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

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, 2006

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
 15 (d) OF THESECURITIES 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. EmployerIdentification Number)

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

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

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.
See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [ ]  Accelerated Filer [X ] Non-accelerated Filer [ ]

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]

As
of April 30, 2006, the number of outstanding shares of the registrants common
stock, $0.001 par value, was 43,489,840.

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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 Financial Condition and Results of Operations | 
|                                                                                               | 
|                                                                                               | 
|Item 3.  Quantitative and Qualitative Disclosures About Market Risk                            | 
|                                                                                               | 
|Item 4.  Controls and Procedures                                                               | 
|                                                                                               | 
|PART II - OTHER INFORMATION                                                                   
|                                                                                               | 
|Item 6.  Exhibits                                                                              | 
|                                                                                               | 
|Signatures                                                                                     | 

2

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# PART I - FINANCIAL
INFORMATION

ITEM 1.    FINANCIAL
STATEMENTS

MIPS TECHNOLOGIES, INC.CONDENSED CONSOLIDATED BALANCE SHEETS(In thousands)

|                                          | March 31,
2006 | June 30,
2005
|----------------------------------------- | -------------- | -------------
|
|Current assets:                           |                |              
|Cash and cash equivalents                 |                |              
|Short-term investments                    |                |              
|Accounts receivable, net                  |                |              
|Prepaid expenses and other current assets |                |              
|                                          |                |              
|Total current assets                      |                |              
|                                          |                |              
|Equipment, furniture and property, net    |                |              
|Intangible assets, net                    |                |              
|Other assets                              |                |              
|                                          |                |              
|                                          |                |              
|                                          |                |              
|LIABILITIES AND STOCKHOLDERS' EQUITY      |                |              
|Current liabilities:                      |                |              
|Accounts payable                          |                |              
|Accrued liabilities                       |                |              
|Deferred revenue                          |                |              
|                                          |                |              
|Total current liabilities                 |                |              
|Long-term liabilities                     |                |              
|                                          |                |              
|                                          |                |              
|                                          |                |              
|Stockholders' equity:                     |                |              
|Common stock                              |                |              
|Preferred stock                           |                |              
|Additional paid-in capital                |                |              
|Accumulated other comprehensive income    |                |              
|Deferred compensation                     |                |              
|Accumulated deficit                       |                |              
|                                          |                |              
|Total stockholders' equity                |                |              
|                                          |                |              
|                                          |                |              
|                                          |                |              

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                                               |                              |                            
|Contract revenue                                        |                              |                            
|                                                        |                              |                            
|Total revenue                                           |                              |                            
|Costs and expenses:                                     |                              |                            
|Research and development                                |                              |                            
|Sales and marketing                                     |                              |                            
|General and administrative                              |                              |                            
|Acquired in-process research and development            |                              |                            
|Restructuring                                           |                              |                            
|                                                        |                              |                            
|Total costs and expenses                                |                              |                            
|                                                        |                              |                            
|Operating income (loss)                                 |                              |                            
|Other income, net                                       |                              |                            
|                                                        |                              |                            
|Income before income taxes                              |                              |                            
|Provision for income taxes                              |                              |                            
|                                                        |                              |                            
|Net income                                              |                              |                            
|                                                        |                              |                            
|Net income per basic share                              |                              |                            
|                                                        |                              |                            
|Net income per diluted share                            |                              |                            
|                                                        |                              |                            
|Shares used in computing net income per basic share     |                              |                            
|                                                        |                              |                            
|Shares used in computing net income per diluted share . |                              |                            
|                                                        |                              |                            

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                                                                      |                            
|Stock-based compensation                                                          |                            
|Acquired in-process research and development                                      |                            
|Amortization of intangibles and deferred compensation                             |                            
|Other non-cash charges                                                            |                            
|Changes in operating assets and liabilities:                                      |                            
|Accounts receivable                                                               |                            
|Prepaid expenses and other current assets                                         |                            
|Other assets                                                                      |                            
|Accounts payable                                                                  |                            
|Accrued compensation                                                              |                            
|Other current accrued liabilities                                                 |                            
|Income tax payable                                                                |                            
|Deferred revenue                                                                  |                            
|Long-term liabilities                                                             |                            
|                                                                                  |                            
|Net cash provided by operating activities                                         |                            
|Investing activities:                                                             |                            
|Purchases of short-term investments                                               |                            
|Maturities of short-term investments                                              |                            
|Capital expenditures                                                              |                            
|Acquisition of First Silicon Solutions, Inc., net of cash acquired                |                            
|Investment in private company                                                     |                            
|Restricted cash                                                                   |                            
|                                                                                  |                            
|Net cash used in investing activities                                             |                            
|Financing activities:                                                             |                            
|Net proceeds from issuance of common stock                                        |                            
|Repurchase of stock                                                               |                            
|                                                                                  |                            
|Net cash provided by financing activities                                         |                            
|Effect of exchange rate on cash                                                   |                            
|                                                                                  |                            
|Net increase in cash and cash equivalents                                         |                            
|Cash and cash equivalents, beginning of period                                    |                            
|                                                                                  |                            
|Cash and cash equivalents, end of period                                          |                            
|                                                                                  |                            
|Supplemental disclosures of cash transaction:                                     |                            
|Income taxes paid                                                                 |                            

See accompanying notes.

5

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MIPS TECHNOLOGIES, INC.

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

Note 1.     Description of
Business and Basis of Presentation

We
are a leading provider of industry-standard processor architectures and cores for digital
consumer and business applications. We design and license high performance 32- and 64-bit
architectures and cores, which offer smaller dimensions and greater energy efficiency in
embedded processors. Our technology is utilized in many high-growth embedded markets
including digital set-top boxes, digital televisions, DVD recordable devices, broadband
access devices, digital cameras, laser printers and network routers.

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 adjustments) 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, 2005 has been derived from audited financial
statements, but does not include all disclosures required by generally accepted accounting
principles. However, we believe that 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, 2005, included
in our 2005 Annual Report on Form 10-K.

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

| | Revenue
Recognition.We derive revenue from license fees for the transfer of proven and reusable
intellectual property components or from engineering services. We enter into licensing
agreements that provide licensees the right to incorporate MIPS intellectual
property components in their products with terms and conditions that have historically
varied by licensee. Revenue earned under contracts with our licensees is classified as
either contract revenue or royalties. We recognize revenue in accordance with Staff
Accounting Bulletin (SAB) No. 104, Revenue Recognition, and for multiple deliverable
arrangements we follow the guidance in EITF 00-21, Revenue Arrangements with Multiple
Deliverables, to determine whether there is more than one unit of accounting. To the
extent that the deliverables are separable into multiple units of accounting, we then
allocate the total fee on such arrangements to the individual units of accounting using
the residual method. We then recognize revenue for each unit of accounting depending on
the nature of the deliverable(s) comprising the unit of accounting (principally following
SAB 104).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | We
derive revenue from license fees for currently available technology or from engineering
services for technology under development. Each of these types of contracts includes a
nonexclusive license for the underlying intellectual property. Fees for contracts for
currently available technology include: license fees relating to our intellectual
property, including processor designs; maintenance and support, typically for one year;
and royalties payable following the sale by our licensees of products incorporating the
licensed technology. Generally, our customers pay us a single upfront fee that covers the
license and first year maintenance and support. Our deliverables in these arrangements
include (a) processor designs and related intellectual property and (b) maintenance and
support. The license for our intellectual property, which includes processor designs, has
standalone value and can be used by the licensee without maintenance and support. Further,
objective and reliable evidence of fair value exists for maintenance and support based on
specified renewal rates. Accordingly, (a) license fees and (b) maintenance and support
fees are each treated as separate units of accounting. Total upfront fees are allocated to
the license of processor designs and related intellectual property and maintenance and
support using the residual method. Designs and related intellectual property are initially
delivered followed by maintenance and support. Objective and reliable evidence of the fair
value exists for maintenance and support. However, no such evidence of fair value exists
for processor designs and related intellectual property. Consistent with the residual
method, the amount of consideration allocated to processor designs and related
intellectual property equals the total arrangement consideration less the fair value of
maintenance and support, which is based on specified renewal rates. Following the guidance
in SAB 104, fees for or allocated to licenses to currently available technology are
recorded as revenue upon the execution of the license agreement when there is persuasive
evidence of an arrangement, fees are fixed or determinable, delivery has occurred and
collectibility is reasonably assured. We assess the credit worthiness of each customer
when a transaction under the agreement occurs. If collectibility is not considered
reasonably assured, revenue is recognized when the fee is collected. Other than
maintenance and support, there is no continuing obligation under these arrangements after
delivery of the intellectual property.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6

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| | Contracts
relating to technology under development also can involve delivery of a license to
intellectual property, including processor designs. However, in these arrangements we
undertake best-efforts engineering services intended to further the development of certain
technology that has yet to be developed into a final processor design. Rather than paying
an upfront fee to license completed technology, customers in these arrangements pay us
milestone fees as we perform the engineering services. If the development work results in
completed technology in the form of a processor design and related intellectual property,
the customer is granted a license to such completed technology at no additional fee. These
contracts typically include the purchase of first year maintenance and support commencing
upon the completion of a processor design and related intellectual property for an
additional fee, which fee is equal to the renewal rate specified in the arrangement. The
licensee is also obligated to pay us royalties following the sale by our licensee of
products incorporating the licensed technology. We continue to own the intellectual
property that we develop and we retain the fees for engineering services regardless of
whether the work performed results in a completed processor design. Fees for engineering
services in contracts for technology under development, which contracts are performed on a
best efforts basis, are recognized as revenue as services are performed; however, we limit
the amount of revenue recognized to the aggregate amount received or currently due
pursuant to the milestone terms. As engineering activities are best-efforts and at-risk
and because the customer must pay an additional fee for the first year of maintenance and
support if the activities are successful, the maintenance and support is a contingent
deliverable that is not accounted for upfront under contracts relating to technology under
development.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Under
our maintenance and support arrangements, we provide unspecified upgrades, bug fixes and
technical support. No other upgrades, products or other post-contract support are
provided. These arrangements are renewable annually by the customer. Maintenance and
support revenue is recognized at its fair value ratably over the period during which the
obligation exists, typically 12 months. The fair value of any maintenance and support
obligation is established based on the specified renewal rate for such support and
maintenance and generally priced as a percentage of license fees.

We
classify all revenue that involves the sale of a licensees products as royalty
revenue. Royalty revenue is recognized in the quarter in which a report is received from a
licensee detailing the shipments of products incorporating our intellectual property
components, which is generally in the quarter following the sale of the licensees
product to its customer. Royalties are calculated either as a percentage of the revenue
received by the seller on sales of such products or on a per unit basis. We periodically
engage a third party to perform royalty audits of our licensees, and if these audits
indicate any over- or under-reported royalties, we account for the results when they are
identified.

Impairment
of Long-Lived Assets.  We evaluate our long-lived assets, including purchased intangible assets, whenever
certain events or changes in circumstances indicate that the carrying value of assets may not be
recoverable or that the estimated useful life of the asset has changed.  In order to judge the carrying
value of an asset or the remaining useful life of an asset, we make various assumptions about the value of
the asset in the future.  This may include assumptions about future prospects for the products to which the
asset relates and typically involves computations of the estimated future cash flows to be generated by
these products.  If such assets are deemed impaired, an impairment loss  equal to the amount by which the
carrying amount exceeds the fair value of the assets is recognized.  Judgments and assumptions about
future values and remaining useful lives are complex and often subjective.  They can be affected by a
variety of factors, including external factors such as industry and economic trends, and internal factors
such as changes in business strategy and our internal forecasts.  For example, research and development
expense included zero in fiscal 2005, $1.7 million in fiscal 2004 and $696,000 in fiscal 2003 related to
the accelerated amortization and depreciation of certain computer aided design tool and software assets
whose estimated useful lives were reduced because of the restructuring actions announced in the fourth
quarter of fiscal 2003.  Furthermore, in fiscal 2003, we recorded an impairment charge of $1.2 million
relating to purchased developed technology due to change in our product development strategy.

In the
three-month period ended March 31, 2006, we decided to sell a property, consisting of land and building,
in our UK subsidiary.  We expect a sale to be completed within twelve months so the asset is classified as
held-for-sale.  The carrying value of the asset is approximately $700,000.  No gain or loss has been
recognized in the statement of operations to date.  We believe the sales price, net of anticipated selling
costs, will exceed the carrying value of the asset.

7

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Stock-Based
Compensation.Prior to July 1, 2005, we accounted for our stock-based employee
compensation arrangements under the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25), as
allowed by SFAS No. 123, Accounting for Stock-based Compensation(SFAS No. 123), as
amended by SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure (SFAS No. 148). As a result, no expense was recognized for options to purchase
our common stock that were granted with an exercise price equal to fair market value at
the date of grant and no expense was recognized in connection with purchases under our
employee stock purchase plan in the three-month and nine-month periods ended March 31,
2005. In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No.
123 (revised 2004) Share-Based Payment (SFAS No. 123R), which replaces SFAS No. 123 and
supersedes APB No. 25. SFAS No. 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the financial statements
based on their fair values beginning with the first interim or annual period after June
15, 2005. Subsequent to the effective date, the pro forma disclosures previously permitted
under SFAS No. 123 are no longer an alternative to financial statement recognition.
Effective July 1, 2005, we have adopted SFAS No. 123R using the modified prospective
method. Under this method, compensation cost recognized during the three-month and
nine-month periods ended March 31, 2006, includes: (a) compensation cost for all
share-based payments granted prior to, but not yet vested as of July 1, 2005, based on the
grant date fair value estimated in accordance with the original provisions of SFAS No. 123
amortized on an accelerated basis over the options vesting period, and (b)
compensation cost for all share-based payments granted subsequent to July 1, 2005, based
on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R
amortized on a straight-line basis over the options vesting period. Pro forma
results for prior periods have not been restated. As a result of adopting SFAS No. 123R on
July 1, 2005, our net income before taxes and net income is $1.8 million and $2.5 million
lower for the three-month period ended March 31, 2006 and $8.7 million and $8.1 million
lower for the nine-month period ended March 31, 2006 than had we continued to account for
stock-based employee compensation under APB No. 25. Basic and diluted net income per share
would have been $0.11 and $0.10 for the three-month and $0.24 and 0.23 for the nine-month
period ended March 31, 2006 had we not adopted SFAS No. 123R, compared to reported basic
and diluted net income per share of $0.05 for the three-month period ended March 31, 2006
and a basic and diluted net income per share of $0.03 for the nine-month period ended
March 31, 2006. The adoption of SFAS No. 123R had no impact on cash flows from operations
or financing.

The
following table illustrates the effect on net income (loss) and net income (loss) per
share had we applied the fair value recognition provisions of SFAS No. 123 to account for
our employee stock option and employee stock purchase plans for the three-month and
nine-month periods ended March 31, 2005 because stock-based employee compensation was not
accounted for using the fair value recognition method during that period. For purposes of
pro forma disclosure, the estimated fair value of the stock awards, as prescribed by SFAS
No. 123, is amortized to expense over the vesting period of such awards (in thousands,
except per share data):

|                                                                        | Three Months Ended
March 31, | Nine Months Ended
March 31,
|----------------------------------------------------------------------- | ---------------------------- | ---------------------------
|
|Net income, as reported                                                 |                              |                            
|Add:  Stock-based  employee  compensation  expense included in          |                              |                            
|reported net income, net of related tax effects                         |                              |                            
|Deduct:  Total stock-based  employee  compensation  expense  determined |                              |                            
|under fair value method, net of tax related effects                     |                              |                            
|                                                                        |                              |                            
|Pro forma net loss                                                      |                              |                            
|                                                                        |                              |                            
|Basic net income (loss) per share:                                      |                              |                            
|As reported                                                             |                              |                            
|                                                                        |                              |                            
|Pro forma                                                               |                              |                            
|                                                                        |                              |                            
|Diluted net income (loss) per share:                                    |                              |                            
|As reported                                                             |                              |                            
|                                                                        |                              |                            
|Pro forma                                                               |                              |                            
|                                                                        |                              |                            

(1)       
          During the preparation of footnotes to the condensed consolidated financial
          statements for our quarterly filings during fiscal year 2006, we determined that
          the calculation of our net loss  pro forma reported under SFAS No. 123 for
          fiscal year 2005, as reported in that year, did not appropriately reflect the
          effect of SFAS No. 123 for certain options granted prior to July 1, 2005.
          Accordingly, the amount of net loss  pro forma reported under SFAS No. 123
          for the three-month and nine-month periods ended March 31, 2005 presented in the
          table above has been revised, resulting in an decrease in the previously
          reported amount of pro forma net income of $561,000 or $0.01 per basic and
          diluted share for the three-month period ended March 31, 2005 and an increase in
          the previously reported amount of proforma net loss of $1.9 million or $0.04 per
          basic and diluted share for the nine-month period ended March 31, 2005. This
          revision had no effect on our previously reported condensed consolidated results
          of operations or financial condition.

8

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The
historical pro forma impact of applying the fair value method prescribed by SFAS No. 123
is not representative of the impact that may be expected in the future due to changes in
option grants in future years and changes in assumptions such as volatility, interest
rates and expected life used to estimate fair value of future grants.

Note
that the above pro forma disclosure was not presented for the three-month and nine-month
periods ended March 31, 2006 because stock-based employee compensation has been accounted
for using the fair value recognition method under SFAS No. 123R for these periods.

The
following table shows total stock-based employee compensation expense (see Note 9 for
types of stock-based employee arrangements) included in the condensed consolidated
statement of operations for the three-month and nine-month periods ended March 31, 2006
(in thousands):

|                                       | Three Months Ended
March 31, 2006 | Nine Months Ended
March 31, 2006
|-------------------------------------- | --------------------------------- | --------------------------------
|Costs and expenses:                    |                                   |                                 
|Research and development               |                                   |                                 
|Sales and marketing                    |                                   |                                 
|General and administrative             |                                   |                                 
|                                       |                                   |                                 
|Total stock-based compensation expense |                                   |                                 
|                                       |                                   |                                 

There
was no capitalized stock-based employee compensation cost as of March 31, 2006. There were
no material recognized tax benefits during the first nine months of fiscal 2006.

For
restricted common stock issued at discounted prices, we recognize compensation expense
over the vesting period for the difference between the exercise or purchase price and the
fair market value on the measurement date. Total compensation expense recognized in our
financial statements for restricted stock awards was $26,000 and $164,000 for the
three-month and nine-month periods ended March 31, 2006 and $207,000 and $601,000 for the
three-month and nine-month periods ended March 31, 2005.

Note 2.   Computation of
Earnings Per Share

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

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

|                                                                                       | Three Months Ended
March 31, | Nine Months Ended
March 31,
|-------------------------------------------------------------------------------------- | ---------------------------- | ---------------------------
|
|Numerator:                                                                             |                              |                            
|Net income                                                                             |                              |                            
|                                                                                       |                              |                            
|Denominator:                                                                           |                              |                            
|Weighted-average shares of common stock outstanding                                    |                              |                            
|Less:  Weighted-average shares subject to repurchase                                   |                              |                            
|                                                                                       |                              |                            
|Shares used in computing net income per basic share                                    |                              |                            
|                                                                                       |                              |                            
|Effect of dilutive  securities-employee stock options and shares subject to repurchase |                              |                            
|Shares used in computing net income per diluted share                                  |                              |                            
|                                                                                       |                              |                            
|Net income per basic share                                                             |                              |                            
|                                                                                       |                              |                            
|Net income per diluted share                                                           |                              |                            
|                                                                                       |                              |                            
|Potentially  dilutive securities excluded from net income per diluted share            |                              |                            
|because they are anti-dilutive                                                         |                              |                            

9

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Note 3.   Comprehensive
Income (Loss)

Total
comprehensive income (loss) includes net income (loss) and other comprehensive income,
which for us primarily comprises unrealized gains and losses from foreign currency
adjustments. Total comprehensive income for the third quarter and the first nine months of
fiscal 2006 was $2.3 million and $1.3 million compared to total comprehensive income of
$4.0 million and $10.9 million for the comparable periods in the prior year.

Note 4.   Investment and
Acquisition

On
September 2, 2005, we acquired First Silicon Solutions, Inc. (FS2), a design services and
development tools company based in Lake Oswego, Oregon. FS2s products and services
will provide value to our customer base by improving de-bugging capability and
accelerating time to market of their products. We acquired all of the outstanding FS2
stock for an initial purchase consideration of $4.5 million, including approximately
$140,000 of acquisition-related costs. The purchase consideration was paid in cash. We did
not assume any of the options of FS2. An escrow account holds 15% of the initial cash
consideration to cover claims we may have under the merger agreement for a minimum of 18
months. We may become obligated to pay an additional amount of up to $4.0 million in
contingent payments over a three-year period following the acquisition date. The
contingent payments are based upon annual revenue and project completion milestones, and
any such payments will be additional purchase consideration and will be recorded as
goodwill.

The
preliminary purchase price was allocated as follows:

|                                             | 
|-------------------------------------------- | 
|Intangible assets acquired                   | 
|Acquired in-process research and development | 
|Net tangible assets                          | 
|Goodwill                                     | 
|                                             | 
|Total assets acquired                        | 
|                                             | 

The value
of the intangible assets was determined by estimating the present value of cash flows from
those assets based on the assumptions of our management, industry assumptions and market
data. The estimated useful life of the developed technology of five years was determined
based on our estimates of the product life cycles in the current and expected market
place. The estimated useful life of the customer relationships of six years was determined
based on our experience in the industry and with this customer pool. The useful life of
the tradename of three years was determined based on industry experience. These assets are
being amortized on a straight line basis over their estimated useful lives.

A
charge of $570,000 for acquired in-process research and development expense was recorded
upon completion of the acquisition of the technology because technological feasibility of
certain of the acquired technology had not been established and no future alternative use
for the in-process technology existed. The fair value of the in-process technology was
determined by estimating the present value of the net cash flows we believed would result
from the acquired technology.

The
operating results of FS2 beginning on the acquisition date of September 2, 2005 are
included in these financial statements.

Note 5.   Purchased
Intangible Assets

All
of our purchased intangible assets, except goodwill, are subject to amortization.
Purchased intangible assets subject to amortization consisted of the following as of March
31, 2006 and June 30, 2005 (in thousands):

|                              | March 31, 2006 | June 30, 2005
|----------------------------- | -------------- | -------------
|
|Developed and core technology |                |              
|Customer relationships        |                |              
|Tradename                     |                |              
|                              |                |              
|Purchased intangible assets   |                |              
|                              |                |              

10

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The
increase of $1.8 million in developed and core technology, $1.3 million in customer
relationships, and $110,000 in tradename assets related to the acquisition of FS2 in
September 2005 as discussed in Note 4.

The
estimated future amortization expense of purchased intangible assets as of March 31, 2006
is approximately $291,000, $1,164,000, $1,164,000, $919,000 and $690,000 for the remaining
nine months of fiscal 2006 and for fiscal years 2007, 2008, 2009 and 2010 respectively,
and approximately $493,000 for years following fiscal 2010. Amortization expense for
purchased intangible assets was $291,000 in the third quarter of fiscal 2006 and $771,000
for the first nine months of fiscal 2006 compared to $137,000 and $416,000 for the
comparable periods of fiscal 2005.

Goodwill,
as of March 31, 2006 and June 30, 2005 was (in thousands):

|         | March 31, 2006 | June 30, 2005
|-------- | -------------- | -------------
|Goodwill |                |              

The
increase in the carrying amount of goodwill was due to the purchase of FS2 in September
2005 as discussed in Note 4 and includes the initial purchase consideration of $263,000 as
well as additional contingent consideration earned of $100,000 in the second quarter of
fiscal 2006.

Note 6.   Restructuring
Charge

The
restructuring charge in the first nine months of fiscal 2005 of $277,000 relates to
exiting a facility lease.

Note 7.   Interest Income

Interest
income reported under Other income, net was $980,000 and $2.5 million for the three-month
and nine-month periods ended March 31, 2006 compared to $575,000 and $1.3 million in the
comparable periods of fiscal 2005.

Note 8.   Contingencies

On
April 30, 2003, our Swiss subsidiary, MIPS Technologies International AG, or MIPS AG,
through which we conducted our operations in Denmark, terminated the employment of 55
employees in connection with the closure of our Denmark design center. Of these, 45
employees filed claims against MIPS AG in the County Court of Ballerup, Denmark
(subsequently transferred to the Maritime and Commercial Court of Copenhagen, Denmark).
Subsequently, 13 of these employees agreed to withdraw their claims. On the termination
date, the remaining 32 employees of MIPS AG held options to purchase an aggregate of
724,830 shares of our common stock, of which options to purchase 413,552 shares were
vested and options to purchase 311,278 shares were unvested. The exercise price of these
options ranged from $2.94 to $25.50 per share. Under our stock option plans, unvested
options expire upon termination of employment and vested options expire three months after
the termination of employment.

In
September 2005, we reached a settlement with each of the 32 former Danish employees and
the union that represented them. Pursuant to the settlement, each of the 32 former
employees will retain a substantial portion of his or her options and relinquish claims to
the balance of the options and any other claims regarding the options. In the first
quarter of fiscal 2006, approximately $3.3 million was expensed which represents the
estimated fair value of options reinstated pursuant to the settlement. As a result of the
settlement, the Danish lawsuit was withdrawn in October 2005 and MIPS Technologies, Inc.
withdrew the lawsuit filed on April 11, 2005 in the U.S. federal court (Northern District
of California) against the terminated employees who had pending Danish claims against MIPS
AG. As a result, MIPS Technologies, Inc. and MIPS AG no longer have any litigation pending
with respect to this matter.

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.

11

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Note 9.   Stock-Based
Compensation

1998
Long-Term Incentive Plan. The 1998 Long-Term Incentive Plan (the 1998 Plan)
was adopted by our board of directors and approved by our stockholder in May 1998 and was
amended by our board of directors in August 1998 and May 1999 with the approval of our
stockholders in October 1999 and was amended by our board of directors in January 2003.
The Compensation and Nominating Committee of our board of directors administers the 1998
Plan. The 1998 Plan authorizes the issuance of various forms of stock-based awards
including incentive and non-statutory stock options, stock appreciation rights, stock
awards and performance unit awards to officers and other key employees, consultants and
members of the board of directors. Stock options are granted at an exercise price of not
less than the fair value on the date of grant; the board of directors determines the
prices of other stock awards. In July 2005, the board of directors amended the award
documents for the stock options granted under the 1998 Plan. Options awarded prior to July
2005 expire ten years from the date of grant unless expiration occurs earlier in
connection with termination of employment. Initial stock options grants awarded prior to
July 2005 generally vest over a 50-month period, with 24% of the total shares vesting on
the first anniversary of the date of grant and 2% of the total shares vesting each month
thereafter over a 38-month period. Annual stock option grants awarded prior to fiscal 2002
vest over a 48-month period, with approximately 8.33% vesting each month over a 12-month
period beginning on the third anniversary of the date of grant. Annual grants awarded
during and after fiscal year 2002, but prior to July 2005, vest over a 50-month period
from the date of grant with 2% of the total shares vesting each month. In July 2005, the
term and vesting schedule for both the initial and annual stock option grants were
adjusted, effective immediately. Beginning in July 2005, options expire seven years from
the date of grant unless expiration occurs earlier in connection with termination of
employment. Under the new vesting schedule, initial stock option grants vest over a
36-month period with one-third of the total shares vesting on the first anniversary of the
date of grant and approximately 2.78% of the total shares vesting each month thereafter
over the remaining 24-month period. Annual stock option grants vest over a 36-month period
from the date of grant with approximately 2.78% of the total shares vesting each month.
Vested options granted under the 1998 Plan generally may be exercised for three months
after termination of the optionees service to us, except for options granted to
executives or in the case of death or disability, in which case the vested options
generally may be exercised up to 12 months following the date of death or termination of
service. The number of shares subject to any award, the exercise price and the number of
shares issuable under this plan are subject to adjustments in the event of a change
relating to our capital structure. The number of shares that may be issued under our 1998
Plan is 8 million shares plus an automatic annual increase whereby the number of shares
available for issuance increases on July 1 of each year in an amount equal to the lesser
of: (a) 4% of the total number of shares of our common stock outstanding as of the
immediately preceding June 30; (b) 2,000,000 shares; or (c) an amount determined by our
board of directors. On July 1, 2005, the number of shares available for issuance increased
by approximately 1.7 million shares and on July 1, 2004, the number of shares available
for issuance increased by approximately 1.6 million shares, for a total of approximately
17.6 million shares of common stock reserved under the 1998 Plan. At March 31, 2006,
2,517,560 shares were available for future awards under the 1998 Plan.

Directors
Stock Option Plan. The Directors Stock Option Plan (the Director Plan)
was adopted by our board of directors and our stockholder in July 1998, and was amended by
our board of directors in May 1999 and in January 2002. The Compensation and Nominating
Committee of our board of directors administers the Director Plan. Upon a non-employee
directors election or appointment to the Board, he or she will automatically receive
a non-statutory stock option to purchase 40,000 shares of common stock. Each non-employee
director who has been a director for at least six months will automatically receive a
non-statutory stock option to purchase 10,000 shares of common stock each year on the date
of the annual stockholder meeting. All stock options are granted at an exercise price
equal to the fair market value of our common stock on the date of grant. Options expire
ten years from the date of grant. Prior to January 2002, initial stock option grants
vested over a 50-month period with 24% of the total shares vesting on the first
anniversary of the grant date and 2% of the total shares vesting each month thereafter
over a 38-month period; annual stock option grants vested over a 50-month period, with 2%
of the total shares each month. The vesting schedule for both the initial and annual stock
option grants were adjusted, effective immediately in January 2002, such that, initial
stock option grants vest over a 36-month period with approximately 2.78% of the total
shares vesting each month; annual grants are fully vested on the date of grant. The change
to the vesting schedule of the initial grant was designed to align the vesting period with
the three-year period for which a director holds office. The change to the vesting
schedule of the annual grant was designed to increase the independence of the board of
directors by not making compensation contingent upon continued service. In February 2002,
the board of directors adjusted the vesting schedule of all outstanding options under the
Director Plan to be consistent with these new vesting schedules. Vested options granted
under the Director Plan generally may be exercised for three months after termination of
the directors service to us, except in the case of death or disability, in which
case the options generally may be exercised up to six months following the date of death
or termination of service. The number of shares subject to any award, the exercise price
and the number of shares issuable under this plan are subject to adjustments in the event
of a change relating to our capital structure. The number of shares that may be issued
under our Director Plan is 600,000 shares plus an automatic annual increase whereby the
number of shares available for issuance increases on July 1 of each year in an amount
equal to the lesser of: (a) 100,000 shares; (b) the number of shares subject to option
grants in the prior year ending June 30; or (c) an amount determined by our board of
directors. On July 1, 2005, the number of shares available for issuance increased by
90,000 shares and on July 1, 2004, the number of shares available for issuance increased
by 50,000 shares, for a total of 960,000 shares of common stock reserved under the
Director Plan. As of March 31, 2006, 410,000 shares were available for future awards under
the Director Plan.

12

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Employee
Stock Purchase Plan.The Employee Stock Purchase Plan (the Purchase Plan) was
adopted by our board of directors and approved by our sole stockholder in May 1998, and
was amended by our board of directors in August 1998 and May 1999, with the approval of
our stockholders in October 1999, as amended in January 2000 and September 2005 by our
board of directors. The Compensation and Nominating Committee of our board of directors
administers the Purchase Plan. The purpose of the Purchase Plan is to provide our
employees who participate in the Purchase Plan with an opportunity to purchase our common
stock through payroll deductions. Under this Purchase Plan eligible employees may purchase
stock at 85% of the lower of the fair market value of the common stock (a) on the date of
commencement of the offering period or (b) the applicable exercise date within such
offering period. A 24-month offering period commences every six months, generally at May 1
and November 1 of each year. The offering period is divided into four six-month exercise
periods. In the event that the fair market value of our common stock is lower on the first
day of a subsequent six-month exercise period within the 24-month offering period than it
was on the first day of that 24-month offering period, all participants in the Purchase
Plan are automatically enrolled in a new 24-month offering period. Effective for offering
periods that commence after September 2005, the 24-month offering period was reduced to
one six-month exercise period. Purchases are limited to ten percent of each
employees eligible compensation. The number of shares subject to any award, the
exercise price and the number of shares issuable under this plan are subject to
adjustments in the event of a change relating to our capital structure. The number of
shares that may be reserved for sale under our Purchase Plan is 600,000 shares plus an
annual increase whereby the number of shares available for issuance automatically
increases on July 1 of each year in an amount equal to the lesser of: (a) 0.5% of the
total number of shares of our common stock outstanding on a fully diluted basis as of the
immediately preceding June 30; (b) 600,000 shares; or (c) an amount determined by our
board of directors. On July 1, 2005, the number of shares available for issuance increased
by approximately 224,000 shares and on July 1, 2004, the number of shares available for
issuance increase by approximately 218,000 shares, for a total of approximately 2.0
million shares of common stock reserved under the Purchase Plan. At March 31, 2006,
1,955,875 shares had been issued under the Purchase Plan and 78,865 shares were reserved
for future issuance.

2002
Non-Qualified Stock Option Plan. Our board of directors adopted the 2002 Non-Qualified
Stock Option Plan (the 2002 Plan) in April 2002. The Compensation and
Nominating Committee of our board of directors administers the 2002 Plan. The 2002 Plan
authorizes the issuance of 1,000,000 shares of non-qualified stock options to employees
and consultants. Stock options are granted at an exercise price of not less than the fair
value on the date of grant. In July 2005, the board of directors amended the award
documents for the stock options granted under the 2002 Plan. Options awarded prior to July
2005 expire ten years from the date of grant unless expiration occurs earlier in
connection with termination of employment. Stock option grants awarded prior to July 2005
generally vest over a 50-month period with 2% of the total shares vesting each month. In
July 2005, the term and vesting schedule for both the initial and annual stock option
grants were adjusted, effective immediately. Beginning in July 2005, options expire seven
years from the date of grant unless expiration occurs earlier in connection with
termination of employment. Under the new vesting schedule, initial stock option grants
vest over a 36-month period with one-third of the total shares vesting on the first
anniversary of the date of grant and approximately 2.78% of the total shares vesting each
month thereafter over the remaining 24-month period. Annual stock option grants vest over
a 36-month period from the date of grant with approximately 2.78% of the total shares
vesting each month. Vested options granted under the 2002 Plan generally may be exercised
for three months after termination of the optionees service to us, except for
options granted to executives or in the case of death or disability, in which case the
vested options generally may be exercised up to 12 months following the date of death or
termination of service. The number of shares subject to any award, the exercise price and
the number of shares issuable under this plan are subject to adjustments in the event of a
change relating to our capital structure. To date, the 2002 Plan has been primarily used
for annual grants to employees. At March 31, 2006, 100,974 shares were available for
future awards under the 2002 Plan.

Supplemental
Stock Purchase Plan. The Supplemental Stock Purchase Plan (the Supplemental Purchase
Plan), formerly known as the Non-U.S. Purchase Plan, was adopted by our board of
directors in July 1998 and amended by the board in May 1999 and October 2005. The
Compensation and Nominating Committee of our board of directors administers the
Supplemental Plan. The purpose of the Supplemental Purchase Plan is to provide our
employees and consultants who do not provide services in the United States and who
participate in the Supplemental Purchase Plan with an opportunity to purchase our common
stock through periodic contributions at the same discount and subject to the same general
rules as the Purchase Plan. The Supplemental Purchase Plan, like the Purchase Plan, has
24-month offering periods commencing every six months, generally at May 1 and October 1
and each offering period is divided into four six-month exercise periods. In the event
that the fair market value of our common stock is lower on the first day of a subsequent
six-month exercise period within the 24-month offering period than it was on the first day
of that 24-month offering period, all participants in the Purchase Plan are automatically
enrolled in a new 24-month offering period. Effective for offering periods that commence
after October 2005, the 24-month offering period was reduced to one six-month exercise
period. Purchases are limited to ten percent of each employees and consultants
eligible compensation. The number of shares subject to any award, the exercise price and
the number of shares issuable under this plan are subject to adjustments in the event of a
change relating to our capital structure. The maximum number of shares reserved under the
Supplemental Plan is 60,000. At March 31, 2006, 31,602 shares had been issued under the
Supplemental Purchase Plan and 28,398 shares were reserved for future issuance.

13

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As
of March 31, 2006, total shares reserved for future awards under all plans were 3,135,797.

Activity
under our Stock Option Plans is summarized as follows:

|                              | Number of
Shares | Weighted
Average
Exercise Price | Weighted
Average
Remaining
Contractual
Life | Aggregate
Intrinsic
Value
(in thousands)
|----------------------------- | ---------------- | ------------------------------- | ------------------------------------------- | ----------------------------------------
|Outstanding at July 1, 2005   |                  |                                 |                                             | 11,497,628                              
|Options granted               |                  |                                 |                                             | 2,967,365                               
|Options exercised             |                  |                                 |                                             | (775,198                                
|Options forfeited             |                  |                                 |                                             | (630,756                                
|Options expired               |                  |                                 |                                             | (180,363                                
|                              |                  |                                 |                                             |                                         
|Outstanding at March 31, 2006 |                  |                                 |                                             | 12,878,676                              
|                              |                  |                                 |                                             |                                         
|Exercisable at March 31, 2006 |                  |                                 |                                             | 8,170,347                               
|                              |                  |                                 |                                             |                                         

Nonvested
share activity under our Stock Options Plans for the nine-month period ended March 31,
2006 is summarized as follows:

|                                    | Non-vested
Number of
Shares | Weighted Average
Grant-Date
Fair Value
|----------------------------------- | --------------------------- | --------------------------------------
|Nonvested balance at July 1, 2005   |                             |                                       
|Vested                              |                             |                                       
|Cancelled                           |                             |                                       
|                                    |                             |                                       
|Nonvested balance at March 31, 2006 |                             |                                       
|                                    |                             |                                       

As
of March 31, 2006, $336,000 of total unrecognized compensation costs related to nonvested
awards is expected to be recognized over a weighted average period of 2.4 years. The total
fair value of shares vested during the nine-month period ended March 31, 2006 was
$276,000.

Grant
Date Fair Values. The weighted average estimated fair value of our employee stock options
granted at grant date market prices was $5.00 and $4.63 per share during the third quarter
and first nine months of fiscal 2006 and $7.40 and $4.31 per share during the third
quarter and first nine months of fiscal 2005. The weighted average estimated fair value of
shares granted under our employee stock purchase plans was $1.84 per share during the
second quarter of fiscal 2006 and $3.12 per share during the second quarter of fiscal
2005. There were no shares granted under our employee stock purchase plans during the
first and third quarters of fiscal 2006 or 2005. Included in the condensed consolidated
statement of operations for the three-month and nine-month periods ended March 31, 2006 is
$74,000 and $294,000 in stock-based compensation expense related to the amortization of
options granted under our Employee Stock Purchase and Supplemental Stock Purchase Plans.

14

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The
weighted average fair value has been estimated at the date of grant using a Black-Scholes
option-pricing model. In fiscal 2006, we refined the method of estimating the volatility
of our common stock which we believe provides a more reasonable forecast. For stock
options, we estimated volatility by considering both the implied volatility derived from
publicly traded options to purchase our common stock and historical stock volatility. As a
result of the adjustment to our term and vesting schedule in July 2005 for stock options
awarded under our 1998 and 2002 Plans, we do not believe that we are able to rely on our
historical exercise and post-vested termination activity to provide relevant data for
estimating our expected term for use in determining the fair value of these options.
Therefore, as allowed by Staff Accounting Bulletin (SAB) No. 107, Share-Based Payment, we
have opted to use the simplified method for estimating our expected term equal to the
midpoint between the vesting period and the contractual term. Prior to the nine months
ended March 31, 2006, we estimated volatility and the expected life based solely on
historical activity. The change in our assumptions did not have a significant impact on
the fair value of our stock options granted during the first nine months of fiscal 2006.
The following are significant weighted average assumptions used for estimating the fair
value of the activity under our stock option plans:

|                         | Employee Stock Options
Nine Months Ended March 31, | Employee Stock Purchase Plan
Nine Months Ended March 31,
|------------------------ | -------------------------------------------------- | --------------------------------------------------------
|
|Expected life (in years) |                                                    |                                                         
|Risk-free interest rate  |                                                    |                                                         
|Expected volatility      |                                                    |                                                         
|Dividend yield           |                                                    |                                                         

Note 10.   Income Taxes

We
recorded an income tax provision of $1.3 million for the three-month period ended March
31, 2006 and $788,000 for the comparable period in fiscal 2005. For the nine-month period
ended March 31, 2006, we recorded an income tax provision of $1.1 million and $3.0 million
for the comparable period in fiscal 2005.

Our
estimated annual effective income tax rate of 36% for fiscal 2006 primarily consists of
the US federal statutory tax rate increased by the tax impact of the adoption of FAS123R
at the beginning of the fiscal year partially offset by the availability of some foreign
tax credit, research and development credit and general business tax credit carryovers
from prior years that have not been previously benefited. The tax rate of 37% for the
three-month period ended March 31, 2006 and 46% for the nine-month period ended March 31,
2006 differs from the estimated annual effective tax rate of 36% due to discrete items
recorded during the periods including, primarily, the in-process research and development expense
related to the FS2 acquisition in the first quarter. The income tax rate of 16% recorded
for the three-month period ended March 31, 2005, reflects a change from the prior quarter
end in our estimated annual effective tax rate from 25% to 22% due to certain adjustments
recorded as part of our international tax restructuring activities in our Swiss subsidiary
during the period. The estimated annual effective tax rate of 22% in the first nine months
of fiscal 2005 is lower than the applicable statutory rate primarily due to the
availability of foreign tax credit, general business tax credit and net operating loss
carryovers from prior years.

The
amount of income taxes we pay is subject to ongoing audits by federal, state and foreign
tax authorities, which often result in proposed assessments. For example, the Internal
Revenue Service (IRS) has completed its examination of our fiscal year 2002 federal income
tax return and has issued a notice of proposed adjustment. We do not agree with the
adjustments and have appealed the assessment. Our estimate for the potential outcome for
any uncertain tax issue is highly judgmental. We believe we have adequately provided for
any reasonably foreseeable outcome related to these and other matters. However, our future
results may include favorable or unfavorable adjustments to our estimated tax liabilities
in the period the assessments are made or resolved or when statutes of limitation on
potential assessments expire. As a result, our effective tax rate may fluctuate
significantly on a quarterly basis.

15

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

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. Forward-looking statements within this Quarterly Report on Form 10-Q
include our expectations of increased royalties, the impact on future operating results of
the FS2 acquisition, as well as expectations for future levels of operating and other
expenses and 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 Risk Factors, and other risks affecting our business. We
undertake no obligation to update any forward-looking statements included in this
discussion.

Overview

We
are a leading provider of industry-standard processor architectures and cores for digital
consumer and business applications. We design and license high performance 32- and 64-bit
architectures and cores, which offer smaller dimensions and greater energy efficiency in
embedded processors. Our technology is utilized in many high-growth embedded markets
including digital set-top boxes, digital televisions, DVD recordable devices, broadband
access devices, digital cameras, laser printers and network routers.

Revenue
in the third quarter of fiscal 2006 increased 4% over the comparable period in fiscal 2005
and 7% sequentially. Contract revenue was flat with the comparable period in fiscal 2005
and increased 10% sequentially. Of the four new license agreement signed during the
quarter, three were for the MIPS32 24K core family and one was for the MIPS32 4K core
family. Royalty revenues increased 8% over the comparable period in fiscal 2005 and 5%
sequentially due to increases in royalties from post IPO agreements. Unit shipments
reported to us increased by approximately 55% over the comparable period in fiscal 2005,
but the average per unit royalty declined by 25%. We expect royalty revenue to decrease
slightly in the upcoming quarter due to seasonal trends that impact the sales of certain
products incorporating our technology.

Operating
expense in the third quarter of fiscal 2006 increased $2.5 million over the comparable
period in fiscal 2005 primarily due to $1.8 million in non-cash stock-based compensation
expense as a result of the adoption of SFAS No. 123R beginning on July 1, 2005.
Additionally, there was increased spending on marketing programs and employee costs due to
additional staffing which was partially offset by a decrease in bonus and profit sharing
expense.

Net
income before income tax for the third quarter of fiscal 2006 was $3.6 million, which
includes the above mentioned stock-based compensation expense, compared to $4.8 million
for the comparable period in fiscal 2005, which did not include any stock-based
compensation expense.

Our
management excludes the effect of stock-based compensation expense as an operating metric
when comparing operating results across reporting periods, and in our internal planning
and budgeting process, as our management believes that operating results that exclude this
expense provides a significant additional analytical view of our core operating results.

Results of Operations

Revenue.          Total
revenue consists of royalties and contract revenue. Royalties consisted of
          royalties from sales by licensees of products incorporating our technology.
          Contract revenue consisted of technology license fees generated from new and
          existing license agreements for developed technology and engineering service
          fees generated from engineering services contracts for technology under
          development. Technology license fees vary based on, among other things, whether
          a particular technology is licensed for a single application or for multiple or
          unlimited applications, and whether the license granted covers a particular
          design or a broader architecture.

Our
revenue in the three-month and nine-month periods ended March 31, 2006 and March 31, 2005
was as follows (in thousands):

|                            | Three Months Ended March 31, | Nine Months Ended March 31,
|--------------------------- | ---------------------------- | ---------------------------
|
|Revenue                     |                              |                            
|Royalties                   |                              |                            
|Percentage of Total Revenue |                              |                            
|Contract Revenue            |                              |                            
|Percentage of Total Revenue |                              |                            
|Total Revenue               |                              |                            
|                            |                              |                            

16

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The
increase in revenue for the third quarter of fiscal 2006 over the comparable period in
fiscal 2005 was due to an increase in royalties from post-IPO agreements of $649,000
offset in part by a decrease in royalties from pre-IPO agreements of $244,000. The
increase was also partially attributed to an increase by $320,000 in royalty revenue
recorded in the third quarter of fiscal 2006 as a result of a royalty audit of one of our
licensees in which we determined that there had been an under reporting of royalties to
us. Contact revenue for the third quarter of fiscal 2006 was flat with the comparable
period in fiscal 2005.

The
decrease in revenue for the first nine months of fiscal 2006 over the comparable period in
fiscal 2005 was due to a 19% decline in contract revenue offset in part by a 15% increase
in royalties. The decrease in contract revenue was primarily due to a decrease in fees
generated from new and existing license agreements for developed technology of $5.7
million driven by a decline in revenue from MIPS32 24K core family revenue of $3.8 million
and MIPS 4K core family revenue of $4.0 million offset in part by an increase in the
recently launched MIPS32 34K core family of $2.9 million. The decrease in fees for
developed technology was primarily due to the completion of 16 new license agreements
including only seven agreements for the MIPS 24K core family during the first nine months
of fiscal 2006 compared to 33 agreements including twelve agreements for the MIPS 24K core
family completed in the comparable period of fiscal 2005. Agreements for the 24K core
family generally provide for higher average license fees than agreements for the MIPS 4K
core family. This decrease was offset in part by an increase of $1.2M in maintenance,
support and FS2 revenue. Contract revenue generated from engineering services contracts
for technology under development during the first nine months of fiscal 2006 was
consistent with the comparable period in fiscal 2005. The increase in royalties was due to
an increase in royalties from both the pre- and post-IPO agreements.

Cost
and Expenses. Our cost and expenses for the three-month and nine-month periods ended March
31, 2006 and March 31, 2005 was as follows (in thousands):

|                           | Three Months Ended March 31, | Nine Months Ended March 31,
|-------------------------- | ---------------------------- | ---------------------------
|
|Cost and Expenses          |                              |                            
|Research and Development   |                              |                            
|Sales and Marketing        |                              |                            
|General and Administrative |                              |                            

Research
and Development. Research and development expenses include salaries and contractor and
consultant fees, as well as costs related to workstations, software, computer aided design
tools, and stock-based compensation expense. The costs we incur with respect to internally
developed technology and engineering services are included in research and development
expenses as they are incurred and are not directly related to any particular licensee,
license agreement or license fee.

The
increase in research and development expenses for the third quarter of fiscal 2006 over
the comparable period in fiscal 2005 was primarily the result of the recognition of
$686,000 in stock-based compensation expense due to the adoption of SFAS No. 123R
beginning July 1, 2005. In addition, salary expense increased by $421,000 due to an
increase in headcount of 14 employees, including six employees from the September 2, 2005
acquisition of FS2, and amortization expense increased by $308,000 due to an increase in
our computer-aided design tool asset base to support our increased headcount and our
development center in China, which was opened in the third fiscal quarter of 2005, and the
intangible assets acquired in the FS2 purchase. These increases were offset in part by a
decrease in bonus and profit sharing expense of $482,000 as we did not reach plan targets
in the third quarter of fiscal 2006.

The
increase in research and development expenses for the first nine months of fiscal 2006
over the comparable period in fiscal 2005 was primarily the result of the recognition of
$5.5 million in stock-based compensation expense due to the adoption of SFAS No. 123R
beginning July 1, 2005. The stock-based compensation charge included a non-recurring
charge of $3.3 million related to the options reinstated pursuant to the Denmark lawsuit
settlement reached in September 2005. In addition, salary expense increased by $1.5
million due to an increase in headcount of 14 employees, including the FS2 employees, and
amortization expense increased by $695,000 due to an increase in our computer-aided design
tool asset base to support our increased headcount and our development center in China,
and the intangible assets acquired in the FS2 purchase. These increases were offset in
part by a decrease in bonus and profit sharing expense of $1.2 million as we did not reach
plan targets in the first nine months of fiscal 2006.

17

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Sales
and Marketing. Sales and marketing expenses include salaries, commissions and costs
associated with third party independent software development tools, direct marketing,
other marketing efforts and stock-based compensation expense. Our sales and marketing
efforts are directed at establishing and supporting our licensing relationships.

The
increase in sales and marketing expenses for the third quarter of fiscal 2006 over the
comparable period in fiscal 2005 was primarily the result of the recognition of $448,000
in stock-based compensation expense due to the adoption of SFAS No. 123R beginning July 1,
2005 as well as an increase of $556,000 primarily due to the completion of certain project
milestones during the period related to various on-going third party marketing projects.
In addition, there was an increase of $113,000 in amortization expense related to FS2
intangible assets and other assets. These increases were offset in part by a decrease
in bonus and profit sharing expense of $329,000 as we did not reach plan targets in the
third quarter of fiscal 2006.

The
increase in sales and marketing expenses for the first nine months of fiscal 2006 over the
comparable period in the prior year was primarily the result of the recognition of $1.5
million in stock-based compensation expense due to the adoption of SFAS No. 123R beginning
July 1, 2005 as well as an increase in salary expense of $728,000 due to an increase in
headcount of 7 employees. There was also an increase of $796,000 primarily due to the
completion of certain project milestones during the period related to various on-going
third party marketing projects and an increase of $472,000 for the purchase of evaluation
boards and amortization expense related to FS2 intangible assets and other assets.
These increases were partially offset by a decrease in commission and bonus expense of
$707,000 as a result of decreased commission due to lower contract revenue and decreased
bonus and profit sharing expense as we did not reach plan targets in the first nine months
of fiscal 2006.

General
and Administrative.General and administrative expenses comprise salaries, legal fees
including those associated with the establishment and protection of our patent, trademark
and other intellectual property rights which are integral to our business and expenses
related to compliance with the reporting and other requirements of a publicly traded
company including directors and officers liability insurance, in addition to stock-based
compensation expense.

The
increase in general and administrative expenses for the third quarter of fiscal 2006 over
the comparable period in fiscal 2005 was primarily the result of the recognition of
$619,000 in stock-based compensation expense due to the adoption of SFAS No. 123R. This
increase was partially offset by a decrease in outside services expense of $295,000
primarily due to lower audit fees as certain compliance test work which was completed in
the third quarter of fiscal 2005 will be completed in the fourth quarter in fiscal 2006.

The
increase in general and administrative expenses in the first nine months of fiscal 2006
was primarily the result of the recognition of $1.8 million in stock-based compensation
expense due to the adoption of SFAS No. 123R, as well as an increase in legal, accounting
and audit fees of $404,000 as a result of our compliance with Sarbanes-Oxley, the
implementation of SFAS No. 123R, the acquisition of FS2 and increased international
activity. These increases were partially offset by a decrease in bonus and profit sharing
expense of $538,000, as we did not reach plan targets in the first nine months of fiscal
2006.

Acquired
In-process Research and Development. We recorded a charge in the first quarter of fiscal
2006 of $570,000 for acquired in-process research and development expense upon completion
of the FS2 acquisition because technological feasibility of certain of the acquired
technology had not been established and no future alternative use for the in-process
technology existed. The fair value of the in-process technology was determined by
estimating the present value of the net cash flows we believed would result from the
acquired technology.

Restructuring
Charge.In September 2004, we entered into an agreement with the landlord of our Denmark
design center facilities that we closed in fiscal 2003 and obtained a new tenant which
allowed us to terminate our long-term lease obligation in return for a lump sum payment of
approximately $1.9 million. This resulted in an additional charge in the first quarter of
fiscal 2005 of $277,000.

Other
Income, Net. Other income, net, for the third quarter of fiscal 2006 was $1.1 million and
for the first nine months of fiscal 2006 was $2.9 million compared to $580,000 and $1.2
million for the comparable periods in fiscal 2005. The increase in other income was
primarily due to an increase in interest and investment income.

Income
Taxes. We recorded an income tax provision of $1.3 million for the three-month period
ended March 31, 2006 and $788,000 for the comparable period in fiscal 2005. For the
nine-month period ended March 31, 2006, we recorded an income tax provision of $1.1
million and $3.0 million for the comparable period in fiscal 2005.

18

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Our
estimated annual effective income tax rate of 36% for fiscal 2006 primarily consists of
the US federal statutory tax rate increased by the tax impact of the adoption of FAS123R
at the beginning of the fiscal year partially offset by the availability of some foreign
tax credit, research and development credit and general business tax credit carryovers
from prior years that have not been previously benefited. The tax rate of 37% for the
three-month period ended March 31, 2006 and 46% for the nine-month period ended March 31,
2006 differs from the estimated annual effective tax rate of 36% due to discrete items
recorded during the periods including, primarily, the in-process research and development expense
related to the FS2 acquisition in the first quarter. The income tax rate of 16% recorded
for the three-month period ended March 31, 2005, reflects a change from the prior quarter
end in our estimated annual effective tax rate from 25% to 22% due to certain adjustments
recorded as part of our international tax restructuring activities in our Swiss subsidiary
during the period. The estimated annual effective tax rate of 22% in the first nine months
of fiscal 2005 is lower than the applicable statutory rate primarily due to the
availability of foreign tax credit, general business tax credit and net operating loss
carryovers from prior years.

The
amount of income taxes we pay is subject to ongoing audits by federal, state and foreign
tax authorities, which often result in proposed assessments. For example, the Internal
Revenue Service (IRS) has completed its examination of our fiscal year 2002 federal income
tax return and has issued a notice of proposed adjustment. We do not agree with the
adjustments and have appealed the assessment. Our estimate for the potential outcome for
any uncertain tax issue is highly judgmental. We believe we have adequately provided for
any reasonably foreseeable outcome related to these and other matters. However, our future
results may include favorable or unfavorable adjustments to our estimated tax liabilities
in the period the assessments are made or resolved or when statutes of limitation on
potential assessments expire. As a result, our effective tax rate may fluctuate
significantly on a quarterly basis.

Financial Condition

At
March 31, 2006, we had cash, cash equivalents and short-term investments of $117 million
and total working capital of $110 million. Our principal requirements for cash are to fund
working capital needs, and, to a lesser extent, capital expenditures for equipment
purchases, licensing of computer-aided design tools used in our development activities and
acquisition of technologies and patents. The following table summarizes selected items (in
thousands) from our statement of cash flows for the nine months ended March 31, 2006 and
2005. For complete statements of cash flows for those periods, see the financial
statements in Item 1.

|                                                      | Nine Months Ended March 31,
|----------------------------------------------------- | ---------------------------
|
|Net cash provided by operating activities             |                            
|Net income                                            |                            
|Depreciation                                          |                            
|Stock-based compensation                              |                            
|Acquired in-process research and development          |                            
|Amortization of intangibles and deferred compensation |                            
|Accounts receivable                                   |                            
|Prepaid expenses and other current assets             |                            
|Other assets                                          |                            
|Other current accrued liabilities                     |                            
|Income tax payable                                    |                            
|Accrued compensation                                  |                            
|                                                      |                            
|Net cash used in investing activities                 |                            
|Net maturities (purchases) of short-term investments  |                            
|Capital expenditures                                  |                            
|Acquisition of FS2, net of cash acquired              |                            
|Restricted cash                                       |                            
|Investment in private company                         |                            
|                                                      |                            
|Net cash provided by financing activities             |                            
|Net proceeds from issuance of common stock            |                            
|                                                      |                            
|Net increase in cash and cash equivalents             |                            

19

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For
the nine-month period ended March 31, 2006, our operating activities provided net cash of
$6.8 million primarily reflecting our net income and adjustments for in-process research
and development charges related to the FS2 acquisition and by non-cash charges including
stock-based compensation under SFAS No. 123R, depreciation expense and amortization of
intangibles and deferred compensation. In addition, cash was generated by an increase in
income taxes payable due to tax payment provisions for the period. The net cash provided
by these sources was partially offset by an increase in accounts receivable due to new
license agreements signed near the end of the quarter, an increase in other assets
primarily due to prepaid royalties of $700,000 and an increase in the cash surrender value
on life insurance policies of $631,000, and a decrease in accrued compensation which
included $1.0 million in executive bonus payments from our prior fiscal year,

For
the nine-month period ended March 31, 2005, our operating activities provided net cash of
$9.3 million primarily reflecting net income and non-cash charges including depreciation
and amortization of intangibles. In addition, cash was generated by a decrease in prepaid
expenses due to amortization of our business insurance policy of $767,000 and amortization
of our computer-aided design licenses of $1.2 million. Furthermore, income taxes payable
increased due to our tax provision of $3.0 million for the period, which was partially
offset by tax payments made and foreign withholding taxes on accounts receivable
collections. The net cash provided by these sources was partially offset by an increase in
accounts receivable due to new license agreements signed near the end of the quarter and a
decrease in accrued compensation and other current accrued liabilities. This decrease was
primarily from payments under our restructuring plan for our Denmark facility lease
termination of $1.9 million, along with a decrease in accrued compensation related to $1.5
million in executive bonus payments.

Net
cash used in investing activities was $5.8 million for the nine months ended March 31,
2006 which included cash used for the acquisition of FS2 of $3.7 million, $668,000 for the
establishment of an escrow account related to the acquisition, and an investment of
$500,000 in a private company, along with purchases of equipment and computer-aided design
tools used in our development activities offset slightly by net maturities of short-term
investments. This compared to net cash used in investing activities of $5.5 million for
the nine months ended March 31, 2005, which included net purchases of short-term
investments and purchases of equipment and computer-aided design tools used in our
development activities.

Net
cash provided by financing activities was $4.5 million for the nine months ended March 31,
2006 compared to net cash provided of $4.8 million for the comparable period in the prior
year. Net cash provided by financing activities during the nine-month period ended March
31, 2006 and March 31, 2005 was primarily attributable to purchases under our employee
stock plans.

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

| |  | the
cost, timing and success of product development efforts;
| | - | ------------------------------------------------------------

| |  | the
level and timing of contract revenues and royalties;
| | - | --------------------------------------------------------

| |  | the
cost of  maintaining  and  enforcing  patent  claims  and  other  intellectual property
rights and other litigation;
| | - | ------------------------------------------------------------------------------------------------------------------------

| |  | level
and timing of restructuring activities; and
| | - | -------------------------------------------------

| |  | whether
cash would be used to complete any acquisitions.
| | - | --------------------------------------------------------

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

20

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Contractual Obligations

Our
contractual obligations as of March 31, 2006 were as follows:

|                                                               | Payments due by period (in thousands)
|-------------------------------------------------------------- | -------------------------------------
|
|Operating lease obligations (1)                                |                                      
|Purchase obligations (2)                                       |                                      
|Other short-term liabilities (3)                               |                                      
|Other long-term liabilities reflected on our Balance Sheet (4) |                                      
|                                                               |                                      
|Total                                                          |                                      
|                                                               |                                      

| | (1) | We
lease office facilities under noncancelable operating leases that expire
               through 2009. In connection with a lease, we have entered into a letter of
               credit as a security deposit with a financial institution for $264,000,
which is                guaranteed by a time-based certificate of deposit.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | These
are primarily outstanding purchase orders for ongoing operations. Payments
               of these obligations are subject to the provision of services or products.
               Purchase obligations have increased by approximately $1.1 million since
June 30,                2005 primarily due to a contract for a tools development project
that began                September 2005.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Amount represents an escrow account,
which will be settled eighteen months from the acquisition date, related to the FS2 acquisition
completed in September 2005.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Long-term
liability to employees under a deferred compensation plan. The           employees elect
distributions under this plan.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------

Critical Accounting
Polices and Estimates

We
prepare our financial statements in conformity with U.S. generally accepted accounting
principles, which require us to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. We regularly evaluate our
accounting estimates and assumptions. We base our estimates and assumptions on historical
experience and on various other factors that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying
value of assets and liabilities that are not readily apparent from other sources. Actual
results inevitably will differ from the estimates, and such differences may require
material adjustments to our financial statements.

We
believe the following critical accounting policies affect the significant judgments and
estimates we use in the preparation of our consolidated financial statements.

Revenue
Recognition. Our revenue consists of royalties and contract revenue earned under contracts
with our licensees. Although the precise terms of our contracts vary, they typically
provide for technology license fees for currently available technology or engineering
service fees for technology under development, and include maintenance and support fees
and royalties.

21

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We
recognize revenue upon concluding that all of the fundamental criteria for revenue
recognition have been met. We derive revenue from license fees for currently available
technology or from engineering services for technology under development. Each of these
types of contracts includes a nonexclusive license for the underlying intellectual
property. Consistent with SAB No. 104, fees for or allocated to licenses for currently
available technology are recorded as revenue upon the execution of the license agreement
when there is persuasive evidence of an arrangement, fees are fixed or determinable,
delivery has occurred and collectibility is reasonably assured. We assess the credit
worthiness of each customer when a transaction under the agreement occurs. If
collectibility is not considered reasonably assured, revenue is recognized when the fee is
collected. In contracts relating to technology under development, we undertake best
efforts engineering services intended to further the development of certain technology
that has yet to be developed into a final processor design. Customers under these
arrangements pay us milestone fees as we perform the engineering services rather than
paying an upfront license fee. Fees for engineering services are recognized as revenue as
services are performed; however, we limit the amount of revenue recognized to the
aggregate amount received or currently due pursuant to the milestone terms. We also have
the right to license the intellectual property developed under engineering service
agreements to other licensees. Under our maintenance and support arrangements, we provide
unspecified upgrades, bug fixes and technical support. No other upgrades, products or
other post-contract support are provided. These arrangements are renewable annually by the
customer. Maintenance and support revenue is recognized at its fair value ratably over the
period during which the obligation exists, typically 12 months. The fair value of any
maintenance or support obligation is established based on the specified renewal rate for
such maintenance and support and is generally priced as a percentage of license fees.

We
generate royalties from the sale by our licensees of products incorporating our
technology. Royalty revenue is recognized in the quarter in which a report is received
from a licensee detailing the shipments of products incorporating our intellectual
property, which is in the quarter following the sale of the licensees product to its
customer. Royalties are calculated either as a percentage of the revenue received by the
seller on sales of such products or on a per unit basis. We periodically engage a third
party to perform royalty audits of our licensees and if these audits indicate any over- or
under-reported royalties, we account for the results when they are identified as was the
case in the second quarter of fiscal 2005 when we reduced our royalty revenue by $900,000
due to an over-reporting by one of our licensees.

Income
Taxes.Significant judgment is required in determining our worldwide income tax provision.
In the ordinary course, there are many transactions and calculations for which the
ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of
revenue sharing and cost reimbursement arrangements among related entities and segregation
of foreign and domestic income and expense to avoid double taxation. Although we believe
that our estimates are reasonable, no assurance can be given that the final tax outcome of
these matters will not be different from that which is reflected in our historical income
tax provisions and accruals. Such differences could have a material effect on our income
tax provision and net income in the period in which such determination is made.

We
record a valuation allowance to reduce our deferred tax assets to the amount that is more
likely than not to be realized. In order for us to realize our deferred tax assets, we
must be able to generate sufficient taxable income in those jurisdictions where the
deferred tax assets are located. We have provided a full valuation allowance against our
U.S. net deferred tax assets due to our history of net losses, difficulty in forecasting
future results and belief that we cannot rely on projections of future taxable income to
realize deferred tax assets. Significant management judgment is required in determining
our deferred tax assets and liabilities and valuation allowances for purposes of assessing
our ability to realize any future benefit from our net deferred tax assets. We intend to
maintain this valuation allowance until sufficient positive evidence exists to support the
reversal of the valuation allowance. Future income tax expense will be reduced to the
extent that we have sufficient positive evidence to support a reversal of, or decrease in,
our valuation allowance.

We
calculate our current and deferred tax provision based on estimates and assumptions that
could differ from the actual results reflected in income tax returns filed during the
subsequent year. Adjustments based on filed returns are generally recorded in the period
when the tax returns are filed and the tax implications are known.

The
amount of income taxes we pay is subject to ongoing audits by federal, state and foreign
tax authorities, which often result in proposed assessments. For example, the Internal
Revenue Service (IRS) has completed its examination of our fiscal year 2002
federal income tax return and has issued a notice of proposed adjustment. We do not agree
with the adjustments and have appealed the assessment. Our estimate for the potential
outcome for any uncertain tax issue is highly judgmental. We believe we have adequately
provided for any reasonably foreseeable outcome related to these and other matters.
However, our future results may include favorable or unfavorable adjustments to our
estimated tax liabilities in the period the assessments are made or resolved or when
statutes of limitation on potential assessments expire. As a result, our effective tax
rate may fluctuate significantly on a quarterly basis.

Impairment
of Long-Lived Assets. We evaluate our long-lived assets, including purchased intangible
assets, whenever certain events or changes in circumstances indicate that the carrying
value of assets may not be recoverable or that the estimated useful life of the asset has
changed. In order to judge the carrying value of an asset or the remaining useful life of
an asset, we make various assumptions about the value of the asset in the future. This may
include assumptions about future prospects for the products to which the asset relates and
typically involves computations of the estimated future cash flows to be generated by
these products. If such assets are deemed impaired, an impairment loss equal to the amount
by which the carrying amount exceeds the fair value of the assets is recognized. Judgments
and assumptions about future values and remaining useful lives are complex and often
subjective. They can be affected by a variety of factors, including external factors such
as industry and economic trends, and internal factors such as changes in business strategy
and our internal forecasts. For example, research and development expense included nothing
in fiscal 2005 and $1.7 million in fiscal 2004 related to the accelerated amortization and
depreciation of certain computer aided design tool and software assets whose estimated
useful lives were reduced because of the restructuring actions announced in the fourth
quarter of fiscal 2003.

22

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Goodwill
and Purchased Intangible Assets. We make estimates when we acquire businesses or acquire
groups of assets for a single aggregate price. The purchase method of accounting for
acquisitions requires extensive use of accounting estimates and judgments to allocate the
purchase price to the fair value of the tangible and intangible assets acquired, including
in-process research and development, or IPR&D. Goodwill is recorded as the difference,
if any, between the aggregate consideration paid for an acquisition of a business and the
fair value of the net tangible and intangible assets acquired. Goodwill is not amortized
but is subject to annual impairment tests. The amounts and useful lives, generally 3 to 10
years, assigned to tangible and intangible assets, other than IPR&D, impact future
amortization expense; the amount assigned to IPR&D is expensed immediately. Patent
costs are being amortized and charged as a research and development expense, on a
straight-line basis, over their estimated useful lives of ten years.

Accrued
Facilities Restructuring Costs.In October 2002, we exited our Denmark research facility,
and we recorded a restructuring charge in the second quarter of fiscal 2003 to reflect the
anticipated costs of the restructuring. Among other things, the anticipated costs included
lease charges that were based on assumptions about the estimated period to sublease the
facilities and future rental income. The sublease income estimate and the estimated period
to sublease the facility entail a high level of management judgment. On September 28,
2004, we entered into an agreement with the landlord and a new tenant to terminate our
lease obligation in return for a lump sum payment of approximately $1.9 million, resulting
in additional charges of $277,000 in the first quarter of fiscal 2005.

Stock-Based
Compensation. Effective July 1, 2005, we adopted SFAS No. 123R, Share-Based Payment which
requires all share-based payments to employees, including grants of employee stock
options, to be recognized in the financial statements based on their fair value. The fair
value is estimated at the date of grant using a Black-Scholes option pricing model with
weighted average assumptions for the activity under our stock plans. Option pricing model
assumptions such as expected term, expected volatility, and risk-free interest rate,
impact the fair value estimate. Further, the forfeiture rate impacts the amount of
aggregate compensation. These assumptions are subjective and generally require significant
analysis and judgment to develop. When estimating fair value, some of the assumptions will
be based on or determined from external data and other assumptions may be derived from our
historical experience with share-based payment arrangements. The appropriate weight to
place on historical experience is a matter of judgment, based on relevant facts and
circumstances.

As
a result of the adjustment to our term and vesting schedule in July 2005 for stock options
awarded under our 1998 and 2002 Plans, we do not believe that we are able to rely on our
historical exercise and post-vested termination activity to provide relevant data for
estimating our expected term for use in determining the fair value of these options.
Therefore, as allowed by Staff Accounting Bulletin (SAB) No. 107, Share-Based Payment, we
have opted to use the simplified method for estimating our expected term equal to the
midpoint between the vesting period and the contractual term.

We
currently estimate volatility by considering the implied volatility derived from publicly
traded options to purchase our common stock and our historical stock volatility.

The
risk-free interest rate is the implied yield currently available on U.S. Treasury
zero-coupon issues with a remaining term equal to the expected term used as the input to
the Black-Scholes model.

We
estimate forfeitures using a weighted average historical forfeiture rate. Our estimates of
forfeitures will be adjusted over the requisite service period based on the extent to
which actual forfeitures differ, or are expected to differ, from their estimate.

23

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Risk Factors

Our
success is subject to numerous risks and uncertainties, including those discussed below.
These factors could hinder our growth, cause us to sustain losses or have other adverse
effects on us, all of which could cause our stock price to decline.

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. Therefore, we believe that quarter-to-quarter
comparisons of our revenue and operating results may not be a good indication of our
future performance. It is possible that in some future periods our results of operations
may be below the expectations of securities analysts and investors. In that event, the
price of our common stock may fall.

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

| |  | our
ability to identify  attractive  licensing  opportunities  and then enter into
              new licensing agreements on terms that are acceptable to us;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | our
ability to  successfully  conclude  licensing  agreements  of any  significant
              value in a given quarter;
| | - | --------------------------------------------------------------------------------------------------------------------------

| |  | the
financial terms and delivery schedules of our contractual arrangements with our
licensees, which may provide for significant up-front payments, payments based on the
achievement of certain milestones or extended payment terms;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
relative mix of contract revenue and royalties;
| | - | ---------------------------------------------------

| |  | the
demand for products that incorporate our technology;
| | - | --------------------------------------------------------

| |  | our
ability to develop, introduce and market new processor intellectual property;
| | - | ---------------------------------------------------------------------------------

| |  | the
 establishment  or  loss  of  licensing   relationships   with   semiconductor
              companies or digital consumer and business product manufacturers;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
timing of new products and product enhancements by us and our competitors;
| | - | ------------------------------------------------------------------------------

| |  | changes
in development  schedules,  research and  development  expenditure  levels and
product support by us and semiconductor companies and digital consumer and business
product manufacturers; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | uncertain
economic and market conditions.
| | - | -----------------------------------------

The
success of our business depends on maintaining and growing our contract revenue. Contract
revenue consists of technology license fees paid for access to our developed technology
and engineering service fees related to technology under development. Our ability to
secure the licenses from which our contract revenues are derived depends on our customers,
including semiconductor companies, digital consumer and business product manufacturers,
adopting our technology and using it in the products they sell. Our contract revenue
increased by 5% in fiscal 2004 and increased 28% in fiscal 2005, but declined 19% during
the first nine months of fiscal 2006 over the same period a year ago. While we expect that
we will continue to grant additional licenses to new licensees and develop new products to
license to both new and existing licensees, we cannot predict whether we can maintain our
current contract revenue levels or if contract revenue will grow. Our licensees are not
obligated to license new or future generations of our products, so past contract revenue
may not be indicative of the amount of such revenue in any future period. If we cannot
maintain or grow our contract revenue or if our customers do not adopt our technology and
obtain corresponding licenses, our results of operations will be adversely affected.

24

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We
depend on design wins to expand our revenue base. Our ability to generate royalties is
uncertain and depends in large part on whether our processors and related designs are
selected by our licensees and their customers for design, which we refer to as design
wins, into a broader range of both digital consumer and business products. Our ability to
achieve design wins is subject to several risks and uncertainties, including:

| |  | the
potentially limited opportunities for design wins with respect to certain digital
consumer products, such as video game products or digital television set top boxes, due
to a limited number of product manufacturers and the length of product life cycles;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
performance,  functionality,  price and power  characteristics  of our designs may
not satisfy those that are critical to specific digital consumer and business product
applications; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | our
failure to  identify  and  respond in a timely  manner to trends and  emerging
              markets for embedded processors.
| | - | ---------------------------------------------------------------------------------------------------------------------------------

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.

Our
ability to achieve design wins may be limited unless we are able to develop enhancements
and new generations of our intellectual property. Our future success will depend, in part,
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, core and related designs are not compatible with the
requirements of specific product applications, our ability to achieve design wins may be
limited. Our failure to achieve a significant number of design wins would 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
ability to anticipate  and timely  respond to changes in the  requirements  of semiconductor
companies, and original equipment manufacturers, or OEMs, of digital consumer and business
products;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | our
 ability  to  anticipate  and  timely  respond  to  changes  in  semiconductor
              manufacturing processes;
| | - | -------------------------------------------------------------------------------------------------------------------------

| |  | changing
 customer  preferences  in the digital  consumer  and  business  products
              markets;
| | - | ---------------------------------------------------------------------------------------------------------

| |  | the
 emergence  of new  standards  in the  semiconductor  industry and for digital
              consumer and business products;
| | - | --------------------------------------------------------------------------------------------------------------------------------

| |  | the
 significant  investment in a potential  product that is often required before
              commercial viability is determined; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------

| |  | the
 introduction  by our  competitors of products  embodying new  technologies or
              features.
| | - | ----------------------------------------------------------------------------------------------------------

Our
failure to adequately address these risks could render our existing processor, core and
related designs obsolete and 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 sufficient to cover or in excess of the costs of development.

We
depend on royalties from the sale of products incorporating our technology, and we have
limited visibility as to the timing and amount of such sales. Our receipt of royalties
from our licenses depends on our customers incorporating our technology into their
products, their bringing these products to market, and the success of these products. In
the case of our semiconductor customers, the amount of such sales is further dependent
upon the sale of the products by their customers into which our customers products
are incorporated. Thus, our ability to achieve design wins and enter into licensing
agreements does not assure us of future revenue. Any royalties that we are eligible to
receive are based on the sales of products incorporating the semiconductors or other
products of our licensees, and as a result we do not have direct access to information
that will help us anticipate the timing and amount of future royalties. Factors that
negatively affect our licensees and their customers could adversely affect our business.
The success of our direct and indirect customers is subject to a number of factors,
including:

| |  | the
competition these companies face and the market acceptance of their products;
| | - | ---------------------------------------------------------------------------------

| |  | the
engineering, marketing and management capabilities of these companies and technical
challenges unrelated to our technology that they face in developing their products; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | their
financial and other resources.
| | - | ------------------------------------

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

We
rely on our customers to correctly report to us the number or dollar value of products
incorporating our technology that they have sold, as these sales are the basis for the
royalty payments that they make to us. We have the right under our licensing agreements to
perform a royalty audit of the customers sales so that we can verify the accuracy of
their reporting, and if we determine that there has been an over-reported or
under-reported amount of royalty, we account for the results when they are identified. By
way of an example, we determined in the second quarter of fiscal 2005, as a result of an
audit, that one of our customers had inadvertently reported a higher level of royalty than
had actually occurred, and we accrued for this event as an offset against revenue in the
quarter.

If
we do not compete effectively in the market for embedded processors, our business will be
adversely affected.Competition in the market for embedded processors is intense. Our
products compete with those of other designers and developers of processors and cores, as
well as those of 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 other technology designs. The market for
embedded processors has recently faced downward pricing pressures on products. We cannot
assure you that we will be able to compete successfully or that competitive pressure will
not materially and adversely affect our business, results of operations and financial
condition.

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

Some
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
depend on our key personnel to succeed. Our success depends to a significant extent on the
continued contributions of our key management, technical, sales and marketing personnel,
many of whom are highly skilled and difficult to replace. We cannot assure you that we
will retain our key officers and employees. Competition for qualified personnel,
particularly those with significant experience in the semiconductor and processor design
industries, remains 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 make it difficult
to meet key objectives, such as timely and effective project milestones and product
introductions which could adversely affect our business, results of operations and
financial condition.

Changes
in effective tax rates or adverse outcomes from examination of our income tax returns
could adversely affect our results. Our future effective tax rates could be adversely
affected by earnings being lower than anticipated in countries with low statutory tax
rates, by changes in the valuation of our deferred tax assets and liabilities, or by
changes in tax laws or the interpretation of tax laws. In addition, the Internal Revenue
Service has completed its examination of our federal income tax return for fiscal year
2002 and has issued a notice of proposed adjustment. We do not agree with the adjustments
and have appealed the assessment. We believe that adequate amounts have been provided for
any adjustment that may ultimately result from this issue. We operate in countries other
than the United States and occasionally face inquiries and examinations regarding tax
matters in these countries. There can be no assurance that the outcomes from our current
examination or any other examinations will not have an adverse effect on our operating
results and financial condition.

26

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We
may encounter difficulties with future acquisitions, which could harm our business. As
part of our business strategy, in the future we may seek to acquire or invest in
businesses or technologies that we believe can complement or expand our business, enhance
our technical capabilities or that may otherwise offer growth opportunities. Any future
acquisitions may require debt or equity financing, or the issuance of shares in the
transaction, any of which could increase our leverage or be dilutive to our existing
stockholders. We may not be able to complete acquisitions or strategic customer
transactions on terms that are acceptable to us, or at all. We may incur charges related
to acquisitions or investments that are completed. For instance, we recorded an in-process
research and development charge in the first quarter of fiscal 2006 as a result of our
acquisition of First Silicon Solutions, Inc. We will also face challenges integrating
acquired businesses and operations and assimilating and managing the personnel of the
acquired operations. Geographic distances may further complicate the difficulties of this
integration. The integration of acquired businesses may not be successful and could result
in disruption to other parts of our business. Acquisitions involve a number of other risks
and challenges, including:

| |  | diversion
of management's attention;
| | - | ------------------------------------

| |  | potential
loss of key employees and customers of the acquired companies;
| | - | ------------------------------------------------------------------------

| |  | exposure
to unanticipated contingent liabilities of acquired companies; and
| | - | ---------------------------------------------------------------------------

| |  | use
of substantial  portions of our available  cash to consummate the  acquisition
              and/or operate the acquired business.
| | - | --------------------------------------------------------------------------------------------------------------------------------------

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

We
are subject to litigation that could adversely affect our financial results. From time to
time, we are subject to litigation and other legal claims incidental to our business. It
is possible that we could suffer unfavorable outcomes from claims that are currently
pending or that may arise in the future. Any such unfavorable outcome could materially
adversely affect our financial condition or results of operations.

Our
intellectual property may be misappropriated and we may be unable to obtain or enforce
intellectual property rights. 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. As part of our business strategy, we license our technology in multiple
geographies including in countries whose laws do not provide as much protection for our
intellectual property as the laws of the United States and where we may not be able to
enforce our rights. 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 also cannot assure you that any of our
patent applications to protect our intellectual property will be approved. In addition,
effective trade secret protection may be unavailable or limited in certain countries. If
we are unable to protect or enforce our intellectual property rights, our technology may
be used without the payment of license fees and royalties, which could weaken our
competitive position, reduce our operating results and increase the likelihood of costly
litigation.

We
may be subject to claims of infringement. We cannot assure you that any of the patents or
other intellectual property rights that we own or use 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. As we grow our business and expand
into new markets that other companies are developing in, the risk that our technology may
infringe upon the intellectual property rights of others increases. We cannot be certain
that third parties will not make a claim of infringement against us, our licensees, or our
licensees customers in connection with use of our technology. For example,
Technology Properties Limited, Inc. filed a lawsuit in October 2005 against some of our
licensees based upon the alleged infringement of certain microprocessor-related patents.
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 on acceptable terms to us 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.

We
have recorded long-lived assets, and our results of operations would be adversely affected
if their value becomes impaired. In the first quarter of fiscal 2006, we acquired certain
core and developed technologies and customer relationships and a tradename, and the
purchase price of these long-lived assets is being amortized over schedules based on their
useful lives. If we complete additional acquisitions in the future, our purchased
intangible assets amortization charge could increase, and we may be required to record
substantial amounts of goodwill. We evaluate our long-lived assets, including purchased
assets, for impairment on an annual basis or whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable from its estimated future cash
flows. We recorded additional research and development expense of $1.7 million in fiscal
2004 related to the accelerated amortization and depreciation of certain computer aided
design tool and software assets whose estimated useful lives were reduced because of the
restructuring actions announced in the fourth quarter of fiscal 2003.

In
the future, if we determine that our long-lived assets are impaired, we will have to
recognize additional charges for this impairment. We cannot be sure that we will not be
required to record additional long-lived asset impairment charges in the future.

27

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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, municipal bonds, and money market funds operated by
reputable financial institutions in the United States. Due to the nature of our
investments, we believe that we do not have a material interest rate risk exposure.

We
are exposed to fluctuations in currency exchange rates because a substantial portion of
our revenue has been, and is expected to continue to be, derived from customers outside
the United States. 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.

ITEM 4.    CONTROLS AND
PROCEDURES

| | (a.) | The
Securities and Exchange Commission defines the term disclosure           controls
and procedures to mean a companys controls and other procedures that are designed to ensure that
information required to be disclosed in the reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within
the time periods specified in the Commissions rules and forms. Our chief executive
officer and our chief financial officer have concluded, based on the evaluation of the
effectiveness of our disclosure controls and procedures by our management, with the
participation of our chief executive officer and our chief financial officer, as of the
end of the period covered by this report, that our disclosure controls and procedures were
effective for this purpose.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b.) | There
were no changes in our internal control over the financial reporting that occurred during
the third quarter of fiscal 2006 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

PART II  OTHER
INFORMATION

ITEM 6.    EXHIBITS

| | (a) | Exhibits
| | --- | --------

| | 31.1 | Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | ---------------------------------------------------------------------------------------------------

| | 31.2 | Certification
 of  Chief  Financial   Officer  pursuant  to  Section  302  of  the Sarbanes-Oxley Act
of 2002.
| | ---- | --------------------------------------------------------------------------------------------------------------

| | 32.1 | Certification
 of  Chief  Executive   Officer  pursuant  to  Section  906  of  the Sarbanes-Oxley Act
of 2002. *
| | ---- | ----------------------------------------------------------------------------------------------------------------

| | 32.2 | Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
| | ---- | -----------------------------------------------------------------------------------------------------

---

| | *As
contemplated by SEC Release No. 33-8212, these exhibits are furnished with this Quarterly
Report on Form 10-Q and are not deemed filed with the Securities and Exchange commission
and are not incorporated by reference in any filing of MIPS Technologies, Inc. under the
Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the
date hereof and irrespective of any general incorporation language in any such filings.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ITEMS 1, 1A, 2, 3, 4, AND 5 ARE NOT
APPLICABLE AND HAVE BEEN OMITTED.

28

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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:     /s/ MERVIN S. KATO                  
| | Mervin S. Kato                              
| | Vice President and Chief Financial Officer  
| | (Principal Financial and Accounting Officer)

Dated:  May 8, 2006

29

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