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OPTI INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations
(Edgar Glimpses Via Acquire Media NewsEdge) 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, which involves 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 recent
decision to recommend to its shareholders to adopt the Plan of Liquidation and
effects thereof, the Company's ongoing efforts to enforce its intellectual
property rights including its pending 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 and defending its decision to liquidate, the degree
to which technology subject to the Company's intellectual property rights is
continuing to be 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. Readers are encouraged to refer to "Risk Factors".
OPTi was founded in 1989 as an independent supplier of semiconductor products to
the personal computer market. During fiscal 2003, the Company sold its product
fabrication, distribution and sales operations to Opti Technologies, Inc., an
unrelated third party. As a result of this transaction all future revenues for
the Company are expected to be generated from the licensing of the Company's
intellectual property.
The Company's recent strategy has been to pursue licensing opportunities to
resolve potential infringement of its proprietary intellectual property in the
core logic area. During fiscal year 2011, the Company entered into several
settlement and licensing agreements totaling approximately $50.6 million on the
core logic technology that the Company had developed.
As technology in the computing industry has evolved, the ability of the Company
to pursue infringement claims has become increasingly limited, and the Company
has determined that it has exhausted the litigation opportunities that may be
worth pursuing. After investigating available alternatives the Board has
unanimously resolved to wind up and dissolve the Company pursuant to the Plan of
Liquidation in order to maximize shareholder return.
Critical Accounting Policies
General Our discussions and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires that we
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates based on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We believe that, of the significant accounting policies used in preparation of
our consolidated financial statements (see Note 1 of Notes to Condensed
Consolidated Financial Statements); the following are critical accounting
policies, which may involve a higher degree of judgment and complexity.
Revenue Recognition Revenue from license arrangements is recognized when
persuasive evidence of an arrangement exists, delivery has occurred and there
are no future performance obligations, fees are fixed or determinable and
collectability is reasonably assured.
Litigation and Contingencies From time to time, we receive various inquiries or
claims in connection with patent and other intellectual property rights. We
estimate the probable outcome of these claims and accrue estimates of the
amounts that we expect to pay upon resolution of such matters, if needed. Should
we not be able to secure the terms we expect, these estimates may change and may
result in increased accruals, resulting in decreased profits.
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INDEX
Results of Operations for the Three and Nine Months Ended December 31, 2011
Compared to the Three and Nine Months Ended December 31, 2010
Revenues
The Company had license revenue of $240,000 for the three-month period ended
December 31, 2011 and $12,250,000 for the three-month period ended December 31,
2010. The license revenue for the three-month period ended December 31, 2011
relates to the Company entering into a license agreement with Allied Security
Trust relating to the Company's Compact-ISA patents. The licensing revenue for
the period ended December 31, 2010 of $12,250,000 relates to the Company
entering into a license agreement with Apple, Inc. ("Apple"). The Company had
license revenue of $240,000 for the nine-month period ended December 31, 2011
and $50,625,000 for the nine-month period ended December 31, 2010. The license
revenue for the nine-month period ended December 31, 2010 relates to the Company
entering into settlement and licensing agreements with Advanced Micro Devices,
Broadcom Corporation, Renesas Technology, Apple and NVIDIA Corporation. The
Company's future revenues depend on the success of our strategy of pursuing
pending license claims on our intellectual property position. As noted above,
the Company has determined that it has exhausted the litigation opportunities
that may be worth purusing.
General and Administrative
General and administrative expenses for the quarter ended December 31, 2011 were
$495,000 as compared to $1,382,000 for the quarter ended December 31, 2010. The
decrease in general and administrative costs for the three-month period ended
December 31, 2011, as compared to the comparable period ended December 31, 2010,
was mainly attributable to a decrease in litigation costs and employee costs
relating to the executive bonus plan. General and Administrative expenses for
the nine-month period ended December 31, 2011 were $2,161,000 as compared to
$4,443,000 for the nine-month period ended December 31, 2010. The decrease in
general and administrative costs for the nine-month period ended December 31,
2011 as compared to the comparable period ended December 31, 2010 was mainly
attributable to decreased litigation costs and employee costs relating to the
executive bonus plan.
Interest and Other Income, Net
Net interest and other income for the three-month period ending December 31,
2011 was $3,000 as compared to $3,000 for the three-months ended December 31,
2010. Net interest and other income for the nine-month period ending December
31, 2011 was $10,000 as compared to $8,000 for the nine-months ended December
31, 2010. The increase in net interest and other income in the nine-month period
ended December 31, 2011 as compared to the comparable period in 2010 was due to
higher cash balances.
Income Taxes
As part of the process of preparing the unaudited consolidated financial
statements, the Company is required to estimate its income taxes in each of the
jurisdictions in which it operates. This process involves estimating the current
tax liability under the most recent tax laws and assessing temporary differences
from differing treatment of items for tax and accounting purposes. These
differences result in deferred tax assets and liabilities, which are included in
the unaudited condensed consolidated balance sheets.
Income tax expense for the three months ended December 31, 2011 was $1.1
million, or (441) % of pre-tax loss, compared to $6.0 million or 56% of pre-tax
income for the three months ended December 31, 2010. Income tax expense for the
nine-month period ending December 31, 2011 was $0.6 million, or (33) % of
pre-tax loss as compared to $20.2 million, or approximately 44% of pre-tax
income for the nine-month period ended December 31, 2010. The effective tax rate
for the three and nine-month periods ended December 31, 2011 differs from the
U.S. federal statutory rate of 35% primarily due to the prior year tax true up
and an increase in valuation allowance. The effective tax rate for the three and
nine-month periods ended December 31, 2010 differs from the U.S. federal
statutory rate of 35% primarily due to an increase in valuation allowance.
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INDEX
As of December 31, 2011, the Company's total gross unrecognized tax benefit has
decreased by $0.3 million as compared with the balance as of September 30,
2011. The Company has recorded a liability of approximately $3.5 million
representing unrecognized tax benefits relating to Federal and State research
and development credits. All of this amount would impact the Company's effective
tax rate, if recognized. Penalty and interest of approximately $0.2 million has
been accrued in income tax expense.
Liquidity and Capital Resources
Cash and cash equivalents decreased to $22.5 million at December 31, 2011 from
$25.8 million at March 31, 2011. The decrease in cash and cash equivalents of
approximately $3.3 million from March 31, 2011, to December 31, 2011, primarily
relates to the net loss for the period, increase in income tax receivable and a
reduction in accrued employee compensation, offset in part, by a decrease in
deferred income taxes. Working capital as of December 31, 2011, decreased to
$23.4 million from $25.5 million at March 31, 2011. During the first nine-months
of fiscal 2012, operating activities used approximately $3.3 million of
cash. Cash used by operating activities was primarily due to net loss during the
nine-month period of $2.5 million and an increase in income tax receivable of
$1.2 million.
As of December 31, 2011, the Company's principal sources of liquidity included
cash, cash equivalents of approximately $22.5 million, and net working capital
of approximately $23.4 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 building lease agreement ended on December 31, 2011. The Company
entered into a new non-cancelable two year operating lease that is scheduled to
expire on January 31, 2014. The total commitment under the new lease is
approximately $96,000.
Contractual Obligations
There was no material change as of December 31, 2011, to our contractual
obligations as compared to those at March 31, 2011 as disclosed in our Annual
Report on Form 10-K for the year ended March 31, 2011.
Off Balance Sheet Arrangements
None
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