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UNITED STATES SECURITIES
AND EXCHANGE COMMISSIONWashington, D.C. 20549

_________________

FORM 10-K

_________________



|x | ANNUAL REPORT PURSUANT TO
      SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF
      1934
|- | -----------------------------------------------------------------------------------------------
|  | For the Fiscal Year Ended
      July 31,
  2004                                                

OR

|o | TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF
      1934
|- | ---------------------------------------------------------------------------------------------------
|  | For the transition period from
      _____________ to _______________                              

Commission File
Number 0-21709

INTELLISYNC CORPORATION(Exact name of
Registrant as specified in its charter)

|Delaware(State or other jurisdiction of incorporation or organization)                          |  |  |  | 77-0349154(I.R.S. Employer Identification No.)
|----------------------------------------------------------------------------------------------- |  |  |  | ----------------------------------------------
|2550 North
First Street, Suite 500 San Jose, California(Address of principal executive offices) |  |  |  | 95131(ZIP Code)                               

(408) 321-7650

(Registrants telephone number, including area code)
 Securities registered pursuant to Section 12(b) of the Act:NoneSecurities registered pursuant to Section 12(g) of
the Act:Common Stock, $.001 par value Preferred Stock Purchase Rights(Title of class)



Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
[X] No [  ]




Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[X]




Indicate by check mark whether the Registrant is an
accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [  ]




The aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately $294,521,890 at January 31, 2004, the registrants most recently completed second fiscal
quarter.




The number of the registrants $0.001 par value
Common Stock outstanding as of September 15, 2004, was 65,783,251 shares of Common Stock.


DOCUMENTS INCORPORATED BY REFERENCE:  Part III



Certain sections of the proxy statement for
registrants 2004 Annual Meeting of Stockholders tentatively scheduled for November 5, 2004 to be filed with the Commission pursuant to
Registration 14A no later than 120 days after the end of the fiscal year ended July 31, 2004.


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TABLE OF CONTENTS

|                                                               |  |     |  |                                                                                                |  | Page
|-------------------------------------------------------------- |  | --- |  | ---------------------------------------------------------------------------------------------- |  | ----
|PART I                                                         |  | 1   | 
|ITEM
1.                                                        |  |     |  | Business                                                                                       |  |     
|                                                               |  |     |  | Overview                                                                                       |  |     
|                                                               |  |     |  | Available Information                                                                          |  |     
|                                                               |  |     |  | Industry Background                                                                            |  |     
|                                                               |  |     |  | Our Strategy                                                                                   |  |     
|                                                               |  |     |  | Our Technology Solutions                                                                       |  |     
|                                                               |  |     |  | Products                                                                                       |  |     
|                                                               |  |     |  | Sales And Marketing                                                                            |  |     
|                                                               |  |     |  | Customer Support                                                                               |  |     
|                                                               |  |     |  | Seasonality                                                                                    |  |     
|                                                               |  |     |  | Competition                                                                                    |  |     
|                                                               |  |     |  | Research and Development                                                                       |  |     
|                                                               |  |     |  | Professional Services Group                                                                    |  |     
|                                                               |  |     |  | Acquisitions                                                                                   |  |     
|                                                               |  |     |  | Proprietary Technology and Intellectual Property                                               |  |     
|                                                               |  |     |  | Employees                                                                                      |  |     
|                                                               |  |     |  | Risk Factors                                                                                   |  |     
|                                                               |  |     |  | Executive Officers and Directors of the Registrant                                             |  |     
|ITEM
2.                                                        |  |     |  | Properties                                                                                     |  |     
|ITEM
3.                                                        |  |     |  | Legal Proceedings                                                                              |  |     
|ITEM
4.                                                        |  |     |  | Submission of Matters to a Vote of Security Holders                                            |  |     
|PART II                                                        |  | 31  | 
|ITEM
5.                                                        |  |     |  | Market for Registrants Common Equity and Related Stockholder Matters                          |  |     
|ITEM
6.                                                        |  |     |  | Selected Financial Data                                                                        |  |     
|ITEM
7.                                                        |  |     |  | Managements Discussion and Analysis of Financial Condition andResults of Operations           |  |     
|ITEM
7A.                                                       |  |     |  | Quantitative and Qualitative Disclosures about Market Risk                                     |  |     
|ITEM
8.                                                        |  |     |  | Financial Statements and Supplementary Data                                                    |  |     
|ITEM
9.                                                        |  |     |  | Changes In and Disagreements With Accountants on Accounting andFinancial Disclosure            |  |     
|ITEM
9A.                                                       |  |     |  | Controls and Procedures                                                                        |  |     
|PART III                                                       |  | 67  | 
|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                                                         |  |     
|PART IV                                                        |  | 68  | 
|ITEM
15.                                                       |  |     |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                               |  |     
|SIGNATURES                                                     |  | 73  | 
|POWER OF ATTORNEY                                              |  | 73  | 
|INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE |  | F-1 | 

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PART I

ITEM 1.  BUSINESS



This Annual Report on Form 10-K contains certain
forward-looking statements that involve risks and uncertainties. Words such as anticipates, believes, expects,
future, plan, intends, should, and similar expressions are used to identify forward-looking statements.
These statements are only projections based on current assumptions made by management. The actual results that we achieve may differ materially from
those indicated in any forward-looking statements due to the risks and uncertainties set forth under Managements Discussion and Analysis of
Financial Condition and Results of Operations, Risk Factors and elsewhere in this Form 10-K. We undertake no obligation to revise any
forward-looking statements in order to reflect events or circumstances that may arise after the date of this report. Readers are urged to review and
consider carefully the various disclosures made by us in this report and our reports filed with the Securities and Exchange Commission that inform
interested parties about the risks and factors that may affect our business.


OVERVIEW



Intellisync Corporation develops, markets and
supports desktop, enterprise and carrier-class software that enable consumers, business professionals and information technology professionals to
extend the capabilities of enterprise groupware and vertical applications, handheld organizers/computers, Web-enabled mobile phones, pagers and other
wireless or wireline personal communications platforms. Our products are designed to improve the productivity of business professionals who require
access to essential, current information, anytime and anywhere.




Intellisync Corporation was incorporated in
California on August 27, 1993 as Puma Technology, Inc. and was subsequently reincorporated in Delaware on November 27, 1996. We changed our corporate
name from Pumatech, Inc. to Intellisync Corporation effective February 17, 2004. Our principal executive offices are located at 2550 North First
Street, Suite 500, San Jose, California 95131, and our Web address is www.intellisync.com. The information posted on our website is not incorporated
into this Annual Report on Form 10-K.




We have organized our operations into a single
operating segment encompassing the development, marketing and support of software and services that provide synchronization, wireless email, mobile
application development, application/device management, real-time remote information access, secure VPN, and identity searching/ matching/screening
capabilities. For further discussion of financial information related to our operating segment, as well as geographic areas, refer to note 16 to
consolidated financials statements set forth in Part IV of this Annual Report on Form 10-K.




We license our software products directly to
corporations, wireless carriers, original equipment manufacturers, or OEMs, and business development organizations worldwide. In addition, we sell our
retail products through several distribution channels both in the United States and internationally, including major distributors, resellers, computer
dealers, retailers and mail-order companies. Internationally, we are represented by over 120 distributors, resellers and retailers in North America,
Europe, the Asia-Pacific region, South America and Africa.


AVAILABLE INFORMATION



All reports we filed electronically with the United
States Securities and Exchange Commission, or the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and proxy statements, and other information and amendments to those reports filed electronically (if applicable), are accessible at no cost on
our Web site at www.intellisync.com. They are also available by contacting our Investor Relations at invrel@intellisync.com or 408-321-7650. These
filings are also accessible on the SECs Web site at www.sec.gov. The public may read and copy any materials we filed with the SEC at the
SECs Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information for the Public Reference Room by
calling the SEC at 1-800-SEC-0330.




We have adopted an ethics policy for all of our
employees, as well as a code of ethics for our principal officers and financial professionals. Copies of the ethics policy and code of ethics are also
available on our Web site.


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Our Web site and the information contained therein
or incorporated therein are not intended to be incorporated into this Annual Report on Form 10-K or our other filings with the SEC.


INDUSTRY BACKGROUND



In recent years, significant advancements in
miniaturization, visual displays, long-life batteries and portable communications have led to the introduction of many innovative mobile computing
devices. These highly portable devices allow users to work and communicate while they are away from the office and have fueled the significant growth
of mobile computing. The growth of the mobile computing industry began with the widespread adoption of notebook computers, which provided mobility and
an extension of corporate enterprise data. This was followed by the emergence of handheld devices to which personal information was delivered locally
from a desktop personal computer, or PC. Today, in this period of anytime, anywhere access, the mobile computing industry is capitalizing
on both wired and wireless access to information that can reside on a PC, an intranet/corporate server or even on the Internet. This information or
content is often highly customized, based on distinct user preferences.




As a result of an increase in worldwide use of
mobile communications, the mobile computing market has been on a steady growth path since the mid-1990s. Smart electronic consumer devices, such as
personal digital assistants, or PDAs, which are also known as handhelds, smart phones and pagers, have become more broadly available and
adopted, and other mobile communications services have become more widely accessible and affordable, providing data storage and information management
capabilities to the mobile business professional. Todays popular handheld devices include Palm OS®-based solutions (including Treos devices)
from Palm, Inc. and others; Pocket PC/Windows CE-based devices from Hewlett-Packard Company, Toshiba America, Inc., Dell, Inc. and others;
Symbian-based handhelds from companies like Psion PLC; and BlackBerry® devices from Research in Motion. In recent years, these handheld devices
have faced stiff competition from an increasing range of converged mobile devices capable of handling basic handheld tasks. These converged mobile
devices, or smart phones, are handhelds that are either voice- or data-centric and are capable of synchronizing personal information and email with
server, desktop, or laptop computers. According to the industry analyst firm International Data Corporation, or IDC, demand for handhelds that
integrate cell phone, email, Web access, and other features should continue to grow as more and more enterprises, as well as users, take advantage of
converged features bundled in a single device.




As more types of new mobile computing devices become
available to business professionals and enterprises, users are faced with the difficulty of exchanging information among these various devices. This
problem of interoperability is caused by the need to exchange information among different hardware devices, operating systems and applications.
Hardware platforms range from high-speed Pentium PCs with hundreds of megabytes of memory and gigabytes of storage, to shirt pocket
organizers, with specialized processors and limited memory and storage. In addition, these devices use numerous operating systems, such as Windows
2000, Windows XP, Windows NT, Pocket PC/Windows CE, DOS, Palm OS, Symbian and others, and utilize an even greater range of information management
applications, databases and data formats. Enabling these devices to communicate, exchange and synchronize information is a complex and challenging
task. Simply facilitating synchronization requires data-level, or content-aware, synchronization technology to maintain complete, up-to-date and
accurate information. For example, content-aware data synchronization technology allows users to exchange addresses from the Address Book software
application on a Palm OS handheld with Microsoft Outlook on a PC or Lotus Domino on a corporate server, updating only the fields that have been most
recently modified, rather than copying one file over another, thereby synchronizing both databases with the latest information.




With the increasing mobility of workforces, as well
as additional competitive pressures, business professionals and enterprises are continuously seeking ways to improve productivity and, as a result, are
increasingly using the growing number of new, innovative mobile computing devices. In order to manage information effectively, these users need
convenient connectivity and synchronization solutions for the specific combination of devices and applications that they use. These software solutions
must allow users to synchronize information maintained separately on multiple devices (for example, contact databases maintained by a mobile
professional using a handheld computer in the field and by a support colleague using a PC in the office). A software solution that links such different
devices must address multiple hardware architectures, operating systems, communications architectures and application-specific data formats and
structures.


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We
intend to exploit potential wireless carrier market opportunities by working with
wireless carriers to enhance and develop innovative wireless applications including those
relating to wireless email, data sync and device management services. There are currently
more than 1.5 million users of wireless email. As market acceptance and demand for
wireless email, data sync and device management increase, we believe this growing number
of users will demand an increasing variety of services. We expect to enhance our current
products, technology and infrastructure to broaden and expand those potential services to
address wireless carrier market.



Refer to the discussion below under the captions
Risk Factors  We have historically incurred losses and we expect these losses to continue in the future. We may not be able to
sustain consistent future revenue growth on a quarterly or annual basis, or achieve or maintain profitability, and Risk Factors
 We are placing increasing emphasis on our carrier hosting services of which potential rapid growth may be difficult to manage effectively, and,
as a result, our results of operations could be adversely affected.


OUR STRATEGY



Our strategy is to be a leading provider of mobile
and wireless infrastructure software by leveraging our engineering, technology and domain expertise and executing on a plan to broaden our market reach
through distribution agreements and partnerships with leading industry vendors. Our strategy includes the following key elements:




Extend Technology and Product
Leadership.  We believe that we currently have and are enhancing one of the broadest and most comprehensive mobile and wireless
infrastructure enterprise solutions. We intend to continue to invest in research and development and remain involved with new and developing industry
standards. We also intend to increase the performance, functionality and ease of use of our solutions by supporting new mobile devices and developing
new ways for our products to be marketed and supported by service providers and our strategic partners.




Maintain and Strengthen Strategic
Relationships.  We depend on and have strategic relationships with service providers, systems integrators, wireless carriers,
independent software resellers, and other types of technology providers to build applications based on our infrastructure platform and technologies. We
plan to continue building these relationships as well as forming new partnerships to increase visibility and distribution of our
solutions.




Increase Brand Awareness and Marketing
Efforts.  We intend to increase customer awareness of our products, technologies and services. In connection with our rebranding
efforts, we plan to enhance awareness of Intellisync brand by increasing our marketing activity and furthering our image as a high-quality provider
with a comprehensive offering of technology solutions.




Expand Our Worldwide
Presence.  We believe that international markets present a substantial growth opportunity for us as the worldwide market for mobile
and wireless products continues to grow. We are currently selling our products in Canada, Europe, the Asia-Pacific region, South America and Africa,
and plan to expand our sales, marketing and support functions in those areas by expanding our direct sales force, improving our customer service
capabilities and developing relationships with international resellers, distributors, carriers and OEMs.




Further Enhance Customer
Satisfaction.  We are committed to providing world-class technical support, training, consulting and professional services and view
building long-term customer relationships as a critical component of growing our business. We believe servicing our existing customer base will allow
us to more easily up-sell and cross-sell additional products, features and customer service offerings.




Pursue Strategic
Acquisitions.  We have acquired and integrated core technologies from Starfish Software, Inc., Loudfire, Inc., Spontaneous
Technology, Inc., Synchrologic, Inc. and Search Software America. We intend to acquire, when appropriate, additional businesses and technologies that will
expand and add functionality to our product offerings, augment our distribution channels, expand our market opportunities or broaden our customer
base.




Continue Sequential Revenue Growth and Improve
Operating Efficiencies.  We maintain a disciplined commitment to increasing our quarterly revenue. Together with our other strategy
listed above, we plan to improve


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revenue by
continuing to develop new and current products, services and technologies. We intend to
capitalize on the  continued growth in demand for wireless services and the related
infrastructure required, including hosting, application and other related services, to
support that growth. We also actively seek to improve our operational efficiency and
reduce our costs by identifying and implementing best practices  throughout our
operations, removing administrative complexities, eliminating redundancies, and
integrating acquired businesses.

OUR TECHNOLOGY SOLUTIONS



We provide enterprises, network operators, mobile
device manufacturers and software providers with a complete mobility platform, anchored by our award-winning Intellisync family, the Intellisync Mobile
Suite enterprise server platform, the Intellisync SyncML Server platform, the Intellisync Software Development Platform and Identity Systems, or IDS
software. Our comprehensive suite of software products and services synchronizes and distributes critical information, delivering unlimited mobility to
end users. We design our products to:


| |  | Enable intelligent, content-aware data
synchronization:  Our solutions enable up-to-the-minute e-mail, personal information management, or PIM, and database information to be
reflected across all devices utilized in the enterprise  from desktop and notebook PCs to handhelds, phones and pagers. Our
multi-patented synchronization technology provides content-aware data synchronization among this growing number of mobile devices and essential
enterprise applications such as Microsoft Outlook and Exchange, Lotus Notes and Domino and Novell GroupWise. Our technology seamlessly and
transparently translates the information from one data format to another as the information is synchronized. With the Intellisync Software Development
Platform, we have enabled independent software vendors, or ISVs, device OEMs and Internet-based services to build synchronization solutions for their
products based on the Intellisync platform, further enhancing our standard product range.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Allow anytime, anywhere handheld access to corporate
applications:  With the Intellisync Mobile Suite enterprise server platform, we are providing a single resource for synchronizing PIM
data, e-mail, documents and custom database information, both locally and remotely, between PCs, servers, and mobile devices, and for managing handheld
software and devices from one centralized location.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Enable centralized management:  Through the
Intellisync Mobile Suite platform solution and our Enterprise Intellisync (desktop) software, we enable IT managers to manage our Intellisync platform
using a centralized administrator console to easily and quickly deploy software licenses, configure devices and applications based on user needs,
establish security privileges and troubleshoot software by receiving and viewing detailed user logs and much more.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Enable carrier-class synchronization:  In
addition to Intellisync Mobile Suite platform solution, Intellisync SyncML Server software is a highly scalable synchronization engine that provides
multi-tier, over-the-air and wireline synchronization between a varied array of devices, applications and services. The TrueSync Server is SyncML
1.1-certified and supports a wide variety of platforms, databases, applications, protocols and transports, for broad interoperability. Its distributed
architecture allows for scalability, high availability and redundancy for millions of users, making it an ideal solution for carriers.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Provide network and device independent solutions for broad
interoperability:  Our products provide connectivity and synchronization among industry-leading PCs and mobile computing devices,
operating systems and applications. They operate with major PC operating systems for Windows 98, Windows 2000, Windows XP, Windows Me, and Windows NT,
as well as several proprietary operating systems. We also provide interoperability across a wide range of industry-standard and vendor-specific
applications by supporting multiple data formats.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Provide identity matching.  Our Identity
Systems, or IDS, software is an out of the box solution for searching and matching names, addresses, and identity data for Oracle, DB2/UDB,
and SQL Server. Without
requiring programming or changes to existing database tables, IDS provides  high-quality
search, matching, duplicate discovery, and relationship linking for all forms of
identification data. Without impacting the database  update efficiency, IDS transparently
maintains its own high performance fuzzy indexes, and efficiently
de-normalized tables. IDS is used  with existing databases or to construct new
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | databases
or repositories. The data to be indexed can be stored in local or distributed databases,
or  sourced from flat files. IDS includes a highly scalable Identity Search ServerTM that
operates efficiently on both single and multiple  processors.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Allow real-time, secure, remote information
access:  This technology allows anyone with an Internet browser or Web-enabled phone to enjoy real-time access to email and PIM data
located in either Microsoft Outlook or Outlook Express and also provides secure access to pre-specified files residing on a host PC.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Provide secure VPN solutions:  Our
carrier-grade VPN technology is designed to provide secure, remote access to corporate applications from any wireless device or operating system such
as Microsoft (NT & Pocket PC), SUN (Solaris, Java, J2ME), Palm OS and Symbian, without requiring infrastructure changes.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

PRODUCTS



We provide organizations with a complete mobile
platform featuring a comprehensive suite of software products and services that synchronizes and distributes critical information to employees,
customers or partners. Our solutions are designed to mirror innovation  the growing number of devices, access points and data sources
utilized by the typical mobile worker in todays enterprise  allowing businesses of all sizes to maximize productivity while
minimizing complexity and cost.


|Product Name                                 |  |  |  | Description                                                                                                                                                                                                                                                                                         |  | Introduction Date       
|-------------------------------------------- |  |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------
|Synchronization                              |  |  |  |                                                                                                                                                                                                                                                                                                     |  |                         
|Intellisync Mobile Suite                    |  |  |  | Designed to extend an organizations existing technology infrastructure to mobile and remote staff, delivering access to enterprise
applications, file content, email and PIM data, intranet sites, and Web content and provide tools for remotely managing mobile
devices.                         |  | December 2003
(acquired)
|Intellisync Handheld Edition                |  |  |  | Enables direct synchronization of calendars,e-mail, contacts, and tasks between Palm OS, Pocket PC/Windows CE, Windows Mobile and Symbian
Release 5.0-compatible devices and the leading PC-based personal information management, or PIM, contact management and groupware messaging
applications. |  | August
1996             
|Intellisync Phone Edition                   |  |  |  | Enables two-way synchronization of contacts between either Microsoft Outlook, Outlook Express or Lotus Notes and popular mobile phones from LG
Electronics, Inc., Motorola, Nokia, Inc., Inc., Samsung Electronics, Inc., Sanyo Corporation and Sony Ericsson Mobile Communications
AB.             |  | October
2003            
|Intellisync Handheld Edition for Enterprise |  |  |  | Provides all-in-one corporate-licensing solution to enable inter-operability for all of the PIM software, handheld devices, and desktop
operating systems that Intellisync Handheld Edition supports.                                                                                               |  | June
2001               

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|Product Name                                     |  |  |  | Description                                                                                                                                                                                                                                                                                                                                                  |  | Introduction Date    
|------------------------------------------------ |  |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------
|Intellisync Mobile Suite for Wireless Operators |  |  |  | Offers a network-based push email and PIM synchronization with the same functionality found in the enterprise version of Intellisync Mobile
Suite, along with file access and device security, for a broad set of wireless devices including Microsoft Windows Mobile for Pocket PC and Smartphone,
Palm OS, Symbian OS, and wireless tablet PCs or laptops. |  | July 2003
(acquired) 
|Intellisync SyncML Server                       |  |  |  | Provides a SyncML-compliant solution for over-the-air synchronization of PIM data across applications, devices, and networks. The product is
designed to provide wireless carriers with the ability to offer their customers multi-point synchronization services for SyncML phones and Palm
OS® or Pocket PC handhelds.                                     |  | March 2003
(acquired)
|Application Development                          |  |  |  |                                                                                                                                                                                                                                                                                                                                                              |  |                      
|Intellisync Software Development Platform       |  |  |  | Provides a solution for adding intelligent synchronization to enterprise applications, mobile devices and Web-based services. Intellisync
Software Development Platform is designed to enable users to keep their critical information up-to-date and in sync across multiple
applications and mobile devices.                                             |  | February
1998        
|Intellisync Server to Server                    |  |  |  | Provides organizations with a solution aimed at augmenting enterprise server applications through access to the PIM and email information
housed in Microsoft Exchange, Lotus Notes, databases and other information sources.                                                                                                                                |  | August
2003          
|Identity Matching                                |  |  |  |                                                                                                                                                                                                                                                                                                                                                              |  |                      
|Identity Systems or IDS                         |  |  |  | Enhances an organizations ability to search, find, match and group identity data within their computer systems and network databases.
Identity Systems, or IDS, software is an out of the box solution for searching and matching names, addresses and identity data for Oracle,
DB2/UDB, and SQL Server.                                                 |  | March 2004
(acquired)

SALES AND MARKETING



We market and sell our products through a direct
sales force and several distribution channels in the United States and internationally, including retail, the Internet, value-added resellers, system
integrators. We have also historically leveraged our relationship with original equipment manufacturers, or OEMs, enterprises and wireless carriers
around the world to market or to create marketing opportunities for our applications. Through ongoing communications with OEMs, enterprises and carrier
sales and marketing organizations, we match our application portfolio with the strategic needs of the carrier and the preferences of their subscribers.
We have sales and marketing offices located in San Jose, California; Greenwich, Connecticut; Alpharetta, Georgia; Sydney, Australia; Cologne, Germany
and Tokyo, Japan and a number of sales representatives working from their homes in the United States, the United Kingdom, Italy and Germany, to cover
local territories.


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We will continue to leverage our relationships with
industry leaders and to expand and diversify our own sales and marketing initiatives to increase our sales to wireless carriers and
enterprises.




We strive to be both a technology and marketing
partner with our OEM and strategic customers. Our sales and marketing organization sells our products directly to our OEM partners, distributors and
end users. We work closely with OEM partners on their new hardware products by providing them with technical input, thereby helping to ensure that our
software products will work successfully with the OEMs hardware products. We also train and educate the OEMs sales and marketing
organizations on our products, allowing them to act as our virtual sales force to their channels and direct customers. In addition, we work
closely with our hardware and software strategic partners to develop effective marketing programs designed to increase sales. Refer to the discussion
below under the caption Risk Factors  If we fail to maintain our existing relationships or enter into new relationships with
OEM and business development organizations, or if products offered by our OEM partners fail to achieve or maintain market acceptance, our brand
awareness, the sales of our products and use of our services would suffer.




Increasingly, we target sales efforts at the
organizations named in the Global 2000 survey of the largest corporations in the world and other large enterprises that have a demand for wireless and
mobile data solutions. We distribute our software products directly to corporate customers through our enterprise licensing programs of Intellisync
Mobile Suite, and Intellisync Handheld Edition for Enterprise software. To date, our software products have been licensed by, and embedded into
solutions offered by over 230 companies. Additionally, our Intellisync synchronization technology has a presence in more than half of Fortune 500
companies.




We manage a content-rich web site to facilitate the
sale and support of our products and engage in electronic marketing through email, newsletter and white paper postings to drive awareness and sales
leads. Over the years, we have built a substantial database of users who have opted to receive information about enterprise mobile computing. In
addition, we participate in a number of industry conferences and trade shows both independently and with strategic partners. We also work with a number
of strategic partners, including wireless operators, device manufacturers and systems integrators to train certain of their sales forces and
collaborate with them in joint marketing programs.




In the United States, our sales organization works
directly with major distributors, resellers, computer dealers, retailers, mail-order companies and Web stores to distribute our retail packaged
products. Internationally, we market and sell through selected distributors and republishers that focus on specific geographic and market segment
areas. These international partners operate as an extension of our marketing and sales organizations, developing the appropriate sales channels in
their regions. They also work with local resellers as well as local offices of our OEM customers to develop specific marketing and channel promotions
for their regions. As of July 31, 2004, we were represented by over 120 distributors, resellers and retailers in North America, Europe, Asia Pacific,
South America and Africa, and are continuing to expand our international reach as appropriate distributors or republishers are found. Also, refer to
the discussion below under the caption Risk Factors  We are dependent on our international operations for a significant
portion of our revenues.




Consistent with industry practice, we provide our
distributors with stock balancing and price protection rights. These rights permit our distributors to return slow-moving products to us for credit and
to receive price adjustments for inventories of our products held by distributors if we lower the price of those products. We recognize revenues on
products shipped to distributors at the time the merchandise is sold by the distributor; as a result, the immediate effect of returns and adjustments
on our quarterly operating results has been minimal to date. Also, to date, we have not experienced any significant returns or price protection
adjustments.




No customers, distributor or otherwise, accounted
for more than 10% of our total revenue during fiscal 2004. During fiscal 2003 and 2002, Ingram Micro US accounted for 10% and 17% of our total revenue,
respectively.




In order to develop further our brand name
recognition, we plan to continue to expand our joint marketing programs, marketing channel promotions and bundling arrangements with our strategic
partners. We will also continue to leverage our relationships with industry leaders and to expand and diversify our own sales and marketing initiatives
to increase our sales to wireless carriers and enterprises.


7

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CUSTOMER SUPPORT



Our service and support organization provides
secondary technical support to OEMs, primary technical support to enterprises, retailers and end users, and education and training services to
enterprises, OEMs and retailers. We also utilize an outsourced vendor to provide first line technical support related to the majority of our retail
products. Our current OEMs typically have software maintenance agreements with us. These agreements provide for technical support and include
maintenance of our products in accordance with specifications contained in our guidelines for such products, as well as access to technical support
personnel by telephone, fax and e-mail. Customers under license agreements are typically entitled to certain product updates and modifications,
primarily bug fixes. Our OEMs and some of our retail channel partners provide telephone and initial support to end-users.


SEASONALITY



Typically, our products and services experience
slight seasonal variations in demand, with weaker revenue in July and August because of reduced corporate buying patterns during the vacation season.
This seasonality is especially notable in Europe. Sales of mobile devices can also be weak in the months of January and February following typically
stronger sales in the months of November and December. Overall, we experience fluctuations in the demand for our products and services consistent with
the fluctuations experienced in the industry as a whole.


COMPETITION



The market for our software remains intensely
competitive and is characterized by rapid technological changes and evolving standards. Although we believe we compete favorably in this market, we
also believe that this market is likely to become more competitive as the demand for wireless and mobile date solutions continues to increase. We
believe that our products and services support a broad range of mobile devices and services, allowing us to compete favorably with other companies with
no similar platform or whose mobile solutions are highly fragmented. We also believe that users demanding synchronization functionality with a wide
variety of mobile computing devices and software applications will view our products favorably compared to those of larger companies whose products may
not be able to support such a degree of interoperability. In addition, our strategic relationships with hardware and software vendors enables us to
provide interoperability among a broader range of applications than many of our competitors. To maintain or increase our competitive advantage, we will
need to continually enhance and expand our current product, service and technology offerings and our professional service
capabilities.




The principal competitive factors affecting the
market for our software are:


| |  | the compatibility, functionality and reliability of the products
and services provided;
|- |  | ---------------------------------------------------------------------------------------

| |  | brand recognition and reputation for providing trusted products
and services;
|- |  | -----------------------------------------------------------------------------

| |  | the level of security of the products and services
provided;
|- |  | ------------------------------------------------------------

| |  | the price for which products and services are
offered;
|- |  | ------------------------------------------------------

| |  | convenience and breadth of products and services
offered;
|- |  | ---------------------------------------------------------

| |  | the quality and market acceptance of new enhancements to our
current services and features; and
|- |  | -----------------------------------------------------------------------------------------------

| |  | OEM relationships and other strategic arrangements with third
parties.
|- |  | ----------------------------------------------------------------------



We are subject to current and potential competition
with respect to our Intellisync Handheld Edition, Intellisync Handheld Edition for Enterprise, Intellisync Mobile Suite, Intellisync Phone Edition,
Intellisync SyncML Server and Identity Systems.




We also face indirect competition from existing and
potential customers that may provide internally developed solutions for each of our technology licensing components. We currently face limited direct
competition from major applications and operating systems software vendors who may in the future choose to incorporate data synchronization
functionality into their operating systems software, thereby potentially reducing the need for OEMs to include our products in their devices. For
example, Microsofts inclusion of certain features permitting data


8

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synchronization between computers utilizing the Windows 2000, Windows Me, Windows
NT or Windows XP operating system may have the effect of reducing revenue from our software if users of these operating systems perceive that their
data synchronization needs are adequately met by Microsoft. Furthermore, current or potential competitors have established or may establish financial
and strategic relationships among themselves or with existing or potential customers or other third parties to increase the ability of their products
to address the needs of customers. Accordingly, it is possible that new competitors or alliances among competitors could emerge and rapidly acquire
significant market share, which would harm our business.



Also, refer to the discussion below under the
caption Risk Factors  We face intense competition in the market for mobile computing synchronization products and services,
which could reduce our market share and revenues.


RESEARCH AND DEVELOPMENT



The markets for our products are characterized by
rapidly changing technologies, evolving industry standards, frequent product introductions and short product life cycles. As a result, our research and
development activities are critical to our continued growth. Employees in our engineering group are engaged in both product research and development as
well as localization efforts for existing products. Product maintenance and customer support responsibilities are shared by engineering group employees
on an as-needed basis. In developing new products or enhancements, we work closely with current and prospective customers, as well as with industry
experts, to ensure that our products address current problems and emerging requirements. We believe that such collaboration is critical to develop and
improve our products and services. Our engineering group also works closely with our sales and marketing and professional services groups to develop
products that meet real customer needs.




We also complement our engineering capacity with a
number of software development engineers located in our research and development facility in Sofia, Bulgaria and recently opened facility in
Cluj-Napoca, Romania to accommodate the recently transferred workforce from SoftVision, SRL. These European facilities were established to take
advantage of the considerable local knowledge and expertise in the areas of information technology and software programming, and to offer extensive
development, support and management for our current projects and potential software solutions. In addition, the products we acquired from our recent
acquisitions have given us expanded research and development capabilities with employees that have extensive knowledge and experience in the
synchronization and mobile infrastructure software solutions.




As part of our strategic plan, our engineering
group, strengthened by our recent acquisitions, is currently aiming their efforts at expanding focus from cabled synchronization to synchronization for
wireless handhelds, smartphones, laptops and tablets, at extending our core synchronization technology to increase scalability and extensibility, and
at supporting next-generation wireless technology and device platforms. We also continue efforts on enhancing our data synchronization platform and
other technology solutions to provide further value to our wireless carrier and enterprise customers. We will continue to develop our platforms to
mobilize and synchronize vertical enterprise applications, such as customer relationship management, or CRM, software with corporate groupware either
on the device, desktop or via server-to-server connectivity.




In fiscal 2004, 2003 and 2002, research and
development expenses were $11.5 million, $7.4 million and $15.2 million, respectively. Although we plan our budget for research and development based
on planned product introductions and enhancements, actual expenditures may significantly differ from budgeted expenditures. In addition, a number of
risks are inherent in the product development process. Refer to the discussion below under the caption Risk Factors  Our
market changes rapidly due to evolution in technology and industry standards. If we do not adapt to meet the sophisticated needs of our customers, our
business and prospects will suffer.


PROFESSIONAL SERVICES GROUP



We believe that delivering quality professional
services provides us with a significant opportunity to differentiate ourselves in the marketplace. The members of our professional services group are
experts in the fields of synchronization and mobility, with a proven track record of delivering carrier-grade solutions for mobile devices, desktop
applications and databases. Our professional services group specializes in producing software that delivers a measurable competitive advantage for
customers deploying and integrating our solutions with a wide variety of applications and systems.


9

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By transforming emerging technologies into robust,
reliable, revenue-producing products and services, our professional services group has the expertise to develop enterprise solutions that combine
handheld, mobile, wireless, desktop, internet, synchronization, back-office applications and database technologies. Our professional services team
works across multiple phases of development projects: business analysis and strategic technology consulting, project management, design, engineering,
quality assurance, software testing, localization and technical writing. The groups clients have included America Online, Inc., International
Business Machines, or IBM, Microsoft Corporation, Oracle Corporation, Pfizer, Inc. and Yahoo!, Inc.


ACQUISITIONS



The markets in which we compete require a wide
variety of technologies, products, and capabilities. Our strategy of acquiring assets or businesses with complementary products, technologies and
engineering resources has resulted in the completion of a number of acquisitions, including the transfer of workforce from SoftVision SRL and the
acquisition of Search Software America Pty. Ltd., or SSA, Synchrologic, Inc., Spontaneous Technology, Inc., substantially all of the assets of
Loudfire, Inc. and Starfish Software, Inc.




The acquisition of high-technology companies is
inherently risky. These risks are more fully discussed in the risk factors below under the captions Our recent and any potential acquisitions
could require significant management attention and prove difficult to integrate with our business, which could distract our management, disrupt our
business, dilute stockholder value and adversely affect our operating results. Refer to the discussions under the caption
Acquisitions set forth in Item 7, Part II of this Annual Report on Form 10-K for more information on the
acquisitions.


PROPRIETARY TECHNOLOGY AND INTELLECTUAL PROPERTY



Our success depends significantly upon our
proprietary technology. We rely on a combination of patent, copyright and trademark laws, trade secrets, confidentiality procedures, contractual
provisions and other measures to protect our proprietary rights. We also believe that factors such as the technological and creative skills of our
personnel, new product developments, frequent product enhancements and name recognition are essential to establishing and maintaining a technology
leadership position. We seek to protect our software, documentation and other written materials under trade secret and copyright laws, which afford
only limited protection. We currently have 64 issued United States patents that expire in 2012 through 2021, with 58 patent applications pending. We
also license seven patents from third parties.




We have designed, developed and sold synchronization
products since the early 1990s. It is in this area that we were awarded our first patent. From this activity, we believe we have learned a great deal
about what it takes to build a robust synchronization product to deal with the many subtleties presented by the wide range of capabilities among the
various PDAs, PIMs, enterprise applications and data bases that must be synchronized.




We believe that the aggressive defense of our
intellectual property is an important portion of our overall IP strategy. However, we cannot be certain that our patents will not be invalidated,
circumvented or challenged, that the rights granted thereunder will provide competitive advantages to us or that any of our pending or future patent
applications, whether or not being currently challenged by applicable governmental patent examiners, will be issued with the scope of the claims sought
by us, if at all. Furthermore, we cannot be certain that others will not develop technologies that are similar or superior to our technology or design
around the patents owned by us.




We also subject to claims by third parties alleging
that our products infringe proprietary rights held by them. For example, in August 2004, NCR Corporation filed a complaint against us in the U.S.
District Court for the Southern District of Ohio Western Division (Dayton) alleging that certain of our products infringe upon three of NCRs
patents. Based on a lengthy review, we believe that we do not infringe upon any of the asserted NCR patents. Separately, on September 9, 2004, we filed
a petition complaint for declaratory judgment against NCR requesting, among other things, that a judgment be entered finding that we do not infringe an
NCR patent asserted against one of our licensees, Garmin Ltd.




We expect that software product developers will
increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows, the functionality of products
in different industry segments overlaps, and as patent protection for software becomes increasingly popular.


10

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Also, refer to the discussion below under the
captions Risk Factors  We may be unable to adequately protect our proprietary rights; Risk
Factors  We may be subject to intellectual property infringement claims, which are costly to defend and could limit our ability to use
certain technologies in the futureandRisk Factors  We have been, are, and may be in the future be involved
in litigation that could result in significant costs to us.


EMPLOYEES



As of July 31, 2004, we had a total of 349 full-time
employees, including 228 in engineering, professional services and customer support, 86 in sales and marketing and 35 in operations, finance and
administration. The increase in our number of employees from the beginning of fiscal 2004 resulted from the added headcount from our recent
acquisitions, including certain engineering employees transferred from SoftVision SRL, a Romanian corporation, associated with the opening of our
engineering facility in Cluj-Napoca, Romania.




157 of our employees are located outside the United
States, including 88 in Romania, 31 in Bulgaria, 16 in other parts of Europe, 14 in Australia and eight in Japan. None of our employees is represented
by a labor union. We have experienced no work stoppages.




Many of our current key personnel have substantial
experience in our industry and would be difficult to replace. Competition for qualified personnel in our industry is intense. We believe that our
future success will depend in part on our continued ability to hire, train and retain qualified personnel. Also, refer to the discussion below under
the caption Risk Factors  We depend on key employees in a competitive market for skilled personnel.


RISK FACTORS



The following risks and uncertainties may have a
material and adverse effect on our business, financial condition or results of operations. You should carefully consider these risks and uncertainties,
together with all of the other information included or incorporated by reference in this Annual Report on Form 10-K. If any of the material risks or
uncertainties we face were to occur, the trading price of our securities could decline.


We have historically incurred losses and we expect these losses to continue
in the future. We may not be able to sustain consistent future revenue growth on a quarterly or annual basis, or achieve or maintain
profitability.



We have not been profitable since fiscal 1998.
Although we have reported sequential revenue growth since the fiscal quarter ended October 31, 2002, we cannot be certain that this growth will
continue at the same rate, or that our revenues will not decline in the future. We have experienced losses of $9.5 million, $7.7 million and $34.5
million for fiscal 2004, 2003 and 2002, respectively. At July 31, 2004, we had an accumulated deficit of $131.1 million. To become profitable and
sustain profitability, we will need to generate additional revenues to offset our expenses. We may not achieve or sustain revenue growth and our losses
may continue or increase in the future. The synchronization market is new and evolving, and as a result we cannot accurately predict either the future
growth rate, if any, or the ultimate size of the market for our products and services. Because our operating expenses are relatively fixed in the short
term, any shortfalls in revenues would materially affect our results of operations.


Our quarterly revenues and operating results are subject to significant
fluctuations, and our stock price may decline if we do not meet the expectations of investors and analysts.



Our quarterly revenues and operating results are
difficult to predict and have and may in the future fluctuate significantly from quarter to quarter due to a number of factors, many of which are
outside our control. These factors include, but are not limited to:


| |  | the recent decline in the market for traditional personal
digital assistants;
|- |  | -----------------------------------------------------------------------------

| |  | our ability to realize our goals with respect to recent and
potential future acquisitions;
|- |  | ------------------------------------------------------------------------------------------

| |  | our need and ability to generate and manage growth;
|- |  | ---------------------------------------------------

| |  | market acceptance of products in which our software is
integrated by original equipment manufacturers, or OEMs;
|- |  | ---------------------------------------------------------------------------------------------------------------

11

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| |  | growth in the market for enterprise synchronization applications
and our ability to successfully address this market;
|- |  | ---------------------------------------------------------------------------------------------------------------------

| |  | rapid evolution of technology;
|- |  | ------------------------------

| |  | our evolving business model;
|- |  | ----------------------------

| |  | litigation-related expenses;
|- |  | ----------------------------

| |  | our reliance on international sales and growth;
|- |  | -----------------------------------------------

| |  | our ability to penetrate the European market;
|- |  | ---------------------------------------------

| |  | fluctuations in gross margins;
|- |  | ------------------------------

| |  | the seasonal nature of the market for our products;
|- |  | ---------------------------------------------------

| |  | changes in the market for synchronization;
|- |  | ------------------------------------------

| |  | introduction of new products and services by us or our
competitors;
|- |  | -------------------------------------------------------------------

| |  | changes in our mix of sources of revenues;
|- |  | ------------------------------------------

| |  | entrenched and substantial competition; and
|- |  | -------------------------------------------

| |  | continued difficult political and economic
conditions.
|- |  | ------------------------------------------------------



Additionally, we generally derive our
technology licensing revenues from multi-year contracts with enterprise and other customers that frequently include license fees, professional services
fees, royalty payments and maintenance. We typically earn both the license fees and the professional services in the initial one or two quarters
subsequent to the signing of a contract. We periodically have large professional services implementations that individually contribute as much as 5% or
more to quarterly revenue. Combined with related license revenues, total revenue from individual customers in the initial quarters of a contract may
exceed the revenues we earn during subsequent periods covered by the contract. To the extent that we do not secure additional contracts with the same
customer or secure comparably sized commitments from other customers, we may not be able to sustain or grow our revenues.


If we fail to develop and sell products designed for OEMs, enterprises and
wireless carriers, our revenues and operating results will be adversely affected.



We have recently made substantial investments to
develop and offer an expanded range of enterprise synchronization applications, including our acquisition of Synchrologic and SSA. Our operating plans
assume revenue growth from this market. Enterprise sales present a variety of challenges that are different from those inherent in our historical
licensing and consumer business model, and we have limited experience addressing these challenges. For example, enterprise sales typically involve
large up-front license fees, which can result in lengthy sales cycles and uncertainties as to the timing of sales driven by customers budgetary
processes. As a result, we generally have less visibility into future enterprise sales than is typically the case in our royalty-based technology
licensing business. In addition, while enterprise sales generally result in ongoing maintenance revenues and may lead to follow-on purchases or
upgrades, we are typically dependent on sales to new customers for a significant portion of our enterprise revenues in a given quarter. If our product
and service offerings fail to achieve market acceptance, or if enterprise sales fail to meet our expectations in a particular quarter, our revenues and
operating results may be materially and adversely affected.


We are placing increasing emphasis on our carrier hosting services of which
potential rapid growth may be difficult to manage effectively, and, as a result, our results of operations could be adversely
affected.



We are increasingly focusing our sales and marketing
and engineering efforts on carrier hosting services, of which we expect a high rate of growth. This focus may cause increased business risks associated
specifically with our ability to manage the level of complexity involved in executing successfully our strategies to provide superior


12

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services for wireless carriers. The rapid growth of our carrier hosting business
may place a significant strain on our management, operations and resources. Our future performance and profitability will depend on our ability
to:

| |  | increase our capital investments and further build our
infrastructure to meet the demands of our carrier customers;
|- |  | -------------------------------------------------------------------------------------------------------------------

| |  | maintain technical capabilities to compete effectively in the
hosting business; and
|- |  | -----------------------------------------------------------------------------------

| |  | effectively oversee and manage our outsourced hosting
center;
|- |  | -------------------------------------------------------------



There can be no assurance that our systems,
procedures and controls will be adequate to support expansion of our rapid growth. If we are unable to manage our growth successfully, our business and
results of operations could be harmed.


We expect that we may become increasingly dependent on wireless carriers for
the success of our wireless handheld and smartphone products.



The success of our wireless business strategy is
increasingly becoming dependent on our ability to establish new relationships and build on our existing relationships with domestic and international
wireless carriers. We cannot assure you that we will be successful in establishing new relationships or advancing existing relationships with wireless
carriers or that these wireless carriers will act in a manner that will promote the success of our wireless products. Factors that are largely within
the control of wireless carriers but which are important to our success, include:


| |  | testing of our products on wireless carriers
networks;
|- |  | -------------------------------------------------------

| |  | quality and coverage area of wireless services offered by the
wireless carriers;
|- |  | --------------------------------------------------------------------------------

| |  | the degree to which wireless carriers facilitate the
introduction of and actively promote, distribute and resell our products;
|- |  | ------------------------------------------------------------------------------------------------------------------------------

| |  | the extent to which wireless carriers require specific hardware
and software features on our products to be used on their networks;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------

| |  | 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;
and
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | wireless carriers pricing requirements and subsidy
programs.
|- |  | -------------------------------------------------------------



Wireless carriers have significant bargaining power
as we negotiate agreements with them. They could require contract terms that are difficult for us to meet and could result in higher costs to complete
certification requirements and negatively impact our results of operations and financial condition. Wireless carriers also place significantly
conditions on our ability to develop and launch products for use on their wireless networks. If we fail to address the needs of wireless carriers,
identify new product and service opportunities or modify or improve our products in response to changes in technology, industry standards or wireless
carrier requirements, our products could rapidly become less competitive or obsolete. If we fail to timely develop products that meet carrier product
planning cycles or fail to deliver sufficient quantities of products in a timely manner to wireless carriers, those carriers may choose to offer
similar products from our competitors and thereby reduce their focus on our products which would have a negative impact on our business, results of
operations and financial condition.


In
addition, the potential rapid growth of our business, as we become more dependent on
wireless carriers, may place a strain on our management, operations, employees, or
resources. We may not be able to maintain a rapid growth rate, effectively manage our
expanding operations, or achieve planned growth on a timely or profitable basis. If we
are unable to manage our growth effectively, we may experience operating inefficiencies,
and our net income may be materially adversely affected.

Most sales with wireless carriers and enterprise have a long sales cycle
process, which increases the cost of completing sales and renders completion of sales less predictable.



The sales cycle process with wireless carriers could
be long, making it difficult to predict the quarter in which we may recognize revenue from a sale, if at all. The general length of the sales cycle
increases our costs and may cause license revenue and other operating results to vary significantly from period to period. Our products or


13

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technology
often are part of significant strategic decisions by our customers regarding their information systems. Accordingly, the decision to license our
products typically requires significant pre-purchase evaluation. We spend substantial time providing information to prospective customers regarding the
use and benefits of our products. During this evaluation period, we may expend significant funds in sales and
marketing efforts. If anticipated sales from a specific customer for a particular quarter are not realized in that quarter, our operating results may
be adversely affected.

Revenues from hosting services may carry lower gross margins and an overall
increase in such revenues as a percentage of total revenues could have an adverse impact on our business.



Our commitment to providing quality services to our
enterprise and wireless carrier customers may result in our hosting services revenue to have a lower gross margin than other services and license
revenues. Due to the lower margin, an increase in the hosting services revenue as a percentage of total revenues could have a detrimental impact on our
overall gross margins and could adversely affect operating results. In addition, a change in the mix between services that are provided by our
employees and services provided by third-party vendors may negatively affect our gross margins.


System failures or accidental or intentional security breaches could disrupt
our operations, cause us to incur significant expenses, expose us to liability and harm our reputation.



Our operations, including hosting services, depend
upon our ability to maintain and protect our computer systems and core business applications, which are located at our offices, as well as hosted by
third-party vendors. Although we are taking various precautions to maintain and protect our systems, they could still be vulnerable to damage from
break-ins, unauthorized access, vandalism, fire, floods, earthquakes, power loss, telecommunications failures and similar events. We maintain insurance
against break-in, unauthorized access, vandalism, fires, floods, earthquakes and general business interruptions. The amount of coverage, however, may
not be adequate in any particular case, and will not likely compensate us for all the damages caused by these or similar events. In addition, while we
put various security measures in place to detect any unauthorized access to our computers and computer networks, we may be unable to prevent computer
programmers or hackers from penetrating our network security or creating viruses to sabotage or otherwise attack our computer networks from time to
time. A breach of our security could seriously damage our operations or reputation. In addition, because a hacker who penetrates our network security
could misappropriate proprietary information or cause interruptions in our services, we might be required to expend significant resources to protect
against, or to alleviate, problems caused by hackers. We might also face liability to persons harmed by misappropriation of secure information if it is
determined that we did not exercise sufficient care to protect our systems.




Systems failure or damage could cause an
interruption of our services and result in loss of customers, difficulties in attracting new customers and could adversely impact our operating
results. In addition, if the number of customers who purchase our hosting services increases over time, our systems must be able to accommodate
increased usage. If we are unable to increase our capacity to accommodate growth in usage, we could encounter system performance issues, which could
harm our relationships with customers and our reputation.


If we fail to maintain our existing relationships or enter into new
relationships with OEM and business development organizations, or if products offered by our OEM partners fail to achieve or maintain market
acceptance, our brand awareness, the sales of our products and use of our services would suffer.



Our revenues from technology licensing depend, in
large part, on our ability to develop and maintain relationships with OEM and business development organizations that help distribute our products and
promote our services. We depend on these relationships to:


| |  | distribute our products to purchasers of mobile
devices;
|- |  | --------------------------------------------------------

| |  | increase the use of our technology licensing
components;
|- |  | --------------------------------------------------------

| |  | build brand awareness through product marketing; and
|- |  | ----------------------------------------------------

14

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| |  | market our products and services cooperatively.
|- |  | -----------------------------------------------



If the products that these equipment manufacturers
or business development organizations sell, or if the operating systems upon which these products are based, fail to achieve or sustain market
acceptance, or if any of


these companies cease to use our product and service offerings in significant
volumes, our product sales would decline and our business would suffer. For example, if growth in the number of devices sold by our OEM partners is
delayed or did not occur, our business would suffer.



Although several OEMs are subject to certain
contractual minimum purchase obligations, we cannot be certain that any particular OEM will satisfy its minimum obligations. Weakening demand from any
key OEM and the inability to replace revenue provided by such an OEM could have a material adverse effect on our business, operating results and
financial condition. We maintain individually significant receivable balances from major OEMs. If these OEMs fail to meet their payment obligations,
our operating results could be materially and adversely affected.




Our agreements with OEMs, distributors, and
resellers generally are nonexclusive and may be terminated on short notice by either party without cause. Furthermore, our OEMs, distributors and
resellers are not within our control, are not obligated to purchase products from us, and may represent other lines of products, including competing
products. A reduction in sales effort or discontinuance of sales of our products by our OEMs, distributors, and resellers could lead to reduced sales
and could materially adversely affect our operating results.


Our market changes rapidly due to evolution in technology and industry
standards. If we do not adapt to meet the sophisticated needs of our customers, our business and prospects will suffer.



The market for our products and services is
characterized by rapidly changing technology, evolving industry standards and frequent new product and service introductions. The traditional personal
digital assistant market, appears to be declining and may continue to do so, just as sales in competing markets, such as smartphones and other
multi-function mobile phones may be increasing. Our future success will depend to a substantial degree on our ability to offer products and services
that adapt to these changing markets, incorporate leading technology, address the increasingly sophisticated and varied needs of our current and
prospective customers and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. Our
rapidly evolving market makes it more likely that:


| |  | our technology or products may become obsolete upon the
introduction of alternative technologies;
|- |  | -------------------------------------------------------------------------------------------------

| |  | we may not have sufficient resources to develop or acquire new
technologies or to introduce new products or services capable of competing with future technologies or service offerings of other companies;
and
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | we may not be able to respond effectively to the technological
requirements of the changing market.
|- |  | ---------------------------------------------------------------------------------------------------



To the extent we determine that new technologies and
equipment are required to remain competitive, the development, acquisition and implementation of these technologies and equipment are likely to
continue to require significant capital investment by us. Moreover, we cannot be certain that we can develop, market and deliver new products and
technology on a timely basis. Sufficient capital may not be available for this purpose in the future, and even if it is available, investments in new
technologies may not result in commercially viable technological processes and there may not be commercial applications for such technologies. If we do
not develop, acquire and introduce new products and services and achieve market acceptance in a timely manner, our business and prospects will
suffer.


Our business and prospects depend, to a significant degree, on demand for
wireless and other mobile computing devices.



The use of wireless and other mobile computing
devices for retrieving, sharing and transferring information among businesses, consumers, suppliers and partners has begun to develop only in recent
years. Our success will depend in large part on continued growth in the use of wireless and other mobile computing devices including handheld
computers, smart phones, pagers and other mobile devices. In addition, our markets face critical


15

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unresolved
issues concerning the commercial use of  wireless and other mobile computing devices,
including security, reliability, cost, ease of access and use, quality of service,
regulatory initiatives  and necessary increases in bandwidth availability. Demand for,
and market acceptance of, wireless and other mobile computing devices which require our
products and services are subject to a high level of uncertainty and are dependent on a
number of factors, including:

| |  | the growth in access to, and market acceptance of, new
interactive technologies;
|- |  | --------------------------------------------------------------------------------

| |  | growth in sales of handheld devices, smart phones and other
mobile computing devices supported by our software and growth in wireless network capabilities to match end-user demand and requirements;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | emergence of a viable and sustainable market for wireless and
mobile computing services;
|- |  | ----------------------------------------------------------------------------------------

| |  | our product and service differentiation and quality;
|- |  | ----------------------------------------------------

| |  | the development of technologies that facilitate interactive
communication between organizations;
|- |  | ------------------------------------------------------------------------------------------------

| |  | increases in bandwidth for data transmission;
|- |  | ---------------------------------------------

| |  | our distribution and pricing strategies as compared with those
of our competitors;
|- |  | ----------------------------------------------------------------------------------

| |  | the effectiveness of our marketing strategy and
efforts;
|- |  | --------------------------------------------------------

| |  | our industry reputation; and
|- |  | ----------------------------

| |  | general industry and economic conditions such as slowdowns in
the computer or software markets or the economy in general.
|- |  | -------------------------------------------------------------------------------------------------------------------------



If the market for wireless and other mobile
computing devices as a commercial or business medium does not develop, or develops more slowly than expected, our business, results of operations and
financial condition will be seriously harmed.




Even if the wireless and mobile computing services
market does develop, our products and services may not achieve widespread market acceptance. If our target customers do not adopt, purchase and
successfully deploy our other current and planned products and services, our revenue will not grow significantly and our business, results of
operations and financial condition will be seriously harmed.


Our revenues from consumer sales are subject to risks associated with the
declining wired PDA market and reliance on sales distribution channels.



While the market for converged mobile devices or
smartphones and other wireless mobile devices has experienced growth recently, the market for traditional personal digital assistants, or PDAs, has
declined. In addition, Sony Corporation recently announced its departure from the US PDA market, dropping development of its CLIE product line in the
United States. The decline in traditional PDA sales had a direct impact on sales of our Intellisync products through the consumer and online channels,
where sales of our synchronization software typically occur at the same time a PDA is purchased, or shortly thereafter. The increase in demand for
smartphones and other such devices may not offset the decline in traditional PDA sales. Our consumer sales are also dependent upon distribution and
marketing channels outside our control. Ingram Micro US is our largest distributor and accounted for less than 10% of our total revenue during fiscal
2004 and 10% and 17% of our total revenue during fiscal 2003 and 2002, respectively. There are also a significant number of our customers that purchase
our products and services through other resellers, and we anticipate they will continue to do so as we expand our product offerings. Our sales,
therefore, could also be negatively affected by disruptions in our relationships with resellers or disruptions in the relationships between our
resellers and customers. Resellers may also choose not to emphasize our products to their customers. If we are unable to offset declining revenues from
PDA-related software, or if we experience disruption in, or reduced selling efforts from, our distribution channels, our revenues derived from consumer
sales would be adversely affected.


If we are unable to provide satisfactory and high quality services through
our professional services group, customer satisfaction and demand for our products will suffer.



Many of our customers have been successful in
implementing our various technology initiatives without further provision of technical service. However, we believe that building strong relationships
with our customers, as well


16

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as future growth in our product sales, depends on our ability to provide our customers with professional services,
including customer support, training, consulting and initial implementation and deployment of our products when necessary. We have an in-house professional services group and use international
software development partners with a workforce that can perform these tasks and that also educates third-party systems integrators in the use of our
products so that these systems integrators can provide these services to our customers. If we are unable to develop sufficient relationships with
third-party systems integrators and other customers, unable to complete product implementations in a timely manner, or unable to provide customers with
satisfactory and quality support, consulting, maintenance and other services, we could face customer dissatisfaction, damage to our reputation,
decreased overall demand for our products and loss of revenue.

We face intense competition in the market for mobile computing
synchronization products and services, which could reduce our market share and revenues.



Our market contains few substantial barriers to
entry. We believe we will face additional competition from existing competitors and new market entrants in the future. We are subject to current and
potential competition with respect to our Intellisync Handheld Edition, Intellisync Handheld Edition for Enterprise, Intellisync Mobile Suite,
Intellisync Phone Edition, Intellisync SyncML Server and Identity Systems:


| |  | Intellisync Mobile Suite server-based
software  Aether Systems, CommonTime, Extended Systems, FusionOne, Inc., Good Technology, Inc., InfoSpace, Inc., Infowave Software, JP
Mobile, Inc., Microsoft, Openwave, Inc., Research In Motion Limited, Sybase Inc.s iAnywhere, Wireless Knowledge, Inc., and others.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Intellisync consumer and enterprise desktop sync
products  Chapura, Inc.s Pocket Mirror, CommonTimes Cadenza mNotes, Extended Systems, Inc.s OneBridge Mobile
Groupware, IBM Corporations Lotus Software EasySync Pro, Microsoft Corporations ActiveSync, Palm Desktop from PalmSource, Inc., Sybase
Inc.s iAnywhere, and others.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Intellisync Phone Edition software  FutureDial,
Inc.s SnapSync, Susteen, Inc.s DataPilot and others.
|- |  | -------------------------------------------------------------------------------------------------------

| |  | Intellisync SyncML Server and Intellisync Mobile Suite for
Wireless Operators  Good Technology, Inc., Research In Motion Limited, Seven Networks, Inc., Smartner Information Systems Ltd, Visto
Corporation, and others.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Identity Systems  Ascential, Dataflux,
Firstlogic, Group1, Intelligent Search Technology, Language Analysis Systems, Trillium Software, and others.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



In addition to the direct competition noted above,
we face indirect competition from existing and potential customers that may provide internally developed solutions for each of our technology licensing
components. As a result, we must educate prospective customers as to the advantage of our products compared to internally developed solutions. We
currently face limited direct competition from major applications and operating systems software vendors who may in the future choose to incorporate
data synchronization functionality into their operating systems software, thereby potentially reducing the need for OEMs to include our products in
their devices. For example, Microsofts inclusion of certain features permitting data synchronization between computers utilizing the Windows
2000, Windows Me, Windows NT or Windows XP operating systems, or the Exchange 2003 platform, may have the effect of reducing revenue from our software
if users of these operating systems perceive that their data synchronization needs are adequately met by Microsoft.




Many of our competitors have substantially greater
financial, technical and marketing resources, larger customer bases, longer operating histories, greater brand recognition and more established
relationships in the industry than we do. Our larger competitors may be able to provide customers with additional benefits in connection with their
products and costs, including reduced communications costs. As a result, these companies may be able to price their products and services more
competitively than we can and respond more quickly to new or emerging technologies and changes in customer requirements. If we are unable to compete
successfully against our current or future competitors, we may lose market share, and our business and prospects would suffer.


17

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We may be unable to adequately protect our proprietary
rights.



The rights we rely upon to protect our intellectual
property underlying our products and services may not be adequate, which could enable third parties to use our technology and would reduce our ability
to compete in the market. To protect our proprietary rights, we rely on a combination of patent,
trademark, copyright and trade secret laws, confidentiality agreements with our employees and third parties, and protective contractual provisions.
These efforts to protect our intellectual property rights may not be effective in preventing misappropriation of our technology. These efforts also may
not prevent others from developing products or technologies similar to, competitive with, or superior to those we develop. Any of these results could
reduce the value of our intellectual property. We may be forced to litigate to enforce or defend our intellectual property rights and to protect our
trade secrets. Any such litigation could be very costly and could distract our management from focusing on operating our business. Moreover, our
business could be harmed if our patents were determined to be invalid.


We may be subject to intellectual property infringement claims, which are
costly to defend and could limit our ability to use certain technologies in the future.



Third parties may assert infringement or other
intellectual property claims against us. From time to time, we receive notices from third parties alleging that our products or services infringe
proprietary rights held by them. For example, as we announced in August 2004, NCR Corporation has filed a complaint alleging patent infringement in the
U.S. District Court for the Southern District of Ohio Western Division (Dayton). In the complaint, NCR alleges that certain of our products infringe
upon three of NCRs patents. We have also received a notice from a customer to which we may have indemnification obligations under some
circumstances, informing us that it had received a notice from a third party alleging that the customers product infringes the third partys
proprietary rights. We or our customers may receive other similar notices from third parties in the future. We cannot predict whether third parties
will assert claims of infringement against us, or whether any past, present or future claims will prevent us from offering products or operating our
business as planned.




Based on our lengthy review of NCRs claim, we
believe that we do not infringe upon any of the asserted NCR patents. Separately, on September 9, 2004, we filed a complaint for declaratory judgment
against NCR requesting, among other things, that a judgment be entered finding that we do not infringe an NCR patent asserted against one of our
licensees, Garmin Ltd., and finding that patent to be invalid.




Due to the inherently uncertain nature of
intellectual property protection and the competitive area in which we operate our business, it is possible that some or all of our products and
services could be found to be infringing on the intellectual property of others. We may have to pay substantial damages, including treble damages, for
past infringement if it is ultimately determined that our products or services infringe a third partys proprietary rights. We may have to comply
with injunctions, or stop distributing our products and services while we re-engineer them or seek licenses to necessary technology, which might not be
available on reasonable terms, or at all. We could also be subject to claims for indemnification resulting from infringement claims made against our
customers, which could increase our defense costs and potential damages. Even if the claims are without merit, defending a lawsuit takes significant
time, may be expensive and may divert managements attention from other business concerns.


We have been, are and may in the future be involved in litigation that could
result in significant costs to us.



In order to protect our proprietary rights, we may
decide to sue other companies. For example, in 2002, we filed a patent infringement suit against Extended Systems, alleging that Extended Systems
server and desktop products infringe on eight of our synchronization-related patents. We recently settled this litigation matter. Litigation
proceedings are inherently uncertain, and we may not prevail in our defenses or claims. In addition, such litigation is expensive and time-consuming,
and management had been in the past and may in the future be required to spend significant time in the prosecution of such suit. If we do not prevail
in our claims, we might be forced to accept an unfavorable settlement or judgment and even be required to reimburse other companies in a suit for their
legal expenses in defending the suit. An unfavorable settlement or judgment could also materially harm our ability to use existing intellectual
property and severely harm our business as a result.


18

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If we are forced to defend against third-party
infringement claims such as that made by NCR, whether they are with or without merit or are determined in our favor, we could face expensive and
time-consuming litigation, which could distract technical and management personnel, or result in product shipment delays. If an infringement claim is
determined against us, we may be required to pay monetary damages or ongoing royalties. Further, as a result of infringement claims either against us
or against those who license technology to or from us, we may be required to develop non-infringing intellectual property or enter into costly
royalty or licensing agreements. Such royalty or licensing agreements, if required, may be unavailable on terms that are acceptable to us, or at all.
If a third party successfully asserts an infringement claim against us and we are required to pay monetary damages or royalties or we are unable to
develop suitable non-infringing alternatives or license the infringed or similar intellectual property on reasonable terms on a timely basis, it could
significantly harm our business. Any litigation, whether brought by or against us, could cause us to incur significant expenses and could divert a
large amount of management time and effort. A claim by us against a third party could, in turn, cause a counterclaim by the third party against us,
which could impair our intellectual property rights and harm our business.


We are dependent on our international operations for a significant portion of
our revenues.



International revenue, primarily from customers
based in Japan and Europe, accounted for 33%, 36% and 31% of our revenue in fiscal 2004, 2003 and 2002, respectively. The increase in our international
annual revenues from fiscal 2003 to fiscal 2004 accounted for 29% of our total annual revenue increase for fiscal 2004. In the future, we may further
expand our international presence. As we continue to expand internationally, we are increasingly subject to risks of doing business internationally,
including:


| |  | longer payment cycles and problems in collecting accounts
receivable;
|- |  | ---------------------------------------------------------------------

| |  | seasonal reductions in business activity during the summer
months in Europe and certain other parts of the world;
|- |  | -----------------------------------------------------------------------------------------------------------------

| |  | unexpected changes in regulatory requirements and
tariffs;
|- |  | ----------------------------------------------------------

| |  | export controls relating to encryption technology and other
export restrictions;
|- |  | --------------------------------------------------------------------------------

| |  | reduced protection for intellectual property rights in some
countries;
|- |  | ----------------------------------------------------------------------

| |  | fluctuations in currency exchange rates, which we do not hedge
against;
|- |  | -----------------------------------------------------------------------

| |  | difficulties in staffing and managing international
operations;
|- |  | ---------------------------------------------------------------

| |  | potentially adverse tax consequences; and
|- |  | -----------------------------------------

| |  | an adverse effect on our provision for income taxes based on the
amount and mix of income from international customers.
|- |  | -----------------------------------------------------------------------------------------------------------------------



Our international sales growth will be limited if
we, in the future, are unable to expand international sales channel management and support, customize products for local markets, and develop
relationships with international service providers, distributors and device manufacturers. For example, in recent quarters we have invested
substantially in expanding sales operations in Europe, and these investments may not generate offsetting increases in revenues. Even if we are able to
expand international operations successfully, we cannot be certain that we will succeed in maintaining or expanding international market demand for our
products.


Geographic expansion and growth, including the establishment of new sales or
engineering operations, may negatively affect our overall operations and cause us to incur significant additional costs and
expenses.



We established engineering facilities in Sofia,
Bulgaria and Cluj-Napoca, Romania and, in the future, we may further expand our engineering or sales operations to other geographic areas within the
United States and internationally. Our expansion may cause us to incur various costs and expenses, and may place a significant strain upon our
operating and financial systems and resources that could materially adversely affect our financial results following such an expansion. We also face
significant business risks related to the difficulty in assimilating new operations and the diversion of managements attention from other
business. Additionally, if we fail to align


19

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employee skills  and populations with revenue and market requirements, it may have a material
adverse  impact  on our business and operating results. Moreover, these newly established operations may not contribute significantly to our sales or  earnings.

Foreign exchange fluctuations could decrease our revenues or cause us to lose
money, especially since we do not hedge against currency fluctuations.



To date, the majority of our customers have paid for
our products and services in United States dollars. For fiscal years 2004, 2003 and 2002, costs denominated in foreign currencies were nominal and we
had minimal foreign currency losses during those periods. However, we believe that in the future an increasing portion of our costs will be denominated
in foreign currencies as we increase operations in Europe and open offices in other countries. We currently do not engage in foreign exchange hedging
activities and, although we have not yet experienced any material losses due to foreign currency fluctuation, a small portion of our international
revenues are currently subject to the risks of foreign currency fluctuations, and these risks will increase as our international revenues
increase.


Our recent and any potential acquisitions could require significant
management attention and prove difficult to integrate with our business, which could distract our management, disrupt our business, dilute stockholder
value and adversely affect our operating results.



As part of our strategy, we intend to continue to
make investments in complementary companies, products or technologies. We recently acquired SoftVision SRLs workforce (through a transfer in June
2004), Search Software America Pty. Ltd. (in March 2004), Synchrologic, Inc. (in December 2003) and Spontaneous Technology, Inc. (in September 2003),
substantially all of the assets of Loudfire, Inc. (in July 2003) and Starfish Software, Inc. (in March 2003). We may not realize future benefits from
any of these acquisitions, or from any acquisition we may make in the future. If we fail to integrate successfully our past and future acquisitions, or
the technologies associated with such acquisitions, into our company, the revenue and operating results of the combined company could be adversely
affected. Any integration process will require significant time and resources, and we may not be able to manage the process successfully. If our
customers are uncertain about our ability to operate on a combined basis, they could delay or cancel orders for our products. We may not successfully
evaluate or utilize the acquired technology and accurately forecast the financial impact of an acquisition transaction, including accounting
charges.




Acquisitions involve a number of additional
difficulties and risks to our business, including, but not limited to, the following:


| |  | failure to integrate management information systems, personnel,
research and development and marketing, sales and support operations;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------

| |  | potential loss of key employees from Intellisync or the acquired
company;
|- |  | -------------------------------------------------------------------------

| |  | disruption of our ongoing business;
|- |  | -----------------------------------

| |  | potential loss of the acquired companys
customers;
|- |  | ---------------------------------------------------

| |  | failure to develop further the acquired companys
technology successfully, resulting in the potential impairment of amounts capitalized as intangible assets;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | unanticipated costs and liabilities;
|- |  | ------------------------------------

| |  | amortization expenses related to intangible assets (other than
goodwill); and
|- |  | -----------------------------------------------------------------------------

| |  | impairment charges under Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other Intangible Assets and SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Further, we have issued common stock and paid cash
for recent acquisitions and may have to pay cash, incur debt or issue equity securities to pay for any future acquisition, each of which could affect
our financial condition or the market price of our common stock. The sale of additional equity or debt to finance such future acquisitions


20

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could result
in dilution to our stockholders. The incurrence of indebtedness would result in increased
fixed obligations and could also include covenants or other  restrictions that would
impede our ability to manage our operations.

Goodwill and other intangibles resulting from our acquisitions could become
impaired.



As of July 31, 2004, our goodwill, developed and
core technology and other intangibles amounted to $95,116,000, net of accumulated amortization. We ceased to amortize our existing goodwill upon our
adoption of SFAS No. 142 in the beginning of fiscal 2003. We will amortize approximately $8,386,000, $7,720,000, $6,777,000, $3,354,000 and $3,591,000
of developed and core technology and other intangibles in fiscal 2005, 2006, 2007, 2008 and thereafter, respectively. We expect, however, that
amortization expense may increase significantly as a result of any future acquisitions. To the extent we do not generate sufficient cash flows to
recover the net amount of any investment in goodwill and other intangibles recorded, the investment could be considered impaired and subject to
write-off. We expect to record further goodwill and other intangible assets as a result of any future acquisitions we may complete. Future amortization
of such other intangible assets or impairments, if any, of goodwill would adversely affect our results of operations in any given
period.


If we fail to maintain an effective system of internal controls, we may not
be able to detect fraud or report our financial results accurately, which could harm our business.



Effective internal controls are necessary for us to
provide reliable financial reports and to detect and prevent fraud. We periodically assess our system of internal controls, and the internal controls
of service providers upon which we rely, to review their effectiveness and identify potential areas of improvement. These assessments may conclude that
enhancements, modifications or changes to our system of internal controls are necessary. In addition, from time to time we acquire businesses, many of
which have limited infrastructure and systems of internal controls. Performing assessments of internal controls, implementing necessary changes, and
maintaining an effective internal controls process is expensive and requires considerable management attention, particularly in the case of newly
acquired entities. Internal control systems are designed in part upon assumptions about the likelihood of future events, and all such systems, however
well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. Because of these and
other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential
future conditions, regardless of how remote. If we fail to implement and maintain an effective system of internal controls or prevent fraud, we could
suffer losses, could be subject to costly litigation, investors could lose confidence in our reported financial information and our brand and operating
results could be harmed, which could have a negative effect on the trading price of our common stock.


We may have difficulty implementing in a timely manner the internal controls
procedures necessary to allow our management to report on the effectiveness of our internal controls, and we may incur substantial costs in order to
comply with the requirements of the Sarbanes-Oxley Act of 2002.



The Sarbanes-Oxley Act of 2002 has introduced many
new requirements applicable to us regarding corporate governance and financial reporting. Among many other requirements is the requirement under
Section 404 of the Act for management to report on our internal controls over financial reporting and for our registered public accountant to attest to
this report. We are required to comply with Section 404 effective the fiscal year ending July 31, 2005. Our management has begun the necessary
processes and procedures for issuing its report on our internal controls




Our recent acquisitions of companies, some of which
have operations outside the United States, provided us with challenges in implementing the required processes and procedures in our acquired
operations. These acquired companies may not have disclosure controls and procedures or internal controls over financial reporting that are as thorough
or effective as those required by securities law in the United States. We, therefore, intend to devote substantial time and have incurred and will
continue to incur substantial costs during fiscal 2005 to implement appropriate controls and procedures in all our offices, including our acquired
companies to ensure compliance. We cannot, however, be certain that we will be successful in complying with Section 404.


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Future sales of our common stock, including the shares underlying the
convertible senior notes we recently issued, may depress our stock price.



If our current stockholders sell substantial amounts
of common stock in the public market, the market price of our common stock could fall. In addition, these sales of common stock could adversely affect
the trading price of our recently issued convertible senior notes and impede our ability to raise funds in the future at an advantageous price, or at
all, through another sales of securities. We have recently issued shares of our common stock in connection with our acquisitions of Synchrologic and
Spontaneous Technology and substantially all of the assets of Loudfire.




As of September 15, 2004, we had approximately
65,783,251 shares of common stock outstanding. The total number of outstanding shares includes a total of approximately 1,435,890 shares of common
stock issued in connection with our acquisitions that are subject to certain contractual restrictions. These restrictions expire, and the shares will
become freely tradable, as follows:


| |  | up to 1,211,000 shares that may be released from escrow on
December 31, 2004, issued in connection with our acquisition of Synchrologic; and
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------

| |  | up to 224,890 shares that may be released from escrow on or
before March 31, 2005, issued in connection with our acquisition of Spontaneous Technology.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



Assuming that the maximum number of shares and
options are issued and registered by us in connection with all of our recent acquisitions and assuming that all shares subject to vested options to
purchase common stock under our stock plans are issued, additional shares of our common stock could become issued or issuable and freely tradeable in
the public market through approximately July 31, 2005, as follows:


| |  | approximately 170,000 shares of our common stock that may be
issued in February 2005 under our employee stock purchase plan;
|- |  | ----------------------------------------------------------------------------------------------------------------------------

| |  | up to 2,093,928 shares of our common stock that may be issued in
October 2004 if certain earn-out conditions in our acquisition of Spontaneous Technology are achieved (to date, the required run rate has not been met,
we therefore do not anticipate issuing any of these shares); and
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 4,289,950 shares issuable upon exercise of outstanding options
that will be vested by July 31, 2005.
|- |  | ----------------------------------------------------------------------------------------------------



In addition, conversion of some or all of the
$60,000,000 aggregate principal amount of convertible subordinated notes that we issued in March 2004 will dilute the ownership interests of investors.
Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices for our common
stock.


We may incur significant stock-based compensation charges related to certain
stock options and restricted stock in future periods.



Based on accounting standards involving stock
compensation, we have incurred and will continue to incur noncash accounting charges related to stock options, including those associated with our
cancellation/regrant programs. Those standards require us to remeasure compensation costs for such options each reporting period based on changes in
the market value of the underlying common stock. Depending upon movements in the market value of our common stock, the variable accounting treatment of
those stock options may result in significant additional non-cash compensation costs in future periods.




In addition, the Financial Accounting Standards
Board (FASB) recently issued a proposed statement, Share-Based Payment, an amendment of FASB Statements Nos. 123 and 95, that
addresses the accounting treatment for employee stock options and other share-based payment transactions. The proposed statement would eliminate the
ability to account for share-based compensation transactions using Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and generally would require that such transactions be accounted for using a fair-value-based method and recognized as
expenses. If passed, the proposed statement and the change in accounting treatment could result in our reporting increased operating expenses, which
would decrease any reported net income or increase any reported net loss, and could adversely affect the market price of our common
stock.


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Our stock price has historically been and may continue to be volatile, which
may cause you to lose money and could lead to costly litigation against us that could divert our resources.



Stock markets have recently experienced dramatic
price and volume fluctuations, particularly for shares of technology companies. These fluctuations can be unrelated to the operating performance of
these companies. Broad market fluctuations may reduce the market price of our common stock and cause you to lose some or all of your investment. These
fluctuations may be exaggerated if the trading volume of our common stock is low. In addition, due to the technology-intensive nature and growth rate
of our business and the mobile computing synchronization market, the market price of our common stock has in the past and may in the future rise and
fall in response to:


| |  | quarterly variations in operating results;
|- |  | ------------------------------------------

| |  | seasonal fluctuations on product sales;
|- |  | ---------------------------------------

| |  | announcements of technological innovations;
|- |  | -------------------------------------------

| |  | announcements of new software or services by us or our
competitors;
|- |  | -------------------------------------------------------------------

| |  | acquisitions or strategic alliances by us or by our
competitors;
|- |  | ----------------------------------------------------------------

| |  | commencement or outcome of litigation involving us;
|- |  | ---------------------------------------------------

| |  | changes in financial estimates by securities analysts;
and
|- |  | ----------------------------------------------------------

| |  | other events beyond our control, including general market
conditions.
|- |  | ---------------------------------------------------------------------



Furthermore, our operating results and
prospects from time to time may be below the expectations of public market analysts or investors. Any negative change in the publics perception
of companies in the wireless communications market could depress our stock price regardless of our operating results. Recently, companies experiencing
high volatility or significant drops in their stock prices have faced securities class action lawsuits when the market price of a stock has been
volatile. Holders of that stock have often instituted securities class action litigation against the company that issued the stock when such stock
declines. If any of our stockholders brought such a lawsuit against us, we could incur substantial costs defending the lawsuit. The lawsuit could also
divert the time and attention of our management. Further, any settlement of such a lawsuit could adversely affect us.


We depend on key employees in a competitive market for skilled
personnel.



The success of our business will continue to depend
upon certain key technical and senior management personnel, including our president and chief executive officer, Woodson Hobbs; chief operating
officer, Clyde Foster; chief marketing officer, Robert Gerber; chief strategy officer, Steven Goldberg; chief financial officer, J. Keith Kitchen; and
chief technology officer, Said Mohammadioun, many of whom would be extremely difficult to replace. Competition for such personnel is intense, and we
cannot be certain that we will be able to retain our existing key managerial, technical, or sales and marketing personnel. The loss of these officers
and other or key employees in the future might adversely affect our business and impede the achievement of our business objectives. We believe our
ability to achieve increased revenues and to develop successful new products and product enhancements will depend in part upon our ability to attract
and retain highly skilled sales and marketing and qualified product development personnel. In addition, competition for employees in our industry and
geographic location could be intense. We may not be able to continue to attract and retain skilled and experienced personnel on acceptable terms. Our
ability to hire and retain such personnel will depend in part upon our ability to raise capital or achieve increased revenue levels to fund the costs
associated with such personnel. Failure to attract and retain key personnel will adversely affect our business.


We may have to expend substantial funds on sales and marketing in the
future.



To increase awareness for our new and existing
products, technology and services, we expect to spend significantly more on sales and marketing in the future. We also plan to continue to leverage our
relationships with industry leaders and to expand and diversify our sales and marketing initiatives to increase our sales to wireless


23

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carriers and enterprises. If our marketing strategy is unsuccessful, we may not be
able to recover these expenses or even generate any revenues. We will be required to develop a marketing and sales campaign that will effectively
demonstrate the advantages of our products, technology and services. We may also elect to enter into agreements or relationships with third parties
regarding the promotion or marketing of our products, technology and services. We cannot be certain that we will be able to establish adequate sales
and marketing capabilities, that we will be able to enter into marketing agreements or relationships with third parties on financially acceptable
terms, or that any third parties with whom we enter into such arrangements will be successful in marketing and promoting the products, technology and
services offered by us.

We are exposed to the risk of product returns from retailers, which are
estimated and recorded by us as a reduction in sales.



Although we attempt to monitor and manage the volume
of our sales to retailers, overstocking by retailers or changes in their inventory level policies or practices may require us to accept returns above
historical levels. In addition, the risk of product returns may increase if the demand for new products we introduce is lower than what we anticipate
at the time of introduction. Although we believe that we provide an adequate allowance for sales returns, actual sales returns could exceed our
estimated recorded allowance. Any product returns in excess of recorded allowances could result in a material adverse effect on net revenues and
operating results. As we introduce more products, timing of sales to end users and returns to us of unsold products by distributors and resellers
become more difficult to predict and could result in material fluctuations in quarterly operating results.


Our products may contain errors that could subject us to product-related
claims.



Our products may contain undetected errors or
failures, which can result in loss of or delay in market acceptance and could adversely impact future operating results. Our insurance may not cover us
for certain claims related to product failures. Although our license agreements contain provisions limiting our liability in the case of damages
resulting from use of the software, in the event of such damages, we may be found liable, and in such event, such damages could materially affect our
business, operating results and financial condition.


We may need to raise additional capital in the future resulting in dilution
to our stockholders.



We may need to raise additional funds for our
business operations and to execute our business strategy. We may seek to sell additional equity or debt securities or to obtain an additional credit
facility. The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders. If additional funds are
raised through the issuance of debt securities, these securities could have rights that are senior to holders of common stock and could contain
covenants that would restrict our operations. Any additional financing may not be available in amounts or on terms acceptable to us, if at
all.


We may not have sufficient cash flow to make payments on any debt we may
incur.



Our ability to pay principal and interest on our
existing and any future indebtedness and to fund our planned capital expenditures depends on our future operating performance. Our future operating
performance is subject to a number of risks and uncertainties that are often beyond our control, including general economic conditions and financial,
competitive and regulatory factors. Consequently, we cannot assure you that we will have sufficient cash flow to meet our liquidity needs, including
making payments on existing and any future indebtedness.


We may not have the ability to raise the funds necessary to finance the
fundamental change redemption option associated with our outstanding convertible senior notes.



If we engage in any transaction or event in
connection with which all or substantially all of our common stock is exchanged for, converted into, acquired for or constitutes solely the right to
receive consideration which is not all or substantially all common stock listed on a United States national securities exchange or approved for
quotation on the Nasdaq National Market or any similar United States system of automated dissemination of quotations of


24

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securities prices, or, if for any reason, our common stock is no longer listed for
trading on a United States national securities exchange nor approved for trading on the Nasdaq National Market, we may be required to redeem all or
part of the notes. We may not have enough funds to pay the redemption price for all tendered notes. In addition, any credit agreement or other
agreements relating to our indebtedness may contain provisions prohibiting redemption of the notes under certain circumstances, or expressly prohibit
our redemption of the notes upon a designated event or may provide that a designated event constitutes an event of default under that agreement. Our
failure to redeem tendered notes would constitute an event of default under the indenture, which might also constitute a default under the terms of our
other indebtedness.

Our certificate of incorporation, our bylaws, Delaware law and our
stockholder rights plan contain provisions that could discourage a takeover.



Provisions of our certificate of incorporation, our
bylaws, Delaware law and our stockholder rights plan contain provisions that may discourage, delay or prevent a merger or acquisition or other change
of control that a stockholder may consider favorable.


The fundamental change redemption rights in our outstanding convertible
senior notes could discourage a potential acquirer.



If we engage in any transaction or event in
connection with which all or substantially all of our common stock is exchanged for, converted into, acquired for or constitutes solely the right to
receive, consideration which is not all or substantially all common stock listed on a United States national securities exchange or approved for
quotation on the Nasdaq National Market or any similar United States system of automated dissemination of quotations of securities prices, or, if for
any reason, our common stock is no longer listed for trading on a United States national securities exchange nor approved for trading on the Nasdaq
National Market (a fundamental change), we may be required to redeem all or part of the notes and this could discourage a potential
acquirer. However, this redemption feature is not the result of managements knowledge of any specific effort to obtain control of us by means of
a merger, tender offer or solicitation, or part of a plan by management to adopt a series of anti-takeover provisions. The term fundamental
change is limited to specified transactions and may not include other events that might adversely affect our financial condition or business
operations. Our obligation to offer to redeem the notes upon a fundamental change would not necessarily afford you protection in the event of a highly
leveraged transaction, reorganization, merger or similar transaction involving us.


25

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EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT



The executive officers and directors of Intellisync
as of September 1, 2004, are as follows:


|Name                 |  |  |  | Age |  | Position                                                                                                   
|-------------------- |  |  |  | --- |  | -----------------------------------------------------------------------------------------------------------
|Woodson
Hobbs        |  |  |  | 57  |  | President, Chief Executive Officer and Director                                                            
|Clyde
Foster         |  |  |  | 43  |  | Chief Operating Officer                                                                                    
|Robert
Gerber        |  |  |  | 41  |  | Chief Marketing Officer                                                                                    
|Steven
Goldberg      |  |  |  | 42  |  | Chief Strategy Officer                                                                                     
|J. Keith
Kitchen     |  |  |  | 41  |  | Chief Financial Officer                                                                                    
|Said
Mohammadioun    |  |  |  | 57  |  | Chief Technology Officer and Director                                                                      
|Michael M.
Clair     |  |  |  | 56  |  | Chairman of the Board, Compensation Committee and Nominating Committee and Member of the Audit Committee   
|Richard
Arnold       |  |  |  | 56  |  | Director and Member of the Audit Committee, Compensation Committee and Nominating Committee                
|Kirsten
Berg-Painter |  |  |  | 44  |  | Director and Member of the Compensation Committee and Nominating Committee                                 
|Michael J.
Praisner  |  |  |  | 58  |  | Director, Chairman of the Audit Committee and Member of the Compensation Committee and Nominating Committee



Mr. Hobbs became the president and chief
executive officer of the Company in June 2002. He has also served as a director of the Company since joining the company. Prior to joining the Company,
Mr. Hobbs served as a consulting executive for the venture capital community, and as a strategic systems consultant to large corporations. From 1995 to
2002, Mr. Hobbs held the position of interim chief executive officer at the following companies: FaceTime Communications, a provider of instant
messaging network-independent business solutions; Tradenable, Inc., an online escrow service company; BigBook, Inc., a pioneer in the online yellow
pages industry; and I/PRO Corporation, a leader in quantitative measurement of Web site usage. From 1993 to 1994, Mr. Hobbs served as chief executive
officer of Tesseract Corporation, a human resources outsourcing and software company. Mr. Hobbs spent the early part of his career with Charles Schwab
Corporation, a securities brokerage and financial service company, as chief information officer and with Service Bureau, a division of International
Business Machines Corporation, or IBM, the worlds largest information technology company, as one of the developers and the director of operations
of Online Focus, an online credit union system that ultimately served over 20 million members.




Mr. Foster became the chief operating
officer of the Company in July 2004 overseeing corporate operations and the sales of the Companys products to leading enterprises, OEMs, and
wireless operators. Mr. Foster previously served as senior vice president of sales and marketing since joining the Company in September 2002. From July
1999 to September 2002, Mr. Foster served as president and chief executive officer of eConvergent, Inc., a next-generation customer data integration
software company. Prior to founding eConvergent, Mr. Foster established and led the Global Solutions Services division of Aspect Communications
Corporation, a provider of business communications solutions from April 1996 to June 1999. Previously, Mr. Foster held a variety of sales and
professional services management positions during his 14 years at IBM. Mr. Foster holds a BS degree in Mathematics from North Carolina State
University.




Mr. Gerber became the chief marketing
officer, overseeing all marketing, strategy, and e-commerce operations, of the Company in April 2004. Most recently, prior to joining the Company, Mr.
Gerber served as managing director and group vice president of Carlson Marketing Group, a relationship marketing company. Previously, Mr. Gerber held a
variety of management and consulting positions at American Express Company, a diversified worldwide travel, financial, and network services company,
Deloitte Consulting, a global management consulting firm, and Digitas, Inc., an integrated marketing agency. Mr. Gerber is the founder of @once, Inc.,
a private email messaging company, and served as chief marketing and strategy officer of Commtouch Software Limited, an email infrastructure company.
Mr. Gerber holds a BS in engineering degree from the University of Virginia and an MBA degree from Harvard University.


26

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Mr. Goldberg became the chief strategy
officer of the Company in July 2004. As chief strategy officer, Mr. Goldberg is responsible for the Companys merger and acquisition activities
and helps define the companys long-term intellectual property, product and corporate strategies. Mr. Goldberg previously served as vice president
of corporate development since joining the Company in February 2004. From August 2001 to October 2003, Mr. Goldberg served as president and chief
executive officer of Hiwire, Inc., a venture capital-funded Internet radio company, whose technology enabled over 400 North American radio stations to
migrate content to the Internet. From November 1999 to October 2000, Mr. Goldberg served as senior vice president of the Consumer Division of Go2Net,
Inc., a network of branded, technology- and community-driven Web sites. From June 1995 to October 1999, Mr. Goldberg was employed by Microsoft
Corporation, a leading innovator in software and business technologies, as director of localization and the group manager of the companys
advertising business unit. Mr. Goldberg holds a BA and master of science in management degrees from Columbia University.




Mr. Kitchen became the chief financial
officer of the Company in July 2004. Mr. Kitchen most recently served as vice president of finance and administration and chief accounting officer from
August 2002 to July 2004 and also as corporate controller since joining the Company in February 2000 with the Companys acquisition of NetMind
Technologies, Inc., a venture capital-funded Internet software company. Mr. Kitchen joined NetMind in January 1999 as its controller and later became
its vice president of finance and administration from July 1999 to February 2000. Mr. Kitchen also served in a variety of financial management
positions at Intellect Electronics, Inc., a provider of electronic commerce and smart card solutions, from March 1997 to December 1998, and at Bausch
& Lomb, Inc., a global technology based healthcare company, from July 1990 to March 1997. Previously, Mr. Kitchen served as certified public
accountant with Ernst & Young LLP, a professional services organization. Mr. Kitchen holds a bachelor of science in business administration degree
from Bucknell University and is a graduate of Northwestern Universitys Kellogg Graduate School of Management.




Mr. Mohammadioun became the chief technology
officer and a director of the Company in December 2003 following the Companys acquisition of Synchrologic, Inc. a provider of mobile
infrastructure solutions. Mr. Mohammadioun joined Synchrologic in October 1996 as its chief executive officer. Previously, Mr. Mohammadioun served as
vice-president of Lotus Development Corporation, a provider of knowledge management solutions, from 1990 to 1995. From 1983 to 1990, he was the chief
executive officer of Samna Corporation, a word-processing software company founded by Mr. Mohammadioun in 1983. Samna was sold to Lotus Development
Corporation in 1990. Mr. Mohammadioun holds a master degree in electrical engineering from Georgia Institute of Technology and an MBA degree from
Georgia State University.




Mr. Clair became a director of the Company in
December 1994 and has served as chairman of the board of the Company since March 1995. Since June 1995, Mr. Clair has served as an independent
financial consultant. Mr. Clair was a founder of SynOptics Communications (now Nortel Networks), a computer networking company, and from January 1987
to November 1992, served as vice president of sales and marketing and then as senior vice president of sales and customer service of SynOptics. Mr.
Clair has more than 30 years of experience in data processing, data and voice communications and local area networking, as well as various wireless
technologies. He spent the early part of his career with Tymshare, Inc., a computer time-sharing company, and ROLM, a manufacturer of digital PBX
equipment, in a variety of sales and marketing positions. He holds a BS degree in business and an MBA degree from the University of Buffalo. Mr. Clair
is a director of several private companies.




Mr. Arnold  became a director of
the Company in May 2004. Since June 2001, Mr. Arnold has served as founding partner of Committed Capital Pty. Ltd., a private equity investment company
based in Sydney, Australia. From August 1999 to May 2001, Mr. Arnold served as executive director of Consolidated Press Holdings Limited, also a
private investment company based in Sydney. Previously, Mr. Arnold served as managing director of TD Waterhouse Australia, a securities dealer; as
chief executive officer of Integrated Decisions and Systems, Inc., an application software company; as managing director of Eagleroo Pty. Ltd., a
corporate advisor company. From 1977 to 1990, Mr. Arnold served in various capacities with Charles Schwab & Company, Inc., a securities and
financial services brokerage, including as chief financial officer and later as executive vice president responsible for the companys strategy
and corporate development unit. Mr. Arnold holds a BS degree in psychology from Stanford University.


27

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Ms. Berg-Painter became a director of
the Company in August 2001. Since November 2000, Ms. Berg-Painter has served as an independent marketing consultant. From July 1998 to October 2000,
Ms. Berg-Painter served as senior vice president of worldwide marketing at Clarify, Inc., an enterprise customer relationship management, or CRM,
company. From 1989 to 1998, Ms. Berg-Painter served in various capacities with Aspect Communications Corporation, a provider of customer relationship
portals, last serving as general manager and vice president of one of its product divisions. Previously, Ms. Berg-Painter served as director of product
marketing for AST Research, Inc., a personal computer manufacturer, and as director of marketing for Syntellect, Inc., a provider of call-center
technology and hosted service solutions. Ms. Berg-Painter began her career at IBM where she held various systems engineering and marketing positions.
She holds a BA degree in business and economics from University of California, Los Angeles and attended business school at Norges
Handelshøyskole in Bergen, Norway.




Mr. Praisner became a director of the Company
in April 2001. Prior to his retirement, from April 1998 to October 1999, Mr. Praisner served as vice president of finance and administration and chief
financial officer of Beyond.com Corporation, an online software resale company. From 1995 to 1997, Mr. Praisner served as vice president, finance and
administration, chief financial officer, and secretary of Silicon Storage Technology, Inc., a supplier of flash memory devices. From 1994 to 1995, Mr.
Praisner served as vice president, finance and chief financial officer of MicroModule Systems, Inc., a manufacturer of multichip modules for computer
and telecommunications applications. From 1992 to 1993, Mr. Praisner served as vice president, finance and chief financial officer of Electronics for
Imaging, Inc., a manufacturer of color desktop publishing computer systems. During part of 1991, Mr. Praisner served as vice president, finance and
chief financial officer of Digital Link Corp., a computer communications equipment company. From 1989 to 1991, Mr. Praisner served as corporate
controller of Applied Materials Inc., a manufacturer of semiconductor wafer fabrication equipment. He holds a BA degree in liberal arts and MBA degree
from Southern Methodist University and is a Certified Public Accountant.


28

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|ITEM 2. |  | PROPERTIES
|------- |  | ----------



At July 31, 2004, we leased the facilities described
below:


|Location                |  |  |  | Function                                                                            |  | Square Feet | Lease Expiration Date |    
|----------------------- |  |  |  | ----------------------------------------------------------------------------------- |  | ----------- | --------------------- | ---
|United
States           |  |  |  |                                                                                     |  |             |                       |    
|San Jose,
CA            |  |  |  | Corporate
headquarters, administrative offices, engineering and sales and marketing |  |             | 33,821                | (1)
|Los Gatos,
CA           |  |  |  |                                                                                     |  |             | 15,000                | (2)
|Santa Cruz,
CA          |  |  |  |                                                                                     |  |             | 20,924                | (3)
|Greenwich,
CT           |  |  |  | Administrative
offices and sales and marketing                                      |  |             | 4,276                 |    
|Alpharetta,
GA          |  |  |  | Administrative
offices, engineering, professional services and sales and marketing  |  |             | 22,409                |    
|Nashua, NH              |  |  |  |                                                                                     |  |             | 19,938                | (2)
|Salt Lake City,
UT      |  |  |  | Engineering                                                                         |  |             | 5,717                 |    
|Europe                  |  |  |  |                                                                                     |  |             |                       |    
|Sofia,
Bulgaria         |  |  |  | Engineering and
professional services                                               |  |             | 15,200                |    
|Cologne,
Germany        |  |  |  | Sales                                                                               |  |             | 2,754                 |    
|Cluj-Napoca,
Romania    |  |  |  | Engineering and
professional services                                               |  |             | 8,611                 |    
|Reading, United
Kingdom |  |  |  | Sales                                                                               |  |             | 1,429                 |    
|Asia-Pacific            |  |  |  |                                                                                     |  |             |                       |    
|Canberra,
Australia     |  |  |  | Engineering                                                                         |  |             | 3,014                 |    
|Sydney,
Australia       |  |  |  | Administrative
offices and sales and marketing                                      |  |             | 2,626                 |    
|Tokyo,
Japan            |  |  |  | Administrative
offices and sales and marketing                                      |  |             | 3,024                 |    

---

|(1) |  | 6% of property is subleased to a third-party for the duration of
the lease term.
|--- |  | --------------------------------------------------------------------------------

|(2) |  | Subleased to a third-party for the duration of the lease
term.
|--- |  | --------------------------------------------------------------

|(3) |  | Available for sublease.
|--- |  | -----------------------



The leased property located in Salt Lake City, Utah
was acquired upon the completion of the Spontaneous Technologys acquisition in September 2003. The leased property located in Alpharetta, Georgia
was acquired upon the completion of the Synchrologic acquisition in December 2003. The leased properties in Greenwich, Connecticut, Reading, United
Kingdom and Canberra and Sydney, Australia were acquired upon completion of the Search Software America acquisition in March 2004. We believe that
these facilities are adequate to meet the present and future operational requirements of our newly acquired subsidiaries.




We lease space in Los Gatos and Santa Cruz,
California, as well as in Nashua, New Hampshire, for offices that were closed as a result of the restructuring and cost reduction plans we implemented
in previous fiscal years. Refer to the discussions under the caption Restructuring and Other Charges set forth in Item 7, Part II of
this Annual Report on Form 10-K for more information on the restructure charges related to these facilities. We have secured tenants for some of our
vacated facilities and are actively marketing to sublet the remainder. We have experienced difficulties, however, in subletting other vacated offices
because of the continuing deterioration of the real estate markets in those locations.




We believe that our existing facilities are
sufficient to meet our present and future foreseeable needs. We do not anticipate difficulty in renewing existing leases as they expire or in finding
alternative facilities.


29

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|ITEM 3. |  | LEGAL PROCEEDINGS
|------- |  | -----------------



From time to time we may become subject to
proceedings, lawsuits and other claims in the ordinary course of business, including proceedings related to our products, services, technologies and
other matters. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance.




In August 2004, a patent-infringement claim was
filed against us by NCR Corporation in the U.S. District Court for the Southern District of Ohio Western Division. In the complaint, NCR allege certain
of our products infringe three of its patents which cover technology for synchronizing databases between personal digital assistants and host
computers. Based on a lengthy review, we believe that we do not infringe on any of the asserted NCR patents. Separately, on September 9, 2004, we filed
a petition complaint for declaratory judgment against NCR requesting, among other things, that a judgment be entered finding that we do not infringe an
NCR patent asserted against one of our licensees, Garmin Ltd. Refer to the discussion set forth in Item 1 under the caption Risk
Factors  We may be unable to adequately protect our proprietary rights; Risk Factors  We may be subject to
intellectual property infringement claims, which are costly to defend and could limit our ability to use certain technologies in the future and
Risk Factors  We have been, are, and may be in the future be involved in litigation that could result in significant costs to
us.




We are also subject to legal proceedings and claims
that arise in the normal course of business. We believe that the ultimate resolution of such matters will not have a material adverse affect on our
financial position or results of operations; however, such litigation could in the future result in substantial costs and diversion of management
resources. Such litigation could also result in payment of monetary damages and could harm our financial condition and results of
operations.


|ITEM 4. |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|------- |  | ---------------------------------------------------



No matters were submitted to a vote of the
Companys security holders during the fourth quarter of the fiscal year ended July 31, 2004.


30

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PART II

|ITEM 5. |  | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
|------- |  | ---------------------------------------------------------------------



Intellisyncs common stock began trading on the
Nasdaq National Market on December 5, 1996, under the symbol PUMA. We changed our name to Intellisync Corporation on February 17, 2004, at
which time our ticker symbol changed to SYNC. The following table sets forth the high and low closing prices for our common stock as
reported on the Nasdaq National Market from August 1, 2002, through July 31, 2004.


|                                                             |  |  |  | High |      | Low
|------------------------------------------------------------ |  |  |  | ---- | ---- | ---
|Fiscal
2003                                                  |  |  |  |      |      |    
|First fiscal
quarter (August 1, 2002 to October 31, 2002)    |  |  |  | $    | 0.49 |    
|Second fiscal
quarter (November 1, 2002 to January 31, 2003) |  |  |  | $    | 1.55 |    
|Third fiscal
quarter (February 1, 2003 to April 30, 2003)    |  |  |  | $    | 3.30 |    
|Fourth fiscal
quarter (May 1, 2003 to July 31, 2003)         |  |  |  | $    | 4.08 |    
|Fiscal
2004                                                  |  |  |  |      |      |    
|First fiscal
quarter (August 1, 2003 to October 31, 2003)    |  |  |  | $    | 6.99 |    
|Second fiscal
quarter (November 1, 2003 to January 31, 2004) |  |  |  | $    | 7.51 |    
|Third fiscal
quarter (February 1, 2004 to April 30, 2004)    |  |  |  | $    | 4.65 |    
|Fourth fiscal
quarter (May 1, 2004 to July 31, 2004)         |  |  |  | $    | 3.35 |    



As of September 15, 2004, there were
approximately 471 stockholders of record of our common stock and 65,783,251 shares of common stock outstanding. Additionally, on such date the last
reported closing sale price of our common stock, as reported by the Nasdaq National Market, was $2.18 per share.




We have never paid dividends on our capital stock.
We currently intend to retain any future earnings for use in our business and do not anticipate paying any cash dividends in the foreseeable
future.




The disclosure required by Item 201(d) of Regulation
S-K is incorporated by reference to the definitive proxy statement for our 2004 Annual Meeting of Stockholders to be filed with the SEC pursuant to
Regulation 14A no later than 120 days after the end of the fiscal year covered by this form under the caption Equity Compensation Plan
Information.


Recent Sales of Unregistered Securities



In March 2004, we completed the offering of
$60,000,000 of convertible senior notes to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended, or the
Securities Act. Proceeds of approximately $57,100,000, net of the initial purchasers discounts and commissions and estimated offering costs, were
received from this offering. For more information regarding the terms of these convertible senior notes, refer to the discussion under the caption
Managements Discussion and Analysis of Financial Condition and Results of Operations  Convertible Senior
Notes.




The offer and sale of securities in the transaction
described above was deemed to be exempt from registration under the Securities Act in reliance upon Section 4(2) of the Securities Act and Regulation D
promulgated thereunder, as a transaction by an issuer not involving any public offering. The securities were resold by the initial purchasers upon
reliance on Rule 144A. Each initial purchaser made representations that it was an accredited investor, as defined in Rule 501 promulgated
under the Securities Act, and as to its compliance with Rule 144A.


31

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|ITEM 6. |  | SELECTED FINANCIAL DATA
|------- |  | -----------------------



The following selected consolidated financial data
are derived from our consolidated financial statements. Historical results should not be taken as indicative of the results that may be expected for
any future period. This summary of our consolidated financial information for fiscal years 2000 to 2004 should be read along with our audited
consolidated financial statements contained in this Annual Report on Form 10-K. The summarized financial information, other than the statements of
operations data for fiscal 2000 and 2001 and the balance sheets data at July 31, 2000, 2001 and 2002, was taken from these financial statements.
Certain amounts in prior periods have been reclassified to conform to the current presentation.




This summary of consolidated financial statements
includes the accounts of Intellisync and our wholly and majority owned subsidiaries.




In addition to the effect of acquisitions, there
were a number of other items that affected the comparability of this information:


| |  | The results of operations for fiscal year 2004 include the
effect of charges including $600,000 for facilities cost adjustment relating to restructuring actions implemented in prior year, $253,000 for severance
costs, and $76,000 for operating expenses relating to a potential acquisition that was subsequently abandoned. We recorded a charge of $3,667,000 for
purchased in-process research and development in connection with the acquisitions of Spontaneous Technology, Inc., and acquisition of Synchrologic,
Inc., and Search Software America Pty. Ltd., or SSA. An additional charge of $745,000 was incurred in connection with certain stock options accounted
for using variable accounting. A net litigation settlement gain of $1,576,000 was also recorded for fiscal 2004.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The results of operations for fiscal year 2003 include the
effect of charges including $379,000 for operating expenses relating to a potential acquisition that was subsequently abandoned, $257,000 for severance
and separation costs, and $159,000 for facilities cost adjustment relating to restructuring actions implemented in the prior year. We also recorded a
$60,000 recovery of lease payments deemed uncollectible in the prior year. Additional charges incurred in fiscal 2003 include an other-than-temporary
impairment of investments of $2,394,000, non-cash stock compensation expense of $1,585,000 in connection with certain stock options and restricted
stock accounted for using variable accounting and $157,000 in connection with the options granted by NetMind Technologies, Inc. prior to our
acquisition of NetMind, and purchased in-process research and development of $406,000 in connection with our acquisition of Starfish Software,
Inc.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The results of operations for fiscal year 2002 include the
effect of charges including $5,595,000 for severance and separation costs, facilities consolidation and assets held for disposal associated with the
cost reduction program implemented during the third and fourth quarters of fiscal 2002 and $5,249,000 for write-downs of impaired intangibles and
assets related to our terminated online operations. We recorded a charge for impairment of certain excess software development tools, a provision for
rent reimbursement deemed uncollectible and an other-than-temporary impairment of investments of approximately $580,000, $330,000 and $380,000,
respectively. Non-cash stock compensation expense of $367,000 was also recorded in connection with the options granted by NetMind prior to our
acquisition of NetMind.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The results of operations for fiscal year 2001 include the
effect of a $1,417,000 charge for severance costs, facilities consolidation and assets held for disposal associated with the cost reduction programs
implemented in the third and fourth quarters of fiscal 2001. Additional charges were incurred for write-downs of impaired intangibles and other assets
of $10,614,000 and direct investments of $1,180,000, and non-cash stock compensation expense of $1,058,000 in connection with the options granted by
NetMind prior to our acquisition of NetMind and the stock option regrant program implemented in July 2001.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The results of operations for fiscal year 2000 include charges
of $6,322,000 for merger related expenses, $3,877,000 was incurred for accretion of redeemable convertible preferred stock and $2,002,000 for non-cash
stock compensation expense incurred in connection with the acquisition of NetMind. An additional charge of $4,218,000 was incurred for purchased
in-process research and development in connection with the acquisitions of ProxiNet, Inc.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

32

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Condensed Consolidated Statements of Operations Data   (in
thousands, except per common share data)

|                                                                                    |  |  |  | Year Ended July 31, |       
|----------------------------------------------------------------------------------- |  |  |  | ------------------- | ------
|
|Revenue                                                                             |  |  |  | $                   | 42,308
|Net
loss                                                                            |  |  |  | $                   | (9,455
|Accretion of
mandatorily redeemable convertible preferred stock to redemption value |  |  |  |                     |      
|Net loss
attributable to common stockholders                                        |  |  |  | $                   | (9,455
|Basic and
diluted net loss per common share                                         |  |  |  | $                   | (0.16 

Condensed Consolidated Balance Sheets Data (in thousands)

|                                                 |  |  |  | July 31, |        
|------------------------------------------------ |  |  |  | -------- | -------
|
|Cash, cash
equivalents andshort-term investments |  |  |  | $        | 53,648 
|Working
capital                                  |  |  |  | $        | 51,693 
|Total
assets                                     |  |  |  | $        | 170,354
|Long-term
obligations                            |  |  |  | $        | 61,074 
|Total
stockholders equity                       |  |  |  | $        | 94,391 

Summary Condensed Quarterly Data (unaudited, in thousands, except per common
share data)

|                                                                    |  |  |  | Three Months Ended |       
|------------------------------------------------------------------- |  |  |  | ------------------ | ------
|
|Revenue                                                             |  |  |  | $                  | 13,282
|Cost of
revenue                                                     |  |  |  |                    | 3,490 
|Gross
profit                                                        |  |  |  |                    | 9,792 
|Operating
expenses                                                  |  |  |  |                    | 11,148
|Operating
loss                                                      |  |  |  | $                  | (1,356
|Net
loss                                                            |  |  |  | $                  | (1,758
|Basic and
dilutednet loss percommon share                           |  |  |  | $                  | (0.03 
|Shares used
in computing basic and diluted net lossper common share |  |  |  |                    | 64,070

33

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|ITEM 7. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
|------- |  | -------------------------------------------------------------------------------------



The following discussion includes a number of
forward-looking statements. You should read this section in conjunction with the cautionary language applicable to such forward-looking statements
described above in Item 1 found in Part I of this Annual Report on Form 10-K. You should not place undue reliance on these forward-looking statements,
which speak only as of the date of this Annual Report on Form 10-K. We undertake no obligation to release publicly any revisions to the forward-looking
statements or reflect events or circumstances after the date of this document.




Managements discussion and analysis
includes:


| |  | Business overview.
|- |  | ------------------

| |  | A discussion of estimates and assumptions affecting the
application of our critical accounting policies.
|- |  | --------------------------------------------------------------------------------------------------------

| |  | A comparison of our results of operations for fiscal 2004 with
the results for fiscal 2003, and the results for fiscal 2003 with those for fiscal 2002.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Recently issued accounting pronouncements.
|- |  | ------------------------------------------

| |  | A discussion of our liquidity and capital resources.
|- |  | ----------------------------------------------------

Business Overview



We develop, market and support desktop, enterprise
and carrier-class synchronization software that enable consumers, business professionals and IT professionals to extend the capabilities of wireless or
wireline personal communications platforms. Our products are designed to improve the productivity of business professionals who require access to
essential, current information, anytime and anywhere.




We have organized our operations into a single
operating segment encompassing the development, marketing and support of software and services that provide synchronization, wireless email, mobile
application development, application/device management, real-time remote information access, secure VPN, and identity searching/matching/screening
capabilities.




We license our software products directly to
corporations, wireless carriers, original equipment manufacturers, or OEMs, and business development organizations worldwide. In addition, we sell our
retail products through several distribution channels both in the United States and internationally, including major distributors, resellers, computer
dealers, retailers and mail-order companies. Internationally, we are represented by over 120 distributors, resellers and retailers in North America,
Europe, the Asia-Pacific region, South America and Africa.




One component of our business strategy is to enhance
stockholder value through the acquisition of companies and technologies that we can leverage to improve our strategic market position and growth
potential in both emerging and established technologies. Our recent acquisitions, together with our internal development efforts, have been aimed at
expanding our focus from cabled synchronization to synchronization for wireless handhelds, smartphones, laptops and tablets, where a number of industry
analysts, such as International Data Corporation, or IDC, predict future growth. We expect the acquisition of Spontaneous Technology, Inc.,
Synchrologic, Inc. and Search Software America Pty. Ltd., as well as transfer of employees from SoftVision SRL, along with the efforts of our
management and employee, to aid in our growth and development, including in the wireless carrier markets. For details on the acquisitions, refer to the
discussion under the caption Acquisitions set forth under Liquidity and Capital Resources below.




We intend to capitalize on the continued growth in
demand for wireless services and the related infrastructure required, including hosting, application and other related services, to support that
growth. As such, maintaining and cultivating relationships with wireless carriers is currently one of the critical focus areas of our research and
development and sales and marketing groups. We believe that wireless services will continue to be one of the fastest growing segments of the
telecommunications industry and that wireless carriers will be under increasing competitive


34

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pressure. As a result, we believe there will be significant opportunities to
provide wireless carriers with services that enable them to focus internal resources on their core business activities while increasing revenues,
improving service quality and reducing costs.



We also plan to continue working on achieving
operational and cost efficiencies. Our restructuring program during the third quarter of fiscal 2004 reflects our ongoing efforts to better align our
costs structure with revenue performance.




We expect to continue to implement our business
development strategy in fiscal 2005. To increase market share, we may also attempt to acquire or seek alliances with key competitors and other
companies that may have important products and synergies with our existing operations and products.


Convertible Senior Notes



To implement our business strategy, we fund our
acquisitions, research and development and general working capital primarily through cash flow from operations and recently through debt issuance.
During the third quarter of fiscal 2004, we completed the offering of $60,000,000 of convertible senior notes to qualified institutional buyers in
reliance on Rule 144A under the Securities Act. Proceeds of approximately $57,100,000, net of the initial purchasers discounts and commissions
and estimated offering costs, were received from the offering in March 2004. A portion of the net proceeds of the offering were used to complete the
acquisition of SSA. We intend to use the balance of the net proceeds to fund possible investments in, or acquisitions of, complementary businesses,
products or technologies or establishing joint ventures and for general corporate purposes and working capital requirements. We invested the net
proceeds from this offering, pending their ultimate use, in short-term, interest-bearing, investment grade securities. For further details on the
convertible senior notes, as well as the interest rate swaps we entered into in conjunction with the notes, refer to the discussion under the caption
3% Convertible Senior Notes and Interest Rate Swaps set forth under Liquidity and Capital Resources
below.


Estimates, Assumptions and Critical Accounting Policies



The following discussion and analysis of financial
condition and results of operations are based on our consolidated financial statements and notes thereto set forth in Part IV of this Annual Report on
Form 10-K. Our consolidated financial statements are prepared in accordance with generally accepted accounting principles, or GAAP, in the United
States. These accounting principles require us to make certain estimates, judgments and assumptions, which we review with our audit committee. We
believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon various factors and information available to us at
the time that these estimates, judgments and assumptions are made. These factors and information may include, but are not limited to, history and prior
experience, experience of other enterprises in the same industry, new related events, current economic conditions and information from third party
professionals. The estimates, judgments and assumptions we make can affect the reported amounts of assets and liabilities as of the date of the
financial statements, as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material
differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected.




We use estimates in accounting for, among other
things, various revenue contracts, returns, recoverability of long-lived assets and investments, in-process research and development, restructuring
accruals, contingencies, allowances for uncollectible receivables, and depreciation and amortization. The significant accounting policies that we
believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:


| |  | License and services revenue recognition.
|- |  | -----------------------------------------



Revenue from license fees is recognized when
persuasive evidence of an arrangement exists, delivery of the product has occurred, no significant Company obligations with regard to implementation or
integration exist, the fee is fixed or determinable and collectibility is probable. Arrangements for which the fees are not deemed probable for
collection are recognized upon cash collection. If we were to assess the collectibility of fees differently, the timing and amount of our revenue
recognition might differ substantially from previously estimated or reported.


35

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Services revenue primarily comprises revenue from
consulting fees, maintenance contracts and training. Services revenue from consulting and training is recognized as the service is performed.
Maintenance contracts include the right to unspecified upgrades and ongoing support. Maintenance revenue is deferred and recognized ratably as services
are provided over the maintenance period. If we were to allocate more or less value to the unspecified upgrades and ongoing support, the timing of our
revenue recognition might differ substantially from that previously reported.




For contracts with multiple elements, and for which
vendor-specific objective evidence of fair value for the undelivered elements exists, revenue is recognized for the delivered elements based upon the
residual contract value as prescribed by the American Institute of Certified Public Accountants in Statement of Position (SOP) No. 98-9. We have
accumulated relevant information from contracts to use in determining the availability of vendor-specific objective evidence and believe that such
information complies with the criteria established in SOP No. 97-2, Software Revenue Recognition which provides guidance on
generally accepted accounting principles for recognizing revenue on software transactions. If we were to allocate the respective fair values of the
aforementioned elements differently, the timing of our revenue recognition might differ substantially from that previously estimated or
reported.




License and services revenue associated with
contracts that involve significant implementation of customization of services, which are essential to the functionality of the software, is recognized
over the period of each engagement, primarily using the percentage-of-completion method. Labor hours incurred is generally used as the measure of
progress towards completion as prescribed by SOP No. 81-1, Accounting for Performance of Construction-Type and Certain Product-Type
Contracts. Revenue for these arrangements is classified as license revenue and services revenue based upon estimates of fair value of each
element, and the revenue is recognized based on the percentage-of-completion ratio for the arrangement. Recognized revenue is subject to revisions as
the engagement progresses to completion. Revisions in estimates or estimated losses on engagements are made in the period in which the loss becomes
probable and can be reasonably estimated. Considerable judgment, such as the scope of work and reliance on the customer or other vendors to fulfill
some tasks, may be required in determining estimates to complete an engagement. If we were to make different judgments or utilize different estimates
of the total amount of work required to complete the engagement, the timing of our revenue recognition from period to period, as well as the related
margins, might differ substantially from that previously estimated or reported. We consider a project completed at the go-live date. When we sell
additional licenses, we recognize revenue after the go-live date if the products or seats have been delivered and no remaining obligations
exist.




We license rights to use our intellectual property
portfolio, whereby licensees, particularly OEMs, typically pay a non-refundable license fee in one or more installments and on-going royalties based on
their sales of products incorporating our intellectual property. Revenue from OEMs under minimum guaranteed royalty arrangements, which are not subject
to future obligations, is recognized when such royalties are earned and become payable. Royalty revenue is recognized as earned when reasonable
estimates of such amounts can be made. Royalty revenue that is subject to future obligations is recognized when such obligations are fulfilled. Royalty
revenue that exceeds minimum guarantees is recognized in the period earned. If we were to assess the collectibility of royalties differently or make
different judgments or utilize different estimates, the timing and amount of our revenue recognition might differ substantially from previously
estimated or reported.


| |  | Channel inventory and product returns.
|- |  | --------------------------------------



The primary sales channel into which we sell our
retail products is a network of distributors and value-added resellers in North America, Europe, Asia Pacific, South America and Africa. Agreements
with our distributors and resellers contain specific product return privileges for stock rotation and obsolete products that are generally limited to
contractual amounts. Reserves for estimated future returns are provided for upon revenue recognition. Product returns are recorded as a reduction of
revenues. Accordingly, we have established a product returns reserve composed of 100% of product inventories held at our distribution partners, as well
as an estimated amount for returns from customers of our distributors and other resellers as a result of stock rotation and obsolete products, among
others.


36

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We evaluate our product returns reserve on a
quarterly basis. In estimating our product returns reserve, we evaluate the following factors:


| |  | our demand forecast by product in each of our principal
geographic markets, which is affected by our product release schedule, seasonal trends, and analyses developed by our internal sales and marketing
group;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | historical product returns and inventory levels on a product by
product basis;
|- |  | ------------------------------------------------------------------------------

| |  | current inventory levels and sell through data on a product by
product basis as reported to us by our major distributors worldwide on a monthly basis;
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | risk associated with recognizing revenue on individual
customers, based on facts and circumstances; and
|- |  | -------------------------------------------------------------------------------------------------------

| |  | general economic conditions.
|- |  | ----------------------------



In general, we would expect product returns to
increase following the announcement of new or upgraded versions of our products or in anticipation of such product announcements, as our distributors
and resellers seek to reduce their inventory levels of the prior version of a product in advance of receiving the new version. Similarly, we would
expect that product inventory held by our distributors and resellers would increase following the successful introduction of new or upgraded products,
as these resellers stock the new version in anticipation of demand. In assessing the appropriateness of product inventory levels held by our resellers
and the impact on potential product returns, we may limit sales to our distributors and resellers in order to maintain inventory levels deemed by
management to be appropriate. We generally estimate and provide product returns reserve based on anticipated level of returns and the criteria noted
above. Accordingly, actual product returns may differ from our estimates and may have a material adverse effect on our revenues and consolidated
results of operations in future periods due to factors including, but not limited to, market conditions and product release cycles.


| |  | Provision for doubtful accounts.
|- |  | --------------------------------



Our provision for doubtful accounts relates to
customer accounts receivable. The provision for doubtful accounts is an estimate prepared by management based on identification of the collectibility
of specific accounts and the overall condition of the receivable portfolios. We specifically analyze customer receivables, as well as analyze the aging
of our accounts receivable, historical bad debts, customer credits, customer concentrations, the financial condition of the customers and their
credit-worthiness, changes in payment terms, current economic trends, our historical write-off experience and other assumptions, when evaluating the
adequacy of the provision for doubtful accounts. If the financial condition of our customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required. Likewise, should we determine that we would be able to realize more of our receivables
in the future than previously estimated, an adjustment to the allowance would increase income in the period such determination was made. The provision
for doubtful accounts is reviewed on a quarterly basis and adjustments are recorded as deemed necessary.


| |  | Valuation of goodwill, other intangibles, investments and
other long-lived assets.
|- |  | ----------------------------------------------------------------------------------



We have accumulated over the years a significant
amount of goodwill, other intangible assets, long-term and other long-lived assets as a result of our investments and acquisitions.




Goodwill represents the excess of the purchase price
of acquired businesses over the fair value of the identifiable net assets acquired an is tested for impairment at least annually and written down only
when impaired. Identifiable intangible assets result from the application of the purchase method of accounting for our acquisitions. Our identifiable
intangible assets as of July 31, 2004, were composed of our unamortized developed and core technology, patents, trademark, customer base, covenant
not-to-compete, customer contracts and acquired workforce (not accounted as a business combination). Developed and core technology, patents and
customer base are amortized over the period of benefit, generally four to 10 years. Trademarks are amortized over the period of benefit of three years.
Covenants not-to-compete, customer contracts and acquired workforce are amortized over the period of benefit, ranging from nine months to two
years.


37

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The ongoing evaluation for impairment of certain
identifiable intangibles, investments and long-lived assets requires significant management estimation and judgment. We evaluate the carrying value of
these assets for impairment, when events and circumstances indicate that the carrying amount of the underlying asset may not be recoverable as defined
in the respective literature. In addition, SFAS No. 142, Goodwill and Other Intangible Assets, requires us to test goodwill annually
using a two-step process. The first step is to identify a potential impairment. The second step measures the amount of the impairment loss, if any.
Intangible assets with indefinite lives will be tested for impairment using a one-step process that compares the fair value to the carrying amount of
the asset. Changes in the manner of use of the acquired assets, changes in overall business strategy, negative industry or economic trends, and decline
in stock price and market capitalization may trigger an impairment review for certain intangibles. Poor operating results of underlying investments or
adverse changes in market conditions may result in losses or an inability to recover the carrying value of investments. Changes in market value of the
assets, physical changes and continuing operating or cash-flow losses associated with assets used to generate revenue may suggest problems of
recoverability for certain long-lived assets. Whenever the evaluation demonstrates that the carrying amount of an intangible, investment or any other
long-lived asset is not recoverable, an impairment charge may be required.




As of July 31, 2004, our goodwill amounted to
$65,288,000. The annual impairment review for goodwill was completed on July 31, 2004, and did not identify any impairment. As of July 31, 2004, other
intangibles amounted to $29,828,000, net of accumulated amortization. We expect to amortize approximately $8,386,000, $7,720,000, $6,777,000,
$3,354,000 and $3,591,000 of our other intangibles in fiscal 2005, 2006, 2007, 2008 and thereafter, respectively, based on our acquisitions completed
as of July 31, 2004. To the extent we do not generate sufficient cash flows to recover the net amount of our investment in goodwill, intangibles and
other long-lived assets recorded, the investment could be considered impaired and subject to earlier write-off.


| |  | In-Process Research and Development.
|- |  | ------------------------------------



We value tangible and intangible assets acquired
through our business acquisitions, including in-process research and development, or IPR&D, at fair value. We determine IPR&D through
established valuation techniques for various projects for the development of new products and technologies and expenses IPR&D when technical
feasibility is not reached. The value of IPR&D is determined using the income approach, which discounts expected future cash flows from projects
under development to their net present value. Each project is analyzed and estimates and judgments are made to determine the technological innovations
included; the utilization of core technology; the complexity, cost and time to complete development; any alternative future use or current
technological feasibility; and the stage of completion. During fiscal 2004, 2003 and 2002, we expensed approximately $3,667,000, $406,000 and zero,
respectively, in IPR&D charges primarily related to the various acquisitions we had because the technological feasibility of certain products under
development had not been established and no future alternative uses existed. If we acquire other companies with IPR&D in the future, we will value
the IPR&D through established valuation techniques and will incur future IPR&D charges if those products under development have not reached
technical feasibility.


| |  | Restructuring accruals.
|- |  | -----------------------



In recent years, we implemented several
cost-reduction plans as part of our continued effort to streamline our operations to properly size ongoing operating expenses. These plans resulted in
restructuring charges related to, among others, the consolidation of excess facilities. These charges relate to facilities and portions of facilities
we no longer utilize and either seek to terminate early or sublease. Lease termination costs for the abandoned facilities were estimated for the
remaining lease obligations and brokerage fees offset by estimated sublease income. Estimates related to sublease costs and income are based on
assumptions regarding the period required to locate and contract with suitable sub-lessees and sublease rates which can be achieved using market trend
information analyses provided by a commercial real estate brokerage retained by us. Each reporting period we review these estimates and to the extent
that these assumptions change due to continued negotiations with landlords or changes in the market, the ultimate restructuring expenses for these
abandoned facilities could vary by material amounts.


38

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| |  | Loss contingencies.
|- |  | -------------------



We are subject to the possibility of various loss
contingencies arising in the ordinary course of business. We consider the likelihood of the incurrence of a liability as well as our ability to
estimate reasonably the amount of loss in determining loss contingencies. An estimated loss contingency is accrued in accordance with SFAS No. 5,
Accounting for Contingencies. SFAS No. 5 requires that we record an estimated loss from a loss contingency when information
available prior to the issuance of our financial statements indicates that it is probable that a liability has been incurred on the date of the
financial statements and the amount of the loss can be reasonably estimated. Accounting for contingencies such as legal matters requires us to use our
judgment. While we believe that our accruals for such matters are adequate, if the actual loss from a loss contingency is significantly different than
the estimated loss, our results of operations may be overstated or understated. We regularly evaluate current information available to us to determine
whether such accruals should be adjusted.


39

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Results of Operations



The following table sets forth items included in the
consolidated statements of operations (Part IV of this Annual Report on Form 10-K) as a percentage of revenue for the periods
indicated.







|                                               |  |  |  | Years Ended July 31, |      
|---------------------------------------------- |  |  |  | -------------------- | -----
|
|Revenue:                                       |  |  |  |                      |      
|License                                        |  |  |  |                      | 66.9 
|Services                                       |  |  |  |                      | 33.1 
|Total
revenue                                  |  |  |  |                      | 100.0
|Cost of
revenue:                               |  |  |  |                      |      
|Cost of
license revenue                        |  |  |  |                      | 4.9  
|Cost of
services revenue                       |  |  |  |                      | 14.0 
|Amortization
of developed and core technology  |  |  |  |                      | 6.4  
|Total cost of
revenue                          |  |  |  |                      | 25.3 
|Gross
profit                                   |  |  |  |                      | 74.7 
|Operating
expenses:                            |  |  |  |                      |      
|Research and
development                       |  |  |  |                      | 27.1 
|Sales and
marketing                            |  |  |  |                      | 39.1 
|General and
administrative                     |  |  |  |                      | 18.0 
|In-process
research and development            |  |  |  |                      | 8.7  
|Amortization
of goodwill                       |  |  |  |                      |     
|Amortization
of other intangible assets        |  |  |  |                      | 4.6  
|Restructuring
and other charges                |  |  |  |                      | 2.2  
|Impairment of
assets                           |  |  |  |                      |     
|Total
operating expenses                       |  |  |  |                      | 99.7 
|Operating
loss                                 |  |  |  |                      | (25.0
|Other income
(expense)                         |  |  |  |                      |      
|Interest
income                                |  |  |  |                      | 1.5  
|Interest
expense                               |  |  |  |                      | (0.6 
|Litigation
settlement gain, net                |  |  |  |                      | 3.7  
|Other,
net                                     |  |  |  |                      | (0.8 
|Other-than-temporary impairment of investments |  |  |  |                      |     
|Total other
income (expense)                   |  |  |  |                      | 3.8  
|Loss before
income taxes                       |  |  |  |                      | (21.2
|Provision for
income taxes                     |  |  |  |                      | (1.1 
|Net
loss                                       |  |  |  |                      | (22.3

Fiscal Year Ended July 31, 2004 as Compared to Fiscal Year Ended July 31,
2003

Revenue






|              |  |  |  | Year Ended July 31, |       
|------------- |  |  |  | ------------------- | ------
|
|
|Total
revenue |  |  |  | $                   | 42,308



We derive revenue from two primary sources: software
licenses and fees for services. Our fourth quarter of fiscal 2004 reflected our seventh consecutive quarter of increase in revenue, primarily due from
revenue contributions of Intellisync Mobile Suite, professional service and SSA products and technology, reflected in the


40

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growth in the number of our technology licensing partners. These increases are
largely the result of our recent acquisitions and, we believe, of increase in sales and marketing efforts, both domestically and internationally, and
our emphasis on enhancing our product offerings. During the second half of fiscal 2004, our Intellisync Mobile Suite, Intellisync Handheld Edition, and
Intellisync Phone Edition platforms have each added support for many new wireless devices or smartphones, the market for which we believe has
experienced growth recently. We plan to continue to add wireless device support to our wide array of supported wired devices.



While the market for smartphones and other wireless
mobile devices has been growing recently, the market for wired or traditional personal digital assistants, or PDAs, has continued to face challenges.
The overall decline in traditional PDA sales has had a direct impact on sales of our Intellisync products through the consumer and online channels,
where sales of our synchronization software typically occur at the same time a PDA is purchased, or shortly thereafter. Due to this decline, our retail
revenue has not increased as we would have liked during fiscal 2004.




As we look ahead to fiscal 2005, we are planning for
further sequential growth in our quarterly revenue made possible by our new enterprise and technology licensing partners and further contributions from
Intellisync Mobile Suite and identity system products. Our acquisitions of Synchrologic and SSA have strengthened and, we expect, to continue to
strengthen our presence in Europe and Asia-Pacific.




Our acquisition of Starfish and asset purchase of
Loudfire in fiscal 2003, as well as our recent acquisitions of Spontaneous Technology, Synchrologic and SSA in fiscal 2004 have provided and are
expected to further provide us with access to new technology capabilities, potential access to new markets and customers and other revenue-generation
opportunities. We expect revenue benefits over time through synergies in technology, product development and operations. Our recent acquisitions
already have made positive contributions to revenue for fiscal 2004. We believe that new and existing products based upon the technologies from
Starfish, Spontaneous Technology, Synchrologic and SSA will continue to have a positive impact on revenues, provide operational benefits and improve
our bottom line in fiscal 2005.


| |  | License Revenue
|- |  | ---------------

|                               |  |  |  | Year Ended July 31, |       
|------------------------------ |  |  |  | ------------------- | ------
|
|
|License
revenue                |  |  |  | $                   | 28,292
|As percentage
of total revenue |  |  |  |                     | 66.9  



License revenue is earned from the sale and use of
software products (including our technology licensing components) and royalty agreements with OEMs. The increase in absolute license revenue for fiscal
2004 as compared with that for fiscal 2003 reflected an increase of $4,726,000 in revenue from technology licensing components and an increase of
$4,397,000 in revenue from enterprise. A significant portion of the increase in our license revenue for fiscal 2004 was contributed by Synchrologic and
SSA. The increase in license revenue was also due to greater demand, as compared with the preceding fiscal year, for certain of our customers
products in which our technology is embedded. The increase in our customers sales provided us with increased royalty proceeds. As a percentage of
total revenue, license revenue decreased due to significant increase in our revenue from professional services as described below, as well as the
general impact of the decline in wired or traditional PDA sales to our retail revenue.


| |  | Services revenue
|- |  | ----------------






|                               |  |  |  | Year Ended July 31, |       
|------------------------------ |  |  |  | ------------------- | ------
|
|
|Services
revenue               |  |  |  | $                   | 14,016
|As percentage
of total revenue |  |  |  |                     | 33.1  



Services revenue is derived from fees for services,
including fixed-price and time-and-materials professional services arrangements and amortization of maintenance contract programs. The increase
in


41

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services revenue for fiscal 2004 as compared with that for fiscal 2003 resulted
from an increase of $4,525,000 in professional service revenue associated with our technology licensing partners. The increase in professional service
revenue was attributable to new customer contracts primarily associated with our recent acquisitions and increased sales effort. The increase in
services revenue was also due to approximately $3,500,000 increase in amortization of our maintenance contract programs relating to increase in license
revenue and a greater focus on renewals. In any period, services revenue from time and materials contracts is dependent, among other things, on license
transactions closed during the current and preceding quarters and customer decisions regarding implementations of licensed software.



Enterprise and Retail
Products


|                                       |  |  |  | Year Ended July 31, |       
|-------------------------------------- |  |  |  | ------------------- | ------
|
|
|Enterprise
and retail products revenue |  |  |  | $                   | 22,764
|As percentage
of total revenue         |  |  |  |                     | 53.8  



Our enterprise and retail products revenue includes
sales to retail distribution channels, as well as direct sales of our personal and server products licensed to corporations for internal use.
Enterprise and retail products include Intellisync Handheld Edition, Intellisync Handheld Edition for Enterprise (formerly Enterprise Intellisync),
Intellisync Phone Edition, Intellisync Mobile Suite (formerly Synchrologic Mobile Suite), and SSAs Identity Systems, as well as related support
and maintenance. Enterprise sales frequently involve large up-front license fees, which can result in lengthy sales cycles and uncertainties as to the
timing of sales driven by customers budgetary processes. As a result, we generally have less visibility into future enterprise sales than is
typically the case in our royalty-based technology licensing business. In addition, while enterprise sales generally result in ongoing maintenance
revenues and may lead to follow-on purchases or upgrades, we are typically dependent on sales to new customers for the significant portion of our
enterprise revenues in a given quarter.




The increase in enterprise and retail products
revenue for fiscal 2004 resulted from contributions of $7,951,000 from SSA and Synchrologic products, an increase of $3,500,000 in revenue from
amortization of support and maintenance, and an increase of $790,000 in retail sales of our Intellisync software. This increase for fiscal 2004 was
slightly offset by a $2,374,000 decrease in revenue from Intellisync Handheld Edition for Enterprise. Less emphasis on marketing of Intellisync
Handheld Edition for Enterprise and Intellisync MobileApp Designer, and more on the transition of our enterprise server offering to Intellisync Mobile
Suite, during fiscal 2004 contributed to the decrease in revenue from Intellisync Handheld Edition for Enterprise and Intellisync MobileApp Designer.
We expect revenue in absolute dollars from enterprise and retail products, particularly enterprise, to further improve in the following few quarters
which we believe will be driven by contributions from Intellisync Mobile Suite acquired from Synchrologic and Identity Systems acquired from SSA. In
addition, we expect revenue from this support for wireless devices to offset the impact of the lower wired or traditional PDA sales on our retail
revenue which would otherwise decline.




Technology Licensing
Components


|                                        |  |  |  | Year Ended July 31, |       
|--------------------------------------- |  |  |  | ------------------- | ------
|
|
|Technology
licensing components revenue |  |  |  | $                   | 19,544
|As percentage
of total revenue          |  |  |  |                     | 46.2  



Technology licensing components include various
licensed technology platforms, including Intellisync Software Development Platform, Intellisync for the Web, Intellisync SyncML Server (formerly
TrueSync), Intellisync Server-to-Server, professional services, non-recurring engineering services and related maintenance contract programs. The
increase in technology licensing revenue for fiscal 2004 as compared with that for fiscal 2003 resulted from an increase of $4,726,000 in Intellisync
Software Development Platform revenue, an increase of $2,855,000 in professional services and hosting services revenue. The decrease in technology
licensing revenue for fiscal 2004 as a percentage of revenue was due to a larger increase in revenue from enterprise and retail
products.


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We expect revenue from technology licensing components for the first quarter of
fiscal 2005 to equal or exceed levels reached in the most recent quarters of fiscal 2004.



International Revenue


|                               |  |  |  | Year Ended July 31, |       
|------------------------------ |  |  |  | ------------------- | ------
|
|
|International
revenue          |  |  |  | $                   | 13,992
|As percentage
of total revenue |  |  |  |                     | 33.1  



International revenue continues to represent a
significant portion of our revenue. The year-over-year increase in our international revenues accounted for 29% of our total revenue increase for
fiscal 2004. The increase in our professional services revenue and the number of our international technology licensing partners, particularly in
Japan, resulted in an increase in our international revenue in absolute dollars during fiscal 2004. The slight decrease in international revenue as a
percentage of total revenue for fiscal 2004, on the other hand, is primarily due to increased revenue from our newer offerings in the United States. We
expect our recent acquisitions of Synchrologic and SSA will further strengthen our presence in Asia-Pacific, as well as Europe. We believe, however,
that international revenue will fluctuate on a quarter to quarter basis as we periodically enter into new agreements for professional services and new
international partner contracts for technology licensing. International revenue may be subject to certain risks not normally encountered in operations
in the United States, including exposure to tariffs, various trade regulations, fluctuations in currency exchange rates, as well as international
software piracy as described more fully in Risk Factors set forth above. We believe that continued growth would require further
expansion in international markets. We have utilized, and may continue to utilize substantial resources both to expand and establish international
operations in the future.




Top Customers




No customers accounted for more than 10% of our
total revenue for fiscal 2004. Products sold through Ingram Micro US, a distributor, accounted for less than 10% of our total revenue for fiscal 2004
and 10% of our total revenue for fiscal 2003. No other customers accounted for more than 10% of total revenue during fiscal 2003.


Cost of Revenue

|                               |  |  |  | Year Ended July 31, |       
|------------------------------ |  |  |  | ------------------- | ------
|
|
|Total cost of
revenue          |  |  |  | $                   | 10,701
|As percentage
of total revenue |  |  |  |                     | 25.3  



Cost of revenue consists of license costs, service
costs and the amortization of developed and core technology. License costs comprise product-packaging expenses such as product media and duplication,
manuals, packing supplies, and shipping costs. Service costs comprise personnel-related expenses such as salaries and other related costs associated
with work performed under professional service contracts, non-recurring engineering agreements, post-sales customer support costs and hosting costs for
hosting services associated with technology licensing partners and end users. Hosting costs include expenses related to bandwidth for hosting, tape
backup, security and storage, third-party fees and internal personnel costs associated with logistics and operational support of the hosting services.
Service costs can be expected to vary significantly from period to period depending on the mix of services we provide.




In general, license revenue costs represent a
smaller percentage of license revenue when compared with services revenue costs as a percentage of services revenue; this is due to the high cost
structure of services revenue. Additionally, license costs tend to be variable based on license revenue volumes, whereas service costs tend to be fixed
within certain services revenue volume ranges. We would expect that an increase in services revenue as a percentage of our total revenue would generate
lower overall gross margins as a percentage of total revenue. Also,


43

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given the high level of fixed costs associated with the professional services group
and our hosting operations, our inability to generate revenue sufficient to absorb these fixed costs could lead to low or negative service gross
margins.

| |  | Cost of License Revenue
|- |  | -----------------------

|                                 |  |  |  | Year Ended July 31, |      
|-------------------------------- |  |  |  | ------------------- | -----
|
|
|Cost of
license revenue          |  |  |  | $                   | 2,059
|As percentage
of license revenue |  |  |  |                     | 7.3  



The increase in cost of license revenue in fiscal
2004 resulted from the increase in overall revenue from enterprise and retail products, much of which was brought about by the assimilation of products
from our newly acquired subsidiaries. The cost of cables associated with our Intellisync Phone Edition product also contributed to an increase in our
cost of license revenue.


| |  | Cost of Services Revenue
|- |  | ------------------------

|                                  |  |  |  | Year Ended July 31, |      
|--------------------------------- |  |  |  | ------------------- | -----
|
|
|Cost of
services revenue          |  |  |  | $                   | 5,949
|As percentage
of services revenue |  |  |  |                     | 42.4 



The increase in cost of services revenue in absolute
dollars reflected the increase in professional services costs as a result of the Starfish acquisition in the second half of fiscal 2003 and Spontaneous
Technology, Synchrologic and SSA in the first three quarters of fiscal 2004. The decrease in cost of services revenue as a percentage of services
revenue was due to low-cost maintenance contracts acquired as part of our acquisitions particularly of SSA.




We expect our cost of revenue, exclusive of stock
compensation charges and amortization of purchased technology, in the next quarter to increase slightly relative to that of the fourth quarter of
fiscal 2004 due in part to the impact of further increase in our total revenue and additional costs in support of our hosting revenue. In future periods, cost of revenue may further fluctuate from quarter to quarter due to potential changes in the infrastructure and other requirements of our hosting operations to meet carriers demand. These changes, which may be costly, are difficult to forecast. In addition, our
cost of revenue is primarily driven by our expectation for different margin characteristics within and between license and services revenues as well as
the expected mix between products and channels.


| |  | Amortization of Developed and Core Technology
|- |  | ---------------------------------------------

|                                              |  |  |  | Year Ended July 31, |      
|--------------------------------------------- |  |  |  | ------------------- | -----
|
|
|Amortization
of developed and core technology |  |  |  | $                   | 2,693
|As percentage
of total revenue                |  |  |  |                     | 6.4  



Developed and core technology amounted to
$15,867,000 and $1,920,000, net of accumulated amortization, as of July 31, 2004 and 2003, respectively. We continue to amortize other intangible
assets, review such assets for impairment under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
reassess their useful lives and make any necessary adjustments.




Amortization of purchased technology is computed
over the estimated useful lives of the respective assets, generally four to seven years. The increase in the amortization of developed and core
technology for fiscal 2004 was primarily due to the impact of recently developed and core technology from Starfish, Loudfire,


44

---

Spontaneous
Technology,  Synchrologic and SSA. Based on acquisitions completed as of July 31, 2004,
we expect the future amortization expense of developed and core technology  is as follows
(in thousands):

|Fiscal year
ending July 31, |  |  |  |   |        | 
|--------------------------- |  |  |  | - | ------ | 
|2005                        |  |  |  | $ | 4,480  | 
|2006                        |  |  |  |   | 4,257  | 
|2007                        |  |  |  |   | 4,055  | 
|2008                        |  |  |  |   | 1,866  | 
|2009                        |  |  |  |   | 616    | 
|Thereafter                  |  |  |  |   | 593    | 
|                            |  |  |  | $ | 15,867 | 



We expect that we may acquire additional developed
and core technology in connection with any acquisitions we may complete in the future. As a result, we may further increase our amortization expense of
developed and core technology.


Research and Development

|                               |  |  |  | Year Ended July 31, |       
|------------------------------ |  |  |  | ------------------- | ------
|
|
|Research and
development       |  |  |  | $                   | 11,467
|As percentage
of total revenue |  |  |  |                     | 27.1  



Research and development expenses consist primarily
of salaries and other related costs for research and development personnel, quality assurance personnel, product localization, fees to outside
contractors and the cost of facilities and depreciation of capital equipment. We invest in research and development both for new products and to
provide continuing enhancements to existing products. Our engineering group is currently aiming their efforts at expanding focus from cabled
synchronization to synchronization for wireless handhelds, smartphones, laptops and tablets, at extending our core synchronization technology to
increase scalability and extensibility, and at supporting next generation wireless technology and device platforms. The increase in research and
development spending in absolute dollars was due to acquired workforce of approximately 71 engineers from the acquisition of Spontaneous Technology,
Synchrologic and SSA during the first three quarters of fiscal 2004. The decrease in research and development spending as a percentage of revenue for
fiscal 2004 resulted from an increase in our total revenue.


Sales and Marketing

|                               |  |  |  | Year Ended July 31, |       
|------------------------------ |  |  |  | ------------------- | ------
|
|
|Sales and
marketing            |  |  |  | $                   | 16,540
|As percentage
of total revenue |  |  |  |                     | 39.1  



Sales and marketing expenses consist primarily of
salaries, commissions, promotional expenses and other costs relating to sales and marketing employees, as well as to technical support personnel
associated with pre-sales activities such as building brand awareness, performing product and technical presentations and answering customers
product and service inquiries. Sales and marketing expenses increased year-over-year in absolute dollars as a result of establishing strategic
relationships with our existing and prospective enterprise customers, as well as increase in sales commissions and increase in marketing program
spending to support increased revenue activities driven by our recent acquisitions. We have also acquired 22 new sales and marketing employees from
Synchrologic during the second quarter of fiscal 2004 and 11 from SSA. Sales and marketing expenses decreased as a percentage of revenue due to an
increase in our total revenue. We intend to
increase awareness and market presence of our


45

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existing and new products, services or
technology over time,  which may require us to substantially increase the amount we spend
on sales and marketing in future periods. We expect that these expenses will  continue to
increase as we grow.

General and Administrative

|                               |  |  |  | Year Ended July 31, |      
|------------------------------ |  |  |  | ------------------- | -----
|
|
|General and
administrative     |  |  |  | $                   | 7,639
|As percentage
of total revenue |  |  |  |                     | 18.0 



General and administrative expenses consist
primarily of salaries and other costs relating to administrative, executive and financial personnel and outside professional fees. The major factors
for the increase in general and administrative spending in absolute dollars for fiscal 2004 include an increase of $1,040,000 in outside services
brought about primarily by legal costs associated with our patent infringement lawsuits and an increase in accounting costs. Also a major factor for an
increase in general and administrative expenses was personnel-related costs of $271,000 as a result primarily of recent acquisitions of Synchrologic
and SSA. General and administrative expenses decreased as a percentage of revenue due to an increase in our total revenue.




Depending on the degree of the fluctuation of our
stock price in the future, we may incur a significant variable accounting charge or a recovery of charges from prior quarters associated with certain
employee stock options. The charge or the recovery may increase or decrease our total general and administrative costs in the next few quarters. The
charge or the recovery may also further increase or offset our expected total cost of revenue, research and development and sales and marketing costs
in the near future.


In-Process Research and Development

|                                    |  |  |  | Year Ended July 31, |      
|----------------------------------- |  |  |  | ------------------- | -----
|
|
|In-process
research and development |  |  |  | $                   | 3,667
|As percentage
of total revenue      |  |  |  |                     | 8.7  



The purchase price of each of our recent
acquisitions (Spontaneous Technology, Synchrologic, and SSA) was assigned to the fair value of the assets acquired, including the in-process research
and development. As of the respective acquisition date, technological feasibility of the in-process technology had not been established and the
technology had no alternative future use. Accordingly, we expensed the in-process research and development of $469,000, $2,423,000, and $775,000 at the
date of the acquisition of Spontaneous Technology, Synchrologic and SSA, respectively.




The amount of the purchase price allocated to
in-process research and technology was based on established valuation techniques used in the high-technology software industry. The fair value assigned
to the acquired in-process research and development was determined using the income approach, which discounts expected future cash flows to present
value. The key assumptions used in the valuation include, among others, expected completion date of the in-process projects identified as of the
acquisition date, estimated costs to complete the projects, revenue contributions and expense projections assuming the resulting product has entered
the market, and discount rate based on the risks associated with the development life cycle of the in-process technology acquired. The discount rate
used in the present value calculations is normally obtained from a weighted-average cost of capital analysis, adjusted upward to account for the
inherent uncertainties surrounding the successful development of the in-process research and development, the expected profitability levels of such
technology, and the uncertainty of technological advances that could potentially impact the estimates. We assume the pricing model for the resulting
product of the acquired in process research and technology to be standard within its industry. We, however, did not take into consideration any
consequential amount of expense reductions from integrating the acquired in-process technology with other existing in-process or completed technology.
Therefore, the valuation assumptions do not include significant anticipated cost savings.


46

---



The key assumptions underlying the valuation of
acquired in-process research and development from are as follows (in thousands):




Spontaneous Technology


Project
names:  Version upgrade of Spontaneous Technologys secure Virtual  Private Network,
or  sVPN Percent completed as of acquisition date: 60%
Estimated costs to complete technology at acquisition date: $125,000Risk-adjusted discount rate: 22%First period expected revenue: calendar year 2004



Synchrologic


Project
names:  Version upgrade of Data Sync, File Sync, E-mail accelerator and  Systems
Management products Percent completed as of acquisition date:  60%70% Estimated
costs to complete technology at  acquisition date: $3,000,000  Risk-adjusted discount
rate: 22%  First period expected revenue: calendar year  2004



Search
Software America


Project names:  SSA-NAME3 Version 3.0 and  IDS Version 3.0
Percent completed as of acquisition date:  10%  Estimated costs to complete technology at
acquisition date: $600,000  Risk-adjusted discount rate: 25%  First period expected
revenue: June  2005



The development of above technology remains highly
dependent on the remaining efforts to achieve technical viability, rapidly changing customer markets, uncertain standards for a new product, and
significant competitive threats from several companies. The nature of the efforts to develop this technology into a commercially viable product
consists primarily of planning, designing, experimenting, and testing activities necessary to determine that the technology can meet market
expectations, including functionality and technical requirements. Failure to bring the product to market in a timely manner could result in a loss of
market share or a lost opportunity to capitalize on emerging markets, and could have a material adverse impact on our business and operating
results.




Subsequent to the acquisition of Spontaneous
Technology, Synchrologic, and SSA, there have been no significant developments related to the current status of the acquired in-process research and
development projects that would result in material changes to the assumptions.




In the third quarter of fiscal 2003 we recorded a
charge of $406,000 for in-process research and development associated with the acquisition of Starfish. For details on Starfish in-process research and
development charge, refer to the discussion under the caption Fiscal Year Ended July 31, 2003 as Compared to Fiscal Year Ended July 31,
2002 set forth below.




If all the above in-process research and development
projects are not successfully developed, our future revenues and profitability may be adversely affected. Failure to achieve the expected levels of
revenue and net income from these products will negatively impact the return on investment expected at the time that the acquisitions were completed
and may result in impairment charges. Additionally, the value of other intangible assets acquired may become impaired.


Amortization of Other Intangible Assets

|                                        |  |  |  | Year Ended July 31, |      
|--------------------------------------- |  |  |  | ------------------- | -----
|
|
|Amortization
of other intangible assets |  |  |  | $                   | 1,959
|As percentage
of total revenue          |  |  |  |                     | 4.6  

47

---



Other intangible assets, excluding developed and
core technology, amounted to $13,961,000 and $814,000, net of accumulated amortization, as of July 31, 2004 and 2003, respectively. We continue to
amortize other intangible assets, review such assets for impairment under SFAS No. 144, reassess their useful lives and make any necessary
adjustments.




Amortization of other intangible assets is computed
over the estimated useful lives of the respective assets, generally nine months to seven years. The increase in the amortization of other intangible
assets in fiscal 2004 was primarily due to the impact of recently acquired intangibles from Starfish, Loudfire, Spontaneous Technology, Synchrologic
and SSA. Based on acquisitions completed as of July 31, 2004, we expect the future amortization expense of other intangible assets is as follows (in
thousands):


|Fiscal year
ending July 31, |  |  |  |   |        | 
|--------------------------- |  |  |  | - | ------ | 
|2005                        |  |  |  | $ | 3,906  | 
|2006                        |  |  |  |   | 3,463  | 
|2007                        |  |  |  |   | 2,722  | 
|2008                        |  |  |  |   | 1,488  | 
|2009                        |  |  |  |   | 746    | 
|Thereafter                  |  |  |  |   | 1,636  | 
|                            |  |  |  | $ | 13,961 | 



We expect that we may acquire additional intangible
assets associated with any acquisitions we may complete in the future. As a result, we may further increase our amortization expense of other
intangible assets.


Restructuring and Other Charges

|                                       |  |  |  | Year Ended July 31, |    
|-------------------------------------- |  |  |  | ------------------- | ---
|
|
|Restructuring
charges:                 |  |  |  |                     |    
|Severance
costs                        |  |  |  | $                   | 253
|Facilities
costs                       |  |  |  |                     | 600
|Restructuring
charges                  |  |  |  |                     | 853
|Other
charges:                         |  |  |  |                     |    
|Costs
relating to a ceased acquisition |  |  |  |                     | 76 
|Restructuring
and other charges        |  |  |  | $                   | 929
|As percentage
of total revenue         |  |  |  |                     | 2.2

| |  | Restructuring Charges and Accrual. During fiscal 2004 and
2003, we implemented a number of cost-reduction plans aimed at reducing costs that were not integral to our overall strategy and better aligning our
expense levels with current revenue levels. These initiatives included a reduction in workforce and facilities consolidation.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During the third quarter of fiscal 2004, we
implemented a reduction in workforce affecting 17 employees in various business functions (nine in research and development and eight in sales and
marketing). The program was completed by the end of April 2004, and the associated severance costs incurred were approximately $253,000, none of which
remained unused as of July 31, 2004.




During the second quarter of fiscal 2004, as a
result of vacating our remaining office space in Santa Cruz, California and the difficulties in subletting such facility because of the continuing
deterioration of the real estate market in this location, we determined that additional charges were needed for adjustments in our expected future
sublease rates and brokerage fees. We therefore recorded total facilities costs of $600,000, inclusive of the costs of $250,000 for vacating a floor of
our office facility in San Jose, California.




In fiscal 2003, we incurred approximately $257,000
for severance and separation costs relating to recent termination of 19 of our engineering and product management employees. We also incurred a charge
of


48

---

| | approximately
$159,000 for a revised estimated lease exit cost due to additional  time required to
sublease the facilities. This revision was attributable to the high vacancy rates in the
corporate real estate market in Northern  California.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Inherent in the estimation of the costs related to
our restructuring efforts are assessments related to the most likely expected outcome of the significant actions to accomplish the restructuring. In
determining the excess facilities exit costs, we were required to estimate future sublease income, negotiated lease settlement costs, future net
operating expenses of the facilities, and brokerage commissions, among other expenses. These estimates, along with other estimates made by management
in connection with restructuring, may vary significantly depending, in part, on factors that may be beyond our control. Specifically, these estimates
will depend on our success in negotiating with lessors, the time periods required to locate and contract suitable subleases and the market rates at the
time of such subleases. Adjustments to the reserve for the consolidation of excess facilities will be required if actual lease exit costs or sublease
income differ from amounts currently expected.




The following table sets forth the activities in the
restructuring accrual account for the periods presented (in thousands):


|                         |  |  |  | Workforce Reduction |      | Consolidation of Excess Facilities |  | Total
|------------------------ |  |  |  | ------------------- | ---- | ---------------------------------- |  | -----
|Balance at
July 31, 2002 |  |  |  | $                   | 43   |                                    |  | $    
|Restructuring
provision  |  |  |  |                     | 257  |                                    |  |      
|Adjustment               |  |  |  |                     |     |                                    |  |      
|Cash
payments            |  |  |  |                     | (300 | )                                  |  |      
|Balance at
July 31, 2003 |  |  |  | $                   |     |                                    |  | $    
|Restructuring
provision  |  |  |  |                     | 253  |                                    |  |      
|Adjustment               |  |  |  |                     |     |                                    |  |      
|Cash
payments            |  |  |  |                     | (253 | )                                  |  |      
|Balance at
July 31, 2004 |  |  |  | $                   |     |                                    |  | $    



The remaining unpaid amount as of July 31, 2004 of
$1,080,000 related to the net lease expense due to the consolidation of excess facilities, will be paid over the respective lease terms through June
2006 using cash from operations.




The current and long-term portions of the
restructuring accrual of $820,000 and $260,000 are classified as Accrued Liabilities and Other Liabilities, respectively, in
the consolidated balance sheet as of July 31, 2004.




We continually evaluate the balance of the
restructuring reserve we recorded in prior periods based on the remaining estimated amounts to be paid. Differences, if any, between the estimated
amounts accrued and the actual amounts paid will be reflected in operating expenses in future periods.




We believe that the above restructurings have
contributed towards the improvement in our gross and operating income during fiscal 2003 and 2004. We expect the cost savings, particularly in
facility-related costs, brought about by these restructurings to continue for fiscal 2005. Future savings are anticipated to include approximately
$1,900,000, primarily in operating expenses each year for the next few years from our fiscal 2004 workforce reduction and $700,000 and $250,000 in
fiscal 2005 and 2006, respectively, in facility-related expenditures.


| |  | Costs Relating To Ceased Acquisition. During fiscal 2004
and 2003, we incurred residual costs of approximately $76,000 and $379,000 for operating expenses, mainly legal and accounting, relating to an
acquisition that we ceased pursuing.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

49

---

Interest Income

|                               |  |  |  | Year Ended July 31, |    
|------------------------------ |  |  |  | ------------------- | ---
|
|
|Interest
income                |  |  |  | $                   | 620
|As percentage
of total revenue |  |  |  |                     | 1.5



Interest income represents interest earned on cash
and short-term investments and realized gains on miscellaneous investments. The decrease in net interest income for fiscal 2004 was due to lower rate
of interest on reduced balances of cash and investments, particularly during the first two quarters of fiscal 2004.


Interest Expense

|                               |  |  |  | Year Ended July 31, |     
|------------------------------ |  |  |  | ------------------- | ----
|
|
|Interest
expense               |  |  |  | $                   | (249
|As percentage
of total revenue |  |  |  |                     | (0.6



Interest expense for fiscal 2004 reflects interest
charge associated with the convertible senior notes we issued in March 2004.


Litigation Settlement Gain, Net

|                                |  |  |  | Year Ended July 31, |      
|------------------------------- |  |  |  | ------------------- | -----
|
|
|Litigation
settlement gain, net |  |  |  | $                   | 1,576
|As percentage
of total revenue  |  |  |  |                     | 3.7  



The gain of $1,576,000, net of $424,000 related
expenses incurred, in the third quarter of fiscal 2004 resulted from the settlement of litigation against Extended Systems.


Other, Net

|                               |  |  |  | Year Ended July 31, |     
|------------------------------ |  |  |  | ------------------- | ----
|
|
|Other,
net                     |  |  |  | $                   | (327
|As percentage
of total revenue |  |  |  |                     | (0.8



Other, net, represents miscellaneous bank fees and
charges, realized gain or loss on foreign exchange and investments and amortization of debt issuance costs. Other, net, for fiscal 2004 reflects
$242,000 of debt issuance costs amortization expense associated with the convertible senior notes we issued in March 2004 and $87,000 of bank charges
and investment management fees, net realized gain on foreign exchange and other expenses. Other, net for fiscal 2003 reflects mainly bank charges and
investment management fees.


Other-Than-Temporary Impairment of Investments

|                                               |  |  |  | Year Ended July 31, |   
|---------------------------------------------- |  |  |  | ------------------- | --
|
|
|Other-than-temporary impairment of investments |  |  |  | $                   |  
|As percentage
of total revenue                 |  |  |  |                     | %

50

---



During fiscal 2003, we disposed our limited
partnership interest in Azure Venture Partners, LLP, a venture capital fund. The disposal of the interest allowed us to avoid commitments for further
investments in equity instruments of various privately-held companies made through Azure, many of which had not generated adequate returns. In
addition, the disposal was in line with our strategy of focusing resources and efforts more on our core operations. Consequently, we recorded an
other-than-temporary impairment charge of $2,394,000. Total proceeds of $75,000 from the sale of the interest were received in May 2003, which
approximated the carrying value of the investment after the writedown.


Provision for Income Taxes

|                               |  |  |  | Year Ended July 31, |     
|------------------------------ |  |  |  | ------------------- | ----
|
|
|Provision for
income taxes     |  |  |  | $                   | (481
|As percentage
of total revenue |  |  |  |                     | (1.1



The provision for income taxes primarily represents
foreign withholding taxes on royalties earned from certain foreign customers and, to a lesser extent, state franchise and income taxes and estimated
taxes for foreign subsidiaries. The increase in the provision for income taxes for fiscal 2004 was due to increase in royalty revenue received from
international OEM customers, as well as accrued income and various taxes for our newly acquired foreign subsidiaries.


Fiscal Year Ended July 31, 2003 as Compared to Fiscal Year Ended July 31,
2002

Revenue

|              |  |  |  | Year Ended July 31, |       
|------------- |  |  |  | ------------------- | ------
|
|
|Total
revenue |  |  |  | $                   | 24,860



The revenue growth in fiscal 2003 was led by a 125%
or approximately $1,891,000 increase in revenue from professional services. This increase in revenue from professional services represents
approximately 33% of our services revenue for fiscal 2003.


| |  | License Revenue
|- |  | ---------------

|                               |  |  |  | Year Ended July 31, |       
|------------------------------ |  |  |  | ------------------- | ------
|
|
|License
revenue                |  |  |  | $                   | 19,169
|As percentage
of total revenue |  |  |  |                     | 77.1  



License revenue in fiscal 2003 remained flat at
$19,169,000 as compared with $19,167,000 in fiscal 2002 as the revenue increase from our enterprise and retail products and technology licensing
components of approximately $903,000 offset the decrease in our revenue from legacy personal computers or notebooks business (Intellisync for Notebooks
royalty revenue). Notebook revenue decreased to an insignificant amount in fiscal 2003 as we deemphasized the resources and efforts associated with
this revenue segment.


| |  | Services revenue
|- |  | ----------------

|                               |  |  |  | Year Ended July 31, |      
|------------------------------ |  |  |  | ------------------- | -----
|
|
|Services
revenue               |  |  |  | $                   | 5,691
|As percentage
of total revenue |  |  |  |                     | 22.9 

51

---



The 51% increase in services revenue in fiscal 2003
resulted from an increase in professional service revenue associated with our technology licensing partners of approximately $1,891,000, as well as an
increase in amortization of our maintenance contract programs of $328,000 triggered by our increased effort to renew maintenance agreements within the
existing customer base. Slightly over 50% of the increase in our services revenue was contributed by Starfish.




Enterprise and Retail
Products


|                                       |  |  |  | Year Ended July 31, |       
|-------------------------------------- |  |  |  | ------------------- | ------
|
|
|Enterprise
and retail products revenue |  |  |  | $                   | 12,897
|As percentage
of total revenue         |  |  |  |                     | 51.9  



The 6% growth in enterprise and retail products
revenue in fiscal 2003 resulted from an increase in revenue from amortization of support and maintenance, as well as the increase in revenue brought
about by the new version of our Intellisync software and Enterprise Intellisync Server launched during the year.




Technology Licensing
Components


|                                        |  |  |  | Year Ended July 31, |       
|--------------------------------------- |  |  |  | ------------------- | ------
|
|
|Technology
licensing components revenue |  |  |  | $                   | 11,963
|As percentage
of total revenue          |  |  |  |                     | 48.1  



The 11% increase in technology licensing revenue
resulted from an increase in professional service of approximately $1,891,000 and Intellisync Software Development Platform (formerly Intellisync SDK)
revenue of approximately $561,000, offset by a decrease in revenue from Intellisync for Notebooks royalties and the online hosting service
offerings.




International Revenue


|                               |  |  |  | Year Ended July 31, |      
|------------------------------ |  |  |  | ------------------- | -----
|
|
|International
revenue          |  |  |  | $                   | 8,883
|As percentage
of total revenue |  |  |  |                     | 35.7 



The year-over-year increase in our international
revenues accounted for 91% of our total revenue increase for fiscal 2003. The increase in our professional services revenue and the number of our
international technology licensing partners, particularly in Japan, resulted in an increase in our international revenue in fiscal
2003.




Top Customers




Products sold through Ingram Micro US, a
distributor, accounted for 10% and 17% of our total revenue for fiscal 2003 and 2002, respectively. No other customers accounted for more than 10% of
total revenue during those periods.


Cost of Revenue

|                               |  |  |  | Year Ended July 31, |      
|------------------------------ |  |  |  | ------------------- | -----
|
|
|Total cost of
revenue          |  |  |  | $                   | 4,722
|As percentage
of total revenue |  |  |  |                     | 19.0 

52

---

| |  | Cost of License Revenue
|- |  | -----------------------

|                                 |  |  |  | Year Ended July 31, |      
|-------------------------------- |  |  |  | ------------------- | -----
|
|
|Cost of
license revenue          |  |  |  | $                   | 1,182
|As percentage
of license revenue |  |  |  |                     | 6.2  



The moderate increase in cost of license revenue in
absolute dollars in fiscal 2003 resulted from the increase in overall revenue from enterprise and retail products.


| |  | Cost of Services Revenue
|- |  | ------------------------

|                                  |  |  |  | Year Ended July 31, |      
|--------------------------------- |  |  |  | ------------------- | -----
|
|
|Cost of
services revenue          |  |  |  | $                   | 2,912
|As percentage
of services revenue |  |  |  |                     | 51.2 



The decrease in cost of revenue in absolute dollars
and as a percentage of revenue for fiscal 2003 reflected cost savings in professional services resulting from contracting certain software development
activities to lower cost international development partners, as well as from the effect of workforce reductions we implemented in fiscal 2002 to our
personnel-related costs, more particularly at the beginning of the fiscal year. The decrease was also partly due to reduced online service costs
associated with the online service offerings discontinued in fiscal 2002. The decrease in cost of services revenue for fiscal 2003 was offset by the
$86,000 noncash variable accounting charge associated with certain outstanding stock options as a result of an increase in our stock
price.




Navisite Legal Contingency. During fiscal
2002, Navisite, Inc., a company that formerly provided certain Web site hosting and related services to us, alleged that we improperly terminated a
service agreement with and were thereby indebted to Navisite. We reached a settlement with Navisite and paid a total of $350,000, inclusive of fees for
the services previously provided, during fiscal 2003. The total amount of the settlement was not significantly different from the established loss
contingency reserve.


| |  | Amortization of Developed and Core Technology
|- |  | ---------------------------------------------

|                                              |  |  |  | Year Ended July 31, |    
|--------------------------------------------- |  |  |  | ------------------- | ---
|
|
|Amortization
of developed and core technology |  |  |  | $                   | 628
|As percentage
of total revenue                |  |  |  |                     | 2.5

| |  | Developed and core technology amounted to $1,920,000 and
$565,000, net of accumulated amortization, as of July 31, 2003 and 2002, respectively. The fully amortized purchased technology effected the decrease,
net of the effect of those newly acquired, in the amortization of developed and core technology in fiscal 2003.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Research and Development

|                               |  |  |  | Year Ended July 31, |      
|------------------------------ |  |  |  | ------------------- | -----
|
|
|Research and
development       |  |  |  | $                   | 7,389
|As percentage
of total revenue |  |  |  |                     | 29.7 



The decrease in research and development
spending in absolute dollars and as a percentage of revenue in fiscal 2003 was due to realization of benefits, particularly at the first part of fiscal
2003, from the workforce reduction and consolidation of engineering facilities, as well as elimination of online service operations, implemented in
the


53

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last two quarters of fiscal 2002. Our engineering workforce was reduced by 101
employees during fiscal 2002. The benefits, in turn, resulted in a decrease in personnel-related costs and other costs. The decrease was also due to
savings in overall engineering costs resulting from contracting engineering activities to lower cost international development partners.

Sales and Marketing

|                               |  |  |  | Year Ended July 31, |       
|------------------------------ |  |  |  | ------------------- | ------
|
|
|Sales and
marketing            |  |  |  | $                   | 11,468
|As percentage
of total revenue |  |  |  |                     | 46.1  



Sales and marketing expenses decreased in absolute
dollars and as a percentage of revenue in fiscal 2003 due to a $2,410,000 reduction in corporate marketing resources, corporate branding initiatives
and other related costs as a result of lower planned spending. Personnel-related costs also decreased by $1,654,000 as a result of headcount reductions
in the last two quarters of fiscal 2002. The decrease in personnel-related costs was offset by a $372,000 increase in bonus and commission as a result
of an increase in overall revenue.


General and Administrative

|                               |  |  |  | Year Ended July 31, |      
|------------------------------ |  |  |  | ------------------- | -----
|
|
|General and
administrative     |  |  |  | $                   | 5,793
|As percentage
of total revenue |  |  |  |                     | 23.3 



The major factors for the increase in general and
administrative spending in fiscal 2003 include an increase in our stock price that resulted in a significant increase of $1,198,000 in noncash variable
accounting charge for fiscal 2003 associated with certain outstanding stock options and an increase of $924,000 in outside services brought about
primarily by legal costs associated with patent infringement lawsuits outstanding at the time. The increase was offset by a decrease of $620,000 in
personnel-related costs, the absence of $330,000 special charge incurred in fiscal 2002, a substantial reduction in our past due accounts receivable
balances effecting a favorable decrease of $168,000 on our bad debt expense provisions for the year and a decrease in other costs of $115,000 as a
result of lower planned spending.


In-Process Research and Development

|                                    |  |  |  | Year Ended July 31, |    
|----------------------------------- |  |  |  | ------------------- | ---
|
|
|In-process
research and development |  |  |  | $                   | 406
|As percentage
of total revenue      |  |  |  |                     | 1.6



The purchase price of Starfish was assigned to the
fair value of the assets acquired, including the in-process research and development. As of the acquisition date, technological feasibility of the
in-process technology had not been established and the technology had no alternative future use. Accordingly, we expensed the in-process research and
development of $406,000 associated with Starfish at the date of the acquisition.




The amount of the purchase price allocated to
in-process research and technology was based on established valuation techniques used in the high-technology software industry. The fair value assigned
to the acquired in-process research and development was determined using the income approach, which discounts expected future cash flows to present
value. The key assumptions used in the valuation include, among others, expected completion date of the in-process projects identified as of the
acquisition date, estimated costs to complete the projects, revenue contributions and expense projections assuming the resulting product has entered
the market, and discount rate based


54

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on the risks associated with the development life cycle of the in-process
technology acquired. The discount rate used in the present value calculations is normally obtained from a weighted-average cost of capital analysis,
adjusted upward to account for the inherent uncertainties surrounding the successful development of the in-process research and development, the
expected profitability levels of such technology, and the uncertainty of technological advances that could potentially impact the estimates. We assume
the pricing model for the resulting product of the acquired in process research and technology to be standard within its industry. We, however, did not
take into consideration any consequential amount of expense reductions from integrating the acquired in-process technology with other existing
in-process or completed technology. Therefore, the valuation assumptions do not include significant anticipated cost savings.



The key assumptions underlying the valuation of
acquired in-process research and development from are as follows (in thousands):Project name: Mercury platform
technologyPercent completed as of acquisition date:
70%Estimated costs to complete technology at
acquisition date: $375,000Risk-adjusted discount rate: 30%First period expected revenue: calendar year
2004




The development of the above technology remains
highly dependent on the remaining efforts to achieve technical viability, rapidly changing customer markets, uncertain standards for a new product, and
significant competitive threats from several companies. The nature of the efforts to develop this technology into a commercially viable product
consists primarily of planning, designing, experimenting, and testing activities necessary to determine that the technology can meet market
expectations, including functionality and technical requirements. Failure to bring the product to market in a timely manner could result in a loss of
market share or a lost opportunity to capitalize on emerging markets, and could have a material adverse impact on our business and operating
results.




Subsequent to the acquisition of Starfish, there
have been no significant developments related to the current status of the acquired in-process research and development projects that would result in
material changes to the assumptions.


Amortization of Goodwill

|                               |  |  |  | Year Ended July 31, |   
|------------------------------ |  |  |  | ------------------- | --
|
|
|Amortization
of goodwill       |  |  |  | $                   |  
|As percentage
of total revenue |  |  |  |                     | %



Total net value of goodwill at July 31, 2003 and
2002 was $2,731,000. SFAS No. 142 established new guidance on how to account for goodwill and intangible assets after a business combination is
completed. Among other things, it requires that goodwill and certain other intangible assets no longer be amortized and be tested for impairment at
least annually and written down only when impaired. We adopted SFAS No. 142 effective August 1, 2002. Accordingly, upon adoption of the new standard,
we ceased to amortize our existing goodwill. We also completed the impairment test required and the first annual impairment review in January and July
2003, respectively, and did not identify any impairment.


Amortization of Other Intangibles

|                                  |  |  |  | Year Ended July 31, |    
|--------------------------------- |  |  |  | ------------------- | ---
|
|
|Amortization
of other intangibles |  |  |  | $                   | 81 
|As percentage
of total revenue    |  |  |  |                     | 0.4



Other intangible assets, excluding developed and
core technology, amounted to $814,000 and zero, net of accumulated amortization, as of July 31, 2003 and 2002, respectively. The amortization of other
intangibles in fiscal 2003 was associated with the acquired intangibles from Starfish and Loudfire.


55

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Restructuring and Other Charges.

|                                       |  |  |  | Year Ended July 31, |    
|-------------------------------------- |  |  |  | ------------------- | ---
|
|
|Restructuring
charges:                 |  |  |  |                     |    
|Severance
costs                        |  |  |  | $                   | 257
|Facilities
costs                       |  |  |  |                     | 159
|Assets held
for disposal               |  |  |  |                     |    
|Other
charges                          |  |  |  |                     |    
|Restructuring
charges                  |  |  |  |                     | 416
|Other
charges:                         |  |  |  |                     |    
|Separation
costs                       |  |  |  |                     |   
|Costs
relating to a ceased acquisition |  |  |  |                     | 379
|Other
charges                          |  |  |  |                     | 379
|Restructuring
and other charges        |  |  |  | $                   | 795
|As percentage
of total revenue         |  |  |  |                     | 3.2

| |  | Restructuring Charges and Accrual. During fiscal 2003 and
2002, we implemented a number of cost-reduction plans aimed at reducing costs that were not integral to our overall strategy, better aligning our
expense levels with current revenue levels and ensuring conservative spending during periods of economic uncertainty. These initiatives included a
reduction in workforce and facilities consolidation.  In fiscal 2003, we incurred approximately $257,000 for severance and separation
costs relating to recent termination of 19 of our engineering and product management employees. We also incurred a charge of approximately $159,000 for
a revised estimated lease exit cost due to additional time required to sublease the facilities. This revision was attributable to the high vacancy
rates in the corporate real estate market in Northern California.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table sets forth the activities in the
restructuring accrual account for the periods presented (in thousands):


|                         |  |  |  | Workforce Reduction |        | Consolidation of Excess Facilities |  | Other |        | Total
|------------------------ |  |  |  | ------------------- | ------ | ---------------------------------- |  | ----- | ------ | -----
|Balance at
July 31, 2001 |  |  |  | $                   | 20     |                                    |  | $     | 741    |      
|Restructuring
provision  |  |  |  |                     | 1,228  |                                    |  |       | 2,442  |      
|Adjustment               |  |  |  |                     |       |                                    |  |       | 1,610  |      
|Non-cash
charges         |  |  |  |                     |       |                                    |  |       | (877   | )    
|Cash
payments            |  |  |  |                     | (1,205 | )                                  |  |       | (840   | )    
|Balance at
July 31, 2002 |  |  |  | $                   | 43     |                                    |  | $     | 3,076  |      
|Restructuring
provision  |  |  |  |                     | 257    |                                    |  |       |       |      
|Adjustment               |  |  |  |                     |       |                                    |  |       | 159    |      
|Cash
payments            |  |  |  |                     | (300   | )                                  |  |       | (1,469 | )    
|Balance at
July 31, 2003 |  |  |  | $                   |       |                                    |  | $     | 1,766  |      



The current and long-term portions of the
restructuring accrual of $1,122,000 and $644,000 are classified as Accrued Liabilities and Other Liabilities, respectively, in
the consolidated balance sheet as of July 31, 2003.




Refer to the discussion under the caption
Fiscal Year Ended July 31, 2004 as Compared to Fiscal Year Ended July 31, 2003 set forth above for the remaining unpaid amount as of
July 31, 2004 and other details associated with the restructuring accrual.


56

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| |  | Separation Costs
|- |  | ----------------



In fiscal 2002, we recorded accruals of
approximately $257,000 related to separation agreements with our former president and chief executive officer and former executive vice president of
sales and business development.


| |  | Costs Relating To Ceased Acquisition. During fiscal 2003,
we incurred residual costs of approximately $379,000 for operating expenses, mainly legal and accounting, relating to an acquisition that we ceased
pursuing.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Impairment of Assets

|                               |  |  |  | Year Ended July 31, |   
|------------------------------ |  |  |  | ------------------- | --
|
|
|Intangibles                    |  |  |  | $                   |  
|Commitment                     |  |  |  |                     |  
|Assets held
and used           |  |  |  |                     |  
|Assets held
for disposal       |  |  |  |                     |   
|Impairment of
assets           |  |  |  | $                   |  
|As percentage
of total revenue |  |  |  |                     | %



During fiscal 2002, we determined that certain
intangible assets we acquired, certain assets used exclusively for our online operations and Intellisync.com were impaired. Therefore, we recorded an
impairment charge of $5,249,000 in fiscal 2002 to write down or write off goodwill and certain intangibles in connection with our previous years
acquisitions of ProxiNet, Inc., Dry Creek Software, The Windward Group and SwiftTouch Corporation, and other assets, as well as a related commitment,
we believe will not bring a viable business opportunity for us in the future.


| |  | ProxiNet
|- |  | --------



We purchased ProxiNet in the first quarter of fiscal
2000 in anticipation of broadening the appeal of Internet connected wireless devices and other Internet appliances through the use of ProxiNets
core technology, ProxiWare and ProxiWeb, later branded as the Browse-itTM product. By combining our Intellisync platform with this highly
scalable proxy-based transformation and delivery architecture, major Internet destinations such as portals, search engines and e-commerce companies
would have the means to provide highly secure, real-time access to users of handheld devices, mobile phones and other devices and Internet appliances.
We expected that users would be able to browse information online, while simultaneously retrieving and synchronizing critical information while
offline.




At the time the ProxiNets acquisition was
consummated, we planned to market Browse-it primarily to major Internet companies such as portals and e-commerce sites as well as cellular carriers and
other wireless providers. Browse-it started generating revenue in the fourth quarter of fiscal 2000, but at a level substantially lower than what we
originally expected  average quarterly revenue for fiscal 2001 was approximately $700,000. In addition, due to general economic slowdowns,
several of our Browse-it customers, many of which are Internet companies, reduced their IT spending or ceased their investment in products, services
and technologies such as those we provide. Consequently, revenue from Browse-it continued to deteriorate, decreasing as low as $20,000 by the fourth
quarter of fiscal 2002. These factors demonstrated that Browse-it product would not bring sufficient revenue to absorb high related
costs.




By the end of fiscal 2002, as part of our plan to
refocus our business strategies, we decided to discontinue our Browse-it technology offerings. Related employees were either terminated or reassigned
to other engineering functions. Furthermore, we determined that Browse-it technology has no alternative uses and had not been incorporated into other
products or services, and, accordingly, recorded in fiscal 2002 an impairment write-off of $4,101,000 and $258,000 related to the net book value of
goodwill and developed and core technology, respectively, from the ProxiNet acquisition.


57

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| |  | Other Impaired Assets
|- |  | ---------------------



The plan to focus effort on our core business
necessitated a thorough review of certain operations and related assets that we believed would not be viable to integrate into our new strategies. Our
plan provided for no further support for online operations, as well as terminating the use and maintenance of excess related assets.




During fiscal 2002, in our review of our online
operations and related assets, such as computers, servers, network- and other hosting-related equipment, we specifically identified those assets that
would be held for use to finish preexisting contracts with certain customers for a short period of time, after which the assets would be disposed of or
abandoned. We also identified the related assets that would be held for immediate disposal. Based on a recoverability analysis we performed of the
assets carrying value, we anticipated no further cash flows from the online operations. We, therefore, recorded an impairment charge of $102,000 and
$685,000 for assets held for use and assets held for disposal, respectively, based on the amount by which the carrying amount of assets exceeded the
recovery value less disposal costs. We determined the recovery value of the assets using our best estimates on market prices of similar assets. In
addition, we wrote off related hosting commitment with a third-party vendor, a related party, for its entire value, totaling $103,000.


Interest Income

|                               |  |  |  | Year Ended July 31, |    
|------------------------------ |  |  |  | ------------------- | ---
|
|
|Interest
income                |  |  |  | $                   | 811
|As percentage
of total revenue |  |  |  |                     | 3.3



Interest income, representing interest earned on
cash and short-term investments and realized gains on miscellaneous investments decreased in fiscal 2003 due to lower rate of interest on reduced
balances of cash and investments.


Interest Expense

|                               |  |  |  | Year Ended July 31, |   
|------------------------------ |  |  |  | ------------------- | --
|
|
|Interest
expense               |  |  |  | $                   | (8
|As percentage
of total revenue |  |  |  |                     | %



Interest expense for fiscal 2003 and 2002 reflects
interest charge associated with a revolving credit line agreement that expired in September 2002. The line of credit was not renewed.


Other, Net

|                               |  |  |  | Year Ended July 31, |     
|------------------------------ |  |  |  | ------------------- | ----
|
|
|Other,
net                     |  |  |  | $                   | (65 
|As percentage
of total revenue |  |  |  |                     | (0.3



Other, net for fiscal 2003 and 2002 reflects mainly
bank charges and investment management fees.


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Other-Than-Temporary Impairment of Investments

|                                               |  |  |  | Year Ended July 31, |       
|---------------------------------------------- |  |  |  | ------------------- | ------
|
|
|Other-than-temporary impairment of investments |  |  |  | $                   | (2,394
|As percentage
of total revenue                 |  |  |  |                     | (9.6  



During fiscal 2003, we disposed our limited
partnership interest in Azure Venture Partners, LLP, a venture capital fund. The disposal of the interest allowed us to avoid commitments for further
investments in equity instruments of various privately-held companies made through Azure, many of which had not generated adequate returns. In
addition, the disposal was in line with our strategy of focusing resources and efforts more on our core operations. Consequently, we recorded an
other-than-temporary impairment charge of $2,394,000. Total proceeds of $75,000 from the sale of the interest were received in May 2003, which
approximated the carrying value of the investment after the writedown.




During fiscal 2002, we recorded a charge for an
other-than-temporary impairment of investments of approximately $380,000 related to our pro-rata share of net loss realized by Azure on sale or
liquidation of certain investments.


Provision for Income Taxes

|                               |  |  |  | Year Ended July 31, |     
|------------------------------ |  |  |  | ------------------- | ----
|
|
|Provision for
income taxes     |  |  |  | $                   | (286
|As percentage
of total revenue |  |  |  |                     | (1.2



The provision for income taxes primarily represents
foreign withholding taxes on royalties earned from certain foreign customers and, to a lesser extent, state franchise and income taxes and estimated
taxes for foreign subsidiaries.


Recently Issued Accounting Pronouncements

Consolidation of Variable Interest Entities



In January 2003, the Financial Accounting Standards
Board (FASB) issued FASB Interpretation (FIN) No. 46, Consolidation of Variable Interest Entities. FIN No. 46 requires certain
variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. A variable interest entity is a corporation, partnership, trust, or any other legal
structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities. A variable interest entity often holds financial assets, including loans or
receivables, real estate or other property. A variable interest entity may be essentially passive or it may engage in research and development or other
activities on behalf of another company. In December 2003, the FASB released a revised version of FIN No. 46 (referred to as FIN 46R) clarifying
certain aspects of FIN No. 46 and providing certain entities with exemptions from the requirements of FIN No. 46. FIN 46R requires the application of
either FIN No. 46 or FIN 46R to all Special Purpose Entities, or SPEs created prior to February 1, 2003 at the end of the first interim or annual
reporting period ending after December 15, 2003. All entities created after January 31, 2003 were already required to be analyzed under FIN No. 46, and
they must continue to do so, unless FIN 46R is adopted early. FIN 46R is applicable to all non-SPEs created prior to February 1, 2003 at the end of the
first interim or annual reporting period ending after March 15, 2004. The adoption of FIN 46-R during the third quarter of fiscal 2004 did not have a
material impact our consolidated financial position, results of operations and cash flows.


59

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Other-Than-Temporary Impairment



In March 2004, the Emerging Issues Task Force (EITF)
reached consensus on Issue 03-01, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. EITF
No. 03-01 includes new guidance for evaluating and recording impairment losses on debt and equity investments, as well as new disclosure requirements
for investments that are deemed to be temporarily impaired. The disclosure requirements are effective for fiscal years ending after June 15, 2004. We
have adopted the disclosure requirements in fiscal 2004 accordingly and incorporated such disclosures in note 3 to consolidated financials statements
set forth in Part IV of this Annual Report on Form 10-K. The accounting guidance of EITF No. 03-01 is effective for fiscal years beginning after June
15, 2004, and we believe that the adoption will not have a material effect on our financial position or results of operations.


Earnings Per Share



In April 2004, the EITF issued Statement No. 03-06,
Participating Securities and the Two-Class Method Under FASB Statement No. 128, Earnings Per Share. EITF No. 03-06 addresses a
number of questions regarding the computation of earnings per share by companies that have issued securities other than common stock that contractually
entitle the holder to participate in dividends and earnings of the company when, and if, it declares dividends on its common stock. The issue also
provides further guidance in applying the two-class method of calculating earnings per share, clarifying what constitutes a participating security and
how to apply the two-class method of computing earnings per share once it is determined that a security is participating, including how to allocate
undistributed earnings to such a security. EITF No. 03-06 is effective for fiscal periods beginning after March 31, 2004. As of May 1, 2004, we have
convertible debt that is subject to this pronouncement. However, due to net loss for fiscal 2004, the effect of the convertible debt under the EITF No.
03-06 is anti-dilutive, as such it has not been included in basic or diluted earnings per share.


Contingently Convertible Debt on Diluted Earnings per Share



In July 2004, the EITF issued a draft abstract for
EITF No. 04-08, The Effect of Contingently Convertible Debt on Diluted Earnings per Share. EITF 04-08 reflects the Task Forces
tentative conclusion that contingently convertible debt should be included in diluted earnings per share computations regardless of whether the market
price trigger has been met. If adopted, the consensus reached by the Task Force in this Issue will be effective for reporting periods ending after
December 15, 2004, the adoption of which will not have an impact on our calculation of earnings per share.


Liquidity and Capital Resources



In March 2004, we completed our offering of
$60,000,000 aggregate principal amount of convertible senior notes due March 2009, through an offering to qualified institutional buyers under Rule
144A of the Securities Act, as amended. Proceeds of approximately $57,100,000, net of the initial purchasers discounts and commissions and
estimated offering costs, were received in March 2004. Refer to the discussion under the caption Commitments set forth below for
more information on the convertible senior notes.


Working Capital



The following summarizes our cash and cash
equivalents, short-term investments and working capital:


|                          |  |  |  | Year Ended July 31, |       
|------------------------- |  |  |  | ------------------- | ------
|
|
|Cash and cash
equivalents |  |  |  | $                   | 12,991
|Short-term
investments    |  |  |  | $                   | 40,657

60

---



|                |  |  |  | Year Ended July 31, |       
|--------------- |  |  |  | ------------------- | ------
|
|
|Working
capital |  |  |  | $                   | 51,693
|Current
ratio   |  |  |  |                     | 4.5   



We invest excess cash in fixed income securities
that are highly liquid, of high-quality investment grade. We intend to make such funds readily available for operating purposes, if needed. In addition
to the above cash, cash equivalents and short-term investments at July 31, 2004, we have a total of $4,032,000 restricted cash that is pledged as
collateral for certain stand-by letters of credit issued by certain financial institutions and collateral to match any unfavorable mark-to-market
exposure on an interest swap agreement. Refer to the discussion under the caption Restricted Cash set forth below for more
information.




The significant factors underlying the increase in
cash, cash equivalents and investments during fiscal 2004 were net proceeds from issuance of convertible senior notes of $57,052,000, offset by
acquisitions of $18,939,000 and net cash flow used in operations of $7,546,000. This increase in cash, cash equivalents and short-term investments
resulted in an increase in working capital and current ratio.




The significant factor underlying the decrease in
cash, cash equivalents and investments during fiscal 2003 was the net cash flow used in operations of $4,809,000. The decrease in working capital was
primarily due to a decrease in short-term investments, and the slight increase in the current ratio was primarily due to a decrease in accrued
liabilities and deferred revenue and the absence of borrowings at July 31, 2003.


Cash Flows



Operating Activities. Significant items
included in cash flows from operating activities are as follows (in thousands):


|                                      |  |  |  | Year Ended July 31, |       
|------------------------------------- |  |  |  | ------------------- | ------
|
|Net cash used
in operating activities |  |  |  | $                   | (7,546



The majority of cash applied to cash working capital
for the current fiscal year resulted from increases in accounts receivable of $2,847,000 (generally consistent with our revenue growth and effected by
recent acquisitions) and other current assets of $1,372,000, offset by all other assets of $111,000. Accounts payable and accrued liabilities also
decreased by approximately $5,274,000 due to timing of payments particularly of litigation costs and other expenses associated with recent
acquisitions. Offsetting the net decrease in working capital was an increase in deferred revenue of $632,000.




Investing Activities. Significant items
included in cash flows from investing activities are as follows (in thousands):


|                                                         |  |  |  | Year Ended July 31, |        
|-------------------------------------------------------- |  |  |  | ------------------- | -------
|
|Net
sale/maturities (purchase) of short-term investments |  |  |  | $                   | (21,466
|Acquisitions
and other investments                       |  |  |  |                     | (19,139
|Decrease
(increase) in restricted cash                   |  |  |  |                     | (3,679 
|Capital
expenditures                                     |  |  |  |                     | (759   
|Net cash
(used in) provided by investing activities      |  |  |  | $                   | (45,043



The net cash flows used in investing activities
during fiscal 2004 and 2003 were due primarily to cash movement between investments and cash and cash equivalents and, in fiscal 2004, acquisitions of
Spontaneous Technology, Synchrologic and SSA and increase in restricted cash associated with a collateral under an interest rate swap agreement. For
the prior fiscal year, uses included the acquisitions of Starfish and Loudfire.


61

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Financing Activities. Significant items
included in cash flows from financing activities are as follows (in thousands):


|                                          |  |  |  | Year Ended July 31, |       
|----------------------------------------- |  |  |  | ------------------- | ------
|
|Net proceeds
from long term debt          |  |  |  | $                   | 57,052
|Proceeds from
stock option exercises      |  |  |  |                     | 2,132 
|Payments on
borrowings                    |  |  |  |                     | (1,764
|Other                                     |  |  |  |                     | 274   
|Net cash
provided by financing activities |  |  |  | $                   | 57,694



During fiscal 2004, cash flow generated from
financing activities includes $57,052,000 in proceeds, net of debt issuance costs, from our recent senior notes offering. We repaid $1,764,000 of debt
acquired from Synchrologic in fiscal 2004 and $2,000,000 of debt under a line of credit in fiscal 2003. Our future cash flows from stock options are
difficult to project as such amounts are a function of our stock price, the number of options outstanding, and the decisions by employees to exercise
stock options. In general, we expect proceeds from stock option exercises to increase during periods in which our stock price has increased relative to
historical levels.


Acquisitions



In June 2004, we acquired (through a transfer) 91
employees from SoftVision SRL pursuant to an Employee Transfer Agreement dated as of February 5, 2004. Under the terms of the agreement, we paid cash
of approximately $693,000 and assumed certain employee-related liabilities of approximately $31,000. The SoftVisions workforce acquisition was
accounted for as an asset purchase. The consolidated financial statements include the effect of additional employees the Company acquired from
SoftVision since the date of acquisition.




In March 2004, we completed our acquisition of all
of the issued and outstanding stock of SSA and paid cash of $19,986,000, net of $2,143,000 cash acquired, under the terms of the purchase
agreement.




In December 2003, we completed our acquisition of
all of the issued and outstanding stock of Synchrologic. In the merger, all outstanding shares of Synchrologic common stock and preferred stock were
converted into the right to receive a total of 15,130,171 shares of our common stock valued at approximately $62,125,000. In addition, all outstanding
options to purchase Synchrologic common stock were converted into options to purchase a total of 1,018,952 shares of our common stock and were valued
at approximately $4,123,000.




In September 2003, we acquired Spontaneous
Technology and issued a total of 869,259 shares of our common stock valued at approximately $2,999,000 under the terms of the acquisition agreement.
There were 224,417 additional shares held in escrow that were contingently issuable upon satisfaction of a pre-acquisition clause. Later during fiscal
2004, the contingency was resolved and we paid cash of approximately $752,000. The contingent consideration shares in escrow were therefore returned to
us accordingly. Additionally, depending upon our revenues associated with sales of our products including certain technology of Spontaneous Technology
during the period ending September 30, 2004, we may be required to pay Spontaneous Technology additional consideration of up to $7,000,000 in shares of
our common stock. The earnout period ended on September 30, 2004 with our aggregate revenue on products associated with Spontaneous Technology
amounting to less than the given earnout threshold. Consequently, no additional consideration was or will be paid to Spontaneous
Technology.




Over the next few quarters, we believe the
acquisition of Spontaneous Technology, Synchrologic and SSA, may bring modest improvement in our cash flows from operating activities with the
realization of synergistic benefits and revenue opportunities.


Effects of Inflation



We believe that our financial results have not been
significantly impacted by inflation and price changes during fiscal 2004, 2003 and 2002.


62

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Litigation Settlement with Extended Systems



On March 4, 2004, we announced our mutual agreement
with Extended Systems, Inc. to settle our patent infringement lawsuit we initiated in April 2002 against Extended Systems. In the agreement, we agreed
with Extended Systems to settle all claims and terminate litigation proceedings immediately in exchange for a one-time payment of
$2,000,000.


Commitments



Capital Lease. During the first quarter of
fiscal 2004, we entered into a capital lease agreement for a phone system, which expires in February 2008. Assets and future obligations related to the
capital lease are included in the accompanying consolidated balance sheet as of July 31, 2004 in property and equipment and liabilities, respectively.
Current and long-term portions of the capital lease amounted to $51,000 and $144,000, respectively, at July 31, 2004. Depreciation of assets held under
the capital lease is included in depreciation and amortization expense.




Operating Leases. We lease our facilities
under operating leases that expire at various dates through August 2008. The leases provide for escalating lease payments.




3% Convertible Senior Notes. During the third
quarter of fiscal 2004, we completed the offering of $60,000,000 of convertible senior notes to qualified institutional buyers in reliance on Rule 144A
under the Securities Act. The notes are convertible into shares of our common stock at any time prior to the close of business on the final maturity
date of the notes, subject to prior redemption of the notes. The initial conversion rate is 250.0000 shares per each $1,000 principal amount of notes
which represents an initial conversion price of $4.00 per share. The conversion rate is subject to adjustment for certain events, including the payment
of dividends, and other events specified in the indenture. The notes bear interest at a rate of 3% per annum. Interest on the notes will be paid on
March 1 and on September 1 of each year. The first payment was made on September 1, 2004. All costs and expenses incurred with the issuance of the
offering have been capitalized within Other Assets and amortized over five years, the life of the respective debt. Such costs amounted to
approximately $2,707,000, net of accumulated amortization of $242,000, as of July 31, 2004.




Proceeds of approximately $57,100,000, net of the
initial purchasers discounts and commissions and estimated offering costs, were received from the offering in March 2004. A portion of the net
proceeds of the offering were used to complete the acquisition of SSA. We intend to use the balance of the net proceeds to fund possible investments
in, or acquisitions of, complementary businesses, products or technologies or establishing joint ventures and for general corporate purposes and
working capital requirements. We invested the net proceeds from this offering, pending their ultimate use, in short-term, interest-bearing, investment
grade securities.




Interest Rate Swaps. During the third quarter
of fiscal 2004, we entered into two interest rate swap agreements with a financial institution on a total notional amount of $50,000,000 and
$10,000,000, whereby we receive fixed-rate interest of 3% in exchange for variable interest payments. The interest rate swaps expire upon the maturity
of our $60,000,000, 3% convertible senior notes in March 2009, and effectively converts those fixed-rate notes into variable-rate borrowings. The
interest rate is reset semi-annually and is equal to the 6-month LIBOR rate less a rate spread. The total variable interest rate was approximately
0.94% at July 31, 2004, resulting in interest expense savings relative to fixed rates of approximately $516,000 for fiscal 2004. Under the provisions
of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, this arrangement has been designated and
qualifies as an effective fair value hedge of interest rate risk related to the $60,000,000 convertible senior notes. As the terms of the swaps match
those of the underlying hedged debt, the changes in the fair value of these swaps are offset by corresponding changes in the carrying value of the
hedged debt, and therefore does not impact our net earnings. As of July 31, 2004, the fair value of the interest rate swaps was approximately
$1,557,000 and recorded in Other Liabilities with an equal adjustment recorded to the carrying value of the $60,000,000 convertible senior
notes.


63

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The following table summarizes our material
obligations and commitments to make future payments, for which we anticipate using cash from operations, under certain contracts, including long-term
debt obligations and operating leases as of July 31, 2004 (in thousands):


|                               |  |  |  |   |        | Fiscal year ending July 31, | 
|------------------------------ |  |  |  | - | ------ | --------------------------- | 
|
|3% convertible
senior notes(1) |  |  |  | $ | 58,443 |                             | 
|Interest rate
swap(1)          |  |  |  |   | 1,557  |                             | 
|Capital lease
obligation(2)    |  |  |  |   | 202    |                             | 
|Operating
leases:              |  |  |  |   |        |                             | 
|Operating
leases               |  |  |  |   | 5,971  |                             | 
|Proceeds from
subleases        |  |  |  |   | (579   | )                           | 
|Net operating
leases           |  |  |  |   | 5,392  |                             | 
|Total                          |  |  |  | $ | 65,594 |                             | 

__________

|(1) |  | Interest on the senior notes and interest rate swap is payable in
cash on March 1 and September 1 of each year. The senior notes mature on March 1, 2009.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

(2)  Includes interest payments due.



Other. In the event of early termination of a
service agreement with e^deltacom, a managed service provider, we are required to pay e^deltacom a penalty fee of, based on the July 2004
monthly service rate, up to approximately $62,000.


Capital Expenditures



We expect total capital expenditures of
approximately $1,800,000 for fiscal 2005 principally for support of the hosting operations and purchase of computers and other various system
upgrades.


Restricted Cash



We have three letters of credit that
collateralize certain operating lease obligations and total approximately $397,000 and $408,000 at July 31, 2004 and 2003, respectively. We
collateralize these letters of credit with cash deposits made with three of our financial institutions and have classified the short-term and the
long-term portions of approximately $101,000 and $296,000 at July 31, 2004, and $112,000 and $296,000 at July 31, 2003 as Other Current
Assets and Restricted Cash, respectively, in the consolidated balance sheets. The long-term portion expires through June 2006. The
holders of the letters of credit are able to draw on each respective letter of credit in the event that we are found to be in default of our
obligations under each of our operating leases.




Under the terms of the interest rate swap agreement
into which we entered during fiscal 2004, we must provide collateral to match any unfavorable mark-to-market exposure (fair value) on the swap. The
amount of collateral required totals a minimum of $1,800,000 plus an amount equal to the unfavorable mark-to-market exposure on the swap. Generally,
the required collateral will rise as interest rates rise. As of July 31, 2004, we have posted approximately $3,736,000 of collateral under this swap
agreement which is included in Restricted Cash in our consolidated balance sheet.




We believe that our current cash, cash equivalents
and short-term investment balances, including the net proceeds from convertible senior notes offering and cash generated from operations, if any, will
be sufficient to meet our working capital and other cash requirements for at least the next 12 months. Beyond the next 12 months, we expect our cash
flow from operations and the remaining proceeds from convertible senior notes to remain sufficient to fund any ongoing investments in capital equipment
and interest payments on our notes. There are no arrangements and other relationships with unconsolidated entities or other persons that are reasonably
likely to materially affect liquidity or the availability of our requirements for capital.




We believe that the most strategic uses of our cash
resources include strategic investments to gain access to new technologies, acquisitions, financing activities, and working capital. Therefore, from
time-to-time, we may


64

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consider additional acquisitions and a wide range of other business opportunities.
To the extent that our current cash, cash equivalents and short-term investment balances and cash flow from operations are insufficient to fund any new
acquisition, business opportunity or venture, as well as to fund future operating requirements, we may seek to raise cash through further issuance of
debt or equity securities. We cannot be certain that such financing would be available to us at all, or on terms favorable to us.

|ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|-------- |  | ----------------------------------------------------------



We are exposed to a variety of risks, including
changes in interest rates and foreign currency fluctuations, which could impact our results of operations and financial condition.


Interest Rate Risk



At July 31, 2004, we had an investment
portfolio of mostly fixed income securities, including those classified as cash equivalents and securities available-for-sale, of $47,704,000. These
securities, like all fixed income instruments, are subject to interest rate risk and will fall in value if market interest rates increase. If market
interest rates were to increase immediately and uniformly by 10% from levels as of July 31, 2004, the decline of the fair value of the portfolio would
be immaterial. We attempt to mitigate risk by holding our fixed income investments until maturity to avoid recognizing an adverse impact in income or
cash flows in the event of an increase in market interest rates, but an increase in our liquidity needs may require us to sell fixed-rate securities
prior to maturity.




The table below presents the carrying value (which
approximates fair value) and related weighted average coupon interest rates for our investment portfolio at July 31, 2004 (in thousands, except
interest rates).


|                                                                                           |  |  |  | Carrying Amount |        | Average Coupon Interest Rate
|------------------------------------------------------------------------------------------ |  |  |  | --------------- | ------ | ----------------------------
|Cash
equivalents                                                                           |  |  |  | $               | 7,047  |                             
|Securities
with maturity:                                                                  |  |  |  |                 |        |                             
|Due within
one year or less                                                                |  |  |  |                 | 9,952  |                             
|Due after one
year through two years                                                       |  |  |  |                 | 3,059  |                             
|Annuities,
auction rate preferred stock, auction rate receipts and other, with no maturity |  |  |  |                 | 27,646 |                             
|Total
portfolio                                                                            |  |  |  | $               | 47,704 |                             



Debt and Interest Expense. We recently
incurred $60,000,000 of principal indebtedness from the issuance of convertible senior notes in March 2004. The fair market value of these 3%
convertible senior notes is sensitive to changes in interest rates and to the prices of our common stock into which it can be converted as well as our
financial stability. In order to manage interest costs and risk, we entered into an interest rate swap agreement during fiscal 2004 with a financial
institution on a total notional amount of $50,000,000 and $10,000,000, whereby we receive fixed-rate interest of 3% in exchange for variable interest
payments. The interest rate swaps expire upon the maturity of our $60,000,000, 3% convertible senior notes in March 2009, and effectively converts
those fixed-rate notes into variable-rate borrowings. The interest rate is reset semi-annually and is equal to the 6-month LIBOR rate less a rate
spread. The total variable interest rate was approximately 0.94% at July 31, 2004, resulting in interest expense savings relative to fixed rates of
approximately $516,000 for the fiscal year. Under the provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended, this arrangement has been designated and qualifies as an effective fair value hedge of interest rate risk related to
the $60,000,000 convertible senior notes. As the terms of the swaps match those of the underlying hedged debt, the changes in the fair value of these
swaps are offset by corresponding changes in the carrying value of the hedged debt, and therefore does not impact our net earnings. As of July 31,
2004, the fair value of the interest rate swaps was approximately $1,557,000 with an equal adjustment recorded to the carrying value of the $60,000,000
convertible senior notes. Assuming a one percentage point increase in the prevailing LIBOR rate, holding other terms of the swap constant, the fair
value of the interest rate swap and the underlying senior notes would change by approximately $2,521,000.


Foreign Currency Risk



To date, the effect of foreign exchange
rate fluctuations on our financial statements has been immaterial. However, with our recent acquisitions of Synchrologic and SSA, more of our product
and services revenue has


65

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been derived from international markets and denominated in the currency of the
applicable market. As we increasingly pursue business opportunities in foreign countries, our foreign revenues and operating results may become subject
to significant currency fluctuations based upon changes in exchange rates of certain currencies in relation to the United States dollar.



We are also exposed to foreign currency exchange
rate fluctuations as the financial statements of foreign subsidiaries are translated into United States dollar in consolidation. As exchange rates
vary, these results, when translated, may vary from expectations and adversely impact overall expected profitability. Assets and liabilities of our
subsidiaries are translated into U.S. dollars at exchange rates in effect as of the applicable balance sheet date and any resulting translation
adjustments are included as an adjustment to stockholders equity. Revenues and expenses generated from these subsidiaries are translated at
average monthly exchange rates during the quarter the transactions occur. Gains and losses from these currency transactions are included in net
earnings. Recently, we have increasingly generated a portion of our revenues and incurred a portion of our expenses in euros, British pounds, the
Japanese yen and Australian dollars.




We currently do not have any hedging or similar
foreign currency contracts to mitigate our exposure to the risk of changes in foreign currency rates. Although we may begin to hedge in the future, we
cannot be sure that any hedging techniques we may implement will be successful or that our business, results of operations, financial condition or cash
flows will not be adversely affected by exchange rate fluctuations.




We may continue to expand internationally in the
future and become increasingly subject to other risks of doing business internationally including, but not limited to, differing economic conditions,
changes in political climate, differing tax structures, and other regulations and restrictions. We will also be exposed to increased risk of
non-payment by our customers in foreign countries, especially those of highly inflationary economies. Accordingly, our future results could be
materially adversely impacted by changes in these and other factors. Furthermore, to the extent that we engage in international sales denominated in
United States dollars, an increase in the value of the United States dollar relative to foreign currencies could make our products and services less
competitive in international markets.


|ITEM 8. |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- |  | -------------------------------------------



The financial statements, together with the report
thereon of PricewaterhouseCoopers LLP dated October 13, 2004 are hereby incorporated by reference to Part IV of this Annual Report on Form
10-K.


|ITEM 9. |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
|------- |  | ------------------------------------------------------------------------------------



None.


|ITEM 9A. |  | CONTROLS AND PROCEDURES
|-------- |  | -----------------------

Evaluation of disclosure controls and procedures.



Based on our managements evaluation (with the
participation of our principal executive officer and principal financial officer), as of the end of the period covered by this Annual Report on Form
10-K, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) are effective to ensure that information required
to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.


Changes in internal control over financial reporting



There was no change in our internal control over
financial reporting during the period covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.


66

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PART III

|ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
|-------- |  | --------------------------------------------------



Information relating to the directors and executive
officers of Intellisync is set forth in Part I, Item 1 of this Annual Report under the caption Executive Officers and Directors of the
Registrant. Information relating to directors, audit committee, financial expert and compliance with Section 16(a) of the Exchange Act is
incorporated by reference to the definitive proxy statement for Intellisyncs 2004 Annual Meeting of Stockholders to be filed with the SEC
pursuant to Regulation 14A, or Proxy Statement, no later than 120 days after the end of the fiscal year covered by this form, or the Proxy Statement,
under the captions Board Meetings and Committees and Section 16(a) Beneficial Ownership Reporting
Compliance.




We have adopted the Code of Ethics for Principal
Officers and Financial Professionals of Intellisync Corporation, a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer
and other finance organization employees. The Code of Ethics for Principal Officers and Financial Professionals of Intellisync Corporation is publicly
available on our Website at www.intellisync.com. If we make any substantive amendments to this code of ethics or grant any waiver, including any
implicit waiver, from a provision of the code to our Chief Executive Officer or Chief Financial Officer, we will disclose the nature of such amendment
or waiver on that Website or in a report on Form 8-K.


|ITEM 11. |  | EXECUTIVE COMPENSATION
|-------- |  | ----------------------



The information required by Item 11 is incorporated
by reference to the Proxy Statement under the caption Executive Compensation and Other Matters.


|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- |  | ----------------------------------------------------------------------------------------------



The information required by Item 12 is incorporated
by reference to the Proxy Statement under the caption Stock Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.


|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|-------- |  | ----------------------------------------------



The information required by Item 13 is incorporated
by reference to the Proxy Statement under the caption Certain Transactions.


|ITEM 14. |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- |  | --------------------------------------



The information required by Item 14 is incorporated
by reference to the Proxy Statement under the caption Principal Accountant Fees and Services.


67

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PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K

(a)  1. Financial Statements



The following consolidated
financial statements of Intellisync Corporation are filed as part of this Annual Report on Form 10-K:


| |  | Report of Independent Registered Public Accounting Firm
(F-2)
|- |  | -------------------------------------------------------------

| |  | Consolidated Balance Sheets at July 31, 2004 and 2003
(F-3)
|- |  | -----------------------------------------------------------

| |  | Consolidated Statements of Operations for each of the three
fiscal years in the period endedJuly 31, 2004 (F-4)
|- |  | ---------------------------------------------------------------------------------------------------------------

| |  | Consolidated Statements of Stockholders Equity and
Comprehensive Loss for each of the three fiscal years in the period ended July 31, 2004 (F-5)
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Consolidated Statements of Cash Flows for each of the three
fiscal years in the period endedJuly 31, 2004 (F-6)
|- |  | ---------------------------------------------------------------------------------------------------------------

| |  | Notes to Consolidated Financial Statements (F-7)
|- |  | ------------------------------------------------

2.  Supplemental Schedule



The following financial statement
schedule of Intellisync is filed as part of this Annual Report on Form 10-K and should be read in conjunction with Intellisyncs consolidated
financial statements.


| |  | Schedule II  Valuation and Qualifying Accounts
(F-46)
|- |  | ------------------------------------------------------



Financial Statement Schedules,
other than the schedule listed above, have been omitted because the required information is contained in the consolidated financial statements and the
notes thereto, or because such schedules are not required or applicable.


|3. |  | Exhibits
|-- |  | --------



The exhibits listed on the
accompanying index to exhibits immediately preceding the financial statement schedules are filed as part of, or incorporated by reference into, this
Annual Report on Form 10-K.


(b)  Reports on Form 8-K



Report on Form 8-K dated May 6,
2004 reporting our restructuring initiative and revised earnings guidance for the fiscal quarter ended April 30, 2004.




Report on Form 8-K dated May 20,
2004 reporting our financial results for the fiscal quarter ended April 30, 2004.**




**  This furnished Form 8-K is not to be
deemed filed or incorporated by reference into any filing.


68

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(c)  Exhibits



|ExhibitNumber |    |  |  | Exhibit Title                                                                                                                                                                                                                                                                                    
|------------- | -- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1           | 1  |  |  | Stock
Purchase Agreement between Pumatech, Inc. and Motorola, Inc. dated March 27, 2003.                                                                                                                                                                                                         
|2.2           | 2  |  |  | Asset
Purchase Agreement by and among Pumatech, Inc., Loudfire, Inc. and Craig Johnson. dated July 2, 2003.                                                                                                                                                                                      
|2.3           | 2  |  |  | First
Amendment to the Asset Purchase Agreement by and among Pumatech, Inc., Loudfire, Inc. and Craig Johnson dated July 22, 2003.                                                                                                                                                               
|2.4           | 3  |  |  | Asset
Purchase Agreement between Pumatech, Inc. and Spontaneous Technology, Inc. dated July 30, 2003 and Amendment No. 1 thereto dated September 17,
2003.                                                                                                                                       
|2.5           | 4  |  |  | Stock
Purchase Agreement by and among Intellisync Corporation, Intellisync Australia Pty. Ltd., SPL WorldGroup, Inc., SPL WorldGroup B.V., SPL WorldGroup
Holdings Pty. Ltd., SPL WorldGroup Software Inc., SPL WorldGroup Limited and Search Software America Pty. Ltd. dated February 24,
2004.
|2.6           | 22 |  |  | Agreement and Plan of Merger among Pumatech, Inc., Homerun Acquisition Corporation, and Synchrologic, Inc. dated September 14,
2003.                                                                                                                                                             
|2.7           | 25 |  |  | Employee Transfer Agreement by and between Intellisync Corporation, SoftVision SRL and Laurentiu Russo dated March 5, 2004.                                                                                                                                                                      
|3.1           | 5  |  |  | Certificate of Incorporation of Puma Technology, Inc., a Delaware corporation.                                                                                                                                                                                                                   
|3.2           | 6  |  |  | Amended and Restated Bylaws of Pumatech, Inc., a Delaware corporation.                                                                                                                                                                                                                           
|3.3           | 7  |  |  | Certificate of Amendment of Restated Certificate of Incorporation dated December 19, 2000.                                                                                                                                                                                                       
|3.4           | 8  |  |  | Certificate of Amendment of Restated Certificate of Incorporation filed on October 18, 2002.                                                                                                                                                                                                     
|3.5           | 9  |  |  | Certificate of designations of rights, preferences and privileges of Series A Participating Preferred Stock of Pumatech, Inc. dated January
15, 2003.                                                                                                                                            
|3.6           | 10 |  |  | Certificate of Amendment of Certificate of Incorporation as filed with the Secretary of State of the State of Delaware on February 3,
2004.                                                                                                                                                      
|3.7           | 11 |  |  | Certificate of Ownership and Merger merging a wholly-owned subsidiary into Pumatech, Inc., dated February 17, 2004, pursuant to Section 253 of
the General Corporation Law of the State of Delaware.                                                                                             
|4.1           | 9  |  |  | Preferred Shares Rights Agreement between Pumatech, Inc. and Computershare Investor Services LLC as Rights Agent dated January 13, 2003
(includes Form of Certificate of Designations of Series A Participating Preferred Stock, Form of Rights Certificate and Summary of
Rights).              
|4.2           | 10 |  |  | Indenture dated as of March 3, 2004, between Intellisync Corporation and U.S. Bank National Association, as Trustee, and Form of
Note                                                                                                                                                            
|4.3           | 10 |  |  | Registration Rights Agreement, dated March 3, 2004, among Intellisync Corporation, as issuer and Morgan Stanley & Co. Incorporated, CIBC
World Markets and Needham & Company, Inc.                                                                                                               
|10.1 *        | 12 |  |  | Puma
Technology, Inc. 1998 Employee Stock Purchase Plan, as amended through April 23, 2002.                                                                                                                                                                                                      
|10.2 *        | 13 |  |  | Form
of notice of exercised used under Puma Technology, Inc. 1998 Employee Stock Purchase Plan.                                                                                                                                                                                                  
|10.3 *        | 5  |  |  | Form
of Indemnity Agreement for directors and officers.                                                                                                                                                                                                                                          
|10.4 *        | 14 |  |  | ProxiNet 1997 Stock Plan.                                                                                                                                                                                                                                                                        
|10.5 *        | 15 |  |  | NetMind Technologies, Inc. 1997 Stock Plan.                                                                                                                                                                                                                                                      
|10.6 *        | 16 |  |  | Puma
Technology, Inc. 2000 Supplemental Stock Option Plan and Related Form of Non-statutory Stock Option Agreement initially established as of March 29,
2000 and as amended through August 22, 2000.                                                                                            

69

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|ExhibitNumber |    |  |  | Exhibit Title                                                                                                                                                                                                                                                                        
|------------- | -- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.7  *       | 17 |  |  | Pumatech, Inc. Amended and Restated 1993 Stock Option Plan dated December 6, 2000.                                                                                                                                                                                                   
|10.8          | 18 |  |  | Loan
and Security Agreement dated March 29, 2001, by and between Imperial Bank and Pumatech, Inc.                                                                                                                                                                                    
|10.9          | 19 |  |  | Sublease Agreement dated as of February 4, 2002, between the Company and AlphaSmart, Inc.                                                                                                                                                                                            
|10.10 *       | 6  |  |  | Separation Agreement dated as of June 21, 2002, between the Company and Bradley A. Rowe.                                                                                                                                                                                             
|10.11 *       | 6  |  |  | Employment Agreement dated as of June 14, 2002, between the Company and Woodson M. Hobbs.                                                                                                                                                                                            
|10.12 *       | 6  |  |  | Restricted Stock Option Agreement dated as of June 14, 2002, between the Company and Woodson M. Hobbs.                                                                                                                                                                               
|10.13 *       | 6  |  |  | $309,750 Promissory Note dated as of June 14, 2002, payable by Woodson M. Hobbs to Pumatech, Inc.                                                                                                                                                                                    
|10.14 *       | 6  |  |  | Separation Agreement dated as of July 31, 2002, between the Company and Stephen Nicol.                                                                                                                                                                                               
|10.15 *       | 8  |  |  | Pumatech, Inc. 2002 Stock Option Plan                                                                                                                                                                                                                                                
|10.16 *       | 1  |  |  | $235,000 Promissory Note and Pledge Arrangement dated as of April 16, 2001, payable by Kelly Hicks to Pumatech, Inc.; and Amendment No. 1
dated as of April 16, 2002.                                                                                                                
|10.17        | 20 |  |  | Distribution Agreement by and between Ingram Micro, Inc. and Puma Technology, Inc. dated as of July 14, 1997 and Addendum thereto dated
January 30, 2001.                                                                                                                            
|10.18         | 21 |  |  | Software Consulting Agreement by and between Pumatech, Inc. and SoftVision Consulting dated October 1, 2002.                                                                                                                                                                         
|10.19 *       | 22 |  |  | Employment offer letter dated September 5, 2002, to Clyde Foster, Senior Vice President of Sales and Marketing.                                                                                                                                                                      
|10.20 *       | 22 |  |  | Change of Control Agreement with Keith Kitchen dated October 20, 2003.                                                                                                                                                                                                               
|10.21 *       | 22 |  |  | Change of Control Agreement with Clyde Foster, dated October 20, 2003.                                                                                                                                                                                                               
|10.22 *       | 22 |  |  | Compensation for Board Service and Change of Control Agreement for Michael M. Clair, dated October 20, 2003.                                                                                                                                                                         
|10.23 *       | 22 |  |  | Compensation for Board Service and Change of Control Agreement for Michael Praisner, dated October 20, 2003.                                                                                                                                                                         
|10.24 *       | 22 |  |  | Compensation for Board Service and Change of Control Agreement for Kirsten Berg-Painter, dated October 20, 2003.                                                                                                                                                                     
|10.25        | 23 |  |  | Intellisync Software Developers Kit and Bundling License Agreement by and between Puma Technology, Inc. and Research In Motion Limited
as of April 29, 1998, and Amendments thereto dated September 14, 1999, April 29, 2000, August 15, 2000, April 30, 2002, and October 31,
2003.
|10.26 *       | 24 |  |  | Synchrologic, Inc. Amended and Restated 1995 Stock Option Plan.                                                                                                                                                                                                                      
|10.27 *       | 24 |  |  | Synchrologic, Inc. 2001 Stock Incentive Plan.                                                                                                                                                                                                                                        
|10.28         | 4  |  |  | Settlement and License Agreement, dated March 4, 2004, by and between Intellisync Corporation and Extended Systems
Incorporated.                                                                                                                                                     
|10.29        | 25 |  |  | Master Software License, Software Development Agreement, Maintenance and Services Agreement and Reseller Agreement dated July 2, 2004 by and
between Intellisync Corporation and Cellco Partnership d/b/a Verizon Wireless.                                                          
|10.30 *       | 25 |  |  | Change of Control Agreement with Steven Goldberg dated February 10, 2004.                                                                                                                                                                                                            
|21.1          | 25 |  |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                      

70

---



|ExhibitNumber |    |  |  | Exhibit Title                                                                                                                                        
|------------- | -- |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|23.1          | 25 |  |  | Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.                                                                
|24.1          | 25 |  |  | Power
of Attorney (reference page 73 of this Form 10-K).                                                                                             
|31.1          | 25 |  |  | Certifications of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                             
|31.2          | 25 |  |  | Certifications of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                             
|32.1          | 25 |  |  | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|32.2          | 25 |  |  | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.

---

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

| |  | Confidential treatment has been granted or requested for
portions of this exhibit.
|- |  | ----------------------------------------------------------------------------------

|1 |  | Incorporated by reference to the Companys Report on Form
8-K filed on April 11, 2003.
|- |  | --------------------------------------------------------------------------------------

|2 |  | Incorporated by reference to the Companys Report on Form
8-K filed on August 6, 2003.
|- |  | --------------------------------------------------------------------------------------

|3 |  | Incorporated by reference to the Companys Report on Form
8-K filed on October 2, 2003.
|- |  | ---------------------------------------------------------------------------------------

|4 |  | Incorporated by reference to the Companys Report on Form
10-Q for the quarterly period ended April 30, 2004 filed on June 14, 2004.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------

|5 |  | Incorporated by reference to the Companys Registration
Statement on Form S-1 (No. 333-011445).
|- |  | -----------------------------------------------------------------------------------------------

|6 |  | Incorporated by reference to the Companys Annual Report on
Form 10-K for fiscal year ended July 31, 2002 filed on October 17, 2002.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------

|7 |  | Incorporated by reference to the Companys Report on Form
10-Q for the quarterly period ended January 31, 2001 filed on March 19, 2001.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------

|8 |  | Incorporated by reference to the Companys Definitive Proxy
Statement filed on October 18, 2002 for 2002 Annual Meeting of Stockholders.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------

|9 |  | Incorporated by reference to the Companys Report on Form
8-A12G filed on January 15, 2003.
|- |  | -------------------------------------------------------------------------------------------

|10 |  | Incorporated by reference to the Companys Report on Form
S-3 filed on June 3, 2004.
|-- |  | ------------------------------------------------------------------------------------

|11 |  | Incorporated by reference to the Companys Report on Form
8-K filed on February 18, 2004.
|-- |  | -----------------------------------------------------------------------------------------

|12 |  | Incorporated by reference to the Companys Report on Form
S-8 filed on August 27, 2002.
|-- |  | ---------------------------------------------------------------------------------------

|13 |  | Incorporated by reference to the Companys Annual Report on
Form 10-K for fiscal year ended July 31, 1999 filed on October 29, 1999.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------

|14 |  | Incorporated by reference to the Companys Report on Form
S-8 filed on November 1, 1999.
|-- |  | ----------------------------------------------------------------------------------------

|15 |  | Incorporated by reference to the Companys Report on Form
S-8 filed on February 24, 2000.
|-- |  | -----------------------------------------------------------------------------------------

|16 |  | Incorporated by reference to the Companys Report on Form
S-8 filed on October 27, 2000.
|-- |  | ----------------------------------------------------------------------------------------

|17 |  | Incorporated by reference to the Companys Report on Form
S-8 filed on February 6, 2001.
|-- |  | ----------------------------------------------------------------------------------------

|18 |  | Incorporated by reference to the Companys Report on Form
10-Q for the quarterly period ended April 30, 2001 filed on June 16, 2001.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------

|19 |  | Incorporated by reference to the Companys Report on Form
10-Q for the quarterly period ended April 30, 2002 filed on June 13, 2002.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------

71

---

|20 |  | Incorporated by reference to the Companys Report on Form
10-Q for the quarterly period ended October 31, 2002 filed on December 16, 2002.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------

|21 |  | Incorporated by reference to the Companys Report on Form
10-Q for the quarterly period ended April 30, 2003 filed on June 13, 2003.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------

|22 |  | Incorporated by reference to the Companys Annual Report on
Form 10-K for fiscal year ended July 31, 2003 filed on October 21, 2003.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------

|23 |  | Incorporated by reference to the Companys Report on Form
10-Q/A for the quarterly period ended October 31, 2003 filed on March 19, 2004.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------

|24 |  | Incorporated by reference to the Companys Report on Form
10-Q for the quarterly period ended January 31, 2004 filed on March 15, 2004.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------

|25 |  | Filed herewith.
|-- |  | ---------------

| |  | (c) Financial Statement Schedules.
| |  | ----------------------------------

| |  | Refer to Item 15 (a) above.
| |  | ---------------------------

72

---

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned thereunto duly
authorized, on this 13th day of October 2004.


|Date: October 13,
2004 |  | Intellisync CorporationBy:/s/ J. KEITH
KITCHENJ. Keith KitchenChief
Financial Officer
|---------------------- |  | -------------------------------------------------------------------------------------

POWER OF ATTORNEY



KNOW ALL PERSONS BY THESE PRESENTS, that each person
whose signature appears below hereby constitutes and appoints Woodson Hobbs and J. Keith Kitchen, and each of them acting individually, as his
attorney-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Form 10-K, and to
file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each said attorneys-in-fact or his substitute or substitutes, may do or cause to be done by virtue hereof.




Pursuant to the requirements of the Securities
Exchange Act of 1934, this Form 10-K has been signed below by the following persons in the capacities and on the dates indicated:







|Signature                                    |  |  |  | Title                                                                         |  | Date            
|-------------------------------------------- |  |  |  | ----------------------------------------------------------------------------- |  | ----------------
|/s/ WOODSON
HOBBSWoodson Hobbs               |  |  |  | President, Chief Executive Officer and Director (Principal Executive Officer) |  | October 13,
2004
|/s/ J. KEITH
KITCHENJ. Keith Kitchen         |  |  |  | Chief
Financial Officer (Principal Financial and Accounting Officer)          |  | October 13,
2004
|/s/ SAID
MOHAMMADIOUNSaid Mohammadioun       |  |  |  | Chief
Technology Officer and Director                                         |  | October 13,
2004
|/s/ MICHAEL M.
CLAIRMichael M. Clair         |  |  |  | Chairman of the Board                                                         |  | October 13,
2004
|/s/ RICHARD
ARNOLDRichard Arnold             |  |  |  | Director                                                                      |  | October 13,
2004
|/s/ KIRSTEN
BERG-PAINTERKirsten Berg-Painter |  |  |  | Director                                                                      |  | October 13,
2004
|/s/ MICHAEL
PRAISNERMichael Praisner         |  |  |  | Director                                                                      |  | October 13,
2004

73

---



INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

|                                                                                                                                            |  |  |  | Page
|------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | ----
|Report of
Independent Registered Public Accounting Firm                                                                                     |  |  |  |     
|Consolidated
Balance Sheets at July 31, 2004 and 2003                                                                                       |  |  |  |     
|Consolidated
Statements of Operations for each of the three fiscal years in the period ended July 31, 2004                                  |  |  |  |     
|Consolidated
Statements of Stockholders Equity and Comprehensive Loss for each of the three fiscal years in the period ended July 31, 2004 |  |  |  |     
|Consolidated
Statements of Cash Flows for each of the three fiscal years in the period ended July 31, 2004                                  |  |  |  |     
|Notes to
Consolidated Financial Statements                                                                                                  |  |  |  |     
|Schedule
II                                                                                                                                 |  |  |  |     

F-1

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Intellisync
Corporation:



In our opinion, the consolidated financial
statements listed in the index appearing under Item 15 (a) (1) present fairly, in all material respects, the financial position of Intellisync
Corporation and its subsidiaries at July 31, 2004 and July 31, 2003, and the results of their operations and their cash flows for each of the three
years in the period ended July 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the index appearing under Item 15 (a) (2) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related statements and financial statement schedule based on our audits. These
financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.




As discussed in Note 5 to the financial statements,
the Company changed its method of accounting for goodwill in fiscal 2003 pursuant to its adoption SFAS No. 142.


/s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California October 13, 2004

F-2

---

INTELLISYNC CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands,
except per common share data)






|                                                                                                                                                |  |  |  | July 31, |         
|----------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | -------- | --------
|
|ASSETS                                                                                                                                          |  |  |  |          |         
|Current
assets:                                                                                                                                 |  |  |  |          |         
|Cash and cash
equivalents                                                                                                                       |  |  |  | $        | 12,991  
|Short-term
investments                                                                                                                          |  |  |  |          | 40,657  
|Accounts
receivable, net                                                                                                                        |  |  |  |          | 10,380  
|Inventories                                                                                                                                     |  |  |  |          | 69      
|Other current
assets                                                                                                                            |  |  |  |          | 2,485   
|Total current
assets                                                                                                                            |  |  |  |          | 66,582  
|Property and
equipment, net                                                                                                                     |  |  |  |          | 1,540   
|Goodwill                                                                                                                                        |  |  |  |          | 65,288  
|Other
intangible assets, net                                                                                                                    |  |  |  |          | 29,828  
|Restricted
cash                                                                                                                                 |  |  |  |          | 4,032   
|Other
assets                                                                                                                                    |  |  |  |          | 3,084   
|Total
assets                                                                                                                                    |  |  |  | $        | 170,354 
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                            |  |  |  |          |         
|Current
liabilities:                                                                                                                            |  |  |  |          |         
|Accounts
payable                                                                                                                                |  |  |  | $        | 1,562   
|Accrued
liabilities                                                                                                                             |  |  |  |          | 7,482   
|Current
portion of obligations under capital lease                                                                                              |  |  |  |          | 51      
|Deferred
revenue                                                                                                                                |  |  |  |          | 5,794   
|Total current
liabilities                                                                                                                       |  |  |  |          | 14,889  
|Obligations
under capital lease                                                                                                                 |  |  |  |          | 144     
|Convertible
senior notes                                                                                                                        |  |  |  |          | 58,443  
|Other
liabilities                                                                                                                               |  |  |  |          | 2,487   
|Total
liabilities                                                                                                                               |  |  |  |          | 75,963  
|Commitments
and contingencies (Note 9)                                                                                                          |  |  |  |          |         
|Stockholders equity:                                                                                                                           |  |  |  |          |         
|Preferred
stock, $0.001 par value; 2,000 shares authorized and none issued and outstanding at July 31, 2004 and 2003                            |  |  |  |          |        
|Common stock,
$0.001 par value; 160,000 and 80,000 shares authorized; 65,592 and 47,753 shares issued and outstanding at July 31, 2004 and 2003 |  |  |  |          | 66      
|Additional
paid-in capital                                                                                                                      |  |  |  |          | 225,832 
|Receivable
from stockholders                                                                                                                    |  |  |  |          |        
|Deferred
stock compensation                                                                                                                     |  |  |  |          |        
|Accumulated
deficit                                                                                                                             |  |  |  |          | (131,116
|Accumulated
other comprehensive loss                                                                                                            |  |  |  |          | (391    
|Total
stockholders equity                                                                                                                      |  |  |  |          | 94,391  
|Total
liabilities and stockholders equity                                                                                                      |  |  |  | $        | 170,354 

The accompanying notes are an integral part of these consolidated financial
statements.

F-3

---

INTELLISYNC CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In
thousands, except per common share data)






|                                                                                           |  |  |  | Year Ended July 31, |        
|------------------------------------------------------------------------------------------ |  |  |  | ------------------- | -------
|
|Revenue:                                                                                   |  |  |  |                     |        
|License                                                                                    |  |  |  | $                   | 28,292 
|Services                                                                                   |  |  |  |                     | 14,016 
|Total
revenue                                                                              |  |  |  |                     | 42,308 
|Cost of
revenue:                                                                           |  |  |  |                     |        
|Cost of
license revenue                                                                    |  |  |  |                     | 2,059  
|Cost of
services revenue (includes non-cash stock compensation of $14, $86 and $5)         |  |  |  |                     | 5,949  
|Amortization
of developed and core technology                                              |  |  |  |                     | 2,693  
|Total cost of
revenue                                                                      |  |  |  |                     | 10,701 
|Gross
profit                                                                               |  |  |  |                     | 31,607 
|Operating
expenses:                                                                        |  |  |  |                     |        
|Research and
development (includes non-cash stock compensation of $38, $99 and $106)       |  |  |  |                     | 11,467 
|Sales and
marketing (includes non-cash stock compensation of $18, $138 and $35)            |  |  |  |                     | 16,540 
|General and
administrative (includes non-cash stock compensation of $675, $1,419 and $221) |  |  |  |                     | 7,639  
|In-process
research and development                                                        |  |  |  |                     | 3,667  
|Amortization
of goodwill                                                                   |  |  |  |                     |       
|Amortization
of other intangible assets                                                    |  |  |  |                     | 1,959  
|Restructuring
and other charges                                                            |  |  |  |                     | 929    
|Impairment of
assets                                                                       |  |  |  |                     |       
|Total
operating expenses                                                                   |  |  |  |                     | 42,201 
|Operating
loss                                                                             |  |  |  |                     | (10,594
|Other income
(expense):                                                                    |  |  |  |                     |        
|Interest
income                                                                            |  |  |  |                     | 620    
|Interest
expense                                                                           |  |  |  |                     | (249   
|Litigation
settlement gain, net                                                            |  |  |  |                     | 1,576  
|Other,
net                                                                                 |  |  |  |                     | (327   
|Other-than-temporary impairment of investments                                             |  |  |  |                     |       
|Total other
income (expense)                                                               |  |  |  |                     | (1,620 
|Loss before
income taxes                                                                   |  |  |  |                     | (8,974 
|Provision for
income taxes                                                                 |  |  |  |                     | 481    
|Net
loss                                                                                   |  |  |  | $                   | (9,455 
|Basic and
diluted net loss per common share                                                |  |  |  | $                   | (0.16  
|Shares used
in computing basic and diluted net loss per common share                       |  |  |  |                     | 57,732 

The accompanying notes are an integral part of these consolidated financial
statements.

F-4

---



INTELLISYNC CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY AND COMPREHENSIVE LOSS (In thousands)






|                                                                           |  |  |  | Common Stock |       
|-------------------------------------------------------------------------- |  |  |  | ------------ | ------
|
|Balance at
July 31, 2001                                                   |  |  |  |              | 44,555
|Issuance of
common stock upon exercise of options, net of repurchases      |  |  |  |              | 156   
|Issuance of
common stock under Restricted Stock Option Plan                |  |  |  |              | 525   
|Issuance of
common stock under Employee Stock Purchase Plan                |  |  |  |              | 615   
|Unrealized gain
on securities available-for-sale                           |  |  |  |              |      
|Currency
translation adjustment                                            |  |  |  |              |      
|Reversal of
stock-based compensation on termination of employees           |  |  |  |              |      
|Recovery of
deferred compensation, net                                     |  |  |  |              |      
|Amortization of
deferred compensation                                      |  |  |  |              |      
|Net
loss                                                                   |  |  |  |              |      
|Balance at
July 31, 2002                                                   |  |  |  |              | 45,851
|Issuance of
common stock upon exercise of options                          |  |  |  |              | 1,374 
|Issuance of
common stock under Employee Stock Purchase Plan                |  |  |  |              | 522   
|Unrealized loss
on securities available-for-sale                           |  |  |  |              |      
|Realized loss
on securities available- for-sale                            |  |  |  |              |      
|Currency
translation adjustment                                            |  |  |  |              |      
|Issuance of
common stock in connection with acquisitions                   |  |  |  |              | 134   
|Cancellation of
common stock in connection with Windward acquisition       |  |  |  |              | (128  
|Repayments by
stockholders                                                 |  |  |  |              |      
|Reclassification of vested common stock under Restricted Stock Option Plan |  |  |  |              |      
|Reversal of
stock-based compensation on termination of employees           |  |  |  |              |      
|Deferred
compensation, net                                                 |  |  |  |              |      
|Amortization of
deferred compensation                                      |  |  |  |              |      
|Net
loss                                                                   |  |  |  |              |      
|Balance at
July 31, 2003                                                   |  |  |  |              | 47,753
|Issuance of
common stock upon exercise of options                          |  |  |  |              | 1,561 
|Issuance of
common stock under Employee Stock Purchase Plan                |  |  |  |              | 279   
|Unrealized loss
on securities available-for-sale                           |  |  |  |              |      
|Currency
translation adjustment                                            |  |  |  |              |      
|Issuance of
common stock in connection with acquisitions                   |  |  |  |              | 15,999
|Reclassification of vested common stock under Restricted Stock Option Plan |  |  |  |              |      
|Repayments by
stockholders                                                 |  |  |  |              |      
|Deferred
compensation, net                                                 |  |  |  |              |      
|Amortization of
deferred compensation                                      |  |  |  |              |      
|Net
loss                                                                   |  |  |  |              |      
|Balance at
July 31, 2004                                                   |  |  |  |              | 65,592

The accompanying notes are an integral part of these consolidated financial
statements.

F-5

---



INTELLISYNC CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In
thousands)






|                                                                            |  |  |  | Year Ended July 31, |        
|--------------------------------------------------------------------------- |  |  |  | ------------------- | -------
|
|Cash flows from
operating activities:                                       |  |  |  |                     |        
|Net
loss                                                                    |  |  |  | $                   | (9,455 
|Adjustments
to reconcile net loss to net cash used in operating activities: |  |  |  |                     |        
|Purchased
in-process research and development                               |  |  |  |                     | 3,667  
|Restructuring
and other charges                                             |  |  |  |                     |       
|Impairment of
assets                                                        |  |  |  |                     |       
|Other-than-temporary impairment of investments                              |  |  |  |                     |       
|Provision for
(recovery) doubtful accounts                                  |  |  |  |                     | 316    
|Write-off of
excess research and development software and related assets    |  |  |  |                     |       
|Uncollectible
contractual payments                                          |  |  |  |                     |       
|Depreciation
and amortization                                               |  |  |  |                     | 5,931  
|Non-cash
stock compensation                                                 |  |  |  |                     | 745    
|Realized gain
on sale of investment                                         |  |  |  |                     |       
|Changes in
assets and liabilities:                                          |  |  |  |                     |        
|Accounts
receivable                                                         |  |  |  |                     | (2,847 
|Inventories                                                                 |  |  |  |                     | 44     
|Other current
assets                                                        |  |  |  |                     | (1,372 
|Accounts
payable                                                            |  |  |  |                     | (2,253 
|Accrued
liabilities                                                         |  |  |  |                     | (3,021 
|Deferred
revenue                                                            |  |  |  |                     | 632    
|Other assets
and liabilities                                                |  |  |  |                     | 67     
|Net cash used
in operating activities                                       |  |  |  |                     | (7,546 
|Cash flows from
investing activities:                                       |  |  |  |                     |        
|Purchase of
property and equipment                                          |  |  |  |                     | (759   
|Purchase of
short term investments                                          |  |  |  |                     | (35,616
|Proceeds from
the sales of short-term investments                           |  |  |  |                     | 7,650  
|Proceeds from
the maturities of short-term investments                      |  |  |  |                     | 6,500  
|(Decrease)
increase in restricted cash                                      |  |  |  |                     | (3,679 
|Acquisitions,
net of cash acquired                                          |  |  |  |                     | (18,939
|Other
investments                                                           |  |  |  |                     | (200   
|Net cash
(used in) provided by investing activities                         |  |  |  |                     | (45,043
|Cash flows from
financing activities:                                       |  |  |  |                     |        
|Principal
payments on borrowings                                            |  |  |  |                     | (1,764 
|Principal
payments on capital lease                                         |  |  |  |                     | (36    
|Proceeds from
long term debt                                                |  |  |  |                     | 60,000 
|Debt issuance
costs                                                         |  |  |  |                     | (2,948 
|Note
repayments from (advances to) stockholders                             |  |  |  |                     | 310    
|Proceeds upon
exercise of stock options                                     |  |  |  |                     | 1,795  
|Proceeds from
ESPP shares issued                                            |  |  |  |                     | 337    
|Net cash
provided by financing activities                                   |  |  |  |                     | 57,694 
|Effect of
exchange rate changes on cash and cash equivalents                |  |  |  |                     | 44     
|Net increase
(decrease) in cash and cash equivalents                        |  |  |  |                     | 5,149  
|Cash and cash
equivalents at beginning of year                              |  |  |  |                     | 7,842  
|Cash and cash
equivalents at end of year                                    |  |  |  | $                   | 12,991 
|Supplemental
disclosure of cash flow information:                           |  |  |  |                     |        
|Interest
paid                                                               |  |  |  | $                   | 6      
|Income taxes
paid                                                           |  |  |  | $                   | 322    
|Capital lease
obligations                                                   |  |  |  | $                   | 231    
|Common stock
issued in connection with business acquisition                 |  |  |  | $                   | 69,246 
|Net non-cash
stock compensation (recovery)                                  |  |  |  | $                   | 288    
|Reversal of
stock-based compensation on termination of employees            |  |  |  | $                   |       

The accompanying notes are an integral part of these consolidated financial
statements.

F-6

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

Note 1    The Company and a Summary of its Significant
Accounting Policies

The Company



Intellisync Corporation, Intellisync or the
Company, was incorporated in California on August 27, 1993 as Puma Technology, Inc. and was subsequently reincorporated in Delaware on
November 27, 1996. The Company changed its corporate name from Pumatech, Inc. to Intellisync Corporation effective February 17, 2004. The Company
develops, markets and supports desktop, enterprise and carrier-class synchronization, that enable consumers, business professionals and information
technology professionals to extend the capabilities of enterprise groupware and vertical applications, handheld organizers/computers, Web-enabled
mobile phones, pagers and other wireless or wireline personal communications platforms.


Liquidity and Capital Resources



The Company has incurred losses and negative cash
flows since inception. The Company incurred a net loss of approximately $9,455,000 and negative cash flows from operations of approximately $7,546,000
for fiscal 2004. The Companys cash balances may decline further, although the Company believes that the effects of its strategic actions
implemented to improve revenue as well as control costs along with existing cash resources will be adequate to fund its operations for at least the
next 12 months. Failure to generate sufficient revenues or control spending could adversely affect the Companys ability to achieve its business
objectives.




During fiscal 2004, the Company realized proceeds of
approximately $57,100,000, net of the initial purchasers discounts and commissions and estimated offering costs, from a convertible senior notes
offering. Refer to Note 7  Long-Term Debt for more details on the convertible senior notes.


Basis of Presentation and Consolidation



The accompanying consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. The consolidated financial statements include the results of operations of all
companies or assets recently acquired since the date of pertinent acquisitions. These acquisitions include Starfish Software, Inc., Spontaneous
Technology, Inc., Synchrologic, Inc. and Search Software America Pty. Ltd., the assets purchased from Loudfire, Inc., and the engineering employees
transferred from SoftVision SRL in accordance with an employee transfer agreement. Refer to Note 4. All significant inter-company balances and
transactions have been eliminated in consolidation. Certain amounts in prior periods have been reclassified to conform to the current
presentation.


Use of Estimates and Assumptions



The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates, including those
related to provision for doubtful accounts, channel inventory and product returns, valuation of intangibles, investments and other long-lived assets,
restructuring accruals, license and services revenue recognition and contingencies. The Company bases its estimates on various factors and information
which may include, but are not limited to, history and prior experience, experience of other enterprises in the same industry, new related events,
current economic conditions and information from third party professionals that are believed to be reasonable under the circumstances, the results of
which form the basis for taking judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or conditions.


F-7

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 1    The Company and a Summary of its Significant
Accounting Policies  (Continued)

Translation of Financial Statements of Foreign Entities



The functional currency of the Company and its
subsidiaries is the applicable local currency in accordance with Statement of Financial Accounting Standards (SFAS) No. 52, Foreign Currency
Translation, while the Companys reporting currency is the U.S. dollar. Assets and liabilities of the Company and its subsidiaries with
functional currencies other than the U.S. dollar are translated into U.S. dollar equivalents at the rate of exchange in effect on the balance sheet
date. Revenues and expenses are translated at the weighted average monthly exchange rates throughout the year. Translation gains or losses are recorded
as a separate component of shareholders equity and transaction gains and losses are reflected in net income.




For fiscal 2004 and 2003, the Company recorded net
translation losses of $259,000 and $16,000, respectively. For fiscal 2004, 2003 and 2002, the Company realized net transaction losses of $19,000,
$4,000 and $4,000, respectively. The Company as of yet does not undertake any foreign currency hedging activities. Due to the number of currencies
involved, the constant change in currency exposures and the substantial volatility of currency exchange rates, the effect of exchange rate fluctuations
upon the Companys future operating results could be significant.


Revenue Recognition



Revenue is derived from software licenses and
related services, which include implementation and integration of software solutions, post contract support, training and consulting.




Transactions involving the sale of software products
are accounted for under the American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) No. 97-2, Software Revenue
Recognition, as amended by SOP No. 98-9, Modification of 97-2, Software Revenue Recognition with Respect to Certain
Transactions. For contracts with multiple elements, and for which vendor-specific objective evidence of fair value for the undelivered
elements exists, revenue is recognized for the delivered elements based upon the residual contract value as prescribed by SOP No. 98-9. The Company has
accumulated relevant information from contracts to use in determining the availability of vendor-specific objective evidence and believes that such
information complies with the criteria established in SOP No. 97-2 as follows:


| |  | Customers pay separately for annual maintenance. Optional stated
future renewal rates are included as a term of the contracts. The Company uses the renewal rate as vendor-specific objective evidence of fair value for
maintenance.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The Company charges standard hourly rates for consulting
services, when such services are sold separately, based upon the nature of the services and experience of the professionals performing the
services.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | For training, the Company charges standard rates for each course
based upon the duration of the course, and such courses are separately priced in contracts. The Company has a history of selling such courses
separately.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Revenue from license fees is recognized when
persuasive evidence of an arrangement exists, delivery of the product has occurred, no significant Company obligations with regard to implementation or
integration exist, the fee is fixed or determinable and collectibility is probable. Arrangements for which the fees are not deemed probable for
collection are recognized upon cash collection. Payments from customers received in advance of revenue recognition are recorded as deferred
revenue.




Services revenue primarily comprises revenue from
consulting fees, maintenance contracts and training. Services revenue from consulting and training is recognized as the service is performed.
Maintenance contracts include the right to unspecified upgrades and ongoing support. Maintenance revenue is deferred and recognized ratably as services
are provided over the maintenance period.


F-8

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 1    The Company and a Summary of its Significant
Accounting Policies  (Continued)



License and services revenue on contracts involving
significant implementation, customization or services, that are essential to the functionality of the software is recognized over the period of each
engagement, primarily using the percentage-of-completion method. Labor hours incurred is generally used as the measure of progress towards completion
as prescribed by SOP No. 81-1, Accounting for Performance of Construction-Type and Certain Product-Type Contracts. Revenue for these
arrangements is classified as license revenue and services revenue based upon estimates of fair value for each element, and the revenue is recognized
based on the percentage-of-completion ratio for the arrangement. A provision for estimated losses on engagements is made in the period in which the
loss becomes probable and can be reasonably estimated. The Company considers a project completed when all contractual obligations have been met
(generally the go live date).




The Company currently sells its products directly to
individuals, small businesses and corporations, to original equipment manufacturers, or OEMs, and to distributors and value-added resellers in North
America, Europe, the Asia-Pacific region, South America and Africa. Revenue from products distributed indirectly through major distributors and
resellers is recognized on a sell through basis. Agreements with the Companys major distributors and resellers contain specific product return
privileges for stock rotation and obsolete products that are generally limited to contractual amounts. Reserves for estimated future returns are
provided for upon revenue recognition. Product returns are recorded as a reduction of revenues. Accordingly, the Company has established a product
returns reserve composed of 100% of product inventories held at the Companys distribution partners, as well as an estimated amount for returns
from customers of the distributors and other resellers as a result of stock rotation and obsolete products. Such reserves are based
on:


| |  | historical product returns and inventory levels on a product by
product basis;
|- |  | ------------------------------------------------------------------------------

| |  | current inventory levels and sell through data on a product by
product basis as reported by the Companys major distributors worldwide;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------

| |  | demand forecast by product in each of the principal geographic
markets, which is impacted by the Companys product release schedule, seasonal trends and analyses developed by the Companys internal sales
and marketing group; and
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | general economic conditions.
|- |  | ----------------------------



The Company licenses rights to use its intellectual
property portfolio, whereby licensees, particularly OEMs, typically pay a non-refundable license fee in one or more installments and on-going royalties
based on their sales of products incorporating the Companys intellectual property. Revenue from OEMs under minimum guaranteed royalty
arrangements, which are not subject to future obligations, is recognized when such royalties are earned and become payable. Royalty revenue is
recognized as earned when reasonable estimates of such amounts can be made. Royalty revenue that is subject to future obligations is recognized when
such obligations are fulfilled. Royalty revenue that exceeds minimum guarantees is recognized in the period earned.


Cash and Cash Equivalents



The Company considers all highly liquid debt
instruments with an original maturity of three months or less at the date of purchase to be cash equivalents.


Short Term Investments



The Company considers cash invested in highly liquid
financial instruments with original maturities greater than three months to be short-term investments, which are accounted for in accordance with SFAS
No. 115, Accounting for Certain Investments in Debt and Equity Securities. SFAS No. 115 requires the Company to classify debt and
equity securities into one of three categories: held to maturity, trading or available-for-sale. As of July 31, 2004 and 2003, the Companys
short-term investments include commercial paper, corporate notes, certificates of


F-9

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 1    The Company and a Summary of its Significant
Accounting Policies  (Continued)

deposit, auction rate preferred stock, auction rate receipts and fixed-income
annuities which are valued using the amortized cost method which approximates market value due to short maturities of these instruments. Short-term
investments also include United States government backed securities and equity securities, which carried at fair value, with the unrealized gains and
losses reported as a separate component of stockholders equity. The Company intends to make such funds readily available for operating purposes.
Realized gains and losses on sales of investment securities are included in the consolidated statements of operations. The cost of securities sold is
based on the specific identification method. Refer to Note 3 for more details on short-term investments. The Company monitors its investments for
impairment by considering current factors including the economic environment, market conditions and operational performance and other specific factors
relating to the business underlying the investment, and records reductions in carrying values when necessary.

Inventories



Inventories consist principally of cables, software
and related documentation, which are stated at the lower of cost (first-in, first-out) or market. Market is net realizable value, which,
for finished goods is the estimated selling price, less costs to complete and dispose of the inventory. For raw materials, it is replacement cost or
the cost of acquiring similar products from the Companys vendors.




The Company initially records its inventory at cost
and each quarter evaluates the difference, if any, between cost and market. The determination of the market value of inventories is primarily dependent
on estimates of future demand for the Companys products, which in turn is based on other market estimates such as technological change,
competitor actions and estimates of future selling prices.




The Company records write-downs for the amount that
cost of inventory exceeds its estimated market value. No adjustment is required when market value exceeds cost.


Software Development Costs



Software development costs incurred prior to the
establishment of technological feasibility are included in research and development and are expensed as incurred. The Company defines establishment of
technological feasibility at the point which product reaches beta (testing for errors and usability of interface). Software development costs incurred
subsequent to the establishment of technological feasibility through the period of general market availability of the product are capitalized in
accordance with SFAS No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed. During fiscal
2004, 2003 and 2002, all software development costs have been expensed as incurred due to the period of time between beta and making them generally
available has been short.


Property and Equipment



Property and equipment are stated at cost.
Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets. Computer equipment and software
are depreciated over three years; furniture and office equipment are depreciated over four years; and leasehold improvements are amortized over the
estimated useful lives, or the term of the related leases, whichever is shorter. Repair and maintenance costs are charged to operations as incurred and
major improvements are capitalized. The Company reviews the carrying amount of fixed assets whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable. The Company, therefore, evaluates the remaining life and recoverability of such equipment in
light of current market conditions. Upon disposal, the assets and related accumulated depreciation are removed from the Companys accounts and
resulting gains and losses are recorded in other, net.




The Company follows the provisions of the
AICPAs SOP No. 98-1 Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, in determining the
amount of developed in-house software costs


F-10

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 1    The Company and a Summary of its Significant
Accounting Policies  (Continued)

to be
capitalized. The Company applies the provisions of the Financial Accounting Standards
Board (FASB) Emerging Issues Task Force Issue (EITF) No.  00-02 Accounting for
Website Development Costs in determining the amount of Website development
costs to be capitalized. These  standards require capitalization of certain direct
development costs associated with internal use software and Website development costs.
Costs to be  capitalized include internal and external direct project costs including,
among others, payroll and labor, material, and services. These costs are  being amortized
over the estimated useful life. Costs incurred on new projects in a preliminary phase and
projects that contract negotiations have not  begun, as well as maintenance, and training
costs are charged to expense as incurred.

Business Combinations and Asset Purchases



Business Combinations are accounted for in
accordance with SFAS No. 141, Business Combinations which effectively requires that the purchase method of accounting for business
combinations be followed. In accordance with SFAS 141, the Company determines the recognition of intangible assets based on the following criteria: (1)
the intangible asset arises from contractual or other rights, or (2) the intangible is separable or divisible from the acquired entity and capable of
being sold, transferred, licensed, returned or exchanged. In conjunction with business combinations, the Company may record restructuring liabilities
of the acquired company in accordance with EITF No. 95-3, Recognition of Liabilities in Connection with a Purchase Business
Combination. These costs represent liabilities that are recorded as part of the purchase price allocation for the acquisition. Accordingly,
the Companys recent acquisitions of Synchrologic and SSA were accounted for using the guidance in SFAS No. 141 and EITF No.
95-3.




EITF No. 98-3, Determining Whether a
Nonmonetary Transaction Involves Receipt of a Productive Asset or of a Business, defines the elements necessary to evaluate whether a
business has been received in a nonmonetary exchange transaction. EITF No. 98-3 defines a business as a self-sustaining integrated set of activities
and assets conducted and managed for the purpose of providing a return to investors. A business consists of (a) inputs, (b) processing applied to those
inputs, and (c) resulting outputs that are used to generate revenues. Pursuant to EITF No. 98-3, since the acquisitions of certain assets of SoftVision
in fiscal 2004 and Loudfire in fiscal 2003 did not have all the required elements to be considered the purchase of a business, the Company recorded the
transactions as an asset purchase.


Goodwill and Intangible Assets



Goodwill represents the excess of purchase price,
including acquisition costs, of acquired businesses over the fair value of the identifiable net assets acquired and, through July 31, 2002, was
amortized using the straight-line method over estimated useful lives ranging from three to five years. As required by SFAS No. 142, Goodwill
and Other Intangible Assets, amortization ceased on August 1, 2002. Goodwill is instead evaluated in terms of its fair value annually or more
frequently if impairment indicators arise and any impairment recognized at that time. Refer to Impairment of Long-Lived Assets
below.




Impairment of goodwill is tested at the reporting
unit level by comparing the reporting units carrying amount, including goodwill, to the fair value of the reporting unit. The Company has one
reporting unit and estimates the units fair value using the present value of expected future cash flows. If the carrying amount of the reporting
unit exceeds its fair value, goodwill is considered impaired and a second step is performed to measure the amount of impairment loss, if
any.




Other intangible assets result from the application
of the purchase method of accounting for the Companys acquisitions and are composed of the unamortized identifiable assets including acquired
developed and core technology, patents, trademarks, customer base, covenant not-to-compete, customer contracts and acquired workforce (not accounted as
a business combination). Developed and core technology, patents and customer base are amortized over the period of benefit, generally four to ten
years. Trademarks are amortized over the period of


F-11

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 1    The Company and a Summary of its Significant
Accounting Policies  (Continued)

benefit of three years. Covenant not-to-compete, customer contracts and acquired
workforce are amortized over the period of benefit, ranging from nine months to two years.



Refer to Note 5 for more details on goodwill and
other intangible assets.


Impairment of Long-Lived Assets



The Company evaluates long-lived assets for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets. An asset is considered impaired if its carrying amount exceeds
the future net cash flow the asset is expected to generate. If such asset is considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the asset exceeds its fair market value. The Company assesses the recoverability of its long-lived and
intangible assets by determining whether the unamortized balances can be recovered through undiscounted future net cash flows of the related assets.
The amount of impairment, if any, is measured based on projected discounted future net cash flows using a discount rate reflecting the Companys
average cost of capital.




During fiscal 2003, the Company disposed its limited
partnership interest in Azure Venture Partners, LLP, a venture capital fund. The disposal of the interest allowed the Company to avoid commitments for
further investments in equity instruments of various privately-held companies made through Azure, many of which had not generated adequate returns. In
addition, the disposal is in line with the Companys strategy of focusing resources and efforts more on its core operations. Consequently, the
Company recorded an other-than-temporary impairment charge of $2,394,000. Total proceeds of $75,000 from the sale of the interest were received in May
2003, which approximated the carrying value of the investment after the writedown.




During fiscal 2002, the Company recorded a charge
for an other-than-temporary impairment of investments of approximately $380,000 related to the Companys pro-rata share of net loss realized by
Azure on sale or liquidation of certain investments.


Long-Term Investments



Long-term investments that are not represented by
marketable securities are carried at cost less write-downs for declines in value that are judged to be other-than-temporary. Declines in fair value are
considered other-than-temporary when: (i) the carrying value of the investments exceeds the fair value of such investments using current assumptions
and (ii) the timing and/or extent of cash flows expected to be received on the investments has adversely changed from the previous valuation date.
Dividends are recorded in other, net, when received.


Restricted Cash



Cash and investments that are restricted for use,
for legal or other contractual reasons, are segregated and classified as restricted cash. The Companys restricted cash consists of cash held by a
financial institution as collateral under the terms of the interest rate swap agreement, into which the Company entered during fiscal 2004, to match
any unfavorable mark-to-market exposure (fair value) on the swap. The amount of collateral required totals a minimum of $1,800,000 plus an amount equal
to the unfavorable mark-to-market exposure on the swap. Generally, the required collateral will rise as interest rates rise. As of July 31, 2004, the
Company has posted approximately $3,736,000 of collateral under the swap agreement which is included in Restricted Cash in the consolidated
balance sheet.




Restricted cash also includes cash held by financial
institutions as collateral on letters of credit in connection with the Companys certain operating lease obligations. This portion of the
restricted cash was $296,000, net of current portion of $101,000 and $112,000, at July 31, 2004 and 2003, respectively. The short-term and the
long-term portions are classified as Other Current Assets and Restricted Cash, respectively, in the consolidated balance
sheets.


F-12

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 1    The Company and a Summary of its Significant
Accounting Policies  (Continued)

Contingencies



The Company evaluates contingent liabilities in
accordance with SFAS No. 5, Accounting for Contingencies. The Company assesses the likelihood of any adverse judgments or outcomes
to a potential claim or legal proceeding, as well as potential ranges of probable losses, when the outcome of the claims or proceedings are probable
and reasonably estimable. A determination of the amount of accrued liabilities required, if any, for these contingencies is made after analysis of each
matter. Because of uncertainties related to these matters, the Company bases its estimates on the information available at the time. As additional
information becomes available, the Company reassesses the potential liability related to its pending claims and litigation and may revise its
estimates. Any revisions in the estimates of potential liabilities could have a material impact on its results of operations and financial
position.


Advertising Expense



In accordance with the EITF No. 01-09,
Accounting for Consideration Given by a Vendor to a Customer, the Company carefully evaluates the substance of any co-op advertising
support. To the extent that the co-op advertising support relates to the acquisition of advertising material which the Company could obtain
independently, these costs are considered advertising or sales and marketing expense. To the extent that they relate to promotional support for the
Companys customers advertising activities, they are considered reductions of revenue, in accordance with the EITF 01-09. The Company
evaluates co-op advertising commitments on a customer by customer basis considering actions taken throughout the course of the year, and the
Companys prior history in dealing with customer co-op advertising issues. Costs accounted for as reductions of revenue amounted to $152,000,
$179,000 and $389,000 in fiscal 2004, 2003 and 2002, respectively.




Other advertising costs, approximately $1,072,000,
$626,000 and $1,546,000 for fiscal 2004, 2003 and 2002, respectively, are charged to sales and marketing expense as incurred.


Income Taxes



Income taxes are computed using the asset and
liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the
financial reporting and tax bases of the assets and liabilities and are measured using the currently enacted tax rates and laws. The measurement of
deferred tax assets is reduced, if necessary by the amount of any tax benefits that, based on available evidence, are not expected to be
realized.


Comprehensive Income (Loss)



Comprehensive income (loss) is defined as a change
in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments by owners
and distributions to owners. The primary difference between net income (loss) and comprehensive income (loss) for the Company arises from foreign
currency translation adjustments and net unrealized gains/(losses) on available-for-sale securities.


Concentration of Supply and Credit Risk



The Company depends on development tools provided by
a limited number of third party vendors. Together with application developers, the Company relies primarily upon software development tools provided by
companies in the personal computer (PC) and mobile computing device industries. If any of these companies fail to support or maintain these development
tools, the Company will have to support the tools itself or transition to another vendor. Any maintenance or support of the tools by the Company or
transition to other tools could be time consuming, could delay product release and upgrade schedule and could delay the development and availability of
third party applications used on the Companys products. Failure to procure the needed software development tools or any


F-13

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 1    The Company and a Summary of its Significant
Accounting Policies  (Continued)

delay in availability of third party applications could negatively impact the
Companys ability and the ability of third party application developers to release and support the Companys products or they could
negatively and materially affect the acceptance and demand for the Companys products, business and prospects.



Financial instruments that potentially subject the
Company to significant concentrations of credit risk consist principally of cash, cash equivalents, investments and trade accounts receivable. The
Company places its cash, cash equivalents and short-term investments primarily in money market accounts, commercial paper, corporate notes,
certificates of deposit, fixed-income annuities, government notes and bonds, auction rate preferred stock and auction rate receipts. At July 31, 2004,
the Company held its depository accounts with five financial institutions in the United States, three financial institutions in Japan, and seven
financial institutions in other parts of the world. Deposits with these institutions may exceed the amount of insurance provided on such deposits. The
Company has not historically experienced any losses on deposits held at these institutions. The Company, by policy, limits the amount of credit
exposure for cash equivalents and investments to any one issuer.




Accounts receivable are typically unsecured and are
derived from revenues earned from customers located throughout the world, which minimizes the concentration of credit risk. The Company performs
ongoing credit evaluations of its customers and maintains allowances for potential credit losses. Historically, such losses have been within
managements expectations. Verizon Communications accounted for 10% of the total accounts receivable balance at July 31, 2004. Ingram Micro US, a
major distributor of the Company, accounted for 11% and 18% of the total accounts receivable balance at July 31, 2003 and 2002, respectively. No other
customers accounted for more than 10% of total of accounts receivable during the same periods. No customer accounted for more than 10% of the total
revenue for fiscal 2004. Ingram Micro US accounted for 10% and 17% of the total revenue for fiscal 2003 and 2002, respectively. In accordance with the
Companys revenue recognition policy, such revenue from a major distributor represents revenue recognized at the time the Companys products
were sold to end-user customers. No end-user customers, direct or through distributors and resellers, accounted for more than 10% of total revenue
during the same periods.




Historically, the Companys sales are generally
denominated in United States dollars. Recently, as a result primarily of its recent acquisitions, the Company has increasingly generated a portion of
its revenues and incurred a portion of its expenses in Euros, British pounds, the Japanese Yen and Australian dollars.


Fair Value Of Financial Instruments



The carrying amounts of cash and cash equivalents,
short-term investments, accounts receivable, accounts payable and accrued expenses approximate their respective fair values because of the short-term
maturity of these items. The carrying value of long-term debt and capital lease obligations approximates fair value.


Stock-Based Compensation



The Company accounts for non-cash stock-based
employee compensation using the intrinsic method in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees and Related Interpretations, and complies with the disclosure provisions of SFAS No. 123, Accounting for
Stock-Based Compensation and SFAS No. 148, Accounting for Stock-Based Compensation, Transition and Disclosures. Stock and
other equity instruments issued to non-employees is accounted for in accordance with SFAS No. 123 and EITF No. 96-18, Accounting for Equity
Instruments Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods or Services and valued using the Black Scholes
model. Expense associated with stock-based compensation is being amortized on an accelerated basis over the vesting period of the individual award
consistent with the method described in FASB Interpretation (FIN) No. 28.




If compensation cost for the Companys stock
plans had been determined consistent with SFAS No. 123 Accounting for Stock-Based Compensation, the Companys net loss and loss
per common share would have been adjusted to the pro-forma amounts indicated below (in thousands, except per common share data):


F-14

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 1    The Company and a Summary of its Significant
Accounting Policies  (Continued)






|                                                                                                          |  |  |  | Year Ended July 31, |        
|--------------------------------------------------------------------------------------------------------- |  |  |  | ------------------- | -------
|
|Net loss as
reported                                                                                      |  |  |  | $                   | (9,455 
|Add:
Stock-based employee compensation expense included in reported net loss                              |  |  |  |                     | 745    
|Deduct: Total
stock-based employee compensation expense determined under fair value method for all awards |  |  |  |                     | (3,978 
|Pro forma net
loss                                                                                        |  |  |  | $                   | (12,688
|Basic and
diluted net loss per common share as reported                                                   |  |  |  | $                   | (0.16  
|Basic and
diluted pro forma net loss per common share                                                     |  |  |  | $                   | (0.22  



Because the Black-Scholes option valuation model was
developed for traded options and requires the input of subjective assumptions and the number of future shares to be issued or cancelled is not known,
the resulting pro forma compensation cost may not be representative of that to be expected in future years.




The fair value of each option grant is estimated on
the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:







|                        |  |  |  | Stock Option Plans |      | Employee Stock Purchase Plan | 
|----------------------- |  |  |  | ------------------ | ---- | ---------------------------- | 
|
|
|Option life (in
years)  |  |  |  |                    | 2.2  |                              | 
|Risk-free
interest rate |  |  |  |                    | 2.02 | %                            | 
|Stock price
volatility  |  |  |  |                    | 126  | %                            | 
|Dividend
yield          |  |  |  |                    |     |                              | 



The following is a summary of weighted-average grant
date fair values:







|                                             |  |  |  | Weighted-Average Grant Date Fair Value |     
|-------------------------------------------- |  |  |  | -------------------------------------- | ----
|
|
|Options
granted under Stock Option Plans     |  |  |  | $                                      | 2.24
|Shares
granted under the Stock Purchase Plan |  |  |  | $                                      | 0.79

Derivative Instruments



The Company applies SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended, which establishes accounting and reporting standards for
derivative instruments and for hedging activities. SFAS No. 133 requires that an entity recognize derivatives as either assets or liabilities on the
balance sheet and measure those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of
the derivative and the resulting designation. The Company designates its derivatives based upon criteria established by SFAS No. 133. For a derivative
designated as a fair value hedge, the gain or loss is recognized in earnings in the period of change together with the offsetting loss or gain on the
hedged item attributed to the risk being hedged. For a derivative designated as a cash flow hedge, the effective portion of the derivatives gain
or loss is initially reported as a component of accumulated other comprehensive income and subsequently reclassified into earnings when the hedged
exposure affects earnings. The ineffective portion of the gain or loss is reported in earnings immediately. Refer to Note 7 for details on the
Companys only derivative instruments.


F-15

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 1    The Company and a Summary of its Significant
Accounting Policies  (Continued)

Restructuring Costs



Effective prospectively for exit or disposal
activities initiated after December 31, 2002, SFAS No. 146, Cost Associated with Exit or Disposal Activities applies to the Company.
SFAS 146 nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity. Commitment to a plan to exit an activity or dispose of long-lived assets will no longer be sufficient to record a one-time charge
for most anticipated costs, including costs related to terminating a contract that is not a capital lease and termination benefits that employees who
are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual
deferred-compensation contract.. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured
initially at fair value only when the liability is incurred. There was no impact on the Companys financial statements from the adoption of SFAS
No. 146.


Net Income (Loss) Per Common Share



Net income (loss) per common share is computed in
accordance with SFAS No. 128. Basic net income (loss) per common share is computed using the weighted average common shares outstanding during the
period. Diluted net income (loss) per common share is computed using the weighted average common shares and dilutive common equivalent shares
outstanding during the period.


Note 2    Recently Issued Accounting
Pronouncements

Consolidation of Variable Interest Entities



In January 2003, the FASB issued FIN No. 46,
Consolidation of Variable Interest Entities. FIN No. 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A
variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have
equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its
activities. A variable interest entity often holds financial assets, including loans or receivables, real estate or other property. A variable interest
entity may be essentially passive or it may engage in research and development or other activities on behalf of another company. In December 2003, the
FASB released a revised version of FIN No. 46 (referred to as FIN 46R) clarifying certain aspects of FIN No. 46 and providing certain entities with
exemptions from the requirements of FIN No. 46. FIN 46R requires the application of either FIN No. 46 or FIN 46R to all Special Purpose Entities (SPEs)
created prior to February 1, 2003 at the end of the first interim or annual reporting period ending after December 15, 2003. All entities created after
January 31, 2003 were already required to be analyzed under FIN No. 46, and they must continue to do so, unless FIN 46R is adopted early. FIN 46R is
applicable to all non-SPEs created prior to February 1, 2003 at the end of the first interim or annual reporting period ending after March 15, 2004.
The adoption of FIN 46-R during the third quarter of fiscal 2004 did not have a material impact on the Companys consolidated financial position,
results of operations and cash flows.


Other-Than-Temporary Impairment



In March 2004, the EITF reached consensus on Issue
03-01, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. EITF No. 03-01 includes new
guidance for evaluating and recording impairment losses on debt and equity investments, as well as new disclosure requirements for investments that are
deemed to be temporarily impaired. The disclosure requirements are effective for fiscal years ending after


F-16

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 2    Recently Issued Accounting Pronouncements 
(Continued)

June 15, 2004. The Company have adopted the disclosure requirements in fiscal 2004
accordingly and incorporated such disclosures in Note 3 below. The accounting guidance of EITF No. 03-01 is effective for fiscal years beginning after
June 15, 2004, and the Company does not believe that the adoption will have a material effect on its financial position or results of
operations.

Earnings Per Share



In April 2004, the EITF issued Statement No. 03-06,
Participating Securities and the Two-Class Method Under FASB Statement No. 128, Earnings Per Share. EITF No. 03-06 addresses a
number of questions regarding the computation of earnings per share by companies that have issued securities other than common stock that contractually
entitle the holder to participate in dividends and earnings of the company when, and if, it declares dividends on its common stock. The issue also
provides further guidance in applying the two-class method of calculating earnings per share, clarifying what constitutes a participating security and
how to apply the two-class method of computing earnings per share once it is determined that a security is participating, including how to allocate
undistributed earnings to such a security. EITF No. 03-06 is effective for fiscal periods beginning after March 31, 2004. As of May 1, 2004, the
Company has convertible debt that is subject to this pronouncement. However, due to net loss for fiscal 2004, the effect of the convertible debt under
the EITF No. 03-06 is anti-dilutive, as such it has not been included in basic or diluted earnings per share.


Contingently Convertible Debt on Diluted Earnings per Share



In July 2004, the EITF issued a draft abstract for
EITF No. 04-08, The Effect of Contingently Convertible Debt on Diluted Earnings per Share. EITF 04-08 reflects the Task Forces
tentative conclusion that contingently convertible debt should be included in diluted earnings per share computations regardless of whether the market
price trigger has been met. If adopted, the consensus reached by the Task Force in this Issue will be effective for reporting periods ending after
December 15, 2004, the adoption of which will not have an impact on the Companys calculation of earnings per share.


Note 3    Balance Sheet Components



Cash equivalents and short-term investments consist
of the following (in thousands):







|                             |  |  |  | July 31, 2004 |       
|---------------------------- |  |  |  | ------------- | ------
|
|Cash
equivalents             |  |  |  |               |       
|Certificate
of deposit       |  |  |  | $             | 121   
|Government
notes and bonds   |  |  |  |               | 2,323 
|Money market
funds           |  |  |  |               | 4,603 
|                             |  |  |  | $             | 7,047 
|Short term
investments       |  |  |  |               |       
|Fixed income
annuities       |  |  |  | $             | 4,368 
|Government
notes and bonds   |  |  |  |               | 17,042
|Auction rate
preferred stock |  |  |  |               | 15,800
|Auction rate
receipts        |  |  |  |               | 3,500 
|Other                        |  |  |  |               | 2     
|                             |  |  |  | $             | 40,712

F-17

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 3    Balance Sheet Components 
(Continued)






|                             |  |  |  | July 31, 2003 |       
|---------------------------- |  |  |  | ------------- | ------
|
|Cash
equivalents             |  |  |  |               |       
|Commercial
paper             |  |  |  | $             | 998   
|Government
notes and bonds   |  |  |  |               | 1,539 
|Money market
funds           |  |  |  |               | 4,042 
|                             |  |  |  | $             | 6,579 
|Short term
investments       |  |  |  |               |       
|Corporate
notes              |  |  |  | $             | 515   
|Certificate
of deposit       |  |  |  |               | 101   
|Fixed income
annuities       |  |  |  |               | 4,241 
|Government
notes and bonds   |  |  |  |               | 11,487
|Auction rate
preferred stock |  |  |  |               | 2,900 
|Other                        |  |  |  |               | 2     
|                             |  |  |  | $             | 19,246



The Company invests excess cash in fixed income
securities, consisting of both corporate and government securities, that are highly liquid, of high-quality investment grade. The Company intends to
make such funds readily available for operating purposes, if needed. The Company expects to realize the full value of all these investments upon
maturity or sale.




The following table summarizes the fair value and
gross unrealized losses of the Companys long-term investments, aggregated by type of investment instrument and length of time that individual
securities have been in a continuous unrealized loss position, at July 31, 2004 (in thousands):







|                                 |  |  |  | Estimated Fair Value |        | GrossUnrealizedLoss
|-------------------------------- |  |  |  | -------------------- | ------ | -------------------
|Government
and agency securities |  |  |  | $                    | 13,963 |                    



All unrealized losses are due to changes in interest
rates and bond yields. At July 31, 2004, all of the Companys investments with gross unrealized losses were in loss positions for less than 12
months.




The estimated fair value of cash equivalents and
short-term investments classified by date of contractual maturity at July 31, 2004, are as follows (in thousands):







|Due within one
year or less          |  |  |  | $ | 16,999 | 
|------------------------------------ |  |  |  | - | ------ | 
|Due after one
year through two years |  |  |  |   | 3,059  | 
|No maturity
dates                    |  |  |  |   | 27,646 | 
|                                     |  |  |  | $ | 47,704 | 



The realized gain on sales of securities was zero,
$43,000 and zero for fiscal 2004, 2003 and 2002, respectively. During fiscal 2004, 2003 and 2002, the Company did not record any cash equivalents- or
short-term investment-related impairment charges.


F-18

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 3    Balance Sheet Components 
(Continued)



Accounts receivable, net, consist of the following
(in thousands):







|                                      |  |  |  | July 31, |       
|------------------------------------- |  |  |  | -------- | ------
|
|Accounts
receivable                   |  |  |  | $        | 10,850
|Less:
Provision for doubtful accounts |  |  |  |          | (470  
|Accounts
receivable, net              |  |  |  | $        | 10,380



Inventories consist of the following (in
thousands):







|                                   |  |  |  | July 31, |   
|---------------------------------- |  |  |  | -------- | --
|
|Raw
materials                      |  |  |  | $        | 54
|Finished
goods and work-in-process |  |  |  |          | 15
|Inventories                        |  |  |  | $        | 69



Property and equipment, net, consist of the
following (in thousands):







|                                                |  |  |  | July 31, |       
|----------------------------------------------- |  |  |  | -------- | ------
|
|Computer
equipment and software                 |  |  |  | $        | 5,972 
|Furniture and
office equipment                  |  |  |  |          | 1,695 
|Leasehold
improvements                          |  |  |  |          | 909   
|                                                |  |  |  |          | 8,576 
|Less:
Accumulated depreciation and amortization |  |  |  |          | (7,036
|Property and
equipment, net                     |  |  |  | $        | 1,540 



The Company had an equipment under capital lease
totaling $231,000 and zero at July 31, 2004 and 2003, respectively. The depreciation expense for fiscal 2004, 2003 and 2002 was $1,037,000, $1,358,000
and $3,180,000, respectively.




Accrued liabilities consist of the following (in
thousands):







|                                        |  |  |  | July 31, |      
|--------------------------------------- |  |  |  | -------- | -----
|
|Payroll
related accruals                |  |  |  | $        | 3,109
|Accrued
interest                        |  |  |  |          | 988  
|Restructuring
accruals, current portion |  |  |  |          | 820  
|Deferred
rent                           |  |  |  |          | 435  
|Other accrued
liabilities               |  |  |  |          | 2,130
|Accrued
liabilities                     |  |  |  | $        | 7,482



Other liabilities consist of the following (in
thousands):







|                                             |  |  |  | July 31, |      
|-------------------------------------------- |  |  |  | -------- | -----
|
|Interest rate
swap                           |  |  |  | $        | 1,557
|Deferred tax
liability                       |  |  |  |          | 597  
|Restructuring
liabilities, long-term portion |  |  |  |          | 260  
|Other
long-term liabilities                  |  |  |  |          | 73   
|Other
liabilities                            |  |  |  | $        | 2,487

F-19

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 4    Acquisitions



The Company acquired SoftVision SRLs workforce
through a transfer agreement and acquired Search Software America Pty. Ltd., Synchrologic, Inc., and Spontaneous Technology, Inc. during fiscal 2004
and substantially all of the assets of Loudfire, Inc. and the capital stock of Starfish Software, Inc. during fiscal 2003. The SSA, Synchrologic,
Spontaneous Technology and Starfish transactions were accounted for as required by SFAS No. 141, Business Combinations. The
SoftVision workforce transfer and Loudfire acquisition were accounted for as an asset purchase.


SoftVision SRL



On June 14, 2004, the Company completed the transfer
of 91 employees from SoftVision SRL, an offshore software development company with headquarters in Cluj-Napoca, Romania., pursuant to an Employee
Transfer Agreement dated as of February 5, 2004. Under the terms of the agreement, the Company paid cash of approximately $693,000 and assumed certain
employee-related liabilities of approximately $31,000. The SoftVisions workforce acquisition was accounted for as an asset purchase. The
consolidated financial statements include the effect of additional employees the Company acquired from SoftVision since the date of
acquisition.




The full amount of the preliminary purchase price of
$724,000 was assigned to the fair value of the acquired workforce. The amortizable acquired workforce is being amortized using the straight-line method
over its estimated useful life of two years. Refer to Note 5.


Search Software America



On March 16, 2004, the Company completed its
acquisition of all of the issued and outstanding stock of Search Software America Pty. Ltd., or SSA, a privately held division of SPL WorldGroup and
headquartered in Sydney, Australia, pursuant to a Stock Purchase Agreement dated as of February 24, 2004. SSA, with operations in the United States,
United Kingdom, and Australia, is a developer of solutions that enhance the ability to find, match and group (synchronize) identity data within
computer systems and network databases. Under the terms of the agreement, the Company paid cash of $22,129,000, reflective of a preliminary working
capital adjustment.




The consolidated financial statements include the
results of operations of SSA since the date of acquisition. Under the purchase method of accounting, the total preliminary purchase price was allocated
to SSAs net tangible and intangible assets based upon their estimated fair value as of the acquisition date. The preliminary purchase price of
$22,179,000 (including estimated acquisition costs of $50,000) was assigned to the fair value of the assets acquired, including the following (in
thousands):







|Tangible assets
acquired            |  |  |  | $ | 3,728  |  
|----------------------------------- |  |  |  | - | ------ | -
|Liabilities
assumed                 |  |  |  |   | (3,987 | )
|Deferred tax
liability assumed      |  |  |  |   | (646   | )
|In-process
research and development |  |  |  |   | 775    |  
|Developed and
core technology       |  |  |  |   | 5,513  |  
|Customer
base                       |  |  |  |   | 8,777  |  
|Goodwill                            |  |  |  |   | 8,019  |  
|                                    |  |  |  | $ | 22,179 |  



In accordance with SFAS No. 109, Accounting
for Income Taxes, deferred tax liabilities of approximately $646,000 have been recorded for the tax effect of the amortizable intangible assets,
which are not deductible for tax purposes.




The preliminary valuation of identifiable intangible
assets acquired was based on managements estimates, currently available information and reasonable and supportable assumptions. This allocation
was generally based on the fair value of these assets determined using the income approach.


F-20

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 4    Acquisitions  (Continued)



A preliminary estimate of $8,019,000 has been
allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. In
accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill will not be amortized but will be tested for impairment
at least annually.




During the fourth quarter of fiscal 2004, the
Company recorded a number adjustments to the provisional purchase price allocation following the resolution of certain contingencies, which decreased
the amount of cash paid by approximately $506,000 and acquisition costs by $160,000 and increased the fair value of the liabilities assumed by
approximately $694,000. These adjustments, as a result, increased the fair value of goodwill accordingly by a net amount of approximately $28,000. The
purchase price allocation for SSA is subject to further revision as more detailed analysis is completed and additional information on the fair values
of SSAs assets and liabilities becomes available. Any change in the fair value of the net assets of SSA will change the amount of the purchase
price allocable to goodwill. Final purchase accounting may therefore differ materially from the information presented above.




Of the total purchase price, $14,290,000 was
allocated to amortizable intangibles included in the above list. The amortizable intangible assets are being amortized using an accelerated method
according to the expected cash flows to be received from the underlying assets over their respective estimated useful life of seven to ten years. Refer
to Note 5.




As of the acquisition date, technological
feasibility of the in-process technology had not been established and the technology had no alternative future use. Accordingly, the Company expensed
the in-process research and development at the date of the acquisition.




The amount of the purchase price allocated to
in-process research and technology was based on established valuation techniques used in the high-technology software industry. The fair value assigned
to the acquired in-process research and development was determined using the income approach, which discounts expected future cash flows to present
value. The key assumptions used in the valuation include, among others, expected completion date of the in-process projects identified as of the
acquisition date, estimated costs to complete the projects, revenue contributions and expense projections assuming the resulting product has entered
the market, and discount rate based on the risks associated with the development life cycle of the in-process technology acquired. The discount rate
used in the present value calculations are normally obtained from a weighted-average cost of capital analysis, adjusted upward to account for the
inherent uncertainties surrounding the successful development of the in-process research and development, the expected profitability levels of such
technology, and the uncertainty of technological advances that could potentially impact the estimates. The Company assumes the pricing model for the
resulting product of the acquired in process research and technology to be standard within its industry. The Company, however, did not take into
consideration any consequential amount of expense reductions from integrating the acquired in-process technology with other existing in-process or
completed technology. Therefore, the valuation assumptions do not include significant anticipated cost savings.




The key assumptions underlying the valuation of
acquired in-process research and development from SSA are as follows (in thousands):




Project names: SSA-NAME3 Version 3.0 and IDS Version
3.0 Percent completed as of acquisition date: 10% Estimated costs to complete technology at acquisition date: $600,000 Risk-adjusted
discount rate: 25% First period expected revenue: June 2005




The development of above technology remains highly
dependent on the remaining efforts to achieve technical viability, rapidly changing customer markets, uncertain standards for a new product, and
significant competitive threats from several companies. The nature of the efforts to develop this technology into a commercially
viable


F-21

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 4    Acquisitions  (Continued)

product consists primarily of planning, designing, experimenting, and testing
activities necessary to determine that the technology can meet market expectations, including functionality and technical requirements. Failure to
bring the product to market in a timely manner could result in a loss of market share or a lost opportunity to capitalize on emerging markets, and
could have a material adverse impact on the Companys business and operating results.



Subsequent to the acquisition of SSA, there have
been no significant developments related to the current status of the acquired in-process research and development project that would result in
material changes to the assumptions.


Synchrologic, Inc.



On December 29, 2003, the Company completed its
acquisition of all of the issued and outstanding stock of Synchrologic, Inc. headquartered in Atlanta, Georgia pursuant to an Agreement and Plan of
Merger, dated as of September 14, 2003. The Agreement and Plan of Merger also provided for the dismissal of the Companys outstanding litigation
against Synchrologic with prejudice as of September 17, 2003, thereby permanently ending this specific suit. Synchrologics product line provides
mobile access to enterprise applications, email and personal information management, or PIM, data, file content, intranet sites, and Web content, while
giving IT groups the tools to manage mobile devices remotely.




In the merger, all outstanding shares of
Synchrologic common stock and preferred stock were converted into the right to receive a total of 15,130,171 shares of the Companys common stock.
In addition, all outstanding options to purchase Synchrologic common stock were converted into options to purchase a total of 1,018,952 shares of the
Companys common stock. The total number of shares issued was determined by dividing $60,000,000 by the average closing price of $5.22 of the
shares of the Companys common stock for the thirty consecutive trading days ending on the last complete trading day immediately preceding the
closing date of the merger (which amount was subject to adjustment based on the transaction expenses incurred by Synchrologic in connection with the
merger), provided that the number of shares did not exceed 19,800,000 or be fewer than 16,200,000 (in each case subject to adjustment based on the
transaction expenses incurred by Synchrologic in connection with the merger). The shares were valued at approximately $62,125,000 using the
five-trading-day average price surrounding the date the acquisition was announced of $4.11 per share, and the options were valued at approximately
$4,123,000 using the Black-Scholes option pricing model. The following assumptions were used to perform the calculations of the fair market value of
stock options issued: fair value of Companys common stock of $4.05, expected life of 3.9 years, risk-free interest rate of 3.4%, expected
volatility of 132% and no expected dividend yield.




The consolidated financial statements include the
results of operations of Synchrologic since the date of acquisition. Under the purchase method of accounting, the total preliminary purchase price was
allocated to Synchrologics net tangible and intangible assets based upon their estimated fair value as of the acquisition date. The preliminary
purchase price of $67,037,000 (comprising the value of the shares and options described above and the estimated acquisition costs of $900,000 and net
of a $111,000 adjustment for writing-off a certain liability due to Synchrologic) was assigned to the fair value of the assets acquired, including the
following (in thousands):







|Tangible assets
acquired            |  |  |  | $ | 4,105  |  
|----------------------------------- |  |  |  | - | ------ | -
|Deferred tax
assets                 |  |  |  |   | 6,094  |  
|Liabilities
assumed                 |  |  |  |   | (5,552 | )
|Deferred tax
liability assumed      |  |  |  |   | (6,094 | )
|In-process
research and development |  |  |  |   | 2,423  |  
|Developed and
core technology       |  |  |  |   | 10,493 |  
|Patents                             |  |  |  |   | 1,321  |  
|Customer
base                       |  |  |  |   | 3,487  |  
|Goodwill                            |  |  |  |   | 50,760 |  
|                                    |  |  |  | $ | 67,037 |  

F-22

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 4    Acquisitions  (Continued)



In accordance with SFAS No. 109, deferred tax
liabilities of approximately $6,094,000 have been recorded for the tax effect of the amortizable intangible assets. Deferred tax assets of $6,094,000
have also been recorded by the Company to account for the tax effect of Synchrologics net operating loss and credit carryforwards.




The preliminary valuation of identifiable intangible
assets acquired was based on managements estimates, currently available information and reasonable and supportable assumptions. This allocation
was generally based on the fair value of these assets determined using the income approach.




A preliminary estimate of $50,760,000, as adjusted,
has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets
acquired. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill associated with Synchrologic acquisition
will not be amortized but will be tested for impairment at least annually.




During the third quarter of fiscal 2004, the Company
recorded a number adjustments to the provisional purchase price allocation following the resolution of certain contingencies, which increased the fair
value of the tangible assets acquired and liabilities assumed by approximately $261,000 and $29,000, reducing the fair value of goodwill accordingly by
a net amount of approximately $232,000. The purchase price allocation for Synchrologic is subject to further revision as more detailed analysis is
completed and additional information on the fair values of Synchrologics assets and liabilities becomes available. Any change in the fair value
of the net assets of Synchrologic will change the amount of the purchase price allocable to goodwill. Final purchase accounting may therefore differ
materially from the information presented above.




Of the total purchase price, $15,301,000 was
allocated to amortizable intangibles included in the above list. The amortizable intangible assets are being amortized using the straight-line method
over the estimated useful life of the respective assets of four years. Refer to Note 5.




As of the acquisition date, technological
feasibility of the in-process technology had not been established and the technology had no alternative future use. Accordingly, the Company expensed
the in-process research and development at the date of the acquisition.




The amount of the purchase price allocated to
in-process research and technology was based on established valuation techniques used in the high-technology software industry. The fair value assigned
to the acquired in-process research and development was determined using the income approach, which discounts expected future cash flows to present
value. The key assumptions used in the valuation include, among others, expected completion date of the in-process projects identified as of the
acquisition date, estimated costs to complete the projects, revenue contributions and expense projections assuming the resulting product has entered
the market, and discount rate based on the risks associated with the development life cycle of the in-process technology acquired. The discount rate
used in the present value calculations are normally obtained from a weighted-average cost of capital analysis, adjusted upward to account for the
inherent uncertainties surrounding the successful development of the in-process research and development, the expected profitability levels of such
technology, and the uncertainty of technological advances that could potentially impact the estimates. The Company assumes the pricing model for the
resulting product of the acquired in process research and technology to be standard within its industry. The Company, however, did not take into
consideration any consequential amount of expense reductions from integrating the acquired in-process technology with other existing in-process or
completed technology. Therefore, the valuation assumptions do not include significant anticipated cost savings.


F-23

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 4    Acquisitions  (Continued)



The key assumptions underlying the valuation of
acquired in-process research and development from Synchrologic are as follows (in thousands):


Project
names:  Version upgrade of Data Sync, File Sync, E-mail accelerator  and Systems
Management products Percent completed as of acquisition date: 60%70% Estimated
costs to complete technology at  acquisition date: $3,000,000 Risk-adjusted discount
rate: 22% First period expected revenue: calendar year 2004



The development of above technology remains highly
dependent on the remaining efforts to achieve technical viability, rapidly changing customer markets, uncertain standards for a new product, and
significant competitive threats from several companies. The nature of the efforts to develop this technology into a commercially viable product
consists primarily of planning, designing, experimenting, and testing activities necessary to determine that the technology can meet market
expectations, including functionality and technical requirements. Failure to bring the product to market in a timely manner could result in a loss of
market share or a lost opportunity to capitalize on emerging markets, and could have a material adverse impact on the Companys business and
operating results.




Subsequent to the acquisition of Synchrologic, there
have been no significant developments related to the current status of the acquired in-process research and development project that would result in
material changes to the assumptions.




The liabilities assumed by the Company included
Synchrologics outstanding balance of approximately $1,764,000 under a credit facility agreement with a bank. The Company fully paid the
outstanding balance during the second quarter of fiscal 2004. The bank credit facility agreement was automatically terminated upon the Companys
acquisition of Synchrologic.


Spontaneous Technology, Inc.



On September 17, 2003, the Company consummated the
acquisition of Spontaneous Technology, Inc. of Salt Lake City, Utah, a provider of enterprise secure Virtual Private Network, or sVPNTM,
software designed to extend existing corporate applications to most wireless devices. Under the terms of the agreement, the Company issued a total of
869,259 shares of Intellisyncs common stock valued at approximately $2,999,000 using the five-trading-day average price surrounding the date the
acquisition was announced of $3.45 per share, less estimated registration costs. The number of shares were calculated using the average price of the
Companys common stock for ten consecutive trading days ended three business days prior the date of acquisition. There were 224,417 additional
shares held in escrow that were contingently issuable upon satisfaction of a pre-acquisition clause. Later during fiscal 2004, the contingency was
resolved and the Company paid cash of approximately $752,000. The contingent consideration shares in escrow were therefore returned to the Company
accordingly. Additionally, depending upon the Companys revenues associated with sales of its products including certain technology of Spontaneous
Technology during the period ending September 30, 2004, the Company may be required to pay Spontaneous Technology additional consideration of up to
$7,000,000 in shares of Intellisyncs common stock. As of July 31, 2004, however, the Companys revenue on products associated with
Spontaneous Technology amounted to less than the earnout threshold. Consequently, if the trend for such revenue continues, the Company does not
anticipate paying additional consideration to Spontaneous Technology by the end of the earnout period. Refer to Note 17 for subsequent
event.




The consolidated financial statements include the
results of operations of Spontaneous Technology since the date of acquisition. Under the purchase method of accounting, the total preliminary purchase
price was allocated to Spontaneous Technologys net tangible and intangible assets based upon their estimated fair value as of the acquisition
date. The preliminary purchase price of $4,071,000 (including estimated acquisition costs of $320,000 and the payment made for the resolution of the
contingency of $752,000) was assigned to the fair value of the assets acquired, including the following (in thousands):


F-24

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 4    Acquisitions  (Continued)






|Tangible assets
acquired            |  |  |  | $ | 18     |  
|----------------------------------- |  |  |  | - | ------ | -
|Liabilities
assumed                 |  |  |  |   | (1,726 | )
|In-process
research and development |  |  |  |   | 469    |  
|Developed and
core technology       |  |  |  |   | 889    |  
|Patents                             |  |  |  |   | 168    |  
|Customer
base                       |  |  |  |   | 499    |  
|Goodwill                            |  |  |  |   | 3,754  |  
|                                    |  |  |  | $ | 4,071  |  



The preliminary valuation of identifiable intangible
assets acquired was based on managements estimates, currently available information and reasonable and supportable assumptions. This allocation
was generally based on the fair value of these assets determined using the income approach.




A preliminary estimate of $3,754,000, as adjusted,
has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets
acquired. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill will not be amortized but will be tested
for impairment at least annually.




During fiscal 2004, the Company finalized the
purchase price allocation following the resolution of a pre-acquisition contingency, mentioned above, which increased goodwill by the amount of the
additional cash payment made of approximately $752,000. The purchase price allocation for Spontaneous Technology is subject to further revision as more
detailed analysis is completed and additional information on the fair values of Spontaneous Technologys assets and liabilities becomes available.
Any change in the fair value of the net assets of Spontaneous Technology will change the amount of the purchase price allocable to goodwill. Final
purchase accounting may therefore differ materially from the information presented above.




Of the total purchase price, $1,556,000 was
allocated to amortizable intangibles included in the above list. The amortizable intangible assets are being amortized using the straight-line method
over the estimated useful life of the respective assets of four years. Refer to Note 5.




As of the acquisition date, technological
feasibility of the in-process technology had not been established and the technology had no alternative future use. Accordingly, the Company expensed
the in-process research and development at the date of the acquisition.




The amount of the purchase price allocated to
in-process research and technology was based on established valuation techniques used in the high-technology software industry. The fair value assigned
to the acquired in-process research and development was determined using the income approach, which discounts expected future cash flows to present
value. The key assumptions used in the valuation include, among others, expected completion date of the in-process projects identified as of the
acquisition date, estimated costs to complete the projects, revenue contributions and expense projections assuming the resulting product has entered
the market, and discount rate based on the risks associated with the development life cycle of the in-process technology acquired. The discount rate
used in the present value calculations are normally obtained from a weighted-average cost of capital analysis, adjusted upward to account for the
inherent uncertainties surrounding the successful development of the in-process research and development, the expected profitability levels of such
technology, and the uncertainty of technological advances that could potentially impact the estimates. The Company assumes the pricing model for the
resulting product of the acquired in process research and technology to be standard within its industry. The Company, however, did not take into
consideration any consequential amount of expense reductions from integrating the acquired in-process technology with other existing in-process or
completed technology. Therefore, the valuation assumptions do not include significant anticipated cost savings.


F-25

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 4    Acquisitions  (Continued)



The key assumptions underlying the valuation of
acquired in-process research and development from Spontaneous Technology are as follows (in thousands):




Project names: Version upgrade of Spontaneous
Technologys secure Virtual Private Network (sVPN) Percent completed as of acquisition date: 60% Estimated costs to complete technology at
acquisition date: $125,000 Risk-adjusted discount rate: 22% First period expected revenue: calendar year 2004




The development of above technology remains highly
dependent on the remaining efforts to achieve technical viability, rapidly changing customer markets, uncertain standards for a new product, and
significant competitive threats from several companies. The nature of the efforts to develop this technology into a commercially viable product
consists primarily of planning, designing, experimenting, and testing activities necessary to determine that the technology can meet market
expectations, including functionality and technical requirements. Failure to bring the product to market in a timely manner could result in a loss of
market share or a lost opportunity to capitalize on emerging markets, and could have a material adverse impact on the Companys business and
operating results.




Subsequent to the acquisition of Spontaneous
Technology, there have been no significant developments related to the current status of the acquired in-process research and development project that
would result in material changes to the assumptions.


Loudfire, Inc.



In July 2003, the Company signed and closed an
agreement to acquire substantially all of the assets of Loudfire, Inc. of Tulsa, Oklahoma, developer of LoudPCTM software. LoudPC software
allows anyone with an Internet browser or Web-enabled phone to enjoy real-time access to email and PIM data located in either Microsoft Outlook or
Outlook Express. The product also provides secure access to pre-specified files residing on a host PC. Under the terms of the asset purchase agreement,
the Company paid $1,000,000 in cash and issued $500,000 worth of shares of the Companys common stock. The 134,445 shares issued were calculated
using the average price of the Companys common stock for a ten-day period ended three business days prior the date of
acquisition.




Additionally, the Company was required to pay
Loudfire additional consideration of up to $3,500,000 in cash or, at the Companys election, shares of its common stock depending upon the
Companys revenues associated with sales of its products including certain technology of Loudfire during the 12 months following the closing of
the asset purchase. During such period, however, Companys revenue on products associated with Loudfire amounted to less than the earnout
threshold. Consequently, no additional consideration was paid to Loudfire.




The consolidated financial statements include the
results of operations of Loudfire since the date of acquisition. The purchase price of $1,654,000 (including acquisition costs of $154,000) was
assigned to the fair value of the assets acquired, including the following (in thousands):







|Developed and
core technology |  |  |  | $ | 1,352 | 
|----------------------------- |  |  |  | - | ----- | 
|Customer
base                 |  |  |  |   | 158   | 
|Covenant
not-to-compete       |  |  |  |   | 104   | 
|Customer
contracts            |  |  |  |   | 40    | 
|                              |  |  |  | $ | 1,654 | 



The intangible assets acquired are amortized using
the straight-line method over the estimated useful life of the assets ranging from nine months to four years.




During the fourth quarter of fiscal 2004, the
Company recorded an adjustment to the provisional purchase price allocation, which increased the amount of the acquisition costs by $54,000, thereby
ratably increasing all the intangible assets acquired. The changes had no impact on goodwill as no goodwill resulted from the acquisition of
Loudfire.


F-26

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 4    Acquisitions  (Continued)

Starfish Software, Inc.



In March 2003, the Company signed and closed a
purchase agreement with Motorola, Inc. of Schaumburg, Illinois to acquire all of capital stock of Starfish Software, Inc., a wholly owned subsidiary of
Motorola headquartered in Scotts Valley, California. Starfish is a provider of end-to-end mobile infrastructure solutions based on integrated platforms
composed of server, desktop and device software for mobile data synchronization, wireless connectivity and device management. Under the terms of the
stock purchase agreement, the Company initially paid a total of $1,501,000 in cash, subject to further adjustment based on actual working capital as of
the closing date. The Company further paid $178,000 based on subsequent adjustments made to Starfishs working capital.




The Starfish acquisition has been accounted for as a
purchase business combination. The consolidated financial statements include the results of operations of Starfish since the date of acquisition. The
purchase price of $1,831,000 (including acquisition costs of $152,000) was assigned to the fair value of the assets acquired, including the following
(in thousands):







|Tangible assets
acquired            |  |  |  | $ | 1,133 |  
|----------------------------------- |  |  |  | - | ----- | -
|Liabilities
assumed                 |  |  |  |   | (913  | )
|In-process
research and development |  |  |  |   | 406   |  
|Developed and
core technology       |  |  |  |   | 634   |  
|Patents                             |  |  |  |   | 190   |  
|Trademarks                          |  |  |  |   | 49    |  
|Customer
base                       |  |  |  |   | 261   |  
|Existing
contracts                  |  |  |  |   | 71    |  
|                                    |  |  |  | $ | 1,831 |  



Tangible assets acquired and liabilities assumed
were valued at their respective carrying amounts as the Company believes that these amounts approximated their current fair values at the acquisition
date. The valuation of identifiable intangible assets acquired was based on managements estimates, currently available information and reasonable
and supportable assumptions. This allocation was generally based on the fair value of these assets determined using the income
approach.




During the third quarter of fiscal 2004, the Company
recorded a number of adjustments to the provisional purchase price allocation following the resolution of certain contingencies totaling approximately
$73,000, which decreased the fair value of acquired developed and core technology, customer base, patents and trademarks by approximately $41,000,
$17,000, $12,000 and $3,000, respectively. The changes had no impact on goodwill as no goodwill resulted from the acquisition of
Starfish.




Of the total purchase price, $1,205,000 was
allocated to amortizable intangibles included in the above list. The amortizable intangible assets are being amortized using the straight-line method
over the estimated useful life of the respective assets of nine months to four years.




As of the acquisition date, technological
feasibility of the in-process technology had not been established and the technology had no alternative future use. Accordingly, the Company expensed
the in-process research and development at the date of the acquisition.




The amount of the purchase price allocated to in
process-research and technology was based on established valuation techniques used in high-technology computer software industry. The fair value
assigned to the acquired in-process research and development was determined using the income approach, which discounts expected future cash flows to
present value. The key assumptions used in the valuation include, among others, expected completion date of the in-process projects identified as of
the acquisition date, estimated costs to complete the projects, revenue contributions and expense projections assuming the resulting product have
entered the market, and discount rate based on the risks associated with the development life cycle of the in-process technology acquired. The
discount


F-27

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 4    Acquisitions  (Continued)

rate used in the present value calculations are normally obtained from a
weighted-average cost of capital analysis, adjusted upward to account for the inherent uncertainties surrounding the successful development of the
in-process research and development, the expected profitability levels of such technology, and the uncertainty of technological advances that could
potentially impact the estimates. The Company assumes the pricing model for the resulting product of the acquired in process research and technology to
be standard within its industry. The Company, however, did not take into consideration any consequential amount of expense reductions from integrating
the acquired in-process technology with other existing in-process or completed technology. Therefore, the valuation assumptions do not include
significant anticipated cost savings.



The key assumptions underlying the valuation of
acquired in-process research and development from Starfish are as follows (in thousands):




Project name: Mercury platform technology
Percent completed as of acquisition date: 70% Estimated costs to complete technology at acquisition date: $375,000 Risk-adjusted discount rate:
30% First period expected revenue: calendar year 2004




Subsequent to the acquisition of Starfish, there
have been no significant developments related to the current status of the acquired in-process research and development project that would result in
material changes to the assumptions.


Pro Forma Results



The following unaudited pro-forma consolidated
financial information reflects the results of operations for fiscal 2004 and 2003, as if SSA, Synchrologic, Spontaneous Technology and Starfish
acquisitions had occurred on August 1, 2003 and August 1, 2002 and after giving effect to purchase accounting adjustments. SoftVisions workforce
and Loudfires results of operations have been excluded from the pro forma financial information as amounts are considered immaterial to the
Company. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would
have been had the acquisitions in aggregate actually taken place on August 1, 2002. In addition, these results are not intended to be a projection of
future results and do not reflect any synergies that might be achieved from the combined operation (in thousands, except per share
data):







|                                                      |  |  |  | Year Ended July 31, |       
|----------------------------------------------------- |  |  |  | ------------------- | ------
|
|Pro forma
revenue                                     |  |  |  | $                   | 53,617
|Pro forma net
loss                                    |  |  |  | $                   | (9,148
|Pro forma
basic and diluted net loss per common share |  |  |  | $                   | (0.14 

Note 5    Goodwill, Developed and Core Technology and Other
Intangible Assets



The Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets effective August 1, 2002 which established new guidance on how to account for goodwill and intangible assets after a
business combination is completed. Among other things, it requires that goodwill and certain other intangible assets no longer be amortized and be
tested for impairment at least annually and written down only when impaired. The Company performs the annual impairment tests on July 31st
of each year. The Company currently operates in one reportable segment, which is also the only reporting unit for purposes of SFAS No. 142. Since the
Company currently only has one reporting unit, all of the goodwill has been assigned to the enterprise as a whole. The Company measures impairment of
goodwill and certain other intangible assets primarily using the present value of expected future cash flows. On July 31, 2004, the Company performed
the required annual impairment test for goodwill and concluded that no impairment existed.


F-28

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 5    Goodwill, Developed and Core Technology and Other
Intangible Assets  (Continued)



The following table presents the impact of the
goodwill non-amortization provision of SFAS No. 142 on net loss and net loss per common share had the standard been in effect since the beginning of
fiscal 2002 (in thousands, except per-share amounts):







|                                                        |  |  |  | Year Ended July 31, |       
|------------------------------------------------------- |  |  |  | ------------------- | ------
|
|Net loss as
reported                                    |  |  |  | $                   | (9,455
|Adjustments:                                            |  |  |  |                     |       
|Amortization
of goodwill                                |  |  |  |                     |      
|Amortization
of acquired workforce-in-place             |  |  |  |                     |      
|Total
adjustments                                       |  |  |  |                     |      
|Net loss as
adjusted                                    |  |  |  | $                   | (9,455
|Basic and
diluted net loss per common share as reported |  |  |  | $                   | (0.16 
|Adjustments:                                            |  |  |  |                     |       
|Amortization
of goodwill                                |  |  |  |                     |      
|Amortization
of acquired workforce-in-place             |  |  |  |                     |      
|Total
adjustments                                       |  |  |  |                     |      
|Basic and
diluted net loss per common share as adjusted |  |  |  | $                   | (0.16 



The following table sets forth the changes in
goodwill during fiscal 2004 (in thousands):







|                                      |  |  |  | Goodwill
|------------------------------------- |  |  |  | --------
|Balance at
July 31, 2003              |  |  |  | $       
|Acquired from
Spontaneous Technology  |  |  |  |         
|Acquired from
Synchrologic            |  |  |  |         
|Acquired from
Search Software America |  |  |  |         
|Other(1)                              |  |  |  |         
|Balance at
July 31, 2004              |  |  |  | $       

(1) Other
represents foreign exchange effects on non-US dollar-denominated goodwill.



There were no changes in the carrying amount of
goodwill during fiscal 2003.




Other intangible assets, net, consist of the
following (in thousands, except weighted average useful life):







|                              |  |  |  |           |  | July 31, 2004 |        | July 31, 2003 | 
|----------------------------- |  |  |  | --------- |  | ------------- | ------ | ------------- | 
|
|Developed and
core technology |  |  |  | 4.6
years |  | $             | 21,237 |               | 
|Patents                       |  |  |  | 4.0
years |  |               | 1,680  |               | 
|Trademarks                    |  |  |  | 2.1
years |  |               | 250    |               | 
|Customer
base                 |  |  |  | 7.0
years |  |               | 13,129 |               | 
|Covenant
not-to-compete       |  |  |  | 2.0
years |  |               | 105    |               | 
|Existing
contracts            |  |  |  | 9
months  |  |               | 313    |               | 
|Acquired
workforce            |  |  |  | 24
months |  |               | 724    |               | 
|                              |  |  |  |           |  | $             | 37,438 |               | 

F-29

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 5    Goodwill, Developed and Core Technology and Other
Intangible Assets  (Continued)



Other intangibles as of July 31, 2004 include a
total of approximately $14,290,000, $15,301,000 and $1,556,000 and $724,000 amortizable identifiable intangibles obtained from the Companys
acquisition of SSA, Synchrologic, Spontaneous Technology and SoftVisions workforce, respectively, during fiscal 2004. Refer to Note 4 for more
details on the acquisitions.




The additions to other intangibles during fiscal
2004 were offset by a write-off of $3,303,000 of fully amortized intangibles that were no longer in use and a net total of $125,000 of other intangible
acquisitions, adjustments made to certain liabilities assumed from prior year acquisitions and foreign exchange effects on non-US dollar-denominated
intangibles.




The amortization of developed and core technology
amounted to $2,693,000, $628,000 and $1,701,000 for fiscal 2004, 2003 and 2002, respectively. The amortization of other intangible assets amounted to
$1,959,000, $81,000 and zero for fiscal 2004, 2003 and 2002, respectively. The Company continues to amortize other intangible assets and is required to
review such assets for impairment under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, reassess their
useful lives and make any necessary adjustments. Based on managements review of intangibles assets at July 31, 2004, the Company believes that no
impairment existed. Based on acquisitions completed as of July 31, 2004, the estimated future amortization expense of other intangible assets is as
follows (in thousands):







|                            |  |  |  | Developedand CoreTechnology |        | OtherIntangibles
|--------------------------- |  |  |  | --------------------------- | ------ | ----------------
|Fiscal year
ending July 31, |  |  |  |                             |        |                 
|2005                        |  |  |  | $                           | 4,480  |                 
|2006                        |  |  |  |                             | 4,257  |                 
|2007                        |  |  |  |                             | 4,055  |                 
|2008                        |  |  |  |                             | 1,866  |                 
|2009                        |  |  |  |                             | 616    |                 
|Thereafter                  |  |  |  |                             | 593    |                 
|                            |  |  |  | $                           | 15,867 |                 

Note 6    Related Party Transactions



On September 30, 2003, the Companys board of
directors approved change of control agreements with three of the Companys officers that provides for 12 months acceleration of vesting of each
individuals options held at the time of a change of control. In addition, the Company granted these individuals options to purchase an aggregate
of an additional 425,000 shares of the Companys common stock. As of the date of grant, the option shares will vest over four years, with 25%
vesting after one year and then 1/48th vesting monthly thereafter. The Company accounts for these options using the guidance prescribed by APB Opinion
No. 25, Accounting for Stock Issued to Employees and Related Interpretations, and EITF No. 00-23, Issues Relating to
Accounting for Stock Compensation Under APB Opinion No. 25 and FIN No. 44.




As a result, the Company determined that the
approval of the change of control agreement would result in a new measurement date for the calculation of stock-based compensation expense under FIN
No. 44 because the modification may allow the officers to vest in an option or award that would otherwise have been forfeited pursuant to the
awards original terms. As of July 31, 2004, no change of control had occurred and the Company is unable to determine the number of options that
the officers will ultimately retain that would otherwise have been forfeited, absent the modification. As a result, no compensation expense has been
recognized in relation to those awards during fiscal 2004.




The Company had a full-recourse promissory note used
by its chief executive officer to purchase shares of the Companys common stock with a principal amount of approximately $310,000. The loan
carried an interest rate of 4.75% per annum and was payable on June 14, 2008. During the second quarter of fiscal 2004, the promissory note was fully
paid, together with the accrued interest.


F-30

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 6    Related Party Transactions 
(Continued)



In April 2004, the Company underwent a reduction in
workforce resulting in 17 individuals, including two executive officers, departing employment with the Company. Severance pay for affected officers was
approximately $100,000 and recorded within Restructuring and Other Charges in the consolidated statements of operations for fiscal
year ended July 31, 2004. Refer to Note 12 for more details on the recent reduction in force.




In July 2004, the Company entered into severance
arrangement with its former chief technology officer. Under this arrangement, the Company paid out severance of approximately $52,000 during the fourth
quarter of fiscal 2004.


Note 7    Long-Term Debt



The following table sets forth the Companys
long-term obligations, excluding capital lease obligations (in thousands):







|                                                                                     |  |  |  | July 31, 2004
|------------------------------------------------------------------------------------ |  |  |  | -------------
|3% convertible
senior notes, interest due semi-annually, principal due in March 2009 |  |  |  | $            
|Interest rate
swap fair value hedge on $60 million of 3% convertible senior notes    |  |  |  |              
|                                                                                     |  |  |  |              
|Less: current
portion                                                                |  |  |  |              
|Long-term
portion                                                                    |  |  |  | $            



The Company had no long-term debt as of July 31,
2003.


3% Convertible Senior Notes



During the third quarter of fiscal 2004, the Company
completed the offering of $60,000,000 of convertible senior notes to qualified institutional buyers in reliance on Rule 144A under the Securities Act.
The notes are senior unsecured obligations of Intellisync and rank junior to any future secured debt, on a parity with all of the Companys other
existing and future senior unsecured debt and prior to any existing or future subordinated debt. As of July 31, 2004, the Company had no other senior
or subordinated debt, except for ordinary course trade payables. The Company may not redeem any of the notes prior to their maturity. Holders, however,
may require the Company to repurchase the notes upon some types of change in control transactions. The notes will mature on March 1, 2009 unless
earlier converted or redeemed. Neither the Company nor any of its subsidiaries are subject to any financial covenants under the indenture. In addition,
neither the Company nor any of its subsidiaries are restricted under the indenture from paying dividends, incurring debt, or issuing or repurchasing
its securities.




The notes are convertible into shares of common
stock of the Company at any time prior to the close of business on the final maturity date of the notes, subject to prior redemption of the notes. The
initial conversion rate is 250.0000 shares per each $1,000 principal amount of notes which represents an initial conversion price of $4.00 per share.
The conversion rate is subject to adjustment for certain events, including the payment of dividends, and other events specified in the
indenture.




The notes bear interest at a rate of 3% per annum.
Interest on the notes will be paid on March 1 and on September 1 of each year. The first payment was made on September 1, 2004.




All costs and expenses incurred with the issuance of
the above offering have been capitalized within Other Assets and amortized over five years, the life of the respective debt. Such costs
amounted to approximately $2,707,000, net of accumulated amortization of $242,000, as of July 31, 2004.


Interest Rate Swaps



During the third quarter of fiscal 2004, the Company
entered into two interest rate swap agreements with a financial institution on a total notional amount of $50,000,000 and $10,000,000, whereby the
Company receives fixed-rate interest of 3% in exchange for variable interest payments. The interest rate swaps expire upon the
maturity


F-31

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 7    Long-Term Debt 
(Continued)

of the Companys
$60,000,000, 3% convertible senior notes in March 2009, and effectively convert
fixed-rate notes into variable-rate borrowings.  The interest rate is reset semi-annually
and is equal to the 6-month LIBOR rate less a rate spread. The total variable interest
rate was approximately  0.94% at July 31, 2004, resulting in interest expense savings
relative to fixed rates of approximately $516,000 for fiscal 2004. Under the provisions
of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as
amended, this arrangement has been designated and  qualifies as an effective fair value
hedge of interest rate risk related to the $60,000,000 convertible senior notes. As the
terms of the swaps match  those of the underlying hedged debt, the changes in the fair
value of these swaps are offset by corresponding changes in the carrying value of the
hedged debt, and therefore does not impact the Companys net earnings. As of July
31, 2004, the fair value of the interest rate swaps was  approximately $1,557,000 and
recorded in Other Liabilities with an equal adjustment recorded to the
carrying value of the $60,000,000  convertible senior notes.



Refer to Note 9 for the description of the
collateral required on the interest rate swap.


Note 8    Employee 401(k) Plan



The Company has adopted a plan to provide retirement
and incidental benefits for its employees. As allowed under Section 401(k) of the Internal Revenue Code, the 401(k) plan provides tax-deferred salary
deductions for eligible employees. Employees may contribute from 1% to 70% of their annual compensation, limited to a maximum annual amount as set
periodically by the Internal Revenue Service. The Company matches 50% of employee contributions up to a maximum of $1,500 per year per person. Employee
contributions vest immediately, whereas Company matching contributions vest at a rate of 25% per year after the first year of employment. At the
direction of each employee participant, the trustee of the 401(k) plan invests the contributions to the 401(k) plan in selected investment options. The
Companys matching contributions to the 401(k) plan were approximately $152,000, $119,000 and $286,000 in fiscal 2004, 2003 and 2002,
respectively.


Note 9    Commitments and Contingencies

Leases



During the first quarter of fiscal 2004, the Company
entered into a capital lease agreement for a phone system, which expires in February 2008. Assets and future obligations related to the capital lease
are included in the accompanying consolidated balance sheet as of July 31, 2004 in property and equipment and in the respective liability accounts,
respectively. Current and long-term portions of the capital lease amounted to $51,000 and $144,000, respectively, at July 31, 2004. Depreciation of
assets held under the capital lease is included in depreciation and amortization expense.




The Company leases its facilities under operating
leases that expire at various dates through August 2008. The total amount of rental payments due over the lease term is being charged to rent on the
straight-line method over the term of the lease. The difference between rent expense recorded and the amount paid is credited or charged to
deferred rent  which is included in current liabilities in the accompanying balance sheets. Deferred rent was approximately $435,000 at
July 31, 2004. Total rent expense was approximately $1,771,000, $827,000 and $1,688,000 for fiscal 2004, 2003 and 2002, respectively.


F-32

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 9    Commitments and Contingencies 
(Continued)



Future minimum lease payments for all non-cancelable
capital and operating lease agreements at July 31, 2004, were as follows (in thousands):







|                              |  |  |  |   |       | Fiscal year ending July 31, | 
|----------------------------- |  |  |  | - | ----- | --------------------------- | 
|
|Capital lease
obligation      |  |  |  | $ | 202   |                             | 
|Operating
leases:             |  |  |  |   |       |                             | 
|Operating
leases              |  |  |  |   | 5,971 |                             | 
|Proceeds from
subleases       |  |  |  |   | (579  | )                           | 
|Net operating
leases          |  |  |  |   | 5,392 |                             | 
|Future minimum
lease payments |  |  |  | $ | 5,594 |                             | 

Guarantees



The Company has three letters of credit that
collateralize certain operating lease obligations and total approximately $397,000 and $408,000 at July 31, 2004 and 2003, respectively. The Company
collateralizes these letters of credit with cash deposits made with three of its financial institutions and has classified the short-term and the
long-term portions of approximately $101,000 and $296,000 at July 31, 2004, and $112,000 and $296,000 at July 31, 2003 as Other Current
Assets and Restricted Cash, respectively, in the consolidated balance sheets. The long-term portion expires through June 2006. The
holders of the letters of credit are able to draw on each respective letter of credit in the event that the Company is found to be in default of its
obligations under each of its operating leases.




Under the terms of the interest rate swap agreement
into which the Company entered during fiscal 2004, the Company must provide collateral to match any unfavorable mark-to-market exposure (fair value) on
the swap. The amount of collateral required totals a minimum of $1,800,000 plus an amount equal to the unfavorable mark-to-market exposure on the swap.
Generally, the required collateral will rise as interest rates rise. As of July 31, 2004, the Company has posted approximately $3,736,000 of collateral
under this swap agreement which is included in Restricted Cash in its consolidated balance sheet.




In the event of early termination of the
Companys service agreement with eˆdeltacom, a managed service provider, the Company is required to pay eˆdeltacom a penalty fee of,
based on the July 2004 monthly service rate, up to approximately $62,000.


Warranties



The Company generally provides a warranty for its
software products and services to its customers for a period of 90 days. The Companys software products media are generally warrantied to
be free of defects in materials and workmanship under normal use and the products are also generally warrantied to perform substantially as described
in certain Company documentation. The Companys services are generally warrantied to be performed in a professional manner and to conform
materially to the specifications set forth in a customers signed contract. In the event there is a failure of such warranties, the Company
generally corrects or provides a reasonable work around or replacement product. The Company believes such obligations do not significantly affect the
Companys financial position or results of operations.




The Company accrues for warranty expenses at the
time revenue is recognized and maintains a warranty accrual for the estimated future warranty obligation based upon the relationship between historical
and anticipated costs. In other instances, additional amounts are recorded when such costs are probable and can be reasonably estimated. The warranty
accrual is reviewed at least quarterly. As of July 31, 2004, the warranty accrual was $200,000, which approximates the balance as of July 31,
2003.


F-33

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 9    Commitments and Contingencies 
(Continued)

Indemnification Obligations



On certain occasions, the Company provides to its
customers intellectual property indemnification, subject to certain limitations, in its arrangements for the Companys software products or
services. Typically these obligations provide that the Company will indemnify, defend and hold the customers harmless against claims by third parties
that its software products or services infringe upon the copyrights, trademarks, patents or trade secret rights of such third parties. As of July 31,
2004, there has been no significant claim made by any third party with regard to the Companys software products or services. The liability
reserve for indemnification obligations is not significant.




Section 145 of the Delaware General Corporation Law,
or the Delaware Law, permits the indemnification of officers, directors, and other corporate agents under certain circumstances and subject to certain
limitations. The Companys Certificate of Incorporation and Bylaws provide that the Company shall indemnify its directors, officers, employees,
and agents to the full extent permitted by Delaware Law, including in circumstances in which indemnification is otherwise discretionary under Delaware
law. In addition, the Company has entered into separate indemnification agreements with its directors and officers which would require the Company,
among other things, to indemnify them against certain liabilities which may arise by reason of their status or service (other than liabilities arising
from willful misconduct of a culpable nature). These indemnification provisions may be sufficiently broad to permit indemnification of the
Companys officers and directors for liabilities (including reimbursement of expenses incurred) arising under the Securities Act, as amended. At
present, there is no pending litigation or proceeding involving a director, officer, employee or other agent of the Company in which indemnification is
being sought nor is the Company aware of any threatened litigation that may result in a claim for indemnification by any director, officer, employee or
other agent of the Company.




The offering memorandum and registration statement
associated with the 3% Convertible Senior Notes Due 2009 include indemnification provisions that obligate the Company to indemnify and hold harmless
each initial purchaser of the notes against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in such memorandum or the registration statement. As of July 31, 2004, the Company does not believe it is
probable that it will have to make any material payments for claims that could result from such provisions in the future. As such, no amounts have been
recorded under these indemnifications as of July 31, 2004.


Litigation



On December 5, 2002, the Company filed a patent
infringement suit against Synchrologic, Inc. in the United States District Court for the Northern District of California, alleging that
Synchrologics server and desktop products infringe on six of Intellisyncs synchronization-related patents. As a result of the
Companys definitive agreement dated September 14, 2003 to purchase all of the issued and outstanding stock of Synchrologic, the Company and
Synchrologic agreed to dismiss the Companys outstanding litigation against Synchrologic with prejudice as of September 17, 2003, thereby
permanently ending this specific suit.




On April 19, 2002, the Company filed a patent
infringement suit against Extended Systems, Inc. in the United States District Court for the Northern District of California, or the Court. The Company
alleged that Extended Systems server and desktop products infringe on certain of its synchronization-related patents. On March 4, 2004, the
Company announced its mutual agreement with Extended Systems, Inc. to settle the patent infringement lawsuit. In an agreement signed by both companies,
the Company and Extended Systems agreed to settle all claims and terminate litigation proceedings immediately. Under the settlement agreement, Extended
Systems made a one-time payment of $2,000,000 to the Company and received a license to certain Intellisync patents, which Extended Systems acknowledges
are valid. During the third quarter of fiscal 2004, the Company recorded the settlement proceeds, net of $424,000 related legal costs incurred for the
quarter as Litigation Settlement Gain, Net in the consolidated statements of operations. Both companies agreed there will be no further
patent litigation actions


F-34

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 9    Commitments and Contingencies 
(Continued)

between the two companies for a period of five years and that the Company would
release all Extended Systems customers from any claims of infringement relating to their purchase and future use of Extended Systems
products.



The Company is also involved in various litigation
and claims arising in the normal course of business. In managements opinion, these matters are not expected to have a material impact on the
Companys consolidated results of operations or financial condition.


Note 10    Stockholder Rights Plan



On January 10, 2003, the Company announced that its
Board of Directors adopted a stockholder rights plan. The plan is designed to protect the long-term value of the Company for its stockholders during
any future, unsolicited acquisition attempt. Key features of the rights plan include:


| |  | the rights become exercisable only upon the occurrence of
certain events specified in the plan, including the acquisition of 15% of the Companys outstanding common stock by a person or group;
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | each right entitles the registered holder, other than an
acquiring person, under specified circumstances, to purchase from the Company one one-thousandth of a share of Series A Participating
Preferred Stock, par value $0.001 per share, or the Preferred Shares, of the Company, at a price of $10.00 per one one-thousandth of a Preferred Share,
subject to adjustment. In addition, each right entitles the registered holder, other than an acquiring person, under specified
circumstances, to purchase from the Company that number of shares of the Companys Common Stock having a market value of two times the exercise
price of the right;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | subject to certain limitations, the terms of the rights may be
amended by a resolution of the Board of Directors without the consent of the holders of the rights; and
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the right may be redeemed at a price of $0.001 per
right.
|- |  | ---------------------------------------------------------

Note 11    Stockholders Equity

Preferred Stock



The Company has authorized 2,000,000 shares of
preferred stock, par value $0.001 per common share. The Companys Board of Directors has authority to provide for the issuance of the shares of
preferred stock in series, to establish from time-to-time the number of shares to be included in each such series and to fix the designation, powers,
preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof, without any further vote or
action by the shareholders. As of July 31, 2004 and 2003, no shares of preferred stock have been issued.


Common Stock



The Company has authorized 160,000,000 shares of
common stock, par value $.001 per common share. As of July 31, 2004 and 2003, 65,592,118 and 47,752,650, respectively, shares of common stock have been
issued.


Stock Option Plans



In October 1993, the Board of Directors and
stockholders adopted the 1993 Stock Option Plan, or the 93 Plan which provided for granting of incentive stock options, or ISOs and nonqualified stock
options, or NSOs, to purchase shares of common stock to employees, directors, consultants and advisors of the Company. The 93 Plan expired as to future
grants in October 2003 except as to options then outstanding. Accordingly, there were no options available for grant as of July 31,
2004.




In March 2000, the Board of Directors adopted the
2000 Supplemental Stock Option Plan, or the SSOP. The SSOP provides for granting of NSOs to purchase shares of common stock to non-executive officers,
employees


F-35

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 11    Stockholders Equity 
(Continued)

and consultants of the Company. To date, the Company has not granted any
significant options to consultants or advisors. In accordance with the SSOP, the stated exercise price shall not be less than 85% of the estimated fair
market value of common stock on the date of grant as determined by the Board of Directors. The SSOP allows optionees to purchase stock on exercise of
options using cash, through a tender of shares or through a same-day sale option exercise program. The SSOP provides that the options shall be
exercisable over a period not to exceed ten years. Options generally vest 25% one year after date of grant and 1/48th each month thereafter for the
next 36 months. The SSOP provides that, in the event of certain change of control transactions involving the Company, outstanding options will be
assumed by the acquiror or the acquiror would issue replacement options. If the acquiror did not assume or replace outstanding options, then these
options would terminate upon the closing of the transactions. Options available for grant as of July 31, 2004 were approximately 73,000
shares.



In January 2001, the Companys Board of
Directors approved a cancellation and regrant program for outstanding options. Under the program, holders of outstanding options granted after July 24,
1996, with exercise prices in excess of $15.00 per share were given the choice of retaining these options or obtaining in substitution repriced options
for the same number of shares that would be issued on a date which was at least six months plus one day from the cancellation date. Holders of
approximately 2,676,000 shares elected to participate in the program and received the new options. The re-grants for executive officers and directors
were priced at $2.10 (the fair market value on July 30, 2001, the date of the new grant). The re-grants for employees were priced at $1.78 (85% of the
underlying market price on July 30, 2001). The new options vest according to their original grant schedules.




In September 2001, the Companys Board of
Directors approved a new proposal to offer its employees, officers and directors the opportunity to cancel stock options granted to them between
September 1999 and June 2001 in exchange for an equal number of new options. The new options were granted on April 24, 2002, six months and two days
following the close of the tender offer on October 22, 2001, and priced at $1.11 (the fair market value on the grant date). Holders of options
exercisable for approximately 845,000 shares elected to participate in the program and received the new options. The new options vest according to
their original grant schedules.




In December 2002, the Companys Board of
Directors and stockholders adopted the 2002 Stock Option Plan, or the 2002 Plan, to replace the 93 Plan which expired in October 2003. The 2002 Plan
provides for granting of ISOs and NSOs to purchase shares of common stock to employees, directors, consultants and advisors of the Company. In
accordance with the 2002 Plan, the stated exercise price, (i) for an ISO, shall not be less than the fair market value, (ii) for an NSO, shall not be
less than eighty-five percent (85%) of the fair market value, as determined by the Board of Directors, of a share of stock on the date of the granting
of the option. The 2002 Plan allows optionees to purchase stock on exercise of options using cash, through a tender of shares or through a same-day
sale option exercise program. The 2002 Plan provides that the options shall be exercisable over a period not to exceed ten years. Options generally
vest 25% one year after date of grant and 1/48th each month thereafter for the next 36 months. The 2002 Plan provides that, in the event of certain
change of control transactions involving the Company, outstanding options will be assumed by the acquiror or the acquiror would issue replacement
options. If the acquiror did not assume or replace outstanding options, then these options would terminate upon the closing of the transactions.
Options available for grant as of July 31, 2004 were approximately 794,000 shares.




The Company assumed certain options granted to
former employees of acquired companies, or the Acquired Options. All of the Acquired Options were adjusted to effectuate the conversion under the terms
of the agreements between the Company and the companies acquired. The Acquired Options generally became exercisable over a four-year period and
generally expire ten years from the date of grant. No additional options will be granted under any of these plans.


Restricted Stock Grant Agreement



In June 2002, the Company granted its new
president and chief executive officer an option to purchase 1,500,000 restricted shares of common stock at $0.59 per share (the fair market value on
July 14, 2002, the date of the grant). The options may be exercised prior to the options becoming vested, but such shares are subject
to


F-36

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 11    Stockholders Equity 
(Continued)

repurchase over the option vesting period. If the officers employment is
terminated for any reason, the Company has the right to repurchase any unvested shares. A total of 700,000 shares, conditional upon continued
employment, vest 25% one year after date of grant and 1/48th each month thereafter for the next 36 months. The remaining 800,000 shares vest in full on
June 14, 2009, but the vesting may be accelerated upon achievement of certain performance objectives. The grant provides for acceleration of vesting
upon change of control. In June 2002, the officer exercised the option with respect to 525,000 shares in exchange for a full recourse, interest-bearing
promissory note. The promissory note was fully paid, together with the accrued interest, in January 2004.



Stock option activity, both incentive and
nonqualified, under all plans is presented as follows:







|                                               |  |  |  |  |        | Outstanding Options |  | Exercisable Options |       
|---------------------------------------------- |  |  |  |  | ------ | ------------------- |  | ------------------- | ------
|
|Balance at July
31, 2001                       |  |  |  |  | 2,265  |                     |  |                     | 6,607 
|Increase in
shares authorized                  |  |  |  |  | 1,500  |                     |  |                     |       
|Granted                                        |  |  |  |  | (3,943 | )                   |  |                     | 3,943 
|Exercised                                      |  |  |  |  |       |                     |  |                     | (681  
|Canceled                                       |  |  |  |  | 3,483  |                     |  |                     | (3,483
|Acquired option
shares expired                 |  |  |  |  | (24    | )                   |  |                     |       
|Balance at July
31, 2002                       |  |  |  |  | 3,281  |                     |  |                     | 6,386 
|Increase in
shares authorized                  |  |  |  |  | 2,275  |                     |  |                     |       
|Granted                                        |  |  |  |  | (3,161 | )                   |  |                     | 3,161 
|Exercised                                      |  |  |  |  |       |                     |  |                     | (1,374
|Canceled                                       |  |  |  |  | 1,845  |                     |  |                     | (1,845
|Acquired option
shares expired                 |  |  |  |  | (7     | )                   |  |                     |       
|Balance at July
31, 2003                       |  |  |  |  | 4,233  |                     |  |                     | 6,328 
|Options assumed
in Synchrologic acquisition    |  |  |  |  |        |                     |  |                     | 1,010 
|Granted                                        |  |  |  |  | (4,189 | )                   |  |                     | 4,189 
|Exercised                                      |  |  |  |  |       |                     |  |                     | (1,561
|Canceled                                       |  |  |  |  | 1,764  |                     |  |                     | (1,764
|Plan shares and
acquired option shares expired |  |  |  |  | (942   | )                   |  |                     |       
|Balance at July
31, 2004                       |  |  |  |  | 866    |                     |  |                     | 8,202 



All options were granted during fiscal 2004, 2003
and 2002 at the fair market value of the Companys common stock. Proceeds received by the Company from exercises are credited to common stock and
additional paid-in capital.




At July 31, 2004, there were no shares subject to
repurchase, and options to purchase 866,263 shares were available for future grants.


Deferred Stock Compensation.



In conjunction with certain options granted by
NetMind Technologies, Inc. prior to the Companys acquisition of NetMind, the Company is recognizing over the options four-year vesting
periods a net deferred compensation expense of approximately $3,518,000. The Company recorded no charges in fiscal 2004 and 2003 and $83,000 in fiscal
2002 in conjunction with remeasuring related variable stock options.




In conjunction with the cancellation and regrant
program implemented in January 2001, the new options granted to executive officers and directors were priced at the fair market value on the date of
the new grant and accounted for as fixed awards. Accordingly, no stock compensation charge was recorded for these new options. The new options granted
to employees were priced at a discount and accounted for under the guidance in FIN No. 44. According to FIN No. 44, the associated compensation charge
under variable accounting is based on any excess


F-37

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 11    Stockholders Equity 
(Continued)

of the common
stock closing price at the end of the reporting period or date of exercise, forfeiture,
cancellation without replacements, if earlier,  over the exercise price. This cost is
amortized on an accelerated basis over the remaining vesting period consistent with the
method described in FIN  No. 28, Accounting for Stock Appreciation Rights and
Other Variable Stock Option or Award Plans. The Company recorded approximately
a charge of $79,000 and $400,000 in fiscal 2004 and 2003, respectively, and a recovery of
$137,000 in fiscal 2002 for the underlying deferred  compensation relating to the
employees options.



As a result of the cancellation and regrant program
implemented in September 2001 and in accordance with FIN No. 44, options to purchase 55,500 shares, net of the effect of recent terminations, that were
granted between July and October 2001 became subject to variable plan accounting. FIN No. 44 holds that if a lower-priced option is granted within a
six-month period before or after a higher priced option held by the same person is cancelled, the combined transactions are considered a repricing and
result in variable plan accounting. The Company recorded for these options a recovery of approximately $21,000 in fiscal 2004 and a charge of $33,000
in fiscal 2003. In fiscal 2002, as a result of a lower closing price of the Companys common stock at July 31, 2002, compared with the exercise
price of the affected shares, no stock compensation charge was recorded.




The 525,000 unvested shares that were exercised in
fiscal 2002 by the president and chief executive officer of the Company under the Restricted Stock Grant Agreement were paid with a full recourse,
fixed interest-bearing promissory note (Refer to Note 6). The shares are accounted for by the Company under the provisions of EITF No. 00-23,
Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25 and FIN No. 44. EITF No. 00-23 holds that if
unvested options were exercised with a full recourse note with a fixed interest rate, variable accounting would result until such time that the
underlying options have vested and the repurchase provision for the options has lapsed. According to EITF No. 00-23, the associated compensation charge
is based on any excess of the fair value of the stock at the end of the reporting period or date of vesting, if earlier, over the fair value of the
note at that date. The Company recorded for the underlying options a recovery of approximately $346,000 in fiscal 2004 and a charge of $1,611,000 in
fiscal 2003. In fiscal 2002, as a result of a lower fair value of the Companys common stock at July 31, 2002, compared with the face value of the
note, which approximates fair value, no stock compensation charge was recorded.




As a result of the employee terminations during
fiscal 2003 and 2002, the Company recorded a reduction of unearned stock-based compensation of $69,000 and $59,000, respectively. For many of the
terminated employees and executives, the Company incurred significant deferred stock-based charges on the original option grants over the previous
years. The reversed amounts represent the additional paid in capital and stock-based compensation amounts associated with the unvested options and
stock awards.




The Company recorded a total of $745,000, $1,742,000
and $367,000 of expense relating to the above deferred compensation charges in fiscal 2004, 2003 and 2002, respectively.


F-38

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 11    Stockholders Equity 
(Continued)



The following table summarizes information about
stock options under all plans outstanding at July 31, 2004:







|             |  |  |  | Options Outstanding |       | Options Exercisable | 
|------------ |  |  |  | ------------------- | ----- | ------------------- | 
|
|$ 0.09       |  |  |  |                     | 363   |                     | 
|$ 0.16$0.36 |  |  |  |                     | 1,059 |                     | 
|$ 0.44$0.59 |  |  |  |                     | 1,349 |                     | 
|$ 0.61$1.38 |  |  |  |                     | 889   |                     | 
|$ 1.49$2.10 |  |  |  |                     | 533   |                     | 
|$ 2.42$3.50 |  |  |  |                     | 1,614 |                     | 
|$ 3.69$5.22 |  |  |  |                     | 2,298 |                     | 
|$ 5.67$8.10 |  |  |  |                     | 87    |                     | 
|$14.25       |  |  |  |                     | 10    |                     | 
|             |  |  |  |                     | 8,202 |                     | 

Employee Stock Purchase Plan



In December 1998, the Board of Directors adopted the
Employee Stock Purchase Plan, or the ESPP. The purpose of the ESPP is to provide eligible employees of the Company with a means of acquiring common
stock of the Company through payroll deductions. The ESPP consists of four six-month purchase periods in each two-year offering period. Shares may be
purchased under the ESPP at 85% of the lesser of the fair market value of the common stock on the beginning of the offering period date or ending of
the purchase period. During fiscal 2004, 2003 and 2002, 278,868, 522,003 and 614,803 shares were sold through the ESPP at a weighted average price of
$1.21, $0.32 and $1.14, respectively.




A maximum of 500,000 shares of the Companys
common stock was initially made available for issuance under the ESPP, which amount is cumulatively increased on August 1 of each year by an amount
equal to the lesser of (i) 500,000 shares, or (ii) a lesser amount of shares determined by the Board of Directors. In fiscal 2004, the board of the
Company authorized an increase in the number of shares available for purchase under the ESPP pursuant to the evergreen provisions of the ESPP. As of
July 31, 2004, the number of shares available for purchase under the ESPP is approximately 205,000, exclusive of 500,000 shares approved by the Board
of Directors to be added on August 1, 2004.


F-39

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 12    Restructuring and Other Charges



Restructuring and other charges in the consolidated
statements of operations consist of the following:







|                                       |  |  |  | Year Ended July 31, |    
|-------------------------------------- |  |  |  | ------------------- | ---
|
|Restructuring
charges:                 |  |  |  |                     |    
|Severance
costs                        |  |  |  | $                   | 253
|Facilities
costs                       |  |  |  |                     | 600
|Assets held
for disposal               |  |  |  |                     |   
|Other
charges                          |  |  |  |                     |   
|Restructuring
charges                  |  |  |  |                     | 853
|Other
charges:                         |  |  |  |                     |    
|Separation
costs                       |  |  |  |                     |   
|Costs
relating to a ceased acquisition |  |  |  |                     | 76 
|Restructuring
and other charges        |  |  |  | $                   | 929

Restructuring Charges



The Company implemented a number of cost-reduction
plans aimed at reducing costs that were not integral to its overall strategy, better aligning its expense levels with current revenue levels and
ensuring conservative spending during periods of economic uncertainty. These initiatives included a reduction in workforce and facilities
consolidation.




Fiscal 2004. During fiscal 2004, the Company
implemented reduction in workforce aimed at reducing excess capacity in its continued effort to streamline its operations, affecting 17 employees in
various business functions (nine in research and development and eight in sales and marketing). The program was completed by the end of April 2004, and
the associated severance costs incurred were approximately $253,000, none of which remained unused as of July 31, 2004.




The Company continually evaluates the balance of the
restructuring reserve it recorded in prior years based on the remaining estimated amounts to be paid. As a result of vacating the remaining office
space in Santa Cruz, California and the difficulties in subletting such facility because of the continuing deterioration of the real estate market in
this location, the Company determined that additional charges were needed for adjustments in expected future sublease rates and brokerage fees. As a
result, total facilities costs of $600,000, inclusive of the costs of $250,000 for vacating a floor of the Companys office facility in San Jose,
California, were recorded during fiscal 2004.




Fiscal 2003. During fiscal 2003, the Company
implemented a reduction in workforce, affecting 19 employees in engineering and product management. As a result, the Company incurred severance and
other fringe benefit costs of $257,000.




The continuing deterioration of the real estate
market in Santa Cruz, California resulted in the difficulties for the Company to sublet the sections of its facility in such location, which the
Company vacated in previous years. As a result, the Company determined that additional charges were needed for adjustments in expected future sublease
rates and brokerage fees. A restructuring charge adjustment of $159,000 was therefore recorded in fiscal 2003.




Fiscal 2002. During fiscal 2002, as part of
its restructuring programs, the Company implemented a reduction in engineering workforce of approximately 72 employees. This reduction in the
Companys engineering workforce, as well as the additional 29 positions eliminated in other business functions, was completed by the end of July
2002, and the associated severance costs incurred were approximately $1,228,000.




The Company also further consolidated its business
facilities located in Los Gatos, California and Nashua, New Hampshire with its corporate headquarters located in San Jose, California. The costs of
consolidating facilities includes


F-40

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 12    Restructuring and Other Charges 
(Continued)

$1,914,000 for excess facility lease and vacancy costs and $528,000 for write-off
of property and equipment, which consisted primarily of leasehold improvements, office equipment and furniture and fixtures, taken out of
service.



As a result of its evaluation of its periodic
restructuring reserve, the Company determined that additional charges were needed for the full amount of rent for the Emeryville office throughout the
term of the lease agreement. Further charges were also needed for the Santa Cruz facility for adjustments in expected sublease rates and brokerage
fees, as well as for costs associated with its remaining office space vacated during fiscal 2002 as a result of a further reduction in workforce. The
aggregate charges recorded during fiscal 2002 were approximately $268,000 and $1,342,000 for Emeryville and Santa Cruz facilities,
respectively.




A summary of the severance and facilities costs and
assets held for disposal relating to the cost reduction plans implemented is outlined as follows (in thousands):







|                         |  |  |  | WorkforceReduction |        | Consolidationof ExcessFacilities |  | Other |        | Total
|------------------------ |  |  |  | ------------------ | ------ | -------------------------------- |  | ----- | ------ | -----
|Balance at
July 31, 2001 |  |  |  | $                  | 20     |                                  |  | $     | 741    |      
|Restructuring
provision  |  |  |  |                    | 1,228  |                                  |  |       | 2,442  |      
|Adjustment               |  |  |  |                    |       |                                  |  |       | 1,610  |      
|Non-cash
charges         |  |  |  |                    |       |                                  |  |       | (877   | )    
|Cash
payments            |  |  |  |                    | (1,205 | )                                |  |       | (840   | )    
|Balance at
July 31, 2002 |  |  |  | $                  | 43     |                                  |  | $     | 3,076  |      
|Restructuring
provision  |  |  |  |                    | 257    |                                  |  |       |       |      
|Adjustment               |  |  |  |                    |       |                                  |  |       | 159    |      
|Cash
payments            |  |  |  |                    | (300   | )                                |  |       | (1,469 | )    
|Balance at
July 31, 2003 |  |  |  | $                  |       |                                  |  | $     | 1,766  |      
|Restructuring
provision  |  |  |  |                    | 253    |                                  |  |       | 250    |      
|Adjustment               |  |  |  |                    |       |                                  |  |       | 350    |      
|Cash
payments            |  |  |  |                    | (253   | )                                |  |       | (1,286 | )    
|Balance at
July 31, 2004 |  |  |  | $                  |       |                                  |  | $     | 1,080  |      



The remaining unpaid amount as of July 31, 2004 of
$1,080,000 related to the net lease expense due to the consolidation of excess facilities, will be paid over the respective lease terms through June
2006 using cash from operations. The current and long-term portions of the restructuring accrual of $820,000 and $260,000 are classified as
Accrued Liabilities and Other Liabilities, respectively, in the consolidated balance sheet as of July 31,
2004.




The Company expects the cost savings, particularly
in facility-related costs, brought about by these restructurings to continue for fiscal 2005. Future savings are anticipated to include approximately
$1,900,000, primarily in operating expenses each year for the next few years from the fiscal 2004 workforce reduction and $700,000 and $250,000 in
fiscal 2005 and 2006, respectively, in facility-related expenditures.




The Company has further reduced the total costs of
excess facilities by the estimated proceeds from assumed future subleases. If the actual results differ from its estimates and assumptions, the Company
may be required to adjust further its facilities costs accrual related to expected losses on subleases, including recording additional losses.
Differences, if any, between the estimated amounts accrued and the actual amounts paid will be reflected in operating expenses in future
periods.


Separation Costs



In fiscal 2002, the Company recorded accruals of
approximately $257,000 related to separation agreements with its former president and chief executive officer and former executive vice president of
sales and business development. No amount remained unpaid as of July 31, 2004.


F-41

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 12    Restructuring and Other Charges 
(Continued)

Costs Relating To Ceased Acquisition



During fiscal 2004 and 2003, the Company incurred a
charge of approximately $76,000 and $379,000, respectively, for operating expenses, mainly legal and accounting, relating to an acquisition that the
Company subsequently ceased pursuing.


Note 13    Impairment of Assets



Impairment of assets in the consolidated statements
of operations for the year ended July 31, 2002 consists of the following (in thousands):







|                         |  |  |  | Year EndedJuly 31, 2002
|------------------------ |  |  |  | -----------------------
|Intangibles              |  |  |  | $                      
|Commitment               |  |  |  |                        
|Assets held and
used     |  |  |  |                        
|Assets held for
disposal |  |  |  |                        
|Impairment of
assets     |  |  |  | $                      



The Company did not incur any impairment charges
during fiscal 2004 and 2003.


Goodwill and Identifiable Intangibles



ProxiNet. During the fourth quarter of fiscal
2002, based on the significant decline in revenue from Browse-itTM products, the base technology of which was obtained with the acquisition
of ProxiNet, Inc., the Company, decided to abandon sales and development efforts related to Browse-it. The Company determined that Browse-it technology
has no alternative uses and has not been incorporated into other products or services and, accordingly, recorded an impairment charge for the full
carrying values of goodwill and core technology of $4,101,000 and $258,000, respectively, as of July 31, 2002.


Online Operations



The Companys plan in prior year to focus
effort on its core business necessitated a thorough review of certain operations and assets that the Company believed not to be viable to integrate
into its new strategies. Included in the Companys review was an impairment test for its online operations and related assets.




During fiscal 2002, in its review of online
operations and related assets, such as computers, servers, network- and other hosting-related equipment, the Company identified those assets that would
be held for use to finish preexisting contracts with certain customers for a short period of time, after which the assets will be disposed of or
abandoned. The Company also identified those related assets that would be held for immediate disposal. Based on a recoverability analysis performed of
the assets carrying value, the Company has anticipated no further cash flows from the online operations. The Company, therefore, recorded an impairment
charge of $102,000 and $685,000 for assets held for use and assets held for disposal, respectively, based on the amount by which the carrying amount of
assets exceeded the recovery value less disposal costs. The Company determined the recovery value of the assets using its best estimates on market
prices of similar assets. In addition, the Company wrote off related hosting commitment with a third-party vendor, a related party, for its entire
value totaling $103,000.


F-42

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 14    Income Taxes



The income tax provision (benefit) is summarized as
follows (in thousands):







|                                  |  |  |  | Year Ended July 31, |    
|--------------------------------- |  |  |  | ------------------- | ---
|
|Current                           |  |  |  |                     |    
|Federal                           |  |  |  | $                   |   
|State                             |  |  |  |                     | 15 
|Foreign
withholding and other tax |  |  |  |                     | 466
|                                  |  |  |  | $                   | 481



Net deferred tax assets/liabilities are summarized
as follows (in thousands):







|                                                                |  |  |  | July
      31, |        
|--------------------------------------------------------------- |  |  |  | -------------- | -------
|
|Deferred
        tax assets:                                    |  |  |  |                |        
|Net
        operating loss carryforwards                        |  |  |  | $              | 50,441 
|Alternative
        minimum tax credit carryforwards            |  |  |  |                | 107    
|Research
        and development and other credit carryforwards |  |  |  |                | 6,732  
|Foreign
        tax credit carryforwards                        |  |  |  |                | 1,952  
|Reserves
        and accruals                                   |  |  |  |                | 6,231  
|Depreciation
        and amortization                           |  |  |  |                | 5,747  
|Deferred
        revenue                                        |  |  |  |                |       
|Total
        deferred tax assets                               |  |  |  |                | 71,210 
|Deferred
        tax asset valuation allowance                  |  |  |  |                | (65,546
|                                                                |  |  |  |                | 5,664  
|Deferred
        tax liabilities  acquired intangible assets   |  |  |  |                | (6,261 
|Net
        deferred tax assets/liabilities                     |  |  |  | $              | (597   



In accordance with SFAS No. 109, deferred
tax liabilities of approximately $5,205,000 and $597,000, net of amortization, were recorded during fiscal 2004 for the tax effect of the non-deductible
amortizable intangible assets associated with the Synchrologic and SSA acquisitions respectively. Deferred tax assets of approximately $6,094,000 were
also recorded as part of the Synchrologic acquisition. As the Company amortizes the intangible assets acquired in the SSA transaction the
deferred tax liability associated with those assets will decrease resulting in a smaller net deferred tax liability for the Company.




Except for fiscal 1997, the Company has incurred
losses from inception through fiscal 2004. The Company believes that, based on the history of such losses and other factors, the weight of available
evidence indicates that it is more likely than not that the Company will not be able to realize its deferred tax assets and thus a full valuation
reserve has been recorded at July 31, 2004 and 2003. The change in valuation allowance for deferred tax assets was an increase of $6,937,000 and
$1,134,000 during fiscal 2004 and 2003, respectively.




Deferred tax assets of approximately $16,570,000 as
of July 31, 2004 pertain to certain net operating losses carryforwards and credit carryforwards resulting from the exercise of employee stock options.
When recognized, the tax benefit of these loss and credit carryforwards are accounted for as a credit to additional paid-in capital rather than a
reduction of the income tax provision.


F-43

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 14    Income Taxes 
(Continued)



A reconciliation of the income tax provision to the
amount computed by applying the statutory federal income tax rate to income (loss) before income tax provision is summarized as follows (in
thousands):







|                                           |  |  |  | Year Ended July 31, |       
|------------------------------------------ |  |  |  | ------------------- | ------
|
|Amounts
computed at statutory federal rate |  |  |  | $                   | (3,051
|Foreign
withholding and other tax          |  |  |  |                     | 106   
|Future benefits not currently recognized   |  |  |  |                     | 2,138 
|Deferred stock compensation                |  |  |  |                     | 253   
|Goodwill impairment                        |  |  |  |                     |      
|In-process research and development        |  |  |  |                     | 983   
|Other                                      |  |  |  |                     | 52    
|                                           |  |  |  | $                   | 481   



At July 31, 2004, the Company has federal and state
net operating loss carryforwards of $141,962,000 and $37,255,000, respectively, and federal and state credit carryforwards of $6,476,000 and
$2,314,000, respectively, available to offset future taxable income. The Companys carryforwards expire in 2005 through 2024 if not
utilized.




The Tax Reform Act of 1986 limits the use of net
operating loss and tax credit carryforwards in certain situations where changes occur in the stock ownership of a company. As a result of ownership
changes which may have occurred in past fiscal years, the Companys net operating losses and carryforwards may be subject to these
limitations.




The Company does not provide for taxes on unremitted
earnings of its foreign subsidiary as these earnings are intended to be reinvested permanently.


Note 15    Net Loss Per Common Share



Basic net loss per common share is computed by
dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss per
common share is computed by dividing net loss by the weighted average number of dilutive potential common shares that were outstanding during the
period. Diluted weighted average shares reflect the dilutive effect, if any, of potential common shares based on the treasury stock
method.




Basic and diluted net loss per common share were
calculated as follows (in thousands, except per common share amounts):







|                                                                                                |  |  |  | Year Ended July 31, |       
|----------------------------------------------------------------------------------------------- |  |  |  | ------------------- | ------
|
|Numerator:                                                                                      |  |  |  |                     |       
|Net loss
attributable to common stockholders                                                    |  |  |  | $                   | (9,455
|Denominator:                                                                                    |  |  |  |                     |       
|Weighted
average shares outstanding used to compute basic and diluted net loss per common share |  |  |  |                     | 57,732
|Basic and
diluted net loss per common share                                                     |  |  |  | $                   | (0.16 



All common shares that were held in escrow or that
were subject to repurchase by the Company, totaling approximately 1,584,000, 335,000 and 653,000 as of July 31, 2004, 2003 and 2002, respectively, were
excluded from basic and diluted net loss per common share calculations.




Potential common shares attributable to stock
options, convertible senior notes, warrants, shares held in escrow and shares subject to repurchase by the Company of 24,786,384, 6,563,822 and
7,122,180 were outstanding at July 31, 2004, 2003 and 2002, respectively. However, as a result of a net loss incurred by the Company in the years ended
July 31, 2004, 2003 and 2002, none of the in-the-money potential common shares were included in the weighted average outstanding shares (using the
treasury stock method) used to calculate net loss per common share because the effect would have been antidilutive.


F-44

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 16    Business Segments



Operating segments are identified as components of
an enterprise about which separate, discrete financial information is available that is evaluated by the chief operating decision maker or
decision-making group to make decisions about how to allocate resources and assess performance. The Companys chief operating decision maker is
the chief executive officer. To date, the Company has reviewed its operations principally in a single segment.




The Company operates in a single industry segment
encompassing the development, marketing and support of synchronization software and services. The Companys customer base consists primarily of
corporate organizations, business development organizations, industry associations, wireless carriers, resellers, international system integrators,
large OEMs in the PC market and selected distributors, which primarily market to the retail channel, in North America, Europe, the Asia-Pacific region,
South America, and Africa.




Revenue is attributed to regions based on the
location of customers. Revenue information by geographic region is as follows (in thousands):







|                    |  |  |  | Year Ended July 31, |       
|------------------- |  |  |  | ------------------- | ------
|
|United
States       |  |  |  | $                   | 28,315
|Japan               |  |  |  |                     | 5,346 
|Other
International |  |  |  |                     | 8,647 
|Total
revenue       |  |  |  | $                   | 42,308



Revenue information by product group is as follows
(in thousands):







|                                |  |  |  | Year Ended July 31, |       
|------------------------------- |  |  |  | ------------------- | ------
|
|Enterprise
and retail products  |  |  |  | $                   | 22,764
|Technology
licensing components |  |  |  |                     | 19,544
|Total
revenue                   |  |  |  | $                   | 42,308



The Companys enterprise and retail products
include Intellisync® Handheld Edition, Intellisync Handheld Edition for Enterprise (formerly Enterprise Intellisync®), Intellisync Phone
Edition, Intellisync Mobile Suite® (formerly Synchrologic Mobile Suite) and SSAs Identity Systems, as well as related support and
maintenance. Technology licensing components include various licensed technology platforms, including Intellisync Mobile Suite for Wireless Operators,
Intellisync Software Development Platform, Intellisync SyncML Server (formerly TrueSync®), Intellisync Server-to-Server, professional services,
non-recurring engineering services and related maintenance contract programs.


F-45

---

INTELLISYNC CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Note 16    Business Segments 
(Continued)



Goodwill information by geographic region is as
follows (in thousands):







|                        |  |  |  | July 31, 2004
|----------------------- |  |  |  | -------------
|United
States           |  |  |  | $            
|United
Kingdom          |  |  |  |              
|Other
International     |  |  |  |              
|Total
long-lived assets |  |  |  | $            



Other long-lived asset information by geographic
region is as follows (in thousands):







|                        |  |  |  | July 31, 2004
|----------------------- |  |  |  | -------------
|United
States           |  |  |  | $            
|United
Kingdom          |  |  |  |              
|Australia               |  |  |  |              
|Other
International     |  |  |  |              
|Total long-lived
assets |  |  |  | $            



At July 31, 2003, substantially all of the
Companys goodwill and other long-lived assets were in the United States.


Note 17    Subsequent Event

NCR Patent  Infringement Claim



In August 2004, a patent-infringement claim was
filed against the Company by NCR Corporation in the U.S. District Court for the Southern District of Ohio Western Division. In the complaint, NCR
alleged certain of the Companys products infringe three of its patents which cover technology for synchronizing databases between personal
digital assistants and host computers. Based on a lengthy review, the Company believes that NCRs claims against it are without merit and the
Company does not infringe on any of the asserted NCR patents. The Company has certain indemnification obligations to Garmin for claims related to
intellectual property infringement. The Company does not believe that the outcome of this patent infringement claim, even if adverse to the Company,
would have a material adverse effect on its results of operations and financial condition. Separately, on September 9, 2004, the Company filed a
petition complaint for declaratory judgment against NCR requesting, among other things, that a judgment be entered finding that we do not infringe an
NCR patent asserted against one of the Companys licensees, Garmin Ltd.


Spontaneous Technologys Contingent Consideration



In conjunction with the Companys acquisition
of Spontaneous Technology, the Company was required to pay Spontaneous Technology additional consideration of up to $7,000,000 in shares of
Intellisyncs common stock. The additional consideration was contingent upon the amount of the Companys revenues associated with sales of
its products including certain technology of Spontaneous Technology during the period ending September 30, 2004. The earnout period ended with the
Companys aggregate revenue on products associated with Spontaneous Technology amounting to less than the given earnout threshold. Consequently,
no additional consideration was or will be paid to Spontaneous Technology.


F-46

---



SCHEDULE II

INTELLISYNC CORPORATION VALUATION AND QUALIFYING ACCOUNTS (In
thousands)






|Classification                                      |  |  |  | Balance atbeginning ofperiod |       | Charged tocosts andexpenses |  | Deductions/Writeoffs |      | Balance atend ofperiod
|--------------------------------------------------- |  |  |  | ---------------------------- | ----- | --------------------------- |  | -------------------- | ---- | ----------------------
|Provision for doubtful
accounts for the year ended: |  |  |  |                              |       |                             |  |                      |      |                       
|July 31,
2002                                       |  |  |  | $                            | 1,176 |                             |  | $                    | 189  |                       
|July 31,
2003                                       |  |  |  | $                            | 725   |                             |  | $                    | (273 | )                     
|July 31,
2004                                       |  |  |  | $                            | 340   |                             |  | $                    | 316  |                       

F-47

---