Summary of OPTI INC - Yahoo! Finance

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Information set forth in this report constitutes and includes forward looking information made within the meaning of Section 27A of the Security 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 the Company's ongoing efforts to enforce its intellectual property rights including its current litigation efforts, the willingness of the parties it believes are infringing its patents to settle its claims against them, the amount of litigation costs the Company must incur in pursuing its patent infringement claims, the degree to which technology subject to the Company's intellectual property rights is used by other companies in the personal computer and semiconductor industries and our ability to obtain license revenues from them, changes in intellectual property law in such industries and in general and other matters.

OPTi Inc. a California corporation ("OPTi" or the "Company"), was founded in 1989, as an independent supplier of semiconductor products to the personal computer ("PC") and embedded marketplaces.

From inception through 1995, OPTi's principal business was its core logic products for desktop personal computers and the Company has employed as many as 235 employees over the years. However, over time, OPTi faced increasingly tight competition from companies with substantially greater financial, technical, distribution and marketing resources. In February 1999, the Company completely ceased further development of core logic products, although OPTi continued to ship such products to customers until September 2002. The Company's annual net sales declined from $163.7 million in 1995 to no revenue in fiscal year 2006. During the years ended March 31, 2009 and March 31, 2007, the Company recorded net revenue of approximately $3.8 million and $11 million relating to a license with NVIDIA Corporation ("NVIDIA").

In September 2002, the Company sold its product fabrication, distribution and sales operations to Opti Technologies, Inc., an unrelated third party, and the Company ceased manufacturing, marketing and sales operations. However, the Company believes that certain of its patented technology is in widespread unlicensed use and the Company has been engaged in perfecting its intellectual property rights, investigating unlicensed use of its technology and developing and validating a strategy to pursue product licenses from unlicensed users.

OPTi holds a majority of its liquid assets in cash and cash equivalents for the purpose of financing its efforts to pursue licenses and claims relating to its intellectual property.

The Company's current strategy is to pursue licensing opportunities to resolve potential infringement of its proprietary intellectual property in the core logic area. During the first quarter of fiscal year 2000, the Company entered into a one-time licensing arrangement for $13,311,000 on the core logic technology that the Company had developed during its existence. During the first quarter of fiscal year 2004, the Company also entered into a one-time license arrangement for $425,000 on its patented technology. The Company believes that there may be additional companies that may be infringing its patents. The Company is actively working to explore all possible arrangements to settle such infringements.

On October 19, 2004, the Company announced that it filed a complaint against NVIDIA, in the Eastern District of Texas, for infringement of five U.S. patents relating to its "Predictive Snooping" chipset technology. See "Part II, Item 1 - Legal Proceedings" below.

On April 24, 2006, the United States District Court for the Eastern District of Texas issued a ruling in the ongoing patent infringement action between OPTi and NVIDIA, which arose from a special proceeding required under U.S. patent law called a "Markman hearing," where both sides present their arguments to the court as to how they believe certain claims at issue in the lawsuit should be interpreted.

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On August 3, 2006, the Company entered into a license and settlement agreement with NVIDIA (the "License Agreement"). Under the License Agreement the Company agreed to dismiss its patent infringement lawsuit against NVIDIA and licensed certain patents to NVIDIA. NVIDIA made a non-refundable, non-creditable fully earned payment of $11 million to the Company. There is no future performance obligation. In accordance with the Company's revenue recognition policy $11 million was recorded as revenue during the quarter ended September 30, 2006 as persuasive evidence that an agreement existed, delivery of payment had occurred and there were no future performance obligations.

The License Agreement also requires that NVIDIA make quarterly royalty payments to the Company of $750,000, so long as NVIDIA continues to use the Company's Predictive Snoop technology, commencing in February 2007 up to a maximum of 12 such payments in exchange for a license for future use of the Pre-Snoop patents. Royalties will be recorded as revenue when earned and received, when fees are fixed or determinable, or when collectibility is reasonably assured.

On February 5, 2007 the Company announced that it received a letter from NVIDIA stating that NVIDIA had discontinued the use of the Predictive Snooping technology that it had licensed from the Company pursuant to the terms of the License Agreement. The letter from NVIDIA also stated that NVIDIA would not be remitting to the Company the quarterly royalty payment originally scheduled for February 2007.

On October 17, 2007 the Company initiated an arbitration against NVIDIA because the Company believed that NVIDIA breached the terms of the License Agreement. The Company sought payment for the past due quarters that OPTi believed NVIDIA had continued to use the Pre-Snoop technology. The arbitrator in September 2008 ruled in OPTi's favor and awarded the Company a total of five quarterly royalty payment of $750,000 each for an aggregate amount of $3,750,000. This amount was recognized as revenue in the fiscal year ended March 31, 2009.

On November 15, 2006, the Company announced that it had filed a patent infringement lawsuit in the United States District Court for the Eastern District of Texas against Advanced Micro Devices, Inc. ("AMD") for infringement of three U.S. patents relating to its "Predictive Snooping" technology. See "Part II, Item 1 - Legal Proceedings"below. The AMD case is a continuing part of the Company's strategy for pursuing its patent infringement claims and its outcome will have a significant effect on the Company's ability to realize ongoing licensing revenue through its intellectual property licensing efforts. Jury selection for this trial will begin the first week of February 2010, and the trial will begin later that month.

On January 16, 2007, the Company announced that it had filed a patent infringement lawsuit in the United States District Court for the Eastern District of Texas against Apple Inc. ("Apple") for infringement of three U.S. patents. The three patents at issue in the lawsuit are U.S. Patent No. 5,710,906, U.S. Patent No. 5,813,036 and U.S. Patent No. 6,405,291, which are all entitled "Predictive Snooping of Cache Memory for Master-Initiated Accesses". The Company alleges that Apple has infringed the patents by making, selling, and offering for sale desktop and portable computers and servers incorporating Predictive Snooping technology.

On April 23, 2009 a jury from the United States District Court for the Eastern District of Texas ruled in OPTi's favor in the patent infringement action between OPTi Inc and Apple Inc. The jury ruled on the following four issues:

• In the matter of willful infringement, the jury ruled that Apple willfully infringed OPTi's patent;

• In the matter of Apple's defense that OPTi's patent was invalid due to obviousness, the jury ruled that OPTi's patent was valid;

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• In the matter of Apple's defense that the patent was invalid due to anticipation, the jury ruled that the OPTi's patent was valid;

• In the matter of damages, the jury awarded OPTi $19 million for Apple's infringement of OPTi's patent.

The court had ruled previously that Apple had infringed the OPTi patent at issue on April 3, 2009. Apple has filed a number of post-trial motions seeking to reverse the jury verdict or to secure a new trial on a variety of issues. These motions are currently being briefed.

On July 3, 2007, the Company announced that it had filed a patent infringement lawsuit in the United States District Court for the Eastern District of Texas against eight companies for infringement of two U.S. patents. The two patents at issue in the lawsuit are U.S. Patent No. 5,944,807 and U.S. Patent No. 6,098,141, both entitled "Compact ISA-Bus Interface". The Company alleges that AMD, Atmel Corporation, Broadcom Corporation, Renesas Technology America, Inc., Silicon Storage Technology, Inc., Standard Microsystems Corporation ("SMSC"), STMicroelectronics and VIA Technologies, Inc. have infringed the patents by making, selling, and offering one or more of the following products:
core logic chipsets, Super I/O devices, Trusted Platform Modules, certain flash memory devices, certain I/O controllers and other semiconductor products incorporating Compact ISA-Bus Interface technology. The Company settled with Broadcom Corporation, Renesas Technology America, Inc., Silicon Storage Technology, Inc. and STMicroelectronics during the fiscal year ended March 31, 2009. During the first seven months of fiscal year 2010 the Company settled with Atmel Corporation, SMSC and VIA. The settlement amount received from Atmel Corporation of $125,000 is included in other income for the quarter ended June 30, 2009. The settlement amount received from SMSC of $1,900,000 is included in other income for the quarter ended September 30, 2009. The Company has requested a jury trial in this matter for the remaining defendant, AMD. The case against AMD relating to the Compact ISA-Bus Interface technology is currently scheduled for August 2010.

Critical Accounting Policies

The Company has had no changes in critical accounting policies as described in our Form 10-K filed on June 29, 2009.

Results of Operations for the Three and Six Months Ended September 30, 2009 Compared to the Three and Six Months Ended September 30, 2008.

Revenues

The Company had no revenue for the three and six-month periods ended September 30, 2009 and $3.8 million for the three and six-month periods ended September 30, 2008. The revenue in the three and six-month periods ended in September 2008 relate to an arbitration award from NVIDIA. The Company's future revenues depend on the success of our strategy of pursuing license claims on our intellectual property position.

General and Administrative

General and administrative expenses for the quarter ended September 30, 2009 were $1.2 million as compared to $2.8 million for the quarter ended September 30, 2008. The decrease in general and administrative costs for the three-month period ended September 30, 2009 as compared to the comparable period ended September 30, 2008 was mainly attributable to decreased litigation costs relating to the preparation of the AMD and Apple trials and the NVIDIA arbitration. General and administrative expenses for the six-month period ended September 30, 2009 were $3.4 million as compared to $4.5 million for the six-month period ended September 30, 2008. The decrease in general and administrative costs related to lower legal related costs in preparation for the AMD trial and NVIDIA arbitration, offset, in part, by higher costs related to the Apple trial in April 2009.

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Interest and Other Income, Net

Net interest and other income for the three-month period ending September, 30, 2009 was $1.9 million as compared to $0.2 million for the three-months ended September 30, 2008. The increase in net interest and other income in the three-month period ended September 30, 2009 as compared to the comparable period in 2008 was due to the standstill agreement with SMSC signed during the quarter, offset in part, by a decrease in interest income due to lower average cash balances and lower interest rates during the quarter ended September 30, 2009. Net interest and other income for the six-month period ending September, 30, 2009 was $2.0 million as compared to $0.3 million for the six-months ended September 30, 2008. The increase in net interest and other income in the six-month period ended September 30, 2009 as compared to the comparable period in 2008 was due to the standstill agreements with SMSC and Atmel Corporation signed during the six-month period, offset in part, by a decrease in interest income due to lower average cash balances and lower interest rates during the six months ended September 30, 2009.

Income Taxes

The Company recorded no tax provision for the three and six-month periods ended September 30, 2009 and 2008. The Company's effective tax rate differed from the federal and state statutory rates during all periods presented due to the uncertainty of the Company returning to profitability.

Due to uncertainty associated with the Company's prospective ability to realize the benefits of its tax assets, the Company has fully reserved the value of its deferred tax assets. In addition, utilization of the net operating loss and credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitations may result in the expiration of net operating loss carryforwards before utilization.

Liquidity and Capital Resources

Cash and cash equivalents decreased to $5.7 million at September 30, 2009 from $7.0 million at March 31, 2009. Working capital as of September 30, 2009 decreased to $4.5 million from $5.9 million at March 31, 2009. During the six-month period ended September 30, 2009, operating activities used approximately $1.4 million of cash due primarily to the net loss during the period. The Company had insignificant investing activity in the six-month periods ended September 30, 2009 and 2008, and no financing activity for the six-month periods ended September 30, 2009 and 2008.

As of September 30, 2009, the Company's principal sources of liquidity included cash, cash equivalents of approximately $5.7 million and working capital of approximately $4.5 million. The Company believes that the existing sources of liquidity will satisfy the Company's projected working capital and other cash requirements through at least the next twelve months.

The Company's current building lease agreement is scheduled to end on December 31, 2009. The total remaining commitment under the lease at September 30, 2009 is approximately $27,000.

Off Balance Sheet Arrangements

None

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