UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, 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 ~~September~~December 3031, 2012

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

For the transition period from to .

Commission file number 000-24487

MIPS TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

DELAWARE	77-0322161
(State or other jurisdiction of Incorporation or organization)	(I.R.S. Employer Identification Number)

955 EAST ARQUES AVENUE, SUNNYVALE, CA 94085-4521

(Address of principal executive offices)

Registrant’s telephone number, including area code: (408) 530-5000

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨ (Do not check if smaller reporting company) Smaller reporting company ¨

Indicate by check mark whether the registrant is a Shell Company (as defined in Rule12b-2 of the Exchange Act). Yes ¨ No x

As of ~~October~~January 31, ~~2012~~2013, the number of outstanding shares of the registrant’s common stock, $0.001 par value, was 54,~~019~~507,~~716~~113.

PART I – FINANCIAL INFORMATION
Item Item 1.	Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets
	Condensed Consolidated Statements of Income
	Condensed Consolidated Statements of Comprehensive Income
	Condensed Consolidated Statements of Cash Flows
	Notes to Condensed Consolidated Financial Statements
Item Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item Item 4.	Controls and Procedures
PART II – OTHER INFORMATION
Item Item 1.	Legal Proceedings
Item Item 1A.	Risk Factors
Item Item 6.	Exhibits
Signatures

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PART I – FINANCIAL INFORMATION

Item Item 1.	Financial Statements (Unaudited):

	Condensed Consolidated Balance Sheets
	Condensed Consolidated Statements of Operations
	Condensed Consolidated Statements of Comprehensive Income
	Condensed Consolidated Statements of Cash Flows
	Notes to Condensed Consolidated Financial Statements

Item Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Item Item 4.	Controls and Procedures

PART II – OTHER INFORMATION

Item Item 1.	Legal Proceedings

Item Item 1A.	Risk Factors

Item Item 6.	Exhibits

Signatures

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MIPS TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

	September 30, 2012			June 30, 2012
	December 31, 2012			June 30, 2012
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	95131,~~941~~299		$	76,242
Short-term investments		~~34,392~~—			34,642
Accounts receivable, net		21,~~591~~068			27,044
Prepaid expenses and other current assets		2,~~186~~985			1,793
Total current assets		135,~~110~~352			139,721
Equipment, furniture and property, net		3,~~323~~214			2,892
Intangible assets, net		1,~~751~~588			1,927
Goodwill		565			565
Other assets		9,~~791~~003			10,035
Total Assets	$	~~150~~149,~~540~~722		$	155,140
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	21,~~480~~619		$	2,578
Accrued liabilities		913,~~751~~093			11,852
Deferred revenue		~~812~~769			1,259
Total current liabilities		1315,~~043~~481			15,689
Long-term liabilities:
Other long-term liabilities		98,~~621~~874			9,815
Total long-term liabilities		98,~~621~~874			9,815
Stockholders’ equity:
Common stock, $0.001 par value: 250,000,000 shares authorized at September 30, 2012 and June 30, 2012; and 53,858,162 and 53,575,298 shares outstanding at September 30, 2012 and June 30, 2012, respectively, net of 174,655 and 121,297 reacquired shares at September 30, 2012 and June 30, 2012, respectively		54			53
Common stock, $0.001 par value: 250,000,000 shares authorized at December 31, 2012 and June 30, 2012; and 54,414,684 and 53,575,298 shares outstanding at December 31, 2012 and June 30, 2012, respectively, net of 193,625 and 121,297 reacquired shares at December 31, 2012 and June 30, 2012, respectively		54			53
Preferred stock, $0.001 par value; 50,000,000 shares authorized; none issued and outstanding		—			—
Additional paid-in-capital		~~318~~322,~~705~~629			316,210
Accumulated other comprehensive income		~~627~~581			557
Accumulated deficit		(~~191~~197,~~510~~897)	)		(187,184	)
Total stockholders’ equity		~~127~~125,~~876~~367			129,636
Total Liabilities and Stockholders’ Equity	$	~~150~~149,~~540~~722		$	155,140

See accompanying notes.

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MIPS TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS (unaudited)

(In thousands, except per share data)

	~~Three Months Ended~~	Three Months Ended					Six Months Ended
	September 30,
		December 31,					December 31,
	~~2012~~	2012		~~2011~~	2011		2012			2011
Revenue:
Royalties	$	10,~~473~~751		$	1213,~~979~~224		$	21,224		$	26,203
License and contract revenue		3,~~470~~840			42,~~238~~077			7,310			6,315
Total revenue		1314,~~943~~591			1715,~~217~~301			28,534			32,518
Operating Expenses:
Cost of sales		~~362~~332			~~261~~344			694			605
Research and development		89,~~298~~031			78,~~906~~278			17,329			16,184
Sales and marketing		4,~~425~~141			43,~~831~~892			8,566			8,723
General and administrative		5,~~566~~478			3,~~264~~339			11,044			6,603
Total operating expenses		18,651			16,262
Transaction related costs		1,918			—			1,918			—
Operating income (loss)		(4,708	)		955
Total operating expenses		20,900			15,853			39,551			32,115
Other income, net		8			53
Operating income (loss)		(6,309	)		(552	)		(11,017	)		403
Income (loss) before income taxes		(4,700	)		1,008
Other income, net		52			14			60			67
Provision for (benefit from) income taxes		(374	)		485
Income (loss) before income taxes		(6,257	)		(538	)		(10,957	)		470
Net income (loss)	$	(4,326	)	$	523
Provision (benefit) for income taxes		130			434			(244	)		919
Net income (loss) per share, basic	$	(0.08	)	$	0.01
Net loss	$	(6,387	)	$	(972	)	$	(10,713	)	$	(449	)
Net income (loss) per share, diluted	$	(0.08	)	$	0.01
Net loss per share, basic	$	(0.12	)	$	(0.02	)	$	(0.20	)	$	(0.01	)
Common shares outstanding, basic		53,699			52,660
Net income loss per share, diluted	$	(0.12	)	$	(0.02	)	$	(0.20	)	$	(0.01	)
Common shares outstanding, diluted		53,699			53,690
Common shares outstanding, basic		54,109			52,886			53,904			52,773
Common shares outstanding, diluted		54,109			52,886			53,904			52,773

See accompanying notes.

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MIPS TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

(In thousands)

	Three Months Ended
		Six Months Ended December 31,
	September 30,
		2012			2011
	2012			2011
Net loss	$	(10,713	)	$	(449	)
Net income (loss)	$	(4,326	)	$	523
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of $0 tax in 2013 and 2012		5312			(3015	)
Unrealized gains (losses) on available-for-sale securities, net of $0 tax in 2013 and 2012		17			(22	)
Changes in unrealized gains (losses) on available-for-sale securities, net of $0 tax in 2013 and 2012		12			(28	)
Other comprehenstive income (loss)		7024			(5243	)
Comprehensive income (loss)		(4,256	)		471
Comprehensive loss		(10,689	)		(492	)

See accompanying notes.

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MIPS TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(In thousands)

	Three Months Ended September 30,
	Six Months Ended December 31,
	2012			2011
Operating activities:
Net income (loss)	$	(4,326	)	$	523
Net loss	$	(10,713	)	$	(449	)
Adjustments to reconcile net income (loss) to cash provided by (used in) operations:
Adjustments to reconcile net loss to cash provided by operations:
Depreciation		~~351~~724			~~219~~471
Stock-based compensation		13,~~864~~762			12,~~541~~953
Excess tax benefits from stock-based compensation		(168)	)		—
Amortization of intangible assets		~~189~~340			~~126~~252
Amortization of investment premium, net		~~123~~164			~~142~~265
Other non-cash charges		28124			~~128~~139
Changes in operating assets and liabilities:
Accounts receivable		2425,~~454~~976			(1,~~776~~500	)
Prepaid expenses		(~~249~~1,260	)		(~~241~~230	)
Other assets		~~671~~1,459			~~874~~791
Accounts payable		(~~182~~1,074	)		(~~580~~613	)
Accrued liabilities		(21,~~180~~283	)		(3,~~200~~620	)
Deferred revenue		(~~480~~572	)		(~~236~~488	)
Long-term liabilities		(~~498~~1,196	)		~~(112~~53	)
Net cash provided by (used in) operating activities		19,597			(2,592	)
Net cash provided by operating activities		18,849			1,024
Investing activities:
Purchases of marketable securities		(16,857	)		(1522,~~546~~588	)
Proceeds from maturities of marketable securities		17,000			6,700
Proceeds from sales of marketable securities		27,032			2,613
Capital expenditures		(595	)		(405	)
Proceeds from maturities of marketable securities		24,419			26,000
Net cash used in investing activities		(452	)		(9,251	)
Capital expenditures		(966	)		(659	)
Net cash provided in investing activities		33,628			5,366
Financing activities:
Net proceeds from issuance of common stock		~~372~~2,410			~~422~~1,269
Excess tax benefits from stock-based compensation		168			—
Net cash provided by financing activities		~~540~~2,578			~~422~~1,269
Effect of exchange rates on cash		142			21(32	)
Net increase (decrease) in cash and cash equivalents		19,699			(11,400	)
Net increase in cash and cash equivalents		55,057			7,627
Cash and cash equivalents, beginning of period		76,242			69,202
Cash and cash equivalents, end of period	$	95131,~~941~~299		$	5776,~~802~~829

See accompanying notes.

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MIPS TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—UNAUDITED

Note 1. Description of Business and Basis of Presentation.

MIPS Technologies, Inc. (MIPS) is a leading provider of industry-standard processor architectures and cores for home entertainment, networking, mobile and embedded applications. The MIPS architecture powers some of the world’s most popular electronic products. Our technology is used in products such as digital televisions, set-top boxes, Blu-ray players, broadband customer premises equipment (CPE), WiFi access points and routers, networking infrastructure and portable/mobile communications and entertainment products. Our customers are global semiconductor companies and system original equipment manufacturers (system OEMs). We offer our customers high-performance, easy-to-use functionality at a fraction of the cost and time to market that internal development would require. Our customers pay us license fees for architectural, product and patent rights, as well as royalties based on processor unit shipments.

Pending Acquisition by Bridge Crossing LLC and Imagination Technologies Group plc

On November 5, 2012, MIPS entered into a patent sale agreement with Bridge Crossing, LLC (“Bridge Crossing”), an acquisition vehicle of Allied Security Trust I (“AST”), and a merger agreement with Imagination Technologies Group plc (LSE: IMG) (“Imagination”) with anticipated net proceeds of approximately $7.31 per share in cash to each holder of MIPS common stock. On December 9, 2012, MIPS entered into an amendment to its merger agreement with Imagination that increased the purchase price being paid by Imagination to $80 million (from an original purchase price of $60 million) and removed the conditions to closing requiring the approval of the Committee on Foreign Investment in the United States and that MIPS is not a real property holding corporation. As a result of the amendment, the net proceeds to each holder of MIPS common stock following the consummation of the proposed patent sale transaction with Bridge Crossing, the proposed recapitalization and the proposed merger, increased to approximately $7.64 per share in cash. On December 16, 2012, MIPS entered into an amendment to its merger agreement with Imagination that increased the purchase price being paid by Imagination to $100 million. As a result of the amendment, the net proceeds to each holder of MIPS common stock, following the consummation of the proposed patent sale transaction with Bridge Crossing, the proposed recapitalization and the proposed merger, has increased to approximately $7.94 per share in cash.

The patent sale agreement contemplates the sale of all of our right, title and interest in most of our active issued patents and patent applications to Bridge Crossing and sublicensable rights to a smaller group of our patents and patent applications for a total of $350 million. The patents and patent applications sold pursuant to the patent sale agreement relate to, among other categories, features, functionality, instruction set architectures and microarchitectural characteristics of microprocessors and related semiconductor hardware.

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The merger agreement contemplates the merger of an acquisition subsidiary (of Imagination) with and into MIPS, with MIPS continuing as the surviving corporation and a wholly owned, indirect subsidiary of Imagination following the merger. The merger agreement provides that following the closing of the patent sale but prior to the closing of the merger, MIPS will effect a recapitalization by amending its certificate of incorporation. If the certificate of amendment is adopted, approved and filed, MIPS will distribute the proceeds from the patent sale agreement and all cash on hand, less a fixed holdback of approximately $100 million and MIPS stockholders will be entitled to receive 0.226276 shares of MIPS common stock (which shares will be converted into cash in connection with the merger) and a cash payment, without interest and less any applicable withholding taxes, for each share of MIPS common stock held by such stockholder at the time of filing of the certificate of amendment. The amount payable to stockholders in connection with the recapitalization will be affected by the Company’s operating results, estimated transaction expenses, timing of the recapitalization and other factors.

Both the patent sale transaction and the merger transaction are subject to customary closing conditions, including the approval of the Company’s stockholders, who will vote separately on each of the transactions and the recapitalization. Approval of the patent sale transaction is not subject to stockholder approval of the recapitalization or the merger transaction. Approval of the recapitalization is subject to stockholder approval of the patent sale transaction and the merger transaction. Approval of the merger transaction is subject to stockholder approval of the patent sale transaction and the recapitalization.

Assuming the stockholders approve both transactions and the recapitalization, the proceeds of the transactions, which are subject to a fixed holdback of approximately $100 million to cover tax and other liabilities, will be distributed to the Company’s stockholders on a pro-rata basis through a recapitalization of MIPS common stock. If the Company completes the patent sale transaction but does not complete the proposed merger transaction, the impact of the patent sale would be an increase to the Company’s cash balance by the proceeds of the patent sale and an increase to the Company’s liabilities to advisers with respect to the patent sale. In addition, the gain that results from the patent sale would give rise to taxable income, which would be partially offset by the Company’s ability to realize, and therefore recognize, certain net U.S. deferred tax assets.

The Company’s annual meeting is currently scheduled to be held on February 6, 2013. At the annual meeting, stockholders will vote on a number of proposals, including the patent sale transaction, the recapitalization and the merger transaction.

Basis of Presentation. The unaudited 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, 2012 has been derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. However, we believe that the disclosures are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements included in this Form 10-Q should be read in conjunction with the audited consolidated financial statements and related notes for the fiscal year ended June 30, 2012, included in our 2012 Annual Report on Form 10-K.

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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 unaudited 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.

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, the 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.

Royalty Revenue.

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 we receive a report from a licensee detailing the shipments of products incorporating our IP components, which is generally in the quarter following the licensee’s sale of the 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, as specified in our agreement with the licensee. 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 resolved.

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License and Contract Revenue.

We generally derive license revenue for the transfer of proven and reusable IP components on currently available technology, including in certain situations, a license to our patents. We enter into licensing agreements that provide licensees the right to incorporate our IP components in their products with terms and conditions that have historically varied by licensee. Each of these types of contracts includes a nonexclusive license for the underlying IP. Fees for contracts for currently available technology include: license fees relating to our IP, including processor designs and patents; 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 IP and (b) maintenance and support.

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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 to provide best-efforts engineering services intended to further develop 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 sale 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 are recognized as revenue as the 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.

When we provide engineering services involving design and development of customized specifications, we recognize revenue on a percentage of completion basis from the signing of the agreement through the completion of all outstanding development obligations. The amount of revenue recognized is based on the total license fees under the license agreement and the percentage of completion is measured by the actual costs incurred to date on the project compared to the total estimated project cost. Revenue is recognized only when collectability is probable. The estimates of project costs are based on the IP specifications and prior experience with the same or similar IP development and are reviewed and updated regularly. Under the percentage of completion method, provisions for estimated losses on uncompleted contracts are recognized in the period in which the likelihood of such losses is determined. Licensing of existing IP that does not require any configuration is recognized upon delivery of the IP and when all other revenue recognition criteria have been met. Direct costs incurred in the design and development of the IP under these arrangements is included in cost of sales.

The amount of license and contract revenue we recognize in a given period is affected by our judgment as to whether an arrangement includes multiple deliverables and, if so, our determinations surrounding whether VSOE exists. We determine VSOE based on our normal pricing and discounting practices for the specific product or service when sold separately. In determining VSOE, we require that a substantial majority of the selling prices for a product or service fall within a reasonably narrow pricing range. In circumstances when VSOE does not exist, we then apply judgment with respect to whether we can obtain TPE. Generally, we are not able to determine TPE because our go-to-market strategy typically differs from that of our peers. When we are unable to establish selling price using VSOE or TPE, we use BESP in our allocation of arrangement consideration. In determining BESP, we apply significant judgment as we weigh a variety of factors, based on the facts and circumstances of the arrangement. We typically arrive at BESP for license and contract revenue by considering historical and current evidence of pricing including bundled pricing practices, selling region, license term and number of uses allowed.

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License and contract revenue is recorded as revenue when there is persuasive evidence of an arrangement, fees are fixed or determinable, delivery has occurred and collectability is reasonably assured. We assess the credit worthiness of each customer when a transaction under the agreement occurs. If collectability 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 IP.

Maintenance and Support.

Certain arrangements include maintenance and support obligations. Under such arrangements, we provide unspecified upgrades, bug fixes and technical support. No other upgrades, products or other post-contract support are provided. These arrangements are generally 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.

Cash and Cash Equivalents and Short-Term Investments. Cash and cash equivalents consist mainly of cash, money market funds, and other highly liquid investments which have original maturities of three months or less at the time of acquisition. Investments with original maturities of greater than 90 days at the time of acquisition but less than one year from the balance sheet date are classified as short-term investments. The fair value of cash and cash equivalents approximates their carrying value at ~~September~~December 3031, 2012.

Available-for-sale securities are carried at fair value, based on quoted market prices, with the unrealized gains or losses reported, net of tax, in stockholders’ equity as part of accumulated other comprehensive income (loss). We determine the fair values for short-term investments (that principally consist of marketable debt and equity securities) using industry standard pricing services, data providers and other third-party sources and by internally performing valuation analyses (see Note 4). The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, both of which are included in other income (expense), net. Realized gains and losses, if any, are recorded on the specific identification method and are included in other income (expense). We had no available-for-securities as of December 31, 2012.

We review our investments in marketable securities for possible other-than-temporary impairments on a regular basis. In determining if and when a decline in value below the adjusted cost of marketable debt and equity securities is other-than-temporary, we evaluate, on an ongoing basis the market conditions, trends of earnings, financial condition, credit ratings, any underlying collateral and other key measures for our investments. In addition, we consider: 1) our intent to sell the security, 2) if we intend to hold the security, whether it is more likely than not that we will be required to sell the security before recovery of the security’s amortized cost basis and 3) if we intend to hold the security, whether or not we expect to recover the entire amortized cost basis of the security. If any loss on investment is believed to be other-than-temporary, a charge will be recognized. Due to the high credit quality and short term nature of our investments, there have been no other-than-temporary impairments recorded to date. As of December 31, 2012, there were no available-for-sale securities.

~~Note 2. Computation of Earnings Per Share~~9

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Note 2. Transaction Related Costs

	Three Months Ended December 31,				Six Months Ended December 31,
	2012		2011		2012		2011

Transaction related costs	$	1,918	$	—	$	1,918	$	—

The Company retained investment banking firms to advise us in connection with potential transactions related to patent monetization and other opportunities for increasing shareholder value. The Company incurred $1.6 million in legal fees, $0.1 million in banking fees and $0.2 million in professional costs in each of the three months and six months ended December 31, 2012 relating to the pending merger with Imagination, which have been reported as transaction related costs in the Company’s condensed consolidated statements of operations for the three months and six months ended December 31, 2012. At the effective time of the transaction, the Company is expected to incur additional aggregate fees of approximately $9.7 million to the investment banking firms based on the current transaction terms.

Note 3. Computation of Earnings Per Share

Basic earnings per share is computed by dividing income (loss) 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.

7The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share amounts):

	Three Months Ended December 31,						Six Months Ended December 31,
	2012			2011			2012			2011
Numerator:
Net loss	$	(6,387	)	$	(972	)	$	(10,713	)	$	(449	)
Denominator:
Weighted-average shares of common stock outstanding		54,109			52,886			53,904			52,773
Effect of dilutive securities		—			—			—			—
Shares used in computing diluted net loss per share		54,109			52,886			53,904			52,773
Net loss per share, basic	$	(0.12	)	$	(0.02	)	$	(0.20	)	$	(0.01	)
Net loss per share, diluted	$	(0.12	)	$	(0.02	)	$	(0.20	)	$	(0.01	)
Potentially dilutive securities from outstanding stock options and restricted stock units excluded from diluted net income (loss) per share because they are anti-dilutive (A)		1,256			3,893			1,264			3,581

(A)	For the three and six months ended December 31, 2012, dilutive securities were excluded from diluted net loss per share because they are anti-dilutive.

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~~The~~Note ~~following~~4. Comprehensive ~~table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share amounts):~~Loss

	Three Months Ended September 30,
	2012			2011
Numerator:
Net income (loss)	$	(4,326	)	$	523
Denominator:
Weighted-average shares of common stock outstanding		53,699			52,660
Effect of dilutive securities		—			1,030
Shares used in computing diluted net income (loss) per share		53,699			53,690
Net income (loss) per share, basic	$	(0.08	)	$	0.01
Net income (loss) per share, diluted	$	(0.08	)	$	0.01
Potentially dilutive securities from outstanding stock options and restricted stock units excluded from diluted net income (loss) per share because they are anti-dilutive (A)		1,460			3,336

Total comprehensive loss includes net loss and other comprehensive loss, which primarily comprises foreign currency adjustments and changes in unrealized gains (losses) on short-term investments. Total comprehensive loss for the second quarter of fiscal year 2013 was $6.4 million and total comprehensive loss for the six months of fiscal 2013 was $10.7 million compared to comprehensive loss for the second quarter of fiscal year 2012 was $1.0 million and total comprehensive loss for the six months of fiscal 2012 was $0.5 million.

~~(A)~~Note ~~For the three months ended September 30, 2011, we excluded approximately 3~~5.3 Fair million weighted average stock options and restricted stock units from the calculation of diluted earnings per common share because the exercise prices of these stock options and releases of restricted stock units were greater than or equal to the average market value of the common shares. Some portion, or all, of the shares underlying these options and restricted stock units would be included in the calculation of earnings per share in future periods when we report net income if they become dilutive. For the three months ended September 30, 2012, dilutive securities were excluded from diluted net loss per share because they are anti-dilutive.Value

~~Note~~Historically, 3we invest in short-term investments which principally consist of marketable debt and equity securities. ~~Comprehensive~~ Our ~~Income~~financial ~~(Loss)~~assets are measured and recorded at fair value, except for equity investments in privately-held companies. These equity investments are generally accounted for under the cost method of accounting and are periodically assessed for other-than-temporary impairment when an event or circumstance indicates that an other-than-temporary decline in value may have occurred. Our non-financial assets, such as goodwill, intangible assets, and property, plant and equipment, are recorded at cost and are assessed for impairment when an event or circumstance indicates that a decline in value may have occurred or at least annually in the case of goodwill.

Total comprehensive income (loss) includes net income (loss) and other comprehensive income (loss), which primarily comprises foreign currency adjustments and changes in unrealized gains (losses) on short-term investments. Total comprehensive loss for the first quarter of fiscal year 2013 was $4.3 million and total comprehensive income for the comparable period in the prior year was $0.5 million.

Note 4. Fair Value

We invest in short-term investments which principally consist of marketable debt and equity securities. Our financial assets are measured and recorded at fair value, except for equity investments in privately-held companies. These equity investments are generally accounted for under the cost method of accounting and are periodically assessed for other-than-temporary impairment when an event or circumstance indicates that an other-than-temporary decline in value may have occurred. Our non-financial assets, such as goodwill, intangible assets, and property, plant and equipment, are recorded at cost and are assessed for impairment when an event or circumstance indicates that a decline in value may have occurred or at least annually in the case of goodwill.

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Fair Value Hierarchy

The measurements of fair value were established based on a fair value hierarchy that prioritizes the utilized inputs. This hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. The guidance for fair value measurements requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories:

Level 1 – Quoted (unadjusted) prices in active markets for identical assets or liabilities.

Our Level 1 assets consist of U.S. Treasury bills, marketable equity securities and money market funds.

Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Our Level 2 assets consist of time deposits, commercial paper, corporate bonds and government agency bonds.

Level 3 - Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.

We had no Level 3 assets as of ~~September~~December 3031, 2012 or June 30, 2012.

Cash equivalents, short-term investments and non-qualified deferred compensation plan assets are measured at fair value on a recurring basis. The Company’s non-qualified deferred compensation plan assets consist of money market and mutual funds invested in domestic and international marketable securities that are directly observable in active markets. The deferred compensation plan assets, which were all Level 1 assets, recorded as of September 30, 2012 and June 30, 2012 were $1.4 million and $1.3 million.11

The following table presents our cash equivalents and short-term investments by the above pricing levels as of September 30, 2012 (in thousands):

	Fair value measurement at reporting dates using
	Total		Quoted Price in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
			(Level 1)		(Level 2)		(Level 3)
Money Market Funds (1)	$	91,212	$	91,212	$	—	$	—
Commercial Paper	$	17,871		—		17,871	$	—
Corporate Bonds		16,521		—		16,521		—
Total Short-term Investments	$	34,392	$	—	$	34,392	$	—

(1) At September 30, 2012, $91.2 million of money market funds were included in the cash and cash equivalents in our condensed consolidated balance sheet.

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~~Available~~Cash equivalents, short-~~for~~term investments and non-~~sale~~qualified ~~securities,~~deferred ~~all~~compensation ofplan ~~which~~assets ~~were~~are ~~classified~~measured asat ~~short~~fair value on a recurring basis. The Company’s non-~~term~~qualified ~~investments~~deferred compensation plan assets consist of money market and mutual funds invested in domestic and international marketable securities that are directly observable in active markets. The deferred compensation plan assets, ~~held~~ bywhich ~~the~~were ~~Company~~all Level 1 assets, recorded as of ~~September~~December 31, 2012 and June 30, 2012 were as$1.5 ~~follows~~million ~~(in~~and ~~thousands):~~$1.3 million, respectively.

	September 30, 2012
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Commercial Paper	$	17,870	$	1	$	—		$	17,871
Corporate Bonds		16,517		5		(1	)		16,521
Total Short-term Investments	$	34,387	$	6	$	(1	)	$	34,392

We had no available-for-sale securities as of December 31, 2012 as a result of the sale and maturity of our investments in the three months ended December 31, 2012. In the three and six months ended December 31, 2012 we recorded a realized gain of $12,300 on our investments as part of the sale of certain securities.

The following table presents our cash equivalents and short-term investments by pricing category as of June 30, 2012 (in thousands):

	Fair value measurement at reporting dates using
	Total		Quoted Price in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
			(Level 1)		(Level 2)		(Level 3)
Money Market Funds (1)	$	65,884	$	65,884	$	—	$	—
Commercial Paper	$	11,493	$	—	$	11,493	$	—
Corporate Bonds		18,146		—		18,146		—
Government Agency		5,003		—		5,003		—
Total Short-term Investments	$	34,642	$	—	$	34,642	$	—

(1) At June 30, 2012, $65.9 million of money market funds were included in the cash and cash equivalents in our condensed consolidated balance sheet.

Available-for-sale securities, all of which were classified as short-term investments, held by the Company as of June 30, 2012 were as follows (in thousands):

	June 30, 2012
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Commercial Paper	$	11,493	$	—	$	—		$	11,493
Corporate Bonds		18,159	$	—		(13	)		18,146
Government Agency		5,003		—		—			5,003
Total Short-term Investments	$	34,655	$	—	$	(13	)	$	34,642

~~All contractual maturities of the Company’s available-for-sale marketable securities at September 30, 2012 were within one year.~~ 12

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Note 56. Goodwill and Purchased Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired through past business combinations. Our goodwill balance of $565,000 is primarily attributable to the First Silicon Solutions acquisition that occurred in September 2005 and did not change in fiscal year 2012 and in the first ~~three~~six months of fiscal year 2013.

The balances of our acquisition related intangible assets, all relating to developed and core technology, and the basis in purchased software licenses were as follows (in thousands):

	September 30, 2012							June 30, 2012
	December 31, 2012							June 30, 2012
	Gross Carrying Value		Accumulated Amortization			Net Carrying Value		Gross Carrying Value		Accumulated Amortization			Net Carrying Value
Developed and core technology	$	1,100	$	(1,~~073~~100	)	$	27—	$	1,100	$	(1,045	)	$	55
Purchased software licenses		2,383		(~~659~~795	)		1,~~724~~588		2,383		(511	)		1,872
Purchased intangible assets	$	3,483	$	(1,~~732~~895	)	$	1,~~751~~588	$	3,483	$	(1,556	)	$	1,927

Developed and core technology is being amortized over its useful life of 10 years. Purchased software licenses are being amortized over their useful lives of 3 to 6 years.

Estimated future amortization expense related to our existing acquisition related intangible assets and purchased software licenses is as follows:

	in thousands
Fiscal Year
Remaining 2012	$
Remaining 2013	$	272
2013		436
2014		491
2014		490
2015		300
2016		300
2017		225
Total	$	1,~~751~~588

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Note 67. Other Long-Term Assets

The components of other long-term assets are as follows (in thousands):

	September 30, 2012		June 30, 2012
	December 31, 2012		June 30, 2012
Investment in privately held company	$	400	$	400
Long-term engineering design software licenses		65,~~440~~663		7,224
Deferred compensation plan		1,~~438~~480		1,345
Other		1,~~513~~460		1,066
Total other assets	$	9,~~791~~003	$	10,035

Note 78. Accrued and Other Long-Term Liabilities

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

	September 30, 2012		June 30, 2012
	December 31, 2012		June 30, 2012
Accrued compensation and employee-related expenses	$	34,~~743~~618	$	5,593
Engineering design software licenses		2,386		2,686
Customer advance		—		900
Other accrued liabilities		3,622		2,673
Accrued legal and related fees		2,802		557
Total accrued liabilities	$	9,751	$	11,852
Other accrued liabilities		3,287		2,116
Total accrued liabilities	$	13,093	$	11,852

The components of other long-term liabilities are as follows (in thousands):

	September 30, 2012		June 30, 2012
	December 31, 2012		June 30, 2012
Deferred compensation	$	1,~~425~~475	$	1,341
Long-term income tax liability		2,~~776~~809		2,241
Long-term obligation related to engineering design software licenses		32,~~448~~685		4,210
Long-term deferred revenue		1,~~705~~656		1,738
Other		~~267~~249		285
Total long-term liabilities	$	98,~~621~~874	$	9,815

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Note 89. Commitments and Contingencies

Purchase Commitments with Suppliers. The Company has agreements with suppliers and other parties to purchase goods, services and long-lived assets. Unconditional obligations under these agreements for each of the four years from fiscal year 2013 through 2016 were approximately $64.08 million, $0.5 million, $0.3 million, and $0.3 million, respectively. These commitments are exclusive of purchased software licenses and engineering design software license contracts of $5.81 million and advisory fees of $0.5 million that were incurred as of December 31, 2012. These items are reflected in the Company’s accrued liabilities (see Note 7). In fiscal year 2011, we entered into a software license agreement where we may be obligated to pay an additional $0.2 million on an annual basis, depending upon the volume of future usage by end users from fiscal year 2013 to 2017.

Operating Lease Commitments. At ~~September~~December 3031, 2012, the Company’s future minimum payments for operating lease obligations are as follows:

	In thousands
Fiscal Year
Remaining 2013	$	~~993~~669
2014		1,~~099~~101
2015		1,~~095~~097
2016		~~913~~914
2017		64
Total	$	43,~~164~~845

Litigation. From time to time, we ~~receive~~are ~~communications~~involved ~~from~~in ~~third~~disputes, ~~parties~~litigation ~~asserting~~and ~~patent or~~ other ~~rights~~legal ~~allegedly~~actions ~~covering~~in ~~our~~the ~~products~~ordinary ~~and~~course ~~technologies~~of business. ~~Based~~We ~~upon~~continually ~~our~~evaluate ~~evaluation,~~uncertainties weassociated ~~may~~with ~~take~~legal nomatters ~~action~~and orrecord wecharges ~~may~~equal ~~seek~~ to ~~obtain~~the aminimum ~~license,~~estimated ~~redesign~~liability anfor ~~accused product or technology, initiate~~ a ~~formal~~loss ~~proceeding~~contingency ~~with~~when ~~the~~both ~~appropriate~~of ~~agency (e.g.,~~ the ~~U.S.~~following ~~Patent~~conditions ~~and~~are ~~Trademark~~met: ~~Office~~(i) ~~and/or~~information ~~initiate litigation. There can be no assurance in any given case that a license will be~~ available onprior ~~terms we consider reasonable or that litigation can be avoided if we desire~~ to doissuance ~~so.~~of ~~If litigation does ensue,~~ the ~~adverse~~financial ~~third~~statements ~~party~~indicates ~~will~~that ~~likely~~it ~~seek~~is ~~damages~~probable ~~(potentially~~that ~~including treble damages) and may seek~~ an ~~injunction~~asset ~~against~~had ~~the~~been ~~sale~~impaired ~~of our products that incorporate allegedly infringing intellectual property~~ or ~~against~~a ~~the~~liability ~~operation~~had ofbeen ~~our~~incurred ~~business~~at ~~as presently conducted, which could result in our having to stop~~ the ~~sale~~date of ~~some of our products or to increase~~ the ~~costs~~financial ofstatements ~~selling~~and ~~some~~(ii) ~~of our products. Such lawsuits could also damage our reputation. The award of damages, including material royalty payments, or~~ the ~~entry~~loss ~~of an injunction against the sale of some~~ or ~~all~~range of ~~our~~loss ~~products,~~can ~~could~~be ~~have~~reasonably ~~a material adverse affect on us~~estimated. MIPS ~~Even~~believes ifit wehas ~~were~~adequate toprovisions ~~initiate~~for ~~litigation,~~any such ~~action~~matters ~~could~~as beof ~~extremely~~December ~~expensive~~31, ~~and~~2012 ~~time-consuming~~ and ~~could~~it ~~have~~was anot ~~material~~reasonably ~~adverse~~possible ~~effect on us. We cannot assure you~~ that ~~litigation~~an ~~related~~additional tomaterial ~~our~~loss ~~intellectual~~had ~~property~~been ~~rights~~incurred orin ~~the~~an ~~intellectual~~amount ~~property~~in ~~rights~~excess of ~~others~~the ~~can~~total ~~always~~amount bealready ~~avoided~~recognized oron ~~successfully~~MIPS's ~~concluded~~financial statements.

From time to time, we receive communications from third parties asserting patent or other rights allegedly covering our products and technologies. Based upon our evaluation, we may take no action or we may seek to obtain a license, redesign an accused product or technology, initiate a formal proceeding with the appropriate agency (e.g., the U.S. Patent and Trademark Office) and/or initiate litigation. There can be no assurance in any given case that a license will be available on terms we consider reasonable or that litigation can be avoided if we desire to do so. If litigation does ensue, the adverse third party will likely seek damages (potentially including treble damages) and may seek an injunction against the sale of our products that incorporate allegedly infringing intellectual property or against the operation of our business as presently conducted, which could result in our having to stop the sale of some of our products or to increase the costs of selling some of our products. Such lawsuits could also damage our reputation. The award of damages, including material royalty payments, or the entry of an injunction against the sale of some or all of our products, could have a material adverse affect on us. Even if we were to initiate litigation, such action could be extremely expensive and time-consuming and could have a material adverse effect on us. We cannot assure you that litigation related to our intellectual property rights or the intellectual property rights of others can always be avoided or successfully concluded.

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We have been notified by ten licensees of a potential infringement claim by Biax Corporation asserting two US patents, allegedly involving our products. A number of these licensees have requested indemnification from us. Given the nature of these claims, we cannot yet determine the amount or a reasonable range of potential loss, if any.

In connection with the sale of our Analog Business Group to Synopsys, Inc. (Synopsys) in May 2009, we agreed to retain responsibility for certain actual or contingent liabilities and agreed to indemnify Synopsys against certain breaches of representations and warranties and other liabilities.

13On November 29, 2012, an alleged stockholder filed a putative class action entitled Capgrowth Group v. Sandeep S. Vij, et al., Case No. 1:12-CV-236874, in the Superior Court of the State of California, Santa Clara County, which we refer to as the Capgrowth Action. The defendants are MIPS Technologies and the members of our board of directors. The complaint alleges that the individual defendants breached their fiduciary duties to MIPS Technologies stockholders in connection with the patent sale agreement with Bridge Crossing and the merger agreement with Imagination Technologies and the transactions contemplated thereby. Specifically, the complaint alleges, among other things, that the proposed transactions arise out of a flawed process, that the individual defendants engaged in self-dealing in relation to the proposed transactions, which resulted in a failure to maximize stockholder value. The complaint further alleges that MIPS Technologies and the individual defendants breached their fiduciary duties by omitting material facts from the preliminary proxy statement filed by MIPS Technologies with the Securities and Exchange Commission on November 20, 2012, in connection with the proposed transactions. The plaintiff seeks, among other things, an order enjoining the consummation of the merger, an award of compensatory or rescissory damages, and awarding attorneys’ fees and costs. On December 17, 2012, defendants filed a motion to stay the Capgrowth Action pending resolution of the more advanced Shankar Action (defined below).

On December 12, 2012, an alleged stockholder filed a putative class action entitled Frank Minjarez v. MIPS Technologies, Inc., et al., Case No. 1:12-CV-237719, in the Superior Court of the State of California, Santa Clara County, which we refer to as the Minjarez Action. The defendants are MIPS Technologies, the members of our board of directors, an acquisition subsidiary of Imagination Technologies (“Acquisition Sub”), AST and Bridge Crossing. The complaint alleges that MIPS Technologies and the individual defendants breached their fiduciary duties to MIPS Technologies stockholders in connection with the patent sale agreement and the merger agreement and the transactions contemplated thereby. Specifically, the complaint alleges, among other things, that the proposed transactions arise out of a flawed process, that the individual defendants engaged in self-dealing in relation to the proposed transactions, which resulted in a failure to maximize stockholder value. The complaint further alleges that MIPS Technologies and the individual defendants breached their fiduciary duties by omitting material facts from the preliminary proxy statement filed by MIPS Technologies with the Securities and Exchange Commission on November 20, 2012, in connection with the proposed transactions. The complaint further alleges Acquisition Sub, Bridge Crossing and AST aided and abetted the alleged breaches of fiduciary duty by MIPS Technologies and the individual defendants. The plaintiff seeks, among other things, an order enjoining the consummation of the proposed transactions, rescinding the proposed transactions if they are consummated, and awarding attorneys’ fees and costs.

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~~Note 9~~On December 12, 2012, an alleged stockholder filed a putative class action entitled Ashish Shankar v. ~~Stock~~ Kenneth L. Coleman, et al., Case No. 8103-~~Based~~VCN, ~~Compensation~~in the Court of Chancery of the State of Delaware, which we refer as the Shankar Action. The defendants are MIPS Technologies, the members of our board of directors, Acquisition Sub, Imagination Technologies, AST, and Bridge Crossing. The complaint alleges that the individual defendants breached their fiduciary duties to MIPS Technologies stockholders in connection with the patent sale agreement and the merger agreement and the transactions contemplated thereby. Specifically, the complaint alleges, among other things, that the proposed transactions arise out of a flawed process, that the individual defendants engaged in self-dealing in relation to the proposed transactions, which resulted in a failure to maximize stockholder value. The complaint further alleges that the individual defendants breached their fiduciary duties by omitting material facts from the preliminary proxy statement filed by MIPS Technologies with the Securities and Exchange Commission on November 20, 2012, in connection with the proposed transactions. The complaint further alleges Imagination Technologies, Acquisition Sub, Bridge Crossing and AST aided and abetted the alleged breaches of fiduciary duty by the individual defendants. The plaintiff seeks, among other things, an order enjoining the consummation of the proposed transactions, rescinding the proposed transactions if they are consummated or awarding rescissory damages, awarding damages, and awarding attorneys’ fees and costs.

~~The~~On ~~following~~December ~~table~~14, ~~shows~~2012, ~~total~~MIPS ~~stock-based~~Technologies ~~employee~~and ~~compensation~~the ~~expense~~individual ~~included~~defendants answered the complaint in the ~~condensed~~Shankar ~~consolidated~~Action. ~~statements~~On December 17, 2012, Imagination Technologies and Acquisition Sub entered their appearance in the Shankar Action. Also on December 17, the Court of ~~operations~~Chancery entered an order governing the production and exchange of confidential and highly confidential information. On December 18, the Court of Chancery entered a scheduling order providing for, among other things, the certification of a non-opt out class in the Shankar Action. That scheduling order further provided, among other things, that plaintiff will file an amended complaint no later than three ~~months~~days ~~ended~~after ~~September~~MIPS 30Technologies filed a revised preliminary proxy statement with the SEC. Also on December 18, ~~2012~~Imagination Technologies and ~~2011~~Acquisition (Sub answered the complaint in ~~thousands):~~the Shankar Action.

	Three months ended September 30,
	2012		2011
Operating expenses:
Research and development	$	683	$	463
Sales and Marketing		499		496
General and administrative		682		582
Total stock-based compensation expense	$	1,864	$	1,541

On December 18, 2012, the plaintiff in the Capgrowth action filed a first amended complaint adding Imagination Technologies, Acquisition Sub, and Bridge Crossing as defendants. The first amended complaint further added allegations that Imagination Technologies, Acquisition Sub, and Bridge Crossing aided and abetted the alleged breaches of fiduciary duty by MIPS Technologies and the individual defendants. The first amended complaint further added a claim against MIPS Technologies, in which plaintiff seeks attorneys' fees associated with the increase in the merger consideration that plaintiff alleges to have precipitated. Also on December 18, 2012, the plaintiff filed an application for a temporary restraining order seeking to enjoin the consummation of the proposed transactions.

InOn December 19, 2012, an alleged stockholder filed a putative class action entitled John Mahlke v. MIPS Technologies, Inc., Case No. 8127, in the ~~three~~Court ~~months~~of ~~ended~~Chancery ~~September~~of 30the State of Delaware, ~~2012~~which we refer to as the Mahlke Action. The defendants are MIPS Technologies, the members of our board of directors, Acquisition Sub, and ~~September~~Imagination 30Technologies. The complaint alleges that the individual defendants breached their fiduciary duties to MIPS Technologies stockholders in connection with the merger agreement and the transactions contemplated thereby. Specifically, ~~2011~~the wecomplaint ~~issued~~alleges, ~~282~~among other things,~~864~~ that the proposed merger arises out of a flawed process which resulted in a failure to maximize stockholder value. The complaint further alleges that the individual defendants breached their fiduciary duties by omitting material facts from the preliminary proxy statement filed by MIPS Technologies with the Securities and ~~183~~ Exchange Commission on November 20,~~750~~ ~~shares~~2012, ~~respectively~~in connection with the proposed merger. The complaint further alleges Imagination Technologies and Acquisition Sub aided and abetted the alleged breaches of fiduciary duty by the individual defendants. The plaintiff seeks, among other things, an order enjoining the consummation of ~~common~~the ~~stock for~~proposed ~~employee~~merger, ~~restricted~~rescinding ~~stock~~the ~~awards~~proposed merger if it is consummated or awarding rescissory damages, awarding damages, and ~~stock~~awarding ~~option~~attorneys’ ~~exercises~~fees and costs. On December 20, 2012, MIPS Technologies and the individual defendants answered the complaint in the Mahlke Action. On December 21, 2012, Imagination Technologies and Acquisition Sub answered the complaint in the Mahlke Action.

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On December 21, 2012, MIPS Technologies and the individual defendants filed an amended motion to stay in the Capgrowth Action.

On December 24, 2012, plaintiff in the Shankar Action filed an amended complaint. On December 27, 2012, the Court of Chancery granted an order consolidating the Shankar action and the Mahlke action into one action entitled In re MIPS Technologies, Inc. Stockholder Litigation, Consolidated C.A. No. 8103-VCN, which we refer to as the Consolidated Action. Pursuant to the agreement of the parties in the Consolidated Action, the amended complaint in the Shankar Action was treated as the operative complaint for the Consolidated Action.

On December 28, 2012, an alleged stockholder filed a putative class action entitled Abhilash Joseph v. Sandeep S. Vij, et al., Case No. 1:12-cv-238629, in the Superior Court of the State of California, Santa Clara County, which we refer to as the Joseph Action. The defendants are MIPS Technologies and the members of our board of directors. The complaint alleges that the individual defendants breached their fiduciary duties to MIPS Technologies stockholders in connection with the patent sale agreement and the merger agreement and the transactions contemplated thereby. Specifically, the complaint alleges, among other things, that the proposed transactions arise out of a flawed process, that the individual defendants engaged in self-dealing in relation to the proposed transactions, which resulted in a failure to maximize stockholder value. The complaint further alleges that MIPS Technologies and the individual defendants breached their fiduciary duties by omitting material facts from both the preliminary proxy statement and the revised preliminary proxy statement filed by MIPS Technologies with the Securities and Exchange Commission on November 20 and December 20, 2012, in connection with the proposed transactions. The plaintiff seeks, among other things, an order declaring the merger agreement was entered into in breach of the individual defendants' fiduciary duties and that the merger agreement is unenforceable, enjoining the consummation of the proposed transactions, rescinding the merger agreement or the patent sale agreement to the extent either is already implemented, and awarding attorneys’ fees and costs.

On January 3, 2013, without admitting any wrongdoing and to avoid the burden, expense and disruption of continued litigation, MIPS Technologies, the individual defendants, Bridge Crossing, AST, Imagination Technologies and Acquisition Sub entered into a memorandum of understanding with the plaintiffs in the Consolidated Action providing for the settlement in principle of the claims brought on behalf of the class in the Consolidated Action. Pursuant to the memorandum of understanding, MIPS Technologies included additional disclosures in the definitive proxy statement requested by plaintiffs and agreed to waive certain provisions in standstill agreements applicable to two parties. The parties to the Consolidated Action are in the process of documenting the settlement and will present the settlement to the Court of Chancery for approval when that documentation is complete.

On January 11, 2013, MIPS Technologies entered into a stipulation with the plaintiffs in the Capgrowth Action and Minjarez Action in which the parties agreed that the settlement in the Consolidated Action in Delaware, plus certain supplemental disclosures made by the Company, resolve the claims asserted in the Capgrowth Action and the Minjarez Action.

We intend to defend vigorously against those suits that have not been settled in principle. However, because any lawsuits which have not been settled in principle are in the early stages, we cannot predict the outcome at this time, and we cannot be assured that the actions will not delay the consummation of the patent sale or the merger or result in substantial costs (which may include settlement costs); even a meritless lawsuit may potentially delay consummation of the patent sale and the merger.

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Note 10. Stock-Based Compensation

The following table shows total stock-based employee compensation expense included in the condensed consolidated statements of operations for the three months and six months ended December 31, 2012 and 2011 (in thousands):

		Three months ended December 31,			Six months ended December 31,
		2012		2011	2012		2011
Operating expenses:
Research and development	$	710	$	532	$	1,393	$	995
Sales and marketing		434		239		933		734
General and administrative		754		641		1,437		1,224
Total stock-based compensation expense	$	1,898	$	1,412	$	3,763	$	2,953

In the three months and six months ended December 31, 2012 we issued 556,522 and 839,386 shares, respectively, of common stock for employee stock purchase plan issuances, employee restricted stock awards and stock option exercises. For the three months and six months ended December 31, 2011, we issued 234,505 and 418,255 shares, respectively, of common stock for employee stock purchase plan issuances, employee restricted stock awards and stock option exercises.

Stock Options

The following are significant weighted average assumptions used for estimating the fair value of the activity under our stock option plans:

	Employee Stock Options for three months ended September 30,							Employee Stock Purchase Plan for three months ended September 30,
	Employee Stock Options for three months ended December 31,						Employee Stock Options for six months ended December 31,						Employee Stock Purchase Plan for three months ended December 31,						Employee Stock Purchase Plan for six months ended December 31,
	2012			2011				2012			2011	~~2011~~	2012			2011					2012			2011
Expected volatility		~~0.72~~—			0.7071			0.72	~~0.62~~		0.71		~~0.62~~	0.46			0.80				0.56			0.73
Risk-free interest rate		~~0.45~~—	%		0.6966	%		0.45	~~0.16~~%	%	0.68	%	~~0.10~~	%0.10	%		0.07	%			0.14	%		0.08	%
Expected dividends		~~0.00~~—	%		0.00	%		0.00	~~0.00~~%	%	0.00	%	~~0.00~~	%0.00	%		0.00	%			0.00	%		0.00	%
Expected life (in years)		~~4.20~~—			4.202			4.2	~~0.50~~		4.2		~~0.50~~	0.37			0.50				0.45			0.50
Weighted-average grant date fair value	$	~~3.38~~—		$	2.6752		$	$3.38	~~2.09~~	$	2.63	$	~~2.69~~$	1.79		$	2.14			$	1.98		$	2.36

For the three months ended December 31, 2012, there were no options granted.

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Restricted Stock Units and Awards

For the three months and six months ended ~~September~~December 3031, 2012, we granted 18,000 and ~~September~~455,779 30restricted stock units, respectively, with an average grant date fair value of $7.16 and $6.60, respectively. For the three months and six months ended December 31, 2011, we granted ~~437~~187,~~779~~730 and ~~305~~493,~~508~~238 restricted stock units, respectively, with an average grant date fair value of $64.5864 and $54.0992, respectively.

14Note 11. Income Taxes

We recorded an income tax expense and benefit of $0.1 million and $0.2 million for the three-month and six-month periods ended December 31, 2012, respectively, compared to an income tax expense of $0.4 million and $0.9 million for the comparable periods in fiscal year 2012. The expense decreased in both periods of fiscal 2013 as compared to the same periods of fiscal 2012 primarily as a result of less revenue being subject to withholding tax in fiscal 2013 and the Company receiving $0.7 million of withholding tax refunds in the first quarter of fiscal year 2013. We continue to recognize a partial valuation allowance against our net U.S. deferred tax assets as we believe that it is more likely than not that the majority of our deferred tax assets will not be recognized. The portion of our U.S. net deferred tax assets that has no offsetting valuation allowance is recognized solely as an offset to liabilities recorded with respect to certain unrecognized tax benefits.

Our annual income tax for fiscal 2013 will consist of U.S. state income taxes, foreign income taxes and withholding taxes, as did our annual income tax for fiscal 2012 .

During the quarter ended December 31, 2012, we entered into a definitive agreement with Bridge Crossing to sell certain patent properties for $350 million. The gain that results from this transaction would give rise to taxable income that would allow us to realize, and therefore recognize, the majority of our existing net U.S. deferred tax assets. The definitive agreement is subject to stockholder approval. Pending that approval, we have not yet reversed the valuation allowance against our net U.S. deferred tax assets.

There were no material changes to our reserves for unrecognized tax benefits in our quarter ended December 31, 2012. The total amount of gross unrecognized tax benefits as of December 31, 2012 and June 30, 2012 was approximately $5.3 million and $5.2 million, respectively. We accrue interest and penalties related to uncertain tax positions as a component of the provision for income taxes. Accrued interest and penalties relating to income tax on the unrecognized tax benefits as of December 31, 2012 and June 30, 2012 was approximately $0.4 million, respectively. Also, the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $1.5 million and $1.4 million for the periods ended as of December 31, 2012 and June 30, 2012, respectively.

Although we file tax returns in several overseas tax jurisdictions, our major tax jurisdiction is the United States where we file U.S. federal and state returns. Our fiscal 2008 and subsequent tax years remain subject to examination by the IRS for U.S. federal tax purposes. The Company does not expect any significant change in the total amount of uncertain tax benefits in the next 12 months.

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Note 10. Income Taxes

We recorded an income tax benefit of $0.4 million for the three-month period ended September 30, 2012 compared to an income tax expense of $0.5 million for the comparable period in fiscal year year 2012 primarily as a result of receiving $0.7 million of withholding tax refunds in the first quarter of fiscal year 2013. We continue to recognize a partial valuation allowance against net U.S. deferred tax assets as we believe that it is more likely than not that the majority of our deferred tax assets will not be recognized. The portion of our U.S. net deferred tax assets that has no offsetting valuation allowance is recognized solely as an offset to liabilities recorded with respect to certain unrecognized tax benefits.

Our annual income tax for fiscal year 2013 will consist of U.S. state income taxes, foreign income taxes and withholding taxes. Our annual income tax for fiscal year 2011 consisted of U.S. state income taxes, foreign income taxes, and withholding taxes.

There were no material changes to our reserves for unrecognized tax benefits in our quarter ended September 30, 2012. The total amount of gross unrecognized tax benefits as of September 30, 2012 and June 30, 2012 was approximately $5.3 million and $5.2 million, respectively. We accrue interest and penalties related to uncertain tax positions as a component of the provision for income taxes. Accrued interest and penalties relating to income tax on the unrecognized tax benefits as of September 30, 2012 and June 30, 2012 was approximately $0.4 million, respectively. Also, the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $1.4 million for the periods ended September 30, 2012 and June 30, 2012, respectively.

Although we file tax returns in several overseas tax jurisdictions, our major tax jurisdiction is the United States where we file U.S. federal and state returns. Our fiscal year 2008 and subsequent tax years remain subject to examination by the IRS for U.S. federal tax purposes. The Company does not expect any significant change in the total amount of uncertain tax benefits in the next 12 months.

Note 11. Subsequent events

On November 5, 2012, we entered into separate definitive agreements with Bridge Crossing, LLC (“Bridge Crossing”), an acquisition vehicle of Allied Security Trust I (“AST”), and Imagination Technologies Group plc (LSE: IMG) (“Imagination”) with anticipated net proceeds of approximately $7.31 per share in cash to each holder of MIPS common stock.

Both transactions are subject to customary closing conditions, including the approval of the Company’s shareholders, who will vote separately on each of the transactions. Approval of the Bridge Crossing transaction is not subject to shareholder approval of the Imagination acquisition. The proceeds of the transactions, which are subject to a fixed holdback of approximately $100 million to cover tax and other liabilities, will be distributed to the Company’s shareholders on a pro-rata basis through a recapitalization of MIPS common stock.

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Patent Sale Agreement with Bridge Crossing, LLC

Bridge Crossing will acquire 498 of the Company’s total 580 patent assets for gross proceeds of $350 million. The Company will retain the remaining 82 patent properties that are directly relevant and key to the Company’s architecture, and will also be granted a royalty-free, perpetual license under all of the patent properties sold to Bridge Crossing. The Company will also provide a restricted license to Bridge Crossing under the 82 retained patent properties.

Consummation of the patent sale is subject to various conditions, including, among others, adoption of the Patent Sale Agreement by the stockholders of the Company.

The Patent Sale Agreement contains termination rights for Bridge Crossing and the Company, and further provides that, upon termination of the Patent Sale Agreement under certain specified circumstances, the Company will be obliged to pay Bridge Crossing a termination fee of $10 million. In addition, in certain circumstances involving a material breach of the Patent Sale Agreement, if the Company enters into an agreement with a third party to sell, assign or exclusively license a majority of (1) the Assigned Patents (as defined in the Patent Sale Agreement) and (2) the Retained Patents (as defined in the Patent Sale Agreement) within 12 months after a termination of the Patent Sale Agreement, the Company is required to pay to Bridge Crossing a breakup fee of $30 million (less the termination fee of $10 million if previously paid).

Agreement and Plan of Merger with Imagination Technologies Group plc. and Imagination Acquisition Sub, Inc.

Subject to consummation of the Bridge Crossing transaction, Imagination will acquire the operating business of the Company, the 82 aforementioned patent properties, and license rights to all of the remaining patent properties of the Company for $60 million.

Consummation of the merger is subject to various conditions, including, among others, (i) approval of the Merger Agreement by the stockholders of the Company, (ii) consummation of the patent sale, (iii) consummation of the recapitalization transaction and (iv) receipt of written approval from the Committee on Foreign Investment in the United States approving the merger.

The Merger Agreement contains termination rights for Imagination and the Company, and further provides that, upon termination of the Merger Agreement under certain specified circumstances, the Company will pay Imagination a termination fee of $2.75 million and reimburse out-of-pocket fees and expenses, not to exceed $2.0 million.

Acquisition Related costs.

The Company has retained investment banking firms and advisory firms to advise us in connection with potential transactions and to evaluate whether the consideration to be received by the holders of our common stock pursuant to the transactions was fair, from a financial point of view, to such holders. The Company will incur investment banking fees and other advisory costs relating to the transactions up to the completion of the transactions.

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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 for future levels of operating expenses as well as 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

MIPS Technologies, Inc. is a leading provider of industry-standard processor architectures and cores for home entertainment, networking, mobile and embedded applications. Our offerings include flexible and widely-applicable single- and multi-threaded core processors that can be used in a wide variety of markets. Our technology is broadly used in products such as digital televisions, set-top boxes, Blu-ray players, broadband customer premises equipment, WiFi access points and routers, networking infrastructure and portable/mobile communications and entertainment products. Our customers are global semiconductor companies and system original equipment manufacturers (system OEMs). We offer our customers high-performance, easy-to-use functionality at a fraction of the cost and time to market that internal development would require. Our customers pay us license fees for architectural, product and patent rights, as well as royalties based on processor unit shipments.

We reported ~~first~~second quarter fiscal ~~year~~ 2013 revenue of $1314.96 million, representing a 195% decrease compared to ~~first~~second quarter of fiscal ~~year~~ 2012. Royalty revenue in the ~~first~~second quarter of fiscal ~~year~~ 2013 was $10.58 million, a 19% decrease compared to the ~~first~~second quarter of fiscal ~~year~~ 2012. Total royalty units reported in the ~~first~~second quarter of fiscal ~~year~~ 2013 were ~~182~~194 million, a 54% increase from our ~~first~~second quarter of fiscal ~~year~~ 2012. As our royalty revenue is reported one quarter in arrears, shipments and revenue reported in our ~~first~~second quarter of fiscal ~~year~~ 2013 represented our customer shipments from the quarter ended ~~June~~September 30, 2012. License and contract revenue in the ~~first~~second quarter of fiscal ~~year~~ 2013 was $3.58 million, an 1885% ~~decrease~~increase compared to the ~~first~~second quarter of fiscal ~~year~~2012. There were 7 new license agreements executed in the second quarter of fiscal 2013 compared to 4 in the second quarter of fiscal 2012. The increase in license revenue was driven primarily by higher deal volume in our second quarter of fiscal 2013 compared to the second quarter of fiscal 2012.

Our ~~total~~ operating ~~expense~~loss infor the ~~first~~second quarter of fiscal ~~year~~ 2013 increased to $186.73 million, asfrom ~~compared~~an tooperating loss of $160.36 million in ~~the~~our ~~first~~second quarter of fiscal ~~year~~ 2012. ~~This~~ The increase in operating ~~expense~~loss for our ~~first~~second quarter of fiscal ~~year~~ 2013 compared to the same ~~period~~quarter of fiscal ~~year~~ 2012 was primarily due to $2.0 million of expenses incurred in connection with the Company’s exploration of options related to patent monetization and other opportunities for increasing shareholder value prior to the announcement of the transaction on November 5, 2012 included in general and ~~professional~~administrative ~~services~~expenses ~~fees~~and $1.9 million of transaction related ~~thereto~~costs subsequent to the announcement.

We recorded a tax ~~benefit~~provision of $0.41 million in ~~first~~second quarter of fiscal year 2013 compared to a tax provision of $0.54 million in fiscal year 2012. Our tax provision consists mainly of U.S. federal and state taxes, foreign tax, and withholding tax expenses and refunds. ~~In the first quarter of fiscal year 2013, we received withholding tax refunds of $0.7 million.~~

~~Our cash, cash equivalents and short term investments as of September 30, 2012 were $130.3 million compared to $110.9 million at June 30, 2012.~~ 21

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Our cash and cash equivalents as of December 31, 2012 were $131.3 million compared to $110.9 million of cash, cash equivalents and short-term investments at June 30, 2012. We had no available-for-sale securities as of December 31, 2012 as a result of the sale and maturity of our investments in the three months ended December 31, 2012.

Pending Acquisition by Bridge Crossing LLC and Imagination Technologies Group plc

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Results of Operations

Revenue. Total revenue primarily consists of royalties and license and contract revenue. Royalties are based upon sales by licensees of products incorporating our technology. License and contract revenue consists of technology license fees generated from new and existing license agreements for developed technology and patents, associated maintenance agreements and engineering service fees generated from 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 six-month periods ended ~~September~~December 3031, 2012 and ~~September~~December 3031, 2011 was as follows (in thousands, except percentages):

	Three Months Ended September 30,
		Three Months Ended December 31,											Six Months Ended December 31,
	~~2012~~	2012			~~2011~~	2011			~~Change in~~	Change (in Percent)			2012			2011			Change (in Percent)
									Percent
Revenue
Revenue
Royalties		$	10,751			$	13,224				-19	%		21,224		$	26,203			-19	%
Royalties		$	10,473			$	12,979				-19	%
Percentage of Total Revenue			74	%			86	%						74	%		81	%
Percentage of Total Revenue			75	%			75	%
License and Contract Revenue		$	3,840			$	2,077				85	%		7,310		$	6,315			16	%
License and Contract Revenue		$	3,470			$	4,238				-18	%
Percentage of Total Revenue			26	%			14	%						26	%		19	%
Percentage of Total Revenue			25	%			25	%
Total Revenue		$	14,591			$	15,301				-5	%	$	28,534		$	32,518			-12	%
Total Revenue		$	13,943			$	17,217				-19	%

Royalties. Our royalty revenue in the first quarter of fiscal year 2013 decreased by 19% from the comparable period in fiscal year 2012. Total royalty units reported by our customers in the first quarter of fiscal year 2013 were 182 million, a 5% increase from our first quarter of fiscal year 2012. The royalty per unit for the current quarter was 5.8 cents compared to 7.5 cents in the year ago period. The decline in royalty per unit was due to certain licensees reaching timing and volume tiers in their licenses that triggered lower royalty rates, a decline in average selling price for customers whose royalties are calculated as a percentage of their revenue, shifts in product mix at several of our licensees, and consolidation in the industry as certain of our smaller customers were acquired by larger customers with lower royalty rates. 23

License and Contract Revenue.

We license our embedded processor intellectual property in the form of both architectures and specific processor cores and in some cases our patents. Our license agreements include both limited and unlimited uses of our products; however, all licenses contain a limitation in the number of years that license is valid and only cover those products specifically licensed and available at the time of the license. Under unlimited use license agreements, customers typically pay a larger fixed, up-front fee for the unlimited use of (i) one or more of our MIPS-developed cores or (ii) our architecture to develop their own MIPS-compatible cores during the term of the agreement. Architecture license agreements are not as common as core license agreements. The company currently has 13 active architecture customers. We recognize all license revenues under limited and unlimited use license agreements when there is persuasive evidence of an arrangement, fees are fixed or determinable, delivery has occurred and collectability is reasonably assured.

Our license and contract revenue decreased by 18% in the first quarter of fiscal year 2013 from the comparable period in fiscal year 2012. There was one new license agreements executed in the first quarter of fiscal year 2013 compared to three in the first quarter of fiscal year 2012. Unlimited use licenses accounted for $2.6 million of our license and contract revenue in our first quarter of fiscal year 2013, and had terms ranging from 5 to 9 years with an average term of approximately 7 years. Contract revenue from unlimited use license agreements was $2.9 million in the same period of fiscal year 2012.

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Royalties. Our royalty revenue in the second quarter of fiscal year 2013 decreased by 19% from the comparable period in fiscal year 2012. Total royalty units reported by our customers in the second quarter of fiscal year 2013 were 194 million, a 4% increase from our second quarter of fiscal year 2012. The royalty per unit for the current quarter was 5.5 cents compared to 7.1 cents in the year ago period. The decline in royalty per unit was due to certain licensees reaching timing and volume tiers in their licenses that triggered lower royalty rates, a decline in average selling price for customers whose royalties are calculated as a percentage of their revenue, shifts in product mix at several of our licensees, and consolidation in the industry as certain of our smaller customers were acquired by larger customers with lower royalty rates. Included in our royalties in the quarter ending December 31, 2012 were $0.2 million in royalty adjustments that were received from several of our customers compared to $1.2 million in the year ago period received from one of our customers..

Royalties in the first six months of fiscal 2013 were down 19% from the comparable period in fiscal 2012. The decrease was primarily due to decrease in royalty per unit. The decline in royalty per unit was due to certain licensees reaching timing and volume tiers in their licenses that triggered lower royalty rates, a decline in average selling price for customers whose royalties are calculated as a percentage of their revenue, shifts in product mix at several of our licensees, and consolidation in the industry as certain of our smaller customers were acquired by larger customers with lower royalty rates. Included in our royalties in the first half of fiscal 2013 were $0.4 million in royalty adjustments that were received from several of our customers compared to $2.8 million in the year ago period received from several of our customers.

License and Contract Revenue. We license our embedded processor intellectual property in the form of both architectures and specific processor cores and in some cases our patents. Our license agreements include both limited and unlimited uses of our products; however, all licenses contain a limitation in the number of years that license is valid and only cover those products specifically licensed and available at the time of the license. Under unlimited use license agreements, customers typically pay a larger fixed, up-front fee for the unlimited use of (i) one or more of our MIPS-developed cores or (ii) our architecture to develop their own MIPS compatible cores during the term of the agreement. Architecture license agreements are not as common as core license agreements. The company currently has 11 active architecture customers. We recognize all license revenues under limited and unlimited use license agreements upon execution of the agreement when there is persuasive evidence of an arrangement, fees are fixed or determinable, delivery has occurred and collectability is reasonably assured.

Our license and contract revenue increased by 85% in the second quarter of fiscal 2013 from the comparable period in fiscal 2012. There were 7 new license agreements executed in the second quarter of fiscal 2013 compared to 4 in the second quarter of fiscal 2012. Unlimited use licenses accounted for $2.4 million of our license and contract revenue in our second quarter of fiscal 2013, and had terms ranging from 1 to 4 years with an average term of approximately 3 years. Contract revenue from unlimited use license agreements was $0.6 million in the same period of fiscal 2012.

License and contract revenue for the six months ended December 31, 2012 increased by 16% from the comparable period in fiscal 2012 which was primarily due to higher average selling price of licenses as compared to the first half of fiscal 2012. Unlimited use licenses accounted for $5.0 million of our license and contract revenue in the six months ended December 31, 2012. The range of terms of unlimited license agreements we completed in the first six months of fiscal 2012 was 1 to 9 years with an average term of approximately 4 years. Contract revenue from unlimited use license agreements was $3.5 million in the same period of fiscal 2012.

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Cost and Expenses

The following is a summary of certain consolidated statement of operations data for the periods indicated (in thousands, except percentages):

	Three Months Ended September 30,
	Three Months Ended December 31,								Six Months Ended December 31,
	2012		2011		~~Change in Percent~~	Change (in Percent)			2012		2011		Change (in Percent)
	(in thousands, except for percentages)
Operating Expenses
Cost and Expenses
Cost of Sales	$	332	$	344			(4	%)	$	694	$	605		15	%
Cost of Sales	$	362	$	261	39%
Research and Development	$	9,031	$	8,278			9	%	$	17,329	$	16,184		7	%
Research and Development	$	8,298	$	7,906	5%
Sales and Marketing	$	4,141	$	3,892			6	%	$	8,566	$	8,723		(2	%)
Sales and Marketing	$	4,425	$	4,831	-8%
General and Administrative	$	5,478	$	3,339			64	%	$	11,044	$	6,603		67	%
General and Administrative	$	5,566	$	3,264	71%
Merger Related Costs	$	1,918	$	—			100	%	$	1,918	$	—		100	%

Cost of Sales. Cost of sales primarily includes labor and overhead related costs for contracts with engineering service requirements, material costs and costs associated with acquired third party software used in our products.

The ~~increase in~~ cost of sales inwas flat from the ~~first~~second quarter of fiscal year 2013 over the same period in fiscal year 2012 ~~was primarily due to increased amortization of purchased third party software licenses in fiscal year 2013~~.

The increase of $0.1 million in cost of sales for the first six months ended December 31, 2012 compared to the same period of fiscal 2012 was primarily due to increased amortization of purchased third party software licenses in fiscal year 2013.

Research and Development. Research and development expenses include salaries and contractor and consultant fees, as well as costs related to workstations, software, and computer aided design tools utilized in the development of new technologies. 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 generally not directly related to any particular licensee, license agreement or license fee.

The $0.48 million increase in research and development expense for the ~~first~~second quarter of fiscal year 2013 over the comparable period in fiscal year 2012 was primarily due to aincreases of (i) $0.5 million ~~increase~~ in incentive compensation resulting from the Company meeting certain financial targets in the ~~first~~second quarter of fiscal year 2013~~. There~~, ~~was~~(ii) ~~also a~~ $0.2 million ~~increase~~ in stock compensation expense related to timing and mix of grants to employees, (iii) $0. 2 million in facilities and depreciation expense, (iv) $0.1 million in salary expense, and (v) $0.1 million in other expenses. These increases were partially offset by a $0.3 million decrease in research and development porting ~~projects~~programs in the ~~first~~second quarter of fiscal year 2013 over the comparable period in fiscal year 2012. The porting programs ensure application compatibility with MIPS-based processors, and our spending on such programs fluctuates based on timing of development projects and product releases.

The $1.1 million increase in research and development for the six months ended December 31, 2012 compared to the same period in fiscal 2012 was primarily due to increases of (i) $1.0 million in incentive compensation resulting from the Company meeting certain financial targets in the first six months of fiscal year 2013, (ii) $0.4 million in stock compensation expense related to timing and number of shares granted to employees, and (iii) $0.4 million in facilities and depreciation expense. These increases were partially offset by a $0.7 million decrease in research and development porting projects in the first six months of fiscal year 2013 over the comparable period in fiscal year 2012.

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

The $0.43 million ~~decrease~~increase in sales and marketing expense for ~~first~~second quarter of fiscal ~~year~~ 2013 over the comparable period in fiscal ~~year~~ 2012 was primarily due to aincreases ~~mix~~ of ~~increases and decreases in various expenses, including~~ (i) a $0.54 million ~~decrease~~ in ~~consulting~~commission ~~expenses,~~and ~~(ii) a $0.3 million decrease in severance costs, (iii) a $0.2 million increase in~~ incentive compensation resulting from the Company meeting certain financial targets in the ~~first~~second quarter of fiscal year 2013, and, (ivii) a $0.2 million ~~increase~~in stock compensation expense related to timing and mix of grants to employees. These increases were partially offset by $0.3 million decrease in ~~ecosystem~~consulting fees related to mobile and Android projects, which fluctuates based on timing of development ~~activities~~projects and product releases.

The $0.2 million decrease in sales and marketing expense for the six months ended December 31, 2012 compared to the same period in fiscal 2012 was primarily due a $0.3 million decrease in severance costs and , a $0.7 million decrease in consulting fees related to mobile and Android projects. These decreases were partially offset by a $0.6 million increase in commission and incentive compensation resulting from the Company meeting certain financial targets in the first six months of fiscal year 2013. There was also a $0.2 million increase in stock compensation expense related to timing and number of shares granted to employees.

General and Administrative. General and administrative expenses comprise salaries, outside professional service fees, 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, expenses related to compliance with the reporting and other requirements of a publicly traded company including directors and officers liability insurance and financial audit fees.

19The $2.1 million increase in our general and administrative expense for the second quarter of fiscal year 2013 over the comparable period in fiscal year 2012 was due to increases of (i) $2.0 million in connection with the Company’s exploration of options related to patent monetization and other opportunities for increasing shareholder value prior to the announcement of the transaction on November 5, 2012, (ii) $0.3 million in incentive compensation resulting from the Company meeting certain financial targets in the second quarter of fiscal year 2013. These increases were partially offset by $0.1 million decrease in consulting expense and a $0.1 million decrease in bad debt expense.

The $4.4 million increase in our general and administrative expense for the six months ended December 31, 2012 compared to the same period in fiscal 2012 was primarily due to an increases of (i) $3.8 million in connection with the Company’s exploration of options related to patent monetization and other opportunities for increasing shareholder value prior to the announcement of the transaction on November 5, 2012, (ii) $0.6 million in incentive compensation resulting from the Company meeting certain financial targets for the first six months of fiscal year 2013.

Transaction Related Costs. Transaction and related costs comprise legal, banking fees and other professional charges subsequent to the announcement of the merger on November 5, 2012.

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The $21.39 million increase in ~~our~~transaction ~~general~~related ~~and~~costs ~~administrative expense~~ for the ~~first~~ second quarter of fiscal ~~year~~ 2013 over the comparable period in fiscal ~~year~~ 2012 ~~was~~and ~~due~~for tothe ~~increases~~six ofmonths ~~(i)~~ended ~~$1.9~~December ~~million~~31, in2012 ~~connection~~compared ~~with~~to the ~~Company’s~~same ~~exploration~~period ofin ~~options~~fiscal 2012 were related to ~~patent~~legal, ~~monetization~~banking fees and other ~~opportunities~~professional ~~for~~charges ~~increasing~~subsequent ~~shareholder~~to ~~value (ii) $0.1 million stock compensation expense primarily resulting from~~ the ~~timing~~announcement ~~and mix~~ of ~~employee stock grants, and (iii) $0.3 million in incentive compensation resulting from~~ the ~~Company~~transaction ~~meeting~~on ~~certain~~November ~~financial~~5, ~~targets in the first quarter of fiscal year 2013~~2012.

Other Income ~~(Expense)~~, Net. Other Income (Expense), was relatively flat atfor ~~less~~the ~~than~~second ~~$0.1~~quarter ~~million~~of ~~for~~fiscal 2013 over the ~~first~~comparable ~~quarter~~period ofin fiscal ~~year~~2012 ~~2013~~ and for the six months ended December 31, 2012 compared to the same period in fiscal ~~year~~ 2012.

Income Taxes. Our income tax primarily consists of U.S. state income taxes, foreign income taxes and withholding taxes.

We recorded an income tax expense and benefit of $0.41 million and $0.2 million for the three-month ~~period~~and six-month periods ended ~~September~~December 3031, 2012, respectively, compared to an income tax expense of $0.54 million and $0.9 million for the comparable ~~period~~periods in fiscal year 2012, respectively. The expense decreased in both periods of fiscal 2013 as compared to the same periods of fiscal 2012 primarily as a result of less revenue being subject to withholding tax in fiscal 2013 and the Company receiving $0.7 million of withholding tax refunds in the first quarter of fiscal year 2013. We continue to recognize a partial valuation allowance against net U.S. deferred tax assets as we believe that it is more likely than not that the majority of our deferred tax assets will not be recognized. The portion of our U.S. net deferred tax assets that has no offsetting valuation allowance is recognized solely as an offset to liabilities recorded with respect to certain unrecognized tax benefits.

Liquidity and Capital Resources

At ~~September~~December 3031, 2012, we had cash, and cash equivalents and short term investments of $~~130~~131.3 million, an increase of approximately $1920.4 million from June 30, 2012.

~~Operating Activities~~27

Net cash provided by operating activities was $19.6 million for the three months ended September 30, 2012. Our net loss included the effects of non-cash charges of $1.9 million from stock compensation expense and $0.5 million in depreciation and amortization of intangible assets. In addition, cash generated from operating activities increased primarily as a result of a $24.5 million decrease in accounts receivable, reflecting timing of customer billings and payments received, and an $0.4 million decrease in prepaid expenses and other current and long term assets, primarily reflecting the timing of engineering design software license payments as compared to the amortization of the associated licenses. These increases in cash were offset by cash used as a result of (i) a $0.5 million decrease in long term liabilities, primarily reflecting timing of engineering design software design software license payments, (ii) a $2.4 million decrease in accounts payable and accrued liabilities, primarily due to the payment of our fiscal year 2012 incentive compensation in the first quarter of fiscal year 2013, and (iii) a $0.5 million decrease in deferred revenue, reflecting timing of customer payments compared to timing of revenue recognition.

Net cash used in operating activities was $2.6 million for the three months ended September 30, 2011. The cash used in operations was primarily a result of our positive net income net of non-cash expenses offset by net changes in our asset and liability balances. Our net income included the effects of non-cash charges of $1.5 million from stock compensation expense and $0.3 million in depreciation and amortization of intangible assets. We used cash in operating activities primarily as a result of (i) a $3.2 million decrease in accrued liabilities, primarily due to the payment of our fiscal year 2011 bonus and commissions in the first quarter of fiscal year 2012, (ii) a $1.8 million increase in accounts receivable, reflecting timing of customer billings and payments received and (iii) a $0.6 million decrease in accounts payable, due to the timing of vendor payments. These decreases were partially offset by cash provided by a $0.6 million decrease in prepaid expenses and other current and long term assets, primarily reflecting the timing of engineering design software license payments as compared to their amortization.

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Operating Activities

Net cash provided by operating activities was $18.8 million for the six months ended December 31, 2012. Our net loss included the effects of non-cash charges of $3.8 million from stock compensation expense and $1.1 million in depreciation and amortization of intangible assets. In addition, cash generated from operating activities increased primarily as a result of a $26.0 million decrease in accounts receivable, reflecting timing of customer billings and payments received, and an $0.2 million decrease in prepaid expenses and other current and long term assets, primarily reflecting the timing of engineering design software license payments and timing of fees pertaining to the pending merger, and a $0.2 million increase in accounts payable and accrued liabilities, primarily due to increased legal fees pertaining to the merger. These increases in cash were offset by cash used as a result of (i) a $1.2 million decrease in long term liabilities, primarily reflecting timing of engineering design software design software license payments, and (ii) a $0.6 million decrease in deferred revenue, reflecting timing of customer payments compared to timing of revenue recognition.

Net cash provided by operating activities was $1.0 million for the six months ended December 31, 2011. Our loss in the first six months of fiscal 2012 was offset by non-cash charges of $3.0 million from stock compensation expense and $0.7 million in depreciation and amortization of intangible assets. In addition, cash generated from operating activities increased primarily as a result of a (i) a $0.6 million decrease in prepaid expenses and other current and long term assets and (ii) a $1.5 million decrease in accounts receivable, reflecting timing of customer billings and payments received. These decreases were partially offset by cash used as a result of $4.2 million decrease in accounts payable and accrued liabilities, primarily due to the payment of our fiscal 2011 bonus in the first quarter of 2012.

Investing Activities

Net cash ~~used~~provided inby investing activities was $033.56 million for the ~~three~~six months ended ~~September~~December 3031, 2012 as a result of net proceeds of $034.6 million ~~used~~from tothe ~~purchase~~net ~~property,~~sales ~~furniture~~ and ~~equipment~~maturities of available-for-sale securities partially offset by ~~proceeds of~~ $0.1.0 million ~~from~~used ~~the~~to ~~net~~purchase ~~purchases~~property, offurniture ~~available-for-sale~~and ~~securities~~equipment.

Net cash ~~used~~provided inby investing activities was $95.34 million for the ~~three~~six months ended ~~September~~December 3031, 2011 as a result of ~~usage of~~ $86.80 million ~~for~~from the net ~~purchases~~maturities of available-for-sale securities and $0.47 million used to purchase property, furniture and equipment.

Financing Activities

Net cash provided by financing activities was $02.56 million for the ~~three~~six months ended ~~September~~December 3031, 2012. This cash generated from financing activities resulted from $02.4 million from stock option exercises and purchases under our employee stock purchase plan and $0.12 million of cash provided by excess tax benefits from options exercised.

Net cash provided by financing activities was $01.43 million for the ~~three~~six months ended ~~September~~December 3031, 2011. This cash generated from financing activities resulted from stock option exercises and purchases under our employee stock purchase plan.

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Liquidity

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

•

general economic and political conditions and specific conditions in the markets we address, including the continuing volatility in the technology sector and semiconductor industry, the recent global economic recession, and trends in the semiconductor markets in various geographic regions, including seasonality in sales of consumer products into which our products are incorporated;

•	our ability to continue to generate cash flow from operations;

•	litigation expenses, settlements and judgments;

•	required levels of research and development and other operating costs;

•	changes in our compensation policies;

•	the issuance of restricted stock units and the related cash payments we make for withholding taxes due from employees in future years;

•	the level of exercises of stock options and stock purchases under our employee stock purchase plan;

•	the timing and payment of taxes;

•	significant payments to suppliers including Computer Aided Design (CAD) system vendors required under long term purchase agreements as these payments vary and can be up to $1.0 million per quarter;

• The costs associated with the Company’s exploration of options related to patent monetization and other opportunities for increasing shareholder value as well as costs relating to the proposed merger and proposed sale of patents;

•	the costs associated with capital expenditures.

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Our short term investments are liquid, and in the event we need to access these funds, we will be able to do without a material loss.

We believe that we have sufficient cash to meet our projected operating and capital requirements for the foreseeable future and at least the next twelve months. Our future capital requirements will depend on many factors including our rate of revenue growth, the timing and extent of spending to support development efforts, any expansion of sales and marketing activities and potential future acquisitions.

~~Our contractual obligations as of September 30, 2012 were as follows (in thousands):~~29

	Total		Less than 1 year		1-3 years		3-5 years
Operating lease obligations (1)	$	4,164	$	993	$	2,194	$	977
Purchase obligations (2)		12,986		8,428		4,033		525
Other long-term liabilities and obligations (3)		1,425		—		1,425		—
Total	$	18,575	$	9,421	$	7,652	$	1,502

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Our contractual obligations as of December 31, 2012 were as follows (in thousands):

	Total		Less than 1 year		1-3 years		3-5 years
Operating lease obligations (1)	$	3,845	$	669	$	2,198	$	978
Purchase obligations (2)		10,946		7,171		3,250		525
Other long-term liabilities and obligations (3)		1,475		—		1,475		—
Total	$	16,266	$	7,840	$	6,923	$	1,503

(1)	We lease office facilities and equipment under non-cancelable operating leases including the lease for our headquarter facility in Sunnyvale, California.

(2) Our purchase obligations of approximately $1311.0 million at ~~September~~December 3031, 2012 decreased from our purchase obligations as of June 30, 2012 by $24.5 million. Of the total, $5.81 million of the obligations relate to purchased software licenses or engineering design software license contracts that are reflected in the Company’s accrued liabilities. The remaining $75.29 million of purchase obligations includes approximately $64.08 million due by ~~September~~December 3031, 2013 with the balance to be completed within four years.

(3)	Long-term liabilities and obligations consist of amounts due to employees under a deferred compensation plan, under which distributions are elected by the employees.

The table above excludes aggregate of $2.8 million for uncertainty in income taxes as we are unable to reasonably estimate the ultimate amount or timing of settlement and advisory fees of $0.5 million that were incurred as of December 31, 2012 and included in the Company’s accrued liabilities.

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 there have been no significant changes to the items we disclosed as our critical accounting policies and estimates in our discussion and analysis of financial condition and results of operations in our 2012 Form 10-K.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We believe there have been no significant changes to the discussion of quantitative and qualitative disclosures about market risk in our 2011 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer), as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) were not effective as of ~~September~~December 3031, 2012, because of the material weakness described in Part II, Item 9A, in our 2012 Annual Report on Form 10-K. In that section, we describe the material weakness in our internal control over financial reporting as a result of the error found during the preparation of financial statements with regards to the process of accounting for income taxes.

We lacked adequate controls over the process of determining and reporting the provision for income taxes. Specifically, controls relating to the oversight and review of the Company’s calculation of its income tax provision for completeness and accuracy by qualified personnel were ineffective.

We have an ongoing process of analyzing and improving our internal controls, including this material weakness identified by management. Our remediation plan includes: (a) implementing additional reviews of the provision for income taxes by qualified personnel experienced in application of tax rules and regulations and accounting for income taxes; and (b) implementing the use of a new provision model that is more automated with built-in checks and control mechanisms to identify potential errors.

Other than the changes implemented as part of the remediation plan discussed above, there were no changes in our internal control over the financial reporting that occurred during the first quarter of fiscal year 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we receive communications from third parties asserting patent or other rights allegedly covering our products and technologies. Based upon our evaluation, we may take no action or we may seek to obtain a license, redesign an accused product or technology, initiate a formal proceeding with the appropriate agency (e.g., the U.S. Patent and Trademark Office) and/or initiate litigation. There can be no assurance in any given case that a license will be available on terms we consider reasonable or that litigation can be avoided if we desire to do so. If litigation does ensue, the adverse third party will likely seek damages (potentially including treble damages) and may seek an injunction against the sale of our products that incorporate allegedly infringing intellectual property or against the operation of our business as presently conducted, which could result in our having to stop the sale of some of our products or to increase the costs of selling some of our products. Such lawsuits could also damage our reputation. The award of damages, including material royalty payments, or the entry of an injunction against the sale of some or all of our products, could have a material adverse affect on us. For additional information regarding intellectual property litigation, see Part II, Item 1A. Risk Factors—“We may be subject to litigation and other legal claims that could adversely affect our financial results.” and “We may be subject to claims of infringement.”

On November 29, 2012, an alleged stockholder filed a putative class action entitled Capgrowth Group v. Sandeep S. Vij, et al., Case No. 1:12-CV-236874, in the Superior Court of the State of California, Santa Clara County, which we refer to as the Capgrowth Action. The defendants are MIPS Technologies and the members of our board of directors. The complaint alleges that the individual defendants breached their fiduciary duties to MIPS Technologies stockholders in connection with the patent sale agreement with Bridge Crossing and the merger agreement with Imagination Technologies and the transactions contemplated thereby. Specifically, the complaint alleges, among other things, that the proposed transactions arise out of a flawed process, that the individual defendants engaged in self-dealing in relation to the proposed transactions, which resulted in a failure to maximize stockholder value. The complaint further alleges that MIPS Technologies and the individual defendants breached their fiduciary duties by omitting material facts from the preliminary proxy statement filed by MIPS Technologies with the Securities and Exchange Commission on November 20, 2012, in connection with the proposed transactions. The plaintiff seeks, among other things, an order enjoining the consummation of the merger, an award of compensatory or rescissory damages, and awarding attorneys’ fees and costs. On December 17, 2012, defendants filed a motion to stay the Capgrowth Action pending resolution of the more advanced Shankar Action (defined below).

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On December 12, 2012, an alleged stockholder filed a putative class action entitled Ashish Shankar v. Kenneth L. Coleman, et al., Case No. 8103-VCN, in the Court of Chancery of the State of Delaware, which we refer as the Shankar Action. The defendants are MIPS Technologies, the members of our board of directors, Acquisition Sub, Imagination Technologies, AST, and Bridge Crossing. The complaint alleges that the individual defendants breached their fiduciary duties to MIPS Technologies stockholders in connection with the patent sale agreement and the merger agreement and the transactions contemplated thereby. Specifically, the complaint alleges, among other things, that the proposed transactions arise out of a flawed process, that the individual defendants engaged in self-dealing in relation to the proposed transactions, which resulted in a failure to maximize stockholder value. The complaint further alleges that the individual defendants breached their fiduciary duties by omitting material facts from the preliminary proxy statement filed by MIPS Technologies with the Securities and Exchange Commission on November 20, 2012, in connection with the proposed transactions. The complaint further alleges Imagination Technologies, Acquisition Sub, Bridge Crossing and AST aided and abetted the alleged breaches of fiduciary duty by the individual defendants. The plaintiff seeks, among other things, an order enjoining the consummation of the proposed transactions, rescinding the proposed transactions if they are consummated or awarding rescissory damages, awarding damages, and awarding attorneys’ fees and costs.

On December 14, 2012, MIPS Technologies and the individual defendants answered the complaint in the Shankar Action. On December 17, 2012, Imagination Technologies and Acquisition Sub entered their appearance in the Shankar Action. Also on December 17, the Court of Chancery entered an order governing the production and exchange of confidential and highly confidential information. On December 18, the Court of Chancery entered a scheduling order providing for, among other things, the certification of a non-opt out class in the Shankar Action. That scheduling order further provided, among other things, that plaintiff will file an amended complaint no later than three days after MIPS Technologies filed a revised preliminary proxy statement with the SEC. Also on December 18, Imagination Technologies and Acquisition Sub answered the complaint in the Shankar Action.

On December 19, 2012, an alleged stockholder filed a putative class action entitled John Mahlke v. MIPS Technologies, Inc., Case No. 8127, in the Court of Chancery of the State of Delaware, which we refer to as the Mahlke Action. The defendants are MIPS Technologies, the members of our board of directors, Acquisition Sub, and Imagination Technologies. The complaint alleges that the individual defendants breached their fiduciary duties to MIPS Technologies stockholders in connection with the merger agreement and the transactions contemplated thereby. Specifically, the complaint alleges, among other things, that the proposed merger arises out of a flawed process which resulted in a failure to maximize stockholder value. The complaint further alleges that the individual defendants breached their fiduciary duties by omitting material facts from the preliminary proxy statement filed by MIPS Technologies with the Securities and Exchange Commission on November 20, 2012, in connection with the proposed merger. The complaint further alleges Imagination Technologies and Acquisition Sub aided and abetted the alleged breaches of fiduciary duty by the individual defendants. The plaintiff seeks, among other things, an order enjoining the consummation of the proposed merger, rescinding the proposed merger if it is consummated or awarding rescissory damages, awarding damages, and awarding attorneys’ fees and costs. On December 20, 2012, MIPS Technologies and the individual defendants answered the complaint in the Mahlke Action. On December 21, 2012, Imagination Technologies and Acquisition Sub answered the complaint in the Mahlke Action.

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On December 21, 2012, MIPS Technologies and the individual defendants filed an amended motion to stay in the Capgrowth Action.

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Item 1A. 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, which could individually or collectively cause our stock price to decline. The following list is not exhaustive and you should carefully consider these risks and uncertainties before investing in our common stock.

Our business and results of operations may be affected by the announcement of the sale of certain of our patents to Bridge Crossing or our proposed acquisition by Imagination ~~Technologies~~.

On November 5, 2012, we entered into the patent sale agreement with Bridge Crossing, pursuant to which we will sell certain U.S. and foreign patents and patent applications to Bridge Crossing. On November 5, 2012, we entered into the merger agreement with Imagination ~~Technologies~~ and an acquisition subsidiary, pursuant to which the acquisition sub will merge with and into us, and we will continue as the surviving corporation and as a wholly owned subsidiary of Imagination. ~~Technologies~~The terms of the merger agreement were subsequently amended on December 9, 2012 and on December 16, 2012. The terms of the patent sale agreement and the merger agreement, and the patent sale and the merger, which we refer to as the proposed transactions, are described in Note 111 of this Quarterly Report on Form 10-Q. For additional information, also see the Company’s definitive proxy statement filed with the Securities and Exchange Commission on January 7, 2013.

The proposed transactions could have an adverse effect on our revenue in the near term if customers delay, defer, or cancel purchases until the completion of the proposed transactions. While we are attempting to mitigate this risk through communications with our customers, current and prospective customers could be reluctant to use and pay us license fees for architectural, product and patent rights, as well as royalties based on processor unit shipments. To the extent that the proposed transactions create uncertainty among customers or our employees such that any significant number of customers delay decisions to use our technology pending completion of the proposed transactions, or our employees depart the company or become distracted, our results of operations and ability to operate profitably could be negatively affected. Decreased revenue or a failure to be profitable could have a variety of adverse effects, including negative consequences to our relationships with, and ongoing obligations to, customers, suppliers, employees, business partners, and others with whom we have business relationships. In addition, our quarterly operating results could fail to meet the expectations of market analysts, which could cause our stock price to decline.

24 We are also subject to additional risks in connection with the proposed transactions, including: (1) the occurrence of an event or circumstance that could give rise to the payment of a termination fee by us under the merger agreement of $2.75 million and the payment of Imagination out-of-pocket transaction-related expenses in an amount up to $2.0 million, in each case pursuant to and in accordance with the terms of the merger agreement, (2) the occurrence of an event or circumstance that could give rise to the payment of a termination fee by us under the patent sale agreement of $10 million, or $20 million if we wrongfully terminate the agreement but have already paid the termination fee of $10 million, or $30 million if we have not yet paid the termination fee of $10 million, in each case pursuant to and in accordance with the terms of the patent sale agreement, (3) the outcome of any legal proceedings that may be instituted against us, our directors and others relating to the proposed transactions, (4) the failure of the proposed transactions to close for any reason, including due to the failure to obtain the necessary stockholder approvals, (5) the restrictions imposed on our business, properties and operations pursuant to the affirmative and negative covenants set forth in the patent sale agreement and merger agreement and the potential impact of such covenants on our business, (6) the risk that the proposed transactions will divert management’s attention resulting in a potential disruption of our current business plan, and (7) potential difficulties in employee retention arising from the proposed transactions.

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We ~~are~~may ~~also~~suffer ~~subject to~~ additional ~~risks~~consequences inif ~~connection with~~ the proposed ~~transactions,~~patent ~~including:~~sale ~~(1)~~to ~~the~~Bridge ~~occurrence~~Crossing ~~of an event~~ or ~~circumstance~~acquisition ~~that could give rise to the payment of a termination fee~~ by ~~us under the merger agreement of $2.75 million and the payment of~~ Imagination ~~Technologies’~~are out-of-pocket transaction-related expenses in an amount up to $2.0 million, in each case pursuant to and in accordance with the terms of the merger agreement, (2) the occurrence of an event or circumstance that could give rise to the payment of a termination fee by us under the patent sale agreement of $10 million, or $20 million if we wrongfully terminate the agreement but have already paid the termination fee of $10 million, or $30 million if we have not yet paid the termination fee of $10 million, in each case pursuant to and in accordance with the terms of the patent sale agreement, (3) the outcome of any legal proceedings that may be instituted against us, our directors and others relating to the proposed transactions, (4) the failure of the proposed transactions to close for any reason, including due to the failure to obtain the necessary stockholder approvals, (5) the restrictions imposed on our business, properties and operations pursuant to the affirmative and negative covenants set forth in the patent sale agreement and merger agreement and the potential impact of such covenants on our business, (6) the risk that the proposed transactions will divert management’s attention resulting in a potential disruption of our current business plan, and (7) potential difficulties in employee retention arising from the proposed transactionscompleted.

We may suffer additional consequences if the proposed patent sale to Bridge Crossing or acquisition by Imagination Technologies are not completed.

If the proposed transactions are not completed, we could suffer a number of consequences that may adversely affect our business, results of operations and stock price, including the following:

•· activities relating to the proposed transactions and related uncertainties may divert our management’s attention from our day-to-day business and cause disruptions among our employees and to our relationships with customers and business partners, thus detracting from our ability to grow revenue and possibly leading to a loss of revenue and market position that we may not be able to regain if the proposed transactions do not occur;

•· the market price of our common stock could decline following an announcement that the proposed transactions have been abandoned, to the extent that the current market price reflects a market assumption that the proposed transactions will be completed;

•· if the patent sale agreement is terminated under certain circumstances, we may be required to pay a termination fee or a wrongful termination payment to Bridge Crossing, and if the merger agreement is terminated under certain circumstances, we may be required to pay a termination fee to Imagination ~~Technologies~~ and reimburse Imagination ~~Technologies~~ for its transaction-related expenses;

•· certain costs related to the proposed transactions, including the fees and/or expenses of our legal, accounting and financial advisors, must be paid even if the proposed transactions are not completed;

•· our stockholders may fail to approve the patent sale or the merger;

•· we may be subject to legal proceedings related to the proposed transactions;

•· we may be the subject of other patent sale or acquisition proposals that require management attention and that may be less favorable to us and our stockholders than the proposed transactions;

•· the timing of the completion of the patent sale or the merger and the impact of the patent sale or the merger may negatively affect our capital resources, cash requirements, profitability, management resources and liquidity;

•· we may not be able to take advantage of alternative business opportunities or effectively respond to competitive pressures; and

•· a failed transaction may result in negative publicity and/or a negative impression of us in the investment community or business community generally.

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~~The~~Our ~~success of our~~ business ~~depends on sustaining or growing our license~~ and ~~contract~~results ~~revenue. License and contract revenue consists~~ of ~~technology~~operations ~~license~~may ~~fees~~be ~~paid~~affected ~~for~~by ~~access~~litigation ~~to our developed technology (and in some cases, our patents), associated maintenance agreements and engineering service fees~~ related to ~~technology under development. Our ability to secure~~ the ~~licenses~~sale ~~from~~of ~~which~~certain ~~our~~of ~~contract revenues are derived depends on~~ our ~~customers,~~patents ~~including semiconductor companies and digital consumer, mobile, wireless, connectivity and business product manufacturers, adopting our technology and using it in the products they sell. As compared~~ to ~~the~~Bridge ~~prior~~Crossing ~~year, our license~~ and ~~contract revenue decreased by 9% in fiscal year 2010. However,~~ our ~~license~~proposed ~~and contract~~acquisition ~~revenue increased~~ by ~~12% in fiscal year 2011 and 35% in fiscal year 2012 as compared to prior years~~Imagination. ~~The~~In ~~fiscal~~addition, ~~year~~such ~~2012~~litigation ~~increase~~may ~~was~~delay ~~due~~the toclosing aof ~~license agreement with a customer providing them~~ the ~~rights to use our~~ patent ~~license~~sale ~~portfolio. In~~and the ~~first~~closing ~~quarter~~ of ~~fiscal year 2013, our license and contract revenue decreased by 18% as compared to~~ the ~~first quarter of fiscal year 2012~~merger.

~~Changes~~In inconnection ~~the~~with ~~size and nature of the license agreements that we enter into in a given period could cause~~ our ~~operating~~proposed ~~results~~patent tosale ~~differ significantly from one period~~ to ~~another. We~~Bridge ~~license~~Crossing ~~our embedded processor intellectual property in the form of both architectures~~ and ~~specific~~our ~~processor~~proposed ~~cores. Our~~acquisition ~~license~~by ~~agreements include both limited and unlimited uses of our products; however~~Imagination, ~~all licenses contain~~ a ~~limitation~~total ~~on the number~~ of ~~years~~five ~~that~~stockholder alawsuits ~~license~~have isbeen ~~valid~~filed ~~and~~against ~~only cover those products specifically licensed and available at~~ the ~~time~~Company. Three of the ~~license.~~lawsuits ~~Under~~have ~~unlimited~~been ~~use~~filed ~~license~~in ~~agreements, customers typically pay a larger fixed, up-front fee for~~ the ~~unlimited~~Superior ~~use~~Court of ~~(i)~~the ~~one~~State ~~or more~~ of ~~our~~California, ~~MIPS-developed~~Santa ~~cores~~Clara orCounty, ~~(ii)~~and ~~our~~two ~~architecture to develop their own MIPS-compatible cores during the term~~ of the ~~agreement. Architecture~~lawsuits ~~license~~have ~~agreements~~been ~~are~~filed ~~not as common as core license agreements. The company currently has 13 active architecture customers. In addition,~~ in ~~June~~the ~~2012~~Court weof ~~entered~~Chancery ~~into~~of ~~a license agreement with a customer providing them~~ the ~~rights~~State toof ~~use our patent license portfolio~~Delaware. No assurance can be given that we will be able to enter into future license agreements related to our patent portfolio or that we will be successful in our strategic efforts around patent monetization.

WeOn ~~recognize~~January ~~all~~3, ~~license~~2013, ~~revenues~~without ~~under limited~~admitting any wrongdoing and ~~unlimited~~to ~~use~~avoid ~~license~~the ~~agreements~~burden, ~~upon~~expense ~~execution~~and disruption of ~~the~~continued ~~agreement~~litigation, ~~provided~~MIPS ~~all~~Technologies, ~~revenue~~certain ~~recognition~~individual ~~criteria~~defendants, ~~have~~Bridge ~~been~~Crossing, ~~met. License~~Allied ~~revenue~~Security ~~from~~Trust, ~~unlimited~~Imagination ~~use~~and ~~license~~a ~~agreements~~subsidiary ~~was~~of ~~51%~~Imagination inentered ~~fiscal~~into ~~year~~a ~~2010,~~memorandum ~~61%~~of understanding with the plaintiffs in ~~fiscal~~the ~~year~~two ~~2011~~Delaware ~~and~~actions ~~86%~~providing for the settlement in ~~fiscal~~principle ~~year~~of ~~2012~~the claims brought on behalf of ~~our~~the ~~total~~class ~~license~~in ~~and~~the ~~contract~~two ~~revenue~~Delaware actions. ~~Additionally~~On January 11, in2013, the ~~first~~Company ~~quarter~~entered into a stipulation with the plaintiffs in two of ~~fiscal~~the ~~year~~three ~~2013~~California actions in which the parties agreed that the settlement in the two Delaware actions, ~~license~~ ~~revenue~~plus ~~from~~certain ~~unlimited~~supplemental ~~use~~disclosures ~~license~~made ~~agreements~~pursuant ~~was~~to ~~73%~~a offiling ~~our~~with ~~total~~the ~~license~~Securities and ~~contract~~Exchange ~~revenue~~Commission, resolve the claims asserted in these two California actions.

The success of our business depends on sustaining or growing our license and contract revenue. License and contract revenue consists of technology license fees paid for access to our developed technology (and in some cases, our patents), associated maintenance agreements 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 and digital consumer, mobile, wireless, connectivity and business product manufacturers, adopting our technology and using it in the products they sell. As compared to the prior year, our license and contract revenue decreased by 9% in fiscal year 2010. However, our license and contract revenue increased by 12% in fiscal year 2011 and 35% in fiscal year 2012 as compared to prior years. The fiscal year 2012 increase was due to a license agreement with a customer providing them with certain license rights to our patent portfolio. In the second quarter of fiscal year 2013, our license and contract revenue increased by 85% as compared to the second quarter of fiscal year 2012.

Changes in the size and nature of the license agreements that we enter into in a given period could cause our operating results to differ significantly from one period to another. We license our embedded processor intellectual property in the form of both architectures and specific processor cores. Our license agreements include both limited and unlimited uses of our products; however, all licenses contain a limitation on the number of years that a license is valid and only cover those products specifically licensed and available at the time of the license. Under unlimited use license agreements, customers typically pay a larger fixed, up-front fee for the unlimited use of (i) one or more of our MIPS-developed cores or (ii) our architecture to develop their own MIPS-compatible cores during the term of the agreement. Architecture license agreements are not as common as core license agreements. The company currently has 11 active architecture customers. In addition, in June 2012 we entered into a license agreement with a customer providing them with certain license rights to our patent portfolio. No assurance can be given that we will be able to enter into future license agreements related to our patent portfolio or that we will be successful in our strategic efforts around patent monetization (including the proposed patent sale to Bridge Crossing).

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We recognize all license revenues under limited and unlimited use license agreements upon execution of the agreement, provided all revenue recognition criteria have been met. License revenue from unlimited use license agreements was 51% in fiscal year 2010, 61% in fiscal year 2011 and 86% in fiscal year 2012 of our total license and contract revenue. Additionally, in the second quarter of fiscal year 2013, license revenue from unlimited use license agreements was 71% of our total license and contract revenue.

The revenue recognized by a license-based business can vary significantly from period to period, depending on the number and size of the license deals closed during the quarter. As a result, it is difficult to predict the level of licensing activity in future periods. Our licensees are not obligated to license new or future generations of our products, so past license and contract revenue may not be indicative of the amount of such revenue in any future period. In addition, consolidation, merger and acquisition activity involving our customers and potential customers may limit our ability to enter into new license agreements, as such activity reduces the number of potential licensees for our products. 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.

We compete against much larger companies in the microprocessor IP market that have larger market share and broader lines of products. Some of our competitors, including Intel Corporation and ARM Holdings plc, have significant financial resources enabling them to market their products aggressively and to target our customers with special incentives. As long as Intel and ARM remain in their dominant position, we may be negatively impacted by their business practices, product mix and product introduction schedules, marketing strategies and exclusivity clauses with customers. In addition, Intel and ARM have substantially greater financial resources than we do and, accordingly, spend substantially greater amounts on research and development and marketing than we do. We expect Intel and ARM to maintain their dominant market positions and to continue to invest heavily in marketing, research and development and in other technology companies. To the extent our competitors develop microprocessor products using more advanced process technologies or introduce competitive new products into the market before we do, our financial condition and operating results will be adversely impacted.

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We may not be successful in our strategic efforts around patent monetization. Our future success depends in part on our ability to monetize our patents. In the fourth quarter of fiscal year 2012, we entered into a license agreement with Broadcom Corporation, pursuant to which we licensed our patents and received a license fee of $26.5 million. We have historically not licensed our patent portfolio in connection with our licensing business model, and it is difficult to predict if we will be able to enter into future license agreements for our patent portfolio. If we do not enter into future patent license agreements, and we are not otherwise successful in alternative patent monetization strategies, our financial condition, revenue and results of operations could be adversely impacted in the future. In addition, our ability (or inability) to successfully conclude patent license agreements in any given quarter may have a significant impact on our quarterly revenue. Furthermore, no assurance can be given that we will be able to enter into future license agreements related to our patent portfolio or that we will be successful in our strategic efforts around patent monetization.

Our royalty revenue may be adversely affected by a number of factors. Our royalty revenue may be adversely affected by a number of factors, including certain contractual provisions in our license agreements and consolidation activity in our customer base. A number of our license agreements have provisions that allow a customer to pay a lower contractual royalty rate based on volume of customer products shipped or the passage of time. In addition, consolidation activity in our customer base may also negatively impact our royalties. For example, one of our customers was recently acquired by one of our largest customers, and the acquiring customer has historically paid a lower royalty rate than the acquired customer. In these situations, the combined entity will often seek to pay us royalties based on the lower royalty rate. Furthermore, a combined entity will likely reach a volume-based royalty reduction (if applicable to such customer) at a faster pace, due to the higher number of units shipped by the combined entity. Similar consolidation events in the future in our customer base would likely have an adverse effect on our royalties. Further, our royalty revenue can be affected by the average prices at which our customers sell their products as some royalties are based on the revenue recognized by our customers.

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Since a substantial portion of our revenue is derived from a few significant customers, the loss of a key customer or any significant delay in our customers’ product development plans could seriously impact our revenue and harm our business. In addition, if we are unable to continue to sell existing and new products to our key customers or to attract new significant customers, our future operating results could be adversely affected. We have derived a substantial portion of our past revenue from sales to and royalties from a relatively small number of customers. As a result, the loss of any significant customer could materially and adversely affect our financial condition and results of operations.

Revenue from our five largest customers represented approximately 6056% and 5448% of our net revenue in the quarters ended ~~September~~December 3031, 2012 and 2011, respectively. We expect that our largest customers will continue to account for a substantial portion of our net revenue for the foreseeable future.

In addition, consolidation, merger and acquisition activity involving our customers may increase our reliance on our largest customers. Our largest customers, and their respective contributions to our net revenue, have varied from time to time and will probably continue to vary.

We may not be able to maintain or increase revenue from certain of our key customers for a variety of reasons, including the following:

·	our agreements with our customers typically do not provide for minimum royalties;

·	many of our customers have pre-existing or concurrent relationships with our current or potential competitors that may affect the customers’ decisions to purchase our products; and

·	some of our customers face intense competition from other manufacturers that do not use our products.

The loss of a key customer, a reduction in the contractual royalty rate of a customer based on volume or the passage of time, a reduction in royalty units used by any key customer, a significant delay in our customers’ product development plans or our inability to attract new significant customers could adversely impact our revenue and our results of operations.

27We may not be successful in our strategic efforts around patent monetization. Our future success depends in part on our ability to monetize our patents. In the fourth quarter of fiscal year 2012, we entered into a license agreement with Broadcom Corporation, pursuant to which we licensed our patents and received a license fee of $26.5 million. We have historically not licensed our patent portfolio in connection with our licensing business model, and it is difficult to predict if we will be able to enter into future license agreements for our patent portfolio. If we do not enter into future patent license agreements, and we are not otherwise successful in alternative patent monetization strategies (including the proposed patent sale to Bridge Crossing), our financial condition, revenue and results of operations could be adversely impacted in the future. In addition, our ability (or inability) to successfully conclude patent license agreements in any given quarter may have a significant impact on our quarterly revenue. Furthermore, no assurance can be given that we will be able to enter into future license agreements related to our patent portfolio or that we will be successful in our strategic efforts around patent monetization (including the proposed patent sale to Bridge Crossing).

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Our financial results could be negatively impacted by economic conditions. The markets served by the Company, and those of our customers, can be highly cyclical, and our financial results, both our royalty revenue and our ability to secure new contracts, could be impacted by consumer spending in the U.S. and global economies. In addition, from time to time, the semiconductor industry has experienced significant downturns and our prospects and results are influenced in a significant way by conditions in this industry. Royalty revenues depend significantly on worldwide economic conditions, including business and consumer spending, and license and contract revenues depend on the willingness of our potential customers to invest in new products, and both our royalty revenue and our license and contract revenue may be impacted by weak economic conditions in consumer spending and infrastructure spending. Some of the factors that could influence the levels of consumer and infrastructure spending include continuing increases in fuel and other energy costs, conditions in the real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence, the threat of sovereign default and other macroeconomic factors affecting consumer spending behavior. In addition, recent economic volatility could lead to a number of follow-on effects on our business, including insolvency issues with our customers or suppliers. These and other economic factors could have a material adverse effect on demand for our products and services, and on our financial condition and operating results.

Our financial results are subject to significant fluctuations that could adversely affect our stock price. Our financial results may vary significantly due to a number of factors. In addition, our revenue components are difficult to predict and may fluctuate significantly from period to period. Because our revenues are somewhat independent of our expenses 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 very 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 (which may include licensing agreements related to our patent portfolio) 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 demand for products that incorporate our technology;

·	our ability to develop, introduce and market new intellectual property;

·	the establishment or loss of licensing relationships with semiconductor companies or digital consumer, mobile, wireless, connectivity and business product manufacturers;

·	consolidation, merger and acquisition activity of our customer base, or customers developing competing products internally, which may cause delays or loss of sales;

·	the amount and timing of royalty payments;

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·	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, mobile, wireless, connectivity and business product manufacturers; and

·	changes in economic and market conditions.

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 depends, in part, on our ability to develop enhancements and new generations of our processors, cores or 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 IP product offerings 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 system original equipment manufacturers, or system OEMs, of digital consumer, mobile, wireless, connectivity and business products;

·	our ability to anticipate and timely respond to changes in semiconductor manufacturing processes;

·	changing customer preferences in the digital consumer, mobile, wireless, connectivity and business products markets;

·	the emergence of new standards in the semiconductor industry and for digital consumer, mobile, wireless, connectivity and business products;

·	the development of platforms, such as Android, by third parties and the selection of preferred solutions for such platforms;

·	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 IP product offerings 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 IP product offerings 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.

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Our stock price is volatile. The market price of our common stock has fluctuated substantially in the past and is likely to continue to be highly volatile and subject to wide fluctuations. From January 1, 2008 through June 30, 2012 our common stock has traded at prices as low as $1.00 and as high as $18.19 per share. Fluctuations have occurred and may continue to occur in response to various factors, many of which we cannot control.

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In addition, the market prices of securities of Internet-related, semiconductor and other technology companies have been and remain volatile. The market prices of securities of many technology companies have fluctuated significantly for reasons frequently unrelated to the operating performance of the specific companies. If our operating results do not meet the expectations of securities analysts or investors, who may derive their expectations by extrapolating data from recent historical operating results, the market price of our common stock will likely decline. Accordingly, you may not be able to resell your shares of common stock at or above the price you paid.

Due to the nature of our compensation programs, some of our executive officers sell shares of our common stock each quarter or otherwise periodically (including pursuant to Rule 10b5-1 stock trading plans). Sales of shares by our executive officers may not be indicative of their respective opinions of our performance at the time of sale or of our potential future performance. Nevertheless, the market price of our stock may be affected by sales of shares by our executive officers.

If we do not succeed in the market for mobile products, our revenue growth may be adversely impacted. We believe that our future success depends in part on our ability to develop software, processor cores or other intellectual property that satisfies the requirements of developers, chip suppliers and manufacturers in the market for mobile products, such as handsets, tablet computers, portable media players and netbooks. If our development efforts for mobile products are not successful or if our IP product offerings and related designs are not widely adopted, our ability to achieve design wins in this market may be limited, and this may in turn adversely affect our medium to long term revenue growth. In addition, the proliferation of the Android platform (and other mobile-related technologies) beyond the market for mobile handsets may increase our reliance on such technologies in attempting to achieve design wins in other markets, including the market for digital consumer products. Further, with our focus on the mobile products market we are, to some extent, foregoing other uses of our research and development and marketing resources, and if this focus is not successful we may fail to capitalize on opportunities available in other markets.

If we do not succeed on key platforms, including Android, our ability to compete and grow may be adversely impacted. Our future success may depend, in part, on our ability to develop software, processor cores or other intellectual property that satisfies the requirements of key platforms, such as Android. If our development efforts are not successful or are significantly delayed, or if the characteristics of our IP product offerings and related designs are not compatible with the requirements of key platforms, our ability to achieve design wins may be limited. In addition, the proliferation of the Android platform and Android-based applications beyond the market for mobile handsets may increase our reliance on Android-related technology in attempting to achieve design wins in the market for digital consumer products, including high-end digital televisions. Competition for the development of technologies for the Android platform is rapidly developing and remains intense.

Our ability to remain competitive may be adversely affected if platform owners select competing technologies as preferred solutions for such platforms. To date, most owners have not favored any particular technology for products based on their platform. However, a decision by a platform owner to standardize on a technology offering provided by a competitor may affect the decisions of potential licensees when considering technology offerings provided by MIPS.

If we fail to achieve a significant number of design wins with respect to platforms like Android, our medium to longer term revenue growth may be adversely impacted. Furthermore, even if we are successful in developing technologies based on Android or other key platforms, those platforms and our technology offerings for such platforms may not be widely adopted in the industry, which may also limit our growth opportunities.42

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AsIf ~~international~~we ~~business~~fail isto achieve a significant ~~component~~number of ~~our~~design ~~revenue,~~wins wewith ~~are~~respect ~~increasingly exposed~~ to ~~various~~platforms ~~legal,~~like ~~business~~Android, ~~political~~our ~~and~~medium ~~economic~~to ~~risks~~longer ~~associated~~term ~~with~~revenue ~~our~~growth ~~international~~may ~~operations. For~~be ~~our~~adversely ~~first~~impacted. ~~quarters~~Furthermore, ofeven ~~fiscal~~if ~~year~~we ~~2013~~are ~~and~~successful ~~2012,~~in ~~56% and~~developing ~~52%~~technologies ofbased ~~our~~on ~~net~~Android ~~revenue~~or ~~was~~other ~~derived~~key ~~from~~platforms, ~~sales~~those toplatforms ~~customers~~and ~~outside~~our ~~the~~technology ~~United~~offerings ~~States. We~~for ~~have~~such ~~sales~~platforms ~~and~~may ~~operations~~not inbe ~~China~~widely asadopted ~~well~~in asthe ~~sales~~industry, ~~offices~~which inmay ~~Germany,~~also ~~Japan,~~limit ~~Israel,~~our ~~Korea~~growth ~~and Taiwan~~opportunities.

As international business is a significant component of our revenue, we are increasingly exposed to various legal, business, political and economic risks associated with our international operations. For our second quarters of fiscal year 2013 and 2012, 47% and 55% of our net revenue was derived from sales to customers outside the United States. We have sales and operations in China as well as sales offices in Germany, Japan, Israel, Korea and Taiwan.

We intend to continue our international business activities. International operations are subject to many inherent risks, including but not limited to:

·	changes in tax laws, trade protection measures and import or export licensing requirements;

·	potential difficulties in protecting our intellectual property rights;

·	fluctuations in foreign currency exchange rates;

·	restrictions, or taxes, on transfers of funds between entities or facilities in different countries;

·	changes in a given country’s political, regulatory or economic conditions;

·	burdens of complying with a variety of foreign laws;

·	difficulties in staffing and managing international operations; and

·	difficulties in collecting receivables from foreign entities or delayed revenue recognition.

Any of the factors described above may have a material adverse effect on our ability to increase or maintain our foreign sales. Economic conditions in our primary overseas markets, particularly in Asia, may negatively impact the demand for our products abroad. All of our international sales to date have been denominated in U.S. dollars. Accordingly, an increase in the value of the U.S. dollar relative to foreign currencies could make our products less competitive in international markets or require us to assume the risk of denominating certain sales in foreign currencies. These factors could impact our business to a greater degree if we further expand our international business activities.

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We rely on third-party technologies for the development of our products and if we were unable to use such technologies in the future, our ability to remain competitive could be harmed. We rely on third parties for technologies that are integrated into our products. If we are unable to continue to use or license these technologies on reasonable terms, or if these technologies fail to operate properly, we may not be able to secure alternatives in a timely manner and our ability to remain competitive would be harmed. In addition, if we are unable to successfully license technology from third parties to develop future products, we may not be able to develop such products in a timely manner or at all.

We rely on the efforts of third parties to enhance our technology offerings and our ecosystem, and an inability to develop or maintain relationships with these parties would harm our ability to remain competitive. We have developed relationships with third parties, including software developers, development tools providers, and third party IP suppliers, pursuant to which these parties provide operating systems, tool support, reference designs and other services that support the MIPS-based ecosystem for our licensees. We believe that these relationships enhance the attractiveness of our technology and improve our ability to achieve design wins. If we are unable to develop or maintain these relationships, or if a product is discontinued by an existing ecosystem partner, our ability to achieve design wins in the future may be limited and our ability to remain competitive would be harmed. In addition, the inability to maintain an attractive MIPS-based ecosystem could adversely affect our business, results of operations and financial condition.

Our business depends 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 licensees incorporating our technology into their products, bringing those products to market, and the success of those products in the market. In the case of our semiconductor licensees, the amount of such sales is further dependent upon the sale of the products by their customers into which our licensees’ products are incorporated. Thus, our ability to achieve design wins and enter into licensing agreements does not assure us of future royalty 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.

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 we do not set the prices at which products incorporating our technology are sold. Further, the royalty revenues we report in any given quarter represent licensee and customer shipments one quarter in arrears, and we have very little visibility into our licensees’ and customers’ shipping of products incorporating our technology.

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We rely on our licensees 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 licensee’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.

We may be subject to litigation and other legal claims that could adversely affect our financial results. From time to time, we are subject to litigation and other legal claims incidental to our business. In addition, it is standard practice for us to include some form of indemnification of our licensees in our core and architecture license agreements, and from time to time we respond to claims by our licensees with respect to these obligations. It is possible that we could suffer unfavorable outcomes from litigation or other legal claims, including those made with respect to indemnification obligations, 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.

For additional information regarding litigation related to our proposed patent sale and proposed merger, please see the Risk Factor above titled “Our business and results of operations may be affected by litigation related to the sale of certain of our patents to Bridge Crossing and our proposed acquisition by Imagination. In addition, such litigation may delay the closing of the patent sale and the closing of the merger.”

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. If we are unable to attract, retain and motivate such personnel in sufficient numbers and on a timely basis, we may experience difficulty in implementing our current business and product plans. In that event, we may be unable to successfully meet competitive challenges or to exploit potential market opportunities, which could adversely affect our business and results of operations. In addition, we cannot assume that we will retain our other key officers and employees. Competition for qualified personnel, particularly those with significant experience in the semiconductor and processor design industries, remains intense.

We may be subject to claims of infringement. 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. In addition, it is standard practice for us to include some form of indemnification of our licensees in our core and architecture license agreements. 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 the use of our technology. For example, we have been notified by ten licensees of a potential infringement claim by Biax Corporation asserting two US patents, allegedly involving MIPS products. A number of these licensees have requested indemnification from MIPS. We are currently reviewing these claims, but to date, we have not incurred any losses in respect of such claims. However, there can be no assurance that we will not incur future liabilities in connection with such claims, or that the amount of such liabilities will not be material.

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.

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Even if we were to prevail, any litigation or claim for indemnification could be costly and time-consuming and would divert the attention of our management and key personnel from our business operations, which could have a material adverse effect on us.

If we do not compete effectively in the market for SoC intellectual property cores and related designs, our business will be adversely affected. Competition in the market for SoC intellectual property and related designs is intense. Our products compete with those of other designers and developers of IP product offerings, as well as those of semiconductor manufacturers whose product lines include digital, analog and/or mixed signal designs for embedded and non-embedded applications. In addition, we may face competition from the producers of unauthorized clones of our processor and other technology designs. The market for embedded processors in particular 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 intellectual property 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, and larger customer bases, as well as greater financial and marketing resources. 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.

As a result of one or more of these risks, our operating costs could increase substantially, our flexibility in operating our business could be impaired and our sales could be adversely affected. Any of these items could have an adverse affect on our financial condition or results of operations.

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Our intellectual property may be misappropriated or expire, and we may be unable to obtain or enforce intellectual property rights. We rely on a combination of protections provided by contracts, including confidentiality agreements, nondisclosure agreements and assignment agreements, copyrights, patents, trademarks, and common-law rights, such as trade secrets, to protect our intellectual property. 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. 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, intellectual property rights which we have obtained in particular geographies may and do expire from time to time, or may be subject to formal opposition proceedings or other challenges. As a result, we cannot be certain that we will be able to prevent other parties from designing and marketing unauthorized MIPS compatible products, that others will not independently develop or otherwise acquire the same or substantially equivalent technologies as ours, or that others will not use information contained in our expired patents to successfully compete against us. 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, and patents that have issued do expire over time or may be subject to reexamination proceedings. Recent judicial decisions and legislation in the United States may increase the cost of obtaining patents, limit the ability to adequately protect our proprietary technology, and have a negative impact on the enforceability of our patents. In addition, effective trade secret protection may be unavailable or limited in certain countries. If we are unable to protect, maintain 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.

Our results of operations could vary as a result of the methods, estimates, and judgments that we use in applying our accounting policies. The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on our results of operations (see “Critical Accounting Policies and Estimates” under ~~Part II,~~ Item 7 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”). Such methods, estimates, and judgments are, by their nature, subject to substantial risks, uncertainties, and assumptions, and factors may arise over time that lead us to change our methods, estimates, and judgments. Changes in these methods, estimates, and judgments could significantly affect our results of operations.

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 changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws or regulations or in the interpretation of tax laws or regulations. We operate in the United States and internationally and occasionally face inquiries and examinations regarding tax matters in the countries that we operate in. There can be no assurance that the outcomes from examinations will not have an adverse effect on our operating results and financial condition. In addition, we are subject to certain withholding taxes relating to the repatriation of undistributed earnings from certain foreign subsidiaries. Any changes in international laws or tax rulings in countries that we operate in could have an adverse impact on our operating results and financial condition.

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If we experience security breaches, our reputation and business could suffer. We retain technical, customer, design, employee and other information on our IT systems, and it is critical to our business strategy that our facilities and infrastructure remain secure. Despite our security measures, our IT infrastructure may be vulnerable to physical break-ins, computer viruses, attacks by hackers or nefarious actors, or similar disruptive problems, including “hacktivism”. It is possible that we may have to expend additional financial and other resources to address any such problems that arise. Any physical or electronic break-in or other security breach or compromise of our IT systems and the information retained in our IT systems could adversely affect our reputation and harm our business.

We may be subject to claims and liabilities in connection with the sale of our discontinued business. In connection with the sale of our Analog Business Group to Synopsys, Inc. (Synopsys) in May 2009, we agreed to retain responsibility for certain actual or contingent liabilities and agreed to indemnify Synopsys against certain breaches of representations and warranties and other liabilities. Our potential liability to Synopsys is subject to certain limitations, including limitations on the time period during which claims may be asserted and the amounts for which we are liable. To date, we have not incurred any losses in respect of claims asserted by Synopsys in connection with this transaction. However, there can be no assurance that we will not incur future liabilities to Synopsys in connection with this transaction, or that the amount of such liabilities will not be material.

In May 2010, Synopsys delivered a letter to MIPS asserting breaches of certain representations and warranties and requesting compensation in an aggregate amount of approximately $3.7 million. We responded to Synopsys in June 2010 and denied all claims set forth in the May 2010 letter. In July 2010, Synopsys responded to our letter. General discussions and exchange of information between the parties have occurred, however, there can be no assurance that the current dispute can be resolved on terms that are acceptable to us.

We cannot be assured that our past restructurings will sufficiently reduce our expenses relative to future revenue and may have to implement additional restructuring plans in order to reduce our operating costs. We have implemented restructuring plans in the past to reduce our operating costs. If we have not sufficiently reduced operating expenses or if revenues are below our expectations, we may be required to engage in additional restructuring activities, which could result in additional restructuring charges. These restructuring charges could harm our results of operations. Further, our restructuring plans could result in a potential adverse effect on employee capabilities that could harm our efficiency and our ability to act quickly and effectively in the rapidly changing technology markets in which we sell our products.

Catastrophic events may disrupt our business and harm our operating results. Our corporate headquarters, a significant portion of our research and development activities, our data centers and certain other critical business operations are located in California. A disruption or failure of our operations in the event of a major natural disaster, telecommunications failure, cyber attack, civil unrest, acts of war, terrorist attack or other catastrophic event could cause system interruptions, delays in our product development and loss of critical data, and could prevent us from fulfilling our customers’ orders. An earthquake or other catastrophic event that results in the destruction or disruption of any of our data centers or our critical business or IT systems would severely affect our ability to conduct normal business operations and, as a result, our operating results would be adversely affected. In addition, the March 2011 earthquake and tsunami in Japan negatively impacted the operations, facilities, development plans, sales, and financial condition of our existing licensees and potential licensees with operations in Japan. The Japan earthquake and tsunami and other future catastrophic events may adversely affect our ability to enter into new agreements with licensees and the ability of these licensees to complete product shipments upon which we earn royalty revenue.

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We may incur impairments to long-lived assets. We review our long-lived assets, including other intangible assets and investments in privately held companies, for impairment annually in the fourth quarter or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Significant negative industry or economic trends, including a significant decline in the market price of our common stock, or disruptions to our business could lead to an impairment charge of our long-lived assets, including the other intangible assets and other investments in privately held companies.

Our consideration of impairment indicators and valuation methodology for assessing impairment requires management to make judgments and assumptions based on historical experience and to rely heavily on projections of future operating performance. We operate in highly competitive environments and projections of future operating results and cash flows may vary significantly from results. Additionally, if our analysis results in impairment to our goodwill, intangible and long-lived assets, we may be required to record a charge to earnings in our financial statements during a period in which such impairment is determined to exist, which may negatively impact our results of operations.

The market value of our investment portfolio is exposed to fluctuations in interest rates and changes in credit ratings which could have a material adverse impact on our financial condition and results of operations. Our cash and cash equivalents ~~and short term investments~~ represent significant assets that may be subject to fluctuating or even negative returns depending upon interest rate movements, changes in credit ratings, sovereign defaults and various financial market conditions. The global credit and capital markets have experienced significant volatility and disruption due to the instability in the global financial system and the current uncertainty related to global economic conditions.

There is a risk that we may incur other-than-temporary impairment charges for certain types of investments, should the credit markets experience further deterioration or the underlying assets fail to perform as anticipated. Our future investment income may fall short of expectations due to changes in interest rates or a decline in fair values of our debt securities that is judged to be other-than-temporary. Furthermore, we may suffer losses in principal if we are forced to sell securities that have declined in market value due to changes in interest rates or financial market conditions.

The amount of our other income (expense), net could be adversely affected by macroeconomic conditions and other factors. The amount of other income (expense), net in our consolidated statements of operations is subject to fluctuations in interest rates and changes in our cash and cash equivalent balances as well as fluctuations in foreign currency exchange rates. These changes are, to a large extent, beyond our control and we have limited ability to predict them.

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ITEM 6. EXHIBITS

(a) Exhibits

312.1 ~~Certification~~Patent Sale Agreement, dated as of ~~Chief~~November ~~Executive~~5, ~~Officer~~2012, ~~pursuant~~by toand ~~Section~~between ~~302~~MIPS ofTechnologies, Inc., and Bridge Crossing, LLC (incorporated by reference to the ~~Sarbanes~~Current Report on Form 8-~~Oxley~~K ~~Act~~filed ofon ~~2002~~November 8, 2012).

2.2

Agreement and Plan of Merger, dated as of November 5, 2012, by and among MIPS Technologies, Inc., Imagination Technologies Group plc and Imagination Acquisition Sub, Inc. (incorporated by reference to the Current Report on Form 8-K filed on November 8, 2012).

2.3

Amendment No. 1 to Agreement and Plan of Merger, dated as of December 9, 2012, by and among MIPS Technologies, Inc., Imagination Technologies Group plc and Imagination Acquisition Sub, Inc. (incorporated by reference to the Current Report on Form 8-K filed on December 10, 2012).

2.4

Amendment No. 2 to Agreement and Plan of Merger, dated as of December 16, 2012, by and among MIPS Technologies, Inc., Imagination Technologies Group plc and Imagination Acquisition Sub, Inc. (incorporated by reference to the Current Report on Form 8-K filed on December 19, 2012).

10.1

Form of Letter Amendment to Change in Control Agreement (incorporated by reference to the Current Report on Form 8-K filed on November 8, 2012).

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 2 AND 3 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.

Item 4.

Mine Safety Disclosures

Not Applicable

ITEM 5 IS NOT APPLICABLE AND HAS BEEN OMITTED.

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SIGNATURES

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

	MIPS Technologies, Inc., a Delaware corporation
November 9, 2012	By:	/s/ WILLIAM SLATER
February 5, 2013	By:	/s/ WILLIAM SLATER
		William Slater
		Vice President and Chief Financial Officer
		(Principal Financial Accounting Officer)

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