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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

For the fiscal year ended September 30, 2001

For the transition period from                           to                          .

Commission file number 000-31089

Virage Logic Corporation

(Exact name of registrant as specified in its charter)

DELAWARE (State or other jurisdiction of Incorporation or organization)		77-0416232 (I.R.S. Employer Identification Number)

46501 Landing Parkway, Fremont, California 94538
(Address of principal executive offices)

Registrants’ telephone number, including area code: (510) 360-8000

Securities registered pursuant to section 12(b) of the Act:
None

Securities registered pursuant to section 12(g) of the Act:
Common stock, $.001 Par Value
(Title of class)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No

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

     Aggregate market value of the registrant’s common stock held by non-affiliates of the Registrant as of November 30, 2001 was approximately $162 million based upon the closing price reported for such date on the Nasdaq National market. For purposes of this disclosure, shares of common stock held by persons who hold more than 5% of the outstanding shares of common stock and shares held by officers and directors of the Registrant have been excluded because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

     The number of shares of the registrant’s Common Stock outstanding as of November 30, 2001 was 20,109,200.

Documents incorporated by reference

     Portions of the registrant’s proxy statement for its 2002 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K.

Table of Contents

Virage Logic Corporation

Index to

Annual Report on Form 10-K

For Year Ended September 30, 2001

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PART I

Item 1.  Business

General

     Virage Logic Corporation provides embedded memory in the form of semiconductor intellectual property for systems-on-a-chip (SOC) integrated circuits that power today’s Internet and high-speed communications, computer and consumer products, such as cellular and digital phones, pagers, digital cameras, DVD players, switches and modems. Our semiconductor intellectual property consists of (1) embedded memories, (2) compilers that allow chip designers to configure our memories into different sizes and shapes on a single silicon chip, (3) memory test processor and fuse box components for embedded test and repair of defective memory cells, and (4) software development tools that can be used to build memory compilers. We also provide custom memory design services. Our customers include leading fabless semiconductor companies such as ATI Technologies, AMCC (MMC Networks), Broadcom, Intel (Level One), PMC-Sierra, TranSwitch and Vitesse Semiconductor and leading integrated device manufacturers such as Agere, Conexant, Ericsson, IBM, Philips Electronics, STMicroelectronics and Toshiba.

     We develop our memories and compilers to comply with the manufacturing processes used to create the silicon chips for our customers’ products. For our integrated device manufacturer customers, we develop our products to comply with the processes used by their internal manufacturing facilities. For our fabless semiconductor customers, we develop our products to comply with the processes of the third-party semiconductor manufacturing facilities, or foundries, that these companies rely on to manufacture the silicon chips for their products. We also pre-test our products before their release on the market by having actual chips containing our memories produced by third party foundries, so that we can provide our customers with test data and assurance that chips produced using our intellectual property will be manufacturable. As a result, our intellectual property enables our customers to shorten the design time of new product development. Our products are certified for production by several of the leading third-party foundries used by fabless semiconductor companies, such as Taiwan Semiconductor Manufacturing Company, or TSMC, United Microelectronics Company, or UMC, and Chartered Semiconductor Manufacturing, or Chartered.

Industry Background

     The growth of the Internet and the development of optical and wireless communications infrastructure are creating demand for communications equipment and digital appliances that can utilize the increases in available bandwidths. The system designers of these products are seeking technologies that will permit them to decrease the size and enhance the performance of their products. In response to this demand, semiconductor companies have developed technologies that permit entire electronic systems, including the microprocessor, communications, logic, graphics and memory elements, to be contained on a single silicon chip, called a system-on-a-chip, rather than on a circuit board.

     System-on-a-chip design depends upon the reliable integration of the various components of the chip. Each component must comply with the manufacturing standards of the manufacturing facility that will produce the chip. Since different technical expertise and intellectual property is required for each component of a system-on-a-chip, it is difficult for many companies to develop the intellectual property needed for these components internally. The designers of products that use systems-on-a-chip are facing increased market pressure to rapidly introduce new products, which shortens the time available for research and development. Accordingly, many semiconductor companies are increasingly relying on external sources for the technical expertise and intellectual property for various components of their system-on-a-chip designs. The use of proven third-party intellectual property components allows semiconductor companies to meet market pressures while continuing to focus on the components of the system-on-a-chip that constitute their core competencies. According to a report entitled “The Semiconductor IP Market: Onward and Upward?” by the Gartner Dataquest, independent market research firm, the worldwide IP (intellectual property) market is expected to grow from $700 million in 2000 to $3 billion by 2005.

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     The demand for high-performance computing and communications applications and the availability of increased bandwidth for Internet applications has made memory critical to the operation of systems-on-a-chip used for these applications. Historically, integrated circuit designs were dominated by the logic function, while memory storage was usually provided in separate, external devices. In order to achieve increased speeds, chip designs now require closer physical proximity between the logic and memory functions and require more customized memory functions. The need for this proximity, as well as advances in semiconductor technology and the ability to customize the size and configuration of memory functions within a system-on-a-chip, are creating increased demand for embedded memory. It is now common for a system-on-a-chip to contain many memories with different functions configured in different sizes and shapes to optimize the area of the chip. We estimate that memory functions typically comprise between 30-50% of the chip area in a system-on-a-chip design and believe that this percentage will increase with the growth of memory-intensive applications. According to the Semiconductor Industry Association and International Technical Rescue Symposium 2001, embedded memory will continue to dominate SOC content in the next several years, approaching 94% of the die area by 2014.

     Semiconductor companies face significant challenges designing high-performance memories for their system-on-a-chip devices. Due to continuing advancements in the semiconductor manufacturing processes, new designs have generally been required every one to two years. The internal design teams of semiconductor companies typically lack the dedicated resources necessary to keep pace with rapidly evolving memory designs. Suppliers of stand-alone memories for personal computers and other devices that include memory as a separate element on a circuit board often lack the design expertise and software tools necessary to provide custom high-performance memory for system-on-a-chip designs. Similarly, suppliers of the other components of systems-on-a-chip generally lack the focus and expertise necessary to provide high-performance memories. These factors have created a market need for third-party providers of highly reliable, high performance memory intellectual property for system-on-a-chip design.

The Virage Logic Solution

     We provide intellectual property for high-performance memories used in systems-on-a-chip, as well as software development tools and custom memory design services. We offer customers embedded memories that are optimized for area, low power consumption and speed and that are available for the manufacturing processes of leading third party semiconductor foundries. Key benefits of our solution include:

	•		Memory Design Expertise. Our memory design expertise allows us to provide our customers with leading-edge memory technologies for advanced manufacturing processes. We have assembled a global team of over 150 engineers focused exclusively on memory design. This team includes senior level engineers with significant expertise in various types of memory design, including SRAM, DRAM, Flash and EPROM.
	•		Broad Product Line. We offer multiple types of memory and compilers for advanced 0.25 micron, 0.18 micron, 0.15 micron and 0.13 micron processes and are currently introducing embedded memories on the 0.10 micron process. Our compilers allow our customers to generate the exact configuration of embedded memory needed for their system-on-a-chip designs.
	•		Manufacturing-Tested Solutions. Each of our embedded memories has been customized, verified and tested for a particular manufacturing process on a silicon chip, or silicon-proven, before being delivered to a customer. This verification substantially reduces the risk that the memory element will be defective and the costly development delays customers might experience from using in-house or other third-party designs that are not silicon-proven. Our memories have been implemented by over 115 customers and in foundries that comprise over 90% of the third-party foundry market.
	•		Significant Design-Time Advantages. We offer silicon-proven memories that comply with the standards for specific manufacturing processes. Our memories and software tools can be easily integrated into our customers’ system-on-a-chip design processes. By eliminating the need to design specific embedded memories, our customers can shorten the design time for their systems-on-a-chip.
	•		High-Density, High-Performance and Ultra-Low Power Consumption Embedded Memories. We have continued introducing additions to our memory compilers for our ASAP, or area, speed and power, embedded memory compilers that enable the generation of high-density,

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			high-speed and ultra-low power consumption embedded memories in multiple configurations. These technologies have been developed using custom memory design techniques to achieve industry-leading results in area, speed and power consumption.
	•		Redundancy, Embedded Test and Repair. We have recently introduced the STAR Memory System, the first embedded memory product that allows design engineers to economically embed multiple megabits of SRAM into a system-on-a-chip. The system includes one or more STAR SRAM memory blocks, a STAR Processor and a STAR Fuse Box. The STAR SRAM comes with redundant locations, the STAR Processor decides how to test and repair defective SRAMs and the STAR Fuse Box stores the repair information. The integrated test and repair capability is intended to enable our customers to achieve higher yields of semiconductors. We believe that when implemented by our customers in their production, these potentially higher yields may be able to save millions of dollars in recovered silicon and other raw materials, substantially reduce test costs and enable faster time to volume.
	•		Ease of Integration. We provide a complete set of software development tools to facilitate the integration of our memories with the other elements of a system-on-a-chip design.

The Virage Logic Strategy

     Our objective is to be the leading supplier of embedded memory intellectual property, software development tools and memory design service support to semiconductor companies for their complex system-on-a-chip designs. Key elements of our strategy include the following:

	•		Utilize and Develop Endorsements of Leading Third-Party Semiconductor Manufacturers for Our Memories. We work with leading third-party foundries to qualify our memories for high-volume production in their manufacturing processes. In this manner, we are in a position to provide embedded memories and compilers that are silicon-proven for a specific foundry’s manufacturing process directly to that foundry’s entire customer base. Our close associations with these foundries also gives us early access to process information for advanced processes thereby enabling us to be the first to market products on smaller geometries.
	•		Become a Preferred Supplier to the Leading Fabless Semiconductor Companies. Fabless semiconductor companies, or semiconductor companies that do not manufacture their own silicon chips, spend substantial sums of money purchasing memory elements to incorporate in their chips. Since these companies lack the time and resources to internally develop embedded memories, which are outside of their core competencies, they license memory intellectual property from us. To date, we have licensed our intellectual property to many fabless semiconductor companies including ATI Technologies, AMCC (MMC Networks), Broadcom, Conexant, Intel (Level One), PMC-Sierra, TranSwitch and Vitesse Semiconductor. We intend to continue to target the fabless semiconductor companies that produce the largest number of chips, because we receive royalty payments based on levels of production from the foundries that manufacture chips for our fabless customers.
	•		Increase our Base of Integrated Device Manufacturer Customers. Integrated device manufacturers (IDM) produce the largest number of integrated circuits and face significant cost and product differentiation challenges. The internal memory design teams of these companies are facing difficulties keeping pace with the increasing demand for, and proliferation of, embedded memory technologies and the rapid innovation of these technologies for advanced manufacturing processes. To date, we have licensed our intellectual property to many leading integrated device manufacturers including Agere, Ericsson, Hitachi, IBM, Matsushita, Motorola, OKI, Philips Electronics, STMicroelectronics and Toshiba. In addition, several IDMs are aligning their internal design flows with leading fabless semiconductor companies and outsourcing semiconductor intellectual property for SOCs to be produced at both the third party foundries and their own internal foundries. These types of relationships will broaden our market for standard products pre-silicon proven which are designed for the leading third party foundries. We intend to build upon our ability to reduce these customers’ design time to further attract integrated device manufacturer customers.
	•		Continue to Innovate Existing Technologies for Advanced Manufacturing Processes. As the semiconductor manufacturers develop advanced manufacturing processes that enable increasing density and speed as well as lower power consumption, we intend to lead the market for embedded memories designed for those processes.

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			We believe that we have achieved the critical mass of memory designers necessary to be first to market with embedded memories for advanced manufacturing processes. We have designed embedded memories for the 0.25 micron, 0.18 micron, 0.15 micron and 0.13 micron processes and are currently introducing embedded memories on the 0.10 micron process.
	•		Continue to solve manufacturing and yield issues facing high-density, multi-megabit SOCs. We introduced the industry’s first embedded memory product that allows design engineers to economically embed multiple megabits of SRAM into a SOC. The integrated test and repair capability ensures higher yielding semiconductors and can potentially save millions of dollars in recovered silicon, substantially reduce test costs and enable faster time to volume. Embedded memory test and repair can take place either in the factory during the wafer probe process or in the field while the SOC is used in the end product.
	•		Expand our Research and Development Efforts. We intend to work with our development partners to define the focus of our research and development activities to best address the needs of our customers. Our development partners include TSMC, UMC and Chartered. We also intend to focus on developing new memory architectures to support the convergence between computers, consumer products and communications markets.
	•		Expand Distribution Channels. We intend to expand our existing distribution channels by continuing to hire direct sales force members in our European sales office based in the United Kingdom and other European countries (Germany and Israel) and increasing our direct sales force in North America (including Canada). In Asia we continue to distribute our products through well-established independent distributors. We also intend to continue developing partnerships with value added resellers, or VARs, and other distributors of intellectual property through our Memory Alliance Program (MAP) to leverage their extensive U.S. and international sales organizations.

Our Products

     We offer a wide range of memory intellectual property to semiconductor companies including:

	•		embedded memories;
	•		compilers that can generate multiple configurations of a single type of embedded memory in a system design;
	•		memory test processor and fuse box components for embedded test and repair of defective memory cells;
	•		software development tools that can be used to build memory compilers; and
	•		custom design services.

     Our Embedded Memories. We provide embedded memories in predetermined shapes, sizes and types that can be incorporated by semiconductor designers into their system-on-a-chip designs. We deliver our memories to our customers through downloads from secure servers or on computer disks in a form that can be integrated directly into the design of the system-on-a-chip.

     Our Embedded Memory Compilers. A compiler is a software program that allows semiconductor designers to configure memories to the desired specifications for their system-on-a-chip designs. Our compiler products include:

•

Custom-Touch™ ASAP. These compilers are optimized for high density, high performance and low-power consumption and can generate memories up to 512 kilobits in size. ASAP is available in as many as nine different memory types including single- or dual-port register file, single- or dual-port SRAM, synchronous or asynchronous SRAM and ROM.

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	•		Custom-Touch NetCAM. Our content-addressable memory, or CAM, compilers can be used in routers, switches and other high-bandwidth Internet infrastructure equipment to accelerate hardware-based searches. These high-speed ternary and binary CAMs are key enablers in moving traffic through a network.
	•		Custom-Touch STAR™ Memory System. The system allows the designer to embed multiple megabits of SRAM into a SOC economically without sacrificing yield and manufacturability. The system includes one or more STAR SRAM blocks, a STAR Processor and a STAR Fuse Box. These memories are optimized for area, incorporate self-test and repair capabilities and can generate up to four megabits of embedded memory. This technology is currently available for all leading third party foundries on the 0.18 micron and 0.13 micron processes.
	•		Custom-Touch 1T-SRAM. These compilers use very dense memory cells and can generate up to eight megabits of embedded memory. These memories are available on TSMC’s 0.18 micron process technology.

     Our Software Development Tools. Our primary software development tool is Embed-It!® Architect, which allows semiconductor design companies to develop their own compilers with re-characterization capabilities. We also provide a software tool called Embed-It! Integrator with each of our compilers to facilitate the design of multiple memory configurations within a system-on-a-chip. We may also license Embed-It! Integrator with Embed-It! Architect.

     Our Custom Design Services. We offer custom memory design services for companies that require special configurations or functionality not supported by our compilers. This has led to a number of innovations and new technologies, such as our Custom-Touch NetCAM technology.

Markets and Applications

     We target markets that utilize system-on-a-chip technologies with large memory requirements and high-performance, low-power architectures. Examples of the markets and applications in which our memories are implemented include:

	•		Communications and Internet Infrastructure. Communications systems-on-a-chip are used throughout the Internet, including in routers, switches, DSL modems, gigabit ethernet equipment and high-bandwidth set-top boxes.
	•		Digital Appliances. Digital appliances increasingly require more functionality, Internet connectivity and low-power consumption. Our memories can be found in video game players, mobile phones, pagers, digital cameras, high-definition televisions, cable set-top boxes and DVD players.
	•		Computers. Computation equipment such as personal computers, workstations and servers require more complex chip sets and embedded memory to achieve new features such as advanced 3D graphics and digital signal processing, or DSP.

Research and Development

     We believe that our future success will depend in large part on our ability to continue developing new products and innovating our existing products for advanced manufacturing processes. To this end, we have assembled a team of engineers with significant experience in the design and development of embedded memories. Currently, we are focusing our research and development efforts on developing memories that support the latest manufacturing process: 0.10 micron. We are also developing new memory architectures to support the emerging communications markets and the convergence between these markets and the computer and consumer products markets.

     We have a license agreement with Credence and its wholly-owned subsidiary, Fluence Technology, under which we license from Fluence memory built-in self test logic for integration into our compilers. In exchange for this license, we have granted warrants to purchase 50,000 shares of common stock to Credence and its affiliates. In addition, we will pay Fluence Technology royalties on sales of our products that incorporate their technology.

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     We have entered into agreements with TSMC, UMC and Chartered relating to the development and license of our memories and compilers for each of these foundry’s design rules.

     Under our agreements with TSMC, we developed memory compilers for certain TSMC manufacturing processes, including the Custom-Touch STAR Memory System for TSMC’s 0.18 micron and 0.13 micron processes. Each party will own its own intellectual property, and both parties will jointly own any jointly-developed intellectual property. Following development, we will license the developed technologies to third parties that manufacture their silicon chips at TSMC. In exchange for our development, TSMC pays us licensing fees, as well as royalties based on silicon chips manufactured at TSMC using our memories. In addition, both TSMC and we agree to promote these technologies.

     Our agreement with UMC is similar to our agreement with TSMC. UMC pays us license fees as well as royalties based on revenues from third parties that manufacture silicon chips containing our memories at UMC.

     Our agreement with Chartered relates to the ongoing establishment of a joint marketing and test chip and silicon verification program for memories developed for Chartered’s design rules. Under this agreement, Chartered agrees to provide us with test chip layout, test plans and test rules to assist in our design of test chips and silicon verification for their manufacturing processes. Chartered pays us royalties based on silicon chips manufactured at Chartered using our memories. Currently, these royalties have not been material and we do not expect them to be material in the near future. In addition, both parties agree to provide technical, marketing and sales support and to introduce customers as appropriate.

     Our research and development expenses were $9.6 million, $6.7 million and $2.7 million in fiscal 2001, 2000 and 1999, respectively, exclusive of amortization of deferred stock-based compensation. We expect that these costs will increase in the future in order to maintain a leading position as a third-party provider of semiconductor intellectual property in the embedded memory market. At September 30, 2001, we had 79 employees engaged in research and development. We expect to identify and hire additional technical personnel in fiscal year 2002 to staff our anticipated research and development activities.

Sales and Marketing

     We focus our sales efforts through direct sales in North America and Europe. In Asia, we use indirect sales through distributors.

     Direct Sales. We maintain a network of direct sales representatives and field application engineers serving the United States, Asia, Canada and Europe. Substantially all of our direct sales representatives and field application engineers are located in the United States and Canada and serve our customers in those regions. The sales force is distributed throughout North America with employees in the following locations: Austin, Boston, Connecticut, Fremont, Los Angeles, New Jersey, Phoenix, West Palm Beach and Ottawa. To further expand our international sales, we are continuing to build our direct sales organization in Europe, based in the United Kingdom, by expanding our European presence in Germany and Israel. We plan to add direct sales members in Asia within the next year to support our independent distributors in Japan and the rest of Asia. Our sales force’s primary responsibility is to secure and maintain direct account relationships with fabless semiconductor companies and integrated device manufacturers for the license of our memories. Developing a license relationship typically involves a three to six month sales cycle. In the past two years, we have sold our products to more than 100 customers.

     We enter into license agreements with our customers for a range of embedded memory technologies. New license agreements are required for each new process technology generation. For our ASAP products, in addition to collecting license fees from the customers, we receive royalties from third-party foundries that manufacture chips for our fabless customers. For our Custom-Touch STAR Memory System and CAM technologies, we receive both license and royalty fees directly from our customers, as well as royalties from the third-party foundries. Our license agreements contain limited warranties and eliminate our liability for consequential damages.

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     We have developed relationships with the following types of companies that provide us with customer referrals.

	•		Foundries. We have entered into marketing and technology relationships with several third-party foundries including TSMC, UMC and Chartered. These relationships provide us with early access to new process technologies and endorsements from their direct sales force to our mutual customer base.
	•		Standard-Cell Library Companies. We have entered into joint marketing and development relationships with library companies that sell standard cells and input/output cells such as Avant! Corporation.
	•		EDA Vendors. We have entered into joint marketing relationships with major electronic design automation, or EDA vendors including Cadence. These relationships allow us to validate our interoperability with these EDA vendors’ software design tools.

     Indirect Sales. In addition to the direct sales force, we also sell our technologies through distributors in Japan and the rest of Asia. In Japan, we have entered into a distributor agreement with Seiko Instruments to sell and support our products. We have also entered into sales representative agreements with Maojet Technology Corporation in Taiwan. These indirect sales organizations have expertise in selling semiconductor intellectual property and software design tools. None of these relationships are exclusive.

Customers

     We have developed a strong customer base of semiconductor companies that use our embedded memories to design complex system-on-a-chip devices. Purchasers of our embedded memories include both fabless semiconductor companies and integrated device manufacturers. For fabless semiconductor customers, we license our embedded memories on either a single or multiple project basis. For integrated device manufacturers, we license our embedded memories on a multiple project basis and offer our Embed-It! Architect software as an option to develop and maintain their memory intellectual property on the same software platform.

     The following chart provides a representative list of our major customers by customer type.

*

Indicates the nine customers that generated the highest level of revenues for us in fiscal 2001

     We have been dependent on a small number of customers for a substantial portion of our annual revenues in each fiscal year, although the customers comprising this group have changed from time to time. In fiscal 2001, Philips Electronics and Intel Corporation generated 12% and 14% of our revenues, respectively. In fiscal 2000, no company generated more than 10% of our revenues, and in fiscal 1999, ATI Technologies, MMC Networks, National Semiconductor and Toshiba each generated between 10% and 18% of our revenues. We expect a small number of companies to collectively represent between 20% and 40% of our revenues for the next few years. As our customer base grows and the number of fabless semiconductor companies increases, we expect our dependence on any one customer for revenues to decline. However, as our sales to fabless semiconductor companies grow, we will become more dependent on the availability of new manufacturing process technologies and capacity from third party foundries to manufacture our customers’ products.

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Proprietary and Intellectual Property

     We rely primarily on a combination of nondisclosure agreements and other contractual provisions, as well as patent, trademark, trade secret and copyright law to protect our proprietary rights. Our general policy has been to seek patent protection for those inventions and improvements likely to be incorporated in our technologies or otherwise expected to be of value. We have an active program to protect our proprietary technology through the filing of patents.

     At November 30, 2001, we had eleven U.S. patents issued, fifteen U.S. patent applications on file and seven draft applications being prepared for filing with the USPTO. Our patents expire at various dates between 2019 and 2021, and we expect that once granted, the duration of patents covered by patent applications will be 20 years from the filing of the application. These patents will allow us to prevent others from infringing on some of our core technologies. We intend to continue to file patent applications as appropriate in the future. We cannot be sure, however, that our pending patent applications will be allowed, that any issued patents will protect our intellectual property or will not be challenged by third parties, or that the patents of others will not seriously harm our ability to do business. In addition, others may independently develop similar or competing technology or design around any of our patents.

     In addition, at November 30, 2001, we had one U.S. trademark registered for Embed-It! and four pending U.S. trademark applications on file with the USPTO. If the applications mature to registrations, these registrations would allow us to prevent others from using other similar marks on similar goods and services in the U.S. We cannot be sure, however, that the USPTO will issue trademark registrations for any of our pending applications. Further, any trademark rights we hold or may hold in the future may be challenged or may not be of sufficient scope to provide meaningful protection.

     We protect the source code of our technologies as both trade secrets and unpublished copyrighted works. We license the object code to our customers for limited uses and maintain contractual controls over the use of our software. Wide dissemination of our software makes protection of our proprietary rights difficult, particularly outside the United States.

     We protect our trade secrets and other proprietary information through nondisclosure agreements with our employees and customers and other security measures, although others may still gain access to our trade secrets or discover them independently.

     Although we believe that our technologies do not infringe on any copyright or other proprietary rights of third parties, from time to time, third parties, including our competitors, may assert patent, copyright and other intellectual property rights to technologies that are important to us.

Competition

     The embedded memory industry is very competitive and is characterized by constant technological change, rapid rates of technology obsolescence and the emergence of new suppliers. Our primary competition comes from the internal development groups of large integrated device manufacturers that develop embedded memories for their own use. In addition, we face competition from other third-party providers of embedded memories, such as Artisan Components and Avant! and certain DRAM memory providers, such as Monolithic Systems and Atmos Corporation.

     As we continue to introduce new technologies, we may face competition from both existing semiconductor intellectual property suppliers and new ones entering the market. We may also face competition from semiconductor companies that currently offer stand-alone memory technologies, such as Cypress, Hyundai, IDT, Micron Technology and Samsung, if these companies were to make their technologies available in embedded form. In addition, third-party foundries may decide in the future to distribute embedded memories themselves, in addition to manufacturing chips containing third-party embedded memories.

     We believe that important competitive factors in our market include performance, functionality, customization, length of development cycle, price, compatibility with prevailing design methodologies, interoperability with other devices or subsystems, ease of use, reputation for successful designs and installed base, technical service and support, technical training, configurability of technologies for specific designs and regional sales and technical support.

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Employees

     At September 30, 2001, we had 202 employees, including 40 in sales and marketing, 79 in research and development, 71 in engineering operations and 12 in general and administrative functions. Seventy of our engineers and other significant employees are located outside of the United States. We believe that our future success will depend in part on our continued ability to attract, hire and retain qualified personnel. None of our employees are represented by a labor union, and we believe our employee relations are good.

Item 2.  Properties

Facilities

     Our principal administrative, sales, marketing and research and development facility occupies approximately 20,200 square feet in a building located in Fremont, California. This facility is leased through September 2002. We also lease additional offices in Bellevue, Washington and Clinton, New Jersey that are occupied mainly by research and development and engineering operations personnel. We have two offices in Bellevue, Washington, one which occupies approximately 4,100 square feet and is leased through March 2004, and the other which occupies approximately 2,300 square feet and is leased through June 2002. The Clinton office, which occupies approximately 10,900 square feet, is leased through August 2003. In addition, we have development centers in the Republic of Armenia and India. The development center in the Republic of Armenia is located in Yerevan and occupies approximately 4,300 square feet in a building leased through July 2005. We currently lease two facilities in Noida, India near Delhi, one which occupies approximately 26,000 square feet and is leased through July 2009, and the other which occupies approximately 2,500 square feet in a building leased through April 2002.

Item 3.  Legal Proceedings

     We are not a party to any pending litigation.

Item 4.  Submission of Matters to a Vote of Security Holders

None

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Executive Officers of the Registrant

     The names and ages of our existing executive officers and significant employees at November 30, 2001 are set forth below.

     Adam A. Kablanian co-founded Virage Logic and has served as our President, Chief Executive Officer and as a Director since January 1996. Before founding Virage Logic, Mr. Kablanian was a Department Manager for LSI Logic, a semiconductor integrated device manufacturer, from August 1994 to December 1995 where he was responsible for the embedded memory design division. Before he joined LSI Logic, Mr. Kablanian managed multi-foundry technology transfer programs as an engineering manager at Waferscale Integration, a designer of programmable system devices, from April 1990 to January 1994. Mr. Kablanian holds a B.A. in Physics from the University of California at Berkeley and an M.S. in Electrical Engineering from Santa Clara University.

     Alexander Shubat co-founded Virage Logic and has served as our Vice President of Engineering and Chief Technical Officer and as a Director since January 1996. Before founding Virage Logic, Dr. Shubat served as Director of Engineering at Waferscale Integration from November 1985 to December 1995, where he managed various groups, including design, application-specific integrated circuit and high-speed memory. He holds ten patents and has contributed to more than 25 publications. Dr. Shubat holds a B.S. and an M.S. in Electrical Engineering from the University of Toronto, Canada and a Ph.D. in Electrical Engineering from Santa Clara University.

     James R. Pekarsky has served as our Vice President of Finance and Chief Financial Officer since May 1999. Before joining Virage Logic, Mr. Pekarsky served as Director, General Manager in several divisions at Mentor Graphics, where he worked from May 1997 to May 1999, including Mentor Graphics’ Emulation Division in Paris, France and Embedded Software Division in San Jose, California. Before joining Mentor Graphics, Mr. Pekarsky served as the Director of Operations of Advanced Molecular Systems, a genetics research company, from December 1995 to May 1997. Before that, he held senior management positions in finance and operations at Sclavo Diagnostics, a clinical diagnostic company in Milan, Italy, and Bio-Rad Laboratories, a life science research company. Mr. Pekarsky holds a B.S. in Accounting from Indiana University of Pennsylvania and an M.B.A. in Finance from Golden Gate University.

     Vincent F. Ratford has served as our Vice President of Marketing and Business Development since July 2000 and previously as our Vice President of Sales and Marketing since February 1998. Before joining Virage Logic, Mr. Ratford served as Chief Operating Officer of the Microtec Division of Mentor Graphics, a provider of hardware and software design solutions to semiconductor companies, from October 1995 to December 1997. Before joining the Microtec Division, he was Director of Marketing for Mentor Graphics’ System Design Division from May 1993 to October 1995. Mr. Ratford holds a B.S. in Electrical Engineering from Northeastern University.

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     Raymond T. Leung has served as our Vice President of Engineering Operations since August 1998. Before joining Virage Logic, Mr. Leung was Senior Director of Mixed Signal Development at LSI Logic where he worked from June 1989 to August 1998. He also managed the embedded memory development group at LSI Logic and holds two patents on memory design techniques. Mr. Leung holds a B.S. in Electrical Engineering from Columbia University and an M.S. in Electrical Engineering from Stanford University.

     Yervant Zorian served as a Director from November 1997 to March 2001 and joined our management team as Vice President and Chief Scientist in May 2000. Since November 1996, Dr. Zorian has served as Chief Technical Advisor of LogicVision. Before that he served as a Distinguished Member of the Technical Staff at Lucent Technologies, Bell Laboratories. Dr. Zorian holds a B.S. in Electrical Engineering from the University of Aleppo in Syria, an M.Sc. in Computer Engineering from the University of Southern California and a Ph.D. in Electrical Engineering from McGill University.

     Eduard Weichselbaumer has served as our Vice President of Strategic Programs since July 2001. From May 2000 to June 2001, Mr. Weichselbaumer served as Vice President of Worldwide Sales and Divisional Officer at Artisan Components, Inc. a library semiconductor intellectual property company. Before joining Artisan, he headed the Worldwide Library Sales and Business Development team at Synopsys, Inc., a supplier of electronic design automation tools. From 1994 to 1997, he was President and COO of Pacific Silicon Technologies. Prior to 1994 he held senior management positions with HHB Systems, LEI Logic and Fairchild Semiconductor. Mr. Weichselbaumer holds an M.S. in Electrical Engineering from the Technical University Munich.

     Kenneth V. Rousseau has served as our Vice President of Software Development since February 2000. Before joining Virage Logic, Dr. Rousseau was Director of New Product Management at Synopsys, Inc., a supplier of electronic design automation tools. Before joining Synopsys, he held various positions at Cascade Design Automation, another supplier of electronic design automation tools, including Chief Technologist from August 1996 to December 1996, Vice President, Engineering from August 1994 to August 1996, Manager, Design Technologies from June 1993 to August 1994 and Engineering Fellow from January 1993 to June 1993. He also worked in the aerospace industry at Hughes Aircraft and TRW Electronics and Defense, as well as several semiconductor companies including GigaBit Logic and Vitesse. Dr. Rousseau holds a B.S. in Physics and Literature and an M.S. in Applied Physics from California Institute of Technology and a Ph.D. in Electrical Engineering from UCLA.

     William J. Palumbo has served as our Vice President and General Manager of New Jersey Operations since July 1999. Before joining Virage Logic, Mr. Palumbo served as Director of the Physical Library Division for Mentor Graphics from October 1990 to July 1999. Before joining Mentor Graphics, he worked in various management positions at RCA, General Electric and Harris Semiconductor from December 1983 to September 1990. He holds one U.S. patent and has published numerous articles in technical and business forums. Mr. Palumbo holds a B.S. in Electrical Engineering from Rutgers University.

     Alok Singh has served as our Vice President and General Manager of India Operations since September 1997. Before joining Virage Logic, Mr. Singh served as Director of Design Automation from November 1996 to August 1997 and Manager, Design Automation from April 1990 to October 1996 at Waferscale Integration. Mr. Singh holds a B.S. in Electrical Engineering from the University of Glasgow, Scotland.

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PART  II

Item 5.  Market for Registrant’s Common Equity and Related Stockholder Matters.

Market Price and Dividends on Virage Logic Common Stock

     Virage Logic Corporation’s common stock is traded on the Nasdaq National Market under the symbol “VIRL” since our initial public offering on August 1, 2000. The following table sets forth, for the periods indicated, the high and low closing prices for the common stock as reported on the Nasdaq National Market.

     As of November 30, 2001, there were approximately 164 stockholders of record of our common stock.

     We have never paid or declared any cash dividends on our common stock or other securities and do not anticipate paying cash dividends in the foreseeable future.

Recent Sales of Unregistered Securities

	1.		In March 2001, we sold 11,307 shares of common stock to Silicon Valley Bancshares at $3.80 per share following exercise of a warrant issued in July 1999. The exercise was done on a cashless exercise basis.
	2.		In July 2001, we sold 33,351 shares of common stock to a consultant at $1.60 per share following exercise of a warrant issued in February 1999. The exercise was done on a cashless exercise basis.
	3.		In November 2001, we sold 7,500 shares of common stock to a professional services firm at $0.70 per share following exercise of a warrant issued in July 1999. The sale resulted in net cash proceeds to Virage Logic of $5,250.

     There were no underwriters employed in connection with any of the transactions set forth above. The issuances of the common stock were deemed to be exempted from registration under the Securities Act of 1933, in the case of the transactions described in paragraphs 1 and 2, in reliance on Section 3(a)(9) of the Securities Act as transactions involving exchange of securities of an issuer without payment of commission or remuneration, and in the case of the transaction described in paragraph 3, in reliance on Section 4(2) of the Securities Act as a transaction by an issuer not involving a public offering.

Use of Proceeds From Registered Securities

     Our registration statement (No. 333-36108) under the Securities and Exchange Act of 1933 for our initial public offering of common stock became effective on July 31, 2000. We sold a total of 4,312,500 shares of common stock to an underwriting syndicate for an aggregate offering price to the public of $51,750,000. The managing underwriters were Lehman Brothers Inc., FleetBoston Robertson Stephens Inc. and SG Cowen Securities Corporation. 3,750,000 of these shares were sold in an offering that commenced on July 31, 2000 and was completed on August 4, 2000. An additional 562,500 shares of common stock were sold upon the underwriters’ exercise of their over-allotment option on August 28, 2000. In connection with this offering, we incurred total expenses of approximately $5.4 million, consisting of $3,622,500 for underwriting discounts and commissions and approximately $1,785,000 million of other expenses.

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None of these expenses were paid directly or indirectly to any of our directors, officers, or their associates, persons owning 10% or more of any class of our securities, or affiliates of Virage Logic. Offering proceeds, net of aggregate expenses were approximately $46.3 million. In fiscal 2001 we used $9.6 million for research and development primarily related to the hiring of additional personnel, and $8.3 million of the offering proceeds for sales and marketing primarily related to additional personnel and increased expenditures on tradeshows and advertising. We also used $5.3 million of the proceeds to make a strategic investment in Atmos Corporation. We have applied the remaining proceeds to temporary investments in a commercial money market investment account, short-term government and mortgage-backed securities and commercial paper.

Item 6.  Selected Consolidated Financial Data.

     The selected consolidated financial data set forth below should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the notes thereto included elsewhere in this filing. The consolidated statement of operations data for each of the fiscal years ended September 30, 2001, 2000 and 1999 and the consolidated balance sheet data at September 30, 2001 and 2000 have been derived from our audited consolidated financial statements included elsewhere in this filing. The consolidated statement of operations data for the fiscal year ended September 30, 1998 and the consolidated balance sheet data at September 30, 1999 and 1998 have been derived from our audited consolidated financial statements not included in this filing. The consolidated statement of operations data for the fiscal year ended September 30, 1997 and the consolidated balance sheet data at September 30, 1997 have been derived from our unaudited financial statements. The historical financial information may not be an accurate indicator of our future performance.

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SELECTED CONSOLIDATED FINANCIAL DATA