`UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

[x]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
       ACT OF 1934 for the fiscal year ended March 31, 2004.

[ ]    TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15(d) OF THE  SECURITIES
       EXCHANGE  ACT of 1934  for the  transition  period  from  ______to _____.

                         Commission file number 0-23926

                              GEOWORKS CORPORATION
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

          DELAWARE                                         94-2920371
--------------------------------------------------------------------------------
(State or Other Jurisdiction of                         (I.R.S. Employer
Incorporation or Organization)                          Identification
No.)

    300 CRESCENT COURT, SUITE 1110, DALLAS, TEXAS             75201
--------------------------------------------------------------------------------
    (Address of Principal Executive Offices)               (Zip Code)

                                  214-661-7479
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                    COMMON STOCK, PAR VALUE $0.001 PER SHARE
                                (TITLE OF CLASS)
                         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.
[ X ] Yes [   ] 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  the  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 Exchange Act Rule 12b-2). [ ] Yes [ X ] No

The aggregate  market value of the  Registrant's  voting and  non-voting  common
stock held by  non-affiliates,  based upon the closing  sale price of the common
stock  on  March  31,  2004,  as  reported  on  the  OTC  Bulletin  Board,   was
approximately  $3,584,377.  Shares of the Registrant's common stock held by each
executive  officer and  director  and by each person who owns 10% or more of the
outstanding common stock, based on Schedule 13D or G filings, have been excluded
since such persons may be deemed  affiliates.  This  determination  of affiliate
status is not necessarily a conclusive determination for other purposes.

As of August 2, 2004 there were  29,869,808  shares of the  Registrant's  common
stock outstanding.







                              GEOWORKS CORPORATION

                                TABLE OF CONTENTS
                                                                            PAGE

                                     PART I

Item 1.   Business.............................................................4
          Risk Factors.........................................................6
Item 2.   Properties...........................................................8
Item 3.   Legal Proceedings....................................................8
Item 4.   Submission of Matters to a Vote of Security Holders..................8

                                     PART II

Item 5.   Market for Registrant's Common Equity, Related Stockholder Matters
              and Issuer Purchases of Equity Securities........................9
Item 6.   Selected Financial Data.............................................10
Item 7.   Management's Discussion and Analysis of Financial Condition and
              Results of Operations...........................................14
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk..........19
Item 8.   Financial Statements and Supplementary Data.........................20
Item 9.   Changes in and Disagreements with Accountants on Accounting and
              Financial Disclosure............................................38
Item 9A.  Controls and Procedures.............................................38


                                    PART III

Item 10.  Directors and Executive Officers of the Registrant..................39
Item 11.  Executive Compensation..............................................41
Item 12.  Security Ownership of Certain Beneficial Owners and Management and
              Related Stockholder Matters.....................................44
Item 13.  Certain Relationships and Related Transactions......................45
Item 14.  Principal Accounting Fees and Services..............................45

                                     PART IV

Item 15.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K....46

Signatures
Exhibit Index

                                       2






PART I

FORWARD-LOOKING STATEMENTS

This Report contains  forward-looking  statements  within the meaning of Section
27A of the  Securities  Act of 1933,  as amended  (the  "Securities  Act"),  and
Section 21E of the  Securities  Exchange Act of 1934, as amended (the  "Exchange
Act"),  regarding future events and management's  plans and  expectations.  When
used in this  Report,  the words  "believe",  "estimate",  "project",  "intend",
"expect" and "anticipate" and similar  expressions are intended to identify such
forward-looking  statements.  Such  statements  are subject to certain risks and
uncertainties, including those discussed below, which could cause actual results
to differ materially from those projected.  These statements include but are not
limited  to  our  intentions  and  expectations  regarding:   our  limited  cash
resources;  our  significantly  reduced level of  operations,  dependence on one
customer for almost all of our revenues;  our ability to acquire,  merge into an
operating  business  or develop new  businesses,  our ability to sell any of our
remaining assets;  our ability to terminate certain  contractual  obligations on
acceptable terms;  economic  conditions,  and the health of financial markets in
general.  These  statements  are subject to risks and  uncertainties  that could
cause actual  results and events to differ  materially.  Other  factors that may
contribute to such differences  include, but are not limited to, those discussed
in the section of this Report titled "Risk Factors  Affecting  Future  Operating
Results"  beginning  on page 6 as  well as  those  discussed  elsewhere  in this
Report. Consequently, the inclusion of forward-looking information should not be
regarded as a  representation  by us or any other person that our  objectives or
plans will be achieved or that the  identified  risks are the only risks  facing
us. The reader is cautioned not to place undue  reliance on the  forward-looking
statements contained in this Report, which speak only as of the date this Report
was  published.  We  undertake  no  obligation  to publicly  release  updates or
revisions to these statements.

                                       3





ITEM 1.     BUSINESS

SUMMARY

Geoworks Corporation ("Geoworks" or the "Company", which may also be referred to
as "we", "us" or "our") was formerly a provider of leading-edge  software design
and engineering services to the mobile and handheld device industry. As a result
of  changes  in the  market  and our own  decreasing  financial  resources,  our
operations  were  substantially  scaled back  through a number of  restructuring
actions.  In February  2003,  we ceased  ongoing  business  activity at our last
operating  division,  which had been located in Macclesfield,  England. In April
2003,  25% of our newly  issued  common  stock was sold in order to increase our
financial  resources and improve our potential to make  acquisitions  or develop
new operations. In connection with this stock sale, a substantially new board of
directors and new operating management team was appointed. Our current strategic
business  plans are based on realizing  the value of the Company's few remaining
technology-related assets and identifying new operations or a merger candidate.

HISTORICAL OVERVIEW

From our initial public  offering in 1994 through early 1999, we were focused on
developing  and selling  wireless  operating  systems for smart phones and PDA's
(personal   digital   assistants).   Our  customers   were  large  mobile  phone
manufacturers  who paid us research and development fees to develop software and
agreed to pay us  royalties  based on the number of phones they shipped with our
operating  system.  This market did not develop as rapidly as we expected and in
mid-1998,  several  of the  world's  largest  handset  makers  including  Nokia,
Motorola, Ericsson and Matsushita,  representing over half of our target market,
created a joint  venture  to  develop  their own  mobile  operating  system.  In
response to the slow growth in the market, increased competition and the loss of
key original equipment  manufacturer ("OEM") prospects,  we shifted our focus to
the  development of mobile server  software for mobile  commerce and information
services. By the fourth quarter of fiscal 1999, we had discontinued  development
of our smart phone operating  system (GEOS SC(TM)) and licensed the source code,
on a non-exclusive basis, to one of our major OEM customers, Mitsubishi Electric
Corporation ("Mitsubishi"),  whom we continued to support through a professional
services consulting agreement through March 2002.

During fiscal year 2000,  our research and  development  and sales and marketing
efforts were  targeted at our mobile  software and services,  in particular  our
Mobile ASP (Application Service Provider) offering,  based on our Mobile Server+
software.  We also  continued  to  provide  engineering  services  to  some  OEM
customers,  however,  such services were provided through professional  services
consulting  contracts,  rather than as customer  funded  research with potential
product royalties.

In July 2000,  we  broadened  our  software  product  and  service  offering  by
acquiring  the  AirBoss  Application  Platform  and the  AirBoss  Business  Unit
("AirBoss") from Telcordia Technologies,  Inc. ("Telcordia").  Telcordia and its
parent,  Science Applications  International  Corporation  ("SAIC"),  became our
largest  shareholder.  We  established  an office in New Jersey to continue  the
research,  development,  and  deployment of the AirBoss line of patented  mobile
communications  software  products,  as well as to  service  the  various  third
parties whose  contractual  rights with Telcordia were assigned to us as part of
the acquisition. In June 2001, we reorganized our operations,  exited the Mobile
ASP market and accelerated the integration of our two software platforms, Mobile
Server+ and the AirBoss Application  Platform,  into a single integrated product
offering for enterprise applications.

Through  January 2001, we had been able to  successfully  raise capital  through
public offerings,  a number of private placements and through our employee stock
option plans. However,  raising capital became increasingly difficult due to the
uncertainty in the market as a whole and in the wireless and  telecommunications
industry,  in  particular.  In August 2001, we engaged an  investment  banker to
assist us in considering our strategic alternatives.

In  October  2001,  as a result  of  market  uncertainties  and a lack of market
visibility,  we  announced a number of cost  cutting  measures  to conserve  our
resources,  including terminating approximately 45% of our workforce. Because of
continued  market  uncertainty  and  our  inability  to  generate  cash  through
strategic alternatives,  in January 2002, we announced a restructuring involving
our exit  from the  software  products  business  and  additional  cost  cutting
measures,  including terminating 45% of our remaining workforce.  In particular,
we concluded it would be in the best  interest of our company to try to sell our
AirBoss  assets in order to focus on  realizing  the  value of our  professional
services business.

                                       4






Following the January 2002  restructuring  announcement,  we pursued a number of
measures to sell assets.  Several patents were sold during the fourth quarter of
fiscal 2002 and the GEOS-SC source code was sold to Mitsubishi during the fourth
quarter of fiscal 2003.  Additionally,  we  terminated  the leases of our former
facilities in New Jersey and Alameda, California.

Our weak financial position made it increasingly  difficult to maintain a viable
ongoing  business in the UK. In particular,  our UK employees had been recruited
heavily by third  parties  while a proposed  sale of our UK  subsidiary  and its
professional  services  business to Teleca Ltd. (the "Proposed  Sale") was under
consideration.  These employees' perceived uncertainty only intensified when the
Proposed Sale was not approved by our stockholders as a result of our failure to
secure a quorum for the special shareholders meeting. Our limited resources made
it unlikely that we could continue  covering our already reduced cost structure,
much less  absorb the costs of any  decrease  or  interruption  in our  revenues
associated with employee attrition or resulting customer dissatisfaction.  Faced
with this  significant  possibility of failing to meet our obligations and in an
effort  to  minimize  ongoing  liabilities,  we  entered  into a mutual  release
agreement with Teleca (the  "Release") that allowed Teleca to hire our former UK
employees and do business with our customers.  In  consideration of the Release,
Teleca  agreed  to pay us  approximately  $500,000,  consisting  of one  half on
signing the Release and the balance after ninety days. Also,  Teleca  separately
agreed to assume our UK subsidiary's remaining lease obligations in exchange for
use of the subsidiary's  equipment. By agreeing to enter the Release we estimate
that we have avoided approximately  $300,000 of statutory employee severance and
over $400,000 of future lease obligations.

In April 2003, we sold 7,377,905 shares of our common stock (representing 25% of
our  common  stock  after  the   transaction)   to  Newcastle   Partners,   L.P.
("Newcastle")  and  Mark E.  Schwarz,  an  affiliate  of  Newcastle,  for  total
consideration of $325,000.  This transaction  increased our financial  resources
and we believe it improves our potential to avoid bankruptcy and to identify and
close other strategic  transactions or to develop new operations.  In connection
with this stock sale, Mr. Schwarz and Steven J. Pully,  who is also an affiliate
of Newcastle,  joined the Board of Directors and a new operating management team
assumed the  management  of the Company.  Steve  Mitchell,  the Chief  Executive
Officer  prior to the  transaction,  remains  as a  Director.  He and the  other
officers of the Company agreed to step down from their  management  positions in
connection with the transaction.

ORGANIZATION AND CURRENT BUSINESS

Our  company  was  incorporated  in  California  in 1983 and  reincorporated  in
Delaware in 1997. The Company's  headquarters  is in Dallas,  Texas.  Our fiscal
year commences on April 1 and ends on March 31.

Although we have essentially  exited the software business and have no employees
devoted to generating software revenues, we have one remaining software contract
with Toshiba for the license of our Mobile Server+ software.  This contract runs
through  September  2004.  Per the terms of the  agreement,  we  receive  annual
maintenance  fees and 15% of the  revenues  generated by Toshiba from the use of
the software.  Revenues generated from Toshiba were  approximately  $296,000 and
$413,000  in fiscal  year 2004 and 2003,  respectively.  We plan to fulfill  any
maintenance  requirements  to Toshiba  through  subcontracting  for  appropriate
engineering  support.  See Note 1 to the Consolidated  Financial  Statements for
further discussion of major customers in discontinued  operations.  Also as more
fully  described in the financial  statements we have been in  discussions  with
Toshiba to sell the source code to the Mobile Server+ software.

Other than fulfilling the Toshiba contract,  Geoworks  currently has no business
operations other than seeking an acquisition, business combination or developing
new  operations,  the success of which cannot be guaranteed.  The Company has no
current plans, proposals, agreements,  understandings or arrangements to acquire
or merge with any specific business or company nor does it have current plans to
develop new  operations.  At this time,  the Company does not expect to generate
any revenue from any sources  other than Toshiba  during the coming  fiscal year
and generation of future revenue is subject to substantial risks as discussed in
the risk factors below.

EMPLOYEES

As of  August  2,  2004,  we had  three  employees.  None of our  employees  are
represented  by a labor union or subject to a collective  bargaining  agreement,
and we have not had a work stoppage from any labor grievance or strike.

                                       5






RISK FACTORS AFFECTING FUTURE OPERATING RESULTS

You should consider  carefully the risks and  uncertainties  described below and
the other information in this report. The risks set forth below are not the only
ones we face.  Additional  risks and  uncertainties  that we are not aware of or
that we  currently  deem  immaterial  also may  become  important  or impair our
business. If any of the following risks actually occur, our business,  financial
condition and operating  results could be  materially  adversely  affected,  the
trading  price of our common  stock could  decline and the  likelihood  of there
being any potential return to stockholders would diminish.

WE HAVE LIMITED  FINANCIAL  RESOURCES AND A HISTORY OF OPERATING LOSSES, WE HAVE
CURTAILED OPERATIONS AND WE EXPECT TO CONTINUE INCURRING LOSSES.

Since inception,  we have experienced negative cash flow from operations,  which
we expect to continue.  We currently anticipate that our available funds will be
sufficient to meet our projected  needs through fiscal 2006.  This projection is
based on  several  factors  and  assumptions,  in  particular  that our  primary
customer  continues  to pay us on a timely  basis,  and is subject  to  numerous
risks.  Our future capital needs and liquidity  will be highly  dependent upon a
number of variables,  including how  successful we are in realizing the value of
legacy assets and settling existing contractual liabilities.  We do not consider
the sale of most of these  assets to be likely,  rather  highly  unlikely.  As a
result,  any  projections  of future  cash needs and cash  flows are  subject to
substantial uncertainty.

WE ARE CURRENTLY DEPENDENT UPON A SINGLE CUSTOMER FOR ALL OF OUR REVENUE.

One customer,  Toshiba,  a  diversified  electronics  company  located in Japan,
accounted  for all of our revenues in fiscal 2004 and is currently  projected to
generate  all of our limited  revenue in the near  future.  These  revenues  are
attributable  to license and maintenance  fees for our MS+  technology.  If this
revenue  stream is  interrupted,  we may not be able to satisfy our  outstanding
obligations and our liquidity could be negatively impacted.

OUR INABILITY TO SELL OUR REMAINING LEGACY ASSETS COULD BE HARMFUL.

Although  we have  been able to sell  certain  assets  since the  reorganization
announced in January  2002 and we continue to explore the sale of our  remaining
assets,  including MS+, there are very few active prospects.  We may not be able
to locate  buyers for these assets on acceptable  terms.  Even if we are able to
locate a buyer or buyers who are willing to acquire  these  assets on terms that
we believe are in our best interests, the sale of these assets involves a number
of risks and uncertainties.

WE MAY BE UNABLE TO REDEPLOY OUR ASSETS SUCCESSFULLY.

As part of our  strategy  to limit  operating  losses and enable the  Company to
redeploy  its  assets  and use its cash and cash  equivalent  assets to  enhance
stockholder  value,  we are pursuing a strategy of identifying  suitable  merger
partners,  acquisition  candidates or developing new  operations.  We may not be
successful  in acquiring  such a business or in operating  any business  that we
acquire or develop.  Failure to redeploy our assets successfully will prevent us
from becoming profitable.

ANY ACQUISITIONS  THAT WE ATTEMPT OR COMPLETE COULD PROVE DIFFICULT TO INTEGRATE
OR REQUIRE A SUBSTANTIAL COMMITMENT OF MANAGEMENT TIME AND OTHER RESOURCES.

Acquisitions  involve a number of unique risks  including:  (i)  completing  due
diligence  successfully;  (ii)  exposure to unforeseen  liabilities  of acquired
companies;  and (iii)  increased risk of costly and  time-consuming  litigation,
including  stockholder  lawsuits.  We may be unable to  address  these  problems
successfully.   Moreover,   our  future  operating  results  will  depend  to  a
significant   degree  on  our  ability  to  integrate   acquisitions   (if  any)
successfully and manage  operations while also controlling our expenses.  We may
be unable to  select,  manage or absorb or  integrate  any  future  acquisitions
successfully,  particularly  acquisitions of large  companies.  Any acquisition,
even if effectively integrated, may not benefit our stockholders.


                                       6




WE MAY BE UNABLE TO REALIZE  THE  BENEFITS  OF OUR NET  OPERATING  LOSS  ("NOL")
CARRYFORWARDS.

NOLs may be carried forward to offset federal and state taxable income in future
years and  eliminate  income taxes  otherwise  payable on such  taxable  income,
subject to certain  adjustments.  Based on current federal  corporate income tax
rates, our NOL and other  carryforwards  could provide a benefit to us, if fully
utilized,  of significant future tax savings.  However, our ability to use these
tax  benefits  in future  years will  depend  upon the  amount of our  otherwise
taxable income.  If we do not have sufficient  taxable income in future years to
use the tax benefits  before they expire,  we will lose the benefit of these NOL
carryforwards  permanently.  Consequently,  our ability to use the tax  benefits
associated  with our  substantial  NOL will  depend  largely  on our  success in
identifying  suitable merger partners and/or  acquisition  candidates,  and once
identified,  successfully  consummate a merger with and/or  acquisition of these
candidates.

Additionally,  if  we  underwent  an  ownership  change,  the  NOL  carryforward
limitations  would  impose an annual  limit on the amount of the taxable  income
that may be offset by our NOL  generated  prior to the ownership  change.  If an
ownership change were to occur, we would be unable to use a significant  portion
of our NOL to offset  taxable  income.  In general,  an ownership  change occurs
when, as of any testing date, the aggregate of the increase in percentage points
of the total amount of a corporation's  stock owned by "5-percent  shareholders"
(within  the  meaning  of the NOL  carryforward  limitations)  whose  percentage
ownership of the stock has increased as of such date over the lowest  percentage
of the stock owned by each such  "5-percent  shareholder" at any time during the
three-year  period  preceding such date, is more than 50 percentage  points.  In
general,  persons  who own 5% or more of a  corporation's  stock are  "5-percent
shareholders,"  and all other  persons  who own less than 5% of a  corporation's
stock are treated,  together, as a single, public group "5-percent shareholder,"
regardless of whether they own an aggregate of 5% of a corporation's stock.

The amount of NOL  carryforwards  that we have  claimed has not been  audited or
otherwise  validated  by the  U.S.  Internal  Revenue  Service.  The  IRS  could
challenge our calculation of the amount of our NOL or our  determinations  as to
when a prior change in ownership  occurred and other  provisions of the Internal
Revenue  Code may limit our ability to carry  forward our NOL to offset  taxable
income in future  years.  If the IRS was  successful  with  respect  to any such
challenge,  the  potential tax benefit of the NOL  carryforwards  to us could be
substantially reduced.

ANY TRANSFER RESTRICTIONS IMPLEMENTED BY THE COMPANY TO PRESERVE OUR NOL MAY NOT
BE EFFECTIVE OR MAY HAVE SOME UNINTENDED NEGATIVE EFFECTS.

The Company may seek to preserve its NOL through an amendment of its certificate
of incorporation  and/or bylaws, which would impose restrictions on the transfer
of the  Company's  capital  stock.  Any transfer  restrictions  on the Company's
capital  stock will be  designed  to restrict  only those  transfers  that could
result in an impermissible  ownership change limiting our ability to utilize our
NOL. Although any transfer  restriction imposed on our capital stock is intended
to reduce the  likelihood  of an  impermissible  ownership  change,  there is no
guarantee that such restriction would prevent all transfers that would result in
an impermissible ownership change.

The Board of Directors adopted an amendment to the Companys' Shareholders Rights
Plan ("Rights Plan") which reduces the triggering of the Rights Plan from 15% of
the  common  stock to 5% of the common  stock.  There is no  guarantee  that the
amendment of the Rights Plan will prevent a stockholder from acquiring more than
5% of the common stock.

Any  transfer  restrictions  will  require  any person  attempting  to acquire a
significant  interest  in the  Company  to seek  the  approval  of our  Board of
Directors.  This  may  have an  "anti-takeover"  effect  because  our  Board  of
Directors may be able to prevent any future takeover.  Similarly,  any limits on
the amount of capital stock that a stockholder  may own could have the effect of
making  it more  difficult  for  stockholders  to  replace  current  management.
Additionally,  because transfer restrictions will have the effect of restricting
a stockholder's ability to dispose of or acquire our common stock, the liquidity
and market value of our common stock might suffer.

OUR STOCK IS ILLIQUID.

Because we failed to meet the minimum net tangible assets,  stockholders' equity
and bid price  requirements  of the Nasdaq National  Market,  we transferred the
listing  of our  common  stock  from the  Nasdaq  National  Market to the Nasdaq
SmallCap  Market in May 2002 and our common stock was  delisted  from the Nasdaq
SmallCap  Market in  November  2002.  Our stock is  currently  quoted on the OTC
Bulletin Board ("OTCBB"),  and has traded as low as $0.015 per share.  Since our
common  stock was  delisted  from a national  exchange and is trading at a price
below $5.00 per share it is subject to certain other rules of the Exchange Act.

                                       7





Such rules require  additional  disclosure by  broker-dealers in connection with
any trades  involving  a stock  defined  as a "penny  stock".  "Penny  stock" is
defined as any non-Nasdaq  equity  security that has a market price of less than
$5.00 per share, subject to certain exceptions.  Such rules require the delivery
of a  disclosure  schedule  explaining  the  penny  stock  market  and the risks
associated  with that market before  entering into any penny stock  transaction.
Disclosure  is also required to be made about  compensation  payable to both the
broker-dealer and the registered  representative  and current quotations for the
securities.  The rules  also  impose  various  sales  practice  requirements  on
broker-dealers who sell penny stocks to persons other than established customers
and accredited  investors.  For these types of transactions,  the  broker-dealer
must make a special suitability determination for the purchaser and must receive
the purchaser's  written consent to the transaction prior to the sale.  Finally,
monthly  statements are required to be sent disclosing  recent price information
for the penny stocks. The additional burdens imposed upon broker-dealers by such
requirements could discourage  broker-dealers from effecting transactions in our
common stock. This could severely limit the market liquidity of our common stock
and the ability of a stockholder to sell the common stock.

ANY  LITIGATION  COULD  RESULT  IN  SUBSTANTIAL  COSTS AND  DIVERT  MANAGEMENT'S
ATTENTION AND RESOURCES.

Securities  class action  lawsuits are often  brought  against  companies  under
various legal  theories.  Also, if third parties claim we have  infringed  their
intellectual  property rights,  we may be forced to pay for expensive  licenses,
reengineer  our work,  engage in expensive  and  time-consuming  litigation,  or
abandon  efforts to  conclude a change in control  transaction.  Any  litigation
could result in  substantial  costs,  eliminate  the prospects for any change of
control transaction and force bankruptcy.

DEPENDENCE ON KEY PERSONNEL; POTENTIAL NEED FOR ADDITIONAL PERSONNEL

The Company's performance is substantially  dependent on the services and on the
performance  of its officers  and  directors.  The  Company's  performance  also
depends on its ability to attract,  hire,  retain, and motivate its officers and
key  employees.  The loss of the  services of any of the  executive  officers or
other key  employees  could  have a  material  adverse  effect on the  Company's
business, prospects, financial condition, and results of operations. The Company
has  not  entered  into  long-term  employment  agreements  with  any of its key
personnel and currently has no "Key Man" life insurance policies.  The Company's
future  success  may also depend on it's  ability to  identify,  attract,  hire,
train,  retain,  and  motivate  other  highly  skilled  technical,   managerial,
marketing,  and customer  service  personnel.  Competition for such personnel is
intense,  and  there  can be no  assurance  that  the  Company  will  be able to
successfully attract,  assimilate,  or retain sufficiently  qualified personnel.
The  failure  to  attract  and  retain  the  necessary  technical,   managerial,
marketing,  and customer service  personnel could have a material adverse effect
on the Company's business.

YOU SHOULD NOT  UNDULY  RELY ON  FORWARD-LOOKING  STATEMENTS  CONTAINED  IN THIS
REPORT BECAUSE THEY ARE INHERENTLY UNCERTAIN.

This  Report  contains   forward-looking   statements  that  involve  risks  and
uncertainties. We use words such as "believe", "expect", "anticipate", "intend",
"plan",  "future",  "may",  "will",  "should",   "estimates",   "potential",  or
"continue" and similar expressions to identify forward-looking  statements.  You
should not place undue reliance on these forward-looking statements, which apply
only as of the date of this report. The forward-looking  statements contained in
this report are subject to the  provisions of Section 27A of the  Securities Act
and Section 21E of the Exchange Act. Our actual results could differ  materially
from those  anticipated  in these  forward-looking  statements for many reasons,
including the risks described above and elsewhere in this document.

ITEM 2.     PROPERTIES

The  Company's  headquarters  are  located at 300  Crescent  Court,  Suite 1110,
Dallas, Texas 75201. The Company believes that this facility is adequate for its
current needs and that suitable additional space will be available as required.

ITEM 3.     LEGAL PROCEEDINGS

There are currently no legal proceedings against the Company. The Company is not
aware of any threatened or pending litigation.

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

No  matters  were  submitted  to  a  vote  of  security  holders,   through  the
solicitation of proxies or otherwise, during the year ended March 31, 2004.

                                       8





PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY,  RELATED STOCKHOLDER MATTERS AND
         ISSUER PURCHASES OF EQUITY SECURITIES

CHANGES IN COMMON STOCK MARKET VALUE

Our common  stock has been  traded and quoted on the OTCBB since  November  2002
under the symbol GWRX.OB. It was previously traded on the Nasdaq SmallCap Market
and the Nasdaq National Market under the symbol GWRX. We transferred the listing
of our  common  stock  from the Nasdaq  National  Market to the Nasdaq  SmallCap
Market in May 2002 and our common  stock was delisted  from the Nasdaq  SmallCap
Market in November 2002. The following table sets forth the high and low closing
sales  prices for our common  stock as reported  by Nasdaq or the OTCBB,  as the
case may be, for the quarters indicated. With respect to over-the-counter market
quotations provided below, such quotations reflect inter-dealer prices,  without
retail  mark-up,   mark-down  or  commission,   and  may  not  represent  actual
transactions.


                                          HIGH             LOW
         FOR THE QUARTER ENDED:
            March 31, 2004              $  .15          $  .08
            December 31, 2003              .15             .08
            September 30, 2003             .16             .08
            June 30, 2003                  .35             .01

         FOR THE QUARTER ENDED:
            March 31, 2003              $  .03          $  .01
            December 31, 2002              .10             .01
            September 30, 2002             .16             .04
            June 30, 2002                  .36             .11

REGISTERED HOLDERS; DIVIDENDS

As of August 2, 2004 there were 333  registered  holders of record of our common
stock and approximately  17,000 beneficial  holders of our common stock. We have
never  declared  or paid  any  cash  dividends  on our  common  stock.  Since we
currently intend to retain all future earnings to finance operations,  we do not
anticipate paying any cash dividends in the foreseeable future.

SALE OF UNREGISTERED SECURITIES

In April 2003, we sold 7,377,905 shares of our common stock (representing 25% of
our common stock after the  transaction)  to Newcastle and Mark E.  Schwarz,  an
affiliate of Newcastle, for total consideration of $325,000. This sale of shares
of our  common  stock  was  deemed  to be  exempt  from  registration  under the
Securities  Act  in  reliance  on  Section  4(2)  of  the  Securities  Act  as a
transaction  by an issuer not  involving  a public  offering.  This  transaction
increased  our  financial  resources and we believe it improves our potential to
avoid  bankruptcy and to identify and close other  strategic  transactions or to
develop new operations.

                                       9





ITEM 6.     SELECTED FINANCIAL DATA

The data set forth  below is  qualified  in its  entirety by  reference  to, and
should  be read  in  conjunction  with,  Item 7.  "Management's  Discussion  and
Analysis of Financial  Condition  and Results of  Operations,"  ("MD&A") and the
"Consolidated Financial Statements" and notes thereto included elsewhere in this
Report on Form 10-K.  Certain  amounts  have been  reclassified  in prior fiscal
years  to  conform  to the  current  year  presentation.  Due  to  the  material
developments  affecting our business  since the beginning of fiscal 1999,  which
are discussed in the MD&A, and the material uncertainties we currently face, the
data  reflected  herein may not be useful or indicative of the Company's  future
financial  condition or results of operations.  Substantially all of our results
of operations with the exception of certain  corporate  office legal and general
and administrative  expenses have been reclassfied as discontinued operations in
the Consolidated Statements of Operations for all periods presented.

              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                                               2004          2003          2002          2001          2000

Operating expenses:
       Legal                                                $     46      $    887      $    701      $  3,009      $    861
       General and administrative                                361         1,699         3,073         3,661         2,332
                                                            ----------------------------------------------------------------
Total operating expenses                                         407         2,586         3,774         6,670         3,193
                                                            ----------------------------------------------------------------
Operating loss                                                  (407)       (2,586)       (3,774)       (6,670)       (3,193)

Other income (expense):
   Other income                                                   --            --         3,994           265         4,049
   Interest income                                                 3            15           191           840           646
   Interest expense                                               --            --            (8)           (4)          (10)
                                                            ----------------------------------------------------------------
Total other income, net                                            3            15         4,177         1,101         4,685
                                                            ----------------------------------------------------------------
Income (loss) before discontinued operations                    (404)       (2,571)          403        (5,569)        1,492
Income (loss) from discontinued operations -
net of income taxes                                              268          (576)      (43,003)      (15,489)       (2,465)
                                                            ----------------------------------------------------------------
Net loss                                                    $   (136)     $ (3,147)     $(42,600)     $(21,058)     $   (973)
                                                            ================================================================

Income (loss) before discontinued operations
per share- basic and diluted                                $  (0.02)     $  (0.11)     $   0.02      $  (0.26)     $   0.09
Income (loss) from discontinued operations                      0.01         (0.03)        (1.83)        (0.73)        (0.14)
                                                            ----------------------------------------------------------------
Net loss per share- basic and diluted                       $  (0.01)     $  (0.14)     $  (1.81)     $  (0.99)     $  (0.05)
                                                            ================================================================
Shares used in net loss per share
     computation - basic and diluted                          29,024        22,718        23,555        21,190        17,866
                                                            ================================================================

                                       10





                        CONSOLIDATED BALANCE SHEET DATA:
                                 (IN THOUSANDS)

                                                               MARCH 31
                                  ----------------------------------------------------------------------
                                      2004          2003            2002           2001          2000
                                  ---------------------------------------------------------------------

Cash and cash equivalents         $      37      $     729      $   3,136      $  13,713      $  17,204

Working capital                         458            253          1,033         10,616         14,286

Total assets                            747          1,236          6,729         56,263         41,459

Deferred revenue                         26            179            424          1,128          1,629

Long-term obligations, net of
   current portion                       --             --             --            128             --

Accumulated deficit                (156,993)      (156,857)      (153,710)      (111,110)       (90,052)

Stockholders' equity                    476            253          3,297         49,731         36,632
                                  ---------------------------------------------------------------------

                                       11





SELECTED CONSOLIDATED FINANCIAL DATA
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

                                                                     QUARTER ENDED
                                                   -------------------------------------------------------
                                                   MARCH 31,    DECEMBER 31,     SEPTEMBER 30,    JUNE 30,
                                                     2004          2003             2003            2003
                                                   -------------------------------------------------------

Operating expenses:
  Legal                                            $   8           $   8            $  12           $  18
  General and administrative                          24              34              108             195
                                                   ------------------------------------------------------
    Total operating expenses                          32              42              120             213
                                                   ------------------------------------------------------

Operating loss                                       (32)            (42)            (120)           (213)

Other income (expense):
  Other income                                        --              --               --              --
  Interest income                                      1               1                1              --
  Interest expense                                    --              --               --              --
                                                   ------------------------------------------------------
Income (loss) before discontinued operations         (31)            (41)            (119)           (213)
Income (loss) from discontinued operations -
   net of taxes                                       37              64               78              89
                                                   ------------------------------------------------------
Net income (loss)                                  $   6           $  23            $ (41)          $(124)
                                                   ======================================================

Income (loss) before discontinued operations
   per share- basic and diluted                    $(0.01)         $(0.00)          $(0.00)         $(0.01)
Income (loss) from discontinued operations          0.01            0.00             0.00            0.00
                                                   ------------------------------------------------------
Net income (loss) per share- basic and diluted     $(0.00)         $0.00            $(0.00)         $(0.01)
                                                   ======================================================


                                       12





SELECTED CONSOLIDATED FINANCIAL DATA
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

                                                                                  QUARTER ENDED
                                                         ----------------------------------------------------------------
                                                           MARCH 31,       DECEMBER 31,    SEPTEMBER 30,        JUNE 30,
                                                             2003             2002            2002                2002
                                                         ----------------------------------------------------------------

Operating expenses:
  Legal                                                  $   304           $   183           $   265           $   135
  General and administrative                                 356               433               467               443
                                                         -------------------------------------------------------------
    Total operating expenses                                 660               616               732               578
                                                         -------------------------------------------------------------

Operating loss                                              (660)             (616)             (732)             (578)

Other income (expense):
  Other income                                                --                --                --                --
  Interest income                                              2                 2                 4                 7
  Interest expense                                            --                --                --                --
                                                         -------------------------------------------------------------
Loss before discontinued operations                         (658)             (614)             (728)             (571)
Income (loss) from discontinued operations -
    net of taxes                                             764              (292)               24            (1,072)
                                                         -------------------------------------------------------------
Net income (loss)                                        $   106           $  (906)          $  (704)          $(1,643)
                                                         =============================================================

Loss before discontinued operations per share -
      basic and diluted                                  $ (0.03)          $ (0.03)          $ (0.03)          $ (0.02)
Income (loss) from discontinued operations                  0.04             (0.01)             0.00             (0.06)
                                                         -------------------------------------------------------------
Net loss per share- basic and diluted                    $  0.01           $ (0.04)          $ (0.03)          $ (0.08)
                                                         =============================================================

                                       13





ITEM 7.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF FINANCIAL  CONDITION  AND
            RESULTS OF OPERATIONS

OVERVIEW

AS PART OF OUR  STRATEGY  TO LIMIT  OPERATING  LOSSES AND ENABLE THE  COMPANY TO
REDEPLOY  ITS  ASSETS  AND USE ITS CASH AND CASH  EQUIVALENT  ASSETS TO  ENHANCE
STOCKHOLDER  VALUE, WE HAVE SOLD THE MAJORITY OF OUR ASSETS,  WHICH  REPRESENTED
SUBSTANTIALLY  ALL OF OUR  REVENUE-GENERATING  OPERATIONS AND RELATED ASSETS, AS
FURTHER  DESCRIBED  HEREIN.  THE INFORMATION  APPEARING BELOW,  WHICH RELATES TO
PRIOR PERIODS,  IS THEREFORE NOT INDICATIVE OF THE RESULTS WHICH MAY BE EXPECTED
FOR ANY SUBSEQUENT  PERIODS.  FUTURE PERIODS WILL PRIMARILY  REFLECT GENERAL AND
ADMINISTRATIVE  EXPENSES  ASSOCIATED WITH THE CONTINUING  ADMINISTRATION  OF THE
COMPANY AND ITS EFFORTS TO REDEPLOY ITS ASSETS THROUGH AN ACQUISITION, MERGER OR
DEVELOPMENT OF NEW OPERATIONS.

OPERATIONS CEASED IN THE UK

By January  2003,  our primary  remaining  revenue  generating  operations  were
located in our  Macclesfield,  England  facility.  However,  our weak  financial
position made it  increasingly  difficult to maintain a viable ongoing  business
there.  In  particular,  our UK employees  had been  recruited  heavily by third
parties.  These  employees'  perceived  uncertainty  only  intensified  when the
proposed  sale to Teleca was not approved as a result of our failure to secure a
quorum for the  special  stockholders  meeting.  Our limited  resources  made it
unlikely that we could cover our already reduced cost structure for much longer,
much less  absorb the costs of any  decrease  or  interruption  in our  revenues
associated with employee attrition or resulting customer dissatisfaction.  Faced
with  this  significant  possibility  of  failing  to meet our  obligations,  on
February 1, 2003, we entered into the Release,  which allowed Teleca to hire our
former UK employees  and do business with our customers in an effort to minimize
our liabilities.

In consideration of the Release,  Teleca agreed to pay the Company approximately
$500,000,  one half on signing the  Release  and the balance in May 2003.  Also,
Teleca  separately  agreed  to  assume  our  UK  subsidiary's   remaining  lease
obligations in exchange for use of the  subsidiary's  equipment.  By agreeing to
enter the  Release,  we  estimate  that we  avoided  approximately  $300,000  of
statutory employee severance and over $400,000 of future lease obligations.

As our operations  have been reduced,  we have made every  reasonable  effort to
meet our  obligations,  to limit our liabilities,  to conserve  resources and to
limit  contingent  liabilities  in order to  increase  the  number of  potential
opportunities for continuing the Company. In addition,  in April 2003, we issued
additional  common  stock  representing  25% of our  common  stock  in  order to
increase  our  financial  resources  and improve our  potential  for  additional
transactions or developing new operations. In connection with this stock sale, a
substantially  new board of  directors  and new  operating  management  team was
appointed. Our current strategic business plans are based on realizing the value
of the Company's  remaining  assets and  identifying  new operations or a merger
candidate.

ACCOUNTING FOR DISCONTINUED OPERATIONS

After  ceasing  operations  in the UK, we have  essentially  exited the software
business and have no meaningful  revenue  generating  assets or personnel.  As a
result,  consistent with US Generally Accepted Accounting  Principles  ("GAAP"),
most of our operating  activity over the past three years has been  disclosed in
our financial  statements  under the caption,  "Income (loss) from  discontinued
operations - net of taxes."

We do have one remaining software contract, with Toshiba, for the license of our
Mobile Server+  software.  This contract runs through September 2004. Any future
proceeds or costs  generated  from this  contract  will also be accounted for as
part of  discontinued  operations.  We are discussing a sale of the MS+ software
source  code to Toshiba as more fully  described  in the  Liquidity  and Capital
Resources section below.

                                       14





As a result of our significantly  reduced revenue generating  activities and the
expected substantial reduction in general and administrative  expenses,  much of
the following  discussion of our historical operating results is not relevant to
our continued  operations.  Consequently,  readers should focus on the Company's
liquidity,  and should keep in mind that this discussion  reflects  management's
current beliefs, intentions and expectations. Statements made in this discussion
are  subject to risks and  uncertainties  that could  cause  actual  results and
events to differ materially.

RESULTS OF OPERATIONS

FISCAL YEARS ENDED MARCH 31, 2004, MARCH 31, 2003 AND MARCH 31, 2002

LEGAL EXPENSES

Legal  expenses  decreased  by  $841,000,  or 95%,  to $46,000 in fiscal 2004 as
compared to  $887,000  in fiscal  2003.  In fiscal  2004 legal  expenses  mainly
consisted of costs  associated with Securities and Exchange  Commission  ("SEC")
filings.  In fiscal 2003,  legal  expenses  consisted of salaries,  benefits and
related facilities  overhead expense for the Company's in-house legal personnel,
approximately $100,000 due to the efforts to close a transaction for the sale of
the UK  subsidiary  and non-cash  charges  resulting  from the  amortization  of
deferred  compensation  related to option  grants to in-house  legal  personnel.
These options which were granted in fiscal 2001 have now been fully amortized.

Legal  expenses  increased  by  $186,000,  or 27%, to $887,000 in fiscal 2003 as
compared to $701,000 in fiscal 2002. Approximately $100,000 of this increase was
due to the efforts to close a  transaction  for the sale of the UK subsidiary as
further  described above.  The remaining  increase in legal expenses from fiscal
2002 to fiscal 2003 was due to non-cash charges  resulting from the amortization
of deferred  compensation  related to option  grants.  These  options which were
granted in fiscal 2001 have now been fully amortized.

GENERAL AND ADMINISTRATIVE

General  and  administrative  expenses  include  the costs for human  resources,
finance,  general management functions and related facilities overhead.  General
and administrative expenses decreased by $1,338,000, or 79%, to $361,000, during
fiscal 2004, as compared to fiscal 2003. The expenses decreased primarily due to
reduced   compensation  and  reduced  facilities  overhead  resulting  from  the
restructuring  actions and cost reduction efforts made over the course of fiscal
2003.

General  and  administrative  expenses  decreased  by  $1,374,000,  or  45%,  to
$1,699,000,  during  fiscal  2003,  as compared  to fiscal  2002.  The  expenses
decreased primarily due to reduced compensation,  including temporary labor, and
reduced facilities overhead,  resulting from the restructuring  actions and cost
reduction efforts made over the course of fiscal 2002 and 2003.

VARIABLE NON-CASH STOCK COMPENSATION

On November 5, 2001,  we announced an offer to our  employees  with  outstanding
stock  options to exchange  such options for new options to purchase a different
number of shares of common  stock  priced as of  December  7, 2001.  In order to
participate  in the  exchange,  an optionee  had to  exchange  all of his or her
existing options.  Options issued in the exchange vest and become exercisable in
twelve monthly increments and include an acceleration  provision in the event of
a change in control.  The first vesting date was December 31, 2001.  The options
were  granted on  December  7, 2001 with an  exercise  price of $1.11 per share,
which was the  closing  price for our  common  stock as  reported  by the Nasdaq
National Market on that date. The options expire on December 7, 2003. Other than
changes to the number of shares,  exercise price, the vesting schedule,  and the
expiration  date,  the new  options  have  substantially  the same  terms as the
exchanged options.

The exchange resulted in the voluntary cancellation of employee stock options to
purchase  3,550,264  shares of common  stock  with  varying  exercise  prices in
exchange for employee  stock options to purchase a total of 3,275,000  shares of
common stock with an exercise price of $1.11 per share.

                                       15





This  offer  to  exchange  options  constituted  a stock  option  repricing  for
financial  accounting  purposes,  requiring  us to use  variable  accounting  to
measure stock  compensation  expense  potentially  arising from the options that
were subject to the offer,  including options retained by eligible optionees who
elected not to participate  in the offer.  As these new options vest, at the end
of each reporting period, we must recognize stock compensation  expense based on
the excess,  if any,  of the quoted  market  price of our common  stock over the
exercise price.  Subsequent declines in the intrinsic value of these new options
and the  retained  options  may  result in  reversal  of  previously  recognized
expense. After the options become fully vested, any additional  compensation due
to changes  in  intrinsic  value  will be  recognized  as  compensation  expense
immediately.  Such  variable  accounting  will  continue  until  each  option is
exercised, or forfeited, or canceled.

Because  the  closing  price of our common  stock as  reported by Nasdaq and the
OTCBB has been less than the $1.11  option  price on the last day of each of the
calendar  quarters since the grant, no stock  compensation has been recorded for
the years ended March 31, 2003 and 2002.

OTHER INCOME.

Other income  decreased by  $3,994,000,  or 100%,  to $0, during fiscal 2003, as
compared to fiscal 2002.  Other income of $3,994,000  was recorded in the second
quarter of fiscal 2002, as a result of the sale of the remaining  480,000 shares
of our investment in Wink  Communications,  Inc.  ("Wink") and the conversion to
cash of the related derivative instruments.  See further discussion in Note 1 to
the Consolidated Financial Statements.

INTEREST INCOME

Interest income decreased by $12,000, or 80%, to $3,000,  during fiscal 2004, as
compared to fiscal 2003.  This decrease was  attributable to lower cash balances
available for  short-term  investment as our cash resources were depleted by our
operations.

Interest income decreased by $176,000,  or 92%, to $15,000,  during fiscal 2003,
as  compared  to fiscal  2002.  This  decrease  was  attributable  to lower cash
balances available for short-term investment as our cash resources were depleted
by our operations.

INTEREST EXPENSE

Interest  expense was not  significant in fiscal years 2004, 2003 and 2002 as we
had minimal  balances of capital  lease and debt  outstanding.  We may  consider
financing  alternatives  that  could  increase  the amount of  interest  expense
incurred in the future.

PROVISION FOR INCOME TAXES

We account for income taxes in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Income tax expense consists of
foreign income tax withholding on foreign source  royalties paid us. As of March
31, 2004, we had net operating loss  carryforwards  for U.S.  federal income tax
purposes  of  approximately  $123,000,000  and for U.K.  income tax  purposes of
approximately  $3,860,000  and for state  income tax  purposes of  approximately
$31,770,000.  We also had  research and  development  credit  carryforwards  for
federal income tax purposes of approximately $3,426,000 and for state income tax
purposes of approximately $1,506,000. Utilization of our U.S. net operating loss
and research credit carryforwards will be subject to annual limitations based on
the  "change of  ownership"  provisions  of the Tax  Reform  Act of 1986.  These
limitations  may result in the  expiration  of net  operating  loss and research
credit carryforwards before utilization.

                                       16





INCOME (LOSS) FROM DISCONTINUED OPERATIONS.

The condensed results of discontinued items are summarized as follows:

                                                                                 YEAR ENDED MARCH 31
                                                                   ---------------------------------------------
                                                                      2004              2003              2002
                                                                   ---------------------------------------------

Total net revenues                                                 $    296          $  3,440           $ 11,694

Operating  expenses (excluding items listed below)                       11             3,067             19,012
Amortization of goodwill and other intangible assets                     --               487              5,227
Restructuring charges (reversal)                                         --               (96)             3,272
Write-down of goodwill and other long-lived assets                       --             1,158             27,557
                                                                   ---------------------------------------------
Total operating expenses                                                 11             4,616             55,068
                                                                   ---------------------------------------------
Operating income (loss) from discontinued operations                    285            (1,176)           (43,374)

Other income, principally asset sales and gain                           --               646                500
                                                                   ---------------------------------------------
Income (loss) before income taxes                                       285              (530)           (42,874)
Provision for income taxes                                               17                46                129
                                                                   ---------------------------------------------
Income (loss) from discontinued operations - net of taxes          $    268          $   (576)          $(43,003)
                                                                   =============================================

NET REVENUES

Net revenues decreased by $3,144,000,  or 91%, to $296,000,  during fiscal 2004,
as compared to fiscal 2003. The  substantial  decrease in revenues is the result
of discontinuing  our operations in the UK in the fourth quarter of fiscal 2003.
During fiscal 2004, Toshiba,  our only remaining  customer,  provided all of our
limited revenue. These revenues are attributable to license and maintenance fees
for our MS+ technology.

Net revenues decreased by $8,254,000, or 71%, to $3,440,000, during fiscal 2003,
as compared to fiscal 2002. Net revenues have decreased as the number of revenue
generating personnel and contracts declined.  In particular,  as a result of our
restructuring  efforts,  our  fiscal  2003  revenue  was  composed  entirely  of
professional services consulting revenue. Revenues from contracts with Nokia and
Mitsubishi  (expired  in  March  2002)  declined   approximately   $400,000  and
$4,600,000,  respectively,  from fiscal 2003 to 2002. The remaining  decrease in
revenues  from  fiscal  2003 to 2002 was due to the  decline in AirBoss  related
revenues.

OPERATING EXPENSES

Operating  expenses  do not  include  corporate  office  legal and  general  and
administrative   expenses  which  have  not  been   classified  as  discontinued
operations.  Excluding  the corporate  office items  discussed  above  operating
expenses  decreased by  $3,056,000,  or 99% to $11,000,  during  fiscal 2004, as
compared to fiscal 2003. The reductions in these operating  expenses reflect our
discontinuing  of our  remaining  operating  division  in  the UK in the  fourth
quarter  of fiscal  2003.  The  operating  expenses  for fiscal  2004  represent
maintenance  costs  associated with our contract with Toshiba our only remaining
customer.

Operating  expenses  do not  include  corporate  office  legal and  general  and
administrative   expenses  which  have  not  been   classified  as  discontinued
operations.  Excluding  the corporate  office items  discussed  above  operating
expenses decreased by $15,945,000, or 84% to $3,067,000,  during fiscal 2003, as
compared to fiscal 2002. The reductions in these operating  expenses reflect the
cost  reductions  and  restructuring  efforts  made in order to reduce  our cost
structure  to meet the  decreasing  levels of revenues.  By fiscal  2003,  these
operating  expenses  were  solely to support our efforts to realize the value of
our professional services business, and were primarily incurred in the UK. Sales
and marketing  and research and  development  expenses were  decreased in fiscal
year 2002 and then essentially eliminated in fiscal 2003.

                                       17





AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS

Amortization  of goodwill and other  intangible  assets was  attributable to the
amortization of goodwill and other purchased  intangible  assets  resulting from
our July  2000  acquisition  of  AirBoss.  The  rates of  amortization  per year
decreased in each  successive year because the underlying  intangibles  base was
reduced  during  fiscal  2002 and 2003 by  writedowns  due to value  impairments
discussed below and in the Notes to Consolidated Financial Statements.

WRITE-DOWN OF GOODWILL AND OTHER LONG-LIVED ASSETS

 We review  long-lived and intangible  assets for impairment in accordance  with
Statement of Financial  Accounting  Standards ("SFAS") No. 144,  "Accounting for
the Impairment or Disposal of Long-Lived  Assets," (which superceded SFAS 121 in
fiscal 2003) whenever events or circumstances  indicate the carrying value of an
asset may not be  recoverable.  As a result  of these  reviews,  write-downs  of
goodwill and other  long-lived  assets of $0,  $1,158,000 and  $27,557,000  were
recorded for fiscal 2004, 2003 and 2002, respectively, as discussed below.

During  fiscal  2002,  non-cash  asset  impairment  charges of  $3,391,000  were
recorded to write down  equipment no longer being used in operations as a result
of the  reorganizations  and  headcount  reductions  made  during the year.  The
remaining  impairment  charges  for fiscal  2002 of  $24,166,000  related to our
AirBoss  acquisition.  During fiscal 2003,  non-cash asset impairment charges of
$1,158,000  were recorded to write down the remaining  carrying value of certain
assets related to our AirBoss acquisition. We performed quarterly assessments of
the  carrying  values of  intangible  assets  recorded  in  connection  with our
acquisition  of  AirBoss.  The  assessments  were  performed  in  light  of  the
significant  negative industry and economic trends impacting current operations,
the decline in our stock  price,  expected  future  revenue  growth  rates,  and
continued  operating losses.  When such an event occurs,  management  determines
whether  there has been  impairment by comparing  the  anticipated  undiscounted
future net cash flows to the  related  asset's  carrying  value.  If an asset is
considered  impaired,  the  asset  is  written  down to  fair  value,  which  is
determined based either on discounted cash flows or residual value, depending on
the nature of the asset. As a result of these assessments, we concluded that the
decline in market conditions was significant and "other than temporary."

RESTRUCTURING CHARGES.

During  the fourth  quarter of fiscal  2003  severance  charges of $96,000  were
reversed  per the  terms of a  settlement  agreement  with a  former  CEO of the
Company.

During  fiscal 2002,  we recorded  restructuring  charges of  $3,272,000.  These
charges  relate to the  cost-cutting  measures we adopted and  announced in June
2001,  October  2001 and January  2002.  The Board of Directors  approved  these
actions and the resulting  restructuring  charges  which  consisted of severance
cost for a total of 153  terminated  employees  and an accrual for related lease
and contract termination costs.

OTHER INCOME, PRINCIPALLY ASSET SALES AND GAIN

During fiscal 2003, the Company  recorded gains from the sale of certain patents
and  assets of  $313,000  and  recorded a net gain of  $333,000  from the Teleca
release  as  more  fully  described  in  Note  1 to the  Consolidated  Financial
Statements.

During fiscal 2002, the Company  recorded gains from the sale of certain patents
of approximately $500,000.

For further discussion of the elements of discontinued operations, see the Notes
to the Consolidated Financial Statements.

SIGNIFICANT ACCOUNTING POLICY JUDGMENTS AND ESTIMATES

The preparation of financial statements in accordance with accounting principles
generally  accepted in the United  States  requires  that we make  estimates and
judgments,  which affect the reported amounts of assets,  liabilities,  revenues
and expenses,  and related disclosures of contingent assets and liabilities.  On
an on-going  basis,  we believe our risks are subject to maximizing the value of
our assets and reducing liabilities and expenses.

                                       18





LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash  equivalents  were  $37,000 at March 31, 2004,  compared  with
$729,000 at March 31, 2003. As of March 31, 2004, we also hold $400,000 in short
term U.S.  Treasury Bills and $200,000 in restricted  cash pursuant to the stock
sale to Newcastle.  Our net loss of $136,000 and reductions in accounts  payable
and accrued  liabilities of $559,000 for fiscal 2004 are the primary reasons for
the decline in our cash balance  from fiscal 2003 to fiscal  2004.  We expect to
incur  additional  operating  losses at least  through  fiscal 2005,  which will
continue to have a negative impact on liquidity and capital resources.

Purchases of property and equipment totaled $0, $33,000 and $1,802,000 in fiscal
years 2004, 2003 and 2002,  respectively.  Capital  spending in 2002 was made in
connection with our business plans at that time.

As of March 31,  2004,  the  Company  has no minimum  payments  remaining  under
non-cancelable operating leases.

Our only customer,  Toshiba, a diversified electronics company located in Japan,
accounted for 100% of our revenues in fiscal 2004 and is currently  projected to
generate  all of our limited  revenue in the near  future.  These  revenues  are
attributable to license and maintenance  fees for our MS+ technology.  According
to our existing contract with Toshiba, we were due an annual maintenance payment
of  $150,000  for  October 31,  2003 and are also  currently  due total  royalty
payments of approximately $84,000 for the last three quarters of fiscal 2004. We
have not  recognized  any revenue for the $150,000  annual  maintenance  payment
since  we have  been  discussing  a sale of our MS+  technology  source  code to
Toshiba.  Currently we anticipate receiving an amount of approximately  $250,000
for the sale of the MS+ technology source code.

We currently  anticipate that our available funds will be sufficient to meet our
projected needs to fund operations through fiscal 2006. This projection is based
on several factors and assumptions, and is subject to numerous risks. Our future
capital needs and liquidity will be highly dependent upon a number of variables,
including  how  successful we are in managing our  operating  expenses,  selling
assets  and  how  successful  we  are  in  settling  our  remaining  contractual
liabilities.  Moreover,  our efforts over the last several months to raise funds
through the sale of our legacy  assets have been  disappointing.  As a result of
the foregoing, any projections of future cash needs and cash sources are subject
to substantial uncertainty.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have  derived  and expect to  continue  to derive  most of our  revenue  from
international  customers.  Although  our  invoices to  customers  are  generally
denominated  in U.S.  dollars,  our  international  subsidiary  uses  the  local
currency as its functional currency.  Our cash accounts in foreign countries are
kept at the minimal levels necessary for operations. As the result of the above,
we are exposed to foreign exchange rate fluctuations and as these exchange rates
vary, when translated, they may adversely impact our results of operations.

                                       19






ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

             Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Geoworks Corporation

We have  audited  the  accompanying  consolidated  balance  sheets  of  Geoworks
Corporation  as of  March  31,  2004  and  2003,  and the  related  consolidated
statements of  operations,  stockholders'  equity,  and cash flows for the years
then ended.  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 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.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,   the  consolidated   financial  position  of  Geoworks
Corporation  at March 31,  2004 and 2003,  and the  consolidated  results of its
operations  and its cash flows for the years then ended in conformity  with U.S.
generally accepted accounting principles.

                                                   /s/ Novogradac & Company LLP


Roswell, Georgia
June 5, 2004

                                       20





Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Geoworks Corporation

We  have  audited  the  accompanying   consolidated  statements  of  operations,
stockholders'  equity, and cash flows of Geoworks Corporation for the year ended
March  31,  2002.  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 audit.

We conducted  our audit 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.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated results of operations and cash flows of
Geoworks  Corporation for the year ended March 31, 2002, in conformity with U.S.
generally accepted accounting principles.

As discussed in Note 1 to the  financial  statements,  the  Company's  recurring
losses  from  operations  and the  cash  required  to  fund  such  losses  raise
substantial doubt about its ability to continue as a going concern. Management's
plans as to these  matters are described in Note 1. The  consolidated  financial
statements  for the year ended March 31, 2002 do not include any  adjustments to
reflect the possible future effects on the  recoverability and classification of
assets or the amounts and  classification  of liabilities that might result from
the outcome of this uncertainty.


                                                   /s/ Ernst & Young LLP

San Francisco, California
May 1, 2002,
except for Note 14, as to which the date is
June 11, 2002
and the reclassification of discontinued operations discussed in Note 2,
as to which the date is June 23, 2003


                                       21





                              GEOWORKS CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)


                                                                                         MARCH 31
                                                                                  2004              2003
                                                                              -----------------------------
Assets
Current assets:
  Cash and cash equivalents                                                   $      37           $     729
  Restricted cash and short-term investments                                        201                  --
  Short-term investments                                                            400                  --
  Accounts receivable, net of allowances $0 in 2004 and 2003,
     respectively                                                                    84                  31
  Prepaid expenses and other current assets                                           7                 476
                                                                              -----------------------------
Total current assets                                                                729               1,236

Other assets                                                                         18                  --
                                                                              -----------------------------
Total assets                                                                  $     747           $   1,236
                                                                              =============================

Liabilities and stockholders' equity Current liabilities:
  Accounts payable                                                            $       1           $     228
  Accrued liabilities                                                               244                 576
  Deferred revenue                                                                   26                 179
                                                                              -----------------------------
Total current liabilities                                                           271                 983

Stockholders' equity:
     Preferred stock, no par value; 2,000 shares authorized;
        no shares issued and outstanding in 2003 and 2002                            --                  --
     Common stock, no par value; 80,000 shares authorized; 29,869 in
        2004 and 22,134 in 2003 shares issued and outstanding                   157,464             157,110
     Accumulated deficit                                                       (156,993)           (156,857)
     Accumulated other comprehensive income                                           5                  --
                                                                              -----------------------------
Total stockholders' equity                                                          476                 253
                                                                              -----------------------------
Total liabilities and stockholders' equity                                    $     747           $   1,236
                                                                              =============================


SEE ACCOMPANYING NOTES.

                                       22





                              GEOWORKS CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                                                          YEAR ENDED MARCH 31
                                                             ----------------------------------------------
                                                                2004              2003                2002
                                                             ----------------------------------------------
Operating expenses:
        Legal                                                $     46           $    887           $    701
        Other general and administrative                          361              1,699              3,073
                                                             ----------------------------------------------
Total operating expenses                                          407              2,586              3,774
                                                             ----------------------------------------------
Operating loss                                                   (407)            (2,586)            (3,774)

Other income:
   Other income                                                                                       3,994
   Interest income                                                  3                 15                191
   Interest expense                                                                                      (8)
                                                             ----------------------------------------------
Total other income                                                  3                 15              4,177
                                                             ----------------------------------------------
Income (loss) before discontinued operations                     (404)            (2,571)               403
Income (loss) from discontinued operations - net of
   income taxes                                                   268               (576)           (43,003)
                                                             ----------------------------------------------
Net loss                                                     $   (136)          $ (3,147)          $(42,600)
                                                             ==============================================
Per share-basic and diluted:

Income (loss) before discontinued operations                 $  (0.02)          $  (0.11)          $    .02
Income (loss) from discontinued operations                       0.01              (0.03)             (1.83)
                                                             ----------------------------------------------
Net loss per share                                           $  (0.01)          $  (0.14)          $  (1.81)
                                                             ==============================================
Shares used in net loss per share
     computation -basic and diluted                            29,024             22,718             23,555
                                                             ==============================================

SEE ACCOMPANYING NOTES.

                                       23





                              GEOWORKS CORPORATION
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)


                                                      COMMON STOCK
                                                  --------------------    ACCUMULATED
                                                   SHARES      AMOUNT       DEFICIT
                                                  ---------------------------------------
Balances at March 31, 2001                         23,423    $ 157,082    $(111,110)

Common stock issued under stock option and
   stock purchase plans                               153          161           --
Stock options granted for services                     --           21           --
Amortization of deferred compensation                  --           --           --
Comprehensive income (loss):
   Realized gains on investment and
        derivative instruments                         --           --           --
     Unrealized loss on investment                     --           --           --
     Foreign currency translation adjustment           --           --           --
     Net loss                                          --           --      (42,600)
Comprehensive loss                                     --           --           --

                                                ---------    ---------    ---------
Balances at March 31, 2002                         23,576      157,264     (153,710)
Common stock cancelled in connection with
   software license agreement                      (1,392)        (153)          --
Settlement of shareholder note receivable             (50)          (1)          --
Amortization of deferred compensation                  --           --           --
Comprehensive income (loss):                           --           --           --
     Foreign currency translation
        adjustment                                     --           --           --
     Net loss                                          --           --       (3,147)

Comprehensive loss                                     --           --           --
                                                ---------    ---------    ---------
Balances at March 31, 2003                         22,134      157,110     (156,857)
COMMON STOCK ISSUED UNDER
    STOCK OPTION PLANS                                357           29           --
COMMONS STOCK ISSUANCE TO NEWCASTLE
    AND AFFILIATES                                  7,378          325           --
COMPREHENSIVE INCOME (LOSS):
     UNREALIZED GAIN ON INVESTMENT                     --           --           --

     NET LOSS                                          --           --         (136)

COMPREHENSIVE LOSS                                     --           --           --
                                                -----------------------------------------
BALANCES AT MARCH 31, 2004                         29,869    $ 157,464    $(156,993)
                                                =========================================

                                       24




                                                    NOTES                         ACCUMULATED
                                                 RECEIVABLE                          OTHER         TOTAL
                                                    FROM          DEFERRED      COMPREHENSIVE   STOCKHOLDERS'
                                                 STOCKHOLDERS   COMPENSATION        INCOME         EQUITY
                                                ------------------------------------------------------------------
Balances at March 31, 2001                        $    (88)     $    (318)      $   4,165       $  49,731

Common stock issued under stock option and
   stock purchase plans                                 --            (11)             --             150
Stock options granted for services                      --             --              --              21
Amortization of deferred compensation                   --            112              --             112
Comprehensive income (loss):
   Realized gains on investment and
        derivative instruments                          --             --          (3,994)         (3,994)
     Unrealized loss on investment                      --             --             (43)            (43)
     Foreign currency translation adjustment            --             --             (80)            (80)
     Net loss                                           --             --              --         (42,600)
                                                                                                ---------
Comprehensive loss                                      --             --              --         (46,717)
                                                ----------      ---------       ---------       ---------
Balances at March 31, 2002                             (88)          (217)             48           3,297
Common stock cancelled in connection with
   software license agreement                           --             --              --            (153)
Settlement of shareholder note receivable               88             --              --              87
Amortization of deferred compensation                   --            217              --             217
Comprehensive income (loss):                            --             --              --
     Foreign currency translation
        adjustment                                      --             --             (48)            (48)
     Net loss                                           --             --              --          (3,147)
                                                                                                ---------
Comprehensive loss                                      --             --              --          (3,195)
                                                ----------      ---------       ---------       ---------
Balances at March 31, 2003                              --             --              --             253
COMMON STOCK ISSUED UNDER
    STOCK OPTION PLANS                                  --             --              --              29
COMMONS STOCK ISSUANCE TO NEWCASTLE
    AND AFFILIATES                                      --             --              --             325
COMPREHENSIVE INCOME (LOSS):
     UNREALIZED GAIN ON INVESTMENT                      --             --               5               5
                                                                                                ---------
     NET LOSS                                           --             --              --            (136)
                                                                                                ---------
COMPREHENSIVE LOSS                                      --             --              --            (131)
                                                ---------------------------------------------------------
BALANCES AT MARCH 31, 2004                        $     --      $      --       $       5       $     476
                                                =========================================================

SEE ACCOMPANYING NOTES.

                                      24a





                              GEOWORKS CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                                                                       YEAR ENDED MARCH 31
                                                                                 2004          2003          2002
                                                                              -------------------------------------
OPERATING ACTIVITIES
 Income (loss) from continuing operations                                     $   (404)     $ (2,571)     $    403
   Adjustments to reconcile loss to net cash used in operating
      activities:
         Depreciation                                                               --            25           200
         Amortization of deferred compensation                                      --           217           112
         Gain on sale of long-term investments and other assets                     --            --        (3,994)
         (Gain) loss on other assets                                                --             2            29
         Stock options granted for services                                         --            --            21
         Shareholder note                                                           --            87            --
         Changes in assets and liabilities - continuing operations                (244)         (253)         (400)
                                                                              ------------------------------------
Cash used in operating activities - continuing operations                         (648)       (2,493)       (3,629)
                                                                              ------------------------------------

 Income (loss) from discontinued operations                                        268          (576)      (43,003)
   Adjustments to reconcile income (loss) to net cash used in
     operating activities:
         Depreciation                                                               --           174         1,094
         Amortization of goodwill and other intangible assets                       --           487         5,227
         Provision for doubtful accounts                                            --            --           100
         Non-cash restructuring charges (reversal)                                  --           (97)          214
         Write-down of goodwill and other long-lived assets                         --         1,158        27,557
         Gain on sale of assets and other income                                    --          (326)         (500)
         Changes in assets and liabilities - discontinuing operations             (250)         (958)         (358)
                                                                              ------------------------------------
Cash provided by (used in) operating activities - discontinued operations           18          (138)       (9,669)
                                                                              ------------------------------------
Net cash used in operating activities                                             (630)       (2,631)      (13,298)

INVESTING ACTIVITIES
Purchases of property and equipment                                                 --           (33)       (1,802)
Proceeds from sales and disposals of property and equipment                         --            25            75
Sales of long-term investments                                                      --            --         3,994
Purchase of investments and marketable securities                                 (416)           --            --
Proceeds from sales of equipment and other assets                                   --           280           500
                                                                              ------------------------------------
Net cash provided by (used in) investing activities                               (416)          272         2,767

FINANCING ACTIVITIES
Proceeds from issuance of common stock                                             354            --           150
Payments under capital lease obligations                                            --            --          (114)
                                                                              ------------------------------------
Net cash provided by financing activities                                          354            --            36
                                                                              -------------------------------------

Foreign currency translation adjustments                                            --           (48)          (82)
                                                                              ------------------------------------
Net decrease in cash and cash equivalents                                         (692)       (2,407)      (10,577)
Cash and cash equivalents, beginning of year                                       729         3,136        13,713
                                                                              ------------------------------------
Cash and cash equivalents, end of year                                        $     37      $    729      $  3,136
                                                                              ====================================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
                                                                              ====================================
Cash paid for income taxes                                                    $     12      $     46      $    129
                                                                              ====================================
Cash paid for interest                                                        $     --      $     --      $      8
                                                                              ====================================

SEE ACCOMPANYING NOTES

                                       25




                              GEOWORKS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2004

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

COMPANY

Geoworks  Corporation  ("the Company")  provided software design and engineering
services to the mobile and handheld device industry.  With nearly two decades of
experience  developing  operating  systems,  related  applications  and wireless
server  technology,  the  Company  worked with many of the  industry  leaders in
mobile phones and mobile data applications.

During fiscal 2002, various reorganizations and restructurings were implemented.
Although the Company provided  software design and engineering  services through
its professional  services teams for several years,  prior to the reorganization
announced in January 2002, the Company focused on providing carrier-class mobile
Internet  infrastructure  software  enabling  personalized  real-time  access to
corporate and Internet data.  This business model was built around the licensing
of  proprietary  software  platforms for mobile  solutions,  in  particular  the
Geoworks  AirBoss  Application  Platform,  to wireless  carriers and enterprises
around the world and is no longer being pursued.

During fiscal 2003, the Company  ceased  operations in the UK and entered into a
mutual  release  agreement with Teleca Ltd.  ("Teleca")  which allowed Teleca to
hire the  Company's  former UK  employees  and to engage  in  business  with the
Company's former  customers.  In consideration of the release,  Teleca agreed to
pay the  Company  approximately  $520,000,  one half on signing  the  release in
February 2003 and the balance after ninety days. Also,  Teleca separately agreed
to assume the UK subsidiary's  remaining  lease  obligations in exchange for the
subsidiary's  equipment,  which had a net book value of approximately  $190,000.
The proceeds  received by the Company in connection  with the release exceed the
carrying value of the UK subsidiary's  net assets and the Company recorded a net
gain of $333,000 for the year ended March 31, 2003 as a result of the release.

On May 1, 2003, the Company sold  approximately  7.4 million newly issued shares
of its  common  stock  to  Newcastle  Partners,  L.P.  and Mark E.  Schwarz,  an
affiliate of Newcastle,  for  $325,000.  $200,000 of the proceeds from the newly
issued shares are being held in escrow pursuant to the stock purchase agreement.
As a  result,  the  purchasers  now  own  25% of the  Company's  securities.  In
conjunction  with the  investment,  two of the  Company's  three  board  members
resigned  and Mark E.  Schwarz  and Steven J.  Pully,  both of  Newcastle,  were
appointed to fill their board seats. In addition,  the remaining management team
of the Company  agreed to step down.  Mark E. Schwarz and John  Murray,  also of
Newcastle, assumed the positions of CEO and CFO, respectively.

PRINCIPLES OF CONSOLIDATION

The consolidated  financial  statements  include the accounts of the Company and
its  wholly-owned  subsidiaries  located in Japan,  New  Jersey,  and the United
Kingdom.  All  significant  intercompany  balances  and  transactions  have been
eliminated. During fiscal 2003, operations in the wholly-owned subsidiaries were
discontinued;  therefore information in fiscal years 2004, 2003 and 2002 may not
be comparable.

FOREIGN CURRENCY TRANSLATION

The  Company's  international  subsidiaries  use the  local  currency  as  their
functional currency.  Assets and liabilities are translated at exchange rates in
effect  at the  balance  sheet  date,  and  revenue  and  expense  accounts  are
translated at average exchange rates during each period.  Resulting  translation
adjustments  are  recorded  directly to a separate  component  of  stockholders'
equity. Foreign currency transaction gains and losses have not been material.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States  requires  management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying  notes. For the Company,  these estimates include  allowances,  and
certain  assets  and  liabilities.   Actual  results  could  differ  from  those
estimates,  and such difference could be material to the consolidated  financial
position and results of operations.

                                       26





                              GEOWORKS CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 2004

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

REVENUE RECOGNITION ON DISCONTINUED OPERATIONS

Professional   services  projects  involve   consulting  related  to  technology
previously  developed  by  us,  as  well  as  development  of  new  technologies
supporting mobile  communications.  Professional services revenues are generally
billed and  recognized  based on time and  materials  expended by the Company at
contracted rates.

Software and related services revenue consists of software license,  royalty and
related service revenues, including software customization and maintenance. Such
revenues  include  software  license fees, which are accounted for in accordance
with SOP 97-2 "Software Revenue  Recognition,"  from customers who purchased the
Company's products or royalties from hardware manufacturers that incorporate the
Company's  software  products into their systems.  In addition,  the Company has
licensed certain  technology and  intellectual  property and sold source code to
third parties to be used in the  development of their own service  offerings and
products.  Revenues  from the  license  of  products,  technology,  intellectual
property,  and the  sale of  source  code are  recognized  when  evidence  of an
agreement exists,  when the Company has performed under the terms of the related
contract,  when such revenues are fixed and determinable and when collectibility
is probable.

Software customization, maintenance and related services revenues are billed and
recognized  based on contracted  rates,  the percentage of completion  method or
ratably over the contract  period  based on the terms of the  contract.  Advance
payments  of  license or service  fees are  recorded  as  deferred  revenue  and
recognized as the products or services are delivered.

If a customer  transaction includes both software licenses and service elements,
the  total  arrangement  fee is  allocated  to each of the  elements  using  the
residual method,  under which revenue is allocated to undelivered elements based
on  vendor-specific  objective  evidence  of fair  values  of  such  undelivered
elements and the  residual  amounts of revenue are  allocated  to the  delivered
elements.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of demand deposits with original maturities of
three months or less and are stated at cost, which approximates fair value.

CONCENTRATIONS OF CREDIT RISK

The Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of cash and cash  equivalents,  restricted cash and trade
accounts  receivable.  Cash and cash equivalents and restricted cash are held in
federally  insured  or  well-established  financial  institutions.  As a general
policy, collateral is not required for accounts receivable; however, the Company
periodically monitors the need for an allowance for doubtful accounts based upon
expected  collections  of accounts  receivable  and specific  identification  of
uncollectible accounts. Additionally,  customers' financial condition and credit
worthiness  are  regularly  evaluated.  There were no  allowances  for  doubtful
accounts  accrued at March 31, 2004 and March 31, 2003.  Historical  losses have
not been material.

DERIVATIVE FINANCIAL INSTRUMENTS, SHORT-TERM INVESTMENTS AND INVESTMENTS

The Company  invests its excess cash in money  market  accounts,  U.S.  Treasury
bills, and short-term debt securities.  Investments with an original maturity at
the time of purchase  over three months but less than a year are  classified  as
short-term  investments.  Investments  with an original  maturity at the time of
purchase  of greater  than one year are  classified  as  long-term  investments.
Management determines the appropriate  classification of investments at the time
of purchase and  reevaluates  such  designations  at the end of each period.  At
March 31, 2004, short-term  investments are classified as available-for-sale and
consist principally of U.S. Treasury bills.

                                       27





                              GEOWORKS CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 2004

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

DERIVATIVE FINANCIAL INSTRUMENTS, SHORT-TERM INVESTMENTS AND INVESTMENTS
(CONTINUED)

Derivative  financial  instruments entered into in November 2000 were designated
to hedge  the fair  value of the  Company's  investment  in Wink  Communications
common stock.  Derivative  instruments were recorded at fair value as determined
by the difference  between the market value of the underlying  hedged securities
and their stated  selling prices per the  derivative  contracts.  Any unrealized
gain or loss on the derivative  instruments  were recorded in accumulated  other
comprehensive  income.  The amount of the  ineffectiveness  of the hedge was not
material;  thus,  no amounts  were  recorded in the  consolidated  statement  of
operations.

During  September  2001, the Company sold the Wink  investment and converted the
related derivative instruments to cash. A total of 480,000 common shares of Wink
were sold at a realized gain,  including the effect of  liquidating  the related
derivative   instruments,   of  $3,994,000.   The  derivative  instruments  were
liquidated  shortly before their scheduled  maturity or expiration dates;  hence
the realized value was below the minimum value.

CAPITALIZED SOFTWARE

The  Company has not  capitalized  any  software  development  expenses  for its
products as such  expenses have been  incurred  prior to the Company's  products
attaining technological  feasibility or such costs have been reimbursed by third
parties in connection with OEM license agreements. Software development expenses
incurred for product  enhancements  after the product has reached  technological
feasibility  have not been  material  and,  accordingly,  have been  charged  to
operations as incurred.

PROPERTY AND EQUIPMENT

Property and  equipment  are stated at cost or at fair value after certain asset
write-downs.  Depreciation and amortization are computed using the straight-line
method over estimated useful lives of three to four years. Assets acquired under
capital lease  obligations  and leasehold  improvements  are amortized using the
straight-line  method over the shorter of the useful  lives of the assets or the
terms of the leases.

IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting  for the  Impairment or Disposal of Long-Lived  Assets,"  long-lived
assets (primarily property, plant and equipment,  goodwill, and other intangible
assets)  held and used by the  Company or to be  disposed  of are  reviewed  for
impairment  whenever  events or changes in  circumstances  indicate that the net
book  value of the asset  may not be  recoverable.  When  such an event  occurs,
management  determines  whether  there  has been  impairment  by  comparing  the
anticipated  undiscounted  future net cash flows to the related asset's carrying
value.  If an asset is  considered  impaired,  the asset is written down to fair
value,  which is determined  based either on  discounted  cash flows or residual
value, depending on the nature of the asset.

During fiscal 2003, the Company identified such possible  impairment  indicators
to include,  but not limited to, the significant  negative industry and economic
trends  impacting  current  operations,  declines in the Company's  stock price,
expected  future  growth  rates,  and  continued  operating  losses.  Forecasted
undiscounted  cash flows from the AirBoss  business  unit were  determined to be
less then the carrying  values of the related  assets.  Accordingly  the Company
performed a  discounted  cash flow  analysis  to  determine  fair  value,  which
resulted in non-cash  write-downs  totaling $1,158,000 and $24,166,000 in fiscal
2003 and 2002, of the goodwill and other  intangible  assets  resulting from the
Company's acquisition of the AirBoss business unit from Telcordia  Technologies,
Inc. in July 2000.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's financial instruments,  which include cash
equivalents, restricted cash, and short-term investments, approximate their fair
values based on quoted market values of the instruments.

                                       28





                              GEOWORKS CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 2004

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

MAJOR CUSTOMERS IN DISCONTINUED OPERATIONS

Revenues from one major customer  accounted for 100%, 12% and 2% respectively of
net revenues for fiscal 2004,  2003 and 2002. One other  customer  accounted for
72% and 28% of net revenues for fiscal 2003 and 2002.

STOCK COMPENSATION

The  Company  has  adopted  the  disclosure-only  provisions  of SFAS No. 123 as
amended by SFAS 148 and applies  APB Opinion No. 25 and related  interpretations
in  accounting  for its stock  option and  employee  stock  purchase  plans.  No
stock-based employee  compensation cost is reflected in net loss, as all options
granted  under those plans have an exercise  price equal to the market  value of
the underlying  common stock on the date of grant. Had compensation cost for the
Company's stock plans been determined  based on the fair value at the grant date
for awards  during  fiscal 2004,  2003 and 2002,  the Company's net loss and net
loss per share  would have been  increased  to the pro forma  amounts  indicated
below (in thousands, except per share amounts):



                                                    YEAR ENDED MARCH 31
                                          2004         2003             2002
                                        --------     ----------     ----------
Net income, as reported                 $  (136)     $  (3,147)     $  (42,600)

Net loss, pro forma                     $  (161)     $  (4,981)     $  (51,541)

Loss per share:
    Basic and diluted - as reported     $ (0.01)     $   (0.14)     $    (1.81)
    Basic and diluted - pro forma       $ (0.01)     $   (0.22)     $    (2.19)

The weighted-average  fair value for stock options granted were calculated using
the Black-Scholes option-pricing model based on the following assumptions:

                                               2004         2003          2002
                                              -------      -------       --------
Volatility                                     6.014        4.756         2.149
Weighted-average estimated life               5 years      5 years       5 years
Weighted-average risk-free interest rate       2.99%        3.45%         2.41%
Dividend yield                                   --           --            --

NET LOSS PER SHARE

Basic and diluted  net income  (loss) per share  information  for all periods is
presented in accordance  with the  requirements  of SFAS No. 128,  "Earnings per
Share." Basic earnings per share is computed  using the weighted  average number
of shares of common  stock  outstanding  during  the  period  and  excludes  any
dilutive  effects  of  outstanding  common  stock  equivalents.  The  effect  of
potentially  dilutive  stock options has been excluded from the  computation  of
diluted  net loss per  share  because  the  effect of their  inclusion  would be
antidilutive.

If the Company  had  reported  net income for fiscal  2004,  2003 and 2002,  the
calculation of diluted  earnings per share for those periods would have included
the effect of dilutive  common stock options,  computed using the treasury stock
method.  For  fiscal  ended  2004,  2003 and 2002,  the  calculation  would have
included the common  stock  equivalent  effect of -0-,  -0- and 138,000  shares,
respectively.

                                       29




                              GEOWORKS CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 2004

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

SEGMENT INFORMATION

In accordance  with SFAS No. 131,  "Disclosures  about Segments of an Enterprise
and Related  Information,"  public  business  enterprises are required to report
financial and other information about operating segments of the entity for which
such  information is available and is utilized by the chief  operating  decision
maker.  SFAS No. 131 also establishes  standards for related  disclosures  about
products  and  services,  geographic  area,  and major  customers.  The  Company
operates as one business segment.

INCOME TAXES

The  Company  accounts  for  income  taxes in  accordance  with  SFAS  No.  109,
"Accounting  for Income  Taxes,"  under  which the  liability  method is used to
account for income taxes.  Deferred tax assets and  liabilities  are  determined
based on differences between the financial reporting and tax bases of assets and
liabilities  and are measured  using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.

2.  DISCONTINUED OPERATIONS

In February  2003, we ceased  ongoing  business  activity at our last  operating
division  (located in the UK) because of continued  market  uncertainty  and the
inability to generate cash through strategic alternatives. The Company announced
that it was  ceasing  operations  in the UK and  entered  into a mutual  release
agreement with Teleca Ltd. ("Teleca") which allowed Teleca to hire the Company's
former  UK  employees  and to  engage  in  business  with the  Company's  former
customers.  In  consideration  of the release,  Teleca agreed to pay the Company
approximately  $520,000,  one half on signing the release and the balance  after
ninety  days.  Also,  Teleca  separately  agreed to assume  the UK  subsidiary's
remaining lease  obligations in exchange for the subsidiary's  equipment,  which
had a net  book  value of  approximately  $190,000.  The  proceeds  received  in
connection  with the release  exceeded the carrying value of the UK subsidiary's
net assets and the Company recorded a net gain of approximately $333,000.

As a result of these  restructurings (see Note 10) and ceasing operations in the
UK,  the  Company  no longer has any  employees  engaged  in revenue  generating
activities  and the  historical  results of  substantially  all of the Company's
operating activities are shown as discontinued  operations.  Interest income has
not been allocated to discontinued  operations.  Income taxes were all allocated
to discontinued  operations because they relate primarily to foreign withholding
tax on royalties and the sale of patents.

Financial  information  previously  reported in the statement of operations  and
cash flows for the year ended  March 31, 2002 has been  reclassified  to present
substantially all of the Company's  operations as discontinued  operations (with
the  exception  of  corporate  office  legal  and  general  and   administrative
expenses),  consistent with the  presentation for the years ended March 31, 2004
and 2003.

                                       30




                              GEOWORKS CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 2004

2. DISCONTINUED OPERATIONS (CONTINUED)

Summarized financial  information for the results of discontinued  operations is
as follows (in thousands):


                                                                     YEAR ENDED MARCH 31
                                                                2004         2003          2002
                                                              --------     --------      --------

Total net revenues                                            $    296     $  3,440      $ 11,694

Operating  expenses (excluding items discussed below)               11        3,067        19,012
Amortization of goodwill and other intangible assets                --          487         5,227
Restructuring charges (reversal)                                    --          (96)        3,272
Write-down of goodwill and other long-lived assets                  --        1,158        27,557
                                                              -----------------------------------
Total operating expenses                                            11        4,616        55,068
                                                              -----------------------------------
Operating income (loss) from discontinued operations               285       (1,176)      (43,374)

Other income, principally asset sales and gain                      --          646           500
                                                              -----------------------------------
Income (loss) before income taxes                                  285         (530)      (42,874)
Provision for income taxes                                          17           46           129
                                                              -----------------------------------
Income (loss) from discontinued operations - net of taxes     $    268     $   (576)     $(43,003)
                                                              -----------------------------------

                                                              -----------------------------------
Revenues from related parties                                 $    296     $    413      $    737
                                                              ===================================

Assets and  liabilities  attributable  to the  discontinued  businesses  were as
follows (in thousands):

                                                        MARCH 31
                                                  2004            2003
                                                 ----------------------

Current assets                                    $ 90            $325
Noncurrent assets                                   --              --
Current liabilities                                133             318
Noncurrent liabilities                              --              --

3. ACCOUNTS RECEIVABLE

Our only customer,  Toshiba, a diversified electronics company located in Japan,
accounted for 100% of our revenues in fiscal 2004, and is currently projected to
generate  all of our limited  revenue in the near  future.  These  revenues  are
attributable to license and maintenance  fees for our MS+ technology.  According
to our existing contract with Toshiba, we were due an annual maintenance payment
of $150,000 on October 31, 2003 and are also  currently due royalty  payments of
approximately  $84,000 for the last three  quarters of fiscal 2004.  We have not
recognized any revenue for the $150,000 annual maintenance payment since we have
been discussing a sale of our MS+ technology source code to Toshiba.

                                       31





                              GEOWORKS CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 2004

4.  ACQUISITION OF AIRBOSS

On July 24, 2000,  the Company  acquired  substantially  all of the assets of an
established,  separate, and unincorporated  division of Telcordia  Technologies,
Inc.   ("Telcordia"),   a  subsidiary  of  Science  Applications   International
Corporation  ("SAIC").  The acquired division  consisted of Telcordia's  AirBoss
Business  Unit,  which  operated a software  and  wireless  technology  services
business ("AirBoss").

The  acquisition  was  accounted  for  as  a  purchase   business   combination.
Accordingly,  the  purchase  consideration  was  allocated  to the  tangible and
identifiable  intangible  assets acquired based on fair values as of the closing
date.  No  liabilities  were  assumed  in  the  transaction.  The  valuation  of
intangible  assets  acquired was determined in  conjunction  with an independent
valuation report.

The  total  purchase  price  of   approximately   $39.9  million   consisted  of
approximately  3,018,000  shares of Geoworks'  common stock.  The fair value per
share of  common  stock  issued is based on an  average  of the  closing  prices
adjacent  the May 16, 2000  announcement  of the  acquisition.  The  acquisition
expenses  of  $250,000  consisted  mainly of legal,  accounting,  and  financial
advisory fees.

The  intangible  assets  related  to the July 2000  acquisition  of the  AirBoss
business unit were  amortized over two to four years.  Amortization  expense was
$487,000  for the year ended  March 31 2003.  The  Company  recorded  additional
non-cash,  asset  impairment  charges of $1,158,000 in fiscal 2003, based on its
analysis of the goodwill and other  intangible  assets  related to the July 2000
AirBoss  acquisition.  Forecast  undiscounted cash flows from this business were
less that the carrying  values of the related  assets.  Accordingly  the Company
performed  discounted  cash flow  analyses,  which has  resulted in the non-cash
write-downs in those years.

In August 2002,  the Company  agreed to settle an  obligation  of  approximately
$290,000 to Telcordia for  $100,000,  to be paid in  installments  of $50,000 on
August 2, 2002,  $25,000 by December 31, 2002 and an additional $25,000 by March
31,  2003.  Telcordia  is a wholly  owned  subsidiary  of  Science  Applications
International  Corporation  ("SAIC"),  a shareholder in the Company. The Company
also  assigned to Telcordia  any future  amounts  payable to Geoworks  from SAIC
under a non exclusive,  object code license to the AirBoss  technology with SAIC
executed  in October  2001.  Management  believes  that these  amounts  would be
negligible and subject to offset. Additionally, Geoworks and Telcordia agreed to
terminate their AirBoss value added reseller agreement early.

In a separate  transaction,  the  Company and SAIC  revised an existing  license
agreement  to grant SAIC a  non-exclusive  source  code  license to the  AirBoss
technology  and the  right  to make  derivative  works  based  on  AirBoss.  The
agreement also terminated the Company's  maintenance  obligations and eliminated
both parties' ability to terminate the agreement  early. In return,  SAIC agreed
to  transfer  1,391,440  shares  of  Geoworks  stock  back  to the  Company  for
cancellation.  The carrying value of the Company's intangible assets was reduced
by the fair value of the  liabilities  relieved  and the  Geoworks  common stock
returned in these transactions.  The Geoworks common shares returned were valued
based on the market value of Geoworks shares at August 21, 2002, the date of the
agreement.  The Board of  Directors  approved  these  transactions  based on the
recommendation of the Audit Committee.

In  addition,  the  Company  recorded  non-cash,  asset  impairment  charges  of
$3,391,000  in fiscal 2002 in order to write down  equipment  that was no longer
being used in  operations,  net of  estimated  recoveries.  These  charges  were
primarily attributable to the corporate restructurings described in Note 10.

                                       32





                              GEOWORKS CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 2004

5. ACCRUED LIABILITIES

Accrued liabilities consist of the following (in thousands):
                                             MARCH 31
                                       2004           2003
                                      --------       -------

Accrued compensation                    $ --           $231
Accrued restructuring costs               28             91
Accrued professional fees                148            152
Other accrued liabilities                 68            102
                                        ----           ----
Total                                   $244           $576
                                        ====           ====

6. INCOME TAXES

The income tax provisions of $17,000, $46,000 and $129,000 for fiscal 2004, 2003
and 2002,  respectively,  consist primarily of foreign  withholding tax payments
made with respect to royalties and maintenance  payments from original equipment
manufacturers.  The fiscal 2003 and 2002  provisions  also  include  $18,000 and
$50,000 for foreign withholding tax payments on sale of patents.

Significant  components of the  Company's net deferred  income tax assets are as
follows (in thousands):

                                                             MARCH 31,
                                                      2004               2003
                                                  -------------      -------------

Operating loss carryforwards                        $ 52,759           $ 49,652
Tax credit carryforwards                               4,932              4,932
Purchased intangible assets                           17,472             19,207
Capitalized research expenditures                      1,802              2,292
Deferred revenue                                          11                 74
                                                    --------           --------
Total deferred tax assets                             76,976             76,157
Valuation allowance on deferred tax assets           (76,976)           (76,157)
                                                    --------           --------
Net deferred tax assets                             $   --             $   --
                                                    ========           ========

The changes in the  valuation  allowance  for fiscal 2004 and 2003 were $819,000
and $2,284,000, respectively.

Deferred tax assets relating to net operating loss carryforwards as of March 31,
2004 include approximately  $4,900,000 associated with stock option activity for
which any  subsequently  recognized  tax benefits  will be credited  directly to
stockholders' equity.

As of March 31, 2004, the Company has net operating loss  carryforwards for U.S.
federal  income tax  purposes of  approximately  $132,000,000,  U.K.  income tax
purposes  of  approximately  $3,860,000,   and  state  income  tax  purposes  of
approximately  $32,000,000.  The Company also has federal and state research and
development  credit  carryforwards of  approximately  $3,426,000 and $1,506,000,
respectively. The net operating loss and the research and development tax credit
carryforwards expire in various years from 2005 through 2021.

Utilization   of  the  Company's   U.S.  net  operating   loss  and  tax  credit
carryforwards  could be subject to an annual  limitation  due to the  "change in
ownership" provisions of the Internal Revenue Code of 1986. An annual limitation
may result in the expiration of net operating loss and tax credit  carryforwards
before utilization.

                                       33





                              GEOWORKS CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 2004

7. COMMITMENTS

During fiscal 2004, the Company leased office  facilities and certain  equipment
under  operating  lease  agreements.  Lease  expense  was $3,400,  $176,000  and
$971,000  for  fiscal  2004,   2003  and  2002,   respectively.   There  are  no
noncancellable lease commitments at March 31, 2004.

In connection with the Company's January 2002 restructuring and  reorganization,
a  ten-year  operating  lease for a  facility  in  Morganville,  New  Jersey was
renegotiated and terminated in a cash and non-cash settlement totaling $767,000.
This cost has been included in restructuring charges for the quarter ended March
31, 2002. The irrevocable  standby letter of credit for $500,000 associated with
the lease was cancelled and the funds  collateralizing the letter of credit were
released  to  Geoworks  and paid to the  landlord.  In March  2002,  the Company
vacated its  facilities in Alameda,  California  and accrued  $400,000 for lease
termination costs.

In  conjunction   with   restructuring   in  2002,   various   equipment   under
non-cancelable operating leases has been returned to the respective lessors. The
potential  future lease liability would have been  approximately  $209,000 as of
March 31, 2002 under the terms of the original contracts.  The amounts estimated
by the Company to settle  these leases have been  included in the  restructuring
charges. There are no remaining lease commitments under these leases.

8. STOCKHOLDERS' EQUITY

PREFERRED STOCK

The Company's  Articles of Incorporation  authorizes the issuance of two million
shares of preferred stock, none of which is issued or outstanding.  The Board of
Directors  has  the  authority  to  issue  the  preferred   stock  with  rights,
preferences, privileges and restrictions,  including vesting rights, without any
further  vote or  action  by the  shareholders.  A total of  500,000  shares  of
Preferred Stock have been reserved for issuance under the Company's  Shareholder
Rights Plan.

SHAREHOLDER RIGHTS PLAN

On March 1, 2001,  the Board of  Directors  adopted a  Shareholder  Rights  Plan
("Rights   Plan")  pursuant  to  which  preferred  stock  purchase  rights  were
distributed  as a dividend  at the rate of one right for each share of  Geoworks
common  stock held as of March 9, 2001.  Each right will  entitle the holders of
the company's common stock to purchase one one-thousandth of a share of Series A
Junior  Participating  Preferred  Stock at an exercise price of $20,  subject to
adjustment in certain cases to prevent dilution. The rights are evidenced by the
common stock certificates and are not exercisable or transferable apart from the
common  stock  until the earlier of ten days after the date on which a person or
group of affiliated persons has acquired beneficial  ownership of 15% or more of
the common stock (an "Acquiring  Entity"),  such date as determined by the Board
of Directors after the public  announcement  of the  commencement of a bona fide
tender or exchange  offer (as  determined by the Board of Directors)  that would
result in the  Acquiring  Entity owning 15% or more of the common stock on March
9,  2011 (the  "Expiration  Date").  Further,  in the event a person or group of
affiliates  persons becomes an Acquiring  Entity,  the rights generally  entitle
each right  holder  (except the  Acquiring  Entity) to  purchase  that number of
shares of the  company's  common stock which  equals the  exercise  price of the
right divided by one-half of the current market price of the common stock if any
person  becomes the beneficial  owner of 15% or more of the common stock.  If an
Acquiring  Entity  purchases at least 15% of the Company's common stock, but has
not acquired 50%, the Board of Directors  may exchange the rights  (except those
of the Acquiring  Entity) for one share of common stock per right.  In addition,
under  certain  circumstances,  if the  Company is involved in a merger or other
business combination in which the company is not the surviving corporation,  the
rights  entitle the holder to buy common  stock of the  Acquiring  Entity with a
market value of twice the exercise price of each right.

On May 15, 2003, the Company  amended the Rights Plan to amend the definition of
Acquiring  Entity as the  Beneficial  Owner of 4.99% or more of the common stock
and the definition of Exempt Person to be the Beneficial  Owner of 4.99% or more
of common  stock as of May 9, 2003.  The purpose of the  amendment to the Rights
Agreement is to seek to prevent possible limitations on the Company's use of its
Federal net operating loss carryforwards and certain income tax credits.

                                       34





                              GEOWORKS CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 2004

8. STOCKHOLDERS' EQUITY (CONTINUED)

SHAREHOLDER RIGHTS PLAN (CONTINUED)

The  Company is  generally  entitled to redeem the rights for $.005 per right at
any time on or prior to the  earlier of the close of  business  on the tenth day
following a public announcement that a person or group of affiliated persons has
become an Acquiring Entity or the Expiration Date. The rights, which do not have
voting rights,  will expire on the Expiration Date, unless redeemed or exchanged
earlier by the Company pursuant to the Rights Plan.

STOCK OPTION PLANS

Under the Company's stock option plans, incentive and nonqualified stock options
may be granted to employees,  consultants and outside  directors,  to purchase a
maximum of 9,435,000  common shares.  The exercise price of the stock options is
determined  by the  Company's  Board of Directors on the date of grant and is at
least equal to the fair market value of the stock on the grant date. Options for
new employees generally vest monthly over a one to four year time period.

The following table summarizes activity under the Company's stock option plans:

                                                            OPTIONS OUTSTANDING
                                                         NUMBER        WEIGHTED-AVERAGE
                                                       OF SHARES        EXERCISE PRICE

Balance at March 31, 2001                               5,841,000           $   8.30
      Granted                                           4,509,000               1.31
      Exercised                                           (10,000)              1.22
      Forfeited                                        (7,327,000)              6.33
                                                       ----------           --------
Balance at March 31, 2002                               3,013,000               2.64
     Granted                                            2,879,000               0.11
     Exercised                                                 --                 --
     Forfeited                                         (2,048,000)              1.07
                                                       ----------           --------
Balance at March 31, 2003                               3,844,000               1.15
     Granted                                                   --                 --
     Exercised                                           (250,500)              0.11
     Forfeited                                         (2,518,500)              1.70
                                                       ----------           --------
Balance at March 31, 2004                               1,075,000           $   0.11
                                                       ==========           ========

Options available for grant at March 31, 2004           8,109,052
                                                        =========

The weighted  average fair value at grant date of options  granted during fiscal
2004, 2003 and 2002 was $0, $0.11 and $1.20 per share, respectively.

The following table summarizes  information concerning currently outstanding and
exercisable options:

                        OPTIONS OUTSTANDING                         OPTIONS EXERCISABLE
                 ---------------------------------------------------------------------------
                              WEIGHTED
                               AVERAGE                                             WEIGHTED
                              REMAINING          WEIGHTED                          AVERAGE
EXERCISABLE                  CONTRACTUAL          AVERAGE                           EXERCISE
  PRICES         SHARES      LIFE (YEARS)      EXERCISE PRICE       SHARES           PRICE
--------------------------------------------------------------------------------------------
  $ 0.11       1,075,000       8.20              $   0.11         1,075,000        $  0.11

                                       35





                              GEOWORKS CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 2004

8. STOCKHOLDERS' EQUITY (CONTINUED)

EMPLOYEE STOCK PURCHASE PLAN

Under the Company's  employee  stock purchase plan,  employees  meeting  certain
eligibility  criteria may purchase shares of the Company's common stock, subject
to certain limitations,  at not less than 85% of fair market value as defined in
the plan. A total of 950,000  shares have been  reserved for issuance  under the
plan. In fiscal 2004 and 2003 no shares were issued under the plan. At March 31,
2004, a total of 391,000 shares were available for issuance under the plan.

COMMON STOCK RESERVED FOR FUTURE ISSUANCE

Common stock reserved for future issuance as of March 31, 2004 is as follows:

Employee stock options outstanding                               1,075,000
Employee stock options available for grant                       8,109,052
Employee stock purchase plan shares available for grant            391,000
                                                                 ---------
Total                                                            9,575,052
                                                                 =========

OTHER

In January 2003, the Company settled a dispute  regarding a note receivable from
a  stockholder  who was  formerly  an  employee  of the  Company.  The  note was
cancelled,  the 50,000 shares of Company common stock held as collateral for the
note were returned and cancelled,  the Company was paid the interest  receivable
on the note,  and the  stockholder  and the Company agreed to release each other
from  all  claims.  The  Company  recorded  a  loss  of  approximately   $87,000
representing  the  difference  between the value of the  collateral and the face
value  of the note at the  time of the  settlement.  This  non-cash  expense  is
included  in general  and  administrative  expense  for the year ended March 31,
2003.

9. RETIREMENT PLAN

The Company has a deferred  compensation  plan for  substantially all employees.
Under this plan,  which qualifies  under Section 401(k) of the Internal  Revenue
Code,  eligible  employees  may  contribute  up to 15% of their  pretax  salary,
subject to certain limitations.  Employer contributions were $0, $0 and $179,000
during fiscal 2004, 2003 and 2002, respectively.

10. RESTRUCTURING CHARGES

In June 2001,  the Company  reorganized  its  operations,  exited the Mobile ASP
(Application  Service Provider)  market,  and accelerated the integration of its
two software  platforms,  Mobile Server+ and the AirBoss  Application  Platform,
into a single  integrated  product  offering  for  enterprise  applications.  In
connection with this  reorganization,  the Company  terminated 43 employees,  or
approximately  22% of its  workforce,  and  recorded  restructuring  charges  of
$2,291,000  for the three  months ended June 30,  2001.  Most of the  terminated
employees  were from the Alameda,  California  location.  The remaining  Alameda
employees were consolidated into a portion of the Company's Alameda facility and
the vacated portion of the facility became available for sublease.

In October 2001, the Company  implemented a number of  cost-cutting  measures to
conserve its  resources.  The Company  terminated  70  employees,  or 45% of its
workforce,  and recorded  restructuring charges of $400,000 for the three months
ended December 31, 2001.

                                       36





                              GEOWORKS CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 2004

10. RESTRUCTURING CHARGES (CONTINUED)

In  January  2002,  the  Company  announced  the  implementation  of a number of
additional cost-cutting measures to further conserve its resources.  The Company
terminated an additional 40 employees,  or 45% of its workforce  between January
and April 2002,  primarily from its AirBoss and headquarters  staff. The Company
relocated its headquarters from Alameda,  California to smaller,  less expensive
space in Emeryville,  California. As a result of the reorganization, the Company
recorded  additional  restructuring and related charges of $581,000 in the three
months ended March 31, 2002 and announced changes in its management and Board of
Directors.

The  restructuring  charges  consist of  severance  payments  to the  terminated
employees,  accrual for related contract termination costs (related primarily to
computer hosting capacity for the Mobile ASP business) and the lease termination
costs as a result of these actions.

The following table summarizes the restructuring activity (in thousands):

                                                       SEVERANCE           LEASE         CONTRACT
                                                      AND RELATED      TERMINATION      TERMINATION
                                                        CHARGES            COSTS             COSTS             TOTAL
                                                      ---------------------------------------------------------------
Total restructuring expense for 2002                    $ 1,713           $ 1,388           $   171           $ 3,272
Amounts paid                                             (1,160)             (664)             --              (1,824)
Assets written-off                                           --              (214)             --                (214)
                                                        -------------------------------------------------------------
Balance, March 31, 2002                                 $   553           $   510           $   171           $ 1,234
Amounts paid                                               (456)             (510)              (80)           (1,046)
Reversal of accruals from settlement agreement              (97)               --              --                 (97)
                                                        -------------------------------------------------------------
Balance, March 31, 2003                                      --                --                91                91
Amounts paid                                                 --                --               (63)              (63)
                                                        -------------------------------------------------------------
Balance, March 31, 2004                                 $    --           $    --           $    28           $    28
                                                        =============================================================

The reversal of severance  charges  occurred during the fourth quarter of fiscal
2003  when  the  liability  to a  former  CEO was  reduced  per the  terms  of a
settlement agreement.

Asset impairment charges resulting from these restructuring  actions are further
described in Note 1.

                                       37





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

None.

ITEM 9A.    CONTROLS AND PROCEDURES

Disclosure  controls  are  procedures  that are designed  with the  objective of
ensuring  that  information  required to be disclosed in the  Company's  reports
under the Exchange Act,  such as this Form 10-K, is reported in accordance  with
the SEC's rules.  Disclosure  controls are also  designed  with the objective of
ensuring that such  information is accumulated  and  communicated to management,
including the Chief Executive Officer and Chief Financial Officer as appropriate
to allow timely decisions regarding required disclosure.

As of the end of the period covered by this Form 10-K,  the Company  carried out
an evaluation under the supervision and with the  participation of the Company's
management,  including the Company's Chief Executive Officer and Chief Financial
Officer,  of the  effectiveness  of the design and  operation  of the  Company's
disclosure  controls and procedures pursuant to Exchange Act Rules 13a-15(e) and
15d-15(e).  Based on this  evaluation,  the Chief  Executive  Officer  and Chief
Financial  Officer  concluded  that  the  Company's   disclosure   controls  and
procedures are effective for gathering, analyzing and disclosing the information
the Company is  required to disclose in the reports it files under the  Exchange
Act, within the time periods  specified in the SEC's rules and forms.  The Chief
Executive  Officer and Chief Financial Officer also concluded that the Company's
disclosure  controls and  procedures  are  effective in timely  alerting them to
material  information  relating  to the  Company  required to be included in the
Company's periodic SEC filings. In connection with the new rules, the Company is
in the process of further reviewing and documenting its disclosure  controls and
procedures,  including  its  internal  controls  and  procedures  for  financial
reporting,  and may from time to time make  changes  designed  to enhance  their
effectiveness and to ensure that the Company's systems evolve with its business.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.

Certifications  of the  Chief  Executive  Officer  and Chief  Financial  Officer
regarding, among other items, disclosure controls and procedures are included as
exhibits to this Form 10-K.

                                       38





PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Biographical Information for Directors

The  names  of the  members  of the  Board of  Directors  (the  "Board")  of the
"Company" as of August 2, 2004, and certain information about them are set forth
below.

                                                                                 Director
      Name            Age            Position with the Company                    Since
      ----            ---            -------------------------                    -----

Mark E. Schwarz        43     Chief Executive Officer, President and Director    May 2003

Steve W. Mitchell      42     Director                                           April 2002

Steven J. Pully        44     Executive Vice President, General Counsel,         May 2003
                              Secretary and Director

MARK E. SCHWARZ.  Mr. Schwarz joined the Board in May 2003. As of May 2003 until
the present,  Mr. Schwarz has been serving as the Company's  President and Chief
Executive  Officer.  Since 1993, Mr. Schwarz has served,  directly or indirectly
through  entities he  controls,  as the sole  general  partner of  Newcastle,  a
private  investment  firm. Since 2000, he has also served as the Chief Executive
Officer of Newcastle Capital Management,  L.P., a private investment  management
firm.  From 1995 until 1999,  Mr.  Schwarz was also a Vice  President of Sandera
Capital Management,  L.L.C., a private investment firm associated with the Lamar
Hunt  family.  Mr.  Schwarz  presently  serves as Chief  Executive  Officer  and
Chairman of the Board of  Hallmark  Financial  Services,  Inc.,  a property  and
casualty insurance  company.  Mr. Schwarz also presently serves as a director of
Bell Industries, Inc., a company primarily engaged in providing computer systems
integration  services;  Nashua Corporation,  a manufacturer of specialty papers,
labels and printing  supplies;  Pizza Inn,  Inc., an operator and  franchisor of
pizza restaurants;  SL Industries,  Inc., a developer of power systems used in a
variety  of  aerospace,   computer,  datacom,   industrial,   medical,  telecom,
transportation and utility equipment applications;  WebFinancial Corporation,  a
banking and specialty  finance  company,  Pinnacle  Frames and Accents,  Inc., a
private  company  engaged in mass  production of picture frame  products and New
Century Equity Holdings Corp., an investment holding company.

STEVE W. MITCHELL.  Mr. Mitchell joined the Board in April 2002. From April 2002
through  April 2003,  Mr.  Mitchell  served as the  Company's  President,  Chief
Executive Officer and Director. Mr. Mitchell joined the Company in November 2000
as Vice  President of Human  Resources.  From  January  1999 to April 2002,  Mr.
Mitchell served as chief operating  officer for Aureal Inc., a semiconductor and
software firm  specializing in 3-D audio for the PC industry.  From June 1993 to
November  1998,  Mr.  Mitchell  held  various  management  positions  at  Nextel
Communications,  a telecommunications  company, where he was involved in driving
and  supporting  the  rapid  growth  of the  company  and  was  responsible  for
integration efforts with several acquisitions.  Mr. Mitchell also had management
recruiting   responsibilities   at  Pacific  Gas  and  Electric  and  Management
Recruiters  International.  Mr.  Mitchell  holds  a B.A.  in  English  from  the
California State University at Hayward.

STEVEN J. PULLY.  Mr. Pully joined the Board in May 2003.  Since June 2003,  Mr.
Pully has  served as the  Company's  Secretary,  Executive  Vice  President  and
General  Counsel.  Mr. Pully has served as the  president  of Newcastle  Capital
Management,  L.P., a private investment  management firm since January 2003; and
is currently a director of Pizza Inn,  Inc., an operator and franchisor of pizza
restaurants,  and  privately-held  Pinnacle Frames and Accents,  Inc., a company
engaged in mass  production of picture frame  products.  Since June 2004, he has
served as the Chief  Executive  Officer  and a Director  of New  Century  Equity
Holdings Corp., an investment holding company. Prior to becoming affiliated with
Newcastle  Capital  Management,  L.P., from May 2000 to December 2001, Mr. Pully
was a managing  director in the mergers and  acquisitions  department of Banc of
America  Securities  and from  January  1997 to May  2000 was a senior  managing
director at Bear  Stearns.  Prior to becoming an  investment  banker,  Mr. Pully
practiced  securities and corporate law at Baker & Botts. Mr. Pully is a CPA and
a member of the Texas Bar. He graduated with a BSBA from  Georgetown  University
and a J.D. from The University of Texas.

                                       39





In January 2003, the following directors of the Company resigned from the Board:
Mr. John B. Balousek,  Mr. Frank S. Fischer,  Mr. Stephen T. Baker and Mr. James
M. Judge. In connection with these resignations and recognizing that the Company
was no longer required to comply with Nasdaq's  continued listing standards as a
result of the delisting of the Company's  common stock from the Nasdaq  National
Market System and the Nasdaq SmallCap Market,  the Board deemed it was advisable
and in the best  interest of the Company and its  stockholders  to terminate the
Compensation  and Audit Committees of the Board and to conduct all businesses of
the Board at the Board level.  Board  members Mr. David J. Domeier and Mr. David
L. Grannan resigned from the Board on April 30, 2003.

Effective  April 30, 2003,  in  connection  with the sale of our common stock to
Newcastle (the "Stock Sale") and Mark E. Schwarz,  Mr.  Mitchell  agreed to step
down from his position as President and Chief Executive  Officer of the Company.
Mr. Mitchell continues to serve on the Board. Although the Company does not have
an audit  committee,  Mr.  Mitchell  acts as the  financial  expert on the Board
because of his professional experience and knowledge of the books and records of
the Company.


Biographical Information for Other Executive Officers

The following table sets forth the name, age and position of the other executive
officer  of the  Company  as of  August 2, 2004 of the  Company.  The  Company's
executive officers are appointed by and serve at the discretion of the Board.

Name                             Age               Position
----                             ---               --------

John P. Murray                    35               Vice President and Chief
                                                   Financial Officer

JOHN P. MURRAY has been Chief  Financial  Officer of the Company since May 2003.
Mr. Murray has also served as the Chief Financial  Officer of Newcastle  Capital
Management,  L.P., a private investment management firm which is an affiliate of
Newcastle  Partners,  L.P.,  since January 2003, and New Century Equity Holdings
Corp., an investment  holding company,  since June 2004. From January 1998 until
June 2001, Mr. Murray served as a partner at Speer & Murray, Ltd, a Dallas based
accounting  firm. From October 1991 until November 1995, Mr. Murray served as an
accountant  with Ernst & Young,  LLP.  Mr.  Murray has been a  Certified  Public
Accountant since January 1992.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act, as amended,  requires the Company's  officers
and directors,  and persons who own more than ten percent of a registered  class
of the Company's equity  securities,  to file reports of ownership on Form 3 and
changes  in  ownership  on Form 4 or Form 5 with  the  SEC.  Such  officers  and
directors  and 10%  stockholders  are also  required by SEC rules to furnish the
Company with copies of all Section 16(a) forms they file.

Based  solely on its  review  of the  copies of such  forms  received  by it, or
written  representations  from certain reporting  persons,  the Company believes
that during the fiscal year ended March 31, 2004,  there was compliance with the
Form 3,  Form 4 and  Form 5  filing  requirements  applicable  to its  officers,
directors and 10% stockholders.

CODE OF ETHICS

The Company has not yet adopted a code of ethics that  applies to our  principal
executive officers, principal financial officer, principal accounting officer or
controller,  or persons performing similar functions,  due to the relatively low
level of activity in the Company.  At a later time,  the Board of Directors  may
adopt such a code of ethics.

                                       40





ITEM 11.    EXECUTIVE COMPENSATION.

The  following  table sets  forth  annual  compensation  received  for  services
rendered to the Company for the last three  fiscal  years ended March 31,  2002,
2003 and 2004 by the Chief Executive Officer and each of the following executive
officers  (collectively,  the "Named  Executive  Officers")  who served with the
Company during the fiscal year ended March 31, 2004 (the "Last Fiscal Year").

Summary Compensation Table
--------------------------------------------------------------------------------

                                                                                                                 LONG-TERM
                                                                             ANNUAL COMPENSATION               COMPENSATION
                                                                                                                  AWARDS
                                                                                                                 NUMBER OF
                                                                                                                 SECURITIES
                                                                                                                 UNDERLYING
                                                                                                                  NUMBER OF
                                                FISCAL                                     401(K) MATCHING
    NAME AND PRINCIPAL POSITION                  YEAR        SALARY ($)    BONUS($)(1)      CONTRIBUTIONS($)      OPTIONS(#)(2)
    ---------------------------                 ------       ----------    -----------      ----------------      -------------

Mark E. Schwarz (3)                               2004       $     0         $      0          $         0                    0
President and Chief Executive Officer             2003       $     0         $      0          $         0                    0
                                                  2002       $     0         $      0          $         0                    0

Steve W.  Mitchell (4)                            2004       $   99,117      $       0         $         0                    0
Former President and Chief Executive Officer      2003       $  180,707      $    60,000       $         0             500,000
                                                  2002       $  145,000      $    29,084       $      3,756            150,000

John P. Murray (5)                                2004       $   15,625      $       0         $         0                    0
Vice President and Chief Financial Officer        2003       $    0          $       0         $         0                    0
                                                  2002       $    0          $       0         $         0                    0

Steven J. Pully (6)                               2004       $    0          $       0         $         0                    0
Secretary and General Counsel                     2003       $    0          $       0         $         0                    0
                                                  2002       $    0          $       0         $         0                    0
-------------------------------------------------------------------------------------------------------------------------------
(1)   Includes  regular  cash bonuses  earned for the Last Fiscal Year,  whether
      accrued or paid.

(2)   Mr. Mitchell was granted 500,000 of stock options,  with an exercise price
      of $.11 per share, in June 2002.

(3)   In May 2003,  Mr.  Schwarz was appointed to President and Chief  Executive
      Officer and joined the Board.

(4)   Mr.  Mitchell  joined the Company in November  2000 as Vice  President  of
      Human  Resources.  Mr.  Mitchell  was  promoted  to  President  and  Chief
      Executive Officer and joined the Board in April 2002.  Effective April 30,
      2003, in connection  with the Stock Sale, Mr. Mitchell agreed to step down
      from his position as President and Chief Executive  Officer.  He continues
      to serve on the Board.

(5)   In May 2003, Mr. Murray was appointed  Vice President and Chief  Financial
      Officer.

(6)   In May 2003,  Mr. Pully was appointed  Secretary  and General  Counsel and
      joined the Board.

                                       41





Option Grants in Last Fiscal Year

None of the Company's Named  Executive  Officers were granted any options during
the fiscal year ended March 31, 2004.

The following  table provides  information  with respect to the Named  Executive
Officers' unexercised options at March 31, 2004.

                                                      NUMBER OF SECURITIES
                        SHARES                       UNDERLYING UNEXERCISED        VALUE OF UNEXERCISED IN-THE-
                       ACQUIRED                         OPTIONS AT FISCAL           MONEY OPTIONS AT FISCAL
                          ON         VALUE                  YEAR-END                         YEAR-END
     NAME              EXERCISE    REALIZED($)    EXERCISABLE    UNEXERCISABLE    EXERCISABLE    UNEXERCISABLE
     ----              --------    -----------    -----------    -------------    -----------    -------------
                        (#)           (1)             (#)             (#)             (#)              (#)
                        ---           ---             ---             ---             ---              ---

Mark E. Schwarz          --        $     --           --              --           $     --        $      --
Steve W. Mitchell        --        $     --        500,000            --           $      0        $      0
John P. Murray           --        $     --           --              --           $     --        $      --
Steven J. Pully          --        $     --           --              --           $     --        $      --

(1) No options were exercised by Named Executive Officers during the Last Fiscal
Year.

The Company does not have any Long Term Incentive Plans.

Employment Contracts, Terms of Employment and Change in Control Arrangements

In May 2003, in accordance  with the Company's  severance  policy and employment
agreements,  Mr.  Mitchell was paid  $85,000,  as a result of the changes in the
Board and management that resulted from the Stock Sale.

Chief Executive Officer Compensation

As Chief  Executive  Officer,  Mr. Schwarz  currently has no annual salary.  Mr.
Schwarz is entitled,  at the  discretion of our Board,  to  performance  bonuses
which may be based  upon a variety of factors  and to  participate  in our stock
incentive plans and other bonus plans adopted by us based on his performance and
the Company's performance.

Change in Control Arrangements

On June 11, 2002, the Company granted 2,879,000 options. 250,500 of such options
were  exercised  and  1,553,500 of such options  expired.  Each of the remaining
1,075,000  options  granted on June 11, 2002  provides  that 50% of the unvested
portion of the option  will vest in full upon a Change of  Control  (as  defined
below) and the  remainder  of the option will vest in full in the event that the
optionee's employment with the Company is terminated upon the Change of Control.

As defined in each of the new options, "Change of Control" means:

A merger or consolidation  in which  securities  possessing more than 50% of the
total  combined  voting  power  of  the  Company's  outstanding  securities  are
transferred  to one or more  persons  who were not  stockholders  of the Company
immediately before such merger or consolidation; or

The sale,  transfer  or other  disposition  of all or  substantially  all of the
Company's assets.

A transaction shall not constitute a Change of Control if its sole purpose is to
change the Company's state of  incorporation or to create a holding company that
will be owned in substantially  the same proportions by the persons who held the
Company's securities immediately before such transaction.

                                       42





Director Compensation

The  Company  provides  cash  compensation  of $1,000 per quarter to each of its
non-employee  directors for service as directors and has reimbursed their travel
expenses for  attending  meetings.  Non-employee  directors are also eligible to
receive  discretionary  stock option grants under the Company's 1994 Stock Plan.
During the Last  Fiscal  Year,  the  Company's  non-employee  directors  did not
receive any discretionary stock option grants.

Compensation Committee Interlocks and Insider Participation

As previously  discussed,  as a result of the delisting of the Company's  common
stock from the Nasdaq National Market System and the Nasdaq SmallCap Market, and
the  resignation  of four members of the Board in January 2003, the Board deemed
it was advisable and in the best interest of the Company and its stockholders to
terminate the Compensation  Committee of the Board and to conduct all businesses
of the Board at the Board level.

                                       43






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

The  following  table  sets  forth  certain  information  known  to the  Company
regarding the beneficial ownership of the Company's common stock as of August 2,
2004, by (a) each  stockholder who is known by the Company to  beneficially  own
more than 5% of the Company's  common stock,  (b) the Company's  Chief Executive
Officer and the Named Executive Officers,  (c) each director of the Company, and
(d) all current  directors and executive  officers of the Company as a group. To
the Company's knowledge,  except as otherwise indicated in the footnotes to this
table,  each person has sole  voting and  investment  power with  respect to all
shares shown as beneficially  owned by them,  subject to community property laws
where applicable.  The percentages in the column entitled  "Percentage of Common
Stock  Outstanding" were determined using 29,869,808 shares of common stock, the
number of outstanding shares of common stock on August 2, 2004.

                                      SHARES BENEFICIALLY       PERCENTAGE OF COMMON
    BENEFICIAL OWNER                         OWNED                STOCK OUTSTANDING
    ----------------                         -----                -----------------

Newcastle Partners, L.P.                  3,788,952                  12.68%
Mark E. Schwarz (1)                       7,477,905                  25.03%
Steve W. Mitchell (2)                       500,000                   1.67%
John P. Murray                                    0                      0
Steven J. Pully                                   0                      0
All directors and executive officers      7,977,905                  26.71%
as a group (4 persons)(3)

(1)  Includes  3,788,952  shares owned by Newcastle  Partners,  L.P.,  which Mr.
Schwarz  may be  deemed  to  beneficially  own as the sole  general  partner  of
Newcastle  Partners,  L.P., directly or indirectly through entities he controls.
Mr.  Schwarz  disclaims  beneficial  ownership  of the shares owned by Newcastle
Partners, L.P., except to the extent of his pecuniary interest therein.

(2) Represents  500,000  shares  issuable upon the exercise of options that were
exercisable as of August 2, 2004.

(3)  Includes  500,000  shares  issuable  upon  exercise  of  options  that were
exercisable as of August 2, 2004.  Includes  3,788,952 shares owned by Newcastle
Partners, L.P.

       DISCLOSURE WITH RESPECT TO THE COMPANY'S EQUITY COMPENSATION PLANS

The following table gives  information  about the existing  equity  compensation
plans  as  of  March  31,  2004,  including,  the  1994  Stock  Plan,  the  1996
Supplemental  Plan  (the  "1996  Plan")  and the 1997  Supplemental  Plan for UK
Employees (the "UK Plan"), collectively referred to as the "Plans".

                                        (a)                          (b)                             (c)
                                                                                                     Number of securities remaining
                                        Number of securities to      Weighted-average exercise       available for future issuance
                                        be issued upon exercise         price of outstanding        under equity compensation plans
          Plan Category                 of outstanding options,              options,             (excluding securities reflected in
                                          warrants and rights          warrants and rights                    column (a))

Plan Approved by Stockholders                   750,000                       $0.11                         4,658,947
Plans Not Approved by Stockholders              325,000                       $0.11                         3,450,105
Total                                         1,075,000                       $0.11                         8,109,052


                                       44






The 1996 Plan and the UK Plan

In 1996  and  1997,  the  Board  approved  the 1996  Plan  and the UK Plan  (the
"Non-Stockholder Approved Plans"),  respectively.  These Plans were not required
to be and were not approved by the  Company's  stockholders.  The purpose of the
Non-Stockholder  Approved  Plans is to attract  and  retain  the best  available
personnel for positions of substantial  responsibility and to provide additional
incentives.  Under the 1996 Plan,  grants may be made to officers,  employees or
consultants  of the  Company.  Grants  may not be made  under  the 1996  Plan to
members  of the  Company's  Board.  Under  the UK  Plan,  grants  may be made to
employees or  consultants  of the  Company.  Grants may not be made under the UK
Plan to members of the Company's  Board.  Each of the  Non-Stockholder  Approved
Plans  authorizes  the grant of  non-qualified  stock  options with terms not to
exceed ten years from the date of grant. Historically, options granted under the
Non-Stockholder  Approved Plans vested ratably over a four-year period beginning
at the grant date and  expired ten years from the date of grant;  however,  as a
result of the grants made in June 2002, all of the outstanding options under the
Non-Stockholder  Approved Plans vest over a twelve-month period beginning on the
date of grant.  The Board may amend or terminate  the  Non-Stockholder  Approved
Plans without stockowner approval,  but no amendment or termination of either of
the  Non-Stockholder  Approved Plans may adversely  affect any award  previously
granted under the plan without the written consent of the award recipient.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  Company  has  entered  into  indemnification  agreements  with  each of its
directors  and  executive  officers.  These  agreements  require  the Company to
indemnify such  individuals to the fullest extent  permitted by Delaware law for
certain  liabilities  to which  they may  become  subject  as a result  of their
affiliation with the Company.  As a matter of policy,  all transactions  between
the Company and any of its  officers,  directors or principal  stockholders  are
approved by a majority of the  disinterested  members of the Board,  on terms no
less  favorable to the Company than could be obtained  from  unaffiliated  third
parties and must serve the bona fide business purposes of the Company.

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

Novogradac & Company LLP served as Geoworks  Corporation's  independent  auditor
for the fiscal years ended March 31, 2004 and 2003.

AUDIT FEES:

The aggregate  fees billed for each of the last two fiscal years ended March 31,
2004 and March 31,  2003 for  professional  services  rendered by  Novogradac  &
Company LLP for the audit of the annual financial  statements of the Company and
the review of the financial  statements included in the Company's Forms 10-Q for
such fiscal years were approximately $34,650 and $30,000, respectively.

AUDIT-RELATED FEES:

No  audit-related  fees were billed for each of the last two fiscal  years ended
March 31, 2004 and March 31, 2003 by  Novogradac & Company  LLP,  other than the
fees reported above.

TAX FEES:

No tax fees were  billed for each of the last two fiscal  years  ended March 31,
2004 and  March  31,  2003 by  Novogradac  & Company  LLP,  other  than the fees
reported above.

ALL OTHER FEES:

No fees were  billed for each of the last two fiscal  years ended March 31, 2004
and March 31, 2003 for products and services of Novogradac & Company LLP,  other
than the fees reported above.

Before  Novogradac  & Company  LLP was  engaged by the  Company to render  audit
services,  the engagement was approved by the Company's Directors.  The Board of
Directors approved in advance any and all audit services provided to the Company
by its independent auditors as required by applicable law.

                                       45





PART IV

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

(a)         Financial Statements and Financial Statement Schedules

            1. FINANCIAL STATEMENTS.

               The following  Consolidated  Financial Statements of Geoworks and
               Report of  Independent  Auditors  are  included in Item 8 of this
               report on Form 10-K.

               Report of Independent Auditors

               Consolidated Balance Sheets

               Consolidated Statements of Operations

               Consolidated Statements of Stockholders' Equity

               Consolidated Statements of Cash Flows

               Notes to Consolidated Financial Statements

            2. FINANCIAL STATEMENT SCHEDULES.

               All schedules are omitted, because they are not required, are not
               applicable,  or the  information is included in the  consolidated
               financial statements and notes thereto.

            3. EXHIBITS.

               The following  exhibits are filed as part of, or  incorporated by
               reference into, this report on Form 10-K:

               EXHIBIT NUMBER /DESCRIPTION OF DOCUMENT

3.1a        Certificate  of   Incorporation   of  Registrant   (incorporated  by
            reference to Exhibit 3.01 to  Registrant's  report on Form 8-K filed
            October 27, 1997.)

3.1b        Certificate  of Amendment of  Certificate  of  Incorporation  of the
            Registrant,  filed November 3, 2000,  with the Secretary of State of
            the State of Delaware (incorporated by reference to Exhibit 3.1.a to
            Registrant's  report  on Form  10-Q  filed  for the  quarter  ending
            September 30, 2000 on November 14, 2000.)

3.1c        Certificate  of  Designations  of  Series  A  Junior   Participating
            Preferred  Stock of the  Registrant,  filed March 12, 2001, with the
            Secretary  of  State  of the  State  of  Delaware  (incorporated  by
            reference to Exhibit 1 to the Registrant's registration statement on
            Form 8-A, filed March 12, 2001.)

3.2a        Bylaws of the  Registrant  (incorporated  by reference to Exhibit to
            Registrant's report on Form 8-K filed October 27, 1997.)

3.2b        Amendment  to Bylaws of the  Registrant  to separate  the  executive
            positions of Chief Executive Officer and President  (incorporated by
            reference to Exhibit 4.1 on Form 10-Q filed on February 14, 2001.)

4.1a        Shareholder  Rights  Plan,  dated as of March 9, 2001,  between  the
            Registrant and Mellon Investor  Services,  L.L.C.  (incorporated  by
            reference to Exhibit 1 to the Registrant's registration statement on
            Form 8-A, filed March 12, 2001.)

4.1b        Amendment  to  Shareholder  Rights  Plan,  dated as of May 15, 2003,
            between  the  Registrant  and  Mellon  Investor   Services,   L.L.C.
            (incorporated  by  reference  to  Exhibit  4.1 to  the  Registrant's
            registration statement on Form 8-K, filed May 15, 2003.)

                                       46





4.1c        Specimen Stock Certificate (incorporated by reference to Exhibit 4.1
            to  Registrant's  Registration  Statement  on  Form  S-1  (File  No.
            33-78104), effective June 22, 1994.)

10.1        Form of Indemnification Agreement between the Registrant and each of
            its officers  and  directors  (incorporated  by reference to Exhibit
            10.1 to  Registrant's  report  on Form  10-Q for the  quarter  ended
            September 30, 1997.)

10.2        1994 Stock Plan, as amended  through May 27, 1997  (incorporated  by
            reference to Exhibit 4.03 to Registrant's  Registration Statement on
            Form S-8 (File No. 333-39863) filed November 10, 1997.)*

10.3        Form of Stock Option Agreement under the 1994 Stock Plan.*

10.4        Employee  Stock  Purchase  Plan and Form of  Subscription  Agreement
            (incorporated   by  reference   to  Exhibit  10.4  to   Registrant's
            Registration  Statement on Form S-1 (File No.  33-78104),  effective
            June 22, 1994.)*

10.5        Supplemental   Stock   Option   Plan   effective   August   5,  1996
            (incorporated   by   reference   to  Exhibit   4.1  filed  with  the
            Registrant's  Registration  Statement  on Form S-8  filed  August 5,
            1996.) *

10.6        Form of Stock Option Agreement under the  Supplemental  Stock Option
            Plan   (incorporated   by   reference  to  Exhibit  4.2  filed  with
            Registrant's  Registration  Statement  on Form S-8  filed  August 5,
            1996.) *

10.7        1997 Supplemental  Stock Plan  (incorporated by reference to Exhibit
            4.1 to Registrant's  Registration  Statement on Form S-8 filed March
            25, 1997.)*

10.8        Form of Stock Option  Agreement  under the 1997  Supplemental  Stock
            Plan  (incorporated  by  reference  to Exhibit  4.2 to  Registrant's
            Registration Statement on Form S-8 filed March 25, 1997.) *

10.11       Agreement for Software Development Subcontracting, dated November 4,
            1999,  between  Nokia Mobile  Phones Ltd.  and Geoworks  Corporation
            (incorporated  by reference to exhibit 10.29 to Registrant's  report
            on Form 10-Q for the quarter ended December 31, 1999.) ###

10.12       Intellectual Property Assignment Agreement dated March 15, 2002 with
            Access Co., Ltd.  (incorporated by reference to Exhibit 10.12 to the
            Registrant's report on Form 10K for the year ended March 31, 2002.)

10.13       Lease dated December 30, 1993 for facilities located at 960 Atlantic
            Avenue,  Alameda,  California  (incorporated by reference to Exhibit
            10.16 to Registrant's  Registration  Statement on Form S-1 (File No.
            33-78104), effective June 22, 1994.)

10.14       Settlement  Agreement and Release dated May 31, 2002 between Alameda
            Real Estate  Investments,  a  California  limited  partnership,  and
            Geoworks Corporation  (incorporated by reference to Exhibit 10.12 to
            the  Registrant's  report on Form 10K for the year  ended  March 31,
            2002.)

10.15       Lease dated  November  21, 2000  between  Toubin  Realty II, LLC and
            Geoworks  (incorporated  by reference to Exhibit  10.27 on Form 10-K
            for the year ended March 31, 2001 filed June 29, 2001.)

10.16       Termination  of Lease dated March 27, 2002 between Toubin Realty II,
            LLC,   First   Washington   State  Bank  and  Geoworks   Corporation
            (incorporated  by  reference  to Exhibit  10.16 to the  Registrant's
            report on Form 10K for the year ended March 31, 2002.)

10.17       Exhibit 1, 2 & 3 to the Joint  motions to terminate  proceedings  in
            the US  District  Court and the ITC.  The  exhibits  constitute  the
            publicly  filed  versions  of  the   settlement   between   Geoworks
            Corporation and Openwave Systems Inc.,  formally  Phone.com  entered
            into December 28, 2000  (Incorporated  by reference to Exhibit 10.35
            to  Registrant'  Report Form 10Q for the quarter ended  December 31,
            2000 filed on February 14, 2001.) ###

10.18       Mutual Release between Teleca and Geoworks dated February 1, 2003.

10.19       Exchange  Agreement  between Teleca and Geoworks Ltd. dated February
            1, 2003.

                                       47





10.20       Settlement  Agreement and Mutual General  Release  between  Geoworks
            Corporation  and Geoworks  Ltd. and Donald G. Ezzell and DGE Capital
            Group dated January 8, 2003.

10.21       Stock Purchase  Agreement  dated as of April 30, 2003 by and between
            Newcastle Partners,  L.P., Mark E. Schwarz and Geoworks  Corporation
            (incorporated by reference to Exhibit 99.2 from the Form 8-K/A dated
            April 30, 2003.)

10.22       Letter   agreement   dated   August   2,  2002   between   Telcordia
            Technologies,   Inc.  and  Geoworks  Corporation   (incorporated  by
            reference  to  Exhibit  10.20  from  Form 10Q for the  period  ended
            6/30/02.)

10.23       Amended License  Agreement by and between  Geoworks  Corporation and
            Science Applications  International,  dated August 23, 2002 filed as
            an exhibit to Form 8-K on August 29, 2002 (incorporated by reference
            to Exhibit 10.2 from the Form 10Q for the period ending 9/30/02.)

21.1        List of Subsidiaries  (incorporated  by reference to Exhibit 21.1 to
            Registrant's  Form 10-K for the year ended  March 31,  2001 filed on
            July 2, 2001.)

23.1        Consent of Novogradac & Company LLP.

23.2        Consent of Ernst & Young LLP

24.1        Power of Attorney (see Page 49)

31.1        Section 302 Certification of Principal Executive Officer.

31.2        Section 302 Certification of Principal Financial Officer.

32.1        Section 906 Certification of Principal Executive Officer.

32.2        Section 906 Certification of Principal Financial Officer.

###         Confidential treatment has been granted as to portions thereof

*           Management contract or compensatory plan or arrangement

(b)             Reports on Form 8-K.

            There  were no reports  on Form 8-K were  filed  during the  quarter
            ended March 31, 2004:

(c)             Exhibits.

                See Item 15 (a) 3 above.

(d)             Financial Statement Schedules.

                See Item 15 (a) 2 above

                                       48





SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned thereunto duly authorized.


Date: August 12, 2004

                                        GEOWORKS CORPORATION



                                        By: /s/ Mark E. Schwarz
                                            -----------------------
                                            Mark E. Schwarz
                                            President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE  PRESENTS,  that each person whose  signature  appears
below  constitutes and appoints Mark E. Schwarz and Steven J. Pully each of them
acting  individually,  as such  person's true and lawful  attorneys-in-fact  and
agents,  each with full power of substitution,  for such person,  in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this report on Form 10-K, and to file the same, with all exhibits thereto and
other  documents  in  connection  therewith,  with the  Securities  and Exchange
Commission,  granting unto said  attorneys-in-fact and agents, and each of them,
full  power  and  authority  to do and  perform  each and  every  act and  thing
requisite  and  necessary to be done in  connection  therewith,  as fully to all
intents  and  purposes  as such  person  might  or could  do in  person,  hereby
ratifying and confirming all that said  attorneys-in-fact  and agents, or any of
them, or their or his or her  substitutes,  may do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated.

SIGNATURE                         TITLE                                DATE


/s/ Mark E. Schwarz           President,  Chief Executive  Officer,    August 12, 2004
-------------------           and Director (Principal Executive
Mark E. Schwarz               Officer)

/s/ Steven J. Pully           Director and Secretary                   August 12, 2004
-------------------
Steven J. Pully

/s/ Steve W. Mitchell         Director                                 August 12, 2004
---------------------
Steve W. Mitchell

/s/ John P. Murray            Chief Financial Officer                  August 12, 2004
------------------            (Principal Financial Officer)
John P. Murray

                                       49`