<PAGE>
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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 June 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.)
888 TASMAN DRIVE 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 June 30,
1998 was 13,069,927
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1
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OPTi, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
a) Condensed Consolidated Statements of Operations for the 3
three months and six months ended June 30, 1998 and 1997
b) Condensed Consolidated Balance Sheets 4
as of June 30, 1998 and December 31, 1997
c) Condensed Consolidated Statements of Cash Flows 5
for the six months ended June 30, 1998 and 1997
d) Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults on Senior Securities 10
Item 4. Submission of Matters to a Vote of Shareholders 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
2
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OPTi Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- ---------------------------------
1998 1997 1998 1997
------ ------- ------- -------
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
Net Sales $ 8,632 $15,394 $18,477 $39,015
Costs and expenses:
Cost of sales 6,201 11,911 13,582 29,328
Research and development 2,856 3,647 5,219 6,835
Selling, general, and
administrative 2,497 3,792 5,495 7,763
Restructuring -- 1,213 -- 1,213
------- ------- ------- -------
Total costs and expenses 11,554 20,563 24,296 45,139
------- ------- ------- -------
Operating loss (2,922) (5,169) (5,819) (6,124)
Interest and other income, net 859 752 1,926 1,311
------- ------- ------- -------
Loss before income
tax benefit (2,063) (4,417) (3,893) (4,813)
Income tax benefit -- -- -- (137)
------- ------- ------- -------
Net loss $(2,063) $(4,417) $(3,893) $(4,676)
Basic and diluted net loss per share $ (0.15) $ (0.35) $ (0.29) $ (0.37)
======= ======= ======= =======
Shares used in computing basic and
diluted per share amounts 13,390 12,750 13,291 12,718
======= ======= ======= =======
</TABLE>
See accompanying notes.
3
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OPTi Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ -------------
(Unaudited) (See Note 1)
<S> <C> <C>
ASSETS
(000's omitted)
Current assets
Cash and cash equivalents $65,457 $ 63,832
Short-term investments $8,924 $8,676
Accounts receivable, net 4,881 11,782
Inventories 1,401 5,017
Other current assets 1,896 1,472
------- --------
Total current assets 82,559 90,779
Property and equipment, net 7,793 11,047
Other assets 9,556 9,789
------- --------
Total assets $99,908 $111,615
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $5,345 $ 11,171
Other current liabilities 4,441 4,248
------- --------
Total current liabilities 9,786 15,419
Long term liabilities
Long-term obligations under capital lease 2,958 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 -- 13,070 in 1998
13,126 in 1997 56,957 58,623
Retained earnings 30,207 34,100
------- --------
Total shareholders' equity 87,164 92,723
------- --------
Total liabilities and shareholders'
equity $99,908 $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
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OPTi Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months Ended June 30,
1998 1997
----------------------------------------------
(000's omitted)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (3,893) $ (4,676)
Adjustments:
Depreciation 3,586 2,717
Amortization 250 258
Changes in assets and liabilities:
Accounts receivable 6,901 7,343
Inventories 3,616 (4,361)
Other assets (441) 21
Accounts payable (5,826) 370
Other current liabilities 193 766
-------- --------
Net cash provided by
operating activities 4,386 2,438
INVESTING ACTIVITIES:
Purchase of property and equipment (332) (911)
Short-term investments (248) --
-------- --------
Net cash used in
investing activities (580) (911)
-------- --------
FINANCING ACTIVITIES:
Stock Repurchases (5,032) --
Net proceeds from sale of common stock 3,366 446
Payment of long-term liabilities (515) (580)
-------- --------
Net cash used in
financing activities (2,181) (134)
-------- --------
Net increase in cash and cash
equivalents 1,625 1,393
Cash and cash equivalents
beginning of period 63,832 56,372
-------- --------
Cash and cash equivalents
end of period $ 65,457 $ 57,765
======== ========
</TABLE>
See accompanying notes.
5
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OPTi INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
1. BASIS OF PRESENTATION
- -------------------------
The information at June 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 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 June 30, 1998, the Company had approximately $8.9 million in
high quality, auction rate preferred securities with reset dates within sixty
days. At June 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
first quarter of 1998 as all investments were held to maturity during the
period. At June 30, 1998, the fair value of the securities approximates cost.
4. INVENTORIES
- ---------------
Inventories consist of finished goods and work in process :
(in thousands) June 30, 1998 December 31, 1997
-------------- -----------------
Finished Goods $ 767 $2,508
Work in process 664 2,509
------ ------
$1,401 $5,017
====== ======
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.
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 no tax benefit during the second quarter of 1998 and
1997. The 1998 and 1997 benefit rate is less than the 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. COMPANY ANNOUNCEMENTS
- -------------------------
On May 15, 1998 Jerry Chang, CEO/President and Chairman of the Board of
OPTi, resigned from the Company and as a member of the Board.
9. 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 anticipates that it will attempt to repurchase up to 3,400,000 shares of
its outstanding stock in the open market from time to time depending on market
conditions, share price, and other factors.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Information set forth herein constitutes and includes forward looking
information. The accuracy of such information is subject to a variety of risks
and uncertainties, including product mix, the Company's ability to obtain or
maintain design wins, market conditions in the personal computer and
semiconductor industries, product development schedules and other matters.
For the quarter ended June 30, 1998, the Company reported net sales of
$8,632,000, as compared to net sales of $15,394,000 for the quarter ended June
30, 1997. Net sales for the six month periods ending June 30, 1998 and 1997
were $18,477,000 and $39,015,000, respectively. This decrease in net sales for
both the three month and six month periods ending June 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., and core logic chipsets.
Cost of sales for the quarter ended June 30, 1998 decreased to $6,201,000 which
resulted in a gross margin of approximately 28.2%, as compared to $11,911,000,
which resulted in a gross margin of approximately 22.6% for the quarter ended
June 30, 1997. Cost of sales for the first six months of 1998 was $13,582,000,
which resulted in a gross margin of approximately 26.5% as compared with
$29,328,000, or a gross margin of 24.8%. This increase in gross margin as a
percentage of sales for the three month and six month periods ended June 30,
1998 as compared to the similar periods ended June 30, 1997 is primarily due to
reduced wafer pricing and benefits from product mix changes.
Research and development costs decreased to $2,856,000 for the quarter ended
June 30, 1998, as compared with $3,647,000 for the quarter ended June 30, 1997.
For the first six months of 1998 research and development expenses decreased to
$5,219,000, as compared to $6,835,000, 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 $2,497,000 in the quarter ended
June 30, 1998 as compared with $3,792,000 in the comparable period of 1997, and
were $5,219,000 for the first six months of 1998 as compared to $6,835,000, for
the first six 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.
During the second quarter of 1997 the Company initiated a restructuring program
as a result of decisions by its Chief Executive Officer and Board of Directors
to adjust the Company's organizational structure in order to align resources
with a revised business model and to lower the Company's cost structure. The
restructuring actions resulted in a charge of $1,213,000 and included reducing
headcount and reducing the value of certain assets.
Interest and other income, net was $859,000 and $752,000 for the quarters ended
June 30, 1998 and 1997, respectively. For the first six months of 1998,
interest and other income, net was $1,926,000, as compared with $1,311,000,
for the comparable period of 1997. This increase is primarily due to higher
levels of cash 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 ending March 1998 of approximately $200,000 for the settlement of
a dispute with a customer. Interest income will decrease starting in the third
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.
The Company recorded no tax benefit during the second quarters of either 1998
or 1997.
8
<PAGE>
The Company currently believes that its net sales for the third quarter of
1998 will be comparable to those of the second quarter of this year. The
Company also anticipates that its net operating loss for the third quarter of
1998 will be comparable to the operating loss reported in the second quarter
of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents, and short-term investments were $65,457,000 at June 30,
1998 up from $63,832,000 at December 31, 1997. Working capital for the same
period decreased to $72,773,000 from $75,360,000 at December 31, 1997. During
the first six months of 1998, operating activities provided $4.4 million of
cash. Cash provided in operations was primarily due to a $6.9 million reduction
in accounts receivable, and a $3.6 million decrease in inventories caused by a
reduction in inventory purchased, partially offset by a $5.8 million decrease in
accounts payable, caused by a decrease in inventory purchases. In addition,
investing activities related to capital equipment and short-term investments
used $0.6 million and financing activities used $2.2 million. The latter was
primarily related to a stock repurchase program of $5.0 million initiated by
the Company on June 2, 1998, as part of its ongoing effort to return value to
shareholders and payment of long-term liabilities of $0.5 million and was,
partially offset by $3.4 million in proceeds from the sale of Common Stock
during the six month period ended June 30, 1998.
At June 30, 1998 the Company's principal sources of liquidity included cash,
cash equivalents and short-term investments of approximately $74.4 million and
working capital of approximately $72.8 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.
9
<PAGE>
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.
Not applicable and has been omitted.
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27 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 June 30, 1998.
10
<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: 8/14/98 By: \s\ Michael Mazzoni
--------------------
Michael Mazzoni
Signing on behalf of the Registrant and as
Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 65,457 65,457
<SECURITIES> 8,924 8,924
<RECEIVABLES> 5,506 5,506
<ALLOWANCES> 625 625
<INVENTORY> 1,401 1,401
<CURRENT-ASSETS> 82,559 82,559
<PP&E> 26,709 26,709
<DEPRECIATION> 18,916 18,916
<TOTAL-ASSETS> 99,908 99,908
<CURRENT-LIABILITIES> 9,786 9,786
<BONDS> 0 0
0 0
0 0
<COMMON> 56,957 56,957
<OTHER-SE> 30,207 30,207
<TOTAL-LIABILITY-AND-EQUITY> 87,164 87,164
<SALES> 8,632 18,477
<TOTAL-REVENUES> 8,632 18,477
<CGS> 6,201 13,582
<TOTAL-COSTS> 5,353 10,714
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 86 198
<INCOME-PRETAX> (2,063) (3,893)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,063) (3,893)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,063) (3,893)
<EPS-PRIMARY> (0.15) (0.29)
<EPS-DILUTED> (0.15) (0.29)
</TABLE>
