**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

| **(Mark  One)**                                                                                                                                                    |   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| **ý**   **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE  SECURITIES EXCHANGE ACTS OF 1934.**                                                 |
|                                                                                                                                                               |   |   |
| **FOR THE QUARTERLY PERIOD ENDED  MARCH 31, 2003**                                                                                                                 |
|                                                                                                                                                               |   |   |
| **OR**                                                                                                                                                             |
|                                                                                                                                                               |   |   |
| **o**  **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**                                                                 |   | **77-0322161** |
| (State or other  jurisdiction of  Incorporation or organization)             |   | (I.R.S. Employer  Identification Number) |
|                                                                         |
| **1225  CHARLESTON ROAD, MOUNTAIN VIEW, CA   94043-1353**               |
| (Address of principal  executive offices)                                    |
|                                                                         |
| Registrants telephone  number, including area code:  **(650) 567-5000** |

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Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days. Yes ý  No o

 

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2of the Securities Exchange Act of 1934).  Yes o  No ý

 

As of April 30,2003, the number of outstanding shares of the Registrant’s Class A commonstock, $.001 par value, was 15,499,010. As of April 30, 2003, the number of outstanding shares of the Registrant’sClass B common stock, $.001 par value, was 25,057,715.

 

 

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|           | **PART I – FINANCIAL  INFORMATION**                                                    |
|----------------|---------------------------------------------------------------------------------------------|
|           |                                                                                        |
| Item  1.       | Financial Statements (Unaudited):                                                           |
|           |                                                                                        |
|           | Condensed Consolidated  Balance Sheets                                                      |
|           | Condensed  Consolidated Statements of Operations                                            |
|           | Condensed  Consolidated Statements of Cash Flows                                            |
|           | Notes  to Condensed Consolidated Financial Statements                                       |
|           |                                                                                        |
| Item  2.       | Management’s  Discussion and Analysis of Results of Operations and Financial Condition |
|           |                                                                                        |
| Item  3.       | Quantitative  and Qualitative Disclosures About Market Risk                                 |
|           |                                                                                        |
| Item  4.       | Evaluation  of Disclosure Controls and Procedures                                           |
|           |                                                                                        |
|           | **PART II – OTHER INFORMATION**                                                        |
|           |                                                                                        |
| Item 1.        | Legal Proceedings                                                                           |
|           |                                                                                        |
| Item  6.       | Exhibits and Reports  on Form 8-K                                                           |
|           |
| Signatures     |
|           |
| Certifications |

 

2

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**PART I – FINANCIAL INFORMATION**

 

**ITEM 1****.  FINANCIAL STATEMENTS**

 

**MIPSTECHNOLOGIES, INC.**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(Inthousands)**

 
|                                           |   | **March 31,  2003** |    | **June 30,  2002** |   |
|------------------------------------------------|--------|---------------------|---------|--------------------|--------|
|                                           |   | **(unaudited)**     |    |               |   |
| **ASSETS**                                     |   |                |    |               |   |
| Current assets:                                |   |                |    |               |   |
| Cash and cash  equivalents                     |   | $                   | 76,051  |               | $      | 90,712 |   |
| Short-term  investments                        |   | 11,475              |    | 5,000              |   |
| Accounts  receivable                           |   | 2,880               |    | 6,046              |   |
| Prepaid expenses  and other current assets     |   | 4,861               |    | 9,883              |   |
| Total current assets                           |   | 95,267              |    | 111,641            |   |
| Equipment and  furniture, net                  |   | 5,055               |    | 7,481              |   |
| Intangible  assets, net                        |   | 3,926               |    | 4,301              |   |
| Other assets                                   |   | 3,852               |    | 5,565              |   |
|                                           |   | $                   | 108,100 |               | $      | 128,988 |   |
|                                           |   |                |    |               |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY** |   |                |    |               |   |
| Current  liabilities:                          |   |                |    |               |   |
| Accounts payable                               |   | $                   | 539     |               | $      | 1,203 |   |
| Accrued  liabilities                           |   | 10,330              |    | 8,979              |   |
| Deferred revenue                               |   | 2,369               |    | 2,911              |   |
| Total current  liabilities                     |   | 13,238              |    | 13,093             |   |
|                                           |   |                |    |               |   |
| Stockholders’  equity:                    |   |                |    |               |   |
| Common stock                                   |   | 40                  |    | 39                 |   |
| Additional  paid-in capital                    |   | 179,656             |    | 177,253            |   |
| Accumulated  other comprehensive income        |   | 487                 |    | 229                |   |
| Deferred  compensation                         |   | (1,497              | )       | —             |   |
| Accumulated  deficit                           |   | (83,824             | )       | (61,626            | )      |
| Total  stockholders’ equity               |   | 94,862              |    | 115,895            |   |
|                                           |   | $                   | 108,100 |               | $      | 128,988 |   |

 

See accompanying notes.

 

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**MIPSTECHNOLOGIES, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS****(unaudited)**

**(Inthousands, except per share data)**

 
|                                                           |   | **Three  Months Ended  March 31,** |   | **Nine  Months Ended  March 31,** |   |
|----------------------------------------------------------------|--------|------------------------------------|--------|-----------------------------------|--------|
|                                                           |   | **2003**                           |   | **2002**                          |   | **2003** |   | **2002** | ** ** |
| Revenue:                                                       |   |                               |   |                              |   |   |   |   |   |
| Royalties                                                      |   | $                                  | 4,336  |                              | $      | 4,135 |   | $ | 12,002 |   | $ | 13,580 |   |
| Contract revenue                                               |   | 5,141                              |   | 8,607                             |   | 17,295 |   | 23,635 |   |
| Total revenue                                                  |   | 9,477                              |   | 12,742                            |   | 29,297 |   | 37,215 |   |
| Costs and  expenses:                                           |   |                               |   |                              |   |   |   |   |   |
| Cost of contract  revenue                                      |   | —                             |   | —                            |   | 250 |   | 250 |   |
| Research and  development                                      |   | 7,636                              |   | 8,446                             |   | 25,250 |   | 25,315 |   |
| Sales and  marketing                                           |   | 3,403                              |   | 4,916                             |   | 10,505 |   | 13,270 |   |
| General and  administrative                                    |   | 2,321                              |   | 1,948                             |   | 6,167 |   | 5,506 |   |
| Acquired  in-process research and development                  |   | —                             |   | —                            |   | 394 |   | 1,737 |   |
| Restructuring                                                  |   | (16                                | )      | —                            |   | 7,618 |   | 437 |   |
| Total costs and  expenses                                      |   | 13,344                             |   | 15,310                            |   | 50,184 |   | 46,515 |   |
| Operating loss                                                 |   | (3,867                             | )      | (2,568                            | )      | (20,887 | ) | (9,300 | ) |
| Other income  (expense), net                                   |   | 249                                |   | 510                               |   | (12 | ) | 2,415 |   |
| Loss before  income taxes                                      |   | (3,618                             | )      | (2,058                            | )      | (20,899 | ) | (6,885 | ) |
| Provision  (benefit) for income taxes                          |   | 443                                |   | (380                              | )      | 1,299 |   | (780 | ) |
| Net loss                                                       |   | $                                  | (4,061 | )                                 | $      | (1,678 | ) | $ | (22,198 | ) | $ | (6,105 | ) |
|                                                           |   |                               |   |                              |   |   |   |   |   |
| Net loss per  basic and diluted share                          |   | $                                  | (0.10  | )                                 | $      | (0.04 | ) | $ | (0.56 | ) | $ | (0.16 | ) |
|                                                           |   |                               |   |                              |   |   |   |   |   |
| Shares used in  computing net loss per basic and diluted share |   | 39,530                             |   | 39,014                            |   | 39,384 |   | 38,969 |   |

 

See accompanying notes.

 

4

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**MIPSTECHNOLOGIES, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS****(unaudited)**

**(Inthousands)**

 
|                                                                              |   | **Nine  Months Ended  March 31,** |    |
|-----------------------------------------------------------------------------------|--------|-----------------------------------|---------|
|                                                                              |   | **2003**                          |    | **2002** |   |
|                                                                              |   |                              |    |   |   |
| Operating  activities:                                                            |   |                              |    |   |   |
| Net loss                                                                          |   | $                                 | (22,198 | ) | $ | (6,105 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities:      |   |                              |    |   |   |
| Depreciation                                                                      |   | 3,216                             |    | 3,924 |   |
| Restructuring  costs                                                              |   | 2,415                             |    | — |   |
| Write-off of  investment in privately-held company — Lexra, Inc.             |   | 1,414                             |    | — |   |
| Acquired  in-process research and development                                     |   | 394                               |    | — |   |
| Other non-cash  charges                                                           |   | 1,048                             |    | 399 |   |
| Changes in  operating assets and liabilities:                                     |   |                              |    |   |   |
| Accounts  receivable                                                              |   | 3,223                             |    | 876 |   |
| Accounts payable                                                                  |   | (694                              | )       | (2,716 | ) |
| Other assets and  liabilities, net                                                |   | 6,935                             |    | (8,445 | ) |
| Net cash used in  operating activities                                            |   | (4,247                            | )       | (12,067 | ) |
|                                                                              |   |                              |    |   |   |
| Investing  activities:                                                            |   |                              |    |   |   |
| Purchases of  short-term investments                                              |   | (16,475                           | )       | (39,375 | ) |
| Maturities of  short-term investments                                             |   | 10,000                            |    | 20,000 |   |
| Capital  expenditures                                                             |   | (1,209                            | )       | (2,528 | ) |
| Purchases of  intangible assets                                                   |   | (1,100                            | )       | (3,750 | ) |
| Purchase of  investment in privately-held company — Lexra, Inc.              |   | —                            |    | (1,414 | ) |
| Acquisition of  Algorithmics Limited and an affiliated company, DFS3 Limited, net |   | (1,265                            | )       | — |   |
| Payment related  to purchase of intangible assets in a prior period               |   | (900                              | )       | — |   |
| Net cash used in  investing activities                                            |   | (10,949                           | )       | (27,067 | ) |
|                                                                              |   |                              |    |   |   |
| Financing activities:                                                             |   |                              |    |   |   |
| Net proceeds  from issuance of common stock                                       |   | 567                               |    | 842 |   |
| Loan repayment                                                                    |   | (302                              | )       | — |   |
| Net cash  provided by financing activities                                        |   | 265                               |    | 842 |   |
| Foreign currency  translation adjustment                                          |   | 270                               |    | 195 |   |
| Net decrease in  cash and cash equivalents                                        |   | (14,661                           | )       | (38,097 | ) |
| Cash and cash  equivalents, beginning of period                                   |   | 90,712                            |    | 116,520 |   |
| Cash and cash  equivalents, end of period                                         |   | $                                 | 76,051  |   | $ | 78,423 |   |

 

See accompanying notes.

 

5

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**MIPSTECHNOLOGIES, INC.**

 

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS****- UNAUDITED**

 

**Note 1.   Description of Business and Basis of Presentation**

 

***Formation of MIPS Technologies, Inc. (MIPS).***Silicon Graphics, Inc. acquired our predecessor MIPS Computer Systems, Inc. in1992 and continued the MIPS processor business through its MIPS Group.  In December 1997, Silicon Graphics initiateda plan to separate the business of the MIPS Group from its other operations and in April 1998, our Board of Directorsapproved a transaction pursuant to which Silicon Graphics transferred to us theassets and liabilities related to the design and development of processorintellectual property for embedded market applications. We were a majorityowned subsidiary of Silicon Graphics from the closing of our initial publicoffering on July 6, 1998 until June 20, 2000, when Silicon Graphics distributedall of its remaining interest in us in the form of a stock dividend of Class Bcommon stock to its stockholders.

 

***Basis of Presentation.***  Theunaudited results of operations for the interim periods shown in thesefinancial statements are not necessarily indicative of operating results forthe entire fiscal year.  In our opinion,the condensed consolidated financial statements include all adjustments (consistingonly of normal recurring accruals) necessary to present fairly the financialposition, results of operations and cash flows for each interim period shown.

 

The condensed consolidated financial statements havebeen prepared in accordance with the rules and regulations of the Securitiesand Exchange Commission (“SEC”) applicable to interim financialinformation.  Certain information andfootnote disclosures included in financial statements prepared in accordancewith generally accepted accounting principles have been omitted in theseinterim statements as allowed by such SEC rules and regulations. The balancesheet at June 30, 2002 has been derived from audited financial statements, butdoes not include all disclosures required by generally accepted accountingprinciples.  However, we believe thatthe disclosures are adequate to make the information presented notmisleading.  The unaudited condensedconsolidated financial statements included in this Form 10-Q should be read inconjunction with the audited consolidated financial statements and relatednotes for the fiscal year ended June 30, 2002, included in our 2002 AnnualReport on Form 10-K.

 

***Use of Estimates.***  Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States requires us to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenue and expenses during thereporting period.  Actual resultsinevitably will differ from those estimates, and such differences may bematerial to the financial statements.

 

***Revenue Recognition.***  Wederive revenue from fees for the transfer of proven and reusable intellectualproperty components or the performance of engineering services.  We enter into licensing agreements thatprovide licensees the right to incorporate MIPS’ intellectual propertycomponents in their products with terms and conditions that have historicallyvaried by licensee.  Generally, thesepayments include a nonrefundable technology license fee, which is payable uponthe transfer of intellectual property, or a nonrefundable engineering servicefee, which generally is payable upon achievement of defined milestones.  In addition, these agreements also includeroyalty payments, which are payable upon sale of a licensee’s product, andmaintenance and limited support fees. We classify all revenue that involves the sale of a licensee’s productsas royalty revenue.  Royalty revenue isrecognized in the quarter in which a report is received from a licenseedetailing the shipments of products incorporating our intellectual propertycomponents (i.e., in the quarter following the sale of licensed product by thelicensee).  We classify all revenue thatdoes not involve the sale of a licensee’s products, primarily license fees andengineering service fees and maintenance and support fees, as contract revenue.  License fees are recognized upon theexecution of the license agreement and transfer of intellectual property,provided no further significant performance obligations exist andcollectibility is deemed probable.

 

6

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Fees related to engineering services contracts, whichare performed on a best efforts basis and for which we receive periodicmilestone payments, are recognized as revenue over the estimated developmentperiod, using a cost-based percentage of completion method.  We do not recognize revenue underengineering services contracts in amounts exceeding the amount of milestonepayments received.

 

Annual maintenance and support fees, renewable by thelicensee, are classified as contract revenue and are amortized over the periodof support, generally 12 months.

 

***Cash and Cash Equivalents and Short-term Investments. ***Cash and cashequivalents consists mainly of financial instruments which are readilyconvertible into cash and have original maturities of ninety days or less atthe time of acquisition.  Short-terminvestments consist mainly of financial instruments that have originalmaturities of one year or less at the time of original acquisition.  The fair values of cash and cash equivalentsand short-term investments approximated their cost at March 31, 2003 and June30, 2002.

 

***Goodwill and Purchased Intangible Assets*.**  We make estimates when we acquire businessesor acquire groups of assets for a single aggregate price. The purchase methodof accounting for acquisitions requires extensive use of accounting estimatesand judgments to allocate the purchase price to the fair value of the tangibleand intangible assets acquired, including in-process research and development,or IPR&D.  Goodwill is recorded asthe difference, if any, between the aggregate consideration paid for anacquisition of a business and the fair value of the net tangible and intangibleassets acquired.  Goodwill is notamortized but is subject to annual impairment tests.  The amounts and useful lives assigned to tangible and intangibleassets, other than IPR&D, impact future amortization expense; the amountassigned to IPR&D is expensed immediately.

 

***             Employee Stock Option Plans***

 

We have elected to follow Accounting Principles BoardOpinion No. 25 (APB 25) in accounting for our employee stock options topurchase MIPS’ common stock.  Under APB25, no compensation expense is recognized in our financial statements except inconnection with the granting of restricted stock for nominal consideration andunless the exercise price of the employee stock options is less than the marketprice of the underlying stock on the date of grant.

 

Pro forma information regarding net income (loss) andnet income (loss) per share has been determined as if we had accounted for ouremployee stock options and employee stock purchase plans under the fair valuemethod prescribed by Statement of Financial Accounting Standards (SFAS) No.123.  For purposes of pro formadisclosures, the estimated fair value of the stock awards is amortized toexpense over the vesting periods of such awards.

 

Our pro forma information is as follows for thethree-month and nine-month periods ending March 31, 2003 and 2002 (inthousands, except per share data):

 
|                                                                                                                                     |   | **Three  Months Ended  March 31,** |   | **Nine  Months Ended  March 31,** |   |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|-----------------------------------|--------|
|                                                                                                                                     |   | **2003**                           |   | **2002**                          |   | **2003** |   | **2002** |   |
| Net income (loss), as  reported                                                                                                          |   | $                                  | (4,061 | )                                 | $      | (1,678 | ) | $ | (22,198 | ) | $ | (6,105 | ) |
| Add:  Stock-based employee compensation expense  included in reported net loss, net of related tax effects                          |   | 160                                |   | —                            |   | 428 |   | — |   |
| Deduct:  Total stock-based employee compensation  expense (benefit) determined under fair value method, net of tax related  effects |   | 5,054                              |   | 4,494                             |   | 18,621 |   | 18,588 |   |
| Proforma net income  (loss)                                                                                                              |   | $                                  | (8,955 | )                                 | $      | (6,172 | ) | $ | (40,391 | ) | $ | (24,693 | ) |
| Basic net income  (loss) per share:                                                                                                      |   |                               |   |                              |   |   |   |   |   |
| As reported                                                                                                                              |   | $                                  | (0.10  | )                                 | $      | (0.04 | ) | $ | (0.56 | ) | $ | (0.16 | ) |
| Pro forma                                                                                                                                |   | $                                  | (0.23  | )                                 | $      | (0.16 | ) | $ | (1.03 | ) | $ | (0.63 | )  |
| Diluted net income  (loss) per share:                                                                                                    |   |                               |   |                              |   |   |   |   |   |
| As reported                                                                                                                              |   | $                                  | (0.10  | )                                 | $      | (0.04 | ) | $ | (0.56 | ) | $ | (0.16 | ) |
| Pro forma                                                                                                                                |   | $                                  | (0.23  | )                                 | $      | (0.16 | ) | $ | (1.03 | ) | $ | (0.63 | )  |

 

**Note 2.  Computation of Earnings Per Share**

 

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

 
|                                                           |   | **Three  Months Ended  March 31,** |   | **Nine  Months Ended  March 31,** |   |
|----------------------------------------------------------------|--------|------------------------------------|--------|-----------------------------------|--------|
|                                                           |   | **2003**                           |   | **2002**                          |   | **2003** |   | **2002** |   |
| Numerator:                                                     |   |                               |   |                              |   |   |   |   |   |
| Net loss                                                       |   | $                                  | (4,061 | )                                 | $      | (1,678 | ) | $ | (22,198 | ) | $ | (6,105 | ) |
| Denominator:                                                   |   |                               |   |                              |   |   |   |   |   |
| Weighted-average  shares of common stock outstanding           |   | 40,055                             |   | 39,039                            |   | 39,876 |   | 38,995 |   |
| Less:  Weighted-average shares subject to  repurchase     |   | (525                               | )      | (25                               | )      | (492 | ) | (26 | ) |
| Shares used in  computing net loss per basic and diluted share |   | 39,530                             |   | 39,014                            |   | 39,384 |   | 38,969 |   |
| Net loss per  basic and diluted share                          |   | $                                  | (0.10  | )                                 | $      | (0.04 | ) | $ | (0.56 | ) | $ | (0.16 | ) |

 

**Note 3.  Comprehensive Income (Loss)**

 

Total comprehensive income (loss) includes net income(loss) and other comprehensive income, which for us primarily comprisesunrealized gains and losses from foreign currency adjustments.  Total comprehensive loss for the first ninemonths of fiscal 2003 was $21.9 million and total comprehensive loss for thecomparable period in the prior year was $5.9 million.

 

7

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**Note 4.  Acquisition and Investment**

 

In December 2001, we acquired a small equity interestin Lexra, Inc., a privately held company, and recorded an investment of $1.4million.

 

In July 2002, we acquired Algorithmics Limited, aUnited Kingdom-based tool chain company, and an affiliated company, DFS3Limited.  The total purchase price forboth companies was approximately $3.1 million and consisted of  $800,000 in cash, the issuance ofapproximately 520,000 shares of our common stock valued at approximately $1.9million, and acquisition-related costs of approximately $485,000.  The value of the common stock has beenrecorded as deferred compensation and will be amortized to expense over athree-year period.

 

A charge of $394,000 for purchased in-process researchand development expenses was recorded upon completion of the acquisition of thetechnology because technological feasibility of the acquired technology had notbeen established and no future alternative uses existed.  The value of the projects was determined byestimating the present value of the net cash flows we believed would resultfrom the acquired technology.

 

In December 2002, we recorded an impairment charge of$1.4 million as we wrote off the full value of our investment in Lexra, Inc.

 

**Note 5.  Purchased Intangible Assets**

 

All of our purchased intangible assets, except goodwill,are subject to amortization.  Purchasedintangible assets subject to amortization consisted of the following as ofMarch 31, 2003 and June 30, 2002 (in thousands):

 
|                         |   | **March 31,  2003**        |   | **June 30,  2002**            |   |
|------------------------------|--------|----------------------------|--------|-------------------------------|--------|
|                         |   | **Gross  Carrying  Value** |   | **Accumulated  Amortization** |   | **Net  Carrying  Value** |   | **Gross  Carrying  Value** |   | **Accumulated  Amortization** |   | **Net  Carrying  Value** |   |
|                         |   |                       |   |                          |   |   |   |   |   |   |   |   |   |
| Developed  technology        |   | $                          | 86     |                          | $      | (29 | ) | $ | 57 |   | $ | 1,716 |   | $ | (286 | ) | $ | 1,430 |   |
| Core/patent  technology |   | 4,185                      |   | (564                          | )      | 3,621 |   | 2,924 |   | (209 | ) | 2,715 |   |
| Other                        |   | —                     |   | —                        |   | — |   | 156 |   | — |   | 156 |   |
| Purchased  intangible assets |   | $                          | 4,271  |                          | $      | (593 | ) | $ | 3,678 |   | $ | 4,796 |   | $ | (495 | ) | $ | 4,301 |   |

 

During the second quarter of fiscal 2002, we acquiredfrom Lexra, Inc. certain technology related to our processor architectures andcores.  We recorded a valuation of $1.7million for developed technology and $2.9 million for core technology.

 

During the second quarter of fiscal 2003, we purchasedcertain patents and patent applications for an aggregate consideration of $1.1million.

 

During the second quarter of fiscal 2003, as part ofour restructuring activities discussed in Note 6, we determined that we wouldnot seek to integrate into our product plans the developed technology weacquired from Lexra, Inc. in December 2001 and recorded an impairment charge ofapproximately $1.2 million, the remaining value of this asset.

 

Our intangible assets are being amortized over theiruseful lives, which range between two and ten years.  Amortization expense related to purchased intangible assets was$148,000 for the three months ended March 31, 2003 and was $247,000 for thecomparable period in fiscal 2002. Amortization expense related to purchased intangible assets was $622,000for the first nine months of fiscal 2003 and was $247,000 for the comparableperiod in fiscal 2002.

 

The estimated future amortization expense of existingpurchased intangible assets is approximately $148,000, $593,000,

 

8

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$553,000, $550,000 and $550,000 for the remaining three months offiscal year 2003 and for fiscal years 2004, 2005, 2006 and 2007, respectively,and approximately $1.3 million for years following fiscal 2007 until fiscal2013.

 

**Note 6.  Restructuring Charge**

 

In the second quarter of fiscal 2003, we closed ourDenmark design center to consolidate our research and development activities inour headquarters in California and in our recently acquired design center inthe United Kingdom.  In addition, weimplemented plans to eliminate 67 regular positions or about 30% of our globalworkforce by the end of fiscal 2003 across all functions with the objective ofreducing our operating expenses.  Theseactions resulted in a restructuring charge in the second quarter of fiscal 2003of approximately $7.6 million. The restructuring charge included approximately$3.3 million of employee severance and related benefits, $1.7 million offacilities exit costs, primarily related to lease expenses net of anticipatedsublease income, $2.5 million in asset write-offs and $174,000 in legal andother costs.  These costs and activitieswere accounted for under EITF Issue 94-3, *Liability Recognition for Certain EmployeeTermination Benefits and other Costs to Exit an Activity.*

 

A summary of restructuring activities as of March 31, 2003follows below (in thousands):

 
|                                                   |   | **Severance** |   | **Facilities** |   | **Intangible  asset write-off** |   | **Other asset write-off** |   | **Other costs** |   | **Total** |   |
|--------------------------------------------------------|--------|---------------|--------|----------------|--------|---------------------------------|--------|---------------------------|--------|-----------------|--------|-----------|--------|
| Initial charge in  second quarter of  fiscal 2003 |   | $             | 3,329  |           | $      | 1,653                           |   | $                         | 1,191  |            | $      | 1,287     |   | $ | 174 |   | $ | 7,634 |   |
| Cash charges                                           |   | (1,258        | )      | (32            | )      | —                          |   | —                    |   | (43             | )      | (1,333    | )      |
| Non-cash charges                                       |   | —        |   | —         |   | (1,191                          | )      | (1,287                    | )      | —          |   | (2,478    | )      |
|                                                   |   |          |   |           |   |                            |   |                      |   |            |   |      |   |
| Balance at December  31, 2002                          |   | 2,071         |   | 1,621          |   | —                          |   | —                    |   | 131             |   | 3,823     |   |
| Adjustments                                            |   | (140          | )      | —         |   | —                          |   | 34                        |   | 90              |   | (16       | )      |
| Cash charges                                           |   | (1,411        | )      | (67            | )      | —                          |   | —                    |   | (141            | )      | (1,619    | )      |
| Non-cash charges                                       |   | 130           |   | (185           | )      | —                          |   | (6                        | )      | 125             |   | 64        |   |
|                                                   |   |          |   |           |   |                            |   |                      |   |            |   |      |   |
| Balance at March 31,  2003                             |   | $             | 650    |           | $      | 1,369                           |   | $                         | — |            | $      | 28        |   | $ | 205 |   | $ | 2,252 |   |

 

The $1.7 million estimated charge for vacating ourDenmark design center consisted of our future obligations of $6.4 million underthe facility operating lease expiring in March, 2010, partially offset byestimated sublease income of approximately $4.7 million.  The subleaseincome estimates we have made with respect to the Denmark facility are based oncurrent and expected real estate market conditions in nearby Copenhagen,Denmark, and necessarily entails a high level of management judgment.  These market conditions can fluctuategreatly due to such factors as changes in property occupancy rates and therental prices charged for comparable properties.  We may be required to record significant additional charges orreverse currently accrued amounts in future periods if our actual experience insubleasing our Denmark facility is not consistent with our assumptions.

 

As part of our restructuring plan, we decided toreduce our investment in research and development, and we revised our productdevelopment plans.  We determined thatwe would not seek to integrate into our product plans the developed technologywe acquired from Lexra, Inc. in December 2001 and recorded an impairment chargeof  $1.2 million for the remaining valueof this intangible asset in the second quarter of fiscal 2003.

 

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Other assets written off as a part of therestructuring during the second quarter of fiscal 2003 included leaseholdimprovements and computer aided design software related to the Denmarkfacilities.  Other costs are composedprimarily of legal fees and other restructuring costs.

 

As of March 31, 2003, the remaining restructuring costaccrual was $2.3 million.  The severanceand benefit costs associated with 12 of the positions eliminated were paid asof December 31, 2002.  The remainingseverance as of March 31, 2003 of $650,000 related to the other 55 positionseliminated was paid as of April 2003. The operating lease accrual, net of estimated sublease income, is madeup of lease payments to be paid through March 2010.  Actual future cash requirements may differ materially from theamounts accrued at March 31, 2003, particularly if actual sublease incomediffers significantly from current estimates.

 

In the third fiscal quarter of fiscal 2003, wedecreased the restructuring charge by a net amount of $16,000.  The decrease was primarily due to loweremployee benefit costs than originally anticipated, offset by an increase inother costs such as accounting and third party service fees and an increase inasset write-offs.

 

 

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**Note 7.  Recent Accounting Pronouncements**

 

In July 2002, the Financial Accounting Standards Board(FASB) issued SFAS No. 146, *Accounting for Costs Associated with Exit andDisposal Activities* effective for exit or disposal activitiesinitiated after December 31, 2002.  Thisstatement revises the accounting for exit and disposal activities under EITFIssue 94-3, *LiabilityRecognition for Certain Employee Termination Benefits and other Costs to Exitan Activity.* Under SFAS No. 146 companies will record exit ordisposal costs when they are “incurred” and can be measured at fair value,rather than when a commitment is made to an exit or disposal plan

 

In December 2002, the FASB issued SFAS No. 148, *Accountingfor Stock-Based Compensation - Transition and Disclosure.*  SFAS No. 148 amends SFAS No. 123 *Accountingfor Stock-Based Compensation* to provide alternative methods oftransition for a voluntary change to the fair value based method of accountingfor stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No.123 to require more prominent disclosures in both annual and interim financialstatements about the method of accounting for stock-based employee compensationand the effect of the method used on reported results.  The additional disclosure requirements ofSFAS No. 148 are effective for fiscal years ending after December 15,2002.  Our disclosure under SFAS No. 148is included in Note 7.  We have electedto continue to follow the intrinsic value method of accounting as prescribed byAPB 25, *Accountingfor Stock Issued to Employees,* to account for employee stockoptions.

 

In November 2002, the FASB issued FinancialInterpretation No. 45 (FIN 45), *Guarantor’s Accounting and Disclosure Requirementsfor Guarantees, Including Indirect Guarantees of Indebtedness of Others*.  FIN 45 requires that upon issuance of aguarantee, the guarantor must recognize a liability for the fair value of theobligation it assumes under that guarantee. The disclosure provisions of FIN 45 are effective for financialstatements of interim or annual periods that end after December 15, 2002.  The provisions for initial recognition andmeasurement are effective on a prospective basis for guarantees that are issuedor modified after December 31, 2002, irrespective of a guarantor’syear-end.  We currently do not haveguarantees required to be disclosed under FIN 45 although we do haveindemnification provisions in our license agreements for which no liability hasbeen accrued.  We do not expect theadoption of FIN 45 will have a material impact on our financial position,results of operation, or cash flow.

 

In January 2003, the FASB issued FinancialInterpretation No. 46 (FIN 46), *Consolidation of Variable Interest Entities, anInterpretation of ARB No. 51.* FIN 46 requires certain variable interest entities to be consolidated bythe primary beneficiary of the entity if the equity investors in the entity donot have the characteristics of a controlling financial interest or do not havesufficient equity at risk for the entity to finance its activities withoutadditional subordinated financial support from other parties.  FIN 46 is effective for all new variableinterest entities created or acquired after January 31, 2003.  For variable interest entities created oracquired prior to February 1, 2003, the provision of FIN 46 must be applied forthe first interim or annual period beginning after June 15, 2003.  We do not expect the adoption of FIN 46 willhave a material effect on our operations results or financial condition.

 

**Note 8.  Subsequent Event**

 

On April 30, 2003, in connection with the closure ofour Denmark design center, our Swiss subsidiary, MIPS TechnologiesInternational AG, or MIPS AG,  throughwhich we conducted our operations in Denmark, terminated the employment of 55employees. Of these, 45 employees filed claims against MIPS AG in the CountyCourt of Ballerup Denmark. Subsequently, 13 of these employees have agreed towithdraw their claims. The remaining 32 employees of MIPS AG held, on thetermination date, options to purchase an aggregate of 724,830 shares of ourClass A common stock, of which options to purchase 413,552 shares were vestedas of the termination date and 311,728 were unvested. The exercise price ofthese options ranged from $2.94 to $27.16 per share. Under our stock optionplans, unvested options expire upon termination of employment and vestedoptions expire three months after the termination of employment.

 

The terminated employees are seeking, primarily, theright to exercise, regardless of the termination of their employment, theoptions they held as of the date of their termination, which options expired onor within three months of the termination date.  As such, they are claiming, under alleged principles of Danishemployment law, the right to exercise such options, or in the alternative,money damages equal to the difference between the excess of the trading priceof our Class A common stock shares over the exercise price of the options onwhatever future date the

 

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employee designates as an effective exercise dateof the option. The employees further claim that these effective rights toexercise should continue for the same period as the respective terms of theoptions on which they were based, that is, 10 years from the respective grantdate of the underlying option.

 

Our Swiss subsidiary intends todefend itself vigorously in these matters.

 

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**ITEM 2****.    MANAGEMENT’S DISCUSSION AND ANALYSIS OFRESULTS OF OPERATIONS AND FINANCIAL CONDITION**

 

*Youshould read the following discussion and analysis together with our unauditedcondensed consolidated financial statements and the notes to those statementsincluded elsewhere in this report*. This discussion maycontain forward-looking statements that involve risks and uncertainties. Theseforward-looking statements within this Quarterly Report on Form 10-Q areidentified by words such as “believes,” “anticipates,” “expects,” “intends,”“may” and other similar expressions. Our actual results could differ materiallyfrom those indicated in these forward-looking statements as a result of certainfactors, including those described under “Factors That May Affect OurBusiness”, and other risks affecting our business. We undertake no obligationto update any forward-looking statements included in this discussion.

 

**Critical Accounting Polices andEstimates**

 

We prepare our financial statements in conformity withaccounting principles generally accepted in the United States, which require usto make estimates and assumptions that affect the reported amounts of assetsand liabilities at the date of the financial statements and the reportedamounts of revenue and expenses during the reporting period. We regularlyevaluate our accounting estimates and assumptions.  We base our estimates and assumptions on historical experienceand on various other factors that we believe to be reasonable under thecircumstances, the results of which form the basis for making judgments aboutthe carrying value of assets and liabilities that are not readily apparent fromother sources. Actual results inevitably will differ from the estimates, andsuch differences may require material adjustments to our financial statements.

 

Accrued*Facilities Restructuring Costs*.  In October 2002, we implemented plans torestructure our company that included exiting our Denmark research facility,and we recorded a restructuring charge in the second quarter of fiscal 2003 toreflect the anticipated costs of the restructuring.  Among other things, the anticipated costs included lease chargesthat were based on assumptions about future rental income that might bereceived on the property we vacated.  If,in the future, it is determined that we have over-accrued for restructuringcharges, the reversal of such over-accrual would have a favorable impact on ourfinancial statements in the period this was determined and would be recorded asa credit to restructuring costs. Conversely, if it is determined that our accrual is insufficient, anadditional charge would have an unfavorable impact on our financial statementsin the period this was determined.

 

For a discussion of our other critical accountingpolicies, please see “Critical Accounting Policies and Estimates” in Item 7 ofour Annual Report on Form 10-K for the year ended June 30, 2002.

 

**Results of Operations**

 

*Revenue.*  Our revenue consists of royalties andcontract revenue earned under contracts with our licensees. Our contracts withour licensees are typically subject to periodic renewal or extension and expireat various dates through June 2018. Although the precise terms of our contractsvary, they typically provide for royalties, technology license or engineeringservice fees, and maintenance fees.

 

We generate royalties from the sale by our licenseesof products incorporating our technology. Royalty revenue is recognized in thequarter in which a report is received from a licensee detailing the shipmentsof products incorporating our intellectual property, which is in the quarterfollowing the sale of the licensee’s product to its customer. Royalties arecalculated either as a percentage of the revenue received by the seller onsales of such products or on a per unit basis.

 

Contract revenue includes technology license fees andengineering services fees. We receive license fees for the use of technologythat we have developed internally and, in some cases, which we have licensedfrom third parties. License fees are typically recognized upon the execution ofthe license agreement and transfer of intellectual property, provided nofurther significant performance obligations exist and collectibility is deemedprobable. Technology license fees vary based on, among other things, whether aparticular technology is licensed for a single application or for multiple orunlimited applications, and whether the license granted covers a particulardesign or a broader architecture. Fees related to engineering servicescontracts, which are performed on a best efforts basis and for which we receiveperiodic milestone payments, are recognized as revenue

 

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over the estimated development period using a cost-based percentage ofcompletion method. In most instances, the technology we develop, includingunder engineering services contracts, can be licensed to multiple customers.

 

Total revenue for the third quarter of fiscal 2003 was$9.5 million and for the first nine months of fiscal 2003 was $29.3 millioncompared to $12.7 million and $37.2 million for the comparable periods infiscal 2002.  Royalties for the thirdquarter of fiscal 2003 were $4.3 million and for the first nine months offiscal 2003 were $12.0 million compared to $4.1 million and $13.6 million forthe comparable periods in fiscal 2002. The increase in royalties in the third quarter was due primarily to anincrease in the number of new customers shipping products incorporating ourtechnology. The decrease in royalties in the nine-month period was due to lowerroyalties derived from sales of Nintendo products, which continue to declineand have been insignificant in fiscal 2003. Contract revenues for the third quarter of fiscal 2003 were $5.1 millionand for the first nine months of fiscal 2003 were $17.3 million compared to$8.6 million and $23.6 million for the same periods in fiscal 2002. Thedecrease in contract revenues in both periods resulted from our completing onlyfour new license agreements in the third quarter of fiscal 2003 and ten newagreements in the first nine months of fiscal 2003 compared to eight andtwenty-four agreements in the same periods in 2002.  In addition, these agreements were generally lower in value dueto a shift in demand towards our 32-bit core designs than in the correspondingperiods in fiscal 2002.  We continue toexperience a longer sales cycle compared to the comparable periods in fiscal2002, which we believe is due to our customers lengthening their decisionmaking process in response to current economic conditions. The amount ofengineering service fees recognized in the third quarter and first nine monthsof fiscal 2003 increased compared to the same periods in the prior year as aresult of more project milestones being completed. We expect that contractrevenue will be greater than 50% of our total revenue for the fiscal yearending June 30, 2003.

 

*Costof Contract Revenue.*Our cost of contract revenue consists ofsublicense fees payable to third parties. We incur an obligation to pay these fees when we sublicense technologyto our customers that we have licensed from third parties.  Sublicense fees are recorded as cost ofcontract revenue when the obligation is incurred, which is typically the sameperiod in which the related revenue is recognized.

 

Cost of contract revenue for the third quarter of bothfiscal 2003 and fiscal 2002 was zero and for both the first nine months offiscal 2003 and fiscal 2002 were $250,000. We expect that in future periods cost of contract revenue will continueto be immaterial.

 

*Researchand Development*. Costs incurred with respect to technology we develop internally andengineering services we perform which are not directly related to anyparticular licensee, license agreement or license fee are recorded as researchand development expense.

 

Research and development expenses for the thirdquarter of fiscal 2003 were $7.6 million and for the first nine months offiscal 2003 were $25.3 million compared with research and development expenses of$8.4 million and $25.3 million for the comparable periods in fiscal 2002.  The decrease in research and developmentexpenses was primarily a result of the closure of our Denmark design center inDecember 2002 and the consolidation of our research and development activitiesinto our California and United Kingdom locations.   These restructuring activities resulted in a reduction of 57employees in our research and development workforce.

 

*Salesand Marketing*.  Salesand marketing expenses for the third quarter of fiscal 2003 were $3.4 millionand for the first nine months of fiscal 2003 were $10.5 million compared to$4.9 million and $13.3 million for the comparable periods in fiscal 2002. Thedecrease in sales and marketing expenses for both periods was primarily due tolower spending on third party software development tools, as we deferredspending on MIPS compatible development tools such as compilers, debuggers,probes and operating systems.  We expectthat our sales and marketing expenses will vary from period to period as aresult of third party tools providers attaining specified milestones thattrigger our contractual payment obligations.

 

*Generaland Administrative*. General and administrative expenses for the third quarter of fiscal 2003were $2.3 million and for the first nine months of fiscal 2003 were $6.2million compared to $1.9 million and $5.5 million for the comparable periods infiscal 2002. The increase in general and administrative expenses primarilyreflects an increase in our directors and officers insurance rates compared tothe prior year.

 

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*AcquiredIn-Process Research and Development.*  In July 2002, we completed the acquisitionof Algorithmics Limited, a United Kingdom-based tool chain company, and anaffiliated company, DFS3 Limited, for cash and stock consideration.   We recorded a charge of $394,000 forpurchased in-process research and development expenses upon completion of theacquisition because technological feasibility of the acquired technology hadnot been established and no future alternative uses existed.  The fair value of the projects wasdetermined by estimating the present value of the net cash flows we believedwould result from the acquired technology.

 

In December 2001, we acquired from Lexra, Inc. certaintechnology related to our processor architectures and cores, and we recorded acharge of $1.7 million for purchased in-process research and developmentexpenses upon acquisition of the technology. The amount allocated to in-process research and development was expensedupon acquisition because technological feasibility had not been established andno future alternative uses for the technology existed.  The fair value of the projects wasdetermined by estimating the present value of the net cash flows we believedwould result from the acquired technology.

 

*Restructuring.*** **In the second quarter of fiscal2003, we closed our Denmark design center and consolidated our research anddevelopment activities in our headquarters in California and in our recentlyacquired design center in the United Kingdom. In addition, we implemented plans to eliminate 67 regular positions orabout 30% of our global workforce by the end of fiscal 2003 across allfunctions with the objective of reducing our operating expenses.  These actions resulted in a restructuringcharge in the second quarter of fiscal 2003 of approximately $7.6 million. Therestructuring charge included approximately $3.3 million of employee severanceand related benefits, $1.7 million of facilities exit costs, primarily relatedto lease expenses net of anticipated sublease income, $2.5 million in assetwrite-offs and $174,000 in legal and other costs.  These costs and activities were accounted for under EITF Issue94-3, *LiabilityRecognition for Certain Employee Termination Benefits and other Costs to Exitan Activity.*

 

A summary of restructuring activities as of March 31,2003 follows below (in thousands):

 
|                                             |   | **Severance** |   | **Facilities** |   | **Intangible  asset write-off** |   | **Other asset write-off** |   | **Other costs** |   | **Total** |   |
|--------------------------------------------------|--------|---------------|--------|----------------|--------|---------------------------------|--------|---------------------------|--------|-----------------|--------|-----------|--------|
| Initial charge in  second quarter of fiscal 2003 |   | $             | 3,329  |           | $      | 1,653                           |   | $                         | 1,191  |            | $      | 1,287     |   | $ | 174 |   | $ | 7,634 |   |
| Cash charges                                     |   | (1,258        | )      | (32            | )      | —                          |   | —                    |   | (43             | )      | (1,333    | )      |
| Non-cash charges                                 |   | —        |   | —         |   | (1,191                          | )      | (1,287                    | )      | —          |   | (2,478    | )      |
|                                             |   |          |   |           |   |                            |   |                      |   |            |   |      |   |
| Balance at December  31, 2002                    |   | 2,071         |   | 1,621          |   | —                          |   | —                    |   | 131             |   | 3,823     |   |
| Adjustments                                      |   | (140          | )      | —         |   | —                          |   | 34                        |   | 90              |   | (16       | )      |
| Cash charges                                     |   | (1,411        | )      | (67            | )      | —                          |   | —                    |   | (141            | )      | (1,619    | )      |
| Non-cash charges                                 |   | 130           |   | (185           | )      | —                          |   | (6                        | )      | 125             |   | 64        |   |
|                                             |   |          |   |           |   |                            |   |                      |   |            |   |      |   |
| Balance at March 31,  2003                       |   | $             | 650    |           | $      | 1,369                           |   | $                         | — |            | $      | 28        |   | $ | 205 |   | $ | 2,252 |   |

 

The $1.7 million estimated charge for vacating ourDenmark design center consisted of our future obligations of $6.4 million underthe facility operating lease expiring in March, 2010, partially offset byestimated sublease income of approximately $4.7 million.  The subleaseincome estimates we have made with respect to the Denmark facility are based oncurrent and expected real estate market conditions in nearby Copenhagen, Denmark,and necessarily entails a high level of management judgment.  These market conditions can fluctuategreatly due to such factors as changes in property occupancy rates and therental prices charged for comparable properties.  We may be required to record significant additional charges orreverse currently accrued amounts in future periods if our actual experience insubleasing our Denmark facility is not consistent with our assumptions.

 

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As part of our restructuring plan, we decided toreduce our investment in research and development, and we revised our productdevelopment plans.  We determined thatwe would not seek to integrate into our product plans the developed technologywe acquired from Lexra, Inc. in December 2001 and recorded an impairment chargeof  $1.2 million for the remaining valueof this intangible asset in the second quarter of fiscal 2003.

 

Other assets written off as a part of therestructuring during the second quarter of fiscal 2003 included leaseholdimprovements and computer aided design software related to the Denmarkfacilities.  Other costs are composedprimarily of legal fees and other restructuring costs.

 

As of March 31, 2003, the remaining restructuring costaccrual was $2.3 million.  The severanceand benefit costs associated with 12 of the positions eliminated were paid asof December 31, 2002.  The remainingseverance as of March 31, 2003 of $650,000 related to the other 55 positionseliminated was  paid as of April 2003.  The operating lease accrual, net ofestimated sublease income, is made up of lease payments to be paid throughMarch 2010.  Actual future cashrequirements may differ materially from the amounts accrued at March 31, 2003,particularly if actual sublease income differs significantly from currentestimates.

 

In the third fiscal quarter of fiscal 2003, wedecreased the restructuring charge by a net amount of $16,000.  The decrease was primarily due to loweremployee benefit costs than originally anticipated, offset by an increase inother costs such as accounting and third party service fees and an increase inasset write-offs.

 

*OtherIncome (Expense), Net*. Other income (expense), net, for the third quarter of fiscal 2003 wasnet income of $249,000 and for the first nine months of fiscal 2003 was a netexpense of $12,000 compared to net income of $510,000 and  $2.4 million for the comparable periods infiscal 2002. The decrease in other income for both periods was primarily due toa decline in interest income resulting from lower interest rates and lowerinvestment balances.  Additionally, werecorded an impairment charge of $1.4 million in the second quarter of fiscal2003 as we wrote off the full value of our investment in Lexra, Inc.

 

*IncomeTaxes*.  We recorded anincome tax provision of $443,000 for the third quarter of fiscal 2003 and $1.3million for the first nine months of fiscal 2003 compared to an income taxbenefit of $380,000 and $780,000 for the same periods in fiscal 2002. Theestimated annual effective tax rate for the third quarter and first nine monthsof fiscal 2003 differs from the applicable statutory rate primarily due tolosses for which no current benefit is available and to foreign incometaxes.  The estimated annual effectivetax benefit for the third quarter of fiscal 2002 and the first nine months offiscal 2002 was lower than the applicable statutory rate primarily due to arecovery of previously paid U.S. income tax reduced by foreign income taxes.

 

**Financial Condition**

 

At March 31, 2003, we had cash and cash equivalents of$76.1 million and total working capital of $82.0 million.

 

Our operating activities used net cash of $4.2 millionfor the nine months ended March 31, 2003 compared to net cash used of $12.1million for the comparable period in the prior year.  During the nine-month period ended March 31, 2003, the amount ofour net loss was partially offset by non-cash expenses such as depreciation andamortization and the write-off of the full value of our investment in Lexra, Inc.,as well as restructuring costs. Decreases in accounts receivable and prepaidsand other assets, and an increase in our accruals further offset our netloss.    The decrease in accountsreceivable was the result of our completing fewer licensing agreements near theend of the third quarter in fiscal 2003. The decrease in prepaids and other assets is due to the receipt of anincome tax receivable, a valuation allowance placed against our deferred taxassets, and annual amortization of prepaid insurance.  The increase in accruals was primarily due to accruedrestructuring costs, which are expected to be funded by available cash, andcould result in cash expenditures through March 2010, the termination of ourDenmark facility lease.

 

During the nine-month period ended March 31, 2002, netcash used by operating activities consisted mainly of our net

 

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loss, including a  restructuringcharge, combined with a net increase in other assets and a decrease in accountspayable and accruals, partially offset by depreciation.  The net increase in other assets pertainedto the acquisition of long-term license of computer aided design tools.  The decrease in accounts payable was due tothe timing of asset purchases and related payments.  The decrease in accruals was primarily due to a decrease in ourtax provision resulting from estimated payments and the rate of tax benefit forthe first nine months of fiscal 2002.

 

Net cash used in investing activities was $10.9 millionfor the nine months ended March 31, 2003 compared to $27.1 million for thecomparable period in the prior year. Net cash used in investing activities during the nine-month period endedMarch 31, 2003 included purchases and maturities of short-term investments aswell as purchases of equipment and computer aided design tools used in ourdevelopment activities and the acquisition of Algorithmics, Ltd., in additionto the purchase of patents and patent applications and the final paymentrelated to purchases of intangible assets from Lexra, Inc. in December 2001.Net cash used in investing activities for the nine-month period ended March 31,2002 included purchases and maturities of short-term investments as well aspurchases of equipment and computer aided design tools used in development, aswell as the purchase of intangible assets from and an equity interest in Lexra,Inc. Capital expenditures have been, and future expenditures are anticipated tobe, primarily for facilities and equipment to support our operations andlicensing of computer aided design tools used in development.

 

Net cash provided by financing activities was $265,000for the nine months ended March 31, 2003 compared to $842,000 for thecomparable period in the prior year. Net cash provided by financing activities during the nine-month periodended March 31, 2003 was attributable to purchases under our employee stockplans offset in part by the repayment of a loan, which was assumed inconnection with the Algorithmics Ltd. acquisition. Net cash provided in thenine-month period ended March 31, 2002 resulted primarily from purchases underour employee stock plans.

 

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

 

•                  the cost,timing and success of product development efforts;

 

•                  the cost andtiming of sales and marketing activities;

 

•                  the extentto which our existing and new technologies gain market acceptance;

 

•                  the leveland timing of contract revenues and royalties;

 

•                  competingtechnological and market developments; and

 

•                  the cost ofmaintaining and enforcing patent claims and other intellectual property rights.

 

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

 

**Factors That May Affect Our Business**

 

*Oursuccess is subject to numerous risk and uncertainties, including those discussedbelow.  These factors could hinder ourgrowth, cause us to sustain losses or have other adverse effects on us, all ofwhich could cause our stock price to decline.*

 

**Our quarterly financial results are subject to significantfluctuations that could adversely affect our stock price.**  Our quarterly financial results may varysignificantly due to a number of factors, many of which are outside of ourcontrol.  In addition, our revenuecomponents are difficult to predict and may fluctuate significantly from periodto period.  Because our expenses arelargely independent of our revenue in any particular period, it is difficult toaccurately forecast our operating

 

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results.  Our operating expensesare based, in part, on anticipated future revenue and a high percentage of ourexpenses are fixed in the short term. As a result, if our revenue is below expectations in any quarter, theadverse effect may be magnified by our inability to adjust spending in a timelymanner to compensate for the revenue shortfall.  Therefore, we believe that quarter-to-quarter comparisons of ourrevenue and operating results may not be a good indication of our futureperformance.

 

It is possible that in some future periods our resultsof operations may be below the expectations of securities analysts andinvestors.  In that event, the price ofour common stock may fall.  Factors thatcould cause our revenue and operating results to vary from quarter to quarterinclude:

 

•                               our abilityto identify attractive licensing opportunities and then enter into newlicensing agreements on terms that are acceptable to us;

 

•                               thefinancial terms and delivery schedules of our contractual arrangements with ourlicensees, which may provide for significant up-front payments, payments basedon the achievement of certain milestones or extended payment terms;

 

•                               the relativemix of contract revenue and royalties;

 

•                               the demandfor and average selling prices of semiconductor products that incorporate ourtechnology;

 

•                               competitivepressures resulting in lower contract revenue or royalty rates;

 

•                               our abilityto develop, introduce and market new processor intellectual property;

 

•                               theestablishment or loss of licensing relationships with semiconductor companiesor digital consumer and business product manufacturers;

 

•                               the timingof new products and product enhancements by us and our competitors;

 

•                               changes indevelopment schedules, research and development expenditure levels and productsupport by us and digital consumer and business product manufacturers;

 

•                               uncertaineconomic and market conditions.

 

**We may not experience growth in our contract revenue.**  A significant portion of our total revenuesis generated by license fees paid for access to our technology and engineeringservice fees, and these contract revenues have represented an increasinglygreater percentage of total revenue in recent years.  While we expect that we will continue to grant additionallicenses to new licensees and develop new products to license to both new andexisting licensees, we cannot predict whether or when contract revenue willgrow.  Our licensees are not obligatedto license new or future generations of our products, so past contract revenuemay not be indicative of the amount of such revenue in any future period.

 

**We depend on design wins to expand our revenue base.**  In the past, a substantial portion of ourtotal revenues was generated by royalties from Nintendo and NEC relating toNintendo 64 video game players and related cartridges.  As expected, these royalties have declinedsubstantially and are now insignificant. Our ability to generate non-Nintendo royalty revenues is uncertain andwill depend in large part on whether our processors and related designs areselected by our licensees and their customers for design, which we refer to asdesign wins, into a broader range of both digital consumer and businessproducts.  Our ability to achieve designwins is subject to several risks and uncertainties, including:

 

•                               thepotentially limited opportunities for design wins with respect to certaindigital consumer products, such as video game products or digital televisionset top boxes, due to a limited number of product manufacturers and the lengthof product life cycles; and

 

•                               the riskthat the performance, functionality, price and power characteristics of ourdesigns may not satisfy those that are critical to specific digital consumerand business product applications.

 

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

 

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**Wedepend on royalties from the sale of products incorporating our technology, andwe have limited visibility as to the timing and amount of such sales**.  Our success in achieving design wins withour customers does not assure us of future revenue, as our revenue from thesecustomers depends on our receipt of royalties from the sales of products thatuse our technology.  Frequently, thesesales are based on the sales of products incorporating the semiconductors orother products of our licensees, and as a result we do not have direct accessto information that will help us anticipate the timing and amount of futureroyalties.  Our success is linked to thesuccess of our licensees and, in the case of our semiconductor companylicensees, the success of their customers. Factors that negatively affect our licensees and their customers couldadversely affect our business.  Thesuccess of our direct and indirect customers is subject to a number of factors,including:

 

•                               thecompetition these companies face and the market acceptance of their products;

 

•                               theengineering, marketing and management capabilities of these companies andtechnical challenges unrelated to our technology that they face in developingtheir products;

 

•                               theirfinancial and other resources.

 

Because we do not control the business practices ofour licensees and their customers, we have little influence on the degree towhich our licensees promote our technology and do not set the prices at whichproducts incorporating our technology are sold.

 

**Wedepend on semiconductor companies and digital consumer and business productmanufacturers to adopt our technology and use it in the products they sell**.  The adoption and continued use of ourtechnology by semiconductor companies and digital consumer and business productmanufacturers is essential to our continued success.  We face numerous risks in obtaining agreements with semiconductorcompanies and digital consumer and business product manufacturers on acceptableterms, including:

 

•                               potentialcompetition with the internal design teams of semiconductor companies anddigital consumer and business product manufacturers;

 

•                               competitionfrom other semiconductor intellectual property providers;

 

•                               potentialdifficulties in persuading large semiconductor companies and digital consumerproduct manufacturers to work with us, to rely on us for critical technology,and to disclose to us proprietary manufacturing technology; and

 

•                               potentialdifficulties in persuading potential licensees to bear certain developmentcosts associated with our technology and to produce embedded processors usingour technology.

 

We cannot assure you that we will be able to maintainour current relationships or establish new relationships with additionallicensees, and any failure by us to do so could have a material adverse effecton our business.  In addition, we maydevote substantial resources to the pursuit of a relationship with a potentiallicensee that ultimately is not successful.

 

**Wedepend on the emerging markets for digital consumer and business products andcustomer acceptance of the products that integrate our technology**.  The digital consumer and business productsindustries are presently the primary market for our processor, core and relateddesigns.  The markets for digitalconsumer and business products are relatively new and emerging, and our successwill depend largely on the level of interest in digital consumer and businessproducts, many of which have only recently been introduced to the market.  For us to grow, it is necessary that asignificant number of additional products incorporating our technology bedeveloped and successfully marketed. Further, customer acceptance of both consumer and business products maybe hampered during periods of general economic uncertainty, as many consumersand businesses might delay their purchase decisions.  We cannot assure you that any products that incorporate ourtechnology will achieve commercial acceptance or generate meaningful royaltiesfor us.  Our dependence on the digitalconsumer and business products industries involves several risks anduncertainties, including:

 

•                               changes incustomer requirements and preferences; and

 

•                               theintroduction of products by our competitors embodying new technologies orfeatures.

 

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**If weare unable to develop enhancements and new generations of our intellectualproperty, we may be unable to achieve design wins**.  Our future success will depend, in part, onour ability to develop enhancements and new generations of our processors,cores and other intellectual property that satisfy the requirements of specificproduct applications and introduce these new technologies to the marketplace ina timely manner.  If our developmentefforts are not successful or are significantly delayed, or if the characteristicsof our processor, core and related designs are not compatible with therequirements of specific product applications, our ability to achieve designwins may be limited.  Our failure toachieve a significant number of design wins would adversely affect ourbusiness, results of operations and financial condition.

 

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

 

•                               our abilityto anticipate and timely respond to changes in the requirements ofsemiconductor companies, and original equipment manufacturers, or OEMs, ofdigital consumer and business products;

 

•                               our abilityto anticipate and timely respond to changes in semiconductor manufacturingprocesses;

 

•                               changingcustomer preferences in the digital consumer and business products markets;

 

•                               theemergence of new standards in the semiconductor industry and for digitalconsumer and business products;

 

•                               thesignificant investment in a potential product that is often required beforecommercial viability is determined; and

 

•                               theintroduction by our competitors of products embodying new technologies orfeatures.

 

Our failure to adequately address these risks couldrender our existing processor, core and related designs obsolete and adverselyaffect our business, results of operations and financial condition.  In addition, we cannot assure you that wewill have the financial and other resources necessary to develop processor,core and related designs in the future, or that any enhancements or newgenerations of the technology that we develop will generate revenue sufficientto cover or in excess of the costs of development.

 

**If we fail to compete effectively in the market for embeddedprocessors, our business will be adversely affected.**  Competition in the market for embeddedprocessors is intense.  Our productscompete with those of other designers and developers of processors and cores,as well as those of semiconductor manufacturers whose product lines includeprocessors for embedded and non-embedded applications.  In addition, we may face competition fromthe producers of unauthorized MIPS-based clones and non-RISC based technologydesigns.  We cannot assure you that wewill be able to compete successfully or that competitive pressures will notmaterially and adversely affect our business, results of operations andfinancial condition.

 

In order to be successful in marketing our products tosemiconductor companies, we must differentiate our processors, cores andrelated designs from those available or under development by the internaldesign groups of these companies, including some of our current and prospectivelicensees.  Many of these internaldesign groups have substantial engineering and design resources and are part oflarger organizations with substantial financial and marketing resources.  These internal design groups may developproducts that compete with ours.

 

Some of our existing competitors, as well as a numberof potential new competitors, have longer operating histories, greater brandrecognition, larger customer bases as well as greater financial and marketingresources than we do.  This may allowthem to respond more quickly than we can to new or emerging technologies andchanges in customer requirements.  Itmay also allow them to devote greater resources than we can to the developmentand promotion of their technologies and products.

 

**We may encounter difficulties with future acquisitions, whichcould harm our business.**  As part of our business strategy, in the future we may seek to acquireor invest in businesses or technologies that we believe can complement orexpand our business, enhance our technical capabilities or that may otherwiseoffer growth opportunities. Any future acquisitions may require debt or equityfinancing, or the issuance of shares in the transaction, any of which couldincrease our leverage or be dilutive to our existing stockholders.  We may not be able to complete acquisitionsor strategic customer transactions on terms

 

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that are acceptable, or at all. We may incur charges related to acquisitions or investments that arecompleted.  For instance, we recorded anin-process research and development charge in the first quarter of fiscal 2003and the second quarter of fiscal 2002 as a result of our acquisition of certaintechnology.  We will also facechallenges integrating acquired businesses and operations and assimilating andmanaging the personnel of the acquired operations.  The difficulties of this integration may be further complicatedby geographic distances.  Theintegration of acquired businesses may not be successful and could result indisruption to other parts of our business.  Acquisitions involve a number of other risks and challenges, including:

 

•                            diversion ofmanagement’s attention;

 

•                            potentialloss of key employees and customers of the acquired companies;

 

•                            exposure tounanticipated contingent liabilities of acquired companies; and

 

•                            use ofsubstantial portions of our available cash to consummate the acquisition and/oroperate the acquired business.

 

Any of these and other factors could harm our abilityto realize the anticipated benefits of an acquisition.

 

We may also make investments in other companies,particularly private companies, such as the investment we made in Lexra, Inc.in the second quarter of fiscal 2002, where we feel these investments offerstrategic opportunities.  Theseinvestments tend to be inherently risky because the companies are frequently inthe development stage and depend on future third party investments to financetheir operations.  If the companies inwhich we invest do not secure the requisite financing or secure it at a lowerenterprise valuation than was in effect when we invested, we may be required totake an impairment charge to reduce the carrying value of our investment, suchas the impairment charge of $1.4 million we recorded in the second quarter offiscal 2003 for the total value of an investment in Lexra, Inc.

 

**We have recorded long-lived assets, and our results ofoperations would be adversely affected if their value becomes impaired.**  In both the first and second quarters offiscal 2003 and the second quarter of fiscal 2002, we acquired certain core anddeveloped technologies and patent and patent applications, and the purchaseprice of these long-lived assets is being amortized over schedules based ontheir useful lives. If we complete additional acquisitions in the future, ourpurchased intangible assets amortization charge could increase, and we may berequired to record substantial amounts of goodwill.  As a result of our adoption of Statement of Financial AccountingStandards No. 142, *Goodwill and Other Intangible Assets*, weevaluate our long-lived assets, including purchased assets, for impairment onan annual basis or whenever events or changes in circumstances indicate thatthe carrying amount may not be recoverable from its estimated future cashflows.  In the second quarter of fiscal2003, we recorded an impairment charge of $1.2 million for purchased developedtechnology acquired in December 2001. In the future, if we determine that our long-lived assets are impaired,we will have to recognize additional charges for this impairment. While we donot currently expect to record additional long-lived assets impairment charges,we cannot be sure that we will not be required to do so in the future.

 

**We may incur additional restructuring charges in the future,which could harm our results of operations. **In the second quarter of fiscal 2003, we closed ourDenmark design center and reorganized our sales and marketing functions, whichresulted in our recording of a restructuring charge of  $7.6 million in the second quarter of fiscal2003.****If,as a result of changes in rental property market conditions, we determine thatthe facilities restructuring accrual is insufficient, we would be required totake an additional charge, which would harm our results of operations. Wecannot assure you this restructuring of our operations will be sufficient to appropriatelyalign our operating expenses with our revenue expectations.  If we have not sufficiently reducedoperating expenses, we may be required to engage in additional restructuringactivities, which could result in additional restructuring charges.  Further, recent accounting pronouncementsmay affect the timing of recording any future restructuring costs as well asthe amounts recorded.  Theserestructuring charges could harm our results of operations.

 

**Our intellectual property may be misappropriated or subjectto claims of infringement.** Policing the unauthorized use of our intellectual property is difficult,and we cannot be certain that the steps we have taken will prevent themisappropriation or unauthorized use of our technologies, particularly inforeign countries where the laws may not protect our proprietary rights asfully as in the United States.  Inaddition, we cannot be certain that we will be able to prevent other partiesfrom designing and marketing unauthorized MIPS-based products or that otherswill not independently develop or otherwise acquire the same or substantiallyequivalent technologies as ours. Moreover, cross licensing arrangements, in which we license

 

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certain of our patents but do not generally transfer know-how or otherproprietary information, may facilitate the ability of cross-licensees, eitheralone or in conjunction with others, to develop competitive products anddesigns.

 

We cannot assure you that any of our patent applicationswill be approved or that any of the patents or other intellectual propertyrights that we own or use will not be challenged, invalidated or circumventedby others or be of sufficient scope or strength to provide us with anymeaningful protection or commercial advantage. Significant litigation regarding intellectual property rights exists inour industry.  We cannot be certain thatthird parties will not make a claim of infringement against us, our licensees,or our licensees’ customers in connection with use of our technology.  Any claims, even those without merit, couldbe time consuming to defend, result in costly litigation and/or require us toenter into royalty or licensing agreements. These royalty or licensing agreements, if required, may not be availableto us on acceptable terms or at all.  Asuccessful claim of infringement against us or one of our licensees inconnection with its use of our technology could adversely affect our business.

 

**We depend on our key personnel to succeed.**  Our success depends to a significant extenton the continued contributions of our key management, technical, sales andmarketing personnel, many of whom are highly skilled and difficult toreplace.   We cannot assure you that wewill retain our key officers and employees.  Competition for qualified personnel, particularly those with significantexperience in the semiconductor and processor design industries, remainsintense.  The loss of the services ofany of our key personnel or our inability to attract and retain qualifiedpersonnel in the future could make it difficult to meet key objectives, such astimely and effective project milestones and product introductions which couldadversely affect our business, results of operations and financial condition.  Inaddition, our restructurings and the effects on our business of the ongoingeconomic slowdown may have an adverse effect on employee morale and createsconcern among existing employees about job security and, as a result, keyemployees may be more likely to seek other employment opportunities.

 

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**ITEM 3****.  QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

We are exposed to interest rate risk on investments ofour excess cash.  The primary objectiveof our investment activities is to preserve capital.  To achieve this objective and minimize the exposure due toadverse shifts in interest rates, we invest in high quality short-term maturitycommercial paper, municipal bonds, and money market funds operated by reputablefinancial institutions in the United States. Due to the nature of our investments, we believe that we do not have amaterial interest rate risk exposure.

 

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

 

**ITEM 4****.  EVALUATION OF DISCLOSURE CONTROLS ANDPROCEDURES**

 

(a)        Evaluation of Disclosure Controls and Procedures. Regulations under theSecurities Exchange Act of 1934 require public companies to maintain“disclosure controls and procedures,” which are defined to mean a company’scontrols and other procedures that are designed to ensure that informationrequired to be disclosed in the reports that it files or submits under theSecurities Exchange Act of 1934 is recorded, processed, summarized andreported, within the time periods specified in the Commission’s rules andforms.  Our chief executive officer andour chief financial officer, based on their evaluation of the effectiveness ofour disclosure controls and procedures within 90 days before the filing date ofthis report, concluded that our disclosure controls and procedures wereeffective for this purpose.

 

(b)        Changes in Internal Controls. There were no significant changes in ourinternal controls or, to our knowledge, in other factors that couldsignificantly affect our internal controls subsequent to the evaluation datereferred to above.

 

(c)        Limitations on the Effectiveness of Controls. A control system, no matterhow well conceived and operated, can provide only reasonable, not absolute,assurance that the objectives of the internal control system are met. Becauseof the inherent limitations of any internal control system, no evaluation ofcontrols can provide absolute assurance that all control issues, if any, withina company have been detected.

 

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**PART II – OTHER INFORMATION**

 

**ITEM1.  LEGAL PROCEEDINGS**

 

On April 30, 2003, in connection with the closure ofour Denmark design center, our Swiss subsidiary, MIPS TechnologiesInternational AG, or MIPS AG,  throughwhich we conducted our operations in Denmark, terminated the employment of 55employees. Of these, 45 employees filed claims against MIPS AG in the CountyCourt of Ballerup Denmark. Subsequently 13, of these employees have agreed towithdraw their claims. The remaining 32 employees of MIPS AG held, on thetermination date, options to purchase an aggregate of 724,830 shares of ourClass A common stock, of which options to purchase 413,552 shares were vestedas of the termination date and 311,278 were unvested. The exercise price ofthese options ranged from $2.94 to $27.16 per share. Under our stock optionplans, unvested options expire upon termination of employment and vestedoptions expire three months after the termination of employment.

 

Theterminated employees are seeking, primarily, the right to exercise, regardlessof the termination of their employment, the options they held as of the date oftheir termination, which options expired on or within three months of thetermination date.  As such, they areclaiming, under alleged principles of Danish employment law, the right toexercise such options, or in the atlernate, money damages equal to thedifference between the excess of the trading price of our Class A common stockshares over the exercise price of the options on whatever future date theemployee designates as an effective exercise date of the option. The employeesfurther claim that these effective rights to exercise should continue for thesame period as the respective terms of the options on which they were based,that is, 10 years from the respective grant date of the underlying option.

 

Our Swiss subsidiary intends to defend itselfvigorously in these matters.

 

From time to time, we receive communications fromthird parties asserting patent or other rights covering our products andtechnologies. Based upon our evaluation, we may take no action or we may seekto obtain a license. There can be no assurance in any given case that a licensewill be available on terms we consider reasonable, or that litigation will notensue. In addition, from time to time we evaluate possible patent infringementclaims against third parties and may assert such claims if appropriate.

 

**ITEM 6****.  EXHIBITS AND REPORTS ON FORM 8-K**

 
| (a)    | Exhibits            |                                                                                                                                                                             |
|--------|---------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |
|   | 99.1                | Certification of Chief Executive Officer and Chief  Financial Officer pursuant to 18 U.S.C. Section 1350,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|   |
| (b)    | Reports on Form 8-K |                                                                                                                                                                             |
|   | None                |                                                                                                                                                                             |
|        |                     |                                                                                                                                                                                  |  |

 

ITEMS  2, 3, 4, AND 5 ARE NOTAPPLICABLE AND HAVE BEEN OMITTED.

 

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**SIGNATURES**

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
|                      |   | MIPS Technologies, Inc.                      |
|---------------------------|--------|----------------------------------------------|
|                      |   | a Delaware corporation                       |
|                      |   |                                         |
|                      |   | By:                                          | /s/ KEVIN C.  EICHLER |   |
|                      |   | Kevin C. Eichler                             |
|                      |   | Vice President and Chief Financial Officer   |
|                      |   | (Principal Financial and Accounting Officer) |
|                      |   |                                         |
| Dated:  May  9, 2003 |   |                                         |

 

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**FORM 10-Q CERTIFICATION**

 

I, John E. Bourgoin, certify that:

 

1.             I have reviewed this quarterlyreport on Form 10-Q of MIPS Technologies, Inc.;

 

2.                                       Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

3.                                       Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report.

 

4.                                     Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a) designed such disclosure controls and procedures toensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

 

b) evaluated the effectiveness of the registrant’sdisclosure controls and procedures as of a date within 90 days prior to thefiling date of this quarterly report (the “Evaluation Date”); and

 

c) presented in this quarterly report our conclusionsabout the effectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date;

 

5.                                     Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a) all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

b) any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls; and

 

6.                                     Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| Date: May 9, 2003 | By:   | /s/  JOHN E.  BOURGOIN               |   |
|-------------------|-----------------|-------------------------------------------|--------|
|              |            | *John  E. Bourgoin*                       |
|              |            | *President  and Chief Executive Officer,* |
|              |            | *MIPS  Technologies, Inc.*                |

 

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I, Kevin C. Eichler, certify that:

 

1.             I have reviewed this quarterlyreport on Form 10-Q of MIPS Technologies, Inc.;

 

2.                                       Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

3.                                       Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report.

 

4.                                     Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a) designed such disclosure controls and procedures toensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

 

b) evaluated the effectiveness of the registrant’sdisclosure controls and procedures as of a date within 90 days prior to thefiling date of this quarterly report (the “Evaluation Date”); and

 

c) presented in this quarterly report our conclusionsabout the effectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date;

 

5.                                     Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a) all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internal controls;and

 

b) any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls; and

 

6.                                     Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| Date: May 9, 2003 | By:    | /s/ KEVIN C. EICHLER                           |   |
|-------------------|--------|------------------------------------------------|--------|
|              |   | *Kevin  C. Eichler*                            |
|              |   | *Vice  President and Chief Financial Officer,* |
|              |   | *MIPS  Technologies, Inc.*                     |

 

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