==============================================================
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, 2001
[_] 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.)
880 Maude Avenue, Suite A Mountain View, CA 94043
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (605) 625-8787
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
October 31, 2001 was 11,633,903
==============================================================
OPTi, Inc.
FORM 10-Q
For the Quarterly Period Ended September 30, 2001
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements
a) Condensed Consolidated Statements of Operations for the
three months and nine months ended September 30, 2001 and 2000......... 3
b) Condensed Consolidated Balance Sheets as of September 30, 2001 and
December 31, 2000...................................................... 4
c) Condensed Consolidated Statements of Cash Flows for the
Nine months ended September 30, 2001 and 2000.......................... 5
d) Notes to Condensed Consolidated Financial Statements................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 10
Part II. Other Information
Item 1. Legal Proceedings............................................................ 15
Item 2. Changes in Securities........................................................ 15
Item 3. Defaults on Senior Securities................................................ 15
Item 4. Submission of Matters to a Vote of Shareholders.............................. 15
Item 5. Other Information............................................................ 15
Item 6. Exhibits and Reports on Form 8-K............................................. 15
Signatures..................................................................................... 16
2
OPTi Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------- ----------------------------------------
2001 2000 2001 2000
------------------- ------------------ ------------------- ------------------
(000's omitted, except per share data)
Revenues
Net product sales $ 1,272 $ 2,415 $ 5,044 $ 7,782
Net license revenues - - - 13,311
------------------- ------------------ ------------------- ------------------
Total revenues 1,272 2,415 5,044 21,093
------------------- ------------------ ------------------- ------------------
Costs and expenses:
Cost of sales 543 1,250 2,673 4,946
Research and development 103 79 489 510
Selling, general, and
administrative 1,192 938 2,829 6,162
------------------- ------------------ ------------------- ------------------
Total costs and expenses 1,838 2,267 5,991 11,618
------------------- ------------------ ------------------- ------------------
Operating income (loss) (566) 148 (947) 9,475
Interest and other income, net 572 743 1,456 1,765
------------------- ------------------ ------------------- ------------------
Income before income tax provision 6 891 509 11,240
Income tax provision - - 12 261
------------------- ------------------ ------------------- ------------------
Net income $ 6 $ 891 $ 497 $ 10,979
=================== ================== =================== ==================
Basic net income per share $ 0.00 $ 0.08 $ 0.04 $ 0.94
=================== ================== =================== ==================
Diluted net income per share $ 0.00 $ 0.08 $ 0.04 $ 0.94
=================== ================== =================== ==================
Shares used in computing basic
per share amounts 11,634 11,646 11,639 11,640
=================== ================== =================== ==================
Shares used in computing diluted
per share amounts 11,634 11,670 11,641 11,653
=================== ================== =================== ==================
See accompanying notes.
3
OPTi Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2001 2000
----------------- ----------------
(Unaudited) (See Note 1)
Assets
(000's omitted)
Current assets
Cash and cash equivalents $ 11,936 $ 12,146
Short-term investments 20,421 45,980
Accounts receivable, net 745 1,131
Inventories 146 1,140
Other current assets 579 359
----------------- ----------------
Total current assets 33,827 60,756
Property and equipment, net 65 157
Other assets 273 359
----------------- ----------------
Total assets $ 34,165 $ 61,272
================= ================
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 499 $ 1,365
Other current liabilities 548 2,441
----------------- ----------------
Total current liabilities 1,047 3,806
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 -- 11,634 in 2001
11,655 in 2000 22,567 22,646
Accumulated other comprehensive income 322 25,088
Retained earnings 10,229 9,732
----------------- ----------------
Total shareholders' equity 33,118 57,466
----------------- ----------------
Total liabilities and shareholders'
equity $ 34,165 $ 61,272
================= ================
Note 1 - The consolidated balance sheet at December 31, 2000 has been derived
from the audited financial statements.
See accompanying notes.
4
OPTi Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months Ended September 30,
2001 2000
-------------------------------------
(000's omitted)
Operating Activities:
Net income .......................................... $ 497 $ 10,979
Adjustments:
Depreciation .................................... 193 379
Changes in assets and liabilities:
Accounts receivable ........................... 386 204
Inventories ................................... 994 (410)
Other assets .................................. (134) 884
Accounts payable .............................. (866) 733
Litigation accruals ........................... -- (2,000)
Other current liabilities ..................... (334) (574)
-------- --------
Net cash provided by
operating activities ...................... 736 10,195
Investing Activites:
Purchase of property and equipment ................. (101) (23)
Sale of property and equipment ..................... -- 41
Cash impact of Sale of OPTi Japan KK ............... -- (1,102)
Purchase of short-term investments ................. (19,349) --
Sale of short-term investments ..................... 18,583 --
-------- --------
Net cash used in
investing activities ........................ (867) (1,084)
-------- --------
Financing Activities:
Net proceeds from sale of common stock -- 117
Repurchase of common stock ......................... (79) --
-------- --------
Net cash provided by (used in)
financing activities .................... (79) 117
-------- --------
Net increase (decrease) in cash
and cash equivalents ............................... (210) 9,228
Cash and cash equivalents
beginning of period ............................... 12,146 23,722
-------- --------
Cash and cash equivalents
end of period ..................................... $ 11,936 $ 32,950
======== ========
See accompanying notes.
OPTi Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001
1. Basis of presentation
- -------------------------
The information at September 30, 2001 and for the nine month periods ended
September 30, 2001 and 2000, 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, 2000.
2. Liquidation of the Company
- ------------------------------
On September 7, 2001, the Board of directors approved a plan to liquidate and
dissolve the Company. Implementation of this plan will require the approval of
the shareholders of the Company, which approval the Company intends to seek at
its 2001 Annual Meeting of Shareholders. The Board anticipates that, as part of
the liquidation, the Company will return to its shareholders cash plus the
disposition of Tripath Technology Inc. shares, plus any residual cash held by
the Company at the end of the liquidation period. Currently, the Company's
business activities consist primarily of continued sales of our core logic
products for embedded designs and universal serial bus controller devices.
The consolidated financial statements of the Company as of September 30, 2001
and December 31, 2000, respectively, were prepared under generally accepted
accounting policies for a going concern entity and do not reflect changes in the
carrying amounts of assets and liabilities which may be affected should the
shareholders approve a plan of liquidation of the Company's assets. Amounts that
may be affected include those related to the carrying value of property, plant
and equipment of the Company as well as possible adjustments of amounts related
to other assets and liabilities of the Company including additional costs for
severance.
3. Net income per share
- ------------------------
Basic net income per share is computed by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted net
income per share is calculated using the weighted average number of common and
dilutive common equivalent shares outstanding during the period. Dilutive common
equivalent shares consist of stock options.
The following table sets forth the computation of basic and diluted net
income per share (in thousands except per share data):
Three Months ended Nine Months ended
September 30 September 30
2001 2000 2001 2000
---- ---- ---- ----
Net income $ 6 $ 891 $ 497 $10,979
======== ======= ======= =======
Weighted average number of common shares outstanding 11,634 11,646 11,639 11,640
======== ======= ======= =======
Basic net income per share $ 0.00 $ 0.08 $ 0.04 $ 0.94
======== ======= ======= =======
Weighted average number of common shares outstanding 11,634 11,646 11,639 11,640
Effect of dilutive securities:
Employee stock options -- 24 2 13
-------- ------- ------- -------
Denominator for diluted net income per share 11,634 11,670 11,641 11,653
======== ======= ======= =======
Diluted net income per share $ 0.00 $ 0.08 $ 0.04 $ 0.94
======== ======= ======= =======
6
4. Short-Term Investments
- --------------------------
The following is a summary of short-term investments as of September
30, 2001 and December 31, 2000 (in thousands):
September 30, 2001 December 31, 2000
------------------------------------- ------------------------------------
Gross Estimated Gross Estimate
Amortized Unrealized Fair Amortized Unrealized Fair
Cost Gains Value Cost Gains Value
--------- ---------- --------- --------- ---------- --------
Cash $ 1,191 $ -- $ 1,191 $12,146 $ -- $12,146
Certificates of Deposit 10,745 -- 10,745
Commercial Paper 10,531 -- 10,531 10,338 -- 10,338
U.S. Government Bonds
and Notes 8,818 -- 8,818 8,245 -- 8,245
Investment in Tripath
Technology, Inc. 725 347 1,072 725 26,672 27,397
------- ------- ------- ------- ------- -------
$32,010 $ 347 $32,357 $31,454 $26,672 $58,126
======= ======= ======= ======= ======= =======
Reported as:
Cash and cash
Equivalents 11,936 -- 11,936 $12,146 -- $12,146
Short-term
Investments 20,074 347 20,421 19,308 26,672 45,980
------- ------- ------- ------- ------- -------
$32,010 $ 347 $32,357 $31,454 $26,672 $58,126
======= ======= ======= ======= ======= =======
5. Inventories
- ---------------
Inventories consist of finished goods and work in process (in
thousands):
September 30, 2001 December 31, 2000
------------------ -----------------
7
Finished Goods $ 64 $ 871
Work in process 82 269
------- --------
$ 146 $ 1,140
======= ========
6. Segment Information
- ----------------------
Sales of the Company's product based on customer location were as follows
(in thousands):
Three months ended Sept. 30, Nine months ended Sept. 30,
2001 2000 2001 2000
------ ------ ------ ------
Taiwan $ 292 $ 26 $1,738 $1,721
Japan 453 537 970 1,719
Other Far East 243 553 664 1,339
United States 273 1,272 1,595 2,966
Europe Other 11 27 77 37
------ ------ ------ ------
Total Net Sales $1,272 $2,415 $5,044 $7,782
====== ====== ====== ======
7. Concentrations
- -----------------
Tripath Technology, Inc.
Tripath Technology, Inc. ("Tripath"), an investment held by the Company, became
publicly traded in August 2000. This investment, with a cost of $0.7 million, is
reflected in the Company's September 30, 2001 balance sheet under short term
investments at a fair market value of $1.1 million. These shares were subject to
lock-up agreements which restricted their transfer until January 27, 2001.
Tripath to date has a limited operating history as it began to ship products in
1998 and many of its products have only recently been introduced. Tripath also
has a history of losses. As of December 31, 2000, Tripath has an accumulated
deficit of approximately $111 million. It incurred net losses of approximately
$41 million in 2000, $32 million in 1999 and $34 million in 1998. It expects to
continue to incur net losses in the future and these losses may be substantial.
Major Customers and Credit Risks
The Company primarily sells to PC, motherboard and add-in card manufacturers.
The Company performs ongoing credit evaluations of its customers but does not
require collateral. The Company maintains reserves for potential credit losses,
and such losses have been within management's expectations. With the exception
of sales to NCR and its subcontractors, Holystone Enterprises, a Taiwan based
company, Max Components, a Hong Kong based distributor and OPTi Japan, our
former subsidiary, no other single customer represented more than 10% of sales
for the first nine months of 2001. In the first nine months of 2001, the Company
sold to Holystone Enterprises approximately $1.7 million in USB controllers,
representing approximately 34% of net sales for the period. Also in the first
nine months of 2001, the Company sold approximately $0.7 million of its embedded
core logic product to NCR and its subcontractors, representing approximately
14% of net sales for that period. Net sales to Max Components for the first nine
months of 2001 were approximately $0.6 million representing 11% of net sales for
the period. The Company also sold approximately $0.6 million of core logic
product to OPTi Japan representing 11% of net sales for the period.
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 risks if
these customers are unable to remain profitable. Approximately 36% of the
Company's receivables at September 30, 2001 were with these customers.
8
Suppliers
The Company's reliance on independent foundries, packaging houses and test
facilities 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 first three quarters of 2000, 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
inventory surpluses and has in the past experienced write-downs of inventories
due to an unexpected reduction in demand for a certain product.
Products
At any point in time, the Company may rely on a limited number of products for a
significant share of the Company's revenue. In the first nine months of 2001,
the Company was highly dependent on revenue contributions from its USB
controller. For the first nine months ended September 30, 2001, the Company sold
approximately $2.9 million of its two port USB controller, representing
approximately 58% of revenue.
8. Comprehensive Income
- -----------------------
The Company's total comprehensive income (loss) was as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
Net income $ 6 $ 891 $ 497 $ 10,979
Other comprehensive income (loss) (15,549) 48,262 (24,766) 48,262
--------- --------- --------- --------
Comprehensive income (loss) $ (15,543) $ 49,153 $ (24,269) $ 59,241
========== ========= ========= ========
Other comprehensive income includes unrealized gains on marketable securities
net of taxes.
9. Litigation
- -------------
The Company has been notified of claims that it may be infringing patents,
maskwork rights, or copyrights owned by third parties. There can be no assurance
that the Company will not become involved in litigation regarding the alleged
infringements by the Company of third party intellectual property rights.
However, the Company believes that the final disposition of such matters will
not have a material adverse effect on the Company's financial position, results
of operations and cash flows.
10. 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.
11. Taxes
- ---------
9
The Company recorded no tax provision for the quarters ended September 30, 2001
and 2000. For the nine months periods ended September 30, 2001 and 2000, the
Company recorded a tax provision of approximately 2%. The Company's effective
tax rate differed from the federal statutory rates during 2001 and 2000
primarily due to the utilization of prior year tax losses carried forward,
federal alternative minimum taxes and foreign taxes.
12. Recent Pronouncements
- -------------------------
In July 2001, the FASB issued SFAS 141 "Business Combinations" and SFAS 142
"Goodwill and Other Intangible Assets". SFAS 141 eliminates the
pooling-of-interest method of accounting for business combinations except for
qualifying business combinations that were initiated prior to July 1, 2001.
Statement 141 further clarifies the criteria to recognize intangible assets
separately from goodwill. The requirements of SFAS 141 are effective for any
business combination accounted for by the purchase method that is completed
after June 30, 2001 (i.e., the acquisition date is July 1, 2001 or after). Under
SFAS 142, goodwill and indefinite lived intangible assets are no longer
amortized but are reviewed annually (or more frequently if impairment
indications arise) for impairment. Separable intangible assets that are not
deemed to have an indefinite life will continue to be amortized over their
useful lives.
The adoption of SFAS 141 and SFAS 142 will not have a material impact on the
Company's results of operations or financial position as the Company does not
currently have any goodwill or other intangible assets.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Recent Developments
On September 7, 2001, the Board of directors approved a plan to liquidate and
dissolve the Company due to the continuing decline in product revenues and the
Board's determination that alternative strategic opportunities the Board had
investigated were unlikely to yield as much or more value to shareholders than
the liquidation of OPTi's assets and the return to OPTi shareholders of the
proceeds of such liquidation. Implementation of this plan will require the
approval of the shareholders of the Company, which approval the Company intents
to seek at its 2001 Annual Meeting of Shareholders. The Board anticipates that,
as part of the liquidation, the Company will return to its shareholders cash
plus the disposition of Tripath Technology Inc. shares, plus any residual cash
held by the Company at the end of the liquidation period. Currently, the
Company's business activities consist primarily of continued sales of our core
lofic products for embedded designs and universal serial bus controller devices.
The consolidated financial statements of the Company as of September 30, 2001
and December 31, 2000, respectively, were prepared under generally accepted
accounting policies for a going concern entity and do not reflect changes in the
carrying amounts of assets and liabilities which may be affected should the
shareholders approve a plan of liquidation of the Company's assets. Amounts that
may be affected include those related to the carrying value of property, plant
and equipment of the Company as well as possible adjustments of amounts related
to other assets and liabilities of the Company including additional costs for
severance.
Results of Operations
Information set forth in this report 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 and 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 electronics and semiconductor industries, product development
schedules, competition and other matters. Readers are encouraged to refer to
"Factors Affecting Earnings and Stock Price" found below in this Item 2.
Net revenues for the third quarter ended September 30, 2001 were $1,272,000, as
compared to, net revenues of $2,415,000 for the quarter ended September 30,
2000. For the nine month periods ended September 30, 2001 and 2000, the Company
reported net revenues of $5,044,000 and $21,093,000, respectively. Net revenues
for the nine months ended September 30, 2000, included net license revenues of
$13,311,000 resulting from a one-time non-exclusive licensing fee for certain
OPTi patents. The decrease in net product sales for the three month and nine
month periods ending September 30, 2001, as compared to the three month and nine
month periods ending September 30, 2000, was due primarily to decreased sales of
the Company's core logic chipsets used in various embedded designs and a slow
down in the add-in marketplace for peripheral personal computer devices, such as
the Company's USB controller chip.
Cost of product sales for the quarter ended September 30, 2001 decreased to
$543,000 resulting in a gross margin of approximately 57.32%, as compared to
cost of sales of $1,250,000, and a product gross margin of approximately 48.2%
for the quarter ended September 30, 2000. Cost of sales for the first nine
months of 2001 was $ 2,673,000, which resulted in a gross margin of
approximately 47.0%, as compared with cost of sales of $4,946,000, and a gross
margin of approximately 36.4%, for product sales for the nine months ended
September 30, 2000. The Company's actual gross margin for the nine months ended
September 30, 2000 was 76.6%, including the license revenue of $13.3 million,
which had no associated cost of goods sold. The increase in product gross margin
as a percentage of sales for the three-month and nine month periods ended
September 30, 2001 as compared to the similar periods ended September 30, 2000
is primarily due to product mix, the sale of previously reserved obsolete core
logic products, and a reduction in assembly and test costs that the Company was
able to negotiate during the first quarter of 2001. Due to the continuing
decline in product sales, the Company temporarily suspended its orders of
inventory from semiconductor foundries during the third quarter of 2001.
Additional orders to the foundries were placed later in the quarter. The
decision on whether to continue placing orders will depend upon the level of
demand for OPTi products and whether OPTi's shareholders adopt the plan of
liquidation at the 2001 Annual Shareholders Meeting.
11
Research and development costs increased to $103,000 for the quarter ended
September 30, 2001, as compared with $79,000 for the quarter ended September 30,
2000. For the first nine months of 2001 research and development costs were
$489,000 as compared to $510,000 for the comparable period of 2000. The increase
in research and development costs for the third quarter of 2001 as compared to
the third quarter of 2000, was primarily due to outside contractor expenses for
product development during the period. As of September 30, 2001, the Company had
no research and development employees. In July 2001, the Company terminated its
current products under development due to disappointing results from the initial
product testing.
Selling, general, and administrative costs were $1,192,000 in the quarter ended
September 30, 2001 as compared with $938,000 in the comparable period of 2000,
and $2,829,000 for the first nine months of 2001 as compared to $6,162,000, for
the first nine months of 2000. The increase in selling, general, and
administrative costs for the three-month period ended September 30, 2001 as
compared to the three-month period ending September 30, 2000 is primarily
attributable to higher legal and accounting costs as the Company prepared for
the plan of liquidation during the period. The decrease in selling, general and
administrative expenses for the nine month period ended September 3, 2001 as
compared to the nine month period ended September 30, 2000, is primarily due to
approximately $3,000,000 resulting from additional costs incurred in settling
the Crystal Semiconductor litigation.
Interest and other income, net was $572,000 and $743,000 for the quarters ended
September 30, 2001 and 2000, respectively. Interest and other income, net for
the nine month periods ended September 30, 2001 and 2000, was $1,456,000 and
$1,765,000, respectively. The decrease in the three and nine month periods ended
September 30, 2001 as compared to the three and nine month periods ended
September 30, 2000 is primarily due to a lower average cash balance due to the
payment of $7,000,000 during the second half of 2000 as settlement of the
Crystal Semiconductor litigation and lower average interest rates in 2001 versus
2000.
The Company recorded no tax provision for the periods ending September 30, 2001
and 2000. For the nine month periods ended September 30, 2001 and 2000, the
Company recorded a tax provision of approximately 2%. The Company's effective
tax rate differed from the federal statutory rates during 2001 and 2000
primarily due to the utilization of prior year tax losses carried forward,
federal alternative minimum taxes and foreign taxes.
In July 2001 the Company terminated eight of its 15 employees due to both the
decline of revenue and the termination of its currents products under
development. The reduction in headcount did not affect OPTi's support of its
customer base. As of September 30, 2001, the Company had seven employees.
Liquidity and Capital Resources
Cash, cash equivalents, and short-term investments decreased to $32,357,000 at
September 30, 2001 from $58,126,000 at December 31, 2000. The decline in cash,
cash equivalents and short-term investments of approximately $25.8 million from
December 31, 2000 to September 30, 2001, primarily relates to the decrease in
value of the Company's investment in Tripath Technologies. The investment in
Tripath Technologies, net of accrued taxes, decreased by approximately $24.8
million during that period. Working capital as of September 30, 2001 decreased
to $32,780,000 from $56,950,000 at December 31, 2000. This decrease also relates
primarily to the decrease in the value of the Tripath Technologies investment.
During the first nine months of 2001, operating activities generated
approximately $0.7 million of cash. Cash generated from operating activities was
primarily due to a $0.4 million reduction in accounts receivable, $1.0 million
reduction in inventories and a $0.5 million of net income, partially offset by,
a $0.9 million reduction in accounts payable and a $0.3 million reduction in
other current liabilities. Investing activities used $0.9 million of cash during
the first nine months of 2001. This use in cash was due to a net purchases of
short term investments of $0.8 million and the purchase of $0.1 million of
property and equipment. Financing activities for the first nine months of 2001
used $0.1 million due to the stock repurchase program announced by the Company
in December 2000.
At September 30, 2001, the Company's principal sources of liquidity included
cash, cash equivalents and short-term investments of approximately $32.4
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 if OPTi's shareholders vote to not
liquidate and dissolve the Company at the 2001 Annual Shareholders Meeting.
12
Factors Affecting Earnings and Stock Price
Announcement of Board Approval of a Plan to Liquidate and Dissolve the Company
On September 11, 2001, OPTi announced that its Board had approved a plan for the
complete liquidation and dissolution of OPTi, pending approval of the plan by
its shareholders. It is possible that the announcement of the plan of
liquidation could cause OPTi's existing customers to seek substitutes for OPTi
products from other suppliers, thereby causing the continuing decline in OPTi
product sales to accelerate. The announcement could also make it more difficult
for OPTi to collect on accounts receivables.
In addition, the announcement could affect the trading volume and the price of
OPTi stock as investors decide whether or not they wish to hold OPTi shares and
receive the liquidating distributions OPTi expects to make if shareholders
approve the plan to liquidate and dissolve OPTi.
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 other suppliers, price competition, ongoing
rapid price declines, 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 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.
Product Transitions and the Timing and Delivery of New Products
A substantial majority of the Company's net product sales is derived from its
USB controller products. The market for USB controllers is characterized by
frequent transitions in which this functionality can be and is incorporated into
other semiconductor devices, such as core logic. A failure to develop products
with required feature sets or performance standards or a delay as short as a few
months in bringing a new product to market could significantly reduce the
Company's net sales for a substantial period, which would have a material
adverse effect on the Company's business, financial condition and results of
operations.
Continued Sales of Current Products
The Company's ability to maintain or increase its sales levels and profitability
depends directly on its ability to continue to sell its existing products at
current volumes. The Company will have few, if any, new product introductions
for the foreseeable future. Any inability to continue sales at the current level
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 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
The Company primarily sells products to PC, motherboard, and add-in card
manufacturers. The Company performs ongoing credit evaluations of its customers
but does not require collateral. The Company maintains reserves for
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potential credit losses, and such losses have been within management's
expectations. 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 product sales in the foreseeable future, although the Company's customers in
any one period will continue to change.
However, there can be no assurance that any of these customers or any of the
Company's other customers will continue to utilize the Company's products at
current levels, if it all. The Company has experienced significant changes in
the composition of its major customer base and expects that this variability
will continue in the future. During 1999 and 1998 both Compaq and its
subcontractors and Apple and its subcontractors were significant customers. At
this time the Company is not shipping any products to either Compaq and its
subcontractors or Apple and its subcontractors. The loss of any major customer
or any reduction in orders by any such customer could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company has no long-term volume commitments from any of its major customers
and generally enters into individual purchase orders with its customers. The
Company has experienced cancellations of orders and fluctuations in order levels
from period to period and expects it will continue to experience such
cancellations and fluctuations in the future. Customer purchase orders may be
cancelled and order volume levels can be changed or delayed with limited or no
penalties. The replacement of cancelled, delayed or reduced purchase orders with
new business cannot be assured. Moreover, the Company's business, financial
condition and results of operations will depend in significant part on its
ability to obtain orders from new customers, as well as on the financial
condition and success of its customers. Therefore, any adverse factors affecting
any of the Company's customers or their customers could have a material effect
on 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 risks if
these customers are unable to remain profitable. Approximately 32% of the
Company's receivables at September 30, 2001 were with these customers.
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, packaging houses, and
test 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 1999 and the first three quarters of 2000, 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 its products 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
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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 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 and test houses. The Company is also dependent on these packaging
houses and third party test houses for adequate capacity.
Dependence on Intellectual Property position
The success of the Company's current strategy of licensing its core logic
technology can be affected by new developments in intellectual property law
generally and with respect to semiconductor patents in particular and upon the
Company's success in defending its patent position. It is difficult to predict
developments and changes in intellectual property law and in advance, however
such changes could have an adverse impact on the Company's ability to license
its previously developed technology.
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.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Interest Rate Sensitivity
We maintain our cash and cash equivalents primarily in money market
funds. We do not have any derivative financial instruments. As of September 30,
2001, all of our debt investments mature in less than six months. Accordingly,
we do not believe that our investments have significant exposure to interest
rate risk.
We maintain an investment in the common shares of Tripath Technology,
Inc. This investment is not hedged and is subject to extreme volatility.
Assuming a 75% adverse change in market price, this investment would decrease in
value by approxiumately $0.9 million, based on this investment as of September
30, 2001. This estimate is not necessarily indicative of future performance, and
actual results may differ materially.
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OPTi Inc.
Part II. Other Information
Item 1. Legal Proceedings.
See note 9 of Notes to Condensed Consolidated Financial Statements on
page 9 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. Other Information
2001 Annual Meeting the scheduled date for the 2001 Annual Meeting of
-------------------
Shareholders of OPTi Inc. has been tentatively moved to January 11,
2002, due to the review by the Securities and Exchange Commission of
the preliminary proxy statement for the meeting. At the meeting OPTi
shareholders will be asked to vote on a plan of complete liquidation
and dissolution of the Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Amendment No.1 to lease between John Arrillaga, Trustee, or his
Successor Trustee UTA dated 7/20/77 (John Arrillaga Survivor
Trust) as amended, and Richard T. Peery, Trustee, or his Successor
Trustee UTA dated 7/20/77 (Richard T. Peery Separate Property
Trust) as amended, collectively as LANDLORD, and OPTi Inc., a
California corporation, as TENANT.
(b) Reports on Form 8-K:
Current Report on Form 8-K dated September 14, 2001 reporting
Press Release dated September 11, 2001, OPTi Inc. Board approves
plan of Liquidation.
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OPTi Inc.
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: 11/13/01 By: \s\ Michael Mazzoni
---------------------
Michael Mazzoni
Signing on behalf of the Registrant and as
Chief Financial Officer
17