<PAGE>

  As filed with the Securities and Exchange Commission on September 3, 1999.
                                                     Registration No. 333-
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
                      SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC 20549

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

                                   FORM S-1
                            REGISTRATION STATEMENT
                                     Under
                          The Securities Act of 1933

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

                              VIRATA CORPORATION
            (Exact name of registrant as specified in its charter)

<TABLE>
<S>                       <C>                              <C>
        Delaware                      No. 3674                        77-0521696
(State of Incorporation)    (Primary Standard Industrial            (IRS employer
                             Classification Code Number)        identification number)
</TABLE>

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

                       2933 Bunker Hill Lane, Suite 201
                         Santa Clara, California 95054
                                (408) 566-1000
  (Address, including zip code, and telephone number, including area code, of
                   registrant's principal executive offices)

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

                                 Andrew Vought
                            Chief Financial Officer
                       2933 Bunker Hill Lane, Suite 201
                         Santa Clara, California 95054
                                (408) 566-1000
(Name, address, including zip code, and telephone number, including area code,
                             of agent for service)

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

                                  Copies to:
<TABLE>
<S>                                   <C>
          Douglas D. Smith                             Nora L. Gibson
    Gibson, Dunn & Crutcher LLP               Brobeck, Phleger & Harrison LLP
One Montgomery Street, Telesis Tower           One Market, Spear Street Tower
  San Francisco, California 94104             San Francisco, California 94105
           (415) 393-8200                              (415) 442-0900
</TABLE>

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

   Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after the Registration Statement becomes effective.

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

   If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]

   If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement of the same offering. [_]

   If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

   If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

   If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

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

                        CALCULATION OF REGISTRATION FEE
<TABLE>
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
<CAPTION>
                                                     Proposed Maximum
             Title of Each Class of                     Aggregate                Amount Of
          Securities to be Registered               Offering Price(1)         Registration Fee
----------------------------------------------------------------------------------------------
<S>                                              <C>                      <C>
Common Stock, $.01 par value...................        $50,000,000                $13,900
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
</TABLE>
(1)Estimated solely for purposes of calculating the amount of the registration
   fee pursuant to Rule 457(o) under the Securities Act of 1933.

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

   The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically state that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this prospectus is not complete and may be       +
+changed. We may not sell these securities until the registration statement    +
+filed with the Securities and Exchange Commission is effective. This          +
+prospectus is not an offer to sell these securities and it is not soliciting  +
+an offer to buy these securities in any state where the offer or sale is not  +
+permitted.                                                                    +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
                 SUBJECT TO COMPLETION, DATED SEPTEMBER 3, 1999

                                       Shares

                                 [VIRATA LOGO]

                               VIRATA CORPORATION

                                  Common Stock

                                   --------

  Prior to this offering, there has been no public market for our common stock.
The initial public offering price is expected to be between $    and $    per
share. We intend to apply to have our common stock approved for listing on The
Nasdaq Stock Market's National Market under the symbol "VRTA."

  The underwriters have an option to purchase a maximum of     additional
shares to cover over-allotments shares.

  Investing in our common stock involves risks. See "Risk Factors" on page 8.

<TABLE>
<CAPTION>
                                                            Underwriting
                                               Price to    Discounts and   Proceeds to
                                                Public      Commissions       Virata
                                            -------------  -------------  -------------
<S>                                         <C>            <C>            <C>
Per Share..................................  $              $              $
Total...................................... $              $              $
</TABLE>

  Delivery of the shares of common stock will be made on or about      , 1999.

  Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

Credit Suisse First Boston

                Warburg Dillon Read LLC

                                                      Thomas Weisel Partners LLC

                  The date of this prospectus is      , 1999.
<PAGE>

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

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Prospectus Summary.......................................................   4
Risk Factors.............................................................   8
Special Note Regarding Forward Looking Statements........................  24
Use Of Proceeds..........................................................  24
Dividend Policy..........................................................  24
Capitalization...........................................................  25
Dilution.................................................................  27
Selected Consolidated Financial Data.....................................  29
Management's Discussion And Analysis Of Financial Condition And Results
 Of Operations...........................................................  31
Business.................................................................  45
</TABLE>
<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Management.................................................................  58
Certain Transactions.......................................................  66
Principal Stockholders.....................................................  70
Description Of Capital Stock...............................................  72
Certain Provisions In Our Certificate Of Incorporation And Bylaws..........  75
Shares Eligible For Future Sale............................................  77
Underwriting...............................................................  78
Notice To Canadian Residents...............................................  81
Legal Matters..............................................................  82
Experts....................................................................  82
Additional Information.....................................................  82
Index To Consolidated Financial Statements................................. F-1
</TABLE>
                                 ------------
   You should rely only on the information contained in this document. We have
not authorized anyone to provide you with information that is different. This
document may only be used where it is legal to sell these securities. The
information in this document may only be accurate on the date of this document.

   Offers and sales of the common stock are subject to restrictions in relation
to the United Kingdom, details of which are set out in "Underwriting," and in
other jurisdictions. The distribution of this prospectus may also be restricted
by law in some jurisdictions.

   This prospectus is subject to completion prior to this offering. Among other
things, this prospectus describes our company as we currently expect it to
exist at the time of this offering. Except as otherwise indicated, all
information in this prospectus assumes:

  .  the underwriter's over-allotment option will not be exercised;

  .  the cancellation of all of the outstanding ordinary and preference
     shares of Virata Limited, a company organized in the United Kingdom, the
     issuance of new ordinary shares of Virata Limited to Virata Corporation,
     a Delaware corporation, and the issuance of shares of common stock of
     Virata Corporation to the former shareholders of Virata Limited, each
     immediately prior to the consummation of this offering; and

  .  a   for 1 reverse stock split of our common stock, immediately prior to
     the consummation of this offering.

   Unless the context otherwise requires, the terms "Virata," "RSA," "we," "us"
or "our" refer to Virata Limited and its subsidiaries Virata Santa Clara
Corporation, a Delaware corporation, and Virata Raleigh Corporation, a Delaware
corporation, prior to this offering and the share exchange, and Virata
Corporation, a Delaware corporation, and its direct and indirect subsidiaries,
Virata Limited, Virata Santa Clara Corporation and Virata Raleigh Corporation,
after this offering and the share exchange. The term "you" refers to
prospective investors in our common stock.

   Virata(R), ATMOS(R) and ATOM(R) are registered trademarks of Virata.
ISOS(TM), Proton(TM), Helium(TM), Hydrogen(TM), Lithium(TM) and Beryillium(TM)
are our trademarks and may be subject of pending trademark applications. This
prospectus also makes reference to trademarks of other companies.

                     Dealer Prospectus Delivery Obligation

   Until      , 1999 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.

                                       3
<PAGE>

                               PROSPECTUS SUMMARY

   This following summary highlights basic information about us and this
offering contained more fully elsewhere in this prospectus. Because it is a
summary, it does not contain all of the information that you should consider
before investing. You should read this entire prospectus carefully, including
the section entitled "Risk Factors" and the financial statements and the
related notes to those statements included in this prospectus. This prospectus
contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those anticipated in the forward-
looking statements as a result of factors described under the heading "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" as well as discussions elsewhere in this
prospectus.

                               Virata Corporation

   Virata provides communications processors which are combined with a
comprehensive suite of software for digital subscriber line equipment
manufacturers. These tightly integrated products enable our customers to
develop a diverse range of digital subscriber line, or DSL, equipment including
modems, gateways and routers targeted at the broadband access market. We
believe our systems expertise, products and support services enable DSL
equipment manufacturers to simplify product development, speed time-to-market
and focus resources on product differentiation.

   Significant growth in demand for broadband access is being driven by
consumers and business users who find current dial-up Internet access too slow
and faster frame relay or T1/E1 services too expensive. Digital subscriber
line, technologies enable service providers to offer a range of affordable
broadband access services using the existing copper wire telephone
infrastructure.

   To meet the demands of the rapidly growing DSL market, original equipment
manufacturers, or OEMs, encounter a number of challenges. These include
evolving technical standards, an expanding range of feature expectations and
shorter product life cycles. In response to these challenges, OEMs are
increasingly relying upon third party specialists to supply key technology
components including semiconductors and software. However, integration of these
individual elements can be a complex, costly and time-consuming task.

   The combination of our communications processors and software replaces
numerous software elements and semiconductors which would otherwise have to be
sourced from multiple vendors and then integrated and tested. Our standards
compliant products are based on a flexible architecture that:

  .  simplifies the addition of features;

  .  can be used with a range of third party DSL physical layer transceivers;
     and

  .  offers compelling price/performance.

   By adopting our solutions, our customers enjoy numerous benefits including:

  .  faster time-to-market;

  .  reduced product cost;

  .  opportunity to focus their engineering resources on product
     differentiation;

  .  ability to design multiple products using different subsets of our
     modular software; and

  .  re-use of software extensions they develop on future generations of
     their products.

                                       4
<PAGE>


   Our objective is to be the leading supplier of communications processors and
integrated software to broadband access OEMs. We intend to achieve this
objective by:

  .  initially focusing on DSL markets;

  .  leveraging our flexible semiconductor and software architectures to
     introduce an expanding range of communications processors and software
     modules;

  .  licensing our software to all our customers; and

  .  pursuing strategic acquisitions.

   We outsource the manufacturing of our semiconductors, which allows us to
focus our resources on the design, development and marketing of our products.
To date we have licensed our software to 27 companies. These customers have
developed, or are developing, 74 designs of which 28 are currently shipping.
Leading DSL customers include Netopia, Orckit Communications and Westell
Technologies. In July 1998, we completed the acquisition of RSA Communications,
our first strategic acquisition.

   Our commercial, financial and operations headquarters are in Santa Clara,
California. Research and development facilities and sales offices are located
in Raleigh, North Carolina, and Cambridge, England. The address of our
principal executive office is 2933 Bunker Hill Lane, Suite 201, Santa Clara,
California 95054 where the telephone number is (408) 566-1000. Our Internet
address on the worldwide web is http://www.virata.com. Information contained on
our website does not constitute part of this prospectus.



                                       5
<PAGE>

                                  The Offering

<TABLE>
 <C>                                    <S>
 Common stock offered by us............     shares

 Common stock to be outstanding after
  the offering.........................     shares

 Use of proceeds....................... We intend to use the net proceeds of
                                        this offering primarily for working
                                        capital and general corporate
                                        purposes, including expenditures for
                                        research and development of new
                                        products and sales and marketing
                                        efforts. See "Use of Proceeds."

 Proposed Nasdaq National Market
  symbol............................... VRTA
</TABLE>

   The common stock outstanding after this offering is based on the number of
shares outstanding on August 31, 1999, after giving effect to:

  .  the cancellation of all of the outstanding ordinary and preference
     shares of Virata Limited, the issuance of new ordinary shares of Virata
     Limited to Virata Corporation and the issuance of shares of common stock
     of Virata Corporation to the former shareholders of Virata Limited; and

  .  a      for 1 reverse stock split of our common stock.

These transactions will take place immediately prior to the consummation of
this offering and, except for the reverse stock split, will be effected
pursuant to a share reconstruction under Section 425 of the United Kingdom
Companies Act of 1985. Any securities that are convertible or exercisable into
ordinary shares or preference shares of Virata Limited will become convertible
or exercisable into shares of our common stock upon consummation of the share
reconstruction.

   The common stock outstanding after this offering excludes 21,996,978 shares
of our common stock which may be issued upon exercise of currently outstanding
stock options and warrants outstanding as of August 31, 1999, with a weighted
average exercise price of $0.66 per share; and       shares of common stock
reserved for issuance under our stock plans. See "Capitalization,"
"Management--Director Compensation," "--Employee Stock Option Plan" and "--
Employee Stock Purchase Plan" and "Description of Capital Stock."

                                       6
<PAGE>


                   Summary Consolidated Financial Information
                   (in thousands, except for per share data)

<TABLE>
<CAPTION>
                                                                Three Months
                                    Year Ended March 31,       Ended June 30,
                                  ---------------------------  ----------------
                                   1997      1998      1999     1998     1999
                                  -------  --------  --------  -------  -------
                                                                 (unaudited)
<S>                               <C>      <C>       <C>       <C>      <C>
Consolidated Statement of
 Operations Data:
Revenues:
  Semiconductors ...............  $ 2,105  $  3,281  $  6,779  $ 2,010  $ 2,066
  Systems, license, services and
   royalty......................    4,848     5,650     2,477      754      599
                                  -------  --------  --------  -------  -------
   Total revenues...............    6,953     8,931     9,256    2,764    2,665
   Total cost of revenues.......    3,939     3,787     3,997      918    1,273
                                  -------  --------  --------  -------  -------
Gross profit....................    3,014     5,144     5,259    1,846    1,392
                                  -------  --------  --------  -------  -------
Operating expenses:
  Research and development......    3,518     3,987     8,323    1,202    2,549
  Sales and marketing...........    4,753     4,076     2,917      532      923
  General and administrative....    3,410     4,917     5,567      759      903
  Non-recurring charges,
   amortization of intangibles
   and stock compensation.......       --     2,270     7,203      306      460
                                  -------  --------  --------  -------  -------
Total operating expenses........   11,681    15,250    24,010    2,799    4,835
                                  -------  --------  --------  -------  -------
Loss from operations............   (8,667)  (10,106)  (18,751)    (953)  (3,443)
Interest and other income
 (expense), net.................      127      (172)     1594       10      428
                                  -------  --------  --------  -------  -------
Net loss........................  $(8,540) $(10,278) $(17,157) $  (943) $(3,015)
                                  =======  ========  ========  =======  =======
Net loss per share:
  Basic and diluted.............  $ (0.80) $  (0.90) $  (1.33) $ (0.08) $ (0.23)
                                  =======  ========  ========  =======  =======
  Weighted average shares.......   10,676    11,482    12,881   11,765   13,346
                                  =======  ========  ========  =======  =======
Pro forma net loss per share:
  Basic and diluted.............                     $  (0.21)          $ (0.04)
                                                     ========           =======
  Weighted average shares.......                       80,900            84,646
                                                     ========           =======
</TABLE>

<TABLE>
<CAPTION>
                                                          As of June 30, 1999
                                                       -------------------------
                                                                Pro   Pro Forma
                                                       Actual  Forma As Adjusted
                                                       ------- ----- -----------
                                                              (unaudited)
<S>                                                    <C>     <C>   <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents............................. $ 6,509
Working capital.......................................   5,180
Total assets..........................................  16,311
Total long term liabilities...........................     995
Total stockholders' equity ...........................   9,611
</TABLE>

   See notes 1 and 12 of the notes to the consolidated financial statements
included in this prospectus for an explanation of the determination of the
number of shares used in computing per share data.

   The pro forma numbers reflect the following:

  .  the cancellation of all of the outstanding ordinary and preference
     shares of Virata Limited, the issuance of new ordinary shares of Virata
     Limited to Virata Corporation and the issuance of shares of common stock
     of Virata Corporation to the former shareholders of Virata Limited; and

  .  a      for 1 reverse stock split of our common stock;

   The pro forma as adjusted numbers give effect to our receipt of the net
proceeds from the sale of                   shares of common stock offered in
this offering at an assumed initial public offering price of $         per
share, after deducting underwriting discounts and commissions and estimated
offering expenses. See "Use of Proceeds" and "Capitalization."

                                       7
<PAGE>

                                  RISK FACTORS

   You should carefully consider the risks described below before making an
investment decision. 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. If that happens,
the trading price of our common stock could decline, and you may lose all or
part of your investment. 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 semiconductors to the
digital subscriber line, or DSL, market, we cannot be sure that we can
successfully implement our business strategy

   We were incorporated in June 1993 and until 1995 we were a development stage
company focused primarily on product development. From first production revenue
shipment in April 1995 through March 1996, we focused on developing and
delivering systems-level products primarily for local area network
applications. In  mid 1996, we began licensing our software suite and selling
our semiconductors to developers of broadband access products. In September
1997, we ceased development of our systems-level products and focused
exclusively on expanding our software offering and developing additional
semiconductors for the broadband marketplace with a focus on the DSL market.
Accordingly, we have not had a long history of selling semiconductors to the
DSL market or generating significant revenues and many of our semiconductors
have only recently been introduced. Furthermore, we have limited historical
financial data that can be used in evaluating our business and our prospects
and in projecting future operating results. For example, we cannot forecast
operating expenses based on our historical results because they are limited,
and we are required to forecast expenses 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 would be greater than expected. In
addition, our ability to forecast accurately our quarterly revenue is limited
due to a number of factors described in detail below, making it difficult to
predict the quarter in which sales will occur. You must consider our prospects
in light of the risks, expenses and difficulties we might encounter because we
are at an early stage of development in a new and rapidly evolving market. Many
of these risks are described under the sub-headings below. We may not
successfully address any or all of these risks and our business strategy may
not be successful.

We have not reported an operating profit since our incorporation and expect
future losses; accordingly, we may not be able to achieve profitability, and
even if we do become profitable, we may not be able to sustain profitability

   We have not reported an operating profit for any fiscal year since our
incorporation and experienced net losses of approximately $3.0 million, $17.2
million, $10.3 million, and $8.5 million for the three months ended June 30,
1999 and the fiscal years ended March 31, 1999, 1998, and 1997, respectively.
We expect to incur net losses for the foreseeable future, and these losses may
be substantial. Further, we expect to incur substantial negative cash flow in
the future. Because of 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.
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 DSL broadband access;

  .  the rate of market acceptance of our products and the demand for DSL
     equipment that incorporates our products;

  .  changes in industry standards governing DSL technologies;

  .  the extent and timing of new customer transactions;

                                       8
<PAGE>

  .  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 or how quickly DSL equipment
manufacturers will select our products for use in their systems. In view of
these factors, we may not be able to achieve or sustain profitability or
positive cash flow.

Our operating results in one or more future periods are likely to fluctuate
significantly and may fail to meet or exceed the expectations of securities
analysts or investors, which may cause our stock price to decline

   Our revenues and operating results 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. If our operating results do not meet the
expectations of securities analysts or investors, our stock price may decline.
We cannot be sure that this will not occur because of the numerous factors that
could cause our revenues and costs to fluctuate. These factors include the
following:

  .  the timing and size of expenses, including expenses of developing new
     products and product enhancements;

  .  the timing and size of semiconductor orders from, and shipments to, our
     existing and new customers;

  .  loss of or decrease in sales to a major customer or failure to complete
     significant transactions;

  .  unexpected delays in introducing new or enhanced products, including
     manufacturing delays;

  .  the volume and average cost of products manufactured;

  .  loss or reduction in the availability of foundry capacity;

  .  the average selling prices of our products;

  .  our ability to attract and retain key personnel;

  .  commencement of or involvement in litigation, including litigation
     relating to the use or ownership of intellectual property;

  .  costs or other non-recurring charges in connection with the acquisition
     of companies, products or technologies;

  .  foreign currency and exchange rate fluctuations, which may make our
     dollar-denominated products more expensive in foreign markets or could
     expose us to currency rate fluctuation risks if our sales become
     denominated in foreign currencies; and

  .  general market and global economic conditions.

   Variations will also be caused by factors related to the development of the
DSL market and the competition we face from other DSL semiconductor suppliers,
including:

  .  the timing and rate of deployment of DSL services by telecommunications
     service providers;

  .  the timing and rate of deployment of alternative high-speed data
     transmission technologies, such as cable modems and high-speed wireless
     data transmission;

  .  anticipated decreases in per unit prices as competition among DSL
     semiconductor suppliers increases;

  .  announcements of new products, design wins and product enhancements by
     competitors and the entry of new competitors into our market; and

  .  the level of market penetration of our semiconductors relative to those
     of our competitors.

   The amount and timing of our operating expenses generally will vary from
quarter to quarter depending on the level of our actual and anticipated
business activities. Research and development expenses will vary as we

                                       9
<PAGE>

develop new products. Due to the competitive factors in our market, in the past
we have experienced, and we anticipate that we will continue to experience,
decreases in the average selling prices of our products. Due to these and other
factors, 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.

The markets in which we compete are highly competitive, and we may not be able
to compete effectively, especially against companies with greater resources

   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. 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. 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 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.

   We believe our principal competitors include Alcatel Microelectronics,
Analog Devices, Centillium Technology, Conexant Systems, Lucent Technologies,
Motorola and Texas Instruments. In addition, there have been a number of
announcements by other semiconductor companies including IBM and Intel and
smaller emerging companies that they intend to enter the market segments
adjacent to or addressed by our products. Further, many of our customers face
competition from companies that design their own semiconductors. Because these
companies do not purchase all of their semiconductors from suppliers such as
us, if these competitors displace our customers in the DSL equipment market,
our customers would no longer need our products.

Rapid changes in the market for DSL semiconductors may render our
semiconductors obsolete or unmarketable; failure to enhance our existing
products or to develop and introduce new products that meet changing customer
requirements and emerging industry standards would adversely impact our ability
to sell our products and harm our business

   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 enhancements take longer than planned, the
availability of our products would be delayed. Any such delay would harm our
ability to sell our products and our results of operations and financial
condition would be adversely affected. Factors that may affect the market
acceptance of our products include the growth and acceptance of broadband
access equipment, the price, functionality and availability of competing
products and technologies, and the success of our sales efforts and our
customers. Our success may depend, in part, on our ability to:

  .  effectively use and offer leading technologies;

  .  continue to develop our technical expertise;

                                       10
<PAGE>

  .  successfully develop, introduce and market new and enhanced products at
     competitive prices in order to meet changing customer needs;

  .  anticipate and address evolving feature and service requirements;

  .  respond effectively to new technological changes or new product
     announcements by others;

  .  maintain close working relationships with our key customers; and

  .  influence and respond to changing market and industry standards and
     other technological changes on a timely and cost-effective basis.

   We must address these requirements in a timely and cost-effective manner. 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 would cause serious harm to our business,
financial condition and results of operations.

   The pursuit of necessary technological advances and the development of new
products require substantial time and expense. In addition, enhancements to
existing products or the introduction of new products by us or our competitors
have the potential to replace or provide lower cost alternatives to our
existing products or render these products obsolete, unmarketable or
inoperable. The mere announcement of any enhancement 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.

Other broadband data transmission technologies may compete effectively with DSL
services, which may cause sales of our products to decline and harm our
business

   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, reaches more customers or has other
advantages over DSL technology, then the demand for our semiconductors may
decrease, which would harm our business and operating results.

Substantial sales of our semiconductors will not occur unless
telecommunications service providers initiate broad deployment of DSL services

   The success of our products may depend upon the decision by
telecommunications service providers to broadly deploy DSL technologies and the
timing of the deployment. Factors that will 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;

  .  varying and uncertain conditions of the local loop, including the size
     and length of the copper wire, electrical interference and interference
     with existing voice and data telecommunications services;

  .  challenges of interoperability among DSL equipment manufacturers'
     products;

  .  evolving industry standards for DSL technologies; and

  .  government regulation.


                                       11
<PAGE>

   Although a number of telecommunications service providers have commenced
commercial deployment of DSL services using DSL products that incorporate our
semiconductors, if these telecommunications service providers do not expand
their deployment of DSL services, if additional telecommunications service
providers do not offer DSL services on a timely basis or if there are technical
difficulties with the deployment of DSL services, then our business, financial
condition and results of operations will be seriously harmed.

Substantial sales of our semiconductors will not occur unless DSL equipment
manufacturers incorporate our semiconductors in their products

   We rely upon DSL equipment manufacturers to design our semiconductors and
software into their DSL products. We further rely on these products to be
successful, and if they are not, we will not sell our semiconductors in volume
quantities. Accordingly, we must anticipate the price, performance and
functionality requirements of these DSL equipment manufacturers. We must also
successfully develop products that meet these requirements and make these
products available on a timely basis and in sufficient quantities. Further, if
there is consolidation in the DSL equipment manufacturing industry, or if a
small number of DSL equipment manufacturers otherwise dominate the market for
DSL equipment, then our success will depend upon our ability to establish and
maintain relationships with these market leaders. If we do not anticipate
trends in the DSL market and meet the requirements of DSL equipment
manufacturers, or if we do not successfully establish and maintain
relationships with leading DSL equipment manufacturers, then our business,
financial condition and results of operations will be seriously harmed.

Our success depends on our ability to maintain and cultivate relationships with
DSL equipment manufacturers

   We believe that our success in penetrating markets for our products depends
on our ability to maintain and cultivate relationships with DSL equipment
manufacturers that are leaders in the DSL equipment market or that are
designing our products into their network systems. We must anticipate market
trends and the price, performance and functionality requirements of these
vendors and must successfully develop and manufacture products that meet these
requirements. In addition, we must meet the timing requirements of these DSL
equipment manufacturers and must make products available to them in sufficient
quantities. Accordingly, in selling to DSL equipment manufacturers, we often
incur significant expenditures prior to volume sales of new products. Our
inability to develop relationships with additional DSL equipment manufacturers
would seriously harm our business, financial condition and results of
operations.

We depend on third party foundries to manufacture, assemble and test our
products; if we are unable to obtain sufficient yields or product reliability,
our customer relationships, business, financial condition and results of
operations could be adversely affected

   We do not own or operate a semiconductor fabrication facility. Generally our
semiconductor devices are single sourced at a different foundry. We intend to
continue to rely on these foundries and other specialist suppliers for all of
our manufacturing, assembly and testing requirements for the foreseeable
future. 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. We have experienced delays and may in the future experience delays in
receiving semiconductor devices from these foundries, and we cannot be sure
that we will be able to obtain semiconductor devices within the time frames and
in the volumes required by us at an affordable cost or at all. Any disruption
in availability of our products would significantly harm our business. If we
are required for any reason to seek a new manufacturer of our semiconductors, a
new manufacturer of our semiconductors may not be available. Furthermore,
switching to a new manufacturer would require six months or more and would
involve significant expense and disruption to our business.

   From time to time there are shortages in worldwide foundry capacity. In
addition, increases in semiconductor demand may limit available foundry
capacity worldwide. These shortages, if they occur, could

                                       12
<PAGE>

make it more difficult for us to obtain sufficient allocation of manufacturing
capacity to meet our manufacturing needs. In addition, these shortages could
lengthen our products' manufacturing cycle and cause a delay in the shipments
of our products to our customers. 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 decide
to 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.

   The manufacture of our products is a highly complex and precise process,
requiring production in a highly controlled environment. Changes in the
manufacturing processes or the inadvertent use of defective or contaminated
materials by a foundry could adversely affect such a 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, business, financial condition and
results of operations could be adversely affected.

   Our products are fabricated, assembled and tested by third-party
subcontractors. This assembly and testing is conducted on a purchase order
basis rather than under a long-term agreement. As a result of our reliance on
third-party subcontractors to fabricate assemble and test our products, we
cannot directly control product delivery schedules, which could lead to product
shortages or quality assurance problems that could increase the costs of
manufacturing or assembly of our products. Qualification of fabrication,
assembly and test subcontractors normally requires a significant investment of
time. If the foundries we currently use are unable to provide us with their
products on a turnkey basis or if we are otherwise required to find alternative
subcontractors, product shipments could be delayed significantly. Any problems
associated with the delivery, quality or cost of the fabrication assembly and
testing of our products could seriously harm our business, financial condition
and results of operations.

We depend on a license from Advanced RISC Machines, or ARM, to manufacture
certain of our planned ATOM products and the loss or inability to maintain the
license could result in increased costs or delays in the manufacturing of our
products

   Our ATOM products feature embedded ARM RISC microprocessors and,
accordingly, are required to be manufactured under a license from Advanced RISC
Machines, 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 ATOM 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 ATOM 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.

                                       13
<PAGE>

Our customer base is concentrated, and the loss of one or more of our customers
would 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 for the foreseeable future.
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 March 31, 1999, Com21 and Orckit Communications accounted
for 22.6% and 15.7%, respectively, of our total revenues. For the three months
ended June 30, 1999, Orckit Communications, Com21 and Netopia accounted for
39.8%, 17.2% and 10.2%, respectively, of our total revenues. 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 DSL 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, our business would be harmed. 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.

If we do not achieve design wins with DSL equipment manufacturers, we may be
unable to secure sales from these customers in the future

   Once a DSL equipment manufacturer has designed a supplier's semiconductor
into its products, the DSL equipment 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
DSL equipment manufacturers which have chosen a competitor's semiconductor
could create barriers to future sales opportunities with these DSL equipment
manufacturers.

Our customers are not subject to any binding agreements and, therefore, may not
purchase any of our products, which may harm our business

   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. 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 harm our business, financial condition
and results of operations. Reasons that a design win may not result in a
purchase order may include:

  .  product development delays;

  .  pricing issues;

  .  changes in customer product lines;

  .  availability of competing products;

  .  inability to deliver products in volume;

  .  technological obsolescence;

  .  changes in market needs or preferences; and

  .  changing standards.

We incur expenses based upon projected product needs of our customers, but
these customers are not subject to any minimum purchase requirements

   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

                                       14
<PAGE>

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 harm our business, financial condition and results of operations.

Most of our revenues have been and, for the foreseeable future, will be derived
from a limited number of products, and the failure of any of these products to
gain market acceptance may harm our business

   For the fiscal year ended March 31, 1999, approximately 21.6% and 10.7%,
respectively, of our total revenues were generated from sales of our Hydrogen
product and Proton family of products. For the three months ended June 30,
1999, approximately 26.0%, 23.8% and 6.1%, respectively, of our total revenues
were generated from sales of our Proton family and Hydrogen and Helium
products. We expect that our Proton family will represent a diminishing
proportion of our total revenues while a substantial portion of our total
revenues will be derived from our Hydrogen, Helium and Lithium products in the
foreseeable future. Therefore, broad market acceptance of the Hydrogen, Helium
and Lithium products is critical to our success. We cannot be sure that our
products will attain broad market acceptance. Any failure to achieve broad
market acceptance will harm our business, operating results and financial
condition.

We expect that price competition among DSL semiconductor suppliers and volume
purchases by large customers will have a negative impact on our gross margins
in the future

   We expect that price competition among DSL semiconductor suppliers and
volume purchases of our semiconductors at discounted prices will have a
negative impact 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 with
greater resources and therefore may be able to achieve greater economies of
scale and would be less vulnerable to price competition. Further, we expect
that average per unit selling prices of our semiconductors 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 gross
margins for these products.

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 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
purchasing 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.

   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. 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.
While we have a strategy of licensing and partnering with as many key
participants in our markets as possible, some customers will be more successful
than others in developing and marketing their products that incorporate our

                                       15
<PAGE>

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 equipment.

If we deliver products with defects, our credibility will be harmed, and the
sales and market acceptance of our products will 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. Further, 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 adversely affect our ability to attract or retain
customers.

We may be subject to product returns and product liability claims resulting
from defects in our products; product returns and product liability claims
could result in the failure of our products to attain market acceptance and
could harm our business

   The occurrence of any defects, errors or failures in our products could lead
to product liability claims as a result of product liability lawsuits against
us or against our customers. 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 seriously harm our
business, 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. A successful product liability claim
brought against us could be expensive, divert the attention of management from
ordinary business activities and, correspondingly, harm our business.

A substantial portion of our sales are generated outside the United States, and
difficulties associated with international operations could harm our business

   One of our principal subsidiaries is incorporated under the laws of, and its
principal offices are located in, the United Kingdom. Thus, we are influenced
by the political, economic and other conditions affecting the United Kingdom.
For the fiscal year ended March 31, 1999, we generated approximately 40.3% of
our revenues from sources outside the United States, including Israel, Europe
and Asia. For the fiscal year ended March 31, 1999, 16.5% and 9.8%,
respectively, of our total revenues were derived from customers based in Israel
and Europe. In the three months ended June 30, 1999, 40.0% of our total
revenues were derived from customers based in Israel. We expect that sales to
these international customers will continue to account for a significant
portion of our total revenues for the foreseeable future. Accordingly, we are
subject to risks inherent in our international business activities, including:

  .  tariffs and other trade barriers, including current and future import
     and export restrictions;

  .  potentially adverse tax consequences, including restrictions on the
     repatriation of earnings;

  .  risks that changes in foreign currency exchange rates will make our
     products comparatively more expensive;

  .  risks related to international political instability and economic
     turbulence;

  .  delays or difficulties in collecting accounts receivables;

  .  difficulties in staffing and managing international operations;

  .  burdens of complying with a wide variety of foreign laws, particularly
     with respect to intellectual property, and license requirements;

                                       16
<PAGE>

  .  delays or difficulties obtaining approvals for products from foreign
     governmental agencies which regulate our industry;

  .  unexpected changes in regulatory requirements;

  .  difficulties in protecting intellectual property rights in certain
     foreign countries; and

  .  limited ability to enforce agreements and other rights in certain
     foreign countries.

   Any interruption or curtailment of trade between the countries in which we
operate and their present trading partners or a significant downturn in the
economic or financial condition of these countries could seriously harm our
business, financial condition and results of operations.

We continue to rapidly and significantly expand our operations, and our failure
to manage growth could harm our business and adversely affect our results of
operations and financial condition

   We have rapidly and significantly expanded our operations, including the
number of our employees, the geographic scope of our activities and our product
offerings. We expect that further significant expansion will be required to
address potential growth in our customer base and market opportunities. Any
failure to manage growth effectively could harm our business and adversely
affect our operating results and financial condition. We cannot be sure that we
will be able to do any of the following, which we believe are essential to
successfully manage the anticipated growth of our operations:

  .  improve our existing and implement new operational, financial and
     management information controls, reporting systems and procedures;

  .  hire, train and manage additional qualified personnel;

  .  expand and upgrade our core technologies; and

  .  effectively manage multiple relationships with our customers, suppliers
     and other third parties.

   In the future, we may also experience difficulties meeting the demand for
our products. The development of equipment using our products requires
training. If we are unable to provide training and support for our products,
more time may be necessary to complete the implementation process and customer
satisfaction may be adversely affected. In addition, our suppliers may not be
able to meet increased demand for our products. We cannot be sure that our
systems, procedures or controls will be adequate to support the anticipated
growth in our operations.

Our future success will depend in part on our ability to protect our
proprietary rights and the technologies used in our principal products, and if
we do not enforce and protect our intellectual property or if others bring
infringement claims against us, our business would be harmed

   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 our
safeguards will protect our intellectual property and other valuable
competitive information. Our failure to adequately protect our proprietary
rights may harm our business. 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 means of protecting our proprietary rights in the United Kingdom, the
United States or elsewhere may not be adequate, and competitors may
independently develop similar technologies. In addition, the laws of some
countries do not protect our proprietary rights as fully as do the laws of the
United Kingdom or the United States. Issued patents may not preserve our
proprietary position. Even if they do, competitors or others may develop
technologies similar to or superior to our own.

                                       17
<PAGE>

   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.

   We may become involved in litigation over proprietary rights. In the event
of an adverse result in any future litigation with third parties relating to
proprietary rights, we could be required:

  .  to pay substantial damages, including treble damages if we are held to
     have willfully infringed;

  .  to halt the manufacture, use and sale of infringing products;

  .  to expend significant resources to develop non-infringing technology; or

  .  to obtain licenses to the infringing technology.

   Licenses may not be available from any third party that asserts intellectual
property claims against us, on commercially reasonable terms, or at all. In
addition, litigation frequently involves substantial expenditures and can
require significant management attention, even if we ultimately prevail.
However, we cannot be sure that we would be able to successfully resolve such
disputes in the future.

   In addition, the industries in which we compete are characterized by
numerous allegations of patent infringement among competitors. Such an
infringement claim could be asserted against us or by us in the future. The
defense or prosecution of any such claim could result in us incurring
substantial costs and diverting significant resources away from our operations.
Furthermore, if a claim is decided against us, we may be required to pay
monetary damages, to cease the use of the infringing technology, lose a
competitive advantage or expend significant resources to develop non-infringing
technology or obtain licenses to the infringing technology. Such an outcome
could harm our business, financial condition and results of operations.

   We are not currently aware of any potential infringement of a third party's
intellectual property rights on our part arising from the design of the
hardware portion of our products. We believe, however, that in order to comply
with standards such as the International Telecommunications Union V.34 and V.90
standards or the Universal ADSL Working Group G.lite standard, the software
embedded in our current and planned future products may use the proprietary
technology of the various parties advancing or promoting these standards. Where
this is the case, the owner of such intellectual property must provide a
license upon a reasonable terms which may include the payment of a reasonable
royalty. The cumulative effect of those royalties could harm our results of
operations or financial condition.

Our executive officers and key personnel are critical to our business, and
these officers and personnel may not remain with us in the future; our success
will depend on the continued performance of our key personnel and our ability
to attract and retain additional 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 personnel could
significantly harm our business, financial condition and results of operations.

   Because DSL technology is 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.

                                       18
<PAGE>

We may engage in future acquisitions that could dilute our stockholders' equity
and harm our business, results of operations and financial condition

   As part of our business strategy, we expect to review opportunities to
acquire other businesses or products that would 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:

  .  issuances of equity securities that would dilute our current
     stockholder's percentages ownership;

  .  large one-time write-offs;

  .  the incurrence of debt and contingent liabilities;

  .  difficulties in the assimilation of 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
     limited prior experience; and

  .  potential loss of key employees of acquired organizations.

   Any of the above could seriously harm our results of operations or the price
of our stock. We cannot be sure that we will be able to successfully integrate
any businesses, products, technologies or personnel that might be acquired in
the future. Our failure to do so could seriously harm our business, financial
condition and results of operations.

If our software and hardware products or our internal systems are not Year 2000
compliant, the Year 2000 issue could seriously harm our business, financial
condition, liquidity and results of operations

   The term "Year 2000 issue" is a general term used to describe the various
problems that may result from the improper processing of dates and date-
sensitive calculations by computers and other machinery as the Year 2000 is
approached and reached. These problems generally arise from the fact that most
of the world's computer hardware and software have historically used only two
digits to identify the year in a date. As a result, date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. These
problems may also arise from other sources as well, such as the use of special
codes and conventions in software that make use of the date field. If not
corrected, these electronic systems could fail or create erroneous results when
addressing dates on and after January 1, 2000.

   As a result of the Year 2000 issue, we may experience serious unanticipated
problems and costs caused by undetected errors or defects in the technology
used in our software and hardware products and internal systems. In addition,
we may be required to defend our products or services in legal proceedings, and
we cannot guarantee that we will remain free of Year 2000 related disputes. If
our software and hardware products or our internal systems are not Year 2000
compliant, the Year 2000 issue could seriously harm our business, financial
condition, liquidity and results of operations. Until the Year 2000 occurs, we
cannot be sure that we will not be affected by the Year 2000 issue.

                                       19
<PAGE>

Our products and those of our customers are subject to government regulations,
and changes in current or future laws or regulations that negatively impact our
products and technologies could harm our business

   The jurisdiction of the Federal Communications Commission, or the 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. broadband access services industry, our
customers or our products may harm 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. 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 harm our
business and adversely affect our results of operations and financial
condition.

There has been no prior market for our common stock and our stock price may
decline after this offering

   Prior to this offering, you could not buy or sell our common stock on a
public market. An active trading market for our common stock may not develop or
be sustained after this offering. The initial public offering price will be
determined by negotiation among us and representatives of the underwriters and
may not be indicative of the price that will prevail in the open market after
this offering. The market price of our shares of common stock is likely to be
highly volatile and could be subject to wide fluctuations in response to
various factors, some of which are beyond our control, including:

  .  actual or anticipated variations in our results of operations;

  .  changes in financial estimates of our revenues and operating results by
     securities analysts;

  .  changes in conditions and trends in the communications computer
     industries and in the market valuations of integrated circuit companies;

  .  fluctuations in the valuation of companies perceived by investors to be
     comparable to us;

  .  unexpected delays in introducing new or enhanced products, including
     manufacturing delays;

  .  announcements of new products, design wins and product enhancements by
     competitors and the entry of new competitors into our market;

  .  loss of or decrease in sales to a major customer or failure to complete
     significant transactions;

  .  loss or reduction in the availability of foundry capacity;

  .  our ability to attract and retain key personnel;

  .  future sales of our common stock;

  .  inconsistent trading volume levels of our stock;

  .  commencement of or involvement in litigation, including litigation
     relating to the use or ownership of intellectual property; and

  .  general market and global economic conditions.

   Furthermore, 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. 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.

                                       20
<PAGE>

We could be subject to class action litigation due to stock price volatility,
which, if it occurs, will distract management and result in substantial costs,
and could result in judgments against us

   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, which could cause serious harm to our business,
financial condition and results of operations.

Our current stockholders will benefit from this offering, and you will
experience immediate dilution

   The initial public offering price is expected to be substantially higher
than the current book value per share of our outstanding common stock.
Stockholders existing as of June 30, 1999 have paid an average price of $0.68
per share for their common stock, and the pro forma net tangible book value as
of that date was    per share, after giving effect to:

  .  the cancellation of all of the outstanding ordinary and preference
     shares of Virata Limited, the issuance of new ordinary shares of Virata
     Limited to Virata Corporation and the issuance of shares of common stock
     of Virata Corporation to the former shareholders of Virata Limited; and

  .  a      for 1 reverse stock split of our common stock.

   After giving effect to the sale of                   shares of our common
stock in this offering at an offering price of $      per share, our pro forma
as adjusted net tangible book value as of June 30, 1999, would have been $
per share. As a result, investors purchasing our common stock will incur
immediate dilution of approximately $      per share in the book value of our
common stock from the price they pay for our common stock. In addition, we have
issued options to acquire common stock at prices significantly below the
initial public offering price. To the extent these outstanding options are
ultimately exercised, there will be further dilution to investors in this
offering.

Our principal stockholders and management have the ability to control
stockholder votes, and this control could adversely affect our stock price or
lessen any premium over market price that an acquiror might otherwise pay

   Immediately following the offering, our officers and directors and their
affiliates will own or control approximately    % of our common stock (after
giving effect to the exercise of any outstanding options). Accordingly, our
officers, directors and their affiliates, as a group, have the ability to
control the election of a majority of the members of our board of directors and
the outcome of corporate actions requiring stockholder approval. This
concentration of ownership may have the effect of delaying, deferring or
preventing a change in control of us, or may impede a merger, consolidation,
takeover or other business combination involving us. This concentration of
ownership could also adversely affect our stock's market price or lessen any
premium over market price that an acquiror might otherwise pay.

Provisions of our charter documents and Delaware law could prevent or delay a
change in control of us and may reduce the market price of our common stock

   Certain provisions of our certificate of incorporation and bylaws and the
provisions of Delaware law could have the effect of delaying, deferring or
preventing our acquisition. For example, we have authorized but unissued shares
of preferred stock which could be used to fend off a takeover attempt, our
stockholders may not take actions by written consent, our stockholders are
limited in their ability to make proposals at stockholder meetings and our
directors may be removed only for cause and upon the affirmative vote of at
least 80% of our outstanding voting shares.

                                       21
<PAGE>

We have broad discretion to use the offering proceeds, and how we invest these
proceeds may not increase our profits or market value

   The principal purposes of this offering are to increase our equity capital,
to create a public market for our shares, to facilitate our future access to
public equity markets and to provide increased visibility and credibility for
us in a marketplace in which many of our current and potential competitors are
or are expected to be publicly held companies. As of the date of this
prospectus, we have no specific plans to use the net proceeds from this
offering other than for general corporate purposes. We may use a portion of the
net proceeds to acquire complementary products, technologies or businesses.
However, we currently have no commitments or agreements and are not involved in
any negotiations to do so. We may also apply the net proceeds in ways which may
not increase our profitability or our market value. Pending application of the
net proceeds, they may be placed in short-term, investment-grade, interest-
bearing securities that do not produce income or that lose value. Accordingly,
our management will have considerable discretion in the application of the net
proceeds, and you will not have the opportunity, as part of your investment
decision, to assess whether the proceeds are being used appropriately.

There are substantial shares of common stock eligible for future sale, and
sales of shares of our common stock may depress our stock price

   Upon completion of the offering, we will have approximately
shares of common stock outstanding and            shares outstanding if we
issue shares upon exercise of the underwriters' over-allotment option. All of
these shares will be freely tradable without restriction or further
registration under the federal securities laws, except for shares purchased in
this offering by or held by our affiliates, as that term is defined in Rule 144
of the Securities Act of 1933.

   Our stockholders are generally limited by lock-up agreements restricting
their ability to sell shares of our common stock. Under these agreements, these
security holders cannot sell or otherwise dispose of any shares of our common
stock for a period of at least 180 days after the date of this prospectus
without the prior written consent of Credit Suisse First Boston. When these
lock-up agreements expire, these shares will be eligible for sale without
restriction, provided that shares held by our affiliates may not be sold in the
public market without registration under the Securities Act or in compliance
with an applicable exemption from registration as provided in Rule 144 or 701
under the Securities Act.

   In addition, as of August 31, 1999 there were outstanding options to
purchase 21,996,978 shares of our common stock. Our option holders are also
subject to lock-up agreements restricting their ability to sell shares of our
common stock underlying the options. Under these agreements, these security
holders cannot sell or otherwise dispose of any shares of our common stock for
a period of at least 180 days after the date of this prospectus without the
written consent of Credit Suisse First Boston. When these lock-up agreements
expire, the shares underlying the options will be eligible for sale in
accordance with their vesting schedules and in compliance with an applicable
exemption as provided in Rule 144 or Rule 701 of the Securities Act.

   Furthermore, some of our stockholders, which hold approximately 75,463,729
shares of common stock, have been granted registration rights with respect to
their shares of common stock. In connection with any registered offering, such
shareholders have agreed not to transfer any shares, or any other securities
convertible into or exercisable into shares, for a period of up to 180 days
from the date of such offering, provided that we and our officers and directors
will also be bound by a similar agreement. In the event of a public offering of
shares, the sale of a substantial number of shares, particularly by our
directors and officers, or the perception that this sale could occur, could
have an adverse effect on the price of our common stock.

                                       22
<PAGE>

We may need to raise additional capital in the future, and if we are unable to
secure adequate funds on terms acceptable to us, we may be unable to execute
our business plan

   We expect the net proceeds from this offering, our current cash and cash
equivalents and cash from commercial borrowing availability under our credit
facility will meet our working capital and capital expenditure needs for at
least the next twelve months. If the proceeds of this offering, together with
our existing cash balances and cash flow expected from future operations, are
not sufficient to meet our liquidity needs, we will need to raise additional
funds. If adequate funds are not available on acceptable terms or at all, we
may not be able to take advantage of market opportunities, to develop new
products or to otherwise respond to competitive pressures. This inability would
harm our business. In addition, we expect from time to time to review potential
acquisitions that would complement our existing product offerings or enhance
our technical capabilities. While we have no current agreements or negotiations
underway with respect to any potential acquisition, any future transaction of
this nature could require potentially significant amounts of capital. Funds may
not be available at the time or times needed, or available on terms acceptable
to us.

   Further, if we issue equity securities, the ownership percentage of our
stockholders would be reduced, and the new equity securities may have rights,
preferences or privileges senior to those of existing holders of our common
stock. If we cannot raise needed funds on acceptable terms, we may not be able
to develop or enhance our products, take advantage of future opportunities or
respond to competitive pressures or unanticipated requirements, which could
seriously harm our business, operating results and financial condition.

                                       23
<PAGE>

               SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

   This prospectus, including the sections entitled "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," contains forward-looking statements
within the meaning of the federal securities laws. These statements relate to
future events or our future financial performance, and involve known and
unknown risks, uncertainties, and other factors that may cause our actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. These
risks and other factors include, among other things, those listed under "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well as elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "should," "expects," "intends," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential" or "continue," or the negative
of these terms or other comparable terminology. These statements are only
predictions and may be inaccurate. Actual events or results may differ
materially. In evaluating these statements, you should specifically consider
various factors, including the risks outlined under "Risk Factors." These
factors may cause our actual results to differ materially from any forward-
looking statement.

   Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results.

                                USE OF PROCEEDS

   Our net proceeds from the sale of the          of common stock offered by us
are estimated to be approximately $        , based on an assumed initial public
offering price per share of $        , and after deducting estimated
underwriting discounts and commissions and offering expenses payable by us. If
the underwriters exercise the over-allotment option in full, our net proceeds
are estimated to be $        . See "Underwriting."

   We intend to use the net proceeds of this offering primarily for working
capital and general corporate purposes, including expenditures for research and
development of new products and sales and marketing efforts. In addition, we
may use a portion of the net proceeds to acquire complementary products,
technologies or businesses; however, we currently have no commitments or
agreements and are not involved in any negotiations to do so. Pending use of
the net proceeds of this offering, we intend to invest the net proceeds in
interest-bearing, investment-grade securities.

                                DIVIDEND POLICY

   We have never declared nor paid any 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 dividends on our
capital stock in the foreseeable future. Additionally, our line of credit
currently prohibits the payment of dividends.

                                       24
<PAGE>

                                 CAPITALIZATION

   The table below sets forth the following information:

  .  our capitalization as of June 30, 1999, after giving effect to the
     cancellation of all of the outstanding ordinary and preference shares of
     Virata Limited, the issuance of new ordinary shares of Virata Limited to
     Virata Corporation and the issuance of shares of common stock of Virata
     Corporation to the former shareholders of Virata Limited;

  .  our capitalization as of June 30, 1999, after giving pro forma effect to
     a      for 1 reverse stock split of our common stock immediately prior
     to the consummation of this offering.

  .  our pro forma capitalization as of June 30, 1999, as adjusted to give
     effect to the sale of                 shares of common stock offered in
     this offering at an assumed offering price of $       per share, after
     deducting underwriting discounts and commissions and estimated offering
     expenses.

   The capitalization information in the table below is qualified by the more
detailed consolidated financial statements and related notes beginning on page
F-1 of this prospectus. The table should be read in conjunction with those
consolidated financial statements and related notes and the sections of this
prospectus titled "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
                                                     As of June 30, 1999
                                                --------------------------------
                                                                      Pro Forma
                                                 Actual   Pro Forma  As Adjusted
                                                --------  ---------  -----------
                                                  (in thousands, except per
                                                          share data)
                                                         (unaudited)
<S>                                             <C>       <C>        <C>
Capital lease obligations, long-term........... $    995  $    995      $995

Stockholders' equity (deficit):
  Common Stock, $0.02 par value per share,
   95,000,000 shares authorized; 13,348,644
   shares issued and outstanding actual;
          shares issued and outstanding pro
   forma;        shares issued and outstanding
   pro forma as adjusted.......................      211       --        --
  Convertible Preferred Stock, $0.02 par value
   per share, 86,100,000 shares authorized;
   51,431,179 shares issued and outstanding
   actual, no shares issued and outstanding pro
   forma and pro forma as adjusted.............      811       --        --
Additional paid-in capital.....................   63,611    63,611
Accumulated other comprehensive income loss....      (47)      (47)
Unearned stock compensation....................   (1,332)   (1,332)
Accumulated deficit............................  (53,643)  (53,643)
                                                --------  --------      ----
    Total stockholders' equity.................    9,611     9,611
                                                --------  --------      ----
      Total Capitalization..................... $ 10,606  $ 10,606      $
                                                ========  ========      ====
</TABLE>

                                       25
<PAGE>

   The common stock outstanding after this offering is based on the number of
shares outstanding on June 30, 1999, after giving effect to:

  .  the cancellation of all of the outstanding ordinary and preference
     shares of Virata Limited, the issuance of new ordinary shares of Virata
     Limited to Virata Corporation and the issuance of shares of common stock
     of Virata Corporation to the former shareholders of Virata Limited; and

  .  a      for 1 reverse stock split of our common stock.

These transactions will take place immediately prior to the consummation of
this offering and, except for the reverse stock split, will be effected
pursuant to a share reconstruction under Section 425 of the United Kingdom
Companies Act of 1985. Any securities that are convertible or exercisable into
ordinary shares or preference shares of Virata Limited will become convertible
or exercisable into shares of our common stock upon consummation of the share
reconstruction.

   The common stock outstanding after this offering excludes 22,442,583 shares
of our common stock which may be issued upon exercise of currently outstanding
stock options and warrants outstanding as of June 30, 1999, with a weighted
average exercise price of $0.66 per share; and               shares of common
stock reserved for issuance under our stock plans. See "Management--Director
Compensation", "--Employee Stock Option Plan" and "--Employee Stock Purchase
Plan" and "Description of Capital Stock."

                                       26
<PAGE>

                                    DILUTION

   As of June 30, 1999, our pro forma net tangible book value was approximately
$6.5 million, or $   per share of our common stock. Pro forma net tangible book
value per share represents the amount of our total tangible assets less total
liabilities, divided by the number of shares of our common stock outstanding.
Dilution in net tangible book value per share represents the difference between
the amount per share of common stock paid by purchasers of common stock in this
offering and the net tangible book value per share of common stock immediately
after this offering. Our pro forma net tangible book value as of June 30, 1999
is calculated after giving effect to:

  .  the cancellation of all of the outstanding ordinary and preference
     shares of Virata Limited, the issuance of new ordinary shares of Virata
     Limited to Virata Corporation and the issuance of shares of common stock
     of Virata Corporation to the former shareholders of Virata Limited; and

  .  a      for 1 reverse stock split of our common stock.

   Our pro forma as adjusted net tangible book value as of June 30, 1999 was
approximately     million, or    per share of our common stock, after giving
effect to the receipt of the net proceeds from the sale of the
shares of common stock offered by us, assuming an initial public offering price
of $           per share and after deducting the estimated underwriting
discounts and commissions and estimated offering expenses.

   This amount represents an immediate increase in pro forma net tangible book
value of $            per share to the existing stockholders and an immediate
dilution of $            per share to purchasers of common stock in the
offering. The following table illustrates this per share dilution.

<TABLE>
<S>                                                                 <C>   <C>
Assumed initial public offering price per share....................       $
  Pro forma net tangible book value per share as of June 30, 1999.. $
  Increase in net tangible book value per share attributable to new
   investors.......................................................
                                                                    -----
Pro forma as adjusted net tangible book value per share after the
 offering..........................................................
                                                                          -----
Dilution in net tangible book value per share to new investors.....       $
                                                                          =====
</TABLE>

   The following table summarizes, as of June 30, 1999, the difference between
the number of shares of common stock purchased from us, the total consideration
paid and the average price per share paid by existing stockholders and to be
paid by new investors purchasing shares of common stock in this offering,
before deducting the underwriting discounts and commissions and estimated
expenses payable by us, at an assumed initial public offering price of $
per share.

<TABLE>
<CAPTION>
                                            Shares          Total
                                          Purchased     Consideration   Average
                                        -------------- ---------------   Price
                                        Number Percent Amount  Percent Per Share
                                        ------ ------- ------- ------- ---------
                                         (in thousands, except percentages and
                                                    per share data)
<S>                                     <C>    <C>     <C>     <C>     <C>
Existing stockholders.................. 90,611     %   $61,242      %    $0.68
New investors..........................
                                        ------   ---   -------  ----
  Total................................          100%           $100%
                                        ======   ===   =======  ====
</TABLE>

   The foregoing computations are based on the number of shares of common stock
outstanding on June 30, 1999, after giving effect to:

  .  the cancellation of all of the outstanding ordinary and preference
     shares of Virata Limited, the issuance of new ordinary shares of Virata
     Limited to Virata Corporation and the issuance of shares of common stock
     of Virata Corporation to the former shareholders of Virata Limited; and

  .  a      for 1 reverse stock split of our common stock.

                                       27
<PAGE>

These transactions will take place immediately prior to the consummation of
this offering and, except for the reverse stock split, will be effected
pursuant to a share reconstruction under Section 425 of the United Kingdom
Companies Act of 1985. Any securities that are convertible or exercisable into
ordinary shares or preference shares of Virata Limited will become convertible
or exercisable into shares of our common stock upon consummation of the share
reconstruction.

   The common stock outstanding after this offering excludes 22,442,583 shares
which may be issued upon exercise of currently outstanding stock options and
warrants outstanding as of June 30, 1999, with a weighted average exercise
price of $0.66 per share; and          shares of common stock reserved for
issuance under our stock plans. See "Capitalization," "Management--Director
Compensation", "--Employee Stock Option Plan" and "--Employee Stock Purchase
Plan" and "Description of Capital Stock."

                                       28
<PAGE>

                      SELECTED CONSOLIDATED FINANCIAL DATA

   The following selected consolidated financial data should be read with the
consolidated financial statements and related notes beginning on page F-1 of
this prospectus and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on page 31 of this prospectus.
The selected consolidated statement of operations data for each of the three
fiscal years ended March 31, 1997, 1998 and 1999 and selected consolidated
balance sheet data as of March 31, 1998 and 1999 are derived from, and
qualified by reference to, the audited consolidated financial statements
included elsewhere in this prospectus. The selected consolidated statement of
operations data for each of the two fiscal years ended March 31, 1995 and 1996
and selected consolidated balance sheet data as of March 31, 1995, 1996 and
1997 are derived from audited financial statements not included in this
prospectus. Information for the fiscal year ended March 31, 1999 includes the
results of operations for RSA Communications, Inc. only since July 17, 1998,
the closing date of the acquisition. For information showing our unaudited pro
forma results of operations including RSA Communications, Inc. for the fiscal
year ended March 31, 1999, see Virata Corporation Pro Forma Combined Financial
Information on page F-33.

   The selected consolidated statement of operations data for the three months
ended June 30, 1998 and 1999 and the selected consolidated balance sheet data
as of June 30, 1999 are derived from unaudited consolidated financial
statements included elsewhere in this prospectus. The unaudited consolidated
financial statements have been prepared by us on a basis consistent with our
audited consolidated financial statements and, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of our results of operations and financial
position as of and for those periods.

<TABLE>
<CAPTION>
                                                                          Three Months
                                    Year Ended March 31,                 Ended June 30,
                          ---------------------------------------------  ----------------
                           1995     1996     1997      1998      1999     1998     1999
                          -------  -------  -------  --------  --------  -------  -------
                                                                           (unaudited)
                                    (in thousands, except per share data)
<S>                       <C>      <C>      <C>      <C>       <C>       <C>      <C>
Consolidated Statement
 of Operations Data:
Revenues:
 Semiconductors.........  $    --  $    --  $    --  $    505  $  2,784  $   675  $ 1,419
 License................       --       85      971     1,570     1,628      994      274
 Services and royalty...      226      333    1,134     1,206     2,367      341      373
 Systems................       --    2,424    4,848     5,650     2,477      754      599
                          -------  -------  -------  --------  --------  -------  -------
   Total revenues.......      226    2,842    6,953     8,931     9,256    2,764    2,665
                          -------  -------  -------  --------  --------  -------  -------
Cost of revenues:
 Semiconductors.........       --       --       --       325     2,421      419      811
 License................       --       --       --        --        --       --       --
 Services and royalty
  ......................      100       55      185       192       528       55      138
 Systems................       --    1,854    3,754     3,270     1,048      444      324
                          -------  -------  -------  --------  --------  -------  -------
   Total cost of
    revenues............      100    1,909    3,939     3,787     3,997      918    1,273
                          -------  -------  -------  --------  --------  -------  -------
   Gross profit.........      126      933    3,014     5,144     5,259    1,846    1,392
Operating expenses:
 Research and
  development...........    3,587    4,402    3,518     3,987     8,323    1,202    2,549
 Sales and marketing....      365    4,037    4,753     4,076     2,917      532      923
 General and
  administrative........    1,278    2,096    3,410     4,917     5,567      759      903
 Restructuring costs....       --       --       --     1,871        --       --       --
 Amortization of
  intangible assets.....       --       --       --        --       549       --      194
 Amortization of stock
  compensation..........       --       --       --       399     1,394      306      266
 Acquired in-process
  research and
  development...........       --       --       --        --     5,260       --       --
                          -------  -------  -------  --------  --------  -------  -------
   Total operating
    expenses............    5,230   10,535   11,681    15,250    24,010    2,799    4,835
                          -------  -------  -------  --------  --------  -------  -------
Loss from operations....   (5,104)  (9,602)  (8,667)  (10,106)  (18,751)    (953)  (3,443)
Interest and other
 income (expense), net..        4      264      127      (172)    1,594       10      428
                          -------  -------  -------  --------  --------  -------  -------
Net loss................  $(5,100) $(9,338) $(8,540) $(10,278) $(17,157) $  (943) $(3,015)
                          =======  =======  =======  ========  ========  =======  =======
Net loss per share:
 Basic and diluted......  $ (0.48) $ (0.49) $ (0.80) $  (0.90) $  (1.33) $ (0.08) $ (0.23)
                          =======  =======  =======  ========  ========  =======  =======
 Weighted average
  shares................   10,669   19,140   10,676    11,482    12,881   11,765   13,346
                          =======  =======  =======  ========  ========  =======  =======
Pro forma net loss per
 share:
 Basic and diluted......                                       $  (0.21)          $ (0.04)
                                                               ========           =======
 Weighted average
  shares................                                         80,900            84,646
                                                               ========           =======
</TABLE>

                                       29
<PAGE>

<TABLE>
<CAPTION>
                                        March 31,
                          ----------------------------------------  June 30,
                           1995     1996   1997    1998     1999      1999
                          -------  ------ ------- -------  ------- -----------
                                                                   (unaudited)
                                            (in thousands)
<S>                       <C>      <C>    <C>     <C>      <C>     <C>
Consolidated Balance
 Sheet Data:
Cash and cash
 equivalents............. $   451  $1,315 $ 3,752 $   767  $ 8,616   $ 6,509
Working capital..........  (3,206)    451   6,346  (3,653)   8,042     5,180
Total assets.............   2,086   4,422  12,066   5,950   19,183    16,311
Total long term
 liabilities.............      --      48     875     738    1,130       995
Total stockholders'
 equity (deficit)........  (2,129)  1,850   6,857  (3,085)  12,715     9,611
</TABLE>

                                       30
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   This section of this prospectus 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 prospectus.
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
prospectus. See "Special Note Regarding Forward-Looking Statements."

Overview

   We were incorporated in June 1993 in Cambridge, England, as a spin-out from
the Olivetti Research Laboratory (now AT&T Laboratories). Until 1995, we were a
development stage company focused primarily on product development. From first
production revenue shipment in April 1995 through March 1996, we focused on
developing and delivering ATM-based, board-level systems primarily for local
area network applications. In mid 1996, we began licensing our software suite
and selling our semiconductors to developers of broadband access products. In
September 1997, we ceased development of our systems products and focused
exclusively on expanding our software offering and developing additional
semiconductors for the broadband marketplace with a focus on the DSL market. We
recently moved our corporate headquarters from Cambridge, England to Santa
Clara, California.

   We generate revenues from sales of semiconductors, systems-level products,
software licenses, maintenance, royalties and related design services.
Semiconductor revenues have come from two sources, our Proton family of ASIC
products and our ATOM family of ASSPs. An equipment manufacturer, or OEM,
licenses 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 systems-level products primarily to one customer, and we expect sales of
these products to decline. We sell our products through a direct sales force,
which we believe most effectively allows us to serve our customers. We also
utilize a sales representative in Taiwan.

   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. We recognize software license revenues under Statement of
Position, or 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, we account 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 that we grant our customers the right to
specified upgrades, license revenue is deferred until delivery of the specific
upgrade. If vendor-specific objective evidence of fair value does not exist,
then the entire license fee is deferred until the delivery of the specified
upgrade. We recognize revenues from maintenance and support services provided
to licensees ratably over the term of the agreement, generally one year, and
recognize revenues from design services provided to OEMs as the services are
performed.

   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.

                                       31
<PAGE>

   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 product for
the G.lite market, and we are just beginning to work with potential customers
for this product. Our future success will depend, in part, on our successful
entry into the G.lite market. However, we do not expect to know whether we will
realize significant commercial shipments of Beryllium until the second half of
2000.

   Our revenues to date have been concentrated with a small number of
customers. We expect this concentration to continue for the foreseeable future.
For the fiscal year ended March 31, 1999, Com21 and Orckit Communications
accounted for 22.6% and 15.7%, respectively, of our total revenues. For the
three months ended June 30, 1999, Orckit Communications, Com21 and Netopia
accounted for 39.8%, 17.2% and 10.2%, respectively, of our total revenues.

   International revenues accounted for 44.2% of total revenues for the fiscal
year ended March 31, 1998 and 40.3% for the fiscal year ended March 31, 1999.
International revenues are denominated solely 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 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 split between U.S. dollars and British pounds
sterling.

   Our gross margin has fluctuated significantly due primarily to product mix.
For the fiscal year ended March 31, 1999, our semiconductor gross margin was
13.0%, our license gross margin was 100.0%, our services and royalty gross
margin was 77.7% and our systems gross margin was 57.7%. We believe our gross
margin may continue to fluctuate because we expect semiconductors to be a
greater percentage of total revenues and 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 three locations: Cambridge, England; Raleigh, North Carolina; and Santa
Clara, California. We believe that our strategy of locating research and
development in Cambridge and Raleigh 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. A restructuring plan was
implemented in the second half of fiscal 1998 which resulted in one-time
charges of $1.9 million for the year ended March 31, 1998. Approximately
$900,000 of the restructuring charge represents employee costs, $900,000
represents asset write-downs and $71,000 relates to other restructuring costs.
We continue to sell our systems products to one principal customer and systems
revenues for the three months ended June 30, 1999 were $599,000.

                                       32
<PAGE>

   To extend our analog and DSL technical capabilities, in July 1998 we
acquired RSA Communications, a privately-held company based in Raleigh, North
Carolina specializing in analog modem software development. Financial
information for the fiscal year ended March 31, 1999 includes the results of
operations for RSA Communications beginning July 17, 1998, the closing date of
the acquisition. The transaction was accounted for as a purchase business
combination, under the purchase method of accounting. The aggregate purchase
price is required to be allocated to the tangible and identifiable intangible
assets acquired and liabilities assumed on the basis of their fair values on
the acquisition date. Based on a valuation by an independent appraiser, $5.3
million of the $9.3 million purchase price was allocated to in-process research
and development. The valuation was determined using the income-based approach
for modem chips and replacement cost method for software algorithms. The
acquired in-process technology was not considered to have reached technological
feasibility and had no alternative future use. Accordingly, the amount was
charged to operations upon acquisition. For more information on the valuation
of the acquired in-process research and development, see note 4 of notes to
consolidated financial statements. For information showing our unaudited
pro forma results of operations including RSA Communications for the fiscal
year ended March 31, 1999, see Virata Corporation Pro Forma Combined Financial
Information on page F-33.

   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 June 30, 1999, we
had an accumulated deficit of $53.6 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.

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>
                                                              Three Months
                                  Year Ended March 31,       Ended June 30,
                                  ------------------------   ----------------
                                   1997     1998     1999     1998     1999
                                  ------   ------   ------   -------  -------
                                                               (unaudited)
<S>                               <C>      <C>      <C>      <C>      <C>
Consolidated Statement of
 Operations Data as a Percentage
 of Total Revenues
Revenues:
 Semiconductors.................     --  %    5.7%    30.1%    24.4%     53.2%
 License........................    14.0     17.6     17.6     36.0      10.3
 Services and royalty...........    16.3     13.4     25.5     12.3      14.0
 Systems........................    69.7     63.3     26.8     27.3      22.5
                                  ------   ------   ------   ------   -------
   Total revenues...............   100.0    100.0    100.0    100.0     100.0
                                  ------   ------   ------   ------   -------
Cost of revenues:
 Semiconductors.................     --       3.6     26.2     15.1      30.4
 License........................     --       --       --       --        --
 Services and royalty...........     2.7      2.2      5.7      2.0       5.2
 Systems........................    54.0     36.6     11.3     16.1      12.1
                                  ------   ------   ------   ------   -------
   Total cost of revenues.......    56.7     42.4     43.2     33.2      47.7
                                  ------   ------   ------   ------   -------
Gross profit....................    43.3     57.6     56.8     66.8      52.3
Operating expenses:
 Research and development.......    50.6     44.6     89.9     43.5      95.7
 Sales and marketing............    68.4     45.6     31.5     19.2      34.6
 General and administrative.....    49.0     55.1     60.2     27.5      33.9
 Restructuring costs............     --      20.9      --       --        --
 Amortization of intangible
  assets........................     --       --       5.9      --        7.2
 Amortization of stock
  compensation..................     --       4.5     15.1     11.1      10.0
 Acquired in-process research
  and development...............     --       --      56.8      --        --
                                  ------   ------   ------   ------   -------
   Total operating expenses.....   168.0    170.7    259.4    101.3     181.4
                                  ------   ------   ------   ------   -------
Loss from operations............  (124.7)  (113.1)  (202.6)   (34.5)   (129.1)
Interest and other income
 (expense), net.................     1.9     (2.0)    17.2      0.4      16.0
                                  ------   ------   ------   ------   -------
Net loss........................  (122.8)% (115.1)% (185.4)%  (34.1)%  (113.1)%
                                  ======   ======   ======   ======   =======
</TABLE>

                                       33
<PAGE>

Three Months Ended June 30, 1998 and 1999

  Total Revenues

   Total revenues decreased 3.6% from $2.8 million for the three months ended
June 30, 1998 to $2.7 million for the three months ended June 30, 1999. While
total revenues were largely unchanged, semiconductor revenues increased while
license and systems revenues decreased significantly.

   Semiconductor revenues increased 110.2% from $675,000 for the three months
ended June 30, 1998 to $1.4 million for the three months ended June 30, 1999.
The increase in semiconductor revenues, from 24.4% of total revenues for the
three months ended June 30, 1998 to 53.2% of total revenues for the three
months ended June 30, 1999, was due primarily to a substantial increase in
shipments of semiconductors to Orckit Communications. Sales to this customer
totaled $1.0 million in the three months ended June 30, 1999.

   License revenues decreased 72.4% from $994,000 for the three months ended
June 30, 1998 to $274,000 for the three months ended June 30, 1999. The
decrease in services and royalty revenues, from 36.0% of total revenues for the
three months ended June 30, 1998 to 10.3% of total revenues for the three
months ended June 30, 1999, was largely due to a decrease in the average
selling price for software licenses.

   Services and royalty revenues increased 9.5% from $341,000 for the three
months ended June 30, 1998 to $373,000 for the three months ended June 30,
1999. The increase in services and royalty revenues, from 12.3% of total
revenues for the three months ended June 30, 1998 to 14.0% of total revenues
for the three months ended June 30, 1999, was due primarily to the introduction
of our design and consulting services, offset by a decrease in royalty
revenues.

   Systems revenues decreased 20.6% from $754,000 for the three months ended
June 30, 1998 to $599,000 for the three months ended June 30, 1999. The
decrease in systems revenues, from 27.3% of total revenues for the three months
ended June 30, 1998 to 22.5% of total revenues for the three months ended June
30, 1999, was the result of our decision in September 1997 to focus our efforts
on semiconductor sales.

  Cost of Revenues and Gross Margin

   Total cost of revenues consists primarily of semiconductor costs paid to
foundry vendors, costs attributable to design services and software maintenance
and operations expense including miscellaneous cost of revenues. Total cost of
revenues increased 38.6% from $918,000 for the three months ended June 30, 1998
to $1.3 million for the three months ended June 30, 1999. The increase in total
cost of revenues, from 33.2% of total revenues for the three months ended June
30, 1998 to 47.7% of total revenues for the three months ended June 30, 1999,
was primarily due to the increase in cost associated with higher semiconductor
unit sales. License revenues decreased 72.4% from $994,000 for the three months
ended June 30, 1998 to $274,000 for the three months ended June 30, 1999. The
decrease negatively impacted gross margin.

   Semiconductor cost of revenues increased 93.3% from $419,000 for the three
months ended June 30, 1998 to $811,000 for the three months ended June 30,
1999. The increase in semiconductor gross margin, from 37.8% for the three
months ended June 30, 1998 to 42.8% for the three months ended June 30, 1999,
was primarily due to an increase in sales volume during the three months ended
June 30, 1999.

   There are no costs of revenues associated with our software license
revenues.

   Services and royalty cost of revenues increased 152.8% from $55,000 for the
three months ended June 30, 1998 to $138,000 for the three months ended June
30, 1999. The decrease in gross margin associated with services and royalty
revenues, from 83.8% for the three months ended June 30, 1998 to 63.1% for the
three months ended June 30, 1999, was primarily the result of costs incurred
for design services and expenses associated with royalty revenues.

                                       34
<PAGE>

   Systems cost of revenues decreased 27.2% from $444,000 for the three months
ended June 30, 1998 to $324,000 for the three months ended June 30, 1999. The
increase in systems gross margin, from 41.1% for the three months ended June
30, 1998 to 46.0% for the three months ended June 30, 1999, was primarily due
to a decrease in the level of operations support for systems products.

  Research and Development Expenses

   Research and development expenses consist primarily of engineering staffing
costs and technology license fees. Research and development expenses increased
112.1% from $1.2 million, or 43.5% of total revenues, for the three months
ended June 30, 1998 to $2.5 million, or 95.7% of total revenues, for the three
months ended June 30, 1999. The increase was primarily due to the addition of
research and development personnel, which grew from 43 to 79 engineers as a
result of the acquisition of RSA Communications and accelerated new product
development. In comparison to the previous period, the number of new products
under development increased substantially. We expect research and development
expenses to increase in absolute dollar amounts in future periods as we further
expand our research and development organization and acquire additional
intellectual property for inclusion in semiconductor device designs.

  Sales and Marketing Expenses

   Sales and marketing expenses consist primarily of employee salaries, sales
commissions, travel and related costs for sales and marketing personnel,
promotional materials and trade show expenses. Sales and marketing expenses
increased 73.5% from $532,000, or 19.2% of total revenues, for the three months
ended June 30, 1998 to $923,000, or 34.6% of total revenues, for the three
months ended June 30, 1999. The increase was primarily due to the addition of
sales and marketing personnel and increased marketing activity. We expect sales
and marketing expenses to increase in absolute dollar amounts in future periods
as sales and marketing activities increase.

  General and Administrative Expenses

   General and administrative expenses consist primarily of employee salaries
and related expenses for executive, accounting, legal and administrative
personnel, and costs associated with facilities, professional service fees and
other general corporate expenses. General and administrative expenses increased
18.9% from $759,000, or 27.5% of total revenues, for the three months ended
June 30, 1998 to $903,000, or 33.9% of total revenues, for the three months
ended June 30, 1999. The increase was primarily due to the addition of
executive, accounting and administrative personnel. In addition, bad debt
provisions increased from $26,000 for the three months ended June 30, 1998 to
$87,000 for the three months ended June 30, 1999. We expect general and
administrative expenses to increase in absolute dollar amounts as we further
invest in infrastructure and incur additional expenses related to the
anticipated growth of our business and operation as a publicly held company.

  Goodwill Amortization Expense

   Goodwill amortization expense is related to the acquisition of RSA
Communications, which occurred in July 1998. For the three months ended June
30, 1999, goodwill amortization expense was $194,000. We are amortizing the
goodwill on a straight-line basis over 60 months beginning in the quarter ended
September 30, 1998.

  Amortization of Stock Compensation

   Through June 30, 1999, we had recorded a total of $3.4 million of unearned
stock compensation. We recognized amortization of stock compensation of
$306,000 for the three months ended June 30, 1998 and $266,000 for the three
months ended June 30, 1999.

                                       35
<PAGE>

  Interest and Other Income, Net

   Interest and other income, net consists primarily of interest earned on cash
and cash equivalents and short-term investments, interest expense related to
obligations under capital leases and our bank line of credit and unrecognized
foreign currency translation adjustments. Net interest income increased from
$10,000 for the three months ended June 30, 1998 to $428,000 for the three
months ended June 30, 1999. The increase in interest and other income was
primarily due to additional cash balances as a result of our private placement
financing completed in June 1998 and the elimination of interest expense due to
the repayment of a bank line of credit in May 1998. This increase was partially
offset by an increase in interest expense associated with capital equipment
under our lease facility. In addition, we recorded an income of $30,000 for
unrecognized foreign currency translation for the three months ended June 30,
1998 and income of $386,000 for unrecognized foreign currency translation for
the three months ended June 30, 1999.

  Income Taxes

   Since inception, we have incurred net losses for federal and state tax
purposes and have not recognized any tax provision or benefit.

Fiscal Years Ended March 31, 1997, 1998 and 1999

  Total Revenues

   Total revenues increased 28.5% from $7.0 million for the fiscal year ended
March 31, 1997 to $8.9 million for the fiscal year ended March 31, 1998. Total
revenues increased 3.6% to $9.3 million for the fiscal year ended March 31,
1999.

   No semiconductor revenues were recorded in the fiscal year ended March 31,
1997. Semiconductor revenues increased 451.1% from $505,000 for the fiscal year
ended March 31, 1998 to $2.8 million for the fiscal year ended March 31, 1999.
Semiconductor revenues increased from 5.7% of total revenues for the fiscal
year ended March 31, 1998 to 30.1% of total revenues for the fiscal year ended
March 31, 1999 as a growing number of software licensees began initial trials
and deployments of broadband access devices.

   License revenues increased 61.7% from $971,000 for the fiscal year ended
March 31, 1997 to $1.6 million for the fiscal year ended March 31, 1998. The
increase in license revenues, from 14.0% of total revenue for the fiscal year
ended March 31, 1997 to 17.6% for the fiscal year ended March 31, 1998, was the
result of increased success expanding our software licensee customer base.
License revenues of $1.6 million for the fiscal year ended March 31, 1999 were
substantially the same as the fiscal year ended March 31, 1998. License
revenues were 17.6% of total revenues for both the fiscal year ended March 31,
1998 and 1999.

   Services and royalty revenues increased 6.3% from $1.1 million for the
fiscal year ended March 31, 1997 to $1.2 million for the fiscal year ended
March 31, 1998, but decreased from 16.3% to 13.5% of total revenues. Services
and royalty revenues increased 96.3% to $2.4 million for the fiscal year ended
March 31, 1999 and increased to 25.6% of total revenue. The increase is due
primarily to revenues contributed by Virata Raleigh Corporation under analog
modem consulting engineering agreements.

   Systems revenues for the fiscal year ended March 31, 1997 totaled $4.8
million, or 69.7% of total revenues. Systems revenues increased 16.5% to $5.7
million for the fiscal year ended March 31, 1998. Systems revenues decreased
56.2% to $2.5 million for the fiscal year ended March 31, 1999. The decrease in
systems revenues, from 63.3% of total revenues for the fiscal year ended March
31, 1998 to 26.8% of total revenues for the fiscal year ended March 31, 1999,
was primarily due to our decision in September 1997 to focus our sales and
development efforts on semiconductor devices for the DSL market. During the
fiscal year ended March 31, 1999, sales to Com21 represented 72.4% of systems-
level product revenues.

                                       36
<PAGE>

  Cost of Revenues and Gross Margin

   Total cost of revenues consists primarily of semiconductor costs paid to
foundry vendors, costs attributable to design services and software maintenance
and operations expense including miscellaneous cost of revenues. Total cost of
revenues was $3.9 million, or 56.7% of total revenues, for the fiscal year
ended March 31, 1997. Cost of revenues increased from $3.8 million, or 42.4% of
total revenues, for the fiscal year ended March 31, 1998 to $4.0 million, or
43.2% of total revenues, for the fiscal year ended March 31, 1999.

   No semiconductor revenues or costs were recorded for the fiscal year ended
March 31, 1997. Cost of revenues for semiconductors increased 644.6% from
$325,000 for the fiscal year ended March 31, 1998 to $2.4 million for the
fiscal year ended March 31, 1999. Semiconductor gross margin decreased from
35.6% for the fiscal year ended March 31, 1998 to 13.0% for the fiscal year
ended March 31, 1999 as a result of reduced selling prices for existing
products and product costs and inventory provisions associated with new product
introductions.

   There are no costs of revenues associated with our software license
revenues.

   Services and royalty cost of revenues increased 3.8% from $185,000 for the
fiscal year ended March 31, 1997 to $192,000 for the fiscal year ended March
31, 1998. Cost of revenues for services and royalty revenues increased 174.4%
to $528,000 for the fiscal year ended March 31, 1999. Services and royalty
revenues gross margin increased from 83.7% for the fiscal year ended March 31,
1997 to 84.1% for the fiscal year ended March 31, 1998. Services and royalty
revenues gross margin decreased to 77.7% for the fiscal year ended March 31,
1999 as the result of costs associated with design services revenues and
royalty expenses associated with royalty income.

   Systems cost of revenues decreased 12.9% from $3.8 million for the fiscal
year ended March 31, 1997 to $3.3 million for the fiscal year ended March 31,
1998. For the fiscal year ended March 31, 1999, systems cost of revenues
decreased 68.0% to $1.0 million. Gross margin for systems products improved
from 22.6% for the fiscal year ended March 31, 1997 to 42.1% for the fiscal
year ended March 31, 1998. Systems product gross margin improved further to
57.7% for the fiscal year ended March 31, 1999 as the result of decreased
operations support expenses and a narrower systems product range.

  Research and Development Expenses

   Research and development expenses increased 13.3% from $3.5 million for the
fiscal year ended March 31, 1997 to $4.0 million for the fiscal year ended
March 31, 1998. The increase was attributable primarily to the addition of
personnel in our research and development organization associated with
semiconductor product development. Research and development expenses increased
108.9% to $8.3 million for the fiscal year ended March 31, 1999. The increase
was primarily the result of increased staffing in Cambridge, England, as well
as the addition of personnel as a result of the acquisition of RSA
Communications and continued hiring at our Raleigh, North Carolina facility
following the acquisition.

  Sales and Marketing Expenses

   Sales and marketing expenses decreased 14.2% from $4.8 million for the
fiscal year ended March 31, 1997 to $4.0 million for the fiscal year ended
March 31, 1998. Sales and marketing expenses decreased a further 28.4% to $2.9
million for the fiscal year ended March 31, 1999. The decrease in sales and
marketing expenses in both periods resulted from our reduced emphasis on
systems-level products from September 1997 and increased focus on semiconductor
products. Sales efforts for semiconductors are targeted to fewer customers and
require lower sales and marketing staffing.

                                       37
<PAGE>

  General and Administrative Expenses

   General and administrative expenses increased 44.2% from $3.4 million for
the fiscal year ended March 31, 1997 to $4.9 million for the fiscal year ended
March 31, 1998. The increase was primarily due to a $1.1 million bad debt
provision for the fiscal year ended March 31, 1998. General and administrative
expenses increased 13.2% to $5.6 million for the fiscal year ended March 31,
1999. The increase was primarily due to increased staff performing general and
administrative tasks added as a result of the acquisition of RSA Communications
and increased bad debt provision.

  Restructuring Cost

   We recognized $1.9 million of restructuring cost for the fiscal year ended
March 31, 1998 associated with our reduced emphasis on systems-level products.

  Amortization of Stock Compensation

   During the fiscal years ended March 31, 1998 and 1999, we recorded a total
of $3.3 million of unearned stock compensation. We recognized amortization of
stock compensation of $399,000 for the fiscal year ended March 31, 1998 and
$1.4 million for the fiscal year ended March 31, 1999.

  Interest and Other Income, Net

   Interest and other income, net decreased from income of $127,000 for the
fiscal year ended March 31, 1997 to an expense of $172,000 for the fiscal year
ended March 31, 1998. The decrease in interest and other income was primarily
due to a $276,000 decrease in interest income and a $142,000 increase in
interest expense associated with capital equipment under our lease facility,
partially offset by a $118,000 decrease in unrecognized foreign currency
translation expense. For the fiscal year ended March 31, 1999, net interest and
other income increased to net income of $1.6 million. The increase was
primarily attributable to a $666,000 increase in interest income from
additional cash balances as a result of our private placement financing
completed in June 1998, a $531,000 US federal tax refund and the increase in
unrealized foreign currency translation from an expense of $80,000 in the
fiscal year ended March 31, 1998 to income of $432,000 in the fiscal year ended
March 31, 1999.

  Income Taxes

   Since inception, we have incurred net losses for federal and state tax
purposes and have not recognized any tax provision or benefit. As of March 31,
1998, we had approximately $26.9 million net operating loss carryforwards for
US federal, California and United Kingdom income tax purposes that will begin
to expire in three years.

   As of March 31, 1999, we had deferred tax assets of $14.5 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. We have provided a valuation allowance due to the
uncertainty of generating future profits that would allow for the realization
of these deferred tax assets. Accordingly, no tax benefit was recorded in the
accompanying consolidated statements of operations.

                                       38
<PAGE>

Quarterly Results of Operations

   The following table sets forth our consolidated operating results for each
of the five quarters ended June 30, 1999. 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 prospectus. These operating results are not
necessarily indicative of results of any future period.

<TABLE>
<CAPTION>
                                         Three Months Ended
                             -------------------------------------------------
                             June 30,  Sept 30,   Dec 31,   Mar 31,   June 30,
                               1998      1998      1998      1999       1999
                             --------  --------   -------   -------   --------
                                           (in thousands)
<S>                          <C>       <C>        <C>       <C>       <C>
Revenues:
 Semiconductors.............  $  675   $  1,022   $   425   $   662   $ 1,419
 License....................     994         15       175       444       274
 Services and royalty.......     341        734       700       592       373
 Systems....................     754        586       417       720       599
                              ------   --------   -------   -------   -------
   Total revenues...........   2,764      2,357     1,717     2,418     2,665
                              ------   --------   -------   -------   -------
Cost of revenues:
 Semiconductors.............     419        914       246       842       811
 License....................      --         --        --        --        --
 Services and royalty.......      55        174       138       161       138
 Systems....................     444        257       374       (27)      324
                              ------   --------   -------   -------   -------
   Total cost of revenues...     918      1,345       758       976     1,273
                              ------   --------   -------   -------   -------
Gross profit................   1,846      1,012       959     1,442     1,392
Operating expenses:
 Research and development...   1,202      2,384     2,553     2,184     2,549
 Sales and marketing........     532        849       710       826       923
 General and
  administrative............     759      2,340       965     1,503       903
 Amortization of intangible
  assets....................      --        137       206       206       194
 Amortization of stock
  compensation..............     306        377       363       348       266
 Acquired in-process
  research and
  development...............      --      5,260        --        --        --
                              ------   --------   -------   -------   -------
   Total operating
    expenses................   2,799     11,347     4,797     5,067     4,835
                              ------   --------   -------   -------   -------
Loss from operations........    (953)   (10,335)   (3,838)   (3,625)   (3,443)
Interest and other income
 (expense), net.............      10       (417)      648     1,353       428
                              ------   --------   -------   -------   -------
Net loss....................  $ (943)  $(10,752)  $(3,190)  $(2,272)  $(3,015)
                              ======   ========   =======   =======   =======
As a Percentage of Total
 Revenues
Revenues:
 Semiconductors.............    24.4%      43.4%     24.7%     27.4%     53.2%
 License....................    36.0        0.6      10.2      18.3      10.3
 Services and royalty.......    12.3       31.1      40.8      24.5      14.0
 Systems....................    27.3       24.9      24.3      29.8      22.5
                              ------   --------   -------   -------   -------
   Total revenues...........   100.0      100.0     100.0     100.0     100.0
                              ------   --------   -------   -------   -------
Cost of revenues:
 Semiconductors.............    15.1       38.8      14.3      34.8      30.4
 License....................      --         --        --        --        --
 Services and royalty.......     2.0        7.4       8.0       6.6       5.2
 Systems....................    16.1       10.9      21.8      (1.1)     12.1
                              ------   --------   -------   -------   -------
   Total cost of revenues...    33.2       57.1      44.1      40.3      47.7
                              ------   --------   -------   -------   -------
Gross profit................    66.8       42.9      55.9      59.7      52.3
Operating expenses:
 Research and development...    43.5      101.1     148.7      90.3      95.7
 Sales and marketing........    19.2       36.0      41.4      34.2      34.6
 General and
  administrative............    27.5       99.3      56.2      62.2      33.9
 Amortization of intangible
  assets....................      --        5.8      12.0       8.5       7.2
 Amortization of stock
  compensation..............    11.1       16.0      21.1      14.4      10.0
 Acquired in-process
  research and
  development...............      --      223.2        --        --        --
                              ------   --------   -------   -------   -------
   Total operating
    expenses................   101.3      481.4     279.4     209.6     181.4
                              ------   --------   -------   -------   -------
Loss from operations........   (34.5)    (438.5)   (223.5)   (149.9)   (129.1)
Interest and other income
 (expense), net.............     0.4      (17.7)     37.7      56.0      16.0
                              ------   --------   -------   -------   -------
Net loss....................   (34.1)%   (456.2)%  (185.8)%   (93.9)%  (113.1)%
                              ======   ========   =======   =======   =======
</TABLE>


                                       39
<PAGE>

   Semiconductor revenues increased 51.4% to $1.0 million for the three months
ended September 30, 1998 as compared to the prior three-month period.
Semiconductor revenues decreased 58.4% to $425,000 for the three months ended
December 31, 1998 as compared to the prior three-month period. This increase
followed by a decrease was due to the timing of shipments to one customer.

   Our software license revenues have fluctuated during the last five quarters
ended June 30, 1999. Because of the limited number of licenses signed during
any three-month period, small changes in the number of licenses sold caused
significant changes in quarterly license revenues. During the three months
ended June 30, 1998, we adopted SOP 97-2, which affected the periods in which
license revenues were recognized. In addition, we substantially reduced the
average selling price for our licenses, which contributed to the increase in
the number of licenses sold and also contributed to the fluctuations in
quarterly license revenues.

   Services and royalty revenues increased 115.4% from $341,000 for the three
months ended June 30, 1998 to $734,000 for the three months ended September 30,
1998. The increase was due primarily to the acquisition of RSA Communications
in July 1998. Services and royalty revenues have subsequently declined each
quarter following the three months ended September 30, 1998 reflecting our
decision to offer consulting services only to companies that sign a software
license agreement.

   Research and development expenditures increased 98.4% from $1.2 million for
the three months ended June 30, 1998 to $2.4 million for the three months ended
September 30, 1998. The increase was primarily due to our acquisition of RSA
Communications, which added 17 engineers to our staff, and accelerated product
development.

   General and administrative expenses increased 208.3% to $2.3 million in the
three months ended September 30, 1998 as compared to the prior three-month
period. General and administrative expenses decreased 58.8% to $965,000 in the
three months ended December 31, 1998 as compared to the prior three-month
period. The increase followed by a decrease was principally due to bad debt
expense arising primarily from two customers. The first bad debt expense
related to a systems-level product customer, which purchased substantially all
of our remaining adapter card products. The customer subsequently went out of
business. The second bad debt expense related to Hayes Microcomputer's decision
to file for bankruptcy. We have adopted credit policies that we believe will
limit future customer non-payments. However, we can not offer any assurances
regarding the effectiveness of these policies or of our ability in general to
limit customer non-payments.

   Our operating results have fluctuated significantly from quarter to quarter
in the past, and we expect these fluctuations to continue in the future. For a
list of factors that might affect fluctuations in our operating results, see
"Risk Factors--Our operating results in one or more future periods are likely
to fluctuate significantly and may fail to meet or exceed the expectations of
securities analysts or investors, which may cause our stock price to decline."
We believe period to period comparisons of our operating results are not
meaningful. You should not rely on our quarterly operating results to predict
our future performance.

Liquidity and Capital Resources

   Since inception, we have financed our operations primarily through venture
capital and corporate investments in our convertible preferred stock, which
total $66.1 million in aggregate net proceeds through June 30, 1999. We have
also financed our operations through equipment lease financing, which totaled
$1.9 million in principal amount outstanding at June 30, 1999.

   As of June 30, 1999, we had $6.5 million of cash and cash equivalents,
working capital of $5.2 million and $1.9 million under an equipment lease.

   Net cash used in operating activities for the fiscal year ended March 31,
1997 of $7.0 million was primarily due to net operating losses of $8.5 million
and an increase in accounts receivable of $797,000, offset

                                       40
<PAGE>

by increases in accounts payable and accrued liabilities of $1.0 million and
$818,000, respectively. Cash used in operating activities for the fiscal year
ended March 31, 1998 of $9.3 million was primarily due to net operating losses
of $10.3 million and an increase in accounts receivable of $1.7 million, offset
by a provision for doubtful accounts of $1.1 million. Cash used in operating
activities for the fiscal year ended March 31, 1999 of $9.6 million was
primarily due to net operating losses of $17.2 million and a decrease in
accounts payable of $1.2 million, offset by a write off of in-process research
and development of $5.2 million, amortization of stock compensation of $1.6
million and a provision for doubtful accounts of $1.5 million.

   Net cash used in operating activities for the three months ended June 30,
1998 of $759,000 was due primarily to net operating losses of $943,000 and
decreases in accounts payable of $668,000, offset by decreases in other current
assets of $579,000. Cash used in operating activities for the three months
ended June 30, 1999 of $2.4 million was due primarily to net operating losses
of $3.1 million and increases in current assets of $624,000, offset by
increases in accrued liabilities of $485,000.

   Net cash used for investing activities was $1.4 million, $193,000 and $8.2
million for the fiscal years ended March 31, 1997, 1998 and 1999, respectively,
which primarily reflected purchases of property and equipment. For the three
months ended June 30, 1999, net cash provided by investing activities was
$948,000, primarily due to sales of short-term investments. For the fiscal year
ended March 31, 1999, we completed the acquisition of RSA Communications. Net
cash used for the acquisition was $5.1 million.

   Net cash provided by financing activities was $14.6 million, $3.3 million
and $25.5 million for the fiscal years ended March 31, 1997, 1998 and 1999,
respectively. Net cash used by financing activities was $50,000 for the three
months ended June 30, 1999. Cash provided by financing activities in each of
these periods was attributable primarily to proceeds from the issuance of
convertible preferred stock, equipment lease financing and, for the fiscal year
ended March 31, 1998, a revolving credit facility.

   On August 27, 1999 we entered into a borrowing agreement for up to $3.0
million under which $483,000 was outstanding as of August 31, 1999.

   We believe that the net proceeds from this offering, together with our
current cash, cash equivalents, short-term investments and borrowings under our
current credit facility, will be sufficient to meet our anticipated cash needs
for working capital and capital expenditures for at least the next twelve
months. If cash generated from operations is insufficient to satisfy our
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.

Year 2000 Compliance Disclosure

   The term "Year 2000 issue" is a general term used to describe the various
problems that may result from the improper processing of dates and date-
sensitive calculations by computers and other machinery as the Year 2000 is
approached and reached. These problems generally arise from the fact that most
of the world's computer hardware and software have historically used only two
digits to identify the year in a date. As a result, date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. These
problems may also arise from other sources as well, such as the use of special
codes and conventions in software that make use of the date field. If not
corrected, these electronic systems could fail or create erroneous results when
addressing dates on and after January 1, 2000.

                                       41
<PAGE>

  State of Readiness

   To address the Year 2000 issue, we have assembled a team that is responsible
for evaluating our state of readiness in connection with the Year 2000 issue.
Our information services and operations departments have evaluated the
Year 2000 issue, and one employee from each of these departments is designated
as a Year 2000 coordinator.

   Our Year 2000 activities have focused primarily in five areas:

  .  products--analyzing software, semiconductor and circuit boards;
  .  systems--analyzing financial, materials planning, computer aided design
     tools, PC desktops, applications and data;
  .  suppliers--ensuring a continuous supply of goods and services;
  .  customers--responding to customers requesting information; and
  .  policies and contingency plans--adopting policies in areas such as human
     resources, finance, travel and security.

   For each of these five areas, our strategy has been to:

  .  develop an awareness and understanding of particular issues;
  .  determine an appropriate solution for each issue, and plan and provide
     resources for the solution;
  .  validate, test and document the solution;
  .  execute the solution; and
  .  ensure that an adequate contingency plan is in place.

   Examples of our activities and conclusions in connection with the Year 2000
issue are as follows:

  Products

   None of our semiconductor products, embedded software or systems-level
products contain any date-related information or circuitry, nor do they have
any functionality specific to time of day, week, month or year. The only
exception to the preceding sentence is that we delivered ATM video storage
system devices to less than 50 customers in 1995 and 1996 for use in
experimental near-video-on-demand. We believe any Year 2000 problems arising in
such devices would in any event cause only negligible loss of functionality to
such devices. However, we cannot be certain of or control the use and
application of our products in conjunction with third party software
development or operating systems, and the failure of such third party products
due to Year 2000 problems could harm our development or sales activities
related to such third party products.

  Systems

   We have audited our internal systems and data, both information technology
and non-information technology, including those used for financial and
materials management and for computer aided design workstations and software.
In addition, we have tested our desktop and laptop PCs and applications and
have installed service pack software as required. Further, we have implemented
procedures to ensure that any new hardware or software purchased between now
and the end of 1999 will, when installed, undergo similar tests and audits.
Based on our preliminary assessment, we do not believe that our material
internal systems will be affected by the Year 2000 issue.

  Suppliers

   In early 1999, we issued Year 2000 questionnaires to over 100 of our
suppliers. We have received satisfactory responses to such questionnaires from
all but eight of these suppliers. We removed these eight suppliers from our
list of approved vendors and determined not to reinstate such suppliers until
they provide us with adequate assurances regarding Year 2000 readiness. The
goods and services previously provided by these eight suppliers are available
to us from other sources at comparable prices. In addition, we have taken

                                       42
<PAGE>

reasonable steps to audit our corporate services, including a review of
infrastructure items such as premises systems, telephones, air conditioners,
elevators and fire alarms. Nevertheless, we are not capable of independently
evaluating the state of Year 2000 readiness of our suppliers, and the failure
of suppliers and other third parties to identify and resolve Year 2000 issues
in a timely manner could harm our business, financial condition or results of
operation.

  Customers

   We have responded to each customer that has inquired about our Year 2000
readiness and have completed Year 2000 questionnaires upon request. However,
our products, once shipped to customers, are incorporated into other products
that we do not develop. The performance of our products could be affected if a
Year 2000 problem exists in a different component of a customer's product. We
have not, and will not, assess the existence of these potential problems in
customers' products or any other information regarding customers' state of Year
2000 readiness. In addition, our current or future customers may incur
significant expenses to achieve Year 2000 readiness, or customers may face
litigation costs. In either case, Year 2000 problems could reduce or eliminate
the budgets that current or potential customers may have for purchases of our
products and services. As a result, our business, results of operations or
financial conditions could be harmed.

  Policies and Contingency Plans

   We have developed, and will continue to develop, policies regarding matters
such as vacation time, travel, asset management and security during the roll-
over period. In addition, we intend to implement a complete back-up of all of
our business and technical computer data, with multiple copies of such data
being held in secure locations on December 30, 1999.

  Costs to Address the Year 2000 Issue

   Our Year 2000 activity has not required significant expense and we expect
that operating costs and margins will not be affected by Year 2000 issues. To
date, we estimate that we have spent approximately $50,000 on implementation of
our Year 2000 preparations, the majority of which relates to staffing costs in
coordinating and auditing ourselves.

  Legal Proceedings

   We have not been party to any litigation or proceedings related to the Year
2000 issue, and we are not presently aware of any circumstances that could give
rise to such proceedings. However, we cannot be sure that we will not in the
future be required to defend our products or services in legal proceedings, and
we cannot guarantee that we will remain free of Year 2000 related disputes. Any
liability of Year 2000 related damages, including consequential damages, could
harm our business, operating results and financial condition.

   Based on currently available information, we do not believe that Year 2000
issues will harm our business, financial condition, liquidity or overall
results of operations. However, until the Year 2000 occurs, it is uncertain to
what extent we may be affected by Year 2000 issues.

  Risks

   As a result of the Year 2000 issue, we may experience serious unanticipated
problems and costs caused by undetected errors or defects in the technology
used in our software and hardware products and internal systems. In addition,
we may be required to defend our products or services in legal proceedings, and
we cannot guarantee that we will remain free of Year 2000 related disputes. If
our software and hardware products or our internal systems are not Year 2000
compliant, the Year 2000 issue could harm our business, financial condition,
liquidity and results of operations. Until the Year 2000 occurs, we cannot be
sure that we will not be affected by the Year 2000 issue.

                                       43
<PAGE>

Recent Accounting Pronouncements

   In June 1998, the Financial Accounting Standards Board ("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. We will adopt SFAS
No. 133 during the year ending March 31, 2002. To date, we have not engaged in
derivative or hedging activities. We cannot predict the impact of adopting SFAS
No. 133 if we were to engage in derivative and hedging activities in the
future.

Qualitative and Quantitative 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 intend to maintain our portfolio of cash equivalents and
short-term investments in a variety of securities, including commercial paper,
money market funds, government and non-government debt securities and
certificates of deposit. In general, money market funds are not subject to
market risk because the interest paid on such funds fluctuates with the
prevailing interest rate. As of June 30, 1999, all of our investments were in
money market funds, certificates of deposits or high quality commercial paper.
See note 1 of the notes to the consolidated financial statements.

   We develop products in both the United Kingdom 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.

                                       44
<PAGE>

                                    BUSINESS

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

Introduction

   Virata provides communications processors which are combined with a
comprehensive suite of software for DSL equipment manufacturers. These tightly
integrated products enable our customers to develop a diverse range of digital
subscriber line equipment including modems, gateways and routers targeted at
the broadband access market. We believe our systems expertise, products and
support services enable DSL equipment manufacturers to simplify product
development, speed time-to-market and focus resources on product
differentiation. We outsource the manufacturing of our semiconductors, which
allows us to focus our resources on the design, development and marketing of
our products. To date we have licensed our software to 27 companies. These
customers have developed, or are developing, 74 designs of which 28 are
currently shipping.

Industry Background

   The amount of data being carried over the Internet and private
communications networks has grown dramatically in recent years. International
Data Corporation estimates that the number of Internet users worldwide was
approximately 142 million in 1998 and will reach approximately 502 million in
2003. This tremendous growth in data traffic 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.

   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 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. This competitive environment started to change with the
passage of the Federal Telecommunications Act of 1996 and was accelerated with
the recent merger of AT&T and TCI. The Federal Telecommunications Act
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 companies including Covad
Communications, MCI WorldCom, NorthPoint Communications, Rhythms NetConnections
and Sprint, are now deploying high-speed services using DSL technologies over
the copper infrastructure owned by the ILECs. In addition, AT&T has announced

                                       45
<PAGE>

plans to offer broadband and interactive services, including telephony, on a
broad scale over TCI's cable systems over the next few years. In response to
these competitive pressures, and in an effort to increase revenues and
maintain their existing customer base, ILECs are now aggressively committing
their resources to deploy DSL services.

   DSL enables data transmission speeds of 128 Kbps to 52 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. DSL 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.

   DSL implementations offer several attractive benefits over other broadband
access 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, and may suffer performance degradation
     or security breaches as users are added to the network. Because each DSL
     connection is dedicated to a single user, DSL does not suffer from such
     service degradation and enables a higher level of security.

  .  Broad coverage. Dataquest estimates that the number of installed
     telephone lines worldwide was approximately 831 million in 1998 and will
     reach over 1.0 billion in 2002. Since virtually all 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.

   Equipment manufacturers encounter a number of challenges to meet the
demands of the growing DSL 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 time-to-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. A typical DSL customer
premises system, such as a modem, gateway or router, includes the primary
building blocks which are illustrated below:

   [GRAPHIC DEPICTION OF DSL CUSTOMER PREMISES EQUIPMENT]

   The front end circuitry which is comprised of integrated circuits and other
components, 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.

                                      46
<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 integrates communications processors with a
comprehensive suite of software for DSL equipment manufacturers. Our systems
expertise, products and support services enable our customers to simplify
product development, speed time-to-market and focus resources on product
differentiation. Our communications processors perform system functions which
require real-time processing speed and are technically mature, thus unlikely 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 architecture. Our products are based on a flexible architecture
     that simplifies the addition of features. This architecture enables new
     services such as voice, video, security to be added incrementally as
     broadband solutions evolve.
  .  PHY-independent. Our devices use generic, industry standard interfaces
     to attach to any third party DSL physical layer semiconductor. By being
     PHY-independent, our products are able to meet the demands of multiple
     OEMs for a wide array of applications within the broadband local loop.

  .  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 ATM Forum,
     IETF, ITU and other industry standards. Such standards evolve over time
     and our architecture is designed to accommodate such changes.

   Our customers recognize 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.

The Virata Strategy

   Our objective is to be the leading provider of communications processors
integrated with a comprehensive suite of related software to broadband access
equipment suppliers. Key elements of our strategy include:
  .  Initial focus on DSL. We have built extensive expertise providing
     solutions that integrate communications processors with software for the
     content and connection enabling layers of the

                                       47
<PAGE>

     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. We typically license our software
     to a customer at the time we achieve an initial design win. The customer
     then designs products incorporating our communications processors, which
     they purchase separately from us. By standardizing on our software,
     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 architecture. 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.

  .  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 acquired RSA Communications in 1998. We believe
     completing selective acquisitions will be important to remain
     competitive as a complete solutions provider to manufacturers of
     broadband access equipment.

Products

   We specialize in communications processors that are integrated with a
comprehensive suite of software for DSL equipment manufacturers. Our
communications processors perform the critical content encapsulation and
content routing functionality required in DSL 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. This
integration of communications processors and software provides our customers a
comprehensive, tested, self sufficient product that replaces semiconductors,
software and support previously sourced from multiple vendors.

                                      48
<PAGE>

  Semiconductor Products

   We offer two families of semiconductor products: the Proton family of
application specific integrated circuits, or ASICS, and the ATOM family of
application specific standard products, or ASSPs. The Proton ASICs are used in
various combinations to enable different applications including switching
fabrics for small to mid-sized DSLAMs. Proton products enabled customers to
quickly develop their products prior to the establishment of widely accepted
broadband access standards. The following is a list of our Proton family
products:

<TABLE>
<CAPTION>
  Product Function                  Target Applications           Introduction Date
  <C>     <S>                       <C>                           <C>
  Boson   ISA bus interface         ATM adapter cards             April 1995
-----------------------------------------------------------------------------------
  Quark   ATM cell buffer and                                     April 1995
          processor for switch or
          adapter network ports
------------------------------------------------------------
                                                               --------------------
  Gluon   ATM Forum CRC generator   A combination of these        April 1995
          and ARM RISC              products creates a switching
          microprocessor support    fabric for DSLAMs or cable
                                    head-ends
------------------------------------------------------------
                                                               --------------------
  Hadron  ATM cell address hasher                                 January 1996
          for switching
          applications
------------------------------------------------------------
                                                               --------------------
  TBX     ATM traffic shaping                                     August 1997
          controller and buffer
          for switching
          applications
</TABLE>

   The establishment of broadband access standards and our experience with the
Proton ASIC family has enabled us to design the ATOM family of ASSPs for OEMs
focusing on the DSL market. These communications processors combine the
relevant elements of the Proton ASICs with at least one embedded ARM RISC
microprocessor. ATOM devices also provide Ethernet, PCI or USB network
interfaces as well as Utopia for connection to physical layer devices and other
semiconductors. While Hydrogen features a single embedded ARM RISC
microprocessor, Helium and Lithium contain two ARM RISC microprocessors to
separate protocol and network processing. The Hydrogen, Helium and Lithium
ASSPs support physical layer devices from a broad range of vendors. The
following is a list of our PHY-independent ATOM family products:

<TABLE>
<CAPTION>
  Product  Interfaces                 Target Applications           Introduction Date
  <C>      <S>                        <C>                           <C>
  Hydrogen PCI, Utopia 1 and ATM25    DSL internal and external     August 1997
           PHY                        modems and set-top boxes
-------------------------------------------------------------------------------------
  Helium   USB, Utopia 1/2, ADSL      DSL external modems,          June 1999
           T1.432, HDLC and 10BaseT   gateways, routers, DSLAMs
           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
</TABLE>

                                       49
<PAGE>

   We are developing a new generation of ATOM products to support the
transition from analog access equipment to next-generation DSL equipment. These
products leverage our extensible architecture to combine PHY layer processing
for both analog and digital technologies along with the layer 2 and layer 3
functionality of Helium and Lithium into a single highly integrated device. The
first PHY-integrated product we are developing for this market is Beryllium,
which is described below:

<TABLE>
<CAPTION>
   Product  Interfaces                 Target Applications           Introduction Date
  <C>       <S>                        <C>                           <C>
  Beryllium G.lite, V.90, PCI and      G.lite/V.90 internal and      March 2000
            USB interfaces (for        external modems and gateways
            Ethernet and home phone-
            line networking)
</TABLE>

   By utilizing the Beryllium solution, equipment manufacturers will be able to
offer products that are functional with either dial-up 56K V.90 or G.lite DSL
networks. G.lite is a form of DSL which operates at speeds up to 1.5 Mbps and
is expected to support consumer and small office / home office applications.
Because of its dual V.90 and G.lite character, Beryllium will allow the
consumer to buy a "G.lite-ready" modem and subsequently upgrade from V.90 to
G.lite DSL network access without any changes to their modem equipment once
G.lite services are available from the consumer's service provider. We cannot
be sure that if new products or product enhancements are developed, any such
new products or product enhancements will be developed in time to capture
market opportunities or achieve a significant or substantial level of
acceptance in new and existing markets.

  Software

   Our software is key to providing flexible, off-the-shelf processing
solutions. Multiple software modules deliver management and support for
functions at the link, protocol and physical layer. These modules operate on
top of ATMOS, our real-time operating system, which is optimized for
communications applications that run on ARM RISC microprocessors. The software
provides our customers a ready-to-deploy menu of over 50 modules to meet their
specific product requirements. Together, the modules complete a customized,
sophisticated system which supports multiple functions including quality of
service, system management, bridging, tunneling, address translation, signaling
and routing. We also offer customers a full set of software development tools
including compilers, linkers and other special-purpose tools.

Design and Support Services

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

  Custom Design Services

   Our Customer Services and Solutions group specializes in product development
engagements for customers that require additional resources or particular
technical skills during the development stage. A typical project will take
three to six months to complete and comprises development and delivery of
system hardware, software and all supporting documentation enabling the
customer to rapidly commence production. We believe these services provide a
critical advantage in winning business.

  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 five days of comprehensive training in the use of our
semiconductors and software development systems. Through our extranet site,
which is accessible to all of our customers, we deliver new software and
documentation and take action on bug reports. Our support engineers assist our
customers throughout the product development cycle which can include formal and
informal design reviews.


                                       50
<PAGE>

  Evaluation Systems

   We help our customers accelerate their product development programs by
designing a board-level evaluation system for each ATOM product. Typically each
time a new ATOM 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 and protocol layer 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 analog 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 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.

   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. 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 by the complex alternative of assembling,
integrating and

                                       51
<PAGE>

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 controls processing on the protocol processor.

   The modular construction of the software architecture makes it easier to add
further functionality without the need to re-test the integrity of the entire
software stack. 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 into a specially conditioned signal suitable for
transmission across copper telephone wires. We have extensive experience
developing software code for the voice modem market and are leveraging that
expertise to develop the solutions required for the G.lite standard. PHY layer
code is executed in our Beryllium communications processor using a compact, low
power DSP supported by fixed function processors.

  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 management capabilities for layer 3 processing include
TCP/IP, IP routing, network address translation, IP configuration and
tunneling.

  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.

Partner Reference Design Programs

   We develop and deliver board-level DSL products with providers of PHY level
communications processors. These products, or partner reference designs,
include our layer 2 and 3 communications processors and software modules and
our partner's PHY layer hardware. These programs allow us to benefit from the
expanded reach of the partner's sales organization. Our customers also benefit
from a more complete solution which allows faster time-to-market. Two partner
reference designs are currently offered through our joint development programs
with Advanced Micro Devices and ST Microelectronics. We are currently seeking
to extend the partner reference design program to expand our reach into
additional DSL market segments.

                                       52
<PAGE>

Customers

   We sell our products to established telecommunications equipment vendors,
modem manufacturers and broadband access equipment companies, including the
following 27 customers who have licensed our software:


<TABLE>
<CAPTION>
  Customers                                                 Markets
  <C>                        <S>                            <C>
  Abocom Systems             Next Level Communications      DSL
  Ambit Microsystems         Opencon Systems
  Asustek Computer           Opnet Technology
  Bosch Telecom              Orckit Communications
  Broadband Technologies     Presence Technology
  Coppercom                  Siemens A.G.
  D-Link                     Sphere Communications
  Diamond Multimedia Systems Tainet Communications System
  E-Tech                     Teltrend
  IPM Datacom                Viagate Technologies
  Mariner Networks           Westell Technologies
  Netopia                    Xavi Technology
--------------------------------------------------------------------
  Adaptive Broadband                                        Wireless
--------------------------------------------------------------------
  Com21                      Pace                           Cable
</TABLE>

   These customers have developed or are developing 74 equipment designs based
on our semiconductors and software. Of these 74 designs, 28 are currently
shipping.

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

  .  DSL modems which are installed inside PCs;
  .  DSL modems which are connected to a PC via a USB or Ethernet link;
  .  DSL gateways and routers;
  .  DSLAMs and DLCs; and
  .  Cable modem head-ends.

   We depend on a relatively small number of customers for a large percentage
of our revenues. For the three months ended June 30, 1999, Orckit
Communications, Com21 and Netopia accounted for 39.8%, 17.2% and 10.2%,
respectively, of our total revenues. 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.

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. 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 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 Taiwan, we work with a dedicated
representative firm.

   Generally, our sales team consists of qualified engineers who are located in
California, Massachusetts, North Carolina and the United Kingdom providing
coverage of the US and Europe. The sales team is supported by development
engineers that work directly with customers on their new product developments.

                                       53
<PAGE>

   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 30, 1999 we had 79 engineers based in Raleigh, North Carolina and
Cambridge, England. Of these engineers, 27 have advanced degrees, including
nine with Ph.D.s. Several individuals were early developers in voice modem
software and ATM technologies.

   Since mid-1998, we have been investing a significant portion of our research
and development expenditures in the development of Beryllium and its associated
software to address the G.lite/V.90 market. 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 head-count and
capabilities. Our research and development expenditures were $4.0 million and
$8.3 million in the fiscal years ended March 31, 1998 and 1999, respectively.

Manufacturing

   We outsource the manufacturing, assembly and testing of all our
semiconductors. This fabless semiconductor model allows us to focus our
resources on the design, development and marketing of our products. Our Proton
semiconductors and current ATOM communications processors have all been sourced
from suppliers that deliver fully assembled and tested products on a turnkey
basis.

   The current ATOM 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 which allows us to
select foundry suppliers that best meet our quality, delivery and cost
objectives. We have also expanded our operations team so that we will be able
to assume more of the manufacturing and quality control responsibilities,
including contracting for wafer processing, assembly and testing from separate
suppliers. Further benefits will include accelerating the transition of our
devices into progressively smaller die size, providing important advantages,
including lower cost, defect rates and power consumption / heat dissipation and
higher speed, all of which are important to the commercial success of our
semiconductor products.

   Because we rely on third party foundries for substantially all of our
manufacturing, assembly and testing requirements, 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. These third party 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. We have experienced
delays and may in the future experience delays in receiving semiconductors from
these foundries. If the foundries we currently use are unable to provide us
with their products on a turnkey basis or we are otherwise required to find
alternative subcontractors, product shipments could be delayed significantly.
Any problems associated with the delivery, quality or cost of the assembly and
testing of our products could seriously harm our business, financial condition
and results of operations.

                                       54
<PAGE>

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:

  .  Proton, our family of ASICs: devices from Motorola, PMC-Sierra and
     Transwitch;

  .  Hydrogen, Helium and Lithium, our PHY-neutral ASSPs: devices from BASIS
     Communications, Motorola and IDT;

  .  Beryllium, our planned integrated PHY, G.lite/V.90 product: devices from
     Alcatel Microelectronics, Analog Devices, Centillium Technology,
     Conexant Systems, Lucent Technologies and Texas Instruments; and

  .  Software: operating systems and software stacks from Wind River Systems
     and Integrated Systems; and networking and protocol layer software from
     Harris & Jeffries, Iverness Systems, Microsoft and Trillium.

   In addition, there have been a number of announcements by other
semiconductor companies including IBM and Intel and smaller emerging companies
that they intend to enter the market segments adjacent to or addressed by our
products.

   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.

                                       55
<PAGE>

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 August 31, 1999, we have been granted one patent in the United States,
with three counterpart patents in other countries. Our patents have expiration
dates ranging from 2016 to 2017. In addition, we have nine patent applications
pending in the United Kingdom and four pending in the United States. We also
have 24 patent applications pending in various countries other than the United
Kingdom and the United States. 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 the trademarks "Virata," "ATMOS" and "ATOM." "ISOS,"
"Proton," "Helium," "Hydrogen," "Lithium," and "Beryllium" are also our
trademarks.

Legal Proceedings

   We are not currently a party to any legal proceedings, nor to our knowledge,
is any such proceeding threatened.

Employees

   As of June 30, 1999, we had 113 full-time employees in our worldwide
operations. Of that total, 79 were primarily engaged in engineering, 13 were
engaged in sales and marketing and the remainder were engaged in operational,
financial and administrative functions. As of June 30, 1999, 12 of our
employees were located at our facilities in Santa Clara, California, 65 of our
employees were located at our facilities in Cambridge, England, and 36 were
located at our facilities in Raleigh, North Carolina. None of our employees are
covered by, nor are we a party to, any collective bargaining agreement. We
believe our employee relations are good.

                                       56
<PAGE>

Facilities

   Our headquarters are located in Santa Clara, California, where we lease
approximately 13,000 square feet of office space in Santa Clara, California,
under a lease that expires in September 2001. Approximately 4,500 square feet
of our Santa Clara facility is subleased to a third party under a lease that
expires in September 2001. Additionally, we lease approximately 9,600 square
feet of office and laboratory space in Cambridge, England, under two leases
that expire in 2004 and 2005 and approximately 13,200 square feet of office
space in Raleigh, North Carolina, under a lease that expires in September 2003.
We believe that our current facilities are adequate to conduct our business
operations for the foreseeable future.

                                       57
<PAGE>

                                   MANAGEMENT

Directors, Executive Officers and Key Employees

   Our current board of directors consists of Messrs. Charles Cotton, Hermann
Hauser, Bandel Carano and Peter Morris. Our current executive officers are
Charles Cotton, Michael Gulett and Andrew Vought. Following this offering, our
directors, executive officers and key employees are expected to be as follows:

<TABLE>
<CAPTION>
          Name           Age                               Position
          ----           ---                               --------
<S>                      <C> <C>
Charles Cotton.......... 52  Chief Executive Officer and Director
Michael Gulett.......... 46  President, Chief Operating Officer
Andrew Vought........... 44  Senior Vice President, Finance, Chief Financial Officer and Secretary
Daniel Karr............. 39  Vice President, Worldwide Sales
Martin Jackson.......... 40  Chief Technology Officer and Director
Thomas Cooper........... 50  Senior Vice President, Corporate Development
Duncan Greatwood........ 32  Vice President, Marketing
Bernard Glasauer........ 38  Vice President, Operations
Wayne Whitlock.......... 40  Vice President, Engineering
Dr. Paul Walsh.......... 39  Vice President, Software Engineering
Dr. Hermann Hauser...... 50  Chairman of the Board
Marco De Benedetti...... 37  Director
Gary Bloom.............. 38  Director
Bandel Carano........... 38  Director
Prof. Andrew Hopper..... 46  Director
Peter Morris............ 43  Director
Patrick Sayer........... 41  Director
Giuseppe Zocco.......... 33  Director
</TABLE>

   Charles Cotton has been our Chief Executive Officer 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.

   Michael Gulett joined us in November 1998 as Chief Operating Officer and was
promoted to President and Chief Operating Officer in June 1999. Prior to
joining us, Mr. Gulett was President and Chief Executive Officer at Paradigm
Technology, a developer of fast, static memory solutions, in Milpitas,
California, from February 1993 to June 1998. Mr. Gulett has also held
management positions at VLSI Technology, California Devices, Intel Corporation
and NCR. Mr. Gulett holds a B.S.E.E. from the University of Dayton.

   Andrew Vought joined us in May 1996 as Chief Financial Officer and was named
Senior Vice President of Finance and Operations 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. From July 1985 to May 1990, Mr. Vought held
senior finance and manufacturing management positions with Diasonics. Prior to
joining Diasonics, Mr. Vought spent several years in the European semiconductor
operations of Texas Instruments. Mr. Vought currently serves on the board of
directors of SCM Microsystems, a supplier of digital access control and
connectivity solutions. Mr. Vought holds an 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.


                                       58
<PAGE>

   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, since April 1996. 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.

   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 Director and Vice President of Technology of EO (formerly
Active Book Company), a company involved in the development of pen-based
computers, from 1988 to April 1994. 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 ADSL Forum. Mr. Jackson holds an M.A. in Electrical
Sciences from the University of Cambridge and a M.A. Engineering 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 an M.B.A. from the University of
Ohio, Toledo and a B.A. in English from Hamilton College.

   Duncan Greatwood is our Vice President, Marketing, having previously been
our Vice President, European Sales. Mr. Greatwood joined us in November 1997.
Before being hired by 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-Information
Processing and multiservice networking. Mr. Greatwood holds a degree in
mathematics from Oxford University and an M.B.A. from London Business School.

   Bernard Glasauer is our Vice President, Operations and joined us in June
1999. Prior to joining us, Mr. Glasauer was Vice President of Engineering at
Cypress Semiconductor from August 1988 to May 1999. Mr. Glasauer holds a B.S.
degree in Electrical Engineering/Computer Science and Materials Science
Engineering from the University of California, as well as a B.A. in Economics.

   Wayne Whitlock is our Vice President, Engineering and joined us in July
1998. Prior to joining us, Mr. Whitlock was Vice President, Engineering for RSA
Communications, the predecessor of Virata Raleigh Corporation, from October
1994 to July 1998. Prior to that Mr. Whitlock was a Program Manager with the
Wireless Mobile Data Division for IBM from July 1981 to October 1994,
developing PCMCIA wireless WAN devices for portable PCs. Mr. Whitlock holds a
B.S. degree in Electrical Engineering from Virginia Tech.

   Dr. Paul Walsh is our Vice President, Software Engineering and joined us in
January 1999. Prior to joining us, Dr. Walsh was Senior Manager--Engineering,
at Ionica plc, from November 1995 to January 1999. In this role he was
responsible for the development and delivery of network planning and network
management systems to Ionica's network operations and recruited a team of 30 to
work with him. Prior to Ionica, Dr. Walsh held a Senior Manager role at
Nortel/BNR Europe, from January 1992 to October 1995, where he was responsible
for the design, build and delivery of systems to provide Network Management of
Telephony over Passive Optical Networks. Dr. Walsh holds a Ph.D. in Psychology
from the City of London Polytechnic, an M.Sc. (Distinction) in Social
Psychology from London School of Economics and a B.A. (1st Class Hons) in
Psychology from the University College, Galway.

   Dr. Hermann Hauser is one of our co-founders and serves as our Chairman. Dr.
Hauser's principal occupation is Director of Amadeus Capital Partners Ltd., a
venture capital fund management company. He has held this position since
December 1997. Dr. Hauser has also co-founded more than 20 other high
technology

                                       59
<PAGE>

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 is Chairman and Managing Director of Telecom Italia
Mobile S.p.A., Europe's largest cellular phone operator. He has held that
position since July 1999. Prior to joining Telecom Italia, Mr. De Benedetti was
chairman of Infostrada S.p.A., a company controlled by Telecom Italia operating
as an alternative fixed line carrier in Italy. Prior to joining Infostrada in
1990, Mr. De Benedetti worked for the investment bank Wasserstein, Parella &
Co. in mergers and acquisitions from 1987 to 1989. Mr. De Benedetti holds an
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 is Executive Vice President of the System Products Division of
Oracle Corporation and has been employed by Oracle since September 1986. Mr.
Bloom received a B.S. degree in Computer Science from California Polytechnic
State University at San Luis Obispo.

   Bandel Carano is a General Partner of Oak Investment Partners in Palo Alto,
California, a private venture capital firm, which he joined in 1985. Mr. Carano
currently serves as a member of the Investment Advisory Board of the Stanford
University Engineering Venture Fund. Mr. Carano also serves as a member of the
board of directors of Metaware Communications Corp., Polycom and Pulse Point
Communications, as well as several private companies. Mr. Carano holds both an
M.S. and a B.S. in Electrical Engineering from Stanford University.

   Professor Andrew Hopper is one of our co-founders. Since November 1997
Professor Hopper has been Professor of Communications within the Department of
Engineering at Cambridge University and since 1986, Managing Director of the
Olivetti Research Laboratory, now AT&T Research, 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. and a B.Sc. from
Cambridge University.

   Peter T. Morris is a General Partner of New Enterprise Associates 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 Accelerated Networks, AUNET, Gadzoox,
LoanCity.com, LuxN, Mayan Networks, NanoSpace, Packetcom, Packeteer and Tiara
Networks. Before joining New Enterprise Associates, Mr. Morris served in
various capacities with Telebit from 1987 to 1991. Prior to that he was with
Montgomery Securities, an investment bank, from 1985 to 1987, and Bain and
Company, a management consultancy, from 1980 to 1982. Mr. Morris holds an
M.B.A. and a B.S. in Electrical Engineering from Stanford University.

   Patrick Sayer is a General Partner of Lazard Freres et Cie, a French
investment bank, where he oversees the technology, telecommunications and media
sectors. Mr. Sayer has worked within the Lazard Freres Group throughout his
career, first joining its international advisory group, which advises foreign
governments, then spending six years in the corporate finance department and
then joining the mergers and acquisitions department in 1992. In addition, Mr.
Sayer is the Chairman of the Investment Committee of Eurafrance and Gaz et
Eaux, two French listed holding companies that are ultimately controlled by the
Lazard Freres Group. Mr. Sayer is a graduate of Ecole Polytechnique and Ecole
des Mines de Paris.

   Giuseppe 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 and
Company from 1988 to 1996, working in several of its European offices and its
EuroCenter, a special consulting unit focused on Pan-European clients. During
his career at McKinsey, Mr. Zocco advised several major corporations on a
number of strategic and organizational matters. Mr. Zocco

                                       60
<PAGE>

holds an 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.

Board Committees

   Our board of directors currently consists of four directors. Following this
offering, our board of directors is anticipated to consist of ten directors,
each holding office until the next annual meeting of stockholders. Following
this offering, our board of directors is also anticipated to have an Executive
Committee, Compensation Committee, Audit Committee and Director Compensation
Committee.

   Executive Committee. The executive committee of our board of directors is
anticipated to consist of Messrs. Cotton, Hauser, Carano and Morris. The
executive committee will be authorized to act with respect to all matters
arising before the board, except for matters which require stockholder approval
or where prohibited by Delaware law, including a sale of our company.

   Compensation Committee. The compensation committee will review and make
recommendations to the board regarding all forms of compensation provided to
our executive officers, including stock compensation and loans. In addition,
the compensation committee will review and make recommendations on stock
compensation arrangements for all of our other employees. As part of the
foregoing, the compensation committee will administer our stock incentive
plans. The members of the compensation committee are anticipated to be Messrs.
Hauser, Carano and Zocco.

   Audit Committee. The audit committee will monitor our corporate financial
reporting and the internal and external audits, including our internal audit
and control functions, the results and scope of the annual audit and other
services provided by our independent auditors and our compliance with legal
matters that have a significant impact on our financial reports. The audit
committee will also consult with our management and our independent auditors
prior to the presentation of financial statements to stockholders and, as
appropriate, initiates inquiries into aspects of our financial affairs. In
addition, the audit committee will have the responsibility to consider and
recommend the appointment of, and to review fee arrangements with, our
independent auditors. The members of the audit committee are anticipated to be
Messrs. Bloom, Morris and Zocco.

   Director Compensation Committee. The director compensation committee will
review and make recommendations to the board regarding all forms of
compensation provided to our non-employee directors. As part of the foregoing,
the Director Compensation Committee will administer our director stock
compensation plan that we anticipate adopting prior to this offering. The
members of the director compensation committee are anticipated to be Messrs.
Cotton and Jackson.

Director Compensation

   Directors who are our full-time employees receive no additional compensation
for serving on our board of directors or its committees; however, each director
will be reimbursed for his or her out-of-pocket expenses in attending board
meetings. Following this offering, it is anticipated that directors who are not
our employees will receive compensation for participation in meetings of our
board of directors and serving on and attending meetings of either the
compensation or the audit committees. See "Certain Transactions" for a
description of transactions involving directors or their affiliates and us, if
any.

   Prior to this offering, we anticipate that we will adopt a stock
compensation plan for our non-employee directors, commensurate with plans
offered by companies in our industry or related industries.

                                       61
<PAGE>

Compensation Committee Interlocks and Insider Participation

   Prior to this offering, our board of directors did not have a compensation
committee and all compensation decisions were made by our full board of
directors. In the fiscal year ended March 31, 1999, the full board of directors
determined the compensation of all executive officers, including Mr. Cotton in
his capacity of Chief Executive Officer. Upon completion of this offering, it
is anticipated that the compensation committee will make all compensation
decisions. We are not aware of any interlocking relationship existing between
our board of directors or proposed compensation committee and the board of
directors or compensation committee of any other company, nor are we aware of
any such interlocking relationship existing in the past.

Executive Compensation

   The following table sets forth the approximate cash compensation (including
cash bonuses) paid or awarded by us for the fiscal year ended March 31, 1999 to
our Chief Executive Officer and the other four most highly compensated
executive officers who were serving as executive officers as of March 31, 1999
(the "Named Executive Officers").

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                    Long-Term
                            Annual Compensation    Compensation
                         ------------------------- ------------
                                                    Securities
Name and Principal       Fiscal                     Underlying     All Other
Position                  Year  Salary($) Bonus($)  Options(#)  Compensation($)
------------------       ------ --------- -------- ------------ ---------------
<S>                      <C>    <C>       <C>      <C>          <C>
Charles Cotton..........  1999   224,940   60,000     725,000       24,000(1)
  Chief Executive
   Officer and Director
Michael Gulett(2).......  1999    82,372   54,167   1,600,000        1,827(3)
  President and Chief
   Operating Officer
Andrew Vought...........  1999   184,875   40,000     375,000        1,230(4)
  Senior Vice President,
   Finance,
  Chief Financial
   Officer and Secretary
Martin Jackson..........  1999   128,099       --     300,000        8,392(5)
  Chief Technology
   Officer and Director
Thomas Cooper...........  1999   153,606   30,250     550,000        1,273(6)
  Senior Vice President
   Corporate Development
</TABLE>
--------
(1) Represents an accrued pension contribution paid by us for the benefit of
    Mr. Cotton under our pension arrangement.
(2) Mr. Gulett was hired in November 1998 and, therefore, such amounts are for
    less than a full year.
(3) Represents a matching contribution paid by us for the benefit of Mr. Gulett
    under our 401(k) plan.
(4) Represents a matching contribution paid by us for the benefit of Mr. Vought
    under our 401(k) plan.
(5) Represents an accrued pension contribution paid by us for the benefit of
    Mr. Jackson under our pension arrangement.
(6) Represents a matching contribution paid by us for the benefit of Mr. Cooper
    under our 401(k) plan.

                                       62
<PAGE>

               Option Grants in Fiscal Year Ended March 31, 1999

<TABLE>
<CAPTION>
                                        Individual Grants
                         ------------------------------------------------  Potential Realizable
                                      Percent of                             Value at Assumed
                         Number of   Total Options                         Annual Rates of Stock
                           Shares     Granted to                          Price Appreciation For
                         Underlying    Employees   Exercise or              Option Term ($)(3)
                          Options      in Fiscal   Base Price  Expiration -----------------------
Name                     Granted (#)  Year (%)(1)   ($/sh)(2)     Date        5%          10%
----                     ----------  ------------- ----------- ---------- ---------- ------------
<S>                      <C>         <C>           <C>         <C>        <C>        <C>
Charles Cotton..........   725,000        7.0         0.70       4/28/05     206,603      481,474
Michael Gulett.......... 1,600,000       15.4         0.70      11/13/05     455,952    1,062,563
Andrew Vought...........   375,000        3.6         0.70       4/28/05     106,864      249,038
Martin Jackson..........   300,000        2.9         0.70       4/28/05      85,491      199,231
Thomas Cooper...........   550,000        5.3         0.70       4/28/05     156,734      365,256
</TABLE>
--------
(1) Based on a total of 10,380,194 options to purchase shares of our common
    stock granted during the fiscal year ended March 31, 1999.

(2) The exercise price was equal to the fair market value of our common stock
    as determined by our board of directors on the date of grant.
(3) The potential realizable value is calculated based on the seven year term
    of the options at the time of grant. Stock price appreciation of 5% and 10%
    is assumed pursuant to the rules promulgated by the Securities and Exchange
    Commission and does not represent our prediction of our stock price
    performance. The potential realizable value at 5% and 10% appreciation is
    calculated by assuming that the exercise price in the date of grant
    appreciates at the indicated rate for the entire term of the option and
    that the option is exercised at the exercise price and sold on the last day
    of its term at the appreciated price.

 Aggregated Option Exercises in the Last Fiscal Year and Fiscal Year End Option
                                     Values

   The table below sets forth information with respect to the ownership and
value of options held by the Named Executive Officers identified in the summary
compensation table as of March 31, 1999. No options were exercised by these
individuals during the fiscal year ended March 31, 1999. We have no outstanding
stock appreciation rights.

<TABLE>
<CAPTION>
                               Number of Securities
                              Underlying Unexercised     Value of Unexercised
                                 Options at Fiscal       In-the-Money Options
                                   Year End (#)        at Fiscal year End ($)(1)
                             ------------------------- -------------------------
Name                         Exercisable Unexercisable Exercisable Unexercisable
----                         ----------- ------------- ----------- -------------
<S>                          <C>         <C>           <C>         <C>
Charles Cotton..............   635,625     1,364,375     696,696     1,119,805
Michael Gulett..............        --     1,600,000          --       960,000
Andrew Vought...............   482,500       767,500     529,867       648,633
Martin Jackson..............   383,750       466,250     458,108       356,492
Thomas Cooper...............   306,667       693,333     355,467       481,933
</TABLE>
--------
(1) Based on a fair market value of our common stock as of June 15, 1999 equal
    to $1.30 per share, less the exercise price payable for such shares.

Employment Agreements

   Each of our Named Executive Officers is a party to an employment agreement
with Virata Limited. Following this offering, we anticipate that we will assume
each of these employment agreements.

   Charles Cotton. Under the terms of his employment agreement dated September
17, 1997, as amended on May 1, 1999, Mr. Cotton receives an annual base salary
of (Pounds)155,875, with an additional bonus of $120,000 upon successful
achievement of specific objectives. Mr. Cotton is entitled to the participate
in our stock incentive plans. As of August 31, 1999, Mr. Cotton had received
options to purchase an aggregate of

                                       63
<PAGE>

2,660,000 shares of our common stock at a weighted average exercise price of
$0.62 per share. In general, these options vest equally over four years. Mr.
Cotton is also entitled to a bonus of up to $500,000 in the event we are sold
during the term of his employment. We may terminate Mr. Cotton's employment for
cause at any time, or without cause upon 18 months written notice from the
termination date. Mr. Cotton may voluntarily resign upon six months written
notice of his intention to leave.

   Michael Gulett. Under the terms of his employment agreement dated October
14, 1998, Mr. Gulett receives an annual base salary of $225,000, with an
additional bonus of $100,000 upon successful achievement of specific
objectives. Mr. Gulett is entitled to participate in our stock incentive plans.
As of August 31, 1999, Mr. Gulett had received options to purchase an aggregate
of 2,260,000 shares of our common stock at a weighted average exercise price of
$0.88 per share. These options vest equally over four years. The employment
agreement may be terminated by Mr. Gulett or us at any time, with or without
cause. In the event that Mr. Gulett is terminated without cause or following a
change in our control, Mr. Gulett will be entitled to salary continuation and
vesting of his share options for the 12 month period following termination.

   Andrew Vought. Under the terms of his employment agreement dated May 10,
1996, as amended May 1, 1999, Mr. Vought receives an annual base salary of
$182,750 with an additional bonus of $75,000 upon successful achievement of
specific objectives. Mr. Vought is entitled to participate in our stock
incentive plans. As of August 31, 1999, Mr. Vought had received options to
purchase an aggregate of 1,650,000 shares of our common stock at a weighted
average exercise price of $0.59 per share. In general, these options vest
equally over four years. Mr. Vought is also entitled to a bonus of up to $
in the event we are sold during the term of his employment agreement. The
employment agreement may be terminated by Mr. Vought or us at any time, with or
without cause. In the event that Mr. Vought is terminated without cause or
following a change in our control, Mr. Vought will be entitled to salary
continuation and vesting of his share options for the 18 month period following
termination.

   Martin Jackson. Under the terms of his employment agreement dated May 5,
1997, Mr. Jackson receives an annual base salary of (Pounds)81,969. Mr. Jackson
is entitled to participate in our stock incentive plans. As of August 31, 1999,
Mr. Jackson had received options to purchase an aggregate of 1,025,000 shares
of our common stock at a weighted average exercise price of $0.51 per share. In
general, these options vest equally over four years. We may terminate Mr.
Jackson's employment for cause at any time, or without cause upon 12 months
written notice from the termination date. Mr. Jackson may voluntarily resign
upon three months written notice of his intention to leave.

   Thomas Cooper. Under the terms of his employment agreement dated December
16, 1994, Mr. Cooper receives an annual base salary of $161,250, with an
additional bonus of $30,000 upon successful achievement of specific objectives.
Mr. Cooper is entitled to participate in our stock incentive plans. As of
August 31, 1999, Mr. Cooper had received options to purchase an aggregate of
1,200,000 shares of our common stock at a weighted average exercise price of
$0.60 per share. These options vest equally over four years. The employment
agreement may be terminated by Mr. Cooper or us at any time, with or without
cause. In the event that Mr. Cooper is terminated without cause or following a
change in our control, Mr. Cooper will be entitled to salary continuation and
vesting of his share options for the 12 month period following termination.

Employee Stock Option Plan

   Prior to the consummation of this offering, we anticipate that we will adopt
the Virata Corporation 1999 Stock Incentive Plan. We anticipate that the plan
will also be approved by our stockholders prior to the consummation of this
offering. The 1999 Stock Incentive Plan will not limit any award to any
specified form or structure. The types and amount of awards will be determined
at the discretion of the board of directors or a committee of the board of
directors empowered to administer the 1999 Stock Incentive Plan. We anticipate
that the compensation committee of the board of directors will administer the
1999 Stock Incentive Plan following this offering. The maximum number of shares
of our common stock that may be issued under the 1999 Stock Incentive Plan is
     shares. If incentive stock options are issued, these options must comply
with Section 422 of the Internal Revenue Code. Any of our employees, non-
employee directors, independent

                                       64
<PAGE>

contractors or consultants or those of our subsidiaries are eligible to be
considered for the grant of an award under our 1999 Stock Incentive Plan. The
board of directors may amend or terminate the 1999 Stock Incentive Plan at any
time and in any matter, subject to the rights of recipients of awards under the
plan, and subject to any required stockholder approvals and the requirements of
Sections 411 and 162(m) of the Internal Revenue Code. The 1999 Stock Incentive
Plan will terminate on     , 2019. We will issue stock options to our employees
under the 1999 Stock Incentive Plan by way of individual option agreements with
each employee.

   As of August 31, 1999 there were options outstanding to purchase
19,019,214 ordinary shares issued to our employees under the plans of or
agreements with Virata Limited. The outstanding options are exercisable at a
price per share ranging between $0.02 and $1.30 and generally vest over a four-
year period from the date of grant. These options are granted in three specific
categories: ordinary, top-up and bonus. Top-up options are granted to employees
whose ordinary options have fully vested on a purely discretionary basis. Top-
up options are subject to the same vesting schedule as ordinary options. Bonus
options vest on the date granted and are generally subject to completion of
individual performance targets by the option holder. All options are non-
transferable, but form part of the option holder's estate in the event of
death. An option may be exercised in whole or in part, but not more that three
times in the period commencing on the first anniversary of the date of grant of
the option and ending on the seventh anniversary of the date of its grant. An
option lapses on the seventh anniversary from the date of its grant. In the
event that a general offer is made to the holders of our common stock to
acquire all of the outstanding shares of our common stock, we are required to
use our best efforts to ensure that the offer is extended to the option
holders. If an option holder ceases to be our employee for any reason, any
options unexercised on such date and in respect of which a right of exercise
has accrued must be exercised within 90 days of such date. Upon the expiration
of this 90 day period, any options that remain unexercised will lapse. Prior to
the consummation of this offering these options will become convertible or
exercisable into shares of our common stock.

Employee Stock Purchase Plan

   Prior to the consummation of this offering, we anticipate that we will adopt
an employee stock purchase plan for our employees, commensurate with plans
offered by companies in our industry or related industries.

Employee Benefit Plans

   We have two benefit plans, one in the United Kingdom, and a separate plan 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, we match contributions
of up to 5% of an employee's salary to the Standard Life Personal Pension
Arrangement.

   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. Under the United
States plan, we also provide a 50% matching contribution to the retirement plan
of up to $2,000 per calendar year per employee.

Limitation of Liability and Indemnification Matters

   Our Certificate of Incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Our bylaws provide that we shall
indemnify each of our directors and officers against expenses (including
attorney's fees), judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with any proceeding, arising by reason of the
fact that such person is or was one of our directors or officers or serving as
director or officer of another corporation, partnership, joint venture, trust,
or other enterprise at our request. We have also entered into agreements to
indemnify directors and certain executive officers.

                                       65
<PAGE>

                              CERTAIN TRANSACTIONS

   The following is a description of transactions during our last three fiscal
years to which we have been a party, in which the amount involved in the
transaction exceeds $60,000 and in which any director, executive officer or
holder of more than 5% of our capital stock had or will have a direct or
indirect material interest other than compensation arrangements that are
otherwise required to be described under "Management."

Issuances of Ordinary Shares

   During the past three fiscal years, we have issued ordinary shares of Virata
Limited as follows:

  .  In July 1998, we sold 1,540,000 ordinary shares in a private placement
     at a purchase price of $1.01 per share in connection with the
     acquisition of RSA Communications; and

  .  We have issued an aggregate of 1,200,644 ordinary shares in connection
     with the exercise of options by our employees.

Issuances of Preferred Stock

   During the past three fiscal years, we have issued preference shares and
warrants for preference shares of Virata Limited as follows:

  .  In May 1996, we sold 5,127,485 Series B preference shares in a private
     placement at a purchase price of (Pounds)0.70 per share;

  .  In June 1996, we sold 6,666,667 Series C preference shares in a private
     placement at a purchase price of $1.50 per share;

  .  In December 1997 and January 1998, we issued an aggregate amount of
     $2,642,980 of bridge notes that were convertible into our Series D
     preference shares.

  .  In March 1998, we issued a bridge note to Index Securities S.A. in the
     amount of $700,000 that was convertible into our Series D preference
     shares.

  .  In June 1998, we sold 24,780,934 Series D preference shares in a private
     placement at a purchase price of $1.10 per share;

  .  In June 1998, we issued 3,039,073 Series D preference shares in a
     private placement at a purchase price of $1.10 per share in connection
     with the conversion of bridge notes held by certain of our stockholders;

  .  In June 1998, we issued 15,123,062 Series D preference shares in a
     private placement at a purchase price of $1.10 per share in connection
     with the conversion of 12,460,150 Series B preference shares and
     2,000,000 Series C preference shares,

  .  In June 1998, we sold 606,500 Series D preference shares in a private
     placement at a purchase price of $1.10 per share in connection with the
     acquisition of RSA Communications;

  .  In June 1998, we issued warrants to purchase an aggregate of 1,595,054
     Series D Preference Shares for $1.10 per share to Index Securities S.A.
     in connection with its acting as placement agent in our Series D
     preference share financing; and

  .  In June 1998, we sold 21,818 Series D preference shares to Andrew Hopper
     in a private placement in exchange for Mr. Hopper serving on our
     technology advisory board.

                                       66
<PAGE>

   Our officers, directors and 5% stockholders participated in the foregoing
transactions as follows:

<TABLE>
<CAPTION>
                          Number of    Number of    Number of      Bridge Notes
                          Series B     Series C      Series D          and
Name of Purchaser          Shares       Shares        Shares       Warrants(1)
-----------------         ---------    ---------    ----------     ------------
<S>                       <C>          <C>          <C>            <C>
Gaz et Eaux.............         --           --     7,348,111             --
New Enterprise
 Associates.............    766,883(2)        --     5,582,978(3)     343,275
Oak Investment Partners
 Limited(4).............  1,429,530(2)        --     7,945,331(5)     488,508
Olivetti Telemedia
 Investments B.V. ......         --           --       870,239(6)     627,814
Oracle Corporation......         --    6,667,667(7)  4,194,421(8)     558,057
3i plc..................  2,931,072(2)        --     3,836,628(9)     245,355
Charles Cotton..........         --           --            --             --
Michael Gulett..........         --           --            --             --
Andrew Vought...........         --           --            --             --
Martin Jackson..........         --           --            --             --
Thomas Cooper...........         --           --            --             --
Dr. Hermann Hauser......         --           --        75,152(10)     75,152
Marco De Benedetti......         --           --            --             --
Gary Bloom(11)..........         --    6,667,667     4,194,421        558,057
Bandel Carano(12).......  1,429,530           --     7,945,331        488,508
Prof. Andrew Hopper.....         --           --        40,000(13)     18,182
Peter Morris(14)........    766,883           --     5,582,978        343,275
Patrick Sayer(15).......         --           --     7,348,111             --
Giuseppe Zocco(16)......         --           --     1,290,920      2,231,418
All of our directors and
 executive officers as a
 group (14 persons).....  5,127,485    6,666,667    31,183,780      4,587,761
</TABLE>
--------
(1) All of the bridge notes were subsequently converted into Series D
    preference shares in June 1998.
(2) Such shares were converted into Series D preference shares in June 1998.
(3) Includes 343,275 Series D preference shares issued upon conversion of
    bridge notes in June 1998.
(4) Includes shares beneficially owned by Oak VI Affiliated Fund Limited.
(5) Includes 488,508 Series D preference shares issued upon conversion of
    bridge notes in June 1998.
(6) Includes 627,814 Series D preference shares issued upon conversion of
    bridge notes in June 1998.
(7) 2,000,000 of such shares were converted into Series D preference shares in
    June 1998 in June 1998.
(8) Includes 558,057 Series D preference shares issued upon conversion of
    bridge notes in June 1998.
(9) Includes 245,355 Series D preference shares issued upon conversion of
    bridge notes in June 1998.
(10) Represents Series D preference shares issued upon conversion of bridge
     notes in June 1998 held by Providence Investment Company Ltd, a Company
     wholly owned by Providence Trust, of which Mr. Hauser may be a
     beneficiary.
(11) Represents shares of our common stock beneficially owned by Oracle
     Corporation, of which Mr. Bloom is an Executive Vice President. Mr. Bloom
     disclaims all beneficial ownership of these shares.
(12) Represents shares of our common stock beneficially owned by Oak Investment
     Partners, of which Mr. Carano is the General Partner. Mr. Carano disclaims
     all beneficial ownership of these shares.
(13) Includes 18,182 Series D preference shares issued upon conversion of
     bridge notes in June 1998 and 21,818 Series D preference shares issued in
     exchange for Mr. Hopper creating our technology advisory board.
(14) Represents shares of our common stock beneficially owned by New Enterprise
     Associates, of which Mr. Morris is the General Partner. Mr. Morris
     disclaims all beneficial ownership of these shares.
(15) Represents shares of our common stock beneficially owned by Gaz et Eaux,
     of which Mr. Sayer is the General Partner. Mr. Sayer disclaims all
     beneficial ownership of these shares.
(16) Includes 636,364 Series D preference shares issued upon conversion of
     bridge notes in June 1998 and 1,595,054 Series D preference shares
     issuable upon the exercise of a warrant. Represents shares of our common
     stock beneficially owned by Index Securities, S.A., and its affiliates
     Societe Financiere Mirelis S.A. and The Index Special Situations Fund, of
     which Mr. Zocco is the General Partner. Mr. Zocco disclaims all beneficial
     ownership of these shares.

                                       67
<PAGE>

   Immediately prior to the consummation of this offering, all of the
outstanding ordinary and preference shares, and any other securities that are
convertible into ordinary and preference shares, of Virata Limited will be
cancelled, new ordinary shares of Virata Limited will be issued to Virata
Corporation and shares of common stock of Virata Corporation will be issued to
the former shareholders of Virata Limited. These transactions will take place
immediately prior to the consummation of this offering and will be effected
pursuant to a share reconstruction under Section 425 of the United Kingdom
Companies Act of 1985. Any securities that are convertible or exercisable into
ordinary shares or preference shares of Virata Limited will become convertible
or exercisable into shares of our common stock upon consummation of the share
reconstruction.

Acorn Computer

   We entered into a technology license, manufacturing license and supply
agreement with Acorn Computer Group plc, in October 1998, pursuant to which
Acorn is able to manufacture certain ATM hardware with binary software and
software designs employing integrated circuits purchased from us. Acorn
Computer Group changed its name to Element 14 and the license was subsequently
transferred to Pace Electronics.  For the three year period ended August 31,
1999, we had sales to Acorn of approximately $674,000 and purchases from Acorn
of approximately $7,500. Dr. Hauser, Prof. Hopper and Mr. De Benedetti are
directors of Element 14. Messrs. Hauser, Hopper and Dr. Benedetti have no
affiliation with Pace Electronics.

Adaptive Broadband Limited

   We entered into a technology license, manufacturing license and supply
agreement in March 1998, as amended in May 1999, with Adaptive Broadband
Limited, or ABL, a wholly owned subsidiary of Adaptive Broadband Corporation,
formerly California Microwave. Under the agreement, ABL has licensed our
software and is able to design, manufacture and sell products incorporating
integrated circuits purchased from us. Prof. Hopper is a director of ABL. To
date, we have received approximately $495,000 in license fees and product
purchases from ABL and, as of August 31, 1999, there was no outstanding balance
owed to us.

Advanced RISC Machines

   We entered into a consulting arrangement in November 1997 with Advanced RISC
Machines Ltd., a United Kingdom corporation. Under the agreement Advanced RISC
Machines provided us with services relating to the development of the Lithium
integrated circuit. We entered into a per semiconductor design license
agreement in June 1999 under which we are able to design, have manufactured and
sell integrated circuits incorporating the ARM RISC microprocessor core. We
also entered into a limited use software agreement in June 1999, which provides
us with a six month evaluation license for certain software. Acorn Computer
Group plc, of which Dr. Hauser, Prof. Hopper and Mr. De Benedetti are
directors, owned approximately 40% of Advanced RISC Machines Ltd. at the time
the foregoing agreements were entered into. We have paid approximately $954,000
in fees to ARM under these agreements as of August 31, 1999 and currently have
an outstanding balance owed of approximately $226,000.

Olivetti

   We entered into a formation and license agreement in December 1993, as
supplemented in April 1994 and September 1994, with Olivetti
Telemedia and its parent, Ing. C. Olivetti & C. S.p.A. Pursuant to the license
agreement, we were granted an exclusive, world-wide license to exploit certain
technology, subject to certain conditions, and agreed to cooperate with respect
to certain technological matters, in exchange for an option, which has been
fully exercised. Additionally, we entered into an agreement with an affiliate
of Olivetti Telemedia in July 1995, under which we sold systems products to
Olivetti and its affiliates. For the three year period ended August 31, 1999,
we had sales to Olivetti Telemedia and its affiliates of approximately $209,000
and purchases from Olivetti Telemedia and its affiliates of approximately
$10,000. As of August 31, 1999, Olivetti Telemedia held approximately 9.8% of
our common stock.

                                       68
<PAGE>

Telemedia Systems Limited

   We occasionally buy products from and sell products to Telemedia Systems
Limited, a United Kingdom corporation, on terms similar to terms we negotiate
with unaffiliated third parties. For the three year period ended August 31,
1999, we had sales to Telemedia Systems of approximately $226,000 and purchases
from Telemedia Systems of approximately $293,000. Dr. Hauser, Prof. Hopper and
Mr. De Benedetti serve as directors of Telemedia Systems.


                                       69
<PAGE>

                             PRINCIPAL STOCKHOLDERS

   The following table sets forth certain information regarding the beneficial
ownership of our outstanding shares of common stock as of August 31, 1999 held
by:

  .  each person or group known to us to be the beneficial owner of more than
     5% of our outstanding common stock;

  .  each of our Named Executive Officers;

  .  each of our directors; and

  .  all of our directors and executive officers as a group.

   The number of shares of our common stock outstanding as of August 31, 1999
was calculated after giving effect to:

  .  the cancellation of all of the outstanding ordinary and preference
     shares of Virata Limited, the issuance of new ordinary shares of Virata
     Limited to Virata Corporation and the issuance of shares of common stock
     of Virata Corporation to the former shareholders of Virata Limited; and

  .  a     for 1 reverse stock split of our common stock.

These transactions will take place immediately prior to the consummation of
this offering and will be effected pursuant to a share reconstruction under
Section 425 of the United Kingdom Companies Act of 1985. Any securities that
are convertible or exercisable into ordinary shares or preference shares of
Virata Limited will become convertible or exercisable into shares of our common
stock upon consummation of the share reconstruction.

   Unless otherwise indicated, and subject to community property laws where
applicable, each of the persons named in the table have sole voting and
investment power with respect to all of the shares of common stock shown held
by them.

<TABLE>
<CAPTION>
                                        Shares
                                  Beneficially Owned Shares Beneficially
                                       Prior to        Owned After the
                                     Offering(1)         Offering(1)
                                  ------------------ ----------------------
Name                                Number   Percent  Number      Percent
----                              ---------- ------- ---------   ----------
<S>                               <C>        <C>     <C>         <C>
Gaz et Eaux(2)................... 11,547,032  12.7%
New Enterprise Associates(3).....  8,773,252   9.7
Oak Investment Partners
 Limited(4)...................... 12,485,519  13.8
Olivetti Telemedia Investments
 B.V.(5).........................  8,867,517   9.8
Oracle Corporation(6)............ 12,191,232  13.4
3i plc(7)........................  6,028,987   6.7
Charles Cotton(8)................  1,082,813   1.2
Michael Gulett(9)................         --   0.0
Andrew Vought(10)................    743,437   0.8
Martin Jackson(11)...............    537,083   0.6
Thomas Cooper(12)................    550,833   0.6
Dr. Hermann Hauser(13)...........  1,632,096   1.8
Marco De Benedetti...............         --   0.0
Gary Bloom(14)................... 12,191,232  13.4
Bandel Carano(15)................ 12,485,519  13.8
Prof. Andrew Hopper..............  1,562,857   1.7
Peter Morris(16).................  8,773,252   9.7
Patrick Sayer(17)................ 11,547,032  12.7
Giuseppe Zocco(18)...............  2,885,974   3.1
All of our directors and
 executive officers as a group
 (14 persons).................... 54,044,003  56.2
</TABLE>

                                       70
<PAGE>

--------
(1) In calculating beneficial and percentage ownership, all shares of common
    stock that a named stockholder or specified group will have the right to
    acquire within 60 days of the date of this prospectus upon exercise of
    stock options are deemed to be outstanding for the purpose of computing the
    ownership of such stockholder, but are not deemed to be outstanding for the
    purpose of computing the percentage of common stock owned by any other
    stockholder. As of August 31, 1999, an aggregate of 90,642,635 shares of
    common stock were outstanding.
(2) Gaz et Eaux's address is 3, rue Jacques Bingen, Paris, 75017, France.
(3) New Enterprise Associates' address is 1119 St. Paul Street, Baltimore, MD
    21202.
(4) Oak Investment Partners Limited's address is 525 University Avenue, Suite
    1300, Palo Alto, CA 94301.
(5) Olivetti Telemedia Investment's address is Herengracht, 548 Amsterdam, The
    Netherlands.
(6) Oracles Corporation's address is 500 Oracle Parkway, M/S 1OP836, Redwood
    Shores, CA 94065.
(7) 3i plc's address is 91 Waterloo Road, London SE1 8XP, United Kingdom.
(8) Represents shares of our common stock underlying options that are vested or
    will vest within 60 days of August 31, 1999.
(9) Represents shares of our common stock underlying options that are vested or
    will vest within 60 days of August 31, 1999.
(10) Represents shares of our common stock underlying options that are vested
     or will vest within 60 days of August 31, 1999.
(11) Represents shares of our common stock underlying options that are vested
     or will vest within 60 days of August 31, 1999.
(12) Represents shares of our common stock underlying options that are vested
     or will vest within 60 days of August 31, 1999.
(13) Represents shares of our common stock owned by Providence Investment
     Company Limited, which is wholly owned by the Providence Trust, of which
     Mr. Hauser may be a beneficiary.
(14) Represents shares held by Oracle Corporation. Mr. Bloom was nominated to
     our board of directors by Oracle. Mr. Bloom disclaims all beneficial
     ownership of these shares.
(15) Represents shares of our common stock beneficially owned by Oak Investment
     Partners, of which Mr. Carano is the General Partner. Mr. Carano disclaims
     all beneficial ownership of these shares.
(16) Represents shares of our common stock beneficially owned by New Enterprise
     Associates, of which Mr. Morris is the General Partner. Mr. Morris
     disclaims all beneficial ownership of these shares.
(17) Represents shares of our common stock beneficially owned by Gaz et Eaux,
     of which Mr. Sayer is the General Partner. Mr. Sayer disclaims all
     beneficial ownership of these shares.
(18) Includes 2,506,513 shares issuable upon the exercise of a currently
     exercisable warrant. Represents shares of our common stock beneficially
     owned by Index Securities S.A., and its affiliates Societe Financiere
     Mirelis S.A. and The Index Special Situations Fund, of which Mr. Zocco is
     the General Partner. Mr. Zocco disclaims all beneficial ownership of these
     shares.

                                       71
<PAGE>

                          DESCRIPTION OF CAPITAL STOCK

   Upon completion of this offering, our authorized capital stock will consist
of               shares of common stock, $.00l par value, and
shares of preferred stock, $.00l par value. The description of our capital
stock below and certain provisions of our charter documents is not complete and
is qualified by our certificate of incorporation and bylaws, which are included
as exhibits to the registration statement that this prospectus is a part of,
and by applicable provisions of the Delaware General Corporate Law. The
information below gives effect to:

  .  the cancellation of all of the outstanding ordinary and preference
     shares of Virata Limited, the issuance of new ordinary shares of Virata
     Limited to Virata Corporation and the issuance of shares of common stock
     of Virata Corporation to the former shareholders of Virata Limited; and

  .  a      for 1 reverse stock split of our common stock.

These transactions will take place immediately prior to the consummation of
this offering and, except for the reverse stock split, will be effected
pursuant to a share reconstruction under Section 425 of the United Kingdom
Companies Act of 1985. Any securities that are convertible or exercisable into
ordinary shares or preference shares of Virata Limited will become convertible
or exercisable into shares of our common stock upon consummation of the share
reconstruction.

Common Stock

   As of August 31, 1999, there were 90,642,635 shares of common stock
outstanding. Upon completion of this offering, there will be
shares of our common stock outstanding, assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options.
Holders of the common stock are entitled to one vote per share on each matter
submitted to a vote of our stockholders. Beneficial owners of common stock are
entitled to receive ratably those dividends declared by our board of directors
out of legally available funds. Upon our liquidation, dissolution or winding
up, our common stockholders are entitled to share ratably in all of our assets
which are legally available for distribution, after payment of all debts and
other liabilities and the liquidation preference of any outstanding series of
preferred stock. Holders of common stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of common stock are,
when issued and delivered, validly issued, fully-paid and non-assessable under
the Delaware General Corporation Law.

Preferred Stock

   Immediately prior to the consummation of this offering, all of the
outstanding preference shares of Virata Limited will be cancelled and new
shares of our common stock issued. The following illustrates the conversion of
the preference shares of Virata Limited into shares of our common stock:

<TABLE>
<CAPTION>
                                                                      Number of Common
                           Number of Preference                     Shares received Upon
Series of Preference     Shares Outstanding as of                   the Exchange of the
Shares                       August 31, 1999      Conversion Rate     Ordinary Shares
--------------------     ------------------------ ---------------   --------------------
<S>                      <C>                      <C>               <C>
Series A Preference
 Shares.................         1,798,720            1 for 1             1,798,720
Series B Preference
 Shares.................         1,394,406            1 for 1             1,394,406
Series C Preference
 Shares.................         4,666,667            1 for 1.2(1)        5,600,000
Series D Preference
 Shares.................        43,571,387            1 for 1.57(2)      68,469,323
</TABLE>
--------
(1) As a consequence of the antidilution provisions of the Series C preference
    shares, the conversion rate of the Series C preference shares was increased
    from 1 for 1 to 1 for 1.2.

(2) Pursuant to their terms, the conversion rate of the Series D preference
    shares was increased from 1 for 1 to 1 for 1.57.

                                       72
<PAGE>

   Immediately after this offering, there will be no shares of our preferred
stock outstanding. However, our certificate of incorporation provides that our
preferred stock be divisible into and issuable in one or more series. The
rights and preferences of the different series may be established by our board
of directors without further action by our stockholders. Our board of directors
will be 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.

   We believe that our board of directors' ability to issue preferred stock on
such a wide variety of terms will enable the preferred stock to be used for
important corporate purposes, such as financing acquisitions or raising
additional capital. However, were it inclined to do so, our board of directors
could issue all or part of the preferred stock with (among other things)
substantial voting power or advantageous conversion rights. This stock could be
issued to persons deemed by our board of directors likely to support our
current management in a context for control of us, either as a precautionary
measure or in response to a specific takeover threat. We have no current plans
to issue preferred stock for any purpose.

Transfer Agent and Registrar

   We intend to select a transfer agent and registrar for our common stock
prior to the closing of this offering.

Listing

   We intend to apply to have our common stock approved for quotation on the
Nasdaq National Market under symbol "VRTA"

Registration Rights

   We have entered into a registration rights agreement dated as of
               , 1999 with holders of 75,463,729 shares of our common stock or
warrants to purchase shares of our common stock (the "Registrable Securities").
The agreement grants certain registration rights with respect to these shares.
The description of our registration rights agreement below is not complete and
is qualified by our registration rights agreement that is included as an
exhibit to the Registration Statement of which this prospectus is a part.

  Requested Registration

   Any time after the earlier of (1) six months after the closing date of this
offering and (2)          , 2001, holders of at least 50% of the Registerable
Securities may request that we file a registration statement. Such request must
be with respect to at least 30% of the Registrable Securities held by such
holders and such securities must have a minimum aggregate fair market value of
at least $5.0 million. Upon such a request, we are required to use our
reasonable efforts to cause such shares to be registered, subject to certain
conditions and limitations. The holders of Registerable Securities are entitled
to two such demand registrations.

   In addition, if at any time we are entitled to file a registration statement
on Form S-3 (or any successor form), holders of at least 20% of the
Registerable Securities may request that we file a registration statement. Such
request must be with respect to Registrable Securities having a minimum
aggregate fair market value of $500,000. The holders of Registerable Securities
are entitled to two such S-3 registrations in any twelve-month period.

                                       73
<PAGE>

   If the registration is an underwritten public offering and the underwriters
limit the number of securities that may be included in the registration, then
the number of Registerable Securities that may be included in the registration
and underwriting will be allocated among the holders of Registrable Securities
requesting registration in proportion, as nearly as practicable, to the
respective number Registrable Securities requested to be registered.

  Company Registration

   If we propose to register any of our or a holder's common stock under the
Securities Act, holders of Registrable Securities have the opportunity to
include their Registerable Securities in such registration. However, if the
registration is an underwritten public offering and the underwriters limit the
number of securities that may be included in the registration, then the number
of Registerable Securities that may be included in the registration and
underwriting may be cut back to zero. In such event, any Registrable Securities
that are included in the registration and underwriting will be allocated among
the holders of Registrable Securities based on the total number of our
securities held by such holder.

  Termination of Registration Rights

   The registration rights terminate as to Registrable Securities on the
earlier of (1) the date of the sale of such Registrable Securities pursuant to
a Registration Statement or Rule 144 under the Securities Act (or any similar
provision then in force); (2) the date such Registrable Securities become
capable of being distributed pursuant to Rule 144(k); or (3) the date such
Registrable Securities become distributable without being subject to Rule 144
or registration. Notwithstanding the above, the registration rights agreement
will terminate in 2006.

                                       74
<PAGE>

       CERTAIN PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS

Stockholder Meetings

   Our bylaws provide that following this offering, any action required to be
taken or that may be taken at any meeting of our stockholders may only be taken
at a meeting of stockholders and may not be taken by the written consent of the
stockholders. Special meetings of stockholders may only be called by our board
of directors, the chairman of our board, the chief executive officer or our
president, and only such business brought forth by or at the direction of our
board of directors or the stockholders may be conducted. If a stockholder
wishes to propose an item for consideration at any meeting, the stockholder
must give written notice to us not less than 90 days before the meeting or, if
later, the tenth day following the date of the first public announcement of the
meeting, or such other date as is necessary to comply with applicable federal
proxy solicitation rules and other regulations.

Board of Directors

   Our bylaws provide that the number of directors may not be less than three
nor more than fourteen, until changed by an amendment duly adopted by our board
of directors or stockholders. Our bylaws further provide that the exact number
of directors shall be fixed from time to time, within such range, by our board
of directors. Currently, the number of directors is fixed at four. Our bylaws
provide that our board of directors will be divided into three classes of
directors, which serve for staggered three-year terms. Our bylaws do not
provide for cumulation of stockholder votes in the election of directors.
According to our bylaws, each director may be removed only for cause and only
by the affirmative vote of at least 80% of the total number of the then
outstanding shares of capital stock entitled to vote generally in the election
of directors. Our bylaws provide that nominations for election of directors may
be made by our board of directors or any stockholder entitled to vote in the
election of directors. If a stockholder wishes to nominate a director, the
stockholder must give written notice to us not less than 90 days before the
meeting or, if later, the tenth day following the date of the first public
announcement of the meeting.

Amendment of Our Charter Documents

   Our certificate of incorporation may not be amended without the approval of
the holders of a majority of our outstanding voting shares or the approval of
at least a majority of our directors. Our bylaws contain provisions requiring
the affirmative vote of at least 80% of the total number of the then
outstanding shares of capital stock entitled to vote generally in the election
of directors to amend, alter or repeal the provisions of our bylaws relating to
the calling of special meetings of stockholders, advance notice of stockholder
business or nominees, removal of directors, stockholder action without a
meeting or amendments of our bylaws. These provisions of our charter documents
may delay, defer or prevent a change in control without further action by our
stockholders, may discourage bids for the common stock at a premium over the
market price of the common stock and may adversely affect the market price of
the common stock.

Effect of Delaware Anti-takeover Statute

   We are subject to Section 203 of the Delaware General Corporation Law which,
subject to certain exceptions, prohibits a Delaware corporation from engaging
in any "business combination" which includes a merger or sale of more than 10%
of the corporation's assets, with any interested stockholder for a period of
three years following the date that such stockholder became an interested
stockholder, unless:

  .  before such date, our board of directors of the corporation approved
     either the business combination or the transaction which resulted in the
     stockholder becoming an interested stockholder;

  .  upon completion of the transaction which resulted in the stockholder
     becoming an interested stockholder, the interested stockholder owned at
     least 85% of the voting stock of the corporation outstanding at the time
     the transaction commenced, excluding those shares owned by persons who
     are directors and also officers; or

                                       75
<PAGE>

  .  on or after such date, the business combination is approved by our board
     of directors and authorized at an annual or special meeting of
     stockholders, and not by written consent, by the affirmative vote of at
     least two-thirds of the outstanding voting stock which is not owned by
     the interested stockholder.

   In general, Section 203 defines an "interested stockholder" as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation or any entity or person affiliated with or controlling or
controlled by such entity or person.

                                       76
<PAGE>

                        SHARES ELIGIBLE FOR FUTURE SALE

   Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of our common stock in the public market
could adversely affect prevailing market prices.

   Upon completion of this offering, there will be                   shares of
our common stock outstanding, assuming no exercise of the underwriters' over-
allotment option and no exercise of outstanding options. All of these shares
will be freely tradable without restriction or further registration under the
Securities Act, pursuant to an exemption provided by Section 3(a)(10) of the
Securities Act, except for any such shares held by our affiliates. Shares held
or purchased in this offering by one of our affiliates may not be sold in the
public market without registration under the Securities Act or in compliance
with an applicable exemption from registration as provided in Rule 144 or Rule
701 under the Securities Act, which rules are summarized below.

   In general, under Rule 144 as currently in effect, a person who is one of
our affiliates, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of:

  .  1% of the shares of our common stock then outstanding, equaling
     approximately              shares immediately after this offering, or

  .  the average weekly trading volume of our common stock in the public
     market during the four calendar weeks immediately before such sale.

   Sales under Rule 144 are also subject to certain requirements as to the
manner of sale, notice and availability of current public information about us.

   Under Rule 144(k), a person who has not been one of our "affiliates" at any
time during the 90 days before a sale, and who has beneficially owned shares
proposed to be sold for at least two years, is entitled to sell such shares
without regard to the volume limitations, manner of sale provisions or notice
requirements.

   Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 under the Securities Act, as
currently in effect, permits the resale of securities originally purchased from
us by our employees, directors, officers, consultants or advisers prior to the
closing of this offering in connection with a compensatory stock or option plan
or written agreement, by persons who are not our "affiliates" subject only to
the manner-of-sale provisions of Rule 144 and by our affiliates under Rule 144
without compliance with its minimum holding period requirement.

   All of our officers, directors and stockholders have agreed that they will
not offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, any of our shares or any securities convertible into or
exchangeable or exercisable for any of our shares, or publicly disclose the
intention to make any such offer, sale, pledge or disposal, for a period
beginning on the date of this prospectus and continuing to the date which is
180 days after the date of this prospectus without the prior written consent of
Credit Suisse First Boston, which consent may be withheld in its sole
discretion. Credit Suisse First Boston may, in its sole discretion and any time
without notice, release all or any portion of the securities subject to these
lock-up agreements. In addition, we have agreed that, for a period of 180 days
after the date of this prospectus, we will not, without the consent of Credit
Suisse First Boston, issue, offer, sell or grant options to purchase or
otherwise dispose of any equity securities or securities convertible into or
exchangeable for equity securities except for (1) the issuance of shares of
common stock offered hereby and (2) shares of common stock issued upon the
exercise of outstanding options on or after the date of this prospectus. See
"Underwriting."

   There are no restrictions on resale with respect to any of our securities,
other than restrictions imposed by lock-up agreements and applicable securities
laws. All of the shares of our common stock outstanding prior to this offering
will be available for sale in the public market immediately upon expiration of
the 180 day lock-up period, subject to the volume limitations and other
conditions of Rule 144 with respect to shares held by our affiliates. Sales of
our common stock by these stockholders could have a material adverse effect on
the trading price of our common stock.

                                       77
<PAGE>

                                  UNDERWRITING

   Under the terms and subject to the conditions contained in an underwriting
agreement dated     , 1999, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Warburg Dillon Read LLC
and Thomas Weisel Partners LLC are acting as representatives, the following
respective numbers of shares of common stock:

<TABLE>
<CAPTION>
                                                                          Number
                                                                            of
   Underwriters                                                           Shares
   ------------                                                           ------
   <S>                                                                    <C>
   Credit Suisse First Boston Corporation................................
   Warburg Dillon Read LLC...............................................
   Thomas Weisel Partners LLC............................................
                                                                           ----
       Total.............................................................
                                                                           ====
</TABLE>

   The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that, if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.

   We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to      additional shares at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.

   The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $     per share. The
underwriters and selling group members may allow a discount of $     per share
on sales to other     broker/dealers. After the initial public offering, the
public offering price and concession and discount to broker/dealers may be
changed by the representatives.

   The following table summarizes the compensation and estimated expenses we
will pay:

<TABLE>
<CAPTION>
                                                            Total
                                                -----------------------------
                                           Per     Without          With
                                          Share Over-allotment Over-allotment
                                          ----- -------------- --------------
      <S>                                 <C>   <C>            <C>
      Underwriting discounts and
       commissions paid by us............  $        $             $
      Expenses payable by us.............  $        $             $
</TABLE>

   The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.

   We, our executive officers and directors, and existing holders of our
securities which holders own or have the right to acquire more than 1% of our
outstanding shares of common stock, have agreed that we will not offer, sell,
contract to sell, announce our intention to sell, pledge or otherwise dispose
of, directly or indirectly, or file with the Securities and Exchange Commission
a registration statement under the Securities Act relating to, any shares of
our common stock or securities convertible into or exchangeable or exercisable
for any of our common stock without the prior written consent of Credit Suisse
First Boston Corporation for a period of 180 days after the date of this
prospectus, except in our case issuances pursuant to the exercise of employee
stock options outstanding on the date hereof.

   The underwriters have reserved for sale, at the initial public offering
price, up to           shares of common stock for employees, directors and
other persons associated with us who have expressed an interest in

                                       78
<PAGE>

purchasing common stock in the offering. The number of shares available for
sale to the general public in this offering will be reduced to the extent these
persons purchase the reserved shares. Any reserved shares not so purchased will
be offered by the underwriters to the general public on the same terms as the
other shares.

   We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be
required to make in that respect.

   We intend to apply to list our shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "VRTA."

   Prior to the offering, there has been no public market for the common stock.
The initial public offering price for the common stock will be determined by
negotiation between us and the representatives, and may not reflect the market
price for the common stock following this offering. The principal factors
considered in determining the initial public offering price of our common stock
will be:

  .  the information in this prospectus and otherwise available to the
     representatives;

  .  market conditions for initial public offerings;

  .  the history of and prospects for the industry in which we will compete;

  .  the ability of our management;

  .  our prospects for future earnings, the present state of our development
     and our current financial condition;

  .  the recent market prices of, and the demand for, publicly traded common
     stock of generally comparable companies; and

  .  the general condition of the securities markets at the time of this
     offering.

   We cannot be sure that the initial public offering price will correspond to
the price at which common stock will trade in the public market following this
offering or that an active trading market for the common stock will develop and
continue after this offering.

   The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934, as amended.

  .  Over-allotment involves syndicate sales in excess of the offering size,
     which creates a syndicate short position.

  .  Stabilizing transactions permit bids to purchase shares of the common
     stock so long as the stabilizing bids do not exceed a specified maximum.

  .  Syndicate covering transactions involve purchases of the common stock in
     the open market after the distribution has been completed in order to
     cover syndicate short positions.

  .  Penalty bids permit the representatives to reclaim a selling concession
     from a syndicate member when the common stock originally sold by the
     syndicate member is purchased in a syndicate covering transaction to
     cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.

                                       79
<PAGE>

   Each underwriter has represented and agreed that:

  .  it and each of its affiliates has not offered or sold, and will not
     offer or sell any common stock to persons in the United Kingdom, except
     to those persons whose ordinary activities involve them in acquiring,
     holding, managing or disposing of investments (as principal or agent)
     for the purpose of their businesses or otherwise in circumstances which
     have not resulted and will not result in an offer to the public in the
     United Kingdom within the meaning of the Public Offers of Securities
     Regulations 1995;

  .  it and each of its affiliates has complied and will comply with all
     applicable provisions of the Financial Services Act 1986 with respect to
     anything done by it in relation to the common stock in, from or
     otherwise involving the United Kingdom; and

  .  it and each of its affiliates has only issued or passed on and will only
     issue or pass on in the United Kingdom any document received by it in
     connection with the issue of the common stock to a person who is of a
     kind described in Article 11(3) of the Financial Services Act 1986
     (Investment Advertisements) (Exemptions) Order 1996 or is a person to
     whom the document may otherwise lawfully be issued or passed on.

   Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-manager on
61 filed public offerings or equity securities, of which 33 have been
completed, and has acted as a syndicate member in an additional 32 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us pursuant to the underwriting agreement entered into in connection with this
offering.

                                       80
<PAGE>

                          NOTICE TO CANADIAN RESIDENTS

Resale Restrictions

   The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.

Representations of Purchasers

   Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (1) the purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under the securities laws, (2) where required
by law, that the purchaser is purchasing as principal and not as agent, and (3)
the purchaser has reviewed the text above under "Resale Restrictions."

Rights of Action (Ontario Purchasers)

   The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U. S. federal securities.

Enforcement of Legal Rights

   All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or these
persons in Canada or to enforce a judgment obtained in Canadian courts against
such issuer or persons outside of Canada.

Notice to British Columbia Residents

   A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. This report must be
in the form attached to British Columbia Securities Commission Blanket Order
BOR #95/17, a copy of which may be obtained from us. Only one report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.

Taxation and Eligibility for Investment

   Canadian purchasers of common stock should consult with their own legal and
tax advisors with respect to the tax consequences of an investment in the
common stock in their particular circumstances and with respect to the
eligibility of the common stock for investment by the purchaser under relevant
Canadian legislation.

                                       81
<PAGE>

                                 LEGAL MATTERS

   Certain legal matters with respect to the legality of the issuance of the
shares of common stock offered hereby will be passed upon for us by Gibson,
Dunn & Crutcher LLP, San Francisco, California. Certain legal matters in
connection with this offering will be passed upon for the underwriters by
Brobeck, Phleger & Harrison LLP, San Francisco, California.

                                    EXPERTS

   The consolidated financial statements of Virata Corporation as of March 31,
1998 and 1997 and for each of the three years in the period ended March 31,
1999 included in this prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.

   The financial statements of RSA Communications, Inc. as of March 31, 1998
and 1997 and for the period from June 6, 1997 through March 31, 1998, the
period from April 1, 1997 through June 5, 1997, and the year ended March 31,
1997 included in this prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.

                             ADDITIONAL INFORMATION

   We filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered in this offering. This prospectus does not contain all of
the information contained in the registration statement and the exhibits and
schedule filed with the registration statement. For further information with
respect to Virata and the common stock offered in this offering, we refer you
to the registration statement and the exhibits and schedules filed as a part of
the registration statement. Statements contained in this prospectus concerning
the contents of any contract or any other document referred to are not
necessarily complete. We refer you to the copy of such contract or document
filed as an exhibit to the registration statement.

   Our registration statement, including exhibits and schedules attached
thereto, may be inspected without charge at the Securities and Exchange
Commission's public reference facilities in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Securities and Exchange Commission's
regional offices located at the Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048. You may also obtain copies of all or any part
of our registration statement from such offices after payment of fees
prescribed by the Securities and Exchange Commission. The Securities and
Exchange Commission maintains a worldwide website that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Securities and Exchange Commission at
http://www.sec.gov.


                                       82
<PAGE>

                               VIRATA CORPORATION

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Virata Corporation
Report of Independent Accountants..........................................  F-2
Consolidated Balance Sheet.................................................  F-3
Consolidated Statement of Operations.......................................  F-4
Consolidated Statement of Stockholders' Equity (Deficit)...................  F-5
Consolidated Statement of Cash Flows.......................................  F-6
Notes to Consolidated Financial Statements.................................  F-7
RSA Communications, Inc.
Report of Independent Accountants.......................................... F-21
Balance Sheet.............................................................. F-22
Statement of Operations.................................................... F-23
Statement of Stockholder's Equity (Deficit)................................ F-24
Statement of Cash Flows.................................................... F-25
Notes to Financial Statements.............................................. F-26
Pro Forma Combined Financial Information (unaudited)
Overview................................................................... F-32
Pro Forma Combined Statement of Operations (unaudited)..................... F-33
Notes to Pro Forma Combined Financial Information (unaudited).............. F-34
</TABLE>

                                      F-1
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of Virata Corporation

   In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity (deficit) and
of cash flows present fairly, in all material respects, the financial position
of Virata Corporation and its subsidiaries (the "Company") at March 31, 1998
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended March 31, 1999, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP
San Jose, California
August 31, 1999

                                      F-2
<PAGE>

                               VIRATA CORPORATION

                           CONSOLIDATED BALANCE SHEET
                (in thousands, except share and per share data)
<TABLE>
<CAPTION>
                                                                     Pro Forma,
                                                                    Stockholders
                                        March 31,                    Equity at
                                    ------------------   June 30,     June 30,
                                      1998      1999       1999         1999
                                    --------  --------  ----------- ------------
                                                        (unaudited) (unaudited)
                                                                     (Note 12)
<S>                                 <C>       <C>       <C>         <C>
ASSETS
Current Assets:
  Cash and cash equivalents.......  $    767  $  8,616   $  6,509
  Short-term investments..........       --      1,001        --
  Accounts receivables, net of
   allowance for doubtful accounts
   and returns of $1,567, $2,742
   and $370, respectively.........     2,091     2,267      2,116
  Inventories.....................       434       264        381
  Other current assets............     1,352     1,232      1,879
                                    --------  --------   --------
   Total current assets...........     4,644    13,380     10,885
Property and equipment, net.......     1,306     2,479      2,296
Intangible assets.................       --      3,324      3,130
                                    --------  --------   --------
   Total assets...................  $  5,950  $ 19,183   $ 16,311
                                    ========  ========   ========
LIABILITIES AND STOCKHOLDERS'
 EQUITY (DEFICIT)
Current Liabilities:
  Accounts payable................  $  1,727  $  2,112   $  1,959
  Accrued liabilities.............     2,641     1,887      2,408
  Deferred revenue................       317       489        433
  Convertible loan from related
   parties........................     2,712       --         --
  Short-term borrowings...........       417       --         --
  Capital lease obligations,
   current........................       483       850        905
                                    --------  --------   --------
   Total current liabilities......     8,297     5,338      5,705
Capital lease obligations, long-
 term.............................       738     1,130        995
                                    --------  --------   --------
                                       9,035     6,468      6,700
                                    --------  --------   --------
Commitments (Note 8)
Stockholders' Equity (Deficit)
  Convertible Preferred Stock,
   $0.02 par value; 36,100,000,
   86,100,000 and 86,100,000
   (unaudited) shares authorized
   at March 31, 1998 and 1999 and
   June 30, 1999, respectively;
   22,319,943, 51,431,179 and
   51,431,179 (unaudited) shares
   issued and outstanding at
   March 31, 1998 and 1999 and
   June 30, 1999, respectively
   (liquidation preference $57,929
   (unaudited) at June 30, 1999)..     1,719       811        811
  Common Stock, $0.02 par value;
   45,000,000, 95,000,000 and
   95,000,000 (unaudited) shares
   authorized at March 31, 1998
   and 1999, and June 30, 1999,
   respectively; 11,752,415,
   13,340,644, and 13,348,644
   (unaudited) shares issued and
   outstanding at March 31, 1998
   and 1999, and June 30, 1999,
   respectively...................       185       211        211
  Additional paid-in capital......    29,985    63,513     63,611
  Accumulated other comprehensive
   income (loss)..................        56       308        (47)
  Unearned stock compensation.....    (1,559)   (1,500)    (1,332)
  Accumulated deficit.............   (33,471)  (50,628)   (53,643)
                                    --------  --------   --------
   Total stockholders' equity
    (deficit).....................    (3,085)   12,715      9,611
                                    --------  --------   --------
   Total liabilities and
    stockholders' equity
    (deficit).....................  $  5,950  $ 19,183   $ 16,311
                                    ========  ========   ========
</TABLE>

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

                                      F-3
<PAGE>

                               VIRATA CORPORATION

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

<TABLE>
<CAPTION>
                                                              Three months
                                Year Ended March 31,         Ended June 30,
                            ------------------------------  -----------------
                              1997      1998       1999      1998      1999
                            --------  ---------  ---------  -------  --------
                                                              (unaudited)
<S>                         <C>       <C>        <C>        <C>      <C>
Revenues:
  Semiconductors........... $    --   $     505  $   2,784  $   675  $  1,419
  License..................      971      1,570      1,628      994       274
  Services and royalty.....    1,134      1,206      2,367      341       373
  Systems..................    4,848      5,650      2,477      754       599
                            --------  ---------  ---------  -------  --------
    Total revenues.........    6,953      8,931      9,256    2,764     2,665
                            --------  ---------  ---------  -------  --------
Cost of revenues:
  Semiconductors...........      --         325      2,421      419       811
  License..................      --         --         --       --        --
  Services and royalty.....      185        192        528       55       138
  Systems..................    3,754      3,270      1,048      444       324
                            --------  ---------  ---------  -------  --------
    Total cost of
     revenues..............    3,939      3,787      3,997      918     1,273
                            --------  ---------  ---------  -------  --------
Gross profit...............    3,014      5,144      5,259    1,846     1,392
                            --------  ---------  ---------  -------  --------
Operating expenses:
  Research and
   development.............    3,518      3,987      8,323    1,202     2,549
  Sales and marketing......    4,753      4,076      2,917      532       923
  General and
   administrative..........    3,410      4,917      5,567      759       903
  Restructuring costs......      --       1,871        --       --        --
  Amortization of
   intangible assets.......      --         --         549      --        194
  Amortization of stock
   compensation............      --         399      1,394      306       266
  Acquired in-process
   research and
   development.............      --         --       5,260      --        --
                            --------  ---------  ---------  -------  --------
    Total operating
     expenses..............   11,681     15,250     24,010    2,799     4,835
                            --------  ---------  ---------  -------  --------
Loss from operations.......   (8,667)   (10,106)   (18,751)    (953)   (3,443)
Interest expense...........      (72)      (214)      (155)     (58)      (49)
Interest income and other
 income (expense), net.....      199         42      1,749       68       477
                            --------  ---------  ---------  -------  --------
Net loss................... $ (8,540) $ (10,278) $ (17,157) $  (943) $ (3,015)
                            ========  =========  =========  =======  ========
Basic and diluted net loss
 per share................. $  (0.80) $   (0.90) $   (1.33) $ (0.08) $  (0.23)
                            ========  =========  =========  =======  ========
Weighted average common
 shares--basic
 and diluted...............   10,676     11,482     12,881   11,765    13,346
                            ========  =========  =========  =======  ========
Unaudited pro forma basic
 and diluted net loss per
 share (Note 1)............                      $   (0.21)          $  (0.04)
                                                 =========           ========
Pro forma weighted average
 shares--basic and diluted                          80,900             84,646
                                                 =========           ========
</TABLE>

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

                                      F-4
<PAGE>

                              VIRATA CORPORATION

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

<TABLE>
<CAPTION>
                      Convertible                               Accumulated                               Total
                    Preferred Stock   Common Stock  Additional     Other       Unearned               Stockholders'     Total
                    ----------------  -------------  Paid-in   Comprehensive    Stock     Accumulated    Equity     Comprehensive
                    Shares   Amount   Number Amount  Capital   Income (Loss) Compensation   Deficit     (Deficit)      Income
                    ------  --------  ------ ------ ---------- ------------- ------------ ----------- ------------- -------------
 <S>                <C>     <C>       <C>    <C>    <C>        <C>           <C>          <C>         <C>           <C>
 Balance, March
 31, 1996.........   12,940 $  1,564  10,600 $  165  $ 14,437      $ 338       $    --     $ (14,653)    $ 1,851      $    --
  Issuance of
  Series B
  convertible
  preferred
  stock...........    2,713       45     --     --      3,080        --             --           --        3,125           --
  Issuance of
  Series C
  convertible
  preferred
  stock...........    6,667      110     --     --     10,453        --             --           --       10,563           --
  Issuance of
  common stock for
  cash............      --       --      337      6        19        --             --           --           25           --
  Net loss........      --       --      --     --        --         --             --        (8,540)     (8,540)       (8,540)
  Currency
  translation
  adjustment......      --       --      --     --        --        (172)           --           --         (172)         (172)
                    ------- --------  ------ ------  --------      -----       --------    ---------     -------      --------
 Balance, March
 31, 1997.........   22,320    1,719  10,937    171    27,989        166            --       (23,193)      6,852        (8,712)
                                                                                                                      ========
 Issuance of
 common stock for
 cash.............      --       --      815     14        38        --             --           --           52           --
 Unearned stock
 compensation.....      --       --      --     --      1,958        --          (1,958)         --          --            --
 Amortization of
 unearned stock
 compensation.....      --       --      --     --        --         --             399          --          399           --
 Net loss.........      --       --      --     --        --         --             --       (10,278)    (10,278)      (10,278)
 Currency
 translation
 adjustment.......      --       --      --     --        --        (110)           --           --         (110)         (110)
                    ------- --------  ------ ------  --------      -----       --------    ---------     -------      --------
 Balance, March
 31, 1998.........   22,320    1,719  11,752    185    29,985         56         (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.....   25,417      410     --     --     24,672        --             --           --       25,082           --
 Issuance of
 Series D
 convertible
 preferred stock,
 common stock and
 options for
 acquisition......      606       10   1,540     25     3,549        --             --           --        3,584           --
 Issuance of
 Series D
 convertible
 preferred stock
 upon conversion
 of debt..........    2,403       38     --     --      2,576        --             --           --        2,614           --
 Issuance of
 Series D
 convertible
 preferred stock
 for cash.........       22      --      --     --         24        --             --           --           24           --
 Issuance of
 common stock for
 cash.............      --       --       49      1         6        --             --           --            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           --
 Net loss.........      --       --      --     --        --         --             --       (17,157)    (17,157)      (17,157)
 Unrealized gain
 on investments...      --       --      --     --        --           1            --           --            1             1
 Currency
 translation
 adjustment.......      --       --      --     --        --         251            --           --          251           251
                    ------- --------  ------ ------  --------      -----       --------    ---------     -------      --------
 Balance, March
 31, 1999.........   51,431      811  13,341    211    63,513        308         (1,500)     (50,628)     12,715       (16,905)
                                                                                                                      ========
 Issuance of
 common stock for
 cash
 (unaudited)......      --       --        8    --        --         --             --           --          --            --
 Unearned stock
 compensation
 (unaudited)......      --       --      --     --         98        --             (98)         --          --            --
 Amortization of
 unearned stock
 compensation
 (unaudited)......      --       --      --     --        --         --             266          --          266           --
 Net loss
 (unaudited)......      --       --      --     --        --         --             --        (3,015)     (3,015)       (3,015)
 Currency
 translation
 adjustment
 (unaudited)......      --       --      --     --        --        (355)           --           --         (355)         (355)
                    ------- --------  ------ ------  --------      -----       --------    ---------     -------      --------
 Balance, June 30,
 1999
 (unaudited)......   51,431 $    811  13,349 $  211  $ 63,611      $ (47)      $ (1,332)   $ (53,643)    $ 9,611      $ (3,370)
                    ======= ========  ====== ======  ========      =====       ========    =========     =======      ========
</TABLE>

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

                                      F-5
<PAGE>

                               VIRATA CORPORATION

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                              Three Months
                                Year Ended March 31,         Ended June 30,
                            ------------------------------  ------------------
                              1997      1998       1999       1998      1999
                            --------  ---------  ---------  --------  --------
                                                               (unaudited)
<S>                         <C>       <C>        <C>        <C>       <C>
Cash flows from operating
 activities:
 Net loss.................. $ (8,540) $ (10,278) $ (17,157) $   (943) $ (3,015)
 Adjustments to reconcile
  net loss to net cash used
  in operating activities:
  Provision for doubtful
   accounts and returns....      111      1,075      1,458        26       189
  Acquired in-process
   research and
   development.............      --         --       5,260       --        --
  Depreciation and
   amortization............    1,085      1,149      1,677       225       643
  Amortization of stock
   compensation............      --         399      1,394       306       266
  Changes in current assets
   and liabilities:
   Accounts receivable.....     (797)    (1,665)      (708)     (420)      (26)
   Inventories.............     (129)       387        176       311      (108)
   Other current assets....     (615)      (479)       133       579      (624)
   Accounts payable........    1,027       (313)    (1,187)     (668)     (187)
   Accrued liabilities.....      818         95       (772)     (132)      485
   Deferred revenue........      --         317        167       (43)      (30)
                            --------  ---------  ---------  --------  --------
    Net cash used in
     operating activities..   (7,040)    (9,313)    (9,559)     (759)   (2,407)
                            --------  ---------  ---------  --------  --------
Cash flows from investing
 activities:
 Sale of short-term
  investments..............      --         --         --        --      1,001
 Purchase of short-term
  investment...............      --         --      (1,000)      --        --
 Purchase of property and
  equipment, net...........   (1,376)      (193)    (2,088)     (687)      (53)
 Cash paid in connection
  with acquisition, net of
  cash acquired............      --         --      (5,149)      --        --
                            --------  ---------  ---------  --------  --------
    Net cash (used in)
     provided by investing
     activities............   (1,376)      (193)    (8,237)     (687)      948
                            --------  ---------  ---------  --------  --------
Cash flows from financing
 activities:
 Proceeds from issuance of
  convertible preferred
  stock, net of issuance
  costs....................   13,688        --      25,106    24,957       --
 Proceeds from issuance of
  common stock.............       25         52          7         3       --
 Proceeds from capital
  leases...................      981        372      1,116       673        31
 Repayments of capital
  lease obligations........     (122)      (282)      (318)     (144)      (81)
 Proceeds from convertible
  loan.....................      --       2,739        --        --        --
 Proceeds from (repayment
  of) bank borrowings......      --         417       (417)     (395)      --
                            --------  ---------  ---------  --------  --------
    Net cash provided by
     (used in) financing
     activities............   14,572      3,298     25,494    25,094       (50)
                            --------  ---------  ---------  --------  --------
Effect of exchange rate
 changes on cash...........     (183)      (314)       151        78      (598)
                            --------  ---------  ---------  --------  --------
Net increase (decrease) in
 cash and cash
 equivalents...............    5,973     (6,522)     7,849    23,726    (2,107)
                            --------  ---------  ---------  --------  --------
Cash and cash equivalents
 at beginning of period....    1,316      7,289        767       767     8,616
                            --------  ---------  ---------  --------  --------
Cash and cash equivalents
 at end of period.......... $  7,289  $     767  $   8,616  $ 24,493  $  6,509
                            ========  =========  =========  ========  ========
</TABLE>

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

                                      F-6
<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. In July 1998, the Company
completed its acquisition of RSA Communications, Inc. ("RSA"), a corporation
organized in North Carolina (see Note 4). RSA was subsequently renamed to
Virata Raleigh Corporation.

   The Company is a provider of solutions that integrate communication
processors with a suite of software for the digital subscriber line equipment
market.

 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.

 Interim financial information (unaudited)

   The accompanying interim consolidated financial statements as of June 30,
1999 and for the three months ended June 30, 1998 and 1999 are unaudited but
have been prepared on the same basis as the annual financial statements and, in
the opinion of management, reflect all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the Company's financial
condition at June 30, 1999 and the results of operations and cash flows for the
three months ended June 30, 1998 and 1999. The results of operations of any
interim period are not necessarily indicative of the results of operations for
the full year.

 Use of estimates

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

 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 does not
exist, then 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 one year, and recognizes revenues from design services provided to
customers as the services are performed.

                                      F-7
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Cash equivalents

   The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. At March 31,
1998 and 1999, $717,000 and $7,142,000, respectively, of money market funds and
certificate of deposits, the fair value of which approximates costs, are
included in cash and cash equivalents. The Company deposits cash and cash
equivalents with high credit quality financial institutions.

 Investments

   Investments consist of high quality debt securities with original maturity
dates greater than ninety days. In accordance with Statement of Financial
Accounting Standard ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," the Company's investments are classified as
available-for-sale and, at the balance sheet date, are reported at fair value,
with the unrealized gains and losses, net of related taxes, reported as a
component of Other Comprehensive Income (Loss). The cost of these investments
at March 31, 1999 was $1,000,000. Gains and losses on the sale of available-
for-sale securities are determined using the specific-identification method.

 Fair value of financial instruments

   Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable,
accrued expenses and other liabilities approximate fair value due to their
short maturities. Based upon borrowing rates currently available to the Company
for leases with similar terms, the carrying value of capital lease obligations
approximate fair value.

 Segment information

   Effective April 1, 1998, the Company adopted the provisions of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related 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 March 31, 1999, the Company operated in one operating
segment, primarily in the United States and Europe.

 Concentration of credit risk

   Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents, and accounts
receivable. The Company's accounts receivable are derived from revenues earned
primarily from customers located in the U.S. and Europe. 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.

                                      F-8
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The Company currently has the following concentrations of revenues and trade
accounts receivables:

<TABLE>
<CAPTION>
                                                       Year Ended      Three Months
                                                       March 31,          Ended
                                                     ----------------    June 30,
                                                     1997  1998  1999      1999
                                                     ----  ----  ----  ------------
                                                                       (unaudited)
<S>                                                  <C>   <C>   <C>   <C>
Revenues
--------
Customer A..........................................  --    10%   16%       40%
Customer B..........................................  21%   17%   22%       17%
Customer C..........................................  --    10%    3%       --
Customer D..........................................  --    --    --        10%
</TABLE>

   Revenues from customers located outside the United States were 47% in 1997,
44% in 1998 and 40% in 1999, respectively. The Company has $974,000 and
$1,800,000 invested in identifiable tangible assets in Europe as of March 31,
1998 and 1999. The remaining identifiable tangible assets are located in the
United States.

<TABLE>
<CAPTION>
                                                           March 31,
                                                           ----------   June 30,
                                                           1998  1999     1999
                                                           ----  ----  -----------
                                                                       (unaudited)
<S>                                                        <C>   <C>   <C>
Accounts Receivable
-------------------
Customer A................................................  23%   54%       50%
Customer B................................................  11%   11%        9%
Customer C................................................  28%   --        --
Customer E................................................  18%   --        --
</TABLE>

 Inventories

   Inventories include raw materials and finished goods and are stated at the
lower of cost or market, cost being determined using the first-in, first-out
method.

 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.....................................   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.

 Intangible assets

   Intangible assets consist of goodwill, which is being amortized on a
straight line basis over five years.

   The Company investigates potential impairments of its goodwill on an
exception basis when evidence exists that events or changes in circumstances
may have made recovery of the carrying value unlikely. An impairment loss is
recognized when the expected undiscounted future net cash flows is less than
the carrying amount of the asset. No such losses have been identified to date.

                                      F-9
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Recent accounting pronouncement

   In June 1998, the Financial Accounting Standards Board ("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 is unable to
predict the impact of adopting SFAS No. 133 if it were to engage in derivative
and hedging activities in the future.

 Net loss per share

   The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share" and SEC Staff Accounting Bulletin ("SAB") No. 98. Under
the provisions of SFAS No. 128 and SAB No. 98, basic and diluted net loss per
share is computed by dividing the net loss available to holders of common stock
for the period by the weighted average number of shares of common stock
outstanding during the period. The calculation of diluted net loss per share
excludes potential shares of common stock if their effect is anti-dilutive.
Potential common stock consists of shares of common stock issuable upon the
exercise of stock options and warrants and shares issuable upon conversion of
the Series A, Series B, Series C and Series 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>
                                                  March 31,         June 30,
                                             -------------------- -------------
                                              1997   1998   1999   1998   1999
                                             ------ ------ ------ ------ ------
                                                                   (unaudited)
<S>                                          <C>    <C>    <C>    <C>    <C>
Series A convertible preferred stock........  1,799  1,799  1,799  1,799  1,799
Series B convertible preferred stock........ 13,855 13,855  1,394  1,394  1,394
Series C convertible preferred stock........  8,000  8,000  5,600  5,600  5,600
Series D convertible preferred stock........    --     --  68,469 67,516 68,469
Convertible preferred stock warrants........     74    139  2,892  2,646  2,903
Common stock warrants.......................    --      75     75     75     75
Common stock options........................  2,777  4,796 14,516  7,855 19,465
                                             ------ ------ ------ ------ ------
                                             26,505 28,664 94,745 86,885 99,705
                                             ====== ====== ====== ====== ======
</TABLE>

 Pro forma net loss per share (unaudited)

   Pro forma net loss per share for the year ended March 31, 1999 is computed
using the weighted average number of shares of common stock outstanding,
including the pro forma effects of the automatic conversion of the Company's
Series A, B, C and D convertible preferred stock and preferred stock warrants
into shares of the Company's common stock effective upon the closing of the
Company's initial public offering as if such conversion occurred on April 1,
1998, or at the date of original issuance, if later. The resulting pro forma
adjustment includes an increase in the weighted average shares used to compute
basic net loss per share for the year ended March 31, 1999. The calculation of
diluted net loss per share excludes potential shares of common stock as their
effect would be anti-dilutive.


                                      F-10
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 Stock compensation

   The Company accounts for stock compensation arrangements in accordance with
provision of Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees" and complies with the disclosure provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation." Under APB 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."

 Comprehensive income

   Comprehensive income consists of foreign currency translation gains and
losses and other unrealized gains and losses arising from the valuation of
short-term investments and is presented in the Consolidated Statement of
Stockholders' Equity (Deficit). Balance sheet accounts of foreign operations
are translated using the year-end exchange rate, and income statement accounts
are translated on a monthly basis using the average exchange rate for the
period. Unrealized gains and losses on translation adjustments are recorded in
stockholders' equity as other comprehensive income. The 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 and as of March
31, 1997, 1998 and 1999 the Company recognized (losses) gains of $(198,000),
$(80,000) and $432,000, respectively.

Note 2--Supplemental Cash Flow Information (in thousands):

<TABLE>
<CAPTION>
                                            Year ended March    Three Months
                                                   31,          Ended June 30,
                                           ------------------- ---------------
                                           1997   1998   1999   1998    1999
                                           ----- ------ ------ ------- -------
                                                                 (Unaudited)
<S>                                        <C>   <C>    <C>    <C>     <C>
Supplemental cash flow information:
  Cash paid for income taxes.............. $ 800 $  800 $  800
                                           ===== ====== ======
  Cash paid for interest.................. $  55 $  197 $  180
                                           ===== ====== ======
Supplemental noncash investing and
 financing activity:
  Issuance of preferred stock for
   convertible loan....................... $ --  $  --  $2,712 $   --  $   --
                                           ===== ====== ====== ======= =======
  Issuance of stock and options in
   connection
   with acquisition....................... $ --  $  --  $2,921 $   --  $   --
                                           ===== ====== ====== ======= =======
  Unearned compensation in connection with
   issuance of stock options.............. $ --  $1,958 $1,335 $   --  $    98
                                           ===== ====== ====== ======= =======
  Issuance of warrants in connection with
   financing.............................. $ --  $  --  $  949 $   --  $   --
                                           ===== ====== ====== ======= =======
</TABLE>

                                      F-11
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

<TABLE>
<CAPTION>
                                                     March 31
                                                  ----------------   June 30,
                                                   1998     1999       1999
                                                  -------  -------  -----------
                                                                    (unaudited)
<S>                                               <C>      <C>      <C>
Inventories:
  Finished goods................................. $   394  $    26     $376
  Raw materials..................................      40      238        5
                                                  -------  -------     ----
                                                  $   434  $   264     $381
                                                  =======  =======     ====
Other current assets:
  Prepaid expenses............................... $   293  $   564
  Deposits.......................................     346      113
  Other current assets...........................     713      555
                                                  -------  -------
                                                  $ 1,352  $ 1,232
                                                  =======  =======
Property and equipment, net:
  Office equipment............................... $ 2,156  $ 2,856
  Furniture and fixtures.........................     206      247
  Leasehold improvements.........................     136      429
  Research and development equipment.............   1,881    3,039
                                                  -------  -------
                                                    4,379    6,571
  Less: Accumulated depreciation and
   amortization..................................  (3,073)  (4,092)
                                                  -------  -------
                                                  $ 1,306  $ 2,479
                                                  =======  =======
</TABLE>

   Property and equipment includes $2,200,000 and $3,485,000 of computer
equipment and internal-use software under capital leases at March 31, 1998, and
1999, respectively. Accumulated amortization of assets under capital leases
totaled $1,319,000 and $2,015,000 at March 31, 1998 and 1999, respectively.

<TABLE>
<CAPTION>
                                                                    March 31
                                                                  -------------
                                                                   1998   1999
                                                                  ------ ------
   <S>                                                            <C>    <C>
   Intangible assets:
     Goodwill.................................................... $  --  $3,873
     Less: Accumulated amortization..............................    --    (549)
                                                                  ------ ------
                                                                  $  --  $3,324
                                                                  ====== ======
   Accrued liabilities:
     Compensation accrual........................................ $  821 $  869
     Royalty obligation .........................................    532    --
     Contract accrual............................................    422    --
     Other.......................................................    866  1,018
                                                                  ------ ------
                                                                  $2,641 $1,887
                                                                  ====== ======
</TABLE>

   In fiscal year 1998, the Company recorded an accrual for $422,000 related to
an obligation of the Company to reimburse suppliers for cancelled purchase
orders related to systems products.

                                      F-12
<PAGE>

                              VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 4--Acquisition of RSA:

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

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

<TABLE>
   <S>                                                                   <C>
   In-process research and development.................................. $5,260
   Goodwill.............................................................  3,873
   Net assets...........................................................    142
                                                                         ------
   Total purchase price................................................. $9,275
                                                                         ======
</TABLE>

   The total purchase price of $9,275,000 million consisted of 1,540,000
shares of the Company's Common Stock valued at $1,417,000 million, 606,500
Series D Preferred Convertible Stock valued at $668,000, 1,993,000 stock
options valued at $1,505,000 million, cash of $5,332,000 million and
acquisition related expenses of approximately $353,000 consisting primarily of
legal and other professional fees. The Company valued the options using the
Black-Scholes option pricing model, applying 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 $0.92.

   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 modem chips and replacement
cost method for software algorithms. The acquired in-process technology was
not considered to have reached technological feasibility and had no
alternative future use. Accordingly, the amount was charged to operations upon
acquisition.

   The income method of valuation for the modem chips was determined using a
modified version of the relief from royalty avoided by the Company upon the
purchase of RSA. 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 algorithm which requires a special skill set for its development was
valued using the replacement cost method which considered cost incurred
through the valuation date.

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

   The following unaudited pro forma financial information presents 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,
                                                             ------------------
                                                               1998      1999
                                                             --------  --------
                                                                (unaudited)
   <S>                                                       <C>       <C>
   Revenues................................................. $ 13,251  $ 10,075
   Net loss.................................................  (11,931)  (19,224)
   Basic and diluted net loss per share.....................    (0.92)    (1.44)
</TABLE>

                                     F-13
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 5--Restructuring:

   In September 1997, the Company implemented a new business strategy focusing
on semiconductors and reduced the resources allocated to its systems line of
business. A restructuring plan was implemented in the second half of the fiscal
year ended March 31, 1998, which resulted in one time charges of $1,871,000 in
the fiscal year ended March 31, 1998. Approximately, $900,000 of the
restructuring charge represents employee costs, $900,000 represent asset write
downs and $71,000 related to other restructuring costs. As of March 31, 1998
the Company had reduced the operations of the systems business including
reducing headcount from the prior years level by approximately 33%. The Company
continues to sell its systems products to one principal customer and systems
revenues for the three months ended June 30, 1999 were $599,000.

   The following table lists the components of the restructuring accrual for
the year ended March 31, 1999 (in thousands).

<TABLE>
<CAPTION>
                                              Employee   Asset
                                               Costs   Write down Other  Total
                                              -------- ---------- -----  ------
<S>                                           <C>      <C>        <C>    <C>
Reserve provided as at April 1, 1997.........  $ 900     $ 900    $ 71   $1,871
  Reserve utilized...........................   (783)     (900)    (25)  (1,708)
                                               -----     -----    ----   ------
Balance at March 31, 1998....................    117       --       46      163
  Reserve utilized...........................   (117)      --      (46)    (163)
                                               -----     -----    ----   ------
Balance at March 31, 1999....................  $ --      $ --     $--    $  --
                                               =====     =====    ====   ======
</TABLE>

Note 6--Income Taxes:

   No income tax provision was recorded for the three years ending March 31,
1999 and the three months ended June 30, 1998 and 1999 because the Company
incurred net losses in such periods.

   Deferred tax assets and liabilities consist of the following:

<TABLE>
<CAPTION>
                                                                  March 31,
                                                                ---------------
                                                                 1999     1998
                                                                -------  ------
<S>                                                             <C>      <C>
Deferred tax assets:
  Net operating loss carryforwards............................. $12,647  $9,011
  Temporary differences........................................   1,764     751
  Other........................................................      67     --
                                                                -------  ------
                                                                 14,478   9,762
                                                                -------  ------
Valuation allowance............................................ (14,478) (9,762)
                                                                -------  ------
                                                                   $--     $--
                                                                =======  ======
</TABLE>

   The deferred tax asset has been fully reserved due to the uncertainty of the
Company's ability to realize this asset in the future.

   At March 31, 1999, the Company has approximately $14.2 million, $11.7
million and $23.2 million in federal, state and foreign net operating loss
carryforwards, respectively, to reduce future taxable income. The net operating
loss carryforwards expire between 2004 and 2019 for both federal and state
purposes, if not utilized.

                                      F-14
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 7--Borrowings:

   A convertible loan in the amount of $2,712,000 was converted to 2,402,710
shares of Series D 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.

   Short term borrowings represent the Company's overdraft facility which is
collaterized by the assets of the Company.

   In connection with a borrowing 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. This warrant is outstanding at March 31, 1999 and
expires December 12, 2002. 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.

Note 8--Commitments:

 Leases

   The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through March 2005. The
Company also subleased to third parties a certain property under a
noncancelable operating lease which expired in July 1999. Net rent expense for
the three years ended March 31, 1999 was $281,000, $372,000 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>
   Year Ended                                       Capital  Operating Sublease
   March 31,                                        Leases    Leases    Income
   ----------                                       -------  --------- --------
   <S>                                              <C>      <C>       <C>
   2000............................................ $  987    $  708     $ 43
   2001............................................    638       718      --
   2002............................................    455       555      --
   2003............................................    111       438      --
   2004............................................    --        327      --
   2005............................................    --         55      --
                                                    ------    ------     ----
   Total minimum lease payments and sublease
    income.........................................  2,191    $2,801     $ 43
                                                              ======     ====
   Less: Amount representing interest..............   (211)
                                                    ------
   Present value of capital lease obligations......  1,980
   Less: Current portion...........................   (850)
                                                    ------
     Long-term portion of capital lease
      obligations.................................. $1,130
                                                    ======
</TABLE>

                                      F-15
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 9--Convertible Preferred Stock:

   Convertible Preferred Stock at March 31, 1999 consists of the following:
<TABLE>
<CAPTION>
                                                 Shares Issued and
                                                    Outstanding
                                               ---------------------
                                                     March 31,
                                               ---------------------
                                      Shares                         Liquidation
   Series                           Authorized    1998       1999      Amount
   ------                           ---------- ---------- ---------- -----------
   <S>                              <C>        <C>        <C>        <C>
   A...............................    3,100    1,798,720  1,798,720 $ 1,438,976
   B...............................   25,000   13,854,556  1,394,406   1,561,735
   C...............................    8,000    6,666,667  4,666,667   7,000,000
   D...............................   50,000          --  43,571,386  47,928,525
                                      ------   ---------- ---------- -----------
                                      86,100   22,319,943 51,431,179 $57,929,236
                                      ======   ========== ========== ===========
</TABLE>

   On June 4, 1998, existing investors were given the opportunity to convert
their shares of Series A, B and C convertible preferred stock into Series D
convertible preferred stock and new investors were given the opportunity to
purchase Series D convertible preferred stock. The Company issued 25,417,296
shares of Series D convertible preferred stock for $1.10 per share resulting in
net proceeds after issuance costs of $25,082,000. The Company also issued
15,123,062 shares of Series D convertible preferred stock as a result of
existing stockholders opting to convert their shares of Series B and C
convertible preferred stock into Series D convertible preferred stock. In June
1999, the Series D convertible preferred stock conversion price was reduced to
$0.70 from $1.10 based on the Company's revenues for the year ended March 31,
1999.

   In connection with investment banking services provided during the June 1998
offering, the Company issued a warrant to purchase an aggregate of 1,592,054
shares of Series D convertible preferred stock at an exercise price of $1.10
per share. The warrant may be exercised at any time within five years after
issuance. The Company valued the warrant using the Black-Scholes option pricing
model, applying 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 fair market value of the
warrant of $949,000 has been netted against the proceeds from the offering.

   The holders of convertible preferred stock have various rights and
preferences as follows:

 Voting

   Each share of Series A, B, C and D convertible preferred stock have voting
rights equal to an equivalent number of shares of common stock into which it is
convertible and votes together as one class with the common stock.

   As long as at least 1,000,000 shares of Series B, C and D convertible
preferred stock remain outstanding, the Company must obtain approval from 66
2/3% of the holders of convertible preferred stock in order to alter the
articles of incorporation as related to convertible preferred stock, or change
the authorized number of shares of convertible preferred stock. The Company
must obtain approval from 66 2/3% of the owners of issued shares of the Company
to create a new class of stock or effect a merger, consolidation or sale of
assets where the existing shareholders retain less than 50% of the voting stock
of the surviving entity.

 Dividends

   Holders of Series A, B C and D convertible preferred stock are entitled to
participate in dividends on a pro rata basis irrespective of the class of
stock. No dividends on convertible preferred stock or common stock have been
declared by the Board from inception through June 30, 1999.

                                      F-16
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Liquidation

   In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners
of the Company's common stock and convertible preferred stock own less than 51%
of the resulting voting power of the surviving entity, the holders of Series A,
B, C and D convertible preferred stock are entitled to receive an amount of
$0.80, $1.12, $1.50 and $1.10 per share, respectively, plus any declared but
unpaid dividends prior to and in preference to any distribution to the holders
of common stock. The remaining assets, if any, shall be distributed pro-rata
amongst all stockholders on an as converted basis. Should the Company's legally
available assets be insufficient to satisfy the liquidation preferences, the
funds will be distributed first to the Series D convertible preferred
stockholders, plus any unpaid dividends and the remainder to the other
convertible preferred stockholders.

 Conversion

   Each share of Series A, B, C and D convertible preferred stock is
convertible, at the option of the holder, according to a conversion ratio,
subject to adjustment for dilution. Each share of Series A, B, C and D
convertible preferred stock automatically converts into the number of shares of
common stock into which such shares are convertible at the then effective
conversion ratio upon the closing of a public offering of Common Stock at a per
share price of at least $3.00 per share with gross proceeds of at least
$7,500,000 or the Company completes a public offering in the United Kingdom of
common stock at a per share price of at least 50 pence per share. Shares of
Series B, C and D convertible preferred stock also convert automatically upon
the consent of the respective holders of the majority of convertible preferred
stock.

   At March 31, 1999, the Company reserved 1,799,000, 1,394,000, 5,600,000 and
68,469,000 shares of common stock for the conversion of Series A, B, C and D
convertible preferred stock, respectively.

 Warrants for Convertible Preferred Stock

   In connection with a lease agreement, the Company issued warrants to
purchase 69,705 shares of Series C and 109,091 shares of Series D convertible
preferred stock for $1.10 and $1.50 per share, respectively, in the period
September 1996 to September 1998. Such warrants are outstanding at March 31,
1999 and expire in the period September 2001 to September 2008. The Company
valued the warrant using the Black-Scholes option pricing model, applying
expected life of five years, a weighted average risk-free rate of 6.6% and
4.81%, an expected dividend yield of zero percent, a volatility of 70% and a
deemed fair value of common stock of $0.74 and $0.85, respectively. The Company
determined that the fair value of the warrant was not significant at the date
of grant.

Note 10--Stock Option Plans:

   In April 1998, the Company adopted the 1998 Stock Option 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. The Company has reserved
26,989,333 shares of common stock for issuance under the Plan.

   Options under the Plan may be granted for periods of up to seven 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.

                                      F-17
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   During the period from April 1, 1996 through March 31, 1999, the Company
recorded $3,391,000 of deferred 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 $399,000,
$1,394,000 and $266,000 (unaudited) for the years ended March 31, 1998 and
1999, and the three months ended June 30, 1999, respectively.

   The following table summarizes activity under the Company's Plan from March
31, 1996 through June 30, 1999:

<TABLE>
<CAPTION>
                                                           Outstanding Options
                                                           ---------------------
                                                                       Weighted-
                                                Shares                  Average
                                               Available   Number of   Exercise
                                               for Grant     Shares      Price
                                              -----------  ----------  ---------
<S>                                           <C>          <C>         <C>
Balance, March 31, 1996......................   2,898,208   2,101,792    $0.07
  Shares reserved for grant..................         --          --       --
  Options granted............................  (2,136,000)  2,136,000     0.20
  Options exercised..........................         --     (337,254)    0.07
  Options canceled...........................   1,123,731  (1,123,731)    0.22
                                              -----------  ----------
Balance, March 31, 1997......................   1,885,939   2,776,807     0.11
  Shares reserved for grant..................   2,012,143         --       --
  Options granted............................  (6,082,500)  6,082,500     0.24
  Options exercised..........................         --     (815,161)    0.06
  Options canceled...........................   3,248,208  (3,248,208)    0.24
                                              -----------  ----------
Balance, March 31, 1998......................   1,063,790   4,795,938     0.20
  Shares reserved for grant..................  10,038,221         --       --
  Options granted............................ (10,380,194) 10,380,194     0.61
  Options exercised..........................         --      (48,229)    0.10
  Options canceled...........................     612,208    (612,208)    0.70
                                              -----------  ----------
Balance, March 31, 1999......................   1,334,025  14,515,695     0.47
  Shares reserved for grant..................   9,938,969         --       --
  Options granted (unaudited)................  (4,971,625)  4,971,625     1.26
  Options exercised (unaudited)..............         --       (8,000)    0.06
  Options canceled (unaudited)...............      14,500     (14,500)    1.30
                                              -----------  ----------
Balance, June 30, 1999 (unaudited)...........   6,315,869  19,464,820     0.67
                                              ===========  ==========
</TABLE>

<TABLE>
<CAPTION>
                    Options Outstanding at March 31,       Options Exercisable
                                  1999                      at March 31, 1999
                   -------------------------------------  -----------------------
                                  Weighted
                                   Average     Weighted                 Weighted
       Range of                   Remaining    Average                  Average
       Exercise      Number      Contractual   Exercise     Number      Exercise
        Price      Outstanding      Life        Price     Outstanding    Price
       --------    -----------   -----------   --------   -----------   --------
     <S>           <C>           <C>           <C>        <C>           <C>
       $0.02 -
         $0.08        730,000        2.5        $0.05        721,111     $0.05
        $0.16         869,792        3.9         0.16        633,822      0.16
       $0.24 -
         $0.25      5,065,694        5.4         0.24      3,141,139      0.24
        $0.70       7,850,209        6.3         0.70                     0.70
                   ----------                              ---------
                   14,515,695                              4,496,072
                   ==========                              =========
</TABLE>

   The total number of options exercisable at March 31, 1997 and 1998 was
612,589 and 1,361,552, respectively.

                                      F-18
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Fair value disclosures

   If compensation cost for the Company's stock-based compensation plan 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 March 31,
                                                   ---------------------------
                                                    1997      1998      1999
                                                   -------  --------  --------
<S>                                                <C>      <C>       <C>
Net loss:
  As reported..................................... $(8,540) $(10,278) $(17,157)
  Pro forma.......................................  (8,777)  (10,974)  (19,707)
Basic and diluted net loss per share:
  As reported..................................... $ (0.80) $  (0.90) $  (1.33)
  Pro forma.......................................   (0.82)     (.96)    (1.53)
</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 6.1% to 6.7%, 5.6% to 6.6% and 4.5%
to 5.8% and a volatility of 70% for the three years ended March 31, 1999. The
weighted average fair value of options granted during 1997, 1998 and 1999 was
$0.72, $0.93 and $0.88, respectively.

 Warrants for Common Stock

   In connection with an employee agreement, the Company issued a warrant to
purchase 75,000 shares of Common Stock for $0.08 per share in July 1997. This
warrant is outstanding at March 31, 1999 and expires in July 2007. The Company
valued the warrant using the Black-Scholes option pricing model, applying
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 $0.89. Using the Black-Scholes pricing model, the
Company determined that the fair value of the warrant was not significant at
the date of grant.

Note 11--Related Party Transactions:

   In fiscal year 1999, related parties converted $1,454,000 of a 10%
convertible loan into 1,279,205 shares of Series D convertible preferred stock.

   The Company had sales of $921,000, $82,000 and $549,000 for the three years
ended March 31, 1999, respectively, to related parties. At March 31, 1997, 1998
and 1999, there were accounts receivable from related parties in the amounts of
$148,000, $5,000 and $154,000, respectively, included in the balance sheets.

Note 12--Subsequent Events:

 Initial public offering

   In June 1999, the Board of Directors of Virata Limited authorized management
to file a registration statement with the Securities and Exchange Commission to
permit the Company to sell shares of its common stock to the public. In
association with the offering, the Board of Directors authorized soliciting the
shareholders for their approval of: (i) the cancellation of all outstanding
convertible preferred and common stock and all other securities convertible
into preferred or common stock of Virata Limited, (ii) the issuance of new
common shares of Virata Limited to Virata Corporation and the issuance of
shares of common stock of Virata Corporation to the former shareholders of
Virata Limited, and (iii) a reverse stock split. These events are to occur
immediately prior to the offering.

                                      F-19
<PAGE>

                               VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Borrowing Agreement

   In August 1999, the Company entered into a borrowing agreement with a
financial institution for $3,000,000 of the Company's borrowing base, as
determined by the agreement. The agreement bears interest at prime rate plus
one half percent and all outstanding advances are due in August 2000. The
agreement is collateralized by the Company's property, equipment, intellectual
property, inventory, and receivables and requires compliance with certain debt
covenants.


                                      F-20
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Virata Raleigh Corporation

   In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholder's equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of RSA
Communications, Inc. at March 31, 1997 and 1998, and the results of its
operations and its cash flows for the year ended March 31, 1997, the period
from April 1, 1997 through June 5, 1997 and the period from June 6, 1997
through March 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP

Raleigh, North Carolina
August 19, 1999

                                     F-21
<PAGE>

                            RSA COMMUNICATIONS, INC.

                                 BALANCE SHEET

<TABLE>
<CAPTION>
                                                             March 31,
                                                      ------------------------
                                                         1997         1998
                                                      -----------  -----------
<S>                                                   <C>          <C>
ASSETS
Current assets:
  Cash and cash equivalents.......................... $     6,384  $   822,482
  Accounts receivable, net of allowance for doubtful
   accounts of $0 and $10,000 at March 31, 1997 and
   1998, respectively................................     262,139    1,063,100
  Prepaid and other assets...........................      79,384       19,041
                                                      -----------  -----------
    Total current assets.............................     347,907    1,904,623
  Receivable from parent ............................     639,362          --
  Deferred income taxes..............................         --       481,795
  Property and equipment, net........................   1,065,550      110,303
                                                      -----------  -----------
    Total assets..................................... $ 2,052,819  $ 2,496,721
                                                      ===========  ===========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
  Accounts payable................................... $   198,649  $   236,413
  Accrued liabilities................................     475,464      764,731
  Deferred revenue...................................      11,512       12,000
  Stock appreciation rights .........................         --     1,870,866
                                                      -----------  -----------
    Total current liabilities........................     685,625    2,884,010
  Negative goodwill..................................         --       252,305
  Commitments (Note 5)...............................         --           --
Stockholder's equity (deficit):
  Common stock, 10,000 shares authorized, 10,000
   shares and 6,000 shares issued and outstanding at
   March 31, 1997 and 1998, respectively.............   2,000,000            6
  Accumulated deficit................................    (632,806)    (639,600)
                                                      -----------  -----------
    Total stockholder's equity (deficit).............   1,367,194     (639,594)
                                                      -----------  -----------
    Total liabilities and stockholder's equity
     (deficit)....................................... $ 2,052,819  $ 2,496,721
                                                      ===========  ===========
</TABLE>


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

                                      F-22
<PAGE>

                            RSA COMMUNICATIONS, INC.

                            STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                    Period from   Period from
                                                   April 1, 1997  June 6, 1997
                                      Year ended      through       through
                                    March 31, 1997 June 5, 1997  March 31, 1998
                                    -------------- ------------- --------------
<S>                                 <C>            <C>           <C>
Revenues:
  Software products................  $ 1,087,703     $   1,197     $1,938,877
  Consulting services..............      544,760         3,024      2,376,936
                                     -----------     ---------     ----------
    Total revenues.................    1,632,463         4,221      4,315,813
                                     -----------     ---------     ----------
Operating expenses:
  Research and development and cost
   of consulting services..........    1,301,607       308,557      2,157,842
  Selling, general and
   administrative..................    1,036,908       203,907        893,560
  Compensation from stock
   appreciation rights.............          --            --       1,870,866
                                     -----------     ---------     ----------
    Total operating expenses.......    2,338,515       512,464      4,922,268
                                     -----------     ---------     ----------
    Loss from operations...........     (706,052)     (508,243)      (606,455)
Other income (expense), net........       (6,250)          --          57,217
                                     -----------     ---------     ----------
    Loss before income taxes.......     (712,302)     (508,243)      (549,238)
Income tax provision...............      126,500           --          90,362
                                     -----------     ---------     ----------
    Net loss.......................  $  (838,802)    $(508,243)    $ (639,600)
                                     ===========     =========     ==========
</TABLE>


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

                                      F-23
<PAGE>

                            RSA COMMUNICATIONS, INC.

                  STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
    For the year ended March 31, 1997, the period from April 1, 1997 through
      June 5, 1997 and the period from June 6, 1997 through March 31, 1998

<TABLE>
<CAPTION>
                                       Common Stock
                                     -----------------
                                                       Accumulated
                                     Shares   Amount     Deficit      Total
                                     ------ ---------- -----------  ----------
<S>                                  <C>    <C>        <C>          <C>
Balance, March 31, 1996............. 10,000 $2,000,000 $   205,996  $2,205,996
  Net loss for the year ended March
   31, 1997.........................    --         --     (838,802)   (838,802)
                                     ------ ---------- -----------  ----------
Balance, March 31, 1997............. 10,000  2,000,000    (632,806)  1,367,194
Net loss for the period from April
 1, 1997 through June 5, 1997.......    --         --     (508,243)   (508,243)
                                     ------ ---------- -----------  ----------
Balance, June 5, 1997............... 10,000 $2,000,000 $(1,141,049) $  858,951
                                     ------ ---------- -----------  ----------

-------------------------------------------------------------------------------
Issuance of common stock on June 6,
 1997 in conjunction with
 acquisition (see Note 2)...........  6,000 $        6 $       --   $        6
  Net loss for the period from June
   6, 1997 through March 31, 1998...    --         --     (639,600)   (639,600)
                                     ------ ---------- -----------  ----------
Balance, March 31, 1998.............  6,000 $        6 $  (639,600) $ (639,594)
                                     ====== ========== ===========  ==========
</TABLE>


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

                                      F-24
<PAGE>

                            RSA COMMUNICATIONS, INC.

                            STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                     Period from   Period from
                                                    April 1, 1997  June 6, 1997
                                       Year Ended      through       through
                                     March 31, 1997 June 5, 1997  March 31, 1998
                                     -------------- ------------- --------------
<S>                                  <C>            <C>           <C>
Cash flows from operations:
 Net loss..........................   $  (838,802)    $(508,243)   $  (639,600)
 Adjustments to reconcile net loss
  to net cash provided by operating
  activities:
  Depreciation.....................       285,215        65,243         23,241
  Amortization of negative
   goodwill........................           --            --         (50,458)
  Provision for doubtful accounts..           --            --          10,000
  Compensation related to stock
   appreciation rights.............           --            --       1,870,866
  Change in assets and liabilities:
   Accounts receivable.............     2,693,111       221,239     (1,032,200)
   Prepaids and other current
    assets.........................        47,747        64,061         (3,719)
   Receivable from parent..........    (1,757,186)      867,495            --
   Deferred income taxes...........           --            --        (481,795)
   Accounts payable................       180,727      (188,144)       225,906
   Accrued liabilities.............       234,019        16,250        693,792
   Deferred revenue................         7,502       (11,512)        12,000
                                      -----------     ---------    -----------
    Net cash provided by operating
     activities....................       852,333       526,389        628,033
Cash flows from investing
 activities:
 Acquisition of property and
  equipment........................      (626,728)     (204,786)      (133,544)
 Repayment of notes payable........      (500,000)          --             --
                                      -----------     ---------    -----------
    Net cash used by investing
     activities....................    (1,126,728)     (204,786)      (133,544)
Cash flows from financing
 activities:
 Issuance of common stock..........           --            --               6
                                      -----------     ---------    -----------
Net increase (decrease) in cash and
 cash equivalents..................      (274,395)      321,603        494,495
Cash and cash equivalents,
 beginning of period...............       280,779         6,384        327,987
                                      -----------     ---------    -----------
Cash and cash equivalents, end of
 period............................   $     6,384     $ 327,987    $   822,482
                                      ===========     =========    ===========
Supplemental cash flow information:
 Cash paid for income taxes........   $   126,500     $     --     $   572,157
                                      ===========     =========    ===========
</TABLE>

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

                                      F-25
<PAGE>

                            RSA COMMUNICATIONS, INC.

                         NOTES TO FINANCIAL STATEMENTS

1. Description of Business and Summary of Significant Accounting Policies

   RSA Communications, Inc. ("RSA") develops software applications and provides
custom engineering services to the communications industry by providing
systems-level design expertise for applications requiring embedded modem
technology. The Company utilizes proprietary firmware code modules for a wide
range of traditional, controllerless, and soft modem implementations from
single modem designs to complex, multiple-modem network applications.

Basis of Presentation

   Prior to June 6, 1997, RSA was a wholly-owned subsidiary of Pacific
Communications Sciences, Inc. ("PCSI"), which was a wholly-owned subsidiary of
Cirrus Logic, Inc. Effective June 6, 1997, RSA was acquired from PCSI by
Raleigh Communications, Inc., which was created for the sole purpose of
acquiring RSA. Immediately following the acquisition, Raleigh Communications,
Inc. was merged into RSA.

   The financial statements of RSA for the fiscal year ended March 31, 1997 and
the period from April 1, 1997 to June 5, 1997, represent the results of
operations and financial position of RSA on the historical cost basis of
accounting. The financial statements of RSA for the period subsequent to the
acquisition by Raleigh Communications, Inc. (June 6, 1997 to March 31, 1998)
reflect the impact on RSA's financial position and results of operations of the
purchase accounting adjustments discussed in Note 2.

Use of Estimates

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

Cash and Cash Equivalents

   RSA considers all highly liquid investments with a maturity of three months
or less at the time of purchase to be cash equivalents.

Significant Customers and Concentration of Credit Risk

   RSA operates in a very competitive industry that has been characterized by
rapid technological change, short product life cycles, cyclical market patterns
and heightened foreign and domestic competition. Significant technological
changes in the industry could affect operating results adversely.

   RSA markets and sells its software and consulting services to a narrow base
of customers. Sales to one customer comprised 69% of total revenues for the
fiscal year ended March 31, 1997. Sales to two customers comprised 54% and 18%
of total revenues for the period from June 6, 1997 to March 31, 1998. RSA
performs ongoing credit evaluations of its customers' financial condition and
generally does not require collateral. RSA maintains allowances for potential
losses, and such losses have been within management's expectations. At March
31, 1997 one customer accounted for 27% of total accounts receivable and a
second customer accounted for 22% of total accounts receivable. At March 31,
1998, one customer accounted for 65% of total accounts receivable and a second
customer accounted for 31% of total accounts receivable.

                                      F-26
<PAGE>

                            RSA COMMUNICATIONS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


   RSA's cash and cash equivalents as of March 31, 1997 and 1998 are primarily
on deposit with one U.S. financial institution and may, at times, exceed
federal insured amounts.

Fair Value of Financial Instruments

   Carrying amounts of certain of RSA's financial instruments including cash
and cash equivalents, accounts receivable, accounts payable, accrued expenses
and other liabilities approximate fair value due to their short maturities.

Property and Equipment

   Property and equipment are stated at cost and depreciated on a straight-line
basis over the estimated useful lives of the related assets, generally two to
five years. Gains and losses upon asset disposal are taken into income in the
year of disposition.

Revenue Recognition

   Software license revenue is recognized upon delivery of the product if
collection is considered probable and remaining vendor obligations are
insignificant and do not exceed one year. An accrual for the estimated costs of
warranty and post-sale customer support is recorded upon delivery of the
related products. RSA does not offer extended support and maintenance services.

   RSA has adopted the requirements of Statement of Position ("SOP") 97-2,
"Software Revenue Recognition," for all contracts entered into after March 31,
1998. The adoption of SOP 97-2 is not expected to materially impact the
financial position or results of operations of RSA.

   RSA recognizes revenue from its consulting services using the completed
contract method of accounting. Provisions for anticipated losses are made in
the period in which they first become determinable.

Software Development Costs

   Software development costs are included in consulting and research and
development costs and are expensed as incurred. After technological feasibility
is established, software development costs are capitalized until the related
software products are available for general release. The capitalized cost is
then amortized on a straight-line basis over the estimated product life. RSA
has defined technological feasibility as the establishment of a working model
that typically occurs when beta testing commences. To date, RSA has not
capitalized any software development costs as the date at which technological
feasibility is achieved and the availability of the software products for
general release have substantially coincided.

Income Taxes

   RSA accounts for income taxes using the liability method whereby deferred
tax assets and liabilities are determined based on the differences between
financial reporting and tax bases of assets and liabilities, measured at tax
rates that will be in effect when the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.

Negative Goodwill

   Negative goodwill of $302,763 was recorded upon the acquisition of RSA by
Raleigh Communications, Inc. on June 6, 1997 (see Note 2). Negative goodwill is
amortized using the straight-line method over a period of five years.
Accumulated amortization of negative goodwill as of March 31, 1998 was $50,458.

                                      F-27
<PAGE>

                            RSA COMMUNICATIONS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


2. Acquisition

   Effective June 6, 1997, all the outstanding common stock of RSA was acquired
from PCSI by Raleigh Communications, Inc. The acquisition was accounted for
using the purchase method of accounting with the result that the beginning
values of tangible and intangible assets and liabilities of RSA were recorded
based on their respective estimated fair values at the date of purchase.
However, as the entire purchase price of RSA was contingent upon certain future
events, the value of all intangible and long term assets were reduced to zero
and negative goodwill was recognized in the amount necessary to reduce net
assets to zero. The purchase price for RSA was as follows:

  (a) 50% of the gross proceeds from (i) the subsequent sale of all or
      substantially all of the stock or assets of RSA to a third party or
      (ii) a subsequent merger or other transfer of RSA with or into a third
      party, not to exceed $2,000,000.

  (b) 3% of the annual gross revenues of RSA in excess of $3,000,000. This
      section (b) does not apply after the payments called for in (a) are
      made to PCSI, or the promissory note (described below) is paid in full.

   In conjunction with this transaction, RSA entered into a promissory note
with PCSI with the principal sum being the amount determined in (a) above. The
principal amount will not exceed $2,000,000, bears no interest and is payable
in full at the time of closing of a sale or merger. The promissory note can
also be settled at any time prior to a sale or merger by payment of $2,000,000.
For financial reporting purposes this promissory note was not recorded at the
date of the acquisition due to the contingent nature of the sales price.

   A summary of the purchase accounting entry made on June 6, 1997 to record
assets and liabilities of RSA based on the purchase price paid by Raleigh
Communications, Inc. was as follows:

<TABLE>
   <S>                                                                <C>
   Cash and cash equivalents......................................... $ 327,987
   Accounts receivable...............................................    40,900
   Prepaids and other current assets.................................    15,322
   Accounts payable..................................................   (10,507)
   Accrued liabilities...............................................   (70,939)
   Negative goodwill.................................................  (302,763)
                                                                      ---------
                                                                      $     --
                                                                      =========
</TABLE>

3. Accounts Receivable

   Accounts receivable consisted of the following at March 31, 1997 and 1998:

<TABLE>
<CAPTION>
                                                            1997       1998
                                                          --------- -----------
<S>                                                       <C>       <C>
Trade accounts receivable................................ $ 221,339 $ 1,073,100
Unbilled receivables.....................................    40,800         --
                                                          --------- -----------
                                                            262,139   1,073,100
Less: Allowance for doubtful accounts....................       --      (10,000)
                                                          --------- -----------
                                                          $ 262,139 $ 1,063,100
                                                          ========= ===========
</TABLE>

                                      F-28
<PAGE>

                            RSA COMMUNICATIONS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


4. Property and Equipment

   Property and equipment consisted of the following at March 31, 1997 and
1998:

<TABLE>
<CAPTION>
                                                            1997        1998
                                                         -----------  ---------
<S>                                                      <C>          <C>
Office furniture and equipment.......................... $ 1,267,008  $   4,228
Computer software and equipment.........................   4,464,804    129,316
                                                         -----------  ---------
                                                           5,731,812    133,544
Less: Accumulated depreciation..........................  (4,666,262)   (23,241)
                                                         -----------  ---------
                                                         $ 1,065,550  $ 110,303
                                                         ===========  =========
</TABLE>

5. Commitments

   RSA leases its office facilities and certain equipment under noncancelable
operating leases expiring through June 2000. Future minimum lease payments
under the noncancelable operating leases at March 31, 1998 were as follows:

<TABLE>
            <S>                                 <C>
            1999............................... $ 121,500
            2000...............................   124,730
            2001...............................    21,044
                                                ---------
                                                $ 267,274
                                                =========
</TABLE>

   Rent expense for the fiscal year ended March 31, 1997 and for the period
from April 1, 1997 through June 5, 1997 was $566,599 and $118,286,
respectively.

   Rent expense for the period from June 6, 1997 through March 31, 1998 was
$89,261.

6. Stockholder's Equity

Stock Appreciation Rights

   The stock appreciation rights relate to RSA's phantom stock option plan
which was established in November 1997, to provide benefits to its employees
and consultants. At the commencement of the plan RSA authorized the issuance of
up to 6,000 phantom stock units ("PSU") under the plan. Each PSU consists of a
right to receive from RSA, upon the occurrence of a payment event, the same net
consideration as is received (1) for one share of common stock of RSA in a
merger with or into another corporation, (2) for one share of stock in a sale
of substantially all of the stock or assets of RSA, or (3) per share proceeds
from the liquidation of RSA. No payments will be made under the PSUs until a
payment event (described above) occurs. However, in the event of an initial
public offering, each PSU will immediately convert into one share of common
stock. In the event of termination of employment, either voluntarily or
involuntarily, prior to a payment event, the participant forfeits all rights
under the PSUs.

   During the period that the PSU is outstanding, the ultimate amount of
compensation inherent in the award is not determinable. APB No. 25, "Accounting
for Stock Issued to Employees" and FASB Interpretation No. 28 require interim
calculations of the amount of compensation inherent in the award (variable
accounting) if it is probable that the payment event will occur. This amount is
equal to the increase in the fair value of the stock since the date of the
award, multiplied by the total number of shares or units outstanding,
regardless of the exercisable status of the awards. At March 31, 1998, 3,875
PSUs, had been issued and were outstanding.

                                      F-29
<PAGE>

                            RSA COMMUNICATIONS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

Estimated compensation expense recorded related to these PSUs was $1,870,866
for the period from June 6, 1997 through March 31, 1998 based on the estimated
purchase price of RSA by Virata Limited (see Note 9).

7. Income Taxes

   RSA's provision for income taxes consisted of the following:

<TABLE>
<CAPTION>
                                                      Period from   Period from
                                                      April 1, 1997 June 6, 1997
                                           Year ended    through      through
                                           March 31,     June 5,     March 31,
                                              1997         1997         1998
                                           ---------- ------------- ------------
<S>                                        <C>        <C>           <C>
Current:
  Federal.................................  $    --       $--        $ 481,795
  State...................................       --        --           90,362
  Foreign Taxes...........................   126,500       --              --
                                            --------      ----       ---------
                                             126,500       --          572,157
                                            --------      ----       ---------
Deferred:
  Federal.................................       --        --         (481,795)
                                            --------      ----       ---------
  Income tax provision....................  $126,500      $--        $  90,362
                                            ========      ====       =========
</TABLE>

   RSA's effective tax differs from the statutory federal income tax as shown
in the following table:

<TABLE>
<CAPTION>
                                                                  Period from
                                           Year      Period from  June 6, 1997
                                           ended    April 1, 1997   through
                                         March 31,     through     March 31,
                                           1997     June 5, 1997      1998
                                         ---------  ------------- ------------
<S>                                      <C>        <C>           <C>
Statutory federal income tax benefit.... $(242,183)   $(176,803)   $(186,739)
State taxes, net of federal benefit.....   (21,512)     (12,846)     (28,335)
Goodwill................................     2,038        1,081      (17,157)
Nondeductible expenses..................   316,528      175,722       26,733
Change in valuation allowance...........    71,629       12,846      423,205
Research and development credit
 utilized...............................       --           --       (53,345)
Foreign tax credit utilized.............       --           --       (74,000)
                                         ---------    ---------    ---------
Income tax provision.................... $ 126,500    $     --     $  90,362
                                         =========    =========    =========
</TABLE>

   Temporary differences which give rise to significant portions of the
deferred tax assets were as follows at March 31, 1997 and 1998:

<TABLE>
<CAPTION>
                                                               1997      1998
  Deferred tax assets:                                        -------  --------
<S>                                                           <C>      <C>
  Accrued compensation....................................... $   --   $901,500
  Net operating loss carryforwards...........................  14,215       --
  Accrued expenses...........................................  57,414     3,500
                                                              -------  --------
  Total deferred tax assets..................................  71,629   905,000
  Valuation allowance........................................ (71,629) (423,205)
                                                              =======  ========
  Net deferred tax assets.................................... $   --   $481,795
                                                              =======  ========
</TABLE>

                                      F-30
<PAGE>

                            RSA COMMUNICATIONS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)


   The deferred asset of $481,795 at March 31, 1998 was realized subsequent to
March 31, 1998 in the form of a net operating loss carryback from the
subsequent period. RSA has provided a valuation allowance against the remaining
deferred tax asset due to the uncertainty regarding realizability.

8. Related Party Transactions

   During the year ended March 31, 1997 and the period from April 1, 1997
through June 5, 1997, while owned by PCSI, RSA performed work for PCSI. The
expenses incurred for such work have been charged back to PCSI through
intercompany accounts. The amounts charged back are shown as a reduction of
expense in the accompanying statements of operations. For the year ended March
31, 1997 and the period from April 1, 1997 through June 5, 1997, engineering
and research and development have been reduced by $2,739,121 and $321,503,
respectively, for amounts charged back to PCSI. Selling, general and
administrative expenses include $841,974 and $124,734 of charge backs for the
year ended March 31, 1997 and the period from April 1, 1997 through June 5,
1997, respectively.

9. Subsequent Event

   In March 1998, RSA entered into an agreement to be acquired by Virata
Limited. The acquisition was consummated on July 17, 1998, on which date RSA
paid PCSI $2,039,191. This amount represented the $2,000,000 due under the
promissory note (see Note 2) and 3% of annual gross revenues in excess of
$3,000,000 for the period from June 6, 1997 through March 31, 1998 (see Note
2).

   On August 18, 1999 RSA changed its name from RSA Communications, Inc. to
Virata Raleigh Corporation.

                                      F-31
<PAGE>

                               VIRATA CORPORATION

                    PRO FORMA COMBINED FINANCIAL INFORMATION
                                  (Unaudited)

   On July 17, 1998, the Company completed its acquisition of RSA in a
transaction accounted for as a purchase business combination. Under the
purchase method of accounting, the aggregate purchase price is required to be
allocated to the tangible and identifiable intangible assets acquired and
liabilities assumed on the basis of their fair values on the acquisition date.
The unaudited pro forma combined statement of operations is based on the
individual statement of operations of the Company for the fiscal year ended
March 31, 1999 and RSA for the period from April 1, 1998 to July 16, 1998.
RSA's operating results for the period from July 17, 1998 to March  31, 1999
are included in the Company's historical consolidated statement of operations
for the fiscal year ended March  31, 1999. Adjustments have been made to such
information to give effect to the acquisition of RSA, as if the acquisition had
occurred on April 1, 1998.

   The information has been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission and is provided for
comparative purposes only. The pro forma information does not purport to be
indicative of the results that actually would have occurred had the combination
been effected at the beginning of the periods presented.

                                      F-32
<PAGE>

                               VIRATA CORPORATION

                   PRO FORMA COMBINED STATEMENT OF OPERATIONS
                                  (Unaudited)
                      (in thousands except per share data)

<TABLE>
<CAPTION>
                                          Year Ended March 31, 1999
                                   -------------------------------------------
                                    Virata     RSA     Adjustments   Pro Forma
                                   --------  --------  -----------   ---------
<S>                                <C>       <C>       <C>           <C>
Revenues.........................  $  9,256  $    819    $  --       $  10,075
Cost of revenues.................     3,997       486       --           4,483
                                   --------  --------    ------      ---------
Gross profit.....................     5,259       333       --           5,592
Operating expenses:
  Research and development.......     8,323     1,353       --           9,676
  Sales and marketing............     2,917       371       --           3,288
  General and administrative.....     5,567       459       --           6,026
  Amortization of intangible
   assets........................       549       --        226 (A)        775
  Amortization of stock
   compensation..................     1,394       --        --           1,394
  Acquired in-process research
   and development...............     5,260       --        --           5,260
                                   --------  --------    ------      ---------
    Total operating expenses.....    24,010     2,183       226         26,419
                                   --------  --------    ------      ---------
Loss from operations.............   (18,751)   (1,850)     (226)       (20,827)
Interest expense.................      (155)      --        --            (155)
Interest and other income........     1,749         9       --           1,758
                                   --------  --------    ------      ---------
Net loss.........................  $(17,157) $ (1,841)   $ (226)     $ (19,224)
                                   ========  ========    ======      =========
Basic and diluted net loss per
 share...........................  $  (1.33)                         $   (1.44)
                                   ========                          =========
Weighted average common shares--
 basic and diluted...............    12,881                             13,321
                                   ========                          =========
Unaudited pro forma basic and
 diluted net loss per share (Note
 3)..............................  $  (0.21)                         $   (0.24)
                                   ========                          =========
Pro forma weighted average
 shares--basic and diluted.......    80,900                             81,612
                                   ========                          =========
</TABLE>

                                      F-33
<PAGE>

                              VIRATA CORPORATION

               NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
                                  (Unaudited)

Note 1--Basis of Presentation

   In July 1998, the Company acquired RSA, a privately held company
specializing in analog modem software development.

   The unaudited combined pro forma information presented is not necessarily
indicative of the future consolidated results of operations of the Company or
the consolidated results of operations that would have resulted had the
acquisition taken place on April 1, 1998. The unaudited pro forma combined
statement of operations for the fiscal year ended March 31, 1999 reflects the
effects of the acquisition, assuming the related events occurred as of April
1, 1998 for the purposes of the unaudited pro forma statement of operations.

Note 2--Purchase Price Allocation:

   The unaudited pro forma combined financial statements reflect a total
purchase price of $9,275,000 consisting of 1,540,000 shares of the Company's
common stock valued at $1,417,000, 606,500 shares of Series D preferred
convertible stock valued at $668,000, 1,993,000 stock options valued at
$1,505,000, cash of $5,332,000 and acquisition related expenses of
approximately $353,000 consisting primarily of legal and other professional
fees. The company valued the options using the Black-Scholes option pricing
model, applying 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 $0.92.

   The valuation of the purchased 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 modem chips and replacement
cost method for software algorithm. The purchased in-process technology was
not considered to have reached technological feasibility and had no
alternative future use. Accordingly, the amount was charged to operations at
the date of acquisition.

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

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

<TABLE>
   <S>                                                                   <C>
   In-process research and development.................................. $5,260
   Goodwill.............................................................  3,873
   Net assets...........................................................    142
                                                                         ------
     Total purchase price............................................... $9,275
                                                                         ======
</TABLE>

Note 3--Unaudited Pro Forma Combined Net Loss Per Share

   The net loss per share and shares used in computing the net loss per share
for the fiscal year ended March 31, 1999 is based upon the historical weighted
average common shares outstanding. The Virata common stock issuable upon the
exercise of the stock options and warrants have been excluded as the effect
would be anti-dilutive. In addition to the shares used in computing the net
loss per share above, pro forma net loss per share is calculated using the
convertible preferred stock outstanding as if such shares were converted to
common stock at the time of issuance.

                                     F-34
<PAGE>

                               VIRATA CORPORATION

         NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION--(Continued)
                                  (Unaudited)

   The 1,540,000 shares of common stock and the 606,500 shares of Series D
convertible preferred stock issued in connection with the purchase price of RSA
have been included in the calculation of pro forma basic and diluted net loss
per share for the fiscal year ended March 31, 1999 as follows in thousands:

<TABLE>
   <S>                                                                   <C>
   Shares used in computing basic and diluted net loss per share.......  12,881
   Adjustment to reflect the assumed conversion of preferred stock.....  68,019
   Adjustment to reflect the assumed conversion of common stock issued
    in connection with the purchase of RSA.............................     440
   Adjustment to reflect the assumed conversion of Series D convertible
    preferred stock....................................................     272
                                                                         ------
   Shares used in computing pro forma basic and diluted net loss per
    share..............................................................  81,612
                                                                         ======
</TABLE>

Note 4--Purchase Adjustments:

   The following adjustment was applied to the Company's historical financial
statements and those of RSA to arrive at the pro forma consolidated Statement
of Operations.

  (A) To record annual amortization of goodwill that is being amortized over
      the estimated period of benefit of five years.

                                      F-35
<PAGE>




                                 [VIRATA LOGO]



<PAGE>

                                    PART II

                    INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

   The following costs and expenses, other than underwriting discounts and
commissions, payable by the Registrant in connection with this offering. All
amounts are estimates except the SEC registration fee, the NASD filing fee and
the Nasdaq National Market listing fee.

<TABLE>
      <S>                                                               <C>
      SEC registration fee............................................. $13,900
      NASD fee.........................................................   5,500
      Nasdaq National Market listing fee...............................    *
      Printing and engraving costs.....................................    *
      Legal fees and expenses..........................................    *
      Accounting fees and expenses.....................................    *
      Blue Sky fees and expenses.......................................   3,000
      Transfer agent and registrar fees and expenses...................    *
      Miscellaneous....................................................    *
                                                                        -------
        Total.......................................................... $  *
                                                                        =======
</TABLE>
--------
*  To be provided by amendment.

Item 14. Indemnification of Directors and Officers.

   Section 145 of the General Corporation Law of the State of Delaware
provides for the indemnification of officers and directors under certain
circumstances against expenses incurred in successfully defending against a
claim and authorizes Delaware corporations to indemnify their officers and
directors under certain circumstances against expenses and liabilities
incurred in legal proceedings involving such persons because of their being or
having been an officer or director. Article VIII of the Registrant's
Certificate of Incorporation and the Registrant's By-laws provide that all
persons who the Registrant is empowered to indemnify pursuant to the
provisions of Section 145 of the Delaware General Corporation Law (or any
similar provision or provisions of applicable law at the time in effect),
shall be indemnified by the Registrant to the full extent permitted thereby
except that no person shall be indemnified for any expenses or amounts paid
with respect to any action to recover short swing profits under Section 16(b)
of the Securities Exchange Act of 1934, as amended. The foregoing right of
indemnification shall not be deemed to be exclusive of any other rights to
which those seeking indemnification may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors, or otherwise. In
addition, the Registrant has entered into Indemnity Agreements with its
directors and certain of its officers.

   Section 102(b) of the Delaware General Corporation Law permits a
corporation, by so providing in its certificate of incorporation, to eliminate
or limit director's liability to the corporation and its stockholders for
monetary damages arising out of certain alleged breaches of their fiduciary
duty. Section 102(b)(7) provides that no such limitation of liability may
affect a director's liability with respect to any of the following: (i)
breaches of the director's duty of loyalty to the corporation or its
stockholders; (ii) acts or omissions not made in good faith or which involve
intentional misconduct of knowing violations of law; (iii) liability for
dividends paid or stock repurchased or redeemed in violation of the Delaware
General Corporation law; or (iv) any transaction from which the director
derived an improper personal benefit. Section 102(b)(7) does not authorize any
limitation on the ability of the corporation or its stockholders to obtain
injunction relief, specific performance or other equitable relief against
directors.

   Reference is made to the Underwriting Agreement, the proposed form of which
is filed as Exhibit 1.1, pursuant to which the underwriters agree to indemnify
the directors and certain officers of the Registrant and certain other persons
in certain circumstances.

                                     II-1
<PAGE>

Item 15. Recent Sales of Unregistered Securities.

   During the past three fiscal years, we have issued securities of Virata
Limited as follows:

   Issuances of Ordinary Shares.

  .  In July 1997, we issued a warrant to purchase 75,000 ordinary shares in
     a private placement to Dr. Robert W. Wilmott at an exercise price per
     share of $0.08 in connection with consulting services provided to us;
     and

  .  In July 1998, we sold 1,540,000 ordinary shares in a private placement
     at a purchase price of $1.01 per share in connection with the
     acquisition of RSA Communications, Inc.; and

  .  We have issued an aggregate of 1,200,644 ordinary shares in connection
     with the exercise of options by our employees.

   Issuances of Preferred Stock.

  .  In May 1996, we sold 5,127,485 Series B preference shares in a private
     placement at a purchase price of (Pounds)0.70 per share;

  .  In June 1996, we sold 6,666,667 Series C preference shares in a private
     placement at a purchase price of $1.50 per share;

  .  In October 1996, we issued a warrant to purchase 61,705 Series C
     preference shares in a private placement to Comdisco Ventures at an
     exercise price per share of $1.50 in connection with an equipment
     financing;

  .  In September 1997, we issued a warrant to purchase 8,000 Series C
     preference shares in a private placement to Comdisco Ventures at an
     exercise price per share of $1.50 in connection with an equipment
     financing;

  .  In December 1997, we issued a warrant to purchase 35,294 Series C
     preference shares in a private placement to Venture Lending, a division
     of Cupertino National Bank and Trust, at an exercise price per share of
     $1.70 in connection with a bank facility; in June 1998, this warrant
     automatically converted into a warrant to purchase 35,294 Series D
     preference shares at an exercise price per share of $1.70;

  .  In December 1997 and January 1998, we issued an aggregate amount of
     $2,642,980 of bridge notes that were convertible into our Series D
     preference shares.

  .  In March 1998 we issued a bridge note to Index Securities S.A. in the
     amount of $700,000 that was convertible into our Series D preference
     shares.

  .  In June 1998, we sold 24,780,934 Series D preference shares in a private
     placement at a purchase price of $1.10 per share;

  .  In June 1998, we issued 3,039,073 Series D preference shares in a
     private placement at a purchase price of $1.10 per share in connection
     with the conversion of bridge notes held by certain of our stockholders;

  .  In June 1998, we issued 15,123,062 Series D preference shares in a
     private placement at a purchase price of $1.10 per share in connection
     with the conversion of 12,460,150 Series B preference shares and
     2,000,000 Series C preference shares,

  .  In June 1998, we sold 606,500 Series D preference shares in a private
     placement at a purchase price of $1.10 per share in connection with the
     acquisition of RSA Communications, Inc.;

  .  In June 1998, we issued warrants to purchase an aggregate of 1,595,054
     Series D Preference Shares for $1.10 per share to Index Securities S.A.
     in connection with its acting as placement agent in our Series D
     preference share financing;

                                     II-2
<PAGE>

  .  In June 1998, we sold 18,182 Series D preference shares to Andrew Hopper
     in a private placement in exchange for Mr. Hopper serving on our
     technology advisory board;

  .  In September 1998, we issued a warrant to purchase 109,091 Series D
     preference shares in a private placement to Comdisco Ventures at an
     exercise price per share of $1.10 in connection with an equipment
     financing; and

  .  In May 1999, we issued a warrant to purchase 54,545 Series D preference
     shares in a private placement to Comdisco Ventures at an exercise price
     per share of $1.10 in connection with an equipment financing.

   The issuance and sale of the above securities were exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act
or Regulation D or Regulation S promulgated thereunder. The recipients of
securities in each such transaction represented their intentions to acquire
the securities for investment only and now with a view to or for sale in
connection with any distribution thereof, and appropriate legends were affixed
to the share certificates issued in such transactions. All recipients had
adequate access to information about the Registrant.

   Immediately prior to the consummation of this offering, all of the
outstanding ordinary and preference shares of Virata Limited will be
cancelled, new ordinary shares of Virata Limited will be issued to Virata
Corporation and shares of common stock of Virata Corporation will be issued to
the former shareholders of Virata Limited. These transactions will take place
immediately prior to the consummation of this offering and will be effected
pursuant to a share reconstruction under Section 425 of the United Kingdom
Companies Act of 1985. Any securities that are convertible or exercisable into
ordinary shares or preference shares of Virata Limited will become convertible
or exercisable into shares of one common stock upon consummation of the share
reconstruction.

Item 16. Exhibits

   (a) Exhibits

<TABLE>
<CAPTION>
 Exhibit
 Number                             Description                            Page
 -------                            -----------                            ----
 <C>     <S>                                                               <C>
  1.1    Form of Underwriting Agreement..................................
  3.1    Certificate of Incorporation of the Registrant..................
  3.2    Bylaws of the Registrant........................................
  4.1    Specimen form of Registrant's Common Stock Certificate*.........
  5.1    Opinion of Gibson, Dunn & Crutcher LLP*.........................
 10.1    Agreement with Gaz et Eaux and Board with respect to Board of
         Directors and other shareholder rights+.........................
 10.2    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+................
 10.3    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................
 10.4    Form 1 of 1998 Stock Incentive Plan Agreement of Virata
         Limited.........................................................
 10.5    Form 2 of 1998 Stock Incentive Plan Agreement of Virata
         Limited.........................................................
 10.6    Form of 1998 Nonqualified Stock Option Plan Agreement of Virata
         Limited.........................................................
 10.7    Warrant Agreement between Virata Limited and Index Securities,
         S.A., dated as of June 4, 1998+.................................
 10.8    Form of Warrant between Virata Limited and Comdisco, Inc........
 10.9    Lease between WHC-SIX Real Estate Limited Partnership and
         Advanced Telecommunications Modules, Inc., a California
         corporation, dated June 26, 1996+...............................
</TABLE>

                                     II-3
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                             Description                             Page
 -------                            -----------                             ----
 <C>     <S>                                                                <C>
 10.10   Lease Agreement between Lake Partners, L.L.C. and RSA
         Communications, Inc., dated as of July 1, 1998*.................
 10.11   Lease between Universities Superannuation Scheme Limited and
         Advanced Telecommunications Modules Limited, dated 1994*........
 10.12   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+............................................
 10.13   Lease between Virata Limited and Comdisco, Inc., dated September
         30, 1996+.......................................................
 10.14   Loan and Security Agreement among Venture Banking Group, Virata
         Santa Clara Corporation and Virata Raleigh Corporation, dated as
         of August 27, 1999..............................................
 10.15   Collateral Assignment, Patent Mortgage and Security Agreement
         between Virata Ltd. and Venture Banking Group, dated as of
         August 27, 1999.................................................
 10.16   Agreement between ARM Limited and Virata Ltd., dated June 2,
         1999+++.........................................................
 10.17   Amendment No. 1 to License and Technical Co-Operation Agreement
         for ATM Technology between Ing. C. Olivetti & C., S.p.A. and
         Advanced Telecommunication Modules Limited, dated September 19,
         1994............................................................
 10.18   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......
 10.19   Settlement Agreement between Virata Limited and Cirrus Logic,
         Inc., a California corporation, dated as of June 19, 1998+......
 10.20   Development, Production, Supply and License Agreement between
         Advanced Telecommunications Modules Limited and Symbios
         Incorporated, a Delaware corporation, dated as of August 16,
         1997+...........................................................
 10.21   Form of 1999 Stock Incentive Plan...............................
 10.22   1999 Employee Stock Purchase Plan*..............................
 10.23   Form of Indemnity Agreement.....................................
 10.24   Employment Agreement--Charles Cotton............................
 10.25   Employment Agreement--Michael Gulett............................
 10.26   Employment Agreement--Andrew Vought.............................
 10.27   Employment Agreement--Martin Jackson............................
 10.28   Employment Agreement--Thomas Cooper.............................
 10.29   Form of Registration Rights Agreement*..........................
 10.30   Form of Non-Employee Director Plan*.............................
 21.1    List of Subsidiaries of Virata Corporation......................
 23.1    Independent Auditors' Consent from PricewaterhouseCoopers LLP
         regarding Virata Corporation....................................
 23.2    Independent Auditors' Consent from PricewaterhouseCoopers LLP
         regarding RSA Communications, Inc...............................
 23.3    Consent of Gibson, Dunn & Crutcher LLP (to be included in their
         opinion filed as Exhibit 5.1)*..................................
 24.1    Power of Attorney (see signature page)..........................
 27.1    Financial Data Schedule.........................................
</TABLE>
--------
*  To be filed by amendment.
+  To be filed without Schedules.
++ Confidential treatment has been requested for selected sections of this
   exhibit.

                                      II-4
<PAGE>

   (b) Financial Statement Schedule

   The following financial statement schedule is filed with Part II of this
Registration Statement:

     Schedule of valuation and qualifying accounts and reserves

   Schedules not listed above for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under applicable instructions or are inapplicable and therefore have
been omitted.

Item 17. Undertakings.

   The Registrant hereby undertakes to the underwriters at the closing
specified in the underwriting agreement to provide certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

   Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the Delaware
General Corporation Law, the Registrant's Amended Certificate of
Incorporation, the Registrant's Bylaws, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act,
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

   The undersigned Registrant hereby undertakes that:

      (i) For purposes of determining any liability under the Securities Act,
  the information omitted from the form of prospectus filed as part of this
  Registration Statement in reliance upon Rule 430A and contained in a form
  of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
  497(h) under the Act is part of this Registration Statement as of the time
  it was declared effective.

       (ii) For the purpose of determining any liability under the Securities
  Act of 1933, each post-effective amendment that contains a form of
  prospectus shall be deemed to be a new registration statement for the
  securities offered therein, and the offering of such securities at that
  time shall be deemed to be the initial bona fide offering thereof.

                                     II-5
<PAGE>

                                  SIGNATURES

   Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Palo
Alto, State of California, on the 3rd day of September, 1999.

                                          VIRATA CORPORATION

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

   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 (including post-effective
amendments) to this Registration Statement, and any and all Registration
Statements filed pursuant to Section 462 of the Securities Act of 1933, as
amended, 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 Act of 1933, as amended,
this Registration Statement on Form S-1 has been signed below by the following
persons in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
             Signature                                Title                         Date
             ---------                                -----                         ----
<S>                                  <C>                                      <C>
        /s/ Charles Cotton                                                    September 3, 1999
 ___________________________________ Chief Executive Officer and Director
           Charles Cotton             (Principal Executive Officer)

         /s/ Andrew Vought           Senior Vice President, Finance and       September 3, 1999
 ___________________________________  Operations (Principal Financial Officer
            Andrew Vought             and Principal Accounting Officer)

      /s/ Dr. Hermann Hauser         Chairman of the Board                    September 3, 1999
 ___________________________________
         Dr. Hermann Hauser

         /s/ Bandel Carano           Director                                 September 3, 1999
 ___________________________________
            Bandel Carano

         /s/ Peter Morris            Director                                 September 3, 1999
 ___________________________________
</TABLE>    Peter Morris


                                     II-6
<PAGE>

        REPORT OF INDEPENDENT ACCOUNTANTSON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and
Stockholders of Virata Corporation

   In connection with our audits of the financial statements of Virata
Corporation as of March 31, 1998 and 1999, and for each of the three years in
the period ended March 31, 1999, which financial statements are included in the
Prospectus, we have also audited the financial statement schedule listed in
Item 16(b) herein. In our opinion, this financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included herein.


/s/ PricewaterhouseCoopers LLP

San Jose, California
August 20, 1999

<PAGE>

                                                                     SCHEDULE II

                               VIRATA CORPORATION

                        VALUATION AND QUALIFYING ACCOUNT

<TABLE>
<CAPTION>
                                    Balance at Charged to            Balance at
                                    Beginning  Costs and               End of
Description                         of Period   Expenses  Deductions   Period
-----------                         ---------- ---------- ---------- ----------
                                                  (in thousands)
<S>                                 <C>        <C>        <C>        <C>
Allowance for doubtful accounts
  Year ended March 31, 1997........   $  602     $  111     $ --       $  713
  Year ended March 31, 1998........      713      1,075       221       1,567
  Year ended March 31, 1999........    1,567      1,458       283       2,742

</TABLE>


                                      S-2
<PAGE>

        REPORT OF INDEPENDENT ACCOUNTANTSON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and
Stockholders of Virata Corporation

   In connection with our audits of the financial statements of Virata
Corporation as of March 31, 1998 and 1999, and for each of the three years in
the period ended March 31, 1999, which financial statements are included in the
Prospectus, we have also audited the financial statement schedule listed in
Item 16(b) herein. In our opinion, this financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included herein.


/s/ PricewaterhouseCoopers LLP

San Jose, California
August 20, 1999


                                      S-3
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 Exhibit
 Number                             Description                             Page
 -------                            -----------                             ----
 <C>     <S>                                                                <C>
  1.1    Form of Underwriting Agreement..................................
  3.1    Certificate of Incorporation of the Registrant..................
  3.2    Bylaws of the Registrant........................................
  4.1    Specimen form of Registrant's Common Stock Certificate*.........
  5.1    Opinion of Gibson, Dunn & Crutcher LLP*.........................
 10.1    Agreement with Gaz et Eaux and Board with respect to Board of
         Directors and other shareholder rights+.........................
 10.2    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+................
 10.3    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................
 10.4    Form 1 of 1998 Stock Incentive Plan Agreement of Virata
         Limited.........................................................
 10.5    Form 2 of 1998 Stock Incentive Plan Agreement of Virata
         Limited.........................................................
 10.6    Form of 1998 Nonqualified Stock Option Plan Agreement of Virata
         Limited.........................................................
 10.7    Warrant Agreement between Virata Limited and Index Securities,
         S.A., dated as of June 4, 1998+.................................
 10.8    Form of Warrant between Virata Limited and Comdisco, Inc.+......
 10.9    Lease between WHC-SIX Real Estate Limited Partnership and
         Advanced Telecommunications Modules, Inc., a California
         corporation, dated June 26, 1996+...............................
 10.10   Lease Agreement between Lake Partners, L.L.C. and RSA
         Communications, Inc., dated as of July 1, 1998*.................
 10.11   Lease between Universities Superannuation Scheme Limited and
         Advanced Telecommunications Modules Limited, dated 1994*........
 10.12   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+............................................
 10.13   Lease between Virata Limited and Comdisco, Inc., dated September
         30, 1996+.......................................................
 10.14   Loan and Security Agreement among Venture Banking Group, Virata
         Santa Clara Corporation and Virata Raleigh Corporation, dated as
         of August 27, 1999..............................................
 10.15   Collateral Assignment, Patent Mortgage and Security Agreement
         between Virata Ltd. and Venture Banking Group, dated as of
         August 27, 1999.................................................
 10.16   Agreement between ARM Limited and Virata Ltd., dated June 2,
         1999+++.........................................................
 10.17   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............................................................
 10.18   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......
 10.19   Settlement Agreement between Virata Limited and Cirrus Logic,
         Inc., a California corporation, dated as of June 19, 1998+......
 10.20   Development, Production, Supply and License Agreement between
         Advanced Telecommunications Modules Limited and Symbios
         Incorporated, a Delaware corporation, dated as of August 16,
         1997+...........................................................
 10.21   Form of 1999 Stock Incentive Plan...............................
 10.22   1999 Employee Stock Purchase Plan*..............................
 10.23   Form of Indemnity Agreement.....................................
</TABLE>
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 Exhibit
 Number                            Description                             Page
 -------                           -----------                             ----
 <C>     <S>                                                               <C>
 10.24   Employment Agreement--Charles Cotton...........................
 10.25   Employment Agreement--Michael Gulett...........................
 10.26   Employment Agreement--Andrew Vought............................
 10.27   Employment Agreement--Martin Jackson...........................
 10.28   Employment Agreement--Thomas Cooper............................
 10.29   Form of Registration Rights Agreement*.........................
 10.30   Form of Non-Employee Director Plan*............................
 21.1    List of Subsidiaries of Virata Corporation.....................
 23.1    Independent Auditors' Consent from PricewaterhouseCoopers LLP
         regarding Virata Corporation...................................
 23.2    Independent Auditors' Consent from PricewaterhouseCoopers LLP
         regarding RSA Communications, Inc..............................
 23.3    Consent of Gibson, Dunn & Crutcher LLP (to be included in their
         opinion filed as Exhibit 5.1)*.................................
 24.1    Power of Attorney (see signature page).........................
 27.1    Financial Data Schedule........................................
</TABLE>
--------
*  To be filed by amendment.
+  To be filed without Schedules.
++ Confidential treatment has been requested for selected sections of this
   exhibit.
[{"type": "S-1", "sequence": "1", "description": "FORM S-1", "secsgml_size_bytes": 455884}]
{"company-data": {"conformed-name": "VIRATA CORP", "cik": "0001094371", "assigned-sic": "", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-86591", "film-number": "99706566"}, "business-address": {"street1": "2933 BUNKER HILL LN", "street2": "STE 201", "city": "SANTA CLARA", "state": "CA", "zip": "95054", "phone": "4085661000"}, "mail-address": {"street1": "2933 BUNKER HILL LN", "street2": "STE 201", "city": "SANTA CLARA", "state": "CA", "zip": "95054"}}
As filed with the Securities and Exchange Commission on September 3, 1999.
                                                     Registration No. 333-
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
                      SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC 20549

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

                                   FORM S-1
                            REGISTRATION STATEMENT
                                     Under
                          The Securities Act of 1933

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

                              VIRATA CORPORATION
            (Exact name of registrant as specified in its charter)
Delaware                      No. 3674                        77-0521696
(State of Incorporation)    (Primary Standard Industrial            (IRS employer
                             Classification Code Number)        identification number)
---------------

                       2933 Bunker Hill Lane, Suite 201
                         Santa Clara, California 95054
                                (408) 566-1000
  (Address, including zip code, and telephone number, including area code, of
                   registrant's principal executive offices)

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

                                 Andrew Vought
                            Chief Financial Officer
                       2933 Bunker Hill Lane, Suite 201
                         Santa Clara, California 95054
                                (408) 566-1000
(Name, address, including zip code, and telephone number, including area code,
                             of agent for service)

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

                                  Copies to:
Douglas D. Smith                             Nora L. Gibson
    Gibson, Dunn & Crutcher LLP               Brobeck, Phleger & Harrison LLP
One Montgomery Street, Telesis Tower           One Market, Spear Street Tower
  San Francisco, California 94104             San Francisco, California 94105
           (415) 393-8200                              (415) 442-0900
---------------

   Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after the Registration Statement becomes effective.

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

   If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]

   If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement of the same offering. [_]

   If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

   If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

   If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

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

                        CALCULATION OF REGISTRATION FEE

----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Proposed Maximum
             Title of Each Class of                     Aggregate                Amount Of
          Securities to be Registered               Offering Price(1)         Registration Fee
----------------------------------------------------------------------------------------------
Common Stock, $.01 par value...................        $50,000,000                $13,900
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
(1)Estimated solely for purposes of calculating the amount of the registration
   fee pursuant to Rule 457(o) under the Securities Act of 1933.

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

   The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically state that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this prospectus is not complete and may be       +
+changed. We may not sell these securities until the registration statement    +
+filed with the Securities and Exchange Commission is effective. This          +
+prospectus is not an offer to sell these securities and it is not soliciting  +
+an offer to buy these securities in any state where the offer or sale is not  +
+permitted.                                                                    +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
                 SUBJECT TO COMPLETION, DATED SEPTEMBER 3, 1999

                                       Shares

                                 [VIRATA LOGO]

                               VIRATA CORPORATION

                                  Common Stock

                                   --------

  Prior to this offering, there has been no public market for our common stock.
The initial public offering price is expected to be between $    and $    per
share. We intend to apply to have our common stock approved for listing on The
Nasdaq Stock Market's National Market under the symbol "VRTA."

  The underwriters have an option to purchase a maximum of     additional
shares to cover over-allotments shares.

  Investing in our common stock involves risks. See "Risk Factors" on page 8.
Underwriting
                                               Price to    Discounts and   Proceeds to
                                                Public      Commissions       Virata
                                            -------------  -------------  -------------
Per Share..................................  $              $              $
Total...................................... $              $              $
Delivery of the shares of common stock will be made on or about      , 1999.

  Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

Credit Suisse First Boston

                Warburg Dillon Read LLC

                                                      Thomas Weisel Partners LLC

                  The date of this prospectus is      , 1999.
------------

                               TABLE OF CONTENTS
Page
                                                                          ----
Prospectus Summary.......................................................   4
Risk Factors.............................................................   8
Special Note Regarding Forward Looking Statements........................  24
Use Of Proceeds..........................................................  24
Dividend Policy..........................................................  24
Capitalization...........................................................  25
Dilution.................................................................  27
Selected Consolidated Financial Data.....................................  29
Management's Discussion And Analysis Of Financial Condition And Results
 Of Operations...........................................................  31
Business.................................................................  45
Page
                                                                            ----
Management.................................................................  58
Certain Transactions.......................................................  66
Principal Stockholders.....................................................  70
Description Of Capital Stock...............................................  72
Certain Provisions In Our Certificate Of Incorporation And Bylaws..........  75
Shares Eligible For Future Sale............................................  77
Underwriting...............................................................  78
Notice To Canadian Residents...............................................  81
Legal Matters..............................................................  82
Experts....................................................................  82
Additional Information.....................................................  82
Index To Consolidated Financial Statements................................. F-1
------------
   You should rely only on the information contained in this document. We have
not authorized anyone to provide you with information that is different. This
document may only be used where it is legal to sell these securities. The
information in this document may only be accurate on the date of this document.

   Offers and sales of the common stock are subject to restrictions in relation
to the United Kingdom, details of which are set out in "Underwriting," and in
other jurisdictions. The distribution of this prospectus may also be restricted
by law in some jurisdictions.

   This prospectus is subject to completion prior to this offering. Among other
things, this prospectus describes our company as we currently expect it to
exist at the time of this offering. Except as otherwise indicated, all
information in this prospectus assumes:

  .  the underwriter's over-allotment option will not be exercised;

  .  the cancellation of all of the outstanding ordinary and preference
     shares of Virata Limited, a company organized in the United Kingdom, the
     issuance of new ordinary shares of Virata Limited to Virata Corporation,
     a Delaware corporation, and the issuance of shares of common stock of
     Virata Corporation to the former shareholders of Virata Limited, each
     immediately prior to the consummation of this offering; and

  .  a   for 1 reverse stock split of our common stock, immediately prior to
     the consummation of this offering.

   Unless the context otherwise requires, the terms "Virata," "RSA," "we," "us"
or "our" refer to Virata Limited and its subsidiaries Virata Santa Clara
Corporation, a Delaware corporation, and Virata Raleigh Corporation, a Delaware
corporation, prior to this offering and the share exchange, and Virata
Corporation, a Delaware corporation, and its direct and indirect subsidiaries,
Virata Limited, Virata Santa Clara Corporation and Virata Raleigh Corporation,
after this offering and the share exchange. The term "you" refers to
prospective investors in our common stock.

   Virata(R), ATMOS(R) and ATOM(R) are registered trademarks of Virata.
ISOS(TM), Proton(TM), Helium(TM), Hydrogen(TM), Lithium(TM) and Beryillium(TM)
are our trademarks and may be subject of pending trademark applications. This
prospectus also makes reference to trademarks of other companies.

                     Dealer Prospectus Delivery Obligation

   Until      , 1999 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.

                                       3
PROSPECTUS SUMMARY

   This following summary highlights basic information about us and this
offering contained more fully elsewhere in this prospectus. Because it is a
summary, it does not contain all of the information that you should consider
before investing. You should read this entire prospectus carefully, including
the section entitled "Risk Factors" and the financial statements and the
related notes to those statements included in this prospectus. This prospectus
contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those anticipated in the forward-
looking statements as a result of factors described under the heading "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" as well as discussions elsewhere in this
prospectus.

                               Virata Corporation

   Virata provides communications processors which are combined with a
comprehensive suite of software for digital subscriber line equipment
manufacturers. These tightly integrated products enable our customers to
develop a diverse range of digital subscriber line, or DSL, equipment including
modems, gateways and routers targeted at the broadband access market. We
believe our systems expertise, products and support services enable DSL
equipment manufacturers to simplify product development, speed time-to-market
and focus resources on product differentiation.

   Significant growth in demand for broadband access is being driven by
consumers and business users who find current dial-up Internet access too slow
and faster frame relay or T1/E1 services too expensive. Digital subscriber
line, technologies enable service providers to offer a range of affordable
broadband access services using the existing copper wire telephone
infrastructure.

   To meet the demands of the rapidly growing DSL market, original equipment
manufacturers, or OEMs, encounter a number of challenges. These include
evolving technical standards, an expanding range of feature expectations and
shorter product life cycles. In response to these challenges, OEMs are
increasingly relying upon third party specialists to supply key technology
components including semiconductors and software. However, integration of these
individual elements can be a complex, costly and time-consuming task.

   The combination of our communications processors and software replaces
numerous software elements and semiconductors which would otherwise have to be
sourced from multiple vendors and then integrated and tested. Our standards
compliant products are based on a flexible architecture that:

  .  simplifies the addition of features;

  .  can be used with a range of third party DSL physical layer transceivers;
     and

  .  offers compelling price/performance.

   By adopting our solutions, our customers enjoy numerous benefits including:

  .  faster time-to-market;

  .  reduced product cost;

  .  opportunity to focus their engineering resources on product
     differentiation;

  .  ability to design multiple products using different subsets of our
     modular software; and

  .  re-use of software extensions they develop on future generations of
     their products.

                                       4
Our objective is to be the leading supplier of communications processors and
integrated software to broadband access OEMs. We intend to achieve this
objective by:

  .  initially focusing on DSL markets;

  .  leveraging our flexible semiconductor and software architectures to
     introduce an expanding range of communications processors and software
     modules;

  .  licensing our software to all our customers; and

  .  pursuing strategic acquisitions.

   We outsource the manufacturing of our semiconductors, which allows us to
focus our resources on the design, development and marketing of our products.
To date we have licensed our software to 27 companies. These customers have
developed, or are developing, 74 designs of which 28 are currently shipping.
Leading DSL customers include Netopia, Orckit Communications and Westell
Technologies. In July 1998, we completed the acquisition of RSA Communications,
our first strategic acquisition.

   Our commercial, financial and operations headquarters are in Santa Clara,
California. Research and development facilities and sales offices are located
in Raleigh, North Carolina, and Cambridge, England. The address of our
principal executive office is 2933 Bunker Hill Lane, Suite 201, Santa Clara,
California 95054 where the telephone number is (408) 566-1000. Our Internet
address on the worldwide web is http://www.virata.com. Information contained on
our website does not constitute part of this prospectus.

                                       5
The Offering
Common stock offered by us............     shares

 Common stock to be outstanding after
  the offering.........................     shares

 Use of proceeds....................... We intend to use the net proceeds of
                                        this offering primarily for working
                                        capital and general corporate
                                        purposes, including expenditures for
                                        research and development of new
                                        products and sales and marketing
                                        efforts. See "Use of Proceeds."

 Proposed Nasdaq National Market
  symbol............................... VRTA
The common stock outstanding after this offering is based on the number of
shares outstanding on August 31, 1999, after giving effect to:

  .  the cancellation of all of the outstanding ordinary and preference
     shares of Virata Limited, the issuance of new ordinary shares of Virata
     Limited to Virata Corporation and the issuance of shares of common stock
     of Virata Corporation to the former shareholders of Virata Limited; and

  .  a      for 1 reverse stock split of our common stock.

These transactions will take place immediately prior to the consummation of
this offering and, except for the reverse stock split, will be effected
pursuant to a share reconstruction under Section 425 of the United Kingdom
Companies Act of 1985. Any securities that are convertible or exercisable into
ordinary shares or preference shares of Virata Limited will become convertible
or exercisable into shares of our common stock upon consummation of the share
reconstruction.

   The common stock outstanding after this offering excludes 21,996,978 shares
of our common stock which may be issued upon exercise of currently outstanding
stock options and warrants outstanding as of August 31, 1999, with a weighted
average exercise price of $0.66 per share; and       shares of common stock
reserved for issuance under our stock plans. See "Capitalization,"
"Management--Director Compensation," "--Employee Stock Option Plan" and "--
Employee Stock Purchase Plan" and "Description of Capital Stock."

                                       6
Summary Consolidated Financial Information
                   (in thousands, except for per share data)
Three Months
                                    Year Ended March 31,       Ended June 30,
                                  ---------------------------  ----------------
                                   1997      1998      1999     1998     1999
                                  -------  --------  --------  -------  -------
                                                                 (unaudited)
Consolidated Statement of
 Operations Data:
Revenues:
  Semiconductors ...............  $ 2,105  $  3,281  $  6,779  $ 2,010  $ 2,066
  Systems, license, services and
   royalty......................    4,848     5,650     2,477      754      599
                                  -------  --------  --------  -------  -------
   Total revenues...............    6,953     8,931     9,256    2,764    2,665
   Total cost of revenues.......    3,939     3,787     3,997      918    1,273
                                  -------  --------  --------  -------  -------
Gross profit....................    3,014     5,144     5,259    1,846    1,392
                                  -------  --------  --------  -------  -------
Operating expenses:
  Research and development......    3,518     3,987     8,323    1,202    2,549
  Sales and marketing...........    4,753     4,076     2,917      532      923
  General and administrative....    3,410     4,917     5,567      759      903
  Non-recurring charges,
   amortization of intangibles
   and stock compensation.......       --     2,270     7,203      306      460
                                  -------  --------  --------  -------  -------
Total operating expenses........   11,681    15,250    24,010    2,799    4,835
                                  -------  --------  --------  -------  -------
Loss from operations............   (8,667)  (10,106)  (18,751)    (953)  (3,443)
Interest and other income
 (expense), net.................      127      (172)     1594       10      428
                                  -------  --------  --------  -------  -------
Net loss........................  $(8,540) $(10,278) $(17,157) $  (943) $(3,015)
                                  =======  ========  ========  =======  =======
Net loss per share:
  Basic and diluted.............  $ (0.80) $  (0.90) $  (1.33) $ (0.08) $ (0.23)
                                  =======  ========  ========  =======  =======
  Weighted average shares.......   10,676    11,482    12,881   11,765   13,346
                                  =======  ========  ========  =======  =======
Pro forma net loss per share:
  Basic and diluted.............                     $  (0.21)          $ (0.04)
                                                     ========           =======
  Weighted average shares.......                       80,900            84,646
                                                     ========           =======
As of June 30, 1999
                                                       -------------------------
                                                                Pro   Pro Forma
                                                       Actual  Forma As Adjusted
                                                       ------- ----- -----------
                                                              (unaudited)
Consolidated Balance Sheet Data:
Cash and cash equivalents............................. $ 6,509
Working capital.......................................   5,180
Total assets..........................................  16,311
Total long term liabilities...........................     995
Total stockholders' equity ...........................   9,611
See notes 1 and 12 of the notes to the consolidated financial statements
included in this prospectus for an explanation of the determination of the
number of shares used in computing per share data.

   The pro forma numbers reflect the following:

  .  the cancellation of all of the outstanding ordinary and preference
     shares of Virata Limited, the issuance of new ordinary shares of Virata
     Limited to Virata Corporation and the issuance of shares of common stock
     of Virata Corporation to the former shareholders of Virata Limited; and

  .  a      for 1 reverse stock split of our common stock;

   The pro forma as adjusted numbers give effect to our receipt of the net
proceeds from the sale of                   shares of common stock offered in
this offering at an assumed initial public offering price of $         per
share, after deducting underwriting discounts and commissions and estimated
offering expenses. See "Use of Proceeds" and "Capitalization."

                                       7
RISK FACTORS

   You should carefully consider the risks described below before making an
investment decision. 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. If that happens,
the trading price of our common stock could decline, and you may lose all or
part of your investment. 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 semiconductors to the
digital subscriber line, or DSL, market, we cannot be sure that we can
successfully implement our business strategy

   We were incorporated in June 1993 and until 1995 we were a development stage
company focused primarily on product development. From first production revenue
shipment in April 1995 through March 1996, we focused on developing and
delivering systems-level products primarily for local area network
applications. In  mid 1996, we began licensing our software suite and selling
our semiconductors to developers of broadband access products. In September
1997, we ceased development of our systems-level products and focused
exclusively on expanding our software offering and developing additional
semiconductors for the broadband marketplace with a focus on the DSL market.
Accordingly, we have not had a long history of selling semiconductors to the
DSL market or generating significant revenues and many of our semiconductors
have only recently been introduced. Furthermore, we have limited historical
financial data that can be used in evaluating our business and our prospects
and in projecting future operating results. For example, we cannot forecast
operating expenses based on our historical results because they are limited,
and we are required to forecast expenses 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 would be greater than expected. In
addition, our ability to forecast accurately our quarterly revenue is limited
due to a number of factors described in detail below, making it difficult to
predict the quarter in which sales will occur. You must consider our prospects
in light of the risks, expenses and difficulties we might encounter because we
are at an early stage of development in a new and rapidly evolving market. Many
of these risks are described under the sub-headings below. We may not
successfully address any or all of these risks and our business strategy may
not be successful.

We have not reported an operating profit since our incorporation and expect
future losses; accordingly, we may not be able to achieve profitability, and
even if we do become profitable, we may not be able to sustain profitability

   We have not reported an operating profit for any fiscal year since our
incorporation and experienced net losses of approximately $3.0 million, $17.2
million, $10.3 million, and $8.5 million for the three months ended June 30,
1999 and the fiscal years ended March 31, 1999, 1998, and 1997, respectively.
We expect to incur net losses for the foreseeable future, and these losses may
be substantial. Further, we expect to incur substantial negative cash flow in
the future. Because of 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.
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 DSL broadband access;

  .  the rate of market acceptance of our products and the demand for DSL
     equipment that incorporates our products;

  .  changes in industry standards governing DSL technologies;

  .  the extent and timing of new customer transactions;

                                       8
.  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 or how quickly DSL equipment
manufacturers will select our products for use in their systems. In view of
these factors, we may not be able to achieve or sustain profitability or
positive cash flow.

Our operating results in one or more future periods are likely to fluctuate
significantly and may fail to meet or exceed the expectations of securities
analysts or investors, which may cause our stock price to decline

   Our revenues and operating results 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. If our operating results do not meet the
expectations of securities analysts or investors, our stock price may decline.
We cannot be sure that this will not occur because of the numerous factors that
could cause our revenues and costs to fluctuate. These factors include the
following:

  .  the timing and size of expenses, including expenses of developing new
     products and product enhancements;

  .  the timing and size of semiconductor orders from, and shipments to, our
     existing and new customers;

  .  loss of or decrease in sales to a major customer or failure to complete
     significant transactions;

  .  unexpected delays in introducing new or enhanced products, including
     manufacturing delays;

  .  the volume and average cost of products manufactured;

  .  loss or reduction in the availability of foundry capacity;

  .  the average selling prices of our products;

  .  our ability to attract and retain key personnel;

  .  commencement of or involvement in litigation, including litigation
     relating to the use or ownership of intellectual property;

  .  costs or other non-recurring charges in connection with the acquisition
     of companies, products or technologies;

  .  foreign currency and exchange rate fluctuations, which may make our
     dollar-denominated products more expensive in foreign markets or could
     expose us to currency rate fluctuation risks if our sales become
     denominated in foreign currencies; and

  .  general market and global economic conditions.

   Variations will also be caused by factors related to the development of the
DSL market and the competition we face from other DSL semiconductor suppliers,
including:

  .  the timing and rate of deployment of DSL services by telecommunications
     service providers;

  .  the timing and rate of deployment of alternative high-speed data
     transmission technologies, such as cable modems and high-speed wireless
     data transmission;

  .  anticipated decreases in per unit prices as competition among DSL
     semiconductor suppliers increases;

  .  announcements of new products, design wins and product enhancements by
     competitors and the entry of new competitors into our market; and

  .  the level of market penetration of our semiconductors relative to those
     of our competitors.

   The amount and timing of our operating expenses generally will vary from
quarter to quarter depending on the level of our actual and anticipated
business activities. Research and development expenses will vary as we

                                       9
develop new products. Due to the competitive factors in our market, in the past
we have experienced, and we anticipate that we will continue to experience,
decreases in the average selling prices of our products. Due to these and other
factors, 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.

The markets in which we compete are highly competitive, and we may not be able
to compete effectively, especially against companies with greater resources

   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. 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. 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 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.

   We believe our principal competitors include Alcatel Microelectronics,
Analog Devices, Centillium Technology, Conexant Systems, Lucent Technologies,
Motorola and Texas Instruments. In addition, there have been a number of
announcements by other semiconductor companies including IBM and Intel and
smaller emerging companies that they intend to enter the market segments
adjacent to or addressed by our products. Further, many of our customers face
competition from companies that design their own semiconductors. Because these
companies do not purchase all of their semiconductors from suppliers such as
us, if these competitors displace our customers in the DSL equipment market,
our customers would no longer need our products.

Rapid changes in the market for DSL semiconductors may render our
semiconductors obsolete or unmarketable; failure to enhance our existing
products or to develop and introduce new products that meet changing customer
requirements and emerging industry standards would adversely impact our ability
to sell our products and harm our business

   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 enhancements take longer than planned, the
availability of our products would be delayed. Any such delay would harm our
ability to sell our products and our results of operations and financial
condition would be adversely affected. Factors that may affect the market
acceptance of our products include the growth and acceptance of broadband
access equipment, the price, functionality and availability of competing
products and technologies, and the success of our sales efforts and our
customers. Our success may depend, in part, on our ability to:

  .  effectively use and offer leading technologies;

  .  continue to develop our technical expertise;

                                       10
.  successfully develop, introduce and market new and enhanced products at
     competitive prices in order to meet changing customer needs;

  .  anticipate and address evolving feature and service requirements;

  .  respond effectively to new technological changes or new product
     announcements by others;

  .  maintain close working relationships with our key customers; and

  .  influence and respond to changing market and industry standards and
     other technological changes on a timely and cost-effective basis.

   We must address these requirements in a timely and cost-effective manner. 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 would cause serious harm to our business,
financial condition and results of operations.

   The pursuit of necessary technological advances and the development of new
products require substantial time and expense. In addition, enhancements to
existing products or the introduction of new products by us or our competitors
have the potential to replace or provide lower cost alternatives to our
existing products or render these products obsolete, unmarketable or
inoperable. The mere announcement of any enhancement 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.

Other broadband data transmission technologies may compete effectively with DSL
services, which may cause sales of our products to decline and harm our
business

   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, reaches more customers or has other
advantages over DSL technology, then the demand for our semiconductors may
decrease, which would harm our business and operating results.

Substantial sales of our semiconductors will not occur unless
telecommunications service providers initiate broad deployment of DSL services

   The success of our products may depend upon the decision by
telecommunications service providers to broadly deploy DSL technologies and the
timing of the deployment. Factors that will 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;

  .  varying and uncertain conditions of the local loop, including the size
     and length of the copper wire, electrical interference and interference
     with existing voice and data telecommunications services;

  .  challenges of interoperability among DSL equipment manufacturers'
     products;

  .  evolving industry standards for DSL technologies; and

  .  government regulation.

                                       11
Although a number of telecommunications service providers have commenced
commercial deployment of DSL services using DSL products that incorporate our
semiconductors, if these telecommunications service providers do not expand
their deployment of DSL services, if additional telecommunications service
providers do not offer DSL services on a timely basis or if there are technical
difficulties with the deployment of DSL services, then our business, financial
condition and results of operations will be seriously harmed.

Substantial sales of our semiconductors will not occur unless DSL equipment
manufacturers incorporate our semiconductors in their products

   We rely upon DSL equipment manufacturers to design our semiconductors and
software into their DSL products. We further rely on these products to be
successful, and if they are not, we will not sell our semiconductors in volume
quantities. Accordingly, we must anticipate the price, performance and
functionality requirements of these DSL equipment manufacturers. We must also
successfully develop products that meet these requirements and make these
products available on a timely basis and in sufficient quantities. Further, if
there is consolidation in the DSL equipment manufacturing industry, or if a
small number of DSL equipment manufacturers otherwise dominate the market for
DSL equipment, then our success will depend upon our ability to establish and
maintain relationships with these market leaders. If we do not anticipate
trends in the DSL market and meet the requirements of DSL equipment
manufacturers, or if we do not successfully establish and maintain
relationships with leading DSL equipment manufacturers, then our business,
financial condition and results of operations will be seriously harmed.

Our success depends on our ability to maintain and cultivate relationships with
DSL equipment manufacturers

   We believe that our success in penetrating markets for our products depends
on our ability to maintain and cultivate relationships with DSL equipment
manufacturers that are leaders in the DSL equipment market or that are
designing our products into their network systems. We must anticipate market
trends and the price, performance and functionality requirements of these
vendors and must successfully develop and manufacture products that meet these
requirements. In addition, we must meet the timing requirements of these DSL
equipment manufacturers and must make products available to them in sufficient
quantities. Accordingly, in selling to DSL equipment manufacturers, we often
incur significant expenditures prior to volume sales of new products. Our
inability to develop relationships with additional DSL equipment manufacturers
would seriously harm our business, financial condition and results of
operations.

We depend on third party foundries to manufacture, assemble and test our
products; if we are unable to obtain sufficient yields or product reliability,
our customer relationships, business, financial condition and results of
operations could be adversely affected

   We do not own or operate a semiconductor fabrication facility. Generally our
semiconductor devices are single sourced at a different foundry. We intend to
continue to rely on these foundries and other specialist suppliers for all of
our manufacturing, assembly and testing requirements for the foreseeable
future. 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. We have experienced delays and may in the future experience delays in
receiving semiconductor devices from these foundries, and we cannot be sure
that we will be able to obtain semiconductor devices within the time frames and
in the volumes required by us at an affordable cost or at all. Any disruption
in availability of our products would significantly harm our business. If we
are required for any reason to seek a new manufacturer of our semiconductors, a
new manufacturer of our semiconductors may not be available. Furthermore,
switching to a new manufacturer would require six months or more and would
involve significant expense and disruption to our business.

   From time to time there are shortages in worldwide foundry capacity. In
addition, increases in semiconductor demand may limit available foundry
capacity worldwide. These shortages, if they occur, could

                                       12
make it more difficult for us to obtain sufficient allocation of manufacturing
capacity to meet our manufacturing needs. In addition, these shortages could
lengthen our products' manufacturing cycle and cause a delay in the shipments
of our products to our customers. 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 decide
to 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.

   The manufacture of our products is a highly complex and precise process,
requiring production in a highly controlled environment. Changes in the
manufacturing processes or the inadvertent use of defective or contaminated
materials by a foundry could adversely affect such a 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, business, financial condition and
results of operations could be adversely affected.

   Our products are fabricated, assembled and tested by third-party
subcontractors. This assembly and testing is conducted on a purchase order
basis rather than under a long-term agreement. As a result of our reliance on
third-party subcontractors to fabricate assemble and test our products, we
cannot directly control product delivery schedules, which could lead to product
shortages or quality assurance problems that could increase the costs of
manufacturing or assembly of our products. Qualification of fabrication,
assembly and test subcontractors normally requires a significant investment of
time. If the foundries we currently use are unable to provide us with their
products on a turnkey basis or if we are otherwise required to find alternative
subcontractors, product shipments could be delayed significantly. Any problems
associated with the delivery, quality or cost of the fabrication assembly and
testing of our products could seriously harm our business, financial condition
and results of operations.

We depend on a license from Advanced RISC Machines, or ARM, to manufacture
certain of our planned ATOM products and the loss or inability to maintain the
license could result in increased costs or delays in the manufacturing of our
products

   Our ATOM products feature embedded ARM RISC microprocessors and,
accordingly, are required to be manufactured under a license from Advanced RISC
Machines, 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 ATOM 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 ATOM 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.

                                       13
Our customer base is concentrated, and the loss of one or more of our customers
would 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 for the foreseeable future.
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 March 31, 1999, Com21 and Orckit Communications accounted
for 22.6% and 15.7%, respectively, of our total revenues. For the three months
ended June 30, 1999, Orckit Communications, Com21 and Netopia accounted for
39.8%, 17.2% and 10.2%, respectively, of our total revenues. 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 DSL 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, our business would be harmed. 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.

If we do not achieve design wins with DSL equipment manufacturers, we may be
unable to secure sales from these customers in the future

   Once a DSL equipment manufacturer has designed a supplier's semiconductor
into its products, the DSL equipment 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
DSL equipment manufacturers which have chosen a competitor's semiconductor
could create barriers to future sales opportunities with these DSL equipment
manufacturers.

Our customers are not subject to any binding agreements and, therefore, may not
purchase any of our products, which may harm our business

   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. 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 harm our business, financial condition
and results of operations. Reasons that a design win may not result in a
purchase order may include:

  .  product development delays;

  .  pricing issues;

  .  changes in customer product lines;

  .  availability of competing products;

  .  inability to deliver products in volume;

  .  technological obsolescence;

  .  changes in market needs or preferences; and

  .  changing standards.

We incur expenses based upon projected product needs of our customers, but
these customers are not subject to any minimum purchase requirements

   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

                                       14
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 harm our business, financial condition and results of operations.

Most of our revenues have been and, for the foreseeable future, will be derived
from a limited number of products, and the failure of any of these products to
gain market acceptance may harm our business

   For the fiscal year ended March 31, 1999, approximately 21.6% and 10.7%,
respectively, of our total revenues were generated from sales of our Hydrogen
product and Proton family of products. For the three months ended June 30,
1999, approximately 26.0%, 23.8% and 6.1%, respectively, of our total revenues
were generated from sales of our Proton family and Hydrogen and Helium
products. We expect that our Proton family will represent a diminishing
proportion of our total revenues while a substantial portion of our total
revenues will be derived from our Hydrogen, Helium and Lithium products in the
foreseeable future. Therefore, broad market acceptance of the Hydrogen, Helium
and Lithium products is critical to our success. We cannot be sure that our
products will attain broad market acceptance. Any failure to achieve broad
market acceptance will harm our business, operating results and financial
condition.

We expect that price competition among DSL semiconductor suppliers and volume
purchases by large customers will have a negative impact on our gross margins
in the future

   We expect that price competition among DSL semiconductor suppliers and
volume purchases of our semiconductors at discounted prices will have a
negative impact 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 with
greater resources and therefore may be able to achieve greater economies of
scale and would be less vulnerable to price competition. Further, we expect
that average per unit selling prices of our semiconductors 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 gross
margins for these products.

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 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
purchasing 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.

   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. 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.
While we have a strategy of licensing and partnering with as many key
participants in our markets as possible, some customers will be more successful
than others in developing and marketing their products that incorporate our

                                       15
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 equipment.

If we deliver products with defects, our credibility will be harmed, and the
sales and market acceptance of our products will 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. Further, 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 adversely affect our ability to attract or retain
customers.

We may be subject to product returns and product liability claims resulting
from defects in our products; product returns and product liability claims
could result in the failure of our products to attain market acceptance and
could harm our business

   The occurrence of any defects, errors or failures in our products could lead
to product liability claims as a result of product liability lawsuits against
us or against our customers. 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 seriously harm our
business, 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. A successful product liability claim
brought against us could be expensive, divert the attention of management from
ordinary business activities and, correspondingly, harm our business.

A substantial portion of our sales are generated outside the United States, and
difficulties associated with international operations could harm our business

   One of our principal subsidiaries is incorporated under the laws of, and its
principal offices are located in, the United Kingdom. Thus, we are influenced
by the political, economic and other conditions affecting the United Kingdom.
For the fiscal year ended March 31, 1999, we generated approximately 40.3% of
our revenues from sources outside the United States, including Israel, Europe
and Asia. For the fiscal year ended March 31, 1999, 16.5% and 9.8%,
respectively, of our total revenues were derived from customers based in Israel
and Europe. In the three months ended June 30, 1999, 40.0% of our total
revenues were derived from customers based in Israel. We expect that sales to
these international customers will continue to account for a significant
portion of our total revenues for the foreseeable future. Accordingly, we are
subject to risks inherent in our international business activities, including:

  .  tariffs and other trade barriers, including current and future import
     and export restrictions;

  .  potentially adverse tax consequences, including restrictions on the
     repatriation of earnings;

  .  risks that changes in foreign currency exchange rates will make our
     products comparatively more expensive;

  .  risks related to international political instability and economic
     turbulence;

  .  delays or difficulties in collecting accounts receivables;

  .  difficulties in staffing and managing international operations;

  .  burdens of complying with a wide variety of foreign laws, particularly
     with respect to intellectual property, and license requirements;

                                       16
.  delays or difficulties obtaining approvals for products from foreign
     governmental agencies which regulate our industry;

  .  unexpected changes in regulatory requirements;

  .  difficulties in protecting intellectual property rights in certain
     foreign countries; and

  .  limited ability to enforce agreements and other rights in certain
     foreign countries.

   Any interruption or curtailment of trade between the countries in which we
operate and their present trading partners or a significant downturn in the
economic or financial condition of these countries could seriously harm our
business, financial condition and results of operations.

We continue to rapidly and significantly expand our operations, and our failure
to manage growth could harm our business and adversely affect our results of
operations and financial condition

   We have rapidly and significantly expanded our operations, including the
number of our employees, the geographic scope of our activities and our product
offerings. We expect that further significant expansion will be required to
address potential growth in our customer base and market opportunities. Any
failure to manage growth effectively could harm our business and adversely
affect our operating results and financial condition. We cannot be sure that we
will be able to do any of the following, which we believe are essential to
successfully manage the anticipated growth of our operations:

  .  improve our existing and implement new operational, financial and
     management information controls, reporting systems and procedures;

  .  hire, train and manage additional qualified personnel;

  .  expand and upgrade our core technologies; and

  .  effectively manage multiple relationships with our customers, suppliers
     and other third parties.

   In the future, we may also experience difficulties meeting the demand for
our products. The development of equipment using our products requires
training. If we are unable to provide training and support for our products,
more time may be necessary to complete the implementation process and customer
satisfaction may be adversely affected. In addition, our suppliers may not be
able to meet increased demand for our products. We cannot be sure that our
systems, procedures or controls will be adequate to support the anticipated
growth in our operations.

Our future success will depend in part on our ability to protect our
proprietary rights and the technologies used in our principal products, and if
we do not enforce and protect our intellectual property or if others bring
infringement claims against us, our business would be harmed

   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 our
safeguards will protect our intellectual property and other valuable
competitive information. Our failure to adequately protect our proprietary
rights may harm our business. 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 means of protecting our proprietary rights in the United Kingdom, the
United States or elsewhere may not be adequate, and competitors may
independently develop similar technologies. In addition, the laws of some
countries do not protect our proprietary rights as fully as do the laws of the
United Kingdom or the United States. Issued patents may not preserve our
proprietary position. Even if they do, competitors or others may develop
technologies similar to or superior to our own.

                                       17
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.

   We may become involved in litigation over proprietary rights. In the event
of an adverse result in any future litigation with third parties relating to
proprietary rights, we could be required:

  .  to pay substantial damages, including treble damages if we are held to
     have willfully infringed;

  .  to halt the manufacture, use and sale of infringing products;

  .  to expend significant resources to develop non-infringing technology; or

  .  to obtain licenses to the infringing technology.

   Licenses may not be available from any third party that asserts intellectual
property claims against us, on commercially reasonable terms, or at all. In
addition, litigation frequently involves substantial expenditures and can
require significant management attention, even if we ultimately prevail.
However, we cannot be sure that we would be able to successfully resolve such
disputes in the future.

   In addition, the industries in which we compete are characterized by
numerous allegations of patent infringement among competitors. Such an
infringement claim could be asserted against us or by us in the future. The
defense or prosecution of any such claim could result in us incurring
substantial costs and diverting significant resources away from our operations.
Furthermore, if a claim is decided against us, we may be required to pay
monetary damages, to cease the use of the infringing technology, lose a
competitive advantage or expend significant resources to develop non-infringing
technology or obtain licenses to the infringing technology. Such an outcome
could harm our business, financial condition and results of operations.

   We are not currently aware of any potential infringement of a third party's
intellectual property rights on our part arising from the design of the
hardware portion of our products. We believe, however, that in order to comply
with standards such as the International Telecommunications Union V.34 and V.90
standards or the Universal ADSL Working Group G.lite standard, the software
embedded in our current and planned future products may use the proprietary
technology of the various parties advancing or promoting these standards. Where
this is the case, the owner of such intellectual property must provide a
license upon a reasonable terms which may include the payment of a reasonable
royalty. The cumulative effect of those royalties could harm our results of
operations or financial condition.

Our executive officers and key personnel are critical to our business, and
these officers and personnel may not remain with us in the future; our success
will depend on the continued performance of our key personnel and our ability
to attract and retain additional 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 personnel could
significantly harm our business, financial condition and results of operations.

   Because DSL technology is 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.

                                       18
We may engage in future acquisitions that could dilute our stockholders' equity
and harm our business, results of operations and financial condition

   As part of our business strategy, we expect to review opportunities to
acquire other businesses or products that would 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:

  .  issuances of equity securities that would dilute our current
     stockholder's percentages ownership;

  .  large one-time write-offs;

  .  the incurrence of debt and contingent liabilities;

  .  difficulties in the assimilation of 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
     limited prior experience; and

  .  potential loss of key employees of acquired organizations.

   Any of the above could seriously harm our results of operations or the price
of our stock. We cannot be sure that we will be able to successfully integrate
any businesses, products, technologies or personnel that might be acquired in
the future. Our failure to do so could seriously harm our business, financial
condition and results of operations.

If our software and hardware products or our internal systems are not Year 2000
compliant, the Year 2000 issue could seriously harm our business, financial
condition, liquidity and results of operations

   The term "Year 2000 issue" is a general term used to describe the various
problems that may result from the improper processing of dates and date-
sensitive calculations by computers and other machinery as the Year 2000 is
approached and reached. These problems generally arise from the fact that most
of the world's computer hardware and software have historically used only two
digits to identify the year in a date. As a result, date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. These
problems may also arise from other sources as well, such as the use of special
codes and conventions in software that make use of the date field. If not
corrected, these electronic systems could fail or create erroneous results when
addressing dates on and after January 1, 2000.

   As a result of the Year 2000 issue, we may experience serious unanticipated
problems and costs caused by undetected errors or defects in the technology
used in our software and hardware products and internal systems. In addition,
we may be required to defend our products or services in legal proceedings, and
we cannot guarantee that we will remain free of Year 2000 related disputes. If
our software and hardware products or our internal systems are not Year 2000
compliant, the Year 2000 issue could seriously harm our business, financial
condition, liquidity and results of operations. Until the Year 2000 occurs, we
cannot be sure that we will not be affected by the Year 2000 issue.

                                       19
Our products and those of our customers are subject to government regulations,
and changes in current or future laws or regulations that negatively impact our
products and technologies could harm our business

   The jurisdiction of the Federal Communications Commission, or the 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. broadband access services industry, our
customers or our products may harm 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. 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 harm our
business and adversely affect our results of operations and financial
condition.

There has been no prior market for our common stock and our stock price may
decline after this offering

   Prior to this offering, you could not buy or sell our common stock on a
public market. An active trading market for our common stock may not develop or
be sustained after this offering. The initial public offering price will be
determined by negotiation among us and representatives of the underwriters and
may not be indicative of the price that will prevail in the open market after
this offering. The market price of our shares of common stock is likely to be
highly volatile and could be subject to wide fluctuations in response to
various factors, some of which are beyond our control, including:

  .  actual or anticipated variations in our results of operations;

  .  changes in financial estimates of our revenues and operating results by
     securities analysts;

  .  changes in conditions and trends in the communications computer
     industries and in the market valuations of integrated circuit companies;

  .  fluctuations in the valuation of companies perceived by investors to be
     comparable to us;

  .  unexpected delays in introducing new or enhanced products, including
     manufacturing delays;

  .  announcements of new products, design wins and product enhancements by
     competitors and the entry of new competitors into our market;

  .  loss of or decrease in sales to a major customer or failure to complete
     significant transactions;

  .  loss or reduction in the availability of foundry capacity;

  .  our ability to attract and retain key personnel;

  .  future sales of our common stock;

  .  inconsistent trading volume levels of our stock;

  .  commencement of or involvement in litigation, including litigation
     relating to the use or ownership of intellectual property; and

  .  general market and global economic conditions.

   Furthermore, 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. 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.

                                       20
We could be subject to class action litigation due to stock price volatility,
which, if it occurs, will distract management and result in substantial costs,
and could result in judgments against us

   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, which could cause serious harm to our business,
financial condition and results of operations.

Our current stockholders will benefit from this offering, and you will
experience immediate dilution

   The initial public offering price is expected to be substantially higher
than the current book value per share of our outstanding common stock.
Stockholders existing as of June 30, 1999 have paid an average price of $0.68
per share for their common stock, and the pro forma net tangible book value as
of that date was    per share, after giving effect to:

  .  the cancellation of all of the outstanding ordinary and preference
     shares of Virata Limited, the issuance of new ordinary shares of Virata
     Limited to Virata Corporation and the issuance of shares of common stock
     of Virata Corporation to the former shareholders of Virata Limited; and

  .  a      for 1 reverse stock split of our common stock.

   After giving effect to the sale of                   shares of our common
stock in this offering at an offering price of $      per share, our pro forma
as adjusted net tangible book value as of June 30, 1999, would have been $
per share. As a result, investors purchasing our common stock will incur
immediate dilution of approximately $      per share in the book value of our
common stock from the price they pay for our common stock. In addition, we have
issued options to acquire common stock at prices significantly below the
initial public offering price. To the extent these outstanding options are
ultimately exercised, there will be further dilution to investors in this
offering.

Our principal stockholders and management have the ability to control
stockholder votes, and this control could adversely affect our stock price or
lessen any premium over market price that an acquiror might otherwise pay

   Immediately following the offering, our officers and directors and their
affiliates will own or control approximately    % of our common stock (after
giving effect to the exercise of any outstanding options). Accordingly, our
officers, directors and their affiliates, as a group, have the ability to
control the election of a majority of the members of our board of directors and
the outcome of corporate actions requiring stockholder approval. This
concentration of ownership may have the effect of delaying, deferring or
preventing a change in control of us, or may impede a merger, consolidation,
takeover or other business combination involving us. This concentration of
ownership could also adversely affect our stock's market price or lessen any
premium over market price that an acquiror might otherwise pay.

Provisions of our charter documents and Delaware law could prevent or delay a
change in control of us and may reduce the market price of our common stock

   Certain provisions of our certificate of incorporation and bylaws and the
provisions of Delaware law could have the effect of delaying, deferring or
preventing our acquisition. For example, we have authorized but unissued shares
of preferred stock which could be used to fend off a takeover attempt, our
stockholders may not take actions by written consent, our stockholders are
limited in their ability to make proposals at stockholder meetings and our
directors may be removed only for cause and upon the affirmative vote of at
least 80% of our outstanding voting shares.

                                       21
We have broad discretion to use the offering proceeds, and how we invest these
proceeds may not increase our profits or market value

   The principal purposes of this offering are to increase our equity capital,
to create a public market for our shares, to facilitate our future access to
public equity markets and to provide increased visibility and credibility for
us in a marketplace in which many of our current and potential competitors are
or are expected to be publicly held companies. As of the date of this
prospectus, we have no specific plans to use the net proceeds from this
offering other than for general corporate purposes. We may use a portion of the
net proceeds to acquire complementary products, technologies or businesses.
However, we currently have no commitments or agreements and are not involved in
any negotiations to do so. We may also apply the net proceeds in ways which may
not increase our profitability or our market value. Pending application of the
net proceeds, they may be placed in short-term, investment-grade, interest-
bearing securities that do not produce income or that lose value. Accordingly,
our management will have considerable discretion in the application of the net
proceeds, and you will not have the opportunity, as part of your investment
decision, to assess whether the proceeds are being used appropriately.

There are substantial shares of common stock eligible for future sale, and
sales of shares of our common stock may depress our stock price

   Upon completion of the offering, we will have approximately
shares of common stock outstanding and            shares outstanding if we
issue shares upon exercise of the underwriters' over-allotment option. All of
these shares will be freely tradable without restriction or further
registration under the federal securities laws, except for shares purchased in
this offering by or held by our affiliates, as that term is defined in Rule 144
of the Securities Act of 1933.

   Our stockholders are generally limited by lock-up agreements restricting
their ability to sell shares of our common stock. Under these agreements, these
security holders cannot sell or otherwise dispose of any shares of our common
stock for a period of at least 180 days after the date of this prospectus
without the prior written consent of Credit Suisse First Boston. When these
lock-up agreements expire, these shares will be eligible for sale without
restriction, provided that shares held by our affiliates may not be sold in the
public market without registration under the Securities Act or in compliance
with an applicable exemption from registration as provided in Rule 144 or 701
under the Securities Act.

   In addition, as of August 31, 1999 there were outstanding options to
purchase 21,996,978 shares of our common stock. Our option holders are also
subject to lock-up agreements restricting their ability to sell shares of our
common stock underlying the options. Under these agreements, these security
holders cannot sell or otherwise dispose of any shares of our common stock for
a period of at least 180 days after the date of this prospectus without the
written consent of Credit Suisse First Boston. When these lock-up agreements
expire, the shares underlying the options will be eligible for sale in
accordance with their vesting schedules and in compliance with an applicable
exemption as provided in Rule 144 or Rule 701 of the Securities Act.

   Furthermore, some of our stockholders, which hold approximately 75,463,729
shares of common stock, have been granted registration rights with respect to
their shares of common stock. In connection with any registered offering, such
shareholders have agreed not to transfer any shares, or any other securities
convertible into or exercisable into shares, for a period of up to 180 days
from the date of such offering, provided that we and our officers and directors
will also be bound by a similar agreement. In the event of a public offering of
shares, the sale of a substantial number of shares, particularly by our
directors and officers, or the perception that this sale could occur, could
have an adverse effect on the price of our common stock.

                                       22
We may need to raise additional capital in the future, and if we are unable to
secure adequate funds on terms acceptable to us, we may be unable to execute
our business plan

   We expect the net proceeds from this offering, our current cash and cash
equivalents and cash from commercial borrowing availability under our credit
facility will meet our working capital and capital expenditure needs for at
least the next twelve months. If the proceeds of this offering, together with
our existing cash balances and cash flow expected from future operations, are
not sufficient to meet our liquidity needs, we will need to raise additional
funds. If adequate funds are not available on acceptable terms or at all, we
may not be able to take advantage of market opportunities, to develop new
products or to otherwise respond to competitive pressures. This inability would
harm our business. In addition, we expect from time to time to review potential
acquisitions that would complement our existing product offerings or enhance
our technical capabilities. While we have no current agreements or negotiations
underway with respect to any potential acquisition, any future transaction of
this nature could require potentially significant amounts of capital. Funds may
not be available at the time or times needed, or available on terms acceptable
to us.

   Further, if we issue equity securities, the ownership percentage of our
stockholders would be reduced, and the new equity securities may have rights,
preferences or privileges senior to those of existing holders of our common
stock. If we cannot raise needed funds on acceptable terms, we may not be able
to develop or enhance our products, take advantage of future opportunities or
respond to competitive pressures or unanticipated requirements, which could
seriously harm our business, operating results and financial condition.

                                       23
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

   This prospectus, including the sections entitled "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," contains forward-looking statements
within the meaning of the federal securities laws. These statements relate to
future events or our future financial performance, and involve known and
unknown risks, uncertainties, and other factors that may cause our actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. These
risks and other factors include, among other things, those listed under "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well as elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "should," "expects," "intends," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential" or "continue," or the negative
of these terms or other comparable terminology. These statements are only
predictions and may be inaccurate. Actual events or results may differ
materially. In evaluating these statements, you should specifically consider
various factors, including the risks outlined under "Risk Factors." These
factors may cause our actual results to differ materially from any forward-
looking statement.

   Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results.

                                USE OF PROCEEDS

   Our net proceeds from the sale of the          of common stock offered by us
are estimated to be approximately $        , based on an assumed initial public
offering price per share of $        , and after deducting estimated
underwriting discounts and commissions and offering expenses payable by us. If
the underwriters exercise the over-allotment option in full, our net proceeds
are estimated to be $        . See "Underwriting."

   We intend to use the net proceeds of this offering primarily for working
capital and general corporate purposes, including expenditures for research and
development of new products and sales and marketing efforts. In addition, we
may use a portion of the net proceeds to acquire complementary products,
technologies or businesses; however, we currently have no commitments or
agreements and are not involved in any negotiations to do so. Pending use of
the net proceeds of this offering, we intend to invest the net proceeds in
interest-bearing, investment-grade securities.

                                DIVIDEND POLICY

   We have never declared nor paid any 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 dividends on our
capital stock in the foreseeable future. Additionally, our line of credit
currently prohibits the payment of dividends.

                                       24
CAPITALIZATION

   The table below sets forth the following information:

  .  our capitalization as of June 30, 1999, after giving effect to the
     cancellation of all of the outstanding ordinary and preference shares of
     Virata Limited, the issuance of new ordinary shares of Virata Limited to
     Virata Corporation and the issuance of shares of common stock of Virata
     Corporation to the former shareholders of Virata Limited;

  .  our capitalization as of June 30, 1999, after giving pro forma effect to
     a      for 1 reverse stock split of our common stock immediately prior
     to the consummation of this offering.

  .  our pro forma capitalization as of June 30, 1999, as adjusted to give
     effect to the sale of                 shares of common stock offered in
     this offering at an assumed offering price of $       per share, after
     deducting underwriting discounts and commissions and estimated offering
     expenses.

   The capitalization information in the table below is qualified by the more
detailed consolidated financial statements and related notes beginning on page
F-1 of this prospectus. The table should be read in conjunction with those
consolidated financial statements and related notes and the sections of this
prospectus titled "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
As of June 30, 1999
                                                --------------------------------
                                                                      Pro Forma
                                                 Actual   Pro Forma  As Adjusted
                                                --------  ---------  -----------
                                                  (in thousands, except per
                                                          share data)
                                                         (unaudited)
Capital lease obligations, long-term........... $    995  $    995      $995

Stockholders' equity (deficit):
  Common Stock, $0.02 par value per share,
   95,000,000 shares authorized; 13,348,644
   shares issued and outstanding actual;
          shares issued and outstanding pro
   forma;        shares issued and outstanding
   pro forma as adjusted.......................      211       --        --
  Convertible Preferred Stock, $0.02 par value
   per share, 86,100,000 shares authorized;
   51,431,179 shares issued and outstanding
   actual, no shares issued and outstanding pro
   forma and pro forma as adjusted.............      811       --        --
Additional paid-in capital.....................   63,611    63,611
Accumulated other comprehensive income loss....      (47)      (47)
Unearned stock compensation....................   (1,332)   (1,332)
Accumulated deficit............................  (53,643)  (53,643)
                                                --------  --------      ----
    Total stockholders' equity.................    9,611     9,611
                                                --------  --------      ----
      Total Capitalization..................... $ 10,606  $ 10,606      $
                                                ========  ========      ====
25
The common stock outstanding after this offering is based on the number of
shares outstanding on June 30, 1999, after giving effect to:

  .  the cancellation of all of the outstanding ordinary and preference
     shares of Virata Limited, the issuance of new ordinary shares of Virata
     Limited to Virata Corporation and the issuance of shares of common stock
     of Virata Corporation to the former shareholders of Virata Limited; and

  .  a      for 1 reverse stock split of our common stock.

These transactions will take place immediately prior to the consummation of
this offering and, except for the reverse stock split, will be effected
pursuant to a share reconstruction under Section 425 of the United Kingdom
Companies Act of 1985. Any securities that are convertible or exercisable into
ordinary shares or preference shares of Virata Limited will become convertible
or exercisable into shares of our common stock upon consummation of the share
reconstruction.

   The common stock outstanding after this offering excludes 22,442,583 shares
of our common stock which may be issued upon exercise of currently outstanding
stock options and warrants outstanding as of June 30, 1999, with a weighted
average exercise price of $0.66 per share; and               shares of common
stock reserved for issuance under our stock plans. See "Management--Director
Compensation", "--Employee Stock Option Plan" and "--Employee Stock Purchase
Plan" and "Description of Capital Stock."

                                       26
DILUTION

   As of June 30, 1999, our pro forma net tangible book value was approximately
$6.5 million, or $   per share of our common stock. Pro forma net tangible book
value per share represents the amount of our total tangible assets less total
liabilities, divided by the number of shares of our common stock outstanding.
Dilution in net tangible book value per share represents the difference between
the amount per share of common stock paid by purchasers of common stock in this
offering and the net tangible book value per share of common stock immediately
after this offering. Our pro forma net tangible book value as of June 30, 1999
is calculated after giving effect to:

  .  the cancellation of all of the outstanding ordinary and preference
     shares of Virata Limited, the issuance of new ordinary shares of Virata
     Limited to Virata Corporation and the issuance of shares of common stock
     of Virata Corporation to the former shareholders of Virata Limited; and

  .  a      for 1 reverse stock split of our common stock.

   Our pro forma as adjusted net tangible book value as of June 30, 1999 was
approximately     million, or    per share of our common stock, after giving
effect to the receipt of the net proceeds from the sale of the
shares of common stock offered by us, assuming an initial public offering price
of $           per share and after deducting the estimated underwriting
discounts and commissions and estimated offering expenses.

   This amount represents an immediate increase in pro forma net tangible book
value of $            per share to the existing stockholders and an immediate
dilution of $            per share to purchasers of common stock in the
offering. The following table illustrates this per share dilution.
Assumed initial public offering price per share....................       $
  Pro forma net tangible book value per share as of June 30, 1999.. $
  Increase in net tangible book value per share attributable to new
   investors.......................................................
                                                                    -----
Pro forma as adjusted net tangible book value per share after the
 offering..........................................................
                                                                          -----
Dilution in net tangible book value per share to new investors.....       $
                                                                          =====
The following table summarizes, as of June 30, 1999, the difference between
the number of shares of common stock purchased from us, the total consideration
paid and the average price per share paid by existing stockholders and to be
paid by new investors purchasing shares of common stock in this offering,
before deducting the underwriting discounts and commissions and estimated
expenses payable by us, at an assumed initial public offering price of $
per share.
Shares          Total
                                          Purchased     Consideration   Average
                                        -------------- ---------------   Price
                                        Number Percent Amount  Percent Per Share
                                        ------ ------- ------- ------- ---------
                                         (in thousands, except percentages and
                                                    per share data)
Existing stockholders.................. 90,611     %   $61,242      %    $0.68
New investors..........................
                                        ------   ---   -------  ----
  Total................................          100%           $100%
                                        ======   ===   =======  ====
The foregoing computations are based on the number of shares of common stock
outstanding on June 30, 1999, after giving effect to:

  .  the cancellation of all of the outstanding ordinary and preference
     shares of Virata Limited, the issuance of new ordinary shares of Virata
     Limited to Virata Corporation and the issuance of shares of common stock
     of Virata Corporation to the former shareholders of Virata Limited; and

  .  a      for 1 reverse stock split of our common stock.

                                       27
These transactions will take place immediately prior to the consummation of
this offering and, except for the reverse stock split, will be effected
pursuant to a share reconstruction under Section 425 of the United Kingdom
Companies Act of 1985. Any securities that are convertible or exercisable into
ordinary shares or preference shares of Virata Limited will become convertible
or exercisable into shares of our common stock upon consummation of the share
reconstruction.

   The common stock outstanding after this offering excludes 22,442,583 shares
which may be issued upon exercise of currently outstanding stock options and
warrants outstanding as of June 30, 1999, with a weighted average exercise
price of $0.66 per share; and          shares of common stock reserved for
issuance under our stock plans. See "Capitalization," "Management--Director
Compensation", "--Employee Stock Option Plan" and "--Employee Stock Purchase
Plan" and "Description of Capital Stock."

                                       28
SELECTED CONSOLIDATED FINANCIAL DATA

   The following selected consolidated financial data should be read with the
consolidated financial statements and related notes beginning on page F-1 of
this prospectus and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on page 31 of this prospectus.
The selected consolidated statement of operations data for each of the three
fiscal years ended March 31, 1997, 1998 and 1999 and selected consolidated
balance sheet data as of March 31, 1998 and 1999 are derived from, and
qualified by reference to, the audited consolidated financial statements
included elsewhere in this prospectus. The selected consolidated statement of
operations data for each of the two fiscal years ended March 31, 1995 and 1996
and selected consolidated balance sheet data as of March 31, 1995, 1996 and
1997 are derived from audited financial statements not included in this
prospectus. Information for the fiscal year ended March 31, 1999 includes the
results of operations for RSA Communications, Inc. only since July 17, 1998,
the closing date of the acquisition. For information showing our unaudited pro
forma results of operations including RSA Communications, Inc. for the fiscal
year ended March 31, 1999, see Virata Corporation Pro Forma Combined Financial
Information on page F-33.

   The selected consolidated statement of operations data for the three months
ended June 30, 1998 and 1999 and the selected consolidated balance sheet data
as of June 30, 1999 are derived from unaudited consolidated financial
statements included elsewhere in this prospectus. The unaudited consolidated
financial statements have been prepared by us on a basis consistent with our
audited consolidated financial statements and, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of our results of operations and financial
position as of and for those periods.
Three Months
                                    Year Ended March 31,                 Ended June 30,
                          ---------------------------------------------  ----------------
                           1995     1996     1997      1998      1999     1998     1999
                          -------  -------  -------  --------  --------  -------  -------
                                                                           (unaudited)
                                    (in thousands, except per share data)
Consolidated Statement
 of Operations Data:
Revenues:
 Semiconductors.........  $    --  $    --  $    --  $    505  $  2,784  $   675  $ 1,419
 License................       --       85      971     1,570     1,628      994      274
 Services and royalty...      226      333    1,134     1,206     2,367      341      373
 Systems................       --    2,424    4,848     5,650     2,477      754      599
                          -------  -------  -------  --------  --------  -------  -------
   Total revenues.......      226    2,842    6,953     8,931     9,256    2,764    2,665
                          -------  -------  -------  --------  --------  -------  -------
Cost of revenues:
 Semiconductors.........       --       --       --       325     2,421      419      811
 License................       --       --       --        --        --       --       --
 Services and royalty
  ......................      100       55      185       192       528       55      138
 Systems................       --    1,854    3,754     3,270     1,048      444      324
                          -------  -------  -------  --------  --------  -------  -------
   Total cost of
    revenues............      100    1,909    3,939     3,787     3,997      918    1,273
                          -------  -------  -------  --------  --------  -------  -------
   Gross profit.........      126      933    3,014     5,144     5,259    1,846    1,392
Operating expenses:
 Research and
  development...........    3,587    4,402    3,518     3,987     8,323    1,202    2,549
 Sales and marketing....      365    4,037    4,753     4,076     2,917      532      923
 General and
  administrative........    1,278    2,096    3,410     4,917     5,567      759      903
 Restructuring costs....       --       --       --     1,871        --       --       --
 Amortization of
  intangible assets.....       --       --       --        --       549       --      194
 Amortization of stock
  compensation..........       --       --       --       399     1,394      306      266
 Acquired in-process
  research and
  development...........       --       --       --        --     5,260       --       --
                          -------  -------  -------  --------  --------  -------  -------
   Total operating
    expenses............    5,230   10,535   11,681    15,250    24,010    2,799    4,835
                          -------  -------  -------  --------  --------  -------  -------
Loss from operations....   (5,104)  (9,602)  (8,667)  (10,106)  (18,751)    (953)  (3,443)
Interest and other
 income (expense), net..        4      264      127      (172)    1,594       10      428
                          -------  -------  -------  --------  --------  -------  -------
Net loss................  $(5,100) $(9,338) $(8,540) $(10,278) $(17,157) $  (943) $(3,015)
                          =======  =======  =======  ========  ========  =======  =======
Net loss per share:
 Basic and diluted......  $ (0.48) $ (0.49) $ (0.80) $  (0.90) $  (1.33) $ (0.08) $ (0.23)
                          =======  =======  =======  ========  ========  =======  =======
 Weighted average
  shares................   10,669   19,140   10,676    11,482    12,881   11,765   13,346
                          =======  =======  =======  ========  ========  =======  =======
Pro forma net loss per
 share:
 Basic and diluted......                                       $  (0.21)          $ (0.04)
                                                               ========           =======
 Weighted average
  shares................                                         80,900            84,646
                                                               ========           =======
29
March 31,
                          ----------------------------------------  June 30,
                           1995     1996   1997    1998     1999      1999
                          -------  ------ ------- -------  ------- -----------
                                                                   (unaudited)
                                            (in thousands)
Consolidated Balance
 Sheet Data:
Cash and cash
 equivalents............. $   451  $1,315 $ 3,752 $   767  $ 8,616   $ 6,509
Working capital..........  (3,206)    451   6,346  (3,653)   8,042     5,180
Total assets.............   2,086   4,422  12,066   5,950   19,183    16,311
Total long term
 liabilities.............      --      48     875     738    1,130       995
Total stockholders'
 equity (deficit)........  (2,129)  1,850   6,857  (3,085)  12,715     9,611
30
MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   This section of this prospectus 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 prospectus.
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
prospectus. See "Special Note Regarding Forward-Looking Statements."

Overview

   We were incorporated in June 1993 in Cambridge, England, as a spin-out from
the Olivetti Research Laboratory (now AT&T Laboratories). Until 1995, we were a
development stage company focused primarily on product development. From first
production revenue shipment in April 1995 through March 1996, we focused on
developing and delivering ATM-based, board-level systems primarily for local
area network applications. In mid 1996, we began licensing our software suite
and selling our semiconductors to developers of broadband access products. In
September 1997, we ceased development of our systems products and focused
exclusively on expanding our software offering and developing additional
semiconductors for the broadband marketplace with a focus on the DSL market. We
recently moved our corporate headquarters from Cambridge, England to Santa
Clara, California.

   We generate revenues from sales of semiconductors, systems-level products,
software licenses, maintenance, royalties and related design services.
Semiconductor revenues have come from two sources, our Proton family of ASIC
products and our ATOM family of ASSPs. An equipment manufacturer, or OEM,
licenses 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 systems-level products primarily to one customer, and we expect sales of
these products to decline. We sell our products through a direct sales force,
which we believe most effectively allows us to serve our customers. We also
utilize a sales representative in Taiwan.

   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. We recognize software license revenues under Statement of
Position, or 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, we account 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 that we grant our customers the right to
specified upgrades, license revenue is deferred until delivery of the specific
upgrade. If vendor-specific objective evidence of fair value does not exist,
then the entire license fee is deferred until the delivery of the specified
upgrade. We recognize revenues from maintenance and support services provided
to licensees ratably over the term of the agreement, generally one year, and
recognize revenues from design services provided to OEMs as the services are
performed.

   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.

                                       31
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 product for
the G.lite market, and we are just beginning to work with potential customers
for this product. Our future success will depend, in part, on our successful
entry into the G.lite market. However, we do not expect to know whether we will
realize significant commercial shipments of Beryllium until the second half of
2000.

   Our revenues to date have been concentrated with a small number of
customers. We expect this concentration to continue for the foreseeable future.
For the fiscal year ended March 31, 1999, Com21 and Orckit Communications
accounted for 22.6% and 15.7%, respectively, of our total revenues. For the
three months ended June 30, 1999, Orckit Communications, Com21 and Netopia
accounted for 39.8%, 17.2% and 10.2%, respectively, of our total revenues.

   International revenues accounted for 44.2% of total revenues for the fiscal
year ended March 31, 1998 and 40.3% for the fiscal year ended March 31, 1999.
International revenues are denominated solely 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 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 split between U.S. dollars and British pounds
sterling.

   Our gross margin has fluctuated significantly due primarily to product mix.
For the fiscal year ended March 31, 1999, our semiconductor gross margin was
13.0%, our license gross margin was 100.0%, our services and royalty gross
margin was 77.7% and our systems gross margin was 57.7%. We believe our gross
margin may continue to fluctuate because we expect semiconductors to be a
greater percentage of total revenues and 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 three locations: Cambridge, England; Raleigh, North Carolina; and Santa
Clara, California. We believe that our strategy of locating research and
development in Cambridge and Raleigh 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. A restructuring plan was
implemented in the second half of fiscal 1998 which resulted in one-time
charges of $1.9 million for the year ended March 31, 1998. Approximately
$900,000 of the restructuring charge represents employee costs, $900,000
represents asset write-downs and $71,000 relates to other restructuring costs.
We continue to sell our systems products to one principal customer and systems
revenues for the three months ended June 30, 1999 were $599,000.

                                       32
To extend our analog and DSL technical capabilities, in July 1998 we
acquired RSA Communications, a privately-held company based in Raleigh, North
Carolina specializing in analog modem software development. Financial
information for the fiscal year ended March 31, 1999 includes the results of
operations for RSA Communications beginning July 17, 1998, the closing date of
the acquisition. The transaction was accounted for as a purchase business
combination, under the purchase method of accounting. The aggregate purchase
price is required to be allocated to the tangible and identifiable intangible
assets acquired and liabilities assumed on the basis of their fair values on
the acquisition date. Based on a valuation by an independent appraiser, $5.3
million of the $9.3 million purchase price was allocated to in-process research
and development. The valuation was determined using the income-based approach
for modem chips and replacement cost method for software algorithms. The
acquired in-process technology was not considered to have reached technological
feasibility and had no alternative future use. Accordingly, the amount was
charged to operations upon acquisition. For more information on the valuation
of the acquired in-process research and development, see note 4 of notes to
consolidated financial statements. For information showing our unaudited
pro forma results of operations including RSA Communications for the fiscal
year ended March 31, 1999, see Virata Corporation Pro Forma Combined Financial
Information on page F-33.

   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 June 30, 1999, we
had an accumulated deficit of $53.6 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.

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.
Three Months
                                  Year Ended March 31,       Ended June 30,
                                  ------------------------   ----------------
                                   1997     1998     1999     1998     1999
                                  ------   ------   ------   -------  -------
                                                               (unaudited)
Consolidated Statement of
 Operations Data as a Percentage
 of Total Revenues
Revenues:
 Semiconductors.................     --  %    5.7%    30.1%    24.4%     53.2%
 License........................    14.0     17.6     17.6     36.0      10.3
 Services and royalty...........    16.3     13.4     25.5     12.3      14.0
 Systems........................    69.7     63.3     26.8     27.3      22.5
                                  ------   ------   ------   ------   -------
   Total revenues...............   100.0    100.0    100.0    100.0     100.0
                                  ------   ------   ------   ------   -------
Cost of revenues:
 Semiconductors.................     --       3.6     26.2     15.1      30.4
 License........................     --       --       --       --        --
 Services and royalty...........     2.7      2.2      5.7      2.0       5.2
 Systems........................    54.0     36.6     11.3     16.1      12.1
                                  ------   ------   ------   ------   -------
   Total cost of revenues.......    56.7     42.4     43.2     33.2      47.7
                                  ------   ------   ------   ------   -------
Gross profit....................    43.3     57.6     56.8     66.8      52.3
Operating expenses:
 Research and development.......    50.6     44.6     89.9     43.5      95.7
 Sales and marketing............    68.4     45.6     31.5     19.2      34.6
 General and administrative.....    49.0     55.1     60.2     27.5      33.9
 Restructuring costs............     --      20.9      --       --        --
 Amortization of intangible
  assets........................     --       --       5.9      --        7.2
 Amortization of stock
  compensation..................     --       4.5     15.1     11.1      10.0
 Acquired in-process research
  and development...............     --       --      56.8      --        --
                                  ------   ------   ------   ------   -------
   Total operating expenses.....   168.0    170.7    259.4    101.3     181.4
                                  ------   ------   ------   ------   -------
Loss from operations............  (124.7)  (113.1)  (202.6)   (34.5)   (129.1)
Interest and other income
 (expense), net.................     1.9     (2.0)    17.2      0.4      16.0
                                  ------   ------   ------   ------   -------
Net loss........................  (122.8)% (115.1)% (185.4)%  (34.1)%  (113.1)%
                                  ======   ======   ======   ======   =======
33
Three Months Ended June 30, 1998 and 1999

  Total Revenues

   Total revenues decreased 3.6% from $2.8 million for the three months ended
June 30, 1998 to $2.7 million for the three months ended June 30, 1999. While
total revenues were largely unchanged, semiconductor revenues increased while
license and systems revenues decreased significantly.

   Semiconductor revenues increased 110.2% from $675,000 for the three months
ended June 30, 1998 to $1.4 million for the three months ended June 30, 1999.
The increase in semiconductor revenues, from 24.4% of total revenues for the
three months ended June 30, 1998 to 53.2% of total revenues for the three
months ended June 30, 1999, was due primarily to a substantial increase in
shipments of semiconductors to Orckit Communications. Sales to this customer
totaled $1.0 million in the three months ended June 30, 1999.

   License revenues decreased 72.4% from $994,000 for the three months ended
June 30, 1998 to $274,000 for the three months ended June 30, 1999. The
decrease in services and royalty revenues, from 36.0% of total revenues for the
three months ended June 30, 1998 to 10.3% of total revenues for the three
months ended June 30, 1999, was largely due to a decrease in the average
selling price for software licenses.

   Services and royalty revenues increased 9.5% from $341,000 for the three
months ended June 30, 1998 to $373,000 for the three months ended June 30,
1999. The increase in services and royalty revenues, from 12.3% of total
revenues for the three months ended June 30, 1998 to 14.0% of total revenues
for the three months ended June 30, 1999, was due primarily to the introduction
of our design and consulting services, offset by a decrease in royalty
revenues.

   Systems revenues decreased 20.6% from $754,000 for the three months ended
June 30, 1998 to $599,000 for the three months ended June 30, 1999. The
decrease in systems revenues, from 27.3% of total revenues for the three months
ended June 30, 1998 to 22.5% of total revenues for the three months ended June
30, 1999, was the result of our decision in September 1997 to focus our efforts
on semiconductor sales.

  Cost of Revenues and Gross Margin

   Total cost of revenues consists primarily of semiconductor costs paid to
foundry vendors, costs attributable to design services and software maintenance
and operations expense including miscellaneous cost of revenues. Total cost of
revenues increased 38.6% from $918,000 for the three months ended June 30, 1998
to $1.3 million for the three months ended June 30, 1999. The increase in total
cost of revenues, from 33.2% of total revenues for the three months ended June
30, 1998 to 47.7% of total revenues for the three months ended June 30, 1999,
was primarily due to the increase in cost associated with higher semiconductor
unit sales. License revenues decreased 72.4% from $994,000 for the three months
ended June 30, 1998 to $274,000 for the three months ended June 30, 1999. The
decrease negatively impacted gross margin.

   Semiconductor cost of revenues increased 93.3% from $419,000 for the three
months ended June 30, 1998 to $811,000 for the three months ended June 30,
1999. The increase in semiconductor gross margin, from 37.8% for the three
months ended June 30, 1998 to 42.8% for the three months ended June 30, 1999,
was primarily due to an increase in sales volume during the three months ended
June 30, 1999.

   There are no costs of revenues associated with our software license
revenues.

   Services and royalty cost of revenues increased 152.8% from $55,000 for the
three months ended June 30, 1998 to $138,000 for the three months ended June
30, 1999. The decrease in gross margin associated with services and royalty
revenues, from 83.8% for the three months ended June 30, 1998 to 63.1% for the
three months ended June 30, 1999, was primarily the result of costs incurred
for design services and expenses associated with royalty revenues.

                                       34
Systems cost of revenues decreased 27.2% from $444,000 for the three months
ended June 30, 1998 to $324,000 for the three months ended June 30, 1999. The
increase in systems gross margin, from 41.1% for the three months ended June
30, 1998 to 46.0% for the three months ended June 30, 1999, was primarily due
to a decrease in the level of operations support for systems products.

  Research and Development Expenses

   Research and development expenses consist primarily of engineering staffing
costs and technology license fees. Research and development expenses increased
112.1% from $1.2 million, or 43.5% of total revenues, for the three months
ended June 30, 1998 to $2.5 million, or 95.7% of total revenues, for the three
months ended June 30, 1999. The increase was primarily due to the addition of
research and development personnel, which grew from 43 to 79 engineers as a
result of the acquisition of RSA Communications and accelerated new product
development. In comparison to the previous period, the number of new products
under development increased substantially. We expect research and development
expenses to increase in absolute dollar amounts in future periods as we further
expand our research and development organization and acquire additional
intellectual property for inclusion in semiconductor device designs.

  Sales and Marketing Expenses

   Sales and marketing expenses consist primarily of employee salaries, sales
commissions, travel and related costs for sales and marketing personnel,
promotional materials and trade show expenses. Sales and marketing expenses
increased 73.5% from $532,000, or 19.2% of total revenues, for the three months
ended June 30, 1998 to $923,000, or 34.6% of total revenues, for the three
months ended June 30, 1999. The increase was primarily due to the addition of
sales and marketing personnel and increased marketing activity. We expect sales
and marketing expenses to increase in absolute dollar amounts in future periods
as sales and marketing activities increase.

  General and Administrative Expenses

   General and administrative expenses consist primarily of employee salaries
and related expenses for executive, accounting, legal and administrative
personnel, and costs associated with facilities, professional service fees and
other general corporate expenses. General and administrative expenses increased
18.9% from $759,000, or 27.5% of total revenues, for the three months ended
June 30, 1998 to $903,000, or 33.9% of total revenues, for the three months
ended June 30, 1999. The increase was primarily due to the addition of
executive, accounting and administrative personnel. In addition, bad debt
provisions increased from $26,000 for the three months ended June 30, 1998 to
$87,000 for the three months ended June 30, 1999. We expect general and
administrative expenses to increase in absolute dollar amounts as we further
invest in infrastructure and incur additional expenses related to the
anticipated growth of our business and operation as a publicly held company.

  Goodwill Amortization Expense

   Goodwill amortization expense is related to the acquisition of RSA
Communications, which occurred in July 1998. For the three months ended June
30, 1999, goodwill amortization expense was $194,000. We are amortizing the
goodwill on a straight-line basis over 60 months beginning in the quarter ended
September 30, 1998.

  Amortization of Stock Compensation

   Through June 30, 1999, we had recorded a total of $3.4 million of unearned
stock compensation. We recognized amortization of stock compensation of
$306,000 for the three months ended June 30, 1998 and $266,000 for the three
months ended June 30, 1999.

                                       35
Interest and Other Income, Net

   Interest and other income, net consists primarily of interest earned on cash
and cash equivalents and short-term investments, interest expense related to
obligations under capital leases and our bank line of credit and unrecognized
foreign currency translation adjustments. Net interest income increased from
$10,000 for the three months ended June 30, 1998 to $428,000 for the three
months ended June 30, 1999. The increase in interest and other income was
primarily due to additional cash balances as a result of our private placement
financing completed in June 1998 and the elimination of interest expense due to
the repayment of a bank line of credit in May 1998. This increase was partially
offset by an increase in interest expense associated with capital equipment
under our lease facility. In addition, we recorded an income of $30,000 for
unrecognized foreign currency translation for the three months ended June 30,
1998 and income of $386,000 for unrecognized foreign currency translation for
the three months ended June 30, 1999.

  Income Taxes

   Since inception, we have incurred net losses for federal and state tax
purposes and have not recognized any tax provision or benefit.

Fiscal Years Ended March 31, 1997, 1998 and 1999

  Total Revenues

   Total revenues increased 28.5% from $7.0 million for the fiscal year ended
March 31, 1997 to $8.9 million for the fiscal year ended March 31, 1998. Total
revenues increased 3.6% to $9.3 million for the fiscal year ended March 31,
1999.

   No semiconductor revenues were recorded in the fiscal year ended March 31,
1997. Semiconductor revenues increased 451.1% from $505,000 for the fiscal year
ended March 31, 1998 to $2.8 million for the fiscal year ended March 31, 1999.
Semiconductor revenues increased from 5.7% of total revenues for the fiscal
year ended March 31, 1998 to 30.1% of total revenues for the fiscal year ended
March 31, 1999 as a growing number of software licensees began initial trials
and deployments of broadband access devices.

   License revenues increased 61.7% from $971,000 for the fiscal year ended
March 31, 1997 to $1.6 million for the fiscal year ended March 31, 1998. The
increase in license revenues, from 14.0% of total revenue for the fiscal year
ended March 31, 1997 to 17.6% for the fiscal year ended March 31, 1998, was the
result of increased success expanding our software licensee customer base.
License revenues of $1.6 million for the fiscal year ended March 31, 1999 were
substantially the same as the fiscal year ended March 31, 1998. License
revenues were 17.6% of total revenues for both the fiscal year ended March 31,
1998 and 1999.

   Services and royalty revenues increased 6.3% from $1.1 million for the
fiscal year ended March 31, 1997 to $1.2 million for the fiscal year ended
March 31, 1998, but decreased from 16.3% to 13.5% of total revenues. Services
and royalty revenues increased 96.3% to $2.4 million for the fiscal year ended
March 31, 1999 and increased to 25.6% of total revenue. The increase is due
primarily to revenues contributed by Virata Raleigh Corporation under analog
modem consulting engineering agreements.

   Systems revenues for the fiscal year ended March 31, 1997 totaled $4.8
million, or 69.7% of total revenues. Systems revenues increased 16.5% to $5.7
million for the fiscal year ended March 31, 1998. Systems revenues decreased
56.2% to $2.5 million for the fiscal year ended March 31, 1999. The decrease in
systems revenues, from 63.3% of total revenues for the fiscal year ended March
31, 1998 to 26.8% of total revenues for the fiscal year ended March 31, 1999,
was primarily due to our decision in September 1997 to focus our sales and
development efforts on semiconductor devices for the DSL market. During the
fiscal year ended March 31, 1999, sales to Com21 represented 72.4% of systems-
level product revenues.

                                       36
Cost of Revenues and Gross Margin

   Total cost of revenues consists primarily of semiconductor costs paid to
foundry vendors, costs attributable to design services and software maintenance
and operations expense including miscellaneous cost of revenues. Total cost of
revenues was $3.9 million, or 56.7% of total revenues, for the fiscal year
ended March 31, 1997. Cost of revenues increased from $3.8 million, or 42.4% of
total revenues, for the fiscal year ended March 31, 1998 to $4.0 million, or
43.2% of total revenues, for the fiscal year ended March 31, 1999.

   No semiconductor revenues or costs were recorded for the fiscal year ended
March 31, 1997. Cost of revenues for semiconductors increased 644.6% from
$325,000 for the fiscal year ended March 31, 1998 to $2.4 million for the
fiscal year ended March 31, 1999. Semiconductor gross margin decreased from
35.6% for the fiscal year ended March 31, 1998 to 13.0% for the fiscal year
ended March 31, 1999 as a result of reduced selling prices for existing
products and product costs and inventory provisions associated with new product
introductions.

   There are no costs of revenues associated with our software license
revenues.

   Services and royalty cost of revenues increased 3.8% from $185,000 for the
fiscal year ended March 31, 1997 to $192,000 for the fiscal year ended March
31, 1998. Cost of revenues for services and royalty revenues increased 174.4%
to $528,000 for the fiscal year ended March 31, 1999. Services and royalty
revenues gross margin increased from 83.7% for the fiscal year ended March 31,
1997 to 84.1% for the fiscal year ended March 31, 1998. Services and royalty
revenues gross margin decreased to 77.7% for the fiscal year ended March 31,
1999 as the result of costs associated with design services revenues and
royalty expenses associated with royalty income.

   Systems cost of revenues decreased 12.9% from $3.8 million for the fiscal
year ended March 31, 1997 to $3.3 million for the fiscal year ended March 31,
1998. For the fiscal year ended March 31, 1999, systems cost of revenues
decreased 68.0% to $1.0 million. Gross margin for systems products improved
from 22.6% for the fiscal year ended March 31, 1997 to 42.1% for the fiscal
year ended March 31, 1998. Systems product gross margin improved further to
57.7% for the fiscal year ended March 31, 1999 as the result of decreased
operations support expenses and a narrower systems product range.

  Research and Development Expenses

   Research and development expenses increased 13.3% from $3.5 million for the
fiscal year ended March 31, 1997 to $4.0 million for the fiscal year ended
March 31, 1998. The increase was attributable primarily to the addition of
personnel in our research and development organization associated with
semiconductor product development. Research and development expenses increased
108.9% to $8.3 million for the fiscal year ended March 31, 1999. The increase
was primarily the result of increased staffing in Cambridge, England, as well
as the addition of personnel as a result of the acquisition of RSA
Communications and continued hiring at our Raleigh, North Carolina facility
following the acquisition.

  Sales and Marketing Expenses

   Sales and marketing expenses decreased 14.2% from $4.8 million for the
fiscal year ended March 31, 1997 to $4.0 million for the fiscal year ended
March 31, 1998. Sales and marketing expenses decreased a further 28.4% to $2.9
million for the fiscal year ended March 31, 1999. The decrease in sales and
marketing expenses in both periods resulted from our reduced emphasis on
systems-level products from September 1997 and increased focus on semiconductor
products. Sales efforts for semiconductors are targeted to fewer customers and
require lower sales and marketing staffing.

                                       37
General and Administrative Expenses

   General and administrative expenses increased 44.2% from $3.4 million for
the fiscal year ended March 31, 1997 to $4.9 million for the fiscal year ended
March 31, 1998. The increase was primarily due to a $1.1 million bad debt
provision for the fiscal year ended March 31, 1998. General and administrative
expenses increased 13.2% to $5.6 million for the fiscal year ended March 31,
1999. The increase was primarily due to increased staff performing general and
administrative tasks added as a result of the acquisition of RSA Communications
and increased bad debt provision.

  Restructuring Cost

   We recognized $1.9 million of restructuring cost for the fiscal year ended
March 31, 1998 associated with our reduced emphasis on systems-level products.

  Amortization of Stock Compensation

   During the fiscal years ended March 31, 1998 and 1999, we recorded a total
of $3.3 million of unearned stock compensation. We recognized amortization of
stock compensation of $399,000 for the fiscal year ended March 31, 1998 and
$1.4 million for the fiscal year ended March 31, 1999.

  Interest and Other Income, Net

   Interest and other income, net decreased from income of $127,000 for the
fiscal year ended March 31, 1997 to an expense of $172,000 for the fiscal year
ended March 31, 1998. The decrease in interest and other income was primarily
due to a $276,000 decrease in interest income and a $142,000 increase in
interest expense associated with capital equipment under our lease facility,
partially offset by a $118,000 decrease in unrecognized foreign currency
translation expense. For the fiscal year ended March 31, 1999, net interest and
other income increased to net income of $1.6 million. The increase was
primarily attributable to a $666,000 increase in interest income from
additional cash balances as a result of our private placement financing
completed in June 1998, a $531,000 US federal tax refund and the increase in
unrealized foreign currency translation from an expense of $80,000 in the
fiscal year ended March 31, 1998 to income of $432,000 in the fiscal year ended
March 31, 1999.

  Income Taxes

   Since inception, we have incurred net losses for federal and state tax
purposes and have not recognized any tax provision or benefit. As of March 31,
1998, we had approximately $26.9 million net operating loss carryforwards for
US federal, California and United Kingdom income tax purposes that will begin
to expire in three years.

   As of March 31, 1999, we had deferred tax assets of $14.5 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. We have provided a valuation allowance due to the
uncertainty of generating future profits that would allow for the realization
of these deferred tax assets. Accordingly, no tax benefit was recorded in the
accompanying consolidated statements of operations.

                                       38
Quarterly Results of Operations

   The following table sets forth our consolidated operating results for each
of the five quarters ended June 30, 1999. 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 prospectus. These operating results are not
necessarily indicative of results of any future period.
Three Months Ended
                             -------------------------------------------------
                             June 30,  Sept 30,   Dec 31,   Mar 31,   June 30,
                               1998      1998      1998      1999       1999
                             --------  --------   -------   -------   --------
                                           (in thousands)
Revenues:
 Semiconductors.............  $  675   $  1,022   $   425   $   662   $ 1,419
 License....................     994         15       175       444       274
 Services and royalty.......     341        734       700       592       373
 Systems....................     754        586       417       720       599
                              ------   --------   -------   -------   -------
   Total revenues...........   2,764      2,357     1,717     2,418     2,665
                              ------   --------   -------   -------   -------
Cost of revenues:
 Semiconductors.............     419        914       246       842       811
 License....................      --         --        --        --        --
 Services and royalty.......      55        174       138       161       138
 Systems....................     444        257       374       (27)      324
                              ------   --------   -------   -------   -------
   Total cost of revenues...     918      1,345       758       976     1,273
                              ------   --------   -------   -------   -------
Gross profit................   1,846      1,012       959     1,442     1,392
Operating expenses:
 Research and development...   1,202      2,384     2,553     2,184     2,549
 Sales and marketing........     532        849       710       826       923
 General and
  administrative............     759      2,340       965     1,503       903
 Amortization of intangible
  assets....................      --        137       206       206       194
 Amortization of stock
  compensation..............     306        377       363       348       266
 Acquired in-process
  research and
  development...............      --      5,260        --        --        --
                              ------   --------   -------   -------   -------
   Total operating
    expenses................   2,799     11,347     4,797     5,067     4,835
                              ------   --------   -------   -------   -------
Loss from operations........    (953)   (10,335)   (3,838)   (3,625)   (3,443)
Interest and other income
 (expense), net.............      10       (417)      648     1,353       428
                              ------   --------   -------   -------   -------
Net loss....................  $ (943)  $(10,752)  $(3,190)  $(2,272)  $(3,015)
                              ======   ========   =======   =======   =======
As a Percentage of Total
 Revenues
Revenues:
 Semiconductors.............    24.4%      43.4%     24.7%     27.4%     53.2%
 License....................    36.0        0.6      10.2      18.3      10.3
 Services and royalty.......    12.3       31.1      40.8      24.5      14.0
 Systems....................    27.3       24.9      24.3      29.8      22.5
                              ------   --------   -------   -------   -------
   Total revenues...........   100.0      100.0     100.0     100.0     100.0
                              ------   --------   -------   -------   -------
Cost of revenues:
 Semiconductors.............    15.1       38.8      14.3      34.8      30.4
 License....................      --         --        --        --        --
 Services and royalty.......     2.0        7.4       8.0       6.6       5.2
 Systems....................    16.1       10.9      21.8      (1.1)     12.1
                              ------   --------   -------   -------   -------
   Total cost of revenues...    33.2       57.1      44.1      40.3      47.7
                              ------   --------   -------   -------   -------
Gross profit................    66.8       42.9      55.9      59.7      52.3
Operating expenses:
 Research and development...    43.5      101.1     148.7      90.3      95.7
 Sales and marketing........    19.2       36.0      41.4      34.2      34.6
 General and
  administrative............    27.5       99.3      56.2      62.2      33.9
 Amortization of intangible
  assets....................      --        5.8      12.0       8.5       7.2
 Amortization of stock
  compensation..............    11.1       16.0      21.1      14.4      10.0
 Acquired in-process
  research and
  development...............      --      223.2        --        --        --
                              ------   --------   -------   -------   -------
   Total operating
    expenses................   101.3      481.4     279.4     209.6     181.4
                              ------   --------   -------   -------   -------
Loss from operations........   (34.5)    (438.5)   (223.5)   (149.9)   (129.1)
Interest and other income
 (expense), net.............     0.4      (17.7)     37.7      56.0      16.0
                              ------   --------   -------   -------   -------
Net loss....................   (34.1)%   (456.2)%  (185.8)%   (93.9)%  (113.1)%
                              ======   ========   =======   =======   =======
39
Semiconductor revenues increased 51.4% to $1.0 million for the three months
ended September 30, 1998 as compared to the prior three-month period.
Semiconductor revenues decreased 58.4% to $425,000 for the three months ended
December 31, 1998 as compared to the prior three-month period. This increase
followed by a decrease was due to the timing of shipments to one customer.

   Our software license revenues have fluctuated during the last five quarters
ended June 30, 1999. Because of the limited number of licenses signed during
any three-month period, small changes in the number of licenses sold caused
significant changes in quarterly license revenues. During the three months
ended June 30, 1998, we adopted SOP 97-2, which affected the periods in which
license revenues were recognized. In addition, we substantially reduced the
average selling price for our licenses, which contributed to the increase in
the number of licenses sold and also contributed to the fluctuations in
quarterly license revenues.

   Services and royalty revenues increased 115.4% from $341,000 for the three
months ended June 30, 1998 to $734,000 for the three months ended September 30,
1998. The increase was due primarily to the acquisition of RSA Communications
in July 1998. Services and royalty revenues have subsequently declined each
quarter following the three months ended September 30, 1998 reflecting our
decision to offer consulting services only to companies that sign a software
license agreement.

   Research and development expenditures increased 98.4% from $1.2 million for
the three months ended June 30, 1998 to $2.4 million for the three months ended
September 30, 1998. The increase was primarily due to our acquisition of RSA
Communications, which added 17 engineers to our staff, and accelerated product
development.

   General and administrative expenses increased 208.3% to $2.3 million in the
three months ended September 30, 1998 as compared to the prior three-month
period. General and administrative expenses decreased 58.8% to $965,000 in the
three months ended December 31, 1998 as compared to the prior three-month
period. The increase followed by a decrease was principally due to bad debt
expense arising primarily from two customers. The first bad debt expense
related to a systems-level product customer, which purchased substantially all
of our remaining adapter card products. The customer subsequently went out of
business. The second bad debt expense related to Hayes Microcomputer's decision
to file for bankruptcy. We have adopted credit policies that we believe will
limit future customer non-payments. However, we can not offer any assurances
regarding the effectiveness of these policies or of our ability in general to
limit customer non-payments.

   Our operating results have fluctuated significantly from quarter to quarter
in the past, and we expect these fluctuations to continue in the future. For a
list of factors that might affect fluctuations in our operating results, see
"Risk Factors--Our operating results in one or more future periods are likely
to fluctuate significantly and may fail to meet or exceed the expectations of
securities analysts or investors, which may cause our stock price to decline."
We believe period to period comparisons of our operating results are not
meaningful. You should not rely on our quarterly operating results to predict
our future performance.

Liquidity and Capital Resources

   Since inception, we have financed our operations primarily through venture
capital and corporate investments in our convertible preferred stock, which
total $66.1 million in aggregate net proceeds through June 30, 1999. We have
also financed our operations through equipment lease financing, which totaled
$1.9 million in principal amount outstanding at June 30, 1999.

   As of June 30, 1999, we had $6.5 million of cash and cash equivalents,
working capital of $5.2 million and $1.9 million under an equipment lease.

   Net cash used in operating activities for the fiscal year ended March 31,
1997 of $7.0 million was primarily due to net operating losses of $8.5 million
and an increase in accounts receivable of $797,000, offset

                                       40
by increases in accounts payable and accrued liabilities of $1.0 million and
$818,000, respectively. Cash used in operating activities for the fiscal year
ended March 31, 1998 of $9.3 million was primarily due to net operating losses
of $10.3 million and an increase in accounts receivable of $1.7 million, offset
by a provision for doubtful accounts of $1.1 million. Cash used in operating
activities for the fiscal year ended March 31, 1999 of $9.6 million was
primarily due to net operating losses of $17.2 million and a decrease in
accounts payable of $1.2 million, offset by a write off of in-process research
and development of $5.2 million, amortization of stock compensation of $1.6
million and a provision for doubtful accounts of $1.5 million.

   Net cash used in operating activities for the three months ended June 30,
1998 of $759,000 was due primarily to net operating losses of $943,000 and
decreases in accounts payable of $668,000, offset by decreases in other current
assets of $579,000. Cash used in operating activities for the three months
ended June 30, 1999 of $2.4 million was due primarily to net operating losses
of $3.1 million and increases in current assets of $624,000, offset by
increases in accrued liabilities of $485,000.

   Net cash used for investing activities was $1.4 million, $193,000 and $8.2
million for the fiscal years ended March 31, 1997, 1998 and 1999, respectively,
which primarily reflected purchases of property and equipment. For the three
months ended June 30, 1999, net cash provided by investing activities was
$948,000, primarily due to sales of short-term investments. For the fiscal year
ended March 31, 1999, we completed the acquisition of RSA Communications. Net
cash used for the acquisition was $5.1 million.

   Net cash provided by financing activities was $14.6 million, $3.3 million
and $25.5 million for the fiscal years ended March 31, 1997, 1998 and 1999,
respectively. Net cash used by financing activities was $50,000 for the three
months ended June 30, 1999. Cash provided by financing activities in each of
these periods was attributable primarily to proceeds from the issuance of
convertible preferred stock, equipment lease financing and, for the fiscal year
ended March 31, 1998, a revolving credit facility.

   On August 27, 1999 we entered into a borrowing agreement for up to $3.0
million under which $483,000 was outstanding as of August 31, 1999.

   We believe that the net proceeds from this offering, together with our
current cash, cash equivalents, short-term investments and borrowings under our
current credit facility, will be sufficient to meet our anticipated cash needs
for working capital and capital expenditures for at least the next twelve
months. If cash generated from operations is insufficient to satisfy our
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.

Year 2000 Compliance Disclosure

   The term "Year 2000 issue" is a general term used to describe the various
problems that may result from the improper processing of dates and date-
sensitive calculations by computers and other machinery as the Year 2000 is
approached and reached. These problems generally arise from the fact that most
of the world's computer hardware and software have historically used only two
digits to identify the year in a date. As a result, date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. These
problems may also arise from other sources as well, such as the use of special
codes and conventions in software that make use of the date field. If not
corrected, these electronic systems could fail or create erroneous results when
addressing dates on and after January 1, 2000.

                                       41
State of Readiness

   To address the Year 2000 issue, we have assembled a team that is responsible
for evaluating our state of readiness in connection with the Year 2000 issue.
Our information services and operations departments have evaluated the
Year 2000 issue, and one employee from each of these departments is designated
as a Year 2000 coordinator.

   Our Year 2000 activities have focused primarily in five areas:

  .  products--analyzing software, semiconductor and circuit boards;
  .  systems--analyzing financial, materials planning, computer aided design
     tools, PC desktops, applications and data;
  .  suppliers--ensuring a continuous supply of goods and services;
  .  customers--responding to customers requesting information; and
  .  policies and contingency plans--adopting policies in areas such as human
     resources, finance, travel and security.

   For each of these five areas, our strategy has been to:

  .  develop an awareness and understanding of particular issues;
  .  determine an appropriate solution for each issue, and plan and provide
     resources for the solution;
  .  validate, test and document the solution;
  .  execute the solution; and
  .  ensure that an adequate contingency plan is in place.

   Examples of our activities and conclusions in connection with the Year 2000
issue are as follows:

  Products

   None of our semiconductor products, embedded software or systems-level
products contain any date-related information or circuitry, nor do they have
any functionality specific to time of day, week, month or year. The only
exception to the preceding sentence is that we delivered ATM video storage
system devices to less than 50 customers in 1995 and 1996 for use in
experimental near-video-on-demand. We believe any Year 2000 problems arising in
such devices would in any event cause only negligible loss of functionality to
such devices. However, we cannot be certain of or control the use and
application of our products in conjunction with third party software
development or operating systems, and the failure of such third party products
due to Year 2000 problems could harm our development or sales activities
related to such third party products.

  Systems

   We have audited our internal systems and data, both information technology
and non-information technology, including those used for financial and
materials management and for computer aided design workstations and software.
In addition, we have tested our desktop and laptop PCs and applications and
have installed service pack software as required. Further, we have implemented
procedures to ensure that any new hardware or software purchased between now
and the end of 1999 will, when installed, undergo similar tests and audits.
Based on our preliminary assessment, we do not believe that our material
internal systems will be affected by the Year 2000 issue.

  Suppliers

   In early 1999, we issued Year 2000 questionnaires to over 100 of our
suppliers. We have received satisfactory responses to such questionnaires from
all but eight of these suppliers. We removed these eight suppliers from our
list of approved vendors and determined not to reinstate such suppliers until
they provide us with adequate assurances regarding Year 2000 readiness. The
goods and services previously provided by these eight suppliers are available
to us from other sources at comparable prices. In addition, we have taken

                                       42
reasonable steps to audit our corporate services, including a review of
infrastructure items such as premises systems, telephones, air conditioners,
elevators and fire alarms. Nevertheless, we are not capable of independently
evaluating the state of Year 2000 readiness of our suppliers, and the failure
of suppliers and other third parties to identify and resolve Year 2000 issues
in a timely manner could harm our business, financial condition or results of
operation.

  Customers

   We have responded to each customer that has inquired about our Year 2000
readiness and have completed Year 2000 questionnaires upon request. However,
our products, once shipped to customers, are incorporated into other products
that we do not develop. The performance of our products could be affected if a
Year 2000 problem exists in a different component of a customer's product. We
have not, and will not, assess the existence of these potential problems in
customers' products or any other information regarding customers' state of Year
2000 readiness. In addition, our current or future customers may incur
significant expenses to achieve Year 2000 readiness, or customers may face
litigation costs. In either case, Year 2000 problems could reduce or eliminate
the budgets that current or potential customers may have for purchases of our
products and services. As a result, our business, results of operations or
financial conditions could be harmed.

  Policies and Contingency Plans

   We have developed, and will continue to develop, policies regarding matters
such as vacation time, travel, asset management and security during the roll-
over period. In addition, we intend to implement a complete back-up of all of
our business and technical computer data, with multiple copies of such data
being held in secure locations on December 30, 1999.

  Costs to Address the Year 2000 Issue

   Our Year 2000 activity has not required significant expense and we expect
that operating costs and margins will not be affected by Year 2000 issues. To
date, we estimate that we have spent approximately $50,000 on implementation of
our Year 2000 preparations, the majority of which relates to staffing costs in
coordinating and auditing ourselves.

  Legal Proceedings

   We have not been party to any litigation or proceedings related to the Year
2000 issue, and we are not presently aware of any circumstances that could give
rise to such proceedings. However, we cannot be sure that we will not in the
future be required to defend our products or services in legal proceedings, and
we cannot guarantee that we will remain free of Year 2000 related disputes. Any
liability of Year 2000 related damages, including consequential damages, could
harm our business, operating results and financial condition.

   Based on currently available information, we do not believe that Year 2000
issues will harm our business, financial condition, liquidity or overall
results of operations. However, until the Year 2000 occurs, it is uncertain to
what extent we may be affected by Year 2000 issues.

  Risks

   As a result of the Year 2000 issue, we may experience serious unanticipated
problems and costs caused by undetected errors or defects in the technology
used in our software and hardware products and internal systems. In addition,
we may be required to defend our products or services in legal proceedings, and
we cannot guarantee that we will remain free of Year 2000 related disputes. If
our software and hardware products or our internal systems are not Year 2000
compliant, the Year 2000 issue could harm our business, financial condition,
liquidity and results of operations. Until the Year 2000 occurs, we cannot be
sure that we will not be affected by the Year 2000 issue.

                                       43
Recent Accounting Pronouncements

   In June 1998, the Financial Accounting Standards Board ("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. We will adopt SFAS
No. 133 during the year ending March 31, 2002. To date, we have not engaged in
derivative or hedging activities. We cannot predict the impact of adopting SFAS
No. 133 if we were to engage in derivative and hedging activities in the
future.

Qualitative and Quantitative 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 intend to maintain our portfolio of cash equivalents and
short-term investments in a variety of securities, including commercial paper,
money market funds, government and non-government debt securities and
certificates of deposit. In general, money market funds are not subject to
market risk because the interest paid on such funds fluctuates with the
prevailing interest rate. As of June 30, 1999, all of our investments were in
money market funds, certificates of deposits or high quality commercial paper.
See note 1 of the notes to the consolidated financial statements.

   We develop products in both the United Kingdom 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.

                                       44
BUSINESS

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

Introduction

   Virata provides communications processors which are combined with a
comprehensive suite of software for DSL equipment manufacturers. These tightly
integrated products enable our customers to develop a diverse range of digital
subscriber line equipment including modems, gateways and routers targeted at
the broadband access market. We believe our systems expertise, products and
support services enable DSL equipment manufacturers to simplify product
development, speed time-to-market and focus resources on product
differentiation. We outsource the manufacturing of our semiconductors, which
allows us to focus our resources on the design, development and marketing of
our products. To date we have licensed our software to 27 companies. These
customers have developed, or are developing, 74 designs of which 28 are
currently shipping.

Industry Background

   The amount of data being carried over the Internet and private
communications networks has grown dramatically in recent years. International
Data Corporation estimates that the number of Internet users worldwide was
approximately 142 million in 1998 and will reach approximately 502 million in
2003. This tremendous growth in data traffic 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.

   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 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. This competitive environment started to change with the
passage of the Federal Telecommunications Act of 1996 and was accelerated with
the recent merger of AT&T and TCI. The Federal Telecommunications Act
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 companies including Covad
Communications, MCI WorldCom, NorthPoint Communications, Rhythms NetConnections
and Sprint, are now deploying high-speed services using DSL technologies over
the copper infrastructure owned by the ILECs. In addition, AT&T has announced

                                       45
plans to offer broadband and interactive services, including telephony, on a
broad scale over TCI's cable systems over the next few years. In response to
these competitive pressures, and in an effort to increase revenues and
maintain their existing customer base, ILECs are now aggressively committing
their resources to deploy DSL services.

   DSL enables data transmission speeds of 128 Kbps to 52 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. DSL 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.

   DSL implementations offer several attractive benefits over other broadband
access 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, and may suffer performance degradation
     or security breaches as users are added to the network. Because each DSL
     connection is dedicated to a single user, DSL does not suffer from such
     service degradation and enables a higher level of security.

  .  Broad coverage. Dataquest estimates that the number of installed
     telephone lines worldwide was approximately 831 million in 1998 and will
     reach over 1.0 billion in 2002. Since virtually all 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.

   Equipment manufacturers encounter a number of challenges to meet the
demands of the growing DSL 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 time-to-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. A typical DSL customer
premises system, such as a modem, gateway or router, includes the primary
building blocks which are illustrated below:

   [GRAPHIC DEPICTION OF DSL CUSTOMER PREMISES EQUIPMENT]

   The front end circuitry which is comprised of integrated circuits and other
components, 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.

                                      46
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 integrates communications processors with a
comprehensive suite of software for DSL equipment manufacturers. Our systems
expertise, products and support services enable our customers to simplify
product development, speed time-to-market and focus resources on product
differentiation. Our communications processors perform system functions which
require real-time processing speed and are technically mature, thus unlikely 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 architecture. Our products are based on a flexible architecture
     that simplifies the addition of features. This architecture enables new
     services such as voice, video, security to be added incrementally as
     broadband solutions evolve.
  .  PHY-independent. Our devices use generic, industry standard interfaces
     to attach to any third party DSL physical layer semiconductor. By being
     PHY-independent, our products are able to meet the demands of multiple
     OEMs for a wide array of applications within the broadband local loop.

  .  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 ATM Forum,
     IETF, ITU and other industry standards. Such standards evolve over time
     and our architecture is designed to accommodate such changes.

   Our customers recognize 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.

The Virata Strategy

   Our objective is to be the leading provider of communications processors
integrated with a comprehensive suite of related software to broadband access
equipment suppliers. Key elements of our strategy include:
  .  Initial focus on DSL. We have built extensive expertise providing
     solutions that integrate communications processors with software for the
     content and connection enabling layers of the

                                       47
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. We typically license our software
     to a customer at the time we achieve an initial design win. The customer
     then designs products incorporating our communications processors, which
     they purchase separately from us. By standardizing on our software,
     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 architecture. 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.

  .  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 acquired RSA Communications in 1998. We believe
     completing selective acquisitions will be important to remain
     competitive as a complete solutions provider to manufacturers of
     broadband access equipment.

Products

   We specialize in communications processors that are integrated with a
comprehensive suite of software for DSL equipment manufacturers. Our
communications processors perform the critical content encapsulation and
content routing functionality required in DSL 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. This
integration of communications processors and software provides our customers a
comprehensive, tested, self sufficient product that replaces semiconductors,
software and support previously sourced from multiple vendors.

                                      48
Semiconductor Products

   We offer two families of semiconductor products: the Proton family of
application specific integrated circuits, or ASICS, and the ATOM family of
application specific standard products, or ASSPs. The Proton ASICs are used in
various combinations to enable different applications including switching
fabrics for small to mid-sized DSLAMs. Proton products enabled customers to
quickly develop their products prior to the establishment of widely accepted
broadband access standards. The following is a list of our Proton family
products:
Product Function                  Target Applications           Introduction Date
Boson   ISA bus interface         ATM adapter cards             April 1995
-----------------------------------------------------------------------------------
  Quark   ATM cell buffer and                                     April 1995
          processor for switch or
          adapter network ports
------------------------------------------------------------
                                                               --------------------
  Gluon   ATM Forum CRC generator   A combination of these        April 1995
          and ARM RISC              products creates a switching
          microprocessor support    fabric for DSLAMs or cable
                                    head-ends
------------------------------------------------------------
                                                               --------------------
  Hadron  ATM cell address hasher                                 January 1996
          for switching
          applications
------------------------------------------------------------
                                                               --------------------
  TBX     ATM traffic shaping                                     August 1997
          controller and buffer
          for switching
          applications
The establishment of broadband access standards and our experience with the
Proton ASIC family has enabled us to design the ATOM family of ASSPs for OEMs
focusing on the DSL market. These communications processors combine the
relevant elements of the Proton ASICs with at least one embedded ARM RISC
microprocessor. ATOM devices also provide Ethernet, PCI or USB network
interfaces as well as Utopia for connection to physical layer devices and other
semiconductors. While Hydrogen features a single embedded ARM RISC
microprocessor, Helium and Lithium contain two ARM RISC microprocessors to
separate protocol and network processing. The Hydrogen, Helium and Lithium
ASSPs support physical layer devices from a broad range of vendors. The
following is a list of our PHY-independent ATOM family products:
Product  Interfaces                 Target Applications           Introduction Date
Hydrogen PCI, Utopia 1 and ATM25    DSL internal and external     August 1997
           PHY                        modems and set-top boxes
-------------------------------------------------------------------------------------
  Helium   USB, Utopia 1/2, ADSL      DSL external modems,          June 1999
           T1.432, HDLC and 10BaseT   gateways, routers, DSLAMs
           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
49
We are developing a new generation of ATOM products to support the
transition from analog access equipment to next-generation DSL equipment. These
products leverage our extensible architecture to combine PHY layer processing
for both analog and digital technologies along with the layer 2 and layer 3
functionality of Helium and Lithium into a single highly integrated device. The
first PHY-integrated product we are developing for this market is Beryllium,
which is described below:
Product  Interfaces                 Target Applications           Introduction Date
Beryllium G.lite, V.90, PCI and      G.lite/V.90 internal and      March 2000
            USB interfaces (for        external modems and gateways
            Ethernet and home phone-
            line networking)
By utilizing the Beryllium solution, equipment manufacturers will be able to
offer products that are functional with either dial-up 56K V.90 or G.lite DSL
networks. G.lite is a form of DSL which operates at speeds up to 1.5 Mbps and
is expected to support consumer and small office / home office applications.
Because of its dual V.90 and G.lite character, Beryllium will allow the
consumer to buy a "G.lite-ready" modem and subsequently upgrade from V.90 to
G.lite DSL network access without any changes to their modem equipment once
G.lite services are available from the consumer's service provider. We cannot
be sure that if new products or product enhancements are developed, any such
new products or product enhancements will be developed in time to capture
market opportunities or achieve a significant or substantial level of
acceptance in new and existing markets.

  Software

   Our software is key to providing flexible, off-the-shelf processing
solutions. Multiple software modules deliver management and support for
functions at the link, protocol and physical layer. These modules operate on
top of ATMOS, our real-time operating system, which is optimized for
communications applications that run on ARM RISC microprocessors. The software
provides our customers a ready-to-deploy menu of over 50 modules to meet their
specific product requirements. Together, the modules complete a customized,
sophisticated system which supports multiple functions including quality of
service, system management, bridging, tunneling, address translation, signaling
and routing. We also offer customers a full set of software development tools
including compilers, linkers and other special-purpose tools.

Design and Support Services

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

  Custom Design Services

   Our Customer Services and Solutions group specializes in product development
engagements for customers that require additional resources or particular
technical skills during the development stage. A typical project will take
three to six months to complete and comprises development and delivery of
system hardware, software and all supporting documentation enabling the
customer to rapidly commence production. We believe these services provide a
critical advantage in winning business.

  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 five days of comprehensive training in the use of our
semiconductors and software development systems. Through our extranet site,
which is accessible to all of our customers, we deliver new software and
documentation and take action on bug reports. Our support engineers assist our
customers throughout the product development cycle which can include formal and
informal design reviews.

                                       50
Evaluation Systems

   We help our customers accelerate their product development programs by
designing a board-level evaluation system for each ATOM product. Typically each
time a new ATOM 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 and protocol layer 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 analog 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 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.

   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. 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 by the complex alternative of assembling,
integrating and

                                       51
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 controls processing on the protocol processor.

   The modular construction of the software architecture makes it easier to add
further functionality without the need to re-test the integrity of the entire
software stack. 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 into a specially conditioned signal suitable for
transmission across copper telephone wires. We have extensive experience
developing software code for the voice modem market and are leveraging that
expertise to develop the solutions required for the G.lite standard. PHY layer
code is executed in our Beryllium communications processor using a compact, low
power DSP supported by fixed function processors.

  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 management capabilities for layer 3 processing include
TCP/IP, IP routing, network address translation, IP configuration and
tunneling.

  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.

Partner Reference Design Programs

   We develop and deliver board-level DSL products with providers of PHY level
communications processors. These products, or partner reference designs,
include our layer 2 and 3 communications processors and software modules and
our partner's PHY layer hardware. These programs allow us to benefit from the
expanded reach of the partner's sales organization. Our customers also benefit
from a more complete solution which allows faster time-to-market. Two partner
reference designs are currently offered through our joint development programs
with Advanced Micro Devices and ST Microelectronics. We are currently seeking
to extend the partner reference design program to expand our reach into
additional DSL market segments.

                                       52
Customers

   We sell our products to established telecommunications equipment vendors,
modem manufacturers and broadband access equipment companies, including the
following 27 customers who have licensed our software:
Customers                                                 Markets
Abocom Systems             Next Level Communications      DSL
  Ambit Microsystems         Opencon Systems
  Asustek Computer           Opnet Technology
  Bosch Telecom              Orckit Communications
  Broadband Technologies     Presence Technology
  Coppercom                  Siemens A.G.
  D-Link                     Sphere Communications
  Diamond Multimedia Systems Tainet Communications System
  E-Tech                     Teltrend
  IPM Datacom                Viagate Technologies
  Mariner Networks           Westell Technologies
  Netopia                    Xavi Technology
--------------------------------------------------------------------
  Adaptive Broadband                                        Wireless
--------------------------------------------------------------------
  Com21                      Pace                           Cable
These customers have developed or are developing 74 equipment designs based
on our semiconductors and software. Of these 74 designs, 28 are currently
shipping.

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

  .  DSL modems which are installed inside PCs;
  .  DSL modems which are connected to a PC via a USB or Ethernet link;
  .  DSL gateways and routers;
  .  DSLAMs and DLCs; and
  .  Cable modem head-ends.

   We depend on a relatively small number of customers for a large percentage
of our revenues. For the three months ended June 30, 1999, Orckit
Communications, Com21 and Netopia accounted for 39.8%, 17.2% and 10.2%,
respectively, of our total revenues. 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.

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. 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 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 Taiwan, we work with a dedicated
representative firm.

   Generally, our sales team consists of qualified engineers who are located in
California, Massachusetts, North Carolina and the United Kingdom providing
coverage of the US and Europe. The sales team is supported by development
engineers that work directly with customers on their new product developments.

                                       53
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 30, 1999 we had 79 engineers based in Raleigh, North Carolina and
Cambridge, England. Of these engineers, 27 have advanced degrees, including
nine with Ph.D.s. Several individuals were early developers in voice modem
software and ATM technologies.

   Since mid-1998, we have been investing a significant portion of our research
and development expenditures in the development of Beryllium and its associated
software to address the G.lite/V.90 market. 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 head-count and
capabilities. Our research and development expenditures were $4.0 million and
$8.3 million in the fiscal years ended March 31, 1998 and 1999, respectively.

Manufacturing

   We outsource the manufacturing, assembly and testing of all our
semiconductors. This fabless semiconductor model allows us to focus our
resources on the design, development and marketing of our products. Our Proton
semiconductors and current ATOM communications processors have all been sourced
from suppliers that deliver fully assembled and tested products on a turnkey
basis.

   The current ATOM 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 which allows us to
select foundry suppliers that best meet our quality, delivery and cost
objectives. We have also expanded our operations team so that we will be able
to assume more of the manufacturing and quality control responsibilities,
including contracting for wafer processing, assembly and testing from separate
suppliers. Further benefits will include accelerating the transition of our
devices into progressively smaller die size, providing important advantages,
including lower cost, defect rates and power consumption / heat dissipation and
higher speed, all of which are important to the commercial success of our
semiconductor products.

   Because we rely on third party foundries for substantially all of our
manufacturing, assembly and testing requirements, 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. These third party 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. We have experienced
delays and may in the future experience delays in receiving semiconductors from
these foundries. If the foundries we currently use are unable to provide us
with their products on a turnkey basis or we are otherwise required to find
alternative subcontractors, product shipments could be delayed significantly.
Any problems associated with the delivery, quality or cost of the assembly and
testing of our products could seriously harm our business, financial condition
and results of operations.

                                       54
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:

  .  Proton, our family of ASICs: devices from Motorola, PMC-Sierra and
     Transwitch;

  .  Hydrogen, Helium and Lithium, our PHY-neutral ASSPs: devices from BASIS
     Communications, Motorola and IDT;

  .  Beryllium, our planned integrated PHY, G.lite/V.90 product: devices from
     Alcatel Microelectronics, Analog Devices, Centillium Technology,
     Conexant Systems, Lucent Technologies and Texas Instruments; and

  .  Software: operating systems and software stacks from Wind River Systems
     and Integrated Systems; and networking and protocol layer software from
     Harris & Jeffries, Iverness Systems, Microsoft and Trillium.

   In addition, there have been a number of announcements by other
semiconductor companies including IBM and Intel and smaller emerging companies
that they intend to enter the market segments adjacent to or addressed by our
products.

   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.

                                       55
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 August 31, 1999, we have been granted one patent in the United States,
with three counterpart patents in other countries. Our patents have expiration
dates ranging from 2016 to 2017. In addition, we have nine patent applications
pending in the United Kingdom and four pending in the United States. We also
have 24 patent applications pending in various countries other than the United
Kingdom and the United States. 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 the trademarks "Virata," "ATMOS" and "ATOM." "ISOS,"
"Proton," "Helium," "Hydrogen," "Lithium," and "Beryllium" are also our
trademarks.

Legal Proceedings

   We are not currently a party to any legal proceedings, nor to our knowledge,
is any such proceeding threatened.

Employees

   As of June 30, 1999, we had 113 full-time employees in our worldwide
operations. Of that total, 79 were primarily engaged in engineering, 13 were
engaged in sales and marketing and the remainder were engaged in operational,
financial and administrative functions. As of June 30, 1999, 12 of our
employees were located at our facilities in Santa Clara, California, 65 of our
employees were located at our facilities in Cambridge, England, and 36 were
located at our facilities in Raleigh, North Carolina. None of our employees are
covered by, nor are we a party to, any collective bargaining agreement. We
believe our employee relations are good.

                                       56
Facilities

   Our headquarters are located in Santa Clara, California, where we lease
approximately 13,000 square feet of office space in Santa Clara, California,
under a lease that expires in September 2001. Approximately 4,500 square feet
of our Santa Clara facility is subleased to a third party under a lease that
expires in September 2001. Additionally, we lease approximately 9,600 square
feet of office and laboratory space in Cambridge, England, under two leases
that expire in 2004 and 2005 and approximately 13,200 square feet of office
space in Raleigh, North Carolina, under a lease that expires in September 2003.
We believe that our current facilities are adequate to conduct our business
operations for the foreseeable future.

                                       57
MANAGEMENT

Directors, Executive Officers and Key Employees

   Our current board of directors consists of Messrs. Charles Cotton, Hermann
Hauser, Bandel Carano and Peter Morris. Our current executive officers are
Charles Cotton, Michael Gulett and Andrew Vought. Following this offering, our
directors, executive officers and key employees are expected to be as follows:
Name           Age                               Position
          ----           ---                               --------
Charles Cotton.......... 52  Chief Executive Officer and Director
Michael Gulett.......... 46  President, Chief Operating Officer
Andrew Vought........... 44  Senior Vice President, Finance, Chief Financial Officer and Secretary
Daniel Karr............. 39  Vice President, Worldwide Sales
Martin Jackson.......... 40  Chief Technology Officer and Director
Thomas Cooper........... 50  Senior Vice President, Corporate Development
Duncan Greatwood........ 32  Vice President, Marketing
Bernard Glasauer........ 38  Vice President, Operations
Wayne Whitlock.......... 40  Vice President, Engineering
Dr. Paul Walsh.......... 39  Vice President, Software Engineering
Dr. Hermann Hauser...... 50  Chairman of the Board
Marco De Benedetti...... 37  Director
Gary Bloom.............. 38  Director
Bandel Carano........... 38  Director
Prof. Andrew Hopper..... 46  Director
Peter Morris............ 43  Director
Patrick Sayer........... 41  Director
Giuseppe Zocco.......... 33  Director
Charles Cotton has been our Chief Executive Officer 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.

   Michael Gulett joined us in November 1998 as Chief Operating Officer and was
promoted to President and Chief Operating Officer in June 1999. Prior to
joining us, Mr. Gulett was President and Chief Executive Officer at Paradigm
Technology, a developer of fast, static memory solutions, in Milpitas,
California, from February 1993 to June 1998. Mr. Gulett has also held
management positions at VLSI Technology, California Devices, Intel Corporation
and NCR. Mr. Gulett holds a B.S.E.E. from the University of Dayton.

   Andrew Vought joined us in May 1996 as Chief Financial Officer and was named
Senior Vice President of Finance and Operations 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. From July 1985 to May 1990, Mr. Vought held
senior finance and manufacturing management positions with Diasonics. Prior to
joining Diasonics, Mr. Vought spent several years in the European semiconductor
operations of Texas Instruments. Mr. Vought currently serves on the board of
directors of SCM Microsystems, a supplier of digital access control and
connectivity solutions. Mr. Vought holds an 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.

                                       58
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, since April 1996. 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.

   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 Director and Vice President of Technology of EO (formerly
Active Book Company), a company involved in the development of pen-based
computers, from 1988 to April 1994. 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 ADSL Forum. Mr. Jackson holds an M.A. in Electrical
Sciences from the University of Cambridge and a M.A. Engineering 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 an M.B.A. from the University of
Ohio, Toledo and a B.A. in English from Hamilton College.

   Duncan Greatwood is our Vice President, Marketing, having previously been
our Vice President, European Sales. Mr. Greatwood joined us in November 1997.
Before being hired by 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-Information
Processing and multiservice networking. Mr. Greatwood holds a degree in
mathematics from Oxford University and an M.B.A. from London Business School.

   Bernard Glasauer is our Vice President, Operations and joined us in June
1999. Prior to joining us, Mr. Glasauer was Vice President of Engineering at
Cypress Semiconductor from August 1988 to May 1999. Mr. Glasauer holds a B.S.
degree in Electrical Engineering/Computer Science and Materials Science
Engineering from the University of California, as well as a B.A. in Economics.

   Wayne Whitlock is our Vice President, Engineering and joined us in July
1998. Prior to joining us, Mr. Whitlock was Vice President, Engineering for RSA
Communications, the predecessor of Virata Raleigh Corporation, from October
1994 to July 1998. Prior to that Mr. Whitlock was a Program Manager with the
Wireless Mobile Data Division for IBM from July 1981 to October 1994,
developing PCMCIA wireless WAN devices for portable PCs. Mr. Whitlock holds a
B.S. degree in Electrical Engineering from Virginia Tech.

   Dr. Paul Walsh is our Vice President, Software Engineering and joined us in
January 1999. Prior to joining us, Dr. Walsh was Senior Manager--Engineering,
at Ionica plc, from November 1995 to January 1999. In this role he was
responsible for the development and delivery of network planning and network
management systems to Ionica's network operations and recruited a team of 30 to
work with him. Prior to Ionica, Dr. Walsh held a Senior Manager role at
Nortel/BNR Europe, from January 1992 to October 1995, where he was responsible
for the design, build and delivery of systems to provide Network Management of
Telephony over Passive Optical Networks. Dr. Walsh holds a Ph.D. in Psychology
from the City of London Polytechnic, an M.Sc. (Distinction) in Social
Psychology from London School of Economics and a B.A. (1st Class Hons) in
Psychology from the University College, Galway.

   Dr. Hermann Hauser is one of our co-founders and serves as our Chairman. Dr.
Hauser's principal occupation is Director of Amadeus Capital Partners Ltd., a
venture capital fund management company. He has held this position since
December 1997. Dr. Hauser has also co-founded more than 20 other high
technology

                                       59
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 is Chairman and Managing Director of Telecom Italia
Mobile S.p.A., Europe's largest cellular phone operator. He has held that
position since July 1999. Prior to joining Telecom Italia, Mr. De Benedetti was
chairman of Infostrada S.p.A., a company controlled by Telecom Italia operating
as an alternative fixed line carrier in Italy. Prior to joining Infostrada in
1990, Mr. De Benedetti worked for the investment bank Wasserstein, Parella &
Co. in mergers and acquisitions from 1987 to 1989. Mr. De Benedetti holds an
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 is Executive Vice President of the System Products Division of
Oracle Corporation and has been employed by Oracle since September 1986. Mr.
Bloom received a B.S. degree in Computer Science from California Polytechnic
State University at San Luis Obispo.

   Bandel Carano is a General Partner of Oak Investment Partners in Palo Alto,
California, a private venture capital firm, which he joined in 1985. Mr. Carano
currently serves as a member of the Investment Advisory Board of the Stanford
University Engineering Venture Fund. Mr. Carano also serves as a member of the
board of directors of Metaware Communications Corp., Polycom and Pulse Point
Communications, as well as several private companies. Mr. Carano holds both an
M.S. and a B.S. in Electrical Engineering from Stanford University.

   Professor Andrew Hopper is one of our co-founders. Since November 1997
Professor Hopper has been Professor of Communications within the Department of
Engineering at Cambridge University and since 1986, Managing Director of the
Olivetti Research Laboratory, now AT&T Research, 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. and a B.Sc. from
Cambridge University.

   Peter T. Morris is a General Partner of New Enterprise Associates 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 Accelerated Networks, AUNET, Gadzoox,
LoanCity.com, LuxN, Mayan Networks, NanoSpace, Packetcom, Packeteer and Tiara
Networks. Before joining New Enterprise Associates, Mr. Morris served in
various capacities with Telebit from 1987 to 1991. Prior to that he was with
Montgomery Securities, an investment bank, from 1985 to 1987, and Bain and
Company, a management consultancy, from 1980 to 1982. Mr. Morris holds an
M.B.A. and a B.S. in Electrical Engineering from Stanford University.

   Patrick Sayer is a General Partner of Lazard Freres et Cie, a French
investment bank, where he oversees the technology, telecommunications and media
sectors. Mr. Sayer has worked within the Lazard Freres Group throughout his
career, first joining its international advisory group, which advises foreign
governments, then spending six years in the corporate finance department and
then joining the mergers and acquisitions department in 1992. In addition, Mr.
Sayer is the Chairman of the Investment Committee of Eurafrance and Gaz et
Eaux, two French listed holding companies that are ultimately controlled by the
Lazard Freres Group. Mr. Sayer is a graduate of Ecole Polytechnique and Ecole
des Mines de Paris.

   Giuseppe 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 and
Company from 1988 to 1996, working in several of its European offices and its
EuroCenter, a special consulting unit focused on Pan-European clients. During
his career at McKinsey, Mr. Zocco advised several major corporations on a
number of strategic and organizational matters. Mr. Zocco

                                       60
holds an 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.

Board Committees

   Our board of directors currently consists of four directors. Following this
offering, our board of directors is anticipated to consist of ten directors,
each holding office until the next annual meeting of stockholders. Following
this offering, our board of directors is also anticipated to have an Executive
Committee, Compensation Committee, Audit Committee and Director Compensation
Committee.

   Executive Committee. The executive committee of our board of directors is
anticipated to consist of Messrs. Cotton, Hauser, Carano and Morris. The
executive committee will be authorized to act with respect to all matters
arising before the board, except for matters which require stockholder approval
or where prohibited by Delaware law, including a sale of our company.

   Compensation Committee. The compensation committee will review and make
recommendations to the board regarding all forms of compensation provided to
our executive officers, including stock compensation and loans. In addition,
the compensation committee will review and make recommendations on stock
compensation arrangements for all of our other employees. As part of the
foregoing, the compensation committee will administer our stock incentive
plans. The members of the compensation committee are anticipated to be Messrs.
Hauser, Carano and Zocco.

   Audit Committee. The audit committee will monitor our corporate financial
reporting and the internal and external audits, including our internal audit
and control functions, the results and scope of the annual audit and other
services provided by our independent auditors and our compliance with legal
matters that have a significant impact on our financial reports. The audit
committee will also consult with our management and our independent auditors
prior to the presentation of financial statements to stockholders and, as
appropriate, initiates inquiries into aspects of our financial affairs. In
addition, the audit committee will have the responsibility to consider and
recommend the appointment of, and to review fee arrangements with, our
independent auditors. The members of the audit committee are anticipated to be
Messrs. Bloom, Morris and Zocco.

   Director Compensation Committee. The director compensation committee will
review and make recommendations to the board regarding all forms of
compensation provided to our non-employee directors. As part of the foregoing,
the Director Compensation Committee will administer our director stock
compensation plan that we anticipate adopting prior to this offering. The
members of the director compensation committee are anticipated to be Messrs.
Cotton and Jackson.

Director Compensation

   Directors who are our full-time employees receive no additional compensation
for serving on our board of directors or its committees; however, each director
will be reimbursed for his or her out-of-pocket expenses in attending board
meetings. Following this offering, it is anticipated that directors who are not
our employees will receive compensation for participation in meetings of our
board of directors and serving on and attending meetings of either the
compensation or the audit committees. See "Certain Transactions" for a
description of transactions involving directors or their affiliates and us, if
any.

   Prior to this offering, we anticipate that we will adopt a stock
compensation plan for our non-employee directors, commensurate with plans
offered by companies in our industry or related industries.

                                       61
Compensation Committee Interlocks and Insider Participation

   Prior to this offering, our board of directors did not have a compensation
committee and all compensation decisions were made by our full board of
directors. In the fiscal year ended March 31, 1999, the full board of directors
determined the compensation of all executive officers, including Mr. Cotton in
his capacity of Chief Executive Officer. Upon completion of this offering, it
is anticipated that the compensation committee will make all compensation
decisions. We are not aware of any interlocking relationship existing between
our board of directors or proposed compensation committee and the board of
directors or compensation committee of any other company, nor are we aware of
any such interlocking relationship existing in the past.

Executive Compensation

   The following table sets forth the approximate cash compensation (including
cash bonuses) paid or awarded by us for the fiscal year ended March 31, 1999 to
our Chief Executive Officer and the other four most highly compensated
executive officers who were serving as executive officers as of March 31, 1999
(the "Named Executive Officers").

                           Summary Compensation Table
Long-Term
                            Annual Compensation    Compensation
                         ------------------------- ------------
                                                    Securities
Name and Principal       Fiscal                     Underlying     All Other
Position                  Year  Salary($) Bonus($)  Options(#)  Compensation($)
------------------       ------ --------- -------- ------------ ---------------
Charles Cotton..........  1999   224,940   60,000     725,000       24,000(1)
  Chief Executive
   Officer and Director
Michael Gulett(2).......  1999    82,372   54,167   1,600,000        1,827(3)
  President and Chief
   Operating Officer
Andrew Vought...........  1999   184,875   40,000     375,000        1,230(4)
  Senior Vice President,
   Finance,
  Chief Financial
   Officer and Secretary
Martin Jackson..........  1999   128,099       --     300,000        8,392(5)
  Chief Technology
   Officer and Director
Thomas Cooper...........  1999   153,606   30,250     550,000        1,273(6)
  Senior Vice President
   Corporate Development
--------
(1) Represents an accrued pension contribution paid by us for the benefit of
    Mr. Cotton under our pension arrangement.
(2) Mr. Gulett was hired in November 1998 and, therefore, such amounts are for
    less than a full year.
(3) Represents a matching contribution paid by us for the benefit of Mr. Gulett
    under our 401(k) plan.
(4) Represents a matching contribution paid by us for the benefit of Mr. Vought
    under our 401(k) plan.
(5) Represents an accrued pension contribution paid by us for the benefit of
    Mr. Jackson under our pension arrangement.
(6) Represents a matching contribution paid by us for the benefit of Mr. Cooper
    under our 401(k) plan.

                                       62
Option Grants in Fiscal Year Ended March 31, 1999
Individual Grants
                         ------------------------------------------------  Potential Realizable
                                      Percent of                             Value at Assumed
                         Number of   Total Options                         Annual Rates of Stock
                           Shares     Granted to                          Price Appreciation For
                         Underlying    Employees   Exercise or              Option Term ($)(3)
                          Options      in Fiscal   Base Price  Expiration -----------------------
Name                     Granted (#)  Year (%)(1)   ($/sh)(2)     Date        5%          10%
----                     ----------  ------------- ----------- ---------- ---------- ------------
Charles Cotton..........   725,000        7.0         0.70       4/28/05     206,603      481,474
Michael Gulett.......... 1,600,000       15.4         0.70      11/13/05     455,952    1,062,563
Andrew Vought...........   375,000        3.6         0.70       4/28/05     106,864      249,038
Martin Jackson..........   300,000        2.9         0.70       4/28/05      85,491      199,231
Thomas Cooper...........   550,000        5.3         0.70       4/28/05     156,734      365,256
--------
(1) Based on a total of 10,380,194 options to purchase shares of our common
    stock granted during the fiscal year ended March 31, 1999.

(2) The exercise price was equal to the fair market value of our common stock
    as determined by our board of directors on the date of grant.
(3) The potential realizable value is calculated based on the seven year term
    of the options at the time of grant. Stock price appreciation of 5% and 10%
    is assumed pursuant to the rules promulgated by the Securities and Exchange
    Commission and does not represent our prediction of our stock price
    performance. The potential realizable value at 5% and 10% appreciation is
    calculated by assuming that the exercise price in the date of grant
    appreciates at the indicated rate for the entire term of the option and
    that the option is exercised at the exercise price and sold on the last day
    of its term at the appreciated price.

 Aggregated Option Exercises in the Last Fiscal Year and Fiscal Year End Option
                                     Values

   The table below sets forth information with respect to the ownership and
value of options held by the Named Executive Officers identified in the summary
compensation table as of March 31, 1999. No options were exercised by these
individuals during the fiscal year ended March 31, 1999. We have no outstanding
stock appreciation rights.
Number of Securities
                              Underlying Unexercised     Value of Unexercised
                                 Options at Fiscal       In-the-Money Options
                                   Year End (#)        at Fiscal year End ($)(1)
                             ------------------------- -------------------------
Name                         Exercisable Unexercisable Exercisable Unexercisable
----                         ----------- ------------- ----------- -------------
Charles Cotton..............   635,625     1,364,375     696,696     1,119,805
Michael Gulett..............        --     1,600,000          --       960,000
Andrew Vought...............   482,500       767,500     529,867       648,633
Martin Jackson..............   383,750       466,250     458,108       356,492
Thomas Cooper...............   306,667       693,333     355,467       481,933
--------
(1) Based on a fair market value of our common stock as of June 15, 1999 equal
    to $1.30 per share, less the exercise price payable for such shares.

Employment Agreements

   Each of our Named Executive Officers is a party to an employment agreement
with Virata Limited. Following this offering, we anticipate that we will assume
each of these employment agreements.

   Charles Cotton. Under the terms of his employment agreement dated September
17, 1997, as amended on May 1, 1999, Mr. Cotton receives an annual base salary
of (Pounds)155,875, with an additional bonus of $120,000 upon successful
achievement of specific objectives. Mr. Cotton is entitled to the participate
in our stock incentive plans. As of August 31, 1999, Mr. Cotton had received
options to purchase an aggregate of

                                       63
2,660,000 shares of our common stock at a weighted average exercise price of
$0.62 per share. In general, these options vest equally over four years. Mr.
Cotton is also entitled to a bonus of up to $500,000 in the event we are sold
during the term of his employment. We may terminate Mr. Cotton's employment for
cause at any time, or without cause upon 18 months written notice from the
termination date. Mr. Cotton may voluntarily resign upon six months written
notice of his intention to leave.

   Michael Gulett. Under the terms of his employment agreement dated October
14, 1998, Mr. Gulett receives an annual base salary of $225,000, with an
additional bonus of $100,000 upon successful achievement of specific
objectives. Mr. Gulett is entitled to participate in our stock incentive plans.
As of August 31, 1999, Mr. Gulett had received options to purchase an aggregate
of 2,260,000 shares of our common stock at a weighted average exercise price of
$0.88 per share. These options vest equally over four years. The employment
agreement may be terminated by Mr. Gulett or us at any time, with or without
cause. In the event that Mr. Gulett is terminated without cause or following a
change in our control, Mr. Gulett will be entitled to salary continuation and
vesting of his share options for the 12 month period following termination.

   Andrew Vought. Under the terms of his employment agreement dated May 10,
1996, as amended May 1, 1999, Mr. Vought receives an annual base salary of
$182,750 with an additional bonus of $75,000 upon successful achievement of
specific objectives. Mr. Vought is entitled to participate in our stock
incentive plans. As of August 31, 1999, Mr. Vought had received options to
purchase an aggregate of 1,650,000 shares of our common stock at a weighted
average exercise price of $0.59 per share. In general, these options vest
equally over four years. Mr. Vought is also entitled to a bonus of up to $
in the event we are sold during the term of his employment agreement. The
employment agreement may be terminated by Mr. Vought or us at any time, with or
without cause. In the event that Mr. Vought is terminated without cause or
following a change in our control, Mr. Vought will be entitled to salary
continuation and vesting of his share options for the 18 month period following
termination.

   Martin Jackson. Under the terms of his employment agreement dated May 5,
1997, Mr. Jackson receives an annual base salary of (Pounds)81,969. Mr. Jackson
is entitled to participate in our stock incentive plans. As of August 31, 1999,
Mr. Jackson had received options to purchase an aggregate of 1,025,000 shares
of our common stock at a weighted average exercise price of $0.51 per share. In
general, these options vest equally over four years. We may terminate Mr.
Jackson's employment for cause at any time, or without cause upon 12 months
written notice from the termination date. Mr. Jackson may voluntarily resign
upon three months written notice of his intention to leave.

   Thomas Cooper. Under the terms of his employment agreement dated December
16, 1994, Mr. Cooper receives an annual base salary of $161,250, with an
additional bonus of $30,000 upon successful achievement of specific objectives.
Mr. Cooper is entitled to participate in our stock incentive plans. As of
August 31, 1999, Mr. Cooper had received options to purchase an aggregate of
1,200,000 shares of our common stock at a weighted average exercise price of
$0.60 per share. These options vest equally over four years. The employment
agreement may be terminated by Mr. Cooper or us at any time, with or without
cause. In the event that Mr. Cooper is terminated without cause or following a
change in our control, Mr. Cooper will be entitled to salary continuation and
vesting of his share options for the 12 month period following termination.

Employee Stock Option Plan

   Prior to the consummation of this offering, we anticipate that we will adopt
the Virata Corporation 1999 Stock Incentive Plan. We anticipate that the plan
will also be approved by our stockholders prior to the consummation of this
offering. The 1999 Stock Incentive Plan will not limit any award to any
specified form or structure. The types and amount of awards will be determined
at the discretion of the board of directors or a committee of the board of
directors empowered to administer the 1999 Stock Incentive Plan. We anticipate
that the compensation committee of the board of directors will administer the
1999 Stock Incentive Plan following this offering. The maximum number of shares
of our common stock that may be issued under the 1999 Stock Incentive Plan is
     shares. If incentive stock options are issued, these options must comply
with Section 422 of the Internal Revenue Code. Any of our employees, non-
employee directors, independent

                                       64
contractors or consultants or those of our subsidiaries are eligible to be
considered for the grant of an award under our 1999 Stock Incentive Plan. The
board of directors may amend or terminate the 1999 Stock Incentive Plan at any
time and in any matter, subject to the rights of recipients of awards under the
plan, and subject to any required stockholder approvals and the requirements of
Sections 411 and 162(m) of the Internal Revenue Code. The 1999 Stock Incentive
Plan will terminate on     , 2019. We will issue stock options to our employees
under the 1999 Stock Incentive Plan by way of individual option agreements with
each employee.

   As of August 31, 1999 there were options outstanding to purchase
19,019,214 ordinary shares issued to our employees under the plans of or
agreements with Virata Limited. The outstanding options are exercisable at a
price per share ranging between $0.02 and $1.30 and generally vest over a four-
year period from the date of grant. These options are granted in three specific
categories: ordinary, top-up and bonus. Top-up options are granted to employees
whose ordinary options have fully vested on a purely discretionary basis. Top-
up options are subject to the same vesting schedule as ordinary options. Bonus
options vest on the date granted and are generally subject to completion of
individual performance targets by the option holder. All options are non-
transferable, but form part of the option holder's estate in the event of
death. An option may be exercised in whole or in part, but not more that three
times in the period commencing on the first anniversary of the date of grant of
the option and ending on the seventh anniversary of the date of its grant. An
option lapses on the seventh anniversary from the date of its grant. In the
event that a general offer is made to the holders of our common stock to
acquire all of the outstanding shares of our common stock, we are required to
use our best efforts to ensure that the offer is extended to the option
holders. If an option holder ceases to be our employee for any reason, any
options unexercised on such date and in respect of which a right of exercise
has accrued must be exercised within 90 days of such date. Upon the expiration
of this 90 day period, any options that remain unexercised will lapse. Prior to
the consummation of this offering these options will become convertible or
exercisable into shares of our common stock.

Employee Stock Purchase Plan

   Prior to the consummation of this offering, we anticipate that we will adopt
an employee stock purchase plan for our employees, commensurate with plans
offered by companies in our industry or related industries.

Employee Benefit Plans

   We have two benefit plans, one in the United Kingdom, and a separate plan 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, we match contributions
of up to 5% of an employee's salary to the Standard Life Personal Pension
Arrangement.

   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. Under the United
States plan, we also provide a 50% matching contribution to the retirement plan
of up to $2,000 per calendar year per employee.

Limitation of Liability and Indemnification Matters

   Our Certificate of Incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Our bylaws provide that we shall
indemnify each of our directors and officers against expenses (including
attorney's fees), judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with any proceeding, arising by reason of the
fact that such person is or was one of our directors or officers or serving as
director or officer of another corporation, partnership, joint venture, trust,
or other enterprise at our request. We have also entered into agreements to
indemnify directors and certain executive officers.

                                       65
CERTAIN TRANSACTIONS

   The following is a description of transactions during our last three fiscal
years to which we have been a party, in which the amount involved in the
transaction exceeds $60,000 and in which any director, executive officer or
holder of more than 5% of our capital stock had or will have a direct or
indirect material interest other than compensation arrangements that are
otherwise required to be described under "Management."

Issuances of Ordinary Shares

   During the past three fiscal years, we have issued ordinary shares of Virata
Limited as follows:

  .  In July 1998, we sold 1,540,000 ordinary shares in a private placement
     at a purchase price of $1.01 per share in connection with the
     acquisition of RSA Communications; and

  .  We have issued an aggregate of 1,200,644 ordinary shares in connection
     with the exercise of options by our employees.

Issuances of Preferred Stock

   During the past three fiscal years, we have issued preference shares and
warrants for preference shares of Virata Limited as follows:

  .  In May 1996, we sold 5,127,485 Series B preference shares in a private
     placement at a purchase price of (Pounds)0.70 per share;

  .  In June 1996, we sold 6,666,667 Series C preference shares in a private
     placement at a purchase price of $1.50 per share;

  .  In December 1997 and January 1998, we issued an aggregate amount of
     $2,642,980 of bridge notes that were convertible into our Series D
     preference shares.

  .  In March 1998, we issued a bridge note to Index Securities S.A. in the
     amount of $700,000 that was convertible into our Series D preference
     shares.

  .  In June 1998, we sold 24,780,934 Series D preference shares in a private
     placement at a purchase price of $1.10 per share;

  .  In June 1998, we issued 3,039,073 Series D preference shares in a
     private placement at a purchase price of $1.10 per share in connection
     with the conversion of bridge notes held by certain of our stockholders;

  .  In June 1998, we issued 15,123,062 Series D preference shares in a
     private placement at a purchase price of $1.10 per share in connection
     with the conversion of 12,460,150 Series B preference shares and
     2,000,000 Series C preference shares,

  .  In June 1998, we sold 606,500 Series D preference shares in a private
     placement at a purchase price of $1.10 per share in connection with the
     acquisition of RSA Communications;

  .  In June 1998, we issued warrants to purchase an aggregate of 1,595,054
     Series D Preference Shares for $1.10 per share to Index Securities S.A.
     in connection with its acting as placement agent in our Series D
     preference share financing; and

  .  In June 1998, we sold 21,818 Series D preference shares to Andrew Hopper
     in a private placement in exchange for Mr. Hopper serving on our
     technology advisory board.

                                       66
Our officers, directors and 5% stockholders participated in the foregoing
transactions as follows:
Number of    Number of    Number of      Bridge Notes
                          Series B     Series C      Series D          and
Name of Purchaser          Shares       Shares        Shares       Warrants(1)
-----------------         ---------    ---------    ----------     ------------
Gaz et Eaux.............         --           --     7,348,111             --
New Enterprise
 Associates.............    766,883(2)        --     5,582,978(3)     343,275
Oak Investment Partners
 Limited(4).............  1,429,530(2)        --     7,945,331(5)     488,508
Olivetti Telemedia
 Investments B.V. ......         --           --       870,239(6)     627,814
Oracle Corporation......         --    6,667,667(7)  4,194,421(8)     558,057
3i plc..................  2,931,072(2)        --     3,836,628(9)     245,355
Charles Cotton..........         --           --            --             --
Michael Gulett..........         --           --            --             --
Andrew Vought...........         --           --            --             --
Martin Jackson..........         --           --            --             --
Thomas Cooper...........         --           --            --             --
Dr. Hermann Hauser......         --           --        75,152(10)     75,152
Marco De Benedetti......         --           --            --             --
Gary Bloom(11)..........         --    6,667,667     4,194,421        558,057
Bandel Carano(12).......  1,429,530           --     7,945,331        488,508
Prof. Andrew Hopper.....         --           --        40,000(13)     18,182
Peter Morris(14)........    766,883           --     5,582,978        343,275
Patrick Sayer(15).......         --           --     7,348,111             --
Giuseppe Zocco(16)......         --           --     1,290,920      2,231,418
All of our directors and
 executive officers as a
 group (14 persons).....  5,127,485    6,666,667    31,183,780      4,587,761
--------
(1) All of the bridge notes were subsequently converted into Series D
    preference shares in June 1998.
(2) Such shares were converted into Series D preference shares in June 1998.
(3) Includes 343,275 Series D preference shares issued upon conversion of
    bridge notes in June 1998.
(4) Includes shares beneficially owned by Oak VI Affiliated Fund Limited.
(5) Includes 488,508 Series D preference shares issued upon conversion of
    bridge notes in June 1998.
(6) Includes 627,814 Series D preference shares issued upon conversion of
    bridge notes in June 1998.
(7) 2,000,000 of such shares were converted into Series D preference shares in
    June 1998 in June 1998.
(8) Includes 558,057 Series D preference shares issued upon conversion of
    bridge notes in June 1998.
(9) Includes 245,355 Series D preference shares issued upon conversion of
    bridge notes in June 1998.
(10) Represents Series D preference shares issued upon conversion of bridge
     notes in June 1998 held by Providence Investment Company Ltd, a Company
     wholly owned by Providence Trust, of which Mr. Hauser may be a
     beneficiary.
(11) Represents shares of our common stock beneficially owned by Oracle
     Corporation, of which Mr. Bloom is an Executive Vice President. Mr. Bloom
     disclaims all beneficial ownership of these shares.
(12) Represents shares of our common stock beneficially owned by Oak Investment
     Partners, of which Mr. Carano is the General Partner. Mr. Carano disclaims
     all beneficial ownership of these shares.
(13) Includes 18,182 Series D preference shares issued upon conversion of
     bridge notes in June 1998 and 21,818 Series D preference shares issued in
     exchange for Mr. Hopper creating our technology advisory board.
(14) Represents shares of our common stock beneficially owned by New Enterprise
     Associates, of which Mr. Morris is the General Partner. Mr. Morris
     disclaims all beneficial ownership of these shares.
(15) Represents shares of our common stock beneficially owned by Gaz et Eaux,
     of which Mr. Sayer is the General Partner. Mr. Sayer disclaims all
     beneficial ownership of these shares.
(16) Includes 636,364 Series D preference shares issued upon conversion of
     bridge notes in June 1998 and 1,595,054 Series D preference shares
     issuable upon the exercise of a warrant. Represents shares of our common
     stock beneficially owned by Index Securities, S.A., and its affiliates
     Societe Financiere Mirelis S.A. and The Index Special Situations Fund, of
     which Mr. Zocco is the General Partner. Mr. Zocco disclaims all beneficial
     ownership of these shares.

                                       67
Immediately prior to the consummation of this offering, all of the
outstanding ordinary and preference shares, and any other securities that are
convertible into ordinary and preference shares, of Virata Limited will be
cancelled, new ordinary shares of Virata Limited will be issued to Virata
Corporation and shares of common stock of Virata Corporation will be issued to
the former shareholders of Virata Limited. These transactions will take place
immediately prior to the consummation of this offering and will be effected
pursuant to a share reconstruction under Section 425 of the United Kingdom
Companies Act of 1985. Any securities that are convertible or exercisable into
ordinary shares or preference shares of Virata Limited will become convertible
or exercisable into shares of our common stock upon consummation of the share
reconstruction.

Acorn Computer

   We entered into a technology license, manufacturing license and supply
agreement with Acorn Computer Group plc, in October 1998, pursuant to which
Acorn is able to manufacture certain ATM hardware with binary software and
software designs employing integrated circuits purchased from us. Acorn
Computer Group changed its name to Element 14 and the license was subsequently
transferred to Pace Electronics.  For the three year period ended August 31,
1999, we had sales to Acorn of approximately $674,000 and purchases from Acorn
of approximately $7,500. Dr. Hauser, Prof. Hopper and Mr. De Benedetti are
directors of Element 14. Messrs. Hauser, Hopper and Dr. Benedetti have no
affiliation with Pace Electronics.

Adaptive Broadband Limited

   We entered into a technology license, manufacturing license and supply
agreement in March 1998, as amended in May 1999, with Adaptive Broadband
Limited, or ABL, a wholly owned subsidiary of Adaptive Broadband Corporation,
formerly California Microwave. Under the agreement, ABL has licensed our
software and is able to design, manufacture and sell products incorporating
integrated circuits purchased from us. Prof. Hopper is a director of ABL. To
date, we have received approximately $495,000 in license fees and product
purchases from ABL and, as of August 31, 1999, there was no outstanding balance
owed to us.

Advanced RISC Machines

   We entered into a consulting arrangement in November 1997 with Advanced RISC
Machines Ltd., a United Kingdom corporation. Under the agreement Advanced RISC
Machines provided us with services relating to the development of the Lithium
integrated circuit. We entered into a per semiconductor design license
agreement in June 1999 under which we are able to design, have manufactured and
sell integrated circuits incorporating the ARM RISC microprocessor core. We
also entered into a limited use software agreement in June 1999, which provides
us with a six month evaluation license for certain software. Acorn Computer
Group plc, of which Dr. Hauser, Prof. Hopper and Mr. De Benedetti are
directors, owned approximately 40% of Advanced RISC Machines Ltd. at the time
the foregoing agreements were entered into. We have paid approximately $954,000
in fees to ARM under these agreements as of August 31, 1999 and currently have
an outstanding balance owed of approximately $226,000.

Olivetti

   We entered into a formation and license agreement in December 1993, as
supplemented in April 1994 and September 1994, with Olivetti
Telemedia and its parent, Ing. C. Olivetti & C. S.p.A. Pursuant to the license
agreement, we were granted an exclusive, world-wide license to exploit certain
technology, subject to certain conditions, and agreed to cooperate with respect
to certain technological matters, in exchange for an option, which has been
fully exercised. Additionally, we entered into an agreement with an affiliate
of Olivetti Telemedia in July 1995, under which we sold systems products to
Olivetti and its affiliates. For the three year period ended August 31, 1999,
we had sales to Olivetti Telemedia and its affiliates of approximately $209,000
and purchases from Olivetti Telemedia and its affiliates of approximately
$10,000. As of August 31, 1999, Olivetti Telemedia held approximately 9.8% of
our common stock.

                                       68
Telemedia Systems Limited

   We occasionally buy products from and sell products to Telemedia Systems
Limited, a United Kingdom corporation, on terms similar to terms we negotiate
with unaffiliated third parties. For the three year period ended August 31,
1999, we had sales to Telemedia Systems of approximately $226,000 and purchases
from Telemedia Systems of approximately $293,000. Dr. Hauser, Prof. Hopper and
Mr. De Benedetti serve as directors of Telemedia Systems.

                                       69
PRINCIPAL STOCKHOLDERS

   The following table sets forth certain information regarding the beneficial
ownership of our outstanding shares of common stock as of August 31, 1999 held
by:

  .  each person or group known to us to be the beneficial owner of more than
     5% of our outstanding common stock;

  .  each of our Named Executive Officers;

  .  each of our directors; and

  .  all of our directors and executive officers as a group.

   The number of shares of our common stock outstanding as of August 31, 1999
was calculated after giving effect to:

  .  the cancellation of all of the outstanding ordinary and preference
     shares of Virata Limited, the issuance of new ordinary shares of Virata
     Limited to Virata Corporation and the issuance of shares of common stock
     of Virata Corporation to the former shareholders of Virata Limited; and

  .  a     for 1 reverse stock split of our common stock.

These transactions will take place immediately prior to the consummation of
this offering and will be effected pursuant to a share reconstruction under
Section 425 of the United Kingdom Companies Act of 1985. Any securities that
are convertible or exercisable into ordinary shares or preference shares of
Virata Limited will become convertible or exercisable into shares of our common
stock upon consummation of the share reconstruction.

   Unless otherwise indicated, and subject to community property laws where
applicable, each of the persons named in the table have sole voting and
investment power with respect to all of the shares of common stock shown held
by them.
Shares
                                  Beneficially Owned Shares Beneficially
                                       Prior to        Owned After the
                                     Offering(1)         Offering(1)
                                  ------------------ ----------------------
Name                                Number   Percent  Number      Percent
----                              ---------- ------- ---------   ----------
Gaz et Eaux(2)................... 11,547,032  12.7%
New Enterprise Associates(3).....  8,773,252   9.7
Oak Investment Partners
 Limited(4)...................... 12,485,519  13.8
Olivetti Telemedia Investments
 B.V.(5).........................  8,867,517   9.8
Oracle Corporation(6)............ 12,191,232  13.4
3i plc(7)........................  6,028,987   6.7
Charles Cotton(8)................  1,082,813   1.2
Michael Gulett(9)................         --   0.0
Andrew Vought(10)................    743,437   0.8
Martin Jackson(11)...............    537,083   0.6
Thomas Cooper(12)................    550,833   0.6
Dr. Hermann Hauser(13)...........  1,632,096   1.8
Marco De Benedetti...............         --   0.0
Gary Bloom(14)................... 12,191,232  13.4
Bandel Carano(15)................ 12,485,519  13.8
Prof. Andrew Hopper..............  1,562,857   1.7
Peter Morris(16).................  8,773,252   9.7
Patrick Sayer(17)................ 11,547,032  12.7
Giuseppe Zocco(18)...............  2,885,974   3.1
All of our directors and
 executive officers as a group
 (14 persons).................... 54,044,003  56.2
70
--------
(1) In calculating beneficial and percentage ownership, all shares of common
    stock that a named stockholder or specified group will have the right to
    acquire within 60 days of the date of this prospectus upon exercise of
    stock options are deemed to be outstanding for the purpose of computing the
    ownership of such stockholder, but are not deemed to be outstanding for the
    purpose of computing the percentage of common stock owned by any other
    stockholder. As of August 31, 1999, an aggregate of 90,642,635 shares of
    common stock were outstanding.
(2) Gaz et Eaux's address is 3, rue Jacques Bingen, Paris, 75017, France.
(3) New Enterprise Associates' address is 1119 St. Paul Street, Baltimore, MD
    21202.
(4) Oak Investment Partners Limited's address is 525 University Avenue, Suite
    1300, Palo Alto, CA 94301.
(5) Olivetti Telemedia Investment's address is Herengracht, 548 Amsterdam, The
    Netherlands.
(6) Oracles Corporation's address is 500 Oracle Parkway, M/S 1OP836, Redwood
    Shores, CA 94065.
(7) 3i plc's address is 91 Waterloo Road, London SE1 8XP, United Kingdom.
(8) Represents shares of our common stock underlying options that are vested or
    will vest within 60 days of August 31, 1999.
(9) Represents shares of our common stock underlying options that are vested or
    will vest within 60 days of August 31, 1999.
(10) Represents shares of our common stock underlying options that are vested
     or will vest within 60 days of August 31, 1999.
(11) Represents shares of our common stock underlying options that are vested
     or will vest within 60 days of August 31, 1999.
(12) Represents shares of our common stock underlying options that are vested
     or will vest within 60 days of August 31, 1999.
(13) Represents shares of our common stock owned by Providence Investment
     Company Limited, which is wholly owned by the Providence Trust, of which
     Mr. Hauser may be a beneficiary.
(14) Represents shares held by Oracle Corporation. Mr. Bloom was nominated to
     our board of directors by Oracle. Mr. Bloom disclaims all beneficial
     ownership of these shares.
(15) Represents shares of our common stock beneficially owned by Oak Investment
     Partners, of which Mr. Carano is the General Partner. Mr. Carano disclaims
     all beneficial ownership of these shares.
(16) Represents shares of our common stock beneficially owned by New Enterprise
     Associates, of which Mr. Morris is the General Partner. Mr. Morris
     disclaims all beneficial ownership of these shares.
(17) Represents shares of our common stock beneficially owned by Gaz et Eaux,
     of which Mr. Sayer is the General Partner. Mr. Sayer disclaims all
     beneficial ownership of these shares.
(18) Includes 2,506,513 shares issuable upon the exercise of a currently
     exercisable warrant. Represents shares of our common stock beneficially
     owned by Index Securities S.A., and its affiliates Societe Financiere
     Mirelis S.A. and The Index Special Situations Fund, of which Mr. Zocco is
     the General Partner. Mr. Zocco disclaims all beneficial ownership of these
     shares.

                                       71
DESCRIPTION OF CAPITAL STOCK

   Upon completion of this offering, our authorized capital stock will consist
of               shares of common stock, $.00l par value, and
shares of preferred stock, $.00l par value. The description of our capital
stock below and certain provisions of our charter documents is not complete and
is qualified by our certificate of incorporation and bylaws, which are included
as exhibits to the registration statement that this prospectus is a part of,
and by applicable provisions of the Delaware General Corporate Law. The
information below gives effect to:

  .  the cancellation of all of the outstanding ordinary and preference
     shares of Virata Limited, the issuance of new ordinary shares of Virata
     Limited to Virata Corporation and the issuance of shares of common stock
     of Virata Corporation to the former shareholders of Virata Limited; and

  .  a      for 1 reverse stock split of our common stock.

These transactions will take place immediately prior to the consummation of
this offering and, except for the reverse stock split, will be effected
pursuant to a share reconstruction under Section 425 of the United Kingdom
Companies Act of 1985. Any securities that are convertible or exercisable into
ordinary shares or preference shares of Virata Limited will become convertible
or exercisable into shares of our common stock upon consummation of the share
reconstruction.

Common Stock

   As of August 31, 1999, there were 90,642,635 shares of common stock
outstanding. Upon completion of this offering, there will be
shares of our common stock outstanding, assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options.
Holders of the common stock are entitled to one vote per share on each matter
submitted to a vote of our stockholders. Beneficial owners of common stock are
entitled to receive ratably those dividends declared by our board of directors
out of legally available funds. Upon our liquidation, dissolution or winding
up, our common stockholders are entitled to share ratably in all of our assets
which are legally available for distribution, after payment of all debts and
other liabilities and the liquidation preference of any outstanding series of
preferred stock. Holders of common stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of common stock are,
when issued and delivered, validly issued, fully-paid and non-assessable under
the Delaware General Corporation Law.

Preferred Stock

   Immediately prior to the consummation of this offering, all of the
outstanding preference shares of Virata Limited will be cancelled and new
shares of our common stock issued. The following illustrates the conversion of
the preference shares of Virata Limited into shares of our common stock:
Number of Common
                           Number of Preference                     Shares received Upon
Series of Preference     Shares Outstanding as of                   the Exchange of the
Shares                       August 31, 1999      Conversion Rate     Ordinary Shares
--------------------     ------------------------ ---------------   --------------------
Series A Preference
 Shares.................         1,798,720            1 for 1             1,798,720
Series B Preference
 Shares.................         1,394,406            1 for 1             1,394,406
Series C Preference
 Shares.................         4,666,667            1 for 1.2(1)        5,600,000
Series D Preference
 Shares.................        43,571,387            1 for 1.57(2)      68,469,323
--------
(1) As a consequence of the antidilution provisions of the Series C preference
    shares, the conversion rate of the Series C preference shares was increased
    from 1 for 1 to 1 for 1.2.

(2) Pursuant to their terms, the conversion rate of the Series D preference
    shares was increased from 1 for 1 to 1 for 1.57.

                                       72
Immediately after this offering, there will be no shares of our preferred
stock outstanding. However, our certificate of incorporation provides that our
preferred stock be divisible into and issuable in one or more series. The
rights and preferences of the different series may be established by our board
of directors without further action by our stockholders. Our board of directors
will be 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.

   We believe that our board of directors' ability to issue preferred stock on
such a wide variety of terms will enable the preferred stock to be used for
important corporate purposes, such as financing acquisitions or raising
additional capital. However, were it inclined to do so, our board of directors
could issue all or part of the preferred stock with (among other things)
substantial voting power or advantageous conversion rights. This stock could be
issued to persons deemed by our board of directors likely to support our
current management in a context for control of us, either as a precautionary
measure or in response to a specific takeover threat. We have no current plans
to issue preferred stock for any purpose.

Transfer Agent and Registrar

   We intend to select a transfer agent and registrar for our common stock
prior to the closing of this offering.

Listing

   We intend to apply to have our common stock approved for quotation on the
Nasdaq National Market under symbol "VRTA"

Registration Rights

   We have entered into a registration rights agreement dated as of
               , 1999 with holders of 75,463,729 shares of our common stock or
warrants to purchase shares of our common stock (the "Registrable Securities").
The agreement grants certain registration rights with respect to these shares.
The description of our registration rights agreement below is not complete and
is qualified by our registration rights agreement that is included as an
exhibit to the Registration Statement of which this prospectus is a part.

  Requested Registration

   Any time after the earlier of (1) six months after the closing date of this
offering and (2)          , 2001, holders of at least 50% of the Registerable
Securities may request that we file a registration statement. Such request must
be with respect to at least 30% of the Registrable Securities held by such
holders and such securities must have a minimum aggregate fair market value of
at least $5.0 million. Upon such a request, we are required to use our
reasonable efforts to cause such shares to be registered, subject to certain
conditions and limitations. The holders of Registerable Securities are entitled
to two such demand registrations.

   In addition, if at any time we are entitled to file a registration statement
on Form S-3 (or any successor form), holders of at least 20% of the
Registerable Securities may request that we file a registration statement. Such
request must be with respect to Registrable Securities having a minimum
aggregate fair market value of $500,000. The holders of Registerable Securities
are entitled to two such S-3 registrations in any twelve-month period.

                                       73
If the registration is an underwritten public offering and the underwriters
limit the number of securities that may be included in the registration, then
the number of Registerable Securities that may be included in the registration
and underwriting will be allocated among the holders of Registrable Securities
requesting registration in proportion, as nearly as practicable, to the
respective number Registrable Securities requested to be registered.

  Company Registration

   If we propose to register any of our or a holder's common stock under the
Securities Act, holders of Registrable Securities have the opportunity to
include their Registerable Securities in such registration. However, if the
registration is an underwritten public offering and the underwriters limit the
number of securities that may be included in the registration, then the number
of Registerable Securities that may be included in the registration and
underwriting may be cut back to zero. In such event, any Registrable Securities
that are included in the registration and underwriting will be allocated among
the holders of Registrable Securities based on the total number of our
securities held by such holder.

  Termination of Registration Rights

   The registration rights terminate as to Registrable Securities on the
earlier of (1) the date of the sale of such Registrable Securities pursuant to
a Registration Statement or Rule 144 under the Securities Act (or any similar
provision then in force); (2) the date such Registrable Securities become
capable of being distributed pursuant to Rule 144(k); or (3) the date such
Registrable Securities become distributable without being subject to Rule 144
or registration. Notwithstanding the above, the registration rights agreement
will terminate in 2006.

                                       74
CERTAIN PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS

Stockholder Meetings

   Our bylaws provide that following this offering, any action required to be
taken or that may be taken at any meeting of our stockholders may only be taken
at a meeting of stockholders and may not be taken by the written consent of the
stockholders. Special meetings of stockholders may only be called by our board
of directors, the chairman of our board, the chief executive officer or our
president, and only such business brought forth by or at the direction of our
board of directors or the stockholders may be conducted. If a stockholder
wishes to propose an item for consideration at any meeting, the stockholder
must give written notice to us not less than 90 days before the meeting or, if
later, the tenth day following the date of the first public announcement of the
meeting, or such other date as is necessary to comply with applicable federal
proxy solicitation rules and other regulations.

Board of Directors

   Our bylaws provide that the number of directors may not be less than three
nor more than fourteen, until changed by an amendment duly adopted by our board
of directors or stockholders. Our bylaws further provide that the exact number
of directors shall be fixed from time to time, within such range, by our board
of directors. Currently, the number of directors is fixed at four. Our bylaws
provide that our board of directors will be divided into three classes of
directors, which serve for staggered three-year terms. Our bylaws do not
provide for cumulation of stockholder votes in the election of directors.
According to our bylaws, each director may be removed only for cause and only
by the affirmative vote of at least 80% of the total number of the then
outstanding shares of capital stock entitled to vote generally in the election
of directors. Our bylaws provide that nominations for election of directors may
be made by our board of directors or any stockholder entitled to vote in the
election of directors. If a stockholder wishes to nominate a director, the
stockholder must give written notice to us not less than 90 days before the
meeting or, if later, the tenth day following the date of the first public
announcement of the meeting.

Amendment of Our Charter Documents

   Our certificate of incorporation may not be amended without the approval of
the holders of a majority of our outstanding voting shares or the approval of
at least a majority of our directors. Our bylaws contain provisions requiring
the affirmative vote of at least 80% of the total number of the then
outstanding shares of capital stock entitled to vote generally in the election
of directors to amend, alter or repeal the provisions of our bylaws relating to
the calling of special meetings of stockholders, advance notice of stockholder
business or nominees, removal of directors, stockholder action without a
meeting or amendments of our bylaws. These provisions of our charter documents
may delay, defer or prevent a change in control without further action by our
stockholders, may discourage bids for the common stock at a premium over the
market price of the common stock and may adversely affect the market price of
the common stock.

Effect of Delaware Anti-takeover Statute

   We are subject to Section 203 of the Delaware General Corporation Law which,
subject to certain exceptions, prohibits a Delaware corporation from engaging
in any "business combination" which includes a merger or sale of more than 10%
of the corporation's assets, with any interested stockholder for a period of
three years following the date that such stockholder became an interested
stockholder, unless:

  .  before such date, our board of directors of the corporation approved
     either the business combination or the transaction which resulted in the
     stockholder becoming an interested stockholder;

  .  upon completion of the transaction which resulted in the stockholder
     becoming an interested stockholder, the interested stockholder owned at
     least 85% of the voting stock of the corporation outstanding at the time
     the transaction commenced, excluding those shares owned by persons who
     are directors and also officers; or

                                       75
.  on or after such date, the business combination is approved by our board
     of directors and authorized at an annual or special meeting of
     stockholders, and not by written consent, by the affirmative vote of at
     least two-thirds of the outstanding voting stock which is not owned by
     the interested stockholder.

   In general, Section 203 defines an "interested stockholder" as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation or any entity or person affiliated with or controlling or
controlled by such entity or person.

                                       76
SHARES ELIGIBLE FOR FUTURE SALE

   Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of our common stock in the public market
could adversely affect prevailing market prices.

   Upon completion of this offering, there will be                   shares of
our common stock outstanding, assuming no exercise of the underwriters' over-
allotment option and no exercise of outstanding options. All of these shares
will be freely tradable without restriction or further registration under the
Securities Act, pursuant to an exemption provided by Section 3(a)(10) of the
Securities Act, except for any such shares held by our affiliates. Shares held
or purchased in this offering by one of our affiliates may not be sold in the
public market without registration under the Securities Act or in compliance
with an applicable exemption from registration as provided in Rule 144 or Rule
701 under the Securities Act, which rules are summarized below.

   In general, under Rule 144 as currently in effect, a person who is one of
our affiliates, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of:

  .  1% of the shares of our common stock then outstanding, equaling
     approximately              shares immediately after this offering, or

  .  the average weekly trading volume of our common stock in the public
     market during the four calendar weeks immediately before such sale.

   Sales under Rule 144 are also subject to certain requirements as to the
manner of sale, notice and availability of current public information about us.

   Under Rule 144(k), a person who has not been one of our "affiliates" at any
time during the 90 days before a sale, and who has beneficially owned shares
proposed to be sold for at least two years, is entitled to sell such shares
without regard to the volume limitations, manner of sale provisions or notice
requirements.

   Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 under the Securities Act, as
currently in effect, permits the resale of securities originally purchased from
us by our employees, directors, officers, consultants or advisers prior to the
closing of this offering in connection with a compensatory stock or option plan
or written agreement, by persons who are not our "affiliates" subject only to
the manner-of-sale provisions of Rule 144 and by our affiliates under Rule 144
without compliance with its minimum holding period requirement.

   All of our officers, directors and stockholders have agreed that they will
not offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, any of our shares or any securities convertible into or
exchangeable or exercisable for any of our shares, or publicly disclose the
intention to make any such offer, sale, pledge or disposal, for a period
beginning on the date of this prospectus and continuing to the date which is
180 days after the date of this prospectus without the prior written consent of
Credit Suisse First Boston, which consent may be withheld in its sole
discretion. Credit Suisse First Boston may, in its sole discretion and any time
without notice, release all or any portion of the securities subject to these
lock-up agreements. In addition, we have agreed that, for a period of 180 days
after the date of this prospectus, we will not, without the consent of Credit
Suisse First Boston, issue, offer, sell or grant options to purchase or
otherwise dispose of any equity securities or securities convertible into or
exchangeable for equity securities except for (1) the issuance of shares of
common stock offered hereby and (2) shares of common stock issued upon the
exercise of outstanding options on or after the date of this prospectus. See
"Underwriting."

   There are no restrictions on resale with respect to any of our securities,
other than restrictions imposed by lock-up agreements and applicable securities
laws. All of the shares of our common stock outstanding prior to this offering
will be available for sale in the public market immediately upon expiration of
the 180 day lock-up period, subject to the volume limitations and other
conditions of Rule 144 with respect to shares held by our affiliates. Sales of
our common stock by these stockholders could have a material adverse effect on
the trading price of our common stock.

                                       77
UNDERWRITING

   Under the terms and subject to the conditions contained in an underwriting
agreement dated     , 1999, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Warburg Dillon Read LLC
and Thomas Weisel Partners LLC are acting as representatives, the following
respective numbers of shares of common stock:
Number
                                                                            of
   Underwriters                                                           Shares
   ------------                                                           ------
Credit Suisse First Boston Corporation................................
   Warburg Dillon Read LLC...............................................
   Thomas Weisel Partners LLC............................................
                                                                           ----
       Total.............................................................
                                                                           ====
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that, if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.

   We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to      additional shares at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.

   The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $     per share. The
underwriters and selling group members may allow a discount of $     per share
on sales to other     broker/dealers. After the initial public offering, the
public offering price and concession and discount to broker/dealers may be
changed by the representatives.

   The following table summarizes the compensation and estimated expenses we
will pay:
Total
                                                -----------------------------
                                           Per     Without          With
                                          Share Over-allotment Over-allotment
                                          ----- -------------- --------------
Underwriting discounts and
       commissions paid by us............  $        $             $
      Expenses payable by us.............  $        $             $
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.

   We, our executive officers and directors, and existing holders of our
securities which holders own or have the right to acquire more than 1% of our
outstanding shares of common stock, have agreed that we will not offer, sell,
contract to sell, announce our intention to sell, pledge or otherwise dispose
of, directly or indirectly, or file with the Securities and Exchange Commission
a registration statement under the Securities Act relating to, any shares of
our common stock or securities convertible into or exchangeable or exercisable
for any of our common stock without the prior written consent of Credit Suisse
First Boston Corporation for a period of 180 days after the date of this
prospectus, except in our case issuances pursuant to the exercise of employee
stock options outstanding on the date hereof.

   The underwriters have reserved for sale, at the initial public offering
price, up to           shares of common stock for employees, directors and
other persons associated with us who have expressed an interest in

                                       78
purchasing common stock in the offering. The number of shares available for
sale to the general public in this offering will be reduced to the extent these
persons purchase the reserved shares. Any reserved shares not so purchased will
be offered by the underwriters to the general public on the same terms as the
other shares.

   We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be
required to make in that respect.

   We intend to apply to list our shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "VRTA."

   Prior to the offering, there has been no public market for the common stock.
The initial public offering price for the common stock will be determined by
negotiation between us and the representatives, and may not reflect the market
price for the common stock following this offering. The principal factors
considered in determining the initial public offering price of our common stock
will be:

  .  the information in this prospectus and otherwise available to the
     representatives;

  .  market conditions for initial public offerings;

  .  the history of and prospects for the industry in which we will compete;

  .  the ability of our management;

  .  our prospects for future earnings, the present state of our development
     and our current financial condition;

  .  the recent market prices of, and the demand for, publicly traded common
     stock of generally comparable companies; and

  .  the general condition of the securities markets at the time of this
     offering.

   We cannot be sure that the initial public offering price will correspond to
the price at which common stock will trade in the public market following this
offering or that an active trading market for the common stock will develop and
continue after this offering.

   The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934, as amended.

  .  Over-allotment involves syndicate sales in excess of the offering size,
     which creates a syndicate short position.

  .  Stabilizing transactions permit bids to purchase shares of the common
     stock so long as the stabilizing bids do not exceed a specified maximum.

  .  Syndicate covering transactions involve purchases of the common stock in
     the open market after the distribution has been completed in order to
     cover syndicate short positions.

  .  Penalty bids permit the representatives to reclaim a selling concession
     from a syndicate member when the common stock originally sold by the
     syndicate member is purchased in a syndicate covering transaction to
     cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.

                                       79
Each underwriter has represented and agreed that:

  .  it and each of its affiliates has not offered or sold, and will not
     offer or sell any common stock to persons in the United Kingdom, except
     to those persons whose ordinary activities involve them in acquiring,
     holding, managing or disposing of investments (as principal or agent)
     for the purpose of their businesses or otherwise in circumstances which
     have not resulted and will not result in an offer to the public in the
     United Kingdom within the meaning of the Public Offers of Securities
     Regulations 1995;

  .  it and each of its affiliates has complied and will comply with all
     applicable provisions of the Financial Services Act 1986 with respect to
     anything done by it in relation to the common stock in, from or
     otherwise involving the United Kingdom; and

  .  it and each of its affiliates has only issued or passed on and will only
     issue or pass on in the United Kingdom any document received by it in
     connection with the issue of the common stock to a person who is of a
     kind described in Article 11(3) of the Financial Services Act 1986
     (Investment Advertisements) (Exemptions) Order 1996 or is a person to
     whom the document may otherwise lawfully be issued or passed on.

   Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-manager on
61 filed public offerings or equity securities, of which 33 have been
completed, and has acted as a syndicate member in an additional 32 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us pursuant to the underwriting agreement entered into in connection with this
offering.

                                       80
NOTICE TO CANADIAN RESIDENTS

Resale Restrictions

   The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.

Representations of Purchasers

   Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (1) the purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under the securities laws, (2) where required
by law, that the purchaser is purchasing as principal and not as agent, and (3)
the purchaser has reviewed the text above under "Resale Restrictions."

Rights of Action (Ontario Purchasers)

   The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U. S. federal securities.

Enforcement of Legal Rights

   All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or these
persons in Canada or to enforce a judgment obtained in Canadian courts against
such issuer or persons outside of Canada.

Notice to British Columbia Residents

   A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. This report must be
in the form attached to British Columbia Securities Commission Blanket Order
BOR #95/17, a copy of which may be obtained from us. Only one report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.

Taxation and Eligibility for Investment

   Canadian purchasers of common stock should consult with their own legal and
tax advisors with respect to the tax consequences of an investment in the
common stock in their particular circumstances and with respect to the
eligibility of the common stock for investment by the purchaser under relevant
Canadian legislation.

                                       81
LEGAL MATTERS

   Certain legal matters with respect to the legality of the issuance of the
shares of common stock offered hereby will be passed upon for us by Gibson,
Dunn & Crutcher LLP, San Francisco, California. Certain legal matters in
connection with this offering will be passed upon for the underwriters by
Brobeck, Phleger & Harrison LLP, San Francisco, California.

                                    EXPERTS

   The consolidated financial statements of Virata Corporation as of March 31,
1998 and 1997 and for each of the three years in the period ended March 31,
1999 included in this prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.

   The financial statements of RSA Communications, Inc. as of March 31, 1998
and 1997 and for the period from June 6, 1997 through March 31, 1998, the
period from April 1, 1997 through June 5, 1997, and the year ended March 31,
1997 included in this prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.

                             ADDITIONAL INFORMATION

   We filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered in this offering. This prospectus does not contain all of
the information contained in the registration statement and the exhibits and
schedule filed with the registration statement. For further information with
respect to Virata and the common stock offered in this offering, we refer you
to the registration statement and the exhibits and schedules filed as a part of
the registration statement. Statements contained in this prospectus concerning
the contents of any contract or any other document referred to are not
necessarily complete. We refer you to the copy of such contract or document
filed as an exhibit to the registration statement.

   Our registration statement, including exhibits and schedules attached
thereto, may be inspected without charge at the Securities and Exchange
Commission's public reference facilities in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Securities and Exchange Commission's
regional offices located at the Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048. You may also obtain copies of all or any part
of our registration statement from such offices after payment of fees
prescribed by the Securities and Exchange Commission. The Securities and
Exchange Commission maintains a worldwide website that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Securities and Exchange Commission at
http://www.sec.gov.

                                       82
VIRATA CORPORATION

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
                                                                            ----
Virata Corporation
Report of Independent Accountants..........................................  F-2
Consolidated Balance Sheet.................................................  F-3
Consolidated Statement of Operations.......................................  F-4
Consolidated Statement of Stockholders' Equity (Deficit)...................  F-5
Consolidated Statement of Cash Flows.......................................  F-6
Notes to Consolidated Financial Statements.................................  F-7
RSA Communications, Inc.
Report of Independent Accountants.......................................... F-21
Balance Sheet.............................................................. F-22
Statement of Operations.................................................... F-23
Statement of Stockholder's Equity (Deficit)................................ F-24
Statement of Cash Flows.................................................... F-25
Notes to Financial Statements.............................................. F-26
Pro Forma Combined Financial Information (unaudited)
Overview................................................................... F-32
Pro Forma Combined Statement of Operations (unaudited)..................... F-33
Notes to Pro Forma Combined Financial Information (unaudited).............. F-34
F-1
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of Virata Corporation

   In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity (deficit) and
of cash flows present fairly, in all material respects, the financial position
of Virata Corporation and its subsidiaries (the "Company") at March 31, 1998
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended March 31, 1999, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP
San Jose, California
August 31, 1999

                                      F-2
VIRATA CORPORATION

                           CONSOLIDATED BALANCE SHEET
                (in thousands, except share and per share data)
Pro Forma,
                                                                    Stockholders
                                        March 31,                    Equity at
                                    ------------------   June 30,     June 30,
                                      1998      1999       1999         1999
                                    --------  --------  ----------- ------------
                                                        (unaudited) (unaudited)
                                                                     (Note 12)
ASSETS
Current Assets:
  Cash and cash equivalents.......  $    767  $  8,616   $  6,509
  Short-term investments..........       --      1,001        --
  Accounts receivables, net of
   allowance for doubtful accounts
   and returns of $1,567, $2,742
   and $370, respectively.........     2,091     2,267      2,116
  Inventories.....................       434       264        381
  Other current assets............     1,352     1,232      1,879
                                    --------  --------   --------
   Total current assets...........     4,644    13,380     10,885
Property and equipment, net.......     1,306     2,479      2,296
Intangible assets.................       --      3,324      3,130
                                    --------  --------   --------
   Total assets...................  $  5,950  $ 19,183   $ 16,311
                                    ========  ========   ========
LIABILITIES AND STOCKHOLDERS'
 EQUITY (DEFICIT)
Current Liabilities:
  Accounts payable................  $  1,727  $  2,112   $  1,959
  Accrued liabilities.............     2,641     1,887      2,408
  Deferred revenue................       317       489        433
  Convertible loan from related
   parties........................     2,712       --         --
  Short-term borrowings...........       417       --         --
  Capital lease obligations,
   current........................       483       850        905
                                    --------  --------   --------
   Total current liabilities......     8,297     5,338      5,705
Capital lease obligations, long-
 term.............................       738     1,130        995
                                    --------  --------   --------
                                       9,035     6,468      6,700
                                    --------  --------   --------
Commitments (Note 8)
Stockholders' Equity (Deficit)
  Convertible Preferred Stock,
   $0.02 par value; 36,100,000,
   86,100,000 and 86,100,000
   (unaudited) shares authorized
   at March 31, 1998 and 1999 and
   June 30, 1999, respectively;
   22,319,943, 51,431,179 and
   51,431,179 (unaudited) shares
   issued and outstanding at
   March 31, 1998 and 1999 and
   June 30, 1999, respectively
   (liquidation preference $57,929
   (unaudited) at June 30, 1999)..     1,719       811        811
  Common Stock, $0.02 par value;
   45,000,000, 95,000,000 and
   95,000,000 (unaudited) shares
   authorized at March 31, 1998
   and 1999, and June 30, 1999,
   respectively; 11,752,415,
   13,340,644, and 13,348,644
   (unaudited) shares issued and
   outstanding at March 31, 1998
   and 1999, and June 30, 1999,
   respectively...................       185       211        211
  Additional paid-in capital......    29,985    63,513     63,611
  Accumulated other comprehensive
   income (loss)..................        56       308        (47)
  Unearned stock compensation.....    (1,559)   (1,500)    (1,332)
  Accumulated deficit.............   (33,471)  (50,628)   (53,643)
                                    --------  --------   --------
   Total stockholders' equity
    (deficit).....................    (3,085)   12,715      9,611
                                    --------  --------   --------
   Total liabilities and
    stockholders' equity
    (deficit).....................  $  5,950  $ 19,183   $ 16,311
                                    ========  ========   ========
The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-3
VIRATA CORPORATION

                      CONSOLIDATED STATEMENT OF OPERATIONS
                     (in thousands, except per share data)
Three months
                                Year Ended March 31,         Ended June 30,
                            ------------------------------  -----------------
                              1997      1998       1999      1998      1999
                            --------  ---------  ---------  -------  --------
                                                              (unaudited)
Revenues:
  Semiconductors........... $    --   $     505  $   2,784  $   675  $  1,419
  License..................      971      1,570      1,628      994       274
  Services and royalty.....    1,134      1,206      2,367      341       373
  Systems..................    4,848      5,650      2,477      754       599
                            --------  ---------  ---------  -------  --------
    Total revenues.........    6,953      8,931      9,256    2,764     2,665
                            --------  ---------  ---------  -------  --------
Cost of revenues:
  Semiconductors...........      --         325      2,421      419       811
  License..................      --         --         --       --        --
  Services and royalty.....      185        192        528       55       138
  Systems..................    3,754      3,270      1,048      444       324
                            --------  ---------  ---------  -------  --------
    Total cost of
     revenues..............    3,939      3,787      3,997      918     1,273
                            --------  ---------  ---------  -------  --------
Gross profit...............    3,014      5,144      5,259    1,846     1,392
                            --------  ---------  ---------  -------  --------
Operating expenses:
  Research and
   development.............    3,518      3,987      8,323    1,202     2,549
  Sales and marketing......    4,753      4,076      2,917      532       923
  General and
   administrative..........    3,410      4,917      5,567      759       903
  Restructuring costs......      --       1,871        --       --        --
  Amortization of
   intangible assets.......      --         --         549      --        194
  Amortization of stock
   compensation............      --         399      1,394      306       266
  Acquired in-process
   research and
   development.............      --         --       5,260      --        --
                            --------  ---------  ---------  -------  --------
    Total operating
     expenses..............   11,681     15,250     24,010    2,799     4,835
                            --------  ---------  ---------  -------  --------
Loss from operations.......   (8,667)   (10,106)   (18,751)    (953)   (3,443)
Interest expense...........      (72)      (214)      (155)     (58)      (49)
Interest income and other
 income (expense), net.....      199         42      1,749       68       477
                            --------  ---------  ---------  -------  --------
Net loss................... $ (8,540) $ (10,278) $ (17,157) $  (943) $ (3,015)
                            ========  =========  =========  =======  ========
Basic and diluted net loss
 per share................. $  (0.80) $   (0.90) $   (1.33) $ (0.08) $  (0.23)
                            ========  =========  =========  =======  ========
Weighted average common
 shares--basic
 and diluted...............   10,676     11,482     12,881   11,765    13,346
                            ========  =========  =========  =======  ========
Unaudited pro forma basic
 and diluted net loss per
 share (Note 1)............                      $   (0.21)          $  (0.04)
                                                 =========           ========
Pro forma weighted average
 shares--basic and diluted                          80,900             84,646
                                                 =========           ========
The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-4
VIRATA CORPORATION

           CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
                                (in thousands)
Convertible                               Accumulated                               Total
                    Preferred Stock   Common Stock  Additional     Other       Unearned               Stockholders'     Total
                    ----------------  -------------  Paid-in   Comprehensive    Stock     Accumulated    Equity     Comprehensive
                    Shares   Amount   Number Amount  Capital   Income (Loss) Compensation   Deficit     (Deficit)      Income
                    ------  --------  ------ ------ ---------- ------------- ------------ ----------- ------------- -------------
Balance, March
 31, 1996.........   12,940 $  1,564  10,600 $  165  $ 14,437      $ 338       $    --     $ (14,653)    $ 1,851      $    --
  Issuance of
  Series B
  convertible
  preferred
  stock...........    2,713       45     --     --      3,080        --             --           --        3,125           --
  Issuance of
  Series C
  convertible
  preferred
  stock...........    6,667      110     --     --     10,453        --             --           --       10,563           --
  Issuance of
  common stock for
  cash............      --       --      337      6        19        --             --           --           25           --
  Net loss........      --       --      --     --        --         --             --        (8,540)     (8,540)       (8,540)
  Currency
  translation
  adjustment......      --       --      --     --        --        (172)           --           --         (172)         (172)
                    ------- --------  ------ ------  --------      -----       --------    ---------     -------      --------
 Balance, March
 31, 1997.........   22,320    1,719  10,937    171    27,989        166            --       (23,193)      6,852        (8,712)
                                                                                                                      ========
 Issuance of
 common stock for
 cash.............      --       --      815     14        38        --             --           --           52           --
 Unearned stock
 compensation.....      --       --      --     --      1,958        --          (1,958)         --          --            --
 Amortization of
 unearned stock
 compensation.....      --       --      --     --        --         --             399          --          399           --
 Net loss.........      --       --      --     --        --         --             --       (10,278)    (10,278)      (10,278)
 Currency
 translation
 adjustment.......      --       --      --     --        --        (110)           --           --         (110)         (110)
                    ------- --------  ------ ------  --------      -----       --------    ---------     -------      --------
 Balance, March
 31, 1998.........   22,320    1,719  11,752    185    29,985         56         (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.....   25,417      410     --     --     24,672        --             --           --       25,082           --
 Issuance of
 Series D
 convertible
 preferred stock,
 common stock and
 options for
 acquisition......      606       10   1,540     25     3,549        --             --           --        3,584           --
 Issuance of
 Series D
 convertible
 preferred stock
 upon conversion
 of debt..........    2,403       38     --     --      2,576        --             --           --        2,614           --
 Issuance of
 Series D
 convertible
 preferred stock
 for cash.........       22      --      --     --         24        --             --           --           24           --
 Issuance of
 common stock for
 cash.............      --       --       49      1         6        --             --           --            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           --
 Net loss.........      --       --      --     --        --         --             --       (17,157)    (17,157)      (17,157)
 Unrealized gain
 on investments...      --       --      --     --        --           1            --           --            1             1
 Currency
 translation
 adjustment.......      --       --      --     --        --         251            --           --          251           251
                    ------- --------  ------ ------  --------      -----       --------    ---------     -------      --------
 Balance, March
 31, 1999.........   51,431      811  13,341    211    63,513        308         (1,500)     (50,628)     12,715       (16,905)
                                                                                                                      ========
 Issuance of
 common stock for
 cash
 (unaudited)......      --       --        8    --        --         --             --           --          --            --
 Unearned stock
 compensation
 (unaudited)......      --       --      --     --         98        --             (98)         --          --            --
 Amortization of
 unearned stock
 compensation
 (unaudited)......      --       --      --     --        --         --             266          --          266           --
 Net loss
 (unaudited)......      --       --      --     --        --         --             --        (3,015)     (3,015)       (3,015)
 Currency
 translation
 adjustment
 (unaudited)......      --       --      --     --        --        (355)           --           --         (355)         (355)
                    ------- --------  ------ ------  --------      -----       --------    ---------     -------      --------
 Balance, June 30,
 1999
 (unaudited)......   51,431 $    811  13,349 $  211  $ 63,611      $ (47)      $ (1,332)   $ (53,643)    $ 9,611      $ (3,370)
                    ======= ========  ====== ======  ========      =====       ========    =========     =======      ========
The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-5
VIRATA CORPORATION

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (in thousands)
Three Months
                                Year Ended March 31,         Ended June 30,
                            ------------------------------  ------------------
                              1997      1998       1999       1998      1999
                            --------  ---------  ---------  --------  --------
                                                               (unaudited)
Cash flows from operating
 activities:
 Net loss.................. $ (8,540) $ (10,278) $ (17,157) $   (943) $ (3,015)
 Adjustments to reconcile
  net loss to net cash used
  in operating activities:
  Provision for doubtful
   accounts and returns....      111      1,075      1,458        26       189
  Acquired in-process
   research and
   development.............      --         --       5,260       --        --
  Depreciation and
   amortization............    1,085      1,149      1,677       225       643
  Amortization of stock
   compensation............      --         399      1,394       306       266
  Changes in current assets
   and liabilities:
   Accounts receivable.....     (797)    (1,665)      (708)     (420)      (26)
   Inventories.............     (129)       387        176       311      (108)
   Other current assets....     (615)      (479)       133       579      (624)
   Accounts payable........    1,027       (313)    (1,187)     (668)     (187)
   Accrued liabilities.....      818         95       (772)     (132)      485
   Deferred revenue........      --         317        167       (43)      (30)
                            --------  ---------  ---------  --------  --------
    Net cash used in
     operating activities..   (7,040)    (9,313)    (9,559)     (759)   (2,407)
                            --------  ---------  ---------  --------  --------
Cash flows from investing
 activities:
 Sale of short-term
  investments..............      --         --         --        --      1,001
 Purchase of short-term
  investment...............      --         --      (1,000)      --        --
 Purchase of property and
  equipment, net...........   (1,376)      (193)    (2,088)     (687)      (53)
 Cash paid in connection
  with acquisition, net of
  cash acquired............      --         --      (5,149)      --        --
                            --------  ---------  ---------  --------  --------
    Net cash (used in)
     provided by investing
     activities............   (1,376)      (193)    (8,237)     (687)      948
                            --------  ---------  ---------  --------  --------
Cash flows from financing
 activities:
 Proceeds from issuance of
  convertible preferred
  stock, net of issuance
  costs....................   13,688        --      25,106    24,957       --
 Proceeds from issuance of
  common stock.............       25         52          7         3       --
 Proceeds from capital
  leases...................      981        372      1,116       673        31
 Repayments of capital
  lease obligations........     (122)      (282)      (318)     (144)      (81)
 Proceeds from convertible
  loan.....................      --       2,739        --        --        --
 Proceeds from (repayment
  of) bank borrowings......      --         417       (417)     (395)      --
                            --------  ---------  ---------  --------  --------
    Net cash provided by
     (used in) financing
     activities............   14,572      3,298     25,494    25,094       (50)
                            --------  ---------  ---------  --------  --------
Effect of exchange rate
 changes on cash...........     (183)      (314)       151        78      (598)
                            --------  ---------  ---------  --------  --------
Net increase (decrease) in
 cash and cash
 equivalents...............    5,973     (6,522)     7,849    23,726    (2,107)
                            --------  ---------  ---------  --------  --------
Cash and cash equivalents
 at beginning of period....    1,316      7,289        767       767     8,616
                            --------  ---------  ---------  --------  --------
Cash and cash equivalents
 at end of period.......... $  7,289  $     767  $   8,616  $ 24,493  $  6,509
                            ========  =========  =========  ========  ========
The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-6
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. In July 1998, the Company
completed its acquisition of RSA Communications, Inc. ("RSA"), a corporation
organized in North Carolina (see Note 4). RSA was subsequently renamed to
Virata Raleigh Corporation.

   The Company is a provider of solutions that integrate communication
processors with a suite of software for the digital subscriber line equipment
market.

 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.

 Interim financial information (unaudited)

   The accompanying interim consolidated financial statements as of June 30,
1999 and for the three months ended June 30, 1998 and 1999 are unaudited but
have been prepared on the same basis as the annual financial statements and, in
the opinion of management, reflect all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the Company's financial
condition at June 30, 1999 and the results of operations and cash flows for the
three months ended June 30, 1998 and 1999. The results of operations of any
interim period are not necessarily indicative of the results of operations for
the full year.

 Use of estimates

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

 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 does not
exist, then 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 one year, and recognizes revenues from design services provided to
customers as the services are performed.

                                      F-7
VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 Cash equivalents

   The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. At March 31,
1998 and 1999, $717,000 and $7,142,000, respectively, of money market funds and
certificate of deposits, the fair value of which approximates costs, are
included in cash and cash equivalents. The Company deposits cash and cash
equivalents with high credit quality financial institutions.

 Investments

   Investments consist of high quality debt securities with original maturity
dates greater than ninety days. In accordance with Statement of Financial
Accounting Standard ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," the Company's investments are classified as
available-for-sale and, at the balance sheet date, are reported at fair value,
with the unrealized gains and losses, net of related taxes, reported as a
component of Other Comprehensive Income (Loss). The cost of these investments
at March 31, 1999 was $1,000,000. Gains and losses on the sale of available-
for-sale securities are determined using the specific-identification method.

 Fair value of financial instruments

   Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable,
accrued expenses and other liabilities approximate fair value due to their
short maturities. Based upon borrowing rates currently available to the Company
for leases with similar terms, the carrying value of capital lease obligations
approximate fair value.

 Segment information

   Effective April 1, 1998, the Company adopted the provisions of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related 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 March 31, 1999, the Company operated in one operating
segment, primarily in the United States and Europe.

 Concentration of credit risk

   Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents, and accounts
receivable. The Company's accounts receivable are derived from revenues earned
primarily from customers located in the U.S. and Europe. 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.

                                      F-8
VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   The Company currently has the following concentrations of revenues and trade
accounts receivables:
Year Ended      Three Months
                                                       March 31,          Ended
                                                     ----------------    June 30,
                                                     1997  1998  1999      1999
                                                     ----  ----  ----  ------------
                                                                       (unaudited)
Revenues
--------
Customer A..........................................  --    10%   16%       40%
Customer B..........................................  21%   17%   22%       17%
Customer C..........................................  --    10%    3%       --
Customer D..........................................  --    --    --        10%
Revenues from customers located outside the United States were 47% in 1997,
44% in 1998 and 40% in 1999, respectively. The Company has $974,000 and
$1,800,000 invested in identifiable tangible assets in Europe as of March 31,
1998 and 1999. The remaining identifiable tangible assets are located in the
United States.
March 31,
                                                           ----------   June 30,
                                                           1998  1999     1999
                                                           ----  ----  -----------
                                                                       (unaudited)
Accounts Receivable
-------------------
Customer A................................................  23%   54%       50%
Customer B................................................  11%   11%        9%
Customer C................................................  28%   --        --
Customer E................................................  18%   --        --
Inventories

   Inventories include raw materials and finished goods and are stated at the
lower of cost or market, cost being determined using the first-in, first-out
method.

 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:
Computer and network equipment and software........................ 2-3 years
   Furniture and office equipment.....................................   5 years
   Research and development equipment................................. 2-3 years
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.

 Intangible assets

   Intangible assets consist of goodwill, which is being amortized on a
straight line basis over five years.

   The Company investigates potential impairments of its goodwill on an
exception basis when evidence exists that events or changes in circumstances
may have made recovery of the carrying value unlikely. An impairment loss is
recognized when the expected undiscounted future net cash flows is less than
the carrying amount of the asset. No such losses have been identified to date.

                                      F-9
VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 Recent accounting pronouncement

   In June 1998, the Financial Accounting Standards Board ("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 is unable to
predict the impact of adopting SFAS No. 133 if it were to engage in derivative
and hedging activities in the future.

 Net loss per share

   The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share" and SEC Staff Accounting Bulletin ("SAB") No. 98. Under
the provisions of SFAS No. 128 and SAB No. 98, basic and diluted net loss per
share is computed by dividing the net loss available to holders of common stock
for the period by the weighted average number of shares of common stock
outstanding during the period. The calculation of diluted net loss per share
excludes potential shares of common stock if their effect is anti-dilutive.
Potential common stock consists of shares of common stock issuable upon the
exercise of stock options and warrants and shares issuable upon conversion of
the Series A, Series B, Series C and Series 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):
March 31,         June 30,
                                             -------------------- -------------
                                              1997   1998   1999   1998   1999
                                             ------ ------ ------ ------ ------
                                                                   (unaudited)
Series A convertible preferred stock........  1,799  1,799  1,799  1,799  1,799
Series B convertible preferred stock........ 13,855 13,855  1,394  1,394  1,394
Series C convertible preferred stock........  8,000  8,000  5,600  5,600  5,600
Series D convertible preferred stock........    --     --  68,469 67,516 68,469
Convertible preferred stock warrants........     74    139  2,892  2,646  2,903
Common stock warrants.......................    --      75     75     75     75
Common stock options........................  2,777  4,796 14,516  7,855 19,465
                                             ------ ------ ------ ------ ------
                                             26,505 28,664 94,745 86,885 99,705
                                             ====== ====== ====== ====== ======
Pro forma net loss per share (unaudited)

   Pro forma net loss per share for the year ended March 31, 1999 is computed
using the weighted average number of shares of common stock outstanding,
including the pro forma effects of the automatic conversion of the Company's
Series A, B, C and D convertible preferred stock and preferred stock warrants
into shares of the Company's common stock effective upon the closing of the
Company's initial public offering as if such conversion occurred on April 1,
1998, or at the date of original issuance, if later. The resulting pro forma
adjustment includes an increase in the weighted average shares used to compute
basic net loss per share for the year ended March 31, 1999. The calculation of
diluted net loss per share excludes potential shares of common stock as their
effect would be anti-dilutive.

                                      F-10
VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 Stock compensation

   The Company accounts for stock compensation arrangements in accordance with
provision of Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees" and complies with the disclosure provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation." Under APB 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."

 Comprehensive income

   Comprehensive income consists of foreign currency translation gains and
losses and other unrealized gains and losses arising from the valuation of
short-term investments and is presented in the Consolidated Statement of
Stockholders' Equity (Deficit). Balance sheet accounts of foreign operations
are translated using the year-end exchange rate, and income statement accounts
are translated on a monthly basis using the average exchange rate for the
period. Unrealized gains and losses on translation adjustments are recorded in
stockholders' equity as other comprehensive income. The 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 and as of March
31, 1997, 1998 and 1999 the Company recognized (losses) gains of $(198,000),
$(80,000) and $432,000, respectively.

Note 2--Supplemental Cash Flow Information (in thousands):
Year ended March    Three Months
                                                   31,          Ended June 30,
                                           ------------------- ---------------
                                           1997   1998   1999   1998    1999
                                           ----- ------ ------ ------- -------
                                                                 (Unaudited)
Supplemental cash flow information:
  Cash paid for income taxes.............. $ 800 $  800 $  800
                                           ===== ====== ======
  Cash paid for interest.................. $  55 $  197 $  180
                                           ===== ====== ======
Supplemental noncash investing and
 financing activity:
  Issuance of preferred stock for
   convertible loan....................... $ --  $  --  $2,712 $   --  $   --
                                           ===== ====== ====== ======= =======
  Issuance of stock and options in
   connection
   with acquisition....................... $ --  $  --  $2,921 $   --  $   --
                                           ===== ====== ====== ======= =======
  Unearned compensation in connection with
   issuance of stock options.............. $ --  $1,958 $1,335 $   --  $    98
                                           ===== ====== ====== ======= =======
  Issuance of warrants in connection with
   financing.............................. $ --  $  --  $  949 $   --  $   --
                                           ===== ====== ====== ======= =======
F-11
VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 3--Balance Sheet Components (in thousands):
March 31
                                                  ----------------   June 30,
                                                   1998     1999       1999
                                                  -------  -------  -----------
                                                                    (unaudited)
Inventories:
  Finished goods................................. $   394  $    26     $376
  Raw materials..................................      40      238        5
                                                  -------  -------     ----
                                                  $   434  $   264     $381
                                                  =======  =======     ====
Other current assets:
  Prepaid expenses............................... $   293  $   564
  Deposits.......................................     346      113
  Other current assets...........................     713      555
                                                  -------  -------
                                                  $ 1,352  $ 1,232
                                                  =======  =======
Property and equipment, net:
  Office equipment............................... $ 2,156  $ 2,856
  Furniture and fixtures.........................     206      247
  Leasehold improvements.........................     136      429
  Research and development equipment.............   1,881    3,039
                                                  -------  -------
                                                    4,379    6,571
  Less: Accumulated depreciation and
   amortization..................................  (3,073)  (4,092)
                                                  -------  -------
                                                  $ 1,306  $ 2,479
                                                  =======  =======
Property and equipment includes $2,200,000 and $3,485,000 of computer
equipment and internal-use software under capital leases at March 31, 1998, and
1999, respectively. Accumulated amortization of assets under capital leases
totaled $1,319,000 and $2,015,000 at March 31, 1998 and 1999, respectively.
March 31
                                                                  -------------
                                                                   1998   1999
                                                                  ------ ------
Intangible assets:
     Goodwill.................................................... $  --  $3,873
     Less: Accumulated amortization..............................    --    (549)
                                                                  ------ ------
                                                                  $  --  $3,324
                                                                  ====== ======
   Accrued liabilities:
     Compensation accrual........................................ $  821 $  869
     Royalty obligation .........................................    532    --
     Contract accrual............................................    422    --
     Other.......................................................    866  1,018
                                                                  ------ ------
                                                                  $2,641 $1,887
                                                                  ====== ======
In fiscal year 1998, the Company recorded an accrual for $422,000 related to
an obligation of the Company to reimburse suppliers for cancelled purchase
orders related to systems products.

                                      F-12
VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 4--Acquisition of RSA:

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

   The Company's allocation of RSA's aggregate purchase price to the tangible
and identifiable intangible assets acquired in connection with this
acquisition were based on fair values as determined by independent appraisers.
The allocation is summarized below (in thousands):
In-process research and development.................................. $5,260
   Goodwill.............................................................  3,873
   Net assets...........................................................    142
                                                                         ------
   Total purchase price................................................. $9,275
                                                                         ======
The total purchase price of $9,275,000 million consisted of 1,540,000
shares of the Company's Common Stock valued at $1,417,000 million, 606,500
Series D Preferred Convertible Stock valued at $668,000, 1,993,000 stock
options valued at $1,505,000 million, cash of $5,332,000 million and
acquisition related expenses of approximately $353,000 consisting primarily of
legal and other professional fees. The Company valued the options using the
Black-Scholes option pricing model, applying 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 $0.92.

   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 modem chips and replacement
cost method for software algorithms. The acquired in-process technology was
not considered to have reached technological feasibility and had no
alternative future use. Accordingly, the amount was charged to operations upon
acquisition.

   The income method of valuation for the modem chips was determined using a
modified version of the relief from royalty avoided by the Company upon the
purchase of RSA. 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 algorithm which requires a special skill set for its development was
valued using the replacement cost method which considered cost incurred
through the valuation date.

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

   The following unaudited pro forma financial information presents 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):
Year Ended March
                                                                    31,
                                                             ------------------
                                                               1998      1999
                                                             --------  --------
                                                                (unaudited)
Revenues................................................. $ 13,251  $ 10,075
   Net loss.................................................  (11,931)  (19,224)
   Basic and diluted net loss per share.....................    (0.92)    (1.44)
F-13
VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 5--Restructuring:

   In September 1997, the Company implemented a new business strategy focusing
on semiconductors and reduced the resources allocated to its systems line of
business. A restructuring plan was implemented in the second half of the fiscal
year ended March 31, 1998, which resulted in one time charges of $1,871,000 in
the fiscal year ended March 31, 1998. Approximately, $900,000 of the
restructuring charge represents employee costs, $900,000 represent asset write
downs and $71,000 related to other restructuring costs. As of March 31, 1998
the Company had reduced the operations of the systems business including
reducing headcount from the prior years level by approximately 33%. The Company
continues to sell its systems products to one principal customer and systems
revenues for the three months ended June 30, 1999 were $599,000.

   The following table lists the components of the restructuring accrual for
the year ended March 31, 1999 (in thousands).
Employee   Asset
                                               Costs   Write down Other  Total
                                              -------- ---------- -----  ------
Reserve provided as at April 1, 1997.........  $ 900     $ 900    $ 71   $1,871
  Reserve utilized...........................   (783)     (900)    (25)  (1,708)
                                               -----     -----    ----   ------
Balance at March 31, 1998....................    117       --       46      163
  Reserve utilized...........................   (117)      --      (46)    (163)
                                               -----     -----    ----   ------
Balance at March 31, 1999....................  $ --      $ --     $--    $  --
                                               =====     =====    ====   ======
Note 6--Income Taxes:

   No income tax provision was recorded for the three years ending March 31,
1999 and the three months ended June 30, 1998 and 1999 because the Company
incurred net losses in such periods.

   Deferred tax assets and liabilities consist of the following:
March 31,
                                                                ---------------
                                                                 1999     1998
                                                                -------  ------
Deferred tax assets:
  Net operating loss carryforwards............................. $12,647  $9,011
  Temporary differences........................................   1,764     751
  Other........................................................      67     --
                                                                -------  ------
                                                                 14,478   9,762
                                                                -------  ------
Valuation allowance............................................ (14,478) (9,762)
                                                                -------  ------
                                                                   $--     $--
                                                                =======  ======
The deferred tax asset has been fully reserved due to the uncertainty of the
Company's ability to realize this asset in the future.

   At March 31, 1999, the Company has approximately $14.2 million, $11.7
million and $23.2 million in federal, state and foreign net operating loss
carryforwards, respectively, to reduce future taxable income. The net operating
loss carryforwards expire between 2004 and 2019 for both federal and state
purposes, if not utilized.

                                      F-14
VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 7--Borrowings:

   A convertible loan in the amount of $2,712,000 was converted to 2,402,710
shares of Series D 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.

   Short term borrowings represent the Company's overdraft facility which is
collaterized by the assets of the Company.

   In connection with a borrowing 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. This warrant is outstanding at March 31, 1999 and
expires December 12, 2002. 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.

Note 8--Commitments:

 Leases

   The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through March 2005. The
Company also subleased to third parties a certain property under a
noncancelable operating lease which expired in July 1999. Net rent expense for
the three years ended March 31, 1999 was $281,000, $372,000 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):
Year Ended                                       Capital  Operating Sublease
   March 31,                                        Leases    Leases    Income
   ----------                                       -------  --------- --------
2000............................................ $  987    $  708     $ 43
   2001............................................    638       718      --
   2002............................................    455       555      --
   2003............................................    111       438      --
   2004............................................    --        327      --
   2005............................................    --         55      --
                                                    ------    ------     ----
   Total minimum lease payments and sublease
    income.........................................  2,191    $2,801     $ 43
                                                              ======     ====
   Less: Amount representing interest..............   (211)
                                                    ------
   Present value of capital lease obligations......  1,980
   Less: Current portion...........................   (850)
                                                    ------
     Long-term portion of capital lease
      obligations.................................. $1,130
                                                    ======
F-15
VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 9--Convertible Preferred Stock:

   Convertible Preferred Stock at March 31, 1999 consists of the following:
Shares Issued and
                                                    Outstanding
                                               ---------------------
                                                     March 31,
                                               ---------------------
                                      Shares                         Liquidation
   Series                           Authorized    1998       1999      Amount
   ------                           ---------- ---------- ---------- -----------
A...............................    3,100    1,798,720  1,798,720 $ 1,438,976
   B...............................   25,000   13,854,556  1,394,406   1,561,735
   C...............................    8,000    6,666,667  4,666,667   7,000,000
   D...............................   50,000          --  43,571,386  47,928,525
                                      ------   ---------- ---------- -----------
                                      86,100   22,319,943 51,431,179 $57,929,236
                                      ======   ========== ========== ===========
On June 4, 1998, existing investors were given the opportunity to convert
their shares of Series A, B and C convertible preferred stock into Series D
convertible preferred stock and new investors were given the opportunity to
purchase Series D convertible preferred stock. The Company issued 25,417,296
shares of Series D convertible preferred stock for $1.10 per share resulting in
net proceeds after issuance costs of $25,082,000. The Company also issued
15,123,062 shares of Series D convertible preferred stock as a result of
existing stockholders opting to convert their shares of Series B and C
convertible preferred stock into Series D convertible preferred stock. In June
1999, the Series D convertible preferred stock conversion price was reduced to
$0.70 from $1.10 based on the Company's revenues for the year ended March 31,
1999.

   In connection with investment banking services provided during the June 1998
offering, the Company issued a warrant to purchase an aggregate of 1,592,054
shares of Series D convertible preferred stock at an exercise price of $1.10
per share. The warrant may be exercised at any time within five years after
issuance. The Company valued the warrant using the Black-Scholes option pricing
model, applying 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 fair market value of the
warrant of $949,000 has been netted against the proceeds from the offering.

   The holders of convertible preferred stock have various rights and
preferences as follows:

 Voting

   Each share of Series A, B, C and D convertible preferred stock have voting
rights equal to an equivalent number of shares of common stock into which it is
convertible and votes together as one class with the common stock.

   As long as at least 1,000,000 shares of Series B, C and D convertible
preferred stock remain outstanding, the Company must obtain approval from 66
2/3% of the holders of convertible preferred stock in order to alter the
articles of incorporation as related to convertible preferred stock, or change
the authorized number of shares of convertible preferred stock. The Company
must obtain approval from 66 2/3% of the owners of issued shares of the Company
to create a new class of stock or effect a merger, consolidation or sale of
assets where the existing shareholders retain less than 50% of the voting stock
of the surviving entity.

 Dividends

   Holders of Series A, B C and D convertible preferred stock are entitled to
participate in dividends on a pro rata basis irrespective of the class of
stock. No dividends on convertible preferred stock or common stock have been
declared by the Board from inception through June 30, 1999.

                                      F-16
VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 Liquidation

   In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners
of the Company's common stock and convertible preferred stock own less than 51%
of the resulting voting power of the surviving entity, the holders of Series A,
B, C and D convertible preferred stock are entitled to receive an amount of
$0.80, $1.12, $1.50 and $1.10 per share, respectively, plus any declared but
unpaid dividends prior to and in preference to any distribution to the holders
of common stock. The remaining assets, if any, shall be distributed pro-rata
amongst all stockholders on an as converted basis. Should the Company's legally
available assets be insufficient to satisfy the liquidation preferences, the
funds will be distributed first to the Series D convertible preferred
stockholders, plus any unpaid dividends and the remainder to the other
convertible preferred stockholders.

 Conversion

   Each share of Series A, B, C and D convertible preferred stock is
convertible, at the option of the holder, according to a conversion ratio,
subject to adjustment for dilution. Each share of Series A, B, C and D
convertible preferred stock automatically converts into the number of shares of
common stock into which such shares are convertible at the then effective
conversion ratio upon the closing of a public offering of Common Stock at a per
share price of at least $3.00 per share with gross proceeds of at least
$7,500,000 or the Company completes a public offering in the United Kingdom of
common stock at a per share price of at least 50 pence per share. Shares of
Series B, C and D convertible preferred stock also convert automatically upon
the consent of the respective holders of the majority of convertible preferred
stock.

   At March 31, 1999, the Company reserved 1,799,000, 1,394,000, 5,600,000 and
68,469,000 shares of common stock for the conversion of Series A, B, C and D
convertible preferred stock, respectively.

 Warrants for Convertible Preferred Stock

   In connection with a lease agreement, the Company issued warrants to
purchase 69,705 shares of Series C and 109,091 shares of Series D convertible
preferred stock for $1.10 and $1.50 per share, respectively, in the period
September 1996 to September 1998. Such warrants are outstanding at March 31,
1999 and expire in the period September 2001 to September 2008. The Company
valued the warrant using the Black-Scholes option pricing model, applying
expected life of five years, a weighted average risk-free rate of 6.6% and
4.81%, an expected dividend yield of zero percent, a volatility of 70% and a
deemed fair value of common stock of $0.74 and $0.85, respectively. The Company
determined that the fair value of the warrant was not significant at the date
of grant.

Note 10--Stock Option Plans:

   In April 1998, the Company adopted the 1998 Stock Option 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. The Company has reserved
26,989,333 shares of common stock for issuance under the Plan.

   Options under the Plan may be granted for periods of up to seven 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.

                                      F-17
VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   During the period from April 1, 1996 through March 31, 1999, the Company
recorded $3,391,000 of deferred 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 $399,000,
$1,394,000 and $266,000 (unaudited) for the years ended March 31, 1998 and
1999, and the three months ended June 30, 1999, respectively.

   The following table summarizes activity under the Company's Plan from March
31, 1996 through June 30, 1999:
Outstanding Options
                                                           ---------------------
                                                                       Weighted-
                                                Shares                  Average
                                               Available   Number of   Exercise
                                               for Grant     Shares      Price
                                              -----------  ----------  ---------
Balance, March 31, 1996......................   2,898,208   2,101,792    $0.07
  Shares reserved for grant..................         --          --       --
  Options granted............................  (2,136,000)  2,136,000     0.20
  Options exercised..........................         --     (337,254)    0.07
  Options canceled...........................   1,123,731  (1,123,731)    0.22
                                              -----------  ----------
Balance, March 31, 1997......................   1,885,939   2,776,807     0.11
  Shares reserved for grant..................   2,012,143         --       --
  Options granted............................  (6,082,500)  6,082,500     0.24
  Options exercised..........................         --     (815,161)    0.06
  Options canceled...........................   3,248,208  (3,248,208)    0.24
                                              -----------  ----------
Balance, March 31, 1998......................   1,063,790   4,795,938     0.20
  Shares reserved for grant..................  10,038,221         --       --
  Options granted............................ (10,380,194) 10,380,194     0.61
  Options exercised..........................         --      (48,229)    0.10
  Options canceled...........................     612,208    (612,208)    0.70
                                              -----------  ----------
Balance, March 31, 1999......................   1,334,025  14,515,695     0.47
  Shares reserved for grant..................   9,938,969         --       --
  Options granted (unaudited)................  (4,971,625)  4,971,625     1.26
  Options exercised (unaudited)..............         --       (8,000)    0.06
  Options canceled (unaudited)...............      14,500     (14,500)    1.30
                                              -----------  ----------
Balance, June 30, 1999 (unaudited)...........   6,315,869  19,464,820     0.67
                                              ===========  ==========
Options Outstanding at March 31,       Options Exercisable
                                  1999                      at March 31, 1999
                   -------------------------------------  -----------------------
                                  Weighted
                                   Average     Weighted                 Weighted
       Range of                   Remaining    Average                  Average
       Exercise      Number      Contractual   Exercise     Number      Exercise
        Price      Outstanding      Life        Price     Outstanding    Price
       --------    -----------   -----------   --------   -----------   --------
$0.02 -
         $0.08        730,000        2.5        $0.05        721,111     $0.05
        $0.16         869,792        3.9         0.16        633,822      0.16
       $0.24 -
         $0.25      5,065,694        5.4         0.24      3,141,139      0.24
        $0.70       7,850,209        6.3         0.70                     0.70
                   ----------                              ---------
                   14,515,695                              4,496,072
                   ==========                              =========
The total number of options exercisable at March 31, 1997 and 1998 was
612,589 and 1,361,552, respectively.

                                      F-18
VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 Fair value disclosures

   If compensation cost for the Company's stock-based compensation plan 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):
Year Ended March 31,
                                                   ---------------------------
                                                    1997      1998      1999
                                                   -------  --------  --------
Net loss:
  As reported..................................... $(8,540) $(10,278) $(17,157)
  Pro forma.......................................  (8,777)  (10,974)  (19,707)
Basic and diluted net loss per share:
  As reported..................................... $ (0.80) $  (0.90) $  (1.33)
  Pro forma.......................................   (0.82)     (.96)    (1.53)
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 6.1% to 6.7%, 5.6% to 6.6% and 4.5%
to 5.8% and a volatility of 70% for the three years ended March 31, 1999. The
weighted average fair value of options granted during 1997, 1998 and 1999 was
$0.72, $0.93 and $0.88, respectively.

 Warrants for Common Stock

   In connection with an employee agreement, the Company issued a warrant to
purchase 75,000 shares of Common Stock for $0.08 per share in July 1997. This
warrant is outstanding at March 31, 1999 and expires in July 2007. The Company
valued the warrant using the Black-Scholes option pricing model, applying
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 $0.89. Using the Black-Scholes pricing model, the
Company determined that the fair value of the warrant was not significant at
the date of grant.

Note 11--Related Party Transactions:

   In fiscal year 1999, related parties converted $1,454,000 of a 10%
convertible loan into 1,279,205 shares of Series D convertible preferred stock.

   The Company had sales of $921,000, $82,000 and $549,000 for the three years
ended March 31, 1999, respectively, to related parties. At March 31, 1997, 1998
and 1999, there were accounts receivable from related parties in the amounts of
$148,000, $5,000 and $154,000, respectively, included in the balance sheets.

Note 12--Subsequent Events:

 Initial public offering

   In June 1999, the Board of Directors of Virata Limited authorized management
to file a registration statement with the Securities and Exchange Commission to
permit the Company to sell shares of its common stock to the public. In
association with the offering, the Board of Directors authorized soliciting the
shareholders for their approval of: (i) the cancellation of all outstanding
convertible preferred and common stock and all other securities convertible
into preferred or common stock of Virata Limited, (ii) the issuance of new
common shares of Virata Limited to Virata Corporation and the issuance of
shares of common stock of Virata Corporation to the former shareholders of
Virata Limited, and (iii) a reverse stock split. These events are to occur
immediately prior to the offering.

                                      F-19
VIRATA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 Borrowing Agreement

   In August 1999, the Company entered into a borrowing agreement with a
financial institution for $3,000,000 of the Company's borrowing base, as
determined by the agreement. The agreement bears interest at prime rate plus
one half percent and all outstanding advances are due in August 2000. The
agreement is collateralized by the Company's property, equipment, intellectual
property, inventory, and receivables and requires compliance with certain debt
covenants.

                                      F-20
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Virata Raleigh Corporation

   In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholder's equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of RSA
Communications, Inc. at March 31, 1997 and 1998, and the results of its
operations and its cash flows for the year ended March 31, 1997, the period
from April 1, 1997 through June 5, 1997 and the period from June 6, 1997
through March 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP

Raleigh, North Carolina
August 19, 1999

                                     F-21
RSA COMMUNICATIONS, INC.

                                 BALANCE SHEET
March 31,
                                                      ------------------------
                                                         1997         1998
                                                      -----------  -----------
ASSETS
Current assets:
  Cash and cash equivalents.......................... $     6,384  $   822,482
  Accounts receivable, net of allowance for doubtful
   accounts of $0 and $10,000 at March 31, 1997 and
   1998, respectively................................     262,139    1,063,100
  Prepaid and other assets...........................      79,384       19,041
                                                      -----------  -----------
    Total current assets.............................     347,907    1,904,623
  Receivable from parent ............................     639,362          --
  Deferred income taxes..............................         --       481,795
  Property and equipment, net........................   1,065,550      110,303
                                                      -----------  -----------
    Total assets..................................... $ 2,052,819  $ 2,496,721
                                                      ===========  ===========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
  Accounts payable................................... $   198,649  $   236,413
  Accrued liabilities................................     475,464      764,731
  Deferred revenue...................................      11,512       12,000
  Stock appreciation rights .........................         --     1,870,866
                                                      -----------  -----------
    Total current liabilities........................     685,625    2,884,010
  Negative goodwill..................................         --       252,305
  Commitments (Note 5)...............................         --           --
Stockholder's equity (deficit):
  Common stock, 10,000 shares authorized, 10,000
   shares and 6,000 shares issued and outstanding at
   March 31, 1997 and 1998, respectively.............   2,000,000            6
  Accumulated deficit................................    (632,806)    (639,600)
                                                      -----------  -----------
    Total stockholder's equity (deficit).............   1,367,194     (639,594)
                                                      -----------  -----------
    Total liabilities and stockholder's equity
     (deficit)....................................... $ 2,052,819  $ 2,496,721
                                                      ===========  ===========
The accompanying notes are an integral part of these financial statements.

                                      F-22
RSA COMMUNICATIONS, INC.

                            STATEMENT OF OPERATIONS
Period from   Period from
                                                   April 1, 1997  June 6, 1997
                                      Year ended      through       through
                                    March 31, 1997 June 5, 1997  March 31, 1998
                                    -------------- ------------- --------------
Revenues:
  Software products................  $ 1,087,703     $   1,197     $1,938,877
  Consulting services..............      544,760         3,024      2,376,936
                                     -----------     ---------     ----------
    Total revenues.................    1,632,463         4,221      4,315,813
                                     -----------     ---------     ----------
Operating expenses:
  Research and development and cost
   of consulting services..........    1,301,607       308,557      2,157,842
  Selling, general and
   administrative..................    1,036,908       203,907        893,560
  Compensation from stock
   appreciation rights.............          --            --       1,870,866
                                     -----------     ---------     ----------
    Total operating expenses.......    2,338,515       512,464      4,922,268
                                     -----------     ---------     ----------
    Loss from operations...........     (706,052)     (508,243)      (606,455)
Other income (expense), net........       (6,250)          --          57,217
                                     -----------     ---------     ----------
    Loss before income taxes.......     (712,302)     (508,243)      (549,238)
Income tax provision...............      126,500           --          90,362
                                     -----------     ---------     ----------
    Net loss.......................  $  (838,802)    $(508,243)    $ (639,600)
                                     ===========     =========     ==========
The accompanying notes are an integral part of these financial statements.

                                      F-23
RSA COMMUNICATIONS, INC.

                  STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
    For the year ended March 31, 1997, the period from April 1, 1997 through
      June 5, 1997 and the period from June 6, 1997 through March 31, 1998
Common Stock
                                     -----------------
                                                       Accumulated
                                     Shares   Amount     Deficit      Total
                                     ------ ---------- -----------  ----------
Balance, March 31, 1996............. 10,000 $2,000,000 $   205,996  $2,205,996
  Net loss for the year ended March
   31, 1997.........................    --         --     (838,802)   (838,802)
                                     ------ ---------- -----------  ----------
Balance, March 31, 1997............. 10,000  2,000,000    (632,806)  1,367,194
Net loss for the period from April
 1, 1997 through June 5, 1997.......    --         --     (508,243)   (508,243)
                                     ------ ---------- -----------  ----------
Balance, June 5, 1997............... 10,000 $2,000,000 $(1,141,049) $  858,951
                                     ------ ---------- -----------  ----------

-------------------------------------------------------------------------------
Issuance of common stock on June 6,
 1997 in conjunction with
 acquisition (see Note 2)...........  6,000 $        6 $       --   $        6
  Net loss for the period from June
   6, 1997 through March 31, 1998...    --         --     (639,600)   (639,600)
                                     ------ ---------- -----------  ----------
Balance, March 31, 1998.............  6,000 $        6 $  (639,600) $ (639,594)
                                     ====== ========== ===========  ==========
The accompanying notes are an integral part of these financial statements.

                                      F-24
RSA COMMUNICATIONS, INC.

                            STATEMENT OF CASH FLOWS
Period from   Period from
                                                    April 1, 1997  June 6, 1997
                                       Year Ended      through       through
                                     March 31, 1997 June 5, 1997  March 31, 1998
                                     -------------- ------------- --------------
Cash flows from operations:
 Net loss..........................   $  (838,802)    $(508,243)   $  (639,600)
 Adjustments to reconcile net loss
  to net cash provided by operating
  activities:
  Depreciation.....................       285,215        65,243         23,241
  Amortization of negative
   goodwill........................           --            --         (50,458)
  Provision for doubtful accounts..           --            --          10,000
  Compensation related to stock
   appreciation rights.............           --            --       1,870,866
  Change in assets and liabilities:
   Accounts receivable.............     2,693,111       221,239     (1,032,200)
   Prepaids and other current
    assets.........................        47,747        64,061         (3,719)
   Receivable from parent..........    (1,757,186)      867,495            --
   Deferred income taxes...........           --            --        (481,795)
   Accounts payable................       180,727      (188,144)       225,906
   Accrued liabilities.............       234,019        16,250        693,792
   Deferred revenue................         7,502       (11,512)        12,000
                                      -----------     ---------    -----------
    Net cash provided by operating
     activities....................       852,333       526,389        628,033
Cash flows from investing
 activities:
 Acquisition of property and
  equipment........................      (626,728)     (204,786)      (133,544)
 Repayment of notes payable........      (500,000)          --             --
                                      -----------     ---------    -----------
    Net cash used by investing
     activities....................    (1,126,728)     (204,786)      (133,544)
Cash flows from financing
 activities:
 Issuance of common stock..........           --            --               6
                                      -----------     ---------    -----------
Net increase (decrease) in cash and
 cash equivalents..................      (274,395)      321,603        494,495
Cash and cash equivalents,
 beginning of period...............       280,779         6,384        327,987
                                      -----------     ---------    -----------
Cash and cash equivalents, end of
 period............................   $     6,384     $ 327,987    $   822,482
                                      ===========     =========    ===========
Supplemental cash flow information:
 Cash paid for income taxes........   $   126,500     $     --     $   572,157
                                      ===========     =========    ===========
The accompanying notes are an integral part of these financial statements.

                                      F-25
RSA COMMUNICATIONS, INC.

                         NOTES TO FINANCIAL STATEMENTS

1. Description of Business and Summary of Significant Accounting Policies

   RSA Communications, Inc. ("RSA") develops software applications and provides
custom engineering services to the communications industry by providing
systems-level design expertise for applications requiring embedded modem
technology. The Company utilizes proprietary firmware code modules for a wide
range of traditional, controllerless, and soft modem implementations from
single modem designs to complex, multiple-modem network applications.

Basis of Presentation

   Prior to June 6, 1997, RSA was a wholly-owned subsidiary of Pacific
Communications Sciences, Inc. ("PCSI"), which was a wholly-owned subsidiary of
Cirrus Logic, Inc. Effective June 6, 1997, RSA was acquired from PCSI by
Raleigh Communications, Inc., which was created for the sole purpose of
acquiring RSA. Immediately following the acquisition, Raleigh Communications,
Inc. was merged into RSA.

   The financial statements of RSA for the fiscal year ended March 31, 1997 and
the period from April 1, 1997 to June 5, 1997, represent the results of
operations and financial position of RSA on the historical cost basis of
accounting. The financial statements of RSA for the period subsequent to the
acquisition by Raleigh Communications, Inc. (June 6, 1997 to March 31, 1998)
reflect the impact on RSA's financial position and results of operations of the
purchase accounting adjustments discussed in Note 2.

Use of Estimates

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

Cash and Cash Equivalents

   RSA considers all highly liquid investments with a maturity of three months
or less at the time of purchase to be cash equivalents.

Significant Customers and Concentration of Credit Risk

   RSA operates in a very competitive industry that has been characterized by
rapid technological change, short product life cycles, cyclical market patterns
and heightened foreign and domestic competition. Significant technological
changes in the industry could affect operating results adversely.

   RSA markets and sells its software and consulting services to a narrow base
of customers. Sales to one customer comprised 69% of total revenues for the
fiscal year ended March 31, 1997. Sales to two customers comprised 54% and 18%
of total revenues for the period from June 6, 1997 to March 31, 1998. RSA
performs ongoing credit evaluations of its customers' financial condition and
generally does not require collateral. RSA maintains allowances for potential
losses, and such losses have been within management's expectations. At March
31, 1997 one customer accounted for 27% of total accounts receivable and a
second customer accounted for 22% of total accounts receivable. At March 31,
1998, one customer accounted for 65% of total accounts receivable and a second
customer accounted for 31% of total accounts receivable.

                                      F-26
RSA COMMUNICATIONS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

   RSA's cash and cash equivalents as of March 31, 1997 and 1998 are primarily
on deposit with one U.S. financial institution and may, at times, exceed
federal insured amounts.

Fair Value of Financial Instruments

   Carrying amounts of certain of RSA's financial instruments including cash
and cash equivalents, accounts receivable, accounts payable, accrued expenses
and other liabilities approximate fair value due to their short maturities.

Property and Equipment

   Property and equipment are stated at cost and depreciated on a straight-line
basis over the estimated useful lives of the related assets, generally two to
five years. Gains and losses upon asset disposal are taken into income in the
year of disposition.

Revenue Recognition

   Software license revenue is recognized upon delivery of the product if
collection is considered probable and remaining vendor obligations are
insignificant and do not exceed one year. An accrual for the estimated costs of
warranty and post-sale customer support is recorded upon delivery of the
related products. RSA does not offer extended support and maintenance services.

   RSA has adopted the requirements of Statement of Position ("SOP") 97-2,
"Software Revenue Recognition," for all contracts entered into after March 31,
1998. The adoption of SOP 97-2 is not expected to materially impact the
financial position or results of operations of RSA.

   RSA recognizes revenue from its consulting services using the completed
contract method of accounting. Provisions for anticipated losses are made in
the period in which they first become determinable.

Software Development Costs

   Software development costs are included in consulting and research and
development costs and are expensed as incurred. After technological feasibility
is established, software development costs are capitalized until the related
software products are available for general release. The capitalized cost is
then amortized on a straight-line basis over the estimated product life. RSA
has defined technological feasibility as the establishment of a working model
that typically occurs when beta testing commences. To date, RSA has not
capitalized any software development costs as the date at which technological
feasibility is achieved and the availability of the software products for
general release have substantially coincided.

Income Taxes

   RSA accounts for income taxes using the liability method whereby deferred
tax assets and liabilities are determined based on the differences between
financial reporting and tax bases of assets and liabilities, measured at tax
rates that will be in effect when the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.

Negative Goodwill

   Negative goodwill of $302,763 was recorded upon the acquisition of RSA by
Raleigh Communications, Inc. on June 6, 1997 (see Note 2). Negative goodwill is
amortized using the straight-line method over a period of five years.
Accumulated amortization of negative goodwill as of March 31, 1998 was $50,458.

                                      F-27
RSA COMMUNICATIONS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

2. Acquisition

   Effective June 6, 1997, all the outstanding common stock of RSA was acquired
from PCSI by Raleigh Communications, Inc. The acquisition was accounted for
using the purchase method of accounting with the result that the beginning
values of tangible and intangible assets and liabilities of RSA were recorded
based on their respective estimated fair values at the date of purchase.
However, as the entire purchase price of RSA was contingent upon certain future
events, the value of all intangible and long term assets were reduced to zero
and negative goodwill was recognized in the amount necessary to reduce net
assets to zero. The purchase price for RSA was as follows:

  (a) 50% of the gross proceeds from (i) the subsequent sale of all or
      substantially all of the stock or assets of RSA to a third party or
      (ii) a subsequent merger or other transfer of RSA with or into a third
      party, not to exceed $2,000,000.

  (b) 3% of the annual gross revenues of RSA in excess of $3,000,000. This
      section (b) does not apply after the payments called for in (a) are
      made to PCSI, or the promissory note (described below) is paid in full.

   In conjunction with this transaction, RSA entered into a promissory note
with PCSI with the principal sum being the amount determined in (a) above. The
principal amount will not exceed $2,000,000, bears no interest and is payable
in full at the time of closing of a sale or merger. The promissory note can
also be settled at any time prior to a sale or merger by payment of $2,000,000.
For financial reporting purposes this promissory note was not recorded at the
date of the acquisition due to the contingent nature of the sales price.

   A summary of the purchase accounting entry made on June 6, 1997 to record
assets and liabilities of RSA based on the purchase price paid by Raleigh
Communications, Inc. was as follows:
Cash and cash equivalents......................................... $ 327,987
   Accounts receivable...............................................    40,900
   Prepaids and other current assets.................................    15,322
   Accounts payable..................................................   (10,507)
   Accrued liabilities...............................................   (70,939)
   Negative goodwill.................................................  (302,763)
                                                                      ---------
                                                                      $     --
                                                                      =========
3. Accounts Receivable

   Accounts receivable consisted of the following at March 31, 1997 and 1998:
1997       1998
                                                          --------- -----------
Trade accounts receivable................................ $ 221,339 $ 1,073,100
Unbilled receivables.....................................    40,800         --
                                                          --------- -----------
                                                            262,139   1,073,100
Less: Allowance for doubtful accounts....................       --      (10,000)
                                                          --------- -----------
                                                          $ 262,139 $ 1,063,100
                                                          ========= ===========
F-28
RSA COMMUNICATIONS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

4. Property and Equipment

   Property and equipment consisted of the following at March 31, 1997 and
1998:
1997        1998
                                                         -----------  ---------
Office furniture and equipment.......................... $ 1,267,008  $   4,228
Computer software and equipment.........................   4,464,804    129,316
                                                         -----------  ---------
                                                           5,731,812    133,544
Less: Accumulated depreciation..........................  (4,666,262)   (23,241)
                                                         -----------  ---------
                                                         $ 1,065,550  $ 110,303
                                                         ===========  =========
5. Commitments

   RSA leases its office facilities and certain equipment under noncancelable
operating leases expiring through June 2000. Future minimum lease payments
under the noncancelable operating leases at March 31, 1998 were as follows:
1999............................... $ 121,500
            2000...............................   124,730
            2001...............................    21,044
                                                ---------
                                                $ 267,274
                                                =========
Rent expense for the fiscal year ended March 31, 1997 and for the period
from April 1, 1997 through June 5, 1997 was $566,599 and $118,286,
respectively.

   Rent expense for the period from June 6, 1997 through March 31, 1998 was
$89,261.

6. Stockholder's Equity

Stock Appreciation Rights

   The stock appreciation rights relate to RSA's phantom stock option plan
which was established in November 1997, to provide benefits to its employees
and consultants. At the commencement of the plan RSA authorized the issuance of
up to 6,000 phantom stock units ("PSU") under the plan. Each PSU consists of a
right to receive from RSA, upon the occurrence of a payment event, the same net
consideration as is received (1) for one share of common stock of RSA in a
merger with or into another corporation, (2) for one share of stock in a sale
of substantially all of the stock or assets of RSA, or (3) per share proceeds
from the liquidation of RSA. No payments will be made under the PSUs until a
payment event (described above) occurs. However, in the event of an initial
public offering, each PSU will immediately convert into one share of common
stock. In the event of termination of employment, either voluntarily or
involuntarily, prior to a payment event, the participant forfeits all rights
under the PSUs.

   During the period that the PSU is outstanding, the ultimate amount of
compensation inherent in the award is not determinable. APB No. 25, "Accounting
for Stock Issued to Employees" and FASB Interpretation No. 28 require interim
calculations of the amount of compensation inherent in the award (variable
accounting) if it is probable that the payment event will occur. This amount is
equal to the increase in the fair value of the stock since the date of the
award, multiplied by the total number of shares or units outstanding,
regardless of the exercisable status of the awards. At March 31, 1998, 3,875
PSUs, had been issued and were outstanding.

                                      F-29
RSA COMMUNICATIONS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

Estimated compensation expense recorded related to these PSUs was $1,870,866
for the period from June 6, 1997 through March 31, 1998 based on the estimated
purchase price of RSA by Virata Limited (see Note 9).

7. Income Taxes

   RSA's provision for income taxes consisted of the following:
Period from   Period from
                                                      April 1, 1997 June 6, 1997
                                           Year ended    through      through
                                           March 31,     June 5,     March 31,
                                              1997         1997         1998
                                           ---------- ------------- ------------
Current:
  Federal.................................  $    --       $--        $ 481,795
  State...................................       --        --           90,362
  Foreign Taxes...........................   126,500       --              --
                                            --------      ----       ---------
                                             126,500       --          572,157
                                            --------      ----       ---------
Deferred:
  Federal.................................       --        --         (481,795)
                                            --------      ----       ---------
  Income tax provision....................  $126,500      $--        $  90,362
                                            ========      ====       =========
RSA's effective tax differs from the statutory federal income tax as shown
in the following table:
Period from
                                           Year      Period from  June 6, 1997
                                           ended    April 1, 1997   through
                                         March 31,     through     March 31,
                                           1997     June 5, 1997      1998
                                         ---------  ------------- ------------
Statutory federal income tax benefit.... $(242,183)   $(176,803)   $(186,739)
State taxes, net of federal benefit.....   (21,512)     (12,846)     (28,335)
Goodwill................................     2,038        1,081      (17,157)
Nondeductible expenses..................   316,528      175,722       26,733
Change in valuation allowance...........    71,629       12,846      423,205
Research and development credit
 utilized...............................       --           --       (53,345)
Foreign tax credit utilized.............       --           --       (74,000)
                                         ---------    ---------    ---------
Income tax provision.................... $ 126,500    $     --     $  90,362
                                         =========    =========    =========
Temporary differences which give rise to significant portions of the
deferred tax assets were as follows at March 31, 1997 and 1998:
1997      1998
  Deferred tax assets:                                        -------  --------
Accrued compensation....................................... $   --   $901,500
  Net operating loss carryforwards...........................  14,215       --
  Accrued expenses...........................................  57,414     3,500
                                                              -------  --------
  Total deferred tax assets..................................  71,629   905,000
  Valuation allowance........................................ (71,629) (423,205)
                                                              =======  ========
  Net deferred tax assets.................................... $   --   $481,795
                                                              =======  ========
F-30
RSA COMMUNICATIONS, INC.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

   The deferred asset of $481,795 at March 31, 1998 was realized subsequent to
March 31, 1998 in the form of a net operating loss carryback from the
subsequent period. RSA has provided a valuation allowance against the remaining
deferred tax asset due to the uncertainty regarding realizability.

8. Related Party Transactions

   During the year ended March 31, 1997 and the period from April 1, 1997
through June 5, 1997, while owned by PCSI, RSA performed work for PCSI. The
expenses incurred for such work have been charged back to PCSI through
intercompany accounts. The amounts charged back are shown as a reduction of
expense in the accompanying statements of operations. For the year ended March
31, 1997 and the period from April 1, 1997 through June 5, 1997, engineering
and research and development have been reduced by $2,739,121 and $321,503,
respectively, for amounts charged back to PCSI. Selling, general and
administrative expenses include $841,974 and $124,734 of charge backs for the
year ended March 31, 1997 and the period from April 1, 1997 through June 5,
1997, respectively.

9. Subsequent Event

   In March 1998, RSA entered into an agreement to be acquired by Virata
Limited. The acquisition was consummated on July 17, 1998, on which date RSA
paid PCSI $2,039,191. This amount represented the $2,000,000 due under the
promissory note (see Note 2) and 3% of annual gross revenues in excess of
$3,000,000 for the period from June 6, 1997 through March 31, 1998 (see Note
2).

   On August 18, 1999 RSA changed its name from RSA Communications, Inc. to
Virata Raleigh Corporation.

                                      F-31
VIRATA CORPORATION

                    PRO FORMA COMBINED FINANCIAL INFORMATION
                                  (Unaudited)

   On July 17, 1998, the Company completed its acquisition of RSA in a
transaction accounted for as a purchase business combination. Under the
purchase method of accounting, the aggregate purchase price is required to be
allocated to the tangible and identifiable intangible assets acquired and
liabilities assumed on the basis of their fair values on the acquisition date.
The unaudited pro forma combined statement of operations is based on the
individual statement of operations of the Company for the fiscal year ended
March 31, 1999 and RSA for the period from April 1, 1998 to July 16, 1998.
RSA's operating results for the period from July 17, 1998 to March  31, 1999
are included in the Company's historical consolidated statement of operations
for the fiscal year ended March  31, 1999. Adjustments have been made to such
information to give effect to the acquisition of RSA, as if the acquisition had
occurred on April 1, 1998.

   The information has been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission and is provided for
comparative purposes only. The pro forma information does not purport to be
indicative of the results that actually would have occurred had the combination
been effected at the beginning of the periods presented.

                                      F-32
VIRATA CORPORATION

                   PRO FORMA COMBINED STATEMENT OF OPERATIONS
                                  (Unaudited)
                      (in thousands except per share data)
Year Ended March 31, 1999
                                   -------------------------------------------
                                    Virata     RSA     Adjustments   Pro Forma
                                   --------  --------  -----------   ---------
Revenues.........................  $  9,256  $    819    $  --       $  10,075
Cost of revenues.................     3,997       486       --           4,483
                                   --------  --------    ------      ---------
Gross profit.....................     5,259       333       --           5,592
Operating expenses:
  Research and development.......     8,323     1,353       --           9,676
  Sales and marketing............     2,917       371       --           3,288
  General and administrative.....     5,567       459       --           6,026
  Amortization of intangible
   assets........................       549       --        226 (A)        775
  Amortization of stock
   compensation..................     1,394       --        --           1,394
  Acquired in-process research
   and development...............     5,260       --        --           5,260
                                   --------  --------    ------      ---------
    Total operating expenses.....    24,010     2,183       226         26,419
                                   --------  --------    ------      ---------
Loss from operations.............   (18,751)   (1,850)     (226)       (20,827)
Interest expense.................      (155)      --        --            (155)
Interest and other income........     1,749         9       --           1,758
                                   --------  --------    ------      ---------
Net loss.........................  $(17,157) $ (1,841)   $ (226)     $ (19,224)
                                   ========  ========    ======      =========
Basic and diluted net loss per
 share...........................  $  (1.33)                         $   (1.44)
                                   ========                          =========
Weighted average common shares--
 basic and diluted...............    12,881                             13,321
                                   ========                          =========
Unaudited pro forma basic and
 diluted net loss per share (Note
 3)..............................  $  (0.21)                         $   (0.24)
                                   ========                          =========
Pro forma weighted average
 shares--basic and diluted.......    80,900                             81,612
                                   ========                          =========
F-33
VIRATA CORPORATION

               NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
                                  (Unaudited)

Note 1--Basis of Presentation

   In July 1998, the Company acquired RSA, a privately held company
specializing in analog modem software development.

   The unaudited combined pro forma information presented is not necessarily
indicative of the future consolidated results of operations of the Company or
the consolidated results of operations that would have resulted had the
acquisition taken place on April 1, 1998. The unaudited pro forma combined
statement of operations for the fiscal year ended March 31, 1999 reflects the
effects of the acquisition, assuming the related events occurred as of April
1, 1998 for the purposes of the unaudited pro forma statement of operations.

Note 2--Purchase Price Allocation:

   The unaudited pro forma combined financial statements reflect a total
purchase price of $9,275,000 consisting of 1,540,000 shares of the Company's
common stock valued at $1,417,000, 606,500 shares of Series D preferred
convertible stock valued at $668,000, 1,993,000 stock options valued at
$1,505,000, cash of $5,332,000 and acquisition related expenses of
approximately $353,000 consisting primarily of legal and other professional
fees. The company valued the options using the Black-Scholes option pricing
model, applying 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 $0.92.

   The valuation of the purchased 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 modem chips and replacement
cost method for software algorithm. The purchased in-process technology was
not considered to have reached technological feasibility and had no
alternative future use. Accordingly, the amount was charged to operations at
the date of acquisition.

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

   The Company's allocation of RSA's aggregate purchase price to the tangible
and identifiable intangible assets acquired in connection with this
acquisition were based on fair values as determined by independent appraisers.
The allocation is summarized below (in thousands):
In-process research and development.................................. $5,260
   Goodwill.............................................................  3,873
   Net assets...........................................................    142
                                                                         ------
     Total purchase price............................................... $9,275
                                                                         ======
Note 3--Unaudited Pro Forma Combined Net Loss Per Share

   The net loss per share and shares used in computing the net loss per share
for the fiscal year ended March 31, 1999 is based upon the historical weighted
average common shares outstanding. The Virata common stock issuable upon the
exercise of the stock options and warrants have been excluded as the effect
would be anti-dilutive. In addition to the shares used in computing the net
loss per share above, pro forma net loss per share is calculated using the
convertible preferred stock outstanding as if such shares were converted to
common stock at the time of issuance.

                                     F-34
VIRATA CORPORATION

         NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION--(Continued)
                                  (Unaudited)

   The 1,540,000 shares of common stock and the 606,500 shares of Series D
convertible preferred stock issued in connection with the purchase price of RSA
have been included in the calculation of pro forma basic and diluted net loss
per share for the fiscal year ended March 31, 1999 as follows in thousands:
Shares used in computing basic and diluted net loss per share.......  12,881
   Adjustment to reflect the assumed conversion of preferred stock.....  68,019
   Adjustment to reflect the assumed conversion of common stock issued
    in connection with the purchase of RSA.............................     440
   Adjustment to reflect the assumed conversion of Series D convertible
    preferred stock....................................................     272
                                                                         ------
   Shares used in computing pro forma basic and diluted net loss per
    share..............................................................  81,612
                                                                         ======
Note 4--Purchase Adjustments:

   The following adjustment was applied to the Company's historical financial
statements and those of RSA to arrive at the pro forma consolidated Statement
of Operations.

  (A) To record annual amortization of goodwill that is being amortized over
      the estimated period of benefit of five years.

                                      F-35
[VIRATA LOGO]
PART II

                    INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

   The following costs and expenses, other than underwriting discounts and
commissions, payable by the Registrant in connection with this offering. All
amounts are estimates except the SEC registration fee, the NASD filing fee and
the Nasdaq National Market listing fee.
SEC registration fee............................................. $13,900
      NASD fee.........................................................   5,500
      Nasdaq National Market listing fee...............................    *
      Printing and engraving costs.....................................    *
      Legal fees and expenses..........................................    *
      Accounting fees and expenses.....................................    *
      Blue Sky fees and expenses.......................................   3,000
      Transfer agent and registrar fees and expenses...................    *
      Miscellaneous....................................................    *
                                                                        -------
        Total.......................................................... $  *
                                                                        =======
--------
*  To be provided by amendment.

Item 14. Indemnification of Directors and Officers.

   Section 145 of the General Corporation Law of the State of Delaware
provides for the indemnification of officers and directors under certain
circumstances against expenses incurred in successfully defending against a
claim and authorizes Delaware corporations to indemnify their officers and
directors under certain circumstances against expenses and liabilities
incurred in legal proceedings involving such persons because of their being or
having been an officer or director. Article VIII of the Registrant's
Certificate of Incorporation and the Registrant's By-laws provide that all
persons who the Registrant is empowered to indemnify pursuant to the
provisions of Section 145 of the Delaware General Corporation Law (or any
similar provision or provisions of applicable law at the time in effect),
shall be indemnified by the Registrant to the full extent permitted thereby
except that no person shall be indemnified for any expenses or amounts paid
with respect to any action to recover short swing profits under Section 16(b)
of the Securities Exchange Act of 1934, as amended. The foregoing right of
indemnification shall not be deemed to be exclusive of any other rights to
which those seeking indemnification may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors, or otherwise. In
addition, the Registrant has entered into Indemnity Agreements with its
directors and certain of its officers.

   Section 102(b) of the Delaware General Corporation Law permits a
corporation, by so providing in its certificate of incorporation, to eliminate
or limit director's liability to the corporation and its stockholders for
monetary damages arising out of certain alleged breaches of their fiduciary
duty. Section 102(b)(7) provides that no such limitation of liability may
affect a director's liability with respect to any of the following: (i)
breaches of the director's duty of loyalty to the corporation or its
stockholders; (ii) acts or omissions not made in good faith or which involve
intentional misconduct of knowing violations of law; (iii) liability for
dividends paid or stock repurchased or redeemed in violation of the Delaware
General Corporation law; or (iv) any transaction from which the director
derived an improper personal benefit. Section 102(b)(7) does not authorize any
limitation on the ability of the corporation or its stockholders to obtain
injunction relief, specific performance or other equitable relief against
directors.

   Reference is made to the Underwriting Agreement, the proposed form of which
is filed as Exhibit 1.1, pursuant to which the underwriters agree to indemnify
the directors and certain officers of the Registrant and certain other persons
in certain circumstances.

                                     II-1
Item 15. Recent Sales of Unregistered Securities.

   During the past three fiscal years, we have issued securities of Virata
Limited as follows:

   Issuances of Ordinary Shares.

  .  In July 1997, we issued a warrant to purchase 75,000 ordinary shares in
     a private placement to Dr. Robert W. Wilmott at an exercise price per
     share of $0.08 in connection with consulting services provided to us;
     and

  .  In July 1998, we sold 1,540,000 ordinary shares in a private placement
     at a purchase price of $1.01 per share in connection with the
     acquisition of RSA Communications, Inc.; and

  .  We have issued an aggregate of 1,200,644 ordinary shares in connection
     with the exercise of options by our employees.

   Issuances of Preferred Stock.

  .  In May 1996, we sold 5,127,485 Series B preference shares in a private
     placement at a purchase price of (Pounds)0.70 per share;

  .  In June 1996, we sold 6,666,667 Series C preference shares in a private
     placement at a purchase price of $1.50 per share;

  .  In October 1996, we issued a warrant to purchase 61,705 Series C
     preference shares in a private placement to Comdisco Ventures at an
     exercise price per share of $1.50 in connection with an equipment
     financing;

  .  In September 1997, we issued a warrant to purchase 8,000 Series C
     preference shares in a private placement to Comdisco Ventures at an
     exercise price per share of $1.50 in connection with an equipment
     financing;

  .  In December 1997, we issued a warrant to purchase 35,294 Series C
     preference shares in a private placement to Venture Lending, a division
     of Cupertino National Bank and Trust, at an exercise price per share of
     $1.70 in connection with a bank facility; in June 1998, this warrant
     automatically converted into a warrant to purchase 35,294 Series D
     preference shares at an exercise price per share of $1.70;

  .  In December 1997 and January 1998, we issued an aggregate amount of
     $2,642,980 of bridge notes that were convertible into our Series D
     preference shares.

  .  In March 1998 we issued a bridge note to Index Securities S.A. in the
     amount of $700,000 that was convertible into our Series D preference
     shares.

  .  In June 1998, we sold 24,780,934 Series D preference shares in a private
     placement at a purchase price of $1.10 per share;

  .  In June 1998, we issued 3,039,073 Series D preference shares in a
     private placement at a purchase price of $1.10 per share in connection
     with the conversion of bridge notes held by certain of our stockholders;

  .  In June 1998, we issued 15,123,062 Series D preference shares in a
     private placement at a purchase price of $1.10 per share in connection
     with the conversion of 12,460,150 Series B preference shares and
     2,000,000 Series C preference shares,

  .  In June 1998, we sold 606,500 Series D preference shares in a private
     placement at a purchase price of $1.10 per share in connection with the
     acquisition of RSA Communications, Inc.;

  .  In June 1998, we issued warrants to purchase an aggregate of 1,595,054
     Series D Preference Shares for $1.10 per share to Index Securities S.A.
     in connection with its acting as placement agent in our Series D
     preference share financing;

                                     II-2
.  In June 1998, we sold 18,182 Series D preference shares to Andrew Hopper
     in a private placement in exchange for Mr. Hopper serving on our
     technology advisory board;

  .  In September 1998, we issued a warrant to purchase 109,091 Series D
     preference shares in a private placement to Comdisco Ventures at an
     exercise price per share of $1.10 in connection with an equipment
     financing; and

  .  In May 1999, we issued a warrant to purchase 54,545 Series D preference
     shares in a private placement to Comdisco Ventures at an exercise price
     per share of $1.10 in connection with an equipment financing.

   The issuance and sale of the above securities were exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act
or Regulation D or Regulation S promulgated thereunder. The recipients of
securities in each such transaction represented their intentions to acquire
the securities for investment only and now with a view to or for sale in
connection with any distribution thereof, and appropriate legends were affixed
to the share certificates issued in such transactions. All recipients had
adequate access to information about the Registrant.

   Immediately prior to the consummation of this offering, all of the
outstanding ordinary and preference shares of Virata Limited will be
cancelled, new ordinary shares of Virata Limited will be issued to Virata
Corporation and shares of common stock of Virata Corporation will be issued to
the former shareholders of Virata Limited. These transactions will take place
immediately prior to the consummation of this offering and will be effected
pursuant to a share reconstruction under Section 425 of the United Kingdom
Companies Act of 1985. Any securities that are convertible or exercisable into
ordinary shares or preference shares of Virata Limited will become convertible
or exercisable into shares of one common stock upon consummation of the share
reconstruction.

Item 16. Exhibits

   (a) Exhibits
Exhibit
 Number                             Description                            Page
 -------                            -----------                            ----
1.1    Form of Underwriting Agreement..................................
  3.1    Certificate of Incorporation of the Registrant..................
  3.2    Bylaws of the Registrant........................................
  4.1    Specimen form of Registrant's Common Stock Certificate*.........
  5.1    Opinion of Gibson, Dunn & Crutcher LLP*.........................
 10.1    Agreement with Gaz et Eaux and Board with respect to Board of
         Directors and other shareholder rights+.........................
 10.2    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+................
 10.3    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................
 10.4    Form 1 of 1998 Stock Incentive Plan Agreement of Virata
         Limited.........................................................
 10.5    Form 2 of 1998 Stock Incentive Plan Agreement of Virata
         Limited.........................................................
 10.6    Form of 1998 Nonqualified Stock Option Plan Agreement of Virata
         Limited.........................................................
 10.7    Warrant Agreement between Virata Limited and Index Securities,
         S.A., dated as of June 4, 1998+.................................
 10.8    Form of Warrant between Virata Limited and Comdisco, Inc........
 10.9    Lease between WHC-SIX Real Estate Limited Partnership and
         Advanced Telecommunications Modules, Inc., a California
         corporation, dated June 26, 1996+...............................
II-3
Exhibit
 Number                             Description                             Page
 -------                            -----------                             ----
10.10   Lease Agreement between Lake Partners, L.L.C. and RSA
         Communications, Inc., dated as of July 1, 1998*.................
 10.11   Lease between Universities Superannuation Scheme Limited and
         Advanced Telecommunications Modules Limited, dated 1994*........
 10.12   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+............................................
 10.13   Lease between Virata Limited and Comdisco, Inc., dated September
         30, 1996+.......................................................
 10.14   Loan and Security Agreement among Venture Banking Group, Virata
         Santa Clara Corporation and Virata Raleigh Corporation, dated as
         of August 27, 1999..............................................
 10.15   Collateral Assignment, Patent Mortgage and Security Agreement
         between Virata Ltd. and Venture Banking Group, dated as of
         August 27, 1999.................................................
 10.16   Agreement between ARM Limited and Virata Ltd., dated June 2,
         1999+++.........................................................
 10.17   Amendment No. 1 to License and Technical Co-Operation Agreement
         for ATM Technology between Ing. C. Olivetti & C., S.p.A. and
         Advanced Telecommunication Modules Limited, dated September 19,
         1994............................................................
 10.18   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......
 10.19   Settlement Agreement between Virata Limited and Cirrus Logic,
         Inc., a California corporation, dated as of June 19, 1998+......
 10.20   Development, Production, Supply and License Agreement between
         Advanced Telecommunications Modules Limited and Symbios
         Incorporated, a Delaware corporation, dated as of August 16,
         1997+...........................................................
 10.21   Form of 1999 Stock Incentive Plan...............................
 10.22   1999 Employee Stock Purchase Plan*..............................
 10.23   Form of Indemnity Agreement.....................................
 10.24   Employment Agreement--Charles Cotton............................
 10.25   Employment Agreement--Michael Gulett............................
 10.26   Employment Agreement--Andrew Vought.............................
 10.27   Employment Agreement--Martin Jackson............................
 10.28   Employment Agreement--Thomas Cooper.............................
 10.29   Form of Registration Rights Agreement*..........................
 10.30   Form of Non-Employee Director Plan*.............................
 21.1    List of Subsidiaries of Virata Corporation......................
 23.1    Independent Auditors' Consent from PricewaterhouseCoopers LLP
         regarding Virata Corporation....................................
 23.2    Independent Auditors' Consent from PricewaterhouseCoopers LLP
         regarding RSA Communications, Inc...............................
 23.3    Consent of Gibson, Dunn & Crutcher LLP (to be included in their
         opinion filed as Exhibit 5.1)*..................................
 24.1    Power of Attorney (see signature page)..........................
 27.1    Financial Data Schedule.........................................
--------
*  To be filed by amendment.
+  To be filed without Schedules.
++ Confidential treatment has been requested for selected sections of this
   exhibit.

                                      II-4
(b) Financial Statement Schedule

   The following financial statement schedule is filed with Part II of this
Registration Statement:

     Schedule of valuation and qualifying accounts and reserves

   Schedules not listed above for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under applicable instructions or are inapplicable and therefore have
been omitted.

Item 17. Undertakings.

   The Registrant hereby undertakes to the underwriters at the closing
specified in the underwriting agreement to provide certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

   Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the Delaware
General Corporation Law, the Registrant's Amended Certificate of
Incorporation, the Registrant's Bylaws, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act,
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

   The undersigned Registrant hereby undertakes that:

      (i) For purposes of determining any liability under the Securities Act,
  the information omitted from the form of prospectus filed as part of this
  Registration Statement in reliance upon Rule 430A and contained in a form
  of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
  497(h) under the Act is part of this Registration Statement as of the time
  it was declared effective.

       (ii) For the purpose of determining any liability under the Securities
  Act of 1933, each post-effective amendment that contains a form of
  prospectus shall be deemed to be a new registration statement for the
  securities offered therein, and the offering of such securities at that
  time shall be deemed to be the initial bona fide offering thereof.

                                     II-5
SIGNATURES

   Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Palo
Alto, State of California, on the 3rd day of September, 1999.

                                          VIRATA CORPORATION

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

   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 (including post-effective
amendments) to this Registration Statement, and any and all Registration
Statements filed pursuant to Section 462 of the Securities Act of 1933, as
amended, 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 Act of 1933, as amended,
this Registration Statement on Form S-1 has been signed below by the following
persons in the capacities and on the dates indicated:
Signature                                Title                         Date
             ---------                                -----                         ----
/s/ Charles Cotton                                                    September 3, 1999
 ___________________________________ Chief Executive Officer and Director
           Charles Cotton             (Principal Executive Officer)

         /s/ Andrew Vought           Senior Vice President, Finance and       September 3, 1999
 ___________________________________  Operations (Principal Financial Officer
            Andrew Vought             and Principal Accounting Officer)

      /s/ Dr. Hermann Hauser         Chairman of the Board                    September 3, 1999
 ___________________________________
         Dr. Hermann Hauser

         /s/ Bandel Carano           Director                                 September 3, 1999
 ___________________________________
            Bandel Carano

         /s/ Peter Morris            Director                                 September 3, 1999
 ___________________________________
Peter Morris

                                     II-6
REPORT OF INDEPENDENT ACCOUNTANTSON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and
Stockholders of Virata Corporation

   In connection with our audits of the financial statements of Virata
Corporation as of March 31, 1998 and 1999, and for each of the three years in
the period ended March 31, 1999, which financial statements are included in the
Prospectus, we have also audited the financial statement schedule listed in
Item 16(b) herein. In our opinion, this financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included herein.

/s/ PricewaterhouseCoopers LLP

San Jose, California
August 20, 1999
SCHEDULE II

                               VIRATA CORPORATION

                        VALUATION AND QUALIFYING ACCOUNT
Balance at Charged to            Balance at
                                    Beginning  Costs and               End of
Description                         of Period   Expenses  Deductions   Period
-----------                         ---------- ---------- ---------- ----------
                                                  (in thousands)
Allowance for doubtful accounts
  Year ended March 31, 1997........   $  602     $  111     $ --       $  713
  Year ended March 31, 1998........      713      1,075       221       1,567
  Year ended March 31, 1999........    1,567      1,458       283       2,742
S-2
REPORT OF INDEPENDENT ACCOUNTANTSON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and
Stockholders of Virata Corporation

   In connection with our audits of the financial statements of Virata
Corporation as of March 31, 1998 and 1999, and for each of the three years in
the period ended March 31, 1999, which financial statements are included in the
Prospectus, we have also audited the financial statement schedule listed in
Item 16(b) herein. In our opinion, this financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included herein.

/s/ PricewaterhouseCoopers LLP

San Jose, California
August 20, 1999

                                      S-3
EXHIBIT INDEX
Exhibit
 Number                             Description                             Page
 -------                            -----------                             ----
1.1    Form of Underwriting Agreement..................................
  3.1    Certificate of Incorporation of the Registrant..................
  3.2    Bylaws of the Registrant........................................
  4.1    Specimen form of Registrant's Common Stock Certificate*.........
  5.1    Opinion of Gibson, Dunn & Crutcher LLP*.........................
 10.1    Agreement with Gaz et Eaux and Board with respect to Board of
         Directors and other shareholder rights+.........................
 10.2    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+................
 10.3    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................
 10.4    Form 1 of 1998 Stock Incentive Plan Agreement of Virata
         Limited.........................................................
 10.5    Form 2 of 1998 Stock Incentive Plan Agreement of Virata
         Limited.........................................................
 10.6    Form of 1998 Nonqualified Stock Option Plan Agreement of Virata
         Limited.........................................................
 10.7    Warrant Agreement between Virata Limited and Index Securities,
         S.A., dated as of June 4, 1998+.................................
 10.8    Form of Warrant between Virata Limited and Comdisco, Inc.+......
 10.9    Lease between WHC-SIX Real Estate Limited Partnership and
         Advanced Telecommunications Modules, Inc., a California
         corporation, dated June 26, 1996+...............................
 10.10   Lease Agreement between Lake Partners, L.L.C. and RSA
         Communications, Inc., dated as of July 1, 1998*.................
 10.11   Lease between Universities Superannuation Scheme Limited and
         Advanced Telecommunications Modules Limited, dated 1994*........
 10.12   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+............................................
 10.13   Lease between Virata Limited and Comdisco, Inc., dated September
         30, 1996+.......................................................
 10.14   Loan and Security Agreement among Venture Banking Group, Virata
         Santa Clara Corporation and Virata Raleigh Corporation, dated as
         of August 27, 1999..............................................
 10.15   Collateral Assignment, Patent Mortgage and Security Agreement
         between Virata Ltd. and Venture Banking Group, dated as of
         August 27, 1999.................................................
 10.16   Agreement between ARM Limited and Virata Ltd., dated June 2,
         1999+++.........................................................
 10.17   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............................................................
 10.18   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......
 10.19   Settlement Agreement between Virata Limited and Cirrus Logic,
         Inc., a California corporation, dated as of June 19, 1998+......
 10.20   Development, Production, Supply and License Agreement between
         Advanced Telecommunications Modules Limited and Symbios
         Incorporated, a Delaware corporation, dated as of August 16,
         1997+...........................................................
 10.21   Form of 1999 Stock Incentive Plan...............................
 10.22   1999 Employee Stock Purchase Plan*..............................
 10.23   Form of Indemnity Agreement.....................................
EXHIBIT INDEX
Exhibit
 Number                            Description                             Page
 -------                           -----------                             ----
10.24   Employment Agreement--Charles Cotton...........................
 10.25   Employment Agreement--Michael Gulett...........................
 10.26   Employment Agreement--Andrew Vought............................
 10.27   Employment Agreement--Martin Jackson...........................
 10.28   Employment Agreement--Thomas Cooper............................
 10.29   Form of Registration Rights Agreement*.........................
 10.30   Form of Non-Employee Director Plan*............................
 21.1    List of Subsidiaries of Virata Corporation.....................
 23.1    Independent Auditors' Consent from PricewaterhouseCoopers LLP
         regarding Virata Corporation...................................
 23.2    Independent Auditors' Consent from PricewaterhouseCoopers LLP
         regarding RSA Communications, Inc..............................
 23.3    Consent of Gibson, Dunn & Crutcher LLP (to be included in their
         opinion filed as Exhibit 5.1)*.................................
 24.1    Power of Attorney (see signature page).........................
 27.1    Financial Data Schedule........................................
--------
*  To be filed by amendment.
+  To be filed without Schedules.
++ Confidential treatment has been requested for selected sections of this
   exhibit.