##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K





|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the year ended December 31, 2004                                                        
|  
|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 of Incorporation) |  | (IRS Employer Identification No.)

3990 Freedom Circle, Santa Clara, CA 95054


(Address of Principal Executive Offices, including zip
code)


(408) 919-3000


(Registrants Telephone Number, including area code)


Securities registered pursuant to Section 12(b) of the
Act:


None


Securities registered pursuant to Section 12(g) of the
Act:


Common Stock, $0.00001 par value per share


Stock Purchase Rights


þ o


þ


þ o






DOCUMENTS INCORPORATED BY REFERENCE












---










TRANSMETA CORPORATION


FISCAL YEAR 2004 FORM 10-K


INDEX


|              |  |                                                                                                    |    |      |    | 
|------------- |  | -------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|Item          |  |                                                                                                    |    | Page |   
|              |  |                                                                                                    |    |      |   
|              |  | PART I                                                                                             |    |      |    | 
|Item 1        |  | Business                                                                                           |    |      | 2  | 
|Item 2        |  | Properties                                                                                         |    |      | 7  | 
|Item 3        |  | Legal Proceedings                                                                                  |    |      | 8  | 
|Item 4        |  | Submission of Matters to a Vote of Security
    Holders                                            |    |      | 8  | 
|             
|              |  | PART II                                                                                            |    |      |    | 
|Item 5        |  | Market for Registrants Common Equity
    and Related Stockholder Matters                          |    |      | 9  | 
|Item 6        |  | Selected Financial Data                                                                            |    |      | 10 | 
|Item 7        |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations          |    |      | 12 | 
|Item 7A       |  | Quantitative and Qualitative Disclosures
    About Market Risk                                     |    |      | 42 | 
|Item 8        |  | Financial Statements and Supplementary
    Data                                                    |    |      | 43 | 
|Item 9        |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure           |    |      | 76 | 
|Item 9A       |  | Controls and Procedures                                                                            |    |      | 76 | 
|Item 9B       |  | Other Information                                                                                  |    |      | 80 | 
|             
|              |  | PART III                                                                                           |    |      |    | 
|Item 10       |  | Directors and Executive Officers of the
    Registrant                                             |    |      | 80 | 
|Item 11       |  | Executive Compensation                                                                             |    |      | 80 | 
|Item 12       |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters |    |      | 80 | 
|Item 13       |  | Certain Relationships and Related
    Transactions                                                 |    |      | 80 | 
|Item 14       |  | Principal Accountant Fees and Services                                                             |    |      | 80 | 
|             
|              |  | PART IV                                                                                            |    |      |    | 
|Item 15       |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                                |    |      | 80 | 
|Signatures    |  |                                                                                                    | 83 |     
|EXHIBIT 10.17
|EXHIBIT 10.18
|EXHIBIT 10.19
|EXHIBIT 23.01
|EXHIBIT 31.01
|EXHIBIT 31.02
|EXHIBIT 32.01
|EXHIBIT 32.02



tm tm tm


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CAUTION REGARDING FORWARD-LOOKING STATEMENTS









PART I







|        |         
|------- | --------
|Item 1. | Business

General




tm


tm


2



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Our Product Business


tm






| |       
| | ------
| | Crusoe







| |         
| | --------
| | Efficeon



3



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Our Licensing and Services Business




Customers






Sales and Marketing








4



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Manufacturing












Competition








| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | technical innovation;                                                                                                   
|
| |  | performance of our products, including their speed, power usage,
    product system compatibility, reliability and size;
|
| |  | product price;                                                                                                          
|
| |  | product availability;                                                                                                   
|
| |  | reputation and branding;                                                                                                

5



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| |   |                                         
| | - | ----------------------------------------
| |  | product marketing and merchandising; and
|
| |  | technical support.                      









| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| |  | technical innovation;                                                                                                       
|
| |  | performance of our technology, including the nature and extent
    of transistor leakage reduction;                         
|
| |  | compatibility with other semiconductor design, materials and
    manufacturing choices by current and prospective licensees;
|
| |  | reputation; and                                                                                                             
|
| |  | quality of our services and technical support.                                                                              

Intellectual Property






6



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Employees








Available Information


www.transmeta.com www.sec.gov.







|        |           
|------- | ----------
|Item 2. | Properties



7



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|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

In re
Transmeta Corporation Initial Public Offering Securities
Litigation In
re Initial Public Offering Securities Litigation







|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders



8



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PART II







|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity and Related
    Stockholder Matters

Market Information for Common Stock




|                                    |                |      |   |      |     |  |   |      | 
|----------------------------------- | -------------- | ---- | - | ---- | --- |  | - | ---- | 
|                                    |                | High |   |      | Low | 
|                                    |                |      |   |      |     | 
|Fiscal year ended December 31, 2003 |                |      |   |      |     |  |   |     
|                                    | First quarter  |      | $ | 1.62 |     |  | $ | 1.05 | 
|                                    | Second quarter |      |   | 1.90 |     |  |   | 0.91 | 
|                                    | Third quarter  |      |   | 3.59 |     |  |   | 1.41 | 
|                                    | Fourth quarter |      |   | 5.51 |     |  |   | 2.75 | 
|Fiscal year ended December 31, 2004 |                |      |   |      |     |  |   |     
|                                    | First quarter  |      | $ | 4.44 |     |  | $ | 3.01 | 
|                                    | Second quarter |      |   | 4.20 |     |  |   | 2.00 | 
|                                    | Third quarter  |      |   | 2.30 |     |  |   | 0.96 | 
|                                    | Fourth quarter |      |   | 2.19 |     |  |   | 1.20 | 

Stockholders




Dividends




Securities Authorized For Issuance Under Equity Compensation
Plans




Recent Sales of Unregistered Securities








9



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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data





|                                                        |                                                     |                                       |          |        |        |   |         |        |        |   |          |        |         |      |          |        |         |   |          |        |         | 
|------------------------------------------------------- | --------------------------------------------------- | ------------------------------------- | -------- | ------ | ------ | - | ------- | ------ | ------ | - | -------- | ------ | ------- | ---- | -------- | ------ | ------- | - | -------- | ------ | ------- | 
|                                                        |                                                     | Years Ended December 31,              |         
|                                                        |                                                     |                                       |         
|                                                        |                                                     | 2004                                  |          |        | 2003   |   |         | 2002   |        |   | 2001     |        |         | 2000 |         
|                                                        |                                                     |                                       |          |        |        |   |         |        |        |   |          |        |         |      |         
|                                                        |                                                     | (In thousands, except per share data) |         
|Consolidated Statement of Operations Data:              |                                                     |                                       |          |        |        |   |         |        |        |   |          |        |         |      |          |        |         |   |          |       
|Revenue:                                                |                                                     |                                       |          |        |        |   |         |        |        |   |          |        |         |      |          |        |         |   |          |       
|                                                        | Product                                             |                                       | $        | 18,776 |        |   | $       | 16,225 |        |   | $        | 24,247 |         |      | $        | 35,590 |         |   | $        | 16,180 |        
|                                                        | License and service                                 |                                       |          | 10,668 |        |   |         | 1,090  |        |   |          |       |         |      |          |       |         |   |          |       |        
|                                                        |                                                     |                                       |          |        |        |   |         |        |        |   |          |        |         |      |         
|                                                        |                                                     | Total revenue                         |          |        | 29,444 |   |         |        | 17,315 |   |          |        | 24,247  |      |          |        | 35,590  |   |          |        | 16,180  | 
|                                                        |                                                     |                                       |          |        |        |   |         |        |        |   |          |        |         |      |         
|Cost of revenue:                                        |                                                     |                                       |          |        |        |   |         |        |        |   |          |        |         |      |          |        |         |   |          |       
|                                                        | Cost of revenue(1)                                  |                                       |          | 37,065 |        |   |         | 16,324 |        |   |          | 17,127 |         |      |          | 48,694 |         |   |          | 9,461  |        
|                                                        | Impairment charge on long-lived assets(4)           |                                       |          | 1,943  |        |   |         |       |        |   |          |       |         |      |          |       |         |   |          |       |        
|                                                        |                                                     |                                       |          |        |        |   |         |        |        |   |          |        |         |      |         
|                                                        |                                                     | Total cost of revenue                 |          |        | 39,008 |   |         |        | 16,324 |   |          |        | 17,127  |      |          |        | 48,694  |   |          |        | 9,461   | 
|                                                        |                                                     |                                       |          |        |        |   |         |        |        |   |          |        |         |      |         
|Gross profit (loss)                                     |                                                     |                                       | (9,564   | )      |        |   | 991     |        |        |   | 7,120    |        |         |      | (13,104  | )      |         |   | 6,719    |       
|                                                        |                                                     |                                       |          |        |        |   |         |        |        |   |          |        |         |      |         
|Operating expenses:                                     |                                                     |                                       |          |        |        |   |         |        |        |   |          |        |         |      |          |        |         |   |          |       
|                                                        | Research and development                            |                                       |          | 52,765 |        |   |         | 48,525 |        |   |          | 63,603 |         |      |          | 67,639 |         |   |          | 61,415 |        
|                                                        | Purchased in-process research and development       |                                       |          |       |        |   |         |       |        |   |          |       |         |      |          | 13,600 |         |   |          |       |        
|                                                        | Selling, general and administrative                 |                                       |          | 30,855 |        |   |         | 26,199 |        |   |          | 29,917 |         |      |          | 35,460 |         |   |          | 27,045 |        
|                                                        | Restructuring charges (recovery)(2)                 |                                       |          | 904    |        |   |         | (244   | )      |   |          | 14,726 |         |      |          |       |         |   |          |       |        
|                                                        | Amortization of patents and patent rights           |                                       |          | 9,217  |        |   |         | 10,530 |        |   |          | 11,392 |         |      |          | 17,556 |         |   |          | 10,416 |        
|                                                        | Impairment charge of deferred charges(3)            |                                       |          |       |        |   |         |       |        |   |          |       |         |      |          | 16,564 |         |   |          |       |        
|                                                        | Impairment charge on long-lived and other assets(4) |                                       |          | 2,544  |        |   |         |       |        |   |          |       |         |      |          |       |         |   |          |       |        
|                                                        | Stock compensation(5)                               |                                       |          | 1,665  |        |   |         | 4,529  |        |   |          | 1,809  |         |      |          | 20,954 |         |   |          | 13,056 |        
|                                                        |                                                     |                                       |          |        |        |   |         |        |        |   |          |        |         |      |         
|                                                        |                                                     | Total operating expenses              |          |        | 97,950 |   |         |        | 89,539 |   |          |        | 121,447 |      |          |        | 171,773 |   |          |        | 111,932 | 
|                                                        |                                                     |                                       |          |        |        |   |         |        |        |   |          |        |         |      |         
|Operating loss                                          |                                                     |                                       | (107,514 | )      |        |   | (88,548 | )      |        |   | (114,327 | )      |         |      | (184,877 | )      |         |   | (105,213 | )     
|                                                        | Interest income and other, net                      |                                       |          | 827    |        |   |         | 1,389  |        |   |          | 4,962  |         |      |          | 14,686 |         |   |          | 9,174  |        
|                                                        | Interest expense                                    |                                       |          | (111   | )      |   |         | (477   | )      |   |          | (601   | )       |      |          | (1,060 | )       |   |          | (1,666 | )      
|                                                        |                                                     |                                       |          |        |        |   |         |        |        |   |          |        |         |      |         
|Net loss                                                |                                                     | $                                     | (106,798 | )      |        | $ | (87,636 | )      |        | $ | (109,966 | )      |         | $    | (171,251 | )      |         | $ | (97,705  | )     
|                                                        |                                                     |                                       |          |        |        |   |         |        |        |   |          |        |         |      |         
|Net loss per share  basic and diluted                  |                                                     | $                                     | (0.61    | )      |        | $ | (0.63   | )      |        | $ | (0.82    | )      |         | $    | (1.33    | )      |         | $ | (2.18    | )     
|                                                        |                                                     |                                       |          |        |        |   |         |        |        |   |          |        |         |      |         
|Weighted average shares outstanding  basic and diluted |                                                     |                                       | 175,989  |        |        |   | 139,692 |        |        |   | 134,719  |        |         |      | 129,002  |        |         |   | 44,741   |       
|                                                        |                                                     |                                       |          |        |        |   |         |        |        |   |          |        |         |      |         
|Consolidated Balance Sheet Data:                        |                                                     |                                       |          |        |        |   |         |        |        |   |          |        |         |      |          |        |         |   |          |       
|Cash and cash equivalents                               |                                                     | $                                     | 17,273   |        |        | $ | 74,765  |        |        | $ | 16,613   |        |         | $    | 57,747   |        |         | $ | 259,744  |       
|Short-term investments                                  |                                                     |                                       | 36,395   |        |        |   | 46,000  |        |        |   | 112,837  |        |         |      | 183,941  |        |         |   | 83,358   |       
|Working capital                                         |                                                     |                                       | 40,661   |        |        |   | 99,290  |        |        |   | 116,033  |        |         |      | 217,152  |        |         |   | 343,004  |       
|Total assets                                            |                                                     |                                       | 89,613   |        |        |   | 171,590 |        |        |   | 197,555  |        |         |      | 309,024  |        |         |   | 412,536  |       
|Long-term obligations, net of current Portion           |                                                     |                                       | 5,000    |        |        |   | 356     |        |        |   | 18,116   |        |         |      | 29,295   |        |         |   | 20,950   |       
|Total stockholders equity                              |                                                     |                                       | 58,000   |        |        |   | 131,418 |        |        |   | 140,847  |        |         |      | 244,965  |        |         |   | 364,916  |       






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Cost of revenue includes $9.0 million, $1.5 million,
    $2.6 million and $28.1 million, respectively, related
    to charges taken to decrease the value of our inventory to its
    fair market value in fiscal 2004, 2003, 2002 and 2001,
    respectively, which was partially offset by the sale of
    previously written down inventory and the reversal of previously
    accrued inventory charges of $0.6 million,
    $0.5 million, $1.9 million and

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | $2.5 million, respectively. There were no similar charges
    in fiscal 2000. In fiscal 2004, when we became aware of factors
    indicating that inventory associated with non-cancelable
    purchase orders would be sold to customers at a loss, we
    recorded a charge of $8.4 million in cost of revenue
    related to these non-cancelable orders.                                                                                                                                                                                                                                                                                       
|   
|(2) | Restructuring charge in fiscal 2004 and restructuring recovery
    in fiscal 2003 primarily relate to adjustments in the costs
    related to excess facilities. Restructuring charges recorded in
    fiscal 2002 primarily consist of $8.9 million for excess
    facilities, $1.6 million for equipment and prepaid software
    maintenance write-offs and $4.1 million related to a
    reduction in workforce.                                                                                                                                                                                                                               
|   
|(3) | During the fourth quarter of 2001, we wrote-off
    $16.6 million of long-lived asset balances related to
    deferred charges under licensing agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(4) | During the fourth quarter of 2004, we performed an impairment
    assessment of long-lived and other assets due to the emergence
    of indicators of impairment in the fourth quarter of 2004. As a
    result of this assessment, we recorded a charge in operating
    expenses of $2.5 million to write off certain long-lived
    and other asset balances, comprised of $1.7 million for
    property and equipment and $0.8 million for software
    maintenance prepayments. This charge was included in operating
    expenses. Additionally, we recorded a charge in cost of revenue
    of $1.9 million for prepaid manufacturing tools.
|   
|(5) | Stock compensation includes $0.7 million,
    $1.8 million, $3.6 million, $16.8 million and
    $13.1 million in amortization of deferred stock
    compensation for the years ended December 31, 2004, 2003,
    2002, 2001 and 2000, respectively. Stock compensation also
    includes $1.0 million, $2.7 million,
    $(1.8) million and $4.2 million in variable stock
    compensation for the years ended December 31, 2004, 2003,
    2002 and 2001, respectively. There was no variable compensation
    for the year ended December 31, 2000.                                                                                            

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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

NOTE: For a more complete understanding of our financial
condition and results of operations, and some of the risks that
could affect future results, see Risks That Could Affect
Future Results. This section should also be read in
conjunction with the Consolidated Financial Statements and
related Notes, which immediately follow this section.


Overview










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Critical Accounting Policies








| |   |                                               
| | - | ----------------------------------------------
| |  | License and service revenue recognition;      
|
| |  | Estimation of inventory valuations;           
|
| |  | Valuation of long-lived and intangible assets;
|
| |  | Restructuring charges; and                    
|
| |  | Loss contingencies                            

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License and Service Revenue Recognition.


Estimation of Inventory Valuations.


Valuation of Long-Lived and Intangible Assets.




14



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Restructuring Charges.


Loss Contingencies.


Description of Operating Accounts


Total Revenue.


Gross Margin.


Research and Development.


15



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Selling, General & Administrative.


Restructuring Charges.


Amortization of Patents and Patent Rights.


Impairment Charge on Long-Lived and Other Assets.


Stock Compensation.


Interest Income and Other, Net and Interest Expense.


Results of Operations




| |              
| | -------------
| | Total Revenue



|                     |                     |              |     |      |     |      |    
|-------------------- | ------------------- | ------------ | --- | ---- | --- | ---- | ---
|                     |                     | Years Ended 
|                     |                     | December 31,
|                     |                     |             
|                     |                     | 2004         |     | 2003 |     | 2002
|                     |                     |              |     |      |     |     
|Product:             |                     |              |     |      |     |     
|                     | Thin client desktop |              | 30% |      | 17% |      | 6% 
|                     | Notebook computers  |              | 19% |      | 42% |      | 82%
|                     | Embedded/servers    |              | 8%  |      | 6%  |      | 5% 
|                     | Tablet PCs         |              | 4%  |      | 27% |      | 6% 
|                     | UPCs                |              | 3%  |      | 2%  |      | 1% 
|License and service: |                     | 36%          |     | 6%   |     | n/a 



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|          |                                        |              |     |      |     |      |    
|--------- | -------------------------------------- | ------------ | --- | ---- | --- | ---- | ---
|          |                                        | Years Ended 
|          |                                        | December 31,
|          |                                        |             
|          |                                        | 2004         |     | 2003 |     | 2002
|          |                                        |              |     |      |     |     
|Customer: |                                        |              |     |      |     |     
|          | NEC Electronics Corp.                  |              | 33% |      | *%  |      | *% 
|          | Hewlett Packard International Pte Inc. |              | 27% |      | 14% |      | % 
|          | Sharp Trading Corporation              |              | 12% |      | 20% |      | *% 
|          | Uniquest Hong Kong**                   |              | *%  |      | 21% |      | *% 
|          | Fujitsu America Inc.                   |              | *%  |      | 16% |      | 26%
|          | Sony Trading International Corp.       |              | %  |      | *%  |      | 37%






| |   |                                           
| | - | ------------------------------------------
| | * | represents less than 10% of total revenue.



|   |                                                                                                                                    
|-- | -----------------------------------------------------------------------------------------------------------------------------------
|** | Uniquest Hong Kong made these purchases acting as the
    distributor of our product for the Hewlett Packard Tablet PC
    program.



|                    |               |                          |        |        |      |   |        |        |  |   |        |        | 
|------------------- | ------------- | ------------------------ | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                    |               | Years Ended December 31, |       
|                    |               |                          |       
|                    |               | 2004                     |        |        | 2003 |   |        | 2002   | 
|                    |               |                          |        |        |      |   |        |        | 
|                    |               | (In thousands)           |       
|Product             |               | $                        | 18,776 |        |      | $ | 16,225 |        |  | $ | 24,247 |       
|License and service |               |                          | 10,668 |        |      |   | 1,090  |        |  |   |       |       
|                    |               |                          |        |        |      |   |        |        | 
|                    | Total revenue |                          | $      | 29,444 |      |   | $      | 17,315 |  |   | $      | 24,247 | 
|                    |               |                          |        |        |      |   |        |        | 

Fiscal 2004 Compared to Fiscal 2003.


Fiscal 2003 Compared to Fiscal 2002.


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| |                     
| | --------------------
| | Product Gross Margin



|                                                                                |                         |                          |       |        |      |  |       |      |   |  |       |      |  
|------------------------------------------------------------------------------- | ----------------------- | ------------------------ | ----- | ------ | ---- |  | ----- | ---- | - |  | ----- | ---- | -
|                                                                                |                         | Years Ended December 31, |      
|                                                                                |                         |                          |      
|                                                                                |                         | 2004                     |       |        | 2003 |  |       | 2002 |  
|                                                                                |                         |                          |       |        |      |  |       |      |  
|Product revenue                                                                 |                         |                          | 100.0 | %      |      |  | 100.0 | %    |   |  | 100.0 | %   
|                                                                                |                         |                          |       |        |      |  |       |      |  
|Product cost                                                                    |                         |                          | 90.3  | %      |      |  | 80.8  | %    |   |  | 60.3  | %   
|Underabsorbed overhead                                                          |                         |                          | 7.5   | %      |      |  | 12.8  | %    |   |  | 7.3   | %   
|Charges for inventory and other adjustments                                     |                         |                          | 98.7  | %      |      |  | 9.0   | %    |   |  | 10.8  | %   
|Benefits to gross margin from the sale of previously written
    down inventory |                         |                          | (3.0  | )%     |      |  | (2.9  | )%   |   |  | (7.8  | )%  
|Impairment charges for long-lived assets                                        |                         |                          | 10.3  | %      |      |  |      | %    |   |  |      | %   
|                                                                                |                         |                          |       |        |      |  |       |      |  
|                                                                                | Cost of product revenue |                          |       | 203.8  | %    |  |       | 99.7 | % |  |       | 70.6 | %
|                                                                                |                         |                          |       |        |      |  |       |      |  
|                                                                                | Gross margin            |                          |       | (103.8 | )%   |  |       | 0.3  | % |  |       | 29.4 | %
|                                                                                |                         |                          |       |        |      |  |       |      |  

Fiscal 2004 Compared to Fiscal 2003.








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Fiscal 2003 Compared to Fiscal 2002.




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| |                         
| | ------------------------
| | Research and Development

Fiscal 2004 Compared to Fiscal 2003.


Fiscal 2003 Compared to Fiscal 2002.




| |                                    
| | -----------------------------------
| | Selling, General and Administrative

Fiscal 2004 Compared to Fiscal 2003.


20



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Fiscal 2003 Compared to Fiscal 2002.




| |                      
| | ---------------------
| | Restructuring Charges









| |                                          
| | -----------------------------------------
| | Amortization of Patents and Patent Rights



Fiscal 2004 Compared to Fiscal 2003.


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Fiscal 2003 Compared to Fiscal 2002.




| |                                                 
| | ------------------------------------------------
| | Impairment Charge on Long-Lived and Other Assets





| |                   
| | ------------------
| | Stock Compensation

Fiscal 2004 Compared to Fiscal 2003.


Fiscal 2003 Compared to Fiscal 2002.


22



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| |                                                    
| | ---------------------------------------------------
| | Interest Income and Other, Net and Interest Expense

Fiscal 2004 Compared to Fiscal 2003.


Fiscal 2003 Compared to Fiscal 2002.


Liquidity and Capital Resources






|                                                    |  |                          |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                    |  | Years Ended December 31, |        
|                                                    |  |                          |        
|                                                    |  | 2004                     |         |   | 2003 |   |         | 2002 | 
|                                                    |  |                          |         |   |      |   |         |      | 
|                                                    |  | (In thousands)           |        
|Net cash used in operating activities               |  | $                        | (77,687 | ) |      | $ | (64,467 | )    |  | $ | (93,918 | )
|Net cash provided by/(used in) investing activities |  |                          | (11,301 | ) |      |   | 49,556  |      |  |   | 49,679  |  
|Net cash provided by financing activities           |  |                          | 31,496  |   |      |   | 73,063  |      |  |   | 3,105   |  
|                                                    |  |                          |         |   |      |   |         |      | 
|Increase/(Decrease) in cash and cash equivalents    |  | $                        | (57,492 | ) |      | $ | 58,152  |      |  | $ | (41,134 | )
|                                                    |  |                          |         |   |      |   |         |      | 





23



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| |                     
| | --------------------
| | Operating Activities







24



---



##### Table of Contents







| |                     
| | --------------------
| | Investing Activities







| |                     
| | --------------------
| | Financing Activities













| |              
| | -------------
| | Restructuring



25



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| |                        
| | -----------------------
| | Contractual Obligations



|                                      |  |                        |        |           |        |   |       |           |       |   |         |  |  |   |   | 
|------------------------------------- |  | ---------------------- | ------ | --------- | ------ | - | ----- | --------- | ----- | - | ------- |  |  | - | - | 
|                                      |  | Payments Due by Period
|                                      |  |                       
|                                      |  |                        |        | Less Than |        |   |       |           | After
|Contractual Obligations               |  | Total                  |        |           | 1 Year |   |       | 1-3 Years |       |   | 4 Years
|                                      |  |                        |        |           |        |   |       |           |       |   |        
|                                      |  | (In thousands)        
|Capital Lease Obligations             |  | $                      | 371    |           |        | $ | 371   |           |       | $ |        |  |  | $ |  | 
|Operating Leases                      |  | $                      | 16,328 |           |        | $ | 4,603 |           |       | $ | 11,725  |  |  | $ |  | 
|Unconditional Purchase Obligations(1) |  | $                      | 6,173  |           |        | $ | 4,876 |           |       | $ | 1,297   |  |  | $ |  | 
|Other Obligations(2)                  |  | $                      | 5,000  |           |        | $ |      |           |       | $ | 5,000   |  |  | $ |  | 
|                                      |  |                        |        |           |        |   |       |           |       |   |         | 
|Total                                 |  | $                      | 27,872 |           |        | $ | 9,850 |           |       | $ | 18,022  |  |  | $ |  | 
|                                      |  |                        |        |           |        |   |       |           |       |   |         | 






|    |                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Purchase obligations include agreements to purchase goods or
    services that are enforceable and legally binding on Transmeta
    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.
|   
|(2) | Other obligations include payments to our development partner.                                                                                                                                                                                                                                                                         



| |                               
| | ------------------------------
| | Off-Balance Sheet Arrangements



Recent Accounting Pronouncements








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##### Table of Contents







Risks that Could Affect Future Results


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 Form 10-K. 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 have a history of losses, expect to incur further
significant losses and must develop and successfully execute on
a modified business model and restructuring plan if we are to
sustain our operations.






We have announced that we are modifying our business model in
2005. We may fail to develop a viable new business model and
restructuring plan, and we might fail to execute our
restructuring plan or to operate successfully under our modified
business model.




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Our anticipated restructuring plan and related reductions in
our workforce may adversely affect the morale and performance of
our personnel, the rate of attrition among our personnel, our
ability to hire new personnel and our ability to conduct our
business operations.




We might not be able to execute on our modified business
model and restructuring plan if we lose key management or
technical personnel, on whose knowledge, leadership and
technical expertise we rely.




We may not be able to raise any more financing, or financing
may only be available on terms unfavorable to us or our
stockholders.




28



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##### Table of Contents







| |   |                                                   
| | - | --------------------------------------------------
| |  | fund expansion;                                   
|
| |  | fund marketing expenditures;                      
|
| |  | develop new products or enhance existing products;
|
| |  | enhance our operating infrastructure;             
|
| |  | hire additional personnel;                        
|
| |  | respond to customer concerns about our viability; 
|
| |  | respond to competitive pressures; or              
|
| |  | acquire complementary businesses or technologies. 



Our product revenue and our product business may be
negatively impacted by modifications to our business model that
we have recently implemented or are contemplating.




29



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##### Table of Contents



The success of our licensing and service business depends on
maintaining and increasing our LongRun2 licensing revenue.




We have limited visibility regarding when and to what extent
our licensees will use our LongRun2 or other licensed
technologies.






| |   |                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the competition these companies face and the market acceptance
    of their products;                                                                                                  
|
| |  | the pricing policies of our licensees for their products
    incorporating our technology and whether those products are
    competitively priced;                                     
|
| |  | the engineering, marketing and management capabilities of these
    companies and technical challenges unrelated to our technology
    that they face in developing their products; and
|
| |  | the financial and other resources of our licensees.                                                                                                                                    



Our licensing and services revenue cycle is long and
unpredictable, which makes it difficult to predict future
revenues, which may cause us to miss analysts estimates
and may result in unexpected changes in our stock price.




30



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##### Table of Contents



We could encounter a variety of technical and manufacturing
problems that could delay or prevent us from satisfying customer
demand for Efficeon TM8000 series microprocessors manufactured
using a 90 nanometer process.




Our restructuring plan will very likely reduce our resources
and ability to pursue opportunities and support customers in
emerging markets for our microprocessor products.




We face intense competition in the x86-compatible
microprocessor and power management markets. Many of our
competitors are much larger than we are and have significantly
greater resources. We may not be able to compete effectively.








31



---



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We may experience manufacturing difficulties that could
increase the cost and reduce the supply of our products.




Our lengthy and variable product sales cycles make it
difficult for us to predict when and if a design win will result
in volume shipments.




32



---



##### Table of Contents





If we fail to forecast demand for our products accurately, we
could lose sales and incur inventory losses.




We currently derive a substantial portion of our product
revenue from a small number of customers, and our revenue would
decline significantly if any major customer were to cancel,
reduce or delay a purchase of our products.






33



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##### Table of Contents



If our customers are not able to obtain the other components
necessary to build their systems, sales of our products could be
delayed or cancelled.




We rely on an independent foundry that has no obligation to
provide us with fixed pricing or production capacity for the
fabrication of our wafers, and our business will suffer if we
are unable to obtain sufficient production capacity on favorable
terms.




Our reliance on TSMC and Fujitsu Limited to fabricate our
wafers limits our ability to control the production, supply and
delivery of our products.






| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | unpredictability of manufacturing yields and production costs;                    
|
| |  | interruptions in shipments;                                                       
|
| |  | inability to control quality of finished products;                                
|
| |  | inability to control product delivery schedules;                                  
|
| |  | potential lack of access to key fabrication process
    technologies; and         
|
| |  | potentially greater exposure to misappropriation of our
    intellectual property.

We depend on ASE to provide assembly and test services. If
ASE were to cease providing services to us in a timely manner
and on acceptable terms, our business would suffer.




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##### Table of Contents



If our products are not compatible with industry standards,
hardware that our customers design into their systems or that is
used by end-users or software applications or operating systems
for x86-compatible microprocessors, market acceptance of our
products and our ability to maintain or increase our revenues
would suffer.








Our products may have defects that could damage our
reputation, decrease market acceptance of our products, cause us
to lose customers and revenue and result in liability to us.




If we fail to meet the continued listing requirements of the
NASDAQ Stock Market, our common stock could be delisted, which
would reduce the liquidity of our stock and would likely result
in a further decrease in the trading price of our stock.




35



---



##### Table of Contents





If we fail to constitute an independent Board of Directors by
the time of our next annual stockholders meeting, our common
stock could be delisted, which would reduce the liquidity of our
stock and would likely result in a further decrease in the
trading price of our stock.




We are subject to general economic and market conditions.




If we do not keep pace with technological change, our
products may not be competitive and our revenue and operating
results may suffer.




36



---



##### Table of Contents



Advances in battery design, cooling systems and power
management systems could adversely affect our ability to achieve
widespread market acceptance for our products.




Our products and 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
selling our products.






Any dispute regarding our intellectual property may require
us to indemnify certain licensees, 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.




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##### Table of Contents







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 operations, which exposes
us to risk and uncertainties.






| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | difficulties and costs of staffing and managing international
    operations;                                                         
|
| |  | 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;                                                                                              
|
| |  | problems in the timeliness or quality of product deliveries;                                                                          
|
| |  | potentially adverse tax consequences;                                                                                                 
|
| |  | major 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.                                                                      

38



---



##### Table of Contents



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.






We might experience payment disputes for amounts owed to us
under our LongRun2 licensing agreements, and this may harm our
results of operations.




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 orders;                                                                        
|
| |  | the gain or loss of significant customers; and                                                                 
|
| |  | changes in the estimates of our operating performance or changes
    in recommendations by securities analysts.



39



---



##### Table of Contents





Our California facilities and the facilities of third parties
upon which we rely to provide us critical services are located
in regions that are subject to earthquakes and other natural
disasters.




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
    662/3%
    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
    outstanding shares 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 proposing matters that can be acted
    upon by stockholders at stockholder meetings.



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##### Table of Contents



Our reported financial results may be adversely affected by
changes in accounting principles generally accepted in the
United States.




We have identified material weaknesses in our internal
control over financial reporting, which contributed to our need
to amend our financial statements for the second quarter of
fiscal 2004.




Controls and
Procedures


Changes in securities laws and regulations have increased our
costs.




41



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##### Table of Contents










|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk

Interest Rate Risk.




|                       |              |      |        |     |      |   |        |            |   |  |       |   |  |            |        |     |   |   |        |  | 
|---------------------- | ------------ | ---- | ------ | --- | ---- | - | ------ | ---------- | - |  | ----- | - |  | ---------- | ------ | --- | - | - | ------ |  | 
|                       |              | 2005 |        |     | 2006 |   |        | Thereafter |   |  | Total |   |  | Fair Value |       
|                       |              |      |        |     |      |   |        |            |   |  |       |   |  |            |       
|Cash equivalents       |              | $    | 17,273 |     |      |   |       |            |   |  |      |   |  | $          | 17,273 |     |   | $ | 17,273 | 
|                       | Average rate |      |        | 2.0 | %    |   |        |           |   |  |       |  |  |            |        | 2.0 | % |   |        |  | 
|Short term investments |              | $    | 21,569 |     |      | $ | 15,000 |            |   |  |      |   |  | $          | 36,569 |     |   | $ | 36,395 | 
|                       | Average rate |      |        | 2.0 | %    |   |        | 2.5        | % |  |       |  |  |            |        | 2.2 | % |   |        |  | 

Foreign Currency Exchange Risk.


42



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##### Table of Contents








|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




|                                                                               |  |      |    | 
|------------------------------------------------------------------------------ |  | ---- | -- | 
|                                                                               |  | Page |   
|                                                                               |  |      |   
|Consolidated Balance Sheets                                                    |  |      | 44 | 
|Consolidated Statements of Operations                                          |  |      | 45 | 
|Consolidated Statements of
    Stockholders Equity                            |  |      | 46 | 
|Consolidated Statements of Cash Flows                                          |  |      | 47 | 
|Notes to Consolidated Financial
    Statements                                 |  |      | 48 | 
|Report of Ernst & Young LLP,
    Independent Registered Public Accounting Firm |  |      | 74 | 

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##### Table of Contents



TRANSMETA CORPORATION





CONSOLIDATED BALANCE SHEETS


|                                                                         |                                                                                                                                                                                  |                                            |          |         |        |  |          |         |         | 
|------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------- | ------- | ------ |  | -------- | ------- | ------- | 
|                                                                         |                                                                                                                                                                                  | December 31,                               |         
|                                                                         |                                                                                                                                                                                  |                                            |         
|                                                                         |                                                                                                                                                                                  | 2004                                       |          |         | 2003   | 
|                                                                         |                                                                                                                                                                                  |                                            |          |         |        | 
|                                                                         |                                                                                                                                                                                  | (In thousands, except For                  |         
|                                                                         |                                                                                                                                                                                  | share and per share data)                  |         
|ASSETS                                                                  
|Current assets:                                                          |                                                                                                                                                                                  |                                            |          |         |        |  |          |        
|                                                                         | Cash and cash equivalents                                                                                                                                                        |                                            | $        | 17,273  |        |  | $        | 74,765  |        
|                                                                         | Short-term investments                                                                                                                                                           |                                            |          | 36,395  |        |  |          | 46,000  |        
|                                                                         | Accounts receivable, net of allowances for doubtful accounts of
    $9 and $215, in 2004 and 2003, respectively                                                                  |                                            |          | 2,290   |        |  |          | 1,719   |        
|                                                                         | Inventories                                                                                                                                                                      |                                            |          | 5,410   |        |  |          | 8,796   |        
|                                                                         | Prepaid expenses and other current assets                                                                                                                                        |                                            |          | 2,218   |        |  |          | 3,671   |        
|                                                                         |                                                                                                                                                                                  |                                            |          |         |        | 
|                                                                         |                                                                                                                                                                                  | Total current assets                       |          |         | 63,586 |  |          |         | 134,951 | 
|Property and equipment, net                                              |                                                                                                                                                                                  |                                            | 2,187    |         |        |  | 5,305    |        
|Patents and patent rights, net                                           |                                                                                                                                                                                  |                                            | 22,926   |         |        |  | 29,771   |        
|Other assets                                                             |                                                                                                                                                                                  |                                            | 914      |         |        |  | 1,563    |        
|                                                                         |                                                                                                                                                                                  |                                            |          |         |        | 
|                                                                         |                                                                                                                                                                                  | Total assets                               |          | $       | 89,613 |  |          | $       | 171,590 | 
|                                                                         |                                                                                                                                                                                  |                                            |          |         |        | 
|                                                                        
|LIABILITIES AND STOCKHOLDERS EQUITY                                    
|Current liabilities:                                                     |                                                                                                                                                                                  |                                            |          |         |        |  |          |        
|                                                                         | Accounts payable                                                                                                                                                                 |                                            | $        | 6,224   |        |  | $        | 1,900   |        
|                                                                         | Accrued compensation and related compensation liabilities                                                                                                                        |                                            |          | 4,189   |        |  |          | 4,986   |        
|                                                                         | Accrued inventory-related charges                                                                                                                                                |                                            |          | 4,876   |        |  |          |        |        
|                                                                         | Other accrued liabilities                                                                                                                                                        |                                            |          | 5,723   |        |  |          | 5,360   |        
|                                                                         | Current portion of accrued restructuring costs                                                                                                                                   |                                            |          | 1,557   |        |  |          | 1,916   |        
|                                                                         | Current portion of long-term payables                                                                                                                                            |                                            |          |        |        |  |          | 21,129  |        
|                                                                         | Current portion of long-term debt and capital lease obligations                                                                                                                  |                                            |          | 356     |        |  |          | 370     |        
|                                                                         |                                                                                                                                                                                  |                                            |          |         |        | 
|                                                                         |                                                                                                                                                                                  | Total current liabilities                  |          |         | 22,925 |  |          |         | 35,661  | 
|Long-term accrued restructuring costs, net of current portion            |                                                                                                                                                                                  |                                            | 3,688    |         |        |  | 4,155    |        
|Long-term payables, net of current portion                               |                                                                                                                                                                                  |                                            | 5,000    |         |        |  |         |        
|Long-term debt and capital lease obligations, net of current
    portion |                                                                                                                                                                                  |                                            |         |         |        |  | 356      |        
|Commitments and contingencies                                            |                                                                                                                                                                                  |                                            |          |         |        |  |          |        
|Stockholders equity:                                                    |                                                                                                                                                                                  |                                            |          |         |        |  |          |        
|                                                                         | Convertible preferred stock, $0.00001 par value, at amounts
    paid in; Authorized shares  5,000,000. None issued in
    2004 and 2003                                         |                                            |          |        |        |  |          |        |        
|                                                                         | Common stock, $0.00001 par value, at amounts paid in;
    Authorized shares  1,000,000,000. Issued and
    outstanding shares  187,773,293 in 2004 and
    167,528,493 in 2003 |                                            |          | 709,926 |        |  |          | 677,093 |        
|Treasury stock  796,875 shares in 2004 and 2003                         |                                                                                                                                                                                  |                                            | (2,439   | )       |        |  | (2,439   | )      
|Deferred stock compensation                                              |                                                                                                                                                                                  |                                            |         |         |        |  | (696     | )      
|Accumulated other comprehensive income (loss)                            |                                                                                                                                                                                  |                                            | (125     | )       |        |  | 24       |        
|Accumulated deficit                                                      |                                                                                                                                                                                  |                                            | (649,362 | )       |        |  | (542,564 | )      
|                                                                         |                                                                                                                                                                                  |                                            |          |         |        | 
|                                                                         |                                                                                                                                                                                  | Total stockholders equity                 |          |         | 58,000 |  |          |         | 131,418 | 
|                                                                         |                                                                                                                                                                                  |                                            |          |         |        | 
|                                                                         |                                                                                                                                                                                  | Total liabilities and stockholders equity |          | $       | 89,613 |  |          | $       | 171,590 | 
|                                                                         |                                                                                                                                                                                  |                                            |          |         |        | 



44



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TRANSMETA CORPORATION





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                        |                                                  |                                           |          |        |        |   |         |        |        |   |          |        |         | 
|------------------------------------------------------- | ------------------------------------------------ | ----------------------------------------- | -------- | ------ | ------ | - | ------- | ------ | ------ | - | -------- | ------ | ------- | 
|                                                        |                                                  | Years Ended December 31,                  |         
|                                                        |                                                  |                                           |         
|                                                        |                                                  | 2004                                      |          |        | 2003   |   |         | 2002   |       
|                                                        |                                                  |                                           |          |        |        |   |         |        |       
|                                                        |                                                  | (In thousands, except for per share data) |         
|Revenue:                                                |                                                  |                                           |          |        |        |   |         |        |        |   |          |       
|                                                        | Product                                          |                                           | $        | 18,776 |        |   | $       | 16,225 |        |   | $        | 24,247 |        
|                                                        | License and service                              |                                           |          | 10,668 |        |   |         | 1,090  |        |   |          |       |        
|                                                        |                                                  |                                           |          |        |        |   |         |        |       
|                                                        |                                                  | Total revenue                             |          |        | 29,444 |   |         |        | 17,315 |   |          |        | 24,247  | 
|                                                        |                                                  |                                           |          |        |        |   |         |        |       
|Cost of revenue:                                        |                                                  |                                           |          |        |        |   |         |        |        |   |          |       
|                                                        | Cost of revenue                                  |                                           |          | 37,065 |        |   |         | 16,324 |        |   |          | 17,127 |        
|                                                        | Impairment charge on long-lived assets           |                                           |          | 1,943  |        |   |         |       |        |   |          |       |        
|                                                        |                                                  |                                           |          |        |        |   |         |        |       
|                                                        |                                                  | Total cost of revenue                     |          |        | 39,008 |   |         |        | 16,324 |   |          |        | 17,127  | 
|                                                        |                                                  |                                           |          |        |        |   |         |        |       
|Gross profit (loss)                                     |                                                  |                                           | (9,564   | )      |        |   | 991     |        |        |   | 7,120    |       
|Operating expenses:                                     |                                                  |                                           |          |        |        |   |         |        |        |   |          |       
|                                                        | Research and development(1)(2)                   |                                           |          | 52,765 |        |   |         | 48,525 |        |   |          | 63,603 |        
|                                                        | Selling, general and administrative(3)(4)        |                                           |          | 30,855 |        |   |         | 26,199 |        |   |          | 29,917 |        
|                                                        | Restructuring charges (recovery)(5)              |                                           |          | 904    |        |   |         | (244   | )      |   |          | 14,726 |        
|                                                        | Amortization of patents and patent rights        |                                           |          | 9,217  |        |   |         | 10,530 |        |   |          | 11,392 |        
|                                                        | Impairment charge on long-lived and other assets |                                           |          | 2,544  |        |   |         |       |        |   |          |       |        
|                                                        | Stock compensation                               |                                           |          | 1,665  |        |   |         | 4,529  |        |   |          | 1,809  |        
|                                                        |                                                  |                                           |          |        |        |   |         |        |       
|                                                        |                                                  | Total operating expenses                  |          |        | 97,950 |   |         |        | 89,539 |   |          |        | 121,447 | 
|                                                        |                                                  |                                           |          |        |        |   |         |        |       
|Operating loss                                          |                                                  |                                           | (107,514 | )      |        |   | (88,548 | )      |        |   | (114,327 | )     
|                                                        | Interest income and other, net                   |                                           |          | 827    |        |   |         | 1,389  |        |   |          | 4,962  |        
|                                                        | Interest expense                                 |                                           |          | (111   | )      |   |         | (477   | )      |   |          | (601   | )      
|                                                        |                                                  |                                           |          |        |        |   |         |        |       
|Net loss                                                |                                                  | $                                         | (106,798 | )      |        | $ | (87,636 | )      |        | $ | (109,966 | )     
|                                                        |                                                  |                                           |          |        |        |   |         |        |       
|Net loss per share  basic and diluted                  |                                                  | $                                         | (0.61    | )      |        | $ | (0.63   | )      |        | $ | (0.82    | )     
|                                                        |                                                  |                                           |          |        |        |   |         |        |       
|Weighted average shares outstanding  basic and diluted |                                                  |                                           | 175,989  |        |        |   | 139,692 |        |        |   | 134,719  |       
|                                                        |                                                  |                                           |          |        |        |   |         |        |       






|    |                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes $445, $1,118 and $4,364 in amortization of deferred
    stock compensation for the year ended December 31, 2004,
    2003 and 2002, respectively.
|   
|(2) | Excludes $330, $128 and $(408) in variable stock compensation
    for the year ended December 31, 2004, 2003 and 2002,
    respectively.                  
|   
|(3) | Excludes $232, $657 and $950 in amortization of deferred stock
    compensation for the year ended December 31, 2004, 2003 and
    2002, respectively.    
|   
|(4) | Excludes $658, $2,626 and $(1,360) in variable stock
    compensation for the year ended December 31, 2004, 2003 and
    2002, respectively.              
|   
|(5) | Excludes $(1,737) of deferred stock compensation related to
    employee terminations for the year ended December 31, 2002.                               



45



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##### Table of Contents



TRANSMETA CORPORATION





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                                                                                                                                                                                                                              |  |                                                     |             |              |            |   |         |          |          |             |              |       |  |               |         |   |             |   |      |               |  |   |          |   |  |   |          |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------- | ----------- | ------------ | ---------- | - | ------- | -------- | -------- | ----------- | ------------ | ----- |  | ------------- | ------- | - | ----------- | - | ---- | ------------- |  | - | -------- | - |  | - | -------- | -
|                                                                                                                                                                                                                              |  |                                                     |             |              |            |   |         |          |          | Accumulated |              |       |  |               |        
|                                                                                                                                                                                                                              |  |                                                     |             | Common Stock |            |   |         |          | Deferred |             |              | Other |  |               |         |   | Total       |  
|                                                                                                                                                                                                                              |  | Shares of                                           |             |              | at Amounts |   |         | Treasury |          |             | Stock        |       |  | Comprehensive |         |   | Accumulated |   |      | Stockholders | 
|                                                                                                                                                                                                                              |  | Common Stock                                        |             |              | Paid-in    |   |         | Stock    |          |             | Compensation |       |  | Income/(Loss) |         |   | Deficit     |   |      | Equity        | 
|                                                                                                                                                                                                                              |  |                                                     |             |              |            |   |         |          |          |             |              |       |  |               |         |   |             |   |      |               | 
|                                                                                                                                                                                                                              |  | (In thousands, except for share and per share data) |            
|Balance at December 31, 2001                                                                                                                                                                                                  |  |                                                     | 132,234,558 |              |            | $ | 603,464 |          |          | $           | (2,439       | )     |  | $             | (11,818 | ) |             | $ | 720  |               |  | $ | (344,962 | ) |  | $ | 244,965  |  
|Issuance of common stock to employees under option exercises and
    employee stock purchase plan, net of repurchases                                                                                                         |  |                                                     | 3,511,101   |              |            |   | 4,168   |          |          |             |             |       |  |               |        |   |             |   |     |               |  |   |         |   |  |   | 4,168    |  
|Issuance of common stock in connection with the purchase of
    patents and patent rights at $2.94 per share                                                                                                                  |  |                                                     | 340,483     |              |            |   |        |          |          |             |             |       |  |               |        |   |             |   |     |               |  |   |         |   |  |   |         |  
|Stock compensation                                                                                                                                                                                                            |  |                                                     |            |              |            |   | (5,201  | )        |          |             |             |       |  |               | 8,779   |   |             |   |     |               |  |   |         |   |  |   | 3,578    |  
|Repayment of notes from stockholders                                                                                                                                                                                          |  |                                                     |            |              |            |   | 456     |          |          |             |             |       |  |               |        |   |             |   |     |               |  |   |         |   |  |   | 456      |  
|Variable stock compensation                                                                                                                                                                                                   |  |                                                     |            |              |            |   | (1,768  | )        |          |             |             |       |  |               |        |   |             |   |     |               |  |   |         |   |  |   | (1,768   | )
|Other comprehensive income                                                                                                                                                                                                    |  |                                                     |            |              |            |   |        |          |          |             |             |       |  |               |        |   |             |   | (586 | )             |  |   |         |   |  |   | (586     | )
|Net loss                                                                                                                                                                                                                      |  |                                                     |            |              |            |   |        |          |          |             |             |       |  |               |        |   |             |   |     |               |  |   | (109,966 | ) |  |   | (109,966 | )
|                                                                                                                                                                                                                              |  |                                                     |             |              |            |   |         |          |          |             |              |       |  |               |         |   |             |   |      |               | 
|Comprehensive loss                                                                                                                                                                                                            |  |                                                     |             |              |            |   |         |          |          |             |              |       |  |               |         |   |             |   |      |               |  |   |          |   |  |   | (110,552 | )
|                                                                                                                                                                                                                              |  |                                                     |             |              |            |   |         |          |          |             |              |       |  |               |         |   |             |   |      |               | 
|Balance at December 31, 2002                                                                                                                                                                                                  |  |                                                     | 136,086,142 |              |            | $ | 601,119 |          |          | $           | (2,439       | )     |  | $             | (3,039  | ) |             | $ | 134  |               |  | $ | (454,928 | ) |  | $ | 140,847  |  
|                                                                                                                                                                                                                              |  |                                                     |             |              |            |   |         |          |          |             |              |       |  |               |         |   |             |   |      |               | 
|Issuance of common stock in public offering at $2.90 per
    share, net of issuance costs of $5.1 million                                                                                                                     |  |                                                     | 25,000,000  |              |            |   | 67,450  |          |          |             |             |       |  |               |        |   |             |   |     |               |  |   |         |   |  |   | 67,450   |  
|Issuance of common stock to employees under option exercises and
    employee stock purchase plan, net of repurchases                                                                                                         |  |                                                     | 5,423,213   |              |            |   | 6,136   |          |          |             |             |       |  |               |        |   |             |   |     |               |  |   |         |   |  |   | 6,136    |  
|Issuance of common stock in connection with the purchase of
    patents and patent rights at $1.26 per share                                                                                                                  |  |                                                     | 796,178     |              |            |   |        |          |          |             |             |       |  |               |        |   |             |   |     |               |  |   |         |   |  |   |         |  
|Issuance of common stock in connection with net warrant
    exercises at exercise price of $1.25 per share                                                                                                                    |  |                                                     | 222,960     |              |            |   |        |          |          |             |             |       |  |               |        |   |             |   |     |               |  |   |         |   |  |   |         |  
|Stock compensation                                                                                                                                                                                                            |  |                                                     |            |              |            |   | (568    | )        |          |             |             |       |  |               | 2,343   |   |             |   |     |               |  |   |         |   |  |   | 1,775    |  
|Repayment of notes from stockholders                                                                                                                                                                                          |  |                                                     |            |              |            |   | 202     |          |          |             |             |       |  |               |        |   |             |   |     |               |  |   |         |   |  |   | 202      |  
|Variable stock compensation                                                                                                                                                                                                   |  |                                                     |            |              |            |   | 2,754   |          |          |             |             |       |  |               |        |   |             |   |     |               |  |   |         |   |  |   | 2,754    |  
|Other comprehensive income                                                                                                                                                                                                    |  |                                                     |            |              |            |   |        |          |          |             |             |       |  |               |        |   |             |   | (110 | )             |  |   |         |   |  |   | (110     | )
|Net loss                                                                                                                                                                                                                      |  |                                                     |            |              |            |   |        |          |          |             |             |       |  |               |        |   |             |   |     |               |  |   | (87,636  | ) |  |   | (87,636  | )
|                                                                                                                                                                                                                              |  |                                                     |             |              |            |   |         |          |          |             |              |       |  |               |         |   |             |   |      |               | 
|Comprehensive income/(loss)                                                                                                                                                                                                   |  |                                                     |             |              |            |   |         |          |          |             |              |       |  |               |         |   |             |   |      |               |  |   |          |   |  |   | (87,746  | )
|                                                                                                                                                                                                                              |  |                                                     |             |              |            |   |         |          |          |             |              |       |  |               |         |   |             |   |      |               | 
|Balance at December 31, 2003                                                                                                                                                                                                  |  |                                                     | 167,528,493 |              |            | $ | 677,093 |          |          | $           | (2,439       | )     |  | $             | (696    | ) |             | $ | 24   |               |  | $ | (542,564 | ) |  | $ | 131,418  |  
|                                                                                                                                                                                                                              |  |                                                     |             |              |            |   |         |          |          |             |              |       |  |               |         |   |             |   |      |               | 
|Issuance of common stock at $2.90 per share, in connection
    with the over allotment option exercised by the underwriters
    related to the December 2003 common stock offering, net of
    issuance costs of $0.7 million |  |                                                     | 3,750,000   |              |            |   | 10,289  |          |          |             |             |       |  |               |        |   |             |   |     |               |  |   |         |   |  |   | 10,289   |  
|Issuance of common stock at $1.50 per share in public
    offering, net of issuance costs of $1.2 million                                                                                                                     |  |                                                     | 11,083,333  |              |            |   | 15,441  |          |          |             |             |       |  |               |        |   |             |   |     |               |  |   |         |   |  |   | 15,441   |  
|Issuance of shares of common stock to employees under option
    exercises and employee stock purchase plan, net of repurchases                                                                                               |  |                                                     | 5,401,568   |              |            |   | 5,277   |          |          |             |             |       |  |               |        |   |             |   |     |               |  |   |         |   |  |   | 5,277    |  
|Issuance of common stock in connection with net warrant
    exercises at exercise price of $3.00 per share                                                                                                                    |  |                                                     | 9,899       |              |            |   |        |          |          |             |             |       |  |               |        |   |             |   |     |               |  |   |         |   |  |   |         |  
|Stock compensation                                                                                                                                                                                                            |  |                                                     |            |              |            |   | (19     | )        |          |             |             |       |  |               | 696     |   |             |   |     |               |  |   |         |   |  |   | 677      |  
|Repayment of notes from stockholders                                                                                                                                                                                          |  |                                                     |            |              |            |   | 857     |          |          |             |             |       |  |               |        |   |             |   |     |               |  |   |         |   |  |   | 857      |  
|Variable stock compensation                                                                                                                                                                                                   |  |                                                     |            |              |            |   | 988     |          |          |             |             |       |  |               |        |   |             |   |     |               |  |   |         |   |  |   | 988      |  
|Other comprehensive income                                                                                                                                                                                                    |  |                                                     |            |              |            |   |        |          |          |             |             |       |  |               |        |   |             |   | (149 | )             |  |   |         |   |  |   | (149     | )
|Net loss                                                                                                                                                                                                                      |  |                                                     |            |              |            |   |        |          |          |             |             |       |  |               |        |   |             |   |     |               |  |   | (106,798 | ) |  |   | (106,798 | )
|                                                                                                                                                                                                                              |  |                                                     |             |              |            |   |         |          |          |             |              |       |  |               |         |   |             |   |      |               | 
|Comprehensive income/(loss)                                                                                                                                                                                                   |  |                                                     |             |              |            |   |         |          |          |             |              |       |  |               |         |   |             |   |      |               |  |   |          |   |  |   | (106,947 | )
|                                                                                                                                                                                                                              |  |                                                     |             |              |            |   |         |          |          |             |              |       |  |               |         |   |             |   |      |               | 
|Balance at December 31, 2004                                                                                                                                                                                                  |  |                                                     | 187,773,293 |              |            | $ | 709,926 |          |          | $           | (2,439       | )     |  | $             |        |   |             | $ | (125 | )             |  | $ | (649,362 | ) |  | $ | 58,000   |  
|                                                                                                                                                                                                                              |  |                                                     |             |              |            |   |         |          |          |             |              |       |  |               |         |   |             |   |      |               | 



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TRANSMETA CORPORATION





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                            |                                                                                       |                                                            |         |          |        |   |         |          |        |   |         |          |        |  
|--------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ------- | -------- | ------ | - | ------- | -------- | ------ | - | ------- | -------- | ------ | -
|                                                                            |                                                                                       | Years Ended December 31,                                   |        
|                                                                            |                                                                                       |                                                            |        
|                                                                            |                                                                                       | 2004                                                       |         |          | 2003   |   |         | 2002     |       
|                                                                            |                                                                                       |                                                            |         |          |        |   |         |          |       
|                                                                            |                                                                                       | (In thousands)                                             |        
|Cash flows from operating activities:                                       |                                                                                       |                                                            |         |          |        |   |         |          |        |   |         |         
|                                                                            | Net loss                                                                              |                                                            | $       | (106,798 | )      |   | $       | (87,636  | )      |   | $       | (109,966 | )     
|                                                                            | Adjustments to reconcile net loss to net cash used in operating
    activities:       |                                                            |         |          |        |   |         |          |        |   |         |          |       
|                                                                            |                                                                                       | Stock compensation                                         |         |          | 1,665  |   |         |          | 4,529  |   |         |          | 1,809  |  
|                                                                            |                                                                                       | Depreciation                                               |         |          | 3,639  |   |         |          | 5,586  |   |         |          | 5,888  |  
|                                                                            |                                                                                       | Loss on disposal of fixed assets, net                      |         |          |       |   |         |          | 138    |   |         |          | 148    |  
|                                                                            |                                                                                       | Allowance for doubtful accounts                            |         |          | (206   | ) |         |          | 125    |   |         |          | 90     |  
|                                                                            |                                                                                       | Amortization of other assets                               |         |          |       |   |         |          | 413    |   |         |          | 201    |  
|                                                                            |                                                                                       | Amortization of patents and patent rights                  |         |          | 9,217  |   |         |          | 10,530 |   |         |          | 11,392 |  
|                                                                            |                                                                                       | Impairment charge on long-lived assets for cost of revenue |         |          | 1,943  |   |         |          |       |   |         |          |       |  
|                                                                            |                                                                                       | Impairment charge on long-lived and other assets           |         |          | 2,544  |   |         |          |       |   |         |          |       |  
|                                                                            |                                                                                       | Non cash restructuring charges (recovery)                  |         |          | 904    |   |         |          | (244   | ) |         |          | 1,629  |  
|                                                                            | Changes in operating assets and liabilities:                                          |                                                            |         |          |        |   |         |          |        |   |         |          |       
|                                                                            |                                                                                       | Accounts receivable                                        |         |          | (365   | ) |         |          | 2,216  |   |         |          | (2,401 | )
|                                                                            |                                                                                       | Inventories                                                |         |          | 3,386  |   |         |          | 2,141  |   |         |          | (9,549 | )
|                                                                            |                                                                                       | Prepaid expenses and other current assets                  |         |          | (649   | ) |         |          | 1,122  |   |         |          | 2,320  |  
|                                                                            |                                                                                       | Other non-current assets                                   |         |          |       |   |         |          | 101    |   |         |          | (103   | )
|                                                                            |                                                                                       | Accounts payable and accrued liabilities                   |         |          | 8,763  |   |         |          | (1,015 | ) |         |          | (3,381 | )
|                                                                            |                                                                                       | Accrued restructuring charges                              |         |          | (1,730 | ) |         |          | (2,473 | ) |         |          | 8,005  |  
|                                                                            |                                                                                       |                                                            |         |          |        |   |         |          |       
|Net cash used in operating activities                                       |                                                                                       |                                                            | (77,687 | )        |        |   | (64,467 | )        |        |   | (93,918 | )       
|                                                                            |                                                                                       |                                                            |         |          |        |   |         |          |       
|Cash flows from investing activities:                                       |                                                                                       |                                                            |         |          |        |   |         |          |        |   |         |         
|                                                                            | Purchase of available-for-sale investments                                            |                                                            |         | (74,994  | )      |   |         | (102,775 | )      |   |         | (178,596 | )     
|                                                                            | Proceeds from sale or maturity of available-for-sale investments                      |                                                            |         | 84,450   |        |   |         | 169,502  |        |   |         | 249,114  |       
|                                                                            | Purchase of property and equipment                                                    |                                                            |         | (2,257   | )      |   |         | (1,112   | )      |   |         | (5,581   | )     
|                                                                            | Payment to development partner                                                        |                                                            |         | (11,000  | )      |   |         | (7,000   | )      |   |         | (6,000   | )     
|                                                                            | Payment of previously acquired patents and patent rights                              |                                                            |         | (7,500   | )      |   |         | (9,000   | )      |   |         | (9,000   | )     
|                                                                            | Other assets                                                                          |                                                            |         |         |        |   |         | (59      | )      |   |         | (258     | )     
|                                                                            |                                                                                       |                                                            |         |          |        |   |         |          |       
|Net cash provided by/(used in) investing activities                         |                                                                                       |                                                            | (11,301 | )        |        |   | 49,556  |          |        |   | 49,679  |         
|                                                                            |                                                                                       |                                                            |         |          |        |   |         |          |       
|Cash flows from financing activities:                                       |                                                                                       |                                                            |         |          |        |   |         |          |        |   |         |         
|                                                                            | Net proceeds from public offering of common stock                                     |                                                            |         | 25,730   |        |   |         | 67,450   |        |   |         |         |       
|                                                                            | Common stock issued under stock option plans and employee stock
    purchase programs |                                                            |         | 5,277    |        |   |         | 6,136    |        |   |         | 4,168    |       
|                                                                            | Repayment of notes from stockholders                                                  |                                                            |         | 857      |        |   |         | 202      |        |   |         | 456      |       
|                                                                            | Proceeds from debt and capital lease obligations                                      |                                                            |         |         |        |   |         |         |        |   |         | 1,140    |       
|                                                                            | Repayment of debt and capital lease obligations                                       |                                                            |         | (368     | )      |   |         | (725     | )      |   |         | (2,659   | )     
|                                                                            |                                                                                       |                                                            |         |          |        |   |         |          |       
|Net cash provided by financing activities                                   |                                                                                       |                                                            | 31,496  |          |        |   | 73,063  |          |        |   | 3,105   |         
|                                                                            |                                                                                       |                                                            |         |          |        |   |         |          |       
|Change in cash and cash equivalents                                         |                                                                                       |                                                            | (57,492 | )        |        |   | 58,152  |          |        |   | (41,134 | )       
|Cash and cash equivalents at beginning of period                            |                                                                                       |                                                            | 74,765  |          |        |   | 16,613  |          |        |   | 57,747  |         
|                                                                            |                                                                                       |                                                            |         |          |        |   |         |          |       
|Cash and cash equivalents at end of period                                  |                                                                                       | $                                                          | 17,273  |          |        | $ | 74,765  |          |        | $ | 16,613  |         
|                                                                            |                                                                                       |                                                            |         |          |        |   |         |          |       
|Supplemental disclosure of cash paid during the period:                     |                                                                                       |                                                            |         |          |        |   |         |          |        |   |         |         
|                                                                            | Cash paid for interest                                                                |                                                            | $       | 47       |        |   | $       | 75       |        |   | $       | 639      |       
|Supplemental disclosure of non-cash financing and investing
    activities: |                                                                                       |                                                            |         |          |        |   |         |          |        |   |         |         
|                                                                            | Issuance of common stock in connection with net exercise of
    warrants              |                                                            |         | 204      |        |   |         | 919      |        |   |         |         |       



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS







|   |         
|-- | --------
|1. | Overview



| |            
| | -----------
| | The Company



tm








| |                      
| | ---------------------
| | Basis of Presentation





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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |            
| | -----------
| | Fiscal Year







|   |                                           
|-- | ------------------------------------------
|2. | Summary of Significant Accounting Policies



| |                            
| | ---------------------------
| | Principles of Consolidation





| |                 
| | ----------------
| | Use of Estimates





| |                              
| | -----------------------------
| | Concentrations of Credit Risk



49



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                        
| | -----------------------
| | Supplier Concentrations





| |                    
| | -------------------
| | Revenue Recognition







| |                            
| | ---------------------------
| | Shipping and Handling Costs



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                   
| | ------------------
| | Comprehensive Loss



|                                                       |  |                          |          |   |      |   |         |      |  |   |          |  
|------------------------------------------------------ |  | ------------------------ | -------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                                       |  | Years Ended December 31, |         
|                                                       |  |                          |         
|                                                       |  | 2004                     |          |   | 2003 |   |         | 2002 | 
|                                                       |  |                          |          |   |      |   |         |      | 
|                                                       |  | (In thousands)           |         
|Net loss                                               |  | $                        | (106,798 | ) |      | $ | (87,636 | )    |  | $ | (109,966 | )
|Net change in unrealized gain/(loss) on investments    |  |                          | (173     | ) |      |   | (134    | )    |  |   | (586     | )
|Net change in foreign currency translation adjustments |  |                          | 24       |   |      |   | 24      |      |  |   |         |  
|                                                       |  |                          |          |   |      |   |         |      | 
|Net comprehensive loss                                 |  | $                        | (106,947 | ) |      | $ | (87,746 | )    |  | $ | (110,552 | )
|                                                       |  |                          |          |   |      |   |         |      | 



| |                                            
| | -------------------------------------------
| | Cash Equivalents and Short-term Investments







| |                                     
| | ------------------------------------
| | Fair Values of Financial Instruments







| |            
| | -----------
| | Inventories







| |                       
| | ----------------------
| | Property and Equipment



51



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                              
| | ---------------------------------------------
| | Valuation of Long-Lived and Intangible Assets





| |                         
| | ------------------------
| | Research and Development





| |             
| | ------------
| | Income Taxes





| |                 
| | ----------------
| | Product Warranty







| |                     
| | --------------------
| | Advertising Expenses





| |                   
| | ------------------
| | Net Loss Per Share



52



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                       |                                                                                    |                                          |       |          |      |   |       |         |   |   |       |          |  
|-------------------------------------- | ---------------------------------------------------------------------------------- | ---------------------------------------- | ----- | -------- | ---- | - | ----- | ------- | - | - | ----- | -------- | -
|                                       |                                                                                    | Years Ended December 31,                 |      
|                                       |                                                                                    |                                          |      
|                                       |                                                                                    | 2004                                     |       |          | 2003 |   |       | 2002    |  
|                                       |                                                                                    |                                          |       |          |      |   |       |         |  
|                                       |                                                                                    | (In thousands, except per share amounts) |      
|Basic and diluted:                     |                                                                                    |                                          |       |          |      |   |       |         |   |   |       |         
|                                       | Net loss                                                                           |                                          | $     | (106,798 | )    |   | $     | (87,636 | ) |   | $     | (109,966 | )
|                                       |                                                                                    |                                          |       |          |      |   |       |         |  
|Basic and diluted:                     |                                                                                    |                                          |       |          |      |   |       |         |   |   |       |         
|                                       | Weighted average shares outstanding                                                |                                          |       | 175,989  |      |   |       | 139,698 |   |   |       | 134,902  |  
|                                       | Less: Weighted average shares subject to repurchase                                |                                          |       |         |      |   |       | (6      | ) |   |       | (183     | )
|                                       |                                                                                    |                                          |       |          |      |   |       |         |  
|                                       | Weighted average shares used in computing basic and diluted net
    loss per share |                                          |       | 175,989  |      |   |       | 139,692 |   |   |       | 134,719  |  
|                                       |                                                                                    |                                          |       |          |      |   |       |         |  
|Net loss per share  basic and diluted |                                                                                    | $                                        | (0.61 | )        |      | $ | (0.63 | )       |   | $ | (0.82 | )       
|                                       |                                                                                    |                                          |       |          |      |   |       |         |  





| |                         
| | ------------------------
| | Stock-Based Compensation



53



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                                   |  |                                       |          |   |      |   |          |      |  |   |          |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                                                                   |  | Years Ended December 31,              |         
|                                                                                                                                   |  |                                       |         
|                                                                                                                                   |  | 2004                                  |          |   | 2003 |   |          | 2002 | 
|                                                                                                                                   |  |                                       |          |   |      |   |          |      | 
|                                                                                                                                   |  | (In thousands, except per share data) |         
|Net loss, as reported                                                                                                              |  | $                                     | (106,798 | ) |      | $ | (87,636  | )    |  | $ | (109,966 | )
|Add: Stock-based employee compensation expense included in
    reported net loss, net of related tax effects                       |  | $                                     | 1,665    |   |      | $ | 4,529    |      |  | $ | 1,809    |  
|Less: Total stock-based employee compensation expense under fair
    value based method for all awards, net of related tax effects |  | $                                     | (34,756  | ) |      | $ | (46,462  | )    |  | $ | (41,377  | )
|Pro forma net loss                                                                                                                 |  | $                                     | (139,889 | ) |      | $ | (129,569 | )    |  | $ | (149,534 | )
|Basic and diluted net loss per share  as reported                                                                                 |  | $                                     | (0.61    | ) |      | $ | (0.63    | )    |  | $ | (0.82    | )
|Basic and diluted net loss per share  pro forma                                                                                   |  | $                                     | (0.79    | ) |      | $ | (0.93    | )    |  | $ | (1.11    | )









| |                      
| | ---------------------
| | Restructuring Charges





| |                   
| | ------------------
| | Loss Contingencies



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                  
| | -----------------
| | Reclassifications





| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements









55



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                               
|-- | ------------------------------
|3. | Financial Statement Components



| |                                            
| | -------------------------------------------
| | Cash Equivalents and Short-Term Investments



|                         |                                             |                |   |         |            |  |       |            |  |  |            |     |  |  |   |         |  
|------------------------ | ------------------------------------------- | -------------- | - | ------- | ---------- |  | ----- | ---------- |  |  | ---------- | --- |  |  | - | ------- | -
|                         |                                             |                |   | Gross   |            |  | Gross |            |  | 
|                         |                                             | Amortized      |   |         | Unrealized |  |       | Unrealized |  |  |           
|                         |                                             | Cost           |   |         | Gains      |  |       | Losses     |  |  | Fair Value |    
|                         |                                             |                |   |         |            |  |       |            |  |  |            |    
|                         |                                             | (In thousands) |  
|As of December 31, 2004: |                                             |                |   |         |            |  |       |            |  |  |            |     |  |  |   |        
|                         | Money market funds                          |                | $ | 17,273  |            |  | $     |           |  |  | $          |    |  |  | $ | 17,273  |  
|                         | Federal agency discount notes               |                |   | 21,000  |            |  |       | 1          |  |  |            | 168 |  |  |   | 20,833  |  
|                         | Commercial paper                            |                |   | 15,569  |            |  |       |           |  |  |            | 7   |  |  |   | 15,562  |  
|                         |                                             |                |   |         |            |  |       |            |  |  |            |    
|                         | Total available-for-sale securities         |                | $ | 53,842  |            |  | $     | 1          |  |  | $          | 175 |  |  | $ | 53,668  |  
|                         |                                             |                |   |         |            |  |       |            |  |  |            |    
|                         | Less amounts classified as cash equivalents |                |   |         |            |  |       |            |  |  |            |     |  |  |   | (17,273 | )
|                         |                                             |                |   |         |            |  |       |            |  |  |            |    
|                         | Total short-term investments                |                |   |         |            |  |       |            |  |  |            |     |  |  | $ | 36,395  |  
|                         |                                             |                |   |         |            |  |       |            |  |  |            |    
|As of December 31, 2003: |                                             |                |   |         |            |  |       |            |  |  |            |     |  |  |   |        
|                         | Money market funds                          |                | $ | 72,766  |            |  | $     |           |  |  | $          |    |  |  | $ | 72,766  |  
|                         | Federal agency discount notes               |                |   | 22,000  |            |  |       | 21         |  |  |            | 21  |  |  |   | 22,000  |  
|                         | Commercial paper                            |                |   | 25,999  |            |  |       |           |  |  |            |    |  |  |   | 25,999  |  
|                         |                                             |                |   |         |            |  |       |            |  |  |            |    
|                         | Total available-for-sale securities         |                | $ | 120,765 |            |  | $     | 21         |  |  | $          | 21  |  |  | $ | 120,765 |  
|                         |                                             |                |   |         |            |  |       |            |  |  |            |    
|                         | Less amounts classified as cash equivalents |                |   |         |            |  |       |            |  |  |            |     |  |  |   | (74,765 | )
|                         |                                             |                |   |         |            |  |       |            |  |  |            |    
|                         | Total short-term investments                |                |   |         |            |  |       |            |  |  |            |     |  |  | $ | 46,000  |  
|                         |                                             |                |   |         |            |  |       |            |  |  |            |    



|                         |                                                    |                |   |        |       |  |   |        | 
|------------------------ | -------------------------------------------------- | -------------- | - | ------ | ----- |  | - | ------ | 
|                         |                                                    | Amortized      |   |        | Fair  | 
|                         |                                                    | Cost           |   |        | Value | 
|                         |                                                    |                |   |        |       | 
|                         |                                                    | (In thousands) |  
|As of December 31, 2004: |                                                    |                |   |        |       |  |   |       
|                         | Amounts maturing within one year                   |                | $ | 21,569 |       |  | $ | 21,520 | 
|                         | Amounts maturing after one year, within five years |                | $ | 15,000 |       |  | $ | 14,875 | 







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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                    
| | -------------------
| | Accounts Receivable



|          |                                        |              |  |     |      |  |  |     | 
|--------- | -------------------------------------- | ------------ |  | --- | ---- |  |  | --- | 
|          |                                        | December 31, | 
|          |                                        |              | 
|          |                                        | 2004         |  |     | 2003 | 
|          |                                        |              |  |     |      | 
|Customer: |                                        |              |  |     |      |  |  |    
|          | Hewlett Packard International Pte Ltd. |              |  | 31% |      |  |  | 66% | 
|          | Siltrontech Electronics Corporation    |              |  | 28% |      |  |  | *%  | 
|          | Sharp Trading Corporation              |              |  | 16% |      |  |  | 13% | 






|  |                                                        
|- | -------------------------------------------------------
|* | represents less than 10% of accounts receivable balance





| |            
| | -----------
| | Inventories



|                 |  |                |       |  |      |   |       | 
|---------------- |  | -------------- | ----- |  | ---- | - | ----- | 
|                 |  | December 31,   |      
|                 |  |                |      
|                 |  | 2004           |       |  | 2003 |  
|                 |  |                |       |  |      |  
|                 |  | (In thousands) |      
|Work in progress |  | $              | 4,158 |  |      | $ | 6,136 | 
|Finished goods   |  |                | 1,252 |  |      |   | 2,660 | 
|                 |  |                |       |  |      |  
|                 |  | $              | 5,410 |  |      | $ | 8,796 | 
|                 |  |                |       |  |      |  





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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                       
| | ----------------------
| | Property and Equipment



|                                                |                             |                |         |       |      |   |         |       | 
|----------------------------------------------- | --------------------------- | -------------- | ------- | ----- | ---- | - | ------- | ----- | 
|                                                |                             | December 31,   |        
|                                                |                             |                |        
|                                                |                             | 2004           |         |       | 2003 |  
|                                                |                             |                |         |       |      |  
|                                                |                             | (In thousands) |        
|Furniture and fixtures                          |                             | $              | 2,019   |       |      | $ | 2,018   |      
|Computer equipment                              |                             |                | 23,534  |       |      |   | 21,643  |      
|Computer software                               |                             |                | 11,359  |       |      |   | 11,181  |      
|Leasehold improvements                          |                             |                | 2,899   |       |      |   | 2,730   |      
|                                                |                             |                |         |       |      |  
|                                                |                             |                | 39,811  |       |      |   | 37,572  |      
|Less: Accumulated depreciation and amortization |                             |                | (35,888 | )     |      |   | (32,267 | )    
|Less: Impairment charge                         |                             |                | (1,736  | )     |      |   |        |      
|                                                |                             |                |         |       |      |  
|                                                | Property and equipment, net |                | $       | 2,187 |      |   | $       | 5,305 | 
|                                                |                             |                |         |       |      |  







|   |                            
|-- | ---------------------------
|4. | License and Service Revenue



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                              
|-- | -----------------------------
|5. | Technology License Agreements









|   |                          
|-- | -------------------------
|6. | Patents and Patent Rights



|                               |                                |                |         |        |      |   |         |        | 
|------------------------------ | ------------------------------ | -------------- | ------- | ------ | ---- | - | ------- | ------ | 
|                               |                                | December 31,   |        
|                               |                                |                |        
|                               |                                | 2004           |         |        | 2003 |  
|                               |                                |                |         |        |      |  
|                               |                                | (In thousands) |        
|Patents and patent rights      |                                | $              | 47,920  |        |      | $ | 47,920  |       
|Less: Accumulated amortization |                                |                | (24,994 | )      |      |   | (18,149 | )     
|                               |                                |                |         |        |      |  
|                               | Patents and patent rights, net |                | $       | 22,926 |      |   | $       | 29,771 | 
|                               |                                |                |         |        |      |  



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##### Table of Contents



TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|                          |      |                           |   |       |        | 
|------------------------- | ---- | ------------------------- | - | ----- | ------ | 
|                          |      | (In thousands)            |  
|Years ending December 31, |      |                           |   |      
|                          | 2005 |                           | $ | 6,846 |       
|                          | 2006 |                           |   | 6,846 |       
|                          | 2007 |                           |   | 6,846 |       
|                          | 2008 |                           |   | 2,388 |       
|                          |      |                           |  
|                          |      | Total future amortization |   | $     | 22,926 | 
|                          |      |                           |  



|   |                      
|-- | ---------------------
|7. | Restructuring Charges







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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                             |  |                                  |        |              |                |   |        |       |      |           |           |   |       |         |        |   |  |   |        |  
|---------------------------- |  | -------------------------------- | ------ | ------------ | -------------- | - | ------ | ----- | ---- | --------- | --------- | - | ----- | ------- | ------ | - |  | - | ------ | -
|                             |  |                                  |        | Charges      |                |   |       
|                             |  | Charges Recorded                 |        |              | Recorded       |   |        |      
|                             |  | in connection with the June 2002 |        |              | in the Quarter |   |        |      
|                             |  | Restructuring                    |        |              | Ended          |   |        |      
|                             |  |                                  |        |              | September 30,  |   |        |      
|                             |  |                                  |        | Property and |                |   |        |       | 2002 |           |           |  
|                             |  | Building                         |        |              | Equipment      |   |        |       |      |           |           |   |      
|                             |  | Leasehold                        |        |              | and Software   |   |        |       |      | Workforce |           |   | Total |        
|                             |  | Costs                            |        |              | Costs          |   |        | Other |      |           | Reduction |   |       | Balance |       
|                             |  |                                  |        |              |                |   |        |       |      |           |           |   |       |         |       
|Restructuring charges        |  | $                                | 8,854  |              |                | $ | 1,629  |       |      | $         | 141       |   |       | $       | 4,102  |   |  | $ | 14,726 |  
|Cash drawdowns               |  |                                  | (667   | )            |                |   | (187   | )     |      |           | (141      | ) |       |         | (4,000 | ) |  |   | (4,995 | )
|Non-cash drawdowns           |  |                                  | (284   | )            |                |   | (1,442 | )     |      |           |          |   |       |         |       |   |  |   | (1,726 | )
|                             |  |                                  |        |              |                |   |        |       |      |           |           |   |       |         |       
|Balance at December 31, 2002 |  | $                                | 7,903  |              |                | $ |       |       |      | $         |          |   |       | $       | 102    |   |  | $ | 8,005  |  
|                             |  |                                  |        |              |                |   |        |       |      |           |           |   |       |         |       
|Restructuring recovery       |  |                                  | (244   | )            |                |   |       |       |      |           |          |   |       |         |       |   |  |   | (244   | )
|Cash drawdowns               |  |                                  | (2,473 | )            |                |   |       |       |      |           |          |   |       |         |       |   |  |   | (2,473 | )
|Non-cash drawdowns           |  |                                  | 885    |              |                |   |       |       |      |           |          |   |       |         | (102   | ) |  |   | 783    |  
|                             |  |                                  |        |              |                |   |        |       |      |           |           |   |       |         |       
|Balance at December 31, 2003 |  | $                                | 6,071  |              |                | $ |       |       |      | $         |          |   |       | $       |       |   |  | $ | 6,071  |  
|                             |  |                                  |        |              |                |   |        |       |      |           |           |   |       |         |       
|Restructuring charges        |  |                                  | 904    |              |                |   |       |       |      |           |          |   |       |         |       |   |  |   | 904    |  
|Cash drawdowns               |  |                                  | (1,730 | )            |                |   |       |       |      |           |          |   |       |         |       |   |  |   | (1,730 | )
|                             |  |                                  |        |              |                |   |        |       |      |           |           |   |       |         |       
|Balance at December 31, 2004 |  | $                                | 5,245  |              |                | $ |       |       |      | $         |          |   |       | $       |       |   |  | $ | 5,245  |  
|                             |  |                                  |        |              |                |   |        |       |      |           |           |   |       |         |       



|   |                                          
|-- | -----------------------------------------
|8. | Impairment of Long-Lived and Other Assets





|   |                              
|-- | -----------------------------
|9. | Commitments and Contingencies



61



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|                                           |                       |                              |     |     |           |  |   |       |        | 
|------------------------------------------ | --------------------- | ---------------------------- | --- | --- | --------- |  | - | ----- | ------ | 
|                                           |                       | Capital                      |     |     | Operating | 
|                                           |                       | Leases                       |     |     | Leases    | 
|                                           |                       |                              |     |     |           | 
|                                           |                       | (In thousands)               |    
|Years ending December 31,                  |                       |                              |     |     |           |  |   |      
|                                           | 2005                  |                              | $   | 371 |           |  | $ | 4,602 |       
|                                           | 2006                  |                              |     |    |           |  |   | 4,644 |       
|                                           | 2007                  |                              |     |    |           |  |   | 4,696 |       
|                                           | 2008                  |                              |     |    |           |  |   | 2,386 |       
|                                           | Income from subleases |                              |     |    |           |  |   | (868  | )     
|                                           |                       |                              |     |     |           | 
|                                           |                       | Total minimum lease payments |     |     | 371       |  |   | $     | 15,460 | 
|                                           |                       |                              |     |     |           | 
|Less amount representing interest          |                       |                              | (15 | )   |           |  |   |      
|                                           |                       |                              |     |     |           | 
|Present value of capital lease obligations |                       |                              | 356 |     |           |  |   |      
|Less current portion                       |                       |                              | 356 |     |           |  |   |      
|                                           |                       |                              |     |     |           | 
|Non-current portion                        |                       | $                            |    |     |           |  |   |      
|                                           |                       |                              |     |     |           | 





|                                      |  |                        |        |           |        |   |       |       |  |       |         |  |  |   |   | 
|------------------------------------- |  | ---------------------- | ------ | --------- | ------ | - | ----- | ----- |  | ----- | ------- |  |  | - | - | 
|                                      |  | Payments Due by Period
|                                      |  |                       
|                                      |  |                        |        | Less than |        |   | 1-3   |       |  | After
|Contractual Obligations               |  | Total                  |        |           | 1 Year |   |       | Years |  |       | 4 Years
|                                      |  |                        |        |           |        |   |       |       |  |       |        
|                                      |  | (In thousands)        
|Capital Lease Obligations             |  | $                      | 371    |           |        | $ | 371   |       |  | $     |        |  |  | $ |  | 
|Operating Leases                      |  | $                      | 16,328 |           |        | $ | 4,603 |       |  | $     | 11,725  |  |  | $ |  | 
|Unconditional Purchase Obligations(1) |  | $                      | 6,173  |           |        | $ | 4,876 |       |  | $     | 1,297   |  |  | $ |  | 
|Other Obligations(2)                  |  | $                      | 5,000  |           |        | $ |      |       |  |       | 5,000   |  |  | $ |  | 
|                                      |  |                        |        |           |        |   |       |       |  |       |         | 
|Total                                 |  | $                      | 27,872 |           |        | $ | 9,850 |       |  | $     | 18,022  |  |  | $ |  | 
|                                      |  |                        |        |           |        |   |       |       |  |       |         | 






|    |                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Purchase obligations include agreements to purchase goods or
    services that are enforceable and legally binding on Transmeta
    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.
|   
|(2) | Other obligations include payments to our development partner.                                                                                                                                                                                                                                                                         



62



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##### Table of Contents



TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|    |     
|--- | ----
|10. | Debt





|    |                     
|--- | --------------------
|11. | Stockholders Equity









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##### Table of Contents



TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                   
| | ----------------------------------
| | Common Stock Reserved for Issuance



|                             |  |              |            |  |      |  |            | 
|---------------------------- |  | ------------ | ---------- |  | ---- |  | ---------- | 
|                             |  | December 31, |           
|                             |  |              |           
|                             |  | 2004         |            |  | 2003 | 
|                             |  |              |            |  |      | 
|Warrants outstanding         |  |              | 498,228    |  |      |  | 566,228    | 
|Options outstanding          |  |              | 39,803,712 |  |      |  | 33,139,998 | 
|Employee Stock Purchase Plan |  |              | 2,026,270  |  |      |  | 4,067,421  | 
|Future option grants         |  |              | 4,177,119  |  |      |  | 4,229,540  | 
|                             |  |              |            |  |      | 
|                             |  |              | 46,505,329 |  |      |  | 42,003,187 | 
|                             |  |              |            |  |      | 



| |                      
| | ---------------------
| | Common Stock Warrants



|              |                        |           |         |          |           |   |      |                 |  |  |               |  | 
|------------- | ---------------------- | --------- | ------- | -------- | --------- | - | ---- | --------------- |  |  | ------------- |  | 
|              |                        |           |         | Exercise |           |   |     
|              |                        | Number of |         |          | Price per |   |      |                
|Issuance Date |                        | Shares    |         |          | Share     |   |      | Expiration Date | 
|              |                        |           |         |          |           |   |      |                 | 
|October 1995  |                        |           | 60,196  |          |           | $ | 0.41 |                 |  |  | October 2005  | 
|January 1998  |                        |           | 125,032 |          |           | $ | 1.25 |                 |  |  | December 2007 | 
|April 1998    |                        |           | 240,000 |          |           | $ | 1.25 |                 |  |  | April 2008    | 
|May 1998      |                        |           | 50,000  |          |           | $ | 3.00 |                 |  |  | May 2005      | 
|February 2000 |                        |           | 8,000   |          |           | $ | 5.00 |                 |  |  | February 2005 | 
|March 2001    |                        |           | 15,000  |          |           | $ | 5.00 |                 |  |  | March 2005    | 
|              |                        |           |         |          |           |   |      |                 | 
|              | Total number of shares |           |         | 498,228  |           |   |      |                 |  |  |               |  | 
|              |                        |           |         |          |           |   |      |                 | 





| |               
| | --------------
| | Treasury Stock





| |                
| | ---------------
| | Preferred Stock



64



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                               
| | ------------------------------
| | Stockholders Rights Agreement





|    |                         
|--- | ------------------------
|12. | Stock-Based Compensation



| |                           
| | --------------------------
| | 2000 Equity Incentive Plan





65



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                             
| | ----------------------------
| | Non-Plan Stock Option Grants





| |                             
| | ----------------------------
| | Prior Equity Incentive Plans





| |                     
| | --------------------
| | Stock Option Summary



|                             |                            |               |           |                     |           |          |            |             |          |         |            |      |  |  |   |      | 
|---------------------------- | -------------------------- | ------------- | --------- | ------------------- | --------- | -------- | ---------- | ----------- | -------- | ------- | ---------- | ---- |  |  | - | ---- | 
|                             |                            |               |           | Options Outstanding |          
|                             |                            |               |           |                     |          
|                             |                            |               |           |                     |           | Weighted |            |             | Weighted |        
|                             |                            | Shares        |           |                     |           |          | Average    |             |          | Average |           
|                             |                            | Available for |           |                     | Number of |          |            | Exercise    |          |         | Grant Date |     
|                             |                            | Grant         |           |                     | Shares    |          |            | Price       |          |         | Fair Value |     
|                             |                            |               |           |                     |           |          |            |             |          |         |            |     
|Balance at December 31, 2001 |                            |               | 6,696,841 |                     |           |          | 21,839,209 |             |          | $       | 4.53       |      |  |  |   |     
|                             | Additional shares reserved |               |           | 9,728,051           |           |          |            |            |          |         |            |      |  |  |   |      | 
|                             | Options granted            |               |           | (22,278,100         | )         |          |            | 22,278,100  |          |         | $          | 1.94 |  |  | $ | 1.59 | 
|                             | Options exercised          |               |           |                    |           |          |            | (1,187,191  | )        |         | $          | 0.68 |  |  |   |      | 
|                             | Options canceled           |               |           | 6,953,566           |           |          |            | (11,058,616 | )        |         | $          | 4.35 |  |  |   |      | 
|                             |                            |               |           |                     |           |          |            |             |          |         |            |     
|Balance at December 31, 2002 |                            |               | 1,100,358 |                     |           |          | 31,871,502 |             |          | $       | 2.93       |      |  |  |   |     
|                             |                            |               |           |                     |           |          |            |             |          |         |            |     
|                             | Additional shares reserved |               |           | 7,532,786           |           |          |            |            |          |         |            |      |  |  |   |      | 
|                             | Options granted            |               |           | (6,889,750          | )         |          |            | 6,889,750   |          |         | $          | 1.65 |  |  | $ | 1.04 | 
|                             | Options exercised          |               |           |                    |           |          |            | (2,336,796  | )        |         | $          | 1.53 |  |  |   |      | 
|                             | Options canceled           |               |           | 2,486,146           |           |          |            | (3,284,458  | )        |         | $          | 3.27 |  |  |   |      | 
|                             |                            |               |           |                     |           |          |            |             |          |         |            |     
|Balance at December 31, 2003 |                            |               | 4,229,540 |                     |           |          | 33,139,998 |             |          | $       | 2.73       |      |  |  |   |     
|                             |                            |               |           |                     |           |          |            |             |          |         |            |     
|                             | Additional shares reserved |               |           | 8,838,206           |           |          |            |            |          |         |            |      |  |  |   |      | 
|                             | Options granted            |               |           | (11,775,000         | )         |          |            | 11,775,000  |          |         | $          | 1.67 |  |  | $ | 0.96 | 
|                             | Options exercised          |               |           |                    |           |          |            | (1,685,132  | )        |         | $          | 1.25 |  |  |   |      | 
|                             | Options canceled           |               |           | 2,884,373           |           |          |            | (3,426,154  | )        |         | $          | 3.13 |  |  |   |      | 
|                             |                            |               |           |                     |           |          |            |             |          |         |            |     
|Balance at December 31, 2004 |                            |               | 4,177,119 |                     |           |          | 39,803,712 |             |          | $       | 2.44       |      |  |  |   |     
|                             |                            |               |           |                     |           |          |            |             |          |         |            |     

66



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                       |  |           |            |          |          |   |      | 
|---------------------- |  | --------- | ---------- | -------- | -------- | - | ---- | 
|                       |  |           |            | Weighted |         
|                       |  |           |            | Average  |         
|                       |  | Number of |            |          | Exercise |  
|Shares Exercisable At: |  | Shares    |            |          | Price    |  
|                       |  |           |            |          |          |  
|December 31, 2002      |  |           | 8,493,708  |          |          | $ | 3.92 | 
|December 31, 2003      |  |           | 14,876,266 |          |          | $ | 3.36 | 
|December 31, 2004      |  |           | 19,174,403 |          |          | $ | 3.07 | 



|                         |              |             |  |            |             |  |          |          |  |  |             |          |  |          |  |            |  |  |   |       | 
|------------------------ | ------------ | ----------- |  | ---------- | ----------- |  | -------- | -------- |  |  | ----------- | -------- |  | -------- |  | ---------- |  |  | - | ----- | 
|                         |              | Outstanding |  |            | Exercisable | 
|                         |              |             |  |            |             | 
|                         |              |             |  | Weighted   |             |  |          |          | 
|                         |              |             |  | Average    |             |  | Weighted |          |  |  |             | Weighted | 
|                         |              |             |  | Remaining  |             |  | Average  |          |  |  |             | Average  | 
|                         |              | Shares      |  |            | Contractual |  |          | Exercise |  |  | Shares      |          |  | Exercise | 
|Range of Exercise Prices |              | Outstanding |  |            | Life Years  |  |          | Price    |  |  | Exercisable |          |  | Price    | 
|                         |              |             |  |            |             |  |          |          |  |  |             |          |  |          | 
|As of December 31, 2004: |              |             |  |            |             |  |          |          |  |  |             |          |  |          |  |            |  |  |   |      
|                         | $0.19-$1.15  |             |  | 6,881,552  |             |  |          | 7.5      |  |  | $           | 0.97     |  |          |  | 4,183,055  |  |  | $ | 0.93  | 
|                         | $1.17-$1.27  |             |  | 7,366,000  |             |  |          | 9.1      |  |  | $           | 1.22     |  |          |  | 1,199,458  |  |  | $ | 1.27  | 
|                         | $1.30-$2.15  |             |  | 9,427,455  |             |  |          | 8.9      |  |  | $           | 1.79     |  |          |  | 2,489,658  |  |  | $ | 1.63  | 
|                         | $2.16-$2.60  |             |  | 8,089,282  |             |  |          | 7.2      |  |  | $           | 2.46     |  |          |  | 5,026,293  |  |  | $ | 2.46  | 
|                         | $2.66-$8.25  |             |  | 6,875,752  |             |  |          | 6.3      |  |  | $           | 4.72     |  |          |  | 5,223,357  |  |  | $ | 4.95  | 
|                         | $9.50-$27.88 |             |  | 1,163,671  |             |  |          | 5.9      |  |  | $           | 10.58    |  |          |  | 1,052,582  |  |  | $ | 10.60 | 
|                         |              |             |  |            |             |  |          |          |  |  |             |          |  |          | 
|                         | $0.19-$27.88 |             |  | 39,803,712 |             |  |          | 7.8      |  |  | $           | 2.44     |  |          |  | 19,174,403 |  |  | $ | 3.07  | 
|                         |              |             |  |            |             |  |          |          |  |  |             |          |  |          | 



| |                                  
| | ---------------------------------
| | 2000 Employee Stock Purchase Plan





| |                            
| | ---------------------------
| | Deferred Stock Compensation



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                        
| | ---------------------------------------
| | Accounting for Stock-Based Compensation



Notes Receivable from Stockholders.


Officer notes.


Recourse notes held by other officers and employees.




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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Fair value accounting for stock-based awards.


|                        |  |              |      |   |              |  |      |      |  |  |      |   |  |      |      |   |      |  |     |   |  |  |     |  
|----------------------- |  | ------------ | ---- | - | ------------ |  | ---- | ---- |  |  | ---- | - |  | ---- | ---- | - | ---- |  | --- | - |  |  | --- | -
|                        |  | Options      |      |   | ESPP         | 
|                        |  |              |      |   |              | 
|                        |  | Years Ended  |      |   | Years Ended  | 
|                        |  | December 31, |      |   | December 31, | 
|                        |  |              |      |   |              | 
|                        |  | 2004         |      |   | 2003         |  |      | 2002 |  |  | 2004 |   |  | 2003 |      |   | 2002 | 
|                        |  |              |      |   |              |  |      |      |  |  |      |   |  |      |      |   |      | 
|Expected volatility     |  |              | 0.90 |   |              |  | 0.86 |      |  |  | 1.3  |   |  |      | 0.90 |   |      |  | 1.1 |   |  |  | 1.2 |  
|Expected life in years  |  |              | 3.7  |   |              |  | 4.0  |      |  |  | 4.0  |   |  |      | .5   |   |      |  | .5  |   |  |  | .5  |  
|Risk-free interest rate |  |              | 2.8  | % |              |  | 2.3  | %    |  |  | 3.7  | % |  |      | 2.0  | % |      |  | 2.0 | % |  |  | 2.5 | %
|Expected dividend yield |  |              | 0    |   |              |  | 0    |      |  |  | 0    |   |  |      | 0    |   |      |  | 0   |   |  |  | 0   |  



|    |                      
|--- | ---------------------
|13. | Employee Benefit Plan





|    |                          
|--- | -------------------------
|14. | Related Party Transaction





|    |             
|--- | ------------
|15. | Income Taxes



69



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                    |  |                          |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                    |  | Years Ended December 31, |        
|                                                    |  |                          |        
|                                                    |  | 2004                     |         |   | 2003 |   |         | 2002 | 
|                                                    |  |                          |         |   |      |   |         |      | 
|                                                    |  | (In thousands)           |        
|Income tax expense (benefit) at U.S. statutory rate |  | $                        | (36,162 | ) |      | $ | (29,785 | )    |  | $ | (37,381 | )
|Foreign income taxes                                |  |                          | 240     |   |      |   | 32      |      |  |   | 21      |  
|Valuation Allowance                                 |  |                          | 36,162  |   |      |   | 29,785  |      |  |   | 37,381  |  
|                                                    |  |                          |         |   |      |   |         |      | 
|Provision for income taxes                          |  | $                        | 240     |   |      | $ | 32      |      |  | $ | 21      |  
|                                                    |  |                          |         |   |      |   |         |      | 



|                                                 |  |                          |          |   |      |   |          |      |  |   |          |  
|------------------------------------------------ |  | ------------------------ | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                 |  | Years Ended December 31, |         
|                                                 |  |                          |         
|                                                 |  | 2004                     |          |   | 2003 |   |          | 2002 | 
|                                                 |  |                          |          |   |      |   |          |      | 
|                                                 |  | (In thousands)           |         
|Federal operating loss carryforwards             |  | $                        | 139,000  |   |      | $ | 131,500  |      |  | $ | 99,000   |  
|State operating loss carryforwards               |  |                          | 9,000    |   |      |   | 6,500    |      |  |   | 5,000    |  
|Federal tax credit carryforwards                 |  |                          | 11,000   |   |      |   | 9,000    |      |  |   | 8,000    |  
|State tax credit carryforwards                   |  |                          | 8,000    |   |      |   | 7,000    |      |  |   | 6,000    |  
|Non-deductible reserves and capitalized expenses |  |                          | 59,000   |   |      |   | 28,000   |      |  |   | 35,000   |  
|                                                 |  |                          |          |   |      |   |          |      | 
|                                                 |  |                          | 226,000  |   |      |   | 182,000  |      |  |   | 153,000  |  
|Less: Valuation allowance                        |  |                          | (226,000 | ) |      |   | (182,000 | )    |  |   | (153,000 | )
|                                                 |  |                          |          |   |      |   |          |      | 
|Net deferred taxes                               |  | $                        |         |   |      | $ |         |      |  | $ |         |  
|                                                 |  |                          |          |   |      |   |          |      | 









|    |                    
|--- | -------------------
|16. | Segment Information



70



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                 |  |              |     |  |      |  |     |      |  |  |     | 
|---------------- |  | ------------ | --- |  | ---- |  | --- | ---- |  |  | --- | 
|                 |  | Years Ended  |    
|                 |  | December 31, |    
|                 |  |              |    
|                 |  | 2004         |     |  | 2003 |  |     | 2002 | 
|                 |  |              |     |  |      |  |     |      | 
|Japan            |  |              | 51% |  |      |  | 44% |      |  |  | 79% | 
|China/ Hong Kong |  |              | 32% |  |      |  | 39% |      |  |  | 6%  | 
|Taiwan           |  |              | 10% |  |      |  | 13% |      |  |  | 14% | 
|North America    |  |              | 5%  |  |      |  | 4%  |      |  |  | 1%  | 
|Other            |  |              | 2%  |  |      |  | *%  |      |  |  | *%  | 



|                         |                             |                          |        |        |        |   |        |        |        |   |        |        |        | 
|------------------------ | --------------------------- | ------------------------ | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                         |                             | Years Ended December 31, |       
|                         |                             |                          |       
|                         |                             | 2004                     |        |        | 2003   |   |        | 2002   |       
|                         |                             |                          |        |        |        |   |        |        |       
|                         |                             | (In thousands)           |       
|Crusoe microprocessors   |                             | $                        | 13,417 |        |        | $ | 15,874 |        |        | $ | 24,247 |       
|Efficeon microprocessors |                             |                          | 5,359  |        |        |   | 351    |        |        |   |       |       
|                         |                             |                          |        |        |        |   |        |        |       
|                         | Product revenue             |                          |        | 18,776 |        |   |        | 16,225 |        |   |        | 24,247 |       
|                         | License and service revenue |                          |        | 10,668 |        |   |        | 1,090  |        |   |        |       |       
|                         |                             |                          |        |        |        |   |        |        |       
|                         |                             | Total revenue            |        | $      | 29,444 |   |        | $      | 17,315 |   |        | $      | 24,247 | 
|                         |                             |                          |        |        |        |   |        |        |       



|                     |                     |              |     |     |      |  |    |      |  |  |     |     | 
|-------------------- | ------------------- | ------------ | --- | --- | ---- |  | -- | ---- |  |  | --- | --- | 
|                     |                     | Years Ended  |    
|                     |                     | December 31, |    
|                     |                     |              |    
|                     |                     | 2004         |     |     | 2003 |  |    | 2002 | 
|                     |                     |              |     |     |      |  |    |      | 
|Product:             |                     |              |     |     |      |  |    |      |  |  |     |    
|                     | Thin client desktop |              |     | 30% |      |  |    | 17%  |  |  |     | 6%  | 
|                     | Notebook computers  |              |     | 19% |      |  |    | 42%  |  |  |     | 82% | 
|                     | Embedded/ servers   |              |     | 8%  |      |  |    | 6%   |  |  |     | 5%  | 
|                     | Tablet PCs         |              |     | 4%  |      |  |    | 27%  |  |  |     | 6%  | 
|                     | UPCs                |              |     | 3%  |      |  |    | 2%   |  |  |     | 1%  | 
|License and service: |                     |              | 36% |     |      |  | 6% |      |  |  | n/a |    



|              |  |                |        |  |      |   |        | 
|------------- |  | -------------- | ------ |  | ---- | - | ------ | 
|              |  | Years Ended    |       
|              |  | December 31,   |       
|              |  |                |       
|              |  | 2004           |        |  | 2003 |  
|              |  |                |        |  |      |  
|              |  | (In thousands) |       
|United States |  | $              | 25,908 |  |      | $ | 35,880 | 
|Asia          |  |                | 119    |  |      |   | 759    | 
|              |  |                |        |  |      |  
|Total         |  | $              | 26,027 |  |      | $ | 36,639 | 
|              |  |                |        |  |      |  

71



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|          |                                       |              |  |     |      |  |  |      |  |  |  |     | 
|--------- | ------------------------------------- | ------------ |  | --- | ---- |  |  | ---- |  |  |  | --- | 
|          |                                       | Years Ended  | 
|          |                                       | December 31, | 
|          |                                       |              | 
|          |                                       | 2004         |  |     | 2003 |  |  | 2002 | 
|          |                                       |              |  |     |      |  |  |      | 
|Customer: |                                       |              |  |     |      |  |  |      |  |  |  |    
|          | NEC Electronics Corp.                 |              |  | 33% |      |  |  | *%   |  |  |  | *%  | 
|          | Hewlett Packard International Pte Inc |              |  | 27% |      |  |  | 14%  |  |  |  | %  | 
|          | Sharp Trading Corporation             |              |  | 12% |      |  |  | 20%  |  |  |  | *%  | 
|          | Uniquest Hong Kong**                  |              |  | *%  |      |  |  | 21%  |  |  |  | *%  | 
|          | Fujitsu America Inc.                  |              |  | *%  |      |  |  | 16%  |  |  |  | 26% | 
|          | Sony Trading International Corp.      |              |  | %  |      |  |  | *%   |  |  |  | 37% | 






| |   |                                          
| | - | -----------------------------------------
| | * | represents less than 10% of total revenue



|   |                                                                                                                                    
|-- | -----------------------------------------------------------------------------------------------------------------------------------
|** | Uniquest Hong Kong made these purchases acting as the
    distributor of our product for the Hewlett Packard Tablet PC
    program.



|    |                  
|--- | -----------------
|17. | Legal Proceedings

In re Transmeta Corporation Initial Public Offering
Securities Litigation In re Initial Public Offering Securities
Litigation


72



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                  
|--- | -----------------
|18. | Subsequent Events







|    |                                            
|--- | -------------------------------------------
|19. | Quarterly Results of Operations (Unaudited)



|                    |                                           |                                           |        |        |           |  |        |          |        |  |          |        |       |          |      |        |           |  |      |          |       |  |          |        |       |  |    |        |       |  |       |        |       | 
|------------------- | ----------------------------------------- | ----------------------------------------- | ------ | ------ | --------- |  | ------ | -------- | ------ |  | -------- | ------ | ----- | -------- | ---- | ------ | --------- |  | ---- | -------- | ----- |  | -------- | ------ | ----- |  | -- | ------ | ----- |  | ----- | ------ | ----- | 
|                    |                                           | Quarters Ended                            |       
|                    |                                           |                                           |       
|                    |                                           | Dec. 31,                                  |        |        | Sept. 30, |  |        | Jun. 30, |        |  | Mar. 31, |        |       | Dec. 31, |      |        | Sept. 30, |  |      | Jun. 30, |       |  | Mar. 31, |       
|                    |                                           | 2004                                      |        |        | 2004      |  |        | 2004     |        |  | 2004     |        |       | 2003     |      |        | 2003      |  |      | 2003     |       |  | 2003     |       
|                    |                                           |                                           |        |        |           |  |        |          |        |  |          |        |       |          |      |        |           |  |      |          |       |  |          |       
|                    |                                           | (In thousands, except for per share data) |       
|Revenue:            |                                           |                                           |        |        |           |  |        |          |        |  |          |        |       |          |      |        |           |  |      |          |       |  |          |        |       |  |    |        |       |  |       |       
|                    | Product                                   |                                           | $      | 4,799  |           |  | $      | 3,297    |        |  | $        | 5,673  |       |          | $    | 5,007  |           |  | $    | 3,316    |       |  | $        | 2,365  |       |  | $  | 4,601  |       |  | $     | 5,943  |      
|                    | License                                   |                                           |        | 6,448  |           |  |        | 3,698    |        |  |          | 327    |       |          |      | 195    |           |  |      | 240      |       |  |          | 323    |       |  |    | 453    |       |  |       | 74     |      
|                    |                                           |                                           |        |        |           |  |        |          |        |  |          |        |       |          |      |        |           |  |      |          |       |  |          |       
|                    |                                           | Total revenue                             |        |        | 11,247    |  |        |          | 6,995  |  |          |        | 6,000 |          |      |        | 5,202     |  |      |          | 3,556 |  |          |        | 2,688 |  |    |        | 5,054 |  |       |        | 6,017 | 
|Cost of revenue:    |                                           |                                           |        |        |           |  |        |          |        |  |          |        |       |          |      |        |           |  |      |          |       |  |          |        |       |  |    |        |       |  |       |       
|                    | Cost of revenue                           |                                           |        | 10,843 |           |  |        | 11,344   |        |  |          | 9,264  |       |          |      | 5,614  |           |  |      | 3,801    |       |  |          | 3,073  |       |  |    | 4,998  |       |  |       | 4,452  |      
|                    | Impairment charge on long-lived assets    |                                           |        | 1,943  |           |  |        |         |        |  |          |       |       |          |      |       |           |  |      |         |       |  |          |       |       |  |    |       |       |  |       |       |      
|                    |                                           |                                           |        |        |           |  |        |          |        |  |          |        |       |          |      |        |           |  |      |          |       |  |          |       
|                    |                                           | Total cost of revenue                     |        |        | 12,786    |  |        |          | 11,344 |  |          |        | 9,264 |          |      |        | 5,614     |  |      |          | 3,801 |  |          |        | 3,073 |  |    |        | 4,998 |  |       |        | 4,452 | 
|Gross profit (loss) |                                           |                                           | (1,539 | )      |           |  | (4,349 | )        |        |  | (3,264   | )      |       |          | (412 | )      |           |  | (245 | )        |       |  | (385     | )      |       |  | 56 |        |       |  | 1,565 |       
|                    |                                           |                                           |        |        |           |  |        |          |        |  |          |        |       |          |      |        |           |  |      |          |       |  |          |       
|Operating expenses: |                                           |                                           |        |        |           |  |        |          |        |  |          |        |       |          |      |        |           |  |      |          |       |  |          |        |       |  |    |        |       |  |       |       
|                    | Research and development                  |                                           |        | 12,578 |           |  |        | 13,751   |        |  |          | 13,719 |       |          |      | 12,717 |           |  |      | 11,404   |       |  |          | 12,452 |       |  |    | 12,190 |       |  |       | 12,479 |      
|                    | Selling, general and administrative       |                                           |        | 9,292  |           |  |        | 7,424    |        |  |          | 7,418  |       |          |      | 6,721  |           |  |      | 7,240    |       |  |          | 5,978  |       |  |    | 6,347  |       |  |       | 6,634  |      
|                    | Restructuring charges                     |                                           |        |       |           |  |        | 904      |        |  |          |       |       |          |      |       |           |  |      | (244     | )     |  |          |       |       |  |    |       |       |  |       |       |      
|                    | Amortization of patents and patent rights |                                           |        | 2,233  |           |  |        | 2,233    |        |  |          | 2,347  |       |          |      | 2,404  |           |  |      | 2,628    |       |  |          | 2,628  |       |  |    | 2,634  |       |  |       | 2,640  |      

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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                        |                                                  |                                           |         |       |           |   |         |          |        |   |          |     |        |          |         |       |           |   |         |          |        |   |          |       |        |   |         |       |        |   |         |      |        | 
|------------------------------------------------------- | ------------------------------------------------ | ----------------------------------------- | ------- | ----- | --------- | - | ------- | -------- | ------ | - | -------- | --- | ------ | -------- | ------- | ----- | --------- | - | ------- | -------- | ------ | - | -------- | ----- | ------ | - | ------- | ----- | ------ | - | ------- | ---- | ------ | 
|                                                        |                                                  | Quarters Ended                            |        
|                                                        |                                                  |                                           |        
|                                                        |                                                  | Dec. 31,                                  |         |       | Sept. 30, |   |         | Jun. 30, |        |   | Mar. 31, |     |        | Dec. 31, |         |       | Sept. 30, |   |         | Jun. 30, |        |   | Mar. 31, |      
|                                                        |                                                  | 2004                                      |         |       | 2004      |   |         | 2004     |        |   | 2004     |     |        | 2003     |         |       | 2003      |   |         | 2003     |        |   | 2003     |      
|                                                        |                                                  |                                           |         |       |           |   |         |          |        |   |          |     |        |          |         |       |           |   |         |          |        |   |          |      
|                                                        |                                                  | (In thousands, except for per share data) |        
|                                                        | Impairment charge on long-lived and other assets |                                           |         | 2,544 |           |   |         |         |        |   |          |    |        |          |         |      |           |   |         |         |        |   |          |      |        |   |         |      |        |   |         |     |       
|                                                        | Stock compensation                               |                                           |         | 29    |           |   |         | 56       |        |   |          | 230 |        |          |         | 1,350 |           |   |         | 696      |        |   |          | 2,302 |        |   |         | 1,095 |        |   |         | 436  |       
|                                                        |                                                  |                                           |         |       |           |   |         |          |        |   |          |     |        |          |         |       |           |   |         |          |        |   |          |      
|                                                        |                                                  | Total operating expenses                  |         |       | 26,676    |   |         |          | 24,368 |   |          |     | 23,714 |          |         |       | 23,192    |   |         |          | 21,724 |   |          |       | 23,360 |   |         |       | 22,266 |   |         |      | 22,189 | 
|                                                        |                                                  |                                           |         |       |           |   |         |          |        |   |          |     |        |          |         |       |           |   |         |          |        |   |          |      
|Operating loss                                          |                                                  |                                           | (28,215 | )     |           |   | (28,717 | )        |        |   | (26,978  | )   |        |          | (23,604 | )     |           |   | (21,969 | )        |        |   | (23,745  | )     |        |   | (22,210 | )     |        |   | (20,624 | )   
|                                                        | Interest income and other, net                   |                                           |         | 150   |           |   |         | 188      |        |   |          | 243 |        |          |         | 246   |           |   |         | 167      |        |   |          | 203   |        |   |         | 312   |        |   |         | 707  |       
|                                                        | Interest expense                                 |                                           |         | (50   | )         |   |         | (26      | )      |   |          | (20 | )      |          |         | (15   | )         |   |         | (114     | )      |   |          | (116  | )      |   |         | (123  | )      |   |         | (124 | )     
|                                                        |                                                  |                                           |         |       |           |   |         |          |        |   |          |     |        |          |         |       |           |   |         |          |        |   |          |      
|Net loss                                                |                                                  | $                                         | (28,115 | )     |           | $ | (28,555 | )        |        | $ | (26,755  | )   |        | $        | (23,373 | )     |           | $ | (21,916 | )        |        | $ | (23,658  | )     |        | $ | (22,021 | )     |        | $ | (20,041 | )   
|                                                        |                                                  |                                           |         |       |           |   |         |          |        |   |          |     |        |          |         |       |           |   |         |          |        |   |          |      
|Net loss per share  basic and diluted                  |                                                  | $                                         | (0.15   | )     |           | $ | (0.16   | )        |        | $ | (0.15    | )   |        | $        | (0.14   | )     |           | $ | (0.15   | )        |        | $ | (0.17    | )     |        | $ | (0.16   | )     |        | $ | (0.15   | )   
|                                                        |                                                  |                                           |         |       |           |   |         |          |        |   |          |     |        |          |         |       |           |   |         |          |        |   |          |      
|Weighted average shares outstanding  basic and diluted |                                                  |                                           | 182,104 |       |           |   | 175,487 |          |        |   | 174,006  |     |        |          | 171,869 |       |           |   | 142,747 |          |        |   | 139,844  |       |        |   | 138,678 |       |        |   | 137,551 |     
|                                                        |                                                  |                                           |         |       |           |   |         |          |        |   |          |     |        |          |         |       |           |   |         |          |        |   |          |      

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
















| |                  
| | -----------------
| | ERNST & YOUNG LLP





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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

(a) Disclosure Controls and Procedures






(b) Internal Control Over Financial Reporting








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Identification of material weaknesses:




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A material weakness existed in our financial statement close
    process for preparing and compiling our financial statements for
    external reporting, including (a) ineffective controls to
    ensure timely review of all account reconciliations and
    significant financial statement accounts; (b) inadequate
    controls to determine that financial spreadsheets are accurately
    calculated and protected against unauthorized changes; and
    (c) ineffective controls over the review of financial
    statements for inclusion in periodic external financial reports.      
|
| |  | A material weakness existed in our contract administration
    process, including (a) lack of a centralized contract
    administration function; (b) lack of a formal contract
    approval process and signature authority matrix; and
    (c) lack of a process to review all contractual commitments
    in order to properly capture and record their effects on the
    financial statements and related disclosures.                                                                                                                                                                      
|
| |  | A material weakness existed in our inventory cost accounting
    process, including (a) ineffective control processes for
    determining excess and obsolescence and lower-of-cost-or-market
    inventory write-offs; (b) ineffective management review of
    cost accounting processes; (c) inadequate controls over the
    completeness and accuracy of information calculated using manual
    spreadsheets for inventory costing and related cost-of-sales
    variance calculations; and (d) inadequate controls for
    verification of inventory and components held by third parties.
|
| |  | A material weakness existed in our control environment relating
    to inadequate staffing of our technical accounting function,
    including a lack of sufficient personnel with skills, training
    and familiarity with certain complex technical accounting
    pronouncements that have or may affect the Companys
    financial statements and disclosures.                                                                                                                                                                                                                             
|
| |  | A material weakness existed in our processes to determine the
    existence of fixed assets recorded on our balance sheet,
    including inadequate controls over the monitoring and tracking
    of our fixed assets and the physical verification of our fixed
    assets.                                                                                                                                                                                                                                                                                                                     
|
| |  | A material weakness existed in our segregation of duties among
    our limited finance department staff, including lack of internal
    controls in our accounts payable function sufficient to prevent
    or timely detect error or fraud that could have had a material
    impact on the financial statements of the Company.                                                                                                                                                                                                                                                                





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Remediation efforts.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | To improve our financial statement close process, we are
    (a) establishing a more efficient and effective
    responsibilities matrix for our close process to provide timely
    and accurate completion of financial reporting as well as timely
    review and approval by the controller of all balance sheet
    reconciliations and account balances, respectively;
    (b) assembling an inventory of financial spreadsheets used
    to support preparation of our financial statements and assigning
    responsibility to review all such spreadsheets for calculational
    integrity and security access limitation; and (c) planning
    a transition from our SAP financial system to a new financial
    system which will be simpler to maintain, less costly to modify,
    and better aligned with our financial statement requirements.
|
| |  | To improve our contract administration process, we are
    initiating a centralized contract administration function. The
    purpose of such function will include documenting the contract
    approval process and determining that all contractual
    commitments are properly provided to the finance department. As
    an interim measure, authorization to execute contracts on behalf
    of the Company is limited to the chief executive officer, the
    chief financial officer, or the general counsel.                                                                                                                                                                                                                                                                                                                                       
|
| |  | To improve our inventory cost accounting process, during the
    fourth quarter of 2004, (a) we engaged an inventory cost
    accounting consultant to review our significant cost accounting
    entries and to assist in the re-design of the inventory analysis
    and reporting process; and (b) the chief financial officer
    established a product pricing committee composed of sales,
    marketing, manufacturing, and finance staff with the purpose to
    formally set product pricing relative to the market, costs to
    build, and available inventory, and to establish standard terms
    and conditions, which are all factors used in the development of
    inventory valuation. Additionally, as noted above, a new
    financial system will be implemented to include a re-designed
    cost accounting system.                   
|
| |  | To improve our technical accounting function, we are developing
    technical expertise to support the development of our business
    both by training our current staff and by adding, as
    appropriate, permanent staff with such technical accounting
    skills and internal control process background as may be
    required.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | To improve our fixed asset system tracking, we will initiate a
    formal fixed asset tagging system that can be tied to our fixed
    asset register, and we will periodically conduct physical
    inventories of fixed assets to verify the existence of assets
    recorded our balance sheet.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | To improve our segregation of duties in accounts payable, we are
    in the process of establishing additional controls over the
    authorizations and approvals of transactions and expenditures,
    and we are currently evaluating the resource requirements of the
    Company in order to build a well-controlled and effective
    organization and to ensure segregation of key functions within
    our finance department.                                                                                                                                                                                                                                                                                                                                                                                                                        

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(c) Changes in Internal Control Over Financial
Reporting




(d) Inherent Limitations on Effectiveness of Controls




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Item 9B. Other Information







PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant



http://www.transmeta.com







|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services






PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules

The following documents are filed as part of this
report:


Financial
Statements


Financial Statement
Schedules


Exhibits


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|        |    |     |               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- | -- | --- | ------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |              
|Number  |    |     | Exhibit Title
|        |    |     |              
|        | 3  | .01 |               | Second Amended and Restated Certificate of Incorporation.
    Incorporated by reference to Exhibit 3.01 to
    Transmetas Form 10-K for the year ended December 31,
    2000.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 3  | .02 |               | Restated Bylaws. Incorporated by reference to Exhibit 3.06
    to Transmetas Form S-1 Registration Statement (File
    No. 333-44030) (the IPO S-1).                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 3  | .03 |               | Certificate of Designations specifying the terms of the
    Series A Junior Participating Preferred Stock of Transmeta
    as filed with the Secretary of State of the State of Delaware on
    January 15, 2002. Incorporated by reference to
    Exhibit 3.02 to Transmetas Form 8-A Registration
    Statement filed on January 16, 2002.                                                                                                                                                                                                                                                                             
|        | 4  | .01 |               | Specimen common stock certificate. Incorporated by reference to
    Exhibit 4.01 to the IPO S-1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 4  | .02 |               | Fifth Restated Investors Rights Agreement dated
    March 31, 2000, between Transmeta, certain stockholders of
    Transmeta and a convertible note holder named therein.
    Incorporated by reference to Exhibit 4.02 to the IPO S-1.                                                                                                                                                                                                                                                                                                                                                                                  
|        | 4  | .03 |               | Form of Piggyback Registration Rights Agreement. Incorporated by
    reference to Exhibit 4.03 to the IPO S-1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 4  | .04 |               | Rights Agreement dated January 15, 2002 between Transmeta
    and Mellon Investor Services LLC as Rights Agent, which includes
    as Exhibit A the form of Certificate of Designations of
    Series A Junior Participating Preferred Stock, as
    Exhibit B the Summary of Stock Purchase Rights and as
    Exhibit C the Form of Rights Certificate. Incorporated by
    reference to Exhibit 4.01 to Transmetas Form 8-A
    Registration Statement filed on January 16, 2002.                                                                                                                                      
|        | 10 | .01 |               | Form of Indemnity Agreement. Incorporated by reference to
    Exhibit 10.01 to the IPO S-1.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 10 | .02 |               | 1995 Equity Incentive Plan. Incorporated by reference to
    Exhibit 10.02 to the IPO S-1.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 10 | .03 |               | 1997 Equity Incentive Plan. Incorporated by reference to
    Exhibit 10.03 to the IPO S-1.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 10 | .04 |               | 2000 Equity Incentive Plan. Incorporated by reference to
    Exhibit 4.06 to Transmetas Form S-8 Registration
    Statement filed January 18, 2002.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .05 |               | 2000 Employee Stock Purchase Plan. Incorporated by reference to
    Exhibit 4.08 to Transmetas Form S-8 Registration
    Statement filed May 28, 2002.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 10 | .06 |               | Lease Agreement, dated November 1, 1995, between John
    Arrillaga, as trustee of John Arrillaga Family Trust, Richard T.
    Peery, as trustee of Richard T. Peery Separate Property Trust,
    and Transmeta, as amended by Amendment No. 1, dated
    January 29, 1997, and Amendment No. 2, dated
    April 2, 1998, between John Arrillaga, as trustee of John
    Arrillaga Survivors Trust (successor in interest to the
    Arrillaga Family Trust), Richard T. Peery, as trustee of Richard
    T. Peery Separate Property Trust, and Transmeta. Incorporated by
    reference to Exhibit 10.08 to the IPO S-1.
|        | 10 | .07 |               | Lease Agreement, dated January 29, 1997, between John
    Arrillaga, as trustee of John Arrillaga Family Trust, Richard T.
    Peery, as trustee of Richard T. Peery Separate Property Trust,
    and Transmeta, as amended by Amendment No. 1, dated
    April 2, 1998, between John Arrillaga, as trustee of John
    Arrillaga Survivors Trust (successor in interest to the
    Arrillaga Family Trust), Richard T. Peery, as trustee of Richard
    T. Peery Separate Property Trust, and Transmeta. Incorporated by
    reference to Exhibit 10.09 to the IPO S-1.                                                 
|        | 10 | .08 |               | Lease Agreement, dated April 2, 1998, between John
    Arrillaga, as trustee of John Arrillaga Survivors Trust,
    Richard T. Peery, as trustee of Richard T. Peery Separate
    Property Trust, and Transmeta. Incorporated by reference to
    Exhibit 10.10 to the IPO S-1.                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .09 |               | Lease Agreement, dated April 2, 1998, between John
    Arrillaga, as trustee of John Arrillaga Survivors Trust,
    Richard T. Peery, as trustee of Richard T. Peery Separate
    Property Trust, and Transmeta. Incorporated by reference to
    Exhibit 10.11 to the IPO S-1.                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .10 |               | Sublease Agreement, dated as of April 28, 1999, between
    Transmeta and Xuan Nguyen dba World Marketing Alliance.
    Incorporated by reference to Exhibit 10.13 to the IPO S-1.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 10 | .11 |               | Form of Stock Option Agreement under Transmetas 2000
    Equity Incentive Plan. Incorporated by reference to
    Exhibit 10.17 to the IPO S-1.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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|        |    |      |               |                                                                                                                                                                                                                                                                             
|------- | -- | ---- | ------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |      |              
|Number  |    |      | Exhibit Title
|        |    |      |              
|        | 10 | .12  |               | Form of Stock Option Agreement (for Non-Employee Directors)
    under Transmetas 2000 Equity Incentive Plan. Incorporated
    by reference to Exhibit 10.18 to the IPO S-1.**                                                                                              
|        | 10 | .13  |               | Form of Stock Option Agreement. Incorporated by reference to
    Exhibit 10.18 to Transmetas Form 10-K for the
    year ended December 31, 2000.**                                                                                                                         
|        | 10 | .14  |               | Authorized Exclusive Distributor Agreement, dated
    September 12, 2000, between Transmeta and Siltrontech
    Electronics Corporation. Incorporated by reference to
    Exhibit 10.15 to Transmetas Form 10-K for the
    year ended December 31, 2001 (the 2001 10-K).
|        | 10 | .15  |               | Option Amendment and Termination Agreement, dated
    November 16, 2001, between Transmeta and Merle McClendon.
    Incorporated by reference to Exhibit 10.17 to the 2001
    10-K.**                                                                                      
|        | 10 | .16  |               | Offer of Employment from Transmeta Corporation to Matthew R.
    Perry dated March 21, 2002. Incorporated by reference to
    Exhibit 10.22 to Transmetas Form 10-Q for the
    quarterly period ended June 30, 2002.**                                                    
|        | 10 | .17* |               | Technology Transfer Services and Technology License Agreement,
    dated March 25, 2004, between Transmeta and NEC Electronics
    Corporation.+                                                                                                                            
|        | 10 | .18* |               | LongRun2 Technology License Agreement, dated November 29,
    2004, between Transmeta and Fujitsu Limited.+                                                                                                                                                                 
|        | 10 | .19* |               | LongRun2 Technology License Agreement, dated January 20,
    2005, between Transmeta and Sony Corporation.+                                                                                                                                                                 
|        | 21 | .01  |               | Subsidiaries. Incorporated by reference to Exhibit 21.01 to
    the IPO S-1.                                                                                                                                                                                                
|        | 23 | .01* |               | Consent of Ernst & Young LLP, Independent Registered
    Public Accounting Firm.                                                                                                                                                                                            
|        | 24 | .01* |               | Power of Attorney. See Signature Page.                                                                                                                                                                                                                                      
|        | 31 | .01* |               | Certification by Matthew R. Perry pursuant to
    Rule 13a-14(a).                                                                                                                                                                                                           
|        | 31 | .02* |               | Certification by Mark R. Kent pursuant to Rule 13a-14(a).                                                                                                                                                                                                                   
|        | 32 | .01* |               | Certification by Matthew R. Perry 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 Mark R. Kent pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.                                                                                                                             






| |   |                
| | - | ---------------
| | * | Filed herewith.



|   |                                                 
|-- | ------------------------------------------------
|** | Management contract or compensatory arrangement.



| |   |                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | + | Confidential treatment has been requested for portions of this
    exhibit. These portions have been omitted from this Report and
    have been filed separately with the Securities and Exchange
    Commission.

Exhibits




Financial Statement Schedules




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SIGNATURES






| |                      
| | ---------------------
| | TRANSMETA CORPORATION



| |     |                 
| | --- | ----------------
| | By: | /s/ MARK R. KENT

| |                                 
| | --------------------------------
| |                                 
| | Mark R. Kent                    
| | Chief Financial Officer         
| | (Principal Financial Officer and
| | Duly Authorized Officer)        



POWER OF ATTORNEY






|                                           |  |                                                                                       |  |                |  | 
|------------------------------------------ |  | ------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                  |  | Title                                                                                 |  | Date          
|                                           |  |                                                                                       |  |               
|                                          
|/s/ MATTHEW R. PERRYMatthew
    R. Perry   |  | Chief Executive Officer (Principal Executive Officer)                                 |  | March 28, 2005
|                                          
|/s/ MARK R. KENTMark
    R. Kent           |  | Chief Financial Officer (Principal Financial Officer and Duly
    Authorized Officer) |  | March 25, 2005
|                                          
|/s/ MURRAY A. GOLDMANMurray
    A. Goldman |  | Director                                                                              |  | March 25, 2005
|                                          
|/s/ R. HUGH BARNESR.
    Hugh Barnes       |  | Director                                                                              |  | March 25, 2005
|                                          
|/s/ DAVID R. DITZELDavid
    R. Ditzel     |  | Director                                                                              |  | March 28, 2005
|                                          
|/s/ WILLIAM P. TAIWilliam
    P. Tai       |  | Director                                                                              |  | March 25, 2005

83



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|                                       |  |          |  |                |  | 
|-------------------------------------- |  | -------- |  | -------------- |  | 
|Signature                              |  | Title    |  | Date          
|                                       |  |          |  |               
|                                      
|/s/ T. PETER THOMAST.
    Peter Thomas |  | Director |  | March 25, 2005
|                                      
|/s/ RICK TIMMINSRick
    Timmins       |  | Director |  | March 25, 2005

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EXHIBIT INDEX


|        |    |     |               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- | -- | --- | ------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |              
|Number  |    |     | Exhibit Title
|        |    |     |              
|        | 3  | .01 |               | Second Amended and Restated Certificate of Incorporation.
    Incorporated by reference to Exhibit 3.01 to
    Transmetas Form 10-K for the year ended December 31,
    2000.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 3  | .02 |               | Restated Bylaws. Incorporated by reference to Exhibit 3.06
    to Transmetas Form S-1 Registration Statement (File
    No. 333-44030) (the IPO S-1).                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 3  | .03 |               | Certificate of Designations specifying the terms of the
    Series A Junior Participating Preferred Stock of Transmeta
    as filed with the Secretary of State of the State of Delaware on
    January 15, 2002. Incorporated by reference to
    Exhibit 3.02 to Transmetas Form 8-A Registration
    Statement filed on January 16, 2002.                                                                                                                                                                                                                                                                             
|        | 4  | .01 |               | Specimen common stock certificate. Incorporated by reference to
    Exhibit 4.01 to the IPO S-1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 4  | .02 |               | Fifth Restated Investors Rights Agreement dated
    March 31, 2000, between Transmeta, certain stockholders of
    Transmeta and a convertible note holder named therein.
    Incorporated by reference to Exhibit 4.02 to the IPO S-1.                                                                                                                                                                                                                                                                                                                                                                                  
|        | 4  | .03 |               | Form of Piggyback Registration Rights Agreement. Incorporated by
    reference to Exhibit 4.03 to the IPO S-1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 4  | .04 |               | Rights Agreement dated January 15, 2002 between Transmeta
    and Mellon Investor Services LLC as Rights Agent, which includes
    as Exhibit A the form of Certificate of Designations of
    Series A Junior Participating Preferred Stock, as
    Exhibit B the Summary of Stock Purchase Rights and as
    Exhibit C the Form of Rights Certificate. Incorporated by
    reference to Exhibit 4.01 to Transmetas Form 8-A
    Registration Statement filed on January 16, 2002.                                                                                                                                      
|        | 10 | .01 |               | Form of Indemnity Agreement. Incorporated by reference to
    Exhibit 10.01 to the IPO S-1.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 10 | .02 |               | 1995 Equity Incentive Plan. Incorporated by reference to
    Exhibit 10.02 to the IPO S-1.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 10 | .03 |               | 1997 Equity Incentive Plan. Incorporated by reference to
    Exhibit 10.03 to the IPO S-1.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 10 | .04 |               | 2000 Equity Incentive Plan. Incorporated by reference to
    Exhibit 4.06 to Transmetas Form S-8 Registration
    Statement filed January 18, 2002.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .05 |               | 2000 Employee Stock Purchase Plan. Incorporated by reference to
    Exhibit 4.08 to Transmetas Form S-8 Registration
    Statement filed May 28, 2002.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 10 | .06 |               | Lease Agreement, dated November 1, 1995, between John
    Arrillaga, as trustee of John Arrillaga Family Trust, Richard T.
    Peery, as trustee of Richard T. Peery Separate Property Trust,
    and Transmeta, as amended by Amendment No. 1, dated
    January 29, 1997, and Amendment No. 2, dated
    April 2, 1998, between John Arrillaga, as trustee of John
    Arrillaga Survivors Trust (successor in interest to the
    Arrillaga Family Trust), Richard T. Peery, as trustee of Richard
    T. Peery Separate Property Trust, and Transmeta. Incorporated by
    reference to Exhibit 10.08 to the IPO S-1.
|        | 10 | .07 |               | Lease Agreement, dated January 29, 1997, between John
    Arrillaga, as trustee of John Arrillaga Family Trust, Richard T.
    Peery, as trustee of Richard T. Peery Separate Property Trust,
    and Transmeta, as amended by Amendment No. 1, dated
    April 2, 1998, between John Arrillaga, as trustee of John
    Arrillaga Survivors Trust (successor in interest to the
    Arrillaga Family Trust), Richard T. Peery, as trustee of Richard
    T. Peery Separate Property Trust, and Transmeta. Incorporated by
    reference to Exhibit 10.09 to the IPO S-1.                                                 
|        | 10 | .08 |               | Lease Agreement, dated April 2, 1998, between John
    Arrillaga, as trustee of John Arrillaga Survivors Trust,
    Richard T. Peery, as trustee of Richard T. Peery Separate
    Property Trust, and Transmeta. Incorporated by reference to
    Exhibit 10.10 to the IPO S-1.                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .09 |               | Lease Agreement, dated April 2, 1998, between John
    Arrillaga, as trustee of John Arrillaga Survivors Trust,
    Richard T. Peery, as trustee of Richard T. Peery Separate
    Property Trust, and Transmeta. Incorporated by reference to
    Exhibit 10.11 to the IPO S-1.                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .10 |               | Sublease Agreement, dated as of April 28, 1999, between
    Transmeta and Xuan Nguyen dba World Marketing Alliance.
    Incorporated by reference to Exhibit 10.13 to the IPO S-1.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 10 | .11 |               | Form of Stock Option Agreement under Transmetas 2000
    Equity Incentive Plan. Incorporated by reference to
    Exhibit 10.17 to the IPO S-1.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .12 |               | Form of Stock Option Agreement (for Non-Employee Directors)
    under Transmetas 2000 Equity Incentive Plan. Incorporated
    by reference to Exhibit 10.18 to the IPO S-1.**                                                                                                                                                                                                                                                                                                                                                                                                                                            



---



##### Table of Contents



|        |    |      |               |                                                                                                                                                                                                                                                                             
|------- | -- | ---- | ------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |      |              
|Number  |    |      | Exhibit Title
|        |    |      |              
|        | 10 | .13  |               | Form of Stock Option Agreement. Incorporated by reference to
    Exhibit 10.18 to Transmetas Form 10-K for the
    year ended December 31, 2000.**                                                                                                                         
|        | 10 | .14  |               | Authorized Exclusive Distributor Agreement, dated
    September 12, 2000, between Transmeta and Siltrontech
    Electronics Corporation. Incorporated by reference to
    Exhibit 10.15 to Transmetas Form 10-K for the
    year ended December 31, 2001 (the 2001 10-K).
|        | 10 | .15  |               | Option Amendment and Termination Agreement, dated
    November 16, 2001, between Transmeta and Merle McClendon.
    Incorporated by reference to Exhibit 10.17 to the 2001
    10-K.**                                                                                      
|        | 10 | .16  |               | Offer of Employment from Transmeta Corporation to Matthew R.
    Perry dated March 21, 2002. Incorporated by reference to
    Exhibit 10.22 to Transmetas Form 10-Q for the
    quarterly period ended June 30, 2002.**                                                    
|        | 10 | .17* |               | Technology Transfer Services and Technology License Agreement,
    dated March 25, 2004, between Transmeta and NEC Electronics
    Corporation.+                                                                                                                            
|        | 10 | .18* |               | LongRun2 Technology License Agreement, dated November 29,
    2004, between Transmeta and Fujitsu Limited.+                                                                                                                                                                 
|        | 10 | .19* |               | LongRun2 Technology License Agreement, dated January 20,
    2005, between Transmeta and Sony Corporation.+                                                                                                                                                                 
|        | 21 | .01  |               | Subsidiaries. Incorporated by reference to Exhibit 21.01 to
    the IPO S-1.                                                                                                                                                                                                
|        | 23 | .01* |               | Consent of Ernst & Young LLP, Independent Registered
    Public Accounting Firm.                                                                                                                                                                                            
|        | 24 | .01* |               | Power of Attorney. See Signature Page.                                                                                                                                                                                                                                      
|        | 31 | .01* |               | Certification by Matthew R. Perry pursuant to
    Rule 13a-14(a).                                                                                                                                                                                                           
|        | 31 | .02* |               | Certification by Mark R. Kent pursuant to Rule 13a-14(a).                                                                                                                                                                                                                   
|        | 32 | .01* |               | Certification by Matthew R. Perry 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 Mark R. Kent pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.                                                                                                                             






| |   |                
| | - | ---------------
| | * | Filed herewith.



|   |                                                 
|-- | ------------------------------------------------
|** | Management contract or compensatory arrangement.



| |   |                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | + | Confidential treatment has been requested for portions of this
    exhibit. These portions have been omitted from this Report and
    have been filed separately with the Securities and Exchange
    Commission.