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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ______ to ______
-----------------------------
Commission File Number 0-21422
OPTi INC.
(Exact name of registrant as specified in this charter)
CALIFORNIA 77-0220697
(State or other jurisdiction of (I.R.S. Employer
incorporated or organization) Identification No.)
1440 MCCARTHY BLVD MILPITAS, CALIFORNIA 95035
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (408) 486-8000
Indicate by check mark whether the registrant (1) has filed all reports 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 [_]
The number of shares outstanding of the registrant's common stock as of
September 30, 1998 was 10,800,429
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<PAGE>
OPTi INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
a) Condensed Consolidated Statements of Operations 3
for the three months and nine months ended
September 30, 1998 and 1997
b) Condensed Consolidated Balance Sheets 4
as of September 30, 1998 and December 31, 1997
c) Condensed Consolidated Statements of Cash Flows 5
for the nine months ended September 30, 1998 and 1997
d) Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition and 8-12
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Shareholders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
2
<PAGE>
OPTi Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
Net Sales $10,764 $15,196 $29,241 $54,211
Costs and expenses:
Cost of sales 6,530 11,251 20,112 40,579
Research and development 2,464 3,039 7,683 9,874
Selling, general, and
administrative 2,479 3,685 7,974 11,448
Restructuring ---- ---- ---- 1,213
----------- ----------- ----------- -----------
Total costs and expenses 11,473 17,975 35,769 63,114
----------- ----------- ----------- -----------
Operating loss (709) (2,779) (6,528) (8,903)
Interest and other income, net 795 676 2,721 1,987
----------- ----------- ----------- -----------
Income/(Loss) before income
tax Provision/Benefit 86 (2,103) (3,807) (6,916)
Income tax Provision/(Benefit) 244 ---- 244 (137)
----------- ----------- ----------- -----------
Net loss ($158) ($2,103) ($4,051) ($6,779)
============ =========== =========== ===========
Basic and diluted net loss per share ($0.01) ($0.16) ($0.32) ($0.53)
============ =========== =========== ===========
Shares used in computing basic and
diluted per share amounts 11,399 12,851 12,660 12,762
============ =========== =========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
OPTi Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited) (See Note 1)
--------------- ----------------
ASSETS
<S> <C> <C>
(000's omitted)
Current assets
Cash and cash equivalents $54,769 $63,832
Short-term investments 4,250 8,676
Accounts receivable, net 3,341 11,782
Inventories 1,325 5,017
Other current assets 1,136 1,472
------- --------
Total current assets 64,821 90,779
Property and equipment, net 6,291 11,047
Other assets 9,664 9,789
------- --------
Total assets $80,776 $111,615
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $4,058 $11,171
Other current liabilities 4,645 4,248
------- --------
Total current liabilities 8,703 15,419
Long term liabilities
Long-term obligations under capital lease 2,661 3,473
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value:
Authorized shares -- 5,000
No shares issued or outstanding --- ---
Common stock, no par value:
Authorized shares -- 50,000
Issued and outstanding shares -- 10,800 in 1998
13,126 in 1997 39,363 58,623
Retained earnings 30,049 34,100
------- --------
Total shareholders' equity 69,412 92,723
------- --------
Total liabilities and shareholders'
equity $80,776 $111,615
======= ========
</TABLE>
Note 1 - The consolidated balance sheet at December 31, 1997 has been derived
from the audited financial statements.
See accompanying notes.
4
<PAGE>
OPTi Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months Ended September 30,
1998 1997
-----------------------------------------
(000's omitted)
<S> <C> <C>
Operating Activities:
Net loss ($4,051) ($6,779)
Adjustments:
Depreciation 5,213 3,946
Amortization 435 381
Changes in assets and liabilities:
Accounts receivable 8,441 7,380
Inventories 3,692 (861)
Other assets 26 (471)
Accounts payable (7,113) (3,440)
Other current liabilities 397 86
------- --------
Net cash provided by
operating activities 7,040 242
Investing Activities:
Purchase of property and equipment (457) (1,034)
Short-term investments 4,426 ---
------- --------
Net cash provided by/ (used in)
investing activities 3,969 (1,034)
------- --------
Financing Activities:
Stock Repurchases (23,995) ---
Net proceeds from sale of common stock 4,735 1,133
Payment of long-term liabilities (812) (878)
------- --------
Net cash provided by/ (used in)
financing activities (20,072) 255
------- --------
Net decrease in cash and cash
equivalents (9,063) (537)
Cash and cash equivalents
beginning of period 63,832 56,372
------- --------
Cash and cash equivalents
end of period $54,769 $55,835
======= =======
</TABLE>
See accompanying notes.
5
<PAGE>
OPTI INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
1. BASIS OF PRESENTATION
- -------------------------
The information at September 30, 1998 and 1997 and for the periods then ended,
is unaudited, but includes all adjustments (consisting of normal recurring
accruals) which the Company's management believes to be necessary for the fair
presentation of the financial position, results of operations and cash flows for
the periods presented. Interim results are not necessarily indicative of
results for a full year. The accompanying financial statements should be read
in conjunction with the Company's audited financial statements for the year
ended December 31, 1997. During the quarter ended March 31, 1998 the Company
adopted Financial Accounting Standards Board Statement No. 130, Comprehensive
Income ("FAS 130"). The Company had no differences between reported net loss
and comprehensive net loss for any of the periods presented.
2. NET LOSS PER SHARE
- ----------------------
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share ("FAS 128"), which the Company adopted on December
31, 1997. FAS 128 replaced the calculation of primary and diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very similar
to the previously reported primary earnings per share. Earnings per share
amounts for all periods presented have been restated to conform to FAS 128
requirements.
3. INVESTMENT IN DEBT AND EQUITY SECURITIES
- -------------------------------------------
The Company considers highly liquid investments with maturities of three
months or less from the acquisition date of the instrument to be cash
equivalents. At September 30, 1998, the Company had approximately $4.3 million
in high quality, auction rate preferred securities with reset dates within sixty
days. At September 30, 1998, all securities are designated as available for
sale. Interest and dividends on the investments are included in interest
income. There were no realized gains or losses on the Company's investments
during the third quarter of 1998 as all investments were held to maturity during
the period. At September 30, 1998, the fair value of the securities
approximates cost.
4. INVENTORIES
- ---------------
Inventories consist of finished goods and work in process:
<TABLE>
<CAPTION>
(in thousands) September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Finished Goods $ 671 $2,508
Work in process 654 2,509
------ ------
$1,325 $5,017
------ ------
</TABLE>
6
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5. LITIGATION
- -------------
In January 1997, a patent infringement claim was brought against the Company
by Crystal Semiconductor (a subsidiary of Cirrus Logic). The claim alleges that
the Company and Tritech Microelectronics International infringed upon patents
held by Crystal. These patents relate to the "Codec" module incorporated in
various audio controller devices. The Company believes that the allegations of
the complaints are without merit, and the Company intends to vigorously defend
itself. The Company believes that the ultimate resolution of this matter will
not have a material adverse effect on its financial position, results of
operations, or cash flows.
In September 1998, Crystal Semiconductor (a subsidiary of Cirrus Logic), filed
a second suit against the Company in California. This suit is looking for a
preliminary and permanent injunction from OPTi making transfers which would
render it insolvent, pending the satisfaction of the final judgement in the
parties' patent litigation, as mentioned above.
6. 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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
7. TAXES
- --------
The Company recorded tax provisions of $244,000 in the third quarter of 1998
as compared with no provision in the comparable period of 1997. The 1998 and
1997 effective tax rate is less than the federal statutory rate due primarily to
the limitations controlling the recognition of deferred tax assets established
by the Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes.
8. REPURCHASES OF SHARES
- -------------------------
On June 2, 1998, the Company announced that it intended to repurchase through
the open market an amount up to twenty-five percent of its outstanding shares.
The purpose of the stock repurchase program is to maximize shareholder value and
return a portion of accumulated cash to shareholders of the Company.
The Company completed its stock repurchase program in August 1998. The Company
repurchased 3,580,375 shares of its outstanding common stock in the open market
for a cumulative price of $23,995,000 during the life of the program. In the
third quarter of 1998 the Company repurchased 2,839,700 shares for approximately
$18,963,000.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information set forth herein constitutes and includes forward looking
information made within the meaning of Section 27A of the Securities Act of
1933, as amended and Section 21E of the Securities Exchange Act of 1934, as
amended, that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward looking
statements as a result of a number of factors, including product mix, the
Company's ability to obtain or maintain design wins, market conditions
generally and in the personal computer and semiconductor industries, product
development schedules, competition and other matters. Readers are encouraged
to refer to "Factors Affecting Earnings and Stock Prices" found below in this
Item 2.
RESULTS OF OPERATIONS
For the quarter ended September 30, 1998, the Company reported net sales of
$10,764,000, as compared to net sales of $15,196,000 for the quarter ended
September 30, 1997. Net sales for the nine month periods ending September 30,
1998 and 1997 were $29,241,000 and $54,211,000, respectively. This decrease in
net sales for both the three month and nine month periods ending September 30,
1998 is due primarily to reductions in sales for both the Company's audio
controller chips, for which the Company no longer has a continuing audio line
after its sale of that division to Creative Technology Ltd. in November 1997,
and core logic chipsets.
Cost of sales for the quarter ended September 30, 1998 decreased to $6,530,000
which resulted in a gross margin of approximately 39.3%, as compared to
$11,251,000, which resulted in a gross margin of approximately 26.0% for the
quarter ended September 30, 1997. Cost of sales for the first nine months of
1998 was $20,112,000, which resulted in a gross margin of approximately 31.2% as
compared with $40,579,000, or a gross margin of 25.1%, for the comparable period
of 1997. This increase in gross margin as a percentage of sales for the three
month and nine month periods ended September 30, 1998 as compared to the similar
periods ended September 30, 1997 is primarily due to reduced wafer and assembly
costs and benefits from product mix changes as the Company began volume
shipments of its 82c861, USB controller chip which carries margins above the
historical levels.
Research and development costs decreased to $2,464,000 for the quarter ended
September 30, 1998, as compared with $3,039,000 for the quarter ended September
30, 1997. For the first nine months of 1998 research and development expenses
decreased to $7,683,000, as compared to $9,874,000, for the comparable period of
1997. This decrease is primarily attributable to reduced headcount related
expenses, due to the sale of the audio research and development group, and
decreasing costs for non-employee related expenses for new product development.
Selling, general, and administrative costs were $2,479,000 in the quarter ended
September 30, 1998 as compared with $3,685,000 in the comparable period of 1997,
and were $7,974,000 for the first nine months of 1998 as compared to $11,448,000
for the first nine months of 1997. This decrease is primarily attributable to
lower sales related expenses as a result of decreased sales and lower employee
related expenses due to lower marketing and sales headcount after the sale of
the audio group.
Interest and other income, net was $795,000 and $676,000 for the quarters ended
September 30, 1998 and 1997, respectively. For the first nine months of 1998,
interest and other income, net was $2,721,000, as compared with $1,987,000, for
the comparable period of 1997. This increase is primarily due to higher average
levels of cash and cash equivalents and higher interest rates during 1998 as
compared to the corresponding periods of the prior year, as well as a one time
benefit during the quarter ended March 1998 of approximately $200,000 for the
settlement of a dispute with a customer. The Company expects interest income to
decrease in the fourth quarter of 1998 due to lower levels of cash as a result
of the Company's stock repurchase program, which was initiated on June 2, 1998
and ended in the third quarter of 1998.
The Company recorded a tax provision of $244,000 in the third quarter of 1998
due to alternative minimum tax and no tax provision during the third quarter of
1997.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents, and short-term investments were $59,019,000 at
September 30, 1998 down from $72,508,000 at December 31, 1997. Working capital
for the same period decreased to $56,118,000 from $75,360,000 at December 31,
1997. During the first nine months of 1998, operating activities provided $7.0
million of cash. Cash provided in operations was primarily due to a $8.4
million reduction in accounts receivable, and a $3.7 million decrease in
inventories caused by a reduction in inventory purchased, partially offset by a
$7.1 million decrease in accounts payable, caused by a decrease in inventory
purchases. In addition, investing activities related to capital equipment and
short-term investments provided $4.0 million in 1998, primarily from the
maturity of short-term investments and used $1.0 million in 1997 related to
equipment purchases. Financing activities used $20.1 million in 1998 as
compared to providing $0.3 million in 1997. The financing use of cash in 1998
was primarily related to a stock repurchase program of $24.0 million initiated
by the Company on June 2, 1998, partially offset by $4.7 million in proceeds
from the sale of Common Stock during the nine month period ended September 30,
1998.
At September 30, 1998 the Company's principal sources of liquidity included
cash, cash equivalents and short-term investments of approximately $59.0 million
and working capital of approximately $56.1 million. The Company believes that
its existing sources of liquidity will satisfy the Company's projected working
capital and other cash requirements through at least the next twelve months.
FACTORS AFFECTING EARNINGS AND STOCK PRICE
The Company's business, financial condition, results of operations and stock
price could be impacted by a number of factors including without limitation the
following factors.
Fluctuations in Operating Results
- ---------------------------------
The Company has experienced significant fluctuations in its quarterly operating
results in the past and expects that it will experience such fluctuations in the
future. In the past, these fluctuations have been caused by a variety of
factors including increased competition from Intel and other suppliers, price
competition, ongoing rapid price declines, sudden changes in customer demand,
the timing of delivery of new products, inventory adjustments, changes in the
availability of foundry capacity and changes in the mix of products sold. In
the future, the Company's operating results in any given period may be adversely
affected by one or more of these factors.
Price Competition
- -----------------
The market for the Company's products are subject to severe price competition
and price declines. There can be no assurance that the Company will succeed in
reducing its product costs rapidly enough to maintain or increase its' gross
margin level or that further substantial reduction in chipset prices will not
result in lower profitability or losses.
Changes in Customer Demand
- --------------------------
The Company currently places non-cancelable orders to purchase products from
independent foundries, while its customers generally place purchase orders with
a significantly shorter lead time which may be canceled without significant
penalty. In the past, the Company has experienced order cancellations and
deferrals and expects that it will experience cancellations in the future from
time to time. Any such order cancellations, deferrals, or a shortfall in a
receipt of orders, as compared to order levels expected by the Company, could
have a significant adverse effect on the Company's operating results in any
given period.
9
<PAGE>
Product Transitions and the Timing and Delivery of New Products
- ---------------------------------------------------------------
From 1993 through the first half of 1995 a large majority of the Company's
revenues were derived from sales of products for the 486-based desktop PC
market. In the second half of 1995, the PC market almost completely
transitioned to Pentium-class products. This rapid transition had an adverse
effect on the Company's operating results in the second half of 1995 due to a
decrease in 486-based revenue, which could not be offset by the Company's
Pentium-based products, primarily due to supply constraints on the delivery of
those products. There can be no assurance that the Company will not face
future rapid product transitions. Any failure to successfully make future
product transitions could materially affect the Company's results of
operations.
Product Development; Technological Change
- -----------------------------------------
The Company's ability to maintain or increase its sales levels and
profitability depends directly on its timely introduction and rapid ramp up of
new products. In the past, the Company has experienced material delays in the
introduction of new products and expects that it will experience similar
problems from time to time in the future. Material delays in the introduction,
production or sale of a new product can have a very severe effect on the
Company's operating results in any given period, possibly resulting in a
significant shortfall in sales and earnings from that expected by the Company or
securities analysts. Any such delay or shortfall could have an immediate and
very significant adverse effect on the trading price of the Company's stock.
Investors in the Company's securities must be willing to bear the risks of such
fluctuations.
Each of the product segments in which the Company offers new products are
intensely competitive and the Company must compete with entrenched competitors
who have established greater product breadth and distribution channels. The
introduction of new products can result in a greater than expected decline and
demand for existing products and create an imbalance between products ordered by
customers and products which the Company has in inventory. This imbalance can
result in surplus or obsolete inventory, leading to write-offs or other
unanticipated costs or disruptions.
Customer Concentration
- ----------------------
Historically, the Company has sold its products to a variety of PC and
motherboard manufacturers in Asia and the U.S. However, beginning in 1993, the
Company began to sell a greater percentage of products for use by U.S. PC
manufacturers. With the exception of Compaq and its subcontractors, no other
single customer represented more than 10% of sales in 1997 and 1996. The
Company sold approximately $27 million and $37 million of chipsets to Compaq and
its subcontractors, representing a combined 40% and 31% of net sales for the
years 1997 and 1996, respectively. There can be no assurance that the Company
will not experience declining sales with these customers, or any other major
customer. The Company expects that sales of its products to a relatively small
group of customers will continue to account for a high percentage of its net
sales in the foreseeable future, although the Company's customers in any one
period will continue to change.
None of the Company's customers has entered into a long-term agreement
requiring it to purchase the Company's products. The loss of a significant
customer, reduction in orders from any significant customer, changes in the
personal computer market, or economic or competitive conditions in the chipset
market, could adversely affect the Company's business, financial condition and
results of operation.
Credit Risks
- ------------
Many of the Company's customers, particularly the motherboard manufacturers in
Taiwan, operate at very low profit margins and undertake significant inventory
risks. To the extent the Company provides open terms of credit to some of the
larger of these customers, the Company is exposed to significant credit
10
<PAGE>
risks if these customers are unable to remain profitable.
Dependence on Foundries and Manufacturing Capacity
- --------------------------------------------------
Almost all of the Company's products are manufactured by outside foundries
pursuant to designs provided by the Company. In most instances, the Company
provides foundries with a custom-tooled design ("Custom Production"), whereby
the Company receives a finished die from the foundry which it sends to a third
party for cutting and packaging. This process subjects the Company to the risk
of low production yields as the die moves through the production and packaging
process. The Company's reliance on independent foundries and packaging houses
involves several risks, including the absence of adequate capacity, the
unavailability of or interruptions in access to certain process technologies and
reduced control over delivery schedules, manufacturing yields and costs. At
times during the second half of 1995, the Company was unable to meet the demand
for certain of its products due to limited foundry capacity and the Company
expects that it will experience other production shortfalls or difficulties in
the future.
Because the Company's purchase orders with its outside foundries are non-
cancelable by OPTi, the Company is subject to risks of, and has in the past
experienced, excess or obsolete inventory due to an unexpected reduction in
demand for a particular product. The manufacture of chipsets is a complex
process and the Company may experience short-term difficulties in obtaining
timely deliveries, which could affect the Company's ability to meet customer
demand for its products. Should any of its major suppliers be unable or
unwilling to continue to manufacture the Company's key products in required
volumes, the Company would have to identify and qualify acceptable additional
foundries. This qualification process could take up to six months or longer.
No assurances can be given that any additional sources of supply could be in a
position to satisfy any of the Company's requirements on a timely basis. The
semiconductor industry experiences cycles of under-capacity and over-capacity
which have resulted in temporary shortages of products in high demand. Any such
delivery problems in the future could materially and adversely affect the
Company's operating results.
The Company began using Custom Production in 1993. Custom Production requires
that the Company provide foundries with designs that differ from those
traditionally developed by the Company in its gate array production and which
are developed with specialized tools provided by the foundry. This type of
design process is inherently more complicated than gate array production and
there can be no assurance that the Company will not experience delays in
developing designs for Custom Production or that such designs will not contain
bugs. To the extent bugs are found, correcting such bugs is likely to be both
expensive and time consuming. In addition, the use of Custom Production
requires the Company to purchase wafers from the foundry instead of finished
products. As a result, the Company is required to increase its inventories and
maintain inventories of unfinished products at packaging houses. The Company is
also dependent on these packaging houses and its own internal test functions for
adequate capacity.
The Company intends to continue to shift a substantial amount of its capacity
to increasingly dense sub-micron processes during 1998 and thereafter. The
Company has limited experience with processes below .45 micron, which are
increasingly more complex. Although the Company extensively tests hardware
products prior to their introduction, it is possible that design errors may be
discovered after initial product sampling, resulting in delays in volume
production or recall of products sold. The occurrence of any such errors could
have a materially adverse effect on the Company's product introduction schedule
and operating results.
11
<PAGE>
Dependence on Sales outside of North America
- --------------------------------------------
Sales to customers located outside of North America accounted for 90% of the
Company's total revenues for fiscal 1997. In fiscal 1998, a large portion of the
Company's revenue has continued to be from sales to customers outside of North
America, particularly to manufacturers located in the Asia-Pacific region which
sell their products worldwide. These sales are subject to a variety of risks,
including fluctuations in currency exchange rates, tariffs, import restrictions
and other trade barriers, unexpected changes in regulatory requirements, longer
accounts receivable payment cycles and potentially adverse tax consequences and
export license requirements. In addition, the Company is subject to the risks
inherent in conducting business internationally, including political and
economic instability and unexpected changes in diplomatic and trade
relationships. In particular, the economies of certain countries in the Asia-
Pacific region are experiencing considerable economic instability and downturns.
Because the Company's sales to date have been denominated in United States
dollars, increases in the value of the United States dollar could increase the
price in local currencies of the Company's IC products in non-U.S. markets and
make the Company's products more expensive than competitors' products that are
denominated in local currencies. There can be no assurance that one or more of
the factors described above will not have a material adverse effect on the
Company's business, financial condition and results of operations.
Competition
- -----------
The chipset market is intensely competitive. The Company believes that its
ability to compete successfully depends upon a number of factors including
price, performance, the timely delivery of new products by the Company, the
introduction of new products by its competitors, product features, the emergence
of new PC standards, quality and customer support. There can be no assurance
that the Company will continue to compete successfully with respect to any one
or more of these factors. The Company has experienced market share declines in
the desktop core logic area, primarily to Intel. The Company also competes
directly with Intel in the notebook core logic area. Although Intel has not
been as aggressive in this market as it has in the desktop core logic area,
there can be no assurances that Intel will not develop a strategy to attempt to
control the market in this area.
Possible Volatility of Stock Price
- ----------------------------------
There can be no assurances as to the Company's operating results in any given
period. The Company expects that the trading price of its common stock will
continue to be subject to significant volatility.
YEAR 2000; INFORMATION TECHNOLOGY TRANSITION
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning with 21st
century dates, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result computer
systems and software used by many companies may need to be upgraded to comply
with such "Year 2000" requirements. Significant uncertainty exists concerning
the potential effects associated with such compliance. The Company believes its
existing management information system is not yet Year 2000 compliant. The
Company intends to implement an upgrade of its existing management information
system in the second quarter of 1999. Implementation of the upgrade should not
require substantial financial resources. There can be no assurance that the
upgrade will be implemented in time to avoid the Year 2000 compliance problems,
or that the Company will not experience problems, delays or unanticipated
additional costs in implementing the upgrade.
During the third quarter of 1998, the Company began a Year 2000 assessment of
its management information system, other information technology systems, non-
information technology systems, and products. Items identified and under review
include manufacturing and test equipment, telecommunications systems and
equipment and computer systems and equipment. In addition, the Company is
assessing the Year 2000 compliance of its products. The Company intends to have
its Year 2000 assessment, testing, remediation efforts and development of
necessary contingency plans complete by the year 2000, the total cost of which
has not yet been determined. To date, however, costs incurred to address Year
2000 compliance issues have not been material. Costs related to Year 2000
compliance issues continue to be funded through operating cash flows. There can
be no assurance that the Company will be able to complete its Year 2000
assessment, testing, remediation efforts and development of necessary
contingency plans by the year 2000. Any failure to complete the Year 2000
assessment, testing, remediation efforts and development of necessary
contingency plans prior to the Year 2000 could have a material adverse effect on
the Company's business, financial condition and results of operations.
During the fourth quarter of 1998 the Company plans to initiate formal
communications with its key suppliers of raw materials and services. There can
be no assurances that the Company's key suppliers have, or will have information
technology systems, non-information technology systems and products that are
Year 2000 compliant. Similarly, there can be no assurance that the Company's
customers have or will have information technology systems, non-information
technology systems and products that are Year 2000 compliant. Any Year 2000
compliance problem facing the Company, its customers or suppliers could have a
material adverse effect on the Company's business, financial condition and
results of operations.
12
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Part II. Other Information
ITEM 1. LEGAL PROCEEDINGS.
See notes section of this report on page 7 of this report.
ITEM 2. CHANGES IN SECURITIES.
Not applicable and has been omitted.
ITEM 3. DEFAULTS ON SENIOR SECURITIES.
Not applicable and has been omitted.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS.
The annual Meeting of Shareholders was held on August 25, 1998, for the
purpose of electing directors of the Company, and confirming the appointment of
Ernst & Young LLP as the independent auditors of the company for the fiscal year
ended December 31, 1998. The voting on each matter is set forth below.
Election of Directors:
Nominee For Withheld
- ------------------------- ---------- --------
Bernard Marren 10,664,310 831,099
Stephen Dukker 10,661,550 833,859
Kapil Nanda 10,664,310 831,099
William Welling 10,660,610 834,799
Proposal to ratify the appointment of Ernst & Young LLP as the independent
auditors of the Company for the fiscal year 1998:
For Against Abstain
------ ------- -------
11,443,502 24,775 27,132
ITEM 5. OTHER INFORMATION
Pursuant to Rule 14a-4(c)(1) under the Securities and Exchange Act of
1934, the proxies of management would be allowed to use their discretionary
voting authority with respect to any non-Rule 14a-8 stockholder proposal raised
at the Company's annual meeting of stockholders, without any discussion of the
matter in the proxy statement, unless the stockholder has notified the Company
of such proposal at least 45 days prior to the month and day on which the
Company mailed its prior year's proxy statement. Since the Company mailed its
proxy statement for the 1998 annual meeting of stockholders on July 31, 1998,
the deadline for receipt of any such stockholder proposal for the 1999 annual
meeting of stockholders is June 16, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the three
months ended September 30, 1998.
13
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OPTi Inc.
Date: 11/13/98 By: \s\ Michael Mazzoni
---------------------
Michael Mazzoni
Signing on behalf of the Registrant and as
Chief Financial Officer
14
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<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 54,769 54,769
<SECURITIES> 4,250 4,250
<RECEIVABLES> 4,066 4,066
<ALLOWANCES> 725 725
<INVENTORY> 1,325 1,325
<CURRENT-ASSETS> 64,821 64,821
<PP&E> 26,834 26,834
<DEPRECIATION> 20,543 20,543
<TOTAL-ASSETS> 8,776 80,776
<CURRENT-LIABILITIES> 8,703 8,703
<BONDS> 0 0
0 0
0 0
<COMMON> 39,363 39,363
<OTHER-SE> 30,049 30,049
<TOTAL-LIABILITY-AND-EQUITY> 80,776 80,776
<SALES> 10,764 29,241
<TOTAL-REVENUES> 10,764 29,241
<CGS> 6,630 20,112
<TOTAL-COSTS> 4,943 15,657
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 80 278
<INCOME-PRETAX> 86 (3,807)
<INCOME-TAX> 244 244
<INCOME-CONTINUING> (158) (4,051)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (158) (4,051)
<EPS-PRIMARY> (0.01) (0.32)
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