##### Table of Contents



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, 2008
 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
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a
smaller reporting company)
 o þ




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##### 



TRANSMETA CORPORATION
FORM 10-Q
Quarterly Period Ended June 30, 2008
 TABLE OF CONTENTS
 PageCaution Regarding Forward-Looking Statements
    
    3PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    4Unaudited Condensed Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007
    
    4Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30,
2008 and 2007
    
    5Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2008 and 2007
    
    6Notes to Unaudited Condensed Consolidated Financial Statements
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    21Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    28Item 4. Controls and Procedures
    
    28PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    29Item 1A. Risk Factors
    
    30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    36Item 6. Exhibits
    
    37Signatures
    
    38INDEX TO EXHIBITS
    
    39EXHIBIT 31.01EXHIBIT 31.02EXHIBIT 32.01EXHIBIT 32.02
  - 2 -




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##### Table of Contents



Caution Regarding Forward-Looking Statements
     Accounting Principles Board opinion
    
    APB OpinionBlack-Scholes-Merton valuation model
    
    BSM modelFASB Emerging Issues Task Force issue
    
    EITF IssueFASB Interpretation
    
    FINFASB Staff Accounting Position
    
    FSPFinancial Accounting Standards Board
    
    FASBSEC Staff Accounting Bulletin
    
    SABSecurities and Exchange Commission
    
    SECStatement of Financial Accounting Standards
    
    SFAS
  Advanced Micro Devices, Inc.
    
    AMDIntel Corporation
    
    IntelMicrosoft Corporation
    
    MicrosoftNEC Electronics
    
    NECNVIDIA Corporation
    
    NVIDIASeiko Epson Corporation
    
    EpsonSony Corporation
    
    SonyToshiba Corporation
    
    Toshiba
 - 3 -




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Condensed Consolidated Financial Statements
 TRANSMETA CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    December 31,2008
    
    
    2007(1)(unaudited)(In thousands, except for share data)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    96,919
    
    
    $
    15,607Short-term investments
    
    
    44,840
    
    
    
    2,968Accounts receivable
    
    
    44
    
    
    
    163Other receivables, current
    
    
    19,393
    
    
    
    149,400Prepaid expenses and other current assets
    
    
    2,064
    
    
    
    2,476Total current assets
    
    
    163,260
    
    
    
    170,614Other receivables, long-term
    
    
    68,089
    
    
    
    85,200Property and equipment, net
    
    
    231
    
    
    
    284Patents and patent rights, net
    
    
    
    
    
    
    2,388Other assets
    
    
    400
    
    
    
    800Total assets
    
    $
    231,980
    
    
    $
    259,286LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    593
    
    
    $
    341Accrued compensation
    
    
    934
    
    
    
    15,351Income tax payable
    
    
    15
    
    
    
    3,306Accrued restructuring costs
    
    
    511
    
    
    
    1,592Other accrued liabilities
    
    
    882
    
    
    
    1,028Current portion of deferred income from settlement and licensing
    
    
    23,460
    
    
    
    23,460Current portion of long-term payable
    
    
    800
    
    
    
    667Total current liabilities
    
    
    27,195
    
    
    
    45,745Long-term deferred income from settlement and licensing, net of
current portion
    
    
    199,410
    
    
    
    211,140Long-term payables, net of current portion
    
    
    400
    
    
    
    800Total liabilities
    
    
    227,005
    
    
    
    257,685Commitments and contingencies (notes 13 and 15)Stockholders equity:Convertible preferred stock, $0.00001 par value, at amounts
paid in; authorized shares  5,000,000. Issued and outstanding
shares  1,000,000 and liquidation preference of $7.5 million,
at June 30, 2008 and December 31, 2007
    
    
    6,966
    
    
    
    6,966Common stock, $0.00001 par value, at amounts paid in;
authorized shares  50,000,000. Issued and outstanding 
12,152,065 shares at June 30, 2008 and 12,021,388 at December
31, 2007
    
    
    742,441
    
    
    
    739,268Treasury stock  39,843 shares at June 30, 2008 and December 31,
2007
    
    
    (2,439
    )
    
    
    (2,439
    )Accumulated other comprehensive income
    
    
    57
    
    
    
    29Accumulated deficit
    
    
    (742,050
    )
    
    
    (742,223
    )Total stockholders equity
    
    
    4,975
    
    
    
    1,601Total liabilities and stockholders equity
    
    $
    231,980
    
    
    $
    259,286
 
 (1)
    
    Derived from the audited financial statements of Transmeta Corporation as of December 31,
2007 but does not include all disclosures required by accounting principles generally accepted
in the United States.  - 4 -




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##### Table of Contents



TRANSMETA CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands, except for per share data)Revenue:Product
    
    $
    
    
    
    $
    25
    
    
    $
    253
    
    
    $
    167License
    
    
    366
    
    
    
    
    
    
    
    606
    
    
    
    Service
    
    
    
    
    
    
    146
    
    
    
    168
    
    
    
    2,143Total revenue
    
    
    366
    
    
    
    171
    
    
    
    1,027
    
    
    
    2,310Cost of revenue:Product
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    80License
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Service(*)
    
    
    
    
    
    
    80
    
    
    
    163
    
    
    
    1,218Impairment charge on inventories
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    364Total cost of revenue
    
    
    
    
    
    
    80
    
    
    
    166
    
    
    
    1,662Gross profit
    
    
    366
    
    
    
    91
    
    
    
    861
    
    
    
    648Operating expenses:Income from settlement and licensing
    
    
    (5,865
    )
    
    
    
    
    
    
    (11,730
    )
    
    
    Research and development(*)
    
    
    2,315
    
    
    
    2,537
    
    
    
    5,165
    
    
    
    7,473Selling, general and administrative(*)
    
    
    4,108
    
    
    
    5,644
    
    
    
    8,450
    
    
    
    11,750Restructuring charges, net
    
    
    455
    
    
    
    1,978
    
    
    
    797
    
    
    
    8,701Amortization of patents and patent rights
    
    
    908
    
    
    
    1,711
    
    
    
    2,388
    
    
    
    3,423Impairment charge on long-lived and other assets
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    302Total operating expenses
    
    
    1,921
    
    
    
    11,878
    
    
    
    5,070
    
    
    
    31,649Operating loss
    
    
    (1,555
    )
    
    
    (11,787
    )
    
    
    (4,209
    )
    
    
    (31,001
    )Interest income and other, net
    
    
    1,769
    
    
    
    350
    
    
    
    4,384
    
    
    
    859Interest expense
    
    
    
    
    
    
    (28
    )
    
    
    (2
    )
    
    
    (38
    )Net income (loss) before income tax
    
    
    214
    
    
    
    (11,465
    )
    
    
    173
    
    
    
    (30,180
    )Provision for income taxes
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    4Net income (loss)
    
    $
    214
    
    
    $
    (11,450
    )
    
    $
    173
    
    
    $
    (30,184
    )Net income (loss) per share  basic
    
    $
    0.02
    
    
    $
    (1.15
    )
    
    $
    0.01
    
    
    $
    (3.02
    )Net income (loss) per share  diluted
    
    $
    0.02
    
    
    $
    (1.15
    )
    
    $
    0.01
    
    
    $
    (3.02
    )Weighted average shares outstanding  basic
    
    
    12,152
    
    
    
    9,997
    
    
    
    12,133
    
    
    
    9,979Weighted average shares outstanding  diluted
    
    
    13,242
    
    
    
    9,997
    
    
    
    13,197
    
    
    
    9,979
 
 (*) Includes stock-based compensation:Cost of service revenue
    
    $
    
    
    
    $
    14
    
    
    $
    82
    
    
    $
    17Research and development
    
    
    596
    
    
    
    364
    
    
    
    1,443
    
    
    
    282Selling, general and administrative
    
    $
    684
    
    
    $
    315
    
    
    $
    1,316
    
    
    $
    697  - 5 -




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##### Table of Contents



TRANSMETA CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Six Months Ended June 30,2008
    
    
    2007(In thousands)Cash flows from operating activities:Net income (loss)
    
    $
    173
    
    
    $
    (30,184
    )Adjustments to reconcile net income (loss) to net cash used in
operating activities:Stock-based compensation expense
    
    
    2,841
    
    
    
    996Depreciation
    
    
    147
    
    
    
    352Gain on disposal of fixed assets, net
    
    
    (15
    )
    
    
    (169
    )Realized gain on marketable securities
    
    
    (14
    )
    
    
    Amortization of patents and patent rights
    
    
    2,388
    
    
    
    3,423Impairment charge on inventories
    
    
    
    
    
    
    364Impairment charge on long-lived and other assets
    
    
    
    
    
    
    302Non cash restructuring charges
    
    
    797
    
    
    
    8,701Changes in operating assets and liabilities:Accounts receivable, current
    
    
    119
    
    
    
    86Inventories
    
    
    
    
    
    
    (360
    )Prepaid expenses and other current assets
    
    
    412
    
    
    
    437Other receivables
    
    
    147,118
    
    
    
    Other assets
    
    
    400
    
    
    
    133Accounts payable and accrued liabilities
    
    
    (14,564
    )
    
    
    (2,863
    )Income tax payable
    
    
    (3,291
    )
    
    
    (40
    )Deferred operating income from settlement and licensing
    
    
    (11,730
    )
    
    
    Deferred revenue
    
    
    
    
    
    
    (15
    )Advances from customers
    
    
    
    
    
    
    (1,320
    )Accrued restructuring charges
    
    
    (1,878
    )
    
    
    (7,914
    )Net cash provided by (used in) operating activities
    
    
    122,903
    
    
    
    (28,071
    )Cash flows from investing activities:Purchase of available-for-sale investments
    
    
    (89,578
    )
    
    
    Proceeds from sale or maturity of available-for-sale investments
    
    
    47,734
    
    
    
    19,000Proceeds from fixed asset disposals
    
    
    15
    
    
    
    184Purchase of property and equipment
    
    
    (94
    )
    
    
    (45
    )Net cash provided by (used in) investing activities
    
    
    (41,923
    )
    
    
    19,139Cash flows from financing activities:Proceeds from sales of common stock under employee stock
purchase and incentive option plans
    
    
    128
    
    
    
    1,604Proceeds from exercise of warrants
    
    
    204
    
    
    
    Net cash provided by financing activities
    
    
    332
    
    
    
    1,604Increase (decrease) in cash and cash equivalents
    
    
    81,312
    
    
    
    (7,328
    )Cash and cash equivalents at beginning of period
    
    
    15,607
    
    
    
    11,595Cash and cash equivalents at end of period
    
    $
    96,919
    
    
    $
    4,267
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##### Table of Contents



TRANSMETA CORPORATION
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Overview
 Formation and Business of the Company
  tm
 Basis of Presentation
  Reclassifications
  2. Recent Accounting Pronouncements
 The Fair Value Option for Financial Assets and
Financial Liabilities, Including an Amendment of FASB Statement No. 115
 Business Combinations
 - 7 -




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##### Table of Contents



Non-controlling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51
 Effective Date
of FASB Statement No. 157 Fair Value
Measurements
 Determination of the Useful Life of
Intangible Asset Goodwill and Other Intangible Assets (SFAS 142 Business Combinations,
 The Hierarchy of Generally Accepted Accounting
Principles The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles
  3. Net Comprehensive Income (Loss)
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,(In thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    214
    
    
    $
    (11,450
    )
    
    $
    173
    
    
    $
    (30,184
    )Net change in unrealized gain on investments
    
    
    26
    
    
    
    3
    
    
    
    14
    
    
    
    29Net change in foreign currency translation
adjustments
    
    
    
    
    
    
    (3
    )
    
    
    14
    
    
    
    44Net comprehensive income (loss)
    
    $
    240
    
    
    $
    (11,450
    )
    
    $
    201
    
    
    $
    (30,111
    )
  June 30,
    
    
    December 31,(In thousands)
    
    2008
    
    
    2007Net unrealized gain (loss) on investments
    
    $
    10
    
    
    $
    (4
    )Cumulative foreign currency translation adjustments
    
    
    47
    
    
    
    33Accumulated other comprehensive income
    
    $
    57
    
    
    $
    29
 - 8 -




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##### Table of Contents



4. Income from Settlement and Licensing
  Interest on
Receivables and Payables
  June 30,
    
    
    December 31,(In thousands)
    
    2008
    
    
    2007Non-interest bearing note, consisting ofPayments of 5 x $20 million (due Jan 2009-Jan 2013) as of June 30, 2008; plus the initial $150 million payment (due Jan 2008) as
of December 31, 2007
    
    $
    100,000
    
    
    $
    250,000Unamortized discount on $150 million initial payment, based on 4.70% imputed interest rate
    
    
    
    
    
    
    (600
    )Unamortized discount on $100 million of 2009-2013 payments, based on 5.41% imputed interest rate
    
    
    (12,518
    )
    
    
    (14,800
    )Less unamortized discount based on imputed interest rates
    
    
    (12,518
    )
    
    
    (15,400
    )Present value of other receivables from Intel
    
    $
    87,482
    
    
    $
    234,600Other receivables, current
    
    
    19,393
    
    
    
    149,400Other receivables, long-term
    
    
    68,089
    
    
    
    85,200Present value of other receivables from Intel
    
    $
    87,482
    
    
    $
    234,600
  - 9 -




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##### Table of Contents



5. Financial Statement Components
 Property and Equipment
  June 30,
    
    
    December 31,(In thousands)
    
    2008
    
    
    2007Property and equipment, netLeasehold improvements
    
    $
    2,325
    
    
    $
    2,325Computer equipment
    
    
    3,589
    
    
    
    3,519Furniture and fixtures
    
    
    395
    
    
    
    395Computer software
    
    
    719
    
    
    
    7757,028
    
    
    
    7,014Less accumulated depreciation and amortization
    
    
    (6,797
    )
    
    
    (6,730
    )Total
    
    $
    231
    
    
    $
    284
 6. Cash and Cash Equivalents, Marketable Securities and Fair Value of Financial Instruments
   GrossUnrealized Gain(In thousands)
    
    Fair Value
    
    
    Book Value
    
    
    (Loss)As of June 30, 2008Money market funds
    
    $
    3,327
    
    
    $
    3,327
    
    
    $
    Federal agency paper
    
    
    137,729
    
    
    
    137,719
    
    
    
    10Commercial paper
    
    
    
    
    
    
    
    
    
    
    Total available for sale marketable securities
    
    
    141,056
    
    
    
    141,046
    
    
    
    10Cash
    
    
    703
    
    
    
    703
    
    
    
    Total cash, cash equivalents and short term investments
    
    $
    141,759
    
    
    $
    141,749
    
    
    $
    10As of December 31, 2007Money market funds
    
    $
    14,627
    
    
    $
    14,627
    
    
    $
    Federal agency paper
    
    
    
    
    
    
    
    
    
    
    Commercial paper
    
    
    2,968
    
    
    
    2,972
    
    
    
    (4
    )Total available for sale marketable securities
    
    
    17,595
    
    
    
    17,599
    
    
    
    (4
    )Cash
    
    
    980
    
    
    
    980
    
    
    
    Total cash, cash equivalents and short term investments
    
    $
    18,575
    
    
    $
    18,579
    
    
    $
    (4
    )
  June 30,(In thousands)
    
    2008
    
    
    December 31, 2007Cash
    
    $
    703
    
    
    $
    980Cash equivalents
    
    
    96,216
    
    
    
    14,627Short term investments
    
    
    44,840
    
    
    
    2,968Total cash, cash equivalents and short term investments
    
    $
    141,759
    
    
    $
    18,575
 - 10 -




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##### Table of Contents



GrossUnrealized Gain(In thousands)
    
    Fair Value
    
    
    Book Value
    
    
    (Loss)As of June 30, 2008:Amounts maturing within one year
    
    $
    141,056
    
    
    $
    141,046
    
    
    $
    10Amounts maturing after one year, within five years
    
    
    
    
    
    
    
    
    
    
    Total cash equivalents and short term investments
    
    $
    141,056
    
    
    $
    141,046
    
    
    $
    10As of December 31, 2007:Amounts maturing within one year
    
    $
    17,595
    
    
    $
    17,599
    
    
    $
    (4
    )Amounts maturing after one year, within five years
    
    
    
    
    
    
    
    
    
    
    Total cash equivalents and short term investments
    
    $
    17,595
    
    
    $
    17,599
    
    
    $
    (4
    )
      Fair Value of Financial Instruments
 Fair Value Measurements
   Level 1
    
    -
    
    Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2
    
    -
    
    Inputs are quoted prices for similar assets or liabilities in an active market, quoted
prices for identical or similar assets or liabilities in markets that are not active,
inputs other than quoted prices that are observable and market-corroborated inputs which
are derived principally from or corroborated by observable market data.Level 3
    
    -
    
    Inputs are derived from valuation techniques in which one or more significant inputs or
value drivers are unobservable (i.e., supported by little or no market activity).
 - 11 -




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##### Table of Contents



(Level 1)
    
    
    (Level 2)Quoted Prices inBalance as of
    
    
    Active Markets of
    
    
    Significant Other(In thousands)
    
    June 30, 2008
    
    
    Identical Assets
    
    
    Observable InputsAvailable-for-sale securities
    
    $
    141,056
    
    
    $
    3,327
    
    
    $
    137,729
  The Fair Value Option for Financial Assets and Financial
Liabilities, Including an Amendment of FASB Statement No. 115 Accounting for Certain Investments
in Debt and Equity Securities.
 7. Stock Based Compensation
 Share-Based Payment
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,(In thousands, except for per share data)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Stock-based compensation expense by type of award:Employee stock options
    
    $
    1,248
    
    
    $
    409
    
    
    $
    2,767
    
    
    $
    1,343Employee stock purchase plan
    
    
    32
    
    
    
    284
    
    
    
    74
    
    
    
    (347
    )Total stock-based compensation
    
    
    1,280
    
    
    
    693
    
    
    
    2,841
    
    
    
    996Tax effect on stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net effect of stock-based compensation on net income (loss)
    
    $
    1,280
    
    
    $
    693
    
    
    $
    2,841
    
    
    $
    996Effect on earnings per share:Basic
    
    $
    0.11
    
    
    $
    0.07
    
    
    $
    0.23
    
    
    $
    0.10Diluted
    
    $
    0.10
    
    
    $
    0.07
    
    
    $
    0.22
    
    
    $
    0.10
 Stock Options and Employee Stock Purchase Plan (ESPP):
 - 12 -




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Valuation Assumptions
   Three Months Ended June 30,
    
    Six Months Ended June 30,Employee Stock Option Plans
    
    2008
    
    2007
    
    2008
    
    2007Risk-free interest rate
    
    
    2.9
    %
    
    
    
    
    
    
    2.9
    %
    
    
    4.7
    %Expected life in years
    
    
    4.4
    
    
    
    
    
    
    
    4.3
    
    
    
    4.0Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected stock price volatility
    
    
    105.0
    %
    
    
    
    
    
    
    104.8
    %
    
    
    87.0
    %Weighted-average fair value of
stock options granted
    
    $
    10.71
    
    
    
    
    
    
    $
    10.53
    
    
    $
    8.71
 Three Months Ended June 30,
    
    Six Months Ended June 30,Employee Stock Purchase Plan (ESPP)
    
    2008
    
    2007
    
    2008
    
    2007Risk-free interest rate
    
    
    
    
    
    
    
    
    
    
    2.1
    %
    
    
    5.1
    %Expected life in years
    
    
    
    
    
    
    
    
    
    
    1.3
    
    
    
    1.3Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected stock price volatility
    
    
    
    
    
    
    
    
    
    
    151.0
    %
    
    
    71.0
    %Weighted-average fair value of
purchase rights granted
    
    
    
    
    
    
    
    
    
    $
    9.27
    
    
    $
    6.40
   - 13 -




---



##### Table of Contents



Tax effects of stock-based compensation
  8. Employee Stock Option Plans
 Equity Incentive Plans
    Stock Options OutstandingWeightedAverageWeighted
    
    
    RemainingAverage
    
    
    Contractual
    
    
    AggregateShares Available
    
    
    Number of
    
    
    Exercise
    
    
    Term
    
    
    Intrinsic Valuefor Grant
    
    
    Shares
    
    
    Price
    
    
    (In Years)
    
    
    (In thousands)Balance as of December 31, 2007
    
    
    1,429,195
    
    
    
    1,897,368
    
    
    $
    19.42Additional shares reserved
    
    
    601,069
    
    
    
    Options granted
    
    
    (209,750
    )
    
    
    209,750
    
    
    
    14.29Options exercised
    
    
    
    
    
    
    (122,000
    )
    
    
    Options forfeited / canceled / expired
    
    
    375,537
    
    
    
    (375,537
    )
    
    
    23.55Balance as of June 30, 2008
    
    
    2,196,051
    
    
    
    1,609,581
    
    
    $
    19.26
    
    
    
    8.5
    
    
    $
    804Vested and expected to be vested
    
    
    
    
    
    
    1,151,765
    
    
    $
    21.43
    
    
    
    8.2
    
    
    $
    537Shares exercisable:June 30, 2008
    
    
    
    
    
    
    430,028
    
    
    $
    34.61
    
    
    
    6.0
    
    
    $
    112
  - 14 -




---



##### Table of Contents



Outstanding
    
    ExercisableWeighted
    
    WeightedAverage
    
    Average
    
    
    
    
    
    WeightedShares
    
    Contractual
    
    Exercise
    
    Shares
    
    AverageRange of Exercise Prices
    
    Outstanding
    
    Life Years
    
    Price
    
    Exercisable
    
    Exercise Price$10.04
    - $13.32


    
    162,143
    
    
    
    9.15
    
    
    $
    11.20
    
    
    
    45,308
    
    
    $
    11.55$13.36
    - $13.36


    
    791,550
    
    
    
    9.46
    
    
    
    13.36
    
    
    
    
    
    
    
    $13.40
    - $14.40


    
    102,250
    
    
    
    8.90
    
    
    
    13.70
    
    
    
    32,832
    
    
    
    13.72$14.41
    - $14.41


    
    175,000
    
    
    
    9.86
    
    
    
    14.41
    
    
    
    
    
    
    
    $15.00
    - $24.60


    
    175,022
    
    
    
    6.46
    
    
    
    17.77
    
    
    
    172,939
    
    
    
    17.69$24.80
    - $49.20


    
    163,056
    
    
    
    5.49
    
    
    
    38.76
    
    
    
    138,389
    
    
    
    40.41$49.60
    - $190.00


    
    36,076
    
    
    
    2.67
    
    
    
    114.18
    
    
    
    36,076
    
    
    
    114.18$223.40
    - $223.40


    
    450
    
    
    
    2.85
    
    
    
    223.40
    
    
    
    450
    
    
    
    223.40$244.80
    - $244.80


    
    600
    
    
    
    2.91
    
    
    
    244.80
    
    
    
    600
    
    
    
    244.80$260.20
    - $260.20


    
    3,434
    
    
    
    2.88
    
    
    
    260.20
    
    
    
    3,434
    
    
    
    260.20$10.04
    - $260.20


    
    1,609,581
    
    
    
    8.54
    
    
    $
    19.26
    
    
    
    430,028
    
    
    $
    34.61
 Par Value Stock Options
  Employee Stock Purchase Plan
  9. Stockholders Equity
  Six Months Ended June 30,(In thousands)
    
    2008
    
    
    2007Beginning balance
    
    $
    1,601
    
    
    $
    42,683Net income (loss)
    
    
    173
    
    
    
    (30,184
    )Proceeds from stock option exercises and ESPP
    
    
    128
    
    
    
    1,598Proceeds from exercise of warrants
    
    
    204
    
    
    
    Stock-based compensation expense
    
    
    2,841
    
    
    
    996Other comprehensive income
    
    
    28
    
    
    
    73Ending balance
    
    $
    4,975
    
    
    $
    15,166
 - 15 -




---



##### Table of Contents



Six Months Ended June 30,2008
    
    
    2007Beginning balance
    
    
    12,021,388
    
    
    
    9,893,820Shares issued from stock option exercises and ESPP
    
    
    13,622
    
    
    
    110,344Shares
issued to employees as par value stock options
    
    
    122,000
    
    
    
    Shares issued from warrant exercises
    
    
    22,655
    
    
    
    Stock repurchased and retired
    
    
    (27,600
    )
    
    
    Ending balance
    
    
    12,152,065
    
    
    
    10,004,164
 Outstanding Warrants
  Number of
    
    Exercise PriceIssuance Date
    
    Shares
    
    per Share
    
    Expiration DateSeptember 2007
    
    
    977,345
    
    
    $
    9.00
    
    
    September 2012
 Series B Preferred Stock
   Warrants issued in September 2007
   - 16 -




---



##### Table of Contents



10. Earning (Loss) per Share
 Earnings Per
Share
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,(In thousands, except per share amounts)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Basic and diluted:Net income (loss)
    
    $
    214
    
    
    $
    (11,450
    )
    
    $
    173
    
    
    $
    (30,184
    )Shares used
to compute basic net income (loss) per share
    
    
    12,152
    
    
    
    9,997
    
    
    
    12,133
    
    
    
    9,979Effect of potentially dilutive securitiesSeries B Preferred Stock
    
    
    713
    
    
    
    
    
    
    
    713
    
    
    
    Warrants issued in direct placement offering
    
    
    364
    
    
    
    
    
    
    
    337
    
    
    
    Employee stock options and ESPP
    
    
    13
    
    
    
    
    
    
    
    14
    
    
    
    Shares used to compute diluted net income (loss) per share
    
    
    13,242
    
    
    
    9,997
    
    
    
    13,197
    
    
    
    9,979Net income (loss) per share  basic
    
    $
    0.02
    
    
    $
    (1.15
    )
    
    $
    0.01
    
    
    $
    (3.02
    )Net income (loss) per share  diluted
    
    $
    0.02
    
    
    $
    (1.15
    )
    
    $
    0.01
    
    
    $
    (3.02
    )
  11. Restructuring Charges
   - 17 -




---



##### Table of Contents



Excess
    
    
    Workforce(In thousands)
    
    Facilities
    
    
    Reduction
    
    
    TotalBalance as of December 31, 2007
    
    $
    1,537
    
    
    $
    55
    
    
    $
    1,592Restructuring charges
    
    
    131
    
    
    
    
    
    
    
    131Change in estimates
    
    
    212
    
    
    
    (1
    )
    
    
    211Cash drawdowns
    
    
    (951
    )
    
    
    (3
    )
    
    
    (954
    )Balance as of March 31, 2008
    
    $
    929
    
    
    $
    51
    
    
    $
    980Restructuring charges
    
    
    455
    
    
    
    
    
    
    
    455Change in estimates
    
    
    
    
    
    
    
    
    
    
    Cash drawdowns
    
    
    (924
    )
    
    
    
    
    
    
    (924
    )Balance as of June 30, 2008
    
    $
    460
    
    
    $
    51
    
    
    $
    511
 12. Business Segments and Major Customers
 Disclosure About
Segments of an Enterprise and Related Information,
  Three Months Ended June 30,
    
    Six Months Ended June 30,2008
    
    2007
    
    2008
    
    2007Asia
    
    
    100
    %
    
    
    85
    %
    
    
    73
    %
    
    
    92
    %North America
    
    
    *
    %
    
    
    *
    %
    
    
    27
    %
    
    
    *
    %Europe
    
    
    *
    %
    
    
    15
    %
    
    
    *
    %
    
    
    *
    %Other
    
    
    *
    %
    
    
    *
    %
    
    
    *
    %
    
    
    *
    %
 
 *
    % represents less than 10% of total revenue   13. Commitments and Contingencies
   - 18 -




---



##### Table of Contents



Future Minimum Payments Due by PeriodRemainder of(In thousands)
    
    Total
    
    
    2008
    
    
    2009Operating leases(1)
    
    $
    
    
    
    $
    
    
    
    $
    Unconditional contractual obligations(2)
    
    
    1,200
    
    
    
    400
    
    
    
    800Total
    
    $
    1,200
    
    
    $
    400
    
    
    $
    800
 
 (1)
    
    Operating leases include agreements on building facilities. The lease extension for
approximately 22,500 square feet of office space in Santa Clara, California was signed in
July 2008 and is therefore not included in the above table.(2)
    
    Contractual obligations include agreements to purchase goods or services that are
enforceable and legally binding on the Company 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. Indemnifications and warranties
   14. Income Taxes
 Accounting for Uncertainty in Income
Taxes  an Interpretation of FASB Statement No. 109 Accounting for Income Taxes
     - 19 -




---



##### Table of Contents



15. Litigation and Asserted Claims
 Litigation
  In re Transmeta Corporation Initial Public Offering
Securities Litigation, In re Initial Public Offering Securities Litigation,
 Simmonds v. Morgan Stanley, et al.
 Riley Investment Partners Investment Fund, L.P., et al. v. Horsley,
et al. (Transmeta Corp.),
 - 20 -




---



##### Table of Contents



16. Subsequent Events
   
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion and analysis of the financial condition and results of our
operations should be read in conjunction with the unaudited condensed consolidated financial
statements and related notes included elsewhere in this Quarterly Report on Form 10-Q . This
discussion contains forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those discussed below. Factors that could cause or contribute
to such differences include, but are not limited to, those identified below, and those discussed in
the section titled Risk Factors included in Item 1A of this Quarterly Report on Form 10-Q .
 Overview
    tm
  - 21 -




---



##### Table of Contents



Results of Operations
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007RevenueProduct
    
    
    
    
    
    
    15
    %
    
    
    25
    %
    
    
    7
    %License
    
    
    100
    %
    
    
    
    
    
    
    59
    %
    
    
    Service
    
    
    
    
    
    
    85
    %
    
    
    16
    %
    
    
    93
    %Total revenue
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Costs of product
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    %Costs of license
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Costs of service(*)
    
    
    
    
    
    
    47
    %
    
    
    16
    %
    
    
    53
    %Impairment charges on long-lived assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16
    %Total cost of revenue
    
    
    
    
    
    
    47
    %
    
    
    16
    %
    
    
    72
    %Gross profit
    
    
    100
    %
    
    
    53
    %
    
    
    84
    %
    
    
    28
    %Operating expenses:Income from settlement and licensing
    
    
    (1602
    )%
    
    
    
    
    
    
    (1142
    )%
    
    
    Research and development(*)
    
    
    633
    %
    
    
    1484
    %
    
    
    503
    %
    
    
    323
    %Selling, general and administrative(*)
    
    
    1122
    %
    
    
    3300
    %
    
    
    823
    %
    
    
    509
    %Restructuring charges
    
    
    124
    %
    
    
    1157
    %
    
    
    78
    %
    
    
    377
    %Amortization of patents and patent rights
    
    
    248
    %
    
    
    1001
    %
    
    
    232
    %
    
    
    148
    %Impairment charge on long-lived and
other assets
    
    
    
    
    
    
    5
    %
    
    
    
    
    
    
    13
    %Total operating expenses
    
    
    525
    %
    
    
    6947
    %
    
    
    494
    %
    
    
    1370
    %Operating income (loss)
    
    
    (425
    )%
    
    
    (6894
    )%
    
    
    (410
    )%
    
    
    (1342
    )%Interest income and other, net
    
    
    483
    %
    
    
    205
    %
    
    
    427
    %
    
    
    37
    %Interest expense
    
    
    
    
    
    
    (16
    )%
    
    
    
    
    
    
    (2
    )%Income (loss) before income taxes
    
    
    58
    %
    
    
    (6705
    )%
    
    
    17
    %
    
    
    (1307
    )%Provision for income taxes
    
    
    
    
    
    
    (9
    )%
    
    
    
    
    
    
    Net income (loss)
    
    
    58
    %
    
    
    (6696
    )%
    
    
    17
    %
    
    
    (1307
    )%
 
 (*) Includes stock-based compensation:Cost of service revenue
    
    
    
    
    
    
    8
    %
    
    
    8
    %
    
    
    1
    %Research and development
    
    
    163
    %
    
    
    213
    %
    
    
    141
    %
    
    
    12
    %Selling, general and administrative
    
    
    187
    %
    
    
    184
    %
    
    
    128
    %
    
    
    30
    %
 Total Revenue
  Three Months Ended June 30,
    
    
    Change in
    
    
    Change in
    
    
    Six Months Ended June 30,
    
    
    Change in
    
    
    Change in(In thousands)
    
    2008
    
    
    2007
    
    
    Dollars
    
    
    Percent
    
    
    2008
    
    
    2007
    
    
    Dollars
    
    
    PercentProduct
    
    $
    
    
    
    $
    25
    
    
    $
    (25
    )
    
    
    (100
    )%
    
    $
    253
    
    
    $
    167
    
    
    $
    86
    
    
    
    51
    %License
    
    
    366
    
    
    
    
    
    
    
    366
    
    
    
    n/a
    
    
    
    606
    
    
    
    
    
    
    
    606
    
    
    
    n/aService
    
    
    
    
    
    
    146
    
    
    
    (146
    )
    
    
    (100
    )%
    
    
    168
    
    
    
    2,143
    
    
    
    (1,975
    )
    
    
    (92
    )%Total revenue
    
    $
    366
    
    
    $
    171
    
    
    $
    195
    
    
    
    114
    %
    
    $
    1,027
    
    
    $
    2,310
    
    
    $
    (1,283
    )
    
    
    (56
    )%
  - 22 -




---



##### Table of Contents



Product Revenue.
 License Revenue.
  Service Revenue.
  Customer Concentration Information
  Costs of Revenues
  Three Months Ended June 30,
    
    
    Change in
    
    
    Change in
    
    
    Six Months Ended June 30,
    
    
    Change in
    
    
    Change in(In thousands)
    
    2008
    
    
    2007
    
    
    Dollars
    
    
    Percent
    
    
    2008
    
    
    2007
    
    
    Dollars
    
    
    PercentProduct(*)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    n/a
    
    
    $
    3
    
    
    $
    80
    
    
    $
    (77
    )
    
    
    (96
    %)License
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    n/a
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    n/aService(*)
    
    
    
    
    
    
    80
    
    
    
    (80
    )
    
    
    (100
    %)
    
    
    163
    
    
    
    1,218
    
    
    
    (1,055
    )
    
    
    (87
    %)Impairment charge on
inventories
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    n/a
    
    
    
    
    
    
    
    364
    
    
    
    (364
    )
    
    
    (100
    %)Total cost of revenue
    
    $
    
    
    
    $
    80
    
    
    $
    (80
    )
    
    
    (100
    %)
    
    $
    166
    
    
    $
    1,662
    
    
    $
    (1,496
    )
    
    
    (90
    %)
 
 (*) Includes
stock-based
compensation:Cost of product revenue
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    n/a
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    n/aCost of service revenue
    
    $
    82
    
    
    $
    3
    
    
    $
    79
    
    
    
    2633
    %
    
    $
    82
    
    
    $
    3
    
    
    $
    79
    
    
    
    2633
    %
 Cost of Product Revenue
  Cost of License Revenue
  - 23 -




---



##### Table of Contents



Cost of Service Revenue
   Impairment Charges on Inventories
  Income from Settlement and Licensing
 Three Months Ended June 30,
    
    
    Change in
    
    
    Change in
    
    
    Six Months Ended June 30,
    
    
    Change in
    
    
    Change in(In thousands)
    
    2008
    
    
    2007
    
    
    Dollars
    
    
    Percent
    
    
    2008
    
    
    2007
    
    
    Dollars
    
    
    PercentIncome from
settlement and
licensing
    
    $
    5,865
    
    
    $
    
    
    
    $
    5,865
    
    
    
    n/a
    
    
    $
    11,730
    
    
    $
    
    
    
    $
    11,730
    
    
    
    n/a
  Research and Development
  Three Months Ended June 30,
    
    
    Change in
    
    
    Change in
    
    
    Six Months Ended June 30,
    
    
    Change in
    
    
    Change in(In thousands)
    
    2008
    
    
    2007
    
    
    Dollars
    
    
    Percent
    
    
    2008
    
    
    2007
    
    
    Dollars
    
    
    PercentResearch and
development expenses
    
    $
    1,719
    
    
    $
    2,173
    
    
    $
    (454
    )
    
    
    (21
    %)
    
    $
    3,722
    
    
    $
    7,191
    
    
    $
    (3,469
    )
    
    
    (48
    %)Stock-based compensation
    
    
    596
    
    
    
    364
    
    
    
    232
    
    
    
    64
    %
    
    
    1,443
    
    
    
    282
    
    
    
    1,161
    
    
    
    412
    %Total research and
development expenses
    
    $
    2,315
    
    
    $
    2,537
    
    
    $
    (222
    )
    
    
    (9
    %)
    
    $
    5,165
    
    
    $
    7,473
    
    
    $
    (2,308
    )
    
    
    (31
    %)
 Three Months Ended June 30,
    
    
    Change in
    
    
    Change in
    
    
    Six Months Ended June 30,
    
    
    Change in
    
    
    Change in(In thousands)
    
    2008
    
    
    2007
    
    
    Dollars
    
    
    Percent
    
    
    2008
    
    
    2007
    
    
    Dollars
    
    
    PercentAmount classified
to costs of service
revenue
    
    $
    
    
    
    $
    110
    
    
    $
    (110
    )
    
    
    (100
    %)
    
    $
    163
    
    
    $
    1,135
    
    
    $
    (972
    )
    
    
    (86
    %)Stock-based
compensation 
for cost of service
revenue
    
    
    
    
    
    
    14
    
    
    
    (14
    )
    
    
    (100
    %)
    
    
    82
    
    
    
    17
    
    
    
    65
    
    
    
    382
    %Total amount
classified to cost
of service revenue
    
    $
    
    
    
    $
    124
    
    
    $
    (124
    )
    
    
    (100
    %)
    
    $
    245
    
    
    $
    1,152
    
    
    $
    (907
    )
    
    
    (79
    %)
  - 24 -




---



##### Table of Contents



Selling, General and Administrative
 Three Months Ended June 30,
    
    
    Change in
    
    
    Change in
    
    
    Six Months Ended June 30,
    
    
    Change in
    
    
    Change in(In thousands)
    
    2008
    
    
    2007
    
    
    Dollars
    
    
    Percent
    
    
    2008
    
    
    2007
    
    
    Dollars
    
    
    PercentSelling, general
and administrative
expenses
    
    $
    3,424
    
    
    $
    5,329
    
    
    $
    (1,905
    )
    
    
    (36
    %)
    
    $
    7,134
    
    
    $
    11,053
    
    
    $
    (3,919
    )
    
    
    (35
    %)Stock-based
compensation
    
    
    684
    
    
    
    315
    
    
    
    369
    
    
    
    117
    %
    
    
    1,316
    
    
    
    697
    
    
    
    619
    
    
    
    89
    %Total selling,
general and
administrative
expenses
    
    $
    4,108
    
    
    $
    5,644
    
    
    $
    (1,536
    )
    
    
    (27
    %)
    
    $
    8,450
    
    
    $
    11,750
    
    
    $
    (3,300
    )
    
    
    (28
    %)
  Restructuring Charges, Net
 Three Months Ended June 30,
    
    
    Change in
    
    
    Change in
    
    
    Six Months Ended June 30,
    
    
    Change in
    
    
    Change in(In thousands)
    
    2008
    
    
    2007
    
    
    Dollars
    
    
    Percent
    
    
    2008
    
    
    2007
    
    
    Dollars
    
    
    PercentRestructuring charges
    
    $
    455
    
    
    $
    1,978
    
    
    $
    (1,523
    )
    
    
    (77
    %)
    
    $
    797
    
    
    $
    8,701
    
    
    $
    (7,904
    )
    
    
    (91
    %)
  Amortization of Patents and Patent Rights
 Three Months Ended June 30,
    
    
    Change in
    
    
    Change in
    
    
    Six Months Ended June 30,
    
    
    Change in
    
    
    Change in(In thousands)
    
    2008
    
    
    2007
    
    
    Dollars
    
    
    Percent
    
    
    2008
    
    
    2007
    
    
    Dollars
    
    
    PercentAmortization of
patent and patent
rights
    
    $
    908
    
    
    $
    1,711
    
    
    $
    (803
    )
    
    
    (47
    %)
    
    $
    2,388
    
    
    $
    3,423
    
    
    $
    (1,035
    )
    
    
    (30
    %)
  - 25 -




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##### Table of Contents



Impairment Charge on Long-Lived and Other Assets
 Three Months Ended June 30,
    
    
    Change in
    
    
    Change in
    
    
    Six Months Ended June 30,
    
    
    Change in
    
    
    Change in(In thousands)
    
    2008
    
    
    2007
    
    
    Dollars
    
    
    Percent
    
    
    2008
    
    
    2007
    
    
    Dollars
    
    
    PercentImpairment charges
    
    $
    
    
    
    $
    8
    
    
    $
    (8
    )
    
    
    (100
    %)
    
    $
    
    
    
    $
    302
    
    
    $
    (302
    )
    
    
    (100
    %)
  Interest Income and Other, Net
 Three Months Ended June 30,
    
    
    Change in
    
    
    Change in
    
    
    Six Months Ended June 30,
    
    
    Change in
    
    
    Change in(In thousands)
    
    2008
    
    
    2007
    
    
    Dollars
    
    
    Percent
    
    
    2008
    
    
    2007
    
    
    Dollars
    
    
    PercentInterest income and other, net
    
    $
    1,769
    
    
    $
    350
    
    
    $
    1,419
    
    
    
    405
    %
    
    $
    4,384
    
    
    $
    859
    
    
    $
    3,525
    
    
    
    410
    %
  Provision for Income Taxes
 Three Months Ended June 30,
    
    
    Change in
    
    
    Change in
    
    
    Six Months Ended June 30,
    
    
    Change in
    
    
    Change in(In thousands)
    
    2008
    
    
    2007
    
    
    Dollars
    
    
    Percent
    
    
    2008
    
    
    2007
    
    
    Dollars
    
    
    PercentProvision for income taxes
    
    $
    
    
    
    $
    (15
    )
    
    $
    15
    
    
    
    (100
    %)
    
    $
    
    
    
    $
    4
    
    
    $
    (4
    )
    
    
    (100
    %)
  Liquidity and Capital Resources
   Six Months Ended June 30,
    
    
    Change in
    
    
    Change in(In thousands)
    
    2008
    
    
    2007
    
    
    Dollars
    
    
    PercentNet cash provided by (used in) operating activities
    
    $
    122,903
    
    
    $
    (28,071
    )
    
    $
    150,974
    
    
    
    538
    %Net cash provided by (used in) investing activities
    
    
    (41,923
    )
    
    
    19,139
    
    
    
    (61,062
    )
    
    
    (319
    %)Net cash provided by financing activities
    
    
    332
    
    
    
    1,604
    
    
    
    (1,272
    )
    
    
    (79
    %)Increase (decrease) in cash and cash equivalents
    
    $
    81,312
    
    
    $
    (7,328
    )
    
    $
    88,640
    
    
    
    1210
    %
 - 26 -




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##### Table of Contents



Operating activities
   Investing activities
    Financing activities
   Contractual Obligations
  Future Minimum Payments Due by PeriodRemainder of(In thousands)
    
    Total
    
    
    2008
    
    
    2009Operating leases(1)
    
    $
    
    
    
    $
    
    
    
    $
    Unconditional contractual obligations(2)
    
    
    1,200
    
    
    
    400
    
    
    
    800Total
    
    $
    1,200
    
    
    $
    400
    
    
    $
    800
 
 (1)
    
    Operating leases include agreement son building facilities. The lease extension for
approximately 22,500 square feet of office space in Santa Clara, California was signed in
July 2008 and is therefore not included in the above table.(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. - 27 -




---



##### Table of Contents



Off-Balance Sheet Arrangements
  Critical Accounting Policies
   Recent Accounting Pronouncements
  
 Item 3 . Quantitative and Qualitative Disclosures about Market Risk
 Interest Rate Risk.
 Foreign Currency Exchange Risk.
 
 Item 4 . Controls and Procedures
 Disclosure Controls and Procedures
  Inherent Limitations on Effectiveness of Controls
  - 28 -




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  In re Transmeta Corporation Initial Public Offering
Securities Litigation In re Initial Public
Offering Securities Litigation
 Simmonds v. Morgan Stanley, et al.
 - 29 -




---



##### Table of Contents



Riley Investment Partners Investment Fund, L.P., et al. v. Horsley,
et al. (Transmeta Corp.),
 
 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 10-Q 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.
 We substantially restructured our operations and changed our business plan in 2007, and we might
fail to operate successfully under our current business plan, which is unproven.
  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 current
business plan.
  Our recent restructuring and 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 such changes effectively.
  - 30 -




---



##### Table of Contents



Our current business plan depends on 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 and we might be unsuccessful in our efforts to generate royalty
revenue
  
    
    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. Our customers and
competitors are much larger than we are and have significantly greater resources. We may not be
able to compete effectively
  We might be unable to keep pace with technological change in our industry, and our technology
offerings might not be competitive.
  We might experience payment disputes for amounts owed to us under our LongRun2 licensing
agreements, and such a dispute may harm our business results
  - 31 -




---



##### Table of Contents



We might experience payment disputes for amounts owed to us under our settlement, release and
license agreement with Intel, and such a dispute may harm our financial and operational outlook.
  We currently derive a substantial portion of our revenue from a small number of customers and
licensees, and our operating results would be adversely affected if any customer were to cancel,
reduce or delay a transaction.
   We may be unable to protect our proprietary technologies and defend our intellectual property
rights. Our competitors might gain access to our technologies, and we might not compete
successfully in our markets.
   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
  - 32 -




---



##### Table of Contents



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;
    
    political and economic instability; 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 investors could result in a substantial decline in our stock price.
  A sale of a substantial number of shares of our common stock may cause the price of our common
stock to decline
  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.
 - 33 -




---



##### Table of Contents



We might need to raise additional financing, which might not be available or might be available
only on terms unfavorable to us or our stockholders
  
    
    fund expansion;
    
    develop or enhance our products or technologies;
    
    enhance our operating infrastructure;
    
    respond to competitive pressures; or
    
    acquire complementary businesses or technologies.
  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.
 - 34 -




---



##### Table of Contents



Our business is subject to potential tax liabilities, which could change our effective tax rate.
   
    
    the jurisdictions in which profits are determined to be earned and taxed;
    
    the resolution of issues arising from tax audits with various tax authorities;
    
    adjustments to deferred tax assets utilized in 2007 to reduce the tax effect of various tax returns;
    
    adjustments to estimated taxes upon finalization of various tax returns;
    
    increases in expenses not deductible for tax purposes;
    
    changes in available tax credits and available net operating loss carryovers;
    
    changes in the valuation of any deferred tax assets and liabilities;
    
    changes in share-based compensation; or
    
    changes in tax laws or the interpretation of such tax laws and changes in generally accepted accounting principles.
 Our results of operations could vary as a result of the methods, estimates, and judgments we use
in applying our accounting policies.
  We may develop or identify material weaknesses in our internal control over financial reporting.
  
 - 35 -




---



##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total Numberof Shares
    
    Maximum Number ofTotal Number
    
    
    
    
    
    Average
    
    Purchased as Part
    
    Shares that May Yetof Shares
    
    Total
    
    Price Paid
    
    of Publicly Announced
    
    Be Purchased UnderPeriod
    
    Purchased
    
    Paid
    
    per Share
    
    Plans or Programs
    
    the Plans or Programs04/01/08 - 04/30/08
    
    
    3,000

    
    $
    

    
    $
    0.00001

    
    
    

    
    
    05/01/08 - 05/31/08
    
    
    

    
    
    

    
    
    

    
    
       

    
    
    06/01/08 - 06/30/08
    
    
    

    
    
    

    
    
     

    
    
    

    
    
    Total
    
    
    3,000

    
    $
    

    
    $
    0.00001

    
    
    

    
    
    
 - 36 -




---



##### Table of Contents



Item 6. 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 Sujan Jain 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 Sujan Jain 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. - 37 -




---



##### Table of Contents



SIGNATURES
  TRANSMETA CORPORATIONBy
    /s/ Sujan JainSujan JainDate: August 6, 2008
    
    Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Duly Authorized
Officer) - 38 -




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##### Table of Contents



INDEX TO 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 Sujan Jain 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 Sujan Jain 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 -