PAGE>

                               VIRATA CORPORATION

                      CONSOLIDATED STATEMENT OF OPERATIONS
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                        Year Ended
                                                -----------------------------
                                                April 1,   April 2,   March
                                                  2001       2000    31, 1999
                                                ---------  --------  --------
<S>                                             <C>        <C>       <C>
Revenues:
 Semiconductor................................. $ 102,765  $ 14,041  $  2,784
 License.......................................    14,916     3,717     1,628
 Services and royalty..........................     6,122     1,724     2,367
 Systems.......................................     2,470     2,295     2,477
                                                ---------  --------  --------
    Total revenues.............................   126,273    21,777     9,256
                                                ---------  --------  --------
Cost of revenues:
 Semiconductor.................................    72,523     9,651     2,421
 License.......................................       687       107       --
 Services and royalty..........................     1,172       701       528
 Systems.......................................     1,296       780     1,048
                                                ---------  --------  --------
    Total cost of revenues.....................    75,678    11,239     3,997
                                                ---------  --------  --------
 Gross profit..................................    50,595    10,538     5,259
                                                ---------  --------  --------
Operating expenses:
 Research and development:
  National Insurance Contribution on options...       751     2,036       --
  Amortization of stock compensation...........     2,310       630       929
  Other research and development...............    34,626    12,331     8,323
                                                ---------  --------  --------
    Total research and development.............    37,687    14,997     9,252
                                                ---------  --------  --------
 Sales and marketing:
  National Insurance Contribution on options...       619       961       --
  Amortization of stock compensation...........       681       118       219
  Other sales and marketing....................    22,168     5,350     2,917
                                                ---------  --------  --------
    Total sales and marketing..................    23,468     6,429     3,136
                                                ---------  --------  --------
 General and administrative:
  National Insurance Contribution on options...     1,953     1,474       --
  Amortization of stock compensation...........       432       159       246
  Other general and administrative.............    19,549     5,976     5,567
                                                ---------  --------  --------
    Total general and administrative...........    21,934     7,609     5,813
                                                ---------  --------  --------
 Amortization of intangible assets.............    81,995     4,497       549
                                                ---------  --------  --------
 Acquired in-process research and development..    81,062     5,324     5,260
                                                ---------  --------  --------
    Total operating expenses...................   246,146    38,856    24,010
                                                ---------  --------  --------
Loss from operations...........................  (195,551)  (28,318)  (18,751)
Interest expense...............................      (401)     (200)     (155)
Interest and other income, net.................    24,176     2,410     1,749
                                                ---------  --------  --------
Net loss....................................... $(171,776) $(26,108) $(17,157)
                                                =========  ========  ========
Basic and diluted net loss per share........... $   (2.98) $  (1.40) $  (4.46)
                                                =========  ========  ========
Weighted average common shares--basic and
diluted........................................    57,714    18,672     3,845
                                                =========  ========  ========
</TABLE>

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

                                       54
<PAGE>

                              VIRATA CORPORATION

           CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
                                (in thousands)

<TABLE>
<CAPTION>
                    Convertible
                     Preferred                                 Accumulated                               Total
                       Stock        Common Stock  Additional      Other       Unearned               Stockholders'     Total
                   ---------------  -------------  Paid-in    Comprehensive    Stock     Accumulated    Equity     Comprehensive
                   Shares   Amount  Shares Amount  Capital    Income (Loss) Compensation   Deficit     (Deficit)      Income
                   -------  ------  ------ ------ ----------  ------------- ------------ ----------- ------------- -------------
<S>                <C>      <C>     <C>    <C>    <C>         <C>           <C>          <C>         <C>           <C>
Balance, March
31, 1998.........   22,320  $1,709   3,532  $ 4   $   29,613      $619        $ (1,559)   $ (33,471)   $ (3,085)     $ (10,388)
                                                                                                                     ---------
 Change in the
 par value of
 Series A
 convertible
 preferred
 stock...........      --   (1,366)    --   --         1,366       --              --           --          --             --
 Issuance of
 Series D
 convertible
 preferred stock
 and warrants....   24,781     410     --   --        24,672       --              --           --       25,082            --
 Issuance of
 Series D
 convertible
 preferred stock,
 common stock and
 options for
 acquisition.....      606      10     458  --         3,578       --              --           --        3,588            --
 Issuance of
 Series D
 convertible
 preferred stock
 upon conversion
 of debt.........    3,039      38     --   --         2,576       --              --           --        2,614            --
 Issuance of
 Series D
 convertible
 preferred stock
 for cash........       22     --      --   --            24       --              --           --           24            --
 Issuance of
 common stock for
 cash............      --      --       14  --             7       --              --           --            7            --
 Exchange Series
 B and Series C
 convertible
 preferred stock
 to Series D
 convertible
 preferred
 stock...........      663     --      --   --           --        --              --           --          --             --
 Unearned stock
 compensation....      --      --      --   --         1,335       --           (1,335)         --          --             --
 Amortization of
 unearned stock
 compensation....      --      --      --   --           --        --            1,394          --        1,394            --
 Unrealized gain
 on investments..      --      --      --   --           --          1             --           --            1              1
 Currency
 translation
 adjustment......      --      --      --   --           --        251             --           --          251            251
 Net loss........      --      --      --   --           --        --              --       (17,157)    (17,157)       (17,157)
                   -------  ------  ------  ---   ----------      ----        --------    ---------    --------      ---------

Balance, March
31, 1999.........   51,431     801   4,004    4       63,171       871          (1,500)     (50,628)     12,719        (16,905)
                                                                                                                     ---------
 Issuance of
 Series E
 convertible
 preferred stock
 for cash........    6,154     615     --   --         7,339       --              --           --        7,954            --
 Reorganization
 to US Delaware
 corporation.....  (57,585) (1,416) 24,902   25        1,391       --              --           --          --             --
 Issuance of
 common stock
 upon initial
 public
 offering........      --      --   11,500   12       73,001       --              --           --       73,013            --
 Issuance of
 common stock for
 cash............      --      --    1,032    1        1,129       --              --           --        1,130            --
 Issuance of
 common stock and
 options for
 acquisition.....      --      --    4,396    4       92,705       --              --           --       92,709            --
 Issuance of
 common stock
 upon exercise of
 warrants........      --      --      734    1           (1)      --              --           --          --             --
 Unearned stock
 compensation....      --      --      --   --            98       --              (98)         --          --             --
 Amortization of
 unearned stock
 compensation....      --      --      --   --           --        --              907          --          907            --
 Currency
 translation
 adjustment......      --      --      --   --           --       (536)            --           --         (536)          (536)
 Net loss........      --      --      --   --           --        --              --       (26,108)    (26,108)       (26,108)
                   -------  ------  ------  ---   ----------      ----        --------    ---------    --------      ---------

Balance, April 2,
2000.............      --      --   46,568   47      238,833       335            (691)     (76,736)    161,788        (26,644)
                                                                                                                     ---------
 Issuance of
 common stock in
 follow-on public
 offering........      --      --    6,855    7      460,850       --              --           --      460,857            --
 Issuance of
 common stock for
 cash............      --      --    1,696    1        3,395       --              --           --        3,396            --
 Issuance of
 common stock and
 options for
 acquisition.....      --      --    8,139    8      434,521       --              --           --      434,529            --
 Issuance of
 common stock
 upon exercise of
 warrants........      --      --       96  --           --        --              --           --          --             --
 Unearned stock
 compensation in
 connection with
 acquisition.....      --      --      --   --           --        --          (18,650)         --      (18,650)           --
 Adjustment to
 unearned stock
 compensation for
 cancellations...      --      --      --   --        (2,965)      --            2,965          --          --             --
 Unearned stock
 compensation....      --      --      --   --         1,947       --           (1,947)         --          --             --
 Amortization of
 unearned stock
 compensation....      --      --      --   --           --        --            3,423          --        3,423            --
 Currency
 translation
 adjustment......      --      --      --   --           --        417             --           --          417            417
 Net loss........      --      --      --   --           --        --              --      (171,776)   (171,776)      (171,776)
                   -------  ------  ------  ---   ----------      ----        --------    ---------    --------      ---------

Balance, April 1,
2001.............      --   $  --   63,354  $63   $1,136,581      $752        $(14,900)   $(248,512)   $873,984      $(171,359)
                   =======  ======  ======  ===   ==========      ====        ========    =========    ========      =========
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       55
<PAGE>

                               VIRATA CORPORATION

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                         Year Ended
                                                -------------------------------
                                                 April 1,   April 2,  March 31,
                                                   2001       2000      1999
                                                ----------  --------  ---------
<S>                                             <C>         <C>       <C>
Cash flows from operating activities:
 Net loss.....................................  $ (171,776) $(26,108) $(17,157)
 Adjustments to reconcile net loss to net cash
  used in operating activities:
  Provision for doubtful accounts and
   returns....................................         539       157     1,458
  Acquired in-process research and
   development................................      81,062     5,324     5,260
  Depreciation and amortization...............      89,573     6,269     1,695
  Amortization of stock compensation..........       3,423       907     1,394
  Change in assets and liabilities (net of
   acquisition balances):
  Accounts receivable.........................      (4,658)   (4,207)     (739)
  Inventories.................................     (19,292)     (167)      158
  Other current assets........................        (667)   (1,648)       82
  Other assets................................      (5,459)      --        --
  Accounts payable............................       4,053     2,797       248
  Accrued liabilities.........................      (2,100)    2,213    (2,131)
  Accrued employee benefits...................         832     1,686        48
  Accrued National Insurance Contribution on
   options....................................       3,245     4,471       --
  Deferred revenue............................        (462)    1,286       184
  Other long-term liabilities.................         201       --        --
                                                ----------  --------  --------
  Net cash used in operating activities.......     (21,486)   (7,020)   (9,500)
                                                ----------  --------  --------

Cash flows from investing activities:
 Sale of short-term investments...............   3,587,034    21,024       --
 Purchase of short-term investments...........  (3,734,927)  (38,029)   (1,000)
 Purchase of investments......................      (9,640)      --        --
 Purchase of property and equipment, net......     (15,671)   (1,447)   (2,127)
 Cash used in acquisitions, net of cash
  acquired....................................      (6,486)   (3,598)   (5,149)
                                                ----------  --------  --------
  Net cash used in investing activities.......    (179,690)  (22,050)   (8,276)
                                                ----------  --------  --------

Cash flows from financing activities:
 Proceeds from issuance of convertible
  preferred stock, net of issuance costs......         --      7,954    25,106
 Proceeds from public stock offering, net of
  issuance costs..............................     460,857    73,013       --
 Proceeds from issuance of common stock.......       3,396     1,130         7
 Proceeds from capital leases.................         --        --      1,201
 Repayment of capital lease obligations.......      (1,132)   (1,004)     (318)
 Repayment of bank borrowings.................          (2)      --       (417)
                                                ----------  --------  --------
  Net cash provided by financing activities...     463,119    81,093    25,579
                                                ----------  --------  --------
Effect of exchange rate changes on cash.......        (213)     (466)       46
                                                ----------  --------  --------
Net increase in cash and cash equivalents.....     261,730    51,577     7,849
Cash and cash equivalents at the beginning of
 the period...................................      60,193     8,616       767
                                                ----------  --------  --------
Cash and cash equivalents at the end of the
 period.......................................  $  321,923  $ 60,193  $  8,616
                                                ==========  ========  ========

Supplemental cash flow information
 Cash paid for interest.......................  $      409  $    188  $    180

Supplemental non-cash investing and financing
 activity:
 Issuance of preferred stock for convertible
  loan........................................  $      --   $    --   $  2,712
 Issuance of warrants in connection with
  financing...................................  $      --   $    --   $    949
 Issuance of common stock and options for
  acquisition.................................  $  434,529  $ 92,709  $  3,588
 Property and equipment purchased with capital
  leases......................................  $      --   $  1,295  $    929
</TABLE>

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

                                       56
<PAGE>

                               VIRATA CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1--The Company and Summary of Significant Accounting Policies:

 The Company

   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 the acquisition of RSA Communications,
Inc. ("RSA Communications"), a corporation organized in North Carolina (see
Note 4). RSA Communications was subsequently renamed Virata Raleigh
Corporation. In February 2000, the Company completed its acquisition of D2
Technologies, Inc. ("D2 Technologies"), a corporation organized in California
(see Note 4). 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 4). 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 4). 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 4).

   The historical financial statements presented are those of Virata Limited,
Virata Corporation was created in August 1999. 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 $73.0 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.

 Principles of consolidation and basis of presentation

   The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

   Certain items previously reported in prior years' financial statements have
been reclassified to conform with the current year presentation.

 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.

                                       57
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Use of estimates

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

 Foreign Currency Translation

   The functional currency of the Company's foreign subsidiaries is the local
currency. Accordingly, the assets and liabilities of the Company's foreign
subsidiaries are translated into U.S. dollars at exchange rates in effect at
the balance sheet date. Income and expense items are translated at average
exchange rates for the period. Foreign currency translation adjustments are
included in accumulated other comprehensive income as a separate component of
stockholders' deficit. The foreign currency translation adjustments are not
adjusted for income taxes as they relate to indefinite investments in non-U.S.
subsidiaries. Foreign currency transaction gains and losses are included as a
component of other income and expense. For the fiscal years ended
April 1, 2001, April 2, 2000, and March 31, 1999, the Company recognized
foreign currency translation gains of $158,000, $543,000, and $432,000,
respectively.

 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 the amount equal to the 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.

   In December 1999, the Securities Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements", which outlines the basic criteria that must be met to recognize
revenue and provides guidance for presentation of revenue and for disclosure
related to revenue recognition policies in financial statements filed with the
SEC. In June 2000, the SEC issued SAB 101B, "Second Amendment: Revenue
Recognition in Financial Statements", ("SAB 101B"). SAB 101B deferred the
implementation date of SAB 101 until no later than the fourth fiscal quarter of
fiscal years beginning after December 15, 1999. The Company adopted SAB 101 in
the fourth quarter of fiscal 2001, effective as of the beginning of the year.
The adoption of SAB 101 did not have a material effect on the financial
position or results of operations of the Company.

                                       58
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Cash and Cash equivalents

   The Company considers all highly liquid investments purchased with an
original maturity of fiscal year or less to be cash equivalents. At April 1,
2001 and April 2, 2000, $313.5 million and $53.3 million, respectively, of
money market funds and certificate of deposits, the fair value of which
approximates cost, are included in cash and cash equivalents. The Company
deposits cash and cash equivalents with high credit quality financial
institutions.

 Investments

   Short-term investments consist of debt securities with original maturity
dates greater than ninety days. 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 investments are determined using the specific-
identification method.

   The Company also has certain minority investments in privately-held
technology companies. These non-marketable shares are generally carried at
cost, as the Company does not have the ability to exercise significant
influence over the operating and financial policies of these companies. These
investments are classified on the balance sheet as non-current assets. The
Company monitors these investments for impairment and makes appropriate
reduction in carrying values when necessary.

   For all investment securities, unrealized losses that are other than
temporary are recognized in net income. The Company does not hold these
securities for speculative or trading purposes.

 Fair value of financial instruments

   Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, short term investments, accounts
receivable, accounts payable, and accrued liabilities approximate fair value
due to their short maturities.

 Segment information

   The Company identifies its operating segments based on business activities,
management responsibility and geographical location. During each of the three
years in the period ended April 1, 2001, the Company operated in one operating
segment. All long-lived assets and all revenues are mainly located or generated
in the United States.

 Concentration of credit risk

   Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents, short-term
investments, accounts receivable and long-term investments. The Company's
accounts receivable are derived from revenues earned primarily from customers
located in the United States, Europe and Asia. The Company performs ongoing
credit evaluations of its customers' financial condition and, generally,
requires no collateral from its customers. The Company maintains an allowance
for doubtful accounts receivable based upon the expected collectibility of
accounts receivable.

                                       59
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following customers account for 10% or more of total accounts
receivable:

<TABLE>
<CAPTION>
                                                               April 1, April 2,
                                                                 2001     2000
                                                               -------- --------
   <S>                                                         <C>      <C>
   Accounts Receivable
   Customer A.................................................   --        11%
   Customer C.................................................   --        25%
   Customer D.................................................    38%     --
</TABLE>

   The following customers accounted for 10% or more of total revenues:

<TABLE>
<CAPTION>
                                                             Year Ended
                                                     ---------------------------
                                                     April 1, April 2, March 31,
                                                       2001     2000     1999
                                                     -------- -------- ---------
   <S>                                               <C>      <C>      <C>
   Revenues
   Customer A.......................................   --        23%       16%
   Customer B.......................................   --       --         23%
   Customer C.......................................    20%      15%      --
   Customer D.......................................    15%     --        --
</TABLE>

   Revenues from customers located outside the United States were 50% in 2001,
44% in 2000, and 40% in 1999.

 Inventories

   Inventories are stated at the lower of cost or market. Cost is determined
using standard cost, which approximates actual cost on a first-in, first-out
basis.

 Property and equipment

   Property and equipment are recorded at cost. Depreciation and amortization
are computed on a straight-line basis over the estimated useful lives of the
assets, as follows:

<TABLE>
   <S>                                                                 <C>
   Computer and network equipment and software........................ 2-3 years
   Furniture and office equipment..................................... 3-5 years
   Research and development equipment................................. 2-3 years
</TABLE>

   Leasehold improvements are amortized on a straight-line basis over the life
of the lease, or the useful life of the assets, whichever is shorter.

 Impairment of long-lived assets

   The company reviews its long-lived assets for impairment, whenever events or
changes in circumstances indicate that the carrying amount of an asset might
not be recoverable. When such an event occurs, management determines whether
there has been an impairment by comparing the anticipated undiscounted future
net cash flows to the related asset's carrying value. If an asset is considered
impaired, the asset is written down to fair value, which is determined based
either on discounted cash flows or appraised value, depending on the nature of
the asset.

                                       60
<PAGE>

                              VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Intangible assets

   Intangible assets consist primarily of technology, contracts, customer
base, assembled workforce and goodwill, which are being amortized on a
straight line basis over their estimated lives ranging from two to five years.

 Advertising Costs

   Advertising costs are expensed in the period incurred and were not
significant to the results of operations.

 Net loss per share

   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.

   The following tables sets forth potential shares of common stock as
converted that are not included in the diluted net loss per share calculation
above because to do so would be anti-dilutive for the period indicated
(in thousands):

<TABLE>
<CAPTION>
                                                     April 1, April 2, March 31,
                                                       2001     2000     1999
                                                     -------- -------- ---------
   <S>                                               <C>      <C>      <C>
   Series A convertible preferred stock.............    --       --        269
   Series B convertible preferred stock.............    --       --        208
   Series C convertible preferred stock.............    --       --        836
   Series D convertible preferred stock.............    --       --     10,219
   Convertible preferred stock warrants.............    --       --        420
   Common stock warrants............................     12      105        22
   Common stock options.............................  4,836    8,166     4,334
                                                      -----    -----    ------
                                                      4,848    8,268    16,308
                                                      =====    =====    ======
</TABLE>

 Stock compensation

   The Company accounts for stock compensation arrangements in accordance with
provision of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees" and complies with the disclosure provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." Under APB Opinion No. 25, unearned stock
compensation is based on the difference, if any, on the date of the grant,
between the fair value of the Company's common stock and the exercise price.
Unearned stock compensation is amortized and expensed in accordance with FASB
Interpretation No. 28. The Company accounts for stock issued to non-employees
in accordance with the provisions of SFAS No. 123 and Emerging Issues Task
Force Issue No. 96-18, "Accounting for Equity Instruments that are Issued to
Other than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services."

   In March 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 44 ("FIN 44"), Accounting for Certain Transactions
Involving Stock Compensation--an Interpretation of APB 25. FIN 44 clarifies
the application of Opinion No. 25 for (a) the definition of employee for
purposes of applying APB Opinion No. 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the

                                      61
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 became effective July 1,
2000, but certain conclusions cover specific events that occur after either
December 15, 1998, or January 12, 2000. To the extent that this Interpretation
covers events occurring during the period after December 15, 1998, or January
12, 2000, but before the effective date of July 1, 2000, the effects of
applying this Interpretation are recognized on a prospective basis from July 1,
2000. The adoption of FIN 44 did not have a material effect on the financial
position or results of operations.

 Comprehensive income

   Comprehensive income consists of foreign currency translation adjustments,
and unrealized gains and losses arising from the valuation of short-term
investments and is presented in the Consolidated Statement of Stockholders'
Equity (Deficit).

 Income Taxes

   The Company accounts for income taxes under the liability method. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts
expected to be realized.

 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. The Company will adopt SFAS No. 133 during its year ending
March 31, 2002. To date, the Company 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 financial position or results of operations.

Note 2--Investments (in thousands):

   As of April 1, 2001 and April 2, 2000, short-term investments included the
following debt securities:

<TABLE>
<CAPTION>
                                                               April 1, April 2,
                                                                 2001     2000
                                                               -------- --------
   <S>                                                         <C>      <C>
   Short-term investments:
     Commercial paper......................................... $117,218 $   --
     U. S. government and agency securities...................   44,789 $   --
     Corporate debt securities................................    4,000  18,006
                                                               -------- -------
                                                               $166,007 $18,006
                                                               ======== =======
</TABLE>

                                       62
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   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 April 1, 2001 and April 2, 2000. Contract
maturities of these securities were within one year as of April 1, 2001.
Realized gains and losses on available-for-sale debt securities were not
significant for the year ended April 1, 2001 and April 2, 2000.

   As of April 1, 2001, the Company held restricted shares in some privately-
held technology companies, with an aggregate carrying value of $9.6 million, in
restricted shares of technology companies. These non-marketable shares are
carried at cost, and are classified on the balance sheet as non-current assets.

Note 3--Balance Sheet Components (in thousands):

<TABLE>
<CAPTION>
                                                              April 1,  April 2,
                                                                2001      2000
                                                              --------  --------
   <S>                                                        <C>       <C>
   Inventories:
     Raw Material............................................ $ 1,315    $  --
     Work-in-process.........................................      87    $  --
     Finished Goods..........................................  18,262       409
                                                              -------    ------
                                                              $19,664    $  409
                                                              =======    ======
   Property and equipment, net:
     Office equipment........................................ $14,200    $4,727
     Furniture and fixtures..................................   1,307       254
     Automobiles.............................................      31       --
     Leasehold improvements..................................   2,663       440
     Research and development equipment......................   7,769     3,426
                                                              -------    ------
                                                               25,970     8,847
   Less: Accumulated depreciation and amortization........... (10,089)   (5,625)
                                                              -------    ------
                                                              $15,881    $3,222
                                                              =======    ======
</TABLE>

   Property and equipment includes $5,900,000 and $3,843,000 of computer
equipment and internal-use software under capital leases at April 1, 2001 and
April 2, 2000, respectively. Accumulated amortization of assets under capital
leases totaled $4,124,000 and $3,044,000 at April 1, 2001 and April 2, 2000,
respectively.

<TABLE>
<CAPTION>
                                                             April 1,  April 2,
                                                               2001      2000
                                                             --------  --------
   <S>                                                       <C>       <C>
   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...........................  (88,384)  (5,098)
                                                             --------  -------
                                                             $346,947  $89,113
                                                             ========  =======
</TABLE>

                                       63
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 4--Acquisitions

 Fiscal year 2001

   The Company acquired Inverness Systems on April 27, 2000. Inverness Systems
had 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.

   On August 16, 2000, the Company acquired Agranat Systems, which has an
office in Maynard, Massachusetts. Agranat Systems 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
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 an
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 on 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

                                       64
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

$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 valuations by independent appraisers, the purchase prices of
Inverness Systems, Agranat Systems and Excess Bandwidth were allocated as
follows (in thousands):

<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>

   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 technology is also based on
the net cash flow forecast; however, the value of in-process technology was
discounted at a higher cost of capital of 27.6% to reflect the uncertainty of
its future use. The Company determined that the in-process technology had not
reached technological feasibility and, therefore, charged the cost of in-
process technology 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 20.0%.
The acquired in-process technology is related to the Universal Plug and Play
product. The value of the in-process technology is also based on the net cash
flow forecast; however, the value of in-process technology was discounted at a
higher cost of capital of 25.0% to reflect the uncertainty of its future use.
The Company determined that the in-process technology had not reached
technological feasibility and, therefore, charged the cost of in-process
technology to operations upon acquisition.

   Excess Bandwidth's 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 technology is also based on the net cash flow forecast;
however, the value of in-process technology was 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 determined
that the in-process technology had not reached technological feasibility and,
therefore, charged the cost of in-process technology to operations upon
acquisition.

   The financial information for the fiscal year ended April 1, 2001 includes
the results of operations for Inverness Systems from April 27, 2000, the
results of operations for Agranat Systems from August 16, 2000, and the results
of operations for Excess Bandwidth from August 22, 2000.

                                       65
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   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>
                                                                Year Ended
                                                             ------------------
                                                             April 1,  April 2,
                                                               2001      2000
                                                             --------  --------
   <S>                                                       <C>       <C>
   Revenues................................................. $127,395  $ 26,690
   Net loss................................................. (208,301) (127,394)
   Basic and diluted net loss per share.....................    (3.54)    (5.26)
</TABLE>

 Fiscal year 2000

   The Company acquired D2 Technologies, Inc. on February 10, 2000. Based in
Santa Barbara, California, D2 Technologies develops, markets and supports
innovative digital signal processing (DSP) solutions for the next generation
telephony products. D2 Technologies serves the computer and Internet telephony
markets with robust and cost-effective DSP solutions. Its customers include
some of the largest telecommunications and internet companies in the industry
whose markets range from high-capacity telecommunications systems to personal
communications products.

   Under the terms of the merger agreement, 4,396,826 shares of Virata common
stock were exchanged for all of the outstanding common stock of D2
Technologies. In addition, employee options to purchase shares of D2
Technologies common stock were exchanged for options to purchase 932,330 shares
of Virata common stock. The Company valued the options using the Black-Scholes
option pricing model, applying an expected life of four years, a weighted
average risk-free rate of 6.64%, an expected dividend yield of zero percent, a
volatility of 55% and a deemed fair value of common stock of $18.00 per share.
The acquisition has been accounted for as a purchase business combination. The
aggregate purchase price is as follows (in thousands):

<TABLE>
   <S>                                                                  <C>
   Shares of Virata common stock....................................... $79,143
   Options to purchase Virata common stock.............................  13,566
   Direct acquisition costs............................................   4,200
                                                                        -------
                                                                        $96,909
                                                                        =======
</TABLE>

   Based on a valuation by an independent appraiser, the purchase price of D2
Technologies was allocated as follows:

<TABLE>
   <S>                                                                  <C>
   Fair value of assets acquired and liabilities assumed............... $ 1,252
   Assembled workforce.................................................     760
   Customer base.......................................................   1,001
   Contracts...........................................................   1,006
   Technology..........................................................  15,872
   In-process research and development.................................   5,324
   Goodwill............................................................  71,695
                                                                        -------
   Total............................................................... $96,909
                                                                        =======
</TABLE>

                                       66
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   D2 Technologies has 19 completed products that comprise the completed
technology at the date of acquisition. They are classified into five product
groups as follows:

     Telephony Algorithms
     Echo Cancellation Products
     Standard Voice Coders
     Proprietary Voice Coders
     Fax and Data Products

   The individual products and algorithms are entirely independent from each
other. The value of the completed technology is based on the net cash flow
forecast, discounted at a cost of capital of 18.0%. The acquired in-process
technology are mainly related to the fax and data products and include the Fax
Modem Data Pump, Fax Relay Protocols and Single Sample Echo Cancellers and
Standard Voice Coders. The acquired in-process technology is also valued using
the net cash flow forecast, discounted at a higher cost of capital of 23.0% to
reflect the uncertainty of its future use. The company does not consider it to
have reached technological feasibility and accordingly charged it to operations
upon acquisition.

   Financial information for the fiscal year ended April 2, 2000 includes the
results of operations for D2 Technologies from February 10, 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>
                                                                 Year Ended
                                                             -------------------
                                                             April 2,  March 31,
                                                               2000      1999
                                                             --------  ---------
   <S>                                                       <C>       <C>
   Revenues................................................. $23,281    $11,480
   Net loss................................................. (45,689)   (47,365)
   Basic and diluted net loss per share.....................   (1.98)     (5.66)
</TABLE>

 Fiscal year 1999

   The Company completed its acquisition of RSA Communications Inc. on July 17,
1998. RSA Communications was privately-held and based in Raleigh, North
Carolina, specializing in analog modem software development. The Company's
acquisition of RSA Communications was accounted for as a purchase business
combination.

   The Company's allocation of RSA Communications' aggregate purchase price to
the tangible and identifiable intangible assets acquired in connection with
this acquisition were based on fair values as determined by an independent
appraiser. The allocation is summarized below (in thousands):

<TABLE>
   <S>                                                                   <C>
   In-process research and development.................................. $5,260
   Goodwill.............................................................  3,877
   Net tangible assets..................................................    138
                                                                         ------
   Total................................................................ $9,275
                                                                         ======
</TABLE>

                                       67
<PAGE>

                              VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The total purchase price of $9,275,000 million consisted of 459,700 shares
of the Company's common stock valued at $1,417,000 million, 606,500 shares of
series D convertible preferred stock valued at $667,000, options to purchase
594,925 shares of common stock valued at $1,505,000 million, cash of
$5,332,000 million and acquisition related expenses, consisting primarily of
legal and other professional fees, of approximately $354,000. The Company
valued the options using the Black-Scholes option pricing model, applying an
expected life of four years, a weighted average risk-free rate of 5.47%, an
expected dividend yield of zero percent, a volatility of 70% and a deemed fair
value of common stock of $0.46 per share.

   The core technologies acquired in the RSA Communications acquisition were
the ADSL PHY software and voiceband modem protocol software. The significant
in-process research and development projects include V.90 Modem Software and
two software algorithms, the Modem Modulation Software Algorithm and the ADSL
Software Algorithm.

   The valuation of the acquired in-process research and development of
$5,260,000 was based on the result of an independent appraisal which was
determined using the income-based approach for V.90 Modem Software and the
replacement cost method for software algorithms. The acquired in-process
technology was not considered to have reached technological feasibility at the
time it was acquired and had no alternative future use. Accordingly, the
amount was charged to operations at the date of acquisition.

   The V.90 Modem Software project was completed subsequent to its acquisition
in 1998 and has been licensed to one customer. At the time of the acquisition
this project was approximately 90% complete, and the fair value assigned to
this project was $2.435 million.

   The Modem Modulation Software Algorithm includes certain software that
provides modulation/demodulation functions of a voiceband modem, and certain
software for a voiceband modem that provides functions such as control, error
correction and data compression. At the time of the acquisition, this project
was approximately 90% complete, and the fair value assigned to this project
was $2.4 million. This project was subsequently terminated.

   The ADSL software algorithm is a complete software stack that is compliant
with the ITU ADSL standards. The fair value assigned to this project was
$425,000 at the time of the acquisition when this project was approximately
35% complete. The project is currently 85% complete and has a remaining
expected development cost of $375,000. The remaining risks affecting the
timely completion and commercialization of this project are minimal. The
remaining uncertainties that might affect the outcome of this project are
related to the size of the developing ADSL market.

   The income method of valuation for the V.90 Modem Software was determined
using a modified version of the relief from royalty avoided by the Company
upon the purchase of RSA Communications. Royalty rates were estimated based on
past contracts and unit sales were estimated based on the size of the total
market from industry analysis. The avoided royalty payments by the Company
were then calculated for the life of the product. The net cash flow was
discounted back to the present value at a risk-adjusted discount rate of 40%.

   The algorithms which require a special skill set for their development were
valued using the replacement cost method which considered costs incurred
through the valuation date.

   The goodwill is being amortized on a straight line basis over the estimated
period of benefit of five years.

   Financial information for the fiscal year ended March 31, 1999 includes the
results of operations for RSA Communications from July 17, 2001.

                                      68
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following unaudited pro forma financial information present the
consolidated results of the Company as if the acquisition had occurred at the
beginning of each period, and includes adjustments for amortization of
goodwill. 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>
                                                                      Year Ended
                                                                      March 31,
                                                                         1999
                                                                      ----------
   <S>                                                                <C>
   Revenues..........................................................  $10,075
   Net loss..........................................................  (19,224)
   Basic and diluted net loss per share..............................    (4.82)
</TABLE>

Note 5--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
requirement to book this charge came into effect on April 5, 1999. 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 six month period ended October 1, 2000 and the
fiscal year ended April 2, 2000 were $4.2 million and $4.5 million,
respectively.

   In October 2000, the Emerging Issues Task Force ("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. Through October 1,
2000, the Company 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 ended December 31,
2000, the Company began recording an additional liability only upon the
exercise of options granted subsequent to October 1, 2000 to employees in the
United Kingdom. No additional liability was recorded in the six month period
ended April 1, 2001.

Note 6--Income Taxes:

   No income tax provision was recorded for the three years ended April 1, 2001
because the Company incurred net losses in such periods.

                                       69
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Tax effects of temporary differences that give rise to significant portions
of deferred tax asset are as follows:

<TABLE>
<CAPTION>
                                                             April 1,  April 2,
                                                               2001      2000
                                                             --------  --------
   <S>                                                       <C>       <C>
   Deferred tax assets:
     Net operating loss carryforwards....................... $33,720   $21,939
     Reserves and accrued liabilities.......................   7,522     2,105
     Tax credits............................................     475       303
                                                             -------   -------
                                                              41,717    24,347
   Deferred tax (liabilities):
     Intangibles from acquisitions.......................... (32,551)      --
                                                             -------   -------
   Total deferred assets/(liabilities)......................   9,166    24,347
     Valuation allowance....................................  (9,166)  (24,347)
                                                             -------   -------
   Net deferred assets/(liabilities)........................ $   --    $   --
                                                             =======   =======
</TABLE>

   Due to uncertainty surrounding the realization of the favorable tax
attributes in the future tax returns, the Company has established a 100%
valuation allowance against its deferred tax assets. At such time as it is
determined that it is more likely than not that the deferred tax assets are
realizable, the valuation allowance will be reduced.

   At April 1, 2001, the Company has approximately $62.2 million, $45.4 million
and $20.5 million in federal, state and foreign net operating loss
carryforwards, respectively, to reduce future taxable income. The net operating
loss carryforwards expire between 2002 and 2020 for both federal and state
purposes, if not utilized. The foreign net operating loss will be carryforward
indefinitely.

   The Company's ability to use its federal and state net operating loss
carryforwards and tax credit carry forwards to offset future taxable income and
future taxes, respectively, may be subjected to restrictions due to equity
transactions that result in changes in ownership as defined by Internal Revenue
Code Section 382 and 383, under the Tax Reform Act of 1986.

   At April 1, 2001, deferred tax assets of approximately $17.9 million pertain
to certain net operating loss carryforwards resulting from the exercise and
disqualifying dispositions of employee stock options. When recognized, the tax
benefits of these loss carryforwards are accounted for as a credit to
additional paid-in capital rather than a reduction of the income tax provision.

Note 7--Borrowings:

   A convertible loan in the amount of $2,712,000 was converted to 2,402,710
shares of series D convertible preferred stock valued at $1.10 per share on
June 4, 1998. The value of the stock was determined by the series D convertible
preferred stock offering price of $1.10, also on June 4, 1998. The loan was
drawn in December 1997 bearing interest at the rate of 10% per annum and was
due to related parties.

   In connection with a loan and security agreement, the Company issued a
warrant to purchase 35,294 shares of series D convertible preferred stock at an
exercise price of $1.70 per share. The Company valued the warrant using the
Black-Scholes option pricing model, applying an expected life of 5 years, a
weighted average risk free rate of 5.77%, an expected dividend yield of zero
percent, a volatility of 70% and a deemed fair value of common stock of $0.95.
The Company determined that the fair value of the warrant was not significant
at the date of grant. The warrant was exercised and converted into 14,490
shares of the Company's common stock in February 2000.

                                       70
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 8--Commitments:

 Leases

   The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through August 2005. Net rent
expense for the years ended April 1, 2001, April 2, 2000, and March 31, 1999
was $2.4 million, $606,000, and $536,000, respectively. The terms of the
facility lease provide for rental payments on a graduated scale. The Company
recognizes rent expense on a straight-line basis over the lease period, and has
accrued for rent expense incurred but not paid.

   Future minimum lease payments under noncancelable operating and capital
leases are as follows (in thousands):

<TABLE>
<CAPTION>
                                                              Capital  Operating
                                                              Leases    Leases
                                                              -------  ---------
   <S>                                                        <C>      <C>
   Year Ending March 31,
   ----------------------------------------------------------
     2002.................................................... $1,610    $ 4,411
     2003....................................................  1,321      4,328
     2004....................................................     93      4,129
     2005....................................................     20      3,881
     2006 and thereafter.....................................    --      26,046
                                                              ------    -------
       Total minimum lease payments..........................  3,044    $42,795
                                                                        =======
     Less: Amount representing interest......................   (326)
                                                              ------
     Present value of capital lease obligations..............  2,718
     Less: Current portion...................................  1,351
                                                              ------
       Long-term portion of capital lease obligations........ $1,367
                                                              ======
</TABLE>

Note 9--Preferred Stock:

   Under the Company's Certificate of Incorporation, as amended, the Company is
authorized to issue 5,000,000 shares of preferred stock. As of April 1, 2001,
there are no shares outstanding of our preferred stock outstanding. The
Company's certificate of incorporation provides that the preferred stock be
divisible into and issuable in one or more series. The rights and preferences
of the different series may be established by the Company's Board of directors
without further action by Virata stockholders. The Company's Board of directors
is authorized with respect to each series to fix and determine, among other
things:

  .  its dividend rate;

  .  its liquidation preference;

  .  whether or not the shares will be convertible into, or exchangeable for,
     any other securities; and

  .  whether or not the shares will have voting rights, and, if so, determine
     the extent of the voting powers and the conditions under which the
     shares will vote as a separate class.

                                       71
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 10--Follow-on Public Offering:

   On July 13, 2000, the Company completed its follow-on public 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.

Note 11--Stock Option Plans:

   In November 1999, the Company adopted the 1999 Stock Incentive Plan (the
"Plan"). The Plan provides for the granting of stock options to employees and
consultants of the Company. Options granted under the Plan may be either
incentive stock options or nonqualified stock options. Incentive stock options
("ISO") may be granted only to Company employees (including officers and
directors who are also employees). Nonqualified stock options ("NSO") may be
granted to Company employees and consultants.

   Options under the Plan may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)
the exercise price of an ISO and NSO shall not be less than 100% and 85% of the
estimated fair value of the shares on the date of grant, respectively, and (ii)
the exercise price of an ISO and NSO granted to a 10% shareholder shall not be
less than 110% of the estimated fair value of the shares on the date of grant,
respectively. To date, options granted generally vest over four years. Options
expire at the earlier of 90 days after the employee ceases employment or seven
years after the effective date of the grant of the options.

   Upon the acquisition of D2 Technologies, the Company assumed the stock
option plan for D2 Technologies and reserved a total of 932,330 shares of the
Company's common stock for issuance under the plan. In fiscal year 2000, the
Company assumed the stock option plans for Inverness Systems, Agranat Systems
and Excess Bandwidth upon their acquisitions. The Company reserved a total of
517,896 shares, 944,400 shares and 3,830,189 shares of its common stock for
issuance under each plan.

   During the period from April 1, 1996 through November 16, 1999, the date of
the Company's initial public offering, the Company recorded $3,392,000 of
unearned stock compensation for the excess of the deemed fair market value over
the exercise price at the date of grant related to options granted in 1998 and
1999. The compensation expense is being recognized over the option vesting
period of four years. The Company amortized $907,000, $1,394,000 and $399,000
for the years ended April 2, 2000, March 31, 1999 and 1998, respectively.

   In November 1999, the Company adopted the 1999 Employee Stock Purchase Plan
("ESPP") and reserved a total of 1,200,000 shares of the Company's common stock
for issuance thereunder, plus an automatic annual increase on the first day of
each of our fiscal years beginning in 2001, 2002, 2003, 2004 and 2005 equal to
the lesser of (i) 1,000,000 shares, (ii) 1% of the total number of shares of
common stock outstanding on the last day of the immediately preceding fiscal
year or (iii) an amount unanimously determined by the Board of Directors. Under
the ESPP, eligible employees are permitted to contribute up to 15% of their
compensation, as defined, to the purchase of the Company's common stock at a
price which is equal to the lower of 85% of the fair market value of the common
stock at the beginning of each offering period or at the end of each purchase
period.

   In November 1999, the Company adopted the 1999 Non-employee Director
Compensation Plan (the "Director's Plan") and reserved a total of 2,000,000
shares of the Company's common stock for issuance thereunder. Each non-employee
director who becomes a member of the Board of Directors will initially be
granted an option for 80,000 shares of the Company's common stock at an
exercise price per share equal to the fair market value of a share of common
stock on the date of grant or, if the non-employee director was serving as a
board member on November 16, 1999, at an exercise price per share equal to the
initial offering price per

                                       72
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

share to the public in the Company's initial public offering. These options
will vest proportionately each month over a period of four years. On the fourth
anniversary and on each anniversary thereafter, each member of the Board of
Directors will be granted an option to purchase an additional 20,000 shares of
the Company's common stock at an exercise price per share equal to the fair
market value of a share of common stock on the date of grant. These options
will vest proportionately each month over a period of one year.

   During 2001, the Virata Board of Directors approved an Exchange Program to
give the employees a choice to cancel stock options granted to them under the
Plan and the Excess Bandwidth 1998 Equity Incentive Plan that had an exercise
price per share of $18.50 or more and a vesting schedule that was not based on
or subject to revenue-based performance goals, for new options to purchase
equal number of shares of the common stock that the Company will grant under
the option plans, upon certain terms and conditions. The new options will be
granted on September 7, 2001, and the exercise price will be 85% of market
price on that date. No members of Board of Directors were eligible for the
program. Options to purchase approximately 4.3 million shares were cancelled on
March 8, 2001 under the terms of the Exchange Program.

   The following table summarizes activity under the Company's plans from March
31, 1998 through April 1, 2001:

<TABLE>
<CAPTION>
                                                           Outstanding Options
                                                           ---------------------
                                                                       Weighted-
                                                 Shares                 Average
                                               Available   Number of   Exercise
                                               for Grant     Shares      Price
                                               ----------  ----------  ---------
   <S>                                         <C>         <C>         <C>
   Balance, March 31, 1998....................    317,550   1,431,624     0.67
    Shares reserved for grant.................  2,996,484         --       --
    Options granted........................... (3,098,566)  3,098,566     2.04
    Options exercised.........................        --      (14,398)    0.34
    Options canceled..........................    182,748    (182,748)    2.35
                                               ----------  ----------

   Balance, March 31, 1999....................    398,216   4,333,044     2.55
    Shares reserved for grant.................  6,253,696         --       --
    Options granted........................... (5,187,816)  5,187,816    11.39
    Options exercised.........................        --   (1,031,304)    1.10
    Options canceled..........................    323,208    (323,208)    2.46
                                               ----------  ----------

   Balance, April 2, 2000.....................  1,787,304   8,166,348     7.83
    Shares reserved for grant.................  6,000,000         --       --
    Options granted........................... (6,527,121)  6,527,121    35.96
    Options assumed...........................        --    1,178,513     4.03
    Options exercised.........................        --   (1,647,084)    0.96
    Options canceled..........................  5,926,367  (5,926,367)   41.13
                                               ----------  ----------

   Balance, April 1, 2001.....................  7,186,550   8,298,531     7.50
                                               ==========  ==========
</TABLE>

   The 7,186,550 shares available for option grants as of April 1, 2001,
includes the options for approximately 4.3 million shares that were cancelled
on March 8, 2001 in connection with the Exchange Program that the Company is
obligated to re-grant on September 7, 2001, subject to certain conditions.
Additionally, the Company has promised to grant options for approximately
457,000 shares on September 7, to 98 employees who are not executive officers
or directors.

                                       73
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


<TABLE>
<CAPTION>
                                                                 Options Exercisable at
                    Options Outstanding at April 1, 2001             April 1, 2001
                --------------------------------------------- ----------------------------
                            Weighted Average
   Range of       Number       Remaining     Weighted Average   Number    Weighted Average
Exercise Price  Outstanding Contractual Life  Exercise Price  Outstanding  Exercise Price
--------------  ----------- ---------------- ---------------- ----------- ----------------
<S>             <C>         <C>              <C>              <C>         <C>
$ 0.02-
 $ 4.36          5,114,942        4.90            $ 2.56       2,860,282       $ 2.21
$ 6.84-
 $10.75          1,434,373        6.31              8.92         225,955         7.11
$11.44-
 $18.00            857,305        6.14             15.39         198,070        16.75
$19.38-
 $37.50            793,158        6.55             22.33          51,142        29.63
$39.41-
 $52.63             37,003        7.20             42.57          14,857        41.87
$56.44-
 $73.50             61,750        6.41             63.02             --           --
                 ---------                                     ---------
                 8,298,531                                     3,350,306
                 =========                                     =========
</TABLE>

   The total number of options exercisable at April 1, 2001, April 2, 2000, and
March 31, 1999 was 3,350,306, 1,798,672, and 1,342,112, respectively.

 Fair value disclosures

   If compensation cost for the Company's stock-based compensation plan had
been determined based on the fair value at the grant dates for the awards under
a method prescribed by SFAS No. 123, the Company's net loss would have been
increased to the pro forma amounts indicated below (in thousands, except per
share data):

<TABLE>
<CAPTION>
                                                          Year Ended
                                                 ------------------------------
                                                 April 1,   April 2,  March 31,
                                                   2001       2000      1999
                                                 ---------  --------  ---------
   <S>                                           <C>        <C>       <C>
   Net loss:
     As reported................................ $(171,776) $(26,108) $(17,157)
     Pro forma..................................  (218,076)  (31,969)  (19,707)

   Basic and diluted net loss per share:
     As reported................................ $   (2.98) $  (1.40) $  (4.46)
     Pro forma..................................     (3.78)   (1. 71)    (5.12)
</TABLE>

   The Company calculated the fair value of each option grant on the date of
grant using the Black-Scholes pricing method with the following assumptions:
expected dividend yield of zero percent; weighted average expected option term
of four years; risk free interest rates of 4.6% to 6.7% and 5.1% to 6.7% and
4.5% to 5.8% and a volatility of 70%, 55%, and 70% for the years ended April 1,
2001, April 2, 2000, and March 31, 1999, respectively. The weighted average
fair value of options granted during fiscal year 2001, 2000, and 1999 was
$35.96, $7.83, and $0.44, respectively.

 Warrants for Common Stock

   In connection with a consulting agreement, the Company issued a warrant to
purchase 150,000 shares of common stock for $0.04 per share in July 1997. The
Company valued the warrant using the Black-Scholes option pricing model,
applying an expected life of five years, a weighted average risk-free rate of
6.62%, an expected dividend yield of zero percent, a volatility of 70% and a
deemed fair value of common stock of $0.45. Using the Black-Scholes pricing
model, the Company determined that the fair value of the warrant was not
significant at the date of grant. The warrant was exercised and converted into
150,000 shares of the Company's common stock in September 1999.

   In connection with a lease agreement, the Company issued warrants to
purchase 69,705 shares of series C convertible preferred stock and 163,636
shares of series D convertible preferred stock for $1.50 and $1.10 per

                                       74
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

share, respectively, in the period September 1996 to May 1999. Such warrants
are convertible into 101,724 shares of the Company's common stock and are
outstanding at April 1, 2001 and expire in the period September 2001 to May
2009. The Company valued the warrants using the Black-Scholes option pricing
model, applying an expected life of five years, a weighted average risk-free
rate of 4.81% and 6.6%, an expected dividend yield of zero percent, a
volatility of 70% and a deemed fair value of common stock between $0.74 and
$1.03, respectively. The Company determined that the fair value of the warrants
was not significant at the date of grant.

   In connection with the series D convertible preferred stock financing, the
Company issued warrants to purchase 1,595,054 shares of series D convertible
preferred stock for $1.10 per share in June 1998. Such warrants are convertible
into 748,212 shares of the Company's common stock and are outstanding at
April 1, 2001 and expire in June 2003. The Company valued the warrants using
the Black-Scholes option pricing model, applying an expected life of five
years, a weighted average risk-free rate of 5.52%, an expected dividend yield
of zero percent, a volatility of 70% and a deemed fair value of common stock of
$0.99. The Company determined that the fair value of the warrants was not
significant at the date of grant.

Note 12--Employee Benefit Plans

   The Company has three benefit plans, one in the United Kingdom, and two
plans in the United States. The United Kingdom plan includes private health
care, permanent health insurance, death in service coverage and a pension
arrangement. In addition, under the United Kingdom Plan, the Company matches
pension contributions of up to 5% of an employee's salary. Contributions for
the years ended April 1, 2001, April 2, 2000, and March 31, 1999 were $197,600,
$141,800, and $112,600, respectively.

   The United States plan includes a medical plan, life insurance, accidental
death and dismemberment insurance, long-term disability, IRC Section 125
premium payment plan, COBRA and a 401(k) retirement plan. The Company provides
50% matching contribution to the retirement plan of up to $2,000 per calendar
year per employee. Contributions for the year ended April 1, 2001, April 2,
2000 and March 31, 1999 were $499,500, $178,500 and $58,000, respectively.

Note 13--Related Party Transactions:

   The Company had revenues of $617,000, $82,000, and $549,000 during the years
ended April 1, 2001, April 2, 2000, and March 31, 1999, to related parties. At
April 1, 2001, April 2, 2000, and March 31, 1999, there were accounts
receivable from related parties in the amounts of $200,000, $17,600, and
$154,000, respectively.

   The Company made purchases of $62,386,000, $5,786,000, and zero, for the
three years ended April 1, 2001, April 2, 2000, respectively, from related
parties. At April 1, 2001 and April 2, 2000, there were accounts payable from
related parties totaling zero and $1,884,000, respectively.

Note 14--Subsequent Events:

   In April 2001, the Company recognized a pre-tax gain of approximately $0.7
million on proceeds of $2.3 million from a sale of one of its long term equity
investments in a privately-held technology company. The invested technology
company was acquired by another technology company.

   In April 2001, the Company signed a lease agreement for new corporate
facility in Santa Clara, California, commencing on June 2001. The additional
rental commitment for the fiscal year ending March 31, 2002 is approximately
$1.7 million.

                                       75
<PAGE>

ITEM 9--Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure.

   None.

                                    PART III

ITEM 10--Directors and Executive Officers of the Registrant.

   Information required by this Item, other than information regarding the
identification of the executive officers and directors, will be set forth under
the sections of Virata's Proxy Statement for the 2001 Annual Meeting of
Stockholders (the "Proxy Statement") entitled "Election Of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance". The Proxy Statement
is expected to be filed with the Securities and Exchange Commission within 120
days of Virata's fiscal year end. Information regarding the identification of
Virata's executive officers and directors may be found in the section entitled
"Executive Officers and Directors of the Registrant" in Part I of this Form 10-
K.

ITEM 11--Executive Compensation.

   The information under the captions "Executive Compensation and Other
Matters" and "Stock Options and Bonuses" in the Proxy Statement is incorporated
herein by reference. The Proxy Statement will be filed with the Securities and
Exchange Commission within 120 days of Virata's fiscal year end.

ITEM 12--Security Ownership of Certain Beneficial Owners and Management.

   The information under the caption "Stock Ownership of Certain Beneficial
Owners" of the Proxy Statement is incorporated herein by reference. The Proxy
Statement will be filed with the Securities and Exchange Commission within 120
days of Virata's fiscal year end.

ITEM 13--Certain Relationships and Related Transactions.

   The information under the caption "Certain Transactions" of the Proxy
Statement is incorporated herein by reference. The Proxy Statement will be
filed with the Securities and Exchange Commission within 120 days of Virata's
fiscal year end.

                                    PART IV

ITEM 14--Exhibits, Financial Statement, Schedules and Reports On Form 8-K.

(a) 1. Financial Statements

  See Item 8 of this Annual Report.

(a) 2. Financial Statement Schedules

  See Item 8 and Schedule II of this Annual Report.

                                       76
<PAGE>

(a) 3. Exhibits

<TABLE>
<CAPTION>
 Exhibit
 Number                                Description
 -------                               -----------

 <C>     <S>
  2.1    Agreement and Plan of Merger among Virata Limited, Virata Acquisition
         Sub, Inc., a Delaware corporation, RSA Communications, Inc., a
         Delaware corporation, and Munther Qubain, an individual, dated as of
         June 1, 1998 (incorporated by reference to the Registrant's
         Registration Statement on Form S-1 (No. 333-86591) (the "1999 Form S-
         1")) (1)

  2.2    Amendment No. 1 to Agreement and Plan of Merger among Virata Limited,
         Virata Acquisition Sub, Inc., a Delaware corporation, RSA
         Communications, Inc., a Delaware corporation, and Munther Qubain, an
         individual, dated as of June 25, 1998 (incorporated by reference to
         the 1999 Form S-1)

  2.3    Agreement and Plan of Merger among Virata Corporation, D2
         Technologies, Inc., VC Acquisition, Inc. and David Y. Wong, as
         Securityholder Agent, dated as of January 23, 2000 (incorporated by
         reference to the Registrant's Current Report on Form 8-K filed on
         February 1, 2000) (1)

  2.4    Share Purchase Agreement among Virata Corporation and Jonathan Masel,
         Joanne Masel, Menachem Student, David St. Charles, Peter Simon,
         Holland Venture B.V., Docor International B.V., dated as of March 21,
         2000 (incorporated by reference to the Registrant's Current Report on
         Form 8-K filed on April 4, 2000) (1)

  2.5    Agreement and Plan of Merger among Virata Corporation, Agranat
         Systems, Inc., Agranat Acquisition, Inc. and Owen Robbins, as
         Securityholder Agent, dated as of July 24, 2000 (incorporated by
         reference to the Registrant's Current Report on Form 8-K filed on
         August 4, 2000) (1)

  2.6    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, 200 (incorporated by
         reference to the Registrant's Current Report on Form 8-K filed on June
         22, 2000) (1)

  3.1    Amended and Restated Certificate of Incorporation of Virata
         Corporation (incorporated by reference to the Registrant's Annual
         Report on Form 10-K for the fiscal year ended April 2, 2000)

  3.2    Bylaws of Virata Corporation, as amended to date (incorporated by
         reference to the Registrant's Annual Report on Form 10-K for the
         fiscal year ended April 2, 2000)

  4.1    Specimen form of Virata Corporation's Common Stock Certificate
         (incorporated by reference to the 1999 Form S-1)

 10.1    Agreement with Gaz et Eaux and Board with respect to Board of
         Directors and other shareholder rights (incorporated by reference to
         the 1999 Form S-1)

 10.2    Warrant Agreement between Virata Limited and Index Securities, S.A.,
         dated as of June 4, 1998 (incorporated by reference to the 1999 Form
         S-1)

 10.3    Form of Warrant between Virata Limited and Comdisco, Inc.
         (incorporated by reference to the 1999 Form S-1)

 10.4    Lease between WHC-SIX Real Estate Limited Partnership and Advanced
         Telecommunications Modules, Inc., a California corporation, dated June
         26, 1996 (incorporated by reference to the 1999 Form S-1)

 10.5    Lease Agreement between Lake Partners, L.L.C. and RSA Communications,
         Inc., dated as of July 1, 1998 (incorporated by reference to the 1999
         Form S-1)

 10.6    Lease between Universities Superannuation Scheme Limited and Advanced
         Telecommunications Modules Limited, dated 1994 (incorporated by
         reference to the 1999 Form S-1)

 10.7    License to Subunderlet among Universities Superannuation Scheme
         Limited, Royal Insurance (U.K.)
         Limited, Hill Samuel Investment Services Group Limited, and Advanced
         Telecommunications Modules Limited, dated 1995 (incorporated by
         reference to the 1999 Form S-1)
</TABLE>

                                       77
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                                Description
 -------                               -----------

 <C>     <S>
 10.8    Lease between Virata Limited and Comdisco, Inc., dated September 30,
         1996 (incorporated by reference to the 1999 Form S-1)

 10.9    Loan and Security Agreement among Venture Banking Group, Virata Santa
         Clara Corporation and Virata Raleigh Corporation, dated as of August
         27, 1999 (incorporated by reference to the 1999 Form S-1)

 10.10   Collateral Assignment, Patent Mortgage and Security Agreement between
         Virata Ltd. And Venture Banking Group, dated as of August 27, 1999
         (incorporated by reference to the 1999 Form S-1)

 10.11   Agreement between ARM Limited and Virata Ltd., dated June 2, 1999
         (incorporated by reference to the 1999 Form S-1) (2)

 10.12   Amendment No. 1 to License and Technical Co-Operation Agreement for
         ATM Technology between Ing. C. Olivetti & C., S.p.A. and Advanced
         Telecommunications Modules Limited, dated September 19, 1994
         (incorporated by reference to the 1999 Form S-1)

 10.13   License and Technical Co-Operation Agreement for ATM Technology
         between Ing. C. Olivetti & C., S.p.A. and Advanced Telecommunications
         Modules Limited, dated December 3, 1993 (incorporated by reference to
         the 1999 Form S-1)

 10.14   Development, Production, Supply and License Agreement between Advanced
         Telecommunications Modules Limited and Symbios Incorporated, a
         Delaware corporation, dated as of August 16, 1997 (incorporated by
         reference to the 1999 Form S-1)

 10.15   1999 Stock Incentive Plan (incorporated by reference to the
         Registrant's Registration Statement on Form S-8 (No. 333-34742)) (3)

 10.16   1999 Employee Stock Purchase Plan (incorporated by reference to the
         Registrant's Registration Statement on Form S-8 (No. 333-34742)) (3)

 10.17   Non-Employee Director Plan (incorporated by reference to the
         Registrant's Registration Statement on Form S-8 (No. 333-34742)) (3)

 10.18   Form of Indemnity Agreement (incorporated by reference to the 1999
         Form S-1)

 10.19   Employment Agreement--Charles Cotton (incorporated by reference to the
         1999 Form S-1) (3)

 10.20   Employment Agreement--Michael Gulett (incorporated by reference to the
         1999 Form S-1) (3)

 10.21   Employment Agreement--Andrew Vought (incorporated by reference to the
         1999 Form S-1) (3)

 10.22   Employment Agreement--Martin Jackson (incorporated by reference to the
         1999 Form S-1) (3)

 10.23   Employment Agreement--Thomas Cooper (incorporated by reference to the
         1999 Form S-1) (3)

 10.24   Employment Agreement--Duncan Greatwood (incorporated by reference to
         the Registrant's Annual Report on Form 10-K for the fiscal year ended
         April 2, 2000) (3)

 10.25   Registration Rights Agreement by and among Virata Corporation and the
         Investors, dated November 17, 1999 (incorporated by reference to the
         1999 Form S-1)

 10.26   Registration Rights Agreement by and among Virata Corporation and
         David Y. Wong, dated February 10, 2000 (incorporated by reference to
         the Registrant's Annual Report on Form 10-K for the fiscal year ended
         April 2, 2000)

 10.27   Registration Rights Agreement by and among Virata Corporation and
         Jonathan Masel, dated April 27, 2000 (incorporated by reference to the
         Registrant's Annual Report on Form 10-K for the fiscal year ended
         April 2, 2000)

 10.28   Lease Agreement between Equitable Life Assurance Society and Virata
         Limited, dated March 28, 2001

 10.29   Employment Agreement--Daniel Karr (3)
</TABLE>

                                       78
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                              Description
 -------                             -----------

 <C>     <S>
 21.1    List of Subsidiaries of Virata Corporation

 23.1    Consent of Independent Accountants

 24.1    Power of Attorney (see the signature page to this Annual Report on
         Form 10-K)
</TABLE>
--------
(1) Filed without schedules.

(2) Confidential treatment has been requested for selected sections of this
    exhibit.

(3) A management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K.

   Virata filed the following report on Form 8-K during the quarter ended April
1, 2001:

<TABLE>
   <C>                 <S>
      January 25, 2001 Virata announced its financial results for the quarter
                       ending December 31, 2001.
</TABLE>

(c) Exhibits.

   Virata hereby files as part of this Form 10-K the Exhibits listed in Item
14(a) 3 above.

(d) Financial Statement Schedules

   Virata hereby files as part of this Form 10-K the Financial Statement
Schedules listed in Item 14(a) 2 above.

                                       79
<PAGE>

                                   SIGNATURES

   Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on this 27th day of
June, 2001.

                                          VIRATA CORPORATION

                                          By:      /s/ Charles Cotton
                                             ----------------------------------
                                                       Charles Cotton
                                                Chief Executive Officer and
                                                          Director

                               POWER OF ATTORNEY

   KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Charles Cotton and Andrew Vought, each
of whom may act without joinder of the other, as their true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K,
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or their substitutes, may lawfully do or cause to be done by virtue
hereof.

   Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
              Signature                          Title                   Date
              ---------                          -----                   ----

<S>                                    <C>                        <C>
        /s/ Charles Cotton             Chief Executive Officer       June 27, 2001
______________________________________  and Director (Principal
            Charles Cotton              Executive Officer)

        /s/ Andrew Vought              Senior Vice President,        June 27, 2001
______________________________________  Chief Financial Officer
            Andrew Vought               and Secretary (Principal
                                        Financial Officer and
                                        Principal Accounting
                                        Officer)

      /s/ Dr. Hermann Hauser           Chairman of the Board         June 27, 2001
______________________________________
          Dr. Hermann Hauser

      /s/ Marco De Benedetti           Director                      June 27, 2001
______________________________________
          Marco De Benedetti

          /s/ Gary Bloom               Director                      June 27, 2001
______________________________________
              Gary Bloom

</TABLE>

                                       80
<PAGE>

<TABLE>
<CAPTION>
              Signature                          Title                   Date
              ---------                          -----                   ----

<S>                                    <C>                        <C>
        /s/ Andrew Hopper              Director                      June 27, 2001
______________________________________
            Andrew Hopper

        /s/ Martin Jackson             Director                      June 27, 2001
______________________________________
            Martin Jackson

         /s/ Peter Morris              Director                      June 27, 2001
______________________________________
             Peter Morris

        /s/ Patrick Sayer              Director                      June 27, 2001
______________________________________
            Patrick Sayer

        /s/ Giuseppe Zocco             Director                      June 27, 2001
______________________________________
            Giuseppe Zocco
</TABLE>

                                       81
<PAGE>

                                                                     SCHEDULE II

                               VIRATA CORPORATION

                        VALUATION AND QUALIFYING ACCOUNT

<TABLE>
<CAPTION>
                           Balance at Charged to
                           Beginning  Costs and              Balance at
       Description         of Period   Expenses  Deductions End of Period
       -----------         ---------- ---------- ---------- -------------
                                           (in thousands)
<S>                        <C>        <C>        <C>        <C>
Allowance for doubtful
 accounts:
  Year ended March 31,
   1999...................   1,567      1,458        (283)      2,742
  Year ended April 2,
   2000...................   2,742        157      (2,604)        295
  Year ended April 1,
   2001...................     295        539          14         848
</TABLE>

                                       82
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 Exhibit
 Number                                Description
 -------                               -----------

 <C>     <S>
  2.1    Agreement and Plan of Merger among Virata Limited, Virata Acquisition
         Sub, Inc., a Delaware corporation, RSA Communications, Inc., a
         Delaware corporation, and Munther Qubain, an individual, dated as of
         June 1, 1998 (incorporated by reference to the Registrant's
         Registration Statement on Form S-1 (No. 333-86591) (the "1999 Form S-
         1")) (1)

  2.2    Amendment No. 1 to Agreement and Plan of Merger among Virata Limited,
         Virata Acquisition Sub, Inc., a Delaware corporation, RSA
         Communications, Inc., a Delaware corporation, and Munther Qubain, an
         individual, dated as of June 25, 1998 (incorporated by reference to
         the 1999 Form S-1)

  2.3    Agreement and Plan of Merger among Virata Corporation, D2
         Technologies, Inc., VC Acquisition, Inc. and David Y. Wong, as
         Securityholder Agent, dated as of January 23, 2000 (incorporated by
         reference to the Registrant's Current Report on Form 8-K filed on
         February 1, 2000) (1)

  2.4    Share Purchase Agreement among Virata Corporation and Jonathan Masel,
         Joanne Masel, Menachem Student, David St. Charles, Peter Simon,
         Holland Venture B.V., Docor International B.V., dated as of March 21,
         2000 (incorporated by reference to the Registrant's Current Report on
         Form 8-K filed on April 4, 2000) (1)

  2.5    Agreement and Plan of Merger among Virata Corporation, Agranat
         Systems, Inc., Agranat Acquisition, Inc. and Owen Robbins, as
         Securityholder Agent, dated as of July 24, 2000 (incorporated by
         reference to the Registrant's Current Report on Form 8-K filed on
         August 4, 2000) (1)

  2.6    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, 200 (incorporated by
         reference to the Registrant's Current Report on Form 8-K filed on June
         22, 2000) (1)

  3.1    Amended and Restated Certificate of Incorporation of Virata
         Corporation (incorporated by reference to the Registrant's Annual
         Report on Form 10-K for the fiscal year ended April 2, 2000)

  3.2    Bylaws of Virata Corporation, as amended to date (incorporated by
         reference to the Registrant's Annual Report on Form 10-K for the
         fiscal year ended April 2, 2000)

  4.1    Specimen form of Virata Corporation's Common Stock Certificate
         (incorporated by reference to the 1999 Form S-1)

 10.1    Agreement with Gaz et Eaux and Board with respect to Board of
         Directors and other shareholder rights (incorporated by reference to
         the 1999 Form S-1)

 10.2    Warrant Agreement between Virata Limited and Index Securities, S.A.,
         dated as of June 4, 1998 (incorporated by reference to the 1999 Form
         S-1)

 10.3    Form of Warrant between Virata Limited and Comdisco, Inc.
         (incorporated by reference to the 1999 Form S-1)

 10.4    Lease between WHC-SIX Real Estate Limited Partnership and Advanced
         Telecommunications Modules, Inc., a California corporation, dated June
         26, 1996 (incorporated by reference to the 1999 Form S-1)

 10.5    Lease Agreement between Lake Partners, L.L.C. and RSA Communications,
         Inc., dated as of July 1, 1998 (incorporated by reference to the 1999
         Form S-1)

 10.6    Lease between Universities Superannuation Scheme Limited and Advanced
         Telecommunications Modules Limited, dated 1994 (incorporated by
         reference to the 1999 Form S-1)

 10.7    License to Subunderlet among Universities Superannuation Scheme
         Limited, Royal Insurance (U.K.)
         Limited, Hill Samuel Investment Services Group Limited, and Advanced
         Telecommunications Modules Limited, dated 1995 (incorporated by
         reference to the 1999 Form S-1)
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                                Description
 -------                               -----------

 <C>     <S>
 10.8    Lease between Virata Limited and Comdisco, Inc., dated September 30,
         1996 (incorporated by reference to the 1999 Form S-1)

 10.9    Loan and Security Agreement among Venture Banking Group, Virata Santa
         Clara Corporation and Virata Raleigh Corporation, dated as of August
         27, 1999 (incorporated by reference to the 1999 Form S-1)

 10.10   Collateral Assignment, Patent Mortgage and Security Agreement between
         Virata Ltd. And Venture Banking Group, dated as of August 27, 1999
         (incorporated by reference to the 1999 Form S-1)

 10.11   Agreement between ARM Limited and Virata Ltd., dated June 2, 1999
         (incorporated by reference to the 1999 Form S-1) (2)

 10.12   Amendment No. 1 to License and Technical Co-Operation Agreement for
         ATM Technology between Ing. C. Olivetti & C., S.p.A. and Advanced
         Telecommunications Modules Limited, dated September 19, 1994
         (incorporated by reference to the 1999 Form S-1)

 10.13   License and Technical Co-Operation Agreement for ATM Technology
         between Ing. C. Olivetti & C., S.p.A. and Advanced Telecommunications
         Modules Limited, dated December 3, 1993 (incorporated by reference to
         the 1999 Form S-1)

 10.14   Development, Production, Supply and License Agreement between Advanced
         Telecommunications Modules Limited and Symbios Incorporated, a
         Delaware corporation, dated as of August 16, 1997 (incorporated by
         reference to the 1999 Form S-1)

 10.15   1999 Stock Incentive Plan (incorporated by reference to the
         Registrant's Registration Statement on Form S-8 (No. 333-34742)) (3)

 10.16   1999 Employee Stock Purchase Plan (incorporated by reference to the
         Registrant's Registration Statement on Form S-8 (No. 333-34742)) (3)

 10.17   Non-Employee Director Plan (incorporated by reference to the
         Registrant's Registration Statement on Form S-8 (No. 333-34742)) (3)

 10.18   Form of Indemnity Agreement (incorporated by reference to the 1999
         Form S-1)

 10.19   Employment Agreement--Charles Cotton (incorporated by reference to the
         1999 Form S-1) (3)

 10.20   Employment Agreement--Michael Gulett (incorporated by reference to the
         1999 Form S-1) (3)

 10.21   Employment Agreement--Andrew Vought (incorporated by reference to the
         1999 Form S-1) (3)

 10.22   Employment Agreement--Martin Jackson (incorporated by reference to the
         1999 Form S-1) (3)

 10.23   Employment Agreement--Thomas Cooper (incorporated by reference to the
         1999 Form S-1) (3)

 10.24   Employment Agreement--Duncan Greatwood (incorporated by reference to
         the Registrant's Annual Report on Form 10-K for the fiscal year ended
         April 2, 2000) (3)

 10.25   Registration Rights Agreement by and among Virata Corporation and the
         Investors, dated November 17, 1999 (incorporated by reference to the
         1999 Form S-1)

 10.26   Registration Rights Agreement by and among Virata Corporation and
         David Y. Wong, dated February 10, 2000 (incorporated by reference to
         the Registrant's Annual Report on Form 10-K for the fiscal year ended
         April 2, 2000)

 10.27   Registration Rights Agreement by and among Virata Corporation and
         Jonathan Masel, dated April 27, 2000 (incorporated by reference to the
         Registrant's Annual Report on Form 10-K for the fiscal year ended
         April 2, 2000)

 10.28   Lease Agreement between Equitable Life Assurance Society and Virata
         Limited, dated March 28, 2001

 10.29   Employment Agreement--Daniel Karr (3)
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                              Description
 -------                             -----------

 <C>     <S>
 21.1    List of Subsidiaries of Virata Corporation

 23.1    Consent of Independent Accountants

 24.1    Power of Attorney (see the signature page to this Annual Report on
         Form 10-K)
</TABLE>
--------
(1) Filed without schedules.

(2) Confidential treatment has been requested for selected sections of this
    exhibit.

(3) A management contract or compensatory plan or arrangement.