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

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FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001

OR

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|--- | ------------------------------------------------------------------------------------------

For the transition period from            to            .

Commission file number 000-24487

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

|DELAWARE                        |  | 77-0322161            
|------------------------------- |  | ----------------------
|(State or other jurisdiction of |  | (I.R.S. Employer      
|Incorporation or organization)  |  | 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 check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes /x/  No / /

As
of May 1, 2001, the number of outstanding shares of the Registrant's Class A common stock, $.001 par value, was 13,870,841. As of May 1, 2001, the number of
outstanding shares of the Registrant's Class B common stock, $.001 par value, was 25,064,149.

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|                             |  |                                                                                       |  | Page
|---------------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|PART IFINANCIAL INFORMATION
|Item 1.                      |  | Financial Statements (Unaudited):                                                     |  |     
|                             |  | Condensed Consolidated Balance Sheets                                                 |  | 3   
|                             |  | Condensed Consolidated Statements of Operations                                       |  | 4   
|                             |  | Condensed Consolidated Statements of Cash Flows                                       |  | 5   
|                             |  | Notes to Condensed Consolidated Financial Statements                                  |  | 6   
|Item 2.                      |  | Management's Discussion and Analysis of Results of Operations and Financial Condition |  | 9   
|Item 3.                      |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 17  
|PART IIOTHER INFORMATION   
|Item 1.                      |  | Legal Proceedings                                                                     |  | 18  
|Signatures                   |  | 19                                                                                   

2

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PART IFINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MIPS TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

|                                     |                                           | March 31,
2001             |         | June 30,
2000 |        
|------------------------------------ | ----------------------------------------- | -------------------------- | ------- | ------------- | -------
|
|ASSETS                               |                                           |                            |         |               |        
|Current assets:                      |                                           |                            |         |               |        
|                                     | Cash and cash equivalents                 |                            | $       | 110,730       |        
|                                     | Accounts receivable                       |                            |         | 12,629        |        
|                                     | Prepaid expenses and other current assets |                            |         | 9,019         |        
|                                     |                                           |                            |         |               |        
|                                     |                                           | Total current assets       |         |               | 132,378
|Equipment and furniture, net         |                                           |                            | 8,681   |               |        
|Other assets                         |                                           |                            | 1,211   |               |        
|                                     |                                           |                            |         |               |        
|                                     |                                           | $                          | 142,270 |               | $      
|                                     |                                           |                            |         |               |        
|LIABILITIES AND STOCKHOLDERS' EQUITY |                                           |                            |         |               |        
|Current liabilities:                 |                                           |                            |         |               |        
|                                     | Accounts payable                          |                            | $       | 4,363         |        
|                                     | Accrued liabilities                       |                            |         | 17,205        |        
|                                     | Deferred revenue                          |                            |         | 2,677         |        
|                                     |                                           |                            |         |               |        
|                                     |                                           | Total current liabilities  |         |               | 24,245 
|Stockholders' equity:                |                                           |                            |         |               |        
|                                     | Common stock                              |                            |         | 39            |        
|                                     | Additional paid-in capital                |                            |         | 160,528       |        
|                                     | Accumulated deficit                       |                            |         | (42,542       | )      
|                                     |                                           |                            |         |               |        
|                                     |                                           | Total stockholders' equity |         |               | 118,025
|                                     |                                           |                            |         |               |        
|                                     |                                           | $                          | 142,270 |               | $      
|                                     |                                           |                            |         |               |        

See
accompanying notes.

3

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MIPS TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(In thousands, except per share data)

|                                                      |                            | Three Months Ended
March 31, |        | Nine Months Ended
March 31,
|----------------------------------------------------- | -------------------------- | ---------------------------- | ------ | ---------------------------
|
|Revenue:                                              |                            |                              |        |                            
|                                                      | Royalties                  |                              | $      | 16,106                     
|                                                      | Contract revenue           |                              |        | 11,733                     
|                                                      |                            |                              |        |                            
|                                                      |                            | Total revenue                |        |                            
|Costs and expenses:                                   |                            |                              |        |                            
|                                                      | Cost of contract revenue   |                              |        |                           
|                                                      | Research and development   |                              |        | 9,543                      
|                                                      | Sales and marketing        |                              |        | 4,272                      
|                                                      | General and administrative |                              |        | 2,557                      
|                                                      |                            |                              |        |                            
|                                                      |                            | Total costs and expenses     |        |                            
|                                                      |                            |                              |        |                            
|Operating income                                      |                            |                              | 11,467 |                            
|Other income, net                                     |                            |                              | 1,651  |                            
|                                                      |                            |                              |        |                            
|Income before income taxes                            |                            |                              | 13,118 |                            
|Provision for income taxes                            |                            |                              | 4,767  |                            
|                                                      |                            |                              |        |                            
|Net income                                            |                            | $                            | 8,351  |                            
|                                                      |                            |                              |        |                            
|Basic net income per share                            |                            | $                            | 0.22   |                            
|                                                      |                            |                              |        |                            
|Diluted net income per share                          |                            | $                            | 0.21   |                            
|                                                      |                            |                              |        |                            
|Shares used in computing basic net income per share   |                            |                              | 38,778 |                            
|                                                      |                            |                              |        |                            
|Shares used in computing diluted net income per share |                            |                              | 40,262 |                            
|                                                      |                            |                              |        |                            

See
accompanying notes.

4

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MIPS TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(In thousands)

|                                                                |                                                                                   | Nine Months Ended March 31,                  |                                  
|--------------------------------------------------------------- | --------------------------------------------------------------------------------- | -------------------------------------------- | ---------------------------------
|
|Operating activities:                                           |                                                                                   |                                              |                                  
|                                                                | Net income                                                                        |                                              | $                                
|                                                                | Adjustments to reconcile net income to net cash provided by operating activities: |                                              |                                  
|                                                                |                                                                                   | Depreciation                                 |                                  
|                                                                |                                                                                   | Other non-cash charges                       |                                  
|                                                                |                                                                                   | Changes in operating assets and liabilities: |                                  
|                                                                |                                                                                   |                                              | Accounts receivable              
|                                                                |                                                                                   |                                              | Accounts payable                 
|                                                                |                                                                                   |                                              | Other assets and liabilities, net
|                                                                |                                                                                   |                                              |                                  
|                                                                |                                                                                   |                                              |                                  
|Cash used in investing activitiescapital expenditures          |                                                                                   |                                              | (4,694                           
|Financing activitiesnet proceeds from issuance of common stock |                                                                                   |                                              | 6,648                            
|Foreign currency translation adjustment                         |                                                                                   |                                              | (325                             
|                                                                |                                                                                   |                                              |                                  
|Net increase in cash and cash equivalents                       |                                                                                   |                                              | 26,371                           
|Cash and cash equivalents, beginning of period                  |                                                                                   |                                              | 84,359                           
|                                                                |                                                                                   |                                              |                                  
|Cash and cash equivalents, end of period                        |                                                                                   | $                                            | 110,730                          
|                                                                |                                                                                   |                                              |                                  

See
accompanying notes.

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MIPS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED

Note 1. Description of Business and Basis of Presentation

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

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

Basis of Presentation.The unaudited results of operations for the interim periods shown in
these financial statements are not necessarily indicative of operating results for the entire fiscal year. In our opinion, the condensed consolidated financial statements include all adjustments
(consisting only of normal recurring accruals) necessary to present fairly the financial position, results of operations and cash flows for each interim period shown.

The
condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC") applicable to interim
financial information. Certain information and footnote disclosures included in financial statements prepared in accordance with generally accepted accounting principles have been omitted in these
interim statements as allowed by such SEC rules and regulations. The balance sheet at June 30, 2000 has been derived from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles. However, we believe that the disclosures are adequate to make the information presented not misleading. The unaudited condensed consolidated
financial statements included in this Form 10-Q should be read in conjunction with the audited consolidated financial statements and related notes for the fiscal year ended
June 30, 2000, included in our 2000 Annual Report on Form 10-K.

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Note 2. Computation of Earnings Per Share

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

|                                                                                                                      |                                                                                       | Three Months Ended
March 31, |        | Nine Months Ended
March 31, |  
|--------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ---------------------------- | ------ | --------------------------- | -
|
|Numerator:                                                                                                            |                                                                                       |                              |        |                             |  
|                                                                                                                      | Net income                                                                            |                              | $      | 8,351                       |  
|                                                                                                                      |                                                                                       |                              |        |                             |  
|Denominator:                                                                                                          |                                                                                       |                              |        |                             |  
|                                                                                                                      | Weighted-average shares of common stock outstanding                                   |                              |        | 38,817                      |  
|                                                                                                                      | Less: Weighted-average shares subject to repurchase                                   |                              |        | (39                         | )
|                                                                                                                      |                                                                                       |                              |        |                             |  
|Shares used in computing basic net income per share                                                                   |                                                                                       |                              | 38,778 |                             |  
|                                                                                                                      | Effect of dilutive securitiesemployee stock options and shares subject to repurchase |                              |        | 1,484                       |  
|                                                                                                                      |                                                                                       |                              |        |                             |  
|Shares used in computing diluted net income per share                                                                 |                                                                                       |                              | 40,262 |                             |  
|                                                                                                                      |                                                                                       |                              |        |                             |  
|Basic net income per share                                                                                            |                                                                                       | $                            | 0.22   |                             | $
|Diluted net income per share                                                                                          |                                                                                       | $                            | 0.21   |                             | $
|Potentially dilutive securities excluded from diluted net income per share computation because they are anti-dilutive |                                                                                       |                              | 1,940  |                             |  

Note 3. Comprehensive Income

For the three and nine month periods ended March 31, 2001 and 2000, the currency translation adjustment was not material and, therefore, total
comprehensive income closely approximated net income in each period presented.

Note 4. Contingencies

On October 28, 1999, we filed suit against Lexra, Inc. in the United States District Court for the Northern District of California for
infringement of two United States patents. We subsequently amended our suit to cover two subsequently released Lexra products.

On
November 12, 1999, Lexra, Inc. filed counterclaims against us seeking a declaratory judgment that the two asserted patents are invalid and not infringed. Lexra has
also asserted claims for common law unfair competition, intentional interference with business relations, and statutory unfair competition, all purportedly based on the allegation that our claims of
patent infringement have been made in bad faith.  On April 25, 2001, the Court conducted a hearing to consider arguments from the parties regarding the appropriate
interpretation of the disputed patent claim terms. We anticipate a ruling from the Court concerning these terms in the near future. Discovery is currently ongoing in the lawsuit, but the Court has not
yet set a trial date. In addition, Lexra has filed a request with the Patent and
Trademark Office seeking re-examination of one of the patents at issue in this litigation. The Patent and Trademark Office has indicated that it will conduct a re-examination
of the patent.

From
time to time, we receive communications from third parties asserting patent or other rights covering our products and technologies. Based upon our evaluation, we may take no
action or we may seek to obtain a license. There can be no assurance in any given case that a license will be available on

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terms we consider reasonable, or that litigation will not ensue. In addition, from time to time, we evaluate possible infringement claims against third parties and may assert such claims, if
appropriate.

We
are not aware of any pending disputes, including that discussed above that we believe would adversely affect our business, results of operations or financial condition.

Note 5. Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Financial Instruments and for Hedging Activities" (later replaced by SFAS No. 137), which provides comprehensive and consistent standards for the recognition and measurement of
derivatives and hedging activities. As a result, we were required to adopt SFAS 133 as of July 1, 2000. The adoption of this statement did not have a material impact on our consolidated
financial statements.

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

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ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

You should read the following discussion and analysis together with our unaudited condensed consolidated financial statements and the
notes to those statements included elsewhere in this report.This discussion may contain forward-looking statements that involve risks and uncertainties. These forward-looking
statements within this Quarterly Report on Form 10-Q are identified by words such as "believes," "anticipates," "expects," "intends," "may" and other similar expressions. Our actual
results could differ materially from those indicated in these forward-looking statements as a result of certain factors, including those described under "Factors That May Affect Our Business," and
other risks affecting our business. We undertake no obligation to update any forward-looking statements included in this discussion.

Results of Operations

Revenue.Our revenue consists of royalties and contract revenue earned under contracts with our licensees. We generate
royalties from the sale by our licensees of products incorporating our technology including royalties from Nintendo relating to sales of Nintendo 64 video game players and related cartridges.
Royalties may be calculated as a percentage of the revenue received by the seller on sales of such products or on a per unit basis. Contract revenue includes technology license fees and engineering
service fees. We receive license fees for the use of technology that we have developed internally and, in some cases, which we have licensed from third parties. License fees are typically recognized
upon the execution of the license agreement and transfer of intellectual property provided no further significant performance obligations exist. Fees related to engineering services, which are
performed on a best efforts basis, are recognized as revenue when the defined milestones are achieved and collectibility of the milestone payment is probable. The technology we develop is generally
licensed to multiple customers.

Total
revenue for the third quarter of fiscal 2001 was $27.8 million and for the first nine months of fiscal 2001 was $70.1 million compared to $27.0 million and
$67.4 million for the comparable periods in fiscal 2000. Total revenue excluding royalties from Nintendo 64 game products was $15.9 million and $47.0 million in the third quarter
and first nine months of fiscal 2001 and grew 40% during the third quarter of fiscal 2001 and 51% during the first nine months of fiscal 2001 over the comparable periods in fiscal 2000. Royalties for
the third quarter of fiscal 2001 were $16.1 million and for the first nine months of fiscal 2001 were $34.2 million compared to $18.1 million and $43.6 million for the
comparable periods in fiscal 2000. The decreases in both periods were due primarily to lower royalties derived from
sales of Nintendo products. As the Nintendo 64 video game product line continues further into its life cycle, we expect that sales of such products and the related royalties we receive will generally
trend downward, subject to seasonal fluctuations and the impact of particular game titles introduced by Nintendo from time to time. Royalties excluding royalties from Nintendo 64 game products grew
65% in the third quarter of fiscal 2001 and 50% in the first nine months of fiscal 2001 over the comparable periods in fiscal 2000. Contract revenue for the third quarter of fiscal 2001 was
$11.7 million and for the first nine months of fiscal 2001 was $35.9 million compared to $8.8 million and $23.8 million for the same periods in fiscal 2000. The increases
in both periods were the result of technology license fees from new agreements and engineering service fees earned upon our achievement of defined milestones. We expect that contract revenue, except
for seasonal fluctuations in royalties, will be greater than 50% of our total revenue for the next several years.

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

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Cost of contract revenue was zero for the third quarter and $250,000 for the first nine months of fiscal 2001, compared to no cost of contract revenue in the third quarter of fiscal
2000 and $500,000 for the first nine months of fiscal 2000. We expect that in future periods cost of contract revenue will be minimal.

Research and Development.Costs incurred with respect to technology we develop internally and engineering services we
perform which are not directly related to any particular licensee, license agreement or license fee, are recorded as research and development expense.

Research
and development expenses for the third quarter of fiscal 2001 were $9.5 million and for the first nine months of fiscal 2001 were $24.9 million compared with
research and development expenses of $6.8 million and $20.1 million for the comparable periods in fiscal 2000. The increases in research and development expenses in both periods were due
to the addition of resources and tools to support various project development activities, including the addition of 19 employees to the development team during the past twelve months. These increases
were partially offset by lower requirements for contractors needed to meet project milestones. We expect research and development expenses to increase in the foreseeable future as we continue to
develop new designs for the digital consumer and business products markets and the embedded processor market.

Sales and Marketing.Sales and marketing expenses for the third quarter of fiscal 2001 were $4.3 million and for
the first nine months of fiscal 2001 were $11.4 million compared to $2.6 million and $7.0 million for the comparable periods in fiscal 2000. The increases in sales and marketing
expenses in both
periods were due to additional resources hired to support our increasing licensing and third party tools and applications activities. We increased our sales and marketing staff to 54 persons as of
March 31, 2001, from 32 persons as of March 31, 2000, to support this growth.

General and Administrative.General and administrative expenses for the third quarter of fiscal 2001 were
$2.6 million and for the first nine months of fiscal 2001 were $6.8 million compared to $1.4 million and $5.5 million for the comparable periods in fiscal 2000. The
increases in general and administrative expenses in both periods were primarily due to increased legal expense required to support our ongoing patent and licensing activity.

Other Income, Net.For the third quarter of fiscal 2001, other income, net, was $1.7 million and for the first
nine months of fiscal 2001 was $4.9 million, compared to other income, net, of $1.1 million and $2.6 million for the comparable periods in fiscal 2000. The increases in both
periods were primarily due to interest income earned from the investment of cash generated from our operating activities and from proceeds on the issuance of common stock under our stock plans.

Income Taxes.We recorded a provision for income taxes of $4.8 million for the third quarter of fiscal 2001 and
$12.2 million for the first nine months of fiscal 2001, compared to $6.9 million and $14.8 million for the same periods in fiscal 2000. The estimated annual income tax rate of
38.5% in fiscal 2001 is lower than the effective tax rate of 40% in fiscal 2000 due to benefits derived from foreign income at rates below the US statutory rate and other US incentives.

Financial Condition

At March 31, 2001, we had cash and cash equivalents of $110.7 million and total working capital of $108.1 million.

Our
operating activities provided net cash of $24.7 million for the nine months ended March 31, 2001 compared to $18.4 million for the comparable period in the
prior year. During the nine month period ended March 31, 2001, net cash provided by operating activities consisted mainly of net income, a net increase in other assets and liabilities and the
benefit of non-cash depreciation expenses, partially offset by an increase in accounts receivable. The net increase in other assets and liabilities in fiscal

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2001 was primarily due to the tax provision, offset by a decrease in deferred revenue. The increase in accounts receivable reflects the timing of the invoicing and collection of license fees owed us
under licensing agreements. During the nine months ended March 31, 2000, net cash provided by operations consisted primarily of net income and a net increase in other assets and liabilities,
offset by an increase
in accounts receivable and a decrease in accounts payable. The net increase in other assets and liabilities in fiscal 2000 was primarily due to the tax provision and an increase in deferred revenue
and was partially offset by a decrease in accrued liabilities. The increase in accounts receivable reflects the timing of the invoicing and collection of license fees owed us under licensing
agreements. The decrease in accounts payable was due to a payment of taxes due to Silicon Graphics for our fiscal 1999 tax liability incurred under a tax sharing agreement with Silicon Graphics.

Net
cash used in investing activities was $4.7 million for the nine months ended March 31, 2001 compared to $2.6 million for the comparable period in the prior
year. Net cash used in investing activities in both periods represents equipment purchases and licensing of computer aided design tools used in development. Capital expenditures have been, and future
expenditures are anticipated to be, primarily for facilities, equipment to support expansion of our operations and licensing of computer aided design tools used in development.

Net
cash provided by financing activities was $6.6 million for the nine months ended March 31, 2001 compared to $13.5 million for the comparable period in the
prior year. Net cash provided in both periods resulted primarily from the exercise of employee stock options.

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



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

On
June 20, 2000, Silicon Graphics distributed all of the shares of our common stock that it owned in a transaction intended to be tax-free to Silicon Graphics and
its stockholders. Our ability to issue additional shares of our common stock in connection with acquisitions or to raise equity capital during the 30-month period following this
distribution is limited under the terms of a distribution tax indemnification agreement that we entered into with Silicon Graphics. The agreement contains covenants under which we may not issue
capital stock in an acquisition or private or public offering within the 30-month period following the tax-free distribution, except:



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Factors That May Affect Our Business

Factors negatively affecting sales of Nintendo 64 video game players and related cartridges could adversely affect
us.Royalties from Nintendo and NEC Corporation relating to Nintendo 64 video game players and related cartridges accounted for 43% of our total revenue for the
third quarter of fiscal 2001 and 33% for the first nine months of fiscal 2001 compared to 58% and 54% for the comparable periods in the prior year. We anticipate that royalties related to Nintendo 64
game products, while continuing to represent an important portion of our total revenue for the next few quarters, will continue to decline. If we cannot replace these lost revenues, our revenue will
decline. The market for home entertainment products is competitive and the introduction of new products or technologies, as well as shifting consumer preferences and generally uncertain economic
conditions, could negatively impact the amount and timing of sales of Nintendo 64 game products.

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



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

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



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

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



Generally,
our current licensees are not obligated to license new or future generations of our processor designs. In addition, because we do not control the business practices of our
licensees, we do not influence the degree to which our licensees promote our technology or set the prices at which the products incorporating our technology are sold.

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

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

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



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

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



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

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



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

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

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

We
cannot assure you that any of our patent applications will be approved or that any of the patents that we own will not be challenged, invalidated or circumvented by others or be of
sufficient scope or strength to provide us with any meaningful protection or commercial advantage. Significant litigation regarding intellectual property rights exists in our industry. We cannot be
certain that third parties will not make a claim of infringement against us, our licensees, or their manufacturers' customers in connection with use of our technology. Any claims, even those without
merit, could be time consuming to defend, result in costly litigation and/or require us to enter into royalty or licensing agreements. These royalty or licensing agreements, if required, may not be
available to us on acceptable terms or at all. A successful claim of infringement against us or one of our licensees in connection with its use of our technology could adversely affect our business.

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

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

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

We may not be able to recruit and retain the personnel required to succeed.Our future success depends to a significant
extent on the continued contributions of our key management, technical, sales

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and marketing personnel, many of whom are highly skilled and difficult to replace. We intend to hire additional highly skilled personnel, particularly technical personnel, for our anticipated research
and development activities. Competition for qualified personnel, particularly those with significant experience in the semiconductor and processor design industries, is intense. The loss of the
services of any of our key personnel or our inability to attract and retain qualified personnel in the future could adversely affect our business, results of operations and financial condition. In
particular, our ability to hire and retain qualified engineering personnel is essential to meet our business goals. Our ability to continue to grow successfully requires an effective planning and
management process. Our growth has placed, and the recruitment and integration of additional employees will continue to place, a strain on our resources.

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

Revenue
from our top two licensees excluding Nintendo represented an aggregate of 17% of our total revenue in the third quarter and 19% in the first nine months of fiscal 2001
compared to 23% and 17% of our total revenue in the comparable periods during the prior year. We may experience similar revenue concentration in the future, although the identity of the particular
licensees that will account for this revenue concentration may vary from period to period depending on the addition or expiration of contracts, the nature and timing of payments due under our
contracts and the volumes and prices at which our licensees sell products incorporating our technology.

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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PART IIOTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On October 28, 1999, we filed suit against Lexra, Inc. in the United States District Court for the Northern District of California for
infringement of two United States patents. We subsequently amended our suit to cover two subsequently released Lexra products. On November 12, 1999, Lexra, Inc. filed counterclaims
against us seeking a declaratory judgment that the two asserted patents are invalid and not infringed. Lexra has also asserted claims for common law unfair competition, intentional interference with
business relations, and statutory unfair competition, all purportedly based on the allegation that our claims of patent infringement have been made in bad faith. On April 25, 2001, the Court
conducted a hearing to consider arguments from the parties regarding the appropriate interpretation of the disputed patent claim terms. We anticipate a ruling from the Court concerning these terms in
the near future. Discovery is currently ongoing in the lawsuit, but the Court has not yet
set a trial date. In addition, Lexra has filed a request with the Patent and Trademark Office seeking re-examination of one of the patents at issue in this litigation. The Patent and
Trademark Office has indicated that it will conduct a re-examination of the patent.

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

We
are not aware of any pending disputes including that discussed above that we believe would adversely affect our business, results of operations or financial condition.

ITEMS
2, 3, 4, 5 AND 6 ARE NOT APPLICABLE 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 the undersigned,
thereunto duly authorized.

| |  | MIPS Technologies, Inc.
a Delaware corporation
| |  | ----------------------------------------------
| |  | By:                                           

Dated: May 11, 2001

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