##### 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, 2005                                                        
|  
|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


o þ


þ o


S-K 10-K 10-K. þ


12b-2 o þ Non-accelerated o


12b-2 o þ




DOCUMENTS INCORPORATED BY REFERENCE


10-K,










---



##### 










TRANSMETA CORPORATION


FISCAL YEAR 2005
FORM 10-K


INDEX


|              |  |                                                                                                                      |    |  |    | 
|------------- |  | -------------------------------------------------------------------------------------------------------------------- | -- |  | -- | 
|Item          |  | Page                                                                                                                
|              |  |                                                                                                                     
|PART I       
|Item 1        |  | Business                                                                                                             |    |  | 2  | 
|Item 1A       |  | Risk Factors                                                                                                         |    |  | 7  | 
|Item 1B       |  | Unresolved Staff Comments                                                                                            |    |  | 21 | 
|Item 2        |  | Properties                                                                                                           |    |  | 21 | 
|Item 3        |  | Legal Proceedings                                                                                                    |    |  | 21 | 
|Item 4        |  | Submission of Matters to a Vote of Security
    Holders                                                              |    |  | 22 | 
|PART II      
|Item 5        |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |    |  | 23 | 
|Item 6        |  | Selected Financial Data                                                                                              |    |  | 24 | 
|Item 7        |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |    |  | 26 | 
|Item 7A       |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |    |  | 48 | 
|Item 8        |  | Financial Statements and Supplementary
    Data                                                                      |    |  | 49 | 
|Item 9        |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |    |  | 84 | 
|Item 9A       |  | Controls and Procedures                                                                                              |    |  | 84 | 
|Item 9B       |  | Other Information                                                                                                    |    |  | 88 | 
|PART III     
|Item 10       |  | Directors and Executive Officers of the
    Registrant                                                               |    |  | 88 | 
|Item 11       |  | Executive Compensation                                                                                               |    |  | 88 | 
|Item 12       |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |    |  | 88 | 
|Item 13       |  | Certain Relationships and Related
    Transactions                                                                   |    |  | 88 | 
|Item 14       |  | Principal Accountant Fees and Services                                                                               |    |  | 88 | 
|PART IV      
|Item 15       |  | Exhibits and Financial Statement
    Schedules                                                                       |    |  | 89 | 
|Signatures    |  |                                                                                                                      | 92 | 
|EXHIBIT 23.01
|EXHIBIT 23.02
|EXHIBIT 31.01
|EXHIBIT 31.02
|EXHIBIT 32.01
|EXHBIIT 32.02



® ® ® ® tm tm tm


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CAUTION REGARDING FORWARD-LOOKING STATEMENTS









PART I







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

General






2



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Our Licensing Business




Our Services Business






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On March 31, 2005, we entered into a design services
    agreement with Sony Computer Entertainment Inc. and Sony
    Corporation (collectively, the Sony Group), under
    which agreement we currently provide the design and engineering
    services of approximately one hundred and forty Transmeta
    engineers to work on advanced projects for Sony Group. The term
    of this design services agreement extends to March 31,
    2007; however, the services we provide are agreed upon pursuant
    to specific project agreements with terms of one year or less.
    Our current project agreements expire by their terms on
    March 31, 2006, corresponding to Sony Groups fiscal
    year end. We expect to continue to provide services to the Sony
    Group after March 31, 2006, and we are negotiating project
    agreements with the Sony Group respecting such services.
    However, due to the uncertainty of these negotiations, we cannot
    assure you that we will extend any of the current project
    agreements or enter any additional project agreements, or that
    such agreements, if any, will continue to require engineering
    services of the same kind or at the same level as we provided in
    2005.
|
| |  | On May 12, 2005, we entered into a series of related
    definitive development services agreements with Microsoft
    Corporation, under which agreements we currently provide the
    development services of approximately thirty Transmeta engineers
    to Microsoft relating to a proprietary Microsoft project. We
    have substantially completed the services to be provided under
    these development services agreements, and, upon
    Microsofts acceptance thereof, we will recognize the
    related revenue and direct cost of sale, which we expect will
    occur in 2006. We currently are in negotiations with Microsoft
    regarding the provision of additional services, and, although we
    expect to continue to provide services to Microsoft in 2006, we
    do not necessarily expect that we will continue to supply
    engineering services at the same level as we provided in 2005.                                                                                                                                                                                                                                                                                                                                   



Our Product Business


® tm


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End-of


Customers










Sales and Marketing








Manufacturing




4



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Competition






| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| |  | 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;
|
| |  | sufficient technical personnel available to provide relevant
    services and technical support;                            
|
| |  | reputation; and                                                                                                             
|
| |  | quality of our services and technical support.                                                                              





| |   |                                                  
| | - | -------------------------------------------------
| |  | technical expertise of our engineering personnel;
|
| |  | service quality;                                 
|
| |  | pricing of our services;                         

5



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| |   |                          
| | - | -------------------------
| |  | technical innovation; and
|
| |  | reputation.              





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



Intellectual Property






6



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Employees




Available Information


www.transmeta.com 10-K, 10-Q, 8-K, 1-800-SEC-0330. www.sec.gov.





Item 1A. Risk Factors


The factors discussed below are cautionary statements that
identify important risk factors that could cause actual results
to differ materially from those anticipated in the
forward-looking statements in this Annual Report on
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, and we must successfully execute
on our modified business model if we are to sustain our
operations.


end-of




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We might fail to operate successfully under our modified
business model.




We might not be able to execute on our modified business
model 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.






| |   |                                                 
| | - | ------------------------------------------------
| |  | fund expansion;                                 
|
| |  | fund marketing expenditures;                    
|
| |  | develop or enhance our products or technologies;

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| |   |                                                  
| | - | -------------------------------------------------
| |  | enhance our operating infrastructure;            
|
| |  | hire additional personnel;                       
|
| |  | respond to customer concerns about our viability;
|
| |  | respond to competitive pressures; or             
|
| |  | acquire complementary businesses or technologies.

S-3 10-Q


We may fail to meet the continued listing requirements of the
Nasdaq Stock Market, which may cause our stock to be delisted
and result in reduced liquidity of our stock, reduce the trading
price of our stock, and impair our ability to raise
financing.




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




9



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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.




We have only recently entered the engineering services
business, and our ability to succeed in that line of business is
uncertain and subject to many risks.




10



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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 has reduced our resources and ability
to pursue opportunities and support customers in emerging
markets for our microprocessor products.




11



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






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










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




12



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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.




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




13



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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 Fujitsu 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.




14



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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.




15



---



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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.




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




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.






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Any dispute regarding our intellectual property may require
us to indemnify certain licensees or third parties, the cost of
which could severely hamper our business operations and
financial condition.




If we are unable to protect our proprietary rights
adequately, our competitors might gain access to our technology
and we might not compete successfully in our markets.






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.




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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.                                                                      

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.


quarter-to




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




18



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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.



19



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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
    shares and to outstanding 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.



We may identify material weaknesses in our internal control
over financial reporting.




20



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Changes in securities laws and regulations have increased our
costs.









|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments








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








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

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


21



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





|                    |  |             |             |  |          |  |         | 
|------------------- |  | ----------- | ----------- |  | -------- |  | ------- | 
|                    |  | Total Votes |            
|                    |  |             |            
|Nominees            |  | For         |             |  | Withheld | 
|                    |  |             |             |  |          | 
|Robert V. Dickinson |  |             | 140,588,690 |  |          |  | 365,192 | 
|David R. Ditzel     |  |             | 140,366,692 |  |          |  | 587,190 | 
|T. Peter Thomas     |  |             | 140,364,046 |  |          |  | 589,836 | 







| |                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------
| | To ratify the selection of Burr, Pilger & Mayer LLP as
    our independent registered public accounting firm for 2005.

|        |  |             |             | 
|------- |  | ----------- | ----------- | 
|        |  | Total Votes |            
|        |  |             |            
|For     |  |             | 140,696,012 | 
|Against |  |             | 164,527     | 
|Abstain |  |             | 93,343      | 

22



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PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities

Market Information for Common Stock




|                                    |                |      |   |      |     |  |   |      | 
|----------------------------------- | -------------- | ---- | - | ---- | --- |  | - | ---- | 
|                                    |                | High |   |      | Low | 
|                                    |                |      |   |      |     | 
|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 | 
|Fiscal year ended December 31, 2005 |                |      |   |      |     |  |   |     
|                                    | First quarter  |      | $ | 1.67 |     |  | $ | 0.75 | 
|                                    | Second quarter |      |   | 1.10 |     |  |   | 0.58 | 
|                                    | Third quarter  |      |   | 2.50 |     |  |   | 0.59 | 
|                                    | Fourth quarter |      |   | 1.74 |     |  |   | 1.08 | 

Stockholders




Dividends




Securities Authorized For Issuance Under Equity Compensation
Plans




23



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





|                                                        |                                                     |                                       |         |        |        |   |          |        |        |   |         |        |        |      |          |        |         |   |          |        |         | 
|------------------------------------------------------- | --------------------------------------------------- | ------------------------------------- | ------- | ------ | ------ | - | -------- | ------ | ------ | - | ------- | ------ | ------ | ---- | -------- | ------ | ------- | - | -------- | ------ | ------- | 
|                                                        |                                                     | Years Ended December 31,              |        
|                                                        |                                                     |                                       |        
|                                                        |                                                     | 2005                                  |         |        | 2004   |   |          | 2003   |        |   | 2002    |        |        | 2001 |         
|                                                        |                                                     |                                       |         |        |        |   |          |        |        |   |         |        |        |      |         
|                                                        |                                                     | (In thousands, except per share data) |        
|Consolidated Statements of Operations Data:             |                                                     |                                       |         |        |        |   |          |        |        |   |         |        |        |      |          |        |         |   |          |       
|Revenue:                                                |                                                     |                                       |         |        |        |   |          |        |        |   |         |        |        |      |          |        |         |   |          |       
|                                                        | Product                                             |                                       | $       | 24,636 |        |   | $        | 18,776 |        |   | $       | 16,225 |        |      | $        | 24,247 |         |   | $        | 35,590 |        
|                                                        | License                                             |                                       |         | 19,628 |        |   |          | 9,000  |        |   |         | 1,090  |        |      |          |       |         |   |          |       |        
|                                                        | Service                                             |                                       |         | 28,467 |        |   |          | 1,668  |        |   |         |       |        |      |          |       |         |   |          |       |        
|                                                        |                                                     |                                       |         |        |        |   |          |        |        |   |         |        |        |      |         
|                                                        |                                                     | Total revenue                         |         |        | 72,731 |   |          |        | 29,444 |   |         |        | 17,315 |      |          |        | 24,247  |   |          |        | 35,590  | 
|                                                        |                                                     |                                       |         |        |        |   |          |        |        |   |         |        |        |      |         
|Cost of revenue:                                        |                                                     |                                       |         |        |        |   |          |        |        |   |         |        |        |      |          |        |         |   |          |       
|                                                        | Product(1)                                          |                                       |         | 12,271 |        |   |          | 36,335 |        |   |         | 16,324 |        |      |          | 17,127 |         |   |          | 48,694 |        
|                                                        | License                                             |                                       |         | 71     |        |   |          |       |        |   |         |       |        |      |          |       |         |   |          |       |        
|                                                        | Service                                             |                                       |         | 15,990 |        |   |          | 730    |        |   |         |       |        |      |          |       |         |   |          |       |        
|                                                        | Impairment charge on long-lived assets(4)           |                                       |         |       |        |   |          | 1,943  |        |   |         |       |        |      |          |       |         |   |          |       |        
|                                                        |                                                     |                                       |         |        |        |   |          |        |        |   |         |        |        |      |         
|                                                        |                                                     | Total cost of revenue                 |         |        | 28,332 |   |          |        | 39,008 |   |         |        | 16,324 |      |          |        | 17,127  |   |          |        | 48,694  | 
|                                                        |                                                     |                                       |         |        |        |   |          |        |        |   |         |        |        |      |         
|Gross profit (loss)                                     |                                                     |                                       | 44,399  |        |        |   | (9,564   | )      |        |   | 991     |        |        |      | 7,120    |        |         |   | (13,104  | )     
|                                                        |                                                     |                                       |         |        |        |   |          |        |        |   |         |        |        |      |         
|Operating expenses:                                     |                                                     |                                       |         |        |        |   |          |        |        |   |         |        |        |      |          |        |         |   |          |       
|                                                        | Research and development                            |                                       |         | 19,609 |        |   |          | 52,765 |        |   |         | 48,525 |        |      |          | 63,603 |         |   |          | 67,639 |        
|                                                        | Purchased in-process research and development       |                                       |         |       |        |   |          |       |        |   |         |       |        |      |          |       |         |   |          | 13,600 |        
|                                                        | Selling, general and administrative                 |                                       |         | 23,039 |        |   |          | 30,855 |        |   |         | 26,199 |        |      |          | 29,917 |         |   |          | 35,460 |        
|                                                        | Restructuring charges (recovery)(2)                 |                                       |         | 2,009  |        |   |          | 904    |        |   |         | (244   | )      |      |          | 14,726 |         |   |          |       |        
|                                                        | Amortization of patents and patent rights           |                                       |         | 6,846  |        |   |          | 9,217  |        |   |         | 10,530 |        |      |          | 11,392 |         |   |          | 17,556 |        
|                                                        | Impairment charge of deferred charges(3)            |                                       |         |       |        |   |          |       |        |   |         |       |        |      |          |       |         |   |          | 16,564 |        
|                                                        | Impairment charge on long-lived and other assets(4) |                                       |         |       |        |   |          | 2,544  |        |   |         |       |        |      |          |       |         |   |          |       |        
|                                                        | Stock compensation(5)                               |                                       |         | (34    | )      |   |          | 1,665  |        |   |         | 4,529  |        |      |          | 1,809  |         |   |          | 20,954 |        
|                                                        |                                                     |                                       |         |        |        |   |          |        |        |   |         |        |        |      |         
|                                                        |                                                     | Total operating expenses              |         |        | 51,469 |   |          |        | 97,950 |   |         |        | 89,539 |      |          |        | 121,447 |   |          |        | 171,773 | 
|                                                        |                                                     |                                       |         |        |        |   |          |        |        |   |         |        |        |      |         
|Operating loss                                          |                                                     |                                       | (7,070  | )      |        |   | (107,514 | )      |        |   | (88,548 | )      |        |      | (114,327 | )      |         |   | (184,877 | )     
|                                                        | Interest income and other, net                      |                                       |         | 1,253  |        |   |          | 827    |        |   |         | 1,389  |        |      |          | 4,962  |         |   |          | 14,686 |        
|                                                        | Interest expense                                    |                                       |         | (364   | )      |   |          | (111   | )      |   |         | (477   | )      |      |          | (601   | )       |   |          | (1,060 | )      
|                                                        |                                                     |                                       |         |        |        |   |          |        |        |   |         |        |        |      |         
|Net loss                                                |                                                     | $                                     | (6,181  | )      |        | $ | (106,798 | )      |        | $ | (87,636 | )      |        | $    | (109,966 | )      |         | $ | (171,251 | )     
|                                                        |                                                     |                                       |         |        |        |   |          |        |        |   |         |        |        |      |         
|Net loss per share  basic and diluted                  |                                                     | $                                     | (0.03   | )      |        | $ | (0.61    | )      |        | $ | (0.63   | )      |        | $    | (0.82    | )      |         | $ | (1.33    | )     
|                                                        |                                                     |                                       |         |        |        |   |          |        |        |   |         |        |        |      |         
|Weighted average shares outstanding  basic and diluted |                                                     |                                       | 190,404 |        |        |   | 175,989  |        |        |   | 139,692 |        |        |      | 134,719  |        |         |   | 129,002  |       
|                                                        |                                                     |                                       |         |        |        |   |          |        |        |   |         |        |        |      |         
|Consolidated Balance Sheet Data:                        |                                                     |                                       |         |        |        |   |          |        |        |   |         |        |        |      |          |        |         |   |          |       
|Cash and cash equivalents                               |                                                     | $                                     | 27,659  |        |        | $ | 17,273   |        |        | $ | 74,765  |        |        | $    | 16,613   |        |         | $ | 57,747   |       
|Short-term investments                                  |                                                     |                                       | 28,811  |        |        |   | 36,395   |        |        |   | 46,000  |        |        |      | 112,837  |        |         |   | 183,941  |       
|Working capital                                         |                                                     |                                       | 38,791  |        |        |   | 40,661   |        |        |   | 99,290  |        |        |      | 116,033  |        |         |   | 217,152  |       
|Total assets                                            |                                                     |                                       | 79,314  |        |        |   | 89,613   |        |        |   | 171,590 |        |        |      | 197,555  |        |         |   | 309,024  |       
|Long-term payables, net of current portion              |                                                     |                                       |        |        |        |   | 5,000    |        |        |   | 356     |        |        |      | 18,116   |        |         |   | 29,295   |       
|Total stockholders equity                              |                                                     |                                       | 54,952  |        |        |   | 58,000   |        |        |   | 131,418 |        |        |      | 140,847  |        |         |   | 244,965  |       






|    |                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Cost of revenue includes $0.5 million, $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

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | fiscal 2005, 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 $6.3 million, $0.6 million,
    $0.5 million, $1.9 million and $2.5 million,
    respectively. 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 charges recorded in fiscal 2005 primarily consist
    of $1.8 million for excess facilities and $1.5 million
    related to a reduction in workforce, offset by a reversal of
    $1.3 million charge due to re-occupation of certain
    buildings previously deemed in excess of the Companys
    needs and a benefit derived from certain assets previously
    written off. 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, $0.7 million,
    $1.8 million, $3.6 million and $16.8 million in
    amortization of deferred stock compensation for the years ended
    December 31, 2005, 2004, 2003, 2002 and 2001, respectively.
    Stock compensation also includes $(34,000), $1.0 million,
    $2.7 million, $(1.8) million and $4.2 million in
    variable stock compensation for the years ended
    December 31, 2005, 2004, 2003, 2002 and 2001, respectively.                                                                                                                                                                                                                                                                                                                                       

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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












| |   |                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On March 31, 2005, we entered into a design services
    agreement with Sony Computer Entertainment Inc. and Sony
    Corporation (collectively, the Sony Group), under
    which agreement we currently provide the design and engineering
    services of approximately one hundred and forty Transmeta
    engineers to work on advanced projects for Sony Group. The term
    of this design services agreement

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | extends to March 31, 2007; however, the services we provide
    are agreed upon pursuant to specific project agreements with
    terms of one year or less. Our current project agreements expire
    by their terms on March 31, 2006, corresponding to Sony
    Groups fiscal year end. We expect to continue to provide
    services to the Sony Group after March 31, 2006, and we are
    negotiating project agreements with the Sony Group respecting
    such services. However, due to the uncertainty of these
    negotiations, we cannot assure you that we will extend any of
    the current project agreements or enter any additional project
    agreements, or that such agreements, if any, will continue to
    require engineering services of the same kind or at the same
    level as we provided in 2005.                                                                                       
|
| |  | On May 12, 2005, we entered into a series of related
    definitive development services agreements with Microsoft
    Corporation, under which agreements we currently provide the
    development services of approximately thirty Transmeta engineers
    to Microsoft relating to a proprietary Microsoft project. We
    have substantially completed the services to be provided under
    these development services agreements, and, upon
    Microsofts acceptance thereof, we will recognize the
    related revenue and direct cost of sale, which we expect will
    occur in 2006. We currently are in negotiations with Microsoft
    regarding the provision of additional services, and, although we
    expect to continue to provide services to Microsoft in 2006, we
    do not necessarily expect that we will continue to supply
    engineering services at the same level as we provided in 2005.



End-of






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Critical Accounting Policies








| |   |                                                            
| | - | -----------------------------------------------------------
| |  | License and service revenue recognition;                   
|
| |  | Maintenance and technical support services revenue;        
|
| |  | Fixed fee development service revenue and cost of services;
|
| |  | Recognition of time and materials;                         
|
| |  | Estimation of inventory valuations;                        
|
| |  | Stock-based compensation;                                  
|
| |  | Valuation of long-lived and intangible assets;             
|
| |  | Restructuring charges; and                                 
|
| |  | Loss contingencies.                                        

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License and Service Revenue Recognition. 00-21,




Maintenance and Technical Support Services Revenue.


Fixed Fee Development Service Revenue and Cost of
Services.


Recognition of Time and Materials Based Design Services
Revenue and Related Costs.


Estimation of Inventory Valuations.


29



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Stock-based Compensation.


interpretation




Stock-Based Compensation


Valuation of Long-Lived and Intangible Assets.


30



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Restructuring Charges.


Loss Contingencies.


31



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Description of Operating Accounts


Total Revenue.


Costs of products.


Costs of Services.


Gross Margin.


Research and Development.


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.


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Interest Expense.


Results of Operations




|                                                 |                       |              |     |     |              |  |      |              |   |  |      |     |  
|------------------------------------------------ | --------------------- | ------------ | --- | --- | ------------ |  | ---- | ------------ | - |  | ---- | --- | -
|                                                 |                       | Years Ended  |    
|                                                 |                       |              |    
|                                                 |                       | December 31, |     |     | December 31, |  |      | December 31, |  
|                                                 |                       | 2005         |     |     | 2004         |  |      | 2003         |  
|                                                 |                       |              |     |     |              |  |      |              |  
|Product                                          |                       |              | 34  | %   |              |  | 64   | %            |   |  | 94   | %  
|License                                          |                       |              | 27  | %   |              |  | 30   | %            |   |  | 6    | %  
|Service                                          |                       |              | 39  | %   |              |  | 6    | %            |   |  | *    | %  
|                                                 |                       |              |     |     |              |  |      |              |  
|                                                 | Total                 |              |     | 100 | %            |  |      | 100          | % |  |      | 100 | %
|                                                 |                       |              |     |     |              |  |      |              |  
|Cost of product                                  |                       |              | 17  | %   |              |  | 123  | %            |   |  | 94   | %  
|Cost of license                                  |                       |              | *   | %   |              |  | *    | %            |   |  | *    | %  
|Cost of service                                  |                       |              | 22  | %   |              |  | 3    | %            |   |  | *    | %  
|Impairment charge on long-lived assets           |                       |              | *   | %   |              |  | 7    | %            |   |  | *    | %  
|                                                 |                       |              |     |     |              |  |      |              |  
|                                                 | Total cost of revenue |              |     | 39  | %            |  |      | 133          | % |  |      | 94  | %
|                                                 |                       |              |     |     |              |  |      |              |  
|Gross profit (loss)                              |                       |              | 61  | %   |              |  | (33  | )%           |   |  | 6    | %  
|                                                 |                       |              |     |     |              |  |      |              |  
|Operating expenses:                              |                       |              |     |     |              |  |      |              |   |  |      |    
|Research and development                         |                       |              | 27  | %   |              |  | 179  | %            |   |  | 280  | %  
|Selling, general and administrative              |                       |              | 32  | %   |              |  | 105  | %            |   |  | 151  | %  
|Restructuring charges                            |                       |              | 3   | %   |              |  | 3    | %            |   |  | (1   | )% 
|Amortization of patents and patent rights        |                       |              | 9   | %   |              |  | 31   | %            |   |  | 61   | %  
|Impairment charge on long-lived and other assets |                       |              | *   | %   |              |  | 9    | %            |   |  | *    | %  
|Stock compensation                               |                       |              | *   | %   |              |  | 6    | %            |   |  | 26   | %  
|                                                 |                       |              |     |     |              |  |      |              |  
|Total operating expenses                         |                       |              | 71  | %   |              |  | 333  | %            |   |  | 517  | %  
|                                                 |                       |              |     |     |              |  |      |              |  
|Operating loss                                   |                       |              | (10 | )%  |              |  | (366 | )%           |   |  | (511 | )% 
|Interest income and other, net                   |                       |              | 2   | %   |              |  | 3    | %            |   |  | 8    | %  
|Interest expense                                 |                       |              | (1  | )%  |              |  | (*   | )%           |   |  | (3   | )% 
|                                                 |                       |              |     |     |              |  |      |              |  
|Net loss                                         |                       |              | (9  | )%  |              |  | (363 | )%           |   |  | (506 | )% 
|                                                 |                       |              |     |     |              |  |      |              |  






|  |                                                                        
|- | -----------------------------------------------------------------------
|* | denotes amounts which are zero or less than one-half of one
    percent



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



33



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|        |               |                          |        |        |      |   |        |        |  |   |        |        | 
|------- | ------------- | ------------------------ | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|        |               | Years Ended December 31, |       
|        |               |                          |       
|        |               | 2005                     |        |        | 2004 |   |        | 2003   | 
|        |               |                          |        |        |      |   |        |        | 
|        |               | (In thousands)           |       
|Product |               | $                        | 24,636 |        |      | $ | 18,776 |        |  | $ | 16,225 |       
|License |               |                          | 19,628 |        |      |   | 9,000  |        |  |   | 1,090  |       
|Service |               |                          | 28,467 |        |      |   | 1,668  |        |  |   |       |       
|        |               |                          |        |        |      |   |        |        | 
|        | Total revenue |                          | $      | 72,731 |      |   | $      | 29,444 |  |   | $      | 17,315 | 
|        |               |                          |        |        |      |   |        |        | 

Fiscal 2005 Compared to Fiscal 2004.


Product Revenues.




| |   |                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Higher unit shipments and ASPs of Efficeon products, which had
    their first full year of sales in fiscal 2004. Revenue from
    Efficeon products represented $9.1 million of total product
    revenue in fiscal 2005, versus $5.4 million of total
    product revenue in fiscal 2004.
|
| |  | Higher unit shipments on slightly lower ASPs of Crusoe product,
    our first product line. Revenue from Crusoe products represented
    $15.5 million of total product revenue in fiscal 2005,
    versus $13.4 million of total product revenue in fiscal
    2004.                      

License Revenue.


Service Revenue.




34



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|                                                      |  |                          |        |  |      |   |       |      |  |   |   | 
|----------------------------------------------------- |  | ------------------------ | ------ |  | ---- | - | ----- | ---- |  | - | - | 
|                                                      |  | Years Ended December 31,
|                                                      |  |                         
|                                                      |  | 2005                     |        |  | 2004 |   |       | 2003
|                                                      |  |                          |        |  |      |   |       |     
|                                                      |  | (In thousands)          
|Time & Materials Based Contracts                      |  | $                        | 28,217 |  |      | $ | 918   |      |  | $ |  | 
|Maintenance & Technical Support Services for Licenses |  |                          | 250    |  |      |   | 750   |      |  |   |  | 
|                                                      |  |                          |        |  |      |   |       |      | 
|Total Services Revenue                                |  | $                        | 28,467 |  |      | $ | 1,668 |      |  | $ |  | 
|                                                      |  |                          |        |  |      |   |       |      | 

Maintenance and Technical Support Services Revenue.


Fixed Fee Development Service Revenue.


Time and Materials Based Design Service Revenue.


Fiscal 2004 Compared to Fiscal 2003.


Product Revenues.


35



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##### Table of Contents





License Revenue.


Service Revenue.




|          |                                        |              |  |    |      |  |  |      |   |  |  |    |  
|--------- | -------------------------------------- | ------------ |  | -- | ---- |  |  | ---- | - |  |  | -- | -
|          |                                        | Years Ended  | 
|          |                                        | December 31, | 
|          |                                        |              | 
|          |                                        | 2005         |  |    | 2004 |  |  | 2003 |  
|          |                                        |              |  |    |      |  |  |      |  
|Customer: |                                        |              |  |    |      |  |  |      |   |  |  |   
|          | Sony Corporation                       |              |  | 52 | %    |  |  | *    | % |  |  | *  | %
|          | Fujitsu America Inc.                   |              |  | 16 | %    |  |  | *    | % |  |  | 16 | %
|          | Hewlett Packard International Pte Inc. |              |  | 15 | %    |  |  | 27   | % |  |  | 14 | %
|          | NEC Electronics Corp.                  |              |  | *  | %    |  |  | 33   | % |  |  | *  | %
|          | Sharp Trading Corporation              |              |  | *  | %    |  |  | 12   | % |  |  | 20 | %
|          | Uniquest Hong Kong**                   |              |  | *  | %    |  |  | *    | % |  |  | 21 | %






| |   |                                          
| | - | -----------------------------------------
| | * | 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.



|          |                                       |              |  |    |      |  |  |    |  
|--------- | ------------------------------------- | ------------ |  | -- | ---- |  |  | -- | -
|          |                                       | December 31, | 
|          |                                       |              | 
|          |                                       | 2005         |  |    | 2004 | 
|          |                                       |              |  |    |      | 
|Customer: |                                       |              |  |    |      |  |  |   
|          | 3COM Corporation                      |              |  | 27 | %    |  |  | *  | %
|          | OQO, Inc.                             |              |  | 14 | %    |  |  | *  | %
|          | All American                          |              |  | 12 | %    |  |  | *  | %
|          | ASEM S.p.A                            |              |  | 11 | %    |  |  | *  | %
|          | Microsoft Corporation                 |              |  | 12 | %    |  |  | *  | %
|          | Sony Corporation                      |              |  | 11 | %    |  |  | *  | %
|          | Hewlett Packard International Pte Ltd |              |  | *  | %    |  |  | 31 | %
|          | Siltrontech Electronics Corporation   |              |  | *  | %    |  |  | 28 | %
|          | Sharp Trading Corporation             |              |  | *  | %    |  |  | 16 | %

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



| |                 
| | ----------------
| | Cost of Revenues





| |                         
| | ------------------------
| | Cost of Product Revenue:



|                                                                                |                         |                          |       |      |      |  |       |        |    |  |       |       |   
|------------------------------------------------------------------------------- | ----------------------- | ------------------------ | ----- | ---- | ---- |  | ----- | ------ | -- |  | ----- | ----- | --
|                                                                                |                         | Years Ended December 31, |      
|                                                                                |                         |                          |      
|                                                                                |                         | 2005                     |       |      | 2004 |  |       | 2003   |   
|                                                                                |                         |                          |       |      |      |  |       |        |   
|Product revenue                                                                 |                         |                          | 100.0 | %    |      |  | 100.0 | %      |    |  | 100.0 | %    
|                                                                                |                         |                          |       |      |      |  |       |        |   
|Product cost                                                                    |                         |                          | 72.6  | %    |      |  | 90.3  | %      |    |  | 81.5  | %    
|Under absorbed overhead                                                         |                         |                          | 0.6   | %    |      |  | 7.5   | %      |    |  | 12.9  | %    
|Charges for inventory and other adjustments                                     |                         |                          | 2.2   | %    |      |  | 98.7  | %      |    |  | 9.1   | %    
|Benefits to gross margin from the sale of previously written
    down inventory |                         |                          | (25.6 | )%   |      |  | (3.0  | )%     |    |  | (2.9  | )%   
|Impairment charges for long-lived assets                                        |                         |                          |      | %    |      |  | 10.3  | %      |    |  |      | %    
|                                                                                |                         |                          |       |      |      |  |       |        |   
|                                                                                | Cost of product revenue |                          |       | 49.8 | %    |  |       | 203.8  | %  |  |       | 100.6 | % 
|                                                                                |                         |                          |       |      |      |  |       |        |   
|                                                                                | Gross margin            |                          |       | 50.2 | %    |  |       | (103.8 | )% |  |       | (0.6  | )%
|                                                                                |                         |                          |       |      |      |  |       |        |   

Fiscal 2005 Compared to Fiscal 2004.




| |   |                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Benefit derived from sale of previously written-down inventory
    during fiscal 2005 from customers;                                                                                       
|
| |  | Lower product cost a result of lower manufacturing costs
    associated with the Efficeon TM8000 processors, which had higher
    costs with the introduction of the product in fiscal 2004;
|
| |  | Higher charges for inventory adjustments in fiscal 2004 resulted
    from manufacturing costs expected to exceed the price at which
    we expected to sell these products.                 





37



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Fiscal 2004 Compared to Fiscal 2003.










38



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| |                  
| | -----------------
| | Cost of Licenses:

|                |  |                          |    |  |      |   |      |  |  |   |   | 
|--------------- |  | ------------------------ | -- |  | ---- | - | ---- |  |  | - | - | 
|                |  | Years Ended December 31,
|                |  |                         
|                |  | 2005                     |    |  | 2004 |   | 2003
|                |  |                          |    |  |      |   |     
|                |  | (In thousands)          
|Cost of License |  | $                        | 71 |  |      | $ |     |  |  | $ |  | 
|                |  |                          |    |  |      |   |      |  | 





| |                          
| | -------------------------
| | Cost of Services Revenue:





|                                                 |                        |                          |        |        |      |   |     |      |  |   |   |   | 
|------------------------------------------------ | ---------------------- | ------------------------ | ------ | ------ | ---- | - | --- | ---- |  | - | - | - | 
|                                                 |                        | Years Ended December 31,
|                                                 |                        |                         
|                                                 |                        | 2005                     |        |        | 2004 |   |     | 2003
|                                                 |                        |                          |        |        |      |   |     |     
|                                                 |                        | (In thousands)          
|Time & Materials Based Contract                  |                        | $                        | 15,779 |        |      | $ | 730 |      |  | $ |  |  
|License Related Maintenance and Support Services |                        |                          | 211    |        |      |   |    |      |  |   |  |  
|                                                 |                        |                          |        |        |      |   |     |      | 
|                                                 | Total Cost of Services |                          | $      | 15,990 |      |   | $   | 730  |  |   | $ |  | 
|                                                 |                        |                          |        |        |      |   |     |      | 



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

|                                                            |  |                          |        |  |      |   |        |      |  |   |        | 
|----------------------------------------------------------- |  | ------------------------ | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                                            |  | Years Ended December 31, |       
|                                                            |  |                          |       
|                                                            |  | 2005                     |        |  | 2004 |   |        | 2003 | 
|                                                            |  |                          |        |  |      |   |        |      | 
|                                                            |  | (In thousands)           |       
|Research and development expenses                           |  | $                        | 19,609 |  |      | $ | 52,765 |      |  | $ | 48,525 | 
|                                                            |  |                          |        |  |      |   |        |      | 
|Amount classified as costs of service and deferred costs(1) |  | $                        | 17,737 |  |      | $ |       |      |  | $ |       | 
|                                                            |  |                          |        |  |      |   |        |      | 

39



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|    |                                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In fiscal 2005, we classified costs directly attributable to the
    design and development services agreements to costs of service
    revenues. In the prior years, such costs were included in the
    R&D activities as the employees involved with such
    activities were performing R&D related activities in the
    prior years.

Fiscal 2005 Compared to Fiscal 2004.




Fiscal 2004 Compared to Fiscal 2003.




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

Fiscal 2005 Compared to Fiscal 2004.


Fiscal 2004 Compared to Fiscal 2003.


40



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







re-occupation




|                             |  |                 |        |   |           |   |        |               |  |   |        |  
|---------------------------- |  | --------------- | ------ | - | --------- | - | ------ | ------------- |  | - | ------ | -
|                             |  | Building        |        |   | Workforce |   |        |              
|                             |  | Leasehold Costs |        |   | Reduction |   |        | Total Balance | 
|                             |  |                 |        |   |           |   |        |               | 
|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  |  
|Restructuring charges        |  |                 | 1,841  |   |           |   | 1,502  |               |  |   | 3,343  |  
|Adjustments and reversals    |  |                 | (1,278 | ) |           |   | (56    | )             |  |   | (1,334 | )
|Cash drawdowns               |  |                 | (1,552 | ) |           |   | (1,446 | )             |  |   | (2,998 | )
|                             |  |                 |        |   |           |   |        |               | 
|Balance at December 31, 2005 |  | $               | 4,256  |   |           | $ |       |               |  | $ | 4,256  |  
|                             |  |                 |        |   |           |   |        |               | 

41



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



Fiscal 2005 Compared to Fiscal 2004.


Fiscal 2004 Compared to Fiscal 2003.




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





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

Fiscal 2005 Compared to Fiscal 2004.


Fiscal 2004 Compared to Fiscal 2003.


42



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

Fiscal 2005 Compared to Fiscal 2004.


Fiscal 2004 Compared to Fiscal 2003.




| |                 
| | ----------------
| | Interest Expense

Fiscal 2005 Compared to Fiscal 2004.


Fiscal 2004 Compared to Fiscal 2003.


Liquidity and Capital Resources






|                                                    |  |                          |        |  |      |   |         |      |  |   |         |  
|--------------------------------------------------- |  | ------------------------ | ------ |  | ---- | - | ------- | ---- |  | - | ------- | -
|                                                    |  | Years Ended December 31, |       
|                                                    |  |                          |       
|                                                    |  | 2005                     |        |  | 2004 |   |         | 2003 | 
|                                                    |  |                          |        |  |      |   |         |      | 
|                                                    |  | (In thousands)           |       
|Net cash provided by/(used in) operating activities |  | $                        | 5,588  |  |      | $ | (77,687 | )    |  | $ | (64,467 | )
|Net cash provided by/(used in) investing activities |  |                          | 1,917  |  |      |   | (11,301 | )    |  |   | 49,556  |  
|Net cash provided by financing activities           |  |                          | 2,881  |  |      |   | 31,496  |      |  |   | 73,063  |  
|                                                    |  |                          |        |  |      |   |         |      | 
|Increase/(decrease) in cash and cash equivalents    |  | $                        | 10,386 |  |      | $ | (57,492 | )    |  | $ | 58,152  |  
|                                                    |  |                          |        |  |      |   |         |      | 



43



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| |                     
| | --------------------
| | Operating activities











| |                     
| | --------------------
| | Investing activities



44



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| |                     
| | --------------------
| | Financing activities













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





45



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|                             |  |                 |        |   |           |   |        |               |  |   |        |  
|---------------------------- |  | --------------- | ------ | - | --------- | - | ------ | ------------- |  | - | ------ | -
|                             |  | Building        |        |   | Workforce |   |        |              
|                             |  | Leasehold Costs |        |   | Reduction |   |        | Total Balance | 
|                             |  |                 |        |   |           |   |        |               | 
|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  |  
|Restructuring charges        |  |                 | 1,841  |   |           |   | 1,502  |               |  |   | 3,343  |  
|Adjustments and reversals    |  |                 | (1,278 | ) |           |   | (56    | )             |  |   | (1,334 | )
|Cash drawdowns               |  |                 | (1,552 | ) |           |   | (1,446 | )             |  |   | (2,998 | )
|                             |  |                 |        |   |           |   |        |               | 
|Balance at December 31, 2005 |  | $               | 4,256  |   |           | $ |       |               |  | $ | 4,256  |  
|                             |  |                 |        |   |           |   |        |               | 



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



|                                      |  |                        |        |                |        |   |       |       |  |       |         |   |  |   |   | 
|------------------------------------- |  | ---------------------- | ------ | -------------- | ------ | - | ----- | ----- |  | ----- | ------- | - |  | - | - | 
|                                      |  | Payments Due by Period |       
|                                      |  |                        |       
|                                      |  |                        |        | Less Than      |        |   | 1-3   |       |  | After |        
|Contractual Obligations               |  | Total                  |        |                | 1 Year |   |       | Years |  |       | 4 Years |  
|                                      |  |                        |        |                |        |   |       |       |  |       |         |  
|                                      |  |                        |        | (In thousands) |        |   |      
|Operating Leases                      |  | $                      | 11,795 |                |        | $ | 4,663 |       |  | $     | 7,128   |   |  | $ | 4 | 
|Unconditional Purchase Obligations(1) |  |                        | 2,339  |                |        |   | 2,339 |       |  |       |        |   |  |   |  | 
|                                      |  |                        |        |                |        |   |       |       |  |       |         |  
|                                      |  |                        | 14,134 |                |        |   | 7,002 |       |  |       | 7,128   |   |  |   | 4 | 
|Less: Sublease income                 |  |                        | (736   | )              |        |   | (375  | )     |  |       | (361    | ) |  |   |  | 
|                                      |  |                        |        |                |        |   |       |       |  |       |         |  
|Total                                 |  | $                      | 13,398 |                |        | $ | 6,627 |       |  | $     | 6,767   |   |  | $ | 4 | 
|                                      |  |                        |        |                |        |   |       |       |  |       |         |  

46



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|    |                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.



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

S-K.


Recent Accounting Pronouncements


Inventory Costs, an amendment of
ARB No. 43, Chapter 4.


Exchanges of Nonmonetary
Assets  An Amendment of APB Opinion No. 29,
Accounting for Nonmonetary Transactions.


Share-Based Payment,


Share-Based Payments




47



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Stock-Based Compensation









Item 7A.Quantitative
and Qualitative Disclosures About Market Risk


Interest Rate Risk.




|                       |              |      |        |     |      |   |        |       |   |   |            |     |   |   |        |  | 
|---------------------- | ------------ | ---- | ------ | --- | ---- | - | ------ | ----- | - | - | ---------- | --- | - | - | ------ |  | 
|                       |              | 2006 |        |     | 2007 |   |        | Total |   |   | Fair Value |    
|                       |              |      |        |     |      |   |        |       |   |   |            |    
|Cash equivalents       |              | $    | 27,659 |     |      |   |       |       |   | $ | 27,659     |     |   | $ | 27,659 | 
|                       | Average rate |      |        | 3.6 | %    |   |        |      |   |   |            | 3.6 | % |   |        |  | 
|Short term investments |              | $    | 19,000 |     |      | $ | 10,000 |       |   | $ | 29,000     |     |   | $ | 28,811 | 
|                       | Average rate |      |        | 2.9 | %    |   |        | 4.2   | % |   |            | 3.3 | % |   |        |  | 

Foreign Currency Exchange Risk.


48



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

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




|                                                                                      |  |      |    | 
|------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                      |  | Page |   
|                                                                                      |  |      |   
|Report of Burr, Pilger & Mayer
    LLP, Independent Registered Public Accounting Firm |  |      | 50 | 
|Report of Ernst & Young LLP,
    Independent Registered Public Accounting Firm        |  |      | 51 | 
|Consolidated Balance Sheets                                                           |  |      | 52 | 
|Consolidated Statements of Operations                                                 |  |      | 53 | 
|Consolidated Statements of
    Stockholders Equity                                   |  |      | 54 | 
|Consolidated Statements of Cash Flows                                                 |  |      | 55 | 
|Notes to Consolidated Financial
    Statements                                        |  |      | 56 | 

49



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM












Internal Control 
Integrated Framework




|                             | 
|---------------------------- | 
|/s/ Burr, Pilger & Mayer LLP | 





50



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Report of Independent Registered Public Accounting Firm
















| |                      
| | ---------------------
| | /s/ Ernst & Young LLP





51



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TRANSMETA CORPORATION





CONSOLIDATED BALANCE SHEETS


|                                                              |                                                                                                                                                                                  |                                            |          |         |        |  |          |         |        | 
|------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------- | ------- | ------ |  | -------- | ------- | ------ | 
|                                                              |                                                                                                                                                                                  | December 31,                               |         
|                                                              |                                                                                                                                                                                  |                                            |         
|                                                              |                                                                                                                                                                                  | 2005                                       |          |         | 2004   | 
|                                                              |                                                                                                                                                                                  |                                            |          |         |        | 
|                                                              |                                                                                                                                                                                  | (In thousands)                             |         
|ASSETS                                                       
|Current assets:                                               |                                                                                                                                                                                  |                                            |          |         |        |  |          |        
|                                                              | Cash and cash equivalents                                                                                                                                                        |                                            | $        | 27,659  |        |  | $        | 17,273  |       
|                                                              | Short-term investments                                                                                                                                                           |                                            |          | 28,811  |        |  |          | 36,395  |       
|                                                              | Accounts receivable, net of allowances for doubtful accounts of
    $0 and $9, in 2005 and 2004, respectively                                                                    |                                            |          | 1,686   |        |  |          | 2,290   |       
|                                                              | Inventories                                                                                                                                                                      |                                            |          | 265     |        |  |          | 5,410   |       
|                                                              | Prepaid expenses and other current assets                                                                                                                                        |                                            |          | 2,279   |        |  |          | 2,218   |       
|                                                              |                                                                                                                                                                                  |                                            |          |         |        | 
|                                                              |                                                                                                                                                                                  | Total current assets                       |          |         | 60,700 |  |          |         | 63,586 | 
|Property and equipment, net                                   |                                                                                                                                                                                  |                                            | 1,623    |         |        |  | 2,187    |        
|Patents and patent rights, net                                |                                                                                                                                                                                  |                                            | 16,080   |         |        |  | 22,926   |        
|Other assets                                                  |                                                                                                                                                                                  |                                            | 911      |         |        |  | 914      |        
|                                                              |                                                                                                                                                                                  |                                            |          |         |        | 
|                                                              |                                                                                                                                                                                  | Total assets                               |          | $       | 79,314 |  |          | $       | 89,613 | 
|                                                              |                                                                                                                                                                                  |                                            |          |         |        | 
|LIABILITIES AND STOCKHOLDERS EQUITY                         
|Current liabilities:                                          |                                                                                                                                                                                  |                                            |          |         |        |  |          |        
|                                                              | Accounts payable                                                                                                                                                                 |                                            | $        | 1,521   |        |  | $        | 6,224   |       
|                                                              | Accrued compensation and related compensation liabilities                                                                                                                        |                                            |          | 3,279   |        |  |          | 4,189   |       
|                                                              | Accrued inventory-related charges                                                                                                                                                |                                            |          |        |        |  |          | 4,876   |       
|                                                              | Deferred income, net                                                                                                                                                             |                                            |          | 5,937   |        |  |          | 29      |       
|                                                              | Other accrued liabilities                                                                                                                                                        |                                            |          | 2,109   |        |  |          | 5,694   |       
|                                                              | Advance from customers                                                                                                                                                           |                                            |          | 7,260   |        |  |          |        |       
|                                                              | Current portion of accrued restructuring costs                                                                                                                                   |                                            |          | 1,803   |        |  |          | 1,557   |       
|                                                              | Current portion of long-term debt and capital lease obligations                                                                                                                  |                                            |          |        |        |  |          | 356     |       
|                                                              |                                                                                                                                                                                  |                                            |          |         |        | 
|                                                              |                                                                                                                                                                                  | Total current liabilities                  |          |         | 21,909 |  |          |         | 22,925 | 
|Long-term accrued restructuring costs, net of current portion |                                                                                                                                                                                  |                                            | 2,453    |         |        |  | 3,688    |        
|Long-term payables, net of current portion                    |                                                                                                                                                                                  |                                            |         |         |        |  | 5,000    |        
|                                                              |                                                                                                                                                                                  |                                            |          |         |        | 
|                                                              |                                                                                                                                                                                  | Total liabilities                          |          |         | 24,362 |  |          |         | 31,613 | 
|                                                              |                                                                                                                                                                                  |                                            |          |         |        | 
|Commitments and contingencies                                 |                                                                                                                                                                                  |                                            |          |         |        |  |          |        
|Stockholders equity:                                         |                                                                                                                                                                                  |                                            |          |         |        |  |          |        
|                                                              | Convertible preferred stock, $0.00001 par value, at amounts
    paid in; Authorized shares  5,000,000. None issued in
    2005 and 2004                                         |                                            |          |        |        |  |          |        |       
|                                                              | Common stock, $0.00001 par value, at amounts paid in;
    Authorized shares  1,000,000,000. Issued and
    outstanding shares  191,710,620 in 2005 and
    187,773,293 in 2004 |                                            |          | 713,129 |        |  |          | 709,926 |       
|Treasury stock  796,875 shares in 2005 and 2004              |                                                                                                                                                                                  |                                            | (2,439   | )       |        |  | (2,439   | )      
|Accumulated other comprehensive loss                          |                                                                                                                                                                                  |                                            | (195     | )       |        |  | (125     | )      
|Accumulated deficit                                           |                                                                                                                                                                                  |                                            | (655,543 | )       |        |  | (649,362 | )      
|                                                              |                                                                                                                                                                                  |                                            |          |         |        | 
|                                                              |                                                                                                                                                                                  | Total stockholders equity                 |          |         | 54,952 |  |          |         | 58,000 | 
|                                                              |                                                                                                                                                                                  |                                            |          |         |        | 
|                                                              |                                                                                                                                                                                  | Total liabilities and stockholders equity |          | $       | 79,314 |  |          | $       | 89,613 | 
|                                                              |                                                                                                                                                                                  |                                            |          |         |        | 



52



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TRANSMETA CORPORATION





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                        |                                                  |                                           |         |        |        |   |          |        |        |   |         |        |        | 
|------------------------------------------------------- | ------------------------------------------------ | ----------------------------------------- | ------- | ------ | ------ | - | -------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                                        |                                                  | Years Ended December 31,                  |        
|                                                        |                                                  |                                           |        
|                                                        |                                                  | 2005                                      |         |        | 2004   |   |          | 2003   |       
|                                                        |                                                  |                                           |         |        |        |   |          |        |       
|                                                        |                                                  | (In thousands, except for per share data) |        
|Revenue:                                                |                                                  |                                           |         |        |        |   |          |        |        |   |         |       
|                                                        | Product                                          |                                           | $       | 24,636 |        |   | $        | 18,776 |        |   | $       | 16,225 |       
|                                                        | License                                          |                                           |         | 19,628 |        |   |          | 9,000  |        |   |         | 1,090  |       
|                                                        | Service                                          |                                           |         | 28,467 |        |   |          | 1,668  |        |   |         |       |       
|                                                        |                                                  |                                           |         |        |        |   |          |        |       
|                                                        |                                                  | Total revenue                             |         |        | 72,731 |   |          |        | 29,444 |   |         |        | 17,315 | 
|                                                        |                                                  |                                           |         |        |        |   |          |        |       
|Cost of revenue:                                        |                                                  |                                           |         |        |        |   |          |        |        |   |         |       
|                                                        | Product                                          |                                           |         | 12,271 |        |   |          | 36,335 |        |   |         | 16,324 |       
|                                                        | License                                          |                                           |         | 71     |        |   |          |       |        |   |         |       |       
|                                                        | Service                                          |                                           |         | 15,990 |        |   |          | 730    |        |   |         |       |       
|                                                        | Impairment charge on long-lived assets           |                                           |         |       |        |   |          | 1,943  |        |   |         |       |       
|                                                        |                                                  |                                           |         |        |        |   |          |        |       
|                                                        |                                                  | Total cost of revenue                     |         |        | 28,332 |   |          |        | 39,008 |   |         |        | 16,324 | 
|                                                        |                                                  |                                           |         |        |        |   |          |        |       
|Gross profit (loss)                                     |                                                  |                                           | 44,399  |        |        |   | (9,564   | )      |        |   | 991     |       
|                                                        |                                                  |                                           |         |        |        |   |          |        |       
|Operating expenses:                                     |                                                  |                                           |         |        |        |   |          |        |        |   |         |       
|                                                        | Research and development(1)(2)                   |                                           |         | 19,609 |        |   |          | 52,765 |        |   |         | 48,525 |       
|                                                        | Selling, general and administrative(3)(4)        |                                           |         | 23,039 |        |   |          | 30,855 |        |   |         | 26,199 |       
|                                                        | Restructuring charges (recovery)                 |                                           |         | 2,009  |        |   |          | 904    |        |   |         | (244   | )     
|                                                        | Amortization of patents and patent rights        |                                           |         | 6,846  |        |   |          | 9,217  |        |   |         | 10,530 |       
|                                                        | Impairment charge on long-lived and other assets |                                           |         |       |        |   |          | 2,544  |        |   |         |       |       
|                                                        | Stock compensation                               |                                           |         | (34    | )      |   |          | 1,665  |        |   |         | 4,529  |       
|                                                        |                                                  |                                           |         |        |        |   |          |        |       
|                                                        |                                                  | Total operating expenses                  |         |        | 51,469 |   |          |        | 97,950 |   |         |        | 89,539 | 
|                                                        |                                                  |                                           |         |        |        |   |          |        |       
|Operating loss                                          |                                                  |                                           | (7,070  | )      |        |   | (107,514 | )      |        |   | (88,548 | )     
|                                                        | Interest income and other, net                   |                                           |         | 1,253  |        |   |          | 827    |        |   |         | 1,389  |       
|                                                        | Interest expense                                 |                                           |         | (364   | )      |   |          | (111   | )      |   |         | (477   | )     
|                                                        |                                                  |                                           |         |        |        |   |          |        |       
|Net loss                                                |                                                  | $                                         | (6,181  | )      |        | $ | (106,798 | )      |        | $ | (87,636 | )     
|                                                        |                                                  |                                           |         |        |        |   |          |        |       
|Net loss per share  basic and diluted                  |                                                  | $                                         | (0.03   | )      |        | $ | (0.61    | )      |        | $ | (0.63   | )     
|                                                        |                                                  |                                           |         |        |        |   |          |        |       
|Weighted average shares outstanding  basic and diluted |                                                  |                                           | 190,404 |        |        |   | 175,989  |        |        |   | 139,692 |       
|                                                        |                                                  |                                           |         |        |        |   |          |        |       






|    |                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes $0, $445 and $1,118 in amortization of deferred stock
    compensation for the year ended December 31, 2005, 2004 and
    2003, respectively.
|   
|(2) | Excludes $(34), $330, and $128 in variable stock compensation
    for the year ended December 31, 2005, 2004 and 2003,
    respectively.              
|   
|(3) | Excludes $0, $232 and $657 in amortization of deferred stock
    compensation for the year ended December 31, 2005, 2004 and
    2003, respectively.  
|   
|(4) | Excludes $0, $658 and $2,626 in variable stock compensation for
    the year ended December 31, 2005, 2004 and 2003,
    respectively.                



53



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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, 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 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 loss                                                                                                                                                                                                            |  |                                                     |             |              |            |   |         |          |          |             |              |       |  |               |        |   |             |   |      |               |  |   |          |   |  |   | (106,947 | )
|                                                                                                                                                                                                                              |  |                                                     |             |              |            |   |         |          |          |             |              |       |  |               |        |   |             |   |      |               | 
|Balance at December 31, 2004                                                                                                                                                                                                  |  |                                                     | 187,773,293 |              |            | $ | 709,926 |          |          | $           | (2,439       | )     |  | $             |       |   |             | $ | (125 | )             |  | $ | (649,362 | ) |  | $ | 58,000   |  
|Issuance of shares of common stock to employees under option
    exercises and employee stock purchase plan, net of repurchases                                                                                               |  |                                                     | 3,937,327   |              |            |   | 3,237   |          |          |             |             |       |  |               |       |   |             |   |     |               |  |   |         |   |  |   | 3,237    |  
|Variable stock compensation                                                                                                                                                                                                   |  |                                                     |            |              |            |   | (34     | )        |          |             |             |       |  |               |       |   |             |   |     |               |  |   |         |   |  |   | (34      | )
|Other comprehensive income                                                                                                                                                                                                    |  |                                                     |            |              |            |   |        |          |          |             |             |       |  |               |       |   |             |   | (70  | )             |  |   |         |   |  |   | (70      | )
|Net loss                                                                                                                                                                                                                      |  |                                                     |            |              |            |   |        |          |          |             |             |       |  |               |       |   |             |   |     |               |  |   | (6,181   | ) |  |   | (6,181   | )
|                                                                                                                                                                                                                              |  |                                                     |             |              |            |   |         |          |          |             |              |       |  |               |        |   |             |   |      |               | 
|Comprehensive loss                                                                                                                                                                                                            |  |                                                     |             |              |            |   |         |          |          |             |              |       |  |               |        |   |             |   |      |               |  |   |          |   |  |   | (6,251   | )
|                                                                                                                                                                                                                              |  |                                                     |             |              |            |   |         |          |          |             |              |       |  |               |        |   |             |   |      |               | 
|Balance at December 31, 2005                                                                                                                                                                                                  |  |                                                     | 191,710,620 |              |            | $ | 713,129 |          |          | $           | (2,439       | )     |  | $             |       |   |             | $ | (195 | )             |  | $ | (655,543 | ) |  | $ | 54,952   |  
|                                                                                                                                                                                                                              |  |                                                     |             |              |            |   |         |          |          |             |              |       |  |               |        |   |             |   |      |               | 



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TRANSMETA CORPORATION





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                            |                                                                                               |                                                            |        |         |         |   |          |         |        |   |         |          |        |  
|--------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ------ | ------- | ------- | - | -------- | ------- | ------ | - | ------- | -------- | ------ | -
|                                                                            |                                                                                               | Years Ended December 31,                                   |       
|                                                                            |                                                                                               |                                                            |       
|                                                                            |                                                                                               | 2005                                                       |        |         | 2004    |   |          | 2003    |       
|                                                                            |                                                                                               |                                                            |        |         |         |   |          |         |       
|                                                                            |                                                                                               | (In thousands)                                             |       
|Cash flows from operating activities:                                       |                                                                                               |                                                            |        |         |         |   |          |         |        |   |         |         
|Net loss                                                                    |                                                                                               | $                                                          | (6,181 | )       |         | $ | (106,798 | )       |        | $ | (87,636 | )       
|                                                                            | Adjustments to reconcile net loss to net cash provided by (used
    in) operating activities: |                                                            |        |         |         |   |          |         |        |   |         |          |       
|                                                                            |                                                                                               | Stock compensation                                         |        |         | (34     | ) |          |         | 1,665  |   |         |          | 4,529  |  
|                                                                            |                                                                                               | Depreciation                                               |        |         | 1,299   |   |          |         | 3,639  |   |         |          | 5,586  |  
|                                                                            |                                                                                               | Loss on disposal of property and equipment, net            |        |         | 65      |   |          |         |       |   |         |          | 138    |  
|                                                                            |                                                                                               | Allowance for doubtful accounts                            |        |         | (9      | ) |          |         | (206   | ) |         |          | 125    |  
|                                                                            |                                                                                               | Amortization of other assets                               |        |         |        |   |          |         |       |   |         |          | 413    |  
|                                                                            |                                                                                               | Amortization of patents and patent rights                  |        |         | 6,846   |   |          |         | 9,217  |   |         |          | 10,530 |  
|                                                                            |                                                                                               | 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)                  |        |         | 2,009   |   |          |         | 904    |   |         |          | (244   | )
|                                                                            |                                                                                               | Gain on debt settlement with a development partner         |        |         | (200    | ) |          |         |       |   |         |          |       |  
|                                                                            | Changes in operating assets and liabilities:                                                  |                                                            |        |         |         |   |          |         |        |   |         |          |       
|                                                                            |                                                                                               | Accounts receivable                                        |        |         | 613     |   |          |         | (365   | ) |         |          | 2,216  |  
|                                                                            |                                                                                               | Inventories                                                |        |         | 5,145   |   |          |         | 3,386  |   |         |          | 2,141  |  
|                                                                            |                                                                                               | Prepaid expenses and other current assets                  |        |         | (61     | ) |          |         | (649   | ) |         |          | 1,122  |  
|                                                                            |                                                                                               | Other non-current assets                                   |        |         |        |   |          |         |       |   |         |          | 101    |  
|                                                                            |                                                                                               | Accounts payable and accrued liabilities                   |        |         | (14,074 | ) |          |         | 8,763  |   |         |          | (1,015 | )
|                                                                            |                                                                                               | Deferred income                                            |        |         | 5,908   |   |          |         |       |   |         |          |       |  
|                                                                            |                                                                                               | Advances from customers                                    |        |         | 7,260   |   |          |         |       |   |         |          |       |  
|                                                                            |                                                                                               | Accrued restructuring charges                              |        |         | (2,998  | ) |          |         | (1,730 | ) |         |          | (2,473 | )
|                                                                            |                                                                                               |                                                            |        |         |         |   |          |         |       
|Net cash provided by (used) in operating activities                         |                                                                                               |                                                            | 5,588  |         |         |   | (77,687  | )       |        |   | (64,467 | )       
|                                                                            |                                                                                               |                                                            |        |         |         |   |          |         |       
|Cash flows from investing activities:                                       |                                                                                               |                                                            |        |         |         |   |          |         |        |   |         |         
|                                                                            | Purchase of available-for-sale investments                                                    |                                                            |        | (26,000 | )       |   |          | (74,994 | )      |   |         | (102,775 | )     
|                                                                            | Proceeds from maturity of available-for-sale investments                                      |                                                            |        | 33,514  |         |   |          | 84,450  |        |   |         | 169,502  |       
|                                                                            | Purchase of property and equipment                                                            |                                                            |        | (797    | )       |   |          | (2,257  | )      |   |         | (1,112   | )     
|                                                                            | Payment to development partner                                                                |                                                            |        | (4,800  | )       |   |          | (11,000 | )      |   |         | (7,000   | )     
|                                                                            | Payment of previously acquired patents and patent rights                                      |                                                            |        |        |         |   |          | (7,500  | )      |   |         | (9,000   | )     
|                                                                            | Other assets                                                                                  |                                                            |        |        |         |   |          |        |        |   |         | (59      | )     
|                                                                            |                                                                                               |                                                            |        |         |         |   |          |         |       
|Net cash provided by(used in) investing activities                          |                                                                                               |                                                            | 1,917  |         |         |   | (11,301  | )       |        |   | 49,556  |         
|                                                                            |                                                                                               |                                                            |        |         |         |   |          |         |       
|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         |                                                            |        | 3,219   |         |   |          | 5,277   |        |   |         | 6,136    |       
|                                                                            | Repayment of notes from stockholders                                                          |                                                            |        | 18      |         |   |          | 857     |        |   |         | 202      |       
|                                                                            | Repayment of debt and capital lease obligations                                               |                                                            |        | (356    | )       |   |          | (368    | )      |   |         | (725     | )     
|                                                                            |                                                                                               |                                                            |        |         |         |   |          |         |       
|Net cash provided by financing activities                                   |                                                                                               |                                                            | 2,881  |         |         |   | 31,496   |         |        |   | 73,063  |         
|                                                                            |                                                                                               |                                                            |        |         |         |   |          |         |       
|Change in cash and cash equivalents                                         |                                                                                               |                                                            | 10,386 |         |         |   | (57,492  | )       |        |   | 58,152  |         
|Cash and cash equivalents at beginning of period                            |                                                                                               |                                                            | 17,273 |         |         |   | 74,765   |         |        |   | 16,613  |         
|                                                                            |                                                                                               |                                                            |        |         |         |   |          |         |       
|Cash and cash equivalents at end of period                                  |                                                                                               | $                                                          | 27,659 |         |         | $ | 17,273   |         |        | $ | 74,765  |         
|                                                                            |                                                                                               |                                                            |        |         |         |   |          |         |       
|Supplemental disclosure of cash paid during the period:                     |                                                                                               |                                                            |        |         |         |   |          |         |        |   |         |         
|                                                                            | Cash paid for interest                                                                        |                                                            | $      | 302     |         |   | $        | 47      |        |   | $       | 75       |       
|                                                                            | Cash paid for taxes                                                                           |                                                            |        | 145     |         |   |          | 152     |        |   |         | 96       |       
|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








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



13a-10 15d-10




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



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





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



56



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##### Table of Contents



TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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





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





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



00-21,




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





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



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                       |  |                          |        |   |      |   |          |      |  |   |         |  
|------------------------------------------------------ |  | ------------------------ | ------ | - | ---- | - | -------- | ---- |  | - | ------- | -
|                                                       |  | Years Ended December 31, |       
|                                                       |  |                          |       
|                                                       |  | 2005                     |        |   | 2004 |   |          | 2003 | 
|                                                       |  |                          |        |   |      |   |          |      | 
|                                                       |  | (In thousands)           |       
|Net loss                                               |  | $                        | (6,181 | ) |      | $ | (106,798 | )    |  | $ | (87,636 | )
|Net change in unrealized loss on investments           |  |                          | (15    | ) |      |   | (173     | )    |  |   | (134    | )
|Net change in foreign currency translation adjustments |  |                          | (55    | ) |      |   | 24       |      |  |   | 24      |  
|                                                       |  |                          |        |   |      |   |          |      | 
|Net comprehensive loss                                 |  | $                        | (6,251 | ) |      | $ | (106,947 | )    |  | $ | (87,746 | )
|                                                       |  |                          |        |   |      |   |          |      | 



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









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







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



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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

(first-in,






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





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





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





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





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



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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







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





|                                       |                                                                                    |                                          |       |         |      |   |       |          |   |   |       |         |  
|-------------------------------------- | ---------------------------------------------------------------------------------- | ---------------------------------------- | ----- | ------- | ---- | - | ----- | -------- | - | - | ----- | ------- | -
|                                       |                                                                                    | Years Ended December 31,                 |      
|                                       |                                                                                    |                                          |      
|                                       |                                                                                    | 2005                                     |       |         | 2004 |   |       | 2003     |  
|                                       |                                                                                    |                                          |       |         |      |   |       |          |  
|                                       |                                                                                    | (In thousands, except per share amounts) |      
|Basic and diluted:                     |                                                                                    |                                          |       |         |      |   |       |          |   |   |       |        
|                                       | Net loss                                                                           |                                          | $     | (6,181  | )    |   | $     | (106,798 | ) |   | $     | (87,636 | )
|                                       |                                                                                    |                                          |       |         |      |   |       |          |  
|Basic and diluted:                     |                                                                                    |                                          |       |         |      |   |       |          |   |   |       |        
|                                       | Weighted average shares outstanding                                                |                                          |       | 190,404 |      |   |       | 175,989  |   |   |       | 139,698 |  
|                                       | Less: Weighted average shares subject to repurchase                                |                                          |       |        |      |   |       |         |   |   |       | (6      | )
|                                       |                                                                                    |                                          |       |         |      |   |       |          |  
|                                       | Weighted average shares used in computing basic and diluted net
    loss per share |                                          |       | 190,404 |      |   |       | 175,989  |   |   |       | 139,692 |  
|                                       |                                                                                    |                                          |       |         |      |   |       |          |  
|Net loss per share  basic and diluted |                                                                                    | $                                        | (0.03 | )       |      | $ | (0.61 | )        |   | $ | (0.63 | )      
|                                       |                                                                                    |                                          |       |         |      |   |       |          |  





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



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                                                                                                                   |  |                                       |         |   |      |   |          |      |  |   |          |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                                                                   |  | Years Ended December 31,              |        
|                                                                                                                                   |  |                                       |        
|                                                                                                                                   |  | 2005                                  |         |   | 2004 |   |          | 2003 | 
|                                                                                                                                   |  |                                       |         |   |      |   |          |      | 
|                                                                                                                                   |  | (In thousands, except per share data) |        
|Net loss, as reported                                                                                                              |  | $                                     | (6,181  | ) |      | $ | (106,798 | )    |  | $ | (87,636  | )
|Add: Stock-based employee compensation expense included in
    reported net loss, net of related tax effects                       |  |                                       | (34     | ) |      |   | 1,665    |      |  |   | 4,529    |  
|Less: Total stock-based employee compensation expense under fair
    value based method for all awards, net of related tax effects |  |                                       | (11,566 | ) |      |   | (34,756  | )    |  |   | (46,462  | )
|                                                                                                                                   |  |                                       |         |   |      |   |          |      | 
|Pro forma net loss                                                                                                                 |  | $                                     | (17,781 | ) |      | $ | (139,889 | )    |  | $ | (129,569 | )
|                                                                                                                                   |  |                                       |         |   |      |   |          |      | 
|Basic and diluted net loss per share  as reported                                                                                 |  | $                                     | (0.03   | ) |      | $ | (0.61    | )    |  | $ | (0.63    | )
|                                                                                                                                   |  |                                       |         |   |      |   |          |      | 
|Basic and diluted net loss per share  pro forma                                                                                   |  | $                                     | (0.09   | ) |      | $ | (0.79    | )    |  | $ | (0.93    | )
|                                                                                                                                   |  |                                       |         |   |      |   |          |      | 









Stock-Based Compensation


61



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                            
| | ---------------------------
| | Accrued Restructuring Costs





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





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

10-K 10-Q




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

Inventory Costs, an amendment of
ARB No. 43, Chapter 4.


Exchanges of Nonmonetary
Assets  An Amendment of APB Opinion No. 29,
Accounting for Nonmonetary Transactions.


62



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##### Table of Contents



TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Share-Based Payment,


Share-Based Payments.


Accounting for Stock-Based Compensation Accounting for Stock-Based Compensation




115-1 124-1, Other-Than 115-1), other-than 115-1 other-than other-than 115-1 115-1


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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, 2005: |                                             |                |   |        |            |  |       |            |  |  |            |     |  |  |   |        
|                         | Money market funds                          |                | $ | 27,659 |            |  | $     |           |  |  | $          |    |  |  | $ | 27,659  |  
|                         | Federal agency discount notes               |                |   | 25,000 |            |  |       |           |  |  |            | 189 |  |  |   | 24,811  |  
|                         | Commercial paper                            |                |   | 4,000  |            |  |       |           |  |  |            |    |  |  |   | 4,000   |  
|                         |                                             |                |   |        |            |  |       |            |  |  |            |    
|                         | Total available-for-sale securities         |                | $ | 56,659 |            |  | $     |           |  |  | $          | 189 |  |  | $ | 56,470  |  
|                         |                                             |                |   |        |            |  |       |            |  |  |            |    
|                         | Less amounts classified as cash equivalents |                |   |        |            |  |       |            |  |  |            |     |  |  |   | (27,659 | )
|                         |                                             |                |   |        |            |  |       |            |  |  |            |    
|                         | Total short-term investments                |                |   |        |            |  |       |            |  |  |            |     |  |  | $ | 28,811  |  
|                         |                                             |                |   |        |            |  |       |            |  |  |            |    
|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  |  
|                         |                                             |                |   |        |            |  |       |            |  |  |            |    



|                         |                                                    |                |   |        |       |  |   |        | 
|------------------------ | -------------------------------------------------- | -------------- | - | ------ | ----- |  | - | ------ | 
|                         |                                                    | Amortized      |   |        | Fair  | 
|                         |                                                    | Cost           |   |        | Value | 
|                         |                                                    |                |   |        |       | 
|                         |                                                    | (In thousands) |  
|As of December 31, 2005: |                                                    |                |   |        |       |  |   |       
|                         | Amounts maturing within one year                   |                | $ | 19,000 |       |  | $ | 18,892 | 
|                         | Amounts maturing after one year, within five years |                | $ | 10,000 |       |  | $ | 9,919  | 









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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                        |                                   |                  |   |        |                  |  |   |                        |       |  |            |       |  |       |   |     |            |  |   |        |  |  |   |      |  
|----------------------- | --------------------------------- | ---------------- | - | ------ | ---------------- |  | - | ---------------------- | ----- |  | ---------- | ----- |  | ----- | - | --- | ---------- |  | - | ------ |  |  | - | ---- | -
|                        |                                   | In Loss Position |   |        | In Loss Position |  |   |                       
|                        |                                   | <12 Months       |   |        | >12 Months       |  |   | Total in Loss Position |      
|                        |                                   |                  |   |        |                  |  |   |                        |      
|                        |                                   |                  |   | Gross  |                  |  |   |                        | Gross |  |            |       |  | Gross |  
|                        |                                   | Fair             |   |        | Unrealized       |  |   | Fair                   |       |  | Unrealized |       |  | Fair  |   |     | Unrealized | 
|                        |                                   | Value            |   |        | (Loss)           |  |   | Value                  |       |  | (Loss)     |       |  | Value |   |     | (Loss)     | 
|                        |                                   |                  |   |        |                  |  |   |                        |       |  |            |       |  |       |   |     |            | 
|Short-term investments: |                                   |                  |   |        |                  |  |   |                        |       |  |            |       |  |       |   |     |            |  |   |        |  |  |   |     
|                        | US Treasury and agency securities |                  | $ | 14,892 |                  |  | $ | (108                   | )     |  | $          | 9,919 |  |       | $ | (81 | )          |  | $ | 24,811 |  |  | $ | (189 | )
|                        | Commercial paper                  |                  |   |       |                  |  |   |                       |       |  |            |      |  |       |   |    |            |  |   | 4,000  |  |  |   |     |  
|                        |                                   |                  |   |        |                  |  |   |                        |       |  |            |       |  |       |   |     |            | 
|                        | Total in loss position            |                  | $ | 14,892 |                  |  | $ | (108                   | )     |  | $          | 9,919 |  |       | $ | (81 | )          |  | $ | 28,811 |  |  | $ | (189 | )
|                        |                                   |                  |   |        |                  |  |   |                        |       |  |            |       |  |       |   |     |            | 



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



|          |                                       |              |  |     |      |  |  |     | 
|--------- | ------------------------------------- | ------------ |  | --- | ---- |  |  | --- | 
|          |                                       | December 31, | 
|          |                                       |              | 
|          |                                       | 2005         |  |     | 2004 | 
|          |                                       |              |  |     |      | 
|Customer: |                                       |              |  |     |      |  |  |    
|          | 3COM Corporation                      |              |  | 27% |      |  |  | *%  | 
|          | OQO, Inc.                             |              |  | 14% |      |  |  | *%  | 
|          | All American                          |              |  | 12% |      |  |  | *%  | 
|          | ASEM S.p.A                            |              |  | 11% |      |  |  | *%  | 
|          | Microsoft Corporation                 |              |  | 12% |      |  |  | *%  | 
|          | Sony Corporation                      |              |  | 11% |      |  |  | *%  | 
|          | Hewlett Packard International Pte Ltd |              |  | *%  |      |  |  | 31% | 
|          | Siltrontech Electronics Corporation   |              |  | *%  |      |  |  | 28% | 
|          | Sharp Trading Corporation             |              |  | *%  |      |  |  | 16% | 






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



65



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##### Table of Contents



TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



|                 |  |                |     |  |      |   |       | 
|---------------- |  | -------------- | --- |  | ---- | - | ----- | 
|                 |  | December 31,   |    
|                 |  |                |    
|                 |  | 2005           |     |  | 2004 |  
|                 |  |                |     |  |      |  
|                 |  | (In thousands) |    
|Work in progress |  | $              |    |  |      | $ | 4,158 | 
|Finished goods   |  |                | 265 |  |      |   | 1,252 | 
|                 |  |                |     |  |      |  
|                 |  | $              | 265 |  |      | $ | 5,410 | 
|                 |  |                |     |  |      |  







66



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##### Table of Contents



TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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



|                                                |                             |                |         |       |      |   |         |       | 
|----------------------------------------------- | --------------------------- | -------------- | ------- | ----- | ---- | - | ------- | ----- | 
|                                                |                             | December 31,   |        
|                                                |                             |                |        
|                                                |                             | 2005           |         |       | 2004 |  
|                                                |                             |                |         |       |      |  
|                                                |                             | (In thousands) |        
|Furniture and fixtures                          |                             | $              | 1,635   |       |      | $ | 2,019   |      
|Computer equipment                              |                             |                | 5,911   |       |      |   | 23,534  |      
|Computer software                               |                             |                | 1,825   |       |      |   | 11,359  |      
|Leasehold improvements                          |                             |                | 2,410   |       |      |   | 2,899   |      
|                                                |                             |                |         |       |      |  
|                                                |                             |                | 11,781  |       |      |   | 39,811  |      
|Less: Accumulated depreciation and amortization |                             |                | (10,158 | )     |      |   | (35,888 | )    
|Less: Impairment charge                         |                             |                |        |       |      |   | (1,736  | )    
|                                                |                             |                |         |       |      |  
|                                                | Property and equipment, net |                | $       | 1,623 |      |   | $       | 2,187 | 
|                                                |                             |                |         |       |      |  







| |                
| | ---------------
| | Deferred Income



|                  |  |                |       |  |      |   |    | 
|----------------- |  | -------------- | ----- |  | ---- | - | -- | 
|                  |  | December 31,   |      
|                  |  |                |      
|                  |  | 2005           |       |  | 2004 |  
|                  |  |                |       |  |      |  
|                  |  | (In thousands) |      
|Deferred revenue: |  |                |       |  |      |   |    | 
|Product           |  | $              | 619   |  |      | $ | 61 | 
|Service           |  |                | 8,934 |  |      |   |   | 
|                  |  |                |       |  |      |  
|Total             |  |                | 9,553 |  |      |   | 61 | 
|                  |  |                |       |  |      |  
|Deferred costs:   |  |                |       |  |      |   |    | 
|Product           |  |                | 54    |  |      |   | 32 | 
|Service           |  |                | 3,562 |  |      |   |   | 
|                  |  |                |       |  |      |  
|Total             |  |                | 3,616 |  |      |   | 32 | 
|                  |  |                |       |  |      |  
|Deferred income   |  | $              | 5,937 |  |      | $ | 29 | 
|                  |  |                |       |  |      |  

67



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##### Table of Contents



TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                          
| | -------------------------
| | Other accrued liabilities



|                                  |  |                |       |  |      |   |       | 
|--------------------------------- |  | -------------- | ----- |  | ---- | - | ----- | 
|                                  |  | December 31,   |      
|                                  |  |                |      
|                                  |  | 2005           |       |  | 2004 |  
|                                  |  |                |       |  |      |  
|                                  |  | (In thousands) |      
|Accrued audit                     |  | $              | 885   |  |      | $ | 1,337 | 
|Accrued non-recurring engineering |  |                |      |  |      |   | 1,629 | 
|Deferred rent                     |  |                | 408   |  |      |   | 412   | 
|Other                             |  |                | 816   |  |      |   | 2,316 | 
|                                  |  |                |       |  |      |  
|Total other accrued liabilities   |  | $              | 2,109 |  |      | $ | 5,694 | 
|                                  |  |                |       |  |      |  



| |                        
| | -----------------------
| | Advances from Customers





|   |                                     
|-- | ------------------------------------
|4. | License Revenue and Cost of License.

00-21,






|   |                
|-- | ---------------
|5. | Service revenue



Maintenance and Technical Support Services Revenue.


68



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##### Table of Contents



TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Fixed Fee Development Service Revenue and Cost of
Services.


Time and Materials Based Design Service Revenue.




|   |                              
|-- | -----------------------------
|6. | Technology License Agreements







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##### Table of Contents



TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                          
|-- | -------------------------
|7. | Patents and Patent Rights



|                               |                                |                |         |        |      |   |         |        | 
|------------------------------ | ------------------------------ | -------------- | ------- | ------ | ---- | - | ------- | ------ | 
|                               |                                | December 31,   |        
|                               |                                |                |        
|                               |                                | 2005           |         |        | 2004 |  
|                               |                                |                |         |        |      |  
|                               |                                | (In thousands) |        
|Patents and patent rights      |                                | $              | 47,920  |        |      | $ | 47,920  |       
|Less: Accumulated amortization |                                |                | (31,840 | )      |      |   | (24,994 | )     
|                               |                                |                |         |        |      |  
|                               | Patents and patent rights, net |                | $       | 16,080 |      |   | $       | 22,926 | 
|                               |                                |                |         |        |      |  







|                          |      |                           |   |       |        | 
|------------------------- | ---- | ------------------------- | - | ----- | ------ | 
|                          |      | (In thousands)            |  
|Years ending December 31, |      |                           |   |      
|                          | 2006 |                           | $ | 6,846 |       
|                          | 2007 |                           |   | 6,846 |       
|                          | 2008 |                           |   | 2,388 |       
|                          |      |                           |  
|                          |      | Total future amortization |   | $     | 16,080 | 
|                          |      |                           |  



|   |                      
|-- | ---------------------
|8. | Restructuring Charges



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












71



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##### Table of Contents



TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                             |  |                 |        |   |           |   |        |               |  |   |        |  
|---------------------------- |  | --------------- | ------ | - | --------- | - | ------ | ------------- |  | - | ------ | -
|                             |  | Building        |        |   | Workforce |   |        |              
|                             |  | Leasehold Costs |        |   | Reduction |   |        | Total Balance | 
|                             |  |                 |        |   |           |   |        |               | 
|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  |  
|Restructuring charges        |  |                 | 1,841  |   |           |   | 1,502  |               |  |   | 3,343  |  
|Adjustments and reversals    |  |                 | (1,278 | ) |           |   | (56    | )             |  |   | (1,334 | )
|Cash drawdowns               |  |                 | (1,552 | ) |           |   | (1,446 | )             |  |   | (2,998 | )
|                             |  |                 |        |   |           |   |        |               | 
|Balance at December 31, 2005 |  | $               | 4,256  |   |           | $ |       |               |  | $ | 4,256  |  
|                             |  |                 |        |   |           |   |        |               | 



|   |                                          
|-- | -----------------------------------------
|9. | Impairment of Long-Lived and Other Assets





|    |                              
|--- | -----------------------------
|10. | Commitments and Contingencies



| |                     
| | --------------------
| | Purchase Obligations





| |                 
| | ----------------
| | Operating Leases



72



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##### Table of Contents



TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                          |                       |                                        |   |       |        | 
|------------------------- | --------------------- | -------------------------------------- | - | ----- | ------ | 
|                          |                       | Operating                              |  
|                          |                       | Leases                                 |  
|                          |                       |                                        |  
|                          |                       | (In thousands)                         |  
|Years ending December 31, |                       |                                        |   |      
|                          | 2006                  |                                        | $ | 4,663 |       
|                          | 2007                  |                                        |   | 4,711 |       
|                          | 2008                  |                                        |   | 2,401 |       
|                          | 2009 and thereafter   |                                        |   | 20    |       
|                          | Income from subleases |                                        |   | (736  | )     
|                          |                       |                                        |  
|                          |                       | Total minimum operating lease payments |   | $     | 11,059 | 
|                          |                       |                                        |  



| |           
| | ----------
| | Litigation

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




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





73



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




S-3




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



|                             |  |              |            |  |      |  |            | 
|---------------------------- |  | ------------ | ---------- |  | ---- |  | ---------- | 
|                             |  | December 31, |           
|                             |  |              |           
|                             |  | 2005         |            |  | 2004 | 
|                             |  |              |            |  |      | 
|Warrants outstanding         |  |              | 365,032    |  |      |  | 498,228    | 
|Options outstanding          |  |              | 39,124,784 |  |      |  | 39,803,712 | 
|Employee Stock Purchase Plan |  |              | 570,871    |  |      |  | 2,026,270  | 
|Future option grants         |  |              | 16,847,775 |  |      |  | 4,177,119  | 
|                             |  |              |            |  |      | 
|                             |  |              | 56,908,462 |  |      |  | 46,505,329 | 
|                             |  |              |            |  |      | 



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



|              |                        |           |         |          |           |   |      |                 |  |               | 
|------------- | ---------------------- | --------- | ------- | -------- | --------- | - | ---- | --------------- |  | ------------- | 
|              |                        |           |         | Exercise |           |   |     
|              |                        | Number of |         |          | Price per |   |      |                
|Issuance Date |                        | Shares    |         |          | Share     |   |      | Expiration Date
|              |                        |           |         |          |           |   |      |                
|January 1998  |                        |           | 125,032 |          |           | $ | 1.25 |                 |  | December 2007
|April 1998    |                        |           | 240,000 |          |           | $ | 1.25 |                 |  | April 2008   
|              |                        |           |         |          |           |   |      |                
|              | Total number of shares |           |         | 365,032  |           |   |      |                 |  |               | 
|              |                        |           |         |          |           |   |      |                





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





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



74



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








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





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



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





75



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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





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





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



|                             |                            |               |            |             |           |          |            |             |   |                  |            |      |  |  |   |      | 
|---------------------------- | -------------------------- | ------------- | ---------- | ----------- | --------- | -------- | ---------- | ----------- | - | ---------------- | ---------- | ---- |  |  | - | ---- | 
|                             |                            |               |            |             |           | Weighted |            |             |  
|                             |                            | Shares        |            |             |           |          | Average    |             |   | Weighted Average |           
|                             |                            | Available for |            |             | Number of |          |            | Exercise    |   |                  | Grant Date |     
|                             |                            | Grant         |            |             | Shares    |          |            | Price       |   |                  | Fair Value |     
|                             |                            |               |            |             |           |          |            |             |   |                  |            |     
|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       |      |  |  |   |     
|                             | Additional shares reserved |               |            | 12,595,924  |           |          |            |            |   |                  |            |      |  |  |   |      | 
|                             | Options granted            |               |            | (15,408,356 | )         |          |            | 15,408,356  |   |                  | $          | 0.80 |  |  | $ | 0.52 | 
|                             | Options exercised          |               |            |            |           |          |            | (604,196    | ) |                  | $          | 0.91 |  |  |   |      | 
|                             | Options canceled           |               |            | 15,483,088  |           |          |            | (15,483,088 | ) |                  | $          | 2.23 |  |  |   |      | 
|                             |                            |               |            |             |           |          |            |             |   |                  |            |     
|Balance at December 31, 2005 |                            |               | 16,847,775 |             |           |          | 39,124,784 |             |   | $                | 1.90       |      |  |  |   |     
|                             |                            |               |            |             |           |          |            |             |   |                  |            |     

|                       |  |           |            |  |                  |   |      | 
|---------------------- |  | --------- | ---------- |  | ---------------- | - | ---- | 
|                       |  | Number of |            |  | Weighted Average |  
|Shares Exercisable at: |  | Shares    |            |  | Exercise Price   |  
|                       |  |           |            |  |                  |  
|December 31, 2003      |  |           | 14,876,266 |  |                  | $ | 3.36 | 
|December 31, 2004      |  |           | 19,174,403 |  |                  | $ | 3.07 | 
|December 31, 2005      |  |           | 23,022,447 |  |                  | $ | 2.58 | 

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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                         |               |             |            |            |             |  |          |          |  |   |             |          |  |          |            |           |  |   |      |       | 
|------------------------ | ------------- | ----------- | ---------- | ---------- | ----------- |  | -------- | -------- |  | - | ----------- | -------- |  | -------- | ---------- | --------- |  | - | ---- | ----- | 
|                         |               | 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, 2005: |               |             |            |            |             |  |          |          |  |   |             |          |  |          |            |           |  |   |      |      
|                         | $0.19-$0.71   |             |            | 956,335    |             |  |          | 6.0      |  |   | $           | 0.66     |  |          |            | 521,335   |  |   | $    | 0.63  | 
|                         | $0.72-$0.75   |             |            | 11,822,026 |             |  |          | 9.4      |  |   | $           | 0.75     |  |          |            | 2,155,118 |  |   | $    | 0.75  | 
|                         | $0.77-$1.05   |             |            | 4,077,678  |             |  |          | 7.8      |  |   | $           | 0.94     |  |          |            | 2,433,571 |  |   | $    | 0.97  | 
|                         | $1.11-$1.21   |             |            | 4,681,749  |             |  |          | 8.5      |  |   | $           | 1.20     |  |          |            | 2,623,158 |  |   | $    | 1.20  | 
|                         | $1.22-$1.57   |             |            | 4,217,628  |             |  |          | 8.0      |  |   | $           | 1.49     |  |          |            | 2,223,549 |  |   | $    | 1.52  | 
|                         | $1.60-$2.38   |             |            | 4,999,701  |             |  |          | 7.3      |  |   | $           | 2.21     |  |          |            | 4,720,529 |  |   | $    | 2.23  | 
|                         | $2.40-$3.11   |             |            | 4,162,045  |             |  |          | 6.0      |  |   | $           | 2.70     |  |          |            | 4,146,940 |  |   | $    | 2.70  | 
|                         | $3.15-$9.50   |             |            | 4,038,951  |             |  |          | 5.0      |  |   | $           | 6.13     |  |          |            | 4,029,576 |  |   | $    | 6.13  | 
|                         | $11.17-$13.62 |             |            | 150,671    |             |  |          | 5.4      |  |   | $           | 12.72    |  |          |            | 150,671   |  |   | $    | 12.72 | 
|                         | $14.49-$14.49 |             |            | 18,000     |             |  |          | 5.4      |  |   | $           | 14.49    |  |          |            | 18,000    |  |   | $    | 14.49 | 
|                         |               |             |            |            |             |  |          |          |  |   |             |          |  |          |           
|Total                    |               |             | 39,124,784 |            |             |  | 7.8      |          |  | $ | 1.90        |          |  |          | 23,022,447 |           |  | $ | 2.58 |      
|                         |               |             |            |            |             |  |          |          |  |   |             |          |  |          |           



| |                                             
| | --------------------------------------------
| | Accelerated vesting of Certain Stock Options







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



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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





| |                                        
| | ---------------------------------------
| | 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, | 
|                        |  |              |      |   |              | 
|                        |  | 2005         |      |   | 2004         |  |      | 2003 |  |  | 2005 |   |  | 2004 |      |   | 2003 | 
|                        |  |              |      |   |              |  |      |      |  |  |      |   |  |      |      |   |      | 
|Expected volatility     |  |              | 0.94 |   |              |  | 0.90 |      |  |  | 0.86 |   |  |      | 0.94 |   |      |  | 0.90 |   |  |  | 1.1 |  
|Expected life in years  |  |              | 2.8  |   |              |  | 3.7  |      |  |  | 4.0  |   |  |      | .5   |   |      |  | .5   |   |  |  | .5  |  
|Risk-free interest rate |  |              | 4.4  | % |              |  | 2.8  | %    |  |  | 2.3  | % |  |      | 4.3  | % |      |  | 2.0  | % |  |  | 2.0 | %
|Expected dividend yield |  |              | 0    | % |              |  | 0    | %    |  |  | 0    | % |  |      | 0    | % |      |  | 0    | % |  |  | 0   | %



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





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



| |                  
| | -----------------
| | Sales to Investee





| |                           
| | --------------------------
| | Indemnification Agreements



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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





|                                          |  |                          |        |   |      |   |         |      |  |   |         |  
|----------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                          |  | Years Ended December 31, |       
|                                          |  |                          |       
|                                          |  | 2005                     |        |   | 2004 |   |         | 2003 | 
|                                          |  |                          |        |   |      |   |         |      | 
|                                          |  | (In thousands)           |       
|Income tax benefit at U.S. statutory rate |  | $                        | (2,099 | ) |      | $ | (36,162 | )    |  | $ | (29,785 | )
|State and foreign income taxes            |  |                          | 168    |   |      |   | 240     |      |  |   | 32      |  
|Valuation allowance                       |  |                          | 2,099  |   |      |   | 36,162  |      |  |   | 29,785  |  
|                                          |  |                          |        |   |      |   |         |      | 
|Provision for income taxes                |  | $                        | 168    |   |      | $ | 240     |      |  | $ | 32      |  
|                                          |  |                          |        |   |      |   |         |      | 



|                                                 |  |                          |          |   |      |   |          |      |  |   |          |  
|------------------------------------------------ |  | ------------------------ | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                 |  | Years Ended December 31, |         
|                                                 |  |                          |         
|                                                 |  | 2005                     |          |   | 2004 |   |          | 2003 | 
|                                                 |  |                          |          |   |      |   |          |      | 
|                                                 |  | (In thousands)           |         
|Federal operating loss carryforwards             |  | $                        | 126,000  |   |      | $ | 139,000  |      |  | $ | 131,500  |  
|State operating loss carryforwards               |  |                          | 7,000    |   |      |   | 9,000    |      |  |   | 6,500    |  
|Federal tax credit carryforwards                 |  |                          | 12,000   |   |      |   | 11,000   |      |  |   | 9,000    |  
|State tax credit carryforwards                   |  |                          | 9,000    |   |      |   | 8,000    |      |  |   | 7,000    |  
|Non-deductible reserves and capitalized expenses |  |                          | 65,000   |   |      |   | 59,000   |      |  |   | 28,000   |  
|                                                 |  |                          |          |   |      |   |          |      | 
|                                                 |  |                          | 219,000  |   |      |   | 226,000  |      |  |   | 182,000  |  
|Less: Valuation allowance                        |  |                          | (219,000 | ) |      |   | (226,000 | )    |  |   | (182,000 | )
|                                                 |  |                          |          |   |      |   |          |      | 
|Net deferred taxes                               |  | $                        |         |   |      | $ |         |      |  | $ |         |  
|                                                 |  |                          |          |   |      |   |          |      | 









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



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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                 |  |              |     |  |      |  |     |      |  |  |     | 
|---------------- |  | ------------ | --- |  | ---- |  | --- | ---- |  |  | --- | 
|                 |  | Years Ended  |    
|                 |  | December 31, |    
|                 |  |              |    
|                 |  | 2005         |     |  | 2004 |  |     | 2003 | 
|                 |  |              |     |  |      |  |     |      | 
|Japan            |  |              | 67% |  |      |  | 51% |      |  |  | 44% | 
|China/ Hong Kong |  |              | 17% |  |      |  | 32% |      |  |  | 39% | 
|Taiwan           |  |              | 6%  |  |      |  | 10% |      |  |  | 13% | 
|North America    |  |              | 5%  |  |      |  | 5%  |      |  |  | 4%  | 
|Other            |  |              | 5%  |  |      |  | 2%  |      |  |  | *%  | 



|                |               |                          |        |        |      |   |        |        |  |   |        |        | 
|--------------- | ------------- | ------------------------ | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                |               | Years Ended December 31, |       
|                |               |                          |       
|                |               | 2005                     |        |        | 2004 |   |        | 2003   | 
|                |               |                          |        |        |      |   |        |        | 
|                |               | (In thousands)           |       
|Product revenue |               | $                        | 24,636 |        |      | $ | 18,776 |        |  | $ | 16,225 |       
|License revenue |               |                          | 19,628 |        |      |   | 9,000  |        |  |   | 1,090  |       
|Service revenue |               |                          | 28,467 |        |      |   | 1,668  |        |  |   |       |       
|                |               |                          |        |        |      |   |        |        | 
|                | Total revenue |                          | $      | 72,731 |      |   | $      | 29,444 |  |   | $      | 17,315 | 
|                |               |                          |        |        |      |   |        |        | 



|        |  |              |     |  |      |  |     |      |  |  |     | 
|------- |  | ------------ | --- |  | ---- |  | --- | ---- |  |  | --- | 
|        |  | Years Ended  |    
|        |  | December 31, |    
|        |  |              |    
|        |  | 2005         |     |  | 2004 |  |     | 2003 | 
|        |  |              |     |  |      |  |     |      | 
|Product |  |              | 34% |  |      |  | 64% |      |  |  | 94% | 
|License |  |              | 27% |  |      |  | 30% |      |  |  | 6%  | 
|Service |  |              | 39% |  |      |  | 6%  |      |  |  | 0%  | 



|              |  |                |        |  |      |   |        | 
|------------- |  | -------------- | ------ |  | ---- | - | ------ | 
|              |  | Years Ended    |       
|              |  | December 31,   |       
|              |  |                |       
|              |  | 2005           |        |  | 2004 |  
|              |  |                |        |  |      |  
|              |  | (In thousands) |       
|United States |  | $              | 18,509 |  |      | $ | 25,908 | 
|Asia          |  |                | 105    |  |      |   | 119    | 
|              |  |                |        |  |      |  
|Total         |  | $              | 18,614 |  |      | $ | 26,027 | 
|              |  |                |        |  |      |  

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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|          |                                        |              |  |     |      |  |  |      |  |  |  |     | 
|--------- | -------------------------------------- | ------------ |  | --- | ---- |  |  | ---- |  |  |  | --- | 
|          |                                        | Years Ended  | 
|          |                                        | December 31, | 
|          |                                        |              | 
|          |                                        | 2005         |  |     | 2004 |  |  | 2003 | 
|          |                                        |              |  |     |      |  |  |      | 
|Customer: |                                        |              |  |     |      |  |  |      |  |  |  |    
|          | Sony Corporation                       |              |  | 52% |      |  |  | *%   |  |  |  | *%  | 
|          | Fujitsu America Inc.                   |              |  | 16% |      |  |  | *%   |  |  |  | 16% | 
|          | Hewlett Packard International Pte Inc. |              |  | 15% |      |  |  | 27%  |  |  |  | 14% | 
|          | NEC Electronics Corp.                  |              |  | *%  |      |  |  | 33%  |  |  |  | *%  | 
|          | Sharp Trading Corporation              |              |  | *%  |      |  |  | 12%  |  |  |  | 20% | 
|          | Uniquest Hong Kong**                   |              |  | *%  |      |  |  | *%   |  |  |  | 21% | 






|   |                                                                                                                                    
|-- | -----------------------------------------------------------------------------------------------------------------------------------
|*  | 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. | Subsequent Events





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TRANSMETA CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                            
|--- | -------------------------------------------
|18. | Quarterly Results of Operations (Unaudited)



|                                                |                                                  |                                           |         |        |           |   |         |          |        |   |          |        |        |          |         |       |           |   |         |          |        |   |          |        |        |   |         |       |        |   |         |       |        | 
|----------------------------------------------- | ------------------------------------------------ | ----------------------------------------- | ------- | ------ | --------- | - | ------- | -------- | ------ | - | -------- | ------ | ------ | -------- | ------- | ----- | --------- | - | ------- | -------- | ------ | - | -------- | ------ | ------ | - | ------- | ----- | ------ | - | ------- | ----- | ------ | 
|                                                |                                                  | Quarters Ended                            |        
|                                                |                                                  |                                           |        
|                                                |                                                  | Dec. 31,                                  |         |        | Sept. 30, |   |         | Jun. 30, |        |   | Mar. 31, |        |        | Dec. 31, |         |       | Sept. 30, |   |         | Jun. 30, |        |   | Mar. 31, |       
|                                                |                                                  | 2005                                      |         |        | 2005      |   |         | 2005     |        |   | 2005     |        |        | 2004     |         |       | 2004      |   |         | 2004     |        |   | 2004     |       
|                                                |                                                  |                                           |         |        |           |   |         |          |        |   |          |        |        |          |         |       |           |   |         |          |        |   |          |       
|                                                |                                                  | (In thousands, except for per share data) |        
|Revenue:                                        |                                                  |                                           |         |        |           |   |         |          |        |   |          |        |        |          |         |       |           |   |         |          |        |   |          |        |        |   |         |       |        |   |         |      
|                                                | Product                                          |                                           | $       | 3,235  |           |   | $       | 7,927    |        |   | $        | 7,068  |        |          | $       | 6,406 |           |   | $       | 4,799    |        |   | $        | 3,297  |        |   | $       | 5,673 |        |   | $       | 5,007 |       
|                                                | License                                          |                                           |         |       |           |   |         | 9,628    |        |   |          | 10,000 |        |          |         |      |           |   |         | 6,000    |        |   |          | 3,000  |        |   |         |      |        |   |         |      |       
|                                                | Service                                          |                                           |         | 10,077 |           |   |         | 10,308   |        |   |          | 7,634  |        |          |         | 448   |           |   |         | 448      |        |   |          | 698    |        |   |         | 327   |        |   |         | 195   |       
|                                                |                                                  |                                           |         |        |           |   |         |          |        |   |          |        |        |          |         |       |           |   |         |          |        |   |          |       
|                                                |                                                  | Total revenue                             |         |        | 13,312    |   |         |          | 27,863 |   |          |        | 24,702 |          |         |       | 6,854     |   |         |          | 11,247 |   |          |        | 6,995  |   |         |       | 6,000  |   |         |       | 5,202  | 
|                                                |                                                  |                                           |         |        |           |   |         |          |        |   |          |        |        |          |         |       |           |   |         |          |        |   |          |       
|Cost of revenue:                                |                                                  |                                           |         |        |           |   |         |          |        |   |          |        |        |          |         |       |           |   |         |          |        |   |          |        |        |   |         |       |        |   |         |      
|                                                | Product                                          |                                           |         | 1,402  |           |   |         | 2,167    |        |   |          | 3,950  |        |          |         | 4,752 |           |   |         | 10,654   |        |   |          | 11,147 |        |   |         | 9,162 |        |   |         | 5,372 |       
|                                                | License                                          |                                           |         |       |           |   |         | 46       |        |   |          | 25     |        |          |         |      |           |   |         |         |        |   |          |       |        |   |         |      |        |   |         |      |       
|                                                | Service                                          |                                           |         | 5,660  |           |   |         | 6,017    |        |   |          | 4,152  |        |          |         | 161   |           |   |         | 189      |        |   |          | 197    |        |   |         | 102   |        |   |         | 242   |       
|                                                | Impairment charge on long-lived assets           |                                           |         |       |           |   |         |         |        |   |          |       |        |          |         |      |           |   |         | 1,943    |        |   |          |       |        |   |         |      |        |   |         |      |       
|                                                |                                                  |                                           |         |        |           |   |         |          |        |   |          |        |        |          |         |       |           |   |         |          |        |   |          |       
|                                                |                                                  | Total cost of revenue                     |         |        | 7,062     |   |         |          | 8,230  |   |          |        | 8,127  |          |         |       | 4,913     |   |         |          | 12,786 |   |          |        | 11,344 |   |         |       | 9,264  |   |         |       | 5,614  | 
|                                                |                                                  |                                           |         |        |           |   |         |          |        |   |          |        |        |          |         |       |           |   |         |          |        |   |          |       
|Gross profit (loss)                             |                                                  |                                           | 6,250   |        |           |   | 19,633  |          |        |   | 16,575   |        |        |          | 1,941   |       |           |   | (1,539  | )        |        |   | (4,349   | )      |        |   | (3,264  | )     |        |   | (412    | )    
|                                                |                                                  |                                           |         |        |           |   |         |          |        |   |          |        |        |          |         |       |           |   |         |          |        |   |          |       
|Operating expenses                              |                                                  |                                           |         |        |           |   |         |          |        |   |          |        |        |          |         |       |           |   |         |          |        |   |          |        |        |   |         |       |        |   |         |      
|Research and development                        |                                                  |                                           | 2,491   |        |           |   | 1,905   |          |        |   | 2,991    |        |        |          | 12,222  |       |           |   | 12,578  |          |        |   | 13,751   |        |        |   | 13,719  |       |        |   | 12,717  |      
|                                                | Selling, general and administrative              |                                           |         | 5,564  |           |   |         | 4,523    |        |   |          | 4,996  |        |          |         | 7,956 |           |   |         | 9,292    |        |   |          | 7,424  |        |   |         | 7,418 |        |   |         | 6,721 |       
|                                                | Restructuring charges                            |                                           |         | (875   | )         |   |         | 1,529    |        |   |          | 46     |        |          |         | 1,309 |           |   |         |         |        |   |          | 904    |        |   |         |      |        |   |         |      |       
|                                                | Amortization of patents and patent rights        |                                           |         | 1,713  |           |   |         | 1,711    |        |   |          | 1,711  |        |          |         | 1,711 |           |   |         | 2,233    |        |   |          | 2,233  |        |   |         | 2,347 |        |   |         | 2,404 |       
|                                                | Impairment charge on long-lived and other assets |                                           |         |       |           |   |         |         |        |   |          |       |        |          |         |      |           |   |         | 2,544    |        |   |          |       |        |   |         |      |        |   |         |      |       
|                                                | Stock compensation                               |                                           |         | 14     |           |   |         |         |        |   |          | (14    | )      |          |         | (34   | )         |   |         | 29       |        |   |          | 56     |        |   |         | 230   |        |   |         | 1,350 |       
|                                                |                                                  |                                           |         |        |           |   |         |          |        |   |          |        |        |          |         |       |           |   |         |          |        |   |          |       
|                                                |                                                  | Total operating expenses                  |         |        | 8907      |   |         |          | 9,668  |   |          |        | 9,730  |          |         |       | 23,164    |   |         |          | 26,676 |   |          |        | 24,368 |   |         |       | 23,714 |   |         |       | 23,192 | 
|                                                |                                                  |                                           |         |        |           |   |         |          |        |   |          |        |        |          |         |       |           |   |         |          |        |   |          |       
|Operating income (loss)                         |                                                  |                                           | (2,657  | )      |           |   | 9,965   |          |        |   | 6,845    |        |        |          | (21,223 | )     |           |   | (28,215 | )        |        |   | (28,717  | )      |        |   | (26,978 | )     |        |   | (23,604 | )    
|                                                | Interest income and other, net                   |                                           |         | 609    |           |   |         | 305      |        |   |          | 93     |        |          |         | 246   |           |   |         | 150      |        |   |          | 188    |        |   |         | 243   |        |   |         | 246   |       
|                                                | Interest expense                                 |                                           |         | (18    | )         |   |         | (132     | )      |   |          | (106   | )      |          |         | (108  | )         |   |         | (50      | )      |   |          | (26    | )      |   |         | (20   | )      |   |         | (15   | )     
|                                                |                                                  |                                           |         |        |           |   |         |          |        |   |          |        |        |          |         |       |           |   |         |          |        |   |          |       
|Net income (loss)                               |                                                  | $                                         | (2,066  | )      |           | $ | 10,138  |          |        | $ | 6,832    |        |        | $        | (21,085 | )     |           | $ | (28,115 | )        |        | $ | (28,555  | )      |        | $ | (26,755 | )     |        | $ | (23,373 | )    
|                                                |                                                  |                                           |         |        |           |   |         |          |        |   |          |        |        |          |         |       |           |   |         |          |        |   |          |       
|Net income (loss) per share  basic and diluted |                                                  | $                                         | (0.01   | )      |           | $ | .0.05   |          |        | $ | 0.04     |        |        | $        | (0.11   | )     |           | $ | (0.15   | )        |        | $ | (0.16    | )      |        | $ | (0.15   | )     |        | $ | (0.14   | )    
|                                                |                                                  |                                           |         |        |           |   |         |          |        |   |          |        |        |          |         |       |           |   |         |          |        |   |          |       
|Weighted average shares outstanding  basic     |                                                  |                                           | 191,649 |        |           |   | 190,933 |          |        |   | 189,848  |        |        |          | 189,151 |       |           |   | 182,104 |          |        |   | 175,487  |        |        |   | 174,006 |       |        |   | 171,869 |      
|                                                |                                                  |                                           |         |        |           |   |         |          |        |   |          |        |        |          |         |       |           |   |         |          |        |   |          |       
|Weighted average shares outstanding  diluted   |                                                  |                                           | 191,649 |        |           |   | 197,767 |          |        |   | 190,081  |        |        |          | 189,151 |       |           |   | 182,104 |          |        |   | 175,487  |        |        |   | 174,006 |       |        |   | 171,869 |      
|                                                |                                                  |                                           |         |        |           |   |         |          |        |   |          |        |        |          |         |       |           |   |         |          |        |   |          |       

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

8-K,


8-K,


S-K) S-K.







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

(a) Disclosure Controls and Procedures


13a-15(e) 15d-15(e)




(b) Managements Report on Internal Control Over
Financial Reporting


13a-15(f) 15d-15(f).








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(c) Report of Independent Registered Public Accounting
Firm on Internal Control Over Financial Reporting





Internal Control 
Integrated Framework










,




|                             | 
|---------------------------- | 
|/s/ Burr, Pilger & Mayer LLP | 





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(d) Changes in Internal Control Over Financial
Reporting






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 our 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 our financial statements.                                                                                                                                                                                                                                                                                       





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We improved our financial statement close process for preparing
    and compiling our financial statements for external reporting by
    enhancing our accounting staff, improving the functionality of
    our SAP accounting system, centralizing all account
    reconciliations and preparation of all journal entries, and
    assigning and organizing our accounting staff accordingly. We
    also enhanced our quarterly analysis of the fluctuations within
    our balance sheet and statement of operations accounts. We
    further improved the process over reviewing the inputs into our
    financial spreadsheets and the related review of our financial
    spreadsheet calculational integrity, and organized the financial
    spreadsheets to protect against unauthorized changes. We also
    implemented new approval controls over the review of financial
    statements for inclusion in periodic external financial reports.
|
| |  | We implemented a formal contract administration process and
    centralized our contract administration function within the
    finance and legal departments. This included performing an
    inventory of all contracts which were financial-bearing in
    nature. We strengthened the review and approval over
    sales-related and disbursement-related contracts by centralizing
    contract administration. Additionally, we identified categories
    by which to identify those contracts that are subject to our
    signature authority matrix and require the review and
    authorization by the finance and legal departments. We
    strengthened the process of reviewing existing and proposed
    contractual agreements in                                                                                                                                                                                                           

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | order to properly capture and record their effects on the
    financial statements and related disclosures. Finally, with
    respect to our licensing and more recent design and development
    services agreements, we implemented a process to obtain periodic
    confirmations from sales-related contracts to ensure that all
    contractual commitments had been met in accordance to our
    agreements, and to properly recognize our revenue and related
    costs in the proper accounting period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | We improved our inventory cost accounting processes by
    implementing control processes for determining excess and
    obsolescence and
    lower-of-cost-or-market
    inventory write-offs, enhancing our management review of cost
    accounting processes, establishing controls and enhancing the
    use of manual spreadsheets for inventory costing and related
    cost-of-sales variance
    calculations, and implementing controls for verification of
    inventory and components held by third parties. In light of our
    decision to modify our business model on March 31, 2005, we
    adjusted our inventory valuation policy to reflect that many of
    our microprocessor products were put on
    end-of-life status. We
    enhanced the sales and manufacturing control by establishing an
    internal product pricing committee, thereby establishing
    standard pricing guidelines for our products. We engaged
    experienced cost accounting personnel and implemented stringent
    review processes over all cost accounting activity to ensure
    that all revenue and related costs were properly accounted.                                                                                                                                                                       
|
| |  | We improved our financial control environment by hiring or
    engaging on a contract basis qualified accounting and finance
    staff in order to augment the expertise of our finance
    department. In the second quarter of 2005, we hired a Vice
    President of Finance with twenty-eight years of financial
    management and public accounting experience, including relevant
    experience in internal audit and Sarbanes Oxley compliance. We
    also hired experienced accounting personnel to oversee our
    general ledger accounting, stock administration, and treasury
    functions. Additionally, we recently hired a financial planning
    analyst to further enhance our quarterly analysis of the
    fluctuations within our balance sheet and statement of
    operations accounts to further strengthen our controls over our
    financial close process. Throughout 2005, we have engaged
    seasoned, technically-proficient accounting consultants to
    support our financial close process and strengthen our financial
    reporting processes. We also engaged our independent financial
    control consultants to assist us in developing plans for
    infrastructure improvements and other steps to remediate
    deficiencies in our internal control over financial reporting.
|
| |  | We implemented new fixed asset management processes related to
    the monitoring and tracking of our fixed assets and physical
    verification of our fixed assets. As part of the new fixed asset
    management processes, we initiated a comprehensive physical
    inventory of our fixed assets at the outset of the fourth
    quarter of 2005. As part of this process improvement, we tagged
    and identified all of our capitalized assets. We also modified
    our fixed asset accounting module within our SAP accounting
    system to allow for input and tracking of physically affixed tag
    numbers. We further instituted new stricter procedures whereby
    all assets that are capitalized are tagged upon our receipt and
    new procedures were put into place to ensure that movements of
    existing fixed assets would be properly communicated between our
    facilities department and our finance department.                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | In our Quarterly Report on
    Form 10-Q for the
    period ended September 30, 2005, we reported that we no
    longer have the material weakness in internal control over
    financial reporting that management had identified in the
    segregation of duties in our accounts payable function.
    Specifically, we have remediated that material weakness by
    granting to our primary accounts payable administrator the
    appropriate systems access while ensuring that appropriate
    access was established for the
    back-up personnel for
    accounts payable. Additionally, we undertook several
    preventative and detective controls over the disbursements area,
    including strengthening the purchase requisition approval and
    related purchase order processes and management approval of
    payments. We developed monthly preventive and detective controls
    to ensure that all checks were properly issued and accounted for
    in the SAP accounting system.                                                                                                                                                                                                                                                                                                                   



(e) 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



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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




|        |    |               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |          |      |         |  |             |  |          |       |  |  |  |            |  |  |  |  | 
|------- | -- | ------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | ---- | ------- |  | ----------- |  | -------- | ----- |  |  |  | ---------- |  |  |  |  | 
|        |    |               |  | Incorporated by Reference                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |    |               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Exhibit |    |               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | File    
|Number  |    | Exhibit Title |  | Form                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | File No. |      | Exhibit |  | Filing Date |  | Herewith
|        |    |               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |          |      |         |  |             |  |         
|        | 3  | .01           |  | Second Amended and Restated Certificate of Incorporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |          | 10-K |         |  |             |  |          | 3.01  |  |  |  | 03/07/2001 |  |  |  |  | 
|        | 3  | .02           |  | Restated Bylaws.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |          | S-1  |         |  | 333-44030   |  |          |       |  |  |  |            |  |  |  |  | 
|        | 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.                                                                                                                                                                                                                                                                                                                                                                   |  |          | 8-A  |         |  |             |  |          | 3.02  |  |  |  | 01/16/2002 |  |  |  |  | 
|        | 4  | .01           |  | Specimen common stock certificate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |          | S-1  |         |  |             |  |          | 4.01  |  |  |  |            |  |  |  |  | 
|        | 4  | .02           |  | Fifth Restated Investors Rights Agreement dated
    March 31, 2000, between Transmeta, certain stockholders of
    Transmeta and a convertible note holder named therein.                                                                                                                                                                                                                                                                                                                                                                                  |  |          | S-1  |         |  |             |  |          | 4.02  |  |  |  |            |  |  |  |  | 
|        | 4  | .03           |  | Form of Piggyback Registration Rights Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |          | S-1  |         |  |             |  |          | 4.03  |  |  |  |            |  |  |  |  | 
|        | 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.                                                                                                                                                                                                    |  |          | 8-A  |         |  |             |  |          | 4.01  |  |  |  | 01/16/2002 |  |  |  |  | 
|        | 10 | .01           |  | Form of Indemnity Agreement.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |          | S-1  |         |  |             |  |          | 10.01 |  |  |  |            |  |  |  |  | 
|        | 10 | .02           |  | 1995 Equity Incentive Plan.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |          | S-1  |         |  |             |  |          | 10.02 |  |  |  |            |  |  |  |  | 
|        | 10 | .03           |  | 1997 Equity Incentive Plan.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |          | S-1  |         |  |             |  |          | 10.03 |  |  |  |            |  |  |  |  | 
|        | 10 | .04           |  | 2000 Equity Incentive Plan.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |          | S-8  |         |  |             |  |          | 4.06  |  |  |  | 01/18/2002 |  |  |  |  | 
|        | 10 | .05           |  | 2000 Employee Stock Purchase Plan.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |          | S-8  |         |  |             |  |          | 4.08  |  |  |  | 05/28/2002 |  |  |  |  | 
|        | 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. |  |          | S-1  |         |  |             |  |          | 10.08 |  |  |  |            |  |  |  |  | 
|        | 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.                                                  |  |          | S-1  |         |  |             |  |          | 10.09 |  |  |  |            |  |  |  |  | 

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|        |    |               |  |                                                                                                                                                                                                                   |  |          |        |         |  |             |  |          |       |  |  |  |            |  |  |  |   | 
|------- | -- | ------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | ------ | ------- |  | ----------- |  | -------- | ----- |  |  |  | ---------- |  |  |  | - | 
|        |    |               |  | Incorporated by Reference                                                                                                                                                                                        
|        |    |               |  |                                                                                                                                                                                                                  
|Exhibit |    |               |  |                                                                                                                                                                                                                   |  | File    
|Number  |    | Exhibit Title |  | Form                                                                                                                                                                                                              |  | File No. |        | Exhibit |  | Filing Date |  | Herewith
|        |    |               |  |                                                                                                                                                                                                                   |  |          |        |         |  |             |  |         
|        | 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. |  |          | S-1    |         |  |             |  |          | 10.10 |  |  |  |            |  |  |  |   | 
|        | 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. |  |          | S-1    |         |  |             |  |          | 10.11 |  |  |  |            |  |  |  |   | 
|        | 10 | .10           |  | Form of Stock Option Agreement under Transmetas 2000
    Equity Incentive Plan.**                                                                                                                                |  |          | S-1    |         |  |             |  |          | 10.17 |  |  |  |            |  |  |  |   | 
|        | 10 | .11           |  | Form of Stock Option Agreement (for Non-Employee Directors)
    under Transmetas 2000 Equity Incentive Plan.**                                                                                                   |  |          | S-1    |         |  |             |  |          | 10-18 |  |  |  |            |  |  |  |   | 
|        | 10 | .12           |  | 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-K   |         |  |             |  |          | 10-18 |  |  |  |            |  |  |  |   | 
|        | 10 | .13           |  | Authorized Exclusive Distributor Agreement, dated
    September 12, 2000, between Transmeta and Siltrontech
    Electronics Corporation.                                                                          |  |          | 10-K   |         |  |             |  |          | 10-15 |  |  |  |            |  |  |  |   | 
|        | 10 | .14           |  | Offer of Employment from Transmeta Corporation to Matthew R.
    Perry dated March 21, 2002.**                                                                                                                    |  |          | 10-Q   |         |  |             |  |          | 10-22 |  |  |  |            |  |  |  |   | 
|        | 10 | .15           |  | Technology Transfer Services and Technology License Agreement,
    dated March 25, 2004, between Transmeta and NEC Electronics
    Corporation.+                                                                  |  |          | 10-K/A |         |  |             |  |          | 10.17 |  |  |  | 04/29/2005 |  |  |  |   | 
|        | 10 | .16           |  | LongRun2 Technology License Agreement, dated November 29,
    2004, between Transmeta and Fujitsu Limited.+                                                                                                       |  |          | 10-K/A |         |  |             |  |          | 10.18 |  |  |  | 04/29/2005 |  |  |  |   | 
|        | 10 | .17           |  | LongRun2 Technology License Agreement, dated January 20,
    2005, between Transmeta and Sony Corporation.*+                                                                                                      |  |          | 10-K/A |         |  |             |  |          | 10.19 |  |  |  | 04/29/2005 |  |  |  |   | 
|        | 10 | .18           |  | Design Services Agreement, dated March 29, 2005, among
    Transmeta Corporation, Sony Computer Entertainment, Inc. and
    Sony Corporation.+                                                                    |  |          | 10-Q   |         |  |             |  |          | 10-20 |  |  |  | 05/25/2005 |  |  |  |   | 
|        | 10 | .19           |  | Separation and Release Agreement, dated March 31, 2005,
    between Transmeta Corporation and Matthew R. Perry.**                                                                                                 |  |          | 10-Q   |         |  |             |  |          | 10.21 |  |  |  | 05/25/2005 |  |  |  |   | 
|        | 10 | .20           |  | Master Services Agreement and Intellectual Property Assignment,
    dated April 1, 2005, by and between Transmeta Corporation
    and Microsoft Corporation.+                                                     |  |          | 10-Q   |         |  |             |  |          | 10.22 |  |  |  | 08/15/2005 |  |  |  |   | 
|        | 10 | .21           |  | Series of six Schedule A agreements, dated May 11,
    2005, by and between Transmeta Corporation and Microsoft
    Corporation.+                                                                                 |  |          | 10-Q   |         |  |             |  |          | 10.23 |  |  |  | 08/15/2005 |  |  |  |   | 
|        | 10 | .22           |  | Asset Purchase Agreement, dated May 26, 2005, by and
    between Transmeta Corporation and Culture.com Technology
    Limited.+                                                                                   |  |          | 10-Q   |         |  |             |  |          | 10.24 |  |  |  | 08/15/2005 |  |  |  |   | 
|        | 10 | .23           |  | License Agreement, dated May 26, 2005, by and between
    Transmeta Corporation and Culture.com Technology Limited.+                                                                                              |  |          | 10-Q   |         |  |             |  |          | 10.25 |  |  |  | 08/15/2005 |  |  |  |   | 
|        | 10 | .24           |  | Non-employee Director Compensation Plan.                                                                                                                                                                          |  |          | 8-K    |         |  |             |  |          |       |  |  |  | 06/14/2005 |  |  |  |   | 
|        | 10 | .25           |  | Termination of Asset Purchase and License Agreements, dated
    February 6, 2006, by and between Transmeta Corporation and
    Culture.com Technology Limited.                                                    |  |          | 8-K    |         |  |             |  |          |       |  |  |  | 02/09/2006 |  |  |  |   | 
|        | 21 | .01           |  | Subsidiaries.                                                                                                                                                                                                     |  |          | S-1    |         |  |             |  |          | 21.01 |  |  |  |            |  |  |  |   | 
|        | 23 | .01           |  | Consent of Burr, Pilger & Mayer LLP, Independent
    Registered Public Accounting Firm.                                                                                                                           |  |          |        |         |  |             |  |          |       |  |  |  |            |  |  |  | X | 
|        | 23 | .02           |  | Consent of Ernst & Young LLP, Independent Registered
    Public Accounting Firm.                                                                                                                                  |  |          |        |         |  |             |  |          |       |  |  |  |            |  |  |  | X | 
|        | 24 | .01           |  | Power of Attorney. See signature page.                                                                                                                                                                            |  |          |        |         |  |             |  |          |       |  |  |  |            |  |  |  | X | 
|        | 31 | .01           |  | Certification by Arthur L. Swift pursuant to Rule 13a-14(a).                                                                                                                                                      |  |          |        |         |  |             |  |          |       |  |  |  |            |  |  |  | X | 

90



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|        |    |               |  |                                                                                                                                                    |  |          |  |         |  |             |  |          |  |  |  |  |  |  |  |  |   | 
|------- | -- | ------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- |  | ------- |  | ----------- |  | -------- |  |  |  |  |  |  |  |  | - | 
|        |    |               |  | Incorporated by Reference                                                                                                                         
|        |    |               |  |                                                                                                                                                   
|Exhibit |    |               |  |                                                                                                                                                    |  | File    
|Number  |    | Exhibit Title |  | Form                                                                                                                                               |  | File No. |  | Exhibit |  | Filing Date |  | Herewith
|        |    |               |  |                                                                                                                                                    |  |          |  |         |  |             |  |         
|        | 31 | .02           |  | Certification by Mark R. Kent pursuant to Rule 13a-14(a).                                                                                          |  |          |  |         |  |             |  |          |  |  |  |  |  |  |  |  | X | 
|        | 32 | .01           |  | Certification by Arthur L. Swift pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002. |  |          |  |         |  |             |  |          |  |  |  |  |  |  |  |  | X | 
|        | 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.    |  |          |  |         |  |             |  |          |  |  |  |  |  |  |  |  | X | 






|   |                                                 
|-- | ------------------------------------------------
|** | 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




91



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##### Table of Contents






SIGNATURES






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



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

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



POWER OF ATTORNEY


10-K attorney-in 10-K 10-K 10-K) attorneys-in attorney-in attorneys-in attorneys-in




|                                                                                               |  |                         |  |                |  | 
|---------------------------------------------------------------------------------------------- |  | ----------------------- |  | -------------- |  | 
|Signature                                                                                      |  | Title                   |  | Date          
|                                                                                               |  |                         |  |               
|                                                                                              
|/s/ ARTHUR L. SWIFT[Principal Executive Officer]
    Arthur L. Swift                           |  | Chief Executive Officer |  | March 16, 2006
|                                                                                              
|/s/ MARK R. KENT[Principal Financial Officer and
    Duly Authorized Officer]
    Mark R. Kent |  | Chief Financial Officer |  | March 16, 2006
|                                                                                              
|/s/ MURRAY A. GOLDMANMurray A. Goldman                                                         |  | Director                |  | March 16, 2006
|                                                                                              
|/s/ R. HUGH BARNESR. Hugh Barnes                                                               |  | Director                |  | March 16, 2006
|                                                                                              
|/s/ LESTER M. CRUDELELester M. Crudele                                                         |  | Director                |  | March 16, 2006
|                                                                                              
|/s/ ROBERT V. DICKINSONRobert V. Dickinson                                                     |  | Director                |  | March 16, 2006

92



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##### Table of Contents



|                                   |  |          |  |                |  | 
|---------------------------------- |  | -------- |  | -------------- |  | 
|Signature                          |  | Title    |  | Date          
|                                   |  |          |  |               
|                                  
|/s/ DAVID R. DITZELDavid R. Ditzel |  | Director |  | March 16, 2006
|                                  
|/s/ WILLIAM P. TAIWilliam P. Tai   |  | Director |  | March 16, 2006
|                                  
|/s/ T. PETER THOMAST. Peter Thomas |  | Director |  | March 16, 2006
|                                  
|/s/ RICK TIMMINSRick Timmins       |  | Director |  | March 16, 2006

93



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##### Table of Contents



EXHIBIT INDEX


|        |    |               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |          |      |         |  |             |  |          |       |  |  |  |            |  |  |  |  | 
|------- | -- | ------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | ---- | ------- |  | ----------- |  | -------- | ----- |  |  |  | ---------- |  |  |  |  | 
|        |    |               |  | Incorporated by Reference                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |    |               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Exhibit |    |               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | File    
|Number  |    | Exhibit Title |  | Form                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | File No. |      | Exhibit |  | Filing Date |  | Herewith
|        |    |               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |          |      |         |  |             |  |         
|        | 3  | .01           |  | Second Amended and Restated Certificate of Incorporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |          | 10-K |         |  |             |  |          | 3.01  |  |  |  | 03/07/2001 |  |  |  |  | 
|        | 3  | .02           |  | Restated Bylaws.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |          | S-1  |         |  | 333-44030   |  |          |       |  |  |  |            |  |  |  |  | 
|        | 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.                                                                                                                                                                                                                                                                                                                                                                   |  |          | 8-A  |         |  |             |  |          | 3.02  |  |  |  | 01/16/2002 |  |  |  |  | 
|        | 4  | .01           |  | Specimen common stock certificate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |          | S-1  |         |  |             |  |          | 4.01  |  |  |  |            |  |  |  |  | 
|        | 4  | .02           |  | Fifth Restated Investors Rights Agreement dated
    March 31, 2000, between Transmeta, certain stockholders of
    Transmeta and a convertible note holder named therein.                                                                                                                                                                                                                                                                                                                                                                                  |  |          | S-1  |         |  |             |  |          | 4.02  |  |  |  |            |  |  |  |  | 
|        | 4  | .03           |  | Form of Piggyback Registration Rights Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |          | S-1  |         |  |             |  |          | 4.03  |  |  |  |            |  |  |  |  | 
|        | 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.                                                                                                                                                                                                    |  |          | 8-A  |         |  |             |  |          | 4.01  |  |  |  | 01/16/2002 |  |  |  |  | 
|        | 10 | .01           |  | Form of Indemnity Agreement.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |          | S-1  |         |  |             |  |          | 10.01 |  |  |  |            |  |  |  |  | 
|        | 10 | .02           |  | 1995 Equity Incentive Plan.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |          | S-1  |         |  |             |  |          | 10.02 |  |  |  |            |  |  |  |  | 
|        | 10 | .03           |  | 1997 Equity Incentive Plan.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |          | S-1  |         |  |             |  |          | 10.03 |  |  |  |            |  |  |  |  | 
|        | 10 | .04           |  | 2000 Equity Incentive Plan.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |          | S-8  |         |  |             |  |          | 4.06  |  |  |  | 01/18/2002 |  |  |  |  | 
|        | 10 | .05           |  | 2000 Employee Stock Purchase Plan.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |          | S-8  |         |  |             |  |          | 4.08  |  |  |  | 05/28/2002 |  |  |  |  | 
|        | 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. |  |          | S-1  |         |  |             |  |          | 10.08 |  |  |  |            |  |  |  |  | 
|        | 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.                                                  |  |          | S-1  |         |  |             |  |          | 10.09 |  |  |  |            |  |  |  |  | 
|        | 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.                                                                                                                                                                                                                                                                                                                                           |  |          | S-1  |         |  |             |  |          | 10.10 |  |  |  |            |  |  |  |  | 
|        | 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.                                                                                                                                                                                                                                                                                                                                           |  |          | S-1  |         |  |             |  |          | 10.11 |  |  |  |            |  |  |  |  | 
|        | 10 | .10           |  | Form of Stock Option Agreement under Transmetas 2000
    Equity Incentive Plan.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |          | S-1  |         |  |             |  |          | 10.17 |  |  |  |            |  |  |  |  | 
|        | 10 | .11           |  | Form of Stock Option Agreement (for Non-Employee Directors)
    under Transmetas 2000 Equity Incentive Plan.**                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |          | S-1  |         |  |             |  |          | 10-18 |  |  |  |            |  |  |  |  | 
|        | 10 | .12           |  | 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-K |         |  |             |  |          | 10-18 |  |  |  |            |  |  |  |  | 



---



##### Table of Contents



|        |    |               |  |                                                                                                                                                                |  |          |        |         |  |             |  |          |       |  |  |  |            |  |  |  |   | 
|------- | -- | ------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | ------ | ------- |  | ----------- |  | -------- | ----- |  |  |  | ---------- |  |  |  | - | 
|        |    |               |  | Incorporated by Reference                                                                                                                                     
|        |    |               |  |                                                                                                                                                               
|Exhibit |    |               |  |                                                                                                                                                                |  | File    
|Number  |    | Exhibit Title |  | Form                                                                                                                                                           |  | File No. |        | Exhibit |  | Filing Date |  | Herewith
|        |    |               |  |                                                                                                                                                                |  |          |        |         |  |             |  |         
|        | 10 | .13           |  | Authorized Exclusive Distributor Agreement, dated
    September 12, 2000, between Transmeta and Siltrontech
    Electronics Corporation.                       |  |          | 10-K   |         |  |             |  |          | 10-15 |  |  |  |            |  |  |  |   | 
|        | 10 | .14           |  | Offer of Employment from Transmeta Corporation to Matthew R.
    Perry dated March 21, 2002.**                                                                 |  |          | 10-Q   |         |  |             |  |          | 10-22 |  |  |  |            |  |  |  |   | 
|        | 10 | .15           |  | Technology Transfer Services and Technology License Agreement,
    dated March 25, 2004, between Transmeta and NEC Electronics
    Corporation.+               |  |          | 10-K/A |         |  |             |  |          | 10.17 |  |  |  | 04/29/2005 |  |  |  |   | 
|        | 10 | .16           |  | LongRun2 Technology License Agreement, dated November 29,
    2004, between Transmeta and Fujitsu Limited.+                                                    |  |          | 10-K/A |         |  |             |  |          | 10.18 |  |  |  | 04/29/2005 |  |  |  |   | 
|        | 10 | .17           |  | LongRun2 Technology License Agreement, dated January 20,
    2005, between Transmeta and Sony Corporation.*+                                                   |  |          | 10-K/A |         |  |             |  |          | 10.19 |  |  |  | 04/29/2005 |  |  |  |   | 
|        | 10 | .18           |  | Design Services Agreement, dated March 29, 2005, among
    Transmeta Corporation, Sony Computer Entertainment, Inc. and
    Sony Corporation.+                 |  |          | 10-Q   |         |  |             |  |          | 10-20 |  |  |  | 05/25/2005 |  |  |  |   | 
|        | 10 | .19           |  | Separation and Release Agreement, dated March 31, 2005,
    between Transmeta Corporation and Matthew R. Perry.**                                              |  |          | 10-Q   |         |  |             |  |          | 10.21 |  |  |  | 05/25/2005 |  |  |  |   | 
|        | 10 | .20           |  | Master Services Agreement and Intellectual Property Assignment,
    dated April 1, 2005, by and between Transmeta Corporation
    and Microsoft Corporation.+  |  |          | 10-Q   |         |  |             |  |          | 10.22 |  |  |  | 08/15/2005 |  |  |  |   | 
|        | 10 | .21           |  | Series of six Schedule A agreements, dated May 11,
    2005, by and between Transmeta Corporation and Microsoft
    Corporation.+                              |  |          | 10-Q   |         |  |             |  |          | 10.23 |  |  |  | 08/15/2005 |  |  |  |   | 
|        | 10 | .22           |  | Asset Purchase Agreement, dated May 26, 2005, by and
    between Transmeta Corporation and Culture.com Technology
    Limited.+                                |  |          | 10-Q   |         |  |             |  |          | 10.24 |  |  |  | 08/15/2005 |  |  |  |   | 
|        | 10 | .23           |  | License Agreement, dated May 26, 2005, by and between
    Transmeta Corporation and Culture.com Technology Limited.+                                           |  |          | 10-Q   |         |  |             |  |          | 10.25 |  |  |  | 08/15/2005 |  |  |  |   | 
|        | 10 | .24           |  | Non-employee Director Compensation Plan.                                                                                                                       |  |          | 8-K    |         |  |             |  |          |       |  |  |  | 06/14/2005 |  |  |  |   | 
|        | 10 | .25           |  | Termination of Asset Purchase and License Agreements, dated
    February 6, 2006, by and between Transmeta Corporation and
    Culture.com Technology Limited. |  |          | 8-K    |         |  |             |  |          |       |  |  |  | 02/09/2006 |  |  |  |   | 
|        | 21 | .01           |  | Subsidiaries.                                                                                                                                                  |  |          | S-1    |         |  |             |  |          | 21.01 |  |  |  |            |  |  |  |   | 
|        | 23 | .01           |  | Consent of Burr, Pilger & Mayer LLP, Independent
    Registered Public Accounting Firm.                                                                        |  |          |        |         |  |             |  |          |       |  |  |  |            |  |  |  | X | 
|        | 23 | .02           |  | Consent of Ernst & Young LLP, Independent Registered
    Public Accounting Firm.                                                                               |  |          |        |         |  |             |  |          |       |  |  |  |            |  |  |  | X | 
|        | 24 | .01           |  | Power of Attorney. See signature page.                                                                                                                         |  |          |        |         |  |             |  |          |       |  |  |  |            |  |  |  | X | 
|        | 31 | .01           |  | Certification by Arthur L. Swift pursuant to Rule 13a-14(a).                                                                                                   |  |          |        |         |  |             |  |          |       |  |  |  |            |  |  |  | X | 
|        | 31 | .02           |  | Certification by Mark R. Kent pursuant to Rule 13a-14(a).                                                                                                      |  |          |        |         |  |             |  |          |       |  |  |  |            |  |  |  | X | 
|        | 32 | .01           |  | Certification by Arthur L. Swift pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.             |  |          |        |         |  |             |  |          |       |  |  |  |            |  |  |  | X | 
|        | 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.                |  |          |        |         |  |             |  |          |       |  |  |  |            |  |  |  | X | 






|   |                                                 
|-- | ------------------------------------------------
|** | 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.