<PAGE>
================================================================================
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 March 31, 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
March 31, 1998 was 13,335,247
================================================================================
1
<PAGE>
OPTI, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
INDEX
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
a) Condensed Consolidated Statements of Operations
for the three months ended March 31, 1998 and 1997.......... 3
b) Condensed Consolidated Balance Sheets
as of March 31, 1998 and December 31, 1997.................. 4
c) Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1998 and 1997.......... 5
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
<PAGE>
OPTI INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------------
1998 1997
-------- ---------
(000's omitted, except per share data)
<S> <C> <C>
Net Sales....................................................... $9,845 $23,621
Costs and expenses:
Cost of sales................................................. 7,381 17,417
Research and development...................................... 2,363 3,188
Selling, general, and
administrative.............................................. 2,998 3,971
-------- -------
Total costs and expenses........................................ 12,742 24,576
-------- -------
Operating loss.................................................. (2,897) (955)
Interest and other income, net.................................. 1,067 559
-------- -------
Loss before benefit
of income taxes............................................... (1,830) (396)
Benefit of income taxes......................................... -- (137)
-------- -------
Net loss........................................................ ($1,830) ($259)
======== =======
Basic net loss per share...................................... ($0.14) ($0.02)
======== =======
Shares used in computing basic
per share amounts....................................... 13,191 12,686
======== =======
Diluted net loss per share.................................... ($0.14) ($0.02)
======== =======
Shares used in computing diluted
per share amounts....................................... 13,191 12,686
======== =======
</TABLE>
See accompanying notes.
3
<PAGE>
OPTI INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ------------
(Unaudited) (See Note 1)
<S> <C> <C>
ASSETS
(000's omitted)
Current assets
Cash, cash equivalents and
short-term investments......................... $70,768 $72,508
Accounts receivable, net........................... 8,744 11,782
Inventories........................................ 2,092 5,017
Other current assets............................... 976 1,472
-------- --------
Total current assets............................ 82,580 90,779
Property and equipment, net.......................... 9,644 11,047
Other assets......................................... 9,671 9,789
-------- --------
Total assets.................................... $101,895 $111,615
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable................................... $2,514 $11,171
Other current liabilities.......................... 4,123 4,248
-------- --------
Total current liabilities....................... 6,637 15,419
Long term liabilities
Long-term obligations under capital lease.......... 3,254 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 -- 13,335 in 1998
13,126 in 1997................................... 59,734 58,623
Retained earnings.................................. 32,270 34,100
-------- --------
Total shareholders' equity...................... 92,004 92,723
-------- --------
Total liabilities and shareholders'
equity........................................ $101,895 $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>
Three months Ended March 31,
1998 1997
--------------------------------------------
(000's omitted)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................... ($1,830) ($259)
Adjustments:
Depreciation.............................. 1,474 1,284
Amortization.............................. 123 135
Changes in assets and liabilities:
Accounts receivable..................... 3,038 2,333
Inventories............................. 2,925 (1,724)
Other assets............................ 491 264
Accounts payable........................ (8,657) 468
Other current liabilities............... (125) (373)
------- -------
Net cash provided by (used in)
operating activities............... (2,561) 2,128
INVESTING ACTIVITES:
Purchase of property and equipment.......... (71) (485)
FINANCING ACTIVITIES:
Net proceeds from sale of common stock...... 1,111 133
Payment of long-term liabilities............ (219) (237)
------- -------
Net cash provided by (used in)
financing activities............... 892 (104)
------- -------
Net increase (decrease) in
cash and cash equivalents.................. (1,740) 1,539
Cash, cash equivalents, and short-term
investments beginning of period............ 72,508 56,372
------- -------
Cash, cash equivalents, and short-term
investments end of period.................. $70,768 $57,911
======= =======
</TABLE>
See accompanying notes.
5
<PAGE>
OPTI INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
1. BASIS OF PRESENTATION
- -------------------------
The information at March 31, 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 as of March 31, 1998 does not have any
Comprehensive Income to discuss.
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 March 31, 1998, the Company had approximately $8.8 million in
high quality, auction rate preferred securities with reset dates within sixty
days. At March 31, 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 March 31, 1998, the fair value of the securities approximates cost.
4. INVENTORIES
- ---------------
Inventories consist of finished goods and work in process :
(in thousands) March 31, 1998 December 31, 1997
--------------- -----------------
Finished Goods $ 743 $2,508
Work in process 1,349 2,509
------ ------
$2,092 $5,017
------ ------
6
<PAGE>
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 first quarter of 1998 and a
benefit of 34.6% for the first quarter of 1997. The 1998 benefit rate is less
than the 1997 rate and 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 February 3, 1998 the Company announced that due to the difficulties that it
had been experiencing over the past couple of years that the Board of Directors
of the Company has determined that it would retain the services of an investment
banker to advise the Company on the best course of action. Such plans are
expected to involve finding a purchaser for the Company or selling off certain
of the operating businesses and assets followed by the distribution of funds to
shareholders. On February 23, 1998, the Company announced that it had retained
the services of UBS Securities as its investment banker to execute the plan of
action.
9. STOCK OPTIONS
- -----------------
In an effort to retain the employees as it attempts to sale the Company or its
operating businesses, the Company on February 27, 1998, offered accelerated
vesting to its employees. Non-officer and director level employees that are part
of a business line that is involved in a transaction will receive full vesting
of their respective OPTi Inc. stock options if one of the two following
conditions are met: They are not offered a job by the acquiring company and are
terminated by OPTi or they accept an offer from the acquiring company and do not
voluntarily terminate employment with the acquirer for sixty days. Director
level and above will receive an additional twelve months vesting of stock
options based on the same conditions.
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 March 31, 1998, the Company reported net sales of
$9,845,000, as compared to net sales of $23,621,000 for the quarter ended March
31, 1997. This decrease in net sales 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, and core logic chipsets.
Cost of sales for the quarter ended March 31, 1998 decreased to $7,381,000
which resulted in a gross margin of approximately 25.0%, as compared to
$17,417,000, which resulted in a gross margin of approximately 26.3% for the
quarter ended March 31, 1997. This decrease in gross margin for the three
months ended March 31, 1998 as compared to the similar period ended March 31,
1997 is primarily due to higher fixed costs being applied to a much lower net
sales number during the quarter.
Research and development costs decreased to $2,363,000 for the quarter ended
March 31, 1998, as compared with $3,188,000 for the quarter ended March 31,
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 $2,998,000 in the quarter
ended March 31, 1998 as compared with $3,971,000 in the comparable period 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 headcount after the sale of the audio group.
Interest and other income, net was $1,067,000 and $559,000 for the quarters
ended March 31, 1998 and 1997, respectively. This increase is primarily due to
higher levels of cash and higher interest rates during 1998 as compared to the
corresponding period of the prior year, as well as, a one time benefit during
the March 1998 quarter of approximately $200,000 for the settlement of a dispute
with a customer.
The Company recorded no tax benefit during the first quarter of 1998 and a
benefit of 34.6% for the first quarter of 1997. The 1998 benefit rate is less
than the 1997 rate and the federal statutory rate due primarily to the
limitations controlling the recognition of deferred tax assets.
The Company currently believes that its net sales will decrease in the second
quarter of 1998 as compared with the first quarter of 1998. This anticipated
decrease in net sales for the second quarter as compared to the first quarter
will be primarily attributable to the expected reduction in the Company sales of
audio controller products. During the first quarter of 1998, approximately 25%
of the Company's net sales were related to older inventory of audio controller
devices, mainly the 82c931, not included in the sale of the audio technology to
Creative Technology Ltd.. At the end of the first quarter, the Company's
inventory in this product was insignificant and therefore the sales in the
second quarter of audio devices will also be insignificant. The Company also
anticipates that its net operating loss for the second quarter of 1998 will be
greater than the operating loss reported in the first quarter of 1998. This
anticipated increase in the net operating loss in the second quarter is expected
to result from lower net sales and its effect on the Company's gross margin for
the quarter.
The Company recently announced that it has retained UBS Securities, an
investment banking firm, to advise the Company on evaluating and executing a
plan to maximize shareholder value in the near term. Such a plan is expected to
involve either the sale of the entire Company or the sale of the Company's
operating businesses and other assets accompanied by or followed by the
distribution of proceeds to the shareholders or implementation of a stock
repurchase program, or both. It is anticipated that the specific transactions
will be determined in the near term following a review of all available
alternatives and the appropriate method to maximize short term shareholder
value.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents, and short-term investments were $70,768,000 at March
31, 1998 down from $72,508,000 at December 31, 1997. Working capital for the
same period increased to $75,943,000 from $75,360,000 at December 31, 1997.
During the first three months of 1998, operating activities used $2.5 million of
cash. Cash used in operations was primarily due to an $8.7 million reduction in
accounts payable related to a reduction in inventories, and the net loss
adjusted for non cash items, partially offset by, a $3.0 million decrease in
accounts receivable, a result of decreased sales, and a $2.9 million decrease in
inventories caused by a reduction in inventory purchased. In addition,
investing activities related to capital equipment used $0.1 million and
financing activities, primarily related to proceeds from Common Stock provided
$0.9 million of cash during the three month period ended March 31, 1998.
At March 31, 1998 the Company's principal sources of liquidity included cash,
cash equivalents and short-term investments of approximately $70.8 million and
working capital of approximately $75.9 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 6. 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 March 31, 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: 5/15/98 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>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 70,768
<SECURITIES> 0
<RECEIVABLES> 9,294
<ALLOWANCES> 550
<INVENTORY> 2,092
<CURRENT-ASSETS> 82,580
<PP&E> 25,979
<DEPRECIATION> 17,335
<TOTAL-ASSETS> 101,895
<CURRENT-LIABILITIES> 6,637
<BONDS> 0
0
0
<COMMON> 59,734
<OTHER-SE> 32,270
<TOTAL-LIABILITY-AND-EQUITY> 101,895
<SALES> 9,845
<TOTAL-REVENUES> 9,845
<CGS> 7,381
<TOTAL-COSTS> 12,742
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112
<INCOME-PRETAX> (1,830)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,830)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,830)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
