Palm (NSDQ: PALM) reported preliminary results today for its third quarter of fiscal year 2009, which ended Feb. 27, saying that revenues are down because of falling demand for its “maturing legacy smartphone product,” but that its much-anticipated launch of the Palm Pre “remains on track for the first half of calendar 2009.” Palm President and CEO Ed Colligan didn’t try to sugar coat the situation. After all, revenues are falling, the company’s cash balance is low, and it’s banking on a yet-to-be-released phone and operating system—all during a down economy. Colligan: “As expected we’ve got a difficult transition period to work through…” Release.

Q3 Revenues: The company said Q3 revenues will fall between $85 million and $90 million, which is significantly less than the poorly performing previous period. In the period, ending Nov. 28, it recorded Q2 revenues of $191.6 million. In today’s warning, the company said it expects declining revenues and continued margin pressure from its legacy product lines in Q4, as well.

Cash Position: Palm said it believes it has sufficient cash and short-term investments, which is expected to be between $215 million and $220 million at the end of the third quarter, but that it is currently evaluating options to raise more working capital “given the challenging economic environment and the opportunity to drive both the launch of the Palm Pre and future product-development efforts.” Possibilities include “remarketing” a portion of the common shares underlying the Series C preferred stock and warrant units owned by Elevation Partners. Elevation Partners recently invested $100 million by acquiring preferred stock that is convertible into Palm common stock. Elevation also received warrants to acquire 7 million shares of Palm common stock at the same price. Prior to March 31, Palm can elect to cause Elevation to sell up to $49 million of this new investment to other investors on the same or better terms.