##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended September 30, 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
(State or other jurisdiction of
incorporation or organization)
    
    77-0402448
(I.R.S. 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)
 þ o
 þ o
 o þ




---



TRANSMETA CORPORATION
 FORM 10-Q
Quarterly Period Ended September 30, 2005
TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004
    
    
    3Unaudited Condensed Consolidated Statements of Operations for the Three and Nine
months Ended September 30, 2005 and September 30, 2004
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the Nine months Ended
September 30, 2005 and September 30, 2004
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    39Item 4. Controls and Procedures
    
    
    39PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    42Item 6. Exhibits
    
    
    42Signatures
    
    
    44EXHIBIT 31.01EXHIBIT 31.02EXHIBIT 32.01EXHIBIT 32.02
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Condensed Consolidated Financial Statements
 TRANSMETA CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and per share amounts)
 September 30,
    
    
    December 31,2005
    
    
    2004 (1)(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    27,107
    
    
    $
    17,273Short-term investments
    
    
    29,767
    
    
    
    36,395Accounts receivable, net of allowance for doubtful accounts of $69 and $9, respectively
    
    
    4,472
    
    
    
    2,290Inventories
    
    
    1,648
    
    
    
    5,410Prepaid expenses and other current assets
    
    
    2,345
    
    
    
    2,218Total current assets
    
    
    65,339
    
    
    
    63,586Property and equipment, net
    
    
    1,866
    
    
    
    2,187Patents and patent rights, net
    
    
    17,791
    
    
    
    22,926Other assets
    
    
    915
    
    
    
    914Total assets
    
    $
    85,911
    
    
    $
    89,613LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,351
    
    
    $
    6,224Accrued compensation and related compensation liabilities
    
    
    2,022
    
    
    
    4,189Accrued inventory-related charges
    
    
    228
    
    
    
    4,876Deferred
income, net
    
    
    6,004
    
    
    
    29Other accrued liabilities
    
    
    1,828
    
    
    
    5,694Advances from customers
    
    
    6,996
    
    
    
    Current portion of accrued restructuring costs
    
    
    2,223
    
    
    
    1,557Short-term note payable
    
    
    5,000
    
    
    
    Current portion of capital lease obligations
    
    
    
    
    
    
    356Total current liabilities
    
    
    25,652
    
    
    
    22,925Long-term accrued restructuring costs, net of current portion
    
    
    3,408
    
    
    
    3,688Long-term note payable, net of current portion
    
    
    
    
    
    
    5,000Commitments
and contingenciesStockholders equity:Preferred stock, $0.00001 par value, at amounts paid in; Authorized shares 
5,000,000. None issued
    
    
    
    
    
    
    Common stock, $0.00001 par value, at amounts paid in; Authorized shares 
1,000,000,000. Issued and outstanding shares  191,549,926 at
September 30, 2005 and 187,773,293 at December 31, 2004
    
    
    712,972
    
    
    
    709,926Treasury
stock shares  796,875 at September 30, 2005 and 796,875 at December 31, 2004
    
    
    (2,439
    )
    
    
    (2,439
    )Accumulated other comprehensive loss
    
    
    (205
    )
    
    
    (125
    )Accumulated deficit
    
    
    (653,477
    )
    
    
    (649,362
    )Total stockholders equity
    
    
    56,851
    
    
    
    58,000Total liabilities and stockholders equity
    
    $
    85,911
    
    
    $
    89,613
 
 (1)
    
    Derived from the Companys audited financial statements as of December 31, 2004, included in
the Companys Form 10-K as amended for the fiscal year ended December 31, 2004 filed with the
Securities and Exchange Commission.  3




---



##### Table of Contents



TRANSMETA CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 Three Months Ended
    
    
    Nine months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004*
    
    
    2005
    
    
    2004*Revenue:Product
    
    $
    7,927
    
    
    $
    3,297
    
    
    $
    21,401
    
    
    $
    13,977License
    
    
    9,628
    
    
    
    3,000
    
    
    
    19,628
    
    
    
    3,000Service
    
    
    10,308
    
    
    
    698
    
    
    
    18,390
    
    
    
    1,220Total revenue
    
    
    27,863
    
    
    
    6,995
    
    
    
    59,419
    
    
    
    18,197Cost of revenue:Product
    
    
    2,167
    
    
    
    11,147
    
    
    
    10,869
    
    
    
    25,681License
    
    
    46
    
    
    
    
    
    
    
    71
    
    
    
    Service
    
    
    6,017
    
    
    
    197
    
    
    
    10,330
    
    
    
    541Total cost of revenue
    
    
    8,230
    
    
    
    11,344
    
    
    
    21,270
    
    
    
    26,222Gross profit (loss)
    
    
    19,633
    
    
    
    (4,349
    )
    
    
    38,149
    
    
    
    (8,025
    )Operating expenses:Research and development( 1)( 2)
    
    
    1,905
    
    
    
    13,751
    
    
    
    17,118
    
    
    
    40,187Selling, general and administrative( 3)(4)
    
    
    4,523
    
    
    
    7,424
    
    
    
    17,475
    
    
    
    21,563Restructuring charges, net
    
    
    1,529
    
    
    
    904
    
    
    
    2,884
    
    
    
    904Amortization of patents and patent rights
    
    
    1,711
    
    
    
    2,233
    
    
    
    5,133
    
    
    
    6,984Stock compensation
    
    
    
    
    
    
    56
    
    
    
    (48
    )
    
    
    1,636Total operating expenses
    
    
    9,668
    
    
    
    24,368
    
    
    
    42,562
    
    
    
    71,274Operating income (loss)
    
    
    9,965
    
    
    
    (28,717
    )
    
    
    (4,413
    )
    
    
    (79,299
    )Interest income and other, net
    
    
    305
    
    
    
    188
    
    
    
    644
    
    
    
    677Interest expense
    
    
    (132
    )
    
    
    (26
    )
    
    
    (346
    )
    
    
    (61
    )Net income (loss)
    
    $
    10,138
    
    
    $
    (28,555
    )
    
    $
    (4,115
    )
    
    $
    (78,683
    )Net income
(loss) per sharebasic and diluted
    
    $
    0.05
    
    
    $
    (0.16
    )
    
    $
    (0.02
    )
    
    $
    (0.45
    )Shares used
in per share calculationbasic
    
    
    190,933
    
    
    
    175,487
    
    
    
    189,984
    
    
    
    173,794Shares used
in per share calculationdiluted
    
    
    197,767
    
    
    
    175,487
    
    
    
    189,984
    
    
    
    173,794
 
 *
    
    As restated in the September 30, 2004 Form 10-Q/A filed November 8, 2004. (1)
    
    Excludes $0 and $79 in amortization of deferred stock compensation for the three months ended
September 30, 2005 and 2004, respectively, and $0 and $434 for the nine months ended September
30, 2005 and 2004, respectively.(2)
    
    Excludes $0 and $(49) in variable stock compensation for the three months ended September
30, 2005 and 2004, respectively, and $(48) and $313 for the nine months ended September 30,
2005 and 2004, respectively.(3)
    
    Excludes $0 and $26 in amortization of deferred stock compensation for the three months ended
September 30, 2005 and 2004, respectively, and $0 and $231 for the nine months ended September
30, 2005 and 2004, respectively.(4)
    
    Excludes $0 and $658 for the nine months ended September 30, 2005 and
2004, respectively.
  4




---



##### Table of Contents



TRANSMETA CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
(Unaudited)
 Nine months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004*Cash flows from operating activities:Net loss
    
    $
    (4,115
    )
    
    $
    (78,683
    )Adjustments to reconcile net loss to net cash used in operating activities:Stock compensation
    
    
    (48
    )
    
    
    1,636Depreciation
    
    
    967
    
    
    
    2,778Allowance for bad debts
    
    
    60
    
    
    
    Amortization of patents and patent rights
    
    
    5,135
    
    
    
    6,984Non cash restructuring charges
    
    
    1,508
    
    
    
    904Changes in operating assets and liabilities:Accounts receivable
    
    
    (2,242
    )
    
    
    (790
    )Inventories
    
    
    3,762
    
    
    
    1,255Prepaid expenses and other current assets
    
    
    (128
    )
    
    
    (269
    )Accounts payable and accrued liabilities
    
    
    (2,681
    )
    
    
    5,680Accrued restructuring charges
    
    
    (1,100
    )
    
    
    (1,314
    )Net cash
provided by (used in) operating activities
    
    
    1,118
    
    
    
    (61,819
    )Cash flows from investing activities:Purchases of available-for-sale investments
    
    
    (22,000
    )
    
    
    (69,994
    )Proceeds
from sale or maturities of available-for-sale investments
    
    
    28,548
    
    
    
    60,162Purchase of property and equipment
    
    
    (668
    )
    
    
    (2,024
    )Payment of patent and patent rights
    
    
    
    
    
    
    (7,500
    )Net cash provided by (used in) investing activities
    
    
    5,880
    
    
    
    (19,356
    )Cash flows from financing activities:Net proceeds from public offering of common stock
    
    
    
    
    
    
    10,289Proceeds from sales of common stock under employee stock purchase and incentive option plans
    
    
    3,174
    
    
    
    4,948Repayment of notes from stockholders
    
    
    18
    
    
    
    857Repayment of debt and capital lease obligations
    
    
    (356
    )
    
    
    (283
    )Net cash provided by financing activities
    
    
    2,836
    
    
    
    15,811Change in cash and cash equivalents
    
    
    9,834
    
    
    
    (65,364
    )Cash and cash equivalents at beginning of period
    
    
    17,273
    
    
    
    83,765Cash and cash equivalents at end of period
    
    $
    27,107
    
    
    $
    18,401
 
 *
    
    As restated in the September 30, 2004 Form 10-Q/A filed November 10, 2004.  5




---



##### Table of Contents



TRANSMETA CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Basis of Presentation
   2. Cash, Cash Equivalents and Short-Term Investments
   Classified on Balance Sheet as:Gross
    
    
    Gross
    
    
    
    
    
    
    Cash andAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Aggregate
    
    
    Cash
    
    
    Short-termcost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value
    
    
    Equivalents
    
    
    InvestmentsAs of September 30, 2005US Government debt securities
    
    $
    24,000
    
    
    $
    
    
    
    $
    (233
    )
    
    $
    23,767
    
    
    $
    
    
    
    $
    23,767Commercial paper
    
    
    6,000
    
    
    
    
    
    
    
    
    
    
    
    6,000
    
    
    
    
    
    
    
    6,000Total
    
    $
    30,000
    
    
    $
    
    
    
    $
    (233
    )
    
    $
    29,767
    
    
    $
    
    
    
    $
    29,767As of December 31, 2004US Government debt securities
    
    $
    21,000
    
    
    $
    1
    
    
    $
    (168
    )
    
    $
    20,833
    
    
    $
    
    
    
    $
    20,833Commercial paper
    
    
    15,569
    
    
    
    
    
    
    
    (7
    )
    
    
    15,562
    
    
    
    
    
    
    
    15,562Total
    
    $
    36,569
    
    
    $
    1
    
    
    $
    (175
    )
    
    $
    36,395
    
    
    $
    
    
    
    $
    36,395
 6




---



##### Table of Contents



3. Net Income (Loss) per Share
  Three Months Ended
    
    
    Nine months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004*
    
    
    2005
    
    
    2004*(in thousands, except for per share amounts)Basic and diluted:Net income (loss), as reported
    
    $
    10,138
    
    
    $
    (28,555
    )
    
    $
    (4,115
    )
    
    $
    (78,683
    )Shares used to compute basic net income (loss) per share
    
    
    190,933
    
    
    
    175,487
    
    
    
    189,984
    
    
    
    173,794Effect of dilutive securities:Common stock equivalents
    
    
    6,834
    
    
    
    
    
    
    
    
    
    
    
    Shares used to compute diluted net income (loss) per share
    
    
    197,767
    
    
    
    175,487
    
    
    
    189,984
    
    
    
    173,794Basic and diluted net income (loss) per share
    
    $
    0.05
    
    
    $
    (0.16
    )
    
    $
    (0.02
    )
    
    $
    (0.45
    )
 
 *
    
    As restated in the September 30, 2004 Form 10-Q/A filed November 10, 2004. 7




---



##### Table of Contents



4. Stock Based Compensation
   Three Months Ended
    
    
    Nine months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004*
    
    
    2005
    
    
    2004*(in thousands, except for per share amounts)Net income (loss), as reported
    
    $
    10,138
    
    
    $
    (28,555
    )
    
    $
    (4,115
    )
    
    $
    (78,683
    )Add: Stock-based employee compensation expense
included in reported net income (loss), net of
related tax effects
    
    
    
    
    
    
    56
    
    
    
    (48
    )
    
    
    1,636Less: Total stock-based employee compensation
expense under fair value based method for all
awards, net of related tax effects
    
    
    (5,275
    )
    
    
    (7,538
    )
    
    
    (10,136
    )
    
    
    (27,652
    )Pro forma net income (loss)
    
    $
    4,863
    
    
    $
    (36,037
    )
    
    $
    (14,299
    )
    
    $
    (104,699
    )Basic and
diluted net income (loss) per share  as reported
    
    $
    0.05
    
    
    $
    (0.16
    )
    
    $
    (0.02
    )
    
    $
    (0.45
    )Basic and diluted net income (loss) per share  pro forma
    
    $
    0.03
    
    
    $
    (0.21
    )
    
    $
    (0.08
    )
    
    $
    (0.60
    )
 
 *
    
    As restated in the September 30, 2004 Form 10-Q/A filed November 10, 2004.  Options
    
    
    ESPPThree Months
    
    
    Nine months
    
    
    Three Months
    
    
    Nine monthsEnded September 30,
    
    
    Ended September 30,
    
    
    Ended September 30,
    
    
    Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Expected
volatility
    
    
    0.98
    
    
    
    0.91
    
    
    
    0.98
    
    
    
    0.91
    
    
    
    0.98
    
    
    
    0.91
    
    
    
    0.98
    
    
    
    0.91Expected life in
years
    
    
    2.7
    
    
    
    3.4
    
    
    
    2.7
    
    
    
    3.4
    
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5Risk-free interest
rate
    
    
    4.0
    %
    
    
    2.9
    %
    
    
    4.0
    %
    
    
    2.7
    %
    
    
    3.7
    %
    
    
    1.8
    %
    
    
    3.7
    %
    
    
    1.4
    %Expected dividend
yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 5. Revenue Recognition and Costs of Revenues
  8




---



##### Table of Contents



Product Revenue and Cost of Product.
 License Revenue and Cost of License
  Service Revenue
 Maintenance and Technical Support Services Revenue
 9




---



##### Table of Contents



Fixed Fee Development Service Revenue and Cost of Services
 Time and Materials Based Design Service Revenue.
  Service Revenue
 Three Months Ended
    
    
    Nine months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,(in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Time & Materials Based Contracts
    
    $
    10,308
    
    
    $
    198
    
    
    $
    18,140
    
    
    $
    720License Related Maintenance & Technical Support Services
    
    
    
    
    
    
    500
    
    
    
    250
    
    
    
    500Total Service Revenue
    
    $
    10,308
    
    
    $
    698
    
    
    $
    18,390
    
    
    $
    1,220Cost of ServicesTime & Materials Based Contracts
    
    $
    6,017
    
    
    $
    197
    
    
    $
    10,330
    
    
    $
    541License Related Maintenance & Technical Support Services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Cost of Services
    
    $
    6,017
    
    
    $
    197
    
    
    $
    10,330
    
    
    $
    541
 6. Net Comprehensive Income (Loss)
  Three Months Ended
    
    
    Nine months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004*
    
    
    2005
    
    
    2004*Net income (loss)
    
    $
    10,138
    
    
    $
    (28,555
    )
    
    $
    (4,115
    )
    
    $
    (78,683
    )Net change
in unrealized gain (loss) on
investments
    
    
    (17
    )
    
    
    132
    
    
    
    (58
    )
    
    
    (108
    )Net change in foreign currency translation adjustments
    
    
    
    
    
    
    13
    
    
    
    (20
    )
    
    
    1Net comprehensive income (loss)
    
    $
    10,121
    
    
    $
    (28,410
    )
    
    $
    (4,193
    )
    
    $
    (78,790
    )
 
 *
    
    As restated in the September 30, 2004 Form 10-Q/A filed November 10, 2004.  September 30,
    
    
    December 31,2005
    
    
    2004Net unrealized loss on investments
    
    $
    (233
    )
    
    $
    (174
    )Cumulative foreign currency translation adjustments
    
    
    28
    
    
    
    49Accumulated other comprehensive loss
    
    $
    (205
    )
    
    $
    (125
    )
 10




---



##### Table of Contents



7. Inventories
  September 30,
    
    
    December 31,2005
    
    
    2004Raw materials
    
    $
    44
    
    
    $
    Work in progress
    
    
    498
    
    
    
    4,158Finished goods
    
    
    1,106
    
    
    
    1,252$
    1,648
    
    
    $
    5,410
  8. Advances from Customers
  9. Other accrued liabilities
  September 30,
    
    
    December 31,2005
    
    
    2004Accrued audit
    
    $
    510
    
    
    $
    1,337Accrued non-recurring engineering
    
    
    6
    
    
    
    1,629Deferred rent
    
    
    423
    
    
    
    512Other
    
    
    889
    
    
    
    2,216Total other accrued liabilities
    
    $
    1,828
    
    
    $
    5,694
 10. Deferred Income
  11




---



##### Table of Contents



September 30,
    
    
    December 31,2005
    
    
    2004Deferred revenue:Product
    
    $
    650
    
    
    $
    61Service
    
    
    7,683
    
    
    
    Total
    
    
    8,333
    
    
    
    61Deferred costs:Product
    
    
    84
    
    
    
    32Service
    
    
    2,245
    
    
    
    Total
    
    
    2,329
    
    
    
    32Deferred income
    
    $
    6,004
    
    
    $
    29
 11. Restructuring Charges
    Excess
    
    
    WorkforceFacilities
    
    
    Reduction
    
    
    TotalBalance as of December 31, 2003
    
    $
    6,071
    
    
    $
    
    
    
    $
    6,071Net cash utilized in fiscal 2004
    
    
    (826
    )
    
    
    
    
    
    
    (826
    )Balance as of December 31, 2004
    
    
    5,245
    
    
    
    
    
    
    
    5,245Restructuring charge
    
    
    1,508
    
    
    
    1,502
    
    
    
    3,010Net cash utilized in the nine month period
    
    
    (1,178
    )
    
    
    (1,446
    )
    
    
    (2,624
    )Balance as of September 30, 2005
    
    $
    5,575
    
    
    $
    56
    
    
    $
    5,631
 12. Related Party Transaction
  13. Geographic and Customer Concentration Information
  Three Months Ended
    
    Nine months EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Sony
    
    
    72
    %
    
    
    *
    %
    
    
    46
    %
    
    
    *
    %Hewlett-Packard
    
    
    20
    %
    
    
    17
    %
    
    
    14
    %
    
    
    35
    %Fujitsu
    
    
    *
    %
    
    
    *
    %
    
    
    20
    %
    
    
    *
    %Sharp
    
    
    *
    %
    
    
    *
    %
    
    
    *
    %
    
    
    15
    %NEC
    
    
    *
    %
    
    
    50
    %
    
    
    *
    %
    
    
    19
    %
 
 *
    
    represents less than 10% of total revenue 12




---



##### Table of Contents



September 30,
    
    December 31,2005
    
    2004Microsoft
    
    
    46
    %
    
    
    *
    %Hewlett-Packard
    
    
    19
    %
    
    
    31
    %All American
    
    
    11
    %
    
    
    *
    %Siltrontech
    
    
    *
    %
    
    
    28
    %Sharp
    
    
    *
    %
    
    
    16
    %
 
 *
    
    represents less than 10% of net accounts receivable 14. 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
 Accounting for Stock-Based Compensation Accounting for Stock-Based Compensation,
  15. Legal Proceedings
 In
re Transmeta Corporation Initial Public Offering Securities Litigation In re
Initial Public Offering Securities Litigation
 13




---



##### Table of Contents



16. Asset purchase and license agreements
   
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Caution Regarding Forward-Looking Statements
    14




---



##### Table of Contents



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 provide the design and engineering services of more than one hundred
Transmeta engineers to work on advanced projects for Sony Group.
    
    On May 12, 2005, we entered into a series of related definitive development
services agreements with Microsoft Corporation, under which agreements we will provide
development services to Microsoft relating to a proprietary Microsoft project.
    
    On May 26, 2005, we entered into related definitive asset purchase and license
agreements with Culture.Com Technology Limited (Culturecom), a Hong Kong based
technology company. As part of the transaction, we agreed to sell our Crusoe product
line to Culturecom. Culturecom will also license our 130-nanometer Efficeon technology
to make and sell Efficeon-based products in Taiwan and China. In addition to up-front
payments, Culturecom will pay royalties to us on sales by Culturecom of Crusoe and
Efficeon products.
  15




---



##### Table of Contents



Critical Accounting Policies
  16




---



##### Table of Contents



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.
 Results of Operations
  Three Months Ended
    
    Nine months EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2005
    
    2004(1)
    
    2005
    
    2004(1)Product
    
    
    28
    %
    
    
    47
    %
    
    
    36
    %
    
    
    77
    %License
    
    
    35
    %
    
    
    43
    %
    
    
    33
    %
    
    
    16
    %Service
    
    
    37
    %
    
    
    10
    %
    
    
    31
    %
    
    
    7
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Costs of product
    
    
    8
    %
    
    
    159
    %
    
    
    18
    %
    
    
    141
    %Costs of license
    
    
    *
    %
    
    
    *
    %
    
    
    *
    %
    
    
    *
    %Costs of service
    
    
    22
    %
    
    
    3
    %
    
    
    18
    %
    
    
    3
    %Total cost of revenue
    
    
    30
    %
    
    
    162
    %
    
    
    36
    %
    
    
    144
    %Gross profit (loss)
    
    
    70
    %
    
    
    (62
    %)
    
    
    64
    %
    
    
    (44
    %)Operating expenses:Research and development
    
    
    7
    %
    
    
    197
    %
    
    
    29
    %
    
    
    221
    %Selling, general and administrative
    
    
    17
    %
    
    
    106
    %
    
    
    29
    %
    
    
    119
    %Restructuring charges
    
    
    5
    %
    
    
    13
    %
    
    
    5
    %
    
    
    5
    %Amortization of patents and patent rights
    
    
    6
    %
    
    
    32
    %
    
    
    9
    %
    
    
    38
    %Stock compensation
    
    
    *
    %
    
    
    1
    %
    
    
    *
    %
    
    
    9
    %Total operating expenses
    
    
    35
    %
    
    
    349
    %
    
    
    72
    %
    
    
    392
    %Operating income (loss)
    
    
    35
    %
    
    
    (411
    %)
    
    
    (8
    %)
    
    
    (436
    %)Interest income and other, net
    
    
    1
    %
    
    
    3
    %
    
    
    1
    %
    
    
    4
    %Interest expense
    
    
    (*
    %)
    
    
    (*
    %)
    
    
    (*
    %)
    
    
    (*
    %)Net income (loss)
    
    
    36
    %
    
    
    (408
    %)
    
    
    (7
    %)
    
    
    (432
    %)
 
 (1)
    
    As restated in the September 30, 2004 Form 10-Q/A filed November 10, 2004. 17




---



##### Table of Contents



Total Revenue
  Three Months Ended
    
    
    Nine months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004(1)
    
    
    2005
    
    
    2004(1)Product
    
    $
    7,927
    
    
    $
    3,297
    
    
    $
    21,401
    
    
    $
    13,977License
    
    
    9,628
    
    
    
    3,000
    
    
    
    19,628
    
    
    
    3,000Service
    
    
    10,308
    
    
    
    698
    
    
    
    18,390
    
    
    
    1,220Total revenue
    
    $
    27,863
    
    
    $
    6,995
    
    
    $
    59,419
    
    
    $
    18,197
 
 (1)
    
    As restated in the September 30, 2004 Form 10-Q/A filed November 10, 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 $4.2 million and
$9.2 million of total product revenue for the three and nine months ended September 30,
2005, respectively, versus $0.9 million and $3.7 million of total product revenue for the
three and nine months ended September 30, 2004, respectively.
    
    Higher unit shipments on slightly lower ASPs of Crusoe product, our first product
line. Revenue from Crusoe products represented $3.7 million and $12.2 million of total
revenue for the three and nine months ended September 30, 2005, respectively, versus $2.4
million and $10.2 million of total product revenue for the three and nine months ended
September 30, 2004, respectively.
  License Revenue.
 Service Revenue.
  18




---



##### Table of Contents



Services Revenue
 Three Months Ended
    
    
    Nine months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,(in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Time & Materials Based Contract
    
    $
    10,308
    
    
    $
    198
    
    
    $
    18,140
    
    
    $
    720Maintenance & Technical Support Services for License
    
    
    
    
    
    
    500
    
    
    
    250
    
    
    
    500Total Services Revenue
    
    $
    10,308
    
    
    $
    698
    
    
    $
    18,390
    
    
    $
    1,220
 Maintenance and Technical Support Services Revenue.
 Fixed Fee Development Service Revenue.
 Time and Materials Based Design Service Revenue.
  Three Months Ended
    
    Nine months EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Sony
    
    
    72
    %
    
    
    *
    %
    
    
    46
    %
    
    
    *
    %Hewlett-Packard
    
    
    20
    %
    
    
    17
    %
    
    
    14
    %
    
    
    35
    %Fujitsu
    
    
    *
    %
    
    
    *
    %
    
    
    20
    %
    
    
    *
    %Sharp
    
    
    *
    %
    
    
    *
    %
    
    
    *
    %
    
    
    15
    %NEC
    
    
    *
    %
    
    
    50
    %
    
    
    *
    %
    
    
    19
    %
 
 *
    
    represents less than 10% of total revenue  September 30,
    
    December 31,2005
    
    2004Microsoft
    
    
    46
    %
    
    
    *
    %Hewlett-Packard
    
    
    19
    %
    
    
    31
    %All American
    
    
    11
    %
    
    
    *
    %Siltrontech
    
    
    *
    %
    
    
    28
    %Sharp
    
    
    *
    %
    
    
    16
    %
 
 *
    
    represents less than 10% of net accounts receivable 19




---



##### Table of Contents



Costs of Revenues
  Products:
  Three Months Ended
    
    Nine months EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2005
    
    2004(1)
    
    2005
    
    2004(1)Product revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of product revenue:Cost of product revenue
before benefits of
previously written down
inventory
    
    
    67.1
    %
    
    
    340.8
    %
    
    
    80.3
    %
    
    
    186.0
    %Benefits to gross
margin from the sale of
previously written down
inventory
    
    
    (39.8
    %)
    
    
    (2.7
    %)
    
    
    (29.5
    %)
    
    
    (2.3
    %)Cost of product revenue
    
    
    27.3
    %
    
    
    338.1
    %
    
    
    50.8
    %
    
    
    183.7
    %Product gross margin
    
    
    72.7
    %
    
    
    (238.1
    %)
    
    
    49.2
    %
    
    
    (83.7
    %)
 
 (1)
    
    As restated in the September 30, 2004 Form 10-Q/A filed November 10, 2004.  
    
    Benefit derived from sale of previously written-down inventory during the first
nine months of 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 the first nine months of 2004;
    
    Higher charges for inventory adjustments in the first nine months of 2004
resulted from manufacturing costs expected to exceed the price at which we expected to
sell these products.
   20




---



##### Table of Contents



Licenses:
 Three Months Ended
    
    
    Nine months Ended(in thousands)
    
    September 30,
    
    
    September 30,
    
    
    September 30,
    
    

September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Cost of License
    
    $
    46
    
    
    $
    
    
    
    $
    71
    
    
    $
    
  Services:
   Costs of Services Revenue
 Three Months Ended
    
    
    Nine months Ended(in thousands)
    
    September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Time & Materials Based Contract
    
    $
    6,017
    
    
    $
    197
    
    
    $
    10,330
    
    
    $
    541License Related Maintenance and Support Services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Cost of Services
    
    $
    6,017
    
    
    $
    197
    
    
    $
    10,330
    
    
    $
    541
 Research and Development
 Three Months Ended
    
    
    Nine months Ended(in thousands)
    
    September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Research and development expenses
    
    $
    1,905
    
    
    $
    13,751
    
    
    $
    17,118
    
    
    $
    40,187Amount reclassified to costs of service and deferred costs (1)
    
    $
    5,753
    
    
    $
    
    
    
    $
    11,778
    
    
    $
    
 
 (1)
    
    In fiscal 2005, we reclassified 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.  21




---



##### Table of Contents



Selling, General and Administrative
 Three Months Ended
    
    
    Nine months Ended(in thousands)
    
    September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Selling, general and administrative expenses
    
    $
    4,523
    
    
    $
    7,424
    
    
    $
    17,475
    
    
    $
    21,563
  Restructuring Charges, net
  Amortization
of Patents and Patent Rights, net
  Stock Compensation
   Three
months ended
    
    

Nine
months endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Variable stock compensation
    
    $
    
    
    
    $
    (49
    )
    
    $
    (48
    )
    
    $
    971Deferred stock compensation
    
    
    
    
    
    
    105
    
    
    
    
    
    
    
    665Total stock compensation
    
    $
    
    
    
    $
    56
    
    
    $
    (48
    )
    
    $
    1,636
 22




---



##### Table of Contents



Interest Income and Other, Net and Interest Expense
  23




---



##### Table of Contents



Liquidity and Capital Resources
        24




---



##### Table of Contents



Nine months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004(in thousands)Net cash provided by (used in) operating activities
    
    $
    1,118
    
    
    $
    (61,819
    )Net cash provided by (used in) investing activities
    
    
    5,880
    
    
    
    (19,356
    )Net cash provided by (used in) financing activities
    
    
    2,836
    
    
    
    15,811Increase (decrease) in cash and cash equivalents
    
    $
    9,834
    
    
    $
    (65,364
    )
     25




---



##### Table of Contents



Contractual Obligations
  Payments Due by PeriodLess Than
    
    
    1-3
    
    
    AfterContractual Obligations
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    4 Years(In thousands)Operating Leases(1)
    
    $
    15,004
    
    
    $
    4,623
    
    
    $
    10,373
    
    
    $
    8Unconditional Purchase Obligations(2)
    
    
    2,618
    
    
    
    2,349
    
    
    
    269
    
    
    
    Other Obligations(3)
    
    
    5,056
    
    
    
    5,056
    
    
    
    
    
    
    
    Total
    
    $
    22,678
    
    
    $
    12,028
    
    
    $
    10,642
    
    
    $
    8
 
 (1)
    
    Operating leases include agreements for building facilities.(2)
    
    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. Purchase obligations also include agreements for design
tools and software for use in product development.(3)
    
    Other obligations represent payments of $5.0 million to our development partner and payments
of $0.1 million pertaining to our restructuring charge. 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
 Accounting for Stock-Based Compensation Accounting for Stock-Based Compensation,
  Risks that Could Affect Future Results
 The factors discussed below are cautionary statements that identify important factors that
could cause actual results to differ materially from those anticipated in the forward-looking
statements in this Quarterly Report on Form 10-Q . If any of the following risks actually occurs,
our business, financial condition and results of operations would suffer. In this case, the trading
price of our common stock could decline and investors might lose all or part of their investment in
our common stock.
 We have a history of losses, and we must successfully execute on our modified business model and
restructuring plan if we are to sustain our operations.
  26




---



##### Table of Contents



We might fail to execute our restructuring plan or to operate successfully under our modified
business model.
  Our restructuring plan and related reductions in our workforce may adversely affect the morale and
performance of our personnel, the rate of attrition among our personnel, our ability to hire new
personnel and our ability to conduct our business operations.
  We might not be able to execute on our modified business model and restructuring plan if we lose
key management or technical personnel, on whose knowledge, leadership and technical expertise we
rely.
  27




---



##### Table of Contents



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;
    
    enhance our operating infrastructure;
    
    hire additional personnel;
    
    respond to customer concerns about our viability;
    
    respond to competitive pressures; or
    
    acquire complementary businesses or technologies.
  28




---



##### Table of Contents



We may fail to meet the continued listing requirements of the Nasdaq Stock Market, which may cause
our stock to be delisted and result in reduced liquidity of our stock, reduce the trading price of
our stock, and impair our ability to raise financing.
  Our product revenue and our product business may be negatively impacted by modifications to our
business model that we have recently implemented or are contemplating.
  The success of our licensing business depends on maintaining and increasing our LongRun2 licensing
revenue.
  We have limited visibility regarding when and to what extent our licensees will use our LongRun2 or
other licensed technologies.
  
    
    the competition these companies face and the market acceptance of their products;
    
    the pricing policies of our licensees for their products incorporating our technology
and whether those products are competitively priced;
 29




---



##### Table of Contents




    
    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.
  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.
  30




---



##### Table of Contents



Our restructuring plan has reduced our resources and ability to pursue opportunities and support
customers in emerging markets for our microprocessor products.
  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 x86-compatible microprocessor and power management markets. Many
of our competitors are much larger than we are and have significantly greater resources. We may not
be able to compete effectively.
      31




---



##### Table of Contents



We may experience manufacturing difficulties that could increase the cost and reduce the supply of
our products.
  Our lengthy and variable product sales cycles make it difficult for us to predict when and if a
design win will result in volume shipments.
  If we fail to forecast demand for our products accurately, we could lose sales and incur inventory
losses.
  32




---



##### Table of Contents



If our customers are not able to obtain the other components necessary to build their systems,
sales of our products could be delayed or cancelled.
  We rely on an independent foundry that has no obligation to provide us with fixed pricing or
production capacity for the fabrication of our wafers, and our business will suffer if we are
unable to obtain sufficient production capacity on favorable terms.
  Our reliance on TSMC and Fujitsu Limited to fabricate our wafers limits our ability to control the
production, supply and delivery of our products.
  
    
    unpredictability of manufacturing yields and production costs;
    
    interruptions in shipments;
    
    inability to control quality of finished products;
    
    inability to control product delivery schedules;
    
    potential lack of access to key fabrication process technologies; and
    
    potentially greater exposure to misappropriation of our intellectual property.
 We depend on ASE to provide assembly and test services. If ASE were to cease providing services to
us in a timely manner and on acceptable terms, our business would suffer.
  33




---



##### Table of Contents



If our products are not compatible with industry standards, hardware that our customers design into
their systems or that is used by end-users or software applications or operating systems for
x86-compatible microprocessors, market acceptance of our products and our ability to maintain or
increase our revenues would suffer.
    Our products may have defects that could damage our reputation, decrease market acceptance of our
products, cause us to lose customers and revenue and result in liability to us.
  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.
  34




---



##### Table of Contents



Advances in battery design, cooling systems and power management systems could adversely affect our
ability to achieve widespread market acceptance for our products.
  Our products and technologies may infringe the intellectual property rights of others, which may
cause us to become subject to expensive litigation, cause us to incur substantial damages, require
us to pay significant license fees or prevent us from selling our products.
   Any dispute regarding our intellectual property may require us to indemnify certain licensees or
third parties, the cost of which could severely hamper our business operations and financial
condition.
  If we are unable to protect our proprietary rights adequately, our competitors might gain access to
our technology and we might not compete successfully in our markets.
  35




---



##### Table of Contents



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




---



##### Table of Contents



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.
  37




---



##### Table of Contents



Our California facilities and the facilities of third parties upon which we rely to provide us
critical services are located in regions that are subject to earthquakes and other natural
disasters.
  Our certificate of incorporation and bylaws, stockholder rights plan and Delaware law contain
provisions that could discourage or prevent a takeover, even if an acquisition would be beneficial
to our stockholders.
  
    
    establishing a classified board of directors so that not all members of our board may be elected at one time;
    
    providing that directors may be removed only for cause and only with the vote of 66 2/3% of our outstanding shares;
    
    requiring super-majority voting to amend some provisions in our certificate of incorporation and bylaws;
    
    authorizing the issuance of blank check preferred stock that our board could issue to
increase the number of shares 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 upon by be acted stockholders at stockholder meetings.
  Our reported financial results may be adversely affected by changes in accounting principles
generally accepted in the United States.
  We have identified material weaknesses in our internal control over financial reporting, which
contributed to our need to amend our financial statements for the second quarter of fiscal 2004.
  38




---



##### Table of Contents



Changes in securities laws and regulations have increased our costs.
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Interest Rate Risk.
 Foreign Currency Exchange Risk.
 
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
  39




---



##### Table of Contents



Internal Control Over Financial Reporting
   
    
    Period-end close and financial reporting;
    
    Contract administration;
    
    Inventory and cost accounting;
    
    Inadequate technical accounting staff;
    
    Fixed asset accounting; and
    
    Segregation of duties in accounts payable function.
  Remediation Actions to Address Material Weaknesses in Internal Control over Financial Reporting
    40




---



##### Table of Contents



Inherent Limitations on Effectiveness of Controls
  Changes in Internal Control over Financial Reporting
  41




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 In
re Transmeta Corporation Initial Public Offering Securities Litigation In re
Initial Public Offering Securities Litigation
 
 Item 6. Exhibits
 Exhibits.
 42




---



##### Table of Contents



Exhibit Number
    
    Exhibit Title31.01
    
    Certification by Arthur L. Swift pursuant to Rule 13a-14(a) promulgated under
the Securities Exchange Act of 1934.31.02
    
    Certification by Mark R. Kent pursuant to Rule 13a-14(a) promulgated under the
Securities Exchange Act of 1934.32.01*
    
    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 2002.32.02*
    
    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.
 
 *
    
    As contemplated by SEC Release No. 33-8238, these exhibits are furnished with this quarterly
report on Form 10-Q and are not deemed filed with the Securities and Exchange Commission and
are not incorporated by reference in any filing of Transmeta Corporation under the Securities
Act of 1933 or the Securities Exchange Act of 1934, including this quarterly report, whether
made before or after the date hereof and irrespective of any general incorporation language in
any filings. 43




---



##### Table of Contents



SIGNATURES
  TRANSMETA CORPORATIONBy
    
    /s/ MARK R. KENT

Mark R. KentChief Financial Officer(Principal Financial Officer and Duly AuthorizedDate: November 9, 2005
    
    
    
    Officer)
 44




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit Number
    
    Exhibit Title31.01
    
    Certification by Arthur L. Swift pursuant to Rule 13a-14(a) promulgated under the
Securities Exchange Act of 1934.31.02
    
    Certification by Mark R. Kent pursuant to Rule 13a-14(a) promulgated under the Securities
Exchange Act of 1934.32.01*
    
    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 2002.32.02*
    
    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.
 
 *
    
    As contemplated by SEC Release No. 33-8238, these exhibits are furnished with this quarterly
report on Form 10-Q and are not deemed filed with the Securities and Exchange Commission and
are not incorporated by reference in any filing of Transmeta Corporation under the Securities
Act of 1933 or the Securities Exchange Act of 1934, including this quarterly report, whether
made before or after the date hereof and irrespective of any general incorporation language in
any filings.