<PAGE>   1

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K
                            ------------------------

                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                        COMMISSION FILE NUMBER: 0-23296

                               CIDCO INCORPORATED
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                   DELAWARE                                      13-3500734
       (STATE OR OTHER JURISDICTION OF                         (IRS EMPLOYER
        INCORPORATION OR ORGANIZATION)                     IDENTIFICATION NUMBER)
</TABLE>

                              220 COCHRANE CIRCLE
                             MORGAN HILL, CA 95037
             (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

                                 (408) 779-1162
              (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 $.01

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of 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]

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant based on the closing sale price of such stock at $0.9375 on March
23, 2001 was $9,301,661. Shares of Common Stock held by each executive officer
and director and by each person who owns 5% or more of the outstanding Common
Stock have been excluded in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes.

     Number of shares outstanding of the Registrant's Common Stock on March 23,
2001: 14,431,372

                      DOCUMENTS INCORPORATED BY REFERENCE

     Registrant's definitive Proxy Statement for its 2001 Annual Meeting of
Shareholders is incorporated by reference into Part III (Items 10, 11, 12, and
13) hereof.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
  THIS REPORT CONSISTS OF   SEQUENTIALLY NUMBERED PAGES. THE EXHIBIT INDEX IS
                      CONTAINED ON PAGE   OF THIS REPORT.
<PAGE>   2

                               CIDCO INCORPORATED

                                     INDEX

<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
<S>         <C>                                                           <C>
                                    PART I
Item 1.     Business....................................................    1
Item 2.     Properties..................................................   10
Item 3.     Legal Proceedings...........................................   10
Item 4.     Submission of Matters to a Vote of Security Holders.........   10

                                   PART II
Item 5.     Market for Registrant's Common Stock and Related Stockholder
            Matters.....................................................   10
Item 6.     Selected Financial Data.....................................   12
Item 7.     Management's Discussion and Analysis of Financial Condition
            and Results of Operations...................................   13
Item 7A.    Quantitative and Qualitative Disclosure About Market Risk...   23
Item 8.     Financial Statements and Supplementary Data.................   24
Item 9.     Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure....................................   42

                                   PART III
Item 10.    Directors and Executive Officers of the Registrant..........   42
Item 11.    Executive Compensation and Other Matters....................   42
Item 12.    Stock Ownership of Certain Beneficial Owners and
            Management..................................................   42
Item 13.    Certain Relationships and Related Transactions..............   42

                                   PART IV
Item 14.    Exhibits, Financial Statement Schedules and Reports on Form
            8-K.........................................................   43
Signatures..............................................................   45
</TABLE>

                                        i
<PAGE>   3

FORWARD-LOOKING STATEMENTS

     This Report contains forward-looking statements that involve risks and
uncertainties. In many cases, you can identify forward-looking statements by
terminology such as "may," "intends," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," or "continue,"
or the negative of these terms and other comparable terminology. These
statements are only predictions. These forward-looking statements are subject to
risks and uncertainties and other factors, including those set forth below under
the caption "Factors Which May Affect Future Results," which could cause actual
future results to differ materially from historical results or those described
in the forward-looking statements. The forward-looking statements contained in
this Report should be considered in light of these factors. You are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. The Company is under no obligation (and expressly
disclaims any such obligation) to update or alter its forward looking statements
whether as a result of new information, future events or otherwise.

                                        ii
<PAGE>   4

                                     PART I

ITEM 1. BUSINESS

     Cidco Incorporated ("Cidco" or the "Company"), founded in 1988, is a leader
in the delivery of affordable and intuitive personal Internet communications
products and services for a mass audience, enabling end-users to communicate
simply and easily over the Internet. The Company offers Internet based e-mail
and content through devices specifically designed for easy, simple to use
Internet access. Cidco's mission is to empower consumers to communicate simply
and easily over the Internet without necessity of technical or personal computer
knowledge or expertise. When using the Company's products and services,
end-users have access to an Internet service provider, e-mail hosting and
content in a single, easy to use hardware/software appliance. The Company was
incorporated in Delaware in 1988. The Company's principal executive offices are
located at 220 Cochrane Circle, Morgan Hill, California (telephone number
408-779-1162). The Company's common stock trades on The Nasdaq Stock Market
under the symbol "CDCO".

     Cidco sells an e-mail service that utilizes Cidco designed consumer e-mail
appliances sold through the retail channel via relationships with Best Buy, Comp
USA, Kmart, Office Max, Radio Shack, Staples, Target and a number of other
national and regional retailers. Services available through Cidco's e-mail
appliances are on a subscription basis, generating recurring revenue.
Additionally, the Company has sold e-mail devices to OEM customers including SBC
Inc. (Pacific Bell and Southwestern Bell) and Telefonica de Argentina. Cidco's
e-mail appliances use the Internet/telephony networks to enable consumers to
handle interpersonal communication in a non-PC environment. Such appliances are
used in connection with Cidco's e-mail servers and network. The benefits of
Cidco's approach include lower appliance costs and features such as content
delivery without the need for a personal computer ("PC").

     In 1996, the Company began developing a line of next-generation,
telephone-based "information appliances" which allowed access to the World Wide
Web ("Web") and e-mail, as well as services such as traditional Caller ID, Call
Waiting and Network Voice Mail. The Company's first such product in the
information appliance market was the Cidco iPhone ("iPhone"), developed in
conjunction with InfoGear Technology Corporation ("InfoGear"), a privately held
corporation in which the Company was an investor. The Company began commercial
shipments of the iPhone in the first quarter of 1998. Due to a difficult
economic model and a Company restructuring, the Company discontinued the iPhone
Division in late 1998 but retained its investment in InfoGear. InfoGear was
subsequently acquired by Cisco Systems in 2000.

     While Cidco's iPhone product was ahead of its time, management learned that
the e-mail function on the iPhone was perceived as the most valuable feature on
the device and also the most commonly used function by many of its early
adopters. Capitalizing on its initial investment, in July 1999, Cidco introduced
the MailStation, a simple, inexpensive, single-use e-mail device designed to
bring e-mail to consumers who do not have access to or the need for a PC in
their homes.

     Cidco currently offers a family of information appliances under the "Mivo"
name. Commencing with the introduction of the Mivo 200, which has an enhanced
hardware design compared to Cidco's prior information appliance product
offering, the MailStation, all of Cidco's e-mail appliances now carry the Mivo
brand. In February 2001, the Company released the Mivo 200, and former
MailStation products were re-designated as "Mivo 100" products. The Mivo 300 is
scheduled to be released in the third quarter 2001. This product is an e-mail
Internet appliance designed to send and receive e-mail, provide Web pages with
personalized Internet bookmarks and allow digital photo capability. Created for
flexible communication use anywhere in the home, the Mivo product line is
designed for people who may not have or understand how to use a PC but want to
send e-mail, or who have a PC in their home but desire a second more portable
device for e-mail.

     The Company has a contract with iSyndicate Inc. to provide additional
services in the form of content via the Mivo, including headline news, weather,
stock quotes and television listings. The Company anticipates that this will be
the first step toward offering consumers access to information, commerce and
communications, in an intuitive and automated fashion which is convenient and
valuable in their everyday lives.

                                        1
<PAGE>   5

     From its inception in 1988 until December 2000, Cidco was a supplier of
advanced telephony products such as Caller ID and Network Service equipment
which supported Caller ID, Voice Mail, Three-way Caller Conferencing, Caller ID
on Call Waiting and/or other intelligent Network Services being offered by
Regional Bell Operating Companies ("RBOCs" and, together with telephone
companies "Telcos") as well as Internet service providers ("ISPs"), both
domestic and international (the "Telco Business"). These telephony products and
services were provided to telephone subscribers primarily through distribution
arrangements with Telcos.

     Due to declining revenues and significant losses in the Telco Business,
Cidco sold the Telco Business in December 2000. The transaction was structured
as a sale of assets under which Cidco sold substantially all of the assets
related to the Telco Business, including contracts, inventory, intellectual
property, tangible assets and associated goodwill. As consideration for the
Telco Business assets, Cidco received $5,000,000 cash at closing. In addition,
Cidco is entitled to receive royalty and inventory payments for a period of time
after closing.

     After the purchaser of the Telco Business has sold inventory with a cost on
Cidco's books at closing of $3.5 million, the purchaser is required monthly to
pay to Cidco a cash payment equal to Cidco's cost for additional inventory sold
by the purchaser (net of product returns). If the purchaser sells inventory
below cost, the purchaser is required to pay to Cidco 80% of the gross proceeds
from such sales, and, with limited exceptions, the purchaser must obtain Cidco's
consent to make below-cost sales of inventory. The purchaser is not obligated to
pay Cidco royalties on inventory it sells below cost. Except for the initial
$3.5 million sold to the purchaser at closing, Cidco will retain title to all
remaining inventory, which will be consigned to the purchaser. Under the terms
of their consignment arrangement, Cidco will grant to the purchaser the
exclusive right to sell the remaining inventory.

     Cidco will also be entitled to receive quarterly royalty payments for 48
months after closing based on revenues from sales of telephony products
post-closing (including sales of future products derived from intellectual
property transferred to the purchaser of the Telco Business). The royalty
payments are based on a declining scale: 4% in year 1; 3% in year 2; 2% in year
3; and 1% in year 4.

     Cidco agreed not to compete with the buyer of the Telco Business assets for
a period of 48 months after closing. Cidco also agreed to indemnify the buyer
for any damages arising out of Cidco's breach of any of its representations or
warranties under the definitive sale documents. The Company agreed to indemnify
the purchaser of its Telco Business for losses, if any, from breaches of the
Company's representations or warranties that occur within one year after the
closing sale. The Company's indemnification obligations are limited by a
$250,000 deductible and an overall cap of $1 million.

     A special meeting of Cidco stockholders was held on December 8, 2000 at
which Cidco's stockholders approved the terms for the sale of the Telco
Business. The votes cast at the special meeting of stockholders were as follows:
8,214,104 shares in favor of approving the transaction, 156,851 shares against
approving the transaction, and 45,531 abstentions. The transaction closed on
December 14, 2000.

     The sale of the Telco Business allows the Company to focus on the
information appliance and services business, which the Company believes has
greater potential for revenue growth and eventual profitability.

     "CIDCO" is the registered trademark of Cidco and "MailStation" and "Mivo"
are trademarks of Cidco. All other product and brand names are trademarks or
registered trademarks of their respective holders.

INDUSTRY BACKGROUND

     The Internet has become a mass medium for communications, information and
e-commerce. The rapid adoption of e-mail is both a business and social
phenomenon. According to 24/7 Media: Email Facts, there were 78 million active
e-mail users, aged 13 and older, in the U.S. at year-end 1999, accounting for
35% of the total U.S. population of adults and teens. By the end of 2002, there
will be 135 million e-mail users, representing 59% of the overall U.S.
population of adults and teens (Source: Emarketer).

                                        2
<PAGE>   6

     The social phenomenon of e-mail, the world's fastest growing communications
medium, has captured the attention of users worldwide. Contrary to the belief
that the Internet isolates people from one another, the Pew Internet Project
found that 56% of adults say that e-mail has improved their connection with
family, while 66% say e-mail has helped them keep in contact with their friends.
Sending and receiving e-mail has always been the most common activity of
Internet users. The Company's installed base surveys show that women in
particular find it valuable for communication since e-mail exchanges have
improved friendships and relationships with family members. Based on a recent
study by Allied Business Intelligence, the Internet appliance market is set to
explode with shipments of 174 million units expected by 2006.

     Much as the telephone was to the 1900's, the Company believes e-mail will
be to the 2000's. According to "Messaging Online," in 1999, the U.S. Postal
Service delivered over 200 billion pieces of mail, so e-mail volume now outpaces
postal mail volume. With the new role of Internet appliances, households will
include smart devices that increase effective and simple communications in an
increasingly fast paced society. Internet appliances are an innovation for the
modern homeowner bringing the essence of simplicity and full-scale digital
communications right to the home.

     The appliance revolution started with the telephone, then the microwave,
VCR and DVD, and now the Internet appliance. Homes are becoming more digital in
nature as simple technologies become increasingly popular. The power of e-mail
as a communication medium has become a worldwide phenomenon. Similar to most
homes having more than one phone, today's household requires more than one
device to send and receive e-mail. Certain demographics, such as older
Americans, may view the Internet appliance as a ready communication alternative
to the PC.

     The Company has an external independent market research company, Griggs
Andersen, survey its installed base and perform focus group studies to help the
Company better understand the demographics of its customer base. Based on the
findings of Griggs Anderson, the Company has determined that its end-users are
generally female (75%), mature (71% over 51 years old), and have modest incomes
(68% earn under $49,000 in annual income). The focus group findings also
indicate that over one-half of such end-users use e-mail currently, 57% have
e-mail access, 33% have a PC at home, and 31% have Internet access at home.

STRATEGY

     The appliance revolution has been characterized by a gradual reduction in
price points, which has ultimately made such appliances more affordable and
accessible to consumers. The Company's objective is to develop a suite of
comparatively inexpensive product and service offerings which will allow
end-users to send e-mail or browse the Internet without being connected to a PC.
The Company's mission is to empower consumers to communicate simply and easily
over the Internet through a range of products and services that will become the
primary communication vehicle of residential end-users. To achieve this
objective, the Company has developed the following strategy:

  Ease of Use

     The Company has focused on making its products and services intuitive and
easy to use. This has been accomplished through development of a simple and
intuitive graphical user interface. The Company's objective is to have a
consumer open the box, turn the product on and be able to use the service
without a user manual. The Company does extensive testing and hosts focus groups
to understand and implement feedback on ease of use.

  Be a Low Cost Producer of Internet Appliance Products and Services

     The Company intends to benefit from its ability to reduce manufacturing
costs by engineering products conducive to high volume assembly and by stressing
low cost manufacturing design while maintaining quality, consistency and
reliability. The Company believes that its experience and acquired knowledge
will permit it to achieve low manufacturing costs for its products, under
current market conditions. Additionally, the Company is continually working with
its ISPs, e-mail hosting and content provider partners to ensure the most
efficient and cost effective delivery of services that are useful to our
end-users.
                                        3
<PAGE>   7

  Diversify Product and Services Offering

     The Company is expanding its product and services offering. The Mivo 100,
formerly sold as the MailStation, debuted in mid-1999. The Mivo 200 began
selling in February of 2001, and the Mivo 300 is scheduled to ship in the third
quarter of 2001. Additionally, the Company has contracted with iSyndicate, an
Internet content aggregator, to provide a wide variety of Internet content to
our customers such as headline news, weather, stock quotes, and television
listings. The Company intends to continue to emphasize quality, innovation and
ease of use in its services and product design.

  Diversify Channels of Distribution

     The Company is seeking to diversify its distribution channels. During 2000,
the Company built its retail distribution channel from 80 storefronts to over
14,000 storefronts. The Company is exploring alternative distribution channels
that do not conflict with its retail partners. These include expansion into
international markets and vertical markets, which include certain business
applications, with the goals of broadening the Company's market opportunities.

  Strengthen Infrastructure

     The Company's future success will require, among other things, that the
Company improve its operating, information, and e-mail service provider systems.
In 1999, the Company established Internet e-mail service provider capabilities
in support of its entry into the Internet appliance and service market. The
Company has entered into agreements with an e-mail hosting company and three
ISPs to provide the backbone for its e-mail service. The services and technology
provided by these partners have been integrated with the Company's high volume
fulfillment and customer care system. Additionally, the Company recently
converted its enterprise-wide accounting and resource planning system to
simplify and improve the Company's ability to manage business processes and
systems which, in turn, will improve customer retention and new customer
acquisition. Development of content, information and commerce on the Company's
Internet appliances will necessitate continued investment in these systems and
may require significant investment in e-mail and Internet infrastructure or
significant new partnership arrangements.

  Leverage Relationships with Retailers

     The Company believes that it has established close working relationships
with certain retailers. These relationships enable the Company to garner
favorable promotion for its products and to gain valuable insight to market and
ultimately consumer acceptance of its products and services. The Company intends
to continue to leverage existing and future marketing relationships as it
introduces new products.

  Provide High Quality Support and Service

     The Company believes its ability to provide high-quality support and
service is essential to its success in developing and retaining certain customer
relationships and its subscriber base. The Company offers peak-period telephone
product support to ensure a quality end-user experience. This support activity
generally parallels retail sales and is seasonal in nature. The Company uses
temporary employees and outsources peak loads and activations to handle
variations in support volumes. Additionally, the Company handles a growing
number of support questions via e-mail and has implemented an automated e-mail
response system to enhance the timeliness of its response to customer queries.

PRODUCTS

     The Company introduced an Internet appliance, the iPhone, in 1998. Although
this was a technological success, the product was too expensive and the business
model would not support subsidization or a lower price. The Company learned that
the primary activity on the iPhone was e-mail. Since then, the Company has
focused on developing and implementing a "best in breed" e-mail application for
Internet appliances. The Company's first e-mail appliance, the Mivo 100,
formerly the MailStation, was introduced in July of 1999.

                                        4
<PAGE>   8

     The Mivo 100 is a simple, inexpensive, single-use e-mail device that is
directed primarily to end-users who want e-mail and who do not have access to or
the need for a personal computer in their homes. The Mivo 100 uses the
Internet/telephony networks to enable consumers to handle interpersonal
communication in a non-PC environment. The Mivo 100 is the first in a series of
information appliances that the Company intends to offer over the next couple of
years. The Company shipped the Mivo 200 in February of 2001 and plans to ship
the Mivo 300 in the third quarter of 2001. The Mivo 200 has a modern industrial
design, a full size keyboard and one touch access to personalized Internet
content. The Mivo 300 will have higher screen resolution, more memory, be able
to handle photo attachments to e-mails and have expanded capabilities to obtain
customized information in HTML format from the Internet.

     The Company's market research firm, Griggs Anderson, has performed surveys
of the Company's installed base and performed focus group studies with potential
users in different areas of the country. As a result of these studies, the
Company believes there is a substantial market for its products and services for
a range of users from those who desire to use e-mail for the first time to those
who desire a secondary device to supplement a PC in their home. The Company's
demographic research supports this range of users with 57% of the Company's
installed base having access to e-mail prior to buying the Company's products
and services, 33% owning a PC at home and 31% already having Internet access at
home. Affordability is also a key concern of our target market, as 46% of our
users have income under $35,000 and 68% have income of $49,000 or under. The
focus group also concluded that simplicity was key among our target demographic.

     Priced at under $100, the Mivo 100 is ideal for consumers seeking simple,
convenient and affordable electronic communication. Among the features available
on Mivo 100 are a picture-driven display screen for easy management of e-mails,
automatic sending and receiving of e-mails at times the user selects, touch of
the button access to e-mail, and portability, allowing reading and writing of
e-mails anywhere in the house. No set up is required to start using the service.
Additionally, Mivo 100 provides a "New E-mail" indicator light, a calculator,
calendar and clock, an address book that automatically saves incoming e-mail
addresses, spell-check, nearly full-size keyboard, one touch adjustable type
size for easy reading, printer compatibility with a parallel port, tiltable
screen to reduce glare, storage capacity for 400 typical e-mails and is small,
portable and light weight (approximately 2 lbs.). The Company's new products,
the Mivo 200 and Mivo 300, also include a new modern industrial design, a full
size keyboard and customized Internet content. The Mivo 300 goes the next step
by providing customized Internet content in HTML format, allowing interactive
content requests, supporting photo attachments, improved 16 grayscale display
and larger storage capacity for 800 typical e-mails, including capacity for up
to 5 photos.

     End-users subscribe to the Company's service by calling an activation
number provided with the product literature at the time of purchase.
Historically, retailers have experienced a return rate of approximately 10% in
gift giving seasons and less at other times of the year. Approximately 85% of
end-users who choose an annual subscription plan are still customers after 12
months and approximately 65% of users who choose a month-to-month plan are still
customers after 12 months. Generally, 60% of our end-users subscribe to annual
plans while the remaining 40% subscribe to a month-to-month plan. These
retention numbers are slightly better than the Company assumed when originally
evaluating this business model. Subscribers are charged a one-time activation
fee of $10. The cost of the monthly service and the suggested retail price for
the products are detailed in the table below.

                                        5
<PAGE>   9

     The Company's family of products includes the following principal models:

<TABLE>
<CAPTION>
                                                                       TYPICAL
               MEMORY                                                 HARDWARE      TYPICAL MONTHLY
MODEL NO.     CAPACITY               PRODUCT FEATURES               RETAIL PRICE     SERVICE PLAN
---------   ------------             ----------------              ---------------  ---------------
<S>         <C>           <C>                                      <C>              <C>
Mivo 100    400           Standard Internet E-mail (POP3 & SMTP);  $79.00 - $99.00      $ 9.95
            Typical       Graphical 6"x2.25" Display; Uses Simple
            Messages      Intuitive Screens; Portable; Weighs 2.2
                          Pounds; Operates On AA Batteries;
                          Compose and Save E-mail Offline; Access
                          New Messages With a Single Press of a
                          Button; Large Keyboard, 16.5 mm Pitch.

Mivo 200    400           Standard Internet E-mail (POP3 & SMTP);          $129.95      $12.95
            Typical       Graphical 6"x2.25" Display; Uses Simple
            Messages      Intuitive Screens; Portable; Weighs
                          under 2 Pounds; Operates On AA
                          Batteries; Compose and Save E-mail
                          Offline; Access New Messages With a
                          Single Press of a Button; One-touch
                          Access to Personalized Internet
                          Content; Modern Industrial Design;
                          Full-Size Keyboard and Navigation
                          Button.

Mivo 300    800           Standard Internet E-mail (POP3 & SMTP);          $179.95      $14.95
            Typical       Graphical 16 Grayscale 6"x2.25"
            Messages;     Display; Uses Simple Intuitive Screens;
            capacity for  Portable; Weighs under 2 Pounds;
            up to 5       Operates On AA Batteries; Compose and
            photos        Save E-mail Offline; Access New
                          Messages With a Single Press of a
                          Button; One-touch Access to HTML
                          Customized Internet Information with
                          Graphics, Images and Text; Modern
                          Industrial Design; Full-Size Keyboard
                          and Large Navigation Buttons.
</TABLE>

DISTRIBUTION

     The Company's distribution strategy is to make its products available to
potential end-users through multiple distribution channels. These channels are:

  Retail

     The Company prefers to deal with consumers in the United States through the
retail channel. Under this model the Company acts as the service provider and is
able to generate high-margin recurring revenue. Although the initial
distribution of the Company's Internet appliance products occurred through
certain OEM relationships with major telephone companies and through direct
sales to consumers, during 2000, the Company built its retail distribution
channel, which became the primary distribution channel in the second half of the
year.

     The Company began the year with only one retailer (80 storefronts) and
ended the year ended with over 14,000 storefronts and over 30 retailers,
distributors, catalog distributors and shopping networks. The retailers started
to recognize during the year that the information appliance category was a
viable category and that Cidco was a leader in the category. This recognition
and a good 2000 holiday season solidified relationships with the retailers
prompting a plan by the major retailers to commit advertising space throughout
2001 to promote Cidco's products.

     Cidco will continue to emphasize retailer circular advertising to get the
most efficient and effective use of advertising resources. Additionally, strong
relationships with the retailers ensure good feedback relative to the Company's
product performance, competitor performance and market trends. It should be
noted that the retail distribution channel is somewhat seasonal, with a large
percentage of annual sales into this channel occurring in the fourth quarter.
Consequently, support and service for subscribers is also somewhat seasonal

                                        6
<PAGE>   10

with gift giving times of the year, particularly the Christmas season. This
seasonality makes it necessary to have a flexible and dynamic employee base to
deal with spikes in demand.

  OEM Sales

     The Company sells its Mivo products to OEMs, primarily large telephone
companies, on a one-time hardware sales basis. These sales typically involve
large unit quantities and are typically nonrecurring. During 1999, Telephonica
de Argentina was the primary OEM customer. During 2000, the Company sold a
number of units to SBC as part of SBC's program to enter the e-mail service
provider business. SBC has discontinued these efforts.

     Although the Company has not pursued the OEM channel for sales in the
United States, the OEM model makes sense for the Company when dealing with
international markets. The Company has chosen this channel for international
markets due to the resources and specialized knowledge required to sell, service
and set-up the required e-mail infrastructure in foreign markets.

  Vertical Markets

     The Company continues to explore alternative channels. The Company is
considering relations with various affinity groups, multi-level marketing
groups, airlines and auto clubs. Developing these relationships has typically
required a longer lead time than relationships in the retail channel and
generally has required some form of customized applications. Additionally, sales
to these types of accounts are much less predictable than sales generated via
the retail channel.

  Significant Customers

     For the year ended December 31, 2000, sales to Southwestern Bell
represented 43% of the Company's sales. In 1999, sales to Telefonica de
Argentina represented 53.4% of the Company's sales. Because the Company launched
its e-mail products and service business in 1999, there were no sales in 1998.

RESEARCH & DEVELOPMENT

     The Company's product development efforts are focused on new products and
services that support additional Internet/electronic messaging, product
enhancements, and the continued improvement of hardware components to reduce
manufacturing costs. The Company believes that product and technology leadership
along with a low-cost offering are keys to long-term success in an industry that
evolves as rapidly as the Internet appliance market does today. Furthermore, the
Company believes that its future operating results will depend on its ability to
continue to enhance existing products and services and to bring new products and
services to market in a timely manner, while meeting market and customer
requirements.

     The Company's development group is experienced in engineering consumer
products and services in the telecommunications and computer industries. The
Company uses extensive contracted engineering services to leverage experts in
various disciplines while not requiring permanent headcount to achieve the same
development. Additionally, the Company utilizes its contract manufacturer for
much of the electrical and mechanical design of the products. The development
group focuses on the greatest value add areas of software development and user
interface development to provide end-users the easiest to use, intuitive
interface for the product and services. The Company's products utilize
proprietary electrical, mechanical and software designs. The development group's
experience with consumer products helps the Company ensure that its products and
services are simple and easy-to-use and provide an intuitive user experience.

     In 2000 and 1999, the Company's research and development expenditures were
$3.6 million and $2.7 million, respectively. Research and development expenses
primarily have represented salaries and benefits, tooling, contracted
engineering services, and supplies for research and development activities.

     At December 31, 2000, five employees were engaged in product and services
development. There can be no assurance that the Company's product and services
development efforts will result in commercially

                                        7
<PAGE>   11

successful products, services or applications, or that the Company's products
and services will not be rendered obsolete by changing technology or new product
or service introductions by others.

MANUFACTURING

     The Company's products are manufactured for the Company by a third party,
Inventec, which is headquartered in Taiwan with manufacturing facilities in
China. The Company's manufacturing operations are limited to the testing,
quality control and shipping of finished products. The Company's contract
manufacturer has been certified pursuant to ISO 9002. The Company's manufacturer
performs comprehensive inspection, testing and statistical process control
testing. To date, the Company has not experienced significant product warranty
returns.

COMPETITION

     The market for the Company's products is highly competitive and subject to
rapid technological change. The Company's e-mail appliance products and service
presently competes with Landel Technologies and V-Tech. Certain of these
companies have significantly more financial and technical resources than the
Company. In particular, V-Tech is a large manufacturer of cordless phones and
electronic toys. Additionally, several large manufacturers have focused on the
Web terminal market place which does not directly compete with e-mail
appliances, but may attract customers to an alternative device at the high end
of the user spectrum who desire greater functionality than that provided by a
comparatively simple e-mail appliance. This segment of the market place is
generally characterized by scaled down PC technology and has difficulty
competing with low cost PCs and inexpensive Internet appliances. Companies in
this segment of the market include Gateway, Compaq and Intel.

     The introduction of new competitive products into one or more of the
Company's markets could have a material adverse effect on the Company's
business, results of operations or financial condition. The Company expects
competition to increase in the future from existing and new competitors. The
Company believes that the principal competitive factors in its market are
knowledge of the requirements of the various retailers, product reliability,
content, product design, service reliability, ease of use, customer service and
support, and product price relative to performance. The Company believes it
presently competes favorably with respect to each of these factors.

PATENTS, PROPRIETARY RIGHTS AND LICENSES

     The Company currently has one patent application on file with the United
States Patent and Trademark Office relating to the Internet appliance business.
The Company has no significant licenses.

     In addition, although the Company owns the user interface, software and the
new updated industrial design used in its Mivo product line, which the Company
believes provides significant value to consumers, Inventec, the Company's third
party manufacturer, owns substantially all of the intellectual property employed
in the hardware for our Internet appliance products. So long as the Company
meets certain volume thresholds, Inventec may not sell similar products in the
United States, Mexico and Canada. The Company has entered into agreements with
an e-mail hosting company and three ISPs to provide the backbone for its e-mail
service and with iSyndicate to provide content.

     The Company relies on trade secrets, copyrights, trademarks and contractual
provisions to protect its proprietary rights. Therefore, there can be no
assurance that the Company's protective measures will be adequate to protect the
Company's proprietary rights, that others have not or will not independently
develop or otherwise acquire equivalent or superior technology, or that the
Company will not be required to obtain royalty-bearing licenses to use other
intellectual property in order to utilize the inventions embodied in its
patents. There also can be no assurance that any patents will be issued pursuant
to the Company's current or future patent applications or that patents issued
pursuant to such applications or any patents the Company currently owns will not
be invalidated, circumvented or challenged. Moreover, there can be no assurance
that the rights granted under any such patents will provide competitive
advantages to the Company or be adequate to safeguard and maintain the Company's
proprietary rights. In addition, the laws of certain countries in which
                                        8
<PAGE>   12

the Company's products may from time to time be sold may not protect
intellectual property rights to the same extent as the laws of the United
States.

     The Internet appliance industry, like many technology-based industries, is
susceptible to claims and litigation involving patent and other intellectual
property rights. The Company from time-to-time may be notified by third parties
that they believe the Company may be infringing patents or other proprietary
rights of third parties. The Company has in the past and may in the future have
to seek a license under such patent or proprietary rights, or redesign or modify
their products and processes in order to avoid infringement of such patent or
other proprietary rights. There can be no assurance that such a license would be
available on acceptable terms, if at all, or that the Company could so avoid
infringement of such patent or proprietary rights, in which case the Company's
business, financial condition and results of operations could be materially and
adversely affected. Additionally, litigation may be necessary to protect the
Company's proprietary rights. Any claims or litigation involving the Company's
intellectual property rights may be time consuming and costly, or cause product
shipment delays, either of which could have a material adverse effect on the
Company's business, financial condition and results of operations.

EMPLOYEES

     At December 31, 2000, the Company employed 127 full-time persons, of whom 5
were engaged in product development, 11 in sales and marketing, 57 in customer
service/call center, 24 in operations, 11 in information services and 19 in
management, finance and administration. The Company has no collective bargaining
agreement with its employees and believes that its relationship with its
employees is good.

EXECUTIVE OFFICERS

     As of March 26, 2001, the executive officers of the Company are as follows:

<TABLE>
<CAPTION>
                 NAME                   AGE                   POSITION
                 ----                   ---                   --------
<S>                                     <C>    <C>
Paul G. Locklin.......................  55     President, Chief Executive Officer and
                                               Chairman of the Board of Directors
Richard D. Kent.......................  44     Chief Financial Officer, Chief
                                               Operating Officer and Corporate
                                               Secretary
William A. Sole.......................  43     Executive Vice President, Worldwide
                                               Sales and Marketing
</TABLE>

PAUL G. LOCKLIN, PRESIDENT AND CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
OF DIRECTORS

     Paul G. Locklin returned to Cidco in July of 1998. Mr. Locklin, a
co-founder of Cidco, was President, Chief Executive Officer, and a Director of
the Company from 1989 to 1997. Prior to founding the Company with Mr. Robert
Diamond, Mr. Locklin established PCI, an international electronics manufacturer
that specialized in liquid crystal displays, wire bondable printed circuit
substrates, and high-volume contract assembly. While at PCI, Mr. Locklin served
as President and CEO. Previous to his time at PCI, Mr. Locklin held a research
position for the Color and Chemical Division of Hercules Inc. Mr. Locklin
received a Bachelor of Science in Marketing from California State University at
Hayward.

RICHARD D. KENT, CHIEF FINANCIAL OFFICER, CHIEF OPERATING OFFICER, AND CORPORATE
SECRETARY

     Richard D. Kent joined Cidco in June 1994 as Corporate Controller. After
being promoted in January 1997, Mr. Kent served as Vice President of Finance and
Chief Financial Officer. In July of 1998, Mr. Kent took on the additional duties
of Chief Operating Officer and Corporate Secretary. Prior to joining Cidco, he
served as Corporate Controller of Radius, Inc., a computer peripheral
manufacturer, and Wiltron Company, an automated test equipment manufacturer. Mr.
Kent is a Certified Public Accountant and received a Bachelor of Science in
Business Administration with an emphasis in Finance and Accounting from
University of California at Berkeley.

                                        9
<PAGE>   13

WILLIAM A. SOLE, EXECUTIVE VICE PRESIDENT, WORLDWIDE SALES AND MARKETING

     William A. Sole joined Cidco in April 1998 and serves as the Executive Vice
President of Worldwide Sales and Marketing. Prior to joining Cidco, Mr. Sole
served as Vice President of Sales at Voysys, a maker of small business voice
mail systems and integrated voice communication systems. During the two years
prior to employment with Voysys, Mr. Sole held various senior sales and
marketing positions at Wyse Technology. Mr. Sole received a B.A. in Materials
Logistics Management from Michigan State University and an MBA from Pepperdine
University.

ITEM 2. PROPERTIES

     The Company's principal administration, development, distribution and
support facility is located in Morgan Hill, California and consists of two
buildings of approximately 81,000 square feet under leases that expire in March
2006. The Company owns a 3.24-acre parcel in the same business park. The Company
also leases approximately 6,500 square feet of storage space in Morgan Hill,
California. The Company leases approximately 1,100 square feet of office space
in Palo Alto, California under a lease that expires in November 2002, which has
been sublet. Additionally, the Company leases approximately 6,095 square feet of
office space in Mountain View, California for its development group under a
lease that expires in March 2005. In addition, the Company retains storage space
in Salinas, California, based on square footage used during the month and leased
on a month-to-month basis.

ITEM 3. LEGAL PROCEEDINGS

     In the ordinary course of business, the Company may be involved in legal
proceedings. As of the date hereof, the Company is not a party to any pending
legal proceedings that it believes will materially affect its financial
condition or results of operations.

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

     A special meeting of Cidco stockholders was held on December 8, 2000 at
which Cidco's stockholders were asked to approve the terms for the sale of the
Telco Business. The votes cast at the special meeting of stockholders were as
follows: 8,214,104 shares in favor of approving the transaction; 156,851 shares
against approving the transaction; and 45,531 abstentions. The transaction
closed on December 14, 2000.

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

     The Company's Common Stock is traded on The Nasdaq Stock Market under the
symbol CDCO.

     The following table sets forth for the periods indicated the high and low
closing sales price per share of Common Stock on The Nasdaq Stock Market as
reported by Nasdaq:

<TABLE>
<CAPTION>
                                                       HIGH      LOW
                                                      ------    -----
<S>                                                   <C>       <C>
2000
1st Quarter.........................................  $ 8.00    $4.00
2nd Quarter.........................................  $ 5.88    $2.75
3rd Quarter.........................................  $ 4.63    $2.69
4th Quarter.........................................  $ 3.38    $1.16
1999
1st Quarter.........................................  $ 4.88    $2.75
2nd Quarter.........................................  $ 7.75    $3.88
3rd Quarter.........................................  $16.13    $7.25
4th Quarter.........................................  $14.25    $3.88
</TABLE>

                                        10
<PAGE>   14

     As of December 31, 2000, there were 133 holders of record of the Company's
Common Stock, which does not include those beneficial owners whose shares are
held in street or nominee name.

     The Company has not declared dividends on its Common Stock and does not
anticipate declaring dividends in the foreseeable future. The Company expects to
retain future earnings, if any, for use in the operation of its business.

     On January 27, 1999, the Company announced the board of director's
authorization to purchase up to two million shares of its outstanding Common
Stock. The authorization was for a period of one year, which expired on January
31, 2000. As of January 31, 2000, the Company had repurchased approximately
713,000 shares at an aggregate purchase price of $3.2 million.

                                        11
<PAGE>   15

ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share data)

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                                --------------------------------------------------
                                                  2000       1999       1998      1997      1996
                                                --------   --------   --------   -------   -------
<S>                                             <C>        <C>        <C>        <C>       <C>
STATEMENT OF OPERATIONS DATA:
  Sales.......................................  $ 12,460   $  9,143   $     --   $    --   $    --
  Selling and marketing.......................    31,919      5,733         --        --        --
  Research and development....................     3,635      2,653         --        --        --
  Loss from continuing operations.............   (23,361)   (11,072)        --        --        --
  Income (loss) from discontinued
     operations...............................   (15,464)    11,042    (51,439)   12,910    18,523
  Net income (loss)...........................   (40,744)       (30)   (51,439)   12,910    18,523
  Net loss per share from continuing
     operations -- basic and diluted..........     (1.68)     (0.81)        --        --        --
</TABLE>

<TABLE>
<CAPTION>
                                                                AS OF DECEMBER 31,
                                                --------------------------------------------------
                                                  2000       1999       1998      1997      1996
                                                --------   --------   --------   -------   -------
<S>                                             <C>        <C>        <C>        <C>       <C>
BALANCE SHEET DATA:
  Cash and cash equivalents...................  $ 12,699   $ 29,323   $ 12,349   $48,253   $26,509
  Short-term investments and restricted
     cash.....................................    12,101     10,546     13,975    26,486    38,560
  Working capital.............................    35,791     70,815     70,238   112,980   110,469
  Total assets................................    73,578     96,331    107,667   173,428   152,613
  Stockholders' equity........................    39,189     78,181     80,402   130,730   128,846
</TABLE>

QUARTERLY DATA:
(in thousands, except per share data; unaudited)

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31, 2000
                                                         ----------------------------------------
                                                          FIRST     SECOND     THIRD      FOURTH
                                                         QUARTER    QUARTER   QUARTER    QUARTER
                                                         --------   -------   --------   --------
<S>                                                      <C>        <C>       <C>        <C>
Sales..................................................  $    666   $ 6,597   $  1,507   $  3,690
Gross margin...........................................      (674)    1,923       (769)      (966)
Income (loss) from continuing operations...............    (4,770)   10,351    (10,555)   (18,386)
Loss from discontinued operations......................    (5,610)   (2,472)    (1,533)    (7,769)
Net income (loss)......................................   (10,380)    7,879    (12,088)   (26,155)
Basic loss per share from continuing operations(1).....     (0.35)     0.75      (0.76)     (1.32)
Diluted loss per share from continuing operations(1)...     (0.35)     0.72      (0.76)     (1.32)
</TABLE>

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31, 1999
                                                         ----------------------------------------
                                                          FIRST     SECOND     THIRD      FOURTH
                                                         QUARTER    QUARTER   QUARTER    QUARTER
                                                         --------   -------   --------   --------
<S>                                                      <C>        <C>       <C>        <C>
Sales..................................................  $     --   $    --   $  5,428   $  3,715
Gross margin...........................................        --        --        309        226
Loss from continuing operations........................    (1,661)   (2,362)    (3,168)    (3,881)
Income (loss) from discontinued operations.............     3,203     4,411      3,682       (254)
Net income (loss)......................................     1,542     2,049        514     (4,135)
Basic and diluted loss per share from continuing
  operations(1)........................................     (0.12)    (0.18)     (0.23)     (0.28)
</TABLE>

---------------
(1) For an explanation of the number of shares used to compute earnings per
    share, see Note 2 of Notes to Financial Statements.

                                        12
<PAGE>   16

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

     The following information should be read in conjunction with the financial
statements and supplementary information thereto in Part II, Item 8 of this
Annual Report.

HISTORICAL BACKGROUND

     The Company was incorporated in July 1988 to design, develop and market
subscriber telephone equipment that would support Caller ID, Caller ID on Call
Waiting, Voice Mail, Three-way Caller Conferencing and other Network Services
then being introduced by Telcos. The Company began operations in 1989, initially
funding its business with a capital investment made by its founders. Prior to
its initial public offering, the Company financed its growth principally through
internally generated funds and short-term borrowings. In March 1994, the Company
completed its initial public offering of Common Stock and had two subsequent
public offerings in 1994 resulting in capital infusions to the Company totaling
approximately $59.4 million.

     Historically, the Company's telephony products and services were provided
to telephone company subscribers primarily through distribution arrangements
with Telcos. These sales were generally a one-time sale to the end-user. As
penetration rates of Network Services increased throughout the United States,
incremental customer acquisitions became more expensive. Consequently, volumes
and profits declined. Despite a number of down-sizings over the last couple of
years the Company had losses from operations in 1998, 1999 and 2000.

     In July of 1999, Cidco introduced its e-mail appliance, the Mivo 100,
formerly the MailStation. Cidco's Mivo 100 is a simple, inexpensive, single-use
e-mail device, which uses the Internet/telephony networks to enable consumers to
handle interpersonal communications in a non-PC environment. The Mivo 100 was
the first in a series of Internet appliances that the Company plans to roll out
within the next couple of years. Cidco distributes its Mivo product line
primarily through established retail outlets, including Best Buy, Comp USA,
KMart, Office Max, Radio Shack, Staples and Target.

     Mivo products are sold primarily through the retail channel, with some
sales coming from OEMs. Sales of e-mail appliance products sold through the
retail channel are recognized based on the service contract that the end-user
subscribes to upon activation of the service, less reserves for anticipated
returns. Sales associated with the service provided to customers are recognized
monthly as the services are utilized. In other words, if the end-user subscribes
to an annual contract the product sale, the corresponding cost of sale and the
service revenue are amortized over 12 months. If on the other hand, the end-user
subscribes to a month-to-month contract the total product sale, the total
corresponding cost of sale and the first month of service are recognized upon
activation. OEM sales are one-time product only sales and are recognized upon
shipment, less reserves for anticipated returns.

     From its inception in 1988 until December 2000, Cidco was a supplier of
advanced telephony products such as Caller ID and Network Service equipment
which supported Caller ID, Voice Mail, Three-way Caller Conferencing, Caller ID
on Call Waiting and/or other intelligent Network Services being offered by RBOCs
as well as ISPs, both domestic and international. These telephony products and
services were provided to telephone subscribers primarily through distribution
arrangements with Telcos.

     Due to declining revenues and significant losses in the Telco Business,
Cidco sold the Telco Business in December 2000. The transaction was structured
as a sale of assets under which Cidco sold substantially all of the assets
related to the Telco Business, including contracts, inventory, intellectual
property, tangible assets and associated goodwill. As consideration for the
Telco Business assets, Cidco received $5,000,000 cash at closing. In addition,
Cidco is entitled to receive royalty and inventory payments for a period of time
after closing.

     This Report contains forward-looking statements that involve risks and
uncertainties. In many cases, you can identify forward-looking statements by
terminology such as "may," "intends," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," or "continue,"
or the negative of these terms and other comparable terminology. These
statements are only predictions. These forward-
                                        13
<PAGE>   17

looking statements are subject to risks and uncertainties and other factors,
including those set forth below under the caption "Factors Which May Affect
Future Results," which could cause actual future results to differ materially
from historical results or those described in the forward-looking statements.
The forward-looking statements contained in this Report should be considered in
light of these factors. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
is under no obligation (and expressly disclaims any such obligation) to update
or alter its forward looking statements whether as a result of new information,
future events or otherwise.

RESULTS OF OPERATIONS

     The following table sets forth for the periods indicated the percentage of
sales from continuing operations represented by certain line items in the
Company's income statement:

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                                    -------------------------
                                                     2000      1999     1998
                                                    ------    ------    -----
<S>                                                 <C>       <C>       <C>
Sales.............................................   100.0%    100.0%
Cost of sales.....................................   104.1      94.2
                                                    ------    ------
Gross margin......................................    (4.1)      5.8
                                                    ------    ------
Operating expenses:
  Research and development........................    29.2      29.0
  Selling and marketing...........................   256.2      62.7
  General and administrative......................    32.2      48.4
                                                    ------    ------
                                                     317.5     140.1
                                                    ------    ------
Loss from operations..............................  (321.7)   (134.3)
Other income......................................   134.2      13.2
                                                    ------    ------
Loss before income taxes..........................  (187.5)   (121.1)
Provision (benefit) for income taxes..............      --        --
                                                    ------    ------
Loss from continuing operations...................  (187.5)   (121.1)
Income (loss) from discontinued operations........  (139.5)    120.8    100.0%
                                                    ------    ------    -----
Net loss..........................................  (327.0)%    (0.3)%  100.0%
                                                    ======    ======    =====
</TABLE>

2000 COMPARED TO 1999

  Sales

     Sales of e-mail appliance products sold through the retail channel are
recognized based on the service contract that the end-user subscribes to upon
activation of the service. Sales associated with the service provided to
customers are recognized monthly as the services are utilized. In other words,
if the end-user subscribes to an annual contract, the product sale, the
corresponding cost of sale and the service revenue are amortized over 12 months.
If the end-user subscribes to a month-to-month contract, the total product sale,
the total corresponding cost of sale and the first month of service are
recognized upon activation. OEM sales are one-time, product-only sales and are
recognized upon shipment.

     Sales increased 36% from $9.1 million in 1999 to $12.5 million in 2000. OEM
sales decreased 23% from $8.2 million in 1999 to $6.3 million in 2000. Unit
sales in the OEM channel decreased 27% from approximately 52,000 in 1999 to
approximately 38,000 in 2000 while the average selling price of these units
increased from approximately $138 per unit to approximately $143 per unit. OEM
sales are primarily one-time hardware sales to large telephone companies, which
provide their own e-mail service. As the Company's primary focus is to build its
own service business and the corresponding recurring revenue from subscriptions,
the Company has deemphasized the OEM channel, causing the decline in sales.
Conversely, sales from the Company's main recurring revenue channel have
increased from $918 thousand to $6.2 million. This is made up of service
revenue, which increased from $97 thousand in 1999 to $2.7 million in 2000, and
hardware revenue, which increased from $821 thousand in 1999 to $3.4 million in
2000. The increase of revenue from the Company's e-mail service business is a
direct result of its emphasis on building this channel. The two

                                        14
<PAGE>   18

primary factors were increases in the retail storefronts and the increase in
advertising spending. Retail storefronts increased from 80 at the end of 1999 to
over 14,000 by the end of 2000. Additionally, the Company's spending on
advertising increased from $0.9 million in 1999 to over $22.0 million in 2000.

  Gross Margin

     Cost of sales includes the cost of finished goods purchased from the
Company's offshore contract manufacturer, all costs associated with procuring
and warehousing the Company's inventory, the cost of wholesale ISP services and
the cost of wholesale e-mail hosting services. Gross margin as a percentage of
sales decreased from a positive 6% in 1999 to a negative 4% in 2000. The
positive gross margin in 1999 reflects the dominance of the OEM channel in that
year. The slightly negative gross margin in 2000 reflects the emergence of the
Company's e-mail service business. Initially, the e-mail service business has
very slim to negative margins as the initial hardware sale to the retailer is
subsidized by approximately $15 per unit. Following the critical retail sale,
the Company receives recurring subscription revenue with strong service margins,
which may be as high as 80%. As this business grows and the recurring revenue
builds as a percentage of total revenue, margins may exceed 50% overall.

  Research and Development Expenses

     Research and development expenses include salaries and benefits for
personnel, tooling, contracted engineering services, and supplies for research
and development activities. The Company's policy is to expense all research and
development expenditures as incurred except for certain investments in tooling,
which are amortized as research and development expenses over a period of two
years. Research and development expenses increased 27% to $3.6 million in 2000
from $2.7 million in 1999, primarily due to increased spending on new product
and service development projects. The research and development spending reflects
usage of contracted engineering services to leverage experts in various
disciplines while hiring regular employees on a selective basis. The Company
expects research and development expenses will continue to increase in absolute
terms, but decrease as a percentage of sales as the Company builds this
business.

  Selling and Marketing Expenses

     Selling and marketing expenses include customer acquisition costs,
personnel costs, advertising costs, telephone and electronic data exchange
expenses, promotional costs and travel expenses. Selling and marketing expenses
increased from $5.7 million in 1999 to $31.9 million in 2000, reflecting a
significant promotional and advertising campaign designed to increase awareness
of the product category, the Company and our products and services. Selling and
marketing expenses increased from 63% of sales in 1999 to 256% of sales in 2000.
The Company anticipates that selling and marketing expenses will decline in
absolute dollars and as a percentage of sales to between 60% and 70% of sales in
2001 as the Company's business plan calls for less advertising spending while
leveraging retailer circular advertising to help drive primary demand for the
Company's products and services.

  General and Administrative Expenses

     General and administrative expenses include salaries, benefits and other
expenses associated with the finance and administrative functions of the
Company. General and administrative expenses decreased from $4.4 million in 1999
to $4.0 million in 2000 and as a percentage of sales decreased from 48% in 1999
to 32% in 2000. These decreases reflect decreased headcount and corresponding
spending in the general and administrative area. The Company believes that
general and administrative expenses will decrease slightly in absolute dollars
in 2001 and will decrease significantly as a percentage of sales.

  Other Income

     Other income in 2000 primarily reflects the sale of the Company's interest
in InfoGear Technology Corporation, which was acquired by Cisco Systems in 2000.
The Company recorded a gain of approximately

                                        15
<PAGE>   19

$15.5 million related to this sale. Interest income from the investment of
available cash balances makes up the majority of the balance of interest and
other income.

  Provision for (benefit from) Income Taxes

     The provision for (benefit from) income taxes reflects an effective tax
rate of 0.0% in 2000 and 1999. The Company expects no tax provision in 2001 due
to the availability of loss carry-forwards.

1999 COMPARED TO 1998

     Comparisons for 1999 and 1998 are not provided as the Company launched its
e-mail products and service business in 1999. There was no activity related to
this business in 1998.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's cash and cash equivalents decreased $16.6 million during 2000
primarily from cash used in operations of $35.3 million, the acquisition of
property and equipment of $2.0 million and the restriction of $5.4 million of
cash as security for commercial letters of credit. Offsets include the sale of
Telco assets of $5.0 million, the sale of short-term investments of $19.3
million, and the issuance of Common Stock of $1.8 million. Cash used in
operations of $35.3 million was attributable to a net loss of $40.7 million, net
of a gain on exchange of securities of $15.5 million, an increase in deferred
cost of sales of $10.9 million and other current assets of $2.4 million and a
decrease in accrued liabilities of $0.5 million, which was offset by an increase
in deferred revenue of $11.2 million and accounts payable of $5.3 million, a
decrease in inventory of $9.0 million and accounts receivable of $5.3 million,
and depreciation and amortization of $4.2 million.

     The Company's working capital as of December 31, 2000 was $35.8 million
compared to $70.8 million as of December 31, 1999. The decrease of working
capital was due to a decrease in cash, restricted cash and short-term
investments of $15.1 million, inventory of $12.0 million, accounts receivable of
$5.3 million and an increase in deferred revenue of $11.2 million and accounts
payable of $5.3 million. Offsetting the above changes was an increase in
deferred cost of sales of $10.9 million and other current assets of $2.4 million
and a decrease in accrued liabilities and taxes of $0.6 million.

     The Company is currently negotiating for a line of credit. There is no
guarantee that the Company will be successful in this negotiation. As of
December 31, 2000, the Company had no line of credit. Such a line of credit, if
obtained, would be primarily used to secure letters of credit used to purchase
inventory from international suppliers. In the absence of a line of credit, the
Company will secure such letters of credit with cash.

     The Company plans to continue to invest in its infrastructure, including
information systems, to gain efficiencies and meet the demands of its markets
and customers. The Company believes its 2001 capital expenditures will be less
than $1.0 million. The 2001 capital expenditures are expected to be funded from
available working capital. Additionally, the Company plans to invest
significantly in marketing programs to increase e-mail subscriber growth related
to the Mivo 100 and subsequent products. The Company may spend as much as $15
million on these marketing programs. The planned expenditure level is subject to
adjustment as changing economic conditions necessitate. The Company believes its
current cash, cash equivalents, short-term investments, and borrowing capacity
will satisfy the Company's working capital and capital expenditure requirements
beyond the next twelve months. However, due to the level of investment required
to build the awareness for the Internet appliance market and to establish the
Company and its products and services, the Company is exploring strategic
alternatives to provide additional funding and enhance stockholder value. The
Company has engaged TM Capital Corp., a New York-based investment banking firm
to act as financial advisor in connection with the Company's evaluation of
strategic alternatives. These strategic alternatives may include investment by a
strategic partner, acquisition of the Company by an interested party or other
funding alternatives.

                                        16
<PAGE>   20

FACTORS THAT MAY AFFECT FUTURE RESULTS

THE INTERNET APPLIANCE BUSINESS REVENUES ARE NOT EXPECTED IN THE NEAR TERM TO
REPLACE THE REVENUES FROM THE SOLD TELCO BUSINESS, WHICH WOULD CAUSE US TO
OPERATE AT A LOSS.

     Although experiencing significant declining revenue, our Telco Business
comprised approximately 85% of our revenue for the nine-month period ending
September 30, 2000, and more than 90% for each of our three prior fiscal years.
Our Internet appliance business sales to subscribers has grown steadily, with a
seasonal increase in the fourth quarters of 1999 and 2000. However, we do not
expect these revenues to equal or exceed the revenues from our Telco Business in
the near term, and we will be operating at a loss.

THE INTERNET APPLIANCE BUSINESS HAS INCURRED SIGNIFICANT LOSSES SINCE INCEPTION,
AND WE EXPECT THESE LOSSES TO CONTINUE INTO CALENDAR YEAR 2002.

     We commenced our Internet appliance business in July 1999 and it has
incurring significant losses since inception. We expect these losses to continue
into calendar 2002. We will need to achieve significantly higher revenues to
achieve profitability. We may not be successful in increasing our Internet
appliance business revenues or generating acceptable margins. In addition, the
operation of the Internet appliance business as a standalone business may not be
a profitable business enterprise. If we are unable to achieve significantly
greater revenue and significantly greater recurring revenue from our Internet
appliance business, our losses will likely continue indefinitely. If this occurs
the market price of our common stock could suffer.

OUR LIMITED OPERATING HISTORY MAKES FORECASTING FUTURE RESULTS DIFFICULT.

     We began offering the Mivo 100 for sale in July 1999. We have a very
limited operating history in the Internet appliance business, which makes it
difficult to predict the future results. You must consider our prospects in
light of the uncertainties that we may encounter as an early stage company in a
new and rapidly evolving market. These uncertainties include:

     - market acceptance of Internet appliances;

     - consumer demand for, and acceptance of our Mivo 100 product and follow-on
       Mivo products;

     - our ability to create user-friendly applications;

     - our ability to use advertising effectively to create brand awareness and
       drive subscriber growth;

     - our ability to contract with content and service providers who will
       furnish information and services our customers find useful; and

     - our unproven and evolving business model.

WE MAY NOT BE ABLE TO SUSTAIN OR ACCELERATE SUBSCRIBER GROWTH, OR SUSTAIN OR
ACCELERATE RECURRING REVENUE FROM THE MIVO 100 AND THE NEW MIVO PRODUCT LINE.

     The Internet appliance market is relatively new and undeveloped and demand
for products like our Mivo product line may not increase or be sustained, and
our current or future products may not have market acceptance in that product
category. Many of our potential customers have never purchased Internet service
for personal use, used the Internet or e-mail or engaged in e-commerce
transactions. We must convince these potential users to purchase our Internet
appliance product offerings and continue to pay a subscription fee for services.
Our acquisition costs per subscriber are currently very high due to the
significant costs associated with advertising, development of the retail
distribution channel and our brand marketing campaign, and our relatively low
number of subscribers. If we do not achieve significant subscriber growth and
our cost per subscriber is not significantly reduced, we will not generate
meaningful revenue at acceptable margins or achieve profitability.

     In addition, we are not certain that our customers will be willing to
continue to pay subscription fees over the longer term, or that the rate at
which subscribers do not renew (the "churn" rate) will not increase
significantly over time. To the extent that the subscription model is not
successful, because market acceptance

                                        17
<PAGE>   21

for our products declines, or other business models evolve in connection with
the evolving Internet appliances market, or our "churn" rate increases, we might
have future unexpected declines in revenue. In addition, if our recurring
revenue from subscriptions does not increase significantly, we will not generate
improvement in our gross margins.

WE DERIVE OUR REVENUE PRIMARILY FROM A SINGLE PRODUCT LINE. IF WE DO NOT DESIGN
AND EFFECTIVELY INTRODUCE NEW PRODUCTS, OUR PRODUCTS WILL BECOME OBSOLETE AND
OUR BUSINESS WILL SUFFER.

     Currently our business consists of an e-mail subscription service.
Competitors may erode our existing market for e-mail service. We may not be able
to correctly anticipate or timely develop and introduce products or services
which meet the requirements of a changing marketplace or which will achieve
market acceptance. If we do not timely develop and introduce new products in our
e-mail appliance product line as expected in 2001, we may not be able to sustain
our existing relationships with retailers.

IF WE ARE NOT ABLE TO DEVELOP AND SUSTAIN SUCCESSFUL RELATIONSHIPS WITH CONTENT
PROVIDERS, E-MAIL HOSTING PROVIDERS, INTERNET SERVICE PROVIDERS AND OTHER THIRD
PARTIES IMPORTANT TO THE INTERNET APPLIANCE BUSINESS, WE MAY NOT BE ABLE TO
ATTRACT AND RETAIN CUSTOMERS.

     Our products include content from third parties. All of our products will
require the services from Internet service providers and e-mail hosting
providers. Our relationships with content or service providers may not continue
and we may not develop relationships with additional or replacement content or
service providers. Without such relationships, we may not sustain or increase
market acceptance on demand for our Internet appliance products with existing
and new customers. Our inability to obtain and provide content or services could
result in delays in the development or delivery of new products and the loss of
existing or potential customers. Moreover, if the content is not appealing to
customers, inferior in quality or less desirable than content available
otherwise, we could face decreased demand for our products and services.

WE MAY NOT BE ABLE TO SUCCESSFULLY COMPETE IN THE HIGHLY COMPETITIVE AND RAPIDLY
EVOLVING INTERNET APPLIANCE INDUSTRY.

     The markets for Internet appliances and Internet access service are
intensely competitive, evolving and subject to rapid technological change. We
compete for customers directly with V-Tech, and indirectly with companies such
as Intel and Microsoft.

     Virtually all of our current and potential competitors have longer
operating histories, significantly greater financial, technical, marketing and
other resources, significantly greater name recognition and a substantially
larger installed base of customers than we do. In addition, many of our
competitors have nationally known brands and have extensive knowledge of our
industry. Moreover, our current and potential competitors have established or
may establish cooperative relationships among themselves or with third parties
to increase the ability of their products to address consumer needs or to
combine hardware product and service offerings. We expect the intensity of
competition in this market to increase in the future. Increased competition is
likely to result in price reductions, reduced or negative margins and difficulty
in gaining market share. Any of these effects could seriously harm our business.

WE ARE HIGHLY DEPENDENT ON A SOLE SOURCE COMPONENT SUPPLIER AND BECAUSE OF SUCH
DEPENDENCE, WE MAY EXPERIENCE PRODUCT DELIVERY DELAYS.

     Many of the key components used in our products are available either only
from single sources or, even if potentially available from multiple sources,
involve relatively long lead times to manufacture, such that we cannot quickly
obtain additional supply without incurring significant incremental costs. In
general, we do not have supply contracts with our suppliers and order parts on a
purchase order basis. Our inability to obtain sufficient quantities of
components required, or to develop alternative manufacturing capability if and
as required in the future, could result in delays or reductions in product
shipments that could materially and adversely affect our business, results of
operations and financial condition.

                                        18
<PAGE>   22

BECAUSE WE DO NOT HAVE DIRECT QUALITY CONTROL OVER OUR PRODUCT MANUFACTURING, WE
MAY BE SUSCEPTIBLE TO EXCESSIVE PRODUCT WARRANTY RETURNS, WHICH COULD ADVERSELY
IMPACT OUR RESULTS OF OPERATIONS.

     Our products are manufactured for us by a third party, Inventec, which is
headquartered in Taiwan with manufacturing facilities in China. Although our
manufacturer has been certified pursuant to ISO 9002 and performs comprehensive
inspection, testing and statistical process control testing, we cannot assure
you that our manufacturer may not from time to time produce products that result
in excessive returns. If we were to experience an excessive amount of product
warranty returns, this could have a materially adverse affect on our business,
results of operations and financial condition.

OUR MANUFACTURER ALSO HAS THE RIGHT TO SELL OR LICENSE THE HARDWARE TECHNOLOGY
USED IN OUR PRODUCTS TO THIRD PARTIES THAT MAY COMPETE WITH US.

     Inventec owns substantially all of the intellectual property employed in
the hardware for our Internet appliance products. So long as we meet certain
volume thresholds, Inventec may not sell similar products in the United States,
Mexico and Canada. Inventec is not restricted from selling or licensing its
intellectual property, selling the hardware to third parties, or manufacturing
for third parties products containing such hardware. Third parties could use
Inventec intellectual property to compete against us.

OUR PRIMARY MANUFACTURER MAY BE SUBJECT TO POLITICAL TURMOIL, UPHEAVAL OR
NATURAL DISASTER.

     If our primary manufacturer is unable to manufacture our products due to
natural disasters, political turmoil or other reasons, or if Inventec refuses to
provide its manufacturing services on a timely basis and on commercially
acceptable price terms and alternative providers of these services are not
available on acceptable terms, our revenues may decline dramatically and our
operating expenses could increase significantly. Moreover, reliance on contract
manufacturers in foreign countries subjects us to risks of:

     - political instability,

     - financial instability,

     - expropriation,

     - currency controls and exchange fluctuations, and

     - changes in tax laws, tariffs and rules.

IF OUR BRAND DOES NOT ACHIEVE THE BROAD RECOGNITION NECESSARY TO EXPAND AND
MAINTAIN OUR USER BASE, OUR REVENUES MAY NOT GROW AND OUR FINANCIAL PERFORMANCE
MAY SUFFER.

     We believe that brand recognition and a favorable consumer perception of
our products and services is essential to our future success. Our success in
promoting and maintaining our brand, or any other brand that we may use in the
future, will depend largely on:

     - the success of our brand-enhancement strategy, including mass marketing
       and multi-media advertising, promotional programs and public relations
       activities; and

     - the quality and ease-of-use of our services and applications.

     If we are unsuccessful in establishing or maintaining a favorable image of
our products and services, we may not be able to expand our user base. In
addition, in order to attract and retain users and to promote and maintain our
brand or future brands, we expect to continue our significant marketing
expenditures. If we incur the expected very significant expenses in promoting
and maintaining our brand without a corresponding increase in revenue and
income, our financial results could be seriously harmed and we could require
capital sooner than expected.

                                        19
<PAGE>   23

WE MAY NOT BE SUCCESSFUL IN MAINTAINING A STRONG RETAIL DISTRIBUTION CHANNEL FOR
OUR INTERNET APPLIANCE BUSINESS AND WE MAY LOSE SIGNIFICANT SALES AND OUR
REVENUES MAY DECLINE.

     The success of the Internet appliance business depends on successfully
developing and marketing to a strong retail distribution channel. Although we
have developed good relationships with established retail outlets, we may not be
able to sustain our existing retail relationships or expand our retail presence
if we do not maintain strong sales or if we do not release new products to
broaden our product line during 2001. If we are not successful in sustaining a
strong national retail distribution channel, we may lose significant sales and
our revenues may decline.

WE MAY NOT BE ABLE TO REDUCE THE COST OF SUPPORT PER SUBSCRIBER TO ACCEPTABLE
LEVELS, WHICH COULD HARM OUR BUSINESS AND OPERATING RESULTS.

     Internet appliances are a new product category and our customers often have
little or no experience with computers or the Internet. Accordingly, the cost of
support per subscriber is high due to the need for significant telephone support
to users. Although we are developing documentation, functions and features to
promote ease of use, we may not be successful in reducing the need for
significant telephone support. If our cost of support per subscriber does not
decline significantly, we will not be able to deliver acceptable margins or
profitability in the future.

RAPID TECHNOLOGICAL CHANGE COULD RENDER OUR PRODUCTS AND SERVICES OBSOLETE,
WHICH WOULD CAUSE A DECREASE IN OUR REVENUE.

     The Internet and the e-commerce industries are characterized by rapid
technological innovation, sudden changes in user and customer requirements and
preferences, frequent new product and service introductions and the emergence of
new industry standards and practices. Each of these characteristics could render
our services, products, intellectual property and systems obsolete. The rapid
evolution of our market requires that we improve continually the performance,
features and reliability of our products and services, particularly in response
to competitive offerings. Our success also will depend, in part, on our ability:

     - To develop or license new products, services and technology that address
       the varied needs of our customers and prospective customers, and

     - To respond to technological advances and emerging industry standards and
       practices on a cost-effective and timely basis.

     If we are unable, for technical, financial, legal or other reasons, to
adapt in a timely manner to changing market conditions or user preferences, we
could lose customers, which would cause a decrease in our revenue.

ANY TECHNOLOGICAL PROBLEMS WITH OUR PRODUCTS WILL ADVERSELY AFFECT MARKET
ACCEPTANCE OF THOSE PRODUCTS AND COULD CAUSE US TO LOSE CUSTOMERS.

     Significant undetected errors or delays in new products or releases may
affect market acceptance of our products and could have a material adverse
effect on our business, results of operations or financial condition. We cannot
assure you that, despite our testing, errors will not be found in new products
or releases after commencement of commercial shipments, resulting in loss of
market share or failure to achieve market acceptance. Any such occurrences could
have a material adverse effect on our business, results of operations or
financial condition.

     - If we were to experience delays in the commercialization and introduction
       of new or enhanced products,

     - If customers were to experience significant problems with products, or

     - If customers were dissatisfied with product functionality or performance,

we could lose customers and market acceptance of our products would be adversely
impacted.

                                        20
<PAGE>   24

WE MAY BE UNABLE TO OBTAIN ADDITIONAL CAPITAL NEEDED TO GROW OUR BUSINESS, WHICH
WOULD ADVERSELY IMPACT OUR BUSINESS.

     Although we believe that our cash on hand and cash from operations will be
sufficient to satisfy our working capital and capital expenditure needs over the
next 12 months, we may seek third party investment in calendar 2001 to provide
additional working capital. We cannot be certain that financing from third
parties will be available on acceptable terms to us or at all.

     - Our future capital requirements will depend upon several factors,
       including the rate of market acceptance of our products and services, our
       ability to expand our installed base and our level of expenditures for
       sales and marketing. If our capital requirements vary materially from
       those currently planned, we may require additional financing sooner than
       anticipated.

     - If we cannot raise funds on acceptable terms, we may not be able to
       develop our products and services, take advantage of future opportunities
       or respond to competitive pressures or unanticipated requirements, any of
       which could have a material adverse effect on our ability to grow our
       business.

OUR QUARTERLY FINANCIAL RESULTS FLUCTUATE SIGNIFICANTLY AND MAY FALL SHORT OF
ANTICIPATED RESULTS WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE AND LEAD TO
SECURITIES LITIGATION.

     We have experienced in the past, and may experience in the future,
significant fluctuations in sales and operating results from quarter to quarter
as a result of a variety of factors, including:

     - the timing of orders for our products;

     - the addition or loss of distribution channels or outlets;

     - the timing and market acceptance of new product introductions by us or
       our competitors;

     - changes in our product mix that may affect sales prices, margins or both;
       technological difficulties and resource constraints encountered in
       developing, testing and introducing new products;

     - disruption in sources of supply, manufacturing and product delivery;

     - changes in material costs;

     - regulatory changes;

     - general economic conditions;

     - competitive pressures, including reductions in average selling prices and
       resulting erosions of margins;

     - and other factors.

     Accordingly, our quarterly results are difficult to predict until the end
of each particular quarter, and delays in product delivery or closing of
expected sales near the end of a quarter can cause quarterly revenues and net
income to fall significantly short of anticipated levels. Because of these
factors, we believe that period-to-period comparisons of our results of
operations are not necessarily meaningful and that you cannot rely on such
comparisons as indications of future performance. Our future operating results
will likely be below the expectations of public market analysts and investors.
In such event, the price of our common stock would likely be materially
adversely affected and we could be subject to securities litigation.

WE ARE HIGHLY DEPENDENT ON OUR KEY PERSONNEL TO MANAGE OUR BUSINESS AND BECAUSE
OF COMPETITION FOR QUALIFIED PERSONNEL WE MAY NOT BE ABLE TO RECRUIT OR RETAIN
NECESSARY PERSONNEL.

     Our continued growth and success depend to a significant extent on the
continued services of our senior management and other key employees and our
ability to attract and retain highly skilled technical, managerial, sales and
marketing personnel experienced in the retail consumer channel and the Internet
appliance business. Competition for such personnel is intense. We cannot assure
you that we will be successful in continuously recruiting new personnel or in
retaining existing personnel. None of our employees is subject to a long-term
employment agreement. The loss of one or more key employees or our inability to
attract additional qualified
                                        21
<PAGE>   25

employees or retain other employees harm our business, results of operations and
financial condition. In addition, we may experience increased compensation costs
in order to attract and retain skilled employees.

WE MAY BE REQUIRED TO PAY UP TO $1 MILLION TO THE PURCHASER OF OUR TELCO
BUSINESS FOR BREACHES OF OUR REPRESENTATIONS MADE IN CONNECTION WITH THE SALE OF
THAT BUSINESS.

     We have an obligation to indemnify the purchaser of our Telco Business for
any losses from breaches of our representations or warranties that occur within
one year after the closing date. Our indemnification obligations are limited by
a $250,000 deductible and an overall cap of $1 million on the amount of the
indemnification. Although we know of no breaches of our representations or
warranties, if such indemnification obligations arise, the payment of the
obligation will adversely impact our liquidity and working capital.

IF THE PURCHASER OF OUR TELCO BUSINESS FAILS TO MAKE TIMELY INVENTORY AND
ROYALTY PAYMENTS OUR WORKING CAPITAL AND LIQUIDITY MAY BE ADVERSELY AFFECTED.

     Under the terms of our agreement with the purchaser of our Telco Business,
after the purchaser has sold inventory with a cost on our books at closing of
$3.5 million, the purchaser is required monthly to pay us a cash payment equal
to our cost of additional inventory sold by the purchaser (net of product
returns).

     We will also be entitled to receive quarterly royalty payments for 48
months after closing based on revenues from sales of telephony products
post-closing (including sales of future products derived from intellectual
property transferred to the purchaser of our Telco Business). The royalty
payments are based on a declining scale: 4% in year 1; 3% in year 2; 2% in year
3; and 1% in year 4. Sales by the purchaser of our Telco Business have been
slower than expected due to the purchaser's inability to obtain financing on
acceptable terms. If the purchaser of our Telco Business fails to make timely
payment of inventory or royalty payments or if its sales do not achieve expected
levels, then our liquidity and working capital may be adversely affected.

WE MAY NOT BE ABLE TO PROTECT INTELLECTUAL PROPERTY OF OUR INTERNET APPLIANCE
BUSINESS AGAINST THIRD-PARTY CLAIMS OF INFRINGEMENT.

     We have filed a patent application regarding our Mivo product line. We also
rely on trade secret protection, copyrights, trademarks and contractual
provisions to protect our proprietary rights. These protective measures will be
adequate to protect our proprietary rights. We cannot assure you that others
have not or will not independently develop or otherwise acquire equivalent or
superior technology, or that we will not be required to obtain royalty-bearing
licenses to use other intellectual property in order to utilize the inventions
embodied in our patent. Our pending patent application may not be approved or,
if approved, may not be issued with the scope of the claims we seek. Patents
issued pursuant to such applications may be invalidated, circumvented or
challenged.

     Moreover, the rights granted under any such patents may not provide
competitive advantages to us or be adequate to safeguard and maintain our
proprietary rights.

IF WE ARE NOT ABLE TO PROCURE FOR THE INTERNET APPLIANCE BUSINESS NECESSARY
THIRD PARTY INTELLECTUAL PROPERTY, OUR OPERATING RESULTS AND FINANCIAL CONDITION
MAY SUFFER.

     The Internet industry, like many technology-based industries, is
characterized by frequent claims and litigation involving patent and other
intellectual property rights. We may from time to time be notified by third
parties that we may be infringing patents owned by or proprietary rights of
third parties. We have in the past and may in the future have to seek a license
under such patent or proprietary rights, or redesign or modify our products and
processes in order to avoid infringement of such rights.

     We cannot assure you that such a license would be available on acceptable
terms, if at all, or that we could avoid infringement of such patent or
proprietary rights, in which case our business, financial condition and results
of operations could be harmed. Additionally, litigation may be necessary to
protect our proprietary rights. Any claims or litigation involving our
intellectual property rights may be time consuming and costly, or

                                        22
<PAGE>   26

cause product shipment delays, either of which could harm our business,
financial condition and results of operations.

IF WE ARE NOT ABLE TO MANAGE AND IMPROVE OUR INFORMATION SYSTEM AND OTHER
COMPONENTS OF OUR INFRASTRUCTURE, OUR RESULTS OF OPERATIONS AND FINANCIAL
CONDITION COULD SUFFER.

     Our future success will require, among other things, that we continue to
improve our operating Internet services and information systems. In particular,
we must seek to refine and improve our Internet service provider and mail
hosting capabilities and systems in support of our Internet appliance services
and products. Our failure to successfully manage and improve our operating,
Internet services, and information systems could harm our ability to obtain
and/or retain Internet appliance services subscribers and could cause our
business, results of operations or financial condition to suffer.

THE PRICE OF OUR COMMON STOCK MAY BE VOLATILE, WHICH COULD LEAD TO COSTLY
LITIGATION AND DIVERT MANAGEMENT'S TIME AND ATTENTION.

     The market price of our common stock has and may continue to fluctuate
significantly. The market price of our common stock may fluctuate significantly
in response to a number of factors, some of which are outside of our control,
including:

     - announcements by us or our competitors of new products or product
       enhancements,

     - technological innovations by us or our competitors,

     - quarterly variations in our or our competitors' products and services,

     - changes in our revenue and revenue growth rates as a whole or for
       specific geographic areas, business units, products or product
       categories,

     - changes in earnings estimates by market analysts,

     - speculation in the press or analyst community and general market
       conditions or market conditions specific to the technology industry or
       the Internet appliance industry in particular.

     The stock prices for many companies in the technology sector have
experienced wide fluctuations that often have been unrelated to their operating
performance. Such fluctuations may adversely affect the market price of our
common stock and could lead to securities litigation. Such litigation could
result in substantial costs and divert management's time and attention, which
could harm our results of operations or financial condition.

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     The Company maintains an investment portfolio consisting mainly of fixed
income securities with an average maturity of less than one year. These
securities are subject to interest rate risk and will fall in value if market
interest rates increase. The Company has the ability to hold its fixed income
investment until maturity, and therefore it does not expect its operating
results or cash flows to be affected to any significant degree by the effect of
a sudden change in market interest rates. The Company also holds some equity
investments which are protected from the impact of market risk.

                                        23
<PAGE>   27

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         INDEX TO FINANCIAL STATEMENTS

Financial Statements:

<TABLE>
<CAPTION>
                                                                PAGE
                                                                ----
  <S>                                                           <C>
  Report of Independent Accountants...........................   25
  Balance Sheets at December 31, 2000 and 1999................   26
  Statements of Operations for the three years ended December
    31, 2000..................................................   27
  Statements of Stockholders' Equity for the three years ended
    December 31, 2000.........................................   28
  Statements of Cash Flows for the three years ended December
    31, 2000..................................................   29
  Notes to Financial Statements...............................   30
</TABLE>

Financial Statement Schedule:

<TABLE>
  <S>                                                           <C>
  Schedule II -- Valuation and Qualifying Accounts............
  All other financial statement schedules are omitted because the
  information called for is not present in amounts sufficient to
  require submission of the schedules or because the information is
  shown either in the financial statements or the notes thereto.
</TABLE>

                                        24
<PAGE>   28

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Cidco Incorporated

     In our opinion, the financial statements in the above index present fairly,
in all material respects, the financial position of Cidco Incorporated at
December 31, 2000 and 1999 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2000 are in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule listed in
the above index presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has had negative cash flows from operations that raise substantial doubt
about its ability to continue as a going concern. Management's plan in regard to
these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

PricewaterhouseCoopers LLP

San Jose, California
March 27, 2001

                                        25
<PAGE>   29

                               CIDCO INCORPORATED

                                 BALANCE SHEETS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              ------------------
                                                               2000       1999
                                                              -------    -------
<S>                                                           <C>        <C>
Current assets:
Cash and cash equivalents...................................  $12,699    $29,323
Restricted cash.............................................    5,390         --
Short-term investments......................................    6,711     10,546
Accounts receivable, net of allowances for doubtful accounts
  of $1,306 and $1,127 at December 31, 2000 and 1999,
  respectively..............................................   17,119     22,407
Inventories, net............................................   13,694     25,688
Deferred cost of sales......................................   11,214        342
Other current assets........................................    3,353      1,002
                                                              -------    -------
          Total current assets..............................   70,180     89,308
Property and equipment, net.................................    2,354      6,653
Other assets................................................    1,044        712
                                                              -------    -------
                                                              $73,578    $96,673
                                                              =======    =======
                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................  $14,758    $ 9,412
Accrued liabilities.........................................    6,166      6,664
Deferred revenue............................................   13,465      2,300
Accrued taxes payable.......................................       --        116
                                                              -------    -------
          Total current liabilities.........................   34,389     18,492
                                                              -------    -------
Commitments and contingencies (Note 7)
Stockholders' equity:
Common stock, $.01 par value; 35,000 shares authorized,
  14,418 shares issued and outstanding at December 31, 2000
  and 1999..................................................      144        144
Treasury Stock, at cost (472 and 675 shares)................   (2,086)    (2,988)
Additional paid-in capital..................................   90,035     88,916
Accumulated deficit.........................................  (48,904)    (7,891)
                                                              -------    -------
          Total stockholders' equity........................   39,189     78,181
                                                              -------    -------
                                                              $73,578    $96,673
                                                              =======    =======
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                        26
<PAGE>   30

                               CIDCO INCORPORATED

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

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31
                                                             --------------------------------
                                                               2000        1999        1998
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
Sales:
  Service..................................................  $  2,696    $     97
  Hardware.................................................     3,462         821
  OEM......................................................     6,302       8,225
                                                             --------    --------    --------
                                                               12,460       9,143
Cost of sales..............................................    12,976       8,609
                                                             --------    --------    --------
Gross margin...............................................      (516)        534
                                                             --------    --------    --------
Operating expenses:
  Research and development.................................     3,635       2,653
  Selling and marketing....................................    31,919       5,733
  General and administrative...............................     4,011       4,426
                                                             --------    --------    --------
                                                               39,565      12,812
                                                             --------    --------    --------
Loss from operations.......................................   (40,081)    (12,278)
Other income...............................................    16,720       1,206
                                                             --------    --------    --------
Loss before income taxes...................................   (23,361)    (11,072)
Provision for income taxes.................................        --          --
                                                             --------    --------    --------
Loss from continuing operations............................   (23,361)    (11,072)
Income (loss) from discontinued operations.................   (15,464)     11,042    $(51,439)
Loss on disposition of discontinued operations.............    (1,919)         --          --
                                                             --------    --------    --------
Net loss...................................................  $(40,744)   $    (30)   $(51,439)
                                                             ========    ========    ========
Net loss per share from continuing operations -- basic and
  diluted..................................................  $  (1.68)   $  (0.81)   $   0.00
                                                             ========    ========    ========
Net loss per share from discontinued operations -- basic
  and diluted..............................................  $  (1.26)   $   0.81    $  (3.66)
                                                             ========    ========    ========
Shares used in per-share calculation -- basic and
  diluted..................................................    13,882      13,608      14,049
                                                             ========    ========    ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                        27
<PAGE>   31

                               CIDCO INCORPORATED

                       STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                               RETAINED                       TOTAL
                            COMMON STOCK      TREASURY STOCK    ADDITIONAL     EARNINGS          TOTAL       COMPRE-
                           ---------------   ----------------    PAID-IN     (ACCUMULATED    STOCKHOLDERS'   HENSIVE
                           SHARES   AMOUNT   SHARES   AMOUNT     CAPITAL       DEFICIT)         EQUITY        INCOME
                           ------   ------   ------   -------   ----------   -------------   -------------   --------
<S>                        <C>      <C>      <C>      <C>       <C>          <C>             <C>             <C>
Balance at December 31,
  1997...................  14,399    $144             $(6,163)   $88,763       $ 47,986        $130,730      $ 12,938
Unrealized losses from
  investments............                                                           (31)            (31)          (31)
Tax benefit from exercise
  of stock options.......                                            153                            153
Employee stock options
  exercised..............                       61        773                      (198)            575
Employee stock purchase
  plan...................                       63        790                      (376)            414
Net loss.................                                                       (51,439)        (51,439)      (51,439)
                           ------    ----     ----    -------    -------       --------        --------      --------
Balance at December 31,
  1998...................  14,418     144     (339)    (4,600)    88,916         (4,058)         80,402      $(51,470)
                                                                                                             ========
Unrealized losses from
  investments............                                                           (92)            (92)          (92)
Treasury stock
  purchased..............                     (713)    (3,154)                                   (3,154)
Employee stock options
  exercised..............                      311      3,891                    (2,999)            892
Employee stock purchase
  plan...................                       66        875                      (712)            163
Net loss.................                                                           (30)            (30)          (30)
                           ------    ----     ----    -------    -------       --------        --------      --------
Balance at December 31,
  1999...................  14,418     144     (675)    (2,988)    88,916         (7,891)         78,181      $   (122)
                                                                                                             ========
Unrealized losses from
  investments............                                                           (26)            (26)          (26)
Employee stock options
  exercised..............                       97        428                      (139)            289
Employee stock purchase
  plan...................                      107        474                      (104)            370
Issuance of warrants.....                                          1,119                          1,119
Net loss.................                                                       (40,744)        (40,744)      (40,744)
                           ------    ----     ----    -------    -------       --------        --------      --------
Balance at December 31,
  2000...................  14,418    $144     (472)   $(2,086)   $90,035       $(48,904)       $ 39,189      $(40,718)
                           ======    ====     ====    =======    =======       ========        ========      ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                        28
<PAGE>   32

                               CIDCO INCORPORATED

                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                              -------------------------------
                                                                2000       1999        1998
                                                              --------    -------    --------
<S>                                                           <C>         <C>        <C>
Cash flows from operating activities:
  Net loss..................................................  $(40,744)   $   (30)   $(51,439)
  Adjustments to reconcile net loss to net cash flow from
     operating activities:
     Depreciation and amortization..........................     4,195      5,446       2,880
     Equity in losses of affiliate..........................        --         --       1,605
     Property and equipment retirements.....................       424         --      10,300
     Deferred income taxes..................................        --      1,490      11,100
     Gain on exchange of securities.........................   (15,490)        --          --
  Changes in assets and liabilities:
     Accounts receivable....................................     5,288      5,282      30,393
     Inventories............................................     8,962     (3,602)     (9,182)
     Income tax refund receivable...........................        --     18,367     (18,367)
     Deferred cost of sales.................................   (10,872)        --          --
     Other current assets...................................    (2,352)       545        (241)
     Other assets...........................................      (572)      (239)       (862)
     Accounts payable.......................................     5,346     (3,034)    (17,422)
     Accrued liabilities....................................      (497)    (5,963)      3,630
     Deferred revenue.......................................    11,165         --          --
     Accrued taxes payable..................................      (116)      (118)     (1,641)
                                                              --------    -------    --------
          Net cash provided by (used in) operating
            activities......................................   (35,263)    18,144     (39,246)
                                                              --------    -------    --------
Cash flows from investing activities:
  Acquisition of property and equipment.....................    (2,049)    (2,408)    (10,280)
  Restricted cash...........................................    (5,390)        --          --
  Sale of Telco assets......................................     5,000         --          --
  Sale of short-term investments, net.......................    19,300      3,337      12,480
                                                              --------    -------    --------
          Net cash provided by investing activities.........    16,861        929       2,200
                                                              --------    -------    --------
Cash flows from financing activities:
  Issuance of Common Stock, net of issuance costs...........     1,778      1,055         989
  Purchase of Treasury Stock................................        --     (3,154)         --
  Tax benefit from exercise of stock options................        --         --         153
                                                              --------    -------    --------
          Net cash provided by (used in) financing
            activities......................................     1,778     (2,099)      1,142
                                                              --------    -------    --------
Net increase (decrease) in cash and cash equivalents........   (16,624)    16,974     (35,904)
Cash and cash equivalents at beginning of year..............    29,323     12,349      48,253
                                                              --------    -------    --------
Cash and cash equivalents at end of year....................  $ 12,699    $29,323    $ 12,349
                                                              ========    =======    ========
Supplemental disclosure of cash flow information:
  Issuance of warrants in connection with marketing
     agreement..............................................  $  1,119    $    --    $     --
                                                              ========    =======    ========
  Cash paid during the year for income taxes................  $     --    $    --    $  1,855
                                                              ========    =======    ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                        29
<PAGE>   33

                               CIDCO INCORPORATED

                         NOTES TO FINANCIAL STATEMENTS

NOTE 1. THE COMPANY

  Business

     Cidco Incorporated (the "Company"), a Delaware corporation, designs,
develops and markets e-mail communications appliances and services that allow
consumers to communicate simply and easily over the Internet. The Company's
products and services are principally sold through major national and regional
Retail chains.

     The Company was previously a provider of advanced telephony products that
were sold to individual customers through relationships with certain Regional
Bell Operating Companies ("RBOC"), to telephone companies (collectively with
RBOCs, "Telcos") directly, and to Internet Service Providers. During 2000, the
Company ceased the operations of the telephony products business ("Telco
Business") segment and sold certain Telco Business assets (see Note 6).
Accordingly, the results of operations for the Telco Business are reported as
discontinued operations.

  Liquidity

     The Company has incurred recurring losses from its Telco Business. In
addition, the Company has embarked upon the development of its new product line,
the Internet appliance business, which has required a significant investment in
product development and marketing over the past two years, further increasing
operating losses, and has incurred negative cash flows from operations.

     As a result of the Company's divestiture of its Telco Business described
above and its intention to focus on the Internet appliance business, the Company
is now subject to the risks and challenges similar to companies in a development
stage of operations. These risks include, but are not limited to: dependence on
key individuals and key suppliers of integral components; successful development
and marketing of its new products; obtaining adequate financing to support the
planned growth in sales of its product; and competition from larger companies
with greater financial, technical, management and marketing resources.
Management's plans for funding operations during 2001 include generating
revenues from sales of its new internet appliances while controlling costs and
working capital requirements. The Company's failure to sell its products,
control its costs or control its working capital requirements would unfavorably
impact the Company. The Company is also investigating other strategic
alternatives and has engaged an Investment Banking firm to assist with that
process.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Use of Estimates and Assumptions

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.

  Cash Equivalents

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

  Short-Term Investments

     The Company classifies its investment securities as available for sale.
Realized gains or losses are determined on the specific identification method
and are reflected in income. Net unrealized gains or losses

                                        30
<PAGE>   34
                               CIDCO INCORPORATED

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

are recorded as a separate component of stockholders' equity except those
unrealized losses that are deemed to be other than temporary which are reflected
in the income statement.

  Inventories

     Inventories are stated at the lower of cost or market value, cost being
determined using the standard cost method (which approximates first in, first
out). The Company's inventories consist of finished goods and raw materials
purchased for the manufacture of finished goods.

  Property and Equipment

     Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based upon the estimated useful lives of the assets,
ranging from three to five years. Leasehold improvements are amortized using the
straight-line method over the shorter of the remaining lease term or the
estimated useful lives of the improvements.

  Recent accounting pronouncements

     In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44 ("FIN 44") "Accounting for Certain Transactions
involving Stock Compensation," an interpretation of APB Opinion No. 25. FIN 44
clarifies the application of Opinion 25 for (a) the definition of employee for
purposes of applying Opinion 25, (b) the criteria for determining whether a plan
qualifies as a non-compensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
The adoption of FIN 44 did not have a material effect on the financial position
or results of operations of the Company.

     In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
Implementation of SAB 101 did not require us to change existing revenue
recognition policies and therefore has not had a material effect on the
Company's financial position or results of operations.

     In June 1998, the FASB issued Statement of Financial Accounting Standard
("SFAS") No. 133, "Accounting for Derivatives and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. In July 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133." SFAS No. 137 deferred the effective date of SFAS No.
133 until fiscal years beginning after June 15, 2000. The Company will adopt
SFAS No. 133 during its fiscal year ending December 31, 2001. To date, the
Company has not engaged in derivative or hedging activities. The Company does
not expect the adoption of SFAS No. 133 to have a material effect on its results
of operations.

  Revenue Recognition

     Revenues from the sale of e-mail appliance products are recognized upon
mail service activation over the term of the service agreement. Revenues from
monthly e-mail services are recognized over the term the services are provided.
The Company defers revenue to the extent that goods or services have yet to be
provided, including sales to retailers.

                                        31
<PAGE>   35
                               CIDCO INCORPORATED

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

  Advertising Costs

     Advertising costs are expensed as incurred. Advertising costs relating to
continuing operations for 2000 and 1999 were $21.9 million and $0.9 million,
respectively.

  Earnings per Share

     Basic Earnings Per Share ("EPS") is computed by dividing net income
available to common stockholders (numerator) by the weighted average number of
common shares outstanding (denominator) during the period. Basic EPS excludes
the dilutive effect of stock options. Diluted EPS gives effect to all dilutive
potential common shares outstanding during a period. In computing diluted EPS,
the average stock price for the period is used in determining the number of
shares assumed to be purchased from exercise of stock options.

     Following is a reconciliation of the numerators and denominators of the
basic and diluted EPS:

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                          (IN THOUSANDS, EXCEPT PER SHARE
                                                                      AMOUNTS)
                                                          --------------------------------
                                                            2000        1999       1998
                                                          ---------   --------   ---------
<S>                                                       <C>         <C>        <C>
Net loss................................................  $(40,744)   $   (30)   $(51,439)
                                                          ========    =======    ========
Weighted average shares -- basic........................    13,882     13,608      14,049
  Effect of dilutive securities -- employee stock
     options............................................        --         --          --
                                                          --------    -------    --------
Weighted average shares -- diluted......................    13,882     13,608      14,049
                                                          ========    =======    ========
Net loss per common share -- basic......................  $  (2.94)   $  0.00    $  (3.66)
                                                          ========    =======    ========
Net loss per common share -- diluted....................  $  (2.94)   $  0.00    $  (3.66)
                                                          ========    =======    ========
</TABLE>

     Potential shares of common stock issuable upon the exercise of 1,201,954
and 1,144,961 options as of December 31, 2000 and 1999, respectively, and
warrants to purchase 245,434 shares as of December 31, have been excluded from
the diluted net loss per share calculation above as their effect would be
anti-dilutive.

  Stock-Based Compensation

     The Company accounts for stock-based employee compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees," and related Interpretations.
The Company provides additional pro forma disclosures as required under
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation."

  Concentrations of Credit Risk

     Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist of cash and cash equivalents, short-term
investments and accounts receivable. Risks associated with cash are mitigated by
banking with creditworthy institutions.

     The objective of the Company's investment policy is the preservation of
capital, the maximization of pre-tax returns, and the maintenance of liquidity
until funds are needed for use in business operations. Funds are diversified to
minimize risk and inappropriate concentrations of investments. All investments
are limited to those highly rated by outside organizations.

     The Company's accounts receivable are derived from revenue earned from
customers primarily located in the United States. The Company performs periodic
credit evaluations of its open account customers' financial

                                        32
<PAGE>   36
                               CIDCO INCORPORATED

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

condition and requires no collateral. The Company maintains an allowance for
doubtful accounts receivable based upon their expected collectability. For
additional information, see note 10.

  Long-lived assets

     The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate the carrying amount of an asset may not be
recoverable. Recoverability of assets held and used is measured by a comparison
of the carrying amount of an asset to future net cash flows expected to be
generated by the asset. If the assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
value exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of their carrying cost or fair value less costs to sell.

  Comprehensive Loss

     Statements of Comprehensive Loss are included within the Statement of
Stockholders' Equity.

NOTE 3. BALANCE SHEET COMPONENTS

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                         --------------------
                                                           2000        1999
                                                         --------    --------
                                                            (IN THOUSANDS)
<S>                                                      <C>         <C>
Inventories, net of reserves:
  Finished goods.......................................  $ 12,158    $ 22,283
  Raw materials........................................     1,536       3,405
                                                         --------    --------
                                                         $ 13,694    $ 25,688
                                                         ========    ========
Property and equipment, net:
  Land.................................................  $    866    $    866
  Computers and office equipment.......................    13,917      16,884
  Tooling..............................................       302       8,619
  Furniture and fixtures...............................     2,008       2,134
  Leasehold improvements...............................     2,891       2,607
                                                         --------    --------
                                                           19,984      31,110
  Less accumulated depreciation and amortization.......   (17,630)    (24,457)
                                                         --------    --------
                                                         $  2,354    $  6,653
                                                         ========    ========
Accrued liabilities:
  Accrued compensation.................................  $  1,196    $  1,447
  Sales taxes payable..................................       880       1,676
  Other................................................     4,091       3,541
                                                         --------    --------
                                                         $  6,167    $  6,664
                                                         ========    ========
</TABLE>

NOTE 4. RESTRICTED CASH

     Restricted cash is principally comprised of cash held by a bank to secure
outstanding letters of credit the Company issues to a foreign supplier. As
payments are made against the letters of credit, the restricted balance
requirement is reduced.

                                        33
<PAGE>   37
                               CIDCO INCORPORATED

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 5. INVESTMENTS

     The Company's short-term investments consist primarily of municipal and
corporate bonds. As of December 31, 2000, no investments had maturities of
greater than one year. The cost and fair value of the Company's short-term
investments are as follows (in thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                            -----------------
                                                             2000      1999
                                                            ------    -------
<S>                                                         <C>       <C>
Fair value................................................  $6,711    $10,546
Cost......................................................   6,710     10,536
                                                            ------    -------
Unrealized gains..........................................  $    1    $    10
                                                            ======    =======
</TABLE>

     Included in investments are securities valued at $1.5 million which the
Company is precluded from selling until May 2001.

NOTE 6. DISCONTINUED OPERATIONS

     On December 8, 2000, the Company's shareholders approved the sale of
substantially all of the assets of the Telco Business in exchange for $5,000,000
in cash, plus certain inventory and royalty payments to be made after closing.
The sale was completed on December 14, 2000 and resulted in a loss on sale of
$1.9 million, including selling costs. In accordance with the terms of the sale,
the Company retained certain inventory and all cash, accounts receivable and
accounts payable relating to the conduct of the Telco business as of the close
date. The net assets retained, excluding cash, amounted to approximately $13.4
million. The future royalty payments are based on a percentage of the buyer's
post-close revenues from sales of telephony products over a period of four
years, at a rate of 4%, 3%, 2% and 1%, respectively, in each of the succeeding
years. The operating results of the Telco Business have been segregated from
continuing operations and are reported as discontinued operations, with prior
years restated.

     Operating results of the Telco Business for the years ended December 31,
2000, 1999, and 1998 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                       2000        1999        1998
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
Revenues...........................................  $ 67,801    $149,450    $174,703
Income (loss) before income taxes..................   (17,383)     11,042     (58,394)
Benefit from income taxes..........................        --          --      (6,955)
Net income (loss)..................................   (17,383)     11,042     (51,439)
</TABLE>

     Net assets associated with the Telco Business included in the Balance Sheet
at December 31, 2000 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                               2000
                                                              -------
<S>                                                           <C>
Accounts receivable.........................................  $11,152
Inventory...................................................    4,525
Accounts payable............................................   (7,654)
                                                              -------
Net assets..................................................  $ 8,023
                                                              =======
</TABLE>

NOTE 7. COMMITMENTS AND CONTINGENCIES

  Leases

     The Company leases its headquarters, call center and distribution
facilities in Morgan Hill, California, under operating leases which expire in
March 2006. In connection with the sale of the Telco Business (note 5), the
buyer of the Telco Business is obligated to pay the Company the costs of the
facilities used by the

                                        34
<PAGE>   38
                               CIDCO INCORPORATED

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Telco Business. Additionally, the Company leases approximately 6,100 square feet
of office space in Mountain View, California for its development group under a
lease that expires in March 2005. The Company also leases office space in Palo
Alto, California under an operating lease that expires in 2002 and which has
been sublet. These facility leases generally require the Company to pay
operating costs, including property taxes, insurance and maintenance, and
contain renewal options and provisions adjusting the lease payments based upon
changes in the consumer price index.

     Future minimum lease payments under non-cancelable leases at December 31,
2000 were as follows (in thousands):

<TABLE>
<S>                                                           <C>
Year ending December 31,
2001........................................................  $1,799
2002........................................................   1,789
2003........................................................   1,816
2004........................................................   1,779
2005........................................................   1,033
Thereafter..................................................     218
                                                              ------
Total minimum lease payments................................  $8,434
                                                              ======
</TABLE>

     Total minimum annual payments have not been reduced for future minimum
sublease rentals and the obligations assumed by the buyer of the Telco Business
aggregating approximately $1.0 million. Rent expense for 2000 and 1999 reflected
in continuing operations was approximately $1.0 million per year.

  401(k) Plan

     Effective in 1993, the Company implemented a Savings and Profit Sharing
Plan (the "401(k) Plan") which qualifies as a thrift plan under section 401(k)
of the Internal Revenue Code. All employees who are 21 years of age or older on
or before the quarterly entry periods are eligible to participate in the 401(k)
Plan. The 401(k) Plan allows participants to contribute up to 15% of the total
compensation that would otherwise be paid to the participant, not to exceed the
amount allowed by applicable Internal Revenue Service guidelines. The Company
contributes for each participant a matching contribution equal to 50% of the
participant's before-tax contributions for the year not to exceed a $2,500 per
year. In addition, the Company may choose to make elective contributions to the
401(k) Plan for a particular plan year. The Company made contributions of
$315,673, $305,344 and $526,000 to the 401(k) Plan for the years ended December
31, 2000, 1999, and 1998, respectively.

  Pending Litigation

     In the ordinary course of business, the Company may be involved in legal
proceedings. As of the date hereof, the Company is not a party to any pending
legal proceedings that it believes will materially affect its financial
condition or results of operations.

NOTE 8. COMMON STOCK AND STOCK PLAN

  Common Stock

     The Company is authorized to issue up to 35 million shares of Common Stock,
each with a par value of $0.01 per share. Holders of Common Stock are entitled
to one vote per share on all matters voted on by the Company's stockholders. In
March 1994, the Company completed an initial public offering (the "Offering") of
3.4 million shares of Common Stock and realized net proceeds of $45.9 million.
In conjunction with the Offering, all outstanding shares of mandatorily
redeemable Preferred Stock were redeemed for $19.3 million.

                                        35
<PAGE>   39
                               CIDCO INCORPORATED

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

In August 1994, the Company completed a second public offering of 3.5 million
shares of Common Stock at a price of $22 per share. Of such shares, selling
stockholders sold 3.4 million shares and the Company sold 100,000 shares and
realized net proceeds of $1.7 million. In December 1994, the Company completed
an additional public offering of 1.9 million shares of Common Stock at a price
of $23.75 per share. Of such shares, the Company sold 1.5 million shares for net
proceeds of $33.5 million and selling stockholders sold 375,650 shares.

  Warrants

     In March 2000, the Company issued warrants to purchase 245,434 shares of
common stock to a third party in exchange for certain internet content and
marketing rights. The warrants have an exercise price of $7.50 per share and
were valued at approximately $1.1 million using the Black-Scholes option pricing
model with the following assumptions: a risk-free interest rate of 6.38%; a
contractual life of two years; no dividends; and an expected volatility of 115%.
The value of the warrants is included in other assets and is being charged to
operations over the term of the agreement of two years.

  Directors' Stock Option Plan

     In January 1994, the Company's stockholders approved the 1994 Directors'
Stock Option Plan (the "Directors' Option Plan"). Initially, a total of 100,000
shares of Common Stock were reserved for issuance under the Directors' Option
Plan, which provides for the granting of stock options to non-employee directors
of the Company. Such options vest immediately with respect to 20% of such
shares, with the remainder vesting in four equal annual installments commencing
one year after the date of grant. In May 1997, the stockholders approved an
amendment to increase the number of shares authorized under the Directors'
Option Plan to 250,000 shares. In 1997, the Company granted three directors
options under the Directors' Option Plan to purchase a total of 93,325 shares of
Common Stock at an average exercise price of $16.23 per share. In 1998, the
Company granted a director options under the Directors' Option Plan to purchase
30,000 shares at an exercise price of $4.75 per share. This option vests in four
equal annual installments commencing one year after the date of grant. An option
for 33,325 shares was cancelled in 1999. In 1999, the Company granted each of
three new directors options under the Director's Option Plan to purchase 30,000
shares of common stock at an exercise price of $8.63 per share. Each option
vests in four equal annual installments, commencing on the date of the grant.

  Stock Grant to Former Executive Officer

     In March 1997, the Company's then President and Chief Executive Officer,
Daniel L. Eilers, was granted a ten-year stock option to purchase up to 600,000
shares of the Company's Common Stock at an exercise price of $14.25 per share.
The option was scheduled to vest in equal monthly installments over five years.
This stock option was not issued under either of the Company's stock option
plans and the Company filed a Form S-8 Registration Statement with the
Securities and Exchange Commission covering the shares issuable upon exercise of
the stock option. In September 1998, a Separation Agreement and Mutual Release,
was executed which enabled a total of up to 300,000 of these shares to vest
subject to certain time limits, and repriced 120,000 of the vested shares at
$3.00 per share.

  Employee Stock Option Plans

     In May 1993, the Company adopted a stock option plan (the "Plan") under
which the employees and advisors may be granted options to purchase shares of
Common Stock at prices at least equal to the fair market value of the Company's
Common Stock on the date of grant. An aggregate of 2.9 million shares of Common
Stock have been reserved for issuance under the 1993 Stock Option Plan. In April
1998 the Company adopted a second stock option plan (the "1998 Plan") under
which employees and consultants may

                                        36
<PAGE>   40
                               CIDCO INCORPORATED

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

be granted options to purchase shares of Common Stock at an exercise price no
less than eighty-five (85%) of the fair market value of the Company's Common
Stock on the date of grant. A total of 700,000 shares were reserved for issuance
under this plan (400,000 at inception in April and 300,000 shares added in
October 1998). Options under both plans expire ten years from the date of grant.
Generally, options granted prior to August 1, 1997 vested in three equal annual
installments commencing one year from the date of grant. Effective on August 2,
1997, the Board of Directors changed the standard vesting period for future
options to vest 25% after one year, and an additional 2.1% each month thereafter
until fully vested. The Stock Option Plans are administered by the Compensation
Committee of the Board of Directors, which determines the vesting provisions,
the form of payment for shares and all other terms of the options. The stock
option plans were amended in October 1998 by the Company's Board of Directors to
make the Plans competitive with plans offered by other companies in the
Company's market.

     On January 21, 1997, the Company offered Stock Option Plan participants the
right to replace any remaining unexercised stock options with an equal number of
options at an exercise price of $12.43, the closing market price on such date.
Due to the broad decline in market price of the Company's stock, a substantial
amount of outstanding stock options had exercise prices considerably above the
current market price. In an effort to provide incentives and retain current
employees, on August 17, 1998 eligible employees participating in the Company's
Stock Option Plans were offered the opportunity to elect to exchange outstanding
"underwater" options for options at an exercise price of $3.00 per share, the
closing market price on such date. As a provision of the repricing offer,
electing employees were not allowed to exercise their vested options until
August 17, 1999.

     The following table summarizes stock option activity under the Employee
Stock Option Plans:

<TABLE>
<CAPTION>
                                                                OPTIONS OUTSTANDING
                                               SHARES      ------------------------------
                                             AVAILABLE                   WEIGHTED AVERAGE
                                             FOR GRANT       SHARES       EXERCISE PRICE
                                             ----------    ----------    ----------------
<S>                                          <C>           <C>           <C>
Balance at December 31, 1997...............     400,275     1,565,760         $14.57
  Additional shares authorized.............     700,000            --             --
  Options granted..........................  (2,706,798)    2,706,798         $ 4.19
  Options exercised........................          --       (61,278)        $ 9.32
  Options canceled.........................   2,340,318    (2,340,318)        $11.45
                                             ----------    ----------
Balance at December 31, 1998...............     733,795     1,870,962         $ 2.71
  Options granted..........................    (216,175)      216,175         $ 6.00
  Options exercised........................          --      (280,345)        $ 2.86
  Options canceled.........................      91,927       (91,927)        $ 2.75
                                             ----------    ----------
Balance at December 31, 1999...............     609,547     1,714,865         $ 3.04
  Additional shares authorized.............     300,000            --             --
  Options granted..........................    (869,437)      869,437         $ 4.78
  Options exercised........................          --       (97,155)        $ 2.67
  Options canceled.........................     588,906      (588,906)        $ 3.84
                                             ----------    ----------
Balance at December 31, 2000...............     629,016     1,898,241         $ 3.61
                                             ==========    ==========
</TABLE>

                                        37
<PAGE>   41
                               CIDCO INCORPORATED

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     The following table summarizes information concerning all outstanding and
exercisable stock options as of December 31, 2000, including outstanding options
to the former Executive Officer of 270,000 shares and Directors Option Plan of
180,000 shares:

<TABLE>
<CAPTION>
                                   OPTIONS OUTSTANDING                       OPTIONS EXERCISABLE
                    -------------------------------------------------   ------------------------------
                                  WEIGHTED AVERAGE   WEIGHTED AVERAGE                 WEIGHTED AVERAGE
RANGE OF EXERCISE     NUMBER         REMAINING           EXERCISE         NUMBER          EXERCISE
     PRICES         OUTSTANDING   CONTRACTUAL LIFE        PRICE         EXERCISABLE        PRICE
-----------------   -----------   ----------------   ----------------   -----------   ----------------
<S>                 <C>           <C>                <C>                <C>           <C>
1$.00 - $ 2.75..       615,161          6.94              $ 2.10           368,368         $ 1.95
2$.94 - $ 3.19..       590,127          7.47              $ 3.00           427,328         $ 3.00
3$.38 - $ 5.75..       713,169          8.83              $ 4.79           135,629         $ 4.70
6$.50 - $19.82..       429,784          5.68              $11.93           270,805         $13.46
                     ---------                                           ---------
1$.00 - $19.82..     2,348,241          7.42              $ 4.94         1,202,130         $ 5.23
                     =========                                           =========
</TABLE>

  Employee Stock Purchase Plan

     The Company's 1994 Employee Stock Purchase Plan (the "Stock Purchase Plan)
was adopted by the Board of Directors and approved by the Company's stockholders
in January 1994. Under the Stock Purchase Plan, an eligible employee may
purchase shares of Common Stock from the Company through payroll deductions of
up to 10% of his or her compensation, at a price per share equal to 85% of the
lesser of the fair market value of the Company's Common Stock as of the first or
last trading day of each six month offering period. Offerings will commence on
the first trading day on or after January 1 and July 1 of each year and end on
the last trading day of the period six (6) months later. The Company reserved
200,000 shares of Common Stock for issuance under the stock Purchase Plan, and
as of June 30, 1999, the pool of shares available under the Stock Purchase Plan
was substantially depleted.

     The Company's 1999 Employee Stock Purchase Plan (the "1999 ESPP") was
adopted by the Board of Directors in April 1999 and approved by the Company's
stockholders in May 1999. Under the 1999 ESPP, an eligible employee may purchase
shares of Common Stock from the Company through payroll deductions of up to 10%
of his or her compensation, at a price per share equal to 85% of the lesser of
the fair market value of the Company's Common Stock as of the first or last
trading day of each six month offering period. Offerings commenced on the first
trading day on or after August 1 and February 1 of each year and end on the last
trading day of the period six (6) months later. The Company reserved 350,000
shares of Common Stock for issuance under the 1999 ESPP.

  Stockholder's Rights Plan

     Effective January 27, 1997, the Company adopted a Stockholder's Rights Plan
wherein stock rights will be distributed as a dividend at the rate of one right
for each share of Common Stock held on February 14, 1997, the record date for
such dividend. The key terms of the Stockholder's Rights Plan will be activated
if any person acquires 15 percent or more of the Company's Common Stock without
the approval of the Company's Board of Directors. Once the Plan is activated,
each right will entitle the holder to purchase at a price of $95, a fraction of
a share of Preferred Stock which is equivalent to $190 worth of the Company's
Common Stock at the then current market value. Any person holding 15 percent or
more of the stock when the Stockholder's Rights Plan was adopted was
"grandfathered" for existing holdings. The Company's Board of Directors has
retained the right to amend the Stockholder's Rights Plan at any time prior to
its activation.

  Pro Forma Net Income and Earnings Per Share

     Had stock-based compensation cost for the Company's stock option and Stock
Purchase Plan been determined based on the fair value at the grant dates using
the Black-Scholes model as prescribed by SFAS

                                        38
<PAGE>   42
                               CIDCO INCORPORATED

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

123, the Company's results for the years ended December 31, 2000, 1999 and 1998
would have been as follows (in thousands):

<TABLE>
<CAPTION>
                                                        2000       1999        1998
                                                      --------    -------    --------
<S>                                                   <C>         <C>        <C>
Net loss as reported................................  $(40,744)   $   (30)   $(51,439)
Pro forma net loss..................................  $(44,177)   $(2,798)   $(56,794)
Basic and diluted loss per share as reported........  $  (2.94)   $  0.00    $  (3.66)
Pro forma basic and diluted loss per share..........  $  (3.18)   $ (0.21)   $  (4.04)
</TABLE>

     The pro forma effect on net income and earnings per share is not
representative of the pro forma effect on net income in future years because it
does not take into consideration pro forma compensation expense related to
grants made prior to 1995.

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

<TABLE>
<CAPTION>
                                                              2000    1999    1998
                                                              ----    ----    ----
<S>                                                           <C>     <C>     <C>
Stock option plan:
  Expected dividend yield...................................   0.0%    0.0%    0.0%
  Expected stock price volatility...........................   255%    115%    118%
  Risk free interest rate...................................  6.22%   5.46%   5.27%
  Expected life of options (years)..........................   3.8     3.7     3.1
Stock purchase plan:
  Expected dividend yield...................................   0.0%    0.0%    0.0%
  Expected stock price volatility...........................   220%    103%    227%
  Risk free interest rate...................................  6.17%   4.92%   4.87%
  Expected life of option (years)...........................   0.5     0.5     0.5
</TABLE>

     The weighted average estimated grant date fair value, as defined by SFAS
123, for options granted under the Stock Option Plan during 2000, 1999 and 1998
was $4.26, $4.64 and $2.91, respectively. The weighted average estimated grant
date fair value, as defined by SFAS 123, for purchase rights granted under the
Stock Purchase Plan during 2000, 1999 and 1998 was $2.88, $1.29 and $5.60,
respectively.

NOTE 9. PROVISION FOR (BENEFIT FROM) INCOME TAXES

     The Company made no provision for income taxes for the year ended December
31, 2000, due to losses incurred. The provision for income taxes for the years
ended December 31, 1999 and 1998 consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                           1999        1998
                                                          -------    --------
<S>                                                       <C>        <C>
Current:
  Federal...............................................  $(1,501)   $(18,230)
  State.................................................       11         175
                                                          -------    --------
                                                           (1,490)    (18,055)
                                                          -------    --------
Deferred:
  Federal...............................................    1,490       8,750
  State.................................................       --       2,350
                                                          -------    --------
                                                            1,490      11,100
                                                          -------    --------
                                                          $    --    $ (6,955)
</TABLE>

                                        39
<PAGE>   43
                               CIDCO INCORPORATED

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     At December 31, 2000, the Company had approximately $57,000,000 of federal
operating loss carryforwards available to offset future taxable income, which
expire between 2019 and 2020. At December 31, 2000, the Company had federal and
state research and development credits of approximately $187,000 and $703,000,
respectively, available to offset future taxable income. The federal credits
expire in the year 2020 and the state credits may be carried forward
indefinitely.

     The difference between income taxes at the statutory federal income tax
rate and income taxes reported in the income statement are as follows:

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                                    --------------------------
                                                    2000       1999      1998
                                                    -----    --------    -----
<S>                                                 <C>      <C>         <C>
Federal statutory tax rate........................  (34.0)%     (34.0)%  (35.0)%
State income taxes, net of federal benefit........   (5.9)       22.0      2.8
Research and development tax credits..............   (0.5)        0.0      0.0
Permanent differences.............................   (3.5)   (1,543.0)     0.2
Valuation allowance...............................   41.9     1,554.0     25.0
Other.............................................    1.9         1.0     (4.9)
                                                    -----    --------    -----
                                                      0.0%        0.0%   (11.9)%
                                                    =====    ========    =====
</TABLE>

     Deferred income taxes result from temporary differences in the recognition
of certain expenses for financial and income tax reporting purposes. The net
deferred tax asset consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                          AS OF DECEMBER 31,
                                                         --------------------
                                                           2000        1999
                                                         --------    --------
<S>                                                      <C>         <C>
Deferred Tax Assets:
  Non-deductible reserves..............................  $  4,334    $  6,247
  Inventory basis difference...........................       146         152
  Depreciation.........................................     4,050       3,819
  Other................................................       946         361
  Net operating loss...................................    22,663       4,470
                                                         --------    --------
Gross deferred tax asset...............................    32,139      15,049
Deferred tax liabilities...............................        --          --
                                                         --------    --------
Net deferred tax assets................................    32,139      15,049
Less valuation allowance...............................   (32,139)    (15,049)
                                                         --------    --------
                                                         $     --    $     --
</TABLE>

NOTE 10. SIGNIFICANT CUSTOMERS

     The Company's sales to significant customers related to continuing
operations as a percentage of total sales from continuing operations are as
follows:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                              ------------
                                                              2000    1999
                                                              ----    ----
<S>                                                           <C>     <C>
Customer
A...........................................................     *    43.0%
B...........................................................  53.4%      *
</TABLE>

                                        40
<PAGE>   44
                               CIDCO INCORPORATED

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     The Company's accounts receivable from significant customers related to
continuing operations are as follows:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                              ------------
                                                              2000    1999
                                                              ----    ----
<S>                                                           <C>     <C>
Customer
A...........................................................     *    71.8%
B...........................................................     *    16.3%
C...........................................................  33.8%      *
D...........................................................  17.0%      *
</TABLE>

---------------
* Amounts less than 10% have been omitted from the above tables.

                                        41
<PAGE>   45

                               CIDCO INCORPORATED

                 SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                   BALANCE AT                               BALANCE AT
                                                   BEGINNING                                   END
                                                    OF YEAR      ADDITIONS    DEDUCTIONS     OF YEAR
                                                   ----------    ---------    ----------    ----------
                                                                     (IN THOUSANDS)
<S>                                                <C>           <C>          <C>           <C>
Year ended December 31, 1998
  Allowance for doubtful accounts................    $3,301       $4,236       $(5,652)       $1,885
Year ended December 31, 1999
  Allowance for doubtful accounts................    $1,885       $3,836       $(4,594)       $1,127
Year ended December 31, 2000
  Allowance for doubtful accounts................    $1,127       $1,241       $(1,062)       $1,306
</TABLE>

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

     None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information required by this Item other than information regarding
executive officers is set forth under the section of the Company's Proxy
Statement for the 2001 Annual Meeting of Stockholders (the "Proxy Statement")
entitled "ELECTION OF DIRECTORS" and "EXECUTIVE COMPENSATION AND OTHER MATTERS."
Information regarding the Company's executive officers may be found in the
section entitled "Executive Officers" in Part I of this 10-K.

ITEM 11. EXECUTIVE COMPENSATION AND OTHER MATTERS

     The information under the captions "Executive Compensation and Other
Matters" in the Proxy Statement is incorporated herein by reference.

ITEM 12. STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information under the caption "Stock Ownership of Certain Beneficial
Owners" of the Proxy Statement is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information under the caption "Certain Relationships and Related
Transactions" of the Proxy Statement is incorporated herein by reference.

     With the exception of the information specifically stated as being
incorporated by reference from the Company's Proxy Statement in Part III of this
Annual Report on Form 10-K, the Company's Proxy Statement is not to be deemed as
filed as part of this report. The Proxy Statement will be filed with the
Securities and Exchange Commission within 120 days of the Company's fiscal year
end.

                                        42
<PAGE>   46

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a) (1) FINANCIAL STATEMENTS See Item 8 of this Report.

          (2) FINANCIAL STATEMENT SCHEDULES
           See Item 8 of this Report.

          (3) INDEX TO EXHIBITS CIDCO INCORPORATED

<TABLE>
<CAPTION>
    EXHIBITS                                                                 PAGE
    --------                                                                 ----
    <C>        <S>                                                           <C>
      3.1      Amended and Restated Certificate of Incorporation.(1).......   --
      3.2      Second Amended and Restated By-laws of CIDCO Incorporated
               dated January 26, 1999.(6)..................................   --
      4.2      Rights Agreement dated as of January 27, 1997, between the
               Registrant and United States Trust Company of New York, as
               Rights Agent.(3)............................................   --
     10.4      Patent License Agreement dated as of May 1, 1989 between the
               Registrant and American Telephone and Telegraph
               Company.(1).................................................   --
     10.5      Form of Indemnification Agreement.(1).......................   --
     10.17     Sublease dated Nov. 18, 1994, between Thoits Bros. and the
               Registrant for 180 Cochrane Circle.(2)......................   --
     10.18     Lease dated Nov. 1, 1994, between Thoits Bros., Inc. and the
               Registrant for 105 Cochrane Circle, Units A, B, C, D, and
               E.(2).......................................................   --
     10.20     Registrant's 1994 Directors' Stock Option Plan.(2)..........   --
     10.24     Employment Agreement dated June 28, 1996 between Registrant
               and Ian Laing.(4)...........................................   --
     10.30     Registrant's Second Amended and Restated 1993 Stock Option
               Plan.(5)....................................................   --
     10.31     Registrant's Amended and Restated 1998 Stock Option
               Plan.(5)....................................................   --
     10.32     Employment Agreement dated June 1, 1998 between the Company
               and Richard D. Kent.(5).....................................   --
     10.33     Employment Termination Agreement dated Nov. 12, 1998 between
               Registrant and Daniel L. Eilers.(5).........................   --
     10.34     Employment Agreement dated Nov. 12, 1998 between the Company
               and Paul G. Locklin.(6).....................................   --
     10.35     Employment Agreement dated Sept. 30, 1994 between the
               Company and Timothy J. Dooley.(6)...........................   --
     10.36     Separation Agreement dated Sept. 20, 1998 between the
               Company and Marv Tseu(6)....................................   --
     10.37     Separation Agreement dated Sept. 20, 1998 between the
               Company and Jim Hindmarch.(6)...............................   --
     10.38     Separation Agreement dated Nov. 20, 1998 between the Company
               and Ho Leung Cheung(6)......................................   --
     10.39     Employment Agreement dated June 5, 1998 between the Company
               and William A. Sole.(7).....................................   --
     10.40     Registrant's 1999 Employee Stock Purchase Plan(8)...........   --
     10.41     Separation Agreement and Release of all Claims dated January
               23, 2001 between the Company and Timothy Dooley.............   47
     10.42     Separation Agreement and Release of all Claims dated January
               23, 2001 between the Company and Ian Laing..................   51
     10.43     Sublease of 800 California Street dated August 16, 2000
               between the Company and Moai Technologies, Inc..............   54
     10.44     Asset Purchase Agreement dated September 14, 2000, as
               amended, between the Company and Cidco LLC; and related
               agreements attached as exhibits thereto: (Security
               Agreement, License Agreement, Foreign Telephony Product
               License Agreement)(9).......................................   --
</TABLE>

                                        43
<PAGE>   47

<TABLE>
<CAPTION>
    EXHIBITS                                                                 PAGE
    --------                                                                 ----
    <C>        <S>                                                           <C>
     10.45     Amended and Restated Loan and Security Agreement dated March
               29, 1999 between Registrant and Comerica
               Bank-California.(7).........................................   --
     23        Consent of Independent Accountants..........................   --
</TABLE>

---------------
(1) Incorporated herein by reference to the Company's registration statement on
    Form S-1, File No. 33-74114.

(2) Incorporated herein by reference to the Company's Form 10-K for the year
    ended December 31, 1994.

(3) Incorporated herein by reference to the Company's Form 10-Q for the quarter
    ended March 31, 1997.

(4) Incorporated herein by reference to the Company's Form 10-Q for the quarter
    ended June 30, 1997.

(5) Incorporated herein by reference to the Company's Form 10-Q for the quarter
    ended September 30, 1998.

(6) Incorporated herein by reference to the Company's Form 10-K for the year
    ended December 31, 1998.

(7) Incorporated herein by reference to the Company's Form 10-Q for the quarter
    ended March 31, 1999.

(8) Incorporated herein by reference to the Company's Form 10-K for the year
    ended December 31, 1999.

(9) Incorporated herein by reference to the Company's Form 8-K filed on December
    14, 2000.

     (b) Reports on Form 8-K. On October 31, 2000 a report on Form 8-K was filed
         by the Company in order to comply with the requirements of regulation
         FD. On December 27, 2000 a Form 8-K was filed by the Company in
         connection with the sale of its Telco Business. No other reports on
         Form 8-K were filed during the last quarter of the period covered by
         this Report.

                                        44
<PAGE>   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 on the 2nd day of April
2001.

                                          CIDCO INCORPORATED

                                          By:      /s/ PAUL G. LOCKLIN
                                            ------------------------------------
                                                      Paul G. Locklin
                                               President and Chief Executive
                                                           Officer
                                             Chairman of the Board of Directors

     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 indicated, each on the 2nd day of April 2001.

<TABLE>
<S>                                                      <C>

                 /s/ RICHARD D. KENT                       Chief Financial Officer, Chief Operating Officer,
-----------------------------------------------------              Corporate Secretary and Principal
                   Richard D. Kent                                        Accounting Officer

                  /s/ JOHN FLOISAND                                            Director
-----------------------------------------------------
                    John Floisand

                /s/ ERNEST K. JACQUET                                          Director
-----------------------------------------------------
                  Ernest K. Jacquet

                    /s/ MARV TSEU                                              Director
-----------------------------------------------------
                      Marv Tseu

                   /s/ ROBERT LEE                                              Director
-----------------------------------------------------
                     Robert Lee
</TABLE>

                                        45
<PAGE>   49

<TABLE>
<CAPTION>
    EXHIBITS                                                                 PAGE
    --------                                                                 ----
    <C>        <S>                                                           <C>
      3.1      Amended and Restated Certificate of Incorporation.(1).......   --
      3.2      Second Amended and Restated By-laws of CIDCO Incorporated
               dated January 26, 1999.(6)..................................   --
      4.2      Rights Agreement dated as of January 27, 1997, between the
               Registrant and United States Trust Company of New York, as
               Rights Agent.(3)............................................   --
     10.4      Patent License Agreement dated as of May 1, 1989 between the
               Registrant and American Telephone and Telegraph
               Company.(1).................................................   --
     10.5      Form of Indemnification Agreement.(1).......................   --
     10.17     Sublease dated Nov. 18, 1994, between Thoits Bros. and the
               Registrant for 180 Cochrane Circle.(2)......................   --
     10.18     Lease dated Nov. 1, 1994, between Thoits Bros., Inc. and the
               Registrant for 105 Cochrane Circle, Units A, B, C, D, and
               E.(2).......................................................   --
     10.20     Registrant's 1994 Directors' Stock Option Plan.(2)..........   --
     10.24     Employment Agreement dated June 28, 1996 between Registrant
               and Ian Laing.(4)...........................................   --
     10.30     Registrant's Second Amended and Restated 1993 Stock Option
               Plan.(5)....................................................   --
     10.31     Registrant's Amended and Restated 1998 Stock Option
               Plan.(5)....................................................   --
     10.32     Employment Agreement dated June 1, 1998 between the Company
               and Richard D. Kent.(5).....................................   --
     10.33     Employment Termination Agreement dated Nov. 12, 1998 between
               Registrant and Daniel L. Eilers.(5).........................   --
     10.34     Employment Agreement dated Nov. 12, 1998 between the Company
               and Paul G. Locklin.(6).....................................   --
     10.35     Employment Agreement dated Sept. 30, 1994 between the
               Company and Timothy J. Dooley.(6)...........................   --
     10.36     Separation Agreement dated Sept. 20, 1998 between the
               Company and Marv Tseu.(6)...................................   --
     10.37     Separation Agreement dated Sept. 20, 1998 between the
               Company and Jim Hindmarch.(6)...............................   --
     10.38     Separation Agreement dated Nov. 20, 1998 between the Company
               and Ho Leung Cheung(6)......................................   --
     10.39     Employment Agreement dated June 5, 1998 between the Company
               and William A. Sole.(7).....................................   --
     10.40     Registrant's 1999 Employee Stock Purchase Plan(8)...........   --
     10.41     Separation Agreement and Release of all Claims dated January
               23, 2001 between the Company and Timothy Dooley.............   47
     10.42     Separation Agreement and Release of all Claims dated January
               23, 2001 between the Company and Ian Laing..................   51
     10.43     Sublease of 800 California Street dated August 16, 2000
               between the Company and Moai Technologies, Inc..............   54
     10.44     Asset Purchase Agreement dated September 14, 2000, as
               amended, between the Company and Cidco LLC; and related
               agreements attached as exhibits thereto: (Security
               Agreement, License Agreement, Foreign Telephony Product
               License Agreement)(9).......................................   --
     10.45     Amended and Restated Loan and Security Agreement dated March
               29, 1999 between Registrant and Comerica
               Bank-California.(7).........................................   --
     23        Consent of Independent Accountants..........................   --
</TABLE>

---------------
(1) Incorporated herein by reference to the Company's registration statement on
    Form S-1, File No. 33-74114.

(2) Incorporated herein by reference to the Company's Form 10-K for the year
    ended December 31, 1994.

(3) Incorporated herein by reference to the Company's Form 10-Q for the quarter
    ended March 31, 1997.

(4) Incorporated herein by reference to the Company's Form 10-Q for the quarter
    ended June 30, 1997.

                                        46
<PAGE>   50

(5) Incorporated herein by reference to the Company's Form 10-Q for the quarter
    ended September 30, 1998.

(6) Incorporated herein by reference to the Company's Form 10-K for the year
    ended December 31, 1998.

(7) Incorporated herein by reference to the Company's Form 10-Q for the quarter
    ended March 31, 1999.

(8) Incorporated herein by reference to the Company's Form 10-K for the year
    ended December 31, 1999.

(9) Incorporated herein by reference to the Company's Form 8-K filed on December
    14, 2000.

                                        47