---

---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

---

FORM 10-K

(Mark One)

|/x/ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTS OF 1934.
|--- | --------------------------------------------------------------------------------------

For the fiscal year ended June 30, 2000

or

|/ / | 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 000-24487

---

MIPS Technologies, Inc.(Exact name of registrant as specified in its charter)

DELAWARE(State or other jurisdiction of
Incorporation or organization)

77-0322161(I.R.S. Employer Identification Number)


1225 CHARLESTON ROAD, MOUNTAIN VIEW, CA 94043-1353(Address of principal executive offices)

Registrant's
telephone number, including area code:(650) 567-5000

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

Securities
registered pursuant to section 12(g) of the Act: Class A common stock, $.001 Par Value
Class B common stock, $.001 Par Value(Title of class)

---

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 /x/ 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. [ ]

Aggregate
market value of the registrant's Class A common stock and Class B common stock held by non-affiliates of the Registrant as of September 1,
2000 was approximately $378.5 million and $1,328.5 million, respectively, based upon the closing prices reported for such date on the NASDAQ National market. For purposes of this
disclosure, shares of common stock held by persons who hold more than 5% of the outstanding shares of Class A common stock or Class B common stock and shares held by officers and
directors of the Registrant have been excluded because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other
purposes.

As
of September 1, 2000, the number of outstanding shares of the Registrant's Class A common stock, $.001 par value, was 13,542,708. The number of outstanding shares of
the Registrant's Class B common stock, par value $.001, was 25,068,953.

Documents
incorporated by reference:

Portions
of the registrant's proxy statement for its 2000 annual meeting of stockholders are incorporated by reference into Part III of this Annual Report on
Form 10-K.

---

---

---

## 

PART 1

Item 1.Business

General

MIPS Technologies is a leading designer of high-performance and low power consumption processors, cores and related intellectual property for use
in a wide variety of increasingly sophisticated consumer devices and networking equipment. Our industry standard designs are based on our 32- and 64-bit reduced instruction set
computing (RISC) architectures. Our 64-bit RISC architecture is the volume leading architecture for 64-bit processors. We license our designs and related intellectual property
to semiconductor companies and system original equipment manufacturers. Together with our licensees, we offer a broad variety of high-performance processors in standard, custom,
semi-custom and application-specific products. We currently have over thirty licensees.

Our
licensees currently offer over 60 standard processors based on our RISC architecture, which have a cumulative installed base of about 160 million units. Our licensing
strategy has resulted in a very strong market position for the MIPS architectures in stand-alone processors with over 50% share of market in 1999 according to Dataquest. Through our core licensing
program, the MIPS architectures also have a major position in the market for system-on-a-chip (SOC) products. Our primary target market is the rapidly growing market for digital consumer products and
networks that connect them. We believe that our 32- and 64-bit processor designs are well suited for these applications due to the scalability, low power consumption and high
performance of our RISC architecture and the cost and time-to-market advantages provided by our intellectual property. Our core processor designs and related intellectual
property have been incorporated into several key products in these markets, including video games such as the Nintendo 64 and Sony PlayStation and PlayStation 2, handheld personal computers such as
the NEC MobilePro, Casio Cassiopeia, Symbol Technologies' PocketPC and the Vadem Clio, digital set-top boxes such as EchoStar's Dish Network and Motorola/General Instrument's DCT 5000 and
internet appliances such as WebTV.

MIPS
Technologies, Inc. was incorporated in Delaware in June 1992. Our principal executive offices are located at 1225 Charleston Road, Mountain View, California
94043-1353, and our telephone number at that address is (650) 567-5000.

Industry Background

Rapid advances in semiconductor technology have enabled the development of higher performance processors at lower cost. As a result, it is now
cost-effective for system OEMs to embed these processors into a wider range of electronic products and systems, including a new generation of digital consumer products and
networking equipment. Processors may be purchased individually and placed on a printed circuit board or they may be embedded into larger silicon chips. Improvements in semiconductor manufacturing
processes have enabled the integration of entire systems onto a single integrated circuit to create complex system-on-a-chip solutions. In many cases, these
system-on-a-chip solutions are the most cost-effective method of creating new product solutions. The availability of low-cost,
high-performance processors and the development of system-on-a-chip technology have contributed to the emergence and rapid growth of the market for
embedded systems, particularly advanced digital consumer and networking products.

Embedded
systems are broadly defined as microcontrollers, processors and cores plus related software incorporated into devices other than personal computers, workstations, servers,
mainframes and minicomputers. In the past, this market was dominated by low-cost 4-, 8- and 16-bit microcontrollers embedded primarily into
low-cost, high-volume consumer products such as home appliances, facsimile machines, printers, telephone answering machines and various automobile systems. The use of higher
performance 32- and 64-bit processors was common in higher cost but lower volume applications such as

1

---

telecommunications switching equipment and data networking routers. Although microcontrollers are adequate for basic system control functions, they lack the performance and bandwidth capabilities to
implement today's advanced functions. Today, however, the price of 32- and 64-bit processors has reached the point where it is now cost-effective to embed these
solutions into low-cost, high-volume digital consumer products.

Digital
consumer products that incorporate low power consumption and high-performance processors and software can offer advanced functionality such as realistic
3-D graphics rendering, digital audio and video, and communications and high-speed signal processing. Examples include the home video game
console; digital cable set-top boxes; internet appliances; processor-based smart cards and handheld personal computers. To meet the demands of the digital consumer products market, system
OEMs rely on semiconductor companies to design and deliver critical components within rigorous price and performance parameters. In order to supply products for these markets, semiconductor
suppliers are increasingly combining their own intellectual property with that of third-party suppliers such as us in the form of processor cores and other functional blocks.

The MIPS Technologies Network

Our technology focuses on providing cost-effective, power consumption efficient, and high-performance processors, cores and related
designs for high-volume embedded applications. The MIPS RISC architecture is flexible and designed to allow semiconductor manufacturers to integrate their intellectual property with our
processor, core and related designs to develop differentiated and innovative products for a variety of embedded applications within demanding time-to-market requirements.
Products incorporating the MIPS architecture range from digital cameras using processor cores with a die size of less than two square millimeters to high-performance
set-top-boxes and game consoles using processors with a die size of 300 square millimeters. In addition, while designed for high performance, our RISC-based
architectures are being incorporated in a number of low-power applications such as handheld personal computers and smart cards. The MIPS architecture is designed around upward compatible
instruction sets that enable manufacturers developing products across a broad range of price/performance points to use common support tools and software.

Through
our network of semiconductor manufacturing and design companies, system OEMs and independent software, hardware and intellectual property (IP) vendors, we have an
established infrastructure to support our architecture as a standard platform for the embedded market.

Licensees.We have over thirty licensees that develop, manufacture (or have manufactured) and sell silicon solutions
based on the MIPS RISC processor architecture. These licensees include Alchemy Semiconductor, Inc., Altera Corporation, ATI Technologies, Inc., Broadcom Corporation, Centillium
Communications, Inc., Chartered Semiconductor Manufacturing Ltd., Conexant Systems, Inc., EmpowerTel Networks, Inc (formerly known as Lara Technology, Inc.), ESS
Technology, Inc., Gemplus International S.A., Integrated Device Technology, Inc., InSilicon Corporation, Integrated Telecom Express, Inc., LSI Logic Corporation, Macronix
America, Inc., Metalink Ltd., General Instrument Corporation (acquired by Motorola, Inc.), NEC Corporation, NeoMagic Corporation, NKK Corporation, Philips Semiconductors
International B.V., Quantum Effect Devices, Inc. (acquired by PMC-Sierra, Inc.), QuickLogic Corporation, SandCraft, Inc., SiByte, Inc., Sony Corporation,
Synova, Incorporated, Taiwan Semiconductor Manufacturing Co., Ltd., Texas Instruments Incorporated, Toshiba Corporation, and Excess Bandwidth Corporation (acquired by Virata Corporation).

Several
of these licensees and others have made significant investments in our technology and market development which has resulted in multiple design teams around the world engaged
in the development of MIPS-based processors and cores. Using our flexible intellectual property, our licensees, and the multiple design teams within these companies, are able to design
optimized semiconductor products for multiple segments of the embedded market. In some cases, our licensees also add custom integration services and

2

---

derivative design technologies to enhance our processor designs. Our licensees and their associated design teams have developed a broad portfolio of processors and standard products based on the MIPS
RISC architecture as well as application specific extensions which can be licensed back to us and offered to other licensees. For example, MIPS16 technology, an extension to the instruction set
architecture that reduces memory requirements and costs by allowing instructions to be expressed with 16 rather than 32 bits, was developed primarily by LSI Logic and is presently licensed by us to
several of our semiconductor manufacturing licensees.

We
also develop and license custom processor designs intended to address the specific silicon process technology of the manufacturer to which it is licensed. Such designs customized
to the technology of our licensee provide significant price-performance advantages. We believe that our ability to provide these custom processor designs is a competitive advantage. Recently our
company expanded its reach into applications and markets with unique needs by adding indirect distribution channels. These include foundries (Chartered Semiconductor Manufacturing Ltd. and
Taiwan Semiconductor Manufacturing Co., Ltd.) and IP integrators (inSilicon).

System OEMs.Products based on the MIPS RISC architecture are used by a variety of system OEMs in the embedded
market. A number of high-profile digital consumer products incorporate the MIPS RISC architecture, including the Nintendo 64 and Sony PlayStation and PlayStation 2 video game systems, the
Casio Cassiopeia and NEC MobilePro handheld personal computers, the Echo Star digital set-top box and WebTV's Internet appliance. We participate in various sales and technical efforts
directed to system OEMs and have increased our business development organization to build brand awareness of the MIPS RISC architecture among system OEMs.

Independent Software, Hardware and IP Vendors.Our RISC architecture is further enabled by a variety of third-party
independent software, hardware and IP vendors that provide operating systems and engineering development tools such as compilers, debuggers and in-circuit emulation testers, middleware,
and application platforms and reference designs. Currently, these companies provide over 170 products in support of MIPS' RISC architecture. This support allows system OEMs to design the MIPS
processor
technology into their products. In particular, software operating systems developed by Microsoft and Wind River Systems, Inc. are compatible with our RISC architecture.

Markets and Applications

Digital Consumer Products.Together with our existing semiconductor manufacturing licensees and our associated design teams, we seek to
leverage our RISC architecture into solutions for a wide variety of sophisticated, high-volume digital consumer products such as video game products, handheld personal computers, smart
cards and set-top boxes. To date, MIPS RISC-based processors have been designed into many digital consumer products. Revenue related to the video game market presently accounts
for a significant portion of our total revenue. Such revenue is expected to gradually decline in the total revenue mix over the next few years.



3

---



Products

We design, develop and license intellectual property for high-performance processors. Our intellectual property is used in the design of
processors, processor cores, instruction set architectures (ISAs) and application specific extensions (ASEs) that enable our licensees to design and/or manufacture flexible,
high-performance processors, cores and systems-on-a-chip (SOCs) for embedded systems within demanding time-to-market
requirements. Through licensing and royalty-based arrangements with our licensees, we seek to strengthen the position of the MIPS architecture and proliferate our designs in embedded systems
applications. We have not historically and do not intend to manufacture processors and related devices.

Designs.We currently provide flexible, modular processor and core designs covering a range of performance/price points
to enable our licensees to provide both standardized and customized semiconductor products more quickly to system OEMs. These designs include:



4

---



MIPS32 and MIPS64 Architectures.The MIPS32 and MIPS64 architectures provide new and improved features for the system
developer and make it easier for the development tool vendors to provide comprehensive support across both 32-bit and 64-bit implementations. These architectures are a
combination of binary instructions, and the hardware to execute them, which together determine the native capability of a processor. Architectural standards are important because, among other things,
they become the common points around which tools are built, software libraries and compilers are written, and software operating systems are developed. Elements of an instruction set architecture may
be copyrighted or patented, thus preventing unrestricted use without a license. We license our instruction set architectures to promote the development and marketing of our compatible parts by our
semiconductor licensees.

Application Specific Extensions.Application specific extensions (ASEs) are intended to provide design flexibility for
our application-specific products and are offered to our semiconductor manufacturing licensees as optional, additional features to our processors and cores.



MIPS
designs, architectures and extensions are subject to patent, copyright and trademark protection. MIPS, R3000, R4000, R5000 are registered trademarks, and R4300i,
MIPS-3D, MIPS16, MIPS32, MIPS64, 4K, 4Kc, 4Kp, 4Km, 5Kc, 20K, R20K, 20Kc and SmartMIPS are trademarks of MIPS Technologies, Inc. This report also contains trademarks and registered
trademarks of other companies.

Research and Development

We believe that our future competitive position will depend in large part on our ability to develop new and enhanced processors, cores and related designs in a
timely and cost-effective manner. We believe that these capabilities are necessary to meet the evolving and rapidly changing needs of semiconductor companies and system OEMs in our
target markets. To this end, we have assembled a team of highly skilled engineers that possess significant experience in the design and development of complex processors. We are building on this base
of experience and the technologies that we have developed to enhance the MIPS RISC architecture and develop a broader line of processors and cores that are optimized for various applications. Our
strategy is to use a modular approach that emphasizes re-usable, licensable processors, cores and software technology. We believe that this increased flexibility and modularity will allow
our licensees to provide high-performance, customized products more quickly to their customers. In addition, we develop and license standardized instruction set architecture and
application specific extensions to work within and around our RISC architecture to enhance and tailor the capabilities of our processor designs for specific applications.

We
develop and license our processor designs in several forms. Custom processor designs are intended to address the specific silicon process technology of the manufacturer to which it
is licensed. We

5

---

believe that our ability to provide these custom designs is a competitive advantage. We also generate both high-level description language representations of our custom designs called
synthesizable or "soft" cores, and intermediate representations with some process targeting called optimized cores. Synthesizable and optimized cores are flexible and can be licensed to multiple
customers and used in multiple applications. Synthesizable cores are delivered as high-level, process independent circuit descriptions, leaving the process implementation details to the
licensee. These designs provide the greatest flexibility to semiconductor companies. Optimized cores are generated using standard ASIC methodologies, including circuit synthesis and automatic
place-and-route. The use of optimized cores simplifies and expedites the task of porting a design to a specific manufacturing process. Implementation advantages of a new
process technology can be quickly exploited using optimized cores without significant circuit redesign.

At
June 30, 2000, our research and development staff totaled 117 persons compared to 98 employees at June 30, 1999. We intend to hire additional highly skilled technical
personnel to staff our anticipated research and development activities. Research and development expenses were $28.1 million, $21.1 million and $43.4 million in fiscal 2000, 1999,
and 1998, respectively.

Sales and Marketing

Our sales and marketing activities are focused principally on establishing and maintaining licensing arrangements with semiconductor companies and
participating in marketing, sales and technical efforts directed to system OEMs. We license our RISC-based processors, cores and related design technology on a
non-exclusive and worldwide basis to semiconductor companies who, in turn, sell products incorporating these technologies to system OEMs. The alliances we establish form a
distribution channel and are an important element of our strategy to proliferate the MIPS RISC architecture as the standard in the embedded processor industry. In establishing these alliances, we seek
to license our technology to those companies we believe can help us grow the overall market share of MIPS-based products through the use of their design capabilities, sales relationships,
manufacturing expertise, applications knowledge or other capabilities.

We
presently have one customer that individually accounts for more than 10% of our total revenue: Nintendo. All of the revenue derived from this customer reflects royalties related to
sales of Nintendo 64 video game cartridges. Revenue related to sales of Nintendo 64 video game cartridges is expected to continue to account for a significant portion of our total revenue for the next
year. The next generation Nintendo video game system will not incorporate any of our technology. Because revenue related to sales of Nintendo 64 video game cartridges is expected to represent a
significant portion of our total revenue, we also expect to experience seasonal fluctuations in our revenue and operating results. See "Management's Discussion and Analysis of Financial Condition and
Results of OperationRevenue". For financial information regarding revenue derived from our international licensees, see Note 13 of Notes to Consolidated Financial Statements.

Although
the precise terms of our contracts vary from licensee to licensee, they typically provide for technology license and engineering service fees which may be payable
up-front and/or upon the achievement of certain milestones such as provision of deliverables by us or production of semiconductor products by the licensee. Our contracts also provide for
the payment of royalties to us based on a percentage of the net revenue earned by the licensee from the sale of products incorporating our technology and, in some cases, based on unit sales of such
products. We also offer licensees the option to license our technology on a single-use, multiple use or unlimited-use basis, and may provide licensees with various technical
support, training and consulting services and sales and marketing support.

Certain
of our marketing activities are also aimed at system OEMs. Through targeted advertising and co-marketing programs with our licensees, we seek to increase
awareness of the MIPS RISC architecture. We believe that these efforts will provide product differentiation that will generate demand for our

6

---

technology from digital consumer product and business equipment manufacturers, thereby increasing demand from semiconductor companies for our designs in their products.

Intellectual Property

We regard our patents, copyrights, mask work rights, trademarks, trade secrets and similar intellectual property as critical to our success, and rely on a
combination of patent, trademark, copyright, mask work and trade secret laws to protect our proprietary rights. Our failure to obtain or maintain adequate protection of our intellectual property
rights for any reason could have a material adverse effect on our business, results of operations and financial condition.

Despite
our efforts to protect our intellectual property rights, unauthorized parties may attempt to copy or otherwise use our technologies, including the marketing and sale of
unauthorized MIPS-based clones. We intend to vigorously protect our intellectual property rights through litigation and other means. However, there can be no assurance that we will be able
to enforce our rights or prevent other parties from designing and marketing unauthorized MIPS-based products.

We
own 57 U.S. patents on various aspects of our technology, with expiration dates ranging from 2006 to 2017, 27 pending U.S. patent applications, as well as all foreign counterparts
relating thereto. There can be no assurance that patents will be issued from any patent applications we submit, that any patents we hold will not be challenged, invalidated or circumvented or that any
claims allowed from our patents will be of sufficient scope or strength to provide meaningful protection or any commercial advantage to us.

We
also use licensing agreements, and employee and third party nondisclosure and assignment agreements to limit access to and distribution of our proprietary information and to obtain
ownership of technology prepared on a work-for-hire or other basis. There can be no assurance that the steps we have taken to protect our intellectual property rights will be
adequate to deter misappropriation of such rights or that we will be able to detect unauthorized uses and take immediate or effective steps to enforce our rights. There can also be no assurance that
the steps we have taken to obtain ownership of contributed intellectual property will be sufficient to assure our ownership of all proprietary rights.

We
also rely on unpatented trade secrets to protect our proprietary technology. No assurance can be given that others will not independently develop or otherwise acquire the same or
substantially equivalent technologies or otherwise gain access to our proprietary technology or disclose such technology or that we can ultimately protect our rights to such unpatented proprietary
technology. In addition, no assurance can be given that third parties will not obtain patent rights to such unpatented trade secrets, which patent rights could be used to assert infringement claims
against us.

From
time to time we have entered, and in the future may enter, into cross licensing arrangements with others, pursuant to which we license certain of our patents in exchange for
patent licenses from such licensees. Although these types of cross licensing arrangements are common in the semiconductor and processor industries, and do not generally provide for transfers of
know-how or other proprietary information, such arrangements may facilitate the ability of such licensees, either alone or in conjunction with others, to develop competitive products and
designs.

In
connection with our separation from Silicon Graphics in July 1998, we entered into arrangements with Silicon Graphics pursuant to which certain intellectual property was
assigned to us, subject to the grant of a license to Silicon Graphics; certain intellectual property was retained by Silicon Graphics, subject to the grant of a license to us; and certain intellectual
property was retained by Silicon Graphics without any ongoing interest to us. In the past, the MIPS Group (a division of Silicon Graphics) has benefited from its status as a division of Silicon
Graphics in our access to the intellectual property of third parties through licensing arrangements or otherwise, and in the negotiation of the financial and other terms of any such arrangements.
There can be no assurance that the separation of our business from that of Silicon Graphics will not adversely affect our ability to negotiate commercially attractive intellectual

7

---

property licensing arrangements with third parties in the future. In addition, in connection with any future intellectual property infringement claims, we will not have the benefit of asserting
counterclaims based on Silicon Graphics' intellectual property portfolio, nor will we be able to provide licenses to Silicon Graphics' intellectual property in order to resolve such claims.

Competition

The market for embedded processors and cores is highly competitive and characterized by rapidly changing technological needs and capabilities. We believe that
the principal competitive factors in the embedded processor market are performance, functionality, price, customizability and power consumption. Our processors and cores compete with those of ARM
Holdings plc, Hitachi Semiconductor (America) Inc. and Power PC, a product family developed and marketed by IBM Corporation and Motorola, Inc. We also compete against certain
semiconductor manufacturers, whose product lines include processors for embedded and non-embedded applications, including Advanced Micro Devices, Inc., Intel Corporation,
Motorola, Inc. and National Semiconductor Corporation. In addition, we may face competition from the producers of unauthorized MIPS-based clones and non-RISC based
technology designs.

To
remain competitive, we must continue to differentiate our processors, cores and related designs from those available or under development by the internal design groups of
semiconductor companies, including our current and prospective licensees. Many of these internal design groups have substantial programming and design resources and are part of larger organizations,
which have substantial financial and marketing resources. There can be no assurance that internal design groups will not develop products that compete directly with our processor and related designs
or will not actively seek to participate as merchant vendors in the intellectual property component market by selling to third-party semiconductor manufacturers or, if they do, that we will be able to
compete with them successfully. To the extent that these alternative technologies provide comparable performance at a lower or similar
cost than our technology, semiconductor companies may adopt and promote these alternative technologies. Certain of our competitors have greater name recognition and customer bases as well as greater
financial and marketing resources than us, and such competition could adversely affect our business, results of operations and financial condition.

Employees

As of June 30, 2000, we had 174 full time employees. Of this total, 117 were in research and development, 39 were in sales and marketing and 18 were in
finance and administration. Our future success will depend in part on our ability to attract, retain and motivate highly qualified technical and management personnel who are in great demand in the
semiconductor industry. We intend to hire additional highly skilled technical personnel to staff our anticipated research and development activities. None of our employees are represented by a labor
union or subject to a collective bargaining agreement. We believe that our relations with our employees are good.

Item 2.Properties

Our executive, administrative and technical offices currently occupy approximately 44,500 square feet (with an option to increase to 55,000 square feet) in a
building subleased from Silicon Graphics in Mountain View, California. Payments by us to Silicon Graphics under this sublease are equal to amounts payable by Silicon Graphics under its sublease for
the property with a third party. This sublease will expire on May 31, 2002, subject to earlier termination in certain circumstances.

In
addition, we lease approximately 44,600 square feet of technical office space near Copenhagen, Denmark for our European based development team. The lease will expire in April,
2010. We also have worldwide sales locations in Japan, the United Kingdom, France, Germany, Texas, and Southern California.

8

---

We believe that these facilities are adequate to meet our current needs but that we may need to seek additional space in the future.

Item 3.Legal Proceedings

On October 28, 1999, we filed suit against Lexra, Inc. in the United States District Court for the Northern District of California for
infringement of two United States patents.

On
November 12, 1999, Lexra, Inc. filed counterclaims against us seeking a declaratory judgment that the two asserted patents are invalid and not infringed. Lexra has
also asserted claims for common law unfair competition, intentional interference with business relations, and statutory unfair competition, all purportedly based on the allegation that our claims of
patent infringement have been made in bad faith. On December 3, 1999, we filed our answer to Lexra's counterclaims, and denied the substantive allegations made by Lexra.

We
are not aware of any pending disputes, including that discussed above, that would be likely to have a material adverse effect on our business, results of operations or financial
condition.

From
time to time, we receive communications from third parties asserting patent or other rights covering our products and technologies. Based upon our evaluation, we may take no
action or we may seek to obtain a license. There can be no assurance in any given case that a license will be available on terms we consider reasonable, or that litigation will not ensue. In addition,
from time to time we evaluate possible patent infringement claims against third parties and may assert such claims if appropriate.

As
previously disclosed, in May 1998, we entered into a memorandum of understanding with Silicon Graphics, Nintendo Co. Ltd. and ArtX, Inc. (now a part of ATI
Technologies, Inc.) in which Nintendo agreed that, in the absence of certain litigation we and Silicon Graphics initiated against ArtX, Inc., Nintendo would refrain from asserting any
claims based on its belief that certain disclosures in the registration statement for our initial public offering constituted a breach of the confidentiality obligations contained in our contract with
Nintendo. Although we strongly disagree that any such breach has occurred, Nintendo may assert any claims it believes it has against us with respect to the disclosures in such registration statement
if Silicon Graphics reasserts its claims against ArtX, Inc.

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

No matters were submitted to a vote of security holders during the quarter ended June 30, 2000.

Executive Officers of the Registrant.

Our executive officers and their ages as of June 30, 2000, were as follows:

|Name               |  | Age |  | Position                                             
|------------------ |  | --- |  | -----------------------------------------------------
|John E. Bourgoin   |  | 54  |  | Chief Executive Officer and President                
|Lavi Lev           |  | 43  |  | Senior Vice President, Engineering                   
|Kevin C. Eichler   |  | 40  |  | Vice President, Chief Financial Officer and Treasurer
|Derek Meyer        |  | 40  |  | Vice President, Worldwide Field Operations           
|Sandy Creighton    |  | 47  |  | Vice President, General Counsel and Secretary        
|John Brian Knowles |  | 53  |  | Vice President, Marketing                            
|                   |  |     |  |                                                      

John E. Bourgoinhas served as our Chief Executive Officer since February 1998 and our President since September 1996,
and has served on our board of directors since May 1997. Mr. Bourgoin also served

9

---

as a Senior Vice President of Silicon Graphics from September 1996 through May 1998. Prior to joining Silicon Graphics, Mr. Bourgoin was Group Vice President, Computation Products
Group at Advanced Micro Devices, Inc.

Lavi Levhas served as our Senior Vice PresidentEngineering since March 1998, and was Vice
PresidentEngineering of Silicon Graphics from 1996 to March 1998. From 1995 to 1996, he served as Vice President, Engineering at MicroUnity Systems Engineering.

Kevin C. Eichlerhas served as our Vice President, Chief Financial Officer and Treasurer since May 1998. Prior to joining us and
since 1996, Mr. Eichler served as Vice President, Finance, Chief Financial Officer, Treasurer and Secretary of Visigenic Software Inc., an independent provider of software tools for
distributed object technologies for the Internet, Intranet and enterprise computing environments. From 1995 to 1996, he served as Executive Vice President, Finance and Chief Financial Officer of
National Information Group, a provider of technology solutions for financial services companies.

Derek Meyerhas served as our Vice President of Worldwide Field Operations since September 1999 and was Vice
PresidentSales and Marketing from March 1998 to September 1999. Mr. Meyer joined us in May 1996 as Director of Worldwide Marketing and Sales. Prior to joining
us and since 1994, Mr. Meyer served as marketing director for the TriMedia division of Philips Semiconductors.

Sandy Creightonhas served as our Vice President, General Counsel and Secretary since June 1998. Prior to joining us and since
1991, Ms. Creighton was Deputy General Counsel at Sun Microsystems, Inc

John Brian Knowleshas served as our Vice President of Marketing since September 1999. Mr. Knowles joined us in
December 1998 as Director of European Business Development. Prior to joining us and since 1992, Mr. Knowles was Director, North American Sales for Sun Microsystems Microelectronics
Division.

There
is no family relationship between any of our executive officers.

10

---

## 

PART II

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

Our
common stock has been quoted on the NASDAQ National Market under the symbol "MIPS" since our initial public offering on June 30, 1998. Prior to such time, there was no
public market for our common stock. Effective April 5, 1999 and in connection with our recapitalization, our common stock, as then quoted on the NASDAQ National Market, was redesignated as
Class A common stock. On the effective date of our initial public offering, June 30, 1998, the reported last sale price of our common stock was $13.44 per share. On June 20, 2000,
Silicon Graphics distributed all of its remaining interest in MIPS in the form of a stock dividend of Class B common stock to its stockholders. Prior to this distribution, the Class B
shares were not publicly traded. On June 21, 2000, the first day of public trading of Class B common stock under the market symbol "MIPSB", the reported last sale price was $32.88. The
following table sets forth, for the periods indicated, the high and low reported last sale prices per share of our Class A and Class B common stock on the NASDAQ National Market.

CLASS A

CLASS BHIGH

LOW

HIGH

LOWFISCAL YEAR 2000First Quarter

$
45.00

$
29.50





Second Quarter

$
63.75

$
26.75





Third Quarter

$
90.69

$
42.94





Fourth Quarter

$
55.75

$
18.19

$
39.69

$
32.00


CLASS A

CLASS BHIGH

LOW

HIGH

LOWFISCAL YEAR 1999First Quarter

$
23.25

$
10.63



Second Quarter

$
32.00

$
14.84



Third Quarter

$
66.38

$
28.25



Fourth Quarter

$
59.50

$
25.50






As
of September 1, 2000, there were approximately 42 stockholders of record of our Class A common stock and 5,203 stockholders of record of our Class B common
stock. Because most of our Class A and Class B common stock is held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of
stockholders represented by these record holders. We have never paid or declared any cash dividends on our common stock or other securities and do not anticipate paying cash dividends in the
foreseeable future.

Item 6.Selected Consolidated Financial Data.

You should read the selected consolidated financial data set forth below in conjunction with "Management's Discussion and Analysis of Financial Condition and
Results of Operation" and our consolidated financial statements and the notes to those statements included elsewhere in this report. The selected consolidated financial data set forth below for the
fiscal years ended June 30, 2000, 1999, 1998, 1997 and 1996 have been derived from our consolidated financial statements which have been audited by Ernst & Young LLP, independent
auditors.

Effective
as of June 1, 1998, our business assets and liabilities were separated from those of Silicon Graphics. Prior to that time, our business was operated as a division of
Silicon Graphics. The historical financial information presented below, particularly for periods prior to March 31, 1998, may not be indicative of our future performance and does not
necessarily reflect what our financial position and results of operations would have been had we operated as a separate, stand-alone entity during the periods

11

---

presented. The historical financial information for such periods does not reflect many significant changes that have occurred in our funding and operations and the sources and costs of our revenue as
a result of both the separation of our business from that of Silicon Graphics and our shift in strategic direction that occurred at that time.

|                                    |                            | Years Ended June 30,     |       
|----------------------------------- | -------------------------- | ------------------------ | ------
|
|
|Statements of Operations Data:      |                            |                          |       
|Revenue:                            |                            |                          |       
|                                    | Royalties                  |                          | $     
|                                    | Contract revenue           |                          |       
|                                    |                            |                          |       
|                                    |                            | Total revenue            |       
|Costs and expenses:                 |                            |                          |       
|                                    | Cost of contract revenue   |                          |       
|                                    | Research and development   |                          |       
|                                    | Sales and marketing        |                          |       
|                                    | General and administrative |                          |       
|                                    | Restructuring charge       |                          |       
|                                    |                            |                          |       
|                                    |                            | Total costs and expenses |       
|                                    |                            |                          |       
|Operating income (loss)             |                            |                          | 42,850
|Other income (expense), net         |                            |                          | 3,896 
|                                    |                            |                          |       
|Income (loss) before income taxes   |                            |                          | 46,746
|Provision for income taxes          |                            |                          | 19,633
|Net income (loss)                   |                            | $                        | 27,113
|                                    |                            |                          |       
|Net income (loss) per basic share   |                            | $                        | 0.71  
|Net income (loss) per diluted share |                            | $                        | 0.68  

|                                                 |  | June 30, |        
|------------------------------------------------ |  | -------- | -------
|
|
|Balance Sheet Data:                              |  |          |        
|Cash and cash equivalents                        |  | $        | 84,359 
|Working capital (deficiency)                     |  |          | 84,488 
|Total assets                                     |  |          | 109,252
|Long-term obligations, net of current maturities |  |          |       
|Total stockholders' equity (deficit)             |  |          | 92,204 

12

---

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

You should read the following discussion and analysis together with our Consolidated Financial Statements and Notes to those statements included elsewhere in
this report. Except for the historical information contained in this Annual Report on Form 10-K, this discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from those indicated in these forward-looking statements as a result of certain factors, as more fully described under
"Factors That May Affect Our Business," and other risks included from time to time in our other Securities and Exchange Commission ("SEC") reports, copies of which are available from us upon request.
The forward-looking statements within this Annual Report on Form 10-K are identified by words such as "believes," "anticipates," "expects," "intends," "may" and other similar
expressions. However, these words are not the exclusive means of identifying such statements. We undertake no obligation to update any forward-looking statements included in this discussion.

Overview

Our predecessor, MIPS Computer Systems, Inc., was founded in 1984 and was engaged in the design and development of RISC processors for the computer
systems and embedded markets. Silicon Graphics adopted the MIPS architecture for its computer systems in 1988 and acquired MIPS Computer Systems, Inc. in 1992. Following the acquisition,
Silicon Graphics continued the MIPS processor business through its MIPS Group (a division of Silicon Graphics), which focused primarily on the development of high-performance processors
for Silicon Graphics' workstations and servers. Until the last few years, cost considerations limited the use of MIPS RISC processors in high-volume digital consumer products. As the cost
to manufacture processors based on the MIPS technology decreased, the MIPS Group sought to penetrate the consumer market, both through supporting and coordinating the efforts of the MIPS semiconductor
licensees and, most notably, by partnering with Nintendo in its design of the Nintendo 64 video game player and related cartridges. In order to increase the focus of the MIPS Group on the design and
development of processor intellectual property for the embedded market, effective June 1, 1998, Silicon Graphics separated the business of the MIPS Group from its other operations and
transferred to us the assets, liabilities and intellectual property related to this business.

Revenue
related to sales of Nintendo 64 video game players and related cartridges currently accounts for a significant portion of our revenue. In the short term, we intend to use our
operating cash flows, including royalties we receive with respect to sales of Nintendo 64 video game players and related cartridges, to fund processor and related design efforts aimed at the digital
consumer products market
and to establish and strengthen relationships with semiconductor licensees and system original equipment manufacturers (system OEMs). As part of these efforts, we intend to develop processors with
increased flexibility and modularity that will allow our semiconductor licensees, as well as system OEMs, to provide high-performance, customized products more quickly.

The
financial statements for periods prior to the third quarter of fiscal 1998 reflect the historical results of operations, financial position and cash flows of the MIPS Group,
certain portions of which were transferred to us by Silicon Graphics in connection with the separation of the two businesses. The financial statements for such periods have been carved out from the
financial statements of Silicon Graphics using the historical results of operations and historical basis of the assets and liabilities of our business, as adjusted to reflect allocations of certain
corporate charges that our management believes are reasonable. Our financial information for periods prior to the third quarter of fiscal 1998 may not necessarily reflect the results of our
operations, financial position and cash flows in the future or what the results of operations, financial position and cash flows would have been had the MIPS Group been a separate, stand-alone entity
during those periods. The financial information for such earlier periods does not reflect the many significant changes that have occurred in our funding and operations and the sources and costs of
revenue as a result of both our separation from Silicon Graphics and our shift in strategic direction.

13

---

Our revenue consists of royalties and contract revenue earned under contracts with our licensees and under our agreement with Nintendo. Our contracts with our licensees are typically
subject to periodic renewal or extension and expire at various dates through June 2010. We generate royalties from the sale by our licensees of products incorporating our technology. Royalty
revenue generally is recognized in the quarter in which a report is received from a licensee detailing the shipments of products incorporating our intellectual property (i.e., generally in the quarter
following the sale of the licensee's product to its customer). Royalties may be calculated as a percentage of the revenue received by the seller on sales of such products or on a per unit basis. Under
the terms of an agreement with Silicon Graphics entered into in connection with the separation, we also receive all royalties payable by Nintendo relating to sales of Nintendo 64 video game players
and related cartridges.

Contract
revenue includes technology license fees and engineering services fees. We receive license fees for the use of technology that we have developed internally and, in some
cases, which we have licensed from third parties. License fees are typically recognized upon the execution of the license agreement and transfer of intellectual property, provided no further
significant performance obligations exist. Technology license fees vary based on, among other things, whether a particular technology is licensed for a single application or for multiple or unlimited
applications, and whether the license granted covers a particular design or a broader architecture. Part of these fees may be payable up-front and part may be due upon the achievement of
certain milestones such as provision of deliverables by us or
production of semiconductor chips by the licensee. Engineering services fees are recognized as revenue when defined milestones are completed and the milestone payment is probable of collection. In
most instances, the technology we develop, including under engineering services contracts, can be licensed to multiple customers.

In
fiscal 2000, royalties accounted for approximately 62% of our total revenue while contract revenue increased to 38% of our total revenue compared to 17% in fiscal 1999 as we
continue to diversify our revenue base. In fiscal 1999 and 1998, our revenue consisted primarily of royalties, which exceeded 80% of our total revenue during those periods, due primarily to royalties
earned from Nintendo, and to a lesser extent from NEC, on sales of Nintendo 64 video game players and related cartridges.

Royalties
from Nintendo and NEC on sales of Nintendo 64 video game players and related cartridges accounted for approximately 49% of our total revenue for fiscal 2000, 71% of our
total revenue for fiscal 1999 and 79% of our total revenue for fiscal 1998. We anticipate that revenue related to sales of Nintendo 64 video game players and related cartridges will continue to
represent a significant portion of our total revenue for the next year. We receive royalties from NEC based on a percentage of the revenue derived by NEC from sales of the processor included in the
Nintendo 64 video game player. Current royalties from Nintendo are based on unit sales of Nintendo 64 video game cartridges. We also received royalties from Nintendo with respect to the graphics chip
included in Nintendo 64 video game players, and these royalties had a lifetime cap based on unit sales that was reached in the second quarter of fiscal 1998. There is no cap on royalties from NEC with
respect to its sale of processors to Nintendo for Nintendo 64 video game players or on royalties from Nintendo with respect to sales of Nintendo 64 video game cartridges.

The
market for home entertainment products is competitive and the introduction of new products or technologies, as well as shifting consumer preferences, could negatively impact the
amount and timing of sales of Nintendo 64 video game players and related cartridges. In addition, the eventual introduction of the next generation Nintendo video game system is likely to result in
declining sales of Nintendo 64 video game players and related cartridges, although sales of video game cartridges, which currently account for a significant portion of our royalties, will continue,
albeit at a declining rate, for a period of time after the introduction. We developed key elements of the Nintendo 64 system in conjunction with Silicon Graphics. These elements included certain
software and graphics technologies, which, as a result of our separation from Silicon Graphics and our shift in strategic direction in early 1998, we no longer offer. Accordingly, we will need to
generate revenue growth from our stated markets to offset the decline of Nintendo 64 royalties. The next generation Nintendo video game system will not incorporate any of our technology. We expect
that royalties will continue to represent a significant percentage of our total revenue over the next

14

---

few years due to our contractual arrangements with Nintendo and the royalties derived from new licensing arrangements. The amount, timing and relative mix of royalties and contract revenue is
difficult to predict. Factors affecting the amount and timing of our future royalties include:



Contract
revenue may fluctuate significantly from period to period and any increase or decrease in such revenue will not be indicative of future
period-to-period increases or decreases. Factors affecting the amount and timing of our future contract revenue include:



Although
a substantial portion of our total revenue to date has been derived from royalties and contract revenue relating to sales of Nintendo 64 video game products, we expect that
royalties and contract revenue related to sales of other digital consumer products, such as handheld personal computers, smart cards and set-top boxes, as well as other video game
products, will constitute an increasingly significant portion of our total revenue. Our ability to diversify our revenue base will depend primarily on the number and variety of design wins we obtain
from digital consumer product and
business equipment manufacturers, and consumer acceptance of products that incorporate our technology. We generally do not have a direct contractual relationship with digital consumer product
manufacturers, and the royalty reports submitted by our semiconductor licensees generally do not disclose which consumer products include our RISC technology. As a result, it is difficult for us to
identify or predict the extent to which our future revenue will be dependent upon a particular digital consumer product or product manufacturer.

Because
revenue related to sales of digital consumer products is expected to represent a substantial portion of our total revenue over the next several years, we expect to experience
seasonal fluctuations in our revenue and operating results. We typically record royalty revenue from our licensees, including Nintendo, in the quarter following the sale of the related digital
consumer product. Because a disproportionate amount of Nintendo 64 video game cartridges are typically sold in the second fiscal quarter (which includes the holiday selling season), we have realized a
disproportionate amount of our revenue and operating income in our third fiscal quarter. As we increase our focus on processors, cores and related designs for high-volume digital consumer
products, similar seasonal fluctuations in our revenue and operating results can be expected to continue.

To
date, companies based in Japan have accounted for the substantial majority of our total revenue, and nearly all of our international revenue. International revenue accounted for
approximately 66% of our total revenue in fiscal 2000 and 90% of our total revenue in both fiscal 1999 and fiscal 1998. Substantially all of this revenue has been denominated in U.S. dollars. We
expect that revenue derived from international licensees, will continue to represent a significant portion of our total revenue. However, most of our international licensees have customers worldwide
including those based in the United States. Therefore, our royalty revenue is derived from a global customer base.

15

---

Costs and Expenses

Our costs and expenses include cost of contract revenue, research and development expenses, sales and marketing expenses and general and administrative
expenses.

Cost of Contract Revenue

Cost of contract revenue presently consists primarily of sublicense fees. We incur an obligation to pay these fees when we sublicense to our customers
technology that we have licensed from third parties. Sublicense fees are recognized as cost of contract revenue when the obligation is incurred, which is typically the same period in which the related
revenue is recognized.

Research and Development

The separation of our business from that of Silicon Graphics and our shift in strategic direction has significantly impacted our research and development cost
structure. The markets we presently target allow us to use relatively small design teams and to rely largely on industry standard third-party design tools. By contrast, Silicon Graphics' complex
processor requirements and its need to develop and maintain proprietary design tools demanded that the MIPS Group employ large design teams. As a result, we were able to reduce our staffing
requirements and costs.

In
the second half of fiscal 1998, we reduced our research and development staff from 221 persons down to 36 persons, reflecting the transfer to Silicon Graphics of employees engaged
in the development of next generation processors for Silicon Graphics' systems as well as other staff reductions associated with the separation and shift in strategic direction.

At
June 30, 1999, our research and development staff increased to 98 persons. This increase reflects in part the addition of 32 employees to staff our research and development
activities in a new development center near Copenhagen, Denmark that began operations in December 1998. These employees are engaged in product development and also provide support and design
expertise for our European-based customers. At June 30, 2000, our research and development staff increased to 117 persons as we added resources for new development projects. We expect that our
research and development staff and expenses will increase as we continue to develop new designs for the digital consumer products and business equipment markets.

The
costs we incur with respect to internally developed technology and engineering services are included in research and development expense as they are incurred and are not directly
related to any particular licensee, license agreement or license fee.

Sales and Marketing

Sales and marketing expenses include salaries, travel expenses and costs associated with third party independent software development tools, direct marketing,
advertising and other marketing efforts. Our sales and marketing efforts are directed at establishing and supporting licensing relationships with semiconductor manufacturers, fabless semiconductor
companies and system OEMs. At June 30, 2000, our sales and marketing staff totaled 39 persons. Our sales and marketing staff and related expenses are expected to increase as we seek to
diversify our revenue base.

General and Administrative

Historically, a significant portion of our general and administrative expenses have reflected an allocation of corporate overhead by Silicon Graphics based on
headcount and a percentage allocation based on certain factors, including net sales, headcount and relative expenditure levels. Presently, certain facilities services are provided to us pursuant to an
agreement with Silicon Graphics. Our general and administrative expenses have grown substantially since the separation due, in part, to costs related to our

16

---

status as a stand-alone entity, such as increased legal and patent related costs, and expenses related to compliance with the reporting and other requirements of a publicly traded company. We expect
our general and administrative expenses will remain relatively stable in the near future.

Results of OperationYears Ended June 30, 2000, 1999 and 1998

Our total revenue in fiscal 2000, 1999 and 1998 were as follows:

Fiscal Year

Total Revenue2000

$
89.8 million1999


71.7 million1998


56.8 million


Total
revenue consisted of royalty revenue and contract revenue. Total revenue increased by $18.1 million in fiscal 2000 and by $14.9 million in fiscal 1999, primarily
due to an increase in contract revenue as we entered into technology licensing agreements with both new and existing licensees. Royalties for fiscal 2000, 1999 and 1998 consisted of royalties from
sale by semiconductor licensees of products incorporating our technology and from sales of Nintendo 64 video game players and related cartridges. Total royalties in fiscal 2000 decreased by
$3.6 million due to a decline in royalties from Nintendo 64 products. This decline was offset in part by a 20% increase in non-Nintendo 64 royalties. Contract revenue for fiscal
2000 and 1999 consists of fees generated from new license agreements entered into during these periods, and included engineering service fees earned upon our achievement of defined development
milestones. Contract revenue for fiscal 1998 consisted principally of license fees related to code compression technology.

Our
costs of contract revenue in fiscal 2000, 1999 and 1998 were as follows:

Fiscal Year

Cost of
Contract Revenue2000

$
750,0001999


125,0001998


375,000


Cost
of contract revenue in fiscal 2000, 1999 and 1998 was principally attributable to sublicense fees. We believe that future cost of contract revenue will be minimal.

Research
and development expenses in fiscal 2000, 1999 and 1998 were as follows:

Fiscal Year

Research and
Development Expenses2000

$
28.1 million1999


21.1 million1998


43.4 million


The
increase in research and development expenses of $7.0 million in fiscal 2000 from fiscal 1999 reflects the additional resources needed to staff and support new development
projects. The $22.3 million decrease in fiscal 1999 from fiscal 1998 reflects the separation of our business from that of Silicon Graphics as well as the change in our strategic direction in
the second half of fiscal 1998. Research and development expenses for the first half of fiscal 1998 reflects the operations of the MIPS Group, a division of Silicon Graphics, which had a staff of 221
persons at December 31, 1997. Because the markets we have targeted allow us to use relatively small design teams and to rely largely on industry standard third-party design tools, we reduced
our research and development staff by approximately 185 persons in connection with the separation during the second half of fiscal 1998.

17

---

Sales
and marketing expenses in fiscal 2000, 1999 and 1998 were as follows:

Fiscal Year

Sales and
Marketing Expenses2000

$
10.4 million1999


7.4 million1998


5.3 million


The
increase in sales and marketing expenses in both fiscal 2000 and fiscal 1999 was primarily due to an increase in support of our licensing revenue growth and an increase in product
and industry marketing activities.

General
and administrative expenses in fiscal 2000, 1999 and 1998 were as follows:

Fiscal Year

General and
Administrative Expenses2000

$
7.8 million1999


7.0 million1998


4.7 million


The
increase in general and administrative expenses in both fiscal 2000 and 1999 reflects the existence of legal and administrative costs related to our status as a publicly traded
company that we did not incur prior to our separation from Silicon Graphics.

The
restructuring charge taken in the second quarter of fiscal 1998 included $500,000 in severance-related costs and $2.1 million in asset write-downs related to our shift in
strategic direction.

Other
income and expense, (net) consists primarily of interest income of $3.8 million in fiscal 2000 compared to $1.6 million in fiscal 1999 and compared to interest
expense of $7,000 in fiscal 1998. The interest income was earned from the investment of the net cash proceeds of approximately $16.0 million from our July 1998 initial public offering
and the cash generated from our operating activities during fiscal 2000 and 1999.

On
May 13, 1999, the effective date of a secondary offering of our common stock by Silicon Graphics, Silicon Graphics' ownership interest in us was reduced to approximately
67%. Because Silicon Graphics owned less than 80% of our outstanding Class A and Class B common stock, we are no longer included in Silicon Graphics' consolidated federal income tax
group, but have instead filed separate tax returns. While we were a part of Silicon Graphics' consolidated group for federal income tax purposes, we were responsible for our income taxes through a tax
sharing agreement with Silicon Graphics. To the extent we produced taxable income, losses or credits, we made or received payments as though we filed separate federal, state and local income tax
returns. We recorded a provision for income taxes of $19.6 million in fiscal 2000 based on an estimated federal and state combined rate of 42% of income before taxes. We recorded a provision
for income taxes of $15.1 million in fiscal 1999 based on an estimated federal and state combined rate of 40% on income before taxes. Because our tax sharing agreement provides that we do not
receive any benefit for losses incurred or have any tax liability for any income earned up to the closing of our initial public offering in July 1998, no income tax provision or benefit was
reflected in fiscal 1998.

Impact of Currency

Certain of our international licensees pay royalties based on revenues that are reported in a local currency (currently yen) and translated into U.S. dollars
at the exchange rate in effect when such revenues are reported by the licensee. To date, substantially all of our revenue from international customers has been denominated in U.S. dollars. However, to
the extent that sales to digital consumer product manufacturers by our manufacturing licensees are denominated in foreign currencies, royalties we receive

18

---

on such sales could be subject to fluctuations in currency exchange rates. In addition, if the effective price of the technology we sell to our licensees were to increase as a result of fluctuations
in foreign currency exchange rates, demand for technology could fall, which would, in turn, reduce our royalties. We are unable to predict the amount of non-U.S. dollar denominated revenue
earned by our licensees and, therefore, have not attempted to mitigate the effect that currency fluctuations may have on our royalty revenue.

Liquidity and Capital Resources

Our principal capital requirements are to fund working capital needs, and to a lesser extent capital expenditures, in order to support our revenue growth.
Prior to our initial public offering in July 1998, our capital requirements were satisfied by funds provided by Silicon Graphics through its cash management system. Since the initial public
offering, we have not participated in Silicon Graphics' cash management system and Silicon Graphics has not provided additional funds to finance our operations.

At
June 30, 2000, we had cash and cash equivalents of $84.4 million and working capital of $84.5 million. For fiscal year ended June 30, 2000, our
operating activities provided net cash of $24.1 million, primarily reflecting net income partially offset by an increase in accounts receivable, a decrease in accounts payable and an increase
in accrued liabilities. The increase in accounts receivable was due to amounts owed to us under new license agreements entered into during the period. The decrease in accounts payable was the result
of a payment to Silicon Graphics for taxes accrued at June 30, 1999. The increase in accrued liabilities is attributable to an increase in income taxes payable. For the fiscal year ended
June 30, 1999, our operating activities provided net cash of $38.1 million, primarily reflecting net income and an increase in accounts payable and accrued liabilities, as well as
depreciation and other non-cash charges, partially offset by an increase in accounts receivable. The increase in accounts payable and accrued liabilities was the result of accrued income
taxes and an increase in accrued compensation related to higher staffing levels, as well as accumulated performance bonuses and increased accrued administrative costs associated with being a public
company. The increase in accounts receivable was due to amounts owed to us under new license agreements entered into during the period. For the fiscal year ended June 30, 1998, our operating
activities provided net cash of $4.4 million, primarily reflecting approximately $7.1 million of non-cash depreciation and restructuring charges offset in part by a decrease
in accounts payable of $2.7 million.

Net
cash used in investing activities was $4.1 million, $4.1 million and $2.1 million for the fiscal years ended June 30, 2000, 1999 and 1998,
respectively. Net cash used in investing activities in all periods presented consisted of equipment purchases and licensing of computer aided design tools used in
development. Capital expenditures have been, and future expenditures are anticipated to be, primarily for facilities and equipment to support expansion of our operations and licensing of computer
aided design tools used in development.

Net
cash provided by financing activities was $14.7 million for the fiscal year ended June 30, 2000, compared to $15.9 million for fiscal 1999 and net cash used
in financing activities of $2.3 million for fiscal 1998. Net cash provided by financing activities for fiscal 2000 consisted primarily of net cash proceeds to us from the issuance of common
stock through the exercise of stock options. Net cash provided by financing activities for fiscal 1999 consisted primarily of net cash proceeds to us of approximately $16.0 million from the
issuance of common stock in our initial public offering. Financing activities for fiscal year 1998 consisted primarily of net funds returned to Silicon Graphics, and payment of capital lease
obligations.

Our
future liquidity and capital requirements are expected to vary significantly from quarter to quarter, depending on numerous factors, including, among others:



19

---



We
believe that cash generated by our operations, together with our existing cash balance, will be sufficient to meet our projected operating and capital requirements for the
foreseeable future. However, we may in the future be required to raise additional funds through public or private financing, strategic relationships or other arrangements. Additional equity financing
may be dilutive to holders of our common stock, and debt financing, if available, may involve restrictive covenants. Moreover, strategic relationships, if necessary to raise additional funds, may
require that we relinquish our rights to certain of our technologies. Our failure to raise capital when needed could have a material adverse effect on our business, results of operations and financial
condition.

On
June 20, 2000, Silicon Graphics distributed all of the shares of our common stock that it owned in a transaction intended to be tax-free to Silicon Graphics and
its stockholders. Our ability to issue additional shares of our common stock in connection with acquisitions or to raise equity capital during the 30 month period following this distribution
will be limited under the terms of a distribution tax indemnification agreement which we have entered into with Silicon Graphics. The agreement contains covenants under which we may not issue capital
stock in an acquisition or private or public offering within the 30-month period following the tax-free distribution, except (a) pursuant to the exercise of employee,
director or consultant stock options or awards and (b) for the issuance of up to a cumulative amount of 10% of our outstanding stock at the time of the tax-free distribution unless
certain conditions are met.

Recent Accounting Developments

In June 1998, the Finance Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Financial Instruments and for Hedging Activities" which provides comprehensive and consistent standards for the recognition and measurement of derivatives and hedging activities. In
June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Financial Instruments and Hedging ActivitiesDeferral of the Effective date of FASB Statement
No. 133". As a result, we are required to adopt SFAS 133 in fiscal 2001. Its adoption is not anticipated to have an impact on our results of operations or financial condition when
adopted because we currently do not hold any derivative financial instruments and do not expect to engage in hedging activities in the near future.

In
December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"("SAB 101"). SAB 101
summarizes SEC staff's views in applying generally accepted accounting principles to revenue recognition. We are currently in the process of evaluating SAB 101 and what effect it may have on our
financial statements. Accordingly, we have not determined whether SAB 101 will have a material impact on our financial position or results of operations. In the event that the implementation of SAB
101 requires us to report a change in
accounting principles related to our revenue recognition policy, we would be required to report such change no later than the quarter ending June 30, 2001.

Factors That May Affect Our Business

Factors negatively affecting sales of Nintendo 64 video game players and related cartridges could materially and adversely affect
us.Royalties from Nintendo and NEC relating to Nintendo 64 video game players and related cartridges accounted for 49%, 71% and 79% of our total revenue for the fiscal years
ended June 30, 2000, 1999 and 1998, respectively. We anticipate that royalties related to sales of Nintendo 64 video game cartridges will continue to represent a significant portion of our
total revenue for the next

20

---

year. Accordingly, declining sales of Nintendo 64 video game cartridges by an amount significantly greater than we have estimated could have a material adverse effect on our results of operations and
financial condition. The market for home entertainment products is competitive and the introduction of new products or technologies, as well as shifting consumer preferences, could negatively impact
the amount and timing of sales of Nintendo 64 video game players and related cartridges.

We must diversify our sources of revenue to offset the decline in revenue we derive from sales of Nintendo video game products.The
next generation Nintendo video game system will not incorporate any of our technology. Our ability to diversify our sources of revenue is still uncertain and will depend on whether our processors and
related designs are selected for design ("design wins") into a broader range of digital consumer products and business equipment. Our ability to achieve design wins is subject to several risks and
uncertainties, including:



Even
if our technology is incorporated into new products, we cannot be certain that any such products will ultimately be brought to market, achieve commercial acceptance or generate
meaningful royalties for us.

We depend on semiconductor companies and digital consumer product manufacturers to adopt our technology and use it in the products they
sell.The adoption and continued use of our technology by semiconductor companies and digital consumer product manufacturers is important to our continued success. We face
numerous risks in obtaining agreements with semiconductor companies and digital consumer product manufacturers on terms consistent with our business model, including:



We
cannot assure you that we will be able to maintain our current relationships or establish new relationships with additional licensees, and any failure by us to do so could have a
material adverse effect on our business.

Moreover,
we are subject to risks beyond our control that influence the success or failure of a particular semiconductor company or digital consumer product manufacturer, including:



None
of our current licensees are obligated to license new or future generations of our processor designs. In addition, because we do not control the business practices of our
licensees, we do not influence

21

---

the degree to which our licensees promote our technology or set the prices at which the products incorporating our technology are sold.

Our quarterly financial results are subject to significant fluctuations that could adversely affect our stock price.Our quarterly
financial results may vary significantly due to a number of factors, many of which are outside of our control. In addition, our revenue components are difficult to predict and may fluctuate
significantly from period to period. Because our expenses are largely independent of our revenue in any particular period, it is difficult to accurately forecast our operating results. Our operating
expenses are based, in part, on anticipated future revenue and a high percentage of our expenses are fixed in the short term. As a result, if our revenue is below expectations in any quarter, the
adverse effect may be magnified by our inability to adjust spending in a timely manner to compensate for the revenue shortfall.

In
light of the foregoing, we believe that quarter-to-quarter comparisons of our revenue and operating results may not be a good indication of our future
performance. In addition, it is possible that in some future periods our results of operations may be below the expectations of public market analysts and investors. In this event, the price of both
our Class A and Class B common stock may fall.

Factors
that could cause our revenue and operating results to vary from quarter to quarter include:



We are dependent on the emerging market for digital consumer products and consumer acceptance of the products that incorporate our
technology.The digital consumer products industry is presently the primary market for our processor, core and related designs. The market for digital consumer products is
relatively new and emerging, and our success will depend largely on the level of consumer interest in
digital consumer products, many of which have only recently been introduced to the market. In addition, the timing and amount of royalties we receive will depend on consumer acceptance of the products
that incorporate our technology. We cannot assure you that any products that incorporate our technology will achieve commercial acceptance or generate meaningful royalties for us.

Our
dependence on the digital consumer products industry involves several risks and uncertainties, including:



22

---



If we are unable to develop enhancements and new generations of our intellectual property, our ability to achieve design wins may be adversely
affected.Our future success will depend on our ability to develop enhancements and new generations of our processors, cores and other intellectual property that satisfy the
requirements of specific product applications and introduce these new technologies to the marketplace in a timely manner. If our development efforts are not successful or are significantly delayed, or
if the characteristics of our processor and related designs are not compatible with the requirements of specific product applications, our ability to achieve design wins may be limited. Our failure to
achieve a sufficient number of design wins could have a material adverse effect on our business, results of operations and financial condition.

Technical
innovations of the type critical to our success are inherently complex and involve several risks, including:



Any
failure by us to adequately address these risks could render our existing processor, core and related designs obsolete and could have a material adverse effect on our business,
results of operations and financial condition. In addition, we cannot assure you that we will have the financial and other resources necessary to develop processor, core and related designs in the
future, or that any enhancements or new generations of the technology that we develop will generate revenue in excess of the costs of development.

Our intellectual property may be misappropriated or subject to claims of infringement.We attempt to protect our intellectual property
rights through a combination of patent, trademark, copyright and trade secret laws, as well as licensing agreements and employee and third-party nondisclosure and assignment agreements. Our failure to
obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business, results of operations and financial condition.

Policing
the unauthorized use of our intellectual property is difficult, and we cannot be certain that the steps we have taken will prevent the misappropriation or unauthorized use of
our technologies, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. In addition, we cannot be certain that we will be able to
prevent other parties from designing and marketing unauthorized MIPS-based products or that others will not independently develop or otherwise acquire the same or substantially equivalent
technologies as ours. Moreover, cross licensing
arrangements, in which we license certain of our patents but do not generally transfer know-how or other proprietary information, may facilitate the ability of cross-licensees, either
alone or in conjunction with others, to develop competitive products and designs.

We
cannot assure you that any of our patent applications will be approved or that any of the patents that we own will not be challenged, invalidated or circumvented by others or be of
sufficient scope or strength to provide us with any meaningful protection or commercial advantage. Significant litigation regarding intellectual property rights exists in our industry. We cannot be
certain that third parties will not

23

---

make a claim of infringement against us or against our licensees or digital consumer product manufacturers in connection with their use of our technology. Any claims, even those without merit, could
be time consuming to defend, result in costly litigation and/or require us to enter into royalty or licensing agreements. These royalty or licensing agreements, if required, may not be available to us
on acceptable terms or at all. A successful claim of infringement against us or one of our licensees in connection with its use of our technology could adversely affect our business.

If we fail to compete effectively in the market for embedded processors, our business will be adversely affected.Competition in the
market for embedded processors is intense. We believe that the principal competitive factors in our industry are performance, functionality, price, customizability and power consumption. We cannot
assure you that we will be able to compete successfully or that competitive pressures will not materially and adversely affect our business, results of operations and financial condition. We compete
with other designers and developers of processors and cores, as well as semiconductor manufacturers whose product lines include processors for embedded and non-embedded applications. In
addition, we may face competition from the producers of unauthorized MIPS-based clones and non-RISC based technology designs.

To
remain competitive, we must also differentiate our processors, cores and related designs from those available or under development by the internal design groups of semiconductor
companies, including some of our current and prospective licensees. Many of these internal design groups have substantial programming and design resources and are part of larger organizations with
substantial financial and marketing resources. These internal design groups may develop products that compete directly with ours or may actively seek to license their own technology to third-party
semiconductor companies.

Many
of our existing competitors, as well as a number of potential new competitors, have longer operating histories, greater brand recognition, larger customer bases as well as
greater financial and
marketing resources than we do. This may allow them to respond more quickly than we can to new or emerging technologies and changes in customer requirements. It may also allow them to devote greater
resources than we can to the development and promotion of their technologies and products. In addition, we may face competition from non-RISC based technology designs.

We may not be able to recruit and retain the personnel to succeed.Our future success depends to a significant extent
on the continued contributions of our key management, technical, sales and marketing personnel, many of who are highly skilled and difficult to replace. We intend to hire additional highly skilled
personnel, particularly technical personnel, for our anticipated research and development activities. Competition for qualified personnel, particularly those with significant experience in the
semiconductor and processor design industries, is intense. The loss of the services of any of our key personnel or our inability to attract and retain qualified personnel in the future could have a
material adverse effect on our business, results of operations and financial condition. In particular, our ability to hire and retain qualified engineering personnel is essential to meet our business
goals.

Factors that negatively affect our semiconductor company licensees could adversely affect our business.A significant portion of our
total revenue has been derived from a limited number of semiconductor companies. Accordingly, factors negatively affecting a particular licensee could adversely effect our results of operations and
financial condition if such licensee accounts for a significant portion of our revenue at the time. We are subject to many risks beyond our control that influence the success of our licensees,
including, for example, the highly competitive environment in which they operate, the market for their products, their engineering capabilities and their financial and other resources.

Revenue
from our top two semiconductor company licensees represented an aggregate of 16% of our total revenue in fiscal 2000 and 18% of our total revenue in both fiscal 1999 and
fiscal 1998. We may experience similar revenue concentration in the future, although the identity of the particular licensees that will account for this revenue concentration may vary from period to
period depending on the addition

24

---

or expiration of contracts, the nature and timing of payments due under our contracts and the volumes and prices at which our licensees sell products incorporating our technology.

Our revenue is subject to fluctuations in currency exchange rates.A substantial portion of our revenue has been, and is expected to
continue to be, derived from customers outside the United States, primarily in Japan. To date, substantially all of our revenue from international customers has been denominated in U.S. dollars.
However, to the extent that the sales by our licensees to their customers are
denominated in foreign currencies, the royalties we receive on such sales could be subject to fluctuations in currency exchange rates. In addition, if the effective price of the technology we sell to
our licensees were to increase due to fluctuations in foreign currency exchange rates, demand for our technology could fall, which would, in turn, reduce our royalties. Because we cannot predict the
amount of non-U.S. dollar denominated revenue earned by our licensees, we have not historically attempted to mitigate the effect that currency fluctuations may have on our revenue, and we
do not presently intend to do so in the future.

We have grown rapidly, and if we are unable to manage this growth, our business will be adversely affected.Our ability to continue to
grow successfully requires an effective planning and management process. Since June 30, 1998, we have increased our headcount substantially, from 63 employees at that date to 174 employees at
June 30, 2000. This increase includes the addition of 40 employees at our development center in Denmark, as well as additional employees in our engineering, sales and marketing staff.

Our
growth has placed, and the recruitment and integration of additional employees will continue to place, a strain on our resources. Digital consumer product manufacturers and our
semiconductor company licensees typically require significant engineering support in the design, testing and manufacture of products incorporating our technology. Accordingly, increases in the
adoption of our technology can be expected to increase the strain on our personnel, particularly our engineers.

Item 7A.Quantitative and Qualitative Disclosure About Market Risk

We are exposed to interest rate risk on investments of our excess cash. The primary objective of our investment activities is to preserve capital. To achieve
this objective and minimize the exposure due to adverse shifts in interest rates, we invest in high quality short-term maturity commercial paper and money market funds operated by
reputable financial institutions in the United States. Due to the nature of our investments, we believe that we do not have a material interest rate risk exposure.

We
are exposed to fluctuations in currency exchange rates because a substantial portion of our revenue has been, and is expected to continue to be, derived from customers outside the
United States, primarily in Japan. To date, substantially all of our revenue from international customers has been denominated in U.S. dollars. Because we cannot predict the amount of
non-U.S. dollar denominated revenue earned by our licensees, we have not historically attempted to mitigate the effect that currency fluctuations may have on our revenue, and we do not
presently intend to do so in the future.

25

---

Item 8.Financial Statements and Supplementary Data.

The following table presents selected quarterly information for fiscal 2000 and 1999 (in thousands, except per share data):

|                             |  | First Quarter |        | Second Quarter |   | Third Quarter |  | Fourth Quarter
|---------------------------- |  | ------------- | ------ | -------------- | - | ------------- |  | --------------
|Fiscal 2000:                 |  |               |        |                |   |               |  |               
|Total revenue                |  | $             | 18,947 |                | $ | 21,494        |  | $             
|Operating income             |  |               | 7,885  |                |   | 10,302        |  |               
|Net income                   |  |               | 5,114  |                |   | 6,626         |  |               
|Net income per basic share   |  | $             | 0.14   |                | $ | 0.17          |  | $             
|Net income per diluted share |  | $             | 0.13   |                | $ | 0.17          |  | $             
|Fiscal 1999:                 |  |               |        |                |   |               |  |               
|Total revenue                |  | $             | 12,261 |                | $ | 14,993        |  | $             
|Operating income             |  |               | 5,285  |                |   | 6,650         |  |               
|Net income                   |  |               | 3,273  |                |   | 4,148         |  |               
|Net income per basic share   |  | $             | 0.09   |                | $ | 0.11          |  | $             
|Net income per diluted share |  | $             | 0.09   |                | $ | 0.11          |  | $             

Also
see PART IV, Item 14 (a).

26

---

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
  of MIPS Technologies, Inc.

We
have audited the accompanying consolidated balance sheets of MIPS Technologies, Inc. (the "Company") as of June 30, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended June 30, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements 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 MIPS Technologies, Inc. at
June 30, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 2000 in conformity with accounting
principles generally accepted in the United States.

/s/
Ernst & Young LLP

San
Jose, California
July 15, 2000

27

---

MIPS TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

|                                     |                                                                                                                                                                        | June 30,                   |        
|------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | -------
|
|ASSETS                               |                                                                                                                                                                       
|Current assets:                      |                                                                                                                                                                        |                            |        
|                                     | Cash and cash equivalents                                                                                                                                              |                            | $      
|                                     | Accounts receivable                                                                                                                                                    |                            |        
|                                     | Prepaid expenses and other current assets (see Note 11 regarding related party transactions with Silicon Graphics)                                                     |                            |        
|                                     |                                                                                                                                                                        |                            |        
|                                     | Total current assets                                                                                                                                                   |                            |        
|                                     | Equipment and furniture, net                                                                                                                                           |                            |        
|                                     | Other assets                                                                                                                                                           |                            |        
|                                     |                                                                                                                                                                        |                            |        
|                                     |                                                                                                                                                                        | $                          | 109,252
|                                     |                                                                                                                                                                        |                            |        
|LIABILITIES AND STOCKHOLDERS' EQUITY |                                                                                                                                                                       
|Current liabilities:                 |                                                                                                                                                                        |                            |        
|                                     | Accounts payable (see Note 11 regarding related party transactions with Silicon Graphics)                                                                              |                            | $      
|                                     | Accrued liabilities                                                                                                                                                    |                            |        
|                                     | Deferred revenue                                                                                                                                                       |                            |        
|                                     |                                                                                                                                                                        |                            |        
|                                     |                                                                                                                                                                        | Total current liabilities  |        
|Stockholders' equity:                |                                                                                                                                                                        |                            |        
|                                     | Class A common stock, $0.001 par value: 150,000,000 shares authorized; 13,376,818 and 12,372,500 shares issued and outstanding at June 30, 2000 and 1999, respectively |                            |        
|                                     | Class B common stock, $0.001 par value: 100,000,000 shares authorized; 25,069,759 shares issued and outstanding at June 30, 2000 and 1999                              |                            |        
|                                     | Additional paid-in capital                                                                                                                                             |                            |        
|                                     | Accumulated deficit                                                                                                                                                    |                            |        
|                                     |                                                                                                                                                                        |                            |        
|                                     |                                                                                                                                                                        | Total stockholders' equity |        
|                                     |                                                                                                                                                                        |                            |        
|                                     |                                                                                                                                                                        | $                          | 109,252
|                                     |                                                                                                                                                                        |                            |        

See
accompanying notes.

28

---

MIPS TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

|                                                                                             |                            | Years ended June 30,     |       
|-------------------------------------------------------------------------------------------- | -------------------------- | ------------------------ | ------
|
|Revenue:                                                                                     |                            |                          |       
|                                                                                             | Royalties                  |                          | $     
|                                                                                             | Contract revenue           |                          |       
|                                                                                             |                            |                          |       
|                                                                                             |                            | Total revenue            |       
|Costs and expenses (see Note 11 regarding related party transactions with Silicon Graphics): |                            |                          |       
|                                                                                             | Cost of contract revenue   |                          |       
|                                                                                             | Research and development   |                          |       
|                                                                                             | Sales and marketing        |                          |       
|                                                                                             | General and administrative |                          |       
|                                                                                             | Restructuring charge       |                          |       
|                                                                                             |                            |                          |       
|                                                                                             |                            | Total costs and expenses |       
|                                                                                             |                            |                          |       
|Operating income                                                                             |                            |                          | 42,850
|Other income (expense), net                                                                  |                            |                          | 3,896 
|                                                                                             |                            |                          |       
|Income before income taxes                                                                   |                            |                          | 46,746
|Provision for income taxes                                                                   |                            |                          | 19,633
|                                                                                             |                            |                          |       
|Net income                                                                                   |                            | $                        | 27,113
|                                                                                             |                            |                          |       
|Net income per basic share                                                                   |                            | $                        | 0.71  
|                                                                                             |                            |                          |       
|Net income per diluted share                                                                 |                            | $                        | 0.68  
|                                                                                             |                            |                          |       
|Shares used in computing basic net income per share                                          |                            |                          | 38,030
|                                                                                             |                            |                          |       
|Shares used in computing diluted net income per share                                        |                            |                          | 39,912
|                                                                                             |                            |                          |       

See
accompanying notes.

29

---

MIPS TECHNOLOGIES, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

(In thousands except share data)

|                                                                        |  | Common Stock |  |            |   |   |    |  |  
|----------------------------------------------------------------------- |  | ------------ |  | ---------- | - | - | -- |  | -
|
|
|Balances at June 30, 1997                                               |  |             |  | 36,000,000 |   | $ | 36 |  | $
|Net income                                                              |  |             |  |           |   |   |   |  |  
|Net financing returned to Silicon Graphics                              |  |             |  |           |   |   |   |  |  
|Net equipment transferred to Silicon Graphics                           |  |             |  |           |   |   |   |  |  
|                                                                        |  |              |  |            |   |   |    |  |  
|Balances at June 30, 1998                                               |  |             |  | 36,000,000 |   |   | 36 |  |  
|Net income                                                              |  |             |  |           |   |   |   |  |  
|Common stock issued under employee stock option and purchase plans      |  | 192,259      |  |           |   |   |   |  |  
|Issuance of stock options to a consultant for services                  |  |             |  |           |   |   |   |  |  
|Shares issued in initial public offering, net of issuance costs of $404 |  | 5,500,000    |  | (4,250,000 | ) |   | 1  |  |  
|Secondary offering by Silicon Graphics                                  |  | 6,680,241    |  | (6,680,241 | ) |   |   |  |  
|Currency translation                                                    |  |             |  |           |   |   |   |  |  
|                                                                        |  |              |  |            |   |   |    |  |  
|Balances at June 30, 1999                                               |  | 12,372,500   |  | 25,069,759 |   |   | 37 |  |  
|Net income                                                              |  |             |  |           |   |   |   |  |  
|Common stock issued under employee stock option and purchase plans      |  | 1,004,318    |  |           |   |   | 1  |  |  
|Tax benefit of stock option exercises                                   |  |             |  |           |   |   |   |  |  
|Currency translation                                                    |  |             |  |           |   |   |   |  |  
|                                                                        |  |              |  |            |   |   |    |  |  
|Balances at June 30, 2000                                               |  | 13,376,818   |  | 25,069,759 |   | $ | 38 |  | $
|                                                                        |  |              |  |            |   |   |    |  |  

See
accompanying notes.

30

---

MIPS TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

|                                                                    |                                                                                                      | Years ended June 30,                                                                 |       
|------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ------
|
|Operating activities:                                               |                                                                                                      |                                                                                      |       
|                                                                    | Net income                                                                                           |                                                                                      | $     
|Adjustments to reconcile net income to cash provided by operations: |                                                                                                      |                                                                                      |       
|                                                                    | Depreciation                                                                                         |                                                                                      |       
|                                                                    | Restructuring charge                                                                                 |                                                                                      |       
|                                                                    | Other non-cash charges                                                                               |                                                                                      |       
|                                                                    | Changes in operating assets and liabilities:                                                         |                                                                                      |       
|                                                                    |                                                                                                      | Accounts receivable                                                                  |       
|                                                                    |                                                                                                      | Accounts payable                                                                     |       
|                                                                    |                                                                                                      | Other assets and liabilities                                                         |       
|                                                                    |                                                                                                      |                                                                                      |       
|                                                                    |                                                                                                      | Net cash flow provided by operating activities, excluding Silicon Graphics financing |       
|Investing activitiescapital expenditures                           |                                                                                                      |                                                                                      | (4,128
|Financing activities:                                               |                                                                                                      |                                                                                      |       
|                                                                    | Net proceeds from issuance of common stock                                                           |                                                                                      |       
|                                                                    | Payments on capital lease obligations                                                                |                                                                                      |       
|                                                                    | Net financing provided from (returned to) Silicon Graphics                                           |                                                                                      |       
|                                                                    |                                                                                                      |                                                                                      |       
|                                                                    |                                                                                                      | Net cash provided by (used in) financing activities                                  |       
|Effect of exchange rate on cash                                     |                                                                                                      |                                                                                      | (158  
|Net increase in cash and cash equivalents                           |                                                                                                      |                                                                                      | 34,443
|Cash and cash equivalents, beginning of year                        |                                                                                                      |                                                                                      | 49,916
|                                                                    |                                                                                                      |                                                                                      |       
|Cash and cash equivalents, end of year                              |                                                                                                      | $                                                                                    | 84,359
|                                                                    |                                                                                                      |                                                                                      |       
|Supplemental disclosures of non-cash transactions:                  |                                                                                                      |                                                                                      |       
|                                                                    | Net equipment transferred to Silicon Graphics                                                        |                                                                                      | $     
|                                                                    | Net equipment retired                                                                                |                                                                                      | $     
|                                                                    | Tax benefit of stock option exercises                                                                |                                                                                      | $     
|Supplemental disclosures of cash transactions:                      |                                                                                                      |                                                                                      |       
|                                                                    | Income taxes paid (including payments made to Silicon Graphics of $7,430 for 2000 and none for 1999) |                                                                                      | $     
|                                                                    | Interest paid                                                                                        |                                                                                      | $     

See
accompanying notes.

31

---

MIPS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Formation and Description of Business

Formation of MIPS Technologies, Inc. (MIPS).MIPS Technologies' predecessor, MIPS
Computer Systems, Inc., was founded in 1984 and was engaged in the design and development of RISC processors for the computer systems and embedded markets. Silicon Graphics Inc.
("Silicon Graphics") adopted the MIPS architecture for its computer systems in 1988 and acquired MIPS Computer Systems, Inc. in 1992. Following the acquisition, Silicon Graphics continued the
MIPS processor business through its MIPS Group (a division of Silicon Graphics), which focused primarily on the development of high-performance processors for Silicon Graphics'
workstations and servers. In order to increase the focus of the MIPS Group on the design and development of processor applications dedicated to the embedded market, in December 1997, Silicon
Graphics initiated a plan to separate the business of the MIPS Group from its other operations.

In
April 1998, our Board of Directors approved a transaction pursuant to which Silicon Graphics transferred to us the assets and liabilities related to the design and
development of processor intellectual property for embedded market applications (the "Separation"). From the closing of our initial public offering (the "Offering") on July 6, 1998, until
June 20, 2000, we were a majority owned subsidiary of Silicon Graphics. On June 20, 2000, Silicon Graphics distributed all of its remaining interest in MIPS in the form of a stock
dividend of Class B common stock to its stockholders.

Basis of Presentation.The accompanying consolidated financial statements for periods prior to
June 30, 1998 reflect the operations of our predecessor, the MIPS Group, a division of Silicon Graphics. The consolidated statements of operations include all revenue and costs attributable to
MIPS, including, prior to the Separation, a corporate allocation of the costs of facilities and employee benefits. Additionally, incremental corporate administration, finance and management costs were
allocated to MIPS based on certain methodologies that we believe are reasonable under the circumstances (see Note 11).

Subsequent
to June 30, 1998, we operated as a stand-alone company, MIPS Technologies, Inc. The consolidated financial statements include our accounts and the accounts of
our wholly owned Swiss subsidiary, MIPS Technologies International AG, after elimination of intercompany transactions and balances.

Note 2. Summary of Significant Accounting Policies

Use of Estimates.The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results inevitably will differ from those estimates, and such
differences may be material to the financial statements.

Revenue Recognition.We derive revenue from fees for the transfer of proven and reusable
intellectual property components or the performance of engineering services to customer specifications. We enter into licensing agreements that provide licensees the right to incorporate MIPS'
intellectual property components in their products with terms and conditions that have historically varied by licensee. Generally these agreements include one or more of the following elements:
(i) royalty payments, which are payable upon the sale of a licensee's products, (ii) nonrefundable technology license fees, which are payable upon the transfer of intellectual property,
(iii) engineering service fees, which generally are payable upon our achievement of defined milestones, and (iv) maintenance and limited support fees. We classify all revenue

32

---

that involves the future sale of a licensee's products as royalty revenue. Royalty revenue generally is recognized in the quarter in which a report is received from a licensee detailing the shipments
of products incorporating our intellectual property components (i.e., in the quarter following the sale of licensed product by the licensee). We classify all revenue that does not involve the future
sale of a licensee's products, primarily license fees and engineering service fees, as contract revenue. License fees are recognized upon the execution of the license agreement and transfer of
intellectual property,
provided no further significant performance obligations exist and collectibility is deemed probable. Engineering services, which are performed on a best efforts basis, are recognized as revenue when
the defined milestones are completed and the milestone payment is probable of collection. Milestones have historically been formulated to correlate with the estimated level of effort and related
costs. Annual maintenance and support fees, renewable by licensee, are amortized over the period of support, generally 12 months. Revenue from these arrangements is not significant.

Cost of Contract Revenue.Cost of contract revenue consists mainly of sublicense fees, which
are recognized as the obligation is incurred.

Cash and Cash Equivalents.Cash and cash equivalents consist of financial instruments, which
are readily convertible into cash and have original maturities of three months or less at the time of acquisition.

Currency Translation.The assets and liabilities of international non-U.S.
functional currency entities are translated into U.S. dollars at the rates of exchange in effect at the end of the period. Revenues and expenses are translated using rates that approximate those in
effect during the period. Gains and losses from currency translation are included in stockholder's equity in the consolidated balance sheets.

Gains
and losses from foreign currency transactions are included in current income and have not been significant to our operating results in any period.

Research and Development Expenses.Costs incurred with respect to internally developed
technology and engineering services are included in research and development expenses, as they are not directly related to any particular licensee, license agreement or license fees. Such costs are
expensed as incurred.

Equipment and Furniture.Equipment and furniture are stated at cost and depreciation is
computed using the straight-line method. Useful lives of three years are used for equipment and furniture.

Prepaid Expenses and Other Current Assets.Prepaid expenses and other current assets consist
principally of amounts paid by us in advance for maintenance contracts on our computer-aided software design tools. These contracts typically cover a one-year period, over which the cost
is amortized. At June 30, 2000, other current assets also includes a receivable from Silicon Graphics of $2.1 million related to costs associated with the stock dividend of
Class B common stock (see Note 11). At June 30, 1999, other current assets also includes amounts receivable from employees of $2.0 million ($10,000 at June 30, 2000)
relating to an amount payable to us upon exercise of stock options.

Stock-Based Compensation.We have adopted the disclosure requirements of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-based Compensation" ("SFAS 123"). As allowed by SFAS 123, we account for stock-based employee compensation
arrangements under the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). As a result, no expense was
recognized for options to purchase common stock of Silicon Graphics (prior to the Separation) or MIPS (following its initial public offering) that were

33

---

granted with an exercise price equal to fair market value at the date of grants and no expense was recognized in connection with purchases under the Silicon Graphics employee stock purchase plan prior
to the Separation or under our employee stock purchase plan following our initial public offering. For Silicon Graphics stock options that were granted and for restricted Silicon Graphics and MIPS
common stock issued at discounted prices, we recognize compensation expense over the vesting period for the difference between the exercise or purchase price and the fair market value on the
measurement date.

Income Taxes.We use the asset and liability method of accounting for income taxes. Deferred
tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets are recognized for deductible temporary differences, net operating loss carryforwards and credit carryforwards if it is more likely than
not that the tax benefits will be realized. To the extent a deferred tax asset cannot be recognized under the preceding criteria, allowances must be established. Deferred tax assets and liabilities
are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.

Earnings per Share.We follow the provisions of SFAS No. 128, "Earnings per Share".
SFAS 128 requires the presentation of basic and fully diluted earnings per share. Basic earnings per share is computed by dividing income available to common stockholders by the weighted
average number of common shares that were outstanding during the period. Diluted earnings per share is computed giving effect to all dilutive potential common shares that were outstanding for any
periods presented in these financial statements.

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

|                                                                                      |                                                     | Years ended June 30,
|------------------------------------------------------------------------------------- | --------------------------------------------------- | --------------------
|
|Numerator:                                                                            |                                                     |                     
|                                                                                      | Net income available to common stockholders         |                     
|                                                                                      |                                                     |                     
|Denominator:                                                                          |                                                     |                     
|                                                                                      | Weighted-average shares of common stock outstanding |                     
|                                                                                      | Less: Weighted-average shares subject to repurchase |                     
|                                                                                      |                                                     |                     
|Shares used in computing basic net income per share                                   |                                                     |                     
|Effect of dilutive securities-employee stock options and shares subject to repurchase |                                                     |                     
|                                                                                      |                                                     |                     
|Shares used in computing diluted net income per share                                 |                                                     |                     
|                                                                                      |                                                     |                     
|Basic net income per share                                                            |                                                     | $                   
|Diluted net income per share                                                          |                                                     | $                   

Comprehensive Income.In fiscal 2000, 1999 and 1998 the currency translation adjustment was not
material and, therefore, total comprehensive income closely approximated net income in each fiscal year.

Segment Information.MIPS is a leading designer of high-performance processors and
related intellectual property for use in a wide variety of increasingly sophisticated consumer devices and business

34

---

equipment. We license our core processor designs and related intellectual property to semiconductor manufacturers, companies that design but do not manufacture semiconductor products, and system
original equipment manufacturers. These activities have been organized into one operating segment.

We
evaluate the performance of our geographic regions based on revenues only. We do not assess the performance of our geographic regions on other measures of income or expense, such
as depreciation and amortization, operating income or net income. In addition, as our assets are primarily located in our corporate office in the United States and not allocated to any specific
region, we do not produce reports for, or measure the performance of, our geographic regions based on any asset-based metrics. Therefore, geographic information is presented only for revenues. See
Note 13 for additional information.

Recent Accounting Pronouncements.In June 1998, the Financial Accounting Standards Board
("FASB") issued SFAS No. 133, "Accounting for Derivative Financial Instruments and for Hedging Activities" which provides comprehensive and consistent standards for the recognition and
measurement of derivatives and hedging activities. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Financial Instruments and Hedging
ActivitiesDeferral of the Effective date of FASB Statement No. 133". As a result, we are required to adopt SFAS 133 in fiscal 2001. It's adoption is not anticipated to have
an impact on our results of operations or financial condition when adopted, because we currently do not hold any derivative financial instruments and do not expect to engage in hedging activities in
the near future.

In
December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements", ("SAB 101"). SAB 101
summarizes SEC staff's views in applying generally accepted accounting principles to revenue recognition. We are currently in the process of evaluating SAB 101 and what effect it may have on our
financial statements. Accordingly, we have not determined whether SAB 101 will have a material impact on our financial position or results of operations. In the event that the implementation of SAB
101 requires us to report a change in accounting principles related to our revenue recognition policy, we would be required to report such change no later than the quarter ending June 30, 2001.

Note 3. Business Risk and Customer Concentration

We operate in the intensely competitive semiconductor industry, which has been characterized by price erosion, rapid technological change, short product life
cycles, cyclical market patterns and heightened foreign and domestic competition. Significant technological changes in the industry could adversely affect our operating results. Due to our focus on
processor designs dedicated to the embedded market, including digital consumer products, we can be expected to experience seasonal fluctuations in our revenue and operating results.

We
market and license our technology to a limited number of customers and generally do not require collateral. At June 30, 1999, one customer accounted for 100% of accounts
receivable. Revenue from one customer represented an aggregate of 47% in fiscal 2000, 67% in fiscal 1999 and 75% in fiscal 1998, of total revenue. We expect that a significant portion of our future
revenue will continue to be generated by a limited number of customers. The nonrenewal or expiration of contracts with our current customers could adversely affect our near-term future
operating results. The next generation Nintendo video game system will not incorporate any of our technology.

35

---

A substantial portion of our revenue is derived from licensees based outside the United States (see Note 13). We anticipate that revenue from international licensees will
continue to represent a substantial portion of our total revenue. To date, substantially all of the revenue from international customers has been denominated in U.S. dollars. However, to the extent
that sales to digital consumer product manufacturers by our licensees are denominated in foreign currencies, royalties received by us on such sales could be subject to fluctuations in currency
exchange rates. In addition, if the effective price of the technology licensed by us to our licensees were to increase as a result of fluctuations in foreign currency exchange rates, demand for our
technology could fall, which would, in turn, reduce our royalties. The relative significance of our international operations exposes us to a number of additional risks including political and economic
instability, longer accounts receivable collection periods and greater difficulty in collection of accounts receivable, reduced or limited protection for intellectual
property, export license requirements, tariffs and other trade barriers and potentially adverse tax consequences. There can be no assurance that we will be able to sustain revenue derived from
international customers or that the foregoing factors will not have a material adverse effect on our business, operating results and financial condition.

Note 4. Restructuring Charge

The restructuring charge recorded in fiscal 1998 includes approximately $500,000 in severance and related costs (17 employees, a majority of which supported
research and development activities) and $2.1 million in fixed asset write-downs related to our shift in strategic direction. All the severance and related costs were paid and all employees
were terminated as of June 30, 1999.

Note 5. Employee Notes Receivable

We have loans outstanding to employees and an officer. These loans are payable upon maturity and have terms ranging from three to five years. Employee loans
are included in other assets in the accompanying balance sheets and approximated $613,000 at June 30, 2000 and $824,000 at June 30, 1999. Approximately $331,000 at June 30, 2000
and $500,000 at June 30, 1999, of these loans relate to loans that are forgiven by MIPS on a periodic basis as the employees or officer remains employed by us. Loan forgiveness charged to
expense was approximately $162,000 in fiscal 2000, $182,000 in fiscal 1999, and $240,000 in fiscal 1998. Upon termination of employment, the unamortized balance of the loans becomes due. Such
forgivable loans bear no interest. The balance of employee loans bear interest at 7.19% and are due in March 2002.

36

---

Note 6. Equipment and Furniture

The components of equipment and furniture are as follows (in thousands):

June 30,2000

1999Equipment

$
13,252

$
10,031Furniture and fixtures


984


44514,236


10,476Accumulated depreciation


(7,494
)

(5,353
)Equipment and furniture, net

$
6,742

$
5,123


Note 7. Accrued Liabilities

The components of accrued liabilities are as follows (in thousands):

June 30,2000

1999Accrued compensation and employee-related expenses

$
3,364

$
3,302Income taxes payable


1,384


Other accrued liabilities


5,432


4,821$
10,180

$
8,123


Income
taxes payable in fiscal 2000 represents amounts due to governmental taxing agencies. There were no such taxes payable in fiscal 1999 due to the tax sharing agreement with
Silicon Graphics which provided that all taxes due were payable to Silicon Graphics.

Note 8. Commitments

We lease certain facilities under noncancelable operating leases. The future minimum annual lease payments are approximately $1,710,000, $1,654,000, $456,000,
$456,000 and $456,000 for fiscal years 2001, 2002, 2003, 2004 and 2005, respectively, and approximately $2,166,000 for years following fiscal 2005. Rent expense under noncancelable operating leases
was approximately $1,414,000 in fiscal 2000, $754,000 in fiscal 1999 and zero in fiscal 1998.

Note 9. Income Taxes

The operating results for the fiscal years ended June 30, 1998 are attributable to our operations as a division of Silicon Graphics and were included in
the income tax returns filed by Silicon Graphics. Through a tax sharing agreement with Silicon Graphics, we will not receive any benefit for losses incurred or have any tax liability for any income
earned up to the closing date of the initial public offering. Therefore, no income tax provision or benefit has been reflected for the year ended June 30, 1998.

Subsequent
to the initial public offering, while still a part of Silicon Graphics' consolidated group for federal income tax purposes, we were responsible for our income taxes through
a tax sharing agreement with Silicon Graphics. Therefore, to the extent we produced taxable income, losses, or credits, we made
or received payments to or from Silicon Graphics as though we filed separate federal, state and local income

37

---

tax returns. Effective May 13, 1999, the date of a secondary offering of MIPS common stock by Silicon Graphics, Silicon Graphics' ownership of MIPS was reduced to 67%. Because thereafter
Silicon Graphics owned less than 80% of our outstanding combined Class A and Class B common stock, we were no longer included in Silicon Graphics' consolidated federal tax group, but
were instead required to file a separate federal tax return. However, under federal income tax laws, we will remain jointly and severally liable for the federal tax liability of each other
member of the Silicon Graphics' consolidated federal income tax group that arose during the period in which we were included in that group.

Effective
June 20, 2000, Silicon Graphics owned less than 50% of our outstanding stocks as it fully divested its holdings in us. Therefore, we will no longer be included in
Silicon Graphics' combined California tax group, but instead will be required to file a separate California tax return.

Income
before taxes and the provision for taxes consisted of the following:

Years Ended June 30,2000

1999US

$
52,786

$
31,558Foreign


(6,040
)

6,211Total income before taxes

$
46,746

$
37,769


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

Years Ended June 30,2000

1999Federal:Current Payable

$
13,004

$
6,606Deferred


(2,347
)

10,657


6,606State:Current Payable


3,142


2,242Deferred


(188
)

2,954


2,242Foreign:Current Payable


6,022


6,260Deferred





6,022


6,260Total provision for income taxes

$
19,633

$
15,108


38

---

The provision for income taxes differs from the amount estimated by applying the statutory federal income tax rate to income before taxes as follows (in thousands):

Years Ended June 30,2000

1999Federal tax at statutory rate

$
16,361

$
13,219State income taxes, net of federal benefit


1,920


1,457Foreign losses not benefited/(benefited)


2,746


(2,174
)Valuation allowance


(1,392
)

1,392Other


(2
)

1,214Total provision for income taxes

$
19,633

$
15,108


The
components of the net deferred income tax asset are as follows (in thousands):

Years Ended June 30,2000

1999Cumulative temporary differences:Accrued compensation benefit

$
243

$
139Deferred revenue


791


State taxes


1,093


744Other, net


188


509Tax credit carry forward


220


Total deferred income tax asset


2,535


1,392Valuation allowance





(1,392
)Net deferred income tax asset

$
2,535

$



Note 10. Stockholders' Equity

Recapitalization.We effected a recapitalization of our capital stock on April 5, 1999. The recapitalization was
designed to permit an orderly, multi-step increase in the number of shares of the common stock that are publicly traded while preserving Silicon Graphics' ability to dispose of its
remaining interest in us in a transaction intended to be tax-free to Silicon Graphics and its stockholders. As part of the recapitalization, our common stock was redesignated as
Class A common stock, and Silicon Graphics exchanged the Class A common stock it owned for Class B common stock. As a result, Silicon Graphics owned all of the outstanding shares
of Class B common stock and no shares of Class A common stock. On June 20, 2000, Silicon Graphics distributed all of its Class B common stock in the form of a stock
dividend to its stockholders. The holders of the Class A common stock, voting as a class, are entitled to elect 20% of the members of our board of directors (in any event, at least one
director). The holders of Class B common stock, voting as a class, are entitled to elect the remaining directors. Each share of Class A common stock and Class B common stock is
entitled to one vote, voting together as a single class, in all other matters submitted to a vote of stockholders.

39

---

MIPS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10. Stockholders' Equity (Continued)

Shares
of Class B common stock are convertible into shares of Class A common stock upon the occurrence of certain specified events including:



All
conversions will be effected on a one-for-one basis.

Holders
of Class A common stock and Class B common stock will share, equally on a per share basis, in all dividends declared by the board of directors, provided that
with respect to stock dividends, holders of shares of Class A common stock will only receive shares of Class A common stock and holders of shares of Class B common stock will only
receive shares of Class B common stock. The number of shares of Class A common stock and Class B common stock so paid or distributed will be equal in number on a per share basis.
All shares of Class A common stock and Class B common stock are entitled to receive equally on a per share basis all assets available for distribution to stockholders.

Financial
statements have been restated to reflect the recapitalization.

Our
ability to issue additional shares of our common stock in connection with acquisitions or to raise equity capital during the 30 month period following this distribution
will be limited under the terms of a distribution tax indemnification agreement which we have entered into with Silicon Graphics. The agreement contains covenants under which we may not issue capital
stock in an acquisition or private or public offering within the 30-month period following the tax-free distribution, except (a) pursuant to the exercise of employee,
director or consultant stock options or awards and (b) the issuance of up to a cumulative amount of 10% of our outstanding stock at the time of the tax-free distribution, unless
certain conditions are met.

Preferred Stock.There are 50,000,000 shares of preferred stock, par value $0.001 per share authorized for issuance. No
shares of preferred stock have been issued.

1998 Long-Term Incentive Plan.The 1998 Long-Term Incentive Plan (the
"Plan") was adopted by our board of directors and approved by our stockholder in May 1998 and later amended by our board of directors in August 1998 and May 1999 and approved by
our stockholders in October 1999. The Plan authorized the issuance of various forms of stock-based awards including incentive and non-qualified stock options, stock appreciation
rights, stock awards and performance unit awards to officers and other key employees and consultants. Stock options are granted at an exercise price of not less than the fair value on the date of
grant; the board of directors determines the prices of other stock awards. Stock options generally vest over a 50-month period from the date of grant. At June 30, 2000, 1,050,114
shares were available for future issuance under the Plan.

Directors' Stock Option Plan.Our board of directors adopted and our stockholder approved the
Directors' Stock Option Plan (the "Director Plan") in July 1998, which was amended by our board of directors in May 1999. Upon a non-employee director's election or
appointment to the Board, he or she

40

---

will automatically receive a non-statutory stock option to purchase 40,000 shares of Class A common stock. Each non-employee director who has been a director for at
least six months will automatically receive a non-statutory stock option to purchase 10,000 shares of Class A common stock each year on the date of the annual stockholder meeting.
All stock options are granted at an exercise price equal to the fair market value of our Class A common stock on the date of grant. Stock options generally vest over a 50-month
period from the date of the grant. As of June 30, 2000, 500,000 shares were available for future issuance under the Director Plan.

Activity
under our stock option plans is summarized as follows:

|                         |                                           |           |            | Outstanding Options
|------------------------ | ----------------------------------------- | --------- | ---------- | -------------------
|
|Balance at July 1, 1997  |                                           |          |            |                   
|                         | Shares authorized for issuance            |           | 6,600,000  |                    
|                         | Options granted                           |           | (2,996,900 | )                  
|                         |                                           |           |            |                    
|Balance at June 30, 1998 |                                           | 3,603,100 |            | 2,996,900          
|                         | Additional shares authorized for issuance |           | 600,000    |                    
|                         | Options granted                           |           | (1,923,625 | )                  
|                         | Options exercised                         |           |           |                    
|                         | Options canceled                          |           | 35,100     |                    
|                         | Restricted shares granted                 |           | (15,000    | )                  
|                         |                                           |           |            |                    
|Balance at June 30, 1999 |                                           | 2,299,575 |            | 4,777,873          
|                         |                                           |           |            |                    
|                         | Additional shares authorized for issuance |           | 1,480,000  |                    
|                         | Options granted                           |           | (2,611,052 | )                  
|                         | Options exercised                         |           |           |                    
|                         | Options canceled                          |           | 381,591    |                    
|                         |                                           |           |            |                    
|Balance at June 30, 2000 |                                           | 1,550,114 |            | 6,105,134          
|                         |                                           |           |            |                    

Additional
information about outstanding options to purchase Class A common stock held by our optionees at June 30, 2000 is as follows:

Options Outstanding

Options ExercisableRange of
Exercise Prices

Number of
Shares

Weighted-Average
Contractual Life
(in years)

Weighted-Average
Exercise Price

Number of
Shares

Weighted-Average
Exercise Price$11.38-$12.00

2,133,793

7.91

$
11.98

730,721

$
11.98$13.19-$25.50

2,365,201

9.27

$
19.82

212,916

$
20.26$27.16-$47.25

1,606,140

9.23

$
34.60

78,434

$
29.91$11.38-$47.25

6,105,134

8.78

$
20.97

1,022,071

$
15.08


Employee Stock Purchase Plan.The Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by our board of directors and approved by our stockholder in May 1998 and later amended by our board of directors in August 1998 and May 1999 and approved by our
stockholders in October 1999. The purpose of

41

---

the Purchase Plan is to provide our employees who participate in the Purchase Plan with an opportunity to purchase our Class A common stock through payroll deductions. Under this Purchase Plan
eligible employees may purchase stock at 85% of the lower of the fair market value of the Class A common stock (a) on the date of commencement of the offering period or (b) the
applicable exercise date within such offering period. A 24-month offering period commences every six months, generally at May 1 and November 1 of each year. The offering
period is divided into four six-month exercise periods. Purchases are limited to 10% of each employee's compensation. At June 30, 2000, 161,795 shares had been issued under the
Purchase Plan and 634,686 shares were reserved for future issuance.

Supplemental Stock Purchase Plan.The Supplemental Stock Purchase Plan (the "Supplemental
Purchase Plan") formerly known as the Non-U.S. Purchase Plan was adopted by the board in July 1998 and later amended by the board of directors in May 1999. The purpose of the
Supplemental Purchase Plan is to provide our employees and consultants who do not provide services in the United States and who participate in the Supplemental Purchase Plan with an opportunity to
purchase our Class A common stock at the same discount and subject to the same general rules as the Purchase Plan. The Supplemental Purchase Plan, like the Purchase Plan, has
24-month offering periods commencing every six months and each offering period is divided into four six-month exercise periods. Purchases are limited to ten
percent of each employee's and consultant's eligible compensation. At June 30, 2000, 10,030 shares had been issued under the Supplemental Purchase Plan and 49,970 shares were reserved for
future issuance.

Grant Date Fair Values.The weighted average estimated fair value of our employee stock options
granted at grant date market prices was $21.46 per share during fiscal 2000, $14.10 per share during fiscal 1999, and $8.71 per share during fiscal 1998. The weighted average estimated fair value of
options granted to a consultant during fiscal 1998 was $7.53 per share. The weighted average estimated intrinsic value of our restricted stock granted to an employee during fiscal 1999 was $12.00 per
share. The weighted average estimated fair value of shares granted under our stock purchase plan was $19.14 per share during fiscal 2000 and $9.04 per share during fiscal 1999.

The
weighted average fair value has been estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for the activity
under our stock option plans:

Stock Purchase Plan Shares(1)Employee Stock OptionsYears Ended June 30,Years Ended June 30,2000

1999

1998

2000

1999Expected life (in years)

5.0

5.0

5.0

0.5

0.5Risk-free interest rate

6.00
%
5.00
%
5.66
%
5.00
%
4.76
%Expected volatility

0.80

0.70

0.70

1.10

0.90Dividend yield

0.00
%
0.00
%
0.00
%
0.00
%
0.00
%


---

42

---





While employees of Silicon Graphics prior to the Separation, certain of our employees were granted options to purchase Silicon Graphics common stock and were
awarded restricted shares of Silicon Graphics common stock. In addition, certain employees purchased Silicon Graphics common stock through the Silicon Graphics stock purchase plan. In connection with
their acceptance of employment with us and as per their agreement with Silicon Graphics, unvested options to purchase common stock and unvested restricted shares of Silicon Graphics common stock were
forfeited. Silicon Graphics has various stock award plans, which provide for the grant of incentive and nonstatutory stock options and the issuance of restricted stock to employees. Incentive stock
options are granted at not less than the fair market value on the date of grant; the board of directors of Silicon Graphics determined the prices of nonstatutory stock option grants and restricted
stock. Under the plans, options and restricted stock generally vest over a 50-month period from the date of grant.

Silicon
Graphics stock option activity related to our employees is summarized as follows:

Outstanding OptionsNumber of
Shares

Weighted Average
Exercise PriceBalance at June 30, 1997

1,575,385

$
18.17Options granted

161,861

$
12.85Options exercised

(113,427
)
$
10.77Options canceled

(1,493,260
)
$
18.02Balance at June 30, 1998

130,559

$
19.62Options granted

Options exercised

(4,437
)
$
5.53Options canceled

(126,122
)
$
20.12Balance at June 30, 1999 and 2000




Shares
of restricted Silicon Graphics common stock awarded to our employees in fiscal 1998 were 27,000 shares.

At
June 30, 1998 there were 130,559 exercisable options to purchase Silicon Graphics common stock held by our employees. At June 30, 1998, there were no shares of
restricted Silicon Graphics stock held by our employees.

Silicon Graphics Stock Purchase Plan.Silicon Graphics has an employee stock purchase plan
under which eligible employees may purchase stock at 85% of the lower of the closing prices for the stock at the beginning of a twenty four-month offering period or the end of each
six-month purchase period. The purchase periods generally begin in May and November. Purchases are limited to 10% of each employee's compensation. Shares issued to our employees under this
Plan in fiscal 1998 were 101,292 shares.

Grant Date Fair Values.The weighted average estimated fair value of Silicon Graphics employee
stock options granted at grant date market prices during fiscal 1998 was $6.02 per share. The weighted average exercise price of Silicon Graphics employee stock options granted at grant date market
prices during fiscal 1998 was $14.89 per share. There were no Silicon Graphics options granted at below grant date market price during fiscal 1998. The weighted average estimated fair value of Silicon
Graphics restricted stock

43

---

granted during fiscal 1998 was $24.37 per share. The weighted average estimated fair value of shares granted under the Silicon Graphics stock purchase plan during fiscal 1998 was $6.88 per share.

The
weighted average fair value of Silicon Graphics options granted during fiscal 1998 has been estimated at the date of grant using a Black-Scholes option pricing model with the
following weighted average assumptions:

Employee Stock Options(1)

Stock Purchase Plan Shares(1)Year Ended June 30,

Year Ended June 30,1998

1998Expected life (in years)

2.7

0.5Risk-free interest rate

5.74%

5.72%Expected volatility

0.61

0.79Dividend yield

0.00%

0.00%


---

Pro Forma Information.We have elected to follow APB 25 in accounting for our employee stock
options to purchase both Silicon Graphics and MIPS' common stock. Under APB 25, no compensation expense is recognized in our financial statements except in connection with the granting of restricted
stock for nominal consideration and unless the exercise price of the employee stock options is less than the market price of the underlying stock on the date of grant. Total compensation expense
recognized in our financial statements for stock-based awards under APB 25 was $90,000 in fiscal 2000, $898,000 in fiscal 1999, and $1.0 million in fiscal 1998.

Pro
forma information regarding net income (loss) and net income (loss) per share has been determined as if we had accounted for our employee stock options and employee stock purchase
plans under the fair value method prescribed by SFAS 123. For purposes of pro forma disclosures, the estimated fair value of the stock awards is amortized to expense over the vesting periods of
such awards.

MIPS'
pro forma information is as follows (in thousands, except per share data):

Years Ended June 30,2000

1999

1998Pro forma net income (loss)

$
12,732

$
13,075

$
(738
)Pro forma basic net income (loss) per share

$
0.33

$
0.35

$
(0.02
)Pro forma diluted net income (loss) per share

$
0.32

$
0.34

$
(0.02
)


The
historical pro forma impact of applying the fair value method prescribed by SFAS 123 is not representative of the impact that may be expected in the future due to changes
resulting from the Separation and the establishment of our stock option plans during 1998.

44

---

Note 11. Related Party Transactions

Funding.Prior to the Separation, we utilized Silicon Graphics' centralized cash management
services and processes related to receivables, payables, payroll and other activities. Our net cash requirements were funded by Silicon Graphics. There was a net return of capital to Silicon Graphics
by us of approximately $9.2 million in fiscal 1998. The average balance due to Silicon Graphics during fiscal 1998 was approximately $125 million. Subsequent to the Separation in fiscal
1999, Silicon Graphics no longer provided any funding to us.

At
June 30, 2000 and 1999, accounts payable included approximately $1.6 million and $8.8 million estimated net taxes payable to Silicon Graphics under the tax
sharing agreement with Silicon Graphics. The tax sharing agreement provided that MIPS and Silicon Graphics make payments to each other such that, with respect to any period, the amount of taxes to be
paid by us, subject to certain adjustments, will be determined as though we were to file separate federal, state and local income tax returns. At June 30, 2000, we had a $2.1 million
receivable due from Silicon Graphics for reimbursement of costs associated with the distribution by Silicon Graphics of its remaining interest in us on June 20, 2000. This amount is recorded in
prepaid expenses and other current assets.

Corporate Services.Prior to the Separation, Silicon Graphics allocated a portion of its
domestic corporate expenses to us. In addition, in accordance with Staff Accounting Bulletin No. 55, certain additional allocations have been reflected in these financial statements. These
expenses have included corporate communications, management, compensation and benefits administration, payroll, accounts payable, income tax compliance, treasury and other administration and finance
overhead. Allocations and charges were based on either a direct cost pass-through or a percentage allocation for such services provided based on factors such as net sales, headcount and
relative expenditure levels. Such allocations
and corporate charges totaled $8.5 million for the year ended June 30, 1998. Subsequent to the Separation in June 1998, there were no further allocations from Silicon Graphics.

We
believe that the basis used for allocating corporate services was reasonable. While the terms of these transactions may differ from those that would result from transactions among
unrelated parties, we do not believe such differences would have been material.

In
June 1998, we entered into a Management Services Agreement with Silicon Graphics in which Silicon Graphics would provide certain administrative and corporate support
services to us on an interim or transitional basis, including accounting, treasury, tax, facilities and information services. Specified charges for such services are generally intended to allow
Silicon Graphics to recover the fully allocated direct costs of providing the services, plus all out-of-pocket costs and expenses, but without any profit. The Management
Services Agreement was terminated on June 20, 2000. Charges incurred during both fiscal 2000 and 1999 under the Management Services Agreement were $1.1 million. Subsequent to the
termination of the Management Services Agreement, Silicon Graphics is providing to us limited support services on a month-to-month basis.

Facilities.Our executive, administrative and technical offices currently occupy space in a building subleased from
Silicon Graphics in Mountain View, California. Our payments to Silicon Graphics under this sublease are expected to be $1,254,000 in fiscal 2001 and $1,199,000 in fiscal 2002, which are also disclosed
in Note 8. The sublease will terminate on May 31, 2002, subject to earlier termination in certain circumstances. Rent expense paid to Silicon Graphics was $1,005,000 in fiscal 2000 and
$666,000 in fiscal 1999. There were no rent payments made prior to the Separation.

45

---

Note 12. Contingencies

On October 28, 1999, we filed suit against Lexra, Inc. in the United States District Court for the Northern District of California for
infringement of two United States patents.

On
November 12, 1999, Lexra, Inc. filed counterclaims against us seeking a declaratory judgment that the two asserted patents are invalid and not infringed. Lexra has
also asserted claims for common law unfair competition, intentional interference with business relations, and statutory unfair competition, all purportedly based on the allegation that our claims of
patent infringement have been made in bad faith. On December 3, 1999, we filed our answer to Lexra's counterclaims, and denied the substantive allegations made by Lexra.

From
time to time, we receive communications from third parties asserting patent or other rights covering our products and technologies. Based upon our evaluation, we may take no
action or we may seek to obtain a license. There can be no assurance in any given case that a license will be available on terms we consider reasonable, or that litigation will not ensue.

We
are not aware of any pending disputes, including that discussed above, that would be likely to have a material adverse effect on our business, results of operations or financial
condition.

Note 13. Industry and Geographic Segment Information

Our revenue by geographic area is as follows (in thousands):

Years Ended June 30,2000

1999

1998United States

$
30,385

$
7,109

$
5,621Japan


53,781


61,851


50,939Europe


1,463


250


250Rest of World


4,210


2,500


Total revenue

$
89,839

$
71,710

$
56,810


Long
lived assets (other than financial instruments) outside the United States were not significant at June 30, 2000, 1999 and 1998.

Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Not applicable.

46

---

## 

PART III

Item 10.Directors and Executive Officers of the Registrant.

The information required by this item concerning our directors is incorporated by reference to the information in the section entitled "Proposal
No.1Election of Directors" in our Proxy Statement for the 2000 Annual Meeting of Stockholders to be filed with the Commission within 120 days after the end of our fiscal year ended
June 30, 2000.

The
information required by this item concerning our executive officers and family relationships is incorporated by reference in the section in Part I of this Annual Report on
Form 10-K entitled "Executive Officers of the Registrant."

The
information required by this item concerning compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, is incorporated by reference to information
in the section entitled "Security Ownership of Certain Beneficial Owners and Management Stock Ownership of Directors and Executive OfficersSection 16(a) Beneficial Ownership
Reporting Compliance" in our Proxy Statement for the 2000 Annual Meeting of Stockholders to be filed with the Commission within 120 days after the end of our fiscal year ended June 30,
2000.

Item 11.Executive Compensation

The information required by this item regarding executive compensation is incorporated by reference to the information in the section entitled "Executive
Compensation" in our Proxy Statement for the 2000 Annual Meeting of Stockholders to be filed with the Commission within 120 days after the end of our fiscal year ended June 30, 2000.

Item 12.Security Ownership of Certain Beneficial Owners and Management

The information required by this item regarding security ownership of certain beneficial owners and management is incorporated by reference to the information
in the section entitled "Security Ownership of Certain Beneficial Owners and Management Stock Ownership of Directors and Executive Officers" in our Proxy Statement for the 2000 Annual Meeting of
Stockholders to be filed with the Commission within 120 days after the end of our fiscal year ended June 30, 2000.

Item 13.Certain Relationships and Related Transactions.

The information required by this item regarding certain relationships and related transactions is incorporated by reference to the information in the section
entitled "Certain Relationships and Related Transactions" in our Proxy Statement for the 2000 Annual Meeting of Stockholders to be filed with the Commission within 120 days after the end of our
fiscal year ended June 30, 2000.

47

---

PART IV

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



|Exhibit No. |  | List of Exhibits                                                                                                                                                                                                                
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         |  | Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999).                                                             
|3.2         |  | The Company's By-Laws (incorporated herein by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999).                                                                    
|3.3         |  | Amended and Restated Preferred Stock Rights Agreement, as amended (incorporated herein by reference to Exhibit 10.11.1 to the Company's Form 8-A12G/A filed on September 15, 2000).                                             
|10.1        |  | The Amended and Restated Separation Agreement between the Company and Silicon Graphics, Inc. (incorporated herein by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended June 30, 1999.    
|10.2        |  | The Corporate Agreement between the Company and Silicon Graphics, Inc., (incorporated herein by reference to Exhibit 10.2 to the Registration Statement on Form S-1, Registration No. 333-73071 (the "Registration Statement")).
|10.3        |  | The Management Services Agreement between the Company and Silicon Graphics, Inc. (incorporated herein by reference to Exhibit 10.3 to the Registration Statement).                                                              
|10.4        |  | The Tax Sharing Agreement between the Company and Silicon Graphics, Inc. (incorporated herein by reference to Exhibit 10.4 to the Registration Statement).                                                                      
|            |  |                                                                                                                                                                                                                                 

48

---

|10.5   |  | The Technology Agreement between the Company and Silicon Graphics, Inc. (incorporated herein by reference to Exhibit 10.5 to the Registration Statement).                                                                                                                        
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.6   |  | The Trademark Agreement between the Company and Silicon Graphics, Inc. (incorporated herein by reference to Exhibit 10.6 to the Registration Statement).                                                                                                                         
|10.7.1 |  | The Joint Development and License Agreement between Nintendo Co., Ltd. and Nintendo of America Inc. on the one hand and Silicon Graphics, Inc. and MIPS Technologies, Inc. on the other hand (incorporated herein by reference to Exhibit 10.8.1 to
the Registration Statement).*
|10.7.2 |  | The First Addendum to the Joint Development and License Agreement (incorporated herein by reference to Exhibit 10.8.2 to the Registration Statement).*                                                                                                                           
|10.7.3 |  | The Second Addendum to the Joint Development and License Agreement (incorporated herein by reference to Exhibit 10.8.3 to the Registration Statement).*                                                                                                                          
|10.7.4 |  | The Fourth Addendum to the Joint Development and License Agreement (incorporated herein by reference to Exhibit 10.8.4 to the Registration Statement).*                                                                                                                          
|10.8   |  | The 1998 Long-Term Incentive Plan, as amended (incorporated herein by reference to Exhibit A to the Company's Definitive Proxy Statement on Form DEFA14A filed with the Commission on September 21, 1999).                                                                       
|10.9   |  | The Employee Stock Purchase Plan, as amended (incorporated herein by reference to Exhibit B to the Company's Definitive Proxy Statement on Form DEFA14A filed with the Commission on September 21, 1999).                                                                        
|10.10  |  | Director's Stock Option Plan, as amended (incorporated herein by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended June 30, 1999).                                                                                                       
|10.11  |  | The Tax Indemnification Agreement between the Company and Silicon Graphics.                                                                                                                                                                                                      
|23.1   |  | Consent of Ernst & Young LLP, Independent Auditors.                                                                                                                                                                                                                              
|27.1   |  | Financial Data Schedule.                                                                                                                                                                                                                                                         
|       |  |                                                                                                                                                                                                                                                                                  

---

49

---



## 

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.

|                         |  | MIPS TECHNOLOGIES, INC.
|------------------------ |  | -----------------------
|                         |  | By:                    
|Date: September 21, 2000 |  |                        

Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.

|Signature                                 |  | Title                                                              |  | Date              
|----------------------------------------- |  | ------------------------------------------------------------------ |  | ------------------
|                                          |  |                                                                    |  |                   
|/s/JOHN E. BOURGOINJohn E. Bourgoin       |  | Chief Executive Officer and Director (Principal Executive Officer) |  | September 21, 2000
|/s/KEVIN C. EICHLERKevin C. Eichler       |  | (Principal Financial and Accounting Officer)                       |  | September 21, 2000
|Kenneth L. Coleman                        |  | Director                                                           |  |                   
|/s/FRED M. GIBBONSFred M. Gibbons         |  | Director                                                           |  | September 21, 2000
|/s/ANTHONY B. HOLBROOKAnthony B. Holbrook |  | Director                                                           |  | September 21, 2000
|/s/WILLIAM M. KELLYWilliam M. Kelly       |  | Director                                                           |  | September 21, 2000
|                                          |  |                                                                    |  |                   

50

---

## QuickLinks