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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                               ----------------

                                   FORM 10-K

                               ----------------

    [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                 OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the Fiscal Year Ended December 31, 1999

    [_]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 its charter)

<TABLE>
<CAPTION>
                 CALIFORNIA                                      77-0220697
<S>                                            <C>
       (State or other jurisdiction of                       (I.R.S. Employer
       incorporation or organization)                       Identification No.)


<CAPTION>
3393 Octavius Drive, Santa Clara, California                       95054
<S>                                            <C>
  (Address of principal executive offices)                       (Zip Code)
</TABLE>

       Registrant's telephone number, including area code (408) 486-8000

       Securities registered pursuant to Section 12(b) of the Act: None

 Securities registered pursuant to Section 12(g) of the Act: Common Stock, no
                                   par value

   Indicate by check mark whether the registrant (1) has filed all reports
required 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 [_] No [_]

   Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[X]

   The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing sale price of the Common Stock on March
22, 2000 as reported on the Nasdaq Stock Market, was approximately
$67,072,605. Shares of Common Stock held by each executive officer and
director and by each person who owns 5% or more of the outstanding Common
Stock have been excluded in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes.

    As of March 22, 2000, registrant had 11,508,683 shares of Common Stock
                        outstanding for non-affiliates.

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                                   OPTi INC.

                                   Form 10-K
                  For the Fiscal Year Ended December 31, 1999

                                     INDEX

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<CAPTION>
                                                                          Page
                                                                         Number
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 <C>         <S>                                                         <C>
 Part I


    Item 1.  Business.................................................      1


    Item 2.  Properties...............................................     10


    Item 3.  Legal Proceedings........................................     10


    Item 4.  Submission of Matters to a Vote of Security Holders......     12


 Part II


    Item 5.  Market for Registrant's Common Stock and Related              13
              Stockholder Matters.....................................


    Item 6.  Selected Consolidated Financial Data.....................     14


    Item 7.  Management's Discussion and Analysis of Financial
              Condition and Results of Operations.....................     15


    Item 7A. Quantitative and Qualitative Disclosures About Market         18
              Risk....................................................


    Item 8.  Financial Statements and Supplementary Data..............     18


    Item 9.  Changes in and Disagreement with Accountants on
              Accounting and Financial Disclosures....................     18


 Part III


    Item 10. Directors and Executive Officers of the Registrant.......     19


    Item 11. Executive Compensation...................................     20


    Item 12. Security Ownership of Certain Beneficial Owners and           21
              Management..............................................


    Item 13. Certain Relationships and Related Transactions...........     21


 Part IV


    Item 14. Exhibits, Financial Statement Schedules and Reports on        23
              Form 8-K................................................


    Signatures.........................................................    25
</TABLE>

                                       i
<PAGE>

                                    PART I

Item 1. Business

   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 personal computer and semiconductor industries, product
development schedules, competition and other matters. Readers are encouraged
to refer to "Factors Affecting Earnings and Stock Price" found below.

Introduction

   OPTi Inc., a California corporation ("OPTi" or the "Company"), founded in
1989, is an independent supplier of semiconductor products to the personal
computer ("PC") and embedded marketplaces. The Company's products provide in
one or a few semiconductor devices the core logic functions or universal
serial bus controller function of a PC or embedded product. During 1999, the
Company shipped over two million core logic and universal serial bus ("USB")
devices to more than 50 PC manufacturers, motherboard manufacturers, and add-
in board manufacturers located primarily in Asia and the U.S.

   During the past year, the Company shifted its efforts away from its primary
focus on the design, development, marketing and sale of core logic products to
its peripheral products (primarily the USB device, USB) for use by OEM's in
the personal computer market. During the month of February 1999 the Company
stopped development of its core logic products completely. The Company
continues to ship its core logic products today, mainly into embedded designs
which historically have a much longer product life cycle than the PC market.
During 1999 the Company's revenue from core logic chipsets was approximately
56% of its revenue as compared to 74% in 1998. Peripheral products were 44%
and 26% of the Company's revenue during 1999 and 1998, respectively.

   In addition, the Company has continued, and is continuing, its efforts to
maximize shareholder value through restructuring of the Company's business and
assets. As previously announced, the Company has retained the services of
Warburg Dillon Read, the investment banking division of USB, to advise the
Company on possible strategic alternatives, including the sale of the Company,
sale of divisions of the Company, or strategic licensing deals. During the
first quarter of 2000, with the assistance of Warburg Dillon Reed, the Company
announced the signing of a one-time full paid license on all of its patents
and pending patents.

   The Company currently competes principally in the embedded and USB
controller marketplaces. From the Company's inception through 1995, the
Company's principal segment had been desktop core logic. However, with
increasingly aggressive competion in this area, primarily from Intel
Corporation, the Company revised its strategy and focus on market
opportunities where the Company had strategic advantages. This led the Company
to focus on the mobile core logic and embedded marketplaces where the Company
experienced some success in the past few years.

   In the past the Company's sales have been primarily attributable to its
introduction of highly integrated chipsets. The Company continues to focus its
efforts on increasing the revenue it receives from licensing its core logic
technology and continueing to sale its USB and core logic products into
existing and new marketplaces. The Company sells, and will continue to sell,
its products to its customers and their suppliers directly or through a
network of independent sales representatives. In the first quarter of 2000 the
Company signed a one-time fully paid license agreement for $13,500,000.

   The Company's strategy, at this time is to license its core logic
technology that its has developed during its history and to look for areas
where the Company can either develop or acquire technology for emerging
markets in the high performance PC segment, increase sales in existing global
markets and strengthen its industry relationships.

                                       1
<PAGE>

Industry Background

   During the last decade, the PC industry has grown rapidly as increased
functionality combined with lower pricing have made PCs valuable and
affordable tools for business and personal use.

   The principal functions of a PC are provided by a circuit board known as
the motherboard, consisting of a microprocessor, bus circuits, various memory
devices and core logic circuits. The bus is the pathway through which the
microprocessor communicates with peripheral devices and adapter cards. Core
logic circuits perform five principal functions in the PC: system control,
memory control, bus control, bus buffering and peripherals control. System
control refers to the computing functions which enable the microprocessor to
manage the flow of data between the microprocessor, the system bus and memory.
Memory control consists of the control functions employed by the
microprocessors to efficiently manage the operations of memory devices. Bus
control enables the PC to implement the protocols necessary to achieve
compatibility with industry standard bus interfaces and protocols, such as
Industry Standard Architecture ("ISA"), Extended Industry Standard
Architecture ("EISA"), Video Enhancement Standard Architecture ("VESA") and
Peripheral Control Interconnect ("PCI"). Peripherals control facilitates the
operations of peripheral devices such as the disk drive, keyboard and display
device.

   In personal computer designs employed in the early-1980's, the core logic
functions were performed by several large scale integrated ("LSI") circuits
and numerous discrete transistor ("TTL") circuits located on the motherboard.
Although these circuits were available to PC manufacturers from third party
semiconductor suppliers, the large number of discrete devices needed to
implement core logic functions resulted in high part counts, low production
yields and relatively high total system costs. Moreover, the qualifications
and integration of numerous discrete devices caused the development effort to
be complex and time consuming. The high development costs associated with this
effort greatly favored PC manufacturers who had the development resources and
expertise necessary to introduce complex computer systems in a timely fashion.

   The trend to higher performance, lower cost personal computers has been
accompanied by a variety of changes in the market for personal computers and
the technologies used to address these emerging market requirements. The
consumer and home office sectors have become the fastest growing sectors of
the PC market, driven, in part, by the emergence of low-cost multimedia
computers and peripherals.

   Industry studies indicate that an increasing percentage of personal
computers are now sold with multimedia functionality which typically involves
sound and support of full screen, full-motion video technologies. As the
personal computer industry has matured and become more consumer-oriented,
large OEM PC suppliers, including major competitors from the consumer
electronics arena, have captured market share from smaller PC vendors as
strength of brand name, customer support and distribution channels have become
more important competitive factors in the industry.

   These changes in the personal computer market and technology directly
affect the market for core logic chipsets. The primary customer base for
chipsets has shifted significantly to major PC manufacturers and to the
suppliers to these leading OEM customers, in contrast to prior periods in
which motherboard manufacturers and system integrators represented the largest
portion of the market for core logic chipsets. Large OEMs require increasingly
higher levels of product integration, thus enabling them to reduce parts count
and control total product costs. The Company also expects that peripheral
functions historically provided by add-in boards, such as sound functionality,
may be provided by semiconductor circuits included on the personal computer
motherboard or incorporated in the core logic chipset.

   During 1995 and 1996, almost a complete shift occurred in the personal
computer market to Pentium class products and away from 486 microprocessor-
based products. With this shift, the industry standard became a Pentium-based
system with a VESA local bus or PCI local bus structure. During the second
half of 1995, the market for 486-based computers and the related market for
chipsets and motherboards and licensing motherboards used in 486 computers
declined precipitously. Due to the speed of this shift, the personal computer

                                       2
<PAGE>

industry has experienced excess inventories of 486-based computers and
motherboards and rapidly deteriorating pricing for these products.

   The Company believes that the personal computer marketplace may be headed
for another such shift as the industry moves from the Pentium class
microprocessor to the Pentium III class microprocessor. The shift in the
desktop marketplace started to occur in late 1999, while the mobile market has
historically followed six to twelve months after the transition in the desktop
marketplace.

   Concurrent with these shifts, the market for motherboards and chipsets
changed significantly as Intel captured an increasing percentage of the
motherboard market by selling completed motherboards and licensing motherboard
production in the Far East, employing the Intel Pentium microprocessor, Intel
chipsets and other circuitry. Intel's entry into the motherboard market has
had a direct adverse effect on the Taiwan motherboard market, and resulted in
a significant decline in demand for core logic chipsets from Taiwan
motherboard manufacturers.

   Dramatic growth has continued in the PC market as computer and consumer
electronics industries have converged, combining increased multimedia and
communications capabilities. Today's systems increasingly offer more powerful
microprocessors, highly integrated chipsets, integrated video, stereo sound,
highspeed fax and modem communications and CD-ROM.

   Like the PC market, the market for chipsets is seasonal. In general,
chipset suppliers experience higher sales in the second half of the calendar
year than they experience in the first half of the year.

Strategy

   The Company's strategy incorporates the following elements:

 License Opportunities for Chipset Technology

   One of the Company's principal strategies is to pursue licensing
opportunities in the core logic area. During the first quarter of fiscal year
2000, the Company entered into a one-time licensing arrangement for
$13,500,000 on the core logic technology that the Company had developed during
its first twelve years in existence. We believe that there may be additional
companies that may have the need to license the technology that we have
developed. The Company is actively working to explore all of the possible
licensing arrangements.

 Continue to Sale Products Which Address New Market Opportunities

   The Company continues to expand its market opportunities outside core
logic, including USB controllers. The Company believes that its relationships
with major PC OEMs who used the Company's core logic chipsets may provide a
marketing opportunity in offering additional products outside of the core
logic area.

 Address Both U.S. and Asia Markets

   A significant aspect of the Company's market strategy for its peripheral
products, is to address both the U.S. market consisting of large PC OEMs and
the Asian market consisting primarily of subcontractors for U.S. OEMs,
motherboard manufacturers and add-in card manufacturers. The Company offers
manufacturers in these markets low cost solutions designed for the specific
needs of each market.

 Achieve Low Costs and Maintain Product Quality Through Custom Owned Tooling
 Design

   An important aspect of the Company's manufacturing strategy is to
vigorously control production and operating costs through efficient product
designs. The Company does not maintain its own internal production
capabilities and relies on third-party foundries to produce its products. Over
the last several years, the Company

                                       3
<PAGE>

has implemented full custom designs in substantially all areas of its core
logic chipsets and has established one or more than one foundry for each of
its principal products. Reliance on outside foundries has enabled the Company
to focus its development resources on circuit design and to avoid the capital
expenditures and overhead required to maintain semiconductor manufacturing
facilities.

Product Design Innovations and Technologies

   The Company's products incorporate a variety of advanced technologies to
enable PC manufacturers to introduce high performance low cost systems. These
products, design innovations and technologies include:

Peripheral Products

 USB Controller

   The Company currently offers a USB Host Controller which brings USB support
to any PCI-based system. Its compact packaging allows it to be accommodated in
virtually any personal computer, consumer electronic devices, or other systems
requiring this functionality. The USB Controller is fully supported under
Windows 95, Windows 98, and Windows CE. The Company's implementation is unique
because it provides power management features not found in competitive
solutions.

 Docking Station

   The Company currently offers a docking solution within its mobile computer
product offerings. This solution supports either a 5 volt or 3.3 volt docking
interface running synchronously or asynchronously at speeds up to 33
Megahertz. By offloading the primary PCI bus, the docking solution can
increase its bandwidth.

Sales and Marketing

   OPTi markets its products to PC suppliers, motherboard manufacturers, and
add-on board manufacturers directly and through independent sales
representatives. In North America, OPTi's sales organization from the
Company's headquarters in Santa Clara, California. In Asia, the Company
operates from a wholly owned subsidiary in Tokyo, Japan and through
independent sales representatives located in Korea.

   The Company's products are used by a variety of major personal computer and
motherboard manufacturers. In 1999, personal computer suppliers who used the
Company's products included Compaq, , Siemens, Apple and NEC/Packard Bell. The
Company's sales to any single customer fluctuates significantly from period to
period based on order rates and design cycles. Any individual customer may or
may not continue purchasing products in any particular subsequent product
release or generation. It has been the Company's experience that its major
customers have changed from quarter to quarter and year to year, and the
Company expects these changes in its customer base will continue to occur
based on the individual customer requirements and strategies. Sales to the
Company's customers are typically made pursuant to specific purchase orders,
which are cancelable without significant penalties.

   Sales to customers in Asia accounted for 82.2%, 86.0%, and 89.2% of net
sales in the years ended December 31, 1999, 1998 and 1997, respectively. Sales
to customers in Europe and other countries outside the U.S. and Asia accounted
for 0.5%, 0.4%, and 0.3% of net sales in the years ended December 31, 1999,
1998 and 1997, respectively. During these three years, billings to almost all
customers were made in US dollars. Approximately 16%, 15%, and 13% of sales
were billed in Japanese yen in 1999, 1998 and 1997, respectively. Due to its
export sales, the Company is subject to the risks of conducting business
internationally, including unexpected changes in regulatory requirements,
fluctuations in the U.S. dollar (which could increase the sales price in local
currencies of the Company's products in international markets or make it
difficult for the Company to obtain price reductions from its foundries),
delays in obtaining export licenses for certain technology, tariffs and other
barriers and restrictions.

                                       4
<PAGE>

   As is common in the semiconductor industry, the Company's business
relationships with its customers require it to acquire and maintain
inventories of its products based on forecast volumes from customers and in
amounts greater than that supported by firm backlog. The Company's customers
typically purchase products on a purchase order basis and do not become
obligated to purchase any quantity of products prior to the issuance of the
purchase order, even if the customer has previously forecast a substantially
higher volume of products. The Company typically places non-cancelable orders
to purchase its products from its foundries on an approximately twelve week
rolling basis, while its customers generally place purchase orders
approximately four weeks prior to delivery which may be canceled without
significant penalty. Consequently, if anticipated sales and shipments in any
quarter do not occur when expected, expense and inventory levels could be
disproportionately high, requiring significant working capital. The Company
has experienced cancellation and shortfalls in purchase orders in the past,
and in some instances such changes have resulted in inventory write-downs or
write-offs. The Company expects that it will continue to experience such
difficulties in the future.

   The Company's payment terms to its customers typically require payment 30
to 60 days after shipments of products, which is the industry standard. The
Company sometimes obtains letters of credit in support of sales to customers
primarily located in Asia. International sales supported by letters of credit
are normally paid in a period of time which is shorter than the payment period
for sales for which no letter of credit is provided.

Customer Support and Service

   The Company believes that customer service and technical support are
important competitive factors in the embedded and peripheral product markets.
The Company provides technical support for customers in the U.S. and Asia.
Manufacturers' representatives supplement the Company's efforts by providing
additional customer service and technical support for OPTi products.

Manufacturing, Quality Control and Design Methodology

   The Company subcontracts its manufacturing to independent foundries which
allows OPTi to avoid the significant fixed overhead, staffing and capital
requirements associated with semiconductor fabrication facilities. As a
result, the Company is able to focus its resources on product design and
development, test, quality assurance, marketing and customer support.

   The majority of the Company's products are currently manufactured using its
custom owned tooling process and procured wafers and die primarily from United
Microelectronics (UMC) in Taiwan, TSMC in Taiwan, Toshiba in Japan, and
packaging houses in Taiwan. The Company, in an effort to secure long term
capacity has developed strong relationships with its suppliers.

   The Company is constantly engaged in cost reduction programs that need to
be successful in order to ensure the profitability for products that face
intense price competition in the marketplace.

   Currently, the Company has been experiencing at time an inability to get
the amount of wafers that it requires to met some of its customer demand.
However, the semiconductor industry experiences cycles of under-capacity and
over-capacity which have resulted in temporary shortages of products in high
demand, as experienced in the industry at various times through 1999.

   The Company has attempted to reduce inventory risks by improving its
forecasting capabilities. Despite the fact that the Company has taken measures
to avoid supply shortages, periods of under-capacity may develop, creating
possible shortages for the Company's products. In the event of lower demand
for the Company's products, the Company may still be required to purchase
wafers in excess of that demand. Any such shortage or delays that are caused
by under capacity or any excess inventory created by a lowering of the
Company's actual demand for wafers could have a material adverse effect on the
Company's operating results.

                                       5
<PAGE>

Research and Development

   In January 2000, the Company had a reduction in staff as it made the
decision to terminate all design efforts on its newer products, such as the
LCD product. As of March 22, 2000, the Company had a staff of one research and
development person, which conducts virtually all of the Company's product
development with the assistance of outside contractors. During 1999, 1998 and
1997, respectively, the Company spent approximately $5.6, $9.7, and $12.6
million on research and development. All research and development costs are
expensed as incurred. The Company has invested in technologies which, although
not currently productized, may be integrated into future products.

Competition

   The market for the Company's products is intensely competitive. Important
competitive factors in the Company's markets are price, performance, time-to-
market, added features, degree of integration, technical support and cost. The
Company believes that it currently competes effectively with respect to these
factors, although there can be no assurance that the Company will be able to
compete effectively in the future.

   The Company's competitors in both the core logic chipset market and the
peripheral products market include a large number of competitive companies,
several of which have achieved a substantial market share. Certain of the
Company's competitors in both of these markets have substantially greater
financial, marketing, technical distribution and other resources, greater name
recognition, lower cost structures and larger customer bases than the Company.
In addition, the Company faces competition from current and prospective
customers that evaluate the Company's capabilities against the merits of
manufacturing products internally. The Company also faces competition from new
and entering companies that have recently entered or may in the future enter
the markets in which the Company participates.

 Competition in Mobile Core Logic Market/Embedded Marketplace

   The Company's main competitor in this market is Intel. Although Intel has
not been as aggressive in this market as it has been in the desktop core logic
area, there can be no assurances that they will not develop a strategy to
attempt to control this market. The Company must continue to try to compete
with Intel based on product features and product compatibility, but there can
be no assurance that it will be successful in doing so.

   The Company's other competitors in the core logic area include major
domestic and international semiconductor companies and established chipset
companies, including Acer Labs Inc., Silicon Integrated Systems, United
Microelectronics Corporation and VIA, Inc. Certain of these companies, in
addition to Intel, have substantially greater financial, technical, marketing
and other resources than the Company and several have their own internal
production capabilities. The Company must face the challenge of competing at
the high end of the marketplace, in the PC OEM area, based on features and at
the lower end of the marketplace, the motherboard market, based on price.

 Competition in USB Market

   The Company's main competitors in this marketplace include CMD, Lucent
Technologies and VIA, Inc. As in the core logic marketplace, certain of these
companies have substantially greater financial, technical, marketing and other
resources than the Company. The Company must continue to try and compete with
these companies based on product features and price.

Intellectual Property

   The Company seeks to protect its proprietary technology by the filing of
patents. The Company currently has thirty patents based on certain aspects of
the Company's designs. The Company currently has seven patents pending for its
technologies, and there can be no assurance that the pending patents will be
issued or, if issued, will provide protection for the Company's competitive
position.

                                       6
<PAGE>

   The Company is currently being sued by one party. The party is alleging
that certain of the Company's products have infringed upon the party's
intellectual property rights. Moreover, the Company has been and may from time
to time continue to be notified of claims that it may be infringing patents,
copyrights or other intellectual property rights owned by other third parties.
There can be no assurance that these or other companies will not in the future
pursue claims against the Company with respect to the alleged infringement of
patents, copyrights or other intellectual property rights. In addition,
litigation may be necessary to protect the Company's intellectual property
rights and trade secrets, to determine the validity of and scope of the
proprietary rights of others or to defend against third party claims of
invalidity. The current litigation or any other litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on the Company's business, financial condition and results of
operations.

   There can be no assurance that additional infringement, invalidity, right
to use or ownership claims by third parties or claims for indemnification
resulting from infringement claims will not be asserted in the future. The
Company has entered into license agreements in the past regarding certain
alleged infringement claims asserted by third parties. In response to the
current litigation or if any other claims or actions are asserted against the
Company, the Company may seek to obtain a license under a third party's
intellectual property rights. There can be no assurance, however, that a
license will be available under reasonable terms or at all. The failure to
obtain a license under a patent or intellectual property right from a third
party for technology used by the Company could cause the Company to incur
substantial liabilities and to suspend the manufacture of the products
utilizing the intellectual property. In addition, should the Company decide to
litigate the current claims or such other claims, such litigation could be
extremely expensive and time consuming and could materially and adversely
affect the Company's business, financial condition and results of operations,
regardless of the outcome of the litigation.

Backlog

   Because the Company's customers typically expect quick deliveries, the
Company seeks to ship products within a few weeks of receipt of a purchase
order. A customer may reschedule delivery of products on a purchase order or
cancel the purchase order entirely without significant penalty. In addition,
the Company's actual shipments depend on the manufacturing capacity of the
Company's foundries, packaging houses, internal test facilities, and other
industry factors. In the past, the Company has experienced material order
cancellations and deferrals, and expects that it will experience these issues
in the future. As a result, the Company does not believe that backlog is a
reliable indicator of future sales. At December 31, 1999, the Company's
backlog scheduled for delivery within six months was approximately $3.4
million, all of which is expected to be filled during fiscal 2000 (subject to
rescheduling or cancellations). This amount compares to a backlog of
approximately $4.5 million as of December 31, 1998.

Factors Affecting Earnings and Stock Price

 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 Intel and 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
chipset prices will not result in lower profitability or losses.

                                       7
<PAGE>

 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 sales is derived from its
mobile core logic products. The market for mobile core logic products is
characterized by frequent transitions in which products rapidly incorporate
new features and performance standards. 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 sale its existing
products at current volumes. The Company, after its decision to terminate all
new product development in January 2000, will have no 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 new 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 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 Compaq and its subcontractors and
Apple and its subcontractors no other single customer represented more than
10% of sales in fiscal 1999. The Company sold approximately $6 million of
mobile core logic to Compaq and its subcontractors, representing a combined
27% of net sales for fiscal 1999. Also in fiscal 1999 the Company sold to
Apple Computer and its subcontractors approximately $6 million in USB
products, representing a combined 27% of net sales for that period. In 1998,
the Company sold approximately $17 million of mobile core logic product to
Compaq and its subcontractors, representing a combined 43% of net sales for
that period. Also in fiscal 1998 the Company sold to Apple Computer and its
subcontractors approximately $4 million in USB products, representing a
combined 11% of net sales for that period. In 1997, the Company sold
approximately $27 million of chipsets to Compaq and its subcontractors,
representing a combined 40% of net sales in that period.. 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 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

                                       8
<PAGE>

significant changes in the composition of its major customer base and expects
that this variability will continue in the future. 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
4% of the Company's receivables at December 31, 1999 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, 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 chipsets 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
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 Company began using Custom Production in 1993. Custom Production
requires that the Company provide foundries with designs that differ from
those traditionally developed by the Company in its gate array production and
which are developed with specialized tools provided by the foundry. This type
of design process is inherently more complicated than gate array production
and there can be no assurance that the Company will

                                       9
<PAGE>

not experience delays in developing designs for Custom Production or that such
designs will not contain bugs. To the extent bugs are found, correcting such
bugs is likely to be both expensive and time consuming. In addition, 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
houses. The Company is also dependent on these packaging houses and its own
internal test functions for adequate capacity.

 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.

Employees

   As of December 31, 1999, the Company had 45 full-time employees, including
14 in research and development, 14 in marketing, sales, and support and 17 in
finance, administration and operations. The Company's future success will
depend, in part, on its ability to continue to attract, retain and motivate
highly qualified technical, marketing, engineering and management personnel,
who are in great demand. The Company's employees are not represented by any
collective bargaining unit, and the Company has never experienced a work
stoppage. The Company's ability to retain key employees is a critical factor
to the Company's success. As of March 22, 2000, the Company employed 21 full-
time employees, due to the reduction in staff action that the Company took in
January 2000. The major reduction was in the research and development area as
the Company made the decision to discontinue all future new product
development. The Company will continue to make efforts to enhance features on
its existing products and/or look to acquire technology.

Item 2. Properties

   The Company is headquartered in Santa Clara, California, where it leases
administrative, sales and marketing, product development, and distribution
facilities in one location consisting of an aggregate of approximately 12,000
square feet. The Company has an additional two buildings, approximately 52,000
square feet and 45,000 square feet, that it leases in Milpitas, California.
The 45,000 square foot facility is sub-leased through the life of the lease,
October 2002, while the 52,000 square foot facility is sub-leased through
December 2000. The Company believes that these facilities are adequate for its
needs in the foreseeable future.

   The Company also leases office space in Tokyo, Japan to provide sales and
technical support to customers in this region. The Company believes that this
facility is adequate for its needs in the foreseeable future.

Item 3. Legal Proceedings

   In January 1997, a patent infringement claim was brought against the
Company by Crystal Semiconductor, Inc. ("Crystal'), a subsidiary of Cirrus
Logic, in the United States District Court for the Western District of Texas.
The claim alleges that the Company and Tritech Microelectronics International,
Inc. and its Singapore parent company, Tritech Microelectronics Pte, Ltd.
(collectively "Tritech") infringe three patents owned by Crystal. These
patents relate to the analog-to-digital coder-decoder ("codec") module that
was designed by Tritech and incorporated into integrated PC audio chips
formerly sold by the Company. The suit seeks injunctive relief and damages.

   A jury trial was held in this action from May 3-13, 1999. On May 17, 1999,
the jury returned a verdict that all of the asserted claims of the patents in
suit are valid and were infringed by the accused OPTi and TriTech products.
The jury further found that Tritech's infringement, but not OPTi's, was
willful and deliberate. The jury was asked to consider separately three
different damages allegations. The first was that Crystal lost profits because
sales that it would otherwise have made were in fact made by the defendants
("lost profits"). The second was that the defendants' conduct had caused
Crystal to reduce its selling prices from what they otherwise would

                                      10
<PAGE>

have been during the period of infringement ("price erosion"). The third
allegation was for the statutory alternative to lost profits, a "reasonable
royalty". The jury was asked to consider these questions with respect to the
defendants as a group and, of that amount, to assign a specific portion to
OPTi. The jury's verdict was as follows; all defendants $48.5 million, OPTi's
portion of that total $19.4 million.

   Following the jury's verdict, the parties have made various motions for
judgment. OPTi has moved for the entry of judgment, as a matter of law, that
Crystal did not prove its entitlement to price erosion damages, that the
amount of lost profits damages should be reduced, and that Crystal cannot
recover both lost profits and a reasonable royalty together. Crystal has moved
for entry of judgment in the amount found by the jury, plus prejudgment
interest, compounded quarterly (approximately $3.2 million is the OPTi
portion).

   On July 23, 1999, the United States District Court for the Western District
of Texas entered an Order and Judgment in the patent infringement action
brought by Crystal Semiconductor Corporation against OPTi, Inc., Tritech
Microelectronics Pte Ltd., a Singapore company,and TriTech Microelectronics
International, Inc., its American marketing subsidiary. The Court's judgment
substantially reduced the amount of damages that a jury had awarded to Crystal
against OPTi, from $19.4 million to $4 million.

   The Court's Judgment also includes a permanent injunction against further
infringement, OPTi, however, is no longer in the audio chip business, having
sold its audio division to Creative Technology in November 1997.

   Following the entry of judgment, all three parties involved in the suit
appealed the judgment to the United States Court of Appeals for the Federal
Circuit. Crystal appealed the judges decision to deny lost profits damages and
price erosion damages as awarded by the jury and the denial of prejudgment
interest. OPTi appealed the courts ruling on one of the patents at issue and
the interpretation of that patent by the court. If Crystal prevails in its
appeal and Tritech is unable to reimburse the Company due to its filing for
Judicial Management the results would have a material adverse effect on Opti's
financial position, results of operations, and cash flow.

   A March 1994 Development Agreement between the Company and TriTech
Microelectronics International PTE LTD states that Tritech shall "fully and
effectively indemnify, defend and save harmless" the Company against any claim
that the products at issue in this action infringe the intellectual property
rights of others. However, in May 1999, TriTech Microelectronics, Pte, Ltd.
filed a "Petition For Judicial Management Order" in the High Court of the
Republic of Singapore, on the grounds that TriTech is "unable to pay its
debts" including its obligations to indemnify OPTi from Crystal's claim for
damages. The Order for a Judicial Manager to be appointed for TriTech was
granted on July 2, 1999. OPTi is in the process of filing a claim with the
Judicial Managers in regards to the indemnification agreement.

   In September 1998, Crystal Semiconductor filed a second suit against the
Company and Does 1 through 1050 in the Superior court of the State of
California. This suit is a complaint to set aside fraudulent transfers, the
sale of its audio business and the stock repurchase program that the Company
started and completed in the summer of 1998, and for preliminary and permanent
injunction, against the Company divesting itself of its assets. On May 21,
1999, the Court signed a Stipulation and Order entered into by OPTi and
Crystal vacating the Preliminary Injunction Hearing set for June 3, 1999. This
Stipulation and Order obligates OPTi to maintain and preserve liquid assets
available, in an amount not less then the verdict against OPTi, plus costs and
interest, in the underlying patent litigation between Crystal and OPTi. Based
on the judgment entered into the Texas court a new Stipulation and Order was
entered into by the party whereas the amount of liquid assets to be maintained
and preserved was reduced to the amount of the court judgment.

   In response to the Company's announcement of its intention to pay a
dividend in cash to its shareholders of four dollars per share, Crystal
requested in the Santa Clara County Superior Court of California, that the
Company stipulate to preserve additional assets in order to pay a potential
judgment should Crystal prevail on appeal of the post-trial rulings in the
Texas litigation. On November 3, 1999, the Court entered a Stipulation and
Order Regarding Payment of Dividend obligating the Company to maintain and
preserve assets in an amount not less than $24,000,000, "until such time as
the judgment in the Texas litigation, after resolution of any appeals

                                      11
<PAGE>

therein, is satisfied in full by the Company or until such time as Crystal's
claims against the Company in the Texas litigation are settled, released or
waived by Crystal."

   On February 26, 1999, the Lemelson Medical, Education and Research
Foundation (the "Lemelson Foundation") filed a complaint in the United States
District Court for the district of Arizona against the Company and 87 other
defendant companies claiming patent infringement. No complaint has actually
been served against the Company.

   In August 1999, the Company and the Lemelson Foundation reached an
agreement in regards to the patents at suit. Under terms of the license
agreement, the Lemelson Foundation agrees not to sue the Company on its
patents and pending applications and any subsequently filed applications
claiming inventions originally disclosed in any such existing patents or
pending applications.

   In September and October 1995, the Company was served with multiple
shareholder class action lawsuits filed in the United States District Court
for the Northern California District of California. The lawsuits, which named
the Company and several of its officers and directors as defendants, alleged
violations of the federal securities laws in connection with the announcement
by OPTi Inc. of its financial results for the quarter ended September 30,
1995. In December 1997, the Company and its insurance carriers reached a
settlement with the plaintiffs in regards to this suit. The Company was
responsible for approximately $500,000 of the settlement amount, which was
paid in fiscal 1998. While, the Company claims no wrongdoing in regards to
this matter it believed that the expense and time spend to continue to defend
its position would have been more costly than the actual settlement.

   The Company is also subject to commercial litigation which the Company
believes is not material to its financial condition or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

   Not Applicable.

                                      12
<PAGE>

                                    PART II

Item 5. Market for Registrant's Common Stock and Related Stockholder Matters

   The following required information is filed as a part of this Report:

   On November 17, 1999, the Company paid a cash dividend of $4.00 per share
on each share of its common stock. The Board of Directors made the
determination of providing the cash dividend based upon the Company's then
existing excess cash position. The Company had not previously paid cash
dividends on its common stock, and currently intends to retain any future
earnings for use in the operation of its business. Accordingly, the Company
does not expect to pay further cash dividends in the foreseeable future. The
Company's common stock is traded over-the-counter and is quoted on the
National Market System under the symbol "OPTI". The following table sets forth
the range of high and low closing prices for the Common Stock:

<TABLE>
<CAPTION>
                                                   Quarterly Period Ended
                                            ------------------------------------
                                            Dec. 31, Sept. 30, June 30, Mar. 31,
     Common stock price per share:          -------- --------- -------- --------
     <S>                                    <C>      <C>       <C>      <C>
     1999
      High.................................  $7.25     $7.44    $6.44    $6.25
      Low..................................   3.06      5.63     5.28     4.13
     1998
      High.................................  $4.88     $6.94    $7.13    $7.31
      Low..................................   3.25      4.00     6.44     6.00
</TABLE>

   As of March 22, 2000, there were approximately 185 holders of record of the
Company's common stock.

                                      13
<PAGE>

Item 6. Selected Consolidated Financial Data

<TABLE>
<CAPTION>
                                         Year Ended December 31,
                                ----------------------------------------------
                                 1999     1998      1997      1996      1995
                                -------  -------  --------  --------  --------
<S>                             <C>      <C>      <C>       <C>       <C>
Consolidated Statement of
 Operations Data:
Net sales...................... $22,257  $40,003  $ 67,842  $118,725  $163,676
Cost of sales..................  14,403   26,712    50,471   111,395   121,587
                                -------  -------  --------  --------  --------
Gross margin...................   7,854   13,291    17,371     7,330    42,089
Operating expenses.............  16,776   20,623    27,836    31,000    27,458
                                -------  -------  --------  --------  --------
Operating income (loss)........  (8,922)  (7,332)  (10,465)  (23,670)   14,631
Other income (expenses):
 Gain on sale of Audio line....     --       --     12,391       --        --
 Interest income and other.....   3,231    3,717     3,031     2,417     3,210
 Interest expense..............    (261)    (312)     (473)     (441)     (306)
                                -------  -------  --------  --------  --------
Income (loss) before provision
 for income taxes..............  (5,952)  (3,927)    4,484   (21,694)   17,535
Provision (benefit) for income
 taxes.........................      59      285     9,872    (7,636)    6,285
                                -------  -------  --------  --------  --------
Net Income (loss).............. $(6,011) $(4,212) $ (5,388) $(14,058) $ 11,250
                                -------  -------  --------  --------  --------
Basic net income (loss) per
 share......................... $ (0.54) $ (0.35) $  (0.42) $  (1.13) $   1.02
                                =======  =======  ========  ========  ========
Shares used in computing basic
 per share amounts.............  11,059   12,196    12,838    12,443    11,033
                                =======  =======  ========  ========  ========
Diluted net income (loss) per
 share......................... $ (0.54) $ (0.35) $  (0.42) $  (1.13) $   0.85
                                =======  =======  ========  ========  ========
Shares used in computing
 diluted per share amounts.....  11,059   12,196    12,838    12,443    13,171
                                =======  =======  ========  ========  ========
Consolidated Balance Sheet
 Data:
 Cash, cash equivalents, and
  short-term investments....... $23,722  $60,903  $ 72,508  $ 56,372  $ 50,302
 Working capital...............  19,682   55,791    75,360    76,188    71,481
 Total assets..................  28,232   81,575   111,615   115,501   106,458
 Long-term obligations,
  excluding current portion....     310    1,810     3,473     4,649     2,316
 Shareholders' equity..........  21,182   69,285    92,723    96,371    79,149
 Cash dividends declared per
  common share................. $  4.00  $   --   $    --   $    --   $    --
</TABLE>


                                       14
<PAGE>

Item 7. 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 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 personal computer and semiconductor industries, product
development schedules, competition and other matters. Readers are encouraged
to refer to "Factors Affecting Earnings and Stock Price" found below.

   OPTi was founded in 1989 and is an independent volume supplier of
semiconductor products to the personal computer market.. During 1999, the
Company shipped more than two million core logic and peripheral products (such
as USB contollers and docking stations to over 50 PC and motherboard
manufacturers and add-on board manufacturers located primarily in Asia and the
U.S.

   1999 Compared to 1998--Net sales for the year ended December 31, 1999
("1999") decreased 44% to $22.3 million, compared to net sales of $40.0
million for the year ended December 31, 1998 ("1998"). This decrease in sales
was attributable to decreased sales of chipsets supporting the Company's
mobile core logic products and decreased sales from audio products after the
Company sold its Audio assets to Creative Technology in November 1997, as well
as the loss of significant mobile core logic design wins in the second half of
1999

   Revenue from core logic products were approximately 56% of net sales for
1999 as compared to approximately 74% in 1998. The remaining 44% of revenue in
1999 was from peripheral products (the vast majority from our USB product).
The mix of revenues within the Company shifted in the second half of 1999 to a
higher percentage of peripheral products, specifically the USB product, and a
lower percentage of core logic products. It is likely that the Company will
experience ongoing shifts in its revenue mix, as sales of core logic chipsets
continue to decline. No assurances can be given that future revenues will
reflect this product mix trend.

   Gross margin for 1999 increased to approximately 35% of net sales as
compared to approximately 33% in 1998. This increase in gross margin for 1999
as compared to 1998 was primarily attributable to change in the Company's
product mix from core logic to peripheral products. The Company was also
sucessful in 1999 in obtaining a reduction in costs of wafers used in its core
logic products and a reduction in the cost of assembling its core logic and
peripheral products. The Company is likely to face potential inventory risks
and adjustments if anticipated sales and shipments do not occur when expected.
The markets for the Company's products are also 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 its
gross margin level or that further substantial reductions in chipset prices
will not result in future losses.

   Research and development ("R&D") expenses for 1999 decreased approximately
42% to $5.6 million, compared with $9.7 million for 1998. The decrease in
research and development expenses from 1998 to 1999 is primarily related to
the Company's decision to discontinue all development efforts related to
mobile core logic. During fiscal 1999 the Companys main focus for research and
development was on the peripheral products, USB controllers and LCD products.
The Company anticipates a decline in this spending area in 2000 due to the
reduction in headcount.

   Selling, general and administrative ("SG&A") expenses for 1999 increased
approximately 2% to $11.2 million, compared with $10.9 million in 1998. This
increase in SG&A expenses from 1998 to 1999 was primarily attributable to the
litigation expenses that the Company incurred in regards to the award of a
judgment for $4.0 million plus costs in the Crystal litigation in Austin,
Texas. This increase was partially offset by, decreased costs related to
reduced net sales and reduced headcount related expnses in both the sales and
General & administrative areas. The Company anticipates a decline in this
spending area in 2000 due to the reduction in headcount.

                                      15
<PAGE>

   Net interest and other income for 1999 was $3.0 million as compared to $3.4
million for 1998. Interest and other income consists primarily of interest
income and has decreased primarily due to lower average interst rates during
1999 versus 1998 and lower cash balances in the fourth quarter of 1999,
following the Company's payment of dividends.

   The Company's effective tax rate was 1% for 1999 and 7% for 1998. The
Company's effective tax rate differed from the federal statutory rate in 1999
due primarily to federal alternative minimum taxes and the limitations
controlling the timing for recognition of deferred tax assets established by
Statement of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting
for Income Taxes" which will prevent a tax benefit for potential operating
losses.

   1998 Compared to 1997--Net sales for the year ended December 31, 1998
("1998") decreased 41% to $40.0 million, compared to net sales of $67.8
million for the year ended December 31, 1997 ("1997"). This decrease in sales
was attributable to decreased sales of chipsets supporting the Company's
mobile core logic products and decreased sales from audio products after the
Company sold its Audio assets to Creative Technology in November 1997. In 1998
the Company shipped approximately 4.4 million chipsets and peripheral products
as compared to approximately 5.7 million in 1997.

   Revenue from core logic products were approximately 74% of net sales for
1998 as compared to approximately 73% in 1997. The remaining 26% of revenue in
1998 was from peripheral products (USB, audio and graphics). The mix of
revenues within the Company shifted in the second half of 1998 to a higher
percentage of peripheral products, specifically the USB product, and a lower
percentage of core logic products.

   Gross margin for 1998 increased to approximately 33% of net sales as
compared to approximately 26% in 1997. This increase in gross margin for 1998
as compared to 1997 was primarily attributable to change in the Company's
product mix from core logic to peripheral products. In 1997 the majority of
non core logic products was audio products which carried a lower gross margin
than the USB controller which was the majority of non core logic products in
1998. The Company was also sucessful in 1998 in obtaining a reduction in costs
of wafers used in its core logic products and a reduction in the cost of
assembling its core logic products.

   Research and development ("R&D") expenses for 1998 decreased approximately
23% to $9.7 million, compared with $12.6 million for 1997. The decrease in
research and development expenses from 1997 to 1998 is primarily related to
the Company's shift in market focus over the last year as the Company has
focused more heavily on notebook directed technologies and has reduced
research and development spending in other areas resulting in a net reduction
in spending.

   Selling, general and administrative ("SG&A") expenses for 1998 decreased
approximately 22% to $10.9 million, compared with $14.1 million in 1997. This
decrease in SG&A expenses from 1997 to 1998 was primarily attributable to
decreased net sales.

   Net interest and other income for 1998 was $3.4 million as compared to $2.5
million for 1997. Interest and other income consists primarily of interest
income and has increased primarily due to higher average interst rates during
1998 versus 1997.

   The Company's effective tax rate was (7%) for 1998 and 220% for 1997. The
Company's effective tax rate differed from the federal statutory rate in 1998
due primarily to federal alternative minimum taxes and the limitations
controlling the timing for recognition of deferred tax assets established by
Statement of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting
for Income Taxes" which will prevent a tax benefit for potential operating
losses.

   Liquidity and Capital Resources--The Company has financed its operations
through cash generated from operations and an initial public offering of
equity in 1993. In 1999, the Company used cash from operating activities of
$1.5 million primarily due to reductions in accounts payable and the Companys
net loss for the year.

                                      16
<PAGE>

This was partially offset by decreases in accounts receivable, and inventories
as well as an increase in accrued expenses, relating to the litigation.. In
1998, the Company generated cash from operations of $9.4 million primarily due
to reductions in accounts receivable and inventory due to lower sales. This
was partially offset by a decrease in accounts payable and a net loss for the
year.

   The Company's investing activities provided cash of approximately $14.0
million during 1999. The cash provided by investing activities was
attributable to the sale of the Company's investment in the UICC wafer fab and
the sale of its short- term investments. The Company's investing activities
provided cash of approximately $3.6 million in 1998. The cash provided by
investing activities was attributable to sale of its short-term investments of
approximately $4.4 million, offset, in part, by purcahses of property and
equipment. The Company's investing activities provided cash of $3.3 million in
fiscal 1997. This cash generated during 1997 was primarily due to proceeds of
$13.9 million from the sale of the Company's audio line, partially offset by,
an investment into short term investments of approximately $8.7 million and a
payment of approximately $1.6 million to United Microelectronics Corporation
("UMC") as partial payment under terms of the 1995 agreement that the Company
signed with UMC. As of December 31, 1997 the Company has no further
obligations under this agreement.

   Financing activities used cash of approximately $45.4 million in 1999. This
use in cash for financing activitities during 1999 was mainly attributable to
a cash dividend paid in November 1999 and principal payments on the capital
lease obligations. This was partially offset by proceeds from the sale of the
Company's common stock. Financing activities used cash of approximately $20.2
million in 1998. This use in cash for fiscal 1998 was primarily due to the
Company repurchasing approximately $24.0 million of its common stock based on
a repurchase program announced in June 1998 and principal payments on capital
leases offset, in part, by proceeds from the sale of the Company's common
stock

   The Company's manufacturing plans and expenditure levels are based
primarily upon sales forecasts. Typically, the Company orders products from
foundries pursuant to non-cancelable purchase orders on a rolling twelve week
basis while its customers generally place product orders approximately four
weeks prior to delivery, which orders may be canceled without significant
penalty. The Company anticipates that the rate of new orders will vary
significantly from month to month. As a result, backlog can fluctuate
significantly. Consequently, if anticipated sales and shipments do not occur
when expected, expense and inventory levels could be disproportionately high
and the Company's operating results could be materially and adversely
affected.

   In January 2000, the Company entered into a non-exclusive license agreement
for all of its patents with a major semiconductor company. In return for the
one time fully paid up license fee of $13,500,000, OPTi releases this company
from any and all claims or liability for infringement of OPTi patents. OPTi is
also released of liability for any infringement of the other company's patents
that arose prior to the signing date.

   As of December 31, 1999, the Company's principal sources of liquidity
included cash and cash equivalents and short term investments of approximately
$23.7 million and working capital of $19.7 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 end of 2000.

   In response to the Company's announcement of its intention to pay a
dividend in cash to its shareholders of four dollars per share, Crystal
requested in the Santa Clara County Superior Court of California, that the
Company stipulate to preserve additional assets in order to pay a potential
judgment should Crystal prevail on appeal of the post-trial rulings in the
Texas litigation. On November 3, 1999, the Court entered a Stipulation and
Order Regarding Payment of Dividend obligating the Company to maintain and
preserve assets in an amount not less than $24,000,000, "until such time as
the judgment in the Texas litigation, after resolution of any appeals therein,
is satisfied in full by the Company or until such time as Crystal's claims
against the Company in the Texas litigation are settled, released or waived by
Crystal."

                                      17
<PAGE>

Year 2000

   In prior years, the Company discussed the nature and progree of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experiernced no significant disruptions in mission
critical information technology and non-information technology systems and
believes those systems successfully responded to the Year 2000 date change.
The Company expensed approximately $100,000 during 1999 in connection with
remediating its systems. The Company is not aware of any material problems
resulting from Year 2000 issues, either with its products, its internal
systems, or the products and services of third parties. The Company will
continue to monitor its mission critical computer applications and those of
its suppliers and vendors throughout the year 2000 to ensure that any Year
2000 matters that may arise are addressed promptly.

Item 7a. 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 December 31, 1999,
all of our investments mature in less than three months. Accordingly, we do
not believe that our investments have significant exposure to interest rate
risk.

Item 8. Financial Statements and Supplementary Data

   The Company's financial statements and the report of the independent
auditors appear on pages F-1 through F-17 of this Report.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures

   None.

                                      18
<PAGE>

                                   PART III

Item 10. Directors and Executive Officers of the Registrant

Directors and Executive Officers of the Registrant

   The directors and executive officers of the Company as of March 26, 1999
were as follows:

<TABLE>
<CAPTION>
Name                          Age Position with the Company
----                          --- -------------------------
<S>                           <C> <C>
Bernard Marren...............  64 Chief Executive Officer, Chairman of the Board
Douglas Gans.................  55 Chief Financial Officer and Secretary
Stephen A. Dukker(1).........  47 Director
William Welling(1)(2)........  63 Director
Kapil K. Nanda(1)(2).........  54 Director
</TABLE>
--------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.

   Bernard T. Marren has served as President and Chief Executive Officer of
the Company since May 1998. Mr. Marren was elected as a director in May 1996.
Mr. Marren founded Western Microtechnology Inc.,a distributor of electronic
systems and semiconductor devices. He served as its President from 1977 to
1994. From 1972 to 1976, Mr. Marren was President of American Microsystems. He
also founded and was the first President of SIA (the Semiconductor Industry
Association). Mr. Marren is also a director of several private companies.

   Douglas Gans was appointed Chief Financial Officer of the Company in
January 2000. Mr. Gans has over 30 years of financial management experience.
He is a consultant to the Company working for the Brenner Group. From 1991 to
1999 he held the position of CFO at Asante Technologies, Inc, and Sunseeds
Corporation.

   Stephen A. Dukker was elected as a director of the Company in January 1993.
He is currently President of E-machines where he has been employed since mid
1998. He was a Senior Vice President of Merchandising at Computer City from
October 1997 to August 1998. He served as President of OPTi Inc. from January
of 1996 to October 1997. From May 1994 to mid 1995, Mr. Dukker served as
President of VideoLogic, Inc., a supplier of video and graphics add-on boards.
From June 1991 through October 1993, he served as a Senior Vice President of
CompUSA, Inc., a chain of discount computer superstores. During that time he
was also a member of the Executive Committee of CompUSA and President of its
Compudyne Computer manufacturing and mail order subsidiaries. Prior to joining
CompUSA, Mr. Dukker was President of PC Brand, Inc., a manufacturer and mail
order distributor of PC products from January 1988 to May 1991.

   William Welling was elected as a director in August 1998. He is currently
Chairman and CEO of Xiox Corporation, a telecommunications software company.
Since 1983 he has been Managing Partner of Venture Growth Associates, an
investment firm. Mr. Welling also serves as a director on the boards of
several private companies.

   Kapil K. Nanda was elected as a director in May 1996. Mr. Nanda is
currently President of InfoGain Corporation, a software and development
consulting company, which he founded in 1990. Prior to 1990, Mr. Nanda held
various positions at Altos Computer Systems, a personal computer manufacturing
company, from 1981 to 1989. Serving as Vice President of Engineering from 1984
to 1988. From 1974 to 1981, Mr. Nanda was employed at Intel Corporation,
serving as Manager, Software Engineering from 1976 to 1981. Mr. Nanda holds a
B.S. in Engineering from the University of Punjab, India, an M.S. in
Engineering from the University of Kansas, and an M.B.A. from the University
of Southern California.

Compliance with Section 16(a) Beneficial Ownership Reporting Compliance

   Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered
class of the Company's equity securities, to file certain reports

                                      19
<PAGE>

regarding ownership of, and transactions in, the Company's securities with the
Securities and Exchange Commission (the "SEC") and with Nasdaq. Such officers,
directors and 10% shareholders are also required by SEC rules to furnish the
Company with copies of all Section 16(a) forms that they file.

   Based solely on its review of copies of Forms 3 and 4 and amendments
thereto furnished to the Company pursuant to Rule 16a-3(e) and Forms 5 and
amendments thereto furnished to the Company with respect to the Last Fiscal
Year, and any written representations referred to in Item 405(b)(2)(i) of
Regulation S-K stating that no Forms 5 were required, the Company believes
that, during the last Fiscal Year, all Section 16(a) filing requirements
applicable to the Company's officers, directors and 10% shareholders were
complied with

Item 11. Executive Compensation

Summary Compensation Table

   The following table sets forth certain information with respect to the
compensation paid by the Company for services rendered during fiscal years
1999, 1998, and 1997 to Bernard Marren and Michael Mazzoni (the "Named
Officers"). The table lists the principal position held by each Named Officer
in the Last Fiscal Year.

<TABLE>
<CAPTION>
                                                       Long-Term
                                 Annual Compensation  Compensation
                          Fiscal --------------------    Awards     All Other
Name                       Year  Salary ($) Bonus ($) Otpions (#)  Compensation
----                      ------ ---------- --------- ------------ ------------
<S>                       <C>    <C>        <C>       <C>          <C>
Bernard Marren...........  1999   $251,250  $420,000        --         --
 President and Chief
  Executive Officer        1998    150,923       --     100,000        --
                           1997        --        --         --         --
Michael Mazzoni(1).......  1999    145,763    69,525        --         --
 Chief Financial Officer   1998    136,475    50,000     45,000        --
                           1997     96,771    10,350        --         --
</TABLE>
--------
(1) On January 31, 2000, Mr. Mazzoni resigned from his position as Chief
    Financial Officer of the Company.

Option Grants in Last Fiscal Year

   There were no options granted in the last fiscal year to the Named
Officers.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values

   The following table provides information with respect to option exercises
in the Last Fiscal Year by the Named Officers and the value of such officer's
unexercised options at December 31, 1999

<TABLE>
<CAPTION>
                                              Total Value of       Total Number of Unexercised
                                          Unexercised Options at     In-the-Money Options at
                         Shares             Fiscal Year End (#)      Fiscal Year End ($)(1)
                          Acq.   Value   ------------------------- ---------------------------
Name                     Exer.  Realized Exercisable Unexercisable Exercisable  Unexercisable
----                     ------ -------- ----------- ------------- ---------------------------
<S>                      <C>    <C>      <C>         <C>           <C>          <C>
Bernard Marren..........    --      --     100,000        --         $        71,000         --
Michael Mazzoni......... 20,000  44,900     88,750        --         $         7,100         --
</TABLE>
--------
(1) Market value of underlying securities based on the closing price of the
    Company's Common Stock on December 31, 1999 on the Nasdaq National Market,
    minus the exercise price.

                                      20
<PAGE>

Item 12. Security Ownership of Certain Beneficial Owners and Management

   The following nominee table sets forth the beneficial ownership of Common
Stock of the Company as of March 22, 2000 by: (i) each present director of the
Company; (ii) each of the officers named in the table under the heading
"EXECUTIVE COMPENSATION--Summary Compensation Table"; (iii) all current
directors and executive officers as a group; and (iv) each person known to the
Company who beneficially owns 5% or more of the outstanding shares of its
Common Stock. The number and percentage of shares beneficially owned is
determined under the rules of the SEC, and the information is not necessarily
indicitive of beneficial ownership for any other purpose. Under such rules,
beneficial ownership includes shares as to which the individual has sole or
shares voting power or investment power and also any shares which the
individual has the right to acquire within sixty (60) days of March 22, 2000
through the exercise of any stock option or other right. Unless otherwise
indicated, each person has sole voting and investment power (one shares such
powers with his or her spouse) with respect to the shares, shown as
beneficially owned. Unless otherwise indicated, officers and directors can be
reached at the Company's principal executive offices. A total of 11,630,970
shares of the Company's Common Stock were issued and outstanding as of March
22, 2000.

<TABLE>
<CAPTION>
                                                 Shares Beneficially Owned
                                                 -----------------------------
Name                                                Number         Percent
----                                             --------------- -------------
<S>                                              <C>             <C>
Bernard Marren(1)...............................         127,788         1.4%
Michael Mazzoni(2)..............................          88,750           *
Stephen Dukker(3)...............................          89,166           *
Kapil Nanda(4)..................................          16,000           *
William Welling(5)..............................          13,333           *
Caxton International............................         789,800         8.5%
 315 Enterprise Drive
 Plainsboro, NJ 08536
Cramer Rosenthal McGlynn........................         899,900        11.4%
 707 Westchester Avenue
 White Plains, NY 10604
Dimension Fund Advisors.........................         713,800         5.5%
 1299 Ocean Avenue, 11th Floor
 Santa Monica, CA 90401
MG Capital Management LLC.......................       1,177,000        10.1%
 1725 Kearny Street No. 1
 San Francisco, CA 94133
All Directors and Executive Officers as a group
 (5 persons)(6).................................         335,037         2.9%
</TABLE>
--------
*   Represents less than one percent.
(1) Includes 12,000 shares subject to stock option exercisable as of March 22,
    2000 or within sixty (60) days thereafter.
(2) Includes 0 shares subject to stock option exercisable as of March 22, 2000
    or within sixty (60) days thereafter.
(3) Includes 0 shares subject to stock option exercisable as of March 22, 2000
    or within sixty (60) days thereafter.
(4) Includes 12,000 shares subject to stock option exercisable as of March 22,
    2000 or within sixty (60) days thereafter.
(5) Includes 0 shares subject to stock option exercisable as of March 22, 2000
    or within sixty (60) days thereafter.
(6) Includes shares pursuant to notes (1), (2), (3), (4), and (5).

Item 13. Certain Relationships and Related Transactions

Compensation Committee Interlocks and Insider Participation

   In February 1993, the Company established a compensation committee of the
Board of Directors which currently consists of Mr. Nanda and Mr. Welling.

                                      21
<PAGE>

Certain Transactions

   The Company's policy is that it will not make loans to, or enter into other
transactions with, directors, officers or affiliates unless such loans or
transactions are (i) approved by a majority of the Company's independent
disinterested directors, (ii) may reasonably be expected to benefit the
Company, and (iii) will be on terms no less favorable to the Company than
could be obtained in arm's length transactions with unaffiliated third
parties.

   The Company has entered into indemnification agreements with each of its
directors and executive officers. Such agreements require the Company to
indemnify such individuals to the fullest extent permitted by California law.

                                      22
<PAGE>

                                    PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

 (a)(1)Financial Statements

  The following financial statements are filed as part of this Report:

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
     <S>                                                                  <C>
     Report of Ernst & Young LLP, Independent Auditors................... F-1
     Consolidated Balance Sheets, December 31, 1999and 1998.............. F-2
     Consolidated Statements of Operations for the years ended December
      31, 1999, 1998
      and 1997........................................................... F-3
     Consolidated Statements of Shareholders' Equity for the years ended
      December 31, 1999, 1998, and 1997.................................. F-4
     Consolidated Statements of Cash Flows for the years ended December
      31, 1999, 1998,
      and 1997........................................................... F-5
     Notes to Consolidated Financial Statements.......................... F-6
</TABLE>

 (a)(2)Financial Statement Schedules

<TABLE>
<CAPTION>
                                                                           Page
     Schedule Number Description                                          Number
     --------------- -----------                                          ------
     <C>             <S>                                                  <C>
           II        Valuation and Qualifying Accounts..................   S-1
</TABLE>

   All other schedules not applicable.

 (a)(3)Exhibit Listing

<TABLE>
<CAPTION>
     Exhibit
     Number  Description
     ------- -----------
     <C>     <S>
      3.1    Registrant's Articles of Incorporation, as amended.(2)

      3.2    Registrant's Bylaws.(2)

     10.1    1993 Stock Option Plan, as amended.(2)

     10.2    1993 Director Stock Option Plan.(2)

     10.3    1993 Employee Stock Purchase Plan.(2)

     10.4    Form of Indemnification Agreement between Registrant and its
             officers and directors.(2)

     10.6    OPTi Inc. 1993 Bonus Plan.(2)

     10.10   Promissory Note between OPTi Inc. and Sumitomo Bank of California,
             dated November 14, 1994.(3)

     10.11   Credit Agreement dated as of November 14, 1994 by and among OPTi
             Inc., certain banks therein named and Sumitomo Bank of California,
             as Agent.(3)

     10.14   Foundry Venture Investment Agreement between the Registrant and
             United Microelectronics Corporation dated September 13, 1995.(4)

     10.15   Foundry Capacity Agreement by and between the Registrant, FabVen
             and United Microelectronics Corporation dated September 13,
             1995.(4)

     10.16   Lease between the Registrant and John Arrillaga and Richard T.
             Peery as separate property trusts, dated April 26, 1995.(4)

     10.17   OPTi Inc. 1995 Nonstatutory Stock Option Plan.(4)

     10.18   1996 Employee Stock Purchase Plan.(5)

     10.19   1995 Employee Stock Option Plan, as amended.(6)

     10.20   Patent license agreement between Intel Corporation and OPTi Inc.

     10.21   Lease Agreement between PVC.com Inc. and OPTi Inc.

     21.1    Subsidiaries of Registrant.

     23.1    Consent of Ernst & Young LLP, Independent Auditors.

     24.1    Power of Attorney (see page 25, signature page).

     27      Financial Data Schedule.
</TABLE>

                                       23
<PAGE>

--------
(1) Incorporated by reference to the Annual Report on Form 10-K for the Fiscal
    Year Ended December 31, 1993, of OPTi Inc.
(2) Incorporated by reference to Registration Statement on Form S-1 (File No.
    33-59978) as declared effective by the Securities and Exchange Commission
    on May 11, 1993.
(3) Incorporated by reference to the Annual Report on Form 10-K for the Fiscal
    Year Ended December 31, 1994, of OPTi Inc.
(4) Incorporated by reference to the Annual Report on Form 10-K for the Fiscal
    Year Ended December 31, 1995, of OPTi Inc.
(5) Incorporated by reference to Registration Statement on Form S-8 (File No.
    333-15181) as filed with the Securities and Exchange Commission on October
    31, 1996.
(6) Incorporated by reference to Registration Statement on Form S-8 (File No.
    333-17299) as filed with the Securities and Exchange Commission on December
    5, 1996.

 (b) Reports on Form 8-K

   No reports on Form 8-K were filed during the last quarter of 1998.

 (c) Exhibits. See Item 14 (a)(3) above.

 (d) Financial Statements Schedules. See Item 14(a)(2) above.

                                       24
<PAGE>

                                  SIGNATURES

   Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of Milpitas, State of California on the 30th day of March 2000.

                                       OPTi Inc.

                                                  /s/ Bernie Marren
                                       By:____________________________________
                                                     Bernard Marren
                                          Chief Executive Officer and Chairman
                                          of the Board

                               POWER OF ATTORNEY

   KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Bernard Marren and Michael Mazzoni and
each of them, jointly and severally, his true and lawful attorney-in-fact,
each with full power of substitution and resubstitution, for him in any and
all capacities, to sign any and all amendments to this Annual Report on Form
10-K, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that each said attorneys-in-fact and agents, or their
substitute or substitutes, or any of them, shall do or cause to be done by
virtue Hereof.

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-K has been signed below by the persons on behalf of the Registrant and
in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
              Signatures                        Title                 Date
              ----------                        -----                 ----

 <C>                                  <S>                        <C>
        /s/ Bernie Marren             Chief Executive Officer    March 30, 2000
 ____________________________________ and Chairman of the
            Bernard Marren            Board (Principal
                                      Executive Officer)

         /s/ Douglas Gans             Chief Financial Officer    March 30, 2000
 ____________________________________ (Principal Financial and
             Douglas Gans             Accounting Officer)

 ____________________________________ Director                   March 30, 2000
          Stephen A. Dukker

       /s/ William Welling            Director                    March 30,2000
 ____________________________________
           William Welling

        /s/ Kapil K. Nanda            Director                   March 30, 2000
 ____________________________________
            Kapil K. Nanda
</TABLE>

                                      25
<PAGE>

                        REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
OPTi Inc.

We have audited the accompanying consolidated balance sheets of OPTi inc. as
of December 31, 1999 and 1998, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years
in the period ended December 31, 1999. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of OPTi Inc. at
December 31, 1999 and 1998, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the
United States. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basis financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.

                                          /s/ ERNST &YOUNG LLP

San Jose, California
February 14, 2000

                                      F-1
<PAGE>

                                   OPTi Inc.

                          CONSOLIDATED BALANCE SHEETS
                      (In thousands, except share amounts)

<TABLE>
<CAPTION>
                                                              December 31,
                                                            ------------------
                                                              1999      1998
                                                            --------  --------
<S>                                                         <C>       <C>
                          ASSETS
Current assets:
 Cash and cash equivalents................................. $ 23,722  $ 56,653
 Short term investments....................................      --      4,250
 Accounts receivable, net of allowance for doubtful
  accounts of $151 in 1999 and $800 in 1998................    1,459     3,232
 Inventories...............................................      298     1,192
 Prepaid expenses and other current assets.................      943       944
                                                            --------  --------
   Total current assets....................................   26,422    66,271
Property and equipment:
 Machinery and equipment...................................   11,085    26,008
 Furniture and fixtures....................................      847     1,412
                                                            --------  --------
                                                              11,932    27,420
 Accumulated depreciation..................................  (11,264)  (21,738)
                                                            --------  --------
                                                                 668     5,682
Other assets...............................................    1,142     9,622
                                                            --------  --------
   Total assets............................................ $ 28,232  $ 81,575
                                                            ========  ========


           LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilites:
 Accounts payable.......................................... $  1,201  $  5,991
 Accrued expenses..........................................      827       485
 Accrued Litigation........................................    4,200     1,100
 Accrued employee compensation.............................      512     1,052
 Current obligations under capital leases..................      --      1,852
                                                            --------  --------
   Total current liabilities...............................    6,740    10,480
Long-term obligations under capital leases.................      --      1,644
Other long-term liabilities................................      310       166

Commitments and contingences

Shareholders' equity:
 Preferred stock, no par value:
  Authorized shares--5,000,000
  No shares issued or outstanding..........................      --        --
 Common stock, no par value:
  Authorized shares--50,000,000
  Issued and outstanding shares--11,620,970 in 1999,and
   10,810,549 in 1998......................................   22,494    39,397
 Retained earnings/(Accumulated deficit)...................   (1,312)   29,888
                                                            --------  --------
   Total shareholders' equity..............................   21,182    69,285
                                                            --------  --------
   Total liabilities and shareholders' equity.............. $ 28,232  $ 81,575
                                                            ========  ========
</TABLE>

                            See accompanying notes.

                                      F-2
<PAGE>

                                   OPTi Inc.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                                   --------------------------
                                                    1999     1998      1997
                                                   -------  -------  --------
<S>                                                <C>      <C>      <C>
Net Sales......................................... $22,257  $40,003  $ 67,842

Costs and expenses:
 Cost of sales....................................  14,403   26,712    50,471
 Research and development.........................   5,611    9,681    12,565
 Selling, general and administrative..............  11,165   10,942    14,058
 Restructuring....................................     --       --      1,213
                                                   -------  -------  --------
Total costs and expenses..........................  31,179   47,335    78,307
                                                   -------  -------  --------
Operating loss....................................  (8,922)  (7,332)  (10,465)
Gain on sale of Audio line........................     --       --     12,391
Interest income and other.........................   3,231    3,717     3,031
Interest expense..................................    (261)    (312)     (473)
                                                   -------  -------  --------
                                                     2,970    3,405    14,949
                                                   -------  -------  --------
Income (loss) before provision for income taxes...  (5,952)  (3,927)    4,484
Provision for income taxes........................      59      285     9,872
                                                   -------  -------  --------
Net loss.......................................... $(6,011) $(4,212) $ (5,388)
                                                   =======  =======  ========

Basic and diluted net loss per share.............. $ (0.54) $ (0.35) $  (0.42)
                                                   =======  =======  ========

Shares used in computing basic and diluted per
 share amounts....................................  11,059   12,196    12,838
                                                   =======  =======  ========
</TABLE>

                            See accompanying notes.

                                      F-3
<PAGE>

                                   OPTi Inc.

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                      (In thousands, except share amounts)

<TABLE>
<CAPTION>
                                                        Retained
                                   Common Stock        Earnings/       Total
                                --------------------  (Accumulated Shareholders'
                                  Shares     Amount     Deficit)      Equity
                                ----------  --------  ------------ -------------
<S>                             <C>         <C>       <C>          <C>
Balance at December 31, 1996..  12,661,213  $ 56,883    $ 39,488     $ 96,371
  Sale of common stock........     465,295     1,740         --         1,740
  Net loss and comprehensive
   loss.......................         --        --       (5,388)      (5,388)
                                ----------  --------    --------     --------
Balance at December 31, 1997..  13,126,508    58,623      34,100       92,723
  Sale of common stock........   1,264,416     4,769         --         4,769
  Stock repurchase............  (3,580,375)  (23,995)        --       (23,995)
  Net loss and comprehensive
   loss.......................         --        --       (4,212)      (4,212)
                                ----------  --------    --------     --------
Balance at December 31, 1998..  10,810,549    39,397      29,888       69,285
  Sale of common stock........     810,421     4,392         --         4,392
  Cash Dividend...............         --    (21,295)    (25,189)     (46,484)
  Net loss and comprehensive
   loss.......................         --        --       (6,011)      (6,011)
                                ----------  --------    --------     --------
Balance at December 31, 1999..  11,620,970  $ 22,494    $ (1,312)    $ 21,182
                                ==========  ========    ========     ========
</TABLE>

                            See accompanying notes.

                                      F-4
<PAGE>

                                   OPTi Inc.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                                  ----------------------------
                                                    1999      1998      1997
                                                  --------  --------  --------
<S>                                               <C>       <C>       <C>
Operating activities
Net loss........................................  $ (6,011) $ (4,212) $ (5,388)
Adjustments to reconcile net loss to net cash
 provided by (used in) operating activities:
  Depreciation and amortization.................     3,717     6,629     5,213
  Deferred taxes................................       --        --      9,888
  Gain on sale of audio line....................       --        --    (12,391)
  Changes in operating assets and liabilities:
    Accounts receivable.........................     1,773     8,550     6,168
    Inventories.................................       894     3,825      (896)
    Prepaid expenses and other current assets...         1       254        41
    Accounts payable............................    (4,790)   (5,180)    1,453
    Accrued expenses............................     3,442       (54)     (398)
    Accrued employee compensation...............      (540)     (315)      (82)
    Income taxes payable........................       --       (106)       (5)
                                                  --------  --------  --------
Net cash provided by (used in) operating
 activities.....................................    (1,514)    9,391     3,603

Investing activities
Purchases of property and equipment.............      (248)     (830)     (227)
Sale of Property and equipment..................     1,545       --        --
Sale of Investment in UICC foundry..............     8,495       --        --
Purchase of short term investments..............   (36,150)  (57,750)  (72,626)
Sale of short term investments..................    40,400    62,176    63,950
Net proceeds from sale of Audio line............       --        --     13,873
Increase in other assets........................       (15)        7    (1,647)
                                                  --------  --------  --------
Net cash provided by investing activities.......    14,027     3,603     3,323

Financing activities
Net proceeds from sale of common stock..........     4,392     4,769     1,740
Repurchase of common stock......................       --    (23,995)      --
Cash dividend...................................   (46,484)      --        --
Principal payments on capital lease
 obligations....................................    (3,352)     (947)   (1,206)
                                                  --------  --------  --------
Net cash provided by (used in) financing
 activites......................................   (45,444)  (20,173)      534

Net increase (decrease) in cash and cash
 equivalents....................................   (32,931)   (7,179)    7,460
Cash and cash equivalents at beginning of year..    56,653    63,832    56,372
                                                  --------  --------  --------
Cash and cash equivalents at end of year........  $ 23,722  $ 56,653  $ 63,832
                                                  ========  ========  ========
Supplemental cash flow information
Cash paid for interest..........................  $    261  $    312  $    473
Cash paid for income taxes......................  $    --   $    210  $    --
</TABLE>

                            See accompanying notes.

                                      F-5
<PAGE>

                                   OPTi Inc.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1--Summary of Significant Accounting Policies

   The Company. OPTi Inc., a California corporation, is engaged in marketing
semiconductor products for use principally by personal computer manufacturers,
add in card manufacturers and motherboard manufacturers.

   The Company is no longer in the research and development business after it
terminated the design group in January 2000. The Company anticipates that it
will continue to sell its previously designed products at lower than
historical levels. The Company also intends to try and license its patent
portfolio. In the first quarter of 2000, the Company signed a license
agreement for $13,500,000 relating to the patents of the Company.

   The Company is also involved in a patent litigation trial. The Company has
reserved $4 million on its balance sheet at this time. The outcome of the
appeal will not be known until later this year. For more information in
regards to the litigation please refer to Note 11 of this section.

   Principles of Consolidation. The consolidated financial statements include
the Company and its majority and wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated.

   Cash and Cash Equivalents. The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents. Cash equivalents are carried at cost, which approximates
fair value. The Company is exposed to credit risk in the event of default by
the financial institutions or issuers of the investments only to the extent of
amounts recorded on the balance sheet.

   Short-Term Investments. The Company invests from time to time its excess
cash in high quality,auction rate preferred securities. At December 31, 1998,
all short-term investments 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 1999 as all
investments were held to maturity during the year. At December 31, 1999, the
company had no short-term investments.

   Inventories. Inventories, comprised of finished goods and work in process,
are stated at the lower of cost (using the first-in, first-out method ) or
market. The market value is based upon estimated net realizable value.

   Property and Equipment. Property and equipment, including machinery and
equipment under capital lease, are stated at cost, less accumulated
depreciation and amortization. Depreciation for non-leased property and
equipment is computed by the straight-line method over the estimated useful
lives of the assets, ranging from three to five years. Assets under capital
lease are amortized using the straight-line method over the shorter of the
remaining term of the lease or the estimated economic life of the asset. This
amortization for assets under capital lease are included in depreciation
expense.

   Revenue Recognition. The Company records sales upon shipment and provides
an allowance for the estimated return of product.

   Net Loss Per Share. The Company follows the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings per Share." Basic and
diluted net loss per share are computed by dividing net loss by the weighted
average number of common shares outstanding during the period. The computation
of diluted net loss per share did not assume the impact of the conversion of
outstanding options or warrants for any of the periods presented because their
inclusion would have been antidilutive.

   Accounting for Employee Stock Options. In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (FAS 123). The Company has
elected to continue to account for employee stock options in accordance with
APB Opinion No. 25 and has adopted the "disclosure only" alternative described
in FAS 123.

   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.

                                      F-6
<PAGE>

                                   OPTi INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Recent Pronouncements. The company has adopted statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income. This statement
requires that all items required to be recognized under accounting standards
as components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial statements. The
Company's comprehensive net loss was the same as its net loss for the years
ended December 31, 1999, 1998 and 1997.

   In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). FAS 133 provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. FAS 133 is effective for fiscal years beginning after June
15, 2000 and the Company believes that the adoption of FAS 133 will not have a
significant impact on the Company's operating results or cash flow.

   In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements." SAB
101 provides guidance on the recognition, presentation, and disclosure of
revenue in financial statements. All registrants are expected to apply the
accounting and disclosures described in SAB 101. SAB 101 is not expected to
have a significant effect on the Company's consolidated results of operations,
financial position, or cash flows.

Note 2--Inventories

   A summary of inventories follows (in thousands):

<TABLE>
<CAPTION>
                                                                     1999  1998
                                                                     ---- ------
     <S>                                                             <C>  <C>
     Finished goods................................................. $240 $  688
     Work in process................................................   58    504
                                                                     ---- ------
       Total inventory.............................................. $298 $1,192
                                                                     ==== ======
</TABLE>

Note 3--Other Assets

   A summary of other assets (in thousands):

<TABLE>
<CAPTION>
                                                                    1999   1998
                                                                   ------ ------
     <S>                                                           <C>    <C>
     Investment in UICC........................................... $  --  $8,521
     Investment in Tripath........................................    725    725
     Deposits.....................................................    240    308
     Other miscellaneous..........................................    177     68
                                                                   ------ ------
       Total Other Assets......................................... $1,142 $9,622
                                                                   ====== ======
</TABLE>

   At December 31, 1999, the Company's investment in Tripath represents an
approximate 10% equity interest in the design company. The investment was
accounted for under the cost method of accounting.

Note 4--Obligations Under Capital Lease

   Assets capitalized under leases totaled $6,656,000 at December 31, 1998
related and accumulated amortization on these leased assets was $4,386,000.
During 1999, the Company purchased all equipment being held under capital
lease arrangements.

Note 5--Shareholders' Equity

Preferred Stock

   The Board of Directors has authority to issue up to 5,000,000 shares of
Preferred Stock in one or more series and to fix the rights, preferences,
privileges, qualifications, limitations and restrictions thereof, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of
shares constituting any series or the designation of such series, without any
further vote or action by the shareholders.

                                      F-7
<PAGE>

                                   OPTi INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Stock Option Plans

   Pro forma information regarding net loss and net loss per share is required
by SFAS 123 which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that Statement. The fair
value for these options was estimated at the date of the grant using a Black-
Scholes option pricing model.

   The fair value of the Company's stock based awards to employees was
estimated assuming no expected dividends and the following weighted-average
assumptions:

<TABLE>
<CAPTION>
                                                     1999      1998      1997
                                                   --------- --------- ---------
     <S>                                           <C>       <C>       <C>
     Expected Life................................ 4.8 years 5.0 years 4.5 years
     Expected volatility.......................... 0.95      0.57      0.62
     Risk Free Interest Rate...................... 6.00%     5.40%     6.23%
</TABLE>

   For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting period. The Company's pro forma
information follows (in thousands except for earnings per share information):

<TABLE>
<CAPTION>
                                                     1999     1998     1997
                                                    -------  -------  -------
     <S>                                            <C>      <C>      <C>
     Pro forma net loss............................ $(6,415) $(5,693) $(8,670)
     Pro forma basic and diluted net loss per
      share........................................ $ (0.58) $ (0.47) $ (0.68)
</TABLE>

   Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect was not fully reflected until 1999.

   The weighted average fair value of options granted under all stock option
plans was $5.82, $5.13 and $3.49 for the years ending 1999, 1998 and 1997,
respectively

 1993 Stock Option Plan

   The Company's 1993 Stock Option Plan (the "1993 Plan"), which was adopted
in February 1993, provides for the granting of incentive stock options to
employees and for the granting of nonstatutory stock options to employees and
consultants of the Company. The Board of Directors determines the term of each
option, the option price and the condition under which the option becomes
exercisable. The options generally vest over four years from the date of grant
and expire ten years from the date of grant.

   The activity under the 1993 Plan (including the Evergreen Plan) is as
follows:

<TABLE>
<CAPTION>
                                                             Outstanding
                                                       -------------------------
                                                                  Weighted Ave.
                                                        Shares    Exercise Price
                                                       ---------  --------------
     <S>                                               <C>        <C>
     Outstanding at December 31, 1996................. 1,691,308      $4.49
      Granted.........................................   130,000      $5.50
      Exercised.......................................  (214,161)     $2.77
      Canceled........................................  (191,714)     $7.30
                                                       ---------
     Outstanding at December 31, 1997................. 1,415,433      $4.30
      Granted.........................................   145,000      $5.13
      Exercised.......................................  (855,873)     $3.02
      Canceled........................................  (341,746)     $6.83
                                                       ---------
     Outstanding at December 31, 1998.................   362,814      $5.20
      Granted.........................................    45,000      $5.94
      Exercised.......................................   (24,877)     $5.32
      Canceled........................................       --       $ --
                                                       ---------
     Outstanding at December 31, 1999.................   191,937      $5.15
                                                       =========
</TABLE>

                                      F-8
<PAGE>

                                   OPTi INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Approximately 49,813, 425,795 and 666,432 options oustanding were
exercisable as of December 31, 1999, 1998 and 1997, respectively. The weighted
average exercise price for the exercisable shares as of December 31, 1999, was
$ 5.15.

 1995 Stock Option Plan

   The Company's 1995 Stock Option Plan (the "1995 Plan"), which was adopted
in August 1995, provides for the granting of up to 2,500,000 nonstatutory
stock options to employees and consultants of the Company. The Board of
Directors determines the term of each option, the option price and the
condition under which the option becomes exercisable. The options generally
vest over four years from the date of grant and expire ten years from the date
of grant.

   The activity under the 1995 Plan is as follows:

<TABLE>
<CAPTION>
                                                             Outstanding
                                                       -------------------------
                                                                  Weighted Ave.
                                                        Shares    Exercise Price
                                                       ---------  --------------
   <S>                                                 <C>        <C>
   Outstanding at December 31, 1996................... 2,210,574      $5.17
     Granted..........................................   395,500      $5.24
     Exercised........................................  (119,899)     $5.11
     Canceled.........................................  (899,920)     $5.25
                                                       ---------      -----
   Outstanding at December 31, 1997................... 1,586,255      $5.06
     Granted..........................................   189,000      $5.47
     Exercised........................................  (347,188)     $5.04
     Canceled.........................................  (614,299)     $5.21
                                                       ---------      -----
   Outstanding at December 31, 1998...................   813,768      $5.06
     Granted..........................................    45,500      $5.69
     Exercised........................................  (542,933)     $5.04
     Canceled.........................................  (266,522)     $5.19
                                                       ---------      -----
   Outstanding at December 31, 1999...................    49,813      $5.15
                                                       =========      =====
</TABLE>

   Approximately 49,813, 425,795 and 666,432 options outstanding were
exercisable as of December 31, 1999, 1998 and 1997, respectively. The weighted
average exercise price for the exercisable shares as of December 31, 1999, was
$5.15.

 Stock Options Outstanding and Stock Options Exercisable:

   The following table summarizes information about options outstanding at
December 31, 1999:

<TABLE>
<CAPTION>
                          Options Outstanding            Options Exercisable
                --------------------------------------- ----------------------
     Range of   Number  Weighted Average    Weighted    Number     Weighted
     Exercise     of    Contractual Life    Average       of       Average
      Prices    Shares     (in years)    Exercise Price Shares  Exercise Price
     --------   ------- ---------------- -------------- ------- --------------
     <S>        <C>     <C>              <C>            <C>     <C>
      $3.44       5,000       8.79           $3.44        5,000     $3.44
      $4.63     115,835       8.72           $4.63      115,835     $4.63
      $5.25         980       6.30           $5.25          980     $5.25
      $5.32      40,380       5.20           $5.32       40,380     $5.32
      $6.25      46,885       8.07           $6.25       46,885     $6.25
      $8.88       1,670       5.31           $8.88        1,670     $8.88
      $9.50       1,000       6.08           $9.50        1,000     $9.50
</TABLE>

                                      F-9
<PAGE>

                                   OPTi INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 1993 Director Stock Option Plan

   In February 1993, the Company adopted the 1993 Director Stock Option Plan
(the "Director Plan") and reserved 50,000 shares of common stock for issuance
thereunder. Under this plan, non-employee directors are granted options to
purchase common stock at 100% of fair market value on dates specified in the
plan. The options generally vest over four years from the date of grant and
expire ten years from the date of grant. In May 1996, the Company's
shareholders authorized an additional 50,000 shares for grant under the plan.
The activity under the 1993 Director Plan is as follows:

<TABLE>
<CAPTION>
                                                              Outstanding
                                                         -----------------------
                                                                  Weighted Ave.
                                                         Shares   Exercise Price
                                                         -------  --------------
     <S>                                                 <C>      <C>
     Outstanding at December 31, 1996...................  81,943      $ 8.44
      Granted...........................................  12,000      $ 5.31
      Exercised.........................................     --       $  --
      Canceled..........................................  (8,000)     $15.38
                                                         -------
     Outstanding at December 31, 1997...................  85,943      $ 7.35
      Granted...........................................  21,333      $ 3.44
      Exercised.........................................  (8,611)     $ 5.25
      Canceled.......................................... (42,666)     $ 8.07
                                                         -------
     Outstanding at December 31, 1998...................  55,999      $ 5.64
      Granted...........................................     --       $  --
      Exercised......................................... (21,333)     $ 3.44
      Canceled..........................................     --       $  --
                                                         -------
     Outstanding at December 31, 1999...................  34,666      $ 6.99
                                                         =======
</TABLE>

 1993 Employee Stock Purchase Plan

   In February 1993, the Company adopted the 1993 Employee Stock Purchase Plan
(the "Purchase Plan") under Section 423 of the Internal Revenue Code and
reserved 150,000 shares of common stock for issuance thereunder. Under the
Purchase Plan, qualified employees are entitled to purchase shares at 85% of
fair market value. As of December 31, 1999 and 1998, 149,399 shares had been
issued under the Purchase Plan.

 1996 Employee Stock Purchase Plan

   In October 1996, the Company adopted the 1996 Employee Stock Purchase Plan
(the "Purchase Plan") under Section 423 of the Internal Revenue Code and
reserved 250,000 shares of common stock for issuance thereunder. Under the
Purchase Plan, qualified employees are entitled to purchase shares at 85% of
fair market value. As of December 31, 1999 and 1998, 249,998 shares had been
issued under the Purchase Plan.

 Common Stock Reserved

   At December 31, 1999, the Company has reserved shares of common stock for
future issuance as follows:

<TABLE>
     <S>                                                             <C>
     1993 Employee Stock Purchase Plan..............................        601
     1996 Employee Stock Purchase Plan..............................          2
     1993 Directors Stock Option Plan...............................     65,334
     Common Stock Warrants..........................................    200,000
     1993 Stock Option Plan (including the Evergreen Plan)..........    744,210
     1995 Stock Option Plan.........................................  1,481,608
                                                                     ----------
       Totals.......................................................  2,491,755
                                                                     ==========
</TABLE>

                                     F-10
<PAGE>

                                   OPTi INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 6--Commitments

   The Company leases its facilities under noncancelable operating leases. At
December 31, 1999, future minimum commitments related to these leases are as
follows (in thousands):

<TABLE>
     <S>                                                                  <C>
     2000................................................................ $1,804
     2001................................................................  1,474
     2002................................................................  1,141
                                                                          ------
       Total............................................................. $4,419
                                                                          ======
</TABLE>

   The Company has entered into an agreeement to sub-lease a facility that
will reduce its commitment above by approximately $648,000, $674,000, and
$523,000 for the years 2000 through 2002, respectively. This sub-lease is for
a facility that the Company has never occupied.

   In January 1999, the Company entered into an agreement to sub-lease one
floor of its facility for the period of January 4, 1999 to December 31, 2000.
This sub-lease agreement will reduce the company's commitment on leased
facilities by $384,000 for the year 2000. In February 1999, the Company
entered into an additional sub-lease agreeement for the additional floor of
the same facility for the period of February 19, 1999 to December 31, 2000,
with a renewal provision for the period of January 1, 2001 to the end of the
lease at October 2002. The renewal provision has to be exercised 270 days
prior to December 31, 2000. If the renewal option is exercised the sublessor
has the ability to lease the existing floor space or the entire building. This
sublease agreement will reduce the Company's commitment above by $384,000 for
the year 2000.

   Rental expense for operating leases amounted to $421,000, $1,402,000 and
$1,529,000 for the years ended December 31, 1999, 1998, and 1997,
respectively. The rental expense for the fiscal years 2000 will be reduced due
to the additional sublease agreements that the Company has entered into in
January and February 1999.

Note 7--Concentrations

 Credit Risks and Major Customers

   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 Compaq and its subcontractors and
Apple and its subcontractors no other single customer represented more than
10% of sales in fiscal 1999. The Company sold approximately $6 million of
mobile core logic to Compaq and its subcontractors, representing a combined
27% of net sales for 1999. Also in fiscal 1999 the Company sold to Apple
Computer and its subcontractors approximately $6 million in USB products,
representing a combined 27% of net sales for that period. In 1998, the Company
sold approximately $17 million of mobile core logic product to Compaq and its
subcontractors, representing a combined 43% of net sales for that period. Also
in fiscal 1998, the Company sold to Apple Computer and its subcontractors
approximately $4 million in USB products, representing a combined 11% of net
sales for that period. In 1997, the Company sold approximately $27 million of
chipsets to Compaq and its subcontractors, representing a combined 40% of net
sales in that period. 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 sales in the foreseeable future, although the Company's
customers in any one period will continue to change.

   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

                                     F-11
<PAGE>

                                   OPTi INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

customers are unable to remain profitable. Approximately 9% of the Company's
receivables at December 31, 1999 were with these customers.

 Suppliers

   The Company's reliance on independent foundries and packaging 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, 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 particular product.

 Products

   During fiscal year 2000 the Company will be highly dependent on continued
revenue contributions from its embedded product line and its USB controller.
Any significant shortfall in sales for the Company's current volume products
or problems with the manufacturing of these products will have a material
adverse effect upon the Company's financials.

Note 8--Geographic Segments

   Net sales by the geographic location of the Companys customers, based on
shipped to location, are summarized by geographic areas as follows (in
thousands):

<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                                         -----------------------
                                                          1999    1998    1997
                                                         ------- ------- -------
     <S>                                                 <C>     <C>     <C>
     Taiwan............................................. $ 7,908 $22,761 $39,979
     Japan..............................................   3,610   6,085   8,773
     USA................................................   3,850   5,408   7,074
     Singapore..........................................   6,710   5,138   8,511
     Other Far East.....................................      68     436   3,285
     Europe/Other.......................................     111     175     220
                                                         ------- ------- -------
       Total Net Sales.................................. $22,257 $40,003 $67,842
                                                         ======= ======= =======
</TABLE>

                                     F-12
<PAGE>

                                   OPTi INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 9--Taxes

   The provision (benefit) for income taxes consists of the following (in
thousands):

<TABLE>
<CAPTION>
                                                              1999  1998  1997
                                                              ----- ---- ------
     <S>                                                      <C>   <C>  <C>
     Federal:
      Current................................................ $ --  $238 $ (137)
      Deferred...............................................   --   --   9,888
                                                              ----- ---- ------
                                                                --   238  9,751
     State:
      Current................................................   --   --     --
      Deferred...............................................   --   --     --
                                                              ----- ---- ------
                                                                --   --     --
     Foreign:
      Current................................................    59   47    121
      Deferred...............................................   --   --     --
                                                              ----- ---- ------
                                                                 59   47    121
                                                              ----- ---- ------
       Total................................................. $  59 $285 $9,872
                                                              ===== ==== ======
</TABLE>

   A reconciliation of the income tax provision (benefit) at the federal
statutory rate to the income tax provision (benefit) at the effective rate is
as follows (in thousands):

<TABLE>
<CAPTION>
                                                    1999     1998     1997
                                                   -------  -------  -------
     <S>                                           <C>      <C>      <C>
     Income taxes computed at the federal
      statutory rate.............................. $(2,104) $(1,485) $ 1,502
     Net operating losses not benefitted..........   2,104    1,485      --
     State taxes (net of federal benefit).........     --       --       --
     Benefit of net operating income..............     --       --    (1,502)
     Alternative minimum taxes....................     --       238       93
     Valuation reserve movement...................     --       --     9,888
     Foreign Taxes................................      59       47      121
     Other individually immaterial items..........     --       --      (230)
                                                   -------  -------  -------
                                                   $    59  $   285  $ 9,872
                                                   =======  =======  =======
</TABLE>

                                     F-13
<PAGE>

                                   OPTi INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The components of deferred taxes consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                               1999      1998
                                                             --------  --------
     <S>                                                     <C>       <C>
     Deferred tax assets:
      Inventory reserve..................................... $  3,800  $  3,801
      Credit carryforwards..................................    5,200     4,875
      Capitalized research & development costs..............    1,400       913
      Accounts receivable reserve...........................       60       309
      Reserve for sales return..............................       20       154
      Net operating losses..................................    8,789     6,689
      Amortization..........................................    1,700     1,690
      Other individually immaterial items...................      300       313
                                                             --------  --------
        Total deferred tax assets...........................   21,269    18,744
        Valuation Allowance.................................  (19,469)  (16,940)
                                                             --------  --------
                                                                1,800     1,804
                                                             --------  --------
     Deferred tax liabilities:
      Depreciation..........................................   (1,800)   (1,804)
                                                             --------  --------
        Net deferred tax assets............................. $    --   $    --
                                                             ========  ========
</TABLE>

   At December 31, 1999, the Company had federal and state net operating loss
carryforwards of approximately $24.0 million and $6.0 million, respectively,
expiring in the years 2001 through 2018. At December 31, 1999, the Company had
tax credit carryovers of approximately $3.0 million and $2.5 million for
federal and state purposes, expiring in the years 2007 through 2013. In
addition, the Company had federal alternative minimum tax credit carryforwards
of approximately $497,000 that will not expire.

   The tax benefit associated with exercise of non-qualified stock options,
disqualifying dispositions of stock options and shares acquired under the
employee stock purchase plan created net operating losses of $1,798,000 in
1997. These benefits were fully reserved by a valuation allowance, and will be
credited to paid in capital when realized.

Note 10--Employee Benefit Plan

   Savings Plan. The Company has a savings plan, which qualifies under Section
401(k) of the Internal Revenue Code. Under the plan, participating U.S.
employees may defer up to 15% of their pre-tax salary, but not more than the
statutory limits. The Company currently does not match employee contributions
made to the savings plan. Administrative costs of the plan are immaterial.

Note 11--Contingencies

   In January 1997, a patent infringement claim was brought against the
Company by Crystal Semiconductor, Inc. ("Crystal"), a susidiary of Cirrus
Logic, in the United States District Court for the Western District of Texas.
The claim alleges that the Company and Tritech Microelectronics International,
Inc. and its Singapore parent company, Tritech Microelectronics Pte, Ltd.
(collectively "Tritech") infringe three patents owned by Crystal. These
patents relate to the analog-to-digital coder-decoder ("codec") module that
was designed by Tritech and incorporated into integrated PC audio chips
formerly sold by the Company. The suit seeks injunctive relief and damages.

                                     F-14
<PAGE>

                                   OPTi INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   A jury trial was held in this action from May 3-13, 1999. On May 17, 1999,
the jury returned a verdict that all of the asserted claims of the patents in
suit are valid and were infringed by the accused OPTi and TriTech products.
The jury further found that Tritech's infringement, but not OPTi's, was
willful and deliberate. The jury was asked to consider separately three
different damages allegations. The first was that Crystal lost profits because
sales that it would otherwise have made were in fact made by the defendants
("lost profits"). The second was that the defendants' conduct had caused
Crystal to reduce its selling prices from what they otherwise would have been
during the period of infringement ("price erosion"). The third allegation was
for the statutory alternative to lost profits, a "reasonable royalty". The
jury was asked to consider these questions with respect to the defendants as a
group and, of that amount, to assign a specific portion to OPTi. The jury's
verdict was as follows; all defendants $48.5 million, OPTi's portion of that
total $19.4 million.

   Following the jury's verdict, the parties have made various motions for
judgment. OPTi has moved for the entry of judgment, as a matter of law, that
Crystal did not prove its entitlement to price erosion damages, that the
amount of lost profits damages should be reduced, and that Crystal cannot
recover both lost profits and a reasonable royalty together. Crystal has moved
for entry of judgment in the amount found by the jury, plus prejudgment
interest, compounded quarterly (approximately $3.2 million is the OPTi
portion).

   On July 23, 1999, the United States District Court for the Western District
of Texas entered an Order and Judgment in the patent infringement action
brought by Crystal Semiconductor Corporation against OPTi, Inc., Tritech
Microelectronics Pte Ltd., a Singapore company,and TriTech Microelectronics
International, Inc., its American marketing subsidiary. The Court's judgment
substantially reduced the amount of damages that a jury had awarded to Crystal
against OPTi, from $19.4 million to $4 million. This $4 million has been
accrued in the Company's financial statements.

   The Court's Judgment also includes a permanent injunction against further
infringement, OPTi, however, is no longer in the audio chip business, having
sold its audio division to Creative Technology in November 1997.

   Following the entry of judgment, all three parties involved in the suit
appealed the judgment to the United States Court of Appeals for the Federal
Circuit. Crystal appealed the judges decision to deny lost profits damages and
price erosion damages as awarded by the jury and the denial of prejudgment
interest. OPTi appealed the courts ruling on one of the patents at issue and
the interpertation of that patent by the court.

   If Crystal prevails in its appeal and Tritech is unable to reimburse the
Company due to its filing for Judicial Management the results would have a
material adverse effect on Opti's financial position, results of operations,
and cash flow.

   A March 1994 Development Agreement between the Company and TriTech
Microelectronics International PTE LTD states that Tritech shall "fully and
effectively indemnify, defend and save harmless" the Company against any claim
that the products at issue in this action infringe the intellectual property
rights of others. However, in May 1999, TriTech Microelectronics, Pte, Ltd.
filed a "Petition For Judicial Management Order" in the High Court of the
Republic of Singapore, on the grounds that TriTech is "unable to pay its
debts" including its obligations to indemnify OPTi from Crystal's claim for
damages. The Order for a Judicial Manager to be appointed for TriTech was
granted on July 2, 1999. OPTi is in the process of filing a claim with the
Judicial Managers in regards to the imdemnification agreement.

   In September 1998, Crystal Semiconductor filed a second suit against the
Company and Does 1 through 1050 in the Superior court of the State of
California. This suit is a complaint to set aside fraudulent transfers, the
sale of its audio business and the stock repurchase program that the Company
started and completed in the summer of 1998, and for preliminary and permanent
injunction, against the Company divesting itself of its assets. On May 21,
1999, the Court signed a Stipulation and Order entered into by OPTi and
Crystal vacating the Preliminary Injunction Hearing set for June 3, 1999. This
Stipulation and Order obligates OPTi to maintain and

                                     F-15
<PAGE>

                                   OPTi INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

preserve liquid assets available, in an amount not less then the verdict
against OPTi, plus costs and interest, in the underlying patent litigation
between Crystal and OPTi. Based on the judgment entered into the Texas court a
new Stipulation and Order was entered into by the party whereas the amount of
liquid assets to be maintained and preserved was reduced to the amount of the
court judgment.

   On February 26, 1999, the Lemelson Medical, Education and Research
Foundation (the "Lemelson Foundation") filed a complaint in the United States
District Court for the district of Arizona against the Company and 87 other
defendant companies claiming patent infringement. No complaint has actually
been served against the Company

   In August 1999, the Company and the Lemelson Foundation reached an
agreement in regards to the patents at suit. Under terms of the license
agreement, the Lemelson Foundation agrees not to sue the Company on its
patents and pending applications and any subsequently filed applications
claiming inventions originally disclosed in any such existing patents or
pending applications.

   In September and October 1995, the Company was served with multiple
shareholder class action lawsuits filed in the United States District Court
for the Northern California District of California. The lawsuits, which named
the Company and several of its officers and directors as defendants, alleged
violations of the federal securities laws in connection with the announcement
by OPTi Inc. of its financial results for the quarter ended September 30,
1995. In December 1997, the Company and its insurance carriers reached a
settlement with the plaintiffs in regards to this suit. The Company was
responsible for approximately $500,000 of the settlement amount, which was
paid in fiscal 1998. While, the Company claims no wrongdoing in regards to
this matter it believed that the expense and time spend to continue to defend
its position would have been more costly than the actual settlement.

Note 12--Restructuring

   During the second quarter ot 1997, the Company initiated a restructuring
program as a result of decisions by its Chief Executive Officer and Board of
Directors to adjust the Company's organizational structure in order to align
resources with a revised business model and to lower the Company's cost
structure. The restructuring actions resulted in a charge of $1,213,000
(approximately $600,000 of which related to non-cash activities) which
included approximately $140,000 associated with the termination of
approximately 30 employees primarily at the Company's headquarters in
Milpitas, CA, approximately $335,000 for costs associated with vacating leased
facilities, approximately $600,000 for the write-down of capital assets, and
approximately $138,000 in other charges. At December 31, 1997 all activities
had been completed and all liabilities had been paid.

Note 13--Sale of Audio line

   On November 26, 1997, the Company sold certain assets associated with its
Audio line, under the terms of the Asset Purchase Agreement dated November 22,
1997, to Creative Technology Ltd., ("Creative"), an unaffiliated, Singapore
corporation.

   Under the terms of the Asset Purchase Agreement, the Company transferred to
Creative all of the Audio line assets except for the related accounts
receivable and inventory. All liabilities of the audio line were retained by
the Company except for certian obligations relating to licensing agreements
and a supply contract. At the closing, Creative paid the Company $14,000,000
in cash and the Companyissued a warrant to purchase 200,000 Shares of OPTi's
Common Stock at a price of $10.00 per share. The warrant expires on November
25, 2002.

                                     F-16
<PAGE>

                                   OPTi INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The Company recognized a net gain of $12.4 million as a result of the sale
of the Audio line. This gain is derived from the cash proceeds of $14.0
million offset by expenses of $0.2 million for fixed assets, $0.8 million for
inventory write-down, $0.5 million for write-down of prepaid assets, and $0.1
million for legal costs related to the transaction.

   The Company's revenues from the sale of its audio products represented
approximately 28% and 27% of the Company's revenues in 1996 and the first nine
months of 1997, respectively

Note 14--Subsequent Events

   In January 2000, the Company entered into a non-exclusive license agreement
for all of its patents with a major semiconductor company. In return for the
one time fully paid up license fee of $13,500,000, OPTi releases this company
from any and all claims or liability for infringement of OPTi patents. OPTi is
also released of liability for any infringement of the other companys patents
that arose prior to the signing date.

   On January 13, 2000, the Company announced the termination of approximately
twenty employees as part of a reduction in the Company's operations. The vast
majority of employees effected by this reduction were research and development
employees. The Company at this time has no research and development employees
to work on future development.

                                     F-17
<PAGE>

                                   OPTi Inc.

                                  SCHEDULE II

                       VALUATION AND QUALIFYING ACCOUNTS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                Additions
                                       Balance  Charged to              Balance
                                      Beginning Costs and               at End
                                      of Period  Expenses  Deductions  of Period
                                      --------- ---------- ----------  ---------
<S>                                   <C>       <C>        <C>         <C>
Year ended December 31, 1997
  Allowance for doubtful accounts....  $1,275      $325         --      $1,600

Year ended December 31, 1998
  Allowance for doubtful accounts....  $1,600      $421      $1,221(1)  $  800

Year ended December 31, 1999
  Allowance for doubtful accounts....  $  800      $ 50      $  699(1)  $  151
</TABLE>
--------
(1) Represents specific write-off of accounts.

                                      S-1