##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period from to
 Commission File Number 000-31803
 TRANSMETA CORPORATION
 (Exact name of Registrant as specified in its charter)
 Delaware
    
    77-0402448(State or other jurisdiction of
    
    (I.R.S. employerincorporation or organization)
    
    identification no.)
 2540
Mission College Boulevard, Santa Clara, CA 95054
(Address of principal executive offices, including zip code)
(408) 919-3000  (Registrants telephone number, including area code)
 þ o
  o þ o
 Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ




---



##### 



TRANSMETA CORPORATION
FORM 10-Q
Quarterly Period Ended June 30, 2007
TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial StatementsUnaudited
Condensed Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006
    
    
    3Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30,
2007 and 2006
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    29PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    30Item 1A. Risk Factors
    
    
    30Item 6. Exhibits
    
    
    39Signatures
    
    
    40EXHIBIT 31.01EXHIBIT 31.02EXHIBIT 32.01EXHIBIT 32.02
  2




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##### 



PART I. FINANCIAL INFORMATION
 
 Item 1. Condensed Consolidated Financial Statements
 TRANSMETA CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and per share amounts)
 June 30,
    
    
    December 31,2007
    
    
    2006(1)(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    4,267
    
    
    $
    11,595Short-term investments
    
    
    10,984
    
    
    
    29,955Accounts receivable
    
    
    224
    
    
    
    310Prepaid expenses and other current assets
    
    
    1,935
    
    
    
    2,729Total current assets
    
    
    17,410
    
    
    
    44,589Property and equipment, net
    
    
    487
    
    
    
    758Patents and patent rights, net
    
    
    5,811
    
    
    
    9,234Other assets
    
    
    2,015
    
    
    
    2,148Total assets
    
    $
    25,723
    
    
    $
    56,729LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,406
    
    
    $
    1,467Accrued compensation and related compensation liabilities
    
    
    1,183
    
    
    
    3,245Deferred income, net
    
    
    
    
    
    
    15Other accrued liabilities
    
    
    2,464
    
    
    
    3,015Advance from customers
    
    
    
    
    
    
    1,320Current portion of accrued restructuring costs
    
    
    3,771
    
    
    
    1,996Current portion of long-term payable
    
    
    533
    
    
    
    667Total current liabilities
    
    
    9,357
    
    
    
    11,725Long-term accrued restructuring costs, net of current portion
    
    
    
    
    
    
    988Long-term payables, net of current portion
    
    
    1,200
    
    
    
    1,333Total liabilities
    
    
    10,557
    
    
    
    14,046Commitments and Contingencies (Note 5)Stockholders equity:Convertible preferred stock, $0.00001 par value, at amounts
paid in; Authorized shares  5,000,000. None issued in 2007
and 2006
    
    
    
    
    
    
    Common stock, $0.00001 par value, at amounts paid in;
Authorized shares  1,000,000,000. Issued and outstanding
shares 200,880,149 and 200,083,274 respectively
    
    
    726,823
    
    
    
    724,229Treasury stock  796,875 shares in 2007 and 2006
    
    
    (2,439
    )
    
    
    (2,439
    )Accumulated other comprehensive gain (loss)
    
    
    7
    
    
    
    (66
    )Accumulated deficit
    
    
    (709,225
    )
    
    
    (679,041
    )Total stockholders equity
    
    
    15,166
    
    
    
    42,683Total liabilities and stockholders equity
    
    $
    25,723
    
    
    $
    56,729
 
 (1)
    
    Derived from the Companys audited financial statements as of December 31, 2006 but does
not include all disclosures required by accounting principles generally accepted in the United
States of America.  3




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##### 



TRANSMETA CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share amounts)
 (Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue:Product
    
    $
    25
    
    
    $
    361
    
    
    $
    167
    
    
    $
    950License
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Services
    
    
    146
    
    
    
    8,970
    
    
    
    2,143
    
    
    
    27,890Total revenue
    
    
    171
    
    
    
    9,331
    
    
    
    2,310
    
    
    
    28,840Cost of revenue:Product
    
    
    
    
    
    
    (62
    )
    
    
    80
    
    
    
    100License
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Services
    
    
    80
    
    
    
    5,795
    
    
    
    1,218
    
    
    
    16,676Impairment charge on inventories
    
    
    
    
    
    
    
    
    
    
    364
    
    
    
    Total cost of revenue
    
    
    80
    
    
    
    5,733
    
    
    
    1,662
    
    
    
    16,776Gross profit
    
    
    91
    
    
    
    3,598
    
    
    
    648
    
    
    
    12,064Operating expenses:Research and development
    
    
    2,537
    
    
    
    4,769
    
    
    
    7,473
    
    
    
    8,021Selling, general and administrative
    
    
    5,644
    
    
    
    6,043
    
    
    
    11,750
    
    
    
    11,587Restructuring charges, net
    
    
    1,920
    
    
    
    96
    
    
    
    8,585
    
    
    
    170Amortization of patents and patent rights
    
    
    1,711
    
    
    
    1,712
    
    
    
    3,423
    
    
    
    3,423Impairment charge on long-lived and other assets
    
    
    8
    
    
    
    
    
    
    
    302
    
    
    
    Total operating expenses
    
    
    11,820
    
    
    
    12,620
    
    
    
    31,533
    
    
    
    23,201Operating loss
    
    
    (11,729
    )
    
    
    (9,022
    )
    
    
    (30,885
    )
    
    
    (11,137
    )Interest income and other, net
    
    
    365
    
    
    
    590
    
    
    
    855
    
    
    
    1,093Interest expense
    
    
    (86
    )
    
    
    (37
    )
    
    
    (154
    )
    
    
    (72
    )Net loss
    
    $
    (11,450
    )
    
    $
    (8,469
    )
    
    $
    (30,184
    )
    
    $
    (10,116
    )Net loss per share  basic and diluted
    
    $
    (0.06
    )
    
    $
    (0.04
    )
    
    $
    (0.15
    )
    
    $
    (0.05
    )Weighted average shares outstanding  basic and diluted
    
    
    199,935
    
    
    
    195,725
    
    
    
    199,580
    
    
    
    194,553
  4




---



##### 



TRANSMETA CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (30,184
    )
    
    $
    (10,116
    )Adjustments to reconcile net loss to net cash used in operating activities:Stock-based compensation expense
    
    
    996
    
    
    
    3,227Depreciation
and amortization
    
    
    352
    
    
    
    556Amortization of other assets
    
    
    
    
    
    
    Amortization of patents and patent rights
    
    
    3,423
    
    
    
    3,423Non cash restructuring charges
    
    
    8,585
    
    
    
    170Impairment charge on long-lived and other assets
    
    
    302
    
    
    
    Loss on disposal of fixed assets, net
    
    
    23
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    86
    
    
    
    1,320Inventories
    
    
    
    
    
    
    (163
    )Prepaid expenses and other current assets
    
    
    448
    
    
    
    191Other assets
    
    
    133
    
    
    
    (10
    )Accounts
payable, accrued liabilities, and other payables
    
    
    (2,903
    )
    
    
    (188
    )Deferred income
    
    
    (15
    )
    
    
    (450
    )Advances from customers
    
    
    (1,320
    )
    
    
    (4,829
    )Accrued restructuring charges
    
    
    (7,798
    )
    
    
    (982
    )Net cash
used in operating activities
    
    
    (27,872
    )
    
    
    (7,851
    )Cash flows from investing activities:Purchase of available-for-sale investments
    
    
    
    
    
    
    (14,000
    )Proceeds from sale or maturity of available-for-sale investments
    
    
    19,000
    
    
    
    12,000Purchase of property and equipment
    
    
    (60
    )
    
    
    (305
    )Net cash provided by (used in) investing activities
    
    
    18,940
    
    
    
    (2,305
    )Cash flows from financing activities:Proceeds from sales of common stock under employee stock purchase and
incentive option plans
    
    
    1,604
    
    
    
    3,841Net cash provided by financing activities
    
    
    1,604
    
    
    
    3,841Change in cash and cash equivalents
    
    
    (7,328
    )
    
    
    (6,315
    )Cash and cash equivalents at beginning of period
    
    
    11,595
    
    
    
    27,659Cash and cash equivalents at end of period
    
    $
    4,267
    
    
    $
    21,344Supplemental disclosure of cash paid during the period:Cash paid for interest
    
    $
    44
    
    
    $
    Cash paid for taxes
    
    $
    54
    
    
    $
    7
  5




---



##### 



TRANSMETA CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 1.
    
    Description of Business
   2.
    
    Basis of Presentation
   6




---



##### 



3.
    
    Balance Sheet Details
 June 30,(In thousands)
    
    2007
    
    
    December 31, 2006Property and equipment, netLeasehold improvements
    
    $
    2,325
    
    
    $
    2,076Computer equipment
    
    
    3,519
    
    
    
    4,183Furniture and fixtures
    
    
    395
    
    
    
    677Computer software
    
    
    773
    
    
    
    1,8587,012
    
    
    
    8,794Less accumulated depreciation and amortization
    
    
    (6,525
    )
    
    
    (8,036
    )Total
    
    $
    487
    
    
    $
    758Other accrued liabilitiesAccrued audit
    
    $
    573
    
    
    $
    847Deferred rent
    
    
    91
    
    
    
    407Accrued insurance
    
    
    230
    
    
    
    546Other
    
    
    1,570
    
    
    
    1,215$
    2,464
    
    
    $
    3,015
 4.
    
    Short-Term Investments
  7




---



##### 



Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    Aggregate Fair(In thousands)
    
    Amortized Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueAs of June 30, 2007Federal agency discount notes
    
    $
    11,000
    
    
    $
    
    
    
    $
    16
    
    
    $
    10,984Total
    
    $
    11,000
    
    
    $
    
    
    
    $
    16
    
    
    $
    10,984As of December 31, 2006Federal agency discount notes
    
    $
    16,000
    
    
    $
    
    
    
    $
    45
    
    
    $
    15,955Commercial paper
    
    
    14,000
    
    
    
    
    
    
    
    
    
    
    
    14,000Total
    
    $
    30,000
    
    
    $
    
    
    
    $
    45
    
    
    $
    29,955
  Aggregate Fair(In thousands)
    
    Amortized Cost
    
    
    ValueAs of June 30, 2007:Amounts maturing within one year
    
    $
    9,000
    
    
    $
    8,986Amounts maturing after one year, within five years
    
    
    2,000
    
    
    
    1,998Total
    
    $
    11,000
    
    
    $
    10,984
     In Loss Position < 12 Months
    
    
    In Loss Position > 12 Months
    
    
    Total in Loss PositionGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    Unrealized(In thousands)
    
    Fair Value
    
    
    (Loss)
    
    
    Fair Value
    
    
    (Loss)
    
    
    Fair Value
    
    
    (Loss)Short-term investments:Federal agency discount notes
    
    $
    8,986
    
    
    $
    (14
    )
    
    $
    1,998
    
    
    $
    (2
    )
    
    $
    10,984
    
    
    $
    (16
    )Commercial paper
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total in loss position
    
    $
    8,986
    
    
    $
    (14
    )
    
    $
    1,998
    
    
    $
    (2
    )
    
    $
    10,984
    
    
    $
    (16
    )
 8




---



##### 



5. Commitments and Contingencies
 Purchase Commitments
  Operating Leases
   OperatingLeases(In thousands)Years ending December 31,2007(remaining 6 months)
    
    $
    2,3152008
    
    
    2,7132009
    
    
    800Total minimum operating lease payments
    
    $
    5,828
 Litigation
 In re Transmeta
Corporation Initial Public Offering Securities Litigation, In re Initial Public Offering
Securities Litigation,
 9




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##### 



6.
    
    Net Comprehensive Loss
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net loss
    
    $
    (11,450
    )
    
    $
    (8,469
    )
    
    $
    (30,184
    )
    
    $
    (10,116
    )Net change
in unrealized gain on investments
    
    
    3
    
    
    
    7
    
    
    
    29
    
    
    
    55Net change in foreign currency translation adjustments
    
    
    (3
    )
    
    
    (5
    )
    
    
    44
    
    
    
    (6
    )Net comprehensive loss
    
    $
    (11,450
    )
    
    $
    (8,467
    )
    
    $
    (30,111
    )
    
    $
    (10,067
    )
  June 30,
    
    
    December 31,2007
    
    
    2006Net unrealized loss on investments
    
    $
    (16
    )
    
    $
    (45
    )Cumulative foreign currency translation adjustments
    
    
    23
    
    
    
    (21
    )Accumulated
other comprehensive income (loss)
    
    $
    7
    
    
    $
    (66
    )
 7.
    
    Stock Based Compensation
  10




---



##### 



Valuation Assumptions
 
 Three Months Ended June 30,
    
    Six Months Ended June 30,Incentive Stock Plans
    
    2007 (1)
    
    2006
    
    2007
    
    2006Risk-free interest rate
    
    
    
    
    
    
    5.0
    %
    
    
    4.7
    %
    
    
    4.8
    %Expected life of option
    
    
    
    
    
    3 - 4 years
    
    4 years
    
    3 - 4 yearsExpected dividend yield
    
    
    
    
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Volatility
    
    
    
    
    
    
    100
    %
    
    
    87
    %
    
    
    100
    %
 Three Months Ended June 30,
    
    Six Months Ended June 30,Employee Stock Purchase Plan
    
    2007 (1)
    
    2006
    
    2007
    
    2006Risk-free interest rate
    
    
    
    
    
    
    5.0
    %
    
    
    5.1
    %
    
    
    4.8
    %Expected life of option
    
    
    
    
    
    1.25 years
    
    1.25 years
    
    1.25 yearsExpected dividend yield
    
    
    
    
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Volatility
    
    
    
    
    
    
    89
    %
    
    
    71
    %
    
    
    89
    %
 
 (1)
    
    No stock options were granted during three months ended June 30, 2007.  11




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##### 



Stock Compensation Expense
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,(In thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Cost of product revenue
    
    $
    
    
    
    $
    5
    
    
    $
    
    
    
    $
    9Cost of
services revenue
    
    
    14
    
    
    
    763
    
    
    
    17
    
    
    
    1,364Research and development
    
    
    364
    
    
    
    403
    
    
    
    282
    
    
    
    661Selling, general and administrative
    
    
    315
    
    
    
    739
    
    
    
    697
    
    
    
    1,193Total stock-based compensation
    
    $
    693
    
    
    $
    1,910
    
    
    $
    996
    
    
    $
    3,227
 Equity Incentive Plans
    WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    ContractualShares Available for
    
    
    Number of
    
    
    Exercise
    
    
    Term
    
    
    Aggregate IntrinsicGrant
    
    
    Shares
    
    
    Price
    
    
    (In Years)
    
    
    ValueBalance at December 31, 2006
    
    
    20,542,264
    
    
    
    37,980,675
    
    
    $
    1.90Additional shares reserved
    
    
    9,893,820Options granted
    
    
    (1,000,000
    )
    
    
    1,000,000
    
    
    $
    0.67Options exercised
    
    
    
    
    
    
    (655,619
    )
    
    $
    0.71Options forfeited /
canceled / expired
    
    
    20,619,679
    
    
    
    (21,369,679
    )
    
    $
    1.98Balance at June 30, 2007
    
    
    50,055,763
    
    
    
    16,955,377
    
    
    $
    1.78
    
    
    
    5.1
    
    
    $
    101,704Vested and expected to be vested
    
    
    
    
    
    
    15,650,257
    
    
    $
    1.83
    
    
    
    4.8
    
    
    $
    79,364Shares Exercisable:June 30, 2007
    
    
    
    
    
    
    12,545,113
    
    
    $
    2.03
    
    
    
    3.9
    
    
    $
    10,944
 12




---



##### 



Outstanding
    
    
    ExercisableWeighted
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    
    WeightedShares
    
    
    Contractual
    
    
    Exercise
    
    
    Shares
    
    
    AverageRange of Exercise Prices
    
    Outstanding
    
    
    Life Years
    
    
    Price
    
    
    Exercisable
    
    
    Exercise PriceAs of June 30, 2007:$0.65 - $0.72
    
    
    1,508,084
    
    
    
    8.94
    
    
    $
    0.68
    
    
    
    247,750
    
    
    $
    0.71$0.75 - $0.75
    
    
    3,395,722
    
    
    
    5.91
    
    
    $
    0.75
    
    
    
    2,551,264
    
    
    $
    0.75$0.77 - $1.15
    
    
    2,273,250
    
    
    
    2.35
    
    
    $
    1.01
    
    
    
    2,115,583
    
    
    $
    1.02$1.20 - $1.37
    
    
    1,999,061
    
    
    
    7.25
    
    
    $
    1.28
    
    
    
    1,045,976
    
    
    $
    1.22$1.40 - $1.43
    
    
    45,937
    
    
    
    6.33
    
    
    $
    1.42
    
    
    
    25,937
    
    
    $
    1.42$1.48 - $1.48
    
    
    1,843,909
    
    
    
    7.24
    
    
    $
    1.48
    
    
    
    717,975
    
    
    $
    1.48$1.57 - $2.22
    
    
    1,699,879
    
    
    
    3.93
    
    
    $
    1.88
    
    
    
    1,694,462
    
    
    $
    1.88$2.28 - $2.46
    
    
    2,206,842
    
    
    
    3.51
    
    
    $
    2.42
    
    
    
    2,187,953
    
    
    $
    2.43$2.48 - $9.50
    
    
    1,877,022
    
    
    
    2.31
    
    
    $
    4.82
    
    
    
    1,852,542
    
    
    $
    4.84$11.17 - $13.62
    
    
    105,671
    
    
    
    3.30
    
    
    $
    12.86
    
    
    
    105,671
    
    
    $
    12.86Total
    
    
    16,955,377
    
    
    
    
    
    
    
    
    
    
    
    12,545,113
 2000 Employee Stock Purchase Plan
  13




---



##### 



8.
    
    Geographic and Customer Concentration Information
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Sony Corporation
    
    
    *
    %
    
    
    88
    %
    
    
    79
    %
    
    
    63
    %Microsoft Corporation
    
    
    *
    %
    
    
    *
    %
    
    
    *
    %
    
    
    34
    %Toshiba Corporation
    
    
    85
    %
    
    
    *
    %
    
    
    13
    %
    
    
    *
    %Microel
    
    
    15
    %
    
    
    *
    %
    
    
    *
    %
    
    
    *
    %
 
 
    
    *% represents less than 10% of total revenue  June 30,
    
    December 31,2007
    
    2006Microsoft Corporation
    
    
    *
    %
    
    
    100
    %Toshiba Corporation
    
    
    85
    %
    
    
    *
    %Microel
    
    
    15
    %
    
    
    *
    %
 
 
    
    *% represents less than 10% of net accounts receivable  9.
    
    Net Loss per Share
  Three Months Ended
    
    
    Six Months EndedJune 30, 2007
    
    
    June 30, 2006
    
    
    June 30, 2007
    
    
    June 30, 2006(In thousands, except per share amounts)
    
    
    (In thousands, except per share amounts)Basic and diluted:Net loss, as reported
    
    $
    (11,450
    )
    
    $
    (8,469
    )
    
    $
    (30,184
    )
    
    $
    (10,116
    )Shares used to compute basic net loss per share
    
    
    199,935
    
    
    
    195,725
    
    
    
    199,580
    
    
    
    194,553Effect of dilutive securities:Common stock equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares used to compute diluted net loss per share
    
    
    199,935
    
    
    
    195,725
    
    
    
    199,580
    
    
    
    194,553Basic and diluted net loss per share
    
    $
    (0.06
    )
    
    $
    (0.04
    )
    
    $
    (0.15
    )
    
    $
    (0.05
    )
 14




---



##### 



10.
    
    Advances from Customers
  11.
    
    Deferred income, net
  June 30,
    
    
    December 31,2007
    
    
    2006Deferred revenue:Product
    
    $
    
    
    
    $
    48License
    
    
    
    
    
    
    Services
    
    
    
    
    
    
    Total
    
    $
    
    
    
    $
    48Deferred costs:Product
    
    $
    
    
    
    $
    33License
    
    
    
    
    
    
    Services
    
    
    
    
    
    
    Total
    
    $
    
    
    
    $
    33Deferred
income, net
    
    $
    
    
    
    $
    15
 12.
    
    Restructuring Charges
    15




---



##### 



Excess
    
    
    WorkforceFacilities
    
    
    Reduction
    
    
    TotalBalance as of December 31, 2006
    
    
    2,984
    
    
    
    
    
    
    
    2,984Restructuring charges
    
    
    701
    
    
    
    5,806
    
    
    
    6,507Change in estimates
    
    
    158
    
    
    
    
    
    
    
    158Cash drawdowns
    
    
    (529
    )
    
    
    (3,802
    )
    
    
    (4,331
    )Balance as of March 31, 2007
    
    
    3,314
    
    
    
    2,004
    
    
    
    5,318Restructuring charges
    
    
    565
    
    
    
    1,262
    
    
    
    1,827Change in estimates
    
    
    93
    
    
    
    
    
    
    
    93Cash drawdowns
    
    
    (644
    )
    
    
    (2,823
    )
    
    
    (3,467
    )Balance as of June 30, 2007
    
    $
    3,328
    
    
    $
    443
    
    
    $
    3,771
  13.
    
    Stockholders Equity
  Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006Beginning balance:
    
    $
    42,683
    
    
    $
    54,952Net loss
    
    
    (30,184
    )
    
    
    (10,116
    )Issuance from stock option exercises and ESPP
    
    
    1,598
    
    
    
    3,820Stock-based compensation expense
    
    
    996
    
    
    
    3,227Comprehensive Income (Loss)
    
    
    73
    
    
    
    49Ending balance:
    
    $
    15,166
    
    
    $
    51,932
 14.
    
    Correspondence from NASDAQ
  16




---



##### 



15. Recent Accounting Pronouncements
     16.
    
    Segment Information
  17.
    
    Income Taxes
 Accounting for Uncertainty in Income Taxes.
    17




---



##### 



18. Subsequent Events
 Sale of Series B Preferred Stock to Advanced Micro Devices
     Stockholder Approval and Plan for One-for-20 Reverse Stock Split
   
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Caution Regarding Forward-Looking Statements
   18




---



##### 



Overview
      19




---



##### 



Critical Accounting Policies
   Accounting for Stock-Based Compensation
  20




---



##### 



Results of Operations
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Product
    
    
    15
    %
    
    
    4
    %
    
    
    7
    %
    
    
    3
    %License
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Services
    
    
    85
    %
    
    
    96
    %
    
    
    93
    %
    
    
    97
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Costs of product
    
    
    0
    %
    
    
    (1
    %)
    
    
    3
    %
    
    
    0
    %Costs of license
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Costs of services
    
    
    47
    %
    
    
    62
    %
    
    
    53
    %
    
    
    58
    %Impairment charges on long-lived assets
    
    
    0
    %
    
    
    0
    %
    
    
    16
    %
    
    
    0
    %Total cost of revenue
    
    
    47
    %
    
    
    61
    %
    
    
    72
    %
    
    
    58
    %Gross profit
    
    
    53
    %
    
    
    39
    %
    
    
    28
    %
    
    
    42
    %Operating expenses:Research and development
    
    
    1483
    %
    
    
    51
    %
    
    
    323
    %
    
    
    28
    %Selling, general and administrative
    
    
    3300
    %
    
    
    65
    %
    
    
    509
    %
    
    
    40
    %Restructuring charges
    
    
    1123
    %
    
    
    1
    %
    
    
    372
    %
    
    
    1
    %Amortization of patents and patent rights
    
    
    1001
    %
    
    
    19
    %
    
    
    148
    %
    
    
    12
    %Impairment charge on long-lived and other assets
    
    
    5
    %
    
    
    0
    %
    
    
    13
    %
    
    
    0
    %Total operating expenses
    
    
    6912
    %
    
    
    136
    %
    
    
    1365
    %
    
    
    81
    %Operating loss
    
    
    (6859
    %)
    
    
    (97
    %)
    
    
    (1337
    %)
    
    
    (39
    %)Interest income and other, net
    
    
    214
    %
    
    
    6
    %
    
    
    37
    %
    
    
    4
    %Interest expense
    
    
    (50
    %)
    
    
    0
    %
    
    
    (7
    %)
    
    
    0
    %Net loss
    
    
    (6695
    %)
    
    
    (91
    %)
    
    
    (1307
    %)
    
    
    (35
    %)
 Total Revenue
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,(In thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Product
    
    $
    25
    
    
    $
    361
    
    
    $
    167
    
    
    $
    950License
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Services
    
    
    146
    
    
    
    8,970
    
    
    
    2,143
    
    
    
    27,890Total revenue
    
    $
    171
    
    
    $
    9,331
    
    
    $
    2,310
    
    
    $
    28,840
  21




---



##### 



Product Revenues.
  License
Revenue.
 Services
Revenue.
  Services Revenue
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,(In thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Maintenance & technical support services for license
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Fixed fee development service
    
    
    
    
    
    
    747
    
    
    
    
    
    
    
    9,838Time & materials based contracts
    
    
    146
    
    
    
    8,223
    
    
    
    2,143
    
    
    
    18,052Total Services Revenue
    
    $
    146
    
    
    $
    8,970
    
    
    $
    2,143
    
    
    $
    27,890
 Maintenance and
Technical Support Services Revenue.
 Fixed Fee
 Development Service Revenue
 Time and
 Materials Based Design Service Revenue.
 22




---



##### 



Costs of Revenues
  Products:
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,(In thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Cost of product revenue
    
    $
    
    
    
    $
    (62
    )
    
    $
    80
    
    
    $
    100Impairment charge on inventory
    
    
    
    
    
    
    
    
    
    
    364
    
    
    
    Total Cost of Product Revenue
    
    $
    
    
    
    $
    (62
    )
    
    $
    444
    
    
    $
    100
   Licenses:
  Services:
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,(In thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Maintenance & technical support
services for license
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Fixed fee development service
    
    
    
    
    
    
    395
    
    
    
    
    
    
    
    5,056Time & materials based contracts
    
    
    80
    
    
    
    5,400
    
    
    
    1,218
    
    
    
    11,620Total Cost of Services Revenue
    
    $
    80
    
    
    $
    5,795
    
    
    $
    1,218
    
    
    $
    16,676
 23




---



##### 



Research and Development
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,(In thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Research and development expenses
    
    $
    2,537
    
    
    $
    4,769
    
    
    $
    7,473
    
    
    $
    8,021Amount classified to costs of
services and deferred costs (1)
    
    $
    80
    
    
    $
    5,123
    
    
    $
    1,135
    
    
    $
    11,319
 
 (1)
    
    We classified costs directly attributable to time and
materials based contracts and development
services agreements to costs of services revenues.    Selling, General and Administrative
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,(In thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Selling, general and
administrative
expenses
    
    $
    5,644
    
    
    $
    6,043
    
    
    $
    11,750
    
    
    $
    11,587
   24




---



##### 



Restructuring Charges, net
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,(In thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Restructuring charges
    
    $
    1,920
    
    
    $
    96
    
    
    $
    8,585
    
    
    $
    170
   Amortization of Patents and Patent Rights
  Impairment Charge on Long-Lived and Other Assets
  Stock Compensation
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,(In thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Stock-based compensation expense
    
    $
    693
    
    
    $
    1,910
    
    
    $
    996
    
    
    $
    3,227
  25




---



##### 



Interest Income and Other, Net
  Interest Expense
  Liquidity and Capital Resources
   Six Months EndedJune 30,
    
    
    June 30,(In thousands)
    
    2007
    
    
    2006Net cash used in operating activities
    
    $
    (27,872
    )
    
    $
    (7,851
    )Net cash provided by (used in) investing activities
    
    
    18,940
    
    
    
    (2,305
    )Net cash provided by financing activities
    
    
    1,604
    
    
    
    3,841Decrease in cash and cash equivalents
    
    $
    (7,328
    )
    
    $
    (6,315
    )
    26




---



##### 



Restructuring
  Contractual Obligations
  Payments Due by PeriodRemainder of(In thousands)
    
    Total
    
    
    2007
    
    
    2008
    
    
    2009Operating leases(1)
    
    $
    4,095
    
    
    $
    2,048
    
    
    $
    2,047
    
    
    $
    Unconditional contractual obligations(2)
    
    
    1,733
    
    
    
    267
    
    
    
    666
    
    
    
    800Total
    
    $
    5,828
    
    
    $
    2,315
    
    
    $
    2,713
    
    
    $
    800
 
 (1)
    
    Operating leases include agreements for building facilities. 27




---



##### 



(2)
    
    Contractual obligations include agreements to purchase goods or services that are enforceable
and legally binding on us and that specify all significant terms, including: fixed or
minimum quantities to be purchased; fixed, minimum or variable price provisions; and the
approximate timing of the transaction. Purchase obligations also include agreements for design
tools and software for use in product development. Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
 -
   
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Interest Rate Risk.
 Foreign Currency Exchange Risk.
 28




---



##### 



Item 4. Controls and Procedures
 Disclosure Controls and Procedures
  Inherent Limitations on Effectiveness of Controls
  Changes in Internal Control over Financial Reporting
  29




---



##### 



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 In
re Transmeta Corporation Initial Public Offering Securities Litigation In re
Initial Public Offering Securities Litigation
   
 Item 1A. Risk Factors
 The factors discussed below are cautionary statements that identify important risk factors
that could cause actual results to differ materially from those anticipated in the forward-looking
statements in this quarterly report on Form 10Q . If any of the following risks actually occurs, our
business, financial condition and results of operations would suffer. In this case, the trading
price of our common stock could decline and investors might lose all or part of their investment in
our common stock.
 30




---



##### 



We have a history of losses, and we must successfully execute on our modified business model and
restructuring plan if we are to sustain our operations.
    We might fail to execute our restructuring plan or to operate successfully under our modified
business model.
  We need additional financing under our restructuring plan, but we may not be able to raise any more
financing, or financing may only be available on terms unfavorable to us or our stockholders.
  31




---



##### 




    
    fund expansion;
    
    fund marketing expenditures;
    
    develop or enhance our products or technologies;
    
    enhance our operating infrastructure;
    
    hire additional personnel;
    
    respond to customer concerns about our viability;
    
    respond to competitive pressures; or
    
    acquire complementary businesses or technologies.
  We might lose key technical or
management personnel, on whose knowledge, leadership and technical expertise we rely.  Such
losses could prevent us from operating successfully under our restructuring plan.
  32




---



##### 



Our lawsuit against Intel for patent infringement will be costly to litigate, could be
delayed, could be decided adversely to us, and could adversely affect our intellectual property
rights, distract our management and technical staff, and cause our stock price to decline.
  We may fail to meet the continued listing requirements of the Nasdaq Stock Market, which may cause
our stock to be delisted and result in reduced liquidity of our stock, reduce the trading price of
our stock, and impair our ability to raise financing.
  Our licensing business depends on maintaining and increasing our LongRun2 licensing revenue,
and we might be unsuccessful in our efforts to license our LongRun2 technology to other parties.
  We have limited visibility regarding when and to what extent our licensees will use our
LongRun2 or other licensed technologies.
 33




---



##### 




    
    the competition that our licensees face and the market acceptance of their products;
    
    the pricing policies of our licensees for their products incorporating our
technology;
    
    the engineering, marketing and management capabilities of
our licensees  and technical challenges unrelated to our
technology that they face in developing their products; and
    
    the financial and other resources of our licensees.
  We
face intense competition in the development of advanced technologies. Many of our competitors are much
larger than we are and have significantly greater resources. We may not be able to compete
effectively.
  If we do not keep pace with technological change, our technology offerings may not be
competitive and our revenue and operating results may suffer.
  We might experience payment disputes for amounts owed to us under our LongRun2 licensing
agreements, and this may harm our results of operations.
  34




---



##### 



We currently derive a substantial portion of our revenue from a small number of customers and
licensees, and our revenue would decline significantly if any major customer were to cancel, reduce
or delay a transaction relating to our products, licenses and services.
   Our technologies may infringe the intellectual property rights of others, which may cause us to
become subject to expensive litigation, cause us to incur substantial damages, require us to pay
significant license fees or prevent us from licensing our technologies.
   Any dispute regarding our intellectual property may require us to indemnify certain licensees or
third parties, the cost of which could severely hamper our business operations and financial
condition.
  If we are unable to protect our proprietary rights adequately, our competitors might gain access to
our technology and we might not compete successfully in our markets.
  35




---



##### 



The evolution of our business could place significant strain on our management systems,
infrastructure and other resources, and our business may not succeed if we fail to manage it
effectively.
  We have significant international business relationships, which expose us to risk and
uncertainties.
  
    
    difficulties and costs of servicing international customers;
    
    fluctuations in currency exchange rates;
    
    unexpected changes in regulatory requirements, including imposition of currency exchange controls;
    
    longer accounts receivable collection cycles;
    
    import or export licensing requirements;
    
    potentially adverse tax consequences;
    
    major public health concerns, such as SARS;
    
    political and economic instability, for example as a result of tensions between Taiwan and the
Peoples Republic of China; and
    
    potentially reduced protection for intellectual property rights.
 Our operating results are difficult to predict and fluctuate significantly. A failure to meet the
expectations of securities analysts or investors could result in a substantial decline in our stock
price.
   36




---



##### 



The price of our common stock has been volatile and is subject to wide fluctuations.
  
    
    variations in our quarterly results;
    
    market conditions in our industry, the industries of our customers and the economy as a whole;
    
    announcements of technological innovations by us or by our competitors;
    
    introductions of new products or new pricing policies by us or by our competitors;
    
    acquisitions or strategic alliances by us or by our competitors;
    
    recruitment or departure of key personnel;
    
    the gain or loss of significant customers; and
    
    changes in the estimates of our operating performance or changes in recommendations by securities analysts.
  Our certificate of incorporation and bylaws, stockholder rights plan and Delaware law contain
provisions that could discourage or prevent a takeover, even if an acquisition would be beneficial
to our stockholders.
  
    
    establishing a classified board of directors so that not all members of our board may be elected at one time;
    
    providing that directors may be removed only for cause and only with the vote of 66 2/3% of our
outstanding shares;
    
    requiring super-majority voting to amend some provisions in our certificate of incorporation and bylaws;
    
    authorizing the issuance of blank check preferred stock that our board could issue to increase the number
of shares outstanding and to discourage a takeover attempt;
    
    limiting the ability of our stockholders to call special meetings of stockholders;
    
    prohibiting stockholder action by written consent, which requires all stockholder actions to be taken at a
meeting of our stockholders; and
    
    establishing advance notice requirements for nominations for election to our board or for proposals that can
be acted upon by stockholders at stockholder meetings.
  We may develop or identify material weaknesses in our internal control over financial reporting.
  37




---



##### 



38




---



##### 



Table of Contents
 
 Item 6. Exhibits
 Exhibits.
 ExhibitNumber
    
    Exhibit Title31.01
    
    Certification by Lester M. Crudele pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934.31.02
    
    Certification by Ralph J. Harms pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934.32.01*
    
    Certification by Lester M. Crudele pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.02*
    
    Certification by Ralph J. Harms pursuant to 18 U.S.C. Section 1350, as adopted 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 Transmeta
Corporation under the Securities Act of 1933 or the Securities
Exchange Act of 1934, including this quarterly report, whether made
before or after the date hereof and irrespective of any general
incorporation language in any filings. 39




---



##### 



SIGNATURES
  TRANSMETA CORPORATIONBy
    /s/ Ralph J. HarmsRalph J. HarmsDate: August 14, 2007
    
    Chief Financial Officer
(Principal Financial Officer and Duly Authorized
Officer) 40




---



##### 



EXHIBIT INDEX
 Exhibit Number
    
    Exhibit Title31.01
    
    Certification by Lester M. Crudele pursuant to Rule 13a-14(a) promulgated under the
Securities Exchange Act of 1934.31.02
    
    Certification by Ralph J. Harms pursuant to Rule 13a-14(a) promulgated under the
Securities Exchange Act of 1934.32.01*
    
    Certification by Lester M. Crudele pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.02*
    
    Certification by Ralph J. Harms pursuant to 18 U.S.C. Section 1350, as adopted 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 Transmeta Corporation under
the Securities Act of 1933 or the Securities Exchange Act of 1934,
including this quarterly report, whether made before or after the date
hereof and irrespective of any general incorporation language in any
filings.