Transmeta Reports Third Quarter 2007 Results

Transmeta Corporation (NASDAQ:TMTA) today announced financial results for the third quarter of fiscal 2007, ended September 30, 2007. Revenue for the third quarter of 2007 was $44,000, which included $43,000 of services revenue and $1,000 of license revenue for royalty payments. This compared with revenue of $171,000 in the second quarter of 2007, which included $146,000 of services revenue and $25,000 of end-of-life product revenue. All share and per share data included in this press release have been retroactively adjusted to account for the effect of the one-for-20 reverse stock split that the Company effected on August 17, 2007. Net loss attributable to common shareholders for the third quarter of 2007 was $12.7 million, or a loss of $1.24 per share, compared with a net loss of $11.5 million, or a loss of $1.15 per share, in the second quarter of 2007. The third quarter of 2007 results included restructuring charges totaling $109,000, non-cash charges of $1.7 million for amortization of intangible assets and non-cash charges of $3.6 million for the beneficial conversion feature of the Series B Preferred Stock sold to AMD in July 2007. Gross margin for the third quarter of 2007 was 59 percent, compared with a gross margin of 53 percent in the second quarter of 2007. The Company’s cash, cash equivalents and short term investments at September 30, 2007 totaled $28.6 million, including the approximate $7.0 million in net proceeds that Transmeta received from AMD’s investment in the Company in July 2007, and the approximate $11.6 million in net proceeds that the Company received from its securities offering in September 2007. The Company continues to be debt free. In October, Transmeta entered into an agreement with Intel Corporation providing for a settlement of all claims between the two companies and for the licensing of the Transmeta patent portfolio to Intel for use in current and future Intel products. The agreement will grant Intel a perpetual non-exclusive license to all Transmeta patents and patent applications, including any patent rights later acquired by Transmeta, now existing or as may be filed during the next ten years. Under the agreement, Transmeta will grant to Intel a non-exclusive paid-up license and transfer technology related to its LongRun and LongRun2 technologies and future improvements. Under the agreement, Intel will covenant not to sue Transmeta for the development and licensing to third parties of Transmeta’s LongRun and LongRun2 technologies. The agreement provides for Intel to make an initial $150 million payment to Transmeta as well as to pay Transmeta an annual license fee of $20 million for each of the next five years. "During the third quarter, we reinforced our relationship with AMD through the strategic investment that AMD made in Transmeta in July 2007. In addition, we raised about $11.6 million in net proceeds from our securities offering in September 2007 and completed the restructuring program that we started earlier this year,” said Les Crudele, president and CEO. "In October, we resolved our patent litigation with Intel, pursuant to an agreement that provides for Transmeta to receive an initial payment of $150 million and future payments of $20 million per year for each of the next five years. We believe these funds will give us the financial flexibility to execute on our strategy of developing and licensing our intellectual property. Having completed our restructuring, resolved our patent litigation, and taken steps to significantly strengthen our balance sheet, we can now concentrate our attention on developing our technology, building our licensing business, putting the building blocks in place to expand our customer base and creating long-term shareholder value.” Conference Call As previously announced, Transmeta’s management will host a conference call today at 5:00 p.m. Eastern time / 2:00 p.m. Pacific time to discuss the operating performance for the quarter. The conference call will be available live over the Internet at the investor relations section of Transmeta's website at www.transmeta.com. To listen to the conference call, please dial (913) 312-0697. A recording of the conference call will be available for one week, starting one hour after the completion of the call, until 11:59 p.m. Pacific time on November 14, 2007. The phone number to access the recording is (888) 203-1112, and the passcode is 4283177. For callers outside the U.S., please dial (719) 457-0820, with the same passcode. About Transmeta Corporation Transmeta Corporation develops and licenses innovative computing, microprocessor and semiconductor technologies and related intellectual property. Founded in 1995, we first became known for designing, developing and selling our highly efficient x86-compatible software-based microprocessors, which deliver a balance of low power consumption, high performance, low cost and small size suited for diverse computing platforms. We are presently focused on developing and licensing our advanced power management technologies for controlling leakage and increasing power efficiency in semiconductor and computing devices, and in licensing our computing and microprocessor technologies to other companies. To learn more about Transmeta, visit www.transmeta.com. Safe Harbor Statement This release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements speak only as of the date of this release, and we will not necessarily provide updates of our projections or other forward-looking statements. Investors are cautioned that such forward-looking statements are subject to many risks and uncertainties, and may differ materially or adversely from our actual results or future events. Important risk factors that could have material or adverse effects on our results include practical difficulties in implementing our restructuring plan and modifying our business model, the potential loss of key technical and business personnel, uncertainty about the adoption and market acceptance of our technology offerings by current and potential customers and licensees, our inability to predict or ensure that third parties will license our technologies or use our technologies to generate royalties, difficulties in developing our technologies in a timely and cost effective manner, patents and other intellectual property rights, and other risk factors. We urge investors to review our filings with the Securities and Exchange Commission, including our most recent reports on Forms 10-K, 10-Q and 8-K, which describe these and other important risk factors that could have an adverse effect on our results. We undertake no obligation to revise or update publicly any forward-looking statement for any reason. Transmeta and LongRun2 are trademarks of Transmeta Corporation. All other product or service names mentioned herein are the trademarks of their respective owners. Transmeta Corporation Condensed Consolidated Balance Sheets (in thousands)       September 30, 2007 December 31, 2006 (Unaudited) (1) ASSETS Current assets: Cash and cash equivalents $ 19,629 $ 11,595 Short-term investments 8,976 29,955 Accounts receivable, net 45 310 Prepaid and other current assets 2,332 2,729 Total current assets 30,982 44,589   Property, plant and equipment, net 376 758 Patents and patent rights, net 4,100 9,234 Other assets 1,010 2,148 TOTAL ASSETS $ 36,468 $ 56,729 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 2,171 $ 1,467 Accrued compensation and related compensation liabilities 834 3,245 Deferred income, net - 15 Other accrued liabilities 4,388 3,015 Advances from customers - 1,320 Current portion of accrued restructuring costs 2,592 1,996 Current portion of long-term payables 600 667 Total current liabilities 10,585 11,725   Long-term accrued restructuring costs, net of current portion - 988 Long-term payables, net of current portion 1,000 1,333 Total liabilities 11,585 14,046   Stockholders' equity: Preferred stock 6,966 - Common stock 738,625 724,229 Treasury stock (2,439) (2,439) Accumulated other comprehensive gain (loss) 29 (66) Accumulated deficit (718,298) (679,041) Total stockholders' equity 24,883 42,683 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 36,468 $ 56,729   (1) Derived from the Company's audited statements as of December 31, 2006, included in the Company's Form 10-K filed with the Securities and Exchange Commission. Transmeta Corporation Consolidated Statements of Operations (Dollars in thousands, except per share data) (Unaudited)           Three Months Ended Nine Months Ended September 30, 2007 June 30, 2007 September 30, 2006   September 30, 2007 September 30, 2006 Revenue: Product $ - $ 25 $ 507 $ 167 $ 1,457 License 1 - 10,000 1 10,000 Service 43 146 6,810 2,186 34,700 Total revenue 44 171 17,317 2,354 46,157   Cost of revenue: Product (1) - - 9 80 109 License - - 39 - 39 Service (1) 18 80 3,913 1,236 20,589 Impairment charge on inventories - - - 364 - Total cost of revenue 18 80 3,961 1,680 20,737 Gross profit 26 91 13,356 674 25,420 Gross margin % 59.1% 53.2% 77.1% 28.6% 55.1%   Operating expenses: Research and development (1) 1,336 2,537 4,838 8,809 12,859 Selling, general and administrative (1) 6,107 5,644 4,847 17,857 16,434 Restructuring charges, net 109 1,920 107 8,694 277 Amortization of patents and patent rights 1,711 1,711 1,711 5,134 5,134 Impairment charge on long-lived and other assets - 8 - 302 - Total operating expenses 9,263 11,820 11,503 40,796 34,704 Operating (loss) income (9,237) (11,729) 1,853 (40,122) (9,284) Interest income and other, net 247 365 708 1,102 1,801 Interest expense (83) (86) (42) (237) (114) Net income (loss) (9,073) (11,450) 2,519 (39,257) (7,597) Deemed dividend for beneficial conversion feature of preferred stock (3,630) - - (3,630) - Net income (loss) attributable to common shareholders $ (12,703) $ (11,450) $ 2,519 $ (42,887) $ (7,597)   Net income (loss) per share attributable to common shareholders--basic $ (1.24) $ (1.15) $ 0.26 $ (4.26) $ (0.78)   Net income (loss) per share attributable to common shareholders--fully diluted $ (1.24) $ (1.15) $ 0.25 $ (4.26) $ (0.78)     Weighted average shares outstanding - basic 10,236 9,997 9,832 10,066 9,763   Weighted average shares outstanding - fully diluted 10,236 9,997 9,990 10,066 9,763       (1) Includes charges for stock-based compensation:   Three Months Ended Nine Months Ended September 30, 2007 June 30, 2007 September 30, 2006   September 30, 2007 September 30, 2006 Cost of product revenue $ - $ - $ (4) $ - $ 5 Cost of service revenue 1 14 239 18 1,603 Research and Development (271) 364 339 11 1,000 Selling, general and administrative 244 315 527 941 1,720           Total stock-based compensation $ (26) $ 693 $ 1,101 $ 970 $ 4,328