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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the Quarterly Period Ended June 30, 2004

For the Transition Period from:

Commission File Number 0-21422

OPTi Inc.

(exact name of registrant as specified in this charter)

Registrant’s telephone number, including area code (650) 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 proceeding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days.    Yes   x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

The number of shares outstanding of the registrant’s common stock as of July 31, 2004 was 11,633,903.

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OPTi Inc.

Form 10-Q

For the Quarterly Period Ended June 30, 2004

INDEX

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OPTi Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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OPTi Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

The accompying notes are an integral part of these condensed consolidated financial statements.

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OPTi Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

The accompany notes are an integral part of these condensed consolidated financial statements.

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OPTi Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2004

(Unaudited)

1. Basis of Presentation

The information at June 30, 2004 and for the three-month periods ended June 30, 2004 and 2003, are unaudited, but include 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 March 31, 2004.

Sale of the Product Fabrication, Distribution and Sales Operations

On September 30, 2002, the Company announced that it had sold its product fabrication, distribution and sales operations to Opti Technologies, Inc., an unrelated third party. As part of the transaction Opti Technologies was to pay the Company $275,000 in licensing fees and acquire the existing inventory at cost. The Company received $344,000 ($275,000 for the licensing fees and partial payment on the purchase of inventory) in September and the balance of $350,000, for inventory, on October 1, 2002. The Company is also entitled to quarterly royalty payments for the sale of it core logic and USB products by Opti Technologies. The Company is to receive 20% of net sales for the USB products and 40% of net sales for the core logic products. As of June 30, 2004, the Company has received approximately $1,448,000 and accrued an additional $52,000 in license and royalty payments from Opti Technologies. The maximum license and royalty payments that the Company can receive from the agreement with Opti Technologies is $1,500,000, which will be completed upon the receipt of the outstanding balance of $52,000.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States 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.

Stock-based compensation

The Company accounts for stock-based compensation arrangements in accordance with the provisions of APB No. 25 (“APB No. 25”), “Accounting for Stock Issued to Employees” and complies with the provisions of Statement of Financial Accounting Standard No. 123 (“SFAS No. 123”), “Accounting for Stock-Based Compensation”. Under APB No. 25, compensation cost is, in general, recognized based on the excess, if any, of the fair market value of the Company’s stock on the date of grant over the amount an employee must pay to acquire the stock. Equity instruments issued to non-employees are accounted for in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force 96-18.

SFAS No. 123 pro forma disclosures

Had compensation cost for the Company’s option plans been determined using the fair value at the grant dates, as prescribed in SFAS No. 123, the Company’s net income (loss) would have been as follows (in thousands, except per share amounts):

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2. Net Income (Loss) Per Share

Basic net income (loss) per share and diluted net loss per share is computed by dividing net income (loss) 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. Common equivalents shares consist of stock options. At June 30, 2004 and 2003, options for 150,666 shares at exercise prices ranging from $1.27 to $7.50 were outstanding but were excluded from the calculation of earnings per share as their impact was antidilutive.

The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share amounts):

3. Concentrations

Major Customers and Credit Risks

The Company derives all of its current royalty revenues from Opti Technologies, Inc., an unrelated third party. At June 30, 2004, all of the Company’s accounts receivable balance is with this company. All of the Company’s accounts receivable balance at June 30, 2004 has been collected subsequent to June 30, 2004.

During the first fiscal quarter of 2005, the Company recorded the remaining $52,000 in royalty revenue from Opti Technologies, Inc. No further revenue is expected from Opti Technologies, Inc. and the Company’s future revenues depend on the success of our strategy of pursuing license claims on our intellectual property position.

4. Comprehensive income (loss)

The Company’s total comprehensive income (loss) is as follows (in thousands):

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5. Commitments and Contingencies

The Company has from time to time been notified of claims that it may be infringing patents, maskworks 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.

The Company generally indemnifies, under predetermined conditions, its customers for infringement of third party intellectual property rights by its products or services.

6. Taxes

The Company recorded no tax provisions for the three-month periods ended June 30, 2004 and 2003. The Company’s effective tax rate differed from the federal statutory rate in 2004 and 2003 due to the uncertainty of the Company returning to profitability and the utilization of prior year tax losses earned forward, respectively.

7. Revenue

During the three-month period ending June 30, 2004 and 2003, the Company recognized royalty revenue of $52,000 and $159,000, respectively. The remaining revenue in the three month period ending June 30, 2003 related to a non recurring license fee.

No further revenue is expected from Opti Technologies, Inc. and the Company’s future revenues depend on the success of our licensing strategy of pursuing license claims on our intellectual property position.

8. National Semiconductor Settlement

On June 26, 2003, the Company and National Semiconductor Corporation (“NSC”) reached a Settlement and Patent License Agreement in regards to the claim filed by the Company against NSC in April 2002, and NSC’s counterclaim filed against the Company in September 2002.

The license agreement grants NSC a non-exclusive, perpetual, royalty-free, worldwide license under the OPTi patents at issue in the April 2002 claim and also grants to OPTi a non-exclusive, perpetual, royalty-free, worldwide license under the NSC patent at issue in the September 2002 counterclaim.

Concurrent with the execution of this agreement NSC made a one-time payment to OPTi, which was recorded as license revenue. Both parties also executed a Stipulation and Order of Dismissal, whereby the parties dismissed with prejudice all claims and counterclaims asserted against each other.

9. Nasdaq Delisting

On May 24, 2004, the Company received notice from Nasdaq that pursuant to the April 1, 2004 oral hearing before the Nasdaq listing Qualification Panel, a determination had been made in the matter of the Company and its request for continued inclusion on the Nasdaq National Market.

After a review of the entire record the qualification panel concluded that the Company was a public shell. The panel was of the opinion that the pursuit of patent infringement claims did not constitute active and sustainable business operations. Based on the foregoing, the Panel determined that, in order to preserve and strengthen the

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quality of and public confidence in The Nasdaq Stock Market, and in order to protect the integrity of The National Stock Market, prospective investors and the public interest, the Company’s securities should be delisted from The Nasdaq Stock Market. The delisting became effective with the opening of business on May 26, 2004.

The Company’s common stock is currently being listed and traded on the over-the-counter market in the so-called “pink sheets”.

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Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations

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 the ability of licensee to continue to sale the licensed products, market conditions generally and in the personal computer and semiconductor industries, changes in intellectual property law in the semiconductor industry and in general and other maters. Readers are encouraged to refer to “Factors Affecting Earnings and Stock Price” found below in this Item 2.

Opti was founded in 1989 and was an independent supplier of semiconductor products to the personal computer market. During fiscal 2003, the Company announced that it had sold its product fabrication, distribution and sales operations to Opti Technologies, Inc., an unrelated third party. In addition, 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 position, investigating unlicensed use of its technology and developing and validating a strategy to pursue product licenses from unlicensed users.

In the future, the Company will pursue revenue through the pursuit of licenses from users of its intellectual property. The Company does not expect to receive additional significant revenue other than any that may result through the pursuit of its patent infringement cases and associated licensee efforts.

Critical Accounting Policies

We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business is discussed throughout Management’s Discussion and Analysis of Financial Conditions and Results of Operations where such policies affect our reported and expected financial results. Note that our preparation of this report on Form 10-Q requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. There can be assurance that actual results will not differ from those estimates.

Contingencies

From time to time we are subject to proceedings, lawsuits and other claims related to labor, products, patents and other matters. We are required to assess the likelihood of any adverse judgements or outcomes to these matters as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters.

Fiscal 2005 Compared to Fiscal 2004

Revenues

Net revenues for the first quarter ended June 30, 2004 were $52,000, as compared to net revenues of $584,000 for the quarter ended June 30, 2003. The decrease in net revenue for the three-month period ending June 30, 2004, as compared to the three-month period ending June 30, 2003, was due to lower royalty revenue from Opti Technologies, Inc. and a one-time license fee received in the quarter ended June 2003.

During the first fiscal quarter of 2005, the Company recorded the remaining $52,000 in royalty revenue from Opti Technologies, Inc. No further revenue is expected from Opti Technologies, Inc. and the Company’s future revenues depend on the success of our strategy of pursuing license claims on our intellectual property position.

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Selling, General and Administrative

Selling, general and administrative costs were $348,000 in the quarter ending June 30, 2004 as compared to $256,000 for the quarter ending June 30, 2003. The increase in selling, general and administrative expenses for the quarter ending June 30, 2004 versus the prior year is due to an increase in legal expenses. The Company anticipates that selling, general and administrative costs could increase in future quarters as the Company’s legal expenses will grow as it pursues licenses from users of its intellectual property.

Interest and Other Income, Net

Interest and other income, net was $28,000 and $35,000 for the quarters ended June 30, 2004 and 2003, respectively. The decrease in interest and other income for the comparable periods is due to lower interest rates in the quarter ended June 30, 2004 as compared the quarter ended June 30, 2003.

Income Taxes

The Company recorded no tax provisions for the three-month periods ended June 30, 2004 and 2003. The Company’s effective tax rate differed from the federal statutory rate in 2004 and 2003 due to the uncertainty of the Company returning to profitability and the utilization of prior year tax losses carried forward, respectively.

Liquidity and Capital Resources

Cash, cash equivalents and short-term investments decreased to $15,275,000 at June 30, 2004 from $15,520,000 at March 31, 2004. The decrease in cash, cash equivalents and short-term investments of approximately $0.2 million from March 31, 2004 to June 30, 2004, primarily relates to net loss for the period. Working capital as of June 30, 2004 decreased to $15,184,00 from $15,451,000 at March 31, 2004, this decrease relates to the net loss during the period. During the first three-months of fiscal 2005, operating activities used $0.2 million of cash. Cash used from operating activities was primarily due to the net loss of $268,000 during the period and an increase in other assets of $52,000, partially offset by, a $91,000 decrease in accounts receivable as the Company reached the maximum royalty amounts it could earn under the Opti Technologies Inc. license agreement. The Company had no investing or financing activities during the three-month periods ending June 30, 2004 and 2003, respectively.

At June 30, 2004, the Company’s principal source of liquidity included cash and cash equivalents of approximately $15.3 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.

The Company’s current building lease agreement is scheduled to end on April 30, 2005. The total remaining commitment under the amended lease at June 30, 2004 is approximately $50,000.

Factors Affecting Earnings and Stock Price

Reporting