Press Release

PalmSource Reports Fiscal First Quarter Results

• First quarter revenue of $15.8 million
• First quarter GAAP loss per share of ($0.12)
• First quarter non–GAAP earnings per share (EPS) of $0.01

SUNNYVALE, California, September 21, 2005 – PalmSource, Inc. (NASDAQ: PSRC), today announced results for its fiscal first quarter ended September 2, 2005. Revenue for the first quarter of 2006 was $15.8 million, as compared to $18.2 million reported in the year ago quarter. Gross margin was 93 percent, roughly flat with the year ago quarter. GAAP net loss was ($2.0) million or ($0.12) per share, as compared to a GAAP net loss of ($0.2) million or ($0.01) per share reported in the year ago quarter.

Non–GAAP net income for the quarter was approximately $0.2 million or $0.01 per share, as compared to non–GAAP net income of $0.8 million or $0.06 per share in the year ago quarter. Non–GAAP net income and EPS for the first quarter of 2006 excluded approximately $1.5 million for stock–based compensation expense, $0.5 million for costs associated with the Company's merger agreement with ACCESS Co., Ltd., (Tokyo Stock Exchange: 4813) announced on September 8, 2005 and $0.2 million for amortization of purchased intangible assets.

During the first quarter, PalmSource executed on its previously announced restructuring plan in its product development and sales groups and implemented the cost cutting initiatives designed to improve operating performance. This led to reduced operating expenses and contributed to sequentially higher operating margins when compared to the fiscal fourth quarter of 2005.

GAAP loss per share for the first quarter of 2006 was calculated using basic shares outstanding of 16.1 million, while non–GAAP EPS were calculated using diluted shares outstanding of 16.2 million shares. GAAP loss per share for the first quarter of 2005 was calculated using basic shares outstanding of 14.3 million shares, while non–GAAP EPS were calculated using diluted shares outstanding of 14.5 million shares.

Palm OS licensees reported shipping a total of approximately 1.2 million units during the quarter, of which 44 percent were smartphones or wireless handhelds and 56 percent were traditional PDA's and other mobile handheld devices. This compares to a total of approximately 1.4 million units shipped in the first quarter of fiscal 2005, of which 21 percent were smartphones and 79 percent were PDA's and other mobile handheld devices.

Due to the recently announced expected acquisition of PalmSource by ACCESS Co., Ltd., PalmSource will not be holding a quarterly earnings conference call.

About PalmSource
PalmSource, Inc., the company behind Palm OS®, a leading operating system powering smart mobile devices, is a leading developer of software for mobile phones and other mobile devices. Its products include a wide range of software for mobile phones at all price points. More than 41 million mobile phones, handhelds, and other mobile devices run PalmSource software. Palm OS has given rise to a large community of users, enterprises, developers and manufacturers, who together make up the Palm Powered™ Economy. More information about PalmSource is available at www.palmsource.com, www.palmsource.co.uk, www.palmsource.fr, www.palmsource.de, www.palmsource.com/es and www.palmsource.com.cn.

Cautionary Note Regarding Forward–Looking Statements: This press release contains forward–looking statements that involve risks and uncertainties, as well as assumptions that if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward–looking statements. Such forward–looking statements include, without limitation, statements regarding our efforts to improve our operating performance. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward–looking statements include, without limitation, the effectiveness of our cost cutting initiatives and our ability to improve profitability while retaining our work force; our ability to obtain stockholder approval and consummate our proposed merger with ACCESS Co., Ltd. and the expenses associated therewith, and other risks and uncertainties contained in our public announcements, reports to stockholders and other documents filed with and furnished to the Securities and Exchange Commission, including our Annual Report on Form 10–K for the fiscal year ended June 3, 2005. All forward–looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update these forward–looking statements.

Additional information and where to find it
This communication may be deemed to be solicitation material in respect of the proposed acquisition of PalmSource by ACCESS. PalmSource expects to file a Proxy Statement and PalmSource and ACCESS expect to file other relevant documents concerning the transaction with the Securities and Exchange Commission. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE PROXY STATEMENT AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC CAREFULLY WHEN THEY BECOME AVAILABLE BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT ACCESS, PALMSOURCE, THE MERGER AND RELATED MATTERS. Investors and security holders will be able to obtain free copies of these documents through the website maintained by the U.S. Securities and Exchange Commission at www.sec.gov. Free copies of the Proxy Statement and these other documents may also be obtained, when they become available, from PalmSource by directing a request through the Investors Relations portion of PalmSource' website at www.palmsource.com or by mail to PalmSource, Inc., 1188 East Arques Avenue, Sunnyvale CA, 94085 attention: Legal Department, telephone: (408) 400–3000.

In addition to the Proxy Statement, PalmSource files annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy any reports, statements or other information filed by PalmSource at the SEC public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the Commission at 1–800–SEC–0330 for further information on the public reference room. PalmSource's filings with the Commission are also available to the public from commercial document–retrieval services and at the website maintained by the Commission at www.sec.gov.

PalmSource and its directors and executive officers, and ACCESS and its directors and executive officers may be soliciting proxies from PalmSource stockholders in favor of the adoption of the merger agreement and may be deemed to be participants in PalmSource's solicitation of proxies. The directors and executive officers of PalmSource have interests in the merger, some of which may differ from, or may be in addition to, those of PalmSource's stockholders generally, including the fact that the executive officers of PalmSource may be covered by severance plans or agreements that may be triggered in connection with the merger. Information about the directors and executive officers of PalmSource is set forth in the proxy statement for PalmSource's 2004 Annual Meeting of Stockholders, which was filed with the SEC on September 23, 2004. Investors may obtain additional information regarding the interest of such participants by reading the Proxy Statement regarding the merger when it becomes available.

Copyright © 2005, PalmSource, Inc. PalmSource, Palm OS, Palm Powered and certain other trademarks and logos are trademarks which are either owned by PalmSource, Inc. or its affiliates or are licensed by PalmSource, Inc. from Palm Trademark Holding Company, LLC and which may be registered in the United States, France, Germany, Japan, the United Kingdom, and other countries.

 
Statements of Operations (PDF: 54 KB)

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