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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 ACTS OF 1934.
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. FOR THE TRANSITION PERIOD FROM
TO .
COMMISSION FILE NUMBER 000-24487
MIPS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0322161
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
1225 CHARLESTON ROAD, MOUNTAIN VIEW, CA 94043-1353
(Address of principal executive offices)
Registrants' telephone number, including area code: (650) 567-5000
__________________________________________________________________________
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 [ ]
The number of outstanding shares of the Registrant's Common
Stock, $.001 par value, was 37,265,000 as of October 31, 1998.
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<CAPTION>
PART 1 -- FINANCIAL INFORMATION
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Item 1. Financial Statements (Unaudited):
Page
Condensed Balance Sheets ............................... 3
Condensed Statements of Operations...................... 4
Condensed Statements of Cash Flows ..................... 5
Notes to Condensed Financial Statements................. 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition................... 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk....................................... 18
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings....................................... 19
Item 6. Exhibits and Reports on Form 8-K........................ 19
Signatures............................................................. 20
Index to Exhibits...................................................... 21
</TABLE>
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MIPS TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1998(1)
------------- --------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ............... $21,043 $ 45
Accounts receivable ..................... 1,309 250
Prepaid expenses and other current assets 585 618
---------- --------
Total current assets ............... 22,937 913
Equipment and furniture, net ................. 2,549 2,787
Other assets ................................. 1,081 996
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$26,567 $ 4,696
---------- --------
---------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ....................... $ 3,083 $ 3,087
Accrued liabilities .................... 4,711 2,356
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Total current liabilities ......... 7,794 5,443
Deferred revenue, less current portion ...... 375 --
Total stockholders' equity (deficit) ........ 18,398 (747)
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$26,567 $ 4,696
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</TABLE>
The balance sheet at June 30, 1998 has been derived from audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
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MIPS TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
1998 1997
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Revenue:
Royalties .................................... $11,611 $14,287
Contract revenue ............................. 650 750
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Total revenue ........................... 12,261 15,037
Costs and expenses:
Cost of contract revenue ..................... -- 375
Research and development ..................... 4,552 17,338
Sales and marketing .......................... 1,289 1,448
General and administrative ................... 1,135 1,257
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Total costs and expenses ................ 6,976 20,418
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Operating income (loss) ........................... 5,285 (5,381)
Interest income (expense), net .................... 170 (7)
------- -------
Income (loss) before income taxes ................. 5,455 (5,388)
Provision for income taxes ........................ 2,182 --
------- -------
Net income (loss) ................................. $ 3,273 $(5,388)
------- -------
------- -------
Net income (loss) per share -- basic and diluted ... $ 0.09 $ (0.15)
------- -------
------- -------
Common shares outstanding -- basic ................. 37,250 36,000
------- -------
------- -------
Common shares outstanding -- diluted ............... 38,009 36,000
------- -------
------- -------
</TABLE>
See accompanying notes.
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MIPS TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1998 1997
--------- ---------
<S> <C> <C>
Operating activities:
Net income (loss) ...................................................... $ 3,273 $ (5,388)
Adjustments to reconcile net income (loss) to cash provided by (used
in) operations:
Depreciation ..................................................... 523 1,531
Other non-cash charges ........................................... 42 58
Changes in operating assets and liabilities:
Accounts receivable ........................................... (1,059) 381
Prepaid expenses and other current assets ..................... 33 (767)
Other assets .................................................. (127) (10)
Accounts payable .............................................. (4) (27)
Accrued liabilities ........................................... 2,322 (885)
Deferred revenue .............................................. 408 --
--------- ---------
Net cash flow provided by (used in) operating activities,
excluding Silicon Graphics financing ....................... 5,411 (5,107)
Investing activities -- capital expenditures ................................. (285) (180)
Financing activities:
Net proceeds from issuance of common stock ............................. 15,872 --
Payments on capital lease obligations .................................. -- (109)
Financing provided from Silicon Graphics ............................... -- 5,396
--------- ---------
Net cash provided by financing activities ......................... 15,872 5,287
Net increase in cash ........................................................ 20,998 --
Cash and cash equivalents, beginning of period .............................. 45 --
--------- ---------
Cash and cash equivalents, end of period ..................................... $ 21,043 $ --
--------- ---------
--------- ---------
Supplemental disclosures of cash flow information:
Interest paid .......................................................... $ -- $ 7
--------- ---------
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</TABLE>
See accompanying notes.
5
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MIPS TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. FORMATION AND DESCRIPTION OF BUSINESS
FORMATION OF MIPS TECHNOLOGIES, INC. (THE "COMPANY"). In June 1992,
Silicon Graphics formed the Company following the merger of MIPS Computer
Systems, Inc. into Silicon Graphics, which was accounted for as pooling of
interests. MIPS Computer Systems, Inc. was founded in 1984 and was engaged
in the design and development of RISC microprocessors for the computer
systems and embedded markets. Silicon Graphics adopted the MIPS architecture
for its computer systems in 1988 and acquired MIPS Computer Systems, Inc. in
1992. Following the acquisition, Silicon Graphics continued the MIPS
microprocessor business through its MIPS Group (a division of Silicon
Graphics), which focused primarily on the development of high-performance
microprocessors for Silicon Graphics' workstations and servers. Until the
last few years, cost considerations limited the broader use of these
microprocessors. However, as the cost to design and manufacture
microprocessors based on the MIPS technology decreased, the MIPS Group sought
to penetrate the consumer market, both through supporting and coordinating
the efforts of the MIPS semiconductor partners and most notably, by
partnering with Nintendo in its design of the Nintendo 64 video game player
and related cartridges. Revenues related to sales of Nintendo 64 game players
and related cartridges currently account for the substantial majority of the
Company's revenue. In order to increase the focus of the MIPS Group on the
design and development of microprocessor applications dedicated to the
embedded market, in December 1997, Silicon Graphics initiated a plan to
separate the business of the MIPS Group from its other operations.
In April 1998, the Board of Directors of the Company approved a
transaction, pursuant to which, Silicon Graphics transferred to the Company
the assets and liabilities related to the design and development of
microprocessor intellectual property for embedded market applications (the
"Separation"). In connection with the Separation, the Company and Silicon
Graphics entered into a Corporate Agreement that provides for certain
pre-emptive rights of Silicon Graphics to purchase shares of the Company's
capital stock, registration rights related to shares of the Company's capital
stock owned by Silicon Graphics and covenants against certain actions by the
Company for as long as Silicon Graphics owns a majority of the Company's
outstanding Common Stock. Furthermore, the Company and Silicon Graphics
entered into a Management Services Agreement pursuant to which Silicon
Graphics provides certain services to the Company followed the Separation on
an interim or transitional basis.
As of the closing of the Company's initial public offering (the
"Offering"), on July 6, 1998, the Company was a majority owned subsidiary of
Silicon Graphics.
BASIS OF PRESENTATION. The accompanying financial statements, through
June 30, 1998, reflect the operations of the Company's predecessor, the MIPS
Group. Subsequent to June 30, 1998, the Company operated as a stand-alone
company, MIPS Technologies, Inc.
The accompanying balance sheets have been prepared using the historical
basis of accounting and include all of the assets and liabilities
specifically identifiable to the Company and, for certain liabilities that
are not specifically identifiable, estimates have been used to allocate a
portion of Silicon Graphics' liabilities to the Company. Through June 30,
1998, cash management for the Company had been done by Silicon Graphics on a
centralized basis and all cash provided by Silicon Graphics has been recorded
as interest-free financing from Silicon Graphics. The statement of operations
for the three months ended September 30, 1998 and 1997 include all revenue
and costs attributable to the Company, including a corporate allocation of
the costs of facilities and employee benefits. Additionally, incremental
corporate administration, finance and management costs are allocated to the
Company based on certain methodologies that management believes are
reasonable under the circumstances.
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MIPS TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
The unaudited results of operations for the interim periods shown herein
are not necessarily indicative of operating results for the entire fiscal
year. In the opinion of management, the condensed financial statements
include all adjustments (consisting only of normal recurring accruals)
necessary to present fairly the financial position, results of operations and
cash flow for each interim period shown.
The condensed 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 pursuant to such SEC rules and regulations. The unaudited
condensed financial statements included in this Form 10-Q should be read in
conjunction with the audited financial statements and notes thereto, for the
fiscal year ended June 30, 1998, included in the Company's 1998 Annual Report
on Form 10-K.
NOTE 2. COMPUTATION OF EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three months ended
September 30,
---------- ----------
1998 1997
---------- ----------
<S> <C> <C>
Net income (loss)............................................... $3,273 $(5,388)
---------- ----------
---------- ----------
Weighted-average shares outstanding -- basic.................... 37,250 36,000
Effect of dilutive securities -- employee stock options......... 759 --
---------- ----------
Weighted-average shares outstanding -- diluted.................. 38,009 36,000
---------- ----------
---------- ----------
Net income (loss) per share -- basic............................ $ 0.09 $ (0.15)
---------- ----------
---------- ----------
Net income (loss) per share -- diluted.......................... $ 0.09 $ (0.15)
---------- ----------
---------- ----------
</TABLE>
7
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MIPS TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. NEW ACCOUNTING PRONOUNCEMENTS
During fiscal 1999, the Company adopted Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130").
There was no impact to the Company as a result of the adoption of SFAS 130,
as there is no difference between the Company's reported net income (loss)
and the comprehensive net income (loss) under SFAS 130 for the periods
presented.
In June 1997, the Financial Accounting and Standards Board issued
Statement of Financial Accounting Standards No. 131 "Disclosures about
segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 is
effective for the fiscal year ending June 30, 1999 and establishes standards
for disclosure about products, geography and major customers. The adoption
of SFAS 131 will have no impact on the Company's results of operation and
financial condition. The Company expects that implementation of this standard
will not have material effect on its annual financial statement disclosures.
NOTE 4. CONTINGENCIES
On April 6, 1998, the Company and Silicon Graphics filed an action against
ArtX, Inc. and certain employees of ArtX, Inc. in the Superior Court of the
State of California alleging, among other things, misappropriation of trade
secrets and breach of contractual and fiduciary duties in connection with the
defendants' actions in developing graphics technology for Nintendo's next
generation video game system. On April 23, 1998, Nintendo notified Silicon
Graphics and the Company of its belief that the disclosure in the Company's
registration statement filed with the Securities and Exchange Commission on
April 21, 1998 of certain information regarding the contract for the
development of the Nintendo 64 video game system constituted a breach of that
contract. Silicon Graphics and the Company strongly disagree that any such
breach has occurred. On May 27, 1998, Silicon Graphics, the Company,
Nintendo and ArtX, Inc. entered into a memorandum of understanding pursuant
to which the companies have engaged in discussions relating to a possible
mutually beneficial business relationship. On the basis of this
understanding, Silicon Graphics and the Company have dismissed without
prejudice the pending lawsuit against ArtX, Inc., and Nintendo has agreed
that, in the absence of a lawsuit against Nintendo or ArtX, Inc., it will not
assert any claim that the Nintendo 64 contract has been breached in
connection with the filing of the Company's registration statement.
On April 10, 1998, the Company filed an action against Lexra, Inc.,
a Massachusetts company ("Lexra"), in the United States District Court for
the Northern District of California, asserting claims for false
advertisement, trademark infringement, trademark dilution and unfair
competition. This lawsuit arose out of Lexra's claim that its newly
introduced product offering is "MIPS compatible." Lexra does not have a
license from the Company to use its intellectual property in connection with
any Lexra products. In the suit, the Company sought injunctive relief as
well as monetary damages. In May 1998, Lexra filed an answer and
counterclaim seeking to cancel certain of the Company's trademarks. In
September 1998, the Company has entered into a memorandum of understanding
(MOU) with Lexra, Inc. In the MOU, among other things, Lexra will no longer
state that its products are "MIPS compatible". Lexra's counterclaims has
also been dismissed. The Company is continuing to evaluate possible patent
infringement claims against Lexra and will assert such claims if appropriate.
In February 1998, the Company received a notice asserting that the
R10000 microprocessor and potentially other microprocessors designed by the
Company allegedly infringe a patent originally assigned to Control Data
Corporation. The Company is evaluating these claims.
From time to time, the Company receives communications from third
parties asserting patent or other rights covering the Company's products and
technologies. Based upon the Company's evaluation, it may take no action or
it may seek to obtain a license. There can be no assurance in any given case
that a license will be available on terms the
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Company considers reasonable, or that litigation will not ensue.
Management is not aware of any pending disputes that would be likely to
have a material adverse effect on the Company's business, results of
operations or financial condition.
NOTE 5. RELATED PARTY TRANSACTIONS
At September 30, 1998, accounts payable includes approximately $1.4
million payable to Silicon Graphics relating to payments made by Silicon
Graphics to vendors on behalf of the Company.
At September 30, 1998 accrued liabilities includes approximately $1.1
million taxes payable to Silicon Graphics in accordance with the tax sharing
agreement pursuant to which the Company and Silicon Graphics will make
payments to each other such that, with respect to any period, the amount of
taxes to be paid by the Company, subject to certain adjustments, will be
determined as though the Company were to file separate federal, state and
local income tax return.
During the quarter ended September 30, 1997, the Company was operating
as a division of Silicon Graphics and was utilizing its centralized cash
management services and processes relating to accounts payable and accrued
liabilities. The Company's net cash requirements then were funded by Silicon
Graphics.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE UNAUDITED
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.
Except for the historical information contained in this quarterly report on
Form 10-Q, the matters discussed herein may contain forward-looking
statements that are subject to certain risks and uncertainties that could
cause the Company's actual results to differ materially from those expressed
or implied by such forward-looking statements. Factors that could cause such
differences include, but are not limited to, Year 2000 compliance and other
risks identified herein under "Factors That May Affect Our Business," and
other risks included from time to time in the Company's other Securities and
Exchange Commission ("SEC") reports and press releases, copies of which are
available from the Company upon request. The forward-looking statements
within this Quarterly Report on Form 10-Q are identified by words such as
"believes", "anticipates", "expects", "intends", "may" and other similar
expressions. However, these words are not the exclusive means of identifying
such statements. The Company assumes no obligation to update any
forward-looking statements contained herein.
RESULTS OF OPERATIONS
REVENUE. The Company's revenue consists of royalties and contract revenue
earned under contracts with its licensees. The Company generates royalties
from the sale by semiconductor manufacturers of products incorporating the
Company's technology. The Company also receives royalties from Nintendo
relating to sales of Nintendo 64 video game players and related cartridges.
Royalties may be calculated as a percentage of the revenue received by the
seller on sales of such products or on a per unit basis. Contract revenue
includes technology license fees and engineering service fees earned
primarily under contracts with the Company's semiconductor manufacturing
partners.
Total revenue decreased by $2.8 million to $12.3 million for the three
months ended September 30, 1998 from $15.0 million for the comparable period
in 1997. The decrease in revenue was attributable to the absence of
royalties from the graphics chip included in the Nintendo 64 game player,
which reached its cap in the first half of fiscal 1998. The decrease was
offset in part by an increase in royalties generated from game cartridge
sales by Nintendo. Contract revenue consisted principally of license fees
for the three months ended September 30, 1998 and 1997 and remained
relatively flat quarter over quarter.
COST OF CONTRACT REVENUE. Cost of contract revenue decreased to zero for
the three months ended September 30, 1998 from $375,000 for the comparable
period in 1997. Cost of contract revenue in the first quarter of fiscal 1998
was attributable to sublicense fees, such fees were not payable in the first
quarter of fiscal 1999.
RESEARCH AND DEVELOPMENT. Research and development expenses decreased by
$12.8 million to $4.6 million for the three months ended September 30, 1998
from $17.3 million for the comparable period in 1997. The decrease in
research and development expenses was primarily due to the reduction in the
Company's research and development staff to 43 persons at September 30, 1998
from 258 persons at September 30, 1997. This reduction reflects the transfer
from the Company to Silicon Graphics of employees engaged in the development
of next generation microprocessors for Silicon Graphics' systems as well as
other staff reductions associated with the Company's change in strategic
direction. See "Risks Associated with Recent Shift in Strategic Direction".
The Company expects research and development expenses to increase in fiscal
year 1999 as it develops new designs for the digital consumer products market.
SALES AND MARKETING, GENERAL AND ADMINISTRATIVE. Sales and marketing and
general and administrative expenses decreased by $281,000 to $2.4 million for
the three months ended September 30, 1998 from $2.7 million for the
comparable period in 1997. The decrease was primarily due to a decrease in
advertising and promotional spending. The Company expects sales and marketing
and general and administrative expenses to increase in fiscal year 1999 as
the Company places additional resources into marketing its technology and
operating as a public company.
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INTEREST INCOME (EXPENSE). Interest income (expense) increased by
$177,000 to an interest income of $170,000 for the three months ended
September 30, 1998 from an interest expense of $7,000 for the comparable
period in 1997. The increase was primarily due to interest income earned
from investment of the proceeds of approximately $15.9 million from the
Company's initial public offering, which closed on July 6, 1998.
INCOME TAXES. Subsequent to the closing of the initial public offering,
the Company, while still a part of Silicon Graphics' consolidated group for
federal income tax purposes, is responsible for its income taxes through a
tax sharing agreement with Silicon Graphics. Therefore, to the extent the
Company produces taxable income, losses or credits, it will make or receive
payments as though it filed separate federal, state and local income tax
returns. The Company will be included in Silicon Graphics' consolidated
group for federal income tax purposes for so long as Silicon Graphics
beneficially owns at least 80% of the total voting power and value of the
outstanding common stock.
The Company recorded a provision for income taxes of $2.2 million for the
three months ended September 30, 1998 compared to zero for the comparable
period in 1997. The provision for the three months ended September 30, 1998
was based on an estimated federal and state combined rate of 40% on income
before taxes. The net losses incurred for the three months ended September
30, 1997 are primarily attributable to the operations of the Company as a
division of Silicon Graphics and were included in the income tax returns
filed by Silicon Graphics. In light of both historical losses incurred, as
well as the fact that, by operation of a tax sharing agreement, the Company
will not receive any benefit for losses incurred or have any tax liability
for any income earned up to the closing of the initial public offering, no
income tax provision or benefit has been reflected for the three months ended
September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998 the Company had cash and cash equivalents of $21.0
million and total working capital of $15.1 million, including a short-term
component of deferred revenue of $33,000.
The Company's operating activities provided net cash of $5.4 million for
the three months ended September 30, 1998 compared to net cash used in
operating activities of $5.1 million for the comparable period in 1997. In
the three months ended September 30, 1998, net cash provided by operating
activities consisted mainly of net income, depreciation and an increase in
accrued liabilities and deferred revenue partially offset by an increase in
accounts receivable. The increases in accounts receivable and deferred
revenue were due to a new license agreement completed during the quarter. The
increase in accrued liabilities was the result of accrued compensation and
income tax provision recorded for the three months ended September 30, 1998.
Net cash used in investing activities was $285,000 and $180,000 for the
three months ended September 30, 1998 and 1997, respectively. Net cash used
in investing activities in both periods presented consisted of equipment
purchases. Capital expenditures have been, and future expenditures are
anticipated to be, primarily for facilities and equipment to support
expansion of the Company's operations. The Company expects that its capital
expenditures will increase slightly as its employee base grows.
Net cash provided by financing activities was $15.9 million for the three
months ended September 30, 1998 compared to $5.3 million for the comparable
period in 1997. Net cash provided by financing activities for the three
months ended September 30, 1998, consisted primarily of cash received in
connection with the issuance of common stock through the Company's initial
public offering, which was completed in July 1998. Financing activities for
the three months ended September 30, 1997, consisted primarily of funds
provided from Silicon Graphics.
The Company's future liquidity and capital requirements are expected to
vary greatly from quarter to quarter, depending on numerous factors,
including, among others, the cost, timing and success of product development
efforts, the cost and timing of sales and marketing activities, the extent to
which the Company's existing and new technologies gain market acceptance, the
level and timing of contract revenues and royalties, competing technological
and market
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developments and the costs of maintaining and enforcing patent claims and
other intellectual property rights. The Company believes that cash generated
by its operations, together with the net proceeds to the Company from its
initial public offering, will be sufficient to meet its projected operating
and capital requirements. The Company may elect to raise additional funds
through public or private financing, strategic relationships or other
arrangements. Additional equity financing may be dilutive to holders of the
Common Stock, and debt financing, if available, may involve restrictive
covenants. Moreover, strategic relationships, if necessary to raise
additional funds, may require that the Company relinquish its rights to
certain of its technologies. As long as Silicon Graphics desires to maintain
its percentage ownership interest in the Company, the Company may be
constrained in its ability to issue Common Stock in connection with
acquisitions or to raise equity capital.
FACTORS THAT MAY AFFECT OUR BUSINESS
RISKS ASSOCIATED WITH RECENT SHIFT IN STRATEGIC DIRECTION. The Company's
research and development efforts historically focused primarily on the
development of high-performance microprocessor and related designs for
Silicon Graphics' workstations and servers. However, as the cost to design
and manufacture microprocessors based on the Company's technology decreased,
the Company has sought to penetrate the market for high-volume,
high-performance embedded applications by supporting and coordinating the
efforts of its semiconductor partners in that area. In connection with the
Separation and the Offering, the Company has formulated a new strategic
direction in which its primary focus is the development of microprocessors
and related designs for applications in the embedded market, including
digital consumer products such as video game products, handheld personal
computers and digital set-top boxes. The design and development of
high-performance microprocessors for the next generation Silicon Graphics'
product line is carried out by persons who have been transferred to Silicon
Graphics in connection with the Separation. The Company's shift in strategic
direction involves several risks, including (i) increased reliance on the
evolving and highly competitive digital consumer products industry; (ii) the
need for the Company to refocus its research and development efforts from
microprocessors primarily for high-performance computer systems to
microprocessors and related designs for use in a wide range of digital
consumer products; and (iii) increased importance of the Company's sales and
marketing activities and its limited experience in this area. Any failure by
the Company to adequately address any of these risks could have a material
adverse effect on the Company's business, results of operations and financial
condition.
UNPREDICTABLE AND FLUCTUATING OPERATING RESULTS. The Company experiences
significant fluctuations in its quarterly operating results due to a variety
of factors, many of which are outside of its control. Moreover, because many
of the Company's revenue components fluctuate and are difficult to predict
and the Company's expenses are largely independent of its revenue in any
particular period, it is difficult for the Company to accurately forecast
operating results. The Company's revenue in any particular quarter is
dependent on a number of factors, including the demand for and average
selling prices of semiconductor products that incorporate the Company's
technology, the financial terms of the Company's contractual arrangements
with its semiconductor partners (which may require significant up-front
payments or payments based on the achievement of certain milestones), the
relative mix of contract revenue and royalties, and competitive pressures
resulting in lower contract revenue or royalty rates. In addition, contract
revenue may fluctuate significantly from period to period and any increase or
decrease in such revenue will not be indicative of future period-to-period
increases or decreases. Because the Company's expense levels are based, in
part, on management's expectations regarding future revenue, if revenue is
below expectations in any quarter, the adverse effect may be magnified by the
Company's inability to adjust spending in a timely manner to compensate for
any such revenue shortfall.
Factors that may adversely affect the Company's quarterly operating
results include the Company's ability to develop, introduce and market new
microprocessor intellectual property, the demand for and average selling
prices of semiconductor products that incorporate the Company's technology,
the establishment or loss of strategic relationships with semiconductor
manufacturing partners or manufacturers of digital consumer products, the
timing of new products and product enhancements by the Company and its
competitors, changes in the Company's and digital consumer product
manufacturers' development schedules and levels of expenditures on research
and development and product support and general economic conditions. As a
result, the Company's total revenue and operating results in any future
period cannot
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be predicted with certainty, and its operating results in any quarter may not
be indicative of its future performance. Moreover, the Company expects to
experience seasonal fluctuations in its revenue and operating results.
REVENUE CONCENTRATION. The Company is subject to revenue concentration
risks at both the product and semiconductor manufacturing partner levels. To
date, a substantial portion of the Company's total revenue has been derived
from contract revenue and royalties earned on sales of video game products
that use the Company's RISC-based microprocessor technology. In particular,
royalties and contract revenue from Nintendo and NEC relating to sales of
Nintendo 64 video game players and related cartridges accounted for 79% and
78% of the Company's total revenue for the three months ended September 30,
1998 and 1997, respectively.
The Company anticipates that royalties related to sales of Nintendo 64
video game cartridges will represent a substantial portion of its total
revenue for the next several years. However, competition in the market for
home entertainment products is intense and the introduction of new products
or technologies, as well as shifting consumer preferences, could negatively
impact Nintendo 64 video game cartridge sales. There can be no assurance as
to the amount and timing of sales of Nintendo 64 video game players and
related cartridges and, consequently, there can be no assurance as to the
royalty stream to the Company from such sales. In particular, the eventual
introduction of the next generation Nintendo video game system is expected to
result in declining sales of Nintendo 64 video game players and related
cartridges, although sales of video game cartridges would be likely to
continue for some time. In the near term, factors negatively affecting sales
of Nintendo 64 video game cartridges could have a material adverse effect on
the Company's results of operations and financial condition.
Although the Company expects that an increasingly significant portion of
its future revenue will be related to sales of digital consumer products such
as handheld personal computers and set-top boxes as well as other video game
products, there can be no assurance that the Company's technology will be
selected for design into any such products. Accordingly, the Company may
remain significantly dependent on revenue related to sales of video game
products. The identity of significant products may vary from period to
period depending on the addition of new contracts and the number of designs
using the Company's technology.
A significant portion of the Company's total revenue has been and is
expected to continue to be derived from a limited number of semiconductor
manufacturers. For the three months ended September 30, 1998 and 1997 NEC
accounted for approximately 10% and 16%, respectively, of the Company's total
revenue. The Company believes that NEC will continue to represent at least
10% of its total revenue for at least the next several years, although NEC is
not obligated to continue using the Company's technology in its current or
future products. Because there is a relatively limited number of
semiconductor manufacturers to which the Company could license its technology
on a basis consistent with its business model, it is likely that the
Company's revenue will continue to be concentrated at the semiconductor
manufacturing partner level. This revenue concentration for any given period
will vary depending on the addition or expiration of contracts, the nature
and timing of payments due under such contracts and the volumes and prices at
which the Company's partners sell products incorporating its technology.
Accordingly, the identity of particular manufacturing partners that will
account for any such revenue concentration will vary from period to period
and may be difficult to predict.
SEASONALITY. Because revenue related to sales of Nintendo 64 video game
cartridges is expected to represent a substantial portion of the Company's
total revenue over the next several years, the Company expects to experience
seasonal fluctuations in its revenue and operating results. The Company
records royalty revenue from Nintendo in the quarter following the sale of
the related Nintendo 64 video game cartridge. Because a disproportionate
amount of Nintendo 64 video game cartridges are typically sold in the
Company's second fiscal quarter (which includes the holiday selling season),
a disproportionate amount of the Company's revenue and operating income is
expected to be realized in its third fiscal quarter. In addition, as the
Company increases its focus on microprocessor intellectual property for
high-volume digital consumer products, the Company can be expected to
continue to experience similar seasonal fluctuations in its revenue and
operating results.
INTELLECTUAL PROPERTY MATTERS. The Company regards its patents,
copyrights, mask work rights, trademarks, trade secrets and similar
intellectual property as critical to its success, and relies on a combination
of patent, trademark, copyright, mask work and trade secret laws to protect
its proprietary rights. Any failure of the Company to obtain or
13
<PAGE>
maintain adequate protection of its intellectual property rights for any
reason could have a material adverse effect on its business, results of
operations and financial condition. Subject to the grant of a license to
Silicon Graphics, the Company owns approximately 51 U.S. patents on various
aspects of its technology, with expiration dates ranging from 2006 to 2015,
approximately 24 pending U.S. patent applications as well as all foreign
counterparts relating thereto. There can be no assurance that patents will
issue from any patent applications submitted by the Company, that any patents
held by the Company will not be challenged, invalidated or circumvented or
that any claims allowed from its patents will be of sufficient scope or
strength to provide meaningful protection or any commercial advantage to the
Company. In addition, there can be no assurance that third parties will not
assert claims of infringement against the Company or against the Company's
semiconductor manufacturing partners in connection with their use of the
Company's technology. Such claims, even those without merit, could be time
consuming, result in costly litigation and/or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements,
if required, may not be available on terms acceptable to the Company, or at
all. Moreover, the laws of certain foreign countries may not protect the
Company's intellectual property to the same extent as do the laws of the
United States and, because of the importance of the Company's intellectual
property rights to its business, this could have a material adverse effect on
its business, results of operations and financial condition.
The Company also uses licensing agreements and employee and third party
nondisclosure and assignment agreements to limit access to and distribution
of its proprietary information and to obtain ownership of technology prepared
on a work-for-hire basis. There can be no assurance that the steps taken by
the Company to protect its intellectual property rights will be adequate to
deter misappropriation of such rights or that the Company will be able to
detect unauthorized uses and take immediate or effective steps to enforce its
rights. There can also be no assurance that the steps taken by the Company
to obtain ownership of contributed intellectual property will be sufficient
to assure its ownership of all proprietary rights. The Company also relies
on unpatented trade secrets to protect its proprietary technology. No
assurance can be given that others will not independently develop or
otherwise acquire the same or substantially equivalent technologies or
otherwise gain access to the Company's proprietary technology or disclose
such technology or that the Company can ultimately protect its rights to such
unpatented proprietary technology. In addition, no assurance can be given
that third parties will not obtain patent rights to such unpatented trade
secrets, which patent rights could be used to assert infringement claims
against the Company. From time to time the Company has entered, and in the
future may enter, into cross licensing arrangements with others, pursuant to
which the Company licenses certain of its patents in exchange for patent
licenses from such licensees. Although these types of cross licensing
arrangements are common in the semiconductor and microprocessor industries,
and do not generally provide for transfers of know-how or other proprietary
information, such arrangements may facilitate the ability of such licensees,
either alone or in conjunction with others, to develop competitive products
and designs.
The Company and Silicon Graphics have entered into arrangements pursuant
to which certain intellectual property was assigned to the Company, subject
to the grant of a license to Silicon Graphics; certain intellectual property
was retained by Silicon Graphics, subject to the grant of a license to the
Company; and certain intellectual property was retained by Silicon Graphics
without any ongoing interest to the Company. The Company's inability to use
Silicon Graphics' intellectual property in the future could have a material
adverse affect on its business and results of operations. In the past, the
MIPS Group has benefited from its status as a division of Silicon Graphics in
its access to the intellectual property of third parties through licensing
arrangements or otherwise, and in the negotiation of the financial and other
terms of any such arrangements. As a result of the Separation, there can be
no assurance that the Company will be able to negotiate commercially
attractive intellectual property licensing arrangements with third parties in
the future, particularly if the Company ceases to be a majority-owned
subsidiary of Silicon Graphics. In addition, in connection with any future
intellectual property infringement claims, the Company will not have the
benefit of asserting counterclaims based on Silicon Graphics' intellectual
property portfolio, nor will the Company be able to provide licenses to
Silicon Graphics' intellectual property in order to resolve such claims.
YEAR 2000 COMPLIANCE. The Company is currently examining the Year 2000
issue. The Company believes its products are Year 2000 compliant; however,
the Company is initiating a program to prepare its information technology
("IT") and related non-IT and processes for the Year 2000 and plans to have
changes to critical systems completed by the third quarter of calendar year
1999 to allow time for testing.
14
<PAGE>
Management is assessing the Year 2000 project costs and expects the
assessment to be complete by the end of the second quarter of fiscal 1999,
but based on preliminary estimates, the costs of any necessary actions are
not expected to be material to the Company's results of operations or
financial condition.
The Company intends to cooperate with its manufacturing partners and
others with which it does business to coordinate Year 2000 compliance with
operational processes and marketed products, although the Company is unable
to evaluate the Year 2000 compliance of products and technology developed by
third parties that incorporates the Company's technology. To the extent that
any such third-party product or technology fails to be Year 2000 compliant,
the Company may be adversely affected due to its association with such
product or technology. The Company will also be contacting critical
suppliers of products and services to determine that the suppliers'
operations and the products and services they provide are Year 2000 capable
or to monitor their progress toward Year 2000 capability. The Company may
develop contingency plans should the need arise. There can be no assurance
that another company's failure to ensure Year 2000 capability would not have
an adverse effect on the Company.
LACK OF INDEPENDENT OPERATING HISTORY. The Company has never operated as a
stand-alone company. The Company continues to be a majority owned subsidiary
of Silicon Graphics, however, Silicon Graphics will have no obligation to
provide assistance to the Company. The Company will be required to develop
and implement the operational, administrative and other systems and
infrastructure necessary to support its current and future business. There
can be no assurance that the Company will be able to develop the necessary
systems and infrastructure and any failure to do so could have an adverse
effect on the Company's business, results of operations and financial
condition.
NEW PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE. The Company's success
is highly dependent on its ability to develop enhancements and new
generations of its microprocessor intellectual property, introduce them to
the marketplace in a timely manner, and have them incorporated into
semiconductor products that are ultimately selected for design into the
products of leading digital consumer product manufacturers. There can be no
assurance that the Company's development efforts will be successful or that
the characteristics of its microprocessor intellectual property will satisfy
those that may be critical to specific applications in the embedded market.
To the extent that the Company's development efforts are unsuccessful or the
characteristics of its microprocessor intellectual property are not
compatible with the requirements of specific digital consumer product
applications, its ability to achieve design wins may be limited. Failure to
achieve sufficient design wins could have a material adverse effect on the
Company's business, results of operations and financial condition.
Technical innovations of the type critical to the Company's success are
inherently complex. Any failure by the Company to anticipate or respond
adequately to changes in the requirements of digital consumer product
manufacturers or in the semiconductor manufacturing process, or any
significant delays in the development or introduction of new microprocessor
intellectual property, could have a material adverse effect on the Company's
business, results of operations and financial condition. Moreover,
significant technical innovations generally require a substantial investment
before their commercial viability is determined. There can be no assurance
that the Company will have the financial resources necessary to fund the
future development of microprocessor and related designs. In addition, there
can be no assurance that any enhancements or new generations of the Company's
technology, even if successfully developed, will generate revenue in excess
of the costs of development or not be quickly rendered obsolete by changing
consumer preferences, the introduction of products embodying new technologies
or features or other technological developments in the semiconductor and
digital consumer products industries.
DEPENDENCE ON DIGITAL CONSUMER PRODUCTS INDUSTRY. The digital consumer
products industry will be the primary market for the Company's microprocessor
and related designs. The Company's success will be dependent upon the level
of consumer acceptance of the products that incorporate its technology, which
may be affected by changing consumer preferences and the introduction of
products embodying new technologies or features. In addition, certain
digital consumer products such as video game products may present limited
opportunities for design wins due to a limited number of product
manufacturers and the length of product life cycles. Many applications in the
digital consumer products industry, such as handheld personal computers and
set-top boxes, have only recently been introduced to the market and the level
of consumer interest and acceptance is difficult to predict. Factors
negatively affecting the digital consumer products industry and the demand
for digital consumer products, such as the failure to develop industry
15
<PAGE>
standards for hardware and software or to achieve adequate product cost
reductions, could have a material adverse effect on the Company's business,
results of operations and financial condition. Moreover, to the extent that
the performance, functionality, price and power characteristics of the
Company's microprocessor designs do not satisfy those that may be critical to
specific digital consumer product applications, the Company's dependence on
the digital consumer products industry may be further confined to a limited
segment of that industry.
RELIANCE ON MANUFACTURING PARTNERS. The Company does not manufacture or
sell microprocessors containing its technology. Rather, the Company licenses
its technology to semiconductor manufacturers that incorporate the Company's
technology into the products they sell. In some cases, these manufacturing
partners also add custom integration services and derivative design
technologies to the Company's microprocessor designs. Accordingly, the
Company's success is substantially dependent on the adoption and continued
use of its technology by semiconductor manufacturers. The Company faces
numerous risks in obtaining agreements with semiconductor manufacturers on
terms consistent with its business model, including, among others, the
lengthy and expensive process of building a relationship with a potential
partner before there is any assurance of an agreement; persuading large
semiconductor companies to work with, to rely for critical technology on, and
to disclose proprietary manufacturing technology to, the Company; and
persuading potential partners to bear certain development costs associated
with the Company's technology and to make the necessary investment to
successfully produce embedded microprocessors using the Company's technology.
Moreover, none of the Company's manufacturing partners is obligated to
license new or future generations of the Company's microprocessor designs.
The Company is also subject to many risks beyond its control that
influence the success of its semiconductor manufacturing partners, including,
among others, the highly competitive environment in which its current and any
future partners operate, the market for their products and the engineering
capabilities and financial and other resources of its partners. The Company
also believes that its principal competition may come from semiconductor
manufacturers, including its current manufacturing partners that internally
develop products using similar or alternative technologies. Any such
competition may adversely affect the Company's existing relationships and its
ability to establish new relationships. Moreover, the Company's
relationships with certain of its existing partners may be negatively
affected by its separation from Silicon Graphics, insofar as Silicon
Graphics' status as a customer of such partners has been a factor in
establishing and maintaining such relationships or in negotiating the
financial and other terms of the contractual arrangements with such partners.
The Company currently has seven semiconductor manufacturing partners.
There can be no assurance that the Company will be successful in maintaining
relationships with its current manufacturing partners or in entering into new
relationships with additional partners. Any failure by the Company to
establish or maintain such relationships could have a material adverse effect
on the Company's business, results of operations and financial condition.
DEPENDENCE ON DIGITAL CONSUMER PRODUCT MANUFACTURERS. The timing and
amount of royalties received by the Company is directly affected by sales of
consumer products incorporating the Company's technology. Accordingly, the
Company's success is substantially dependent upon the adoption of its
technology by digital consumer product manufacturers. The Company is subject
to many risks beyond its control that influence the success or failure of a
particular digital consumer product manufacturer, including, among others,
competition faced by the manufacturer in its particular industry; market
acceptance of the manufacturer's products; the engineering, marketing and
management capabilities of the manufacturer; technical challenges unrelated
to the Company's technology faced by the manufacturer in developing its
products; and the financial and other resources of the manufacturer. The
process of persuading digital consumer product manufacturers to adopt the
Company's technology can be lengthy and, even if adopted, there can be no
assurance that the Company's technology will be used in a product that is
ultimately brought to market, achieves commercial acceptance or results in
meaningful royalties to the Company. The failure of manufacturers in the
digital consumer products industry to adopt the Company's technology for
incorporation into their products could have a material adverse effect on the
Company's business, results of operations and financial condition.
Furthermore, because the Company does not control the business practices of
its licensees, it has no ability to establish the prices at which the
products incorporating its technology are made available to digital consumer
product manufacturers or the degree to which its licensees promote the
Company's technology to such manufacturers.
16
<PAGE>
COMPETITION. Competition in the market for embedded microprocessors is
intense. The Company believes that the principal competitive factors in the
industry are performance, functionality, price, customizability and power
consumption. The Company competes primarily against ARM Holdings plc. and
Hitachi Semiconductor (America) Inc. The Company also competes against
certain semiconductor manufacturers whose product lines include
microprocessors for embedded and non-embedded applications, including Intel
Corporation, National Semiconductor Corporation, Advanced Micro Devices, Inc.
and Motorola, Inc. In addition, the Company must continue to differentiate
its microprocessor and related designs from those available or under
development by the internal design groups of semiconductor manufacturers,
including its current and prospective manufacturing partners. Many of these
internal design groups have substantial programming and design resources and
are part of larger organizations, which have substantial financial and
marketing resources. There can be no assurance that internal design groups
will not develop products that compete directly with those of the Company or
will not actively seek to license their own technology to third-party
semiconductor manufacturers. Certain of the Company's competitors have
greater name recognition and customer bases as well as greater financial and
marketing resources than the Company, and such competition could adversely
affect the Company's business, results of operations and financial condition.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends in part on the
continued contributions of its key management, technical, sales and marketing
personnel, many of whom are highly skilled and difficult to replace. In
addition, the Company's business plan requires, and its future operating
results depend in significant part upon, the identification and hiring of
additional highly skilled personnel, particularly technical personnel for its
anticipated research and development activities. Competition for qualified
personnel, particularly those with significant experience in the
semiconductor and microprocessor design industries, is intense. The loss of
the services of any of the key personnel, the inability to attract and retain
qualified personnel in the future or delays in hiring personnel, particularly
technical personnel, could have a material adverse effect on the Company's
business, operating results and financial condition.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. A substantial portion of
the Company's revenue is derived from outside the United States. For the
three months ended September 30, 1998 and 1997, revenue from customers
outside the United States, primarily in Japan, represented approximately 87%
and 91% respectively, of the Company's total revenue. The Company anticipates
that revenue from international customers primarily in Asia, will continue to
represent a substantial portion of its total revenue. To date, substantially
all of the Company's revenue from international customers has been
denominated in U.S. dollars. However, to the extent that sales to digital
consumer product manufacturers by the Company's manufacturing partners are
denominated in foreign currencies, royalties received by the Company on such
sales could be subject to fluctuations in currency exchange rates. In
addition, if the effective price of the technology sold by the Company to its
partners were to increase as a result of fluctuations in foreign currency
exchange rates, demand for the Company's technology could fall which would,
in turn, reduce the Company's royalties. The Company is unable to predict
the amount of non-U.S. dollar denominated revenue earned by its licensees.
Therefore, the Company has not historically attempted to mitigate the effect
that currency fluctuations may have on its revenue, and does not presently
intend to do so in the future. The relative significance of the Company's
international operations exposes it to a number of additional risks including
political and economic instability, longer accounts receivable collection
periods and greater difficulty in collection of accounts receivable, reduced
or limited protection for intellectual property, export license requirements,
tariffs and other trade barriers and potentially adverse tax consequences.
Several countries in Asia are experiencing a severe economic crisis,
characterized by reduced economic activity, lack of liquidity, highly
volatile foreign currency exchange and interest rates and unstable stock
markets. Several of the Company's semiconductor partners sell products into
Asia that incorporate the Company's microprocessor and related designs. Any
negative impact of the circumstances in Asia on its sales of such products by
the Company's semiconductor partners could have a negative impact on its
royalty revenue. There can be no assurance that the Company will be able to
sustain revenue derived from international customers or that the foregoing
factors will not have a material adverse effect on the Company's business,
operating results and financial condition.
MANAGEMENT OF GROWTH. The Company has limited managerial, financial,
engineering and other resources and may not be equipped to manage
successfully any future periods of rapid growth or expansion. In addition,
the Company's business plan requires that it identify and hire additional
highly skilled technical personnel during fiscal 1999 to staff its
anticipated research and development activities. Recruitment and integration
of these additional employees, as well as
17
<PAGE>
any future periods of rapid growth or expansion, can be expected to place
significant strains on the Company's resources, which may be exacerbated by
the Company's recent shift in strategic direction. Digital consumer product
manufacturers as well as the Company's semiconductor manufacturing partners
typically require significant engineering support in the design, testing and
manufacture of products incorporating the Company's technology. As a result,
any increase in the adoption of the Company's technology will increase the
strain on the Company's personnel, particularly its engineers. The Company's
future growth will also depend on its ability to implement operational,
financial and management information and control systems and procedures
necessary to operate as a stand-alone company and without the financial,
operational, managerial and administrative support previously provided by
Silicon Graphics.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
NOT APPLICABLE.
18
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 6, 1998, the Company and Silicon Graphics filed an action against
ArtX, Inc. and certain employees of ArtX, Inc. in the Superior Court of the
State of California alleging, among other things, misappropriation of trade
secrets and breach of contractual and fiduciary duties in connection with the
defendants' actions in developing graphics technology for Nintendo's next
generation video game system. On April 23, 1998, Nintendo notified Silicon
Graphics and the Company of its belief that the disclosure in the Company's
registration statement filed with the Securities and Exchange Commission on
April 21, 1998 of certain information regarding the contract for the
development of the Nintendo 64 video game system constituted a breach of that
contract. Silicon Graphics and the Company strongly disagree that any such
breach has occurred. On May 27, 1998, Silicon Graphics, the Company,
Nintendo and ArtX, Inc. entered into a memorandum of understanding pursuant
to which the companies have engaged in discussions relating to a possible
mutually beneficial business relationship. On the basis of this
understanding, Silicon Graphics and the Company have dismissed without
prejudice the pending lawsuit against ArtX, Inc., and Nintendo has agreed
that, in the absence of a lawsuit against Nintendo or ArtX, Inc., it will not
assert any claim that the Nintendo 64 contract has been breached in
connection with the filing of the Company's registration statement.
On April 10, 1998, the Company filed an action against Lexra, Inc., a
Massachusetts company ("Lexra"), in the United States District Court for the
Northern District of California, asserting claims for false advertisement,
trademark infringement, trademark dilution and unfair competition. This
lawsuit arose out of Lexra's claim that its newly introduced product offering
is "MIPS compatible." Lexra does not have a license from the Company to use
its intellectual property in connection with any Lexra products. In the
suit, the Company sought injunctive relief as well as monetary damages. In
May 1998, Lexra filed an answer and counterclaim seeking to cancel certain of
the Company's trademarks. In September 1998, the Company has entered into a
memorandum of understanding (MOU) with Lexra, Inc. In the MOU, among other
things, Lexra will no longer state that its products are "MIPS compatible".
Lexra's counterclaims has also been dismissed. The Company is continuing to
evaluate possible patent infringement claims against Lexra and will assert
such claims if appropriate.
From time to time, the Company receives communications from third parties
asserting patent or other rights covering the Company's products and
technologies. Based upon the Company's evaluation, it may take no action or
it may seek to obtain a license. There can be no assurance in any given case
that a license will be available on terms the Company considers reasonable,
or that litigation will not ensue.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 FINANCIAL DATA SCHEDULE.
(b) REPORTS ON FORM 8-K.
None.
ITEMS 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MIPS Technologies, Inc.
a Delaware corporation
By: /s/ KEVIN C. EICHLER
-------------------------------------------
Kevin C. Eichler
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: November 16, 1998
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET, STATEMENT OF OPERATIONS AND STATEMENT OF CASH FLOWS INCLUDED
IN THE COMPANY'S FORM 10-Q FOR THE PERIOD ENDING SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1998
<PERIOD-START> JUL-01-1998 JUL-01-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 21,043 0
<SECURITIES> 0 0
<RECEIVABLES> 1,309 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 22,937 3,542
<PP&E> 6,369 47,165
<DEPRECIATION> 3,820 33,326
<TOTAL-ASSETS> 26,567 18,661
<CURRENT-LIABILITIES> 7,794 10,581
<BONDS> 0 0
0 0
0 0
<COMMON> 37 36
<OTHER-SE> 18,361 8,044
<TOTAL-LIABILITY-AND-EQUITY> 26,567 18,661
<SALES> 0 0
<TOTAL-REVENUES> 12,261 15,037
<CGS> 0 375
<TOTAL-COSTS> 0 375
<OTHER-EXPENSES> 6,976 20,043
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 170 (7)
<INCOME-PRETAX> 5,455 (5,388)
<INCOME-TAX> 2,182 0
<INCOME-CONTINUING> 3,273 (5,388)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,273 (5,388)
<EPS-PRIMARY> .09 (0.15)
<EPS-DILUTED> .09 (0.15)
</TABLE>
