##### Table of Contents









UNITED STATES 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 Fiscal Year Ended June 3, 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 No. 000-29597


Palm, Inc.


(Exact name of registrant as specified in its charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 94-3150688                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)

950 West Maude


Sunnyvale, California 94085


(Address of principal executive offices and zip code)


Registrants telephone number, including area code:
(408) 617-7000


Securities registered pursuant to Section 12(b) of the
Act: NONE


Securities registered pursuant to Section 12(g) of the
Act: Common Stock, $.001 par value


Preferred Share Purchase Rights, $.001 par
value


þ o


o


þ o
















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Palm, Inc.


Form 10-K


For the Fiscal Year Ended May 31, 2005*


Table of Contents







|              |  |                                                                                                                      |  |      |    | 
|------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|              |  |                                                                                                                      |  | Page |   
|              |  |                                                                                                                      |  |      |   
|PART I       
|Item 1.       |  | Business                                                                                                             |  |      | 4  | 
|Item 2.       |  | Properties                                                                                                           |  |      | 13 | 
|Item 3.       |  | Legal Proceedings                                                                                                    |  |      | 14 | 
|Item 4.       |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |      | 14 | 
|             
|PART II      
|Item 5.       |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |      | 14 | 
|Item 6.       |  | Selected Financial Data                                                                                              |  |      | 14 | 
|Item 7.       |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operation                             |  |      | 16 | 
|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                             |  |      | 82 | 
|Item 9A.      |  | Controls and Procedures                                                                                              |  |      | 82 | 
|Item 9B.      |  | Other Information                                                                                                    |  |      | 85 | 
|             
|PART III     
|Item 10.      |  | Directors and Executive Officers of the
    Registrant                                                               |  |      | 85 | 
|Item 11.      |  | Executive Compensation                                                                                               |  |      | 85 | 
|Item 12.      |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |  |      | 85 | 
|Item 13.      |  | Certain Relationships and Related
    Transactions                                                                   |  |      | 85 | 
|Item 14.      |  | Principal Accountant Fees and Services                                                                               |  |      | 85 | 
|             
|PART IV      
|Item 15.      |  | Exhibits and Financial Statement
    Schedule                                                                        |  |      | 86 | 
|              |  | Signatures                                                                                                           |  |      | 89 | 
|              |  | Schedule IIValuation and
    Qualifying Accounts                                                                    |  |      | 90 | 
|EXHIBIT 4.2  
|EXHIBIT 4.6  
|EXHIBIT 10.1 
|EXHIBIT 10.25
|EXHIBIT 21.1 
|EXHIBIT 23.1 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32.1 








|  |                                                                                                                                           
|- | ------------------------------------------------------------------------------------------------------------------------------------------
|* | Our fiscal year ends on the Friday nearest May 31. For
    presentation purposes, the periods have been presented as ending
    on May 31.



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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS:






3



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Part I







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

Business Summary








Corporate Background








4



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Corporate Strategy






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Develop market-defining products that deliver a great user
    experience. Customer requirements and user experience drive
    our product design and development. We have a long track record
    of innovation and creating new product categories. We
    revolutionized handheld computing in 1996 with the launch of the
    Pilotthe connected organizerthat allowed
    users to synchronize their calendar and contact list with a
    personal computer. We set the standard in smartphones with Treo,
    which merges a full feature cellular telephone with a QWERTY
    keyboard to provide communication, computing and camera
    applications in a single, compact form factor. In May 2005, we
    launched LifeDrive, an innovative device that combines the
    computing power and mobility of a handheld, storage capacity of
    a hard drive and wireless connectivity. From the original Pilot
    to todays Zire, Tungsten, LifeDrive and Treo product
    lines, we have maintained a leading position in our target
    markets by focusing on the customer and innovation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Capitalize on industry trends. Infrastructure and
    technology advancements enable new applications, which we expect
    will drive increased market demand for our products. The
    emergence of high-speed wireless data networks fundamentally
    enhances the utility of a mobile device with wireless
    capabilities by increasing users ability to communicate
    and manage their personal digital information anytime, anywhere.
    At the same time, underlying device platforms are evolving
    rapidly. For example, todays mobile computing devices have
    richer color displays and increased memory and computing power.
    Wireless data capabilities, the digitization of content and
    todays advanced device platforms pave the way for new
    mobile applications, such as those involving email, messaging,
    office documents, mapping, global positioning systems, or GPS,
    digital photos, video, music and high bandwidth data
    applications. By incorporating these new applications into our
    products and using our software expertise to enhance the total
    user experience, we intend to differentiate our products, to
    bring new customers to the category, to capitalize on the trend
    towards increasingly converged devices and to drive an upgrade
    path for the millions of people who already own a mobile
    computing device.                                                                                                                                                                                                                                                                                      
|
| |  | Manage a diversified portfolio of mobile computing
    products. We are focusing a significant amount of our
    resources on smartphones, a growing product category. Smartphone
    products require careful integration of several key
    featuresvoice, personal information management, or PIM,
    digital content and messaging. We bring a unique perspective to
    this marketcombining mobile computing and communications
    capabilities. To help drive smartphone adoption, we intend to
    expand the number of smartphones we offer, broaden and expand
    our carrier relationships, particularly internationally, work
    closely with application providers to optimize our device
    platform for wireless applications and market smartphone
    solutions to our installed base of handheld computing users. At
    the same time, given our leadership position, we intend to
    optimize the financial and strategic contribution of our
    handheld computer products. We will continue to attract
    first-time buyers, traditional mobile professionals, and digital
    media enthusiasts with our Zire, Tungsten and LifeDrive handheld
    product lines. Entry-level handhelds and the LifeDrive mobile
    manager products increase our addressable market, bringing new
    people to the category and providing a foundation for future
    upgrade sales. Furthermore, handheld computers provide presence
    in the marketplace for our brand and products, scale, revenue
    diversification, revenue for research and development funding
    and a technology development platform, that can be leveraged to
    grow our sales of smartphones.
|
| |  | Build our brand. With the reacquisition of the Palm
    brand, which has widespread recognition and linkage with mobile
    computing devices, we intend to build end-users awareness
    of our products. We believe that developing a strong Palm brand
    is key to product differentiation and market leadership.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

Products and Services




5



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| |   |                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | wireless communication capabilities, such as Bluetooth, wireless
    fidelity, or WiFi, Code-Division Multiple Access, or CDMA and
    Global System for Mobile Communications, or GSM, to enable
    messaging, email, web browsing and wireless ActiveSync;
|
| |  | multimedia features, allowing users to capture and view photos,
    capture and view video clips, watch feature length movies and
    listen to MP3 music;                                                                                                   
|
| |  | an infrared port for exchanging information between devices;                                                                                                                                                                                                 
|
| |  | a secure digital/multimedia card, or SD/ MMC, slot for
    stamp-sized expansion cards for storage, content and
    input/output devices;                                                                                                                    
|
| |  | data synchronization technology (HotSync) enabling the device to
    synchronize with desktop applications such as Microsoft
    Outlook; and                                                                                                                
|
| |  | productivity software, such as DataVizs Documents to Go
    which allows users to create, view and edit Microsoft Word and
    Excel files and view and share PowerPoint presentations.                                                                     



| |     
| | ----
| | Zire









| |         
| | --------
| | Tungsten





6



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| |          
| | ---------
| | LifeDrive







| |     
| | ----
| | Treo







7



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| |                        
| | -----------------------
| | Add-ons and Accessories



Customers






| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | Ingram Micro represented 12%, 15% and 19%;                                             
|
| |  | Sprint represented 11%, 7% and 0%;                                                     
|
| |  | Cingular Wireless/AT&T, shown as a combined entity,
    represented 11%, 3% and 0%; and
|
| |  | Verizon Wireless represented 9%, 0% and 0%.                                            



Competition






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | personal computer companies, such as Acer, ASUSTek, BenQ, Dell,
    Hewlett-Packard, Medion and MiTac, and consumer electronics
    companies, such as Garmin, NEC and Yakumo, which also develop
    and sell handheld computing products, mobile managers and/or
    smartphone products running on the Palm OS and/or other
    operating systems, such as Microsofts Windows Mobile
    operating system, Linux or proprietary operating systems;
|
| |  | mobile handset manufacturers, such as High Tech Computer (HTC),
    Kyocera, LG, Motorola, Nokia, Research in Motion, Samsung,
    Sanyo, Siemens and Sony-Ericsson, which also develop
    smartphones, other wireless products and/or mobile managers
    running on the Palm OS and/or other operating systems, such as
    Microsofts Windows Mobile operating system, Linux or
    proprietary operating systems; and                           
|
| |  | a variety of early-stage technology companies.                                                                                                                                                                                                                                                                                                                                                                                                        







8



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Sales and Marketing


www.palm.com










Customer Service and Support




9



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Research and Development












Manufacturing and Supply Chain






10



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##### Table of Contents





Backlog








Seasonality






Intellectual Property








11



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Employees




Fiscal Year End




Financial Information about Segments




|                                         |  |                     |           |  |      |   |         |      |  |   |          |  
|---------------------------------------- |  | ------------------- | --------- |  | ---- | - | ------- | ---- |  | - | -------- | -
|                                         |  | Years Ended May 31, |          
|                                         |  |                     |          
|                                         |  | 2005                |           |  | 2004 |   |         | 2003 | 
|                                         |  |                     |           |  |      |   |         |      | 
|Revenues                                 |  | $                   | 1,270,410 |  |      | $ | 949,654 |      |  | $ | 837,637  |  
|Income (loss) from continuing operations |  |                     | 66,387    |  |      |   | (10,215 | )    |  |   | (417,855 | )
|Loss from discontinued operations        |  |                     |          |  |      |   | (11,634 | )    |  |   | (24,727  | )
|Net income (loss)                        |  |                     | 66,387    |  |      |   | (21,849 | )    |  |   | (442,582 | )

12



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|               |  |         |         |  |      |   |         |      |  |   |         | 
|-------------- |  | ------- | ------- |  | ---- | - | ------- | ---- |  | - | ------- | 
|               |  | May 31, |        
|               |  |         |        
|(in thousands) |  | 2005    |         |  | 2004 |   |         | 2003 | 
|               |  |         |         |  |      |   |         |      | 
|Total assets   |  | $       | 950,032 |  |      | $ | 787,938 |      |  | $ | 576,626 | 

Financial Information about Geographic Areas




|          |               |                     |   |         |           |  |   |         |         |  |   |         |         | 
|--------- | ------------- | ------------------- | - | ------- | --------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|          |               | Years Ended May 31, |  
|          |               |                     |  
|          |               | 2005                |   |         | 2004      |  |   | 2003    |        
|          |               |                     |   |         |           |  |   |         |        
|Revenues: |               |                     |   |         |           |  |   |         |         |  |   |        
|          | United States |                     | $ | 848,052 |           |  | $ | 573,465 |         |  | $ | 492,512 |        
|          | Other         |                     |   | 422,358 |           |  |   | 376,189 |         |  |   | 345,125 |        
|          |               |                     |   |         |           |  |   |         |        
|          |               | Total               |   | $       | 1,270,410 |  |   | $       | 949,654 |  |   | $       | 837,637 | 
|          |               |                     |   |         |           |  |   |         |        



|                                              |               |         |   |        |        |  |   |        |        |  |   |        |        | 
|--------------------------------------------- | ------------- | ------- | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                              |               | May 31, |  
|                                              |               |         |  
|                                              |               | 2005    |   |        | 2004   |  |   | 2003   |       
|                                              |               |         |   |        |        |  |   |        |       
|Land not in use, property and equipment, net: |               |         |   |        |        |  |   |        |        |  |   |       
|                                              | United States |         | $ | 78,155 |        |  | $ | 78,456 |        |  | $ | 89,649 |       
|                                              | Other         |         |   | 1,003  |        |  |   | 969    |        |  |   | 1,555  |       
|                                              |               |         |   |        |        |  |   |        |       
|                                              |               | Total   |   | $      | 79,158 |  |   | $      | 79,425 |  |   | $      | 91,204 | 
|                                              |               |         |   |        |        |  |   |        |       

Available Information


www.palm.com, investor.relations@palm.com http://www.sec.gov.







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





13



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








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






Part II







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



|                 |  |      |       |  |     |   |       |  |  |                  |  |   |       |  |  |   |       |  |  | 
|---------------- |  | ---- | ----- |  | --- | - | ----- |  |  | ---------------- |  | - | ----- |  |  | - | ----- |  |  | 
|                 |  | High |       |  | Low |   |       |  |  | High             |  |   | Low   | 
|                 |  |      |       |  |     |   |       |  |  |                  |  |   |       | 
|Fiscal Year 2005 |  |      |       |  |     |   |       |  |  | Fiscal Year 2004 |  |   |       |  |  |   |       | 
|Fourth quarter   |  | $    | 28.84 |  |     | $ | 21.43 |  |  | Fourth quarter   |  | $ | 23.55 |  |  | $ | 10.47 | 
|Third quarter    |  | $    | 44.60 |  |     | $ | 21.75 |  |  | Third quarter    |  | $ | 15.26 |  |  | $ | 9.61  | 
|Second quarter   |  | $    | 39.75 |  |     | $ | 26.95 |  |  | Second quarter   |  | $ | 18.40 |  |  | $ | 12.40 | 
|First quarter    |  | $    | 41.54 |  |     | $ | 20.31 |  |  | First quarter    |  | $ | 12.34 |  |  | $ | 8.11  | 





|                              |  |              |        |  |               |   |       | 
|----------------------------- |  | ------------ | ------ |  | ------------- | - | ----- | 
|                              |  | Total Number |        |  | Average Price |  
|                              |  | of Shares    |        |  | Paid Per      |  
|                              |  | Purchased    |        |  | Share         |  
|                              |  |              |        |  |               |  
|March 1, 2005March 31, 2005  |  |              | 1,810  |  |               | $ | 22.53 | 
|April 1, 2005April, 30, 2005 |  |              | 235    |  |               | $ | 31.42 | 
|May 1, 2005May 31, 2005      |  |              | 8,556  |  |               | $ | 27.39 | 
|                              |  |              |        |  |               |  
|                              |  |              | 10,601 |  |               | $ | 26.65 | 
|                              |  |              |        |  |               |  








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



14



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|                                                  |                         |                                       |           |        |          |   |         |          |   |   |          |        |   |          |           |        |   |   |           |        |  
|------------------------------------------------- | ----------------------- | ------------------------------------- | --------- | ------ | -------- | - | ------- | -------- | - | - | -------- | ------ | - | -------- | --------- | ------ | - | - | --------- | ------ | -
|                                                  |                         | Years Ended May 31,                   |          
|                                                  |                         |                                       |          
|                                                  |                         | 2005 (1)                              |           |        | 2004 (2) |   |         | 2003 (3) |   |   | 2002 (4) |        |   | 2001 (5) |          
|                                                  |                         |                                       |           |        |          |   |         |          |   |   |          |        |   |          |          
|                                                  |                         | (in thousands, except per share data) |          
|Consolidated Statements of Operations Data:       |                         |                                       |           |        |          |   |         |          |   |   |          |        |   |          |           |        |   |   |           |       
|Revenues                                          |                         | $                                     | 1,270,410 |        |          | $ | 949,654 |          |   | $ | 837,637  |        |   | $        | 1,004,388 |        |   | $ | 1,533,171 |       
|Cost of revenues *                                |                         |                                       | 880,358   |        |          |   | 677,365 |          |   |   | 625,879  |        |   |          | 691,534   |        |   |   | 1,389,134 |       
|Operating income (loss)                           |                         |                                       | 77,528    |        |          |   | (4,080  | )        |   |   | (197,932 | )      |   |          | (92,564   | )      |   |   | (552,980  | )     
|Income (loss) from continuing operations          |                         |                                       | 66,387    |        |          |   | (10,215 | )        |   |   | (417,855 | )      |   |          | (65,151   | )      |   |   | (343,395  | )     
|Loss from discontinued operations                 |                         |                                       |          |        |          |   | (11,634 | )        |   |   | (24,727  | )      |   |          | (17,017   | )      |   |   | (13,081   | )     
|Net income (loss)                                 |                         |                                       | 66,387    |        |          |   | (21,849 | )        |   |   | (442,582 | )      |   |          | (82,168   | )      |   |   | (356,476  | )     
|Net income (loss) per sharebasic:                |                         |                                       |           |        |          |   |         |          |   |   |          |        |   |          |           |        |   |   |           |       
|                                                  | Continuing operations   |                                       | $         | 1.37   |          |   | $       | (0.26    | ) |   | $        | (14.38 | ) |          | $         | (2.28  | ) |   | $         | (12.13 | )
|                                                  | Discontinued operations |                                       |           |       |          |   |         | (0.29    | ) |   |          | (0.85  | ) |          |           | (0.59  | ) |   |           | (0.46  | )
|                                                  |                         |                                       |           |        |          |   |         |          |   |   |          |        |   |          |          
|                                                  |                         | $                                     | 1.37      |        |          | $ | (0.55   | )        |   | $ | (15.23   | )      |   | $        | (2.87     | )      |   | $ | (12.59    | )     
|                                                  |                         |                                       |           |        |          |   |         |          |   |   |          |        |   |          |          
|Net Income (loss) per share  diluted:            |                         |                                       |           |        |          |   |         |          |   |   |          |        |   |          |           |        |   |   |           |       
|                                                  | Continuing operations   |                                       | $         | 1.29   |          |   | $       | (0.26    | ) |   | $        | (14.38 | ) |          | $         | (2.28  | ) |   | $         | (12.13 | )
|                                                  | Discontinued operations |                                       |           |       |          |   |         | (0.29    | ) |   |          | (0.85  | ) |          |           | (0.59  | ) |   |           | (0.46  | )
|                                                  |                         |                                       |           |        |          |   |         |          |   |   |          |        |   |          |          
|                                                  |                         | $                                     | 1.29      |        |          | $ | (0.55   | )        |   | $ | (15.23   | )      |   | $        | (2.87     | )      |   | $ | (12.59    | )     
|                                                  |                         |                                       |           |        |          |   |         |          |   |   |          |        |   |          |          
|Shares used in computing per share amounts:       |                         |                                       |           |        |          |   |         |          |   |   |          |        |   |          |           |        |   |   |           |       
|                                                  | Basic                   |                                       |           | 48,486 |          |   |         | 39,686   |   |   |          | 29,069 |   |          |           | 28,640 |   |   |           | 28,307 |  
|                                                  | Diluted                 |                                       |           | 51,290 |          |   |         | 39,686   |   |   |          | 29,069 |   |          |           | 28,640 |   |   |           | 28,307 |  
|Consolidated Balance Sheet Data:                  |                         |                                       |           |        |          |   |         |          |   |   |          |        |   |          |           |        |   |   |           |       
|Cash, cash equivalents and short-term investments |                         | $                                     | 362,699   |        |          | $ | 252,451 |          |   | $ | 204,967  |        |   | $        | 265,829   |        |   | $ | 513,386   |       
|Working capital                                   |                         |                                       | 231,060   |        |          |   | 142,698 |          |   |   | 133,677  |        |   |          | 245,181   |        |   |   | 217,763   |       
|Total assets                                      |                         |                                       | 950,032   |        |          |   | 787,938 |          |   |   | 576,626  |        |   |          | 989,096   |        |   |   | 1,233,377 |       
|Long-term convertible debt                        |                         |                                       | 35,000    |        |          |   | 35,000  |          |   |   | 35,000   |        |   |          | 35,000    |        |   |   |          |       
|Other non-current liabilities                     |                         |                                       | 12,257    |        |          |   | 1,600   |          |   |   |         |        |   |          |          |        |   |   |          |       
|Total stockholders equity                        |                         |                                       | 581,023   |        |          |   | 491,534 |          |   |   | 255,786  |        |   |          | 690,848   |        |   |   | 734,152   |       






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes employee separation costs of $3.1 million recorded
    for certain of our employees, including our former chief
    executive officer, for one-time payments, and $0.3 million
    reported in amortization of intangible assets and deferred
    stock-based compensation for charges associated with unvested
    shares of Palm restricted stock and a portion of the unvested
    options to purchase shares of Palm common stock that had their
    vesting accelerated in connection with employee separation costs.                                                                                                                                             
|   
|(2) | Includes results of operations of the acquired Handspring
    business as of October 29, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(3) | Includes a $219.6 million increase in our valuation
    allowance to reduce our net deferred tax assets to estimated
    realizable value, based on estimates and certain tax planning
    strategies. See Managements Discussion and Analysis of
    Financial Condition and Results of Operation, Item 7 of
    Part II of this Form 10-K for additional details.                                                                                                                                                                                                                                                                                                            
|   
|(4) | During fiscal year 2002, we experienced continued customer
    demand for the products that had been previously written off in
    fiscal year 2001 and settled the component purchase commitments
    for less than the original amount. Accordingly, during fiscal
    year 2002, we recognized a benefit of $101.8 million
    reported as cost of revenuescharge (benefit) for special
    excess inventory and related costs, because we were able to sell
    approximately $83.0 million of inventory that had
    previously been written off and to realize approximately
    $18.8 million from the favorable settlement of
    non-cancelable component commitments.

15



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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | In the fourth quarter of fiscal year 2001, we recorded a
    $268.9 million inventory related charge reported in cost of
    revenuescharge (benefit) for special excess inventory and
    related costs. During the first three quarters of fiscal year
    2001, we were experiencing high growth rates and product supply
    constraints, including limited supply of certain key components.
    As a result we purchased inventory and made purchase commitments
    with third party suppliers in anticipation of the continuation
    of this trend. During the fourth quarter of fiscal year 2001, we
    experienced a sudden and significant decline in demand for our
    products. Revenues in the fourth quarter of fiscal year 2001
    were $157.6 million compared to revenues of
    $463.3 million during the third quarter of fiscal year
    2001. This rapid and unexpected decline in demand for handheld
    device products and in revenues resulted in Palm recording a
    charge totaling $268.9 million consisting of
    $144.3 million for excess inventory and related tooling
    costs and $124.6 million of non-cancelable inventory
    purchase commitments in excess of our forecasted needs. This
    excess inventory charge was calculated in accordance with our
    policy, which is based on inventory levels determined to be in
    excess of anticipated 12-month demand based upon the
    Companys internal sales and marketing forecasts of product
    demand and inventory levels in the distribution channel.
|   
|*   | Cost of revenues includes cost of revenues,
    cost of revenuescharge (benefit) for special excess
    inventory and related costs and the applicable portion of
    amortization of intangible assets and deferred stock-based
    compensation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           






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



Overview and Executive Summary










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| |   |                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | While the market for handheld computers is maturing, our
    leadership position and our ability to develop high quality
    products enable us to produce solid operating performance from
    this product line. The handheld computing device product line
    also provides a brand and scale that can be leveraged across our
    entire product portfolio.         
|
| |  | The emerging high-speed wireless networks which enable true
    always-on connectivity are fueling the growth of the
    handheld communications device market. With our computing
    heritage, we are able to work closely with carriers to deploy
    advanced wireless data applications that take advantage of their
    recently deployed wireless data networks.



Critical Accounting Policies




Revenue Recognition, Software Revenue Recognition,




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Goodwill and Other Intangible Assets. Accounting for the Disposal of
Long-Lived Assets,


Accounting for Costs Associated with
Exit or Disposal Activities, Liability
Recognition for Costs to Exit an Activity (Including Certain
Costs Incurred in a Restructuring)


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Results of Operations


Comparison of Fiscal Years Ended May 31, 2005 and
2004




| |         
| | --------
| | Revenues

|         |  |                        |           |  |              |  |       |      |  |   |              |  |  |            |       |   |  |   |         | 
|-------- |  | ---------------------- | --------- |  | ------------ |  | ----- | ---- |  | - | ------------ |  |  | ---------- | ----- | - |  | - | ------- | 
|         |  | Years Ended May 31,    |           |  |             
|         |  |                        |           |  | Increase/    | 
|         |  | 2005                   |           |  | % of Revenue |  |       | 2004 |  |   | % of Revenue |  |  | (Decrease) |      
|         |  |                        |           |  |              |  |       |      |  |   |              |  |  |            |      
|         |  | (dollars in thousands) |          
|Revenues |  | $                      | 1,270,410 |  |              |  | 100.0 | %    |  | $ | 949,654      |  |  |            | 100.0 | % |  | $ | 320,756 | 





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

|                                                                                                  |  |                        |         |  |              |  |      |      |  |   |              |  |  |            |      |   |  |   |         | 
|------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- |  | ------------ |  | ---- | ---- |  | - | ------------ |  |  | ---------- | ---- | - |  | - | ------- | 
|                                                                                                  |  | Years Ended May 31,    |         |  |             
|                                                                                                  |  |                        |         |  | Increase/    | 
|                                                                                                  |  | 2005                   |         |  | % of Revenue |  |      | 2004 |  |   | % of Revenue |  |  | (Decrease) |     
|                                                                                                  |  |                        |         |  |              |  |      |      |  |   |              |  |  |            |     
|                                                                                                  |  | (dollars in thousands) |        
|Cost of revenues                                                                                  |  | $                      | 879,435 |  |              |  | 69.2 | %    |  | $ | 676,791      |  |  |            | 71.3 | % |  | $ | 202,644 | 
|Applicable portion of amortization of intangible assets and
    deferred stock-based compensation |  |                        | 923     |  |              |  | 0.1  |      |  |   | 574          |  |  |            |     |   |  |   | 349     | 
|                                                                                                  |  |                        |         |  |              |  |      |      |  |   |              |  |  |            |     
|Total cost of revenues                                                                            |  | $                      | 880,358 |  |              |  | 69.3 | %    |  | $ | 677,365      |  |  |            | 71.3 | % |  | $ | 202,993 | 







| |                    
| | -------------------
| | Sales and Marketing

|                    |  |                        |         |  |              |  |      |      |  |   |              |  |  |            |      |   |  |   |        | 
|------------------- |  | ---------------------- | ------- |  | ------------ |  | ---- | ---- |  | - | ------------ |  |  | ---------- | ---- | - |  | - | ------ | 
|                    |  | Years Ended May 31,    |         |  |             
|                    |  |                        |         |  | Increase/    | 
|                    |  | 2005                   |         |  | % of Revenue |  |      | 2004 |  |   | % of Revenue |  |  | (Decrease) |     
|                    |  |                        |         |  |              |  |      |      |  |   |              |  |  |            |     
|                    |  | (dollars in thousands) |        
|Sales and marketing |  | $                      | 170,893 |  |              |  | 13.5 | %    |  | $ | 152,070      |  |  |            | 16.0 | % |  | $ | 18,823 | 



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

|                         |  |                        |        |  |              |  |     |      |  |   |              |  |  |            |     |   |  |   |        | 
|------------------------ |  | ---------------------- | ------ |  | ------------ |  | --- | ---- |  | - | ------------ |  |  | ---------- | --- | - |  | - | ------ | 
|                         |  | Years Ended May 31,    |        |  |             
|                         |  |                        |        |  | Increase/    | 
|                         |  | 2005                   |        |  | % of Revenue |  |     | 2004 |  |   | % of Revenue |  |  | (Decrease) |    
|                         |  |                        |        |  |              |  |     |      |  |   |              |  |  |            |    
|                         |  | (dollars in thousands) |       
|Research and development |  | $                      | 89,804 |  |              |  | 7.1 | %    |  | $ | 69,367       |  |  |            | 7.3 | % |  | $ | 20,437 | 





| |                           
| | --------------------------
| | General and Administrative

|                           |  |                        |        |  |              |  |     |      |  |   |              |  |  |            |     |   |  |   |       | 
|-------------------------- |  | ---------------------- | ------ |  | ------------ |  | --- | ---- |  | - | ------------ |  |  | ---------- | --- | - |  | - | ----- | 
|                           |  | Years Ended May 31,    |        |  |             
|                           |  |                        |        |  | Increase/    | 
|                           |  | 2005                   |        |  | % of Revenue |  |     | 2004 |  |   | % of Revenue |  |  | (Decrease) |    
|                           |  |                        |        |  |              |  |     |      |  |   |              |  |  |            |    
|                           |  | (dollars in thousands) |       
|General and administrative |  | $                      | 40,211 |  |              |  | 3.2 | %    |  | $ | 37,323       |  |  |            | 3.9 | % |  | $ | 2,888 | 



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| |                                                                            
| | ---------------------------------------------------------------------------
| | Amortization of Intangible Assets and Deferred Stock-Based
    Compensation

|                                                                            |  |                        |       |  |              |  |     |      |  |   |              |  |  |            |     |   |  |   |    | 
|--------------------------------------------------------------------------- |  | ---------------------- | ----- |  | ------------ |  | --- | ---- |  | - | ------------ |  |  | ---------- | --- | - |  | - | -- | 
|                                                                            |  | Years Ended May 31,    |       |  |             
|                                                                            |  |                        |       |  | Increase/    | 
|                                                                            |  | 2005                   |       |  | % of Revenue |  |     | 2004 |  |   | % of Revenue |  |  | (Decrease) |    
|                                                                            |  |                        |       |  |              |  |     |      |  |   |              |  |  |            |    
|                                                                            |  | (dollars in thousands) |      
|Amortization of intangible assets and deferred stock-based
    compensation |  | $                      | 9,833 |  |              |  | 0.8 | %    |  | $ | 9,751        |  |  |            | 1.0 | % |  | $ | 82 | 





| |                                    
| | -----------------------------------
| | Restructuring Charges (Adjustments)

|                                    |  |                        |      |   |              |  |   |      |  |   |              |  |  |            |     |   |  |   |        |  
|----------------------------------- |  | ---------------------- | ---- | - | ------------ |  | - | ---- |  | - | ------------ |  |  | ---------- | --- | - |  | - | ------ | -
|                                    |  | Years Ended May 31,    |      |   |             
|                                    |  |                        |      |   | Increase/    | 
|                                    |  | 2005                   |      |   | % of Revenue |  |   | 2004 |  |   | % of Revenue |  |  | (Decrease) |    
|                                    |  |                        |      |   |              |  |   |      |  |   |              |  |  |            |    
|                                    |  | (dollars in thousands) |     
|Restructuring charges (adjustments) |  | $                      | (360 | ) |              |  |  | %    |  | $ | 8,432        |  |  |            | 0.9 | % |  | $ | (8,792 | )





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the third quarter of fiscal year 2004 restructuring actions
    consisted of severance, benefits and other costs related to
    workforce reductions of approximately $5.2 million during
    fiscal year 2004, primarily in the United States and United
    Kingdom, of approximately 100 regular employees. During the year
    ended May 31, 2005, we recorded restructuring adjustments
    of $0.1 million and all actions were completed.
    Approximately $4.8 million had been paid in cash, primarily
    for severance and benefits.                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | the first quarter of fiscal year 2004 restructuring actions of
    $3.7 million consisted of severance, benefits and other
    costs related to workforce reductions, primarily in the United
    States, of approximately 45 regular employees, facilities and
    property and equipment disposed of or removed from service and
    canceled projects. As of May 31, 2004, all of the headcount
    reductions and canceled projects were completed. Approximately
    $1.5 million had been paid in cash for severance and
    benefits, $1.1 million had been paid in cash related to
    excess facilities and approximately $0.6 million had been
    paid in cash for cancelled projects.                                                                                                                                                                                                                                                                               
|
| |  | the third quarter of fiscal year 2003 restructuring actions
    consisted of charges related to workforce reductions of
    approximately $6.1 million, facilities and property and
    equipment disposed of or removed from service of
    $2.4 million and cancelled programs of $10.6 million.
    These restructuring actions relate to the implementation of a
    series of actions to better align our expense structure with our
    revenues. Workforce reductions relate to severance, benefits and
    related costs, of approximately 140 regular employees primarily
    in the United States. As of May 31, 2004, all of the
    headcount reductions had been completed. Cash payments of
    approximately $5.3 million related to workforce reductions,
    $1.9 million of excess facilities and property and
    equipment disposed of and $6.7 million related to
    discontinued project costs were made. During fiscal year 2004,
    net adjustments of

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | approximately $0.5 million were recorded related to
    workforce reduction costs and excess facilities and equipment
    costs due to changes from the original estimate of the costs.
    During fiscal year 2005, net adjustments of approximately
    $0.3 million were recorded related to discontinued project
    costs and excess facilities and equipment costs and all actions
    were completed.





| |                          
| | -------------------------
| | Employee Separation Costs

|                          |  |                        |       |  |              |  |     |      |  |              |   |  |            |  |   |   |  |   |       | 
|------------------------- |  | ---------------------- | ----- |  | ------------ |  | --- | ---- |  | ------------ | - |  | ---------- |  | - | - |  | - | ----- | 
|                          |  | Years Ended May 31,    |       |  |             
|                          |  |                        |       |  | Increase/    | 
|                          |  | 2005                   |       |  | % of Revenue |  |     | 2004 |  | % of Revenue |   |  | (Decrease) | 
|                          |  |                        |       |  |              |  |     |      |  |              |   |  |            | 
|                          |  | (dollars in thousands) |      
|Employee separation costs |  | $                      | 3,066 |  |              |  | 0.2 | %    |  | $            |  |  |            |  |  | % |  | $ | 3,066 | 





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

|                                         |  |                        |       |  |              |  |     |      |  |   |              |   |  |            |   |   |  |   |       | 
|---------------------------------------- |  | ---------------------- | ----- |  | ------------ |  | --- | ---- |  | - | ------------ | - |  | ---------- | - | - |  | - | ----- | 
|                                         |  | Years Ended May 31,    |       |  |             
|                                         |  |                        |       |  | Increase/    | 
|                                         |  | 2005                   |       |  | % of Revenue |  |     | 2004 |  |   | % of Revenue |   |  | (Decrease) |  
|                                         |  |                        |       |  |              |  |     |      |  |   |              |   |  |            |  
|                                         |  | (dollars in thousands) |      
|Interest and other income (expense), net |  | $                      | 3,003 |  |              |  | 0.2 | %    |  | $ | (44          | ) |  |            |  | % |  | $ | 3,047 | 





| |                     
| | --------------------
| | Income Tax Provision

|                     |  |                        |        |  |              |  |     |      |  |   |              |  |  |            |     |   |  |   |       | 
|-------------------- |  | ---------------------- | ------ |  | ------------ |  | --- | ---- |  | - | ------------ |  |  | ---------- | --- | - |  | - | ----- | 
|                     |  | Years Ended May 31,    |        |  |             
|                     |  |                        |        |  | Increase/    | 
|                     |  | 2005                   |        |  | % of Revenue |  |     | 2004 |  |   | % of Revenue |  |  | (Decrease) |    
|                     |  |                        |        |  |              |  |     |      |  |   |              |  |  |            |    
|                     |  | (dollars in thousands) |       
|Income tax provision |  | $                      | 14,144 |  |              |  | 1.1 | %    |  | $ | 6,091        |  |  |            | 0.6 | % |  | $ | 8,053 | 



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| |                                  
| | ---------------------------------
| | Loss From Discontinued Operations

|                                  |  |                        |   |              |           |  |      |   |  |              |         |   |            |  |      |    |  |   |        | 
|--------------------------------- |  | ---------------------- | - | ------------ | --------- |  | ---- | - |  | ------------ | ------- | - | ---------- |  | ---- | -- |  | - | ------ | 
|                                  |  | Years Ended May 31,    |   |              |          
|                                  |  |                        |   |              | Increase/ | 
|                                  |  | 2005                   |   | % of Revenue |           |  | 2004 |   |  | % of Revenue |         |   | (Decrease) | 
|                                  |  |                        |   |              |           |  |      |   |  |              |         |   |            | 
|                                  |  | (dollars in thousands) |  
|Loss from discontinued operations |  | $                      |  |              |           |  |     | % |  | $            | (11,634 | ) |            |  | (1.2 | )% |  | $ | 11,634 | 



Comparison of Fiscal Years Ended May 31, 2004 and
2003




| |         
| | --------
| | Revenues

|         |  |                        |         |  |              |  |       |      |  |   |              |  |  |            |       |   |  |   |         | 
|-------- |  | ---------------------- | ------- |  | ------------ |  | ----- | ---- |  | - | ------------ |  |  | ---------- | ----- | - |  | - | ------- | 
|         |  | Years Ended May 31,    |         |  |             
|         |  |                        |         |  | Increase/    | 
|         |  | 2004                   |         |  | % of Revenue |  |       | 2003 |  |   | % of Revenue |  |  | (Decrease) |      
|         |  |                        |         |  |              |  |       |      |  |   |              |  |  |            |      
|         |  | (dollars in thousands) |        
|Revenues |  | $                      | 949,654 |  |              |  | 100.0 | %    |  | $ | 837,637      |  |  |            | 100.0 | % |  | $ | 112,017 | 





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

|                                                                                                  |  |                        |         |  |              |  |      |      |  |   |              |  |  |            |      |   |  |   |        |  
|------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- |  | ------------ |  | ---- | ---- |  | - | ------------ |  |  | ---------- | ---- | - |  | - | ------ | -
|                                                                                                  |  | Years Ended May 31,    |         |  |             
|                                                                                                  |  |                        |         |  | Increase/    | 
|                                                                                                  |  | 2004                   |         |  | % of Revenue |  |      | 2003 |  |   | % of Revenue |  |  | (Decrease) |     
|                                                                                                  |  |                        |         |  |              |  |      |      |  |   |              |  |  |            |     
|                                                                                                  |  | (dollars in thousands) |        
|Cost of revenues                                                                                  |  | $                      | 676,791 |  |              |  | 71.3 | %    |  | $ | 624,980      |  |  |            | 74.6 | % |  | $ | 51,811 |  
|Applicable portion of amortization of intangible assets and
    deferred stock-based compensation |  |                        | 574     |  |              |  |     |      |  |   | 899          |  |  |            | 0.1  |   |  |   | (325   | )
|                                                                                                  |  |                        |         |  |              |  |      |      |  |   |              |  |  |            |     
|Total cost of revenues                                                                            |  | $                      | 677,365 |  |              |  | 71.3 | %    |  | $ | 625,879      |  |  |            | 74.7 | % |  | $ | 51,486 |  







| |                    
| | -------------------
| | Sales and Marketing

|                    |  |                        |         |  |              |  |      |      |  |   |              |  |  |            |      |   |  |   |        |  
|------------------- |  | ---------------------- | ------- |  | ------------ |  | ---- | ---- |  | - | ------------ |  |  | ---------- | ---- | - |  | - | ------ | -
|                    |  | Years Ended May 31,    |         |  |             
|                    |  |                        |         |  | Increase/    | 
|                    |  | 2004                   |         |  | % of Revenue |  |      | 2003 |  |   | % of Revenue |  |  | (Decrease) |     
|                    |  |                        |         |  |              |  |      |      |  |   |              |  |  |            |     
|                    |  | (dollars in thousands) |        
|Sales and marketing |  | $                      | 152,070 |  |              |  | 16.0 | %    |  | $ | 160,001      |  |  |            | 19.1 | % |  | $ | (7,931 | )





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

|                         |  |                        |        |  |              |  |     |      |  |   |              |  |  |            |     |   |  |   |      |  
|------------------------ |  | ---------------------- | ------ |  | ------------ |  | --- | ---- |  | - | ------------ |  |  | ---------- | --- | - |  | - | ---- | -
|                         |  | Years Ended May 31,    |        |  |             
|                         |  |                        |        |  | Increase/    | 
|                         |  | 2004                   |        |  | % of Revenue |  |     | 2003 |  |   | % of Revenue |  |  | (Decrease) |    
|                         |  |                        |        |  |              |  |     |      |  |   |              |  |  |            |    
|                         |  | (dollars in thousands) |       
|Research and development |  | $                      | 69,367 |  |              |  | 7.3 | %    |  | $ | 70,175       |  |  |            | 8.4 | % |  | $ | (808 | )



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| |                           
| | --------------------------
| | General and Administrative

|                           |  |                        |        |  |              |  |     |      |  |   |              |  |  |            |     |   |  |   |    | 
|-------------------------- |  | ---------------------- | ------ |  | ------------ |  | --- | ---- |  | - | ------------ |  |  | ---------- | --- | - |  | - | -- | 
|                           |  | Years Ended May 31,    |        |  |             
|                           |  |                        |        |  | Increase/    | 
|                           |  | 2004                   |        |  | % of Revenue |  |     | 2003 |  |   | % of Revenue |  |  | (Decrease) |    
|                           |  |                        |        |  |              |  |     |      |  |   |              |  |  |            |    
|                           |  | (dollars in thousands) |       
|General and administrative |  | $                      | 37,323 |  |              |  | 3.9 | %    |  | $ | 37,307       |  |  |            | 4.5 | % |  | $ | 16 | 





| |                                                                            
| | ---------------------------------------------------------------------------
| | Amortization of Intangible Assets and Deferred Stock-Based
    Compensation

|                                                                            |  |                        |       |  |              |  |     |      |  |   |              |  |  |            |     |   |  |   |       | 
|--------------------------------------------------------------------------- |  | ---------------------- | ----- |  | ------------ |  | --- | ---- |  | - | ------------ |  |  | ---------- | --- | - |  | - | ----- | 
|                                                                            |  | Years Ended May 31,    |       |  |             
|                                                                            |  |                        |       |  | Increase/    | 
|                                                                            |  | 2004                   |       |  | % of Revenue |  |     | 2003 |  |   | % of Revenue |  |  | (Decrease) |    
|                                                                            |  |                        |       |  |              |  |     |      |  |   |              |  |  |            |    
|                                                                            |  | (dollars in thousands) |      
|Amortization of intangible assets and deferred stock-based
    compensation |  | $                      | 9,751 |  |              |  | 1.0 | %    |  | $ | 3,266        |  |  |            | 0.4 | % |  | $ | 6,485 | 





| |                                    
| | -----------------------------------
| | Restructuring Charges (Adjustments)

|                                    |  |                        |       |  |              |  |     |      |  |   |              |  |  |            |     |   |  |   |         |  
|----------------------------------- |  | ---------------------- | ----- |  | ------------ |  | --- | ---- |  | - | ------------ |  |  | ---------- | --- | - |  | - | ------- | -
|                                    |  | Years Ended May 31,    |       |  |             
|                                    |  |                        |       |  | Increase/    | 
|                                    |  | 2004                   |       |  | % of Revenue |  |     | 2003 |  |   | % of Revenue |  |  | (Decrease) |    
|                                    |  |                        |       |  |              |  |     |      |  |   |              |  |  |            |    
|                                    |  | (dollars in thousands) |      
|Restructuring charges (adjustments) |  | $                      | 8,432 |  |              |  | 0.9 | %    |  | $ | 37,300       |  |  |            | 4.5 | % |  | $ | (28,868 | )







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the third quarter of fiscal year 2004 restructuring actions of
    $5.2 million consisted of severance, benefits and other
    costs related to workforce reductions, primarily in the United
    States and United Kingdom, of approximately 100 regular
    employees. As of May 31, 2004, approximately 95 of the
    employees have been terminated as a result of this restructuring
    and approximately $4.2 million had been paid in cash,
    primarily for severance and benefits. Upon completion of the
    restructuring action, estimated future savings were expected to
    be approximately $11.5 million per year.
|
| |  | the first quarter of fiscal year 2004 restructuring actions of
    $3.7 million consisted of severance, benefits and other
    costs related to workforce reductions, primarily in the United
    States, of approximately 45 regular employees, facilities and
    property and equipment disposed of or removed from service and
    canceled projects. As of May 31, 2004, all of the headcount
    reductions have been completed. Approximately $1.5 million
    had been paid in cash for severance and benefits,
    $0.7 million                                                                                             

26



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| |  |                                                                                                                                                                                                                                                                                  
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | had been paid in cash related to excess facilities and
    approximately $0.6 million had been paid in cash for
    cancelled projects. Upon completion of these restructuring
    actions, estimated future savings were expected to be
    approximately $6.1 million per year.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the third quarter of fiscal year 2003 restructuring actions
    consisted of charges related to workforce reductions of
    approximately $6.1 million, facilities and property and
    equipment disposed of or removed from service of
    $2.4 million and cancelled programs of $10.6 million.
    These restructuring actions relate to the implementation of a
    series of actions to better align our expense structure with our
    revenues. Workforce reductions relate to severance, benefits and
    related costs, of approximately 140 regular employees primarily
    in the United States. As of May 31, 2004, all of the
    headcount reductions have been completed. Cash payments of
    approximately $5.3 million related to workforce reductions,
    $1.5 million of excess facilities and property and
    equipment disposed of and $4.7 million related to
    discontinued project costs were made. During fiscal year 2004,
    net adjustments of approximately $0.5 million were recorded
    related to workforce reduction costs and excess facilities and
    equipment costs due to changes from the original estimate of the
    costs.                                                                                         
|
| |  | the fourth quarter fiscal year 2002 restructuring charges
    related to workforce reductions across all geographic regions of
    approximately 90 regular employees, facilities and property and
    equipment that would be disposed of or removed from service in
    fiscal year 2003 and cancelled project costs. During the year
    ended May 31, 2003, we recorded restructuring adjustments
    totaling $1.4 million to reflect the changes in the
    estimated costs of certain actions from the original estimates.
    Cash payments of approximately $13.5 million were made
    related to this series of actions. All actions were complete as
    of May 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | the second quarter fiscal year 2002 restructuring actions
    related to workforce reductions across all geographic regions of
    approximately 210 regular employees, excess facilities and
    related costs for lease commitments for space no longer needed
    or intended for use. As of May 31, 2003, headcount
    reductions were complete. During the year ended May 31,
    2003 we recorded restructuring adjustments totaling
    $1.5 million to reflect the changes in the estimated costs
    of certain actions from the original estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | the fourth quarter fiscal year 2001 restructuring charges
    related to carrying and development costs related to the land on
    which we had previously planned to build our corporate
    headquarters, facilities costs related to lease commitments for
    space no longer intended for use, workforce reduction costs
    across all geographic regions of approximately 205 regular
    employees and discontinued project costs. As of May 31,
    2003, headcount reductions were complete. During the year ended
    May 31, 2003, we recorded additional charges totaling
    $21.1 million due to further changes from the original
    estimate of the cost of the restructuring actions announced in
    the fourth quarter of fiscal year 2001 primarily due to changes
    in estimates of sublease income for excess facilities. The
    ability to realize sublease income is dependent on lease market
    conditions. The amount of estimated sublease income may be
    subject to change based upon developments in lease market
    conditions and other pertinent facts. As of May 31, 2004,
    the balance consisted of lease commitments payable over seven
    and a half years, net of estimated sublease income, of
    $19.6 million.



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| |                   
| | ------------------
| | Impairment Charges

|                   |  |                        |   |              |           |  |      |   |  |              |         |  |            |  |      |   |  |   |          |  
|------------------ |  | ---------------------- | - | ------------ | --------- |  | ---- | - |  | ------------ | ------- |  | ---------- |  | ---- | - |  | - | -------- | -
|                   |  | Years Ended May 31,    |   |              |          
|                   |  |                        |   |              | Increase/ | 
|                   |  | 2004                   |   | % of Revenue |           |  | 2003 |   |  | % of Revenue |         |  | (Decrease) | 
|                   |  |                        |   |              |           |  |      |   |  |              |         |  |            | 
|                   |  | (dollars in thousands) |  
|Impairment charges |  | $                      |  |              |           |  |     | % |  | $            | 102,540 |  |            |  | 12.2 | % |  | $ | (102,540 | )

Accounting for Impairment or
Disposal of Long-Lived Assets,




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

|                                         |  |                        |     |   |              |  |   |      |  |   |              |  |  |            |     |   |  |   |        |  
|---------------------------------------- |  | ---------------------- | --- | - | ------------ |  | - | ---- |  | - | ------------ |  |  | ---------- | --- | - |  | - | ------ | -
|                                         |  | Years Ended May 31,    |     |   |             
|                                         |  |                        |     |   | Increase/    | 
|                                         |  | 2004                   |     |   | % of Revenue |  |   | 2003 |  |   | % of Revenue |  |  | (Decrease) |    
|                                         |  |                        |     |   |              |  |   |      |  |   |              |  |  |            |    
|                                         |  | (dollars in thousands) |    
|Interest and other income (expense), net |  | $                      | (44 | ) |              |  |  | %    |  | $ | 3,005        |  |  |            | 0.4 | % |  | $ | (3,049 | )





| |                     
| | --------------------
| | Income Tax Provision

|                     |  |                        |       |  |              |  |     |      |  |   |              |  |  |            |      |   |  |   |          |  
|-------------------- |  | ---------------------- | ----- |  | ------------ |  | --- | ---- |  | - | ------------ |  |  | ---------- | ---- | - |  | - | -------- | -
|                     |  | Years Ended May 31,    |       |  |             
|                     |  |                        |       |  | Increase/    | 
|                     |  | 2004                   |       |  | % of Revenue |  |     | 2003 |  |   | % of Revenue |  |  | (Decrease) |     
|                     |  |                        |       |  |              |  |     |      |  |   |              |  |  |            |     
|                     |  | (dollars in thousands) |      
|Income tax provision |  | $                      | 6,091 |  |              |  | 0.6 | %    |  | $ | 222,928      |  |  |            | 26.6 | % |  | $ | (216,837 | )



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| |                                  
| | ---------------------------------
| | Loss From Discontinued Operations

|                                  |  |                        |         |   |              |  |      |      |  |   |              |   |  |            |      |    |  |   |        | 
|--------------------------------- |  | ---------------------- | ------- | - | ------------ |  | ---- | ---- |  | - | ------------ | - |  | ---------- | ---- | -- |  | - | ------ | 
|                                  |  | Years Ended May 31,    |         |   |             
|                                  |  |                        |         |   | Increase/    | 
|                                  |  | 2004                   |         |   | % of Revenue |  |      | 2003 |  |   | % of Revenue |   |  | (Decrease) |     
|                                  |  |                        |         |   |              |  |      |      |  |   |              |   |  |            |     
|                                  |  | (dollars in thousands) |        
|Loss from discontinued operations |  | $                      | (11,634 | ) |              |  | (1.2 | )%   |  | $ | (24,727      | ) |  |            | (3.0 | )% |  | $ | 13,093 | 



Liquidity and Capital Resources








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|                                     |                                       |       |         |         |                  |   |        |           |  |   |           |        |  |                   |        |        |  |   |        |   | 
|------------------------------------ | ------------------------------------- | ----- | ------- | ------- | ---------------- | - | ------ | --------- |  | - | --------- | ------ |  | ----------------- | ------ | ------ |  | - | ------ | - | 
|                                     |                                       | Total |         |         | Less than 1 Year |   |        | 1-3 Years |  |   | 3-5 Years |        |  | More than 5 Years |       
|                                     |                                       |       |         |         |                  |   |        |           |  |   |           |        |  |                   |       
|Operating lease obligations          |                                       | $     | 58,655  |         |                  | $ | 8,546  |           |  | $ | 18,537    |        |  | $                 | 19,570 |        |  | $ | 12,002 |  
|Long-term convertible debt           |                                       |       | 35,000  |         |                  |   |       |           |  |   | 35,000    |        |  |                   |       |        |  |   |       |  
|Note payable to PalmSource for brand |                                       |       | 22,500  |         |                  |   | 7,500  |           |  |   | 11,250    |        |  |                   | 3,750  |        |  |   |       |  
|Purchase obligation commitments:     |                                       |       |         |         |                  |   |        |           |  |   |           |        |  |                   |        |        |  |   |        |  
|                                     | Patent and license                    |       |         | 2,700   |                  |   |        | 2,700     |  |   |           |       |  |                   |        |       |  |   |        |  | 
|                                     | License and other fees due PalmSource |       |         | 148,500 |                  |   |        | 41,000    |  |   |           | 77,500 |  |                   |        | 30,000 |  |   |        |  | 
|                                     |                                       |       |         |         |                  |   |        |           |  |   |           |        |  |                   |       
|Total contractual obligations        |                                       | $     | 267,355 |         |                  | $ | 59,746 |           |  | $ | 142,287   |        |  | $                 | 53,320 |        |  | $ | 12,002 |  
|                                     |                                       |       |         |         |                  |   |        |           |  |   |           |        |  |                   |       













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Effects of Recent Accounting Pronouncements


Share-Based Payment Accounting for Stock-Based
Compensation Accounting
for Stock Issued to Employees.


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Business Environment and Risk Factors


You should carefully consider the risks described below and
the other information in this Form 10-K. The business,
results of operations or financial condition of Palm could be
seriously harmed, and the trading price of Palm common stock may
decline due to any of these risks.


Risks Related to Our Business


Our operating results are subject to fluctuations, and if we
fail to meet the expectations of securities analysts or
investors, our stock price may decrease significantly.






| |   |                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | changes in general economic conditions and specific market
    conditions;                                                                             
|
| |  | changes in consumer and enterprise spending levels;                                                                                                    
|
| |  | changes in consumer, enterprise and carrier preferences for our
    products and services;                                                             
|
| |  | competition from other handheld or wireless communications
    devices or other devices with similar functionality;                                    
|
| |  | competition for consumer and enterprise spending by other
    products;                                                                                
|
| |  | seasonality of demand for our products and services;                                                                                                   
|
| |  | timely introduction and market acceptance of new products and
    services;                                                                            
|
| |  | variations in product costs or the mix of products sold;                                                                                               
|
| |  | quality issues with our products;                                                                                                                      
|
| |  | changes in terms, pricing or promotional programs;                                                                                                     
|
| |  | loss or failure of key sales channel partners;                                                                                                         
|
| |  | failure by our third party manufacturers or suppliers to meet
    our quantity and quality requirements for products or product
    components on time;
|
| |  | failure to add or replace third party manufacturers or suppliers
    in a timely manner;                                                               
|
| |  | failure to achieve product cost and operating expense targets;                                                                                         
|
| |  | excess inventory or insufficient inventory to meet
    demand; and                                                                                     
|
| |  | litigation brought against us.                                                                                                                         



If we do not correctly forecast demand for our products, we
could have costly excess production or inventories or we may not
be able to secure sufficient or cost effective quantities of our
products or production materials and our cost of revenues and
financial condition could be adversely impacted.




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The market for mobile communications and computing devices is
volatile, and changing market conditions, or failure to adjust
to changing market conditions, may adversely affect our
revenues, results of operations and financial condition,
particularly given our size, limited resources and lack of
diversification.






If we fail to develop and introduce new products and services
successfully and in a cost effective and timely manner, we will
not be able to compete effectively and our ability to generate
revenues will suffer.








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We rely on third parties to design, manufacture, distribute,
warehouse and support our handheld and wireless communications
devices, and our reputation, revenues and results of operations
could be adversely affected if these third parties fail to meet
their performance obligations.














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Our handheld and wireless communications devices may contain
errors or defects, which could result in the rejection or return
of our products, damage to our reputation, lost revenues,
diverted development resources and increased service costs,
warranty claims and litigation.






If we are unable to compete effectively with existing or new
competitors, we could experience price reductions, reduced
demand for our products and services, reduced margins and loss
of market share, and our business, results of operations and
financial condition would be adversely affected.










| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | personal computer companies, such as Acer, ASUSTek, BenQ, Dell,
    Hewlett-Packard, Medion and MiTac, and consumer electronics
    companies, such as Garmin, NEC and Yakumo, which also develop
    and sell handheld computing products, mobile managers and/or
    smartphone products running on the Palm OS and/or other
    operating systems, such as Microsofts Windows Mobile
    operating system, Linux or proprietary operating systems;

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | mobile handset manufacturers, such as High Tech Computer (HTC),
    Kyocera, LG, Motorola, Nokia, Research in Motion, Samsung,
    Sanyo, Siemens and Sony-Ericsson, which also develop
    smartphones, other wireless products and/or mobile managers
    running on the Palm OS and/or other operating systems, such as
    Microsofts Windows Mobile operating system, Linux or
    proprietary operating systems; and
|
| |  | a variety of early-stage technology companies.                                                                                                                                                                                                                                                                                                                                                                             









We are highly dependent on wireless carriers for the success
of our wireless handheld and smartphone products.






| |   |                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | testing of our wireless communications products on wireless
    carriers networks;                                                                                                                                                                                                                                                                    
|
| |  | quality and coverage area of wireless voice and data services
    offered by the wireless carriers;                                                                                                                                                                                                                                                    
|
| |  | the degree to which wireless carriers facilitate the
    introduction of and actively promote, distribute and resell our
    wireless communications products;                                                                                                                                                                                         
|
| |  | the extent to which wireless carriers require specific hardware
    and software features on our wireless communications products to
    be used on their networks;                                                                                                                                                                                    
|
| |  | timely build out of advanced wireless carrier networks such as
    Universal Mobile Telecommunications System, or UMTS, Enhanced
    Data GSM Evolution, or EDGE, and Evolution Data Optimized, or
    EVDO, which are expected to enhance the user experience for
    email and other services through higher speed and always
    on functionality;

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| |   |                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | contractual terms and conditions imposed on us by wireless
    carriers that, in some circumstances, could limit our ability to
    make similar products available through competitive carriers in
    some market segments;
|
| |  | wireless carriers pricing requirements and subsidy
    programs; and                                                                                                                                                        
|
| |  | pricing and other terms and conditions of voice and data rate
    plans that the wireless carriers offer for use with our wireless
    communications products.                                                              





As we build strategic relationships with wireless carriers,
we could be exposed to significant fluctuations in revenue for
our wireless communications products.




The amount of future wireless carrier subsidies is uncertain,
and wireless carriers are free to lower or reduce their
subsidies with little notice to us, which could negatively
impact our revenue and results of operations.






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If our wireless products do not meet wireless carrier and
governmental or regulatory certification requirements, we will
not be able to compete effectively and our ability to generate
revenues will suffer.




We rely on third parties to sell and distribute our products,
and we rely on their information to manage our business.
Disruption of our relationship with these channel partners,
changes in their business practices, their failure to provide
timely and accurate information or conflicts among our channels
of distribution could adversely affect our business, results of
operations and financial condition.










We are dependent on a concentrated number of significant
customers, and the loss or credit failure of any of those
customers could have an adverse affect on our business, results
of operation and financial condition.






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We rely on third parties to manage and operate our e-commerce
web store and related telesales call center, and disruption to
this sales channel could adversely affect our revenues and
results of operations.




We depend on our suppliers, some of which are the sole source
for certain components and elements of our technology and some
of which are competitors, and our production or reputation could
be harmed if these suppliers were unable or unwilling to meet
our demand or technical requirements on a timely and/or a cost
effective basis.






Our product strategy is substantially dependent on the Palm
OS, which is owned by PalmSource, an independent public company
that was formerly a subsidiary of Palm.




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| |   |                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we were to breach the license agreement and PalmSource
    terminated the license;                                                                                                                                                                                                                           
|
| |  | PalmSource were to be acquired and the acquiring company was not
    as strategically aligned with us as PalmSource is;                                                                                                                                                                                      
|
| |  | PalmSource does not continuously upgrade the Palm OS and
    otherwise maintain the competitiveness of the Palm OS platform;                                                                                                                                                                                 
|
| |  | our Palm OS-based devices drop in volume, yet we still owe
    PalmSource minimum royalties; or                                                                                                                                                                                                              
|
| |  | we were to develop devices on alternative operating system
    platforms, which might impact our volumes of Palm OS-based
    devices and also might impact the perception of
    PalmSources viability in the market, which could cause a
    further deterioration of our volume of Palm OS-based devices.







If we are unable to obtain key technology from third parties
on a timely basis and free from errors or defects, we may have
to delay or cancel the release of certain products or features
in our products or incur increased costs.




Our success largely depends on our ability to hire, retain,
integrate and motivate sufficient numbers of qualified
personnel, including senior management. Our strategy and our
ability to innovate, design and produce new products, sell
products, maintain operating margins and control expenses depend
on key personnel that may be difficult to replace.




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Third parties have claimed, and may claim in the future, that
we are infringing their intellectual property, and we could
suffer significant litigation or licensing expenses or be
prevented from selling products if these claims are
successful.






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##### Table of Contents





If we are unsuccessful in our litigation with Xerox, our
results of operations and financial condition could be
harmed.




We are subject to general commercial litigation and other
litigation claims as part of our operations, and we could suffer
significant litigation expenses in defending these claims and
could be subject to significant damage awards or other
remedies.




Allegations of health risks associated with electromagnetic
fields and wireless communications devices, and the lawsuits and
publicity relating to them, regardless of merit, could adversely
impact our business, results of operations and financial
condition.




If third parties infringe our intellectual property or if we
are unable to secure and protect our intellectual property, we
may expend significant resources enforcing our rights or suffer
competitive injury.




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We have an international presence in countries whose laws may
not provide protection of our intellectual property rights to
the same extent as the laws of the United States, which may make
it more difficult for us to protect our intellectual
property.




Our ability to utilize our net operating losses may be
limited if we engage in transactions which bring cumulative
change in ownership for Palm to 50% or more.




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Recently enacted and proposed changes in securities laws and
regulations have increased and will continue to increase our
costs.






Changes in financial accounting standards or practices may
cause unexpected fluctuations in and adversely affect our
reported results of operations.




We may pursue strategic acquisitions and investments which
could have an adverse impact on our business if they are
unsuccessful.




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We may need or find it advisable to seek additional funding
which may not be available or which may result in substantial
dilution of the value of our common stock.






Our historical financial information may not be reliable as
an indicator of future results due to the spin-off of PalmSource
and the acquisition of Handspring. In addition, charges to
earnings resulting from the application of the purchase method
of accounting may adversely affect our results of operations.






We own land that is not currently being utilized in our
business. If our expected ability to ultimately recover the
carrying value of this land is impaired, we would incur a
non-cash charge against our results of operations.




Our future results could be harmed by economic, political,
regulatory and other risks associated with international sales
and operations.






| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | changes in foreign currency exchange rates;                                                                        
|
| |  | changes in a specific countrys or regions political
    or economic conditions, particularly in emerging markets;
|
| |  | changes in international relations;                                                                                
|
| |  | trade protection measures and import or export licensing
    requirements;                                         

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| |   |                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | changes in tax laws;                                                                                                                                                    
|
| |  | compliance with a wide variety of laws and regulations which may
    have civil and/or criminal consequences for us and our officers
    and directors who we indemnify;
|
| |  | difficulty in managing widespread sales operations; and                                                                                                                 
|
| |  | difficulty in managing a geographically dispersed workforce in
    compliance with diverse local laws and customs.                                                      





We use third parties to provide significant operational and
administrative services, and our ability to satisfy our
customers and operate our business will suffer if the level of
services is interrupted or does not meet our requirements.




Business interruptions could adversely affect our
business.




Wars, terrorist attacks or other threats beyond our control
could negatively impact consumer confidence, which could harm
our operating results.




PalmSource may be required to indemnify us for tax
liabilities we may incur in connection with the distribution of
PalmSource common stock to our stockholders, and we may be
required to indemnify PalmSource for specified taxes.




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##### Table of Contents







Risks Related to the Securities Markets and Ownership of Our
Common Stock


Our common stock price may be subject to significant
fluctuations and volatility.






| |   |                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | quarterly variations in our operating results;                                                                                                      
|
| |  | changes in revenues or earnings estimates or publication of
    research reports by analysts;                                                       
|
| |  | speculation in the press or investment community;                                                                                                   
|
| |  | strategic actions by us, our customers, our suppliers or our
    competitors, such as new product announcements, acquisitions or
    restructurings;
|
| |  | actions by institutional stockholders or financial analysts;                                                                                        
|
| |  | general market conditions; and                                                                                                                      
|
| |  | domestic and international economic factors unrelated to our
    performance.                                                                       



Provisions in our charter documents and Delaware law and our
adoption of a stockholder rights plan may delay or prevent
acquisition of us, which could decrease the value of shares of
our common stock.






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

Interest Rate Sensitivity




Foreign Currency Exchange Risk




Equity Price Risk




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

Index to Consolidated Financial Statements and Financial
Statement Schedule


|                                   |                                                                                                         |                                                   |  |    |    | 
|---------------------------------- | ------------------------------------------------------------------------------------------------------- | ------------------------------------------------- |  | -- | -- | 
|                                   |                                                                                                         | Page                                              | 
|                                   |                                                                                                         |                                                   | 
|Consolidated Financial Statements: |                                                                                                         |                                                   |  |   
|                                   | Report of Independent Registered Public
    Accounting Firm                                             |                                                   |  | 50 |   
|                                   | Consolidated Statements of Operations for
    the Years Ended May 31, 2005, 2004 and 2003               |                                                   |  | 51 |   
|                                   | Consolidated Balance Sheets at May 31,
    2005 and 2004                                                |                                                   |  | 52 |   
|                                   | Consolidated Statements of
    Stockholders Equity for the Years Ended May 31, 2005,
    2004 and 2003 |                                                   |  | 53 |   
|                                   | Consolidated Statements of Cash Flows for
    the Years Ended May 31, 2005, 2004, and 2003              |                                                   |  | 54 |   
|                                   | Notes to Consolidated Financial
    Statements                                                          |                                                   |  | 55 |   
|                                   | Quarterly Results of Operations
    (Unaudited)                                                         |                                                   |  | 81 |   
|Financial Statement Schedule:      |                                                                                                         |                                                   |  |   
|                                   |                                                                                                         | Schedule IIValuation and
    Qualifying Accounts |  |    | 90 | 



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM










Internal ControlIntegrated
Framework








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Palm, Inc.





Consolidated Statements of Operations


(In thousands, except per share amounts)


|                                                                                          |                                                                                 |                                    |           |         |           |   |         |         |         |   |          |         |           | 
|----------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ---------------------------------- | --------- | ------- | --------- | - | ------- | ------- | ------- | - | -------- | ------- | --------- | 
|                                                                                          |                                                                                 | Years Ended May 31,                |          
|                                                                                          |                                                                                 |                                    |          
|                                                                                          |                                                                                 | 2005                               |           |         | 2004      |   |         | 2003    |        
|                                                                                          |                                                                                 |                                    |           |         |           |   |         |         |        
|Revenues                                                                                  |                                                                                 | $                                  | 1,270,410 |         |           | $ | 949,654 |         |         | $ | 837,637  |        
|Costs and operating expenses:                                                             |                                                                                 |                                    |           |         |           |   |         |         |         |   |          |        
|                                                                                          | Cost of revenues(*)                                                             |                                    |           | 879,435 |           |   |         | 676,791 |         |   |          | 624,980 |          
|                                                                                          | Sales and marketing                                                             |                                    |           | 170,893 |           |   |         | 152,070 |         |   |          | 160,001 |          
|                                                                                          | Research and development                                                        |                                    |           | 89,804  |           |   |         | 69,367  |         |   |          | 70,175  |          
|                                                                                          | General and administrative                                                      |                                    |           | 40,211  |           |   |         | 37,323  |         |   |          | 37,307  |          
|                                                                                          | Amortization of intangible assets and deferred stock-based
    compensation(**) |                                    |           | 9,833   |           |   |         | 9,751   |         |   |          | 3,266   |          
|                                                                                          | Restructuring charges (adjustments)                                             |                                    |           | (360    | )         |   |         | 8,432   |         |   |          | 37,300  |          
|                                                                                          | Employee separation costs                                                       |                                    |           | 3,066   |           |   |         |        |         |   |          |        |          
|                                                                                          | Impairment charges                                                              |                                    |           |        |           |   |         |        |         |   |          | 102,540 |          
|                                                                                          |                                                                                 |                                    |           |         |           |   |         |         |        
|                                                                                          |                                                                                 | Total costs and operating expenses |           |         | 1,192,882 |   |         |         | 953,734 |   |          |         | 1,035,569 | 
|Operating income (loss)                                                                   |                                                                                 |                                    | 77,528    |         |           |   | (4,080  | )       |         |   | (197,932 | )      
|Interest and other income (expense), net                                                  |                                                                                 |                                    | 3,003     |         |           |   | (44     | )       |         |   | 3,005    |        
|                                                                                          |                                                                                 |                                    |           |         |           |   |         |         |        
|Income (loss) before income taxes                                                         |                                                                                 |                                    | 80,531    |         |           |   | (4,124  | )       |         |   | (194,927 | )      
|Income tax provision                                                                      |                                                                                 |                                    | 14,144    |         |           |   | 6,091   |         |         |   | 222,928  |        
|                                                                                          |                                                                                 |                                    |           |         |           |   |         |         |        
|Income (loss) from continuing operations                                                  |                                                                                 |                                    | 66,387    |         |           |   | (10,215 | )       |         |   | (417,855 | )      
|Loss from discontinued operations (net of taxes of $0, $252 and
    $2,070, respectively) |                                                                                 |                                    |          |         |           |   | (11,634 | )       |         |   | (24,727  | )      
|                                                                                          |                                                                                 |                                    |           |         |           |   |         |         |        
|Net income (loss)                                                                         |                                                                                 | $                                  | 66,387    |         |           | $ | (21,849 | )       |         | $ | (442,582 | )      
|                                                                                          |                                                                                 |                                    |           |         |           |   |         |         |        
|Net income (loss) per share:                                                              |                                                                                 |                                    |           |         |           |   |         |         |         |   |          |        
|                                                                                          | Basic:                                                                          |                                    |           |         |           |   |         |         |         |   |          |         |          
|                                                                                          | Continuing operations                                                           |                                    | $         | 1.37    |           |   | $       | (0.26   | )       |   | $        | (14.38  | )        
|                                                                                          | Discontinued operations                                                         |                                    |           |        |           |   |         | (0.29   | )       |   |          | (0.85   | )        
|                                                                                          |                                                                                 |                                    |           |         |           |   |         |         |        
|                                                                                          |                                                                                 | $                                  | 1.37      |         |           | $ | (0.55   | )       |         | $ | (15.23   | )      
|                                                                                          |                                                                                 |                                    |           |         |           |   |         |         |        
|                                                                                          | Diluted:                                                                        |                                    |           |         |           |   |         |         |         |   |          |         |          
|                                                                                          | Continuing operations                                                           |                                    | $         | 1.29    |           |   | $       | (0.26   | )       |   | $        | (14.38  | )        
|                                                                                          | Discontinued operations                                                         |                                    |           |        |           |   |         | (0.29   | )       |   |          | (0.85   | )        
|                                                                                          |                                                                                 |                                    |           |         |           |   |         |         |        
|                                                                                          |                                                                                 | $                                  | 1.29      |         |           | $ | (0.55   | )       |         | $ | (15.23   | )      
|                                                                                          |                                                                                 |                                    |           |         |           |   |         |         |        
|Shares used in computing per share amounts:                                               |                                                                                 |                                    |           |         |           |   |         |         |         |   |          |        
|                                                                                          | Basic                                                                           |                                    |           | 48,486  |           |   |         | 39,686  |         |   |          | 29,069  |          
|                                                                                          |                                                                                 |                                    |           |         |           |   |         |         |        
|                                                                                          | Diluted                                                                         |                                    |           | 51,290  |           |   |         | 39,686  |         |   |          | 29,069  |          
|                                                                                          |                                                                                 |                                    |           |         |           |   |         |         |        



|     |                                                                                                                                
|---- | -------------------------------------------------------------------------------------------------------------------------------
|(*)  | Cost of revenues excludes the applicable portion of amortization
    of intangible assets and deferred stock-based compensation
|(**) | Amortization of intangible assets and deferred stock-based
    compensation:                                                   

|                               |                                                                                                               |   |       |       |  |   |       |       |  |   |       |       | 
|------------------------------ | ------------------------------------------------------------------------------------------------------------- | - | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ----- | 
|Cost
    of revenues           |                                                                                                               | $ | 923   |       |  | $ | 574   |       |  | $ | 899   |      
|Sales
    and marketing        |                                                                                                               |   | 6,760 |       |  |   | 7,906 |       |  |   | 704   |      
|Research
    and development   |                                                                                                               |   | 256   |       |  |   | 234   |       |  |   | 1,245 |      
|General
    and administrative |                                                                                                               |   | 1,560 |       |  |   | 1,037 |       |  |   | 418   |      
|Employee
    separation costs  |                                                                                                               |   | 334   |       |  |   |      |       |  |   |      |      
|                               |                                                                                                               |   |       |       |  |   |       |       | 
|                               | Total
    amortization of intangible assets
    and                     deferred
    stockbased compensation |   | $     | 9,833 |  |   | $     | 9,751 |  |   | $     | 3,266 | 
|                               |                                                                                                               |   |       |       |  |   |       |       | 



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Palm, Inc.





Consolidated Balance Sheets


(In thousands, except par value amounts)


|                                     |                                                                                                                                |                                            |         |           |         |  |         |           |         | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------- | --------- | ------- |  | ------- | --------- | ------- | 
|                                     |                                                                                                                                | May 31,                                    |         |           | May 31, | 
|                                     |                                                                                                                                | 2005                                       |         |           | 2004    | 
|                                     |                                                                                                                                |                                            |         |           |         | 
|ASSETS                              
|Current assets:                      |                                                                                                                                |                                            |         |           |         |  |         |          
|                                     | Cash and cash equivalents                                                                                                      |                                            | $       | 128,164   |         |  | $       | 98,569    |        
|                                     | Short-term investments                                                                                                         |                                            |         | 234,535   |         |  |         | 153,882   |        
|                                     | Accounts receivable, net of allowance for doubtful accounts of
    $6,874 and $8,317, respectively                             |                                            |         | 140,162   |         |  |         | 120,757   |        
|                                     | Inventories                                                                                                                    |                                            |         | 35,544    |         |  |         | 14,030    |        
|                                     | Investment for committed tenant improvements                                                                                   |                                            |         | 6,182     |         |  |         | 7,197     |        
|                                     | Prepaids and other                                                                                                             |                                            |         | 8,225     |         |  |         | 8,067     |        
|                                     |                                                                                                                                |                                            |         |           |         | 
|                                     |                                                                                                                                | Total current assets                       |         |           | 552,812 |  |         |           | 402,502 | 
|Restricted investments               |                                                                                                                                |                                            | 775     |           |         |  | 1,175   |          
|Land not in use                      |                                                                                                                                |                                            | 60,000  |           |         |  | 60,000  |          
|Property and equipment, net          |                                                                                                                                |                                            | 19,158  |           |         |  | 19,425  |          
|Goodwill                             |                                                                                                                                |                                            | 249,161 |           |         |  | 257,363 |          
|Intangible assets, net               |                                                                                                                                |                                            | 30,373  |           |         |  | 10,979  |          
|Deferred income taxes                |                                                                                                                                |                                            | 36,217  |           |         |  | 34,800  |          
|Other assets                         |                                                                                                                                |                                            | 1,536   |           |         |  | 1,694   |          
|                                     |                                                                                                                                |                                            |         |           |         | 
|                                     |                                                                                                                                | Total assets                               |         | $         | 950,032 |  |         | $         | 787,938 | 
|                                     |                                                                                                                                |                                            |         |           |         | 
|                                    
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current liabilities:                 |                                                                                                                                |                                            |         |           |         |  |         |          
|                                     | Accounts payable                                                                                                               |                                            | $       | 135,720   |         |  | $       | 112,772   |        
|                                     | Accrued restructuring                                                                                                          |                                            |         | 15,400    |         |  |         | 27,156    |        
|                                     | Provision for committed tenant improvements                                                                                    |                                            |         | 6,182     |         |  |         | 7,197     |        
|                                     | Other accrued liabilities                                                                                                      |                                            |         | 164,450   |         |  |         | 112,679   |        
|                                     |                                                                                                                                |                                            |         |           |         | 
|                                     |                                                                                                                                | Total current liabilities                  |         |           | 321,752 |  |         |           | 259,804 | 
|Non-current liabilities:             |                                                                                                                                |                                            |         |           |         |  |         |          
|                                     | Long-term convertible debt                                                                                                     |                                            |         | 35,000    |         |  |         | 35,000    |        
|                                     | Other non-current liabilities                                                                                                  |                                            |         | 12,257    |         |  |         | 1,600     |        
|Stockholders equity:                |                                                                                                                                |                                            |         |           |         |  |         |          
|                                     | Preferred stock, $.001 par value, 125,000 shares
    authorized; outstanding: none                                             |                                            |         |          |         |  |         |          |        
|                                     | Common stock, $.001 par value, 2,000,000 shares
    authorized; outstanding: 49,488 shares and
    47,032 shares, respectively |                                            |         | 49        |         |  |         | 47        |        
|                                     | Additional paid-in capital                                                                                                     |                                            |         | 1,406,935 |         |  |         | 1,383,630 |        
|                                     | Unamortized deferred stock-based compensation                                                                                  |                                            |         | (2,422    | )       |  |         | (1,995    | )      
|                                     | Accumulated deficit                                                                                                            |                                            |         | (824,251  | )       |  |         | (890,638  | )      
|                                     | Accumulated other comprehensive income                                                                                         |                                            |         | 712       |         |  |         | 490       |        
|                                     |                                                                                                                                |                                            |         |           |         | 
|                                     |                                                                                                                                | Total stockholders equity                 |         |           | 581,023 |  |         |           | 491,534 | 
|                                     |                                                                                                                                |                                            |         |           |         | 
|                                     |                                                                                                                                | Total liabilities and stockholders equity |         | $         | 950,032 |  |         | $         | 787,938 | 
|                                     |                                                                                                                                |                                            |         |           |         | 



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Palm, Inc.





Consolidated Statements of Stockholders Equity


(In thousands)


|                                                                                 |                                                       |        |    |            |         |             |           |              |  |             |             |               |   |        |          |          |       |   |       |        |   |   |          |          |  
|-------------------------------------------------------------------------------- | ----------------------------------------------------- | ------ | -- | ---------- | ------- | ----------- | --------- | ------------ |  | ----------- | ----------- | ------------- | - | ------ | -------- | -------- | ----- | - | ----- | ------ | - | - | -------- | -------- | -
|                                                                                 |                                                       |        |    |            |         |             |           |              |  | Accumulated |             |               |  
|                                                                                 |                                                       |        |    |            |         | Unamortized |           |              |  |             | Other       |               |   |       
|                                                                                 |                                                       |        |    | Additional |         |             | Deferred  |              |  |             |             | Comprehensive |   |        |         
|                                                                                 |                                                       | Common |    |            | Paid-In |             |           | Stock-based  |  |             | Accumulated |               |   | Income |          |          |      
|                                                                                 |                                                       | Stock  |    |            | Capital |             |           | Compensation |  |             | Deficit     |               |   | (Loss) |          |          | Total |  
|                                                                                 |                                                       |        |    |            |         |             |           |              |  |             |             |               |   |        |          |          |       |  
|Balances, May 31, 2002                                                           |                                                       | $      | 29 |            |         | $           | 1,122,674 |              |  | $           | (5,743      | )             |   | $      | (426,207 | )        |       | $ | 95    |        |   | $ | 690,848  |         
|Components of comprehensive loss:                                                |                                                       |        |    |            |         |             |           |              |  |             |             |               |   |        |          |          |       |   |       |        |   |   |          |         
|                                                                                 | Net loss                                              |        |    |           |         |             |           |             |  |             |             |              |   |        |          | (442,582 | )     |   |       |       |   |   |          | (442,582 | )
|                                                                                 | Net unrealized loss on available-for-sale investments |        |    |           |         |             |           |             |  |             |             |              |   |        |          |         |       |   |       | (1,707 | ) |   |          | (1,707   | )
|                                                                                 | Recognized losses included in earnings                |        |    |           |         |             |           |             |  |             |             |              |   |        |          |         |       |   |       | 1,747  |   |   |          | 1,747    |  
|                                                                                 | Accumulated translation adjustments                   |        |    |           |         |             |           |             |  |             |             |              |   |        |          |         |       |   |       | 1,100  |   |   |          | 1,100    |  
|                                                                                 |                                                       |        |    |            |         |             |           |              |  |             |             |               |   |        |          |          |       |  
|Total comprehensive loss                                                         |                                                       |        |   |            |         |             |          |              |  |             |            |               |   |        |         |          |       |   |      |        |   |   | (441,442 | )       
|                                                                                 |                                                       |        |    |            |         |             |           |              |  |             |             |               |   |        |          |          |       |  
|Common stock issued under stock plans, net                                       |                                                       |        |   |            |         |             | 3,104     |              |  |             | (627        | )             |   |        |         |          |       |   |      |        |   |   | 2,477    |         
|Stock-based compensation expense                                                 |                                                       |        |   |            |         |             |          |              |  |             | 3,903       |               |   |        |         |          |       |   |      |        |   |   | 3,903    |         
|Cancelled restricted stock grants related to terminated employees                |                                                       |        |   |            |         |             | (1,959    | )            |  |             | 1,959       |               |   |        |         |          |       |   |      |        |   |   |         |         
|                                                                                 |                                                       |        |    |            |         |             |           |              |  |             |             |               |   |        |          |          |       |  
|Balances, May 31, 2003                                                           |                                                       |        | 29 |            |         |             | 1,123,819 |              |  |             | (508        | )             |   |        | (868,789 | )        |       |   | 1,235 |        |   |   | 255,786  |         
|Components of comprehensive loss:                                                |                                                       |        |    |            |         |             |           |              |  |             |             |               |   |        |          |          |       |   |       |        |   |   |          |         
|                                                                                 | Net loss                                              |        |    |           |         |             |           |             |  |             |             |              |   |        |          | (21,849  | )     |   |       |       |   |   |          | (21,849  | )
|                                                                                 | Net unrealized loss on available-for-sale investments |        |    |           |         |             |           |             |  |             |             |              |   |        |          |         |       |   |       | (442   | ) |   |          | (442     | )
|                                                                                 | Accumulated translation adjustments                   |        |    |           |         |             |           |             |  |             |             |              |   |        |          |         |       |   |       | 147    |   |   |          | 147      |  
|                                                                                 |                                                       |        |    |            |         |             |           |              |  |             |             |               |   |        |          |          |       |  
|Total comprehensive loss                                                         |                                                       |        |   |            |         |             |          |              |  |             |            |               |   |        |         |          |       |   |      |        |   |   | (22,144  | )       
|                                                                                 |                                                       |        |    |            |         |             |           |              |  |             |             |               |   |        |          |          |       |  
|Common stock issued:                                                             |                                                       |        |    |            |         |             |           |              |  |             |             |               |   |        |          |          |       |   |       |        |   |   |          |         
|                                                                                 | Under stock plans, net                                |        |    | 2          |         |             |           | 20,526       |  |             |             | (1,096        | ) |        |          |         |       |   |       |       |   |   |          | 19,432   |  
|                                                                                 | Private placements                                    |        |    | 2          |         |             |           | 37,013       |  |             |             |              |   |        |          |         |       |   |       |       |   |   |          | 37,015   |  
|Common stock issued and options assumed in conjunction with
    acquisition      |                                                       |        | 14 |            |         |             | 237,223   |              |  |             | (2,233      | )             |   |        |         |          |       |   |      |        |   |   | 235,004  |         
|Effect of distribution of PalmSource, Inc. shares                                |                                                       |        |   |            |         |             | (34,589   | )            |  |             |            |               |   |        |         |          |       |   | (450  | )      |   |   | (35,039  | )       
|Stock-based compensation expense                                                 |                                                       |        |   |            |         |             | 442       |              |  |             | 1,038       |               |   |        |         |          |       |   |      |        |   |   | 1,480    |         
|Cancelled restricted stock and option grants related to
    terminated employees |                                                       |        |   |            |         |             | (804      | )            |  |             | 804         |               |   |        |         |          |       |   |      |        |   |   |         |         
|                                                                                 |                                                       |        |    |            |         |             |           |              |  |             |             |               |   |        |          |          |       |  
|Balances, May 31, 2004                                                           |                                                       |        | 47 |            |         |             | 1,383,630 |              |  |             | (1,995      | )             |   |        | (890,638 | )        |       |   | 490   |        |   |   | 491,534  |         
|Components of comprehensive income:                                              |                                                       |        |    |            |         |             |           |              |  |             |             |               |   |        |          |          |       |   |       |        |   |   |          |         
|                                                                                 | Net income                                            |        |    |           |         |             |           |             |  |             |             |              |   |        |          | 66,387   |       |   |       |       |   |   |          | 66,387   |  
|                                                                                 | Net unrealized loss on available-for-sale investments |        |    |           |         |             |           |             |  |             |             |              |   |        |          |         |       |   |       | (180   | ) |   |          | (180     | )
|                                                                                 | Recognized losses included in earnings                |        |    |           |         |             |           |             |  |             |             |              |   |        |          |         |       |   |       | 165    |   |   |          | 165      |  
|                                                                                 | Accumulated translation adjustments                   |        |    |           |         |             |           |             |  |             |             |              |   |        |          |         |       |   |       | 237    |   |   |          | 237      |  
|                                                                                 |                                                       |        |    |            |         |             |           |              |  |             |             |               |   |        |          |          |       |  
|Total comprehensive income                                                       |                                                       |        |   |            |         |             |          |              |  |             |            |               |   |        |         |          |       |   |      |        |   |   | 66,609   |         
|                                                                                 |                                                       |        |    |            |         |             |           |              |  |             |             |               |   |        |          |          |       |  
|Common stock issued under stock plans, net                                       |                                                       |        | 2  |            |         |             | 23,416    |              |  |             | (2,565      | )             |   |        |         |          |       |   |      |        |   |   | 20,853   |         
|Stock-based compensation expense                                                 |                                                       |        |   |            |         |             |          |              |  |             | 2,027       |               |   |        |         |          |       |   |      |        |   |   | 2,027    |         
|Cancelled restricted stock and option grants related to
    terminated employees |                                                       |        |   |            |         |             | (111      | )            |  |             | 111         |               |   |        |         |          |       |   |      |        |   |   |         |         
|                                                                                 |                                                       |        |    |            |         |             |           |              |  |             |             |               |   |        |          |          |       |  
|Balances, May 31, 2005                                                           |                                                       | $      | 49 |            |         | $           | 1,406,935 |              |  | $           | (2,422      | )             |   | $      | (824,251 | )        |       | $ | 712   |        |   | $ | 581,023  |         
|                                                                                 |                                                       |        |    |            |         |             |           |              |  |             |             |               |   |        |          |          |       |  



53



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Palm, Inc.





Consolidated Statements of Cash Flows


(In thousands)


|                                               |                                                                                                                                   |                                                                               |                           |                                                     |        |         |          |          |        |         |         |          |         |         |         |  
|---------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | ------------------------- | --------------------------------------------------- | ------ | ------- | -------- | -------- | ------ | ------- | ------- | -------- | ------- | ------- | ------- | -
|                                               |                                                                                                                                   | Years Ended May 31,                                                           |                          
|                                               |                                                                                                                                   |                                                                               |                          
|                                               |                                                                                                                                   | 2005                                                                          |                           |                                                     | 2004   |         |          | 2003     |       
|                                               |                                                                                                                                   |                                                                               |                           |                                                     |        |         |          |          |       
|Cash flows from operating activities:          |                                                                                                                                   |                                                                               |                           |                                                     |        |         |          |          |        |         |         |         
|                                               | Net income (loss)                                                                                                                 |                                                                               | $                         | 66,387                                              |        |         | $        | (21,849  | )      |         | $       | (442,582 | )      
|                                               | Loss from discontinued operations (See Note 3 to
    consolidated financial statements)                                           |                                                                               |                           |                                                    |        |         |          | 11,634   |        |         |         | 24,727   |        
|                                               |                                                                                                                                   |                                                                               |                           |                                                     |        |         |          |          |       
|                                               | Income (loss) from continuing operations                                                                                          |                                                                               |                           | 66,387                                              |        |         |          | (10,215  | )      |         |         | (417,855 | )      
|                                               | Adjustments to reconcile income (loss) from continuing
    operations to net cash provided by (used in) operating
    activities: |                                                                               |                           |                                                     |        |         |          |          |        |         |         |          |        
|                                               |                                                                                                                                   | Depreciation                                                                  |                           |                                                     | 15,546 |         |          |          | 20,925 |         |         |          | 24,172  |        
|                                               |                                                                                                                                   | Amortization                                                                  |                           |                                                     | 9,833  |         |          |          | 10,603 |         |         |          | 4,547   |        
|                                               |                                                                                                                                   | Deferred income taxes                                                         |                           |                                                     | (1,417 | )       |          |          |       |         |         |          | 219,625 |        
|                                               |                                                                                                                                   | Impairment charges                                                            |                           |                                                     |       |         |          |          |       |         |         |          | 102,540 |        
|                                               |                                                                                                                                   | Recognized (gain) loss on equity investments                                  |                           |                                                     | (200   | )       |          |          |       |         |         |          | 3,747   |        
|                                               |                                                                                                                                   | Changes in assets and liabilities, net of effect of business
    combination: |                           |                                                     |        |         |          |          |        |         |         |          |         |        
|                                               |                                                                                                                                   |                                                                               | Accounts receivable       |                                                     |        | (19,089 | )        |          |        | (13,759 | )       |          |         | (34,391 | )      
|                                               |                                                                                                                                   |                                                                               | Inventories               |                                                     |        | (21,514 | )        |          |        | 12,768  |         |          |         | 32,256  |        
|                                               |                                                                                                                                   |                                                                               | Prepaids and other        |                                                     |        | 1,915   |          |          |        | 3,403   |         |          |         | 7,654   |        
|                                               |                                                                                                                                   |                                                                               | Accounts payable          |                                                     |        | 22,948  |          |          |        | 627     |         |          |         | (6,452  | )      
|                                               |                                                                                                                                   |                                                                               | Accrued restructuring     |                                                     |        | (11,570 | )        |          |        | (15,766 | )       |          |         | 3,094   |        
|                                               |                                                                                                                                   |                                                                               | Other accrued liabilities |                                                     |        | 50,209  |          |          |        | (21,644 | )       |          |         | 6,234   |        
|                                               |                                                                                                                                   |                                                                               |                           |                                                     |        |         |          |          |       
|                                               |                                                                                                                                   |                                                                               |                           | Net cash provided by (used in) operating activities |        |         | 113,048  |          |        |         | (13,058 | )        |         |         | (54,829 | )
|                                               |                                                                                                                                   |                                                                               |                           |                                                     |        |         |          |          |       
|Cash flows from investing activities:          |                                                                                                                                   |                                                                               |                           |                                                     |        |         |          |          |        |         |         |         
|                                               | Purchase of brand name intangible                                                                                                 |                                                                               |                           | (7,500                                              | )      |         |          |         |        |         |         |         |        
|                                               | Purchase of property and equipment                                                                                                |                                                                               |                           | (15,279                                             | )      |         |          | (5,776   | )      |         |         | (8,156   | )      
|                                               | Purchase of equity investments                                                                                                    |                                                                               |                           |                                                    |        |         |          |         |        |         |         | (1,000   | )      
|                                               | Sale of equity investments                                                                                                        |                                                                               |                           | 1,200                                               |        |         |          |         |        |         |         |         |        
|                                               | Acquisition of business, net of cash acquired                                                                                     |                                                                               |                           |                                                    |        |         |          | 16,114   |        |         |         |         |        
|                                               | Cash distributions from/ (advances) to PalmSource                                                                                 |                                                                               |                           |                                                    |        |         |          | (6,000   | )      |         |         | 819      |        
|                                               | Purchase of short-term investments                                                                                                |                                                                               |                           | (320,291                                            | )      |         |          | (368,489 | )      |         |         | (349,991 | )      
|                                               | Sales/maturities of short-term investments                                                                                        |                                                                               |                           | 238,764                                             |        |         |          | 351,091  |        |         |         | 411,411  |        
|                                               | Purchase of restricted investments                                                                                                |                                                                               |                           |                                                    |        |         |          | (2,764   | )      |         |         | (173     | )      
|                                               | Sales/maturities of restricted investments                                                                                        |                                                                               |                           | 400                                                 |        |         |          | 2,937    |        |         |         |         |        
|                                               |                                                                                                                                   |                                                                               |                           |                                                     |        |         |          |          |       
|                                               |                                                                                                                                   |                                                                               |                           | Net cash provided by (used in) investing activities |        |         | (102,706 | )        |        |         | (12,887 | )        |         |         | 52,910  |  
|                                               |                                                                                                                                   |                                                                               |                           |                                                     |        |         |          |          |       
|Cash flows from financing activities:          |                                                                                                                                   |                                                                               |                           |                                                     |        |         |          |          |        |         |         |         
|                                               | Proceeds from issuance of common stock                                                                                            |                                                                               |                           | 20,853                                              |        |         |          | 56,447   |        |         |         | 2,477    |        
|                                               | Repayment of debt                                                                                                                 |                                                                               |                           | (1,600                                              | )      |         |          |         |        |         |         |         |        
|                                               |                                                                                                                                   |                                                                               |                           |                                                     |        |         |          |          |       
|                                               |                                                                                                                                   |                                                                               |                           | Net cash provided by financing activities           |        |         | 19,253   |          |        |         | 56,447  |          |         |         | 2,477   |  
|                                               |                                                                                                                                   |                                                                               |                           |                                                     |        |         |          |          |       
|Change in cash and cash equivalents            |                                                                                                                                   |                                                                               | 29,595                    |                                                     |        |         | 30,502   |          |        |         | 558     |         
|Cash and cash equivalents, beginning of period |                                                                                                                                   |                                                                               | 98,569                    |                                                     |        |         | 68,067   |          |        |         | 67,509  |         
|                                               |                                                                                                                                   |                                                                               |                           |                                                     |        |         |          |          |       
|Cash and cash equivalents, end of period       |                                                                                                                                   | $                                                                             | 128,164                   |                                                     |        | $       | 98,569   |          |        | $       | 68,067  |         
|                                               |                                                                                                                                   |                                                                               |                           |                                                     |        |         |          |          |       
|Other cash flow information:                   |                                                                                                                                   |                                                                               |                           |                                                     |        |         |          |          |        |         |         |         
|                                               | Cash paid for income taxes                                                                                                        |                                                                               | $                         | 7,561                                               |        |         | $        | 3,779    |        |         | $       | 2,808    |        
|                                               |                                                                                                                                   |                                                                               |                           |                                                     |        |         |          |          |       
|                                               | Cash paid for interest                                                                                                            |                                                                               | $                         | 1,992                                               |        |         | $        | 2,572    |        |         | $       | 2,696    |        
|                                               |                                                                                                                                   |                                                                               |                           |                                                     |        |         |          |          |       
|Non-cash investing and financing activities:   |                                                                                                                                   |                                                                               |                           |                                                     |        |         |          |          |        |         |         |         
|                                               | Fair value of stock options and warrants assumed in business
    combination                                                      |                                                                               | $                         |                                                    |        |         | $        | 28,064   |        |         | $       |         |        
|                                               |                                                                                                                                   |                                                                               |                           |                                                     |        |         |          |          |       
|                                               | Common stock issued for acquisition of businesses                                                                                 |                                                                               | $                         |                                                    |        |         | $        | 209,173  |        |         | $       |         |        
|                                               |                                                                                                                                   |                                                                               |                           |                                                     |        |         |          |          |       
|                                               | Debt for brand-name intangible asset                                                                                              |                                                                               | $                         | 19,700                                              |        |         | $        |         |        |         | $       |         |        
|                                               |                                                                                                                                   |                                                                               |                           |                                                     |        |         |          |          |       
|                                               | Accrued liability for long-term investment                                                                                        |                                                                               | $                         | 984                                                 |        |         | $        |         |        |         | $       |         |        
|                                               |                                                                                                                                   |                                                                               |                           |                                                     |        |         |          |          |       



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Palm, Inc.





Notes to Consolidated Financial Statements




|        |                                     
|------- | ------------------------------------
|Note 1. | Background and Basis of Presentation









Accounting for
the Impairment or Disposal of Long-Lived Assets.








|        |                                
|------- | -------------------------------
|Note 2. | Significant Accounting Policies



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



55



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| |                                                                             
| | ----------------------------------------------------------------------------
| | Use of Estimates in the Preparation of Consolidated Financial
    Statements





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





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





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

Accounting for Certain Investments in Debt and
Equity Securities,




| |                                
| | -------------------------------
| | Allowance for Doubtful Accounts





| |                             
| | ----------------------------
| | Concentration of Credit Risk



56



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|                        |  |                     |    |   |      |  |    |      |  |  |    |  
|----------------------- |  | ------------------- | -- | - | ---- |  | -- | ---- |  |  | -- | -
|                        |  | Years Ended May 31, |   
|                        |  |                     |   
|                        |  | 2005                |    |   | 2004 |  |    | 2003 | 
|                        |  |                     |    |   |      |  |    |      | 
|Ingram Micro            |  |                     | 12 | % |      |  | 15 | %    |  |  | 19 | %
|Sprint Corporation      |  |                     | 11 | % |      |  | 7  | %    |  |  |   | %
|Cingular Wireless/ AT&T |  |                     | 11 | % |      |  | 3  | %    |  |  |   | %



|                   |  |         |    |   |      |  |    |  
|------------------ |  | ------- | -- | - | ---- |  | -- | -
|                   |  | May 31, |   
|                   |  |         |   
|                   |  | 2005    |    |   | 2004 | 
|                   |  |         |    |   |      | 
|Ingram Micro       |  |         | 14 | % |      |  | 17 | %
|Sprint Corporation |  |         | 10 | % |      |  | 7  | %



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





| |                                              
| | ---------------------------------------------
| | Investments for Committed Tenant Improvements





| |                       
| | ----------------------
| | Restricted Investments





| |                                        
| | ---------------------------------------
| | Land Not In Use, Property and Equipment

Accounting for
the Costs of Computer Software Developed or Obtained for
Internal Use.




| |                               
| | ------------------------------
| | Goodwill and Intangible Assets

Goodwill and Other Intangible
Assets. Accounting for the
Disposal of Long-Lived Assets,


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| |                           
| | --------------------------
| | Software Development Costs





| |                   
| | ------------------
| | Equity Investments





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

Revenue Recognition, Software Revenue Recognition,






| |            
| | -----------
| | Advertising





| |               
| | --------------
| | Warranty Costs





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

Accounting for Costs Associated with
Exit or Disposal Activities, Liability
Recognition for Costs to Exit an Activity (Including Certain
Costs Incurred in a Restructuring)


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





| |                             
| | ----------------------------
| | Foreign Currency Translation







| |                       
| | ----------------------
| | Derivative Instruments





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

Accounting for Stock Issued to
Employees Accounting for Certain
Transactions Involving Stock Compensation (an Interpretation of
APB No. 25) Accounting for
Stock-Based Compensation


59



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|                                                                                                                         |  |                                          |         |   |          |   |         |          |  |   |          |  
|------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------- | ------- | - | -------- | - | ------- | -------- |  | - | -------- | -
|                                                                                                                         |  | Years Ended May 31,                      |        
|                                                                                                                         |  |                                          |        
|                                                                                                                         |  | 2005 (1)                                 |         |   | 2004 (2) |   |         | 2003 (2) | 
|                                                                                                                         |  |                                          |         |   |          |   |         |          | 
|                                                                                                                         |  | (in thousands, except per share amounts) |        
|Net income (loss), as reported                                                                                           |  | $                                        | 66,387  |   |          | $ | (21,849 | )        |  | $ | (442,582 | )
|Add: Stock based compensation included in reported net income
    (loss), net of related tax effects                     |  |                                          | 2,027   |   |          |   | 3,227   |          |  |   | 3,903    |  
|Less: Stock-based compensation expense determined under fair
    value method for all awards, net of related tax effects |  |                                          | (34,325 | ) |          |   | (22,767 | )        |  |   | (41,758  | )
|                                                                                                                         |  |                                          |         |   |          |   |         |          | 
|Pro forma net income (loss)                                                                                              |  | $                                        | 34,089  |   |          | $ | (41,389 | )        |  | $ | (480,437 | )
|                                                                                                                         |  |                                          |         |   |          |   |         |          | 
|Net income (loss) per share, as reportedbasic                                                                           |  | $                                        | 1.37    |   |          | $ | (0.55   | )        |  | $ | (15.23   | )
|                                                                                                                         |  |                                          |         |   |          |   |         |          | 
|Net income (loss) per share, as reporteddiluted                                                                         |  | $                                        | 1.29    |   |          | $ | (0.55   | )        |  | $ | (15.23   | )
|                                                                                                                         |  |                                          |         |   |          |   |         |          | 
|Pro forma net income (loss) per sharebasic                                                                              |  | $                                        | 0.70    |   |          | $ | (1.04   | )        |  | $ | (16.53   | )
|                                                                                                                         |  |                                          |         |   |          |   |         |          | 
|Pro forma net income (loss) per sharediluted                                                                            |  | $                                        | 0.66    |   |          | $ | (1.04   | )        |  | $ | (16.53   | )
|                                                                                                                         |  |                                          |         |   |          |   |         |          | 






|    |                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Stock-based compensation expense determined under the fair value
    method for the year ended May 31, 2005 includes
    amortization related to options cancelled in connection with the
    option exchange program initiated on March 1, 2004.
|   
|(2) | Amounts include compensation related to options held by
    PalmSource employees through the distribution date.                                                                                                                                  



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| |                            
| | ---------------------------
| | Net Income (Loss) Per Share





|                                                                                                                                                                                 |                                        |                                 |        |       |      |   |         |      |  |   |          |   | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ------------------------------- | ------ | ----- | ---- | - | ------- | ---- |  | - | -------- | - | 
|                                                                                                                                                                                 |                                        | Years Ended May 31,             |       
|                                                                                                                                                                                 |                                        |                                 |       
|                                                                                                                                                                                 |                                        | 2005                            |        |       | 2004 |   |         | 2003 | 
|                                                                                                                                                                                 |                                        |                                 |        |       |      |   |         |      | 
|                                                                                                                                                                                 |                                        | (in thousands, except per share |       
|                                                                                                                                                                                 |                                        | amounts)                        |       
|Income (loss) from continuing operations                                                                                                                                         |                                        | $                               | 66,387 |       |      | $ | (10,215 | )    |  | $ | (417,855 | )
|                                                                                                                                                                                 |                                        |                                 |        |       |      |   |         |      | 
|Basic and diluted income (loss) from continuing operations:                                                                                                                      |                                        |                                 |        |       |      |   |         |      |  |   |          |  
|Shares used to compute basic income (loss) per share (weighted
    average shares outstanding during the period, excluding shares
    of restricted stock subject to repurchase) |                                        |                                 | 48,486 |       |      |   | 39,686  |      |  |   | 29,069   |  
|Dilutive common equivalent shares:                                                                                                                                               |                                        |                                 |        |       |      |   |         |      |  |   |          |  
|                                                                                                                                                                                 | Restricted stock subject to repurchase |                                 |        | 119   |      |   |         |     |  |   |          |  | 
|                                                                                                                                                                                 | Stock options and warrants             |                                 |        | 2,685 |      |   |         |     |  |   |          |  | 
|                                                                                                                                                                                 |                                        |                                 |        |       |      |   |         |      | 
|Shares used to compute diluted income (loss) per share                                                                                                                           |                                        |                                 | 51,290 |       |      |   | 39,686  |      |  |   | 29,069   |  
|                                                                                                                                                                                 |                                        |                                 |        |       |      |   |         |      | 
|Basic income (loss) from continuing operations per share                                                                                                                         |                                        | $                               | 1.37   |       |      | $ | (0.26   | )    |  | $ | (14.38   | )
|                                                                                                                                                                                 |                                        |                                 |        |       |      |   |         |      | 
|Diluted income (loss) from continuing operations per share                                                                                                                       |                                        | $                               | 1.29   |       |      | $ | (0.26   | )    |  | $ | (14.38   | )
|                                                                                                                                                                                 |                                        |                                 |        |       |      |   |         |      | 





| |                            
| | ---------------------------
| | Comprehensive Income (Loss)





| |                                            
| | -------------------------------------------
| | Effects of Recent Accounting Pronouncements

Share-Based Payment. Accounting for Stock-Based
Compensation Accounting
for Stock Issued to Employees.


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|        |                        
|------- | -----------------------
|Note 3. | Discontinued Operations

Accounting for the Impairment or
Disposal of Long-Lived Assets






|        |                      
|------- | ---------------------
|Note 4. | Business Combinations





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|                              |  |         |      |   |          |  |      |          |  |  |      |  
|----------------------------- |  | ------- | ---- | - | -------- |  | ---- | -------- |  |  | ---- | -
|                              |  | Vested  |      |   | Unvested |  |      |         
|                              |  | Options |      |   | Options  |  |      | Warrants | 
|                              |  |         |      |   |          |  |      |          | 
|Weighted average assumptions: |  |         |      |   |          |  |      |          |  |  |      |  
|Risk-free interest rate       |  |         | 1.3  | % |          |  | 2.4  | %        |  |  | 3.2  | %
|Volatility                    |  |         | 100  | % |          |  | 100  | %        |  |  | 100  | %
|Options term (in years)       |  |         | 1.00 |   |          |  | 3.00 |          |  |  | 4.25 |  
|Dividend yield                |  |         | 0.0  | % |          |  | 0.0  | %        |  |  | 0.0  | %





|                          |  |                   |       |  |          |   |        |             |            |         |       |  |      |          |         |    |             |         |        |      |  |   |      |   |  |   |       | 
|------------------------- |  | ----------------- | ----- |  | -------- | - | ------ | ----------- | ---------- | ------- | ----- |  | ---- | -------- | ------- | -- | ----------- | ------- | ------ | ---- |  | - | ---- | - |  | - | ----- | 
|                          |  | Initial Liability |       |  |          |   |        |             |            |         |       |  |      |          | Balance |   
|                          |  | Recognized at     |       |  |          |   |        |             | Balance at |         |       |  |      |          |         | at |            
|                          |  | October 29,       |       |  | Cash     |   |        |             |            | May 31, |       |  | Cash |          |         |    |             | May 31, |       
|                          |  | 2003              |       |  | Payments |   |        | Adjustments |            |         | 2004  |  |      | Payments |         |    | Adjustments |         |        | 2005 | 
|                          |  |                   |       |  |          |   |        |             |            |         |       |  |      |          |         |    |             |         |        |      | 
|Workforce reduction costs |  | $                 | 1,805 |  |          | $ | (2,029 | )           |            | $       | 244   |  |      | $        | 20      |    |             | $       |       |      |  | $ | (20  | ) |  | $ |      | 
|Excess facilities costs   |  |                   | 3,689 |  |          |   | (2,065 | )           |            |         | 1,913 |  |      |          | 3,537   |    |             |         | (1,238 | )    |  |   | (137 | ) |  |   | 2,162 | 
|Other                     |  |                   | 660   |  |          |   | (673   | )           |            |         | 13    |  |      |          |        |    |             |         |       |      |  |   |     |   |  |   |      | 
|                          |  |                   |       |  |          |   |        |             |            |         |       |  |      |          |         |    |             |         |        |      | 
|                          |  | $                 | 6,154 |  |          | $ | (4,767 | )           |            | $       | 2,170 |  |      | $        | 3,557   |    |             | $       | (1,238 | )    |  | $ | (157 | ) |  | $ | 2,162 | 
|                          |  |                   |       |  |          |   |        |             |            |         |       |  |      |          |         |    |             |         |        |      | 

Business
Combinations. Goodwill and Other Intangible Assets,




63



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|                                  |                                      |              |  |           |        |   |         |         |  
|--------------------------------- | ------------------------------------ | ------------ |  | --------- | ------ | - | ------- | ------- | -
|                                  |                                      | Amortization |  |           |       
|                                  |                                      | Period       |  |           | Amount |  
|                                  |                                      |              |  |           |        |  
|Net tangible assets:              |                                      |              |  |           |        |   |         |        
|                                  | Current assets                       |              |  |           |        |   | $       | 40,591  |  
|                                  | Property and equipment               |              |  |           |        |   |         | 3,370   |  
|                                  | Other assets                         |              |  |           |        |   |         | 15,403  |  
|                                  |                                      |              |  |           |        |  
|                                  | Total assets acquired                |              |  |           |        |   |         | 59,364  |  
|                                  | Total liabilities assumed            |              |  |           |        |   |         | (72,870 | )
|                                  |                                      |              |  |           |        |  
|Net liabilities assumed           |                                      |              |  |           |        |   | (13,506 | )      
|Deferred stock-based compensation |                                      |              |  |           |        |   | 2,233   |        
|Goodwill                          |                                      |              |  |           |        |   | 241,512 |        
|Intangible assets:                |                                      |              |  |           |        |   |         |        
|                                  | Contracts and customer relationships |              |  | 24 months |        |   |         | 11,900  |  
|                                  | Customer backlog                     |              |  | 4 months  |        |   |         | 4,200   |  
|                                  | Product technology                   |              |  | 24 months |        |   |         | 1,800   |  
|                                  | Trademarks                           |              |  | 24 months |        |   |         | 1,400   |  
|                                  | Non-compete covenants                |              |  | 24 months |        |   |         | 400     |  
|                                  |                                      |              |  |           |        |  
|Total purchase price              |                                      |              |  |           |        | $ | 249,939 |        
|                                  |                                      |              |  |           |        |  





|                        |  |                                             
|----------------------- |  | --------------------------------------------
|Palm Reporting Period   |  | Handspring Period Included in Pro Forma Data
|                        |  |                                             
|Year Ended May 31, 2004 |  | June 1, 2003October 28, 2003 *             
|Year Ended May 31, 2003 |  | Year Ended June 30, 2003                    






|  |                                                                                                                                                               
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Results from operations of the former Handspring business are
    included in Palm results of operations since the date of
    acquisition (October 29, 2003).



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|                                                              |  |                     |         |   |      |   |          |  
|------------------------------------------------------------- |  | ------------------- | ------- | - | ---- | - | -------- | -
|                                                              |  | Years Ended May 31, |        
|                                                              |  |                     |        
|                                                              |  | 2004                |         |   | 2003 |  
|                                                              |  |                     |         |   |      |  
|Pro forma revenues                                            |  | $                   | 985,734 |   |      | $ | 984,893  |  
|Pro forma net loss                                            |  | $                   | (50,438 | ) |      | $ | (586,583 | )
|Pro forma net loss per share, basic and diluted               |  | $                   | (1.27   | ) |      | $ | (13.75   | )
|Shares used in computing per share amounts, basic and diluted |  |                     | 39,686  |   |      |   | 42,646   |  



|        |                                                       
|------- | ------------------------------------------------------
|Note 5. | Cash and Available-For-Sale and Restricted Investments



|                                                                 |                                        |              |         |         |              |   |      |          |   |   |          |         |  |            |         |        |          |   |      |      |   |   |         |        | 
|---------------------------------------------------------------- | -------------------------------------- | ------------ | ------- | ------- | ------------ | - | ---- | -------- | - | - | -------- | ------- |  | ---------- | ------- | ------ | -------- | - | ---- | ---- | - | - | ------- | ------ | 
|                                                                 |                                        | May 31, 2005 |         |         | May 31, 2004 |  
|                                                                 |                                        |              |         |         |              |  
|                                                                 |                                        |              |         | Net     |              |   |      |          |   |   | Net      |         |  |           
|                                                                 |                                        | Adjusted     |         |         | Unrealized   |   |      | Carrying |   |   | Adjusted |         |  | Unrealized |         |        | Carrying |  
|                                                                 |                                        | Cost         |         |         | Loss         |   |      | Value    |   |   | Cost     |         |  | Loss       |         |        | Value    |  
|                                                                 |                                        |              |         |         |              |   |      |          |   |   |          |         |  |            |         |        |          |  
|Cash                                                             |                                        | $            | 44,341  |         |              | $ |     |          |   | $ | 44,341   |         |  | $          | 47,934  |        |          | $ |     |      |   | $ | 47,934  |       
|Cash equivalents, money market funds                             |                                        |              | 83,823  |         |              |   |     |          |   |   | 83,823   |         |  |            | 50,635  |        |          |   |     |      |   |   | 50,635  |       
|                                                                 |                                        |              |         |         |              |   |      |          |   |   |          |         |  |            |         |        |          |  
|Total cash and cash equivalents                                  |                                        | $            | 128,164 |         |              | $ |     |          |   | $ | 128,164  |         |  | $          | 98,569  |        |          | $ |     |      |   | $ | 98,569  |       
|                                                                 |                                        |              |         |         |              |   |      |          |   |   |          |         |  |            |         |        |          |  
|Short-term investments:                                          |                                        |              |         |         |              |   |      |          |   |   |          |         |  |            |         |        |          |   |      |      |   |   |         |       
|                                                                 | Federal government obligations         |              | $       | 86,936  |              |   | $    | (292     | ) |   | $        | 86,644  |  |            | $       | 30,495 |          |   | $    | (174 | ) |   | $       | 30,321 | 
|                                                                 | State and local government obligations |              |         | 12,000  |              |   |      |         |   |   |          | 12,000  |  |            |         | 12,000 |          |   |      |     |   |   |         | 12,000 | 
|                                                                 | Corporate notes/bonds                  |              |         | 120,796 |              |   |      | (159     | ) |   |          | 120,637 |  |            |         | 98,408 |          |   |      | (105 | ) |   |         | 98,303 | 
|                                                                 | Foreign corporate notes/bonds          |              |         | 15,263  |              |   |      | (9       | ) |   |          | 15,254  |  |            |         | 13,263 |          |   |      | (5   | ) |   |         | 13,258 | 
|                                                                 |                                        |              |         |         |              |   |      |          |   |   |          |         |  |            |         |        |          |  
|                                                                 |                                        | $            | 234,995 |         |              | $ | (460 | )        |   | $ | 234,535  |         |  | $          | 154,166 |        |          | $ | (284 | )    |   | $ | 153,882 |       
|                                                                 |                                        |              |         |         |              |   |      |          |   |   |          |         |  |            |         |        |          |  
|Equity investments in publicly traded companies                  |                                        | $            |        |         |              | $ |     |          |   | $ |         |         |  | $          | 273     |        |          | $ | (151 | )    |   | $ | 122     |       
|                                                                 |                                        |              |         |         |              |   |      |          |   |   |          |         |  |            |         |        |          |  
|Investment for committed tenant improvements, money market funds |                                        | $            | 6,182   |         |              | $ |     |          |   | $ | 6,182    |         |  | $          | 7,197   |        |          | $ |     |      |   | $ | 7,197   |       
|                                                                 |                                        |              |         |         |              |   |      |          |   |   |          |         |  |            |         |        |          |  
|Restricted investments, certificates of deposit                  |                                        | $            | 775     |         |              | $ |     |          |   | $ | 775      |         |  | $          | 1,175   |        |          | $ |     |      |   | $ | 1,175   |       
|                                                                 |                                        |              |         |         |              |   |      |          |   |   |          |         |  |            |         |        |          |  



The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments


|                               |  |                     |        |            |                    |   |      |            |            |   |        |  |  |            |      |   |      |   |        |  |  |   |      |  
|------------------------------ |  | ------------------- | ------ | ---------- | ------------------ | - | ---- | ---------- | ---------- | - | ------ |  |  | ---------- | ---- | - | ---- | - | ------ |  |  | - | ---- | -
|                               |  | Less than 12 Months |        |            | 12 Months and More |   |      | Total      |           
|                               |  |                     |        |            |                    |   |      |            |           
|                               |  |                     |        | Gross      |                    |   |      |            | Gross      |   |        |  |  | Gross      |     
|                               |  |                     |        | Unrealized |                    |   |      |            | Unrealized |   |        |  |  | Unrealized |     
|                               |  | Fair Value          |        |            | Loss               |   |      | Fair Value |            |   | Loss   |  |  | Fair Value |      |   | Loss |  
|                               |  |                     |        |            |                    |   |      |            |            |   |        |  |  |            |      |   |      |  
|Federal government obligations |  | $                   | 42,885 |            |                    | $ | (297 | )          |            | $ | 5,785  |  |  | $          | (51  | ) |      | $ | 48,670 |  |  | $ | (348 | )
|Corporate notes/bonds          |  |                     | 7,315  |            |                    |   | (36  | )          |            |   | 11,046 |  |  |            | (138 | ) |      |   | 18,361 |  |  |   | (174 | )
|                               |  |                     |        |            |                    |   |      |            |            |   |        |  |  |            |      |   |      |  
|Total                          |  | $                   | 50,200 |            |                    | $ | (333 | )          |            | $ | 16,831 |  |  | $          | (189 | ) |      | $ | 67,031 |  |  | $ | (522 | )
|                               |  |                     |        |            |                    |   |      |            |            |   |        |  |  |            |      |   |      |  





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|        |            
|------- | -----------
|Note 6. | Inventories



|                                  |  |         |        |  |      |   |        | 
|--------------------------------- |  | ------- | ------ |  | ---- | - | ------ | 
|                                  |  | May 31, |       
|                                  |  |         |       
|                                  |  | 2005    |        |  | 2004 |  
|                                  |  |         |        |  |      |  
|Finished goods                    |  | $       | 33,567 |  |      | $ | 12,219 | 
|Work in process and raw materials |  |         | 1,977  |  |      |   | 1,811  | 
|                                  |  |         |        |  |      |  
|                                  |  | $       | 35,544 |  |      | $ | 14,030 | 
|                                  |  |         |        |  |      |  



|        |                
|------- | ---------------
|Note 7. | Land not in use





|        |                            
|------- | ---------------------------
|Note 8. | Property and Equipment, net



|                                          |  |         |         |   |      |   |         |  
|----------------------------------------- |  | ------- | ------- | - | ---- | - | ------- | -
|                                          |  | May 31, |        
|                                          |  |         |        
|                                          |  | 2005    |         |   | 2004 |  
|                                          |  |         |         |   |      |  
|Equipment and internal use software       |  | $       | 83,885  |   |      | $ | 80,902  |  
|Leasehold improvements                    |  |         | 1,710   |   |      |   | 1,690   |  
|Furniture and fixtures                    |  |         | 3,456   |   |      |   | 3,098   |  
|                                          |  |         |         |   |      |  
|Total                                     |  |         | 89,051  |   |      |   | 85,690  |  
|Accumulated depreciation and amortization |  |         | (69,893 | ) |      |   | (66,265 | )
|                                          |  |         |         |   |      |  
|                                          |  | $       | 19,158  |   |      | $ | 19,425  |  
|                                          |  |         |         |   |      |  



|        |         
|------- | --------
|Note 9. | Goodwill

Goodwill and Other
Intangible Assets,


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|                          |  |   |         |  
|------------------------- |  | - | ------- | -
|Balances, May 31, 2003    |  | $ | 13,815  |  
|Acquisition of Handspring |  |   | 241,512 |  
|Goodwill adjustments      |  |   | 2,036   |  
|                          |  |   |        
|Balances, May 31, 2004    |  |   | 257,363 |  
|Goodwill adjustments      |  |   | (8,202  | )
|                          |  |   |        
|Balances, May 31, 2005    |  | $ | 249,161 |  
|                          |  |   |        





|         |                  
|-------- | -----------------
|Note 10. | Intangible Assets



|                                     |  |              |            |              |          |   |              |              |       |   |         |   |          |        |        |             |              |   |        |     |  |   |        |   |  |   |        | 
|------------------------------------ |  | ------------ | ---------- | ------------ | -------- | - | ------------ | ------------ | ----- | - | ------- | - | -------- | ------ | ------ | ----------- | ------------ | - | ------ | --- |  | - | ------ | - |  | - | ------ | 
|                                     |  |              |            | May 31, 2005 |          |   | May 31, 2004 |             
|                                     |  |              |            |              |          |   |              |             
|                                     |  |              |            | Gross        |          |   |              |              | Gross |   |         |  
|                                     |  | Amortization |            |              | Carrying |   |              | Accumulated  |       |   |         |   | Carrying |        |        | Accumulated |              |   |       
|                                     |  | Period       |            |              | Amount   |   |              | Amortization |       |   | Net     |   |          | Amount |        |             | Amortization |   |        | Net | 
|                                     |  |              |            |              |          |   |              |              |       |   |         |   |          |        |        |             |              |   |        |     | 
|Brand                                |  |              | 240 months |              |          | $ | 27,200       |              |       | $ | (57     | ) |          | $      | 27,143 |             |              | $ |       |     |  | $ |       |   |  | $ |       | 
|Contracts and customer relationships |  |              | 24 months  |              |          |   | 11,900       |              |       |   | (9,420  | ) |          |        | 2,480  |             |              |   | 11,900 |     |  |   | (3,471 | ) |  |   | 8,429  | 
|Customer backlog                     |  |              | 4 months   |              |          |   | 4,200        |              |       |   | (4,200  | ) |          |        |       |             |              |   | 4,200  |     |  |   | (4,200 | ) |  |   |       | 
|Product technology                   |  |              | 24 months  |              |          |   | 1,800        |              |       |   | (1,425  | ) |          |        | 375    |             |              |   | 1,800  |     |  |   | (525   | ) |  |   | 1,275  | 
|Trademarks                           |  |              | 24 months  |              |          |   | 1,400        |              |       |   | (1,108  | ) |          |        | 292    |             |              |   | 1,400  |     |  |   | (408   | ) |  |   | 992    | 
|Non-compete covenants                |  |              | 24 months  |              |          |   | 400          |              |       |   | (317    | ) |          |        | 83     |             |              |   | 400    |     |  |   | (117   | ) |  |   | 283    | 
|                                     |  |              |            |              |          |   |              |              |       |   |         |   |          |        |        |             |              |   |        |     | 
|                                     |  |              |            |              |          | $ | 46,900       |              |       | $ | (16,527 | ) |          | $      | 30,373 |             |              | $ | 19,700 |     |  | $ | (8,721 | ) |  | $ | 10,979 | 
|                                     |  |              |            |              |          |   |              |              |       |   |         |   |          |        |        |             |              |   |        |     | 





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|         |                          
|-------- | -------------------------
|Note 11. | Other Accrued Liabilities



|                             |  |         |         |  |      |   |         | 
|---------------------------- |  | ------- | ------- |  | ---- | - | ------- | 
|                             |  | May 31, |        
|                             |  |         |        
|                             |  | 2005    |         |  | 2004 |  
|                             |  |         |         |  |      |  
|Payroll and related expenses |  | $       | 16,865  |  |      | $ | 13,717  | 
|Rebates                      |  |         | 17,146  |  |      |   | 11,096  | 
|Royalties                    |  |         | 32,043  |  |      |   | 10,248  | 
|Product warranty             |  |         | 19,653  |  |      |   | 27,839  | 
|Other                        |  |         | 78,743  |  |      |   | 49,779  | 
|                             |  |         |         |  |      |  
|                             |  | $       | 164,450 |  |      | $ | 112,679 | 
|                             |  |         |         |  |      |  



|         |            
|-------- | -----------
|Note 12. | Commitments





|                    |  |           |        | 
|------------------- |  | --------- | ------ | 
|Years Ended May 31, |  | Operating |       
|                    |  |           |       
|2006                |  | $         | 8,546  | 
|2007                |  |           | 8,815  | 
|2008                |  |           | 9,722  | 
|2009                |  |           | 9,651  | 
|2010                |  |           | 9,919  | 
|Thereafter          |  |           | 12,002 | 
|                    |  |           |       
|                    |  | $         | 58,655 | 
|                    |  |           |       



|                    |  |   |        | 
|------------------- |  | - | ------ | 
|Years Ended May 31, |  |  
|                    |  |  
|2006                |  | $ | 2,285  | 
|2007                |  |   | 2,391  | 
|2008                |  |   | 2,430  | 
|2009                |  |   | 2,351  | 
|2010                |  |   | 2,330  | 
|Thereafter          |  |   | 3,107  | 
|                    |  |   |       
|                    |  | $ | 14,894 | 
|                    |  |   |       





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|                                                          |  |                     |         |   |      |   |         |  
|--------------------------------------------------------- |  | ------------------- | ------- | - | ---- | - | ------- | -
|                                                          |  | Years Ended May 31, |        
|                                                          |  |                     |        
|                                                          |  | 2005                |         |   | 2004 |  
|                                                          |  |                     |         |   |      |  
|Balance at beginning of period                            |  | $                   | 27,839  |   |      | $ | 17,911  |  
|Payments made                                             |  |                     | (68,018 | ) |      |   | (37,768 | )
|Balance assumed in Handspring acquisition                 |  |                     |        |   |      |   | 6,037   |  
|Accrual related to product sold during the period         |  |                     | 59,323  |   |      |   | 41,790  |  
|Change in estimated liability for pre-existing warranties |  |                     | 509     |   |      |   | (131    | )
|                                                          |  |                     |         |   |      |  
|Balance at end of period                                  |  | $                   | 19,653  |   |      | $ | 27,839  |  
|                                                          |  |                     |         |   |      |  

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|         |                     
|-------- | --------------------
|Note 13. | Stockholders Equity



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





| |                        
| | -----------------------
| | Stockholder Rights Plan





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





| |                   
| | ------------------
| | Stock Option Plans





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| |                                        
| | ---------------------------------------
| | Non-employee Director Stock Option Plan





|                                       |  |                     |        |          |                |   |       |           |          |  |                |   |  |           |       |  |                |  |        |   |  |   |        | 
|-------------------------------------- |  | ------------------- | ------ | -------- | -------------- | - | ----- | --------- | -------- |  | -------------- | - |  | --------- | ----- |  | -------------- |  | ------ | - |  | - | ------ | 
|                                       |  | Years Ended May 31, |       
|                                       |  |                     |       
|                                       |  | 2005                |        |          | 2004 (1)       |   |       | 2003 (1)  |         
|                                       |  |                     |        |          |                |   |       |           |         
|                                       |  |                     |        | Weighted |                |   |       |           | Weighted |  |                |   |  | Weighted  |      
|                                       |  | Number              |        |          | Average        |   |       | Number    |          |  | Average        |   |  | Number    |       |  | Average        | 
|                                       |  | of Shares           |        |          | Exercise Price |   |       | of Shares |          |  | Exercise Price |   |  | of Shares |       |  | Exercise Price | 
|                                       |  |                     |        |          |                |   |       |           |          |  |                |   |  |           |       |  |                | 
|Outstanding at beginning of year       |  |                     | 6,132  |          |                | $ | 22.62 |           |          |  | 5,783          |   |  | $         | 76.92 |  |                |  | 3,331  |   |  | $ | 167.30 | 
|Granted                                |  |                     | 3,903  |          |                | $ | 30.25 |           |          |  | 3,932          |   |  | $         | 12.38 |  |                |  | 3,773  |   |  | $ | 9.80   | 
|Assumed in connection with acquisition |  |                     |       |          |                | $ |      |           |          |  | 1,869          |   |  | $         | 12.69 |  |                |  |       |   |  | $ |       | 
|Exercised                              |  |                     | (1,653 | )        |                | $ | 10.92 |           |          |  | (1,704         | ) |  | $         | 10.13 |  |                |  | (26    | ) |  | $ | 9.05   | 
|Cancelled                              |  |                     | (1,130 | )        |                | $ | 59.32 |           |          |  | (3,748         | ) |  | $         | 96.38 |  |                |  | (1,295 | ) |  | $ | 115.15 | 
|                                       |  |                     |        |          |                |   |       |           |          |  |                |   |  |           |       |  |                | 
|Outstanding at end of year             |  |                     | 7,252  |          |                | $ | 23.67 |           |          |  | 6,132          |   |  | $         | 22.62 |  |                |  | 5,783  |   |  | $ | 76.92  | 
|                                       |  |                     |        |          |                |   |       |           |          |  |                |   |  |           |       |  |                | 
|Exercisable at end of year             |  |                     | 3,019  |          |                | $ | 22.10 |           |          |  | 2,441          |   |  | $         | 37.10 |  |                |  | 2,686  |   |  | $ | 128.16 | 
|                                       |  |                     |        |          |                |   |       |           |          |  |                |   |  |           |       |  |                | 




|    |                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As a result of the PalmSource distribution, the exercise prices
    and number of shares underlying the options were adjusted and
    restated to preserve the intrinsic value.





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|                         |  |             |       |          |                |   |          |                  |  |  |           |          |  |                |       |  |  |   |       | 
|------------------------ |  | ----------- | ----- | -------- | -------------- | - | -------- | ---------------- |  |  | --------- | -------- |  | -------------- | ----- |  |  | - | ----- | 
|                         |  | Outstanding |       |          | Exercisable    |  
|                         |  |             |       |          |                |  
|                         |  |             |       | Weighted |                |   | Weighted |                  |  |  |           | Weighted | 
|                         |  | Number      |       |          | Average        |   |          | Average          |  |  | Number    |          |  | Average        |      
|Range of Exercise Prices |  | of Shares   |       |          | Exercise Price |   |          | Contractual Life |  |  | of Shares |          |  | Exercise Price |      
|                         |  |             |       |          |                |   |          |                  |  |  |           |          |  |                |      
|                         |  | (In years)  |      
|$ 0.57 to $ 10.23        |  |             | 1,281 |          |                | $ | 6.12     |                  |  |  | 5.9       |          |  |                | 1,036 |  |  | $ | 5.46  | 
|$10.25 to $ 11.20        |  |             | 1,106 |          |                | $ | 11.18    |                  |  |  | 8.1       |          |  |                | 531   |  |  | $ | 11.18 | 
|$11.21 to $ 19.99        |  |             | 842   |          |                | $ | 15.17    |                  |  |  | 7.5       |          |  |                | 432   |  |  | $ | 14.18 | 
|$20.00 to $ 28.00        |  |             | 810   |          |                | $ | 24.18    |                  |  |  | 9.4       |          |  |                | 87    |  |  | $ | 24.03 | 
|$28.01 to $ 30.59        |  |             | 315   |          |                | $ | 29.79    |                  |  |  | 9.1       |          |  |                | 26    |  |  | $ | 29.21 | 
|$30.60 to $ 30.60        |  |             | 1,510 |          |                | $ | 30.60    |                  |  |  | 9.4       |          |  |                | 309   |  |  | $ | 30.60 | 
|$30.61 to $ 33.25        |  |             | 924   |          |                | $ | 32.51    |                  |  |  | 9.4       |          |  |                | 338   |  |  | $ | 32.24 | 
|$33.26 to $823.05        |  |             | 464   |          |                | $ | 72.10    |                  |  |  | 7.6       |          |  |                | 260   |  |  | $ | 99.26 | 
|                         |  |             |       |          |                |   |          |                  |  |  |           |          |  |                |      
|$ 0.57 to $823.05        |  |             | 7,252 |          |                | $ | 23.67    |                  |  |  | 8.2       |          |  |                | 3,019 |  |  | $ | 22.10 | 
|                         |  |             |       |          |                |   |          |                  |  |  |           |          |  |                |      



| |         
| | --------
| | Warrants





| |                                        
| | ---------------------------------------
| | SFAS No. 123 Assumptions and Fair Value



|                                        |  |                     |     |   |      |  |     |      |  |  |     |  
|--------------------------------------- |  | ------------------- | --- | - | ---- |  | --- | ---- |  |  | --- | -
|                                        |  | Years Ended May 31, |    
|                                        |  |                     |    
|Assumptions Applicable to Stock Options |  | 2005                |     |   | 2004 |  |     | 2003 | 
|                                        |  |                     |     |   |      |  |     |      | 
|Risk-free interest rate                 |  |                     | 3.1 | % |      |  | 2.0 | %    |  |  | 2.4 | %
|Volatility                              |  |                     | 75  | % |      |  | 100 | %    |  |  | 100 | %
|Option term (in years)                  |  |                     | 3.2 |   |      |  | 2.9 |      |  |  | 3.1 |  
|Dividend yield                          |  |                     | 0.0 | % |      |  | 0.0 | %    |  |  | 0.0 | %

|                                                       |  |                     |     |   |      |  |     |      |  |  |     |  
|------------------------------------------------------ |  | ------------------- | --- | - | ---- |  | --- | ---- |  |  | --- | -
|                                                       |  | Years Ended May 31, |    
|                                                       |  |                     |    
|Assumptions Applicable to Employee Stock Purchase Plan |  | 2005                |     |   | 2004 |  |     | 2003 | 
|                                                       |  |                     |     |   |      |  |     |      | 
|Risk-free interest rate                                |  |                     | 2.0 | % |      |  | 2.1 | %    |  |  | 2.4 | %
|Volatility                                             |  |                     | 96  | % |      |  | 99  | %    |  |  | 99  | %
|Option term (in years)                                 |  |                     | 2.0 |   |      |  | 2.0 |      |  |  | 2.0 |  
|Dividend yield                                         |  |                     | 0.0 | % |      |  | 0.0 | %    |  |  | 0.0 | %



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|         |             
|-------- | ------------
|Note 14. | Income Taxes



|          |         |                     |        |       |        |   |       |       |       |   |         |         |         | 
|--------- | ------- | ------------------- | ------ | ----- | ------ | - | ----- | ----- | ----- | - | ------- | ------- | ------- | 
|          |         | Years Ended May 31, |       
|          |         |                     |       
|          |         | 2005                |        |       | 2004   |   |       | 2003  |      
|          |         |                     |        |       |        |   |       |       |      
|Current:  |         |                     |        |       |        |   |       |       |       |   |         |        
|          | Federal |                     | $      | 6,588 |        |   | $     |      |       |   | $       |        |        
|          | State   |                     |        | 2,768 |        |   |       | 435   |       |   |         | 386     |        
|          | Foreign |                     |        | 3,371 |        |   |       | 5,656 |       |   |         | 2,917   |        
|          |         |                     |        |       |        |   |       |       |      
|          |         | Total current       |        |       | 12,727 |   |       |       | 6,091 |   |         |         | 3,303   | 
|          |         |                     |        |       |        |   |       |       |      
|Deferred: |         |                     |        |       |        |   |       |       |       |   |         |        
|          | Federal |                     |        | 924   |        |   |       |      |       |   |         | 172,823 |        
|          | State   |                     |        | 45    |        |   |       |      |       |   |         | 46,090  |        
|          | Foreign |                     |        | 448   |        |   |       |      |       |   |         | 712     |        
|          |         |                     |        |       |        |   |       |       |      
|          |         | Total deferred      |        |       | 1,417  |   |       |       |      |   |         |         | 219,625 | 
|          |         |                     |        |       |        |   |       |       |      
|          |         | $                   | 14,144 |       |        | $ | 6,091 |       |       | $ | 222,928 |        
|          |         |                     |        |       |        |   |       |       |      





|                                                           |  |                     |       |   |      |  |        |      |  |  |        |   
|---------------------------------------------------------- |  | ------------------- | ----- | - | ---- |  | ------ | ---- |  |  | ------ | --
|                                                           |  | Years Ended May 31, |      
|                                                           |  |                     |      
|                                                           |  | 2005                |       |   | 2004 |  |        | 2003 | 
|                                                           |  |                     |       |   |      |  |        |      | 
|Tax computed at federal statutory rate                     |  |                     | 35.0  | % |      |  | 35.0   | %    |  |  | 35.0   | % 
|State income taxes, net of federal effect                  |  |                     | 5.4   |   |      |  | (10.6  | )    |  |  | 0.2    |   
|Utilization of acquired deferred tax assets                |  |                     | 12.1  |   |      |  |       |      |  |  |       |   
|Acquired in-process technology and non-deductible goodwill |  |                     |      |   |      |  | (4.0   | )    |  |  |       |   
|Differential in foreign tax rates on earnings              |  |                     | 6.6   |   |      |  | 55.6   |      |  |  | (1.6   | ) 
|Valuation allowance                                        |  |                     | (42.4 | ) |      |  | (236.8 | )    |  |  | (140.9 | ) 
|Other                                                      |  |                     | 0.9   |   |      |  | 13.1   |      |  |  | (7.1   | ) 
|                                                           |  |                     |       |   |      |  |        |      | 
|                                                           |  |                     | 17.6  | % |      |  | (147.7 | )%   |  |  | (114.4 | )%
|                                                           |  |                     |       |   |      |  |        |      | 



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|                                                   |  |         |          |   |      |   |          |  
|-------------------------------------------------- |  | ------- | -------- | - | ---- | - | -------- | -
|                                                   |  | May 31, |         
|                                                   |  |         |         
|                                                   |  | 2005    |          |   | 2004 |  
|                                                   |  |         |          |   |      |  
|Net operating loss carryforwards                   |  | $       | 285,934  |   |      | $ | 303,399  |  
|Land impairment                                    |  |         | 62,994   |   |      |   | 62,994   |  
|Reserves not currently deductible for tax purposes |  |         | 51,594   |   |      |   | 57,655   |  
|Tax credit carryforwards                           |  |         | 22,280   |   |      |   | 17,187   |  
|Deferred expenses                                  |  |         | 4,438    |   |      |   | 7,755    |  
|Deferred revenue                                   |  |         | 3,080    |   |      |   | 1,706    |  
|Other                                              |  |         | 21,588   |   |      |   | 17,503   |  
|                                                   |  |         |          |   |      |  
|                                                   |  |         | 451,908  |   |      |   | 468,199  |  
|Acquisition intangibles                            |  |         | (1,279   | ) |      |   | (4,185   | )
|Valuation allowance                                |  |         | (414,412 | ) |      |   | (429,214 | )
|                                                   |  |         |          |   |      |  
|                                                   |  | $       | 36,217   |   |      | $ | 34,800   |  
|                                                   |  |         |          |   |      |  





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|         |                      
|-------- | ---------------------
|Note 15. | Restructuring Charges

Accounting for
Costs Associated with Exit or Disposal Activities,










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|                      |  |           |        |   |                |            |      |                |         |   |           |   |            |              |        |   |           |   |        |           |  |   |            |   |  |       |       |   |  |   |         |   |  |   |         |  
|--------------------- |  | --------- | ------ | - | -------------- | ---------- | ---- | -------------- | ------- | - | --------- | - | ---------- | ------------ | ------ | - | --------- | - | ------ | --------- |  | - | ---------- | - |  | ----- | ----- | - |  | - | ------- | - |  | - | ------- | -
|                      |  | Q3 2004   |        |   |                |            |      |                | Q4 2001 |   |           |  
|                      |  | Action    |        |   | Q1 2004 Action |            |      | Q3 2003 Action |         |   | Action    |   |            |             
|                      |  |           |        |   |                |            |      |                |         |   |           |   |            |             
|                      |  |           |        |   |                | Excess     |      |                |         |   |           |   | Excess     |              |        |   |           |   |        |          
|                      |  |           |        |   |                | Facilities |      |                |         |   |           |   | Facilities |              |        |   |           |   |        |          
|                      |  | Workforce |        |   | Discontinued   |            |      | and            |         |   | Workforce |   |            | Discontinued |        |   | and       |   |        | Workforce |  |   | Excess     |   |  |      
|                      |  | Reduction |        |   | Project        |            |      | Equipment      |         |   | Reduction |   |            | Project      |        |   | Equipment |   |        | Reduction |  |   | Facilities |   |  |      
|                      |  | Costs     |        |   | Costs          |            |      | Costs          |         |   | Costs     |   |            | Costs        |        |   | Costs     |   |        | Costs     |  |   | Costs      |   |  | Total |      
|                      |  |           |        |   |                |            |      |                |         |   |           |   |            |              |        |   |           |   |        |           |  |   |            |   |  |       |      
|Balance, May 31, 2003 |  | $         |       |   |                | $          |     |                |         | $ |          |   |            | $            |       |   |           | $ | 2,367  |           |  | $ | 1,596      |   |  | $     | 1,374 |   |  | $ | 29,549  |   |  | $ | 34,886  |  
|Restructuring expense |  |           | 5,172  |   |                |            | 574  |                |         |   | 1,515     |   |            |              | 1,633  |   |           |   |       |           |  |   | 155        |   |  |       | (617  | ) |  |   |        |   |  |   | 8,432   |  
|Cash payments         |  |           | (4,175 | ) |                |            | (574 | )              |         |   | (687      | ) |            |              | (1,526 | ) |           |   |       |           |  |   | (1,434     | ) |  |       | (757  | ) |  |   | (10,147 | ) |  |   | (19,300 | )
|Write-offs            |  |           | (289   | ) |                |            |     |                |         |   | (23       | ) |            |              | (107   | ) |           |   |       |           |  |   |           |   |  |       |      |   |  |   |        |   |  |   | (419    | )
|                      |  |           |        |   |                |            |      |                |         |   |           |   |            |              |        |   |           |   |        |           |  |   |            |   |  |       |      
|Balance, May 31, 2004 |  |           | 708    |   |                |            |     |                |         |   | 805       |   |            |              |       |   |           |   | 2,367  |           |  |   | 317        |   |  |       |      |   |  |   | 19,402  |   |  |   | 23,599  |  
|Restructuring expense |  |           | (98    | ) |                |            |     |                |         |   |          |   |            |              |       |   |           |   | (342   | )         |  |   | 80         |   |  |       |      |   |  |   |        |   |  |   | (360    | )
|Cash payments         |  |           | (610   | ) |                |            |     |                |         |   | (461      | ) |            |              |       |   |           |   | (1,980 | )         |  |   | (397       | ) |  |       |      |   |  |   | (6,508  | ) |  |   | (9,956  | )
|Write-offs            |  |           |       |   |                |            |     |                |         |   |          |   |            |              |       |   |           |   | (45    | )         |  |   |           |   |  |       |      |   |  |   |        |   |  |   | (45     | )
|                      |  |           |        |   |                |            |      |                |         |   |           |   |            |              |        |   |           |   |        |           |  |   |            |   |  |       |      
|Balance, May 31, 2005 |  | $         |       |   |                | $          |     |                |         | $ | 344       |   |            | $            |       |   |           | $ |       |           |  | $ |           |   |  | $     |      |   |  | $ | 12,894  |   |  | $ | 13,238  |  
|                      |  |           |        |   |                |            |      |                |         |   |           |   |            |              |        |   |           |   |        |           |  |   |            |   |  |       |      





|         |                      
|-------- | ---------------------
|Note 16. | Employee Benefit Plan





|         |           
|-------- | ----------
|Note 17. | Litigation





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In re Palm, Inc. Initial
Public Offering Securities Litigation,


Goldstein v. Palm.


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|         |                           
|-------- | --------------------------
|Note 18. | Related Party Transactions



| |                                   
| | ----------------------------------
| | Transactions with 3Com Corporation





| |                             
| | ----------------------------
| | Transactions with PalmSource





| |                                     
| | ------------------------------------
| | Other Transactions and Relationships













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|         |                             
|-------- | ----------------------------
|Note 19. | Business Segment Information





| |                       
| | ----------------------
| | Geographic Information



|          |               |                     |   |         |           |  |   |         |         |  |   |         |         | 
|--------- | ------------- | ------------------- | - | ------- | --------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|          |               | Years Ended May 31, |  
|          |               |                     |  
|          |               | 2005                |   |         | 2004      |  |   | 2003    |        
|          |               |                     |   |         |           |  |   |         |        
|Revenues: |               |                     |   |         |           |  |   |         |         |  |   |        
|          | United States |                     | $ | 848,052 |           |  | $ | 573,465 |         |  | $ | 492,512 |        
|          | Other         |                     |   | 422,358 |           |  |   | 376,189 |         |  |   | 345,125 |        
|          |               |                     |   |         |           |  |   |         |        
|          |               | Total               |   | $       | 1,270,410 |  |   | $       | 949,654 |  |   | $       | 837,637 | 
|          |               |                     |   |         |           |  |   |         |        

|                             |               |         |   |        |        |  |   |        |        |  |   |        |        | 
|---------------------------- | ------------- | ------- | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                             |               | May 31, |  
|                             |               |         |  
|                             |               | 2005    |   |        | 2004   |  |   | 2003   |       
|                             |               |         |   |        |        |  |   |        |       
|Property and equipment, net: |               |         |   |        |        |  |   |        |        |  |   |       
|                             | United States |         | $ | 18,155 |        |  | $ | 18,456 |        |  | $ | 29,649 |       
|                             | Other         |         |   | 1,003  |        |  |   | 969    |        |  |   | 1,555  |       
|                             |               |         |   |        |        |  |   |        |       
|                             |               | Total   |   | $      | 19,158 |  |   | $      | 19,425 |  |   | $      | 31,204 | 
|                             |               |         |   |        |        |  |   |        |       

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Quarterly Results of Operations (Unaudited)




|                                             |          |                                       |         |   |              |   |         |             |        |   |            |   |        |         |         |   |              |   |         |             |        |   |            |   |        |   |         |   |        |   |         |   |        |  
|-------------------------------------------- | -------- | ------------------------------------- | ------- | - | ------------ | - | ------- | ----------- | ------ | - | ---------- | - | ------ | ------- | ------- | - | ------------ | - | ------- | ----------- | ------ | - | ---------- | - | ------ | - | ------- | - | ------ | - | ------- | - | ------ | -
|                                             |          | Three Months Ended                    |        
|                                             |          |                                       |        
|                                             |          | May 31,                               |         |   | February 28, |   |         | November 30 |        |   | August 31, |   |        | May 31, |         |   | February 28, |   |         | November 30 |        |   | August 31, |  
|                                             |          | 2005                                  |         |   | 2005         |   |         | 2004        |        |   | 2004       |   |        | 2004    |         |   | 2004         |   |         | 2003        |        |   | 2003       |  
|                                             |          |                                       |         |   |              |   |         |             |        |   |            |   |        |         |         |   |              |   |         |             |        |   |            |  
|                                             |          | (In thousands, except per share data) |        
|Revenues                                     |          | $                                     | 335,820 |   |              | $ | 285,265 |             |        | $ | 376,180    |   |        | $       | 273,145 |   |              | $ | 267,346 |             |        | $ | 242,485    |   |        | $ | 271,215 |   |        | $ | 168,608 |  
|Cost of revenues*                            |          |                                       | 234,611 |   |              |   | 196,803 |             |        |   | 266,829    |   |        |         | 182,115 |   |              |   | 185,902 |             |        |   | 172,412    |   |        |   | 197,823 |   |        |   | 121,228 |  
|Income (loss) from continuing operations     |          |                                       | 17,729  |   |              |   | 4,373   |             |        |   | 24,691     |   |        |         | 19,594  |   |              |   | 13,337  |             |        |   | (9,322     | ) |        |   | 2,632   |   |        |   | (16,862 | )
|Loss from discontinued operations            |          |                                       |        |   |              |   |        |             |        |   |           |   |        |         |        |   |              |   |        |             |        |   |           |   |        |   | (6,750  | ) |        |   | (4,884  | )
|Net income (loss)                            |          |                                       | 17,729  |   |              |   | 4,373   |             |        |   | 24,691     |   |        |         | 19,594  |   |              |   | 13,337  |             |        |   | (9,322     | ) |        |   | (4,118  | ) |        |   | (21,746 | )
|Net income (loss) per share                 |          |                                       |         |   |              |   |         |             |        |   |            |   |        |         |         |   |              |   |         |             |        |   |            |   |        |   |         |   |        |   |         |  
|                                             | Basic:   |                                       |         |   |              |   |         |             |        |   |            |   |        |         |         |   |              |   |         |             |        |   |            |   |        |   |         |   |        |   |         |   |       
|                                             |          | Continuing operations                 |         | $ | 0.36         |   |         | $           | 0.09   |   |            | $ | 0.51   |         |         | $ | 0.41         |   |         | $           | 0.29   |   |            | $ | (0.20  | ) |         | $ | 0.07   |   |         | $ | (0.57  | )
|                                             |          | Discontinued operations               |         |   |             |   |         |             |       |   |            |   |       |         |         |   |             |   |         |             |       |   |            |   |       |   |         |   | (0.18  | ) |         |   | (0.17  | )
|                                             |          |                                       |         |   |              |   |         |             |        |   |            |   |        |         |         |   |              |   |         |             |        |   |            |  
|                                             |          | $                                     | 0.36    |   |              | $ | 0.09    |             |        | $ | 0.51       |   |        | $       | 0.41    |   |              | $ | 0.29    |             |        | $ | (0.20      | ) |        | $ | (0.11   | ) |        | $ | (0.74   | )
|                                             |          |                                       |         |   |              |   |         |             |        |   |            |   |        |         |         |   |              |   |         |             |        |   |            |  
|                                             | Diluted: |                                       |         |   |              |   |         |             |        |   |            |   |        |         |         |   |              |   |         |             |        |   |            |   |        |   |         |   |        |   |         |   |       
|                                             |          | Continuing operations                 |         | $ | 0.35         |   |         | $           | 0.09   |   |            | $ | 0.48   |         |         | $ | 0.38         |   |         | $           | 0.27   |   |            | $ | (0.20  | ) |         | $ | 0.07   |   |         | $ | (0.57  | )
|                                             |          | Discontinued operations               |         |   |             |   |         |             |       |   |            |   |       |         |         |   |             |   |         |             |       |   |            |   |       |   |         |   | (0.18  | ) |         |   | (0.17  | )
|                                             |          |                                       |         |   |              |   |         |             |        |   |            |   |        |         |         |   |              |   |         |             |        |   |            |  
|                                             |          | $                                     | 0.35    |   |              | $ | 0.09    |             |        | $ | 0.48       |   |        | $       | 0.38    |   |              | $ | 0.27    |             |        | $ | (0.20      | ) |        | $ | (0.11   | ) |        | $ | (0.74   | )
|                                             |          |                                       |         |   |              |   |         |             |        |   |            |   |        |         |         |   |              |   |         |             |        |   |            |  
|Shares used in computing per share amounts  |          |                                       |         |   |              |   |         |             |        |   |            |   |        |         |         |   |              |   |         |             |        |   |            |   |        |   |         |   |        |   |         |  
|                                             |          | Basic                                 |         |   | 49,182       |   |         |             | 48,751 |   |            |   | 48,381 |         |         |   | 47,629       |   |         |             | 46,628 |   |            |   | 46,073 |   |         |   | 36,696 |   |         |   | 29,349 |  
|                                             |          | Diluted                               |         |   | 51,271       |   |         |             | 51,441 |   |            |   | 51,442 |         |         |   | 51,005       |   |         |             | 49,358 |   |            |   | 46,073 |   |         |   | 38,743 |   |         |   | 29,349 |  






|  |                                                                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Cost of revenues includes cost of revenues and the
    applicable portion of amortization of intangible assets
    and deferred stock-based compensation.

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








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





Managements Report on Internal Control Over Financial
Reporting


Internal
Control-Integrated Framework.


Changes in Internal Control over Financial Reporting




Inherent Limitations on Effectiveness of Controls




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




Internal
ControlIntegrated Framework








Internal
ControlIntegrated Framework Internal ControlIntegrated Framework


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|         |                  
|-------- | -----------------
|Item 9B. | Other Information






Part III







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








|         |                       
|-------- | ----------------------
|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 Schedule





| |    |                                                                                                                                                                        
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Financial StatementsSee Index to Consolidated Financial
    Statements and Financial Statements Schedule at Item 8 on
    page 49 of this Report on Form 10-K.        
|
| | 2. | Financial Statement ScheduleSee Index to Consolidated
    Financial Statements and Financial Statements Schedule at
    Item 8 on page 49 of this Report on Form 10-K.
|
| | 3. | ExhibitsThe following exhibits are filed as part of, or
    incorporated by reference into, this Report on Form 10-K:                                                 

|        |   |                     |  |                                                                                                                                                                              |  |          |        |         |  |             |            |          |  |  |      |  |  |  |          |  |  |  |     | 
|------- | - | ------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | ------ | ------- |  | ----------- | ---------- | -------- |  |  | ---- |  |  |  | -------- |  |  |  | --- | 
|        |   |                     |  | Incorporated by Reference                                                                                                                                                    |  |         
|Exhibit |   |                     |  |                                                                                                                                                                              |  | Filed   
|Number  |   | Exhibit Description |  | Form                                                                                                                                                                         |  | File No. |        | Exhibit |  | Filing Date |            | Herewith
|        |   |                     |  |                                                                                                                                                                              |  |          |        |         |  |             |            |         
|        | 2 | .1                  |  | Master Separation and Distribution Agreement between 3Com and
    the registrant effective as of December 13, 1999, as
    amended.                                          |  |          | S-1/A  |         |  |             | 333-92657  |          |  |  | 2.1  |  |  |  | 1/28/00  |  |  |  |     | 
|        | 2 | .2                  |  | Tax Sharing Agreement between 3Com and the registrant.                                                                                                                       |  |          | 10-Q   |         |  |             | 000-29597  |          |  |  | 2.7  |  |  |  | 4/10/00  |  |  |  |     | 
|        | 2 | .3                  |  | Indemnification and Insurance Matters Agreement between 3Com and
    the registrant.                                                                                         |  |          | 10-Q   |         |  |             | 000-29597  |          |  |  | 2.11 |  |  |  | 4/10/00  |  |  |  |     | 
|        | 2 | .4                  |  | Form of Non-U.S. Plan.                                                                                                                                                       |  |          | S-1    |         |  |             | 333-92657  |          |  |  | 2.12 |  |  |  | 12/13/99 |  |  |  |     | 
|        | 2 | .5                  |  | Agreement and Plan of Reorganization between the registrant,
    Peace Separation Corporation, Harmony Acquisition Corporation
    and Handspring, Inc., dated June 4, 2003. |  |          | 8-K    |         |  |             | 000-29597  |          |  |  | 2.1  |  |  |  | 6/6/03   |  |  |  |     | 
|        | 2 | .6                  |  | Amended and Restated Master Separation Agreement between the
    registrant and PalmSource, Inc.                                                                             |  |          | S-4/A  |         |  |             | 333-106829 |          |  |  | 2.14 |  |  |  | 8/18/03  |  |  |  |     | 
|        | 2 | .7                  |  | Amended and Restated Indemnification and Insurance Matters
    Agreement between the registrant and PalmSource, Inc.                                                         |  |          | S-4/A  |         |  |             | 333-106829 |          |  |  | 2.17 |  |  |  | 8/18/03  |  |  |  |     | 
|        | 2 | .8                  |  | Amended and Restated Tax Sharing Agreement between the
    registrant and PalmSource, Inc.                                                                                   |  |          | S-4/A  |         |  |             | 333-106829 |          |  |  | 2.23 |  |  |  | 8/18/03  |  |  |  |     | 
|        | 2 | .9                  |  | Master Patent Ownership and License Agreement between the
    registrant and PalmSource, Inc.                                                                                |  |          | S-4/A  |         |  |             | 333-106829 |          |  |  | 2.30 |  |  |  | 8/18/03  |  |  |  |     | 
|        | 2 | .10                 |  | Xerox Litigation Agreement between the registrant and
    PalmSource, Inc., as amended.                                                                                      |  |          | 10-K/A |         |  |             | 000-29597  |          |  |  | 2.34 |  |  |  | 9/26/03  |  |  |  |     | 
|        | 3 | .1                  |  | Amended and Restated Certificate of Incorporation.                                                                                                                           |  |          | 10-Q   |         |  |             | 000-29597  |          |  |  | 3.1  |  |  |  | 10/11/02 |  |  |  |     | 
|        | 3 | .2                  |  | Amended and Restated Bylaws.                                                                                                                                                 |  |          | 10-K   |         |  |             | 000-29597  |          |  |  | 3.2  |  |  |  | 8/5/04   |  |  |  |     | 
|        | 4 | .1                  |  | Reference is made to Exhibits. 3.1 and 3.2 hereof.                                                                                                                           |  |          | N/A    |         |  |             | N/A        |          |  |  | N/A  |  |  |  | N/A      |  |  |  | N/A | 
|        | 4 | .2                  |  | Specimen Stock Certificate.                                                                                                                                                  |  |          |        |         |  |             |            |          |  |  |      |  |  |  |          |  |  |  | X   | 
|        | 4 | .3                  |  | Preferred Stock Rights Agreement between the registrant and
    EquiServe Trust Company, N.A. (formerly Fleet National Bank), as
    amended.                                |  |          | 8-K    |         |  |             | 000-29597  |          |  |  | 4.1  |  |  |  | 11/22/00 |  |  |  |     | 

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|        |    |                     |  |                                                                                                                                                                                                                                                  |  |          |           |         |  |             |            |          |  |  |       |  |  |  |          |  |  |  |   | 
|------- | -- | ------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------- | --------- | ------- |  | ----------- | ---------- | -------- |  |  | ----- |  |  |  | -------- |  |  |  | - | 
|        |    |                     |  | Incorporated by Reference                                                                                                                                                                                                                        |  |         
|Exhibit |    |                     |  |                                                                                                                                                                                                                                                  |  | Filed   
|Number  |    | Exhibit Description |  | Form                                                                                                                                                                                                                                             |  | File No. |           | Exhibit |  | Filing Date |            | Herewith
|        |    |                     |  |                                                                                                                                                                                                                                                  |  |          |           |         |  |             |            |         
|        | 4  | .4                  |  | 5% Convertible Subordinated Note, dated as of
    November 4, 2003.                                                                                                                                                                              |  |          | 10-Q      |         |  |             | 000-29597  |          |  |  | 4.4   |  |  |  | 4/6/04   |  |  |  |   | 
|        | 4  | .5                  |  | Amendment to Preferred Stock Rights Agreement between the
    registrant and EquiServe Trust Company, N.A.                                                                                                                                       |  |          | 8-A/A     |         |  |             | 000-29597  |          |  |  | 4.2   |  |  |  | 11/18/04 |  |  |  |   | 
|        | 4  | .6                  |  | Certificate of Ownership and Merger Merging Palm, Inc. into
    palmOne, Inc.                                                                                                                                                                    |  |          |           |         |  |             |            |          |  |  |       |  |  |  |          |  |  |  | X | 
|        | 10 | .1                  |  | Amended and Restated 1999 Stock Plan.                                                                                                                                                                                                            |  |          |           |         |  |             |            |          |  |  |       |  |  |  |          |  |  |  | X | 
|        | 10 | .2                  |  | Form of 1999 Stock Plan Agreements.                                                                                                                                                                                                              |  |          | S-1/A     |         |  |             | 333-92657  |          |  |  | 10.2  |  |  |  | 1/28/00  |  |  |  |   | 
|        | 10 | .3                  |  | Amended and Restated 1999 Employee Stock Purchase Plan.                                                                                                                                                                                          |  |          | S-8       |         |  |             | 000-29597  |          |  |  | 10.2  |  |  |  | 11/18/04 |  |  |  |   | 
|        | 10 | .4                  |  | Form of 1999 Employee Stock Purchase Plan Agreements.                                                                                                                                                                                            |  |          | S-1/A     |         |  |             | 333-92657  |          |  |  | 10.4  |  |  |  | 1/28/00  |  |  |  |   | 
|        | 10 | .5                  |  | Amended and Restated 1999 Director Option Plan.                                                                                                                                                                                                  |  |          | S-8       |         |  |             | 333-47126  |          |  |  | 10.5  |  |  |  | 10/2/00  |  |  |  |   | 
|        | 10 | .6                  |  | Form of 1999 Director Option Plan Agreements.                                                                                                                                                                                                    |  |          | S-1/A     |         |  |             | 333-92657  |          |  |  | 10.6  |  |  |  | 1/28/00  |  |  |  |   | 
|        | 10 | .7                  |  | Form of Indemnification Agreement entered into by the registrant
    with each of its directors and executive officers.                                                                                                                          |  |          | S-1/A     |         |  |             | 333-92657  |          |  |  | 10.8  |  |  |  | 1/28/00  |  |  |  |   | 
|        | 10 | .8**                |  | RAM Mobile Data USA Limited Partnership Value Added
    Reseller Agreement between RAM Mobile Data USA Limited
    Partnership (now Cingular Wireless) and the registrant.                                                                       |  |          | S-1/A     |         |  |             | 333-92657  |          |  |  | 10.9  |  |  |  | 2/25/00  |  |  |  |   | 
|        | 10 | .9                  |  | Form of Management Retention Agreement.                                                                                                                                                                                                          |  |          | S-1/A     |         |  |             | 333-92657  |          |  |  | 10.14 |  |  |  | 2/28/00  |  |  |  |   | 
|        | 10 | .10                 |  | Amendment Number One to Value Added Reseller Agreement between
    Cingular Interactive, L.P. (formerly known as BellSouth Wireless
    Data, L.P., which was formerly known as RAM Mobile Data USA
    Limited Partnership) and the registrant. |  |          | 10-Q/A    |         |  |             | 000-29597  |          |  |  | 10.37 |  |  |  | 2/26/02  |  |  |  |   | 
|        | 10 | .11**               |  | Sublease Agreement by and between Cisco Systems Inc. and the
    registrant.                                                                                                                                                                     |  |          | 10-K      |         |  |             | 000-29597  |          |  |  | 10.38 |  |  |  | 7/30/02  |  |  |  |   | 
|        | 10 | .12                 |  | Management Retention Agreement by and between the registrant and
    R. Todd Bradley dated as of September 17, 2002.                                                                                                                             |  |          | 10-Q      |         |  |             | 000-29597  |          |  |  | 10.43 |  |  |  | 10/11/02 |  |  |  |   | 
|        | 10 | .13                 |  | Form of Severance Agreement for Executive Officers.                                                                                                                                                                                              |  |          | 10-Q      |         |  |             | 000-29597  |          |  |  | 10.44 |  |  |  | 10/11/02 |  |  |  |   | 
|        | 10 | .14                 |  | Amended and Restated 2001 Stock Option Plan for Non-Employee
    Directors.                                                                                                                                                                      |  |          | 424(b)(3) |         |  |             | 333-106829 |          |  |  | ANN E |  |  |  | 9/29/03  |  |  |  |   | 
|        | 10 | .15**               |  | Loan and Security Agreement between the registrant and Silicon
    Valley Bank.                                                                                                                                                                  |  |          | 10-Q      |         |  |             | 000-29597  |          |  |  | 10.39 |  |  |  | 10/14/03 |  |  |  |   | 
|        | 10 | .16                 |  | Handspring, Inc. 1998 Equity Incentive Plan, as amended.                                                                                                                                                                                         |  |          | S-8       |         |  |             | 333-110055 |          |  |  | 10.1  |  |  |  | 10/29/03 |  |  |  |   | 
|        | 10 | .17                 |  | Handspring, Inc. 1999 Executive Equity Incentive Plan, as
    amended.                                                                                                                                                                           |  |          | S-8       |         |  |             | 333-110055 |          |  |  | 10.2  |  |  |  | 10/29/03 |  |  |  |   | 
|        | 10 | .18                 |  | Handspring, Inc. 2000 Equity Incentive Plan, as amended.                                                                                                                                                                                         |  |          | S-8       |         |  |             | 333-110055 |          |  |  | 10.3  |  |  |  | 10/29/03 |  |  |  |   | 
|        | 10 | .19                 |  | Separation Agreement between the registrant and R. Todd Bradley
    dated as of January 24, 2005.                                                                                                                                                |  |          | 10-Q      |         |  |             | 000-29597  |          |  |  | 10.26 |  |  |  | 4/5/05   |  |  |  |   | 

87



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##### Table of Contents



|        |    |                     |  |                                                                                                                                                                                             |  |          |      |         |  |             |           |          |  |  |       |  |  |  |         |  |  |  |   | 
|------- | -- | ------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | ---- | ------- |  | ----------- | --------- | -------- |  |  | ----- |  |  |  | ------- |  |  |  | - | 
|        |    |                     |  | Incorporated by Reference                                                                                                                                                                   |  |         
|Exhibit |    |                     |  |                                                                                                                                                                                             |  | Filed   
|Number  |    | Exhibit Description |  | Form                                                                                                                                                                                        |  | File No. |      | Exhibit |  | Filing Date |           | Herewith
|        |    |                     |  |                                                                                                                                                                                             |  |          |      |         |  |             |           |         
|        | 10 | .20                 |  | Amendment No. 1 to the Loan and Security Agreement between
    the registrant and Silicon Valley Bank.                                                                                      |  |          | 10-Q |         |  |             | 000-29597 |          |  |  | 10.27 |  |  |  | 4/5/05  |  |  |  |   | 
|        | 10 | .21                 |  | Amendment No. 2 to the Loan and Security Agreement between
    the registrant and Silicon Valley Bank.                                                                                      |  |          | 10-Q |         |  |             | 000-29597 |          |  |  | 10.28 |  |  |  | 4/5/05  |  |  |  |   | 
|        | 10 | .22                 |  | Amendment No. 3 to the Loan and Security Agreement between
    the registrant and Silicon Valley Bank.                                                                                      |  |          | 10-Q |         |  |             | 000-29597 |          |  |  | 10.29 |  |  |  | 4/5/05  |  |  |  |   | 
|        | 10 | .23                 |  | Sub-Lease between the registrant and Philips Electronics North
    America Corporation.                                                                                                     |  |          | 10-Q |         |  |             | 000-29597 |          |  |  | 10.30 |  |  |  | 4/5/05  |  |  |  |   | 
|        | 10 | .24                 |  | Offer Letter from the registrant to Andrew J. Brown dated as of
    December 13, 2004.                                                                                                      |  |          | 10-Q |         |  |             | 000-29597 |          |  |  | 10.31 |  |  |  | 4/5/05  |  |  |  |   | 
|        | 10 | .25                 |  | Loan Modification Agreement between the registrant and Silicon
    Valley Bank.                                                                                                             |  |          |      |         |  |             |           |          |  |  |       |  |  |  |         |  |  |  | X | 
|        | 10 | .26                 |  | Second Amended and Restated Software License Agreement between
    the registrant and PalmSource, Inc., PalmSource Overseas Limited
    and palmOne Ireland Investment, dated May 23, 2005. |  |          | 8-K  |         |  |             | 000-29597 |          |  |  | 10.2  |  |  |  | 7/28/05 |  |  |  |   | 
|        | 10 | .27                 |  | Purchase Agreement between the registrant, PalmSource, Inc. and
    Palm Trademark Holding Company, LLC, dated May 23, 2005.                                                                |  |          | 8-K  |         |  |             | 000-29597 |          |  |  | 10.1  |  |  |  | 5/27/05 |  |  |  |   | 
|        | 21 | .1                  |  | Subsidiaries of the registrant.                                                                                                                                                             |  |          |      |         |  |             |           |          |  |  |       |  |  |  |         |  |  |  | X | 
|        | 23 | .1                  |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                   |  |          |      |         |  |             |           |          |  |  |       |  |  |  |         |  |  |  | X | 
|        | 31 | .1                  |  | Rule 13a-14(a)/15d14(a) Certification of Chief
    Executive Officer.                                                                                                                      |  |          |      |         |  |             |           |          |  |  |       |  |  |  |         |  |  |  | X | 
|        | 31 | .2                  |  | Rule 13a-14(a)/15d14(a) Certification of Chief
    Financial Officer.                                                                                                                      |  |          |      |         |  |             |           |          |  |  |       |  |  |  |         |  |  |  | X | 
|        | 32 | .1                  |  | Section 1350 Certifications of Chief Executive Officer and
    Chief Financial Officer.                                                                                                     |  |          |      |         |  |             |           |          |  |  |       |  |  |  |         |  |  |  | X | 






|   |                                                            
|-- | -----------------------------------------------------------
|** | Confidential treatment granted on portions of this exhibit.

88



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##### Table of Contents






SIGNATURES






| |           
| | ----------
| | Palm, Inc.



| |     |                       
| | --- | ----------------------
| | By: | /s/ Edward T. Colligan

| |                                      
| | -------------------------------------
| |                                      
| | Edward T. Colligan                   
| | President and Chief Executive Officer



|                                                     |  |                                                 |  |               |  | 
|---------------------------------------------------- |  | ----------------------------------------------- |  | ------------- |  | 
|Name                                                 |  | Title                                           |  | Date         
|                                                     |  |                                                 |  |              
|PRINCIPAL EXECUTIVE OFFICER:                         |  |                                                 |  |              
|                                                    
|/s/ Edward T. ColliganEdward T. Colligan             |  | President and Chief Executive Officer, Director |  | July 29, 2005
|                                                    
|PRINCIPAL FINANCIAL AND                              |  |                                                 |  |              
|ACCOUNTING OFFICER:                                  |  |                                                 |  |              
|                                                    
|                                                    
|/s/ Andrew J. BrownAndrew J. Brown                   |  | Chief Financial Officer                         |  | July 29, 2005
|                                                    
|/s/ Eric A. BenhamouEric A. Benhamou                 |  | Chairman                                        |  | July 29, 2005
|                                                    
|/s/ Gordon A. CampbellGordon A. Campbell             |  | Director                                        |  | July 29, 2005
|                                                    
|/s/ Gareth C. C. ChangGareth C. C. Chang             |  | Director                                        |  | July 29, 2005
|                                                    
|/s/ Jean-Jacques
    DamlamianJean-Jacques Damlamian |  | Director                                        |  | July 29, 2005
|                                                    
|L.
    John Doerr                                    |  | Director                                        |  |              
|                                                    
|/s/ Donna L. DubinskyDonna L. Dubinsky               |  | Director                                        |  | July 29, 2005
|                                                    
|/s/ Bruce W. DunlevieBruce W. Dunlevie               |  | Director                                        |  | July 29, 2005
|                                                    
|/s/ Michael HomerMichael Homer                       |  | Director                                        |  | July 29, 2005
|                                                    
|/s/ D. Scott MercerD. Scott Mercer                   |  | Director                                        |  | July 29, 2005

89



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PALM, INC.





SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS


Years Ended May 31, 2005, 2004 and 2003


(In thousands)


|                                 |  |            |        |              |            |   |        |               |  |             |              |         |        |           |         |   |  |   |        | 
|-------------------------------- |  | ---------- | ------ | ------------ | ---------- | - | ------ | ------------- |  | ----------- | ------------ | ------- | ------ | --------- | ------- | - |  | - | ------ | 
|                                 |  |            |        | Additions    |            |   |        |               |  |             |             
|                                 |  |            |        | (Deductions) |            |   |        |               |  |             |             
|                                 |  | Balance at |        |              | Charged to |   |        |               |  |             |              | Balance |       
|                                 |  | Beginning  |        |              | Costs and  |   |        |               |  | Recoveries/ |              |         | at End |          
|For the Year Ended May 31, 2005: |  | of Period  |        |              | Expenses   |   |        | Additions (1) |  |             | (Deductions) |         |        | of Period |        
|                                 |  |            |        |              |            |   |        |               |  |             |              |         |        |           |        
|Allowance for doubtful accounts  |  | $          | 8,317  |              |            | $ | (1,200 | )             |  | $           |             |         |        | $         | (243    | ) |  | $ | 6,874  | 
|Product return reserve           |  |            | 21,890 |              |            |   | 70,892 |               |  |             | (316         | )       |        |           | (71,270 | ) |  |   | 21,196 | 
|Product warranty                 |  |            | 27,839 |              |            |   | 59,832 |               |  |             |             |         |        |           | (68,018 | ) |  |   | 19,653 | 

|                                 |  |            |        |              |            |   |        |               |  |             |              |         |        |           |         |   |  |   |        | 
|-------------------------------- |  | ---------- | ------ | ------------ | ---------- | - | ------ | ------------- |  | ----------- | ------------ | ------- | ------ | --------- | ------- | - |  | - | ------ | 
|                                 |  |            |        | Additions    |            |   |        |               |  |             |             
|                                 |  |            |        | (Deductions) |            |   |        |               |  |             |             
|                                 |  | Balance at |        |              | Charged to |   |        |               |  |             |              | Balance |       
|                                 |  | Beginning  |        |              | Costs and  |   |        |               |  | Recoveries/ |              |         | at End |          
|For the Year Ended May 31, 2004: |  | of Period  |        |              | Expenses   |   |        | Additions (1) |  |             | (Deductions) |         |        | of Period |        
|                                 |  |            |        |              |            |   |        |               |  |             |              |         |        |           |        
|Allowance for doubtful accounts  |  | $          | 4,635  |              |            | $ | 1,000  |               |  | $           | 2,935        |         |        | $         | 253     |   |  | $ | 8,317  | 
|Product return reserve           |  |            | 19,995 |              |            |   | 44,426 |               |  |             | 2,845        |         |        |           | (45,376 | ) |  |   | 21,890 | 
|Product warranty                 |  |            | 17,911 |              |            |   | 41,659 |               |  |             | 6,037        |         |        |           | (37,768 | ) |  |   | 27,839 | 

|                                 |  |            |        |              |            |   |        |           |  |              |   |         |           |   |         |   |  |   |        | 
|-------------------------------- |  | ---------- | ------ | ------------ | ---------- | - | ------ | --------- |  | ------------ | - | ------- | --------- | - | ------- | - |  | - | ------ | 
|                                 |  |            |        | Additions    |            |   |        |           |  |              |  
|                                 |  |            |        | (Deductions) |            |   |        |           |  |              |  
|                                 |  | Balance at |        |              | Charged to |   |        |           |  |              |   | Balance |          
|                                 |  | Beginning  |        |              | Costs and  |   |        |           |  | Recoveries/  |   |         | at End    |  
|For the Year Ended May 31, 2003: |  | of Period  |        |              | Expenses   |   |        | Additions |  | (Deductions) |   |         | of Period |  
|                                 |  |            |        |              |            |   |        |           |  |              |   |         |           |  
|Allowance for doubtful accounts  |  | $          | 8,485  |              |            | $ | 862    |           |  | $            |  |         |           | $ | (4,712  | ) |  | $ | 4,635  | 
|Product return reserve           |  |            | 25,996 |              |            |   | 38,781 |           |  |              |  |         |           |   | (44,782 | ) |  |   | 19,995 | 
|Product warranty                 |  |            | 30,008 |              |            |   | 27,529 |           |  |              |  |         |           |   | (39,626 | ) |  |   | 17,911 | 






|    |                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Reflects the inclusion of the historical balances of Handspring,
    Inc. as of October 29, 2003, the date of acquisition by the
    Company.

90



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##### Table of Contents



INDEX TO EXHIBITS


|        |    |                     |  |                                                                                                                                                                                  |  |          |  |         |            |             |  |          |      |  |  |  |          |  |  |  |     | 
|------- | -- | ------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- |  | ------- | ---------- | ----------- |  | -------- | ---- |  |  |  | -------- |  |  |  | --- | 
|        |    |                     |  | Incorporated by Reference                                                                                                                                                        |  |         
|Exhibit |    |                     |  |                                                                                                                                                                                  |  | Filed   
|Number  |    | Exhibit Description |  | Form                                                                                                                                                                             |  | File No. |  | Exhibit |            | Filing Date |  | Herewith
|        |    |                     |  |                                                                                                                                                                                  |  |          |  |         |            |             |  |         
|        | 2  | .1                  |  | Master Separation and Distribution Agreement
    between 3Com and the registrant effective as of
    December 13, 1999, as amended.                                              |  | S-1/A    |  |         | 333-92657  |             |  |          | 2.1  |  |  |  | 1/28/00  |  |  |  |     | 
|        | 2  | .2                  |  | Tax Sharing Agreement between 3Com and the registrant.                                                                                                                           |  | 10-Q     |  |         | 000-29597  |             |  |          | 2.7  |  |  |  | 4/10/00  |  |  |  |     | 
|        | 2  | .3                  |  | Indemnification and Insurance Matters Agreement between 3Com and
    the registrant.                                                                                             |  | 10-Q     |  |         | 000-29597  |             |  |          | 2.11 |  |  |  | 4/10/00  |  |  |  |     | 
|        | 2  | .4                  |  | Form of Non-U.S. Plan.                                                                                                                                                           |  | S-1      |  |         | 333-92657  |             |  |          | 2.12 |  |  |  | 12/13/99 |  |  |  |     | 
|        | 2  | .5                  |  | Agreement and Plan of Reorganization between the registrant,
    Peace Separation Corporation,
    Harmony Acquisition Corporation and Handspring, Inc., dated
    June 4, 2003. |  | 8-K      |  |         | 000-29597  |             |  |          | 2.1  |  |  |  | 6/6/03   |  |  |  |     | 
|        | 2  | .6                  |  | Amended and Restated Master Separation Agreement between the
    registrant and PalmSource, Inc.                                                                                 |  | S-4/A    |  |         | 333-106829 |             |  |          | 2.14 |  |  |  | 8/18/03  |  |  |  |     | 
|        | 2  | .7                  |  | Amended and Restated Indemnification and Insurance Matters
    Agreement between the registrant and PalmSource, Inc.                                                             |  | S-4/A    |  |         | 333-106829 |             |  |          | 2.17 |  |  |  | 8/18/03  |  |  |  |     | 
|        | 2  | .8                  |  | Amended and Restated Tax Sharing Agreement between the
    registrant and PalmSource, Inc.                                                                                       |  | S-4/A    |  |         | 333-106829 |             |  |          | 2.23 |  |  |  | 8/18/03  |  |  |  |     | 
|        | 2  | .9                  |  | Master Patent Ownership and License Agreement between the
    registrant and PalmSource, Inc.                                                                                    |  | S-4/A    |  |         | 333-106829 |             |  |          | 2.30 |  |  |  | 8/18/03  |  |  |  |     | 
|        | 2  | .10                 |  | Xerox Litigation Agreement between the registrant and
    PalmSource, Inc., as amended.                                                                                          |  | 10-K/A   |  |         | 000-29597  |             |  |          | 2.34 |  |  |  | 9/26/03  |  |  |  |     | 
|        | 3  | .1                  |  | Amended and Restated Certificate of Incorporation.                                                                                                                               |  | 10-Q     |  |         | 000-29597  |             |  |          | 3.1  |  |  |  | 10/11/02 |  |  |  |     | 
|        | 3  | .2                  |  | Amended and Restated Bylaws.                                                                                                                                                     |  | 10-K     |  |         | 000-29597  |             |  |          | 3.2  |  |  |  | 8/5/04   |  |  |  |     | 
|        | 4  | .1                  |  | Reference is made to Exhibits 3.1 and 3.2 hereof.                                                                                                                                |  | N/A      |  |         | N/A        |             |  |          | N/A  |  |  |  | N/A      |  |  |  | N/A | 
|        | 4  | .2                  |  | Specimen Stock Certificate.                                                                                                                                                      |  |          |  |         |            |             |  |          |      |  |  |  |          |  |  |  | X   | 
|        | 4  | .3                  |  | Preferred Stock Rights Agreement between the registrant and
    EquiServe Trust Company, N.A. (formerly Fleet National Bank), as
    amended.                                    |  | 8-K      |  |         | 000-29597  |             |  |          | 4.1  |  |  |  | 11/22/00 |  |  |  |     | 
|        | 4  | .4                  |  | 5% Convertible Subordinated Note, dated as of
    November 4, 2003.                                                                                                              |  | 10-Q     |  |         | 000-29597  |             |  |          | 4.4  |  |  |  | 4/6/04   |  |  |  |     | 
|        | 4  | .5                  |  | Amendment to Preferred Stock Rights Agreement between the
    registrant and EquiServe Trust Company, N.A.                                                                       |  | 8-A/A    |  |         | 000-29597  |             |  |          | 4.2  |  |  |  | 11/18/04 |  |  |  |     | 
|        | 4  | .6                  |  | Certificate of Ownership and Merger Merging Palm, Inc. into
    palmOne, Inc.                                                                                                    |  |          |  |         |            |             |  |          |      |  |  |  |          |  |  |  | X   | 
|        | 10 | .1                  |  | Amended and Restated 1999 Stock Plan.                                                                                                                                            |  |          |  |         |            |             |  |          |      |  |  |  |          |  |  |  | X   | 
|        | 10 | .2                  |  | Form of 1999 Stock Plan Agreements.                                                                                                                                              |  | S-1/A    |  |         | 333-92657  |             |  |          | 10.2 |  |  |  | 1/28/00  |  |  |  |     | 
|        | 10 | .3                  |  | Amended and Restated 1999 Employee Stock Purchase Plan.                                                                                                                          |  | S-8      |  |         | 000-29597  |             |  |          | 10.2 |  |  |  | 11/18/04 |  |  |  |     | 
|        | 10 | .4                  |  | Form of 1999 Employee Stock Purchase Plan Agreements.                                                                                                                            |  | S-1/A    |  |         | 333-92657  |             |  |          | 10.4 |  |  |  | 1/28/00  |  |  |  |     | 
|        | 10 | .5                  |  | Amended and Restated 1999 Director Option Plan.                                                                                                                                  |  | S-8      |  |         | 333-47126  |             |  |          | 10.5 |  |  |  | 10/2/00  |  |  |  |     | 
|        | 10 | .6                  |  | Form of 1999 Director Option Plan Agreements.                                                                                                                                    |  | S-1/A    |  |         | 333-92657  |             |  |          | 10.6 |  |  |  | 1/28/00  |  |  |  |     | 
|        | 10 | .7                  |  | Form of Indemnification Agreement entered into by the registrant
    with each of its directors and executive officers.                                                          |  | S-1/A    |  |         | 333-92657  |             |  |          | 10.8 |  |  |  | 1/28/00  |  |  |  |     | 
|        | 10 | .8**                |  | RAM Mobile Data USA Limited Partnership Value Added
    Reseller Agreement between RAM Mobile Data USA Limited
    Partnership (now Cingular Wireless) and the registrant.       |  | S-1/A    |  |         | 333-92657  |             |  |          | 10.9 |  |  |  | 2/25/00  |  |  |  |     | 



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##### Table of Contents



|        |    |                     |  |                                                                                                                                                                                                                                                  |  |           |  |         |            |             |  |          |       |  |  |  |          |  |  |  |   | 
|------- | -- | ------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------- |  | ------- | ---------- | ----------- |  | -------- | ----- |  |  |  | -------- |  |  |  | - | 
|        |    |                     |  | Incorporated by Reference                                                                                                                                                                                                                        |  |          
|Exhibit |    |                     |  |                                                                                                                                                                                                                                                  |  | Filed    
|Number  |    | Exhibit Description |  | Form                                                                                                                                                                                                                                             |  | File No.  |  | Exhibit |            | Filing Date |  | Herewith
|        |    |                     |  |                                                                                                                                                                                                                                                  |  |           |  |         |            |             |  |         
|        | 10 | .9                  |  | Form of Management Retention Agreement.                                                                                                                                                                                                          |  | S-1/A     |  |         | 333-92657  |             |  |          | 10.14 |  |  |  | 2/28/00  |  |  |  |   | 
|        | 10 | .10                 |  | Amendment Number One to Value Added Reseller Agreement between
    Cingular Interactive, L.P. (formerly known as BellSouth Wireless
    Data, L.P., which was formerly known as RAM Mobile Data USA
    Limited Partnership) and the registrant. |  | 10-Q/A    |  |         | 000-29597  |             |  |          | 10.37 |  |  |  | 2/26/02  |  |  |  |   | 
|        | 10 | .11**               |  | Sublease Agreement by and between Cisco
    Systems Inc. and the registrant.                                                                                                                                                                     |  | 10-K      |  |         | 000-29597  |             |  |          | 10.38 |  |  |  | 7/30/02  |  |  |  |   | 
|        | 10 | .12                 |  | Management Retention Agreement by and
    between the registrant and R. Todd Bradley dated as of
    September 17, 2002.                                                                                                                         |  | 10-Q      |  |         | 000-29597  |             |  |          | 10.43 |  |  |  | 10/11/02 |  |  |  |   | 
|        | 10 | .13                 |  | Form of Severance Agreement for Executive
    Officers.                                                                                                                                                                                          |  | 10-Q      |  |         | 000-29597  |             |  |          | 10.44 |  |  |  | 10/11/02 |  |  |  |   | 
|        | 10 | .14                 |  | Amended and Restated 2001 Stock Option Plan for Non-Employee
    Directors.                                                                                                                                                                      |  | 424(b)(3) |  |         | 333-106829 |             |  |          | ANN E |  |  |  | 9/29/03  |  |  |  |   | 
|        | 10 | .15**               |  | Loan and Security Agreement between the registrant and Silicon
    Valley Bank.                                                                                                                                                                  |  | 10-Q      |  |         | 000-29597  |             |  |          | 10.39 |  |  |  | 10/14/03 |  |  |  |   | 
|        | 10 | .16                 |  | Handspring, Inc. 1998 Equity Incentive Plan, as amended.                                                                                                                                                                                         |  | S-8       |  |         | 333-110055 |             |  |          | 10.1  |  |  |  | 10/29/03 |  |  |  |   | 
|        | 10 | .17                 |  | Handspring, Inc. 1999 Executive Equity Incentive Plan, as
    amended.                                                                                                                                                                           |  | S-8       |  |         | 333-110055 |             |  |          | 10.2  |  |  |  | 10/29/03 |  |  |  |   | 
|        | 10 | .18                 |  | Handspring, Inc. 2000 Equity Incentive Plan, as amended.                                                                                                                                                                                         |  | S-8       |  |         | 333-110055 |             |  |          | 10.3  |  |  |  | 10/29/03 |  |  |  |   | 
|        | 10 | .19                 |  | Separation Agreement between the registrant and R. Todd Bradley
    dated as of January 24, 2005.                                                                                                                                                |  | 10-Q      |  |         | 000-29597  |             |  |          | 10.26 |  |  |  | 4/5/05   |  |  |  |   | 
|        | 10 | .20                 |  | Amendment No. 1 to the Loan and Security Agreement between
    the registrant and Silicon
    Valley Bank.                                                                                                                                       |  | 10-Q      |  |         | 000-29597  |             |  |          | 10.27 |  |  |  | 4/5/05   |  |  |  |   | 
|        | 10 | .21                 |  | Amendment No. 2 to the Loan and Security Agreement between
    the registrant and Silicon
    Valley Bank.                                                                                                                                       |  | 10-Q      |  |         | 000-29597  |             |  |          | 10.28 |  |  |  | 4/5/05   |  |  |  |   | 
|        | 10 | .22                 |  | Amendment No. 3 to the Loan and Security Agreement between
    the registrant and Silicon
    Valley Bank.                                                                                                                                       |  | 10-Q      |  |         | 000-29597  |             |  |          | 10.29 |  |  |  | 4/5/05   |  |  |  |   | 
|        | 10 | .23                 |  | Sub-Lease between the registrant and Philips
    Electronics North America Corporation.                                                                                                                                                          |  | 10-Q      |  |         | 000-29597  |             |  |          | 10.30 |  |  |  | 4/5/05   |  |  |  |   | 
|        | 10 | .24                 |  | Offer Letter from the registrant to Andrew J. Brown dated as of
    December 13, 2004.                                                                                                                                                           |  | 10-Q      |  |         | 000-29597  |             |  |          | 10.31 |  |  |  | 4/5/05   |  |  |  |   | 
|        | 10 | .25                 |  | Loan Modification Agreement between the registrant and Silicon
    Valley Bank.                                                                                                                                                                  |  |           |  |         |            |             |  |          |       |  |  |  |          |  |  |  | X | 
|        | 10 | .26                 |  | Second Amended and Restated Software License Agreement between
    the registrant and PalmSource, Inc., PalmSource Overseas Limited
    and palmOne Ireland Investment, dated May 23, 2005.                                                      |  | 8-K       |  |         | 000-29597  |             |  |          | 10.2  |  |  |  | 7/28/05  |  |  |  |   | 
|        | 10 | .27                 |  | Purchase Agreement between the registrant, PalmSource, Inc. and
    Palm Trademark Holding Company, LLC, dated May 23, 2005.                                                                                                                     |  | 8-K       |  |         | 000-29597  |             |  |          | 10.1  |  |  |  | 5/27/05  |  |  |  |   | 
|        | 21 | .1                  |  | Subsidiaries of the registrant.                                                                                                                                                                                                                  |  |           |  |         |            |             |  |          |       |  |  |  |          |  |  |  | X | 
|        | 23 | .1                  |  | Consent of Independent Registered Public
    Accounting Firm.                                                                                                                                                                                    |  |           |  |         |            |             |  |          |       |  |  |  |          |  |  |  | X | 
|        | 31 | .1                  |  | Rule 13a-14(a)/15d14(a) Certification of Chief
    Executive Officer.                                                                                                                                                                           |  |           |  |         |            |             |  |          |       |  |  |  |          |  |  |  | X | 



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##### Table of Contents



|        |    |                     |  |                                                                                         |  |          |  |         |  |             |  |          |  |  |  |  |  |  |  |  |   | 
|------- | -- | ------------------- |  | --------------------------------------------------------------------------------------- |  | -------- |  | ------- |  | ----------- |  | -------- |  |  |  |  |  |  |  |  | - | 
|        |    |                     |  | Incorporated by Reference                                                               |  |         
|Exhibit |    |                     |  |                                                                                         |  | Filed   
|Number  |    | Exhibit Description |  | Form                                                                                    |  | File No. |  | Exhibit |  | Filing Date |  | Herewith
|        |    |                     |  |                                                                                         |  |          |  |         |  |             |  |         
|        | 31 | .2                  |  | Rule 13a-14(a)/15d14(a) Certification of Chief
    Financial Officer.                  |  |          |  |         |  |             |  |          |  |  |  |  |  |  |  |  | X | 
|        | 32 | .1                  |  | Section 1350 Certifications of Chief Executive Officer and
    Chief Financial Officer. |  |          |  |         |  |             |  |          |  |  |  |  |  |  |  |  | X | 






|   |                                                            
|-- | -----------------------------------------------------------
|** | Confidential treatment granted on portions of this exhibit.