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                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, 1999.

                         Commission file number: 0-23296

                               CIDCO INCORPORATED

             (Exact Name of Registrant as Specified in its Charter)

                  Delaware                                 13-3500734
       (State or other jurisdiction of                   (IRS employer
       Incorporation or organization)                identification number)

                               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)

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        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 $7.25 on March 21,
2000 was $90,861,582.  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 21, 2000:
                                                                      14,424,932

                       DOCUMENTS INCORPORATED BY REFERENCE

Registrant's   definitive  Proxy  Statement  for  its  1999  Annual  Meeting  of
Shareholders  is  incorporated by reference into Part III (Items 10, 11, 12, and
13) hereof.

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This report  consists of 56 sequentially  numbered  pages.  The exhibit index is
contained on page 43 of this report.



                               CIDCO INCORPORATED
                                      INDEX

PART I.                                                                    Page
                                                                           ----

   Item  1. Business ..........................................................3

   Item  2. Properties .......................................................14

   Item  3. Legal Proceedings ................................................14

   Item  4. Submission of Matters to a Vote of Security Holders ..............14


PART II.

   Item  5. Market for Registrant's Common Stock and Related
               Stockholder Matters ...........................................15

   Item  6. Selected Financial Data ..........................................16

   Item  7. Management's Discussion and Analysis of Financial
               Condition and Results of Operations ...........................17

   Item  7A.Quantitative and Qualitative Disclosure About Market Risk ........25

   Item  8. Financial Statements and Supplementary Data ......................26

   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 ...........................................42

   Item 12. Security 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 ...................................................................44



 Forward-Looking Statements

         This Report  contains  forward-looking  statements,  which  reflect the
Company's  current  views with  respect to future  events,  which may impact the
Company's  results of operations and financial  condition.  In this Report,  the
words  "anticipates,"  "believes,"  "expects,"  "intends," "future," and similar
expressions   identify   forward-looking   statements.   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.  Readers are cautioned  not to place undue  reliance on
these forward-looking statements, which speak only as of the date hereof.


                                     Part I.

Item   1.     Business

         CIDCO Incorporated ("CIDCO" or the "Company") is a leading innovator in
advanced  telephony  products - from Caller ID and Network Service  equipment to
Internet  appliances  and  services  - which  support  Caller  ID,  Voice  Mail,
Three-way  Caller   Conferencing,   Caller  ID  on  Call  Waiting  and/or  other
intelligent Network ("Network") Services (collectively "Services") being offered
by  Regional  Bell  Operating  Companies  ("RBOCs")  and  independent  telephone
operating  companies  (collectively  with RBOCs,  "Telcos")  as well as Internet
Service Providers  (ISP's),  both domestic and  international.  The Company is a
leading  supplier of Caller ID equipment in the United  States and has sold over
32 million  product units,  including  Caller ID display units,  Network feature
telephones,  advanced  cordless  telephones,  smart  screen  phones and Internet
appliance devices. The Company's products are provided to telephone  subscribers
primarily  through  distribution  arrangements  with  leading  Telcos.  Internet
appliance devices are distributed  through  Retailers,  Telco's and other ISP's.
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".

         The first Service to require specialized subscriber telephone equipment
was Caller ID, first  introduced by New Jersey Bell in 1987.  Caller ID not only
requires  compatibility  with complex  Network  signaling,  but also a screen on
which to display Caller ID information.  Originally,  Caller ID Service provided
only the  number  of the party  initiating  the call and  transmitted  data only
within local area Networks.  Since the early 1990's, certain Telcos have offered
both   number  and  name   identification.   In  December   1995,   the  Federal
Communications  Commission  (the  "FCC")  mandated  that  Caller ID  Service  be
supported  nationally.  California  was the last state to provide  the  Service,
instituting it in mid-1996,  making the Service available in all 50 states,  the
District of Columbia  and Puerto Rico.  Additionally,  Caller ID on Call Waiting
was first  introduced in late 1995.  This Service,  also known as Type II Caller
ID,  allows the  subscriber  to utilize  Caller ID Service to  identify a second
incoming call while already engaged in a telephone conversation. A third type of
Caller ID product was introduced in 1998 - Caller ID Deluxe or Caller ID on Call
Waiting with call disposition.  Call disposition  allows the user to make use of
the following functions while already engaged in a telephone  conversation:  put
the original  call on hold and answer the new call,  conference in the new call,
play a short message and put the new call on hold, send the caller to voice mail
or let the caller know the call will be returned later.

         CIDCO sells its telephony  products to individual  subscribers  through
direct   marketing   relationships   with  certain  Telcos  ("Direct   Marketing
Services"),  fulfillment of Telco-generated  orders  ("Fulfillment"),  wholesale
shipments  directly  to Telcos  ("Direct  to  Telco"),  and to a lesser  extent,
international  accounts,  retail  stores  ("Retail")  and  via  its  own  direct
marketing activities (telemarketing, web marketing, direct mail, direct response
advertising). CIDCO's customers include, among others, Bell Atlantic Corporation
("Bell Atlantic"), GTE Corporation, SBC Inc.( Pacific Bell, Southern New England
Telecommunications,  Southwestern  Bell, and Ameritech),  Sprint  Communications
Company, L.P. ("Sprint"), U S WEST Communications, Inc. ("U S WEST"), Telefonica
de Argentina,  and TELEFONOS de MEXICO,  S.A. de C.V.. With the  introduction of
its  MailStation(R)1  device  during 1999,  CIDCO has also  increased its retail
presence with relationships so far with Comp USA, Good Guys, and Staples.

    1  MailStation  is a registered  trademark of CIDCO  Corporation


         Penetration for Caller ID Service has increased as necessary  approvals
by state public  utility  commissions  have been obtained and as the Telcos have
upgraded their switches and  implemented new signaling  technologies.  Caller ID
Service  is also  currently  available  in much of Canada,  Mexico and  numerous
European, Asian, African and South American countries.

         Since its founding in 1988,  the Company has  concentrated  its product
development  and  marketing  efforts on products  that support  Network  Feature
Services  and that more  recently  leverage  Internet  services.  The  Company's
products  can be  categorized  into three  primary  product  families:  Internet
appliances, accessory products, and Network feature phones.

 Internet Appliances

         In  1996,  the  Company  began  developing  a line of  next-generation,
telephone-based  "information  appliances"  which allow access to the World Wide
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  Internet
appliances   market  was  the  CIDCO  i-Phone(R)2   ("i-Phone"),   developed  in
conjunction with InfoGear Technology Corporation ("InfoGear"),  a privately held
corporation  in which the Company is an investor.  The Company began  commercial
shipments  of the  i-Phone  in the  first  quarter  of  1998.  Due to a  company
resturcturing  it discontinued  the i-Phone Division in late 1998, but continues
to have an equity interest in InfoGear.

         While CIDCO's i-Phone product was ahead of its time, management learned
that the E-mail  function  on the  i-Phone 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 personal computer in their homes. The MailStation uses the  Internet/telephony
networks to enable consumers to handle  interpersonal  communication in a non-PC
environment.

         The Company is  negotiating  with various  online  providers to provide
additional  services  in the  form  of  content  via the  MailStation  including
headline  news,  weather,  sports,  stock  quotes and TV  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.  Services  available
through the  MailStation  are on a  subscription  basis,  generating a recurring
revenue.


   2 i-Phone is a registered trademark of InfoGear Technology Corporation.


 Accessory Products

         The Company's  accessory  products include a line of Telephone  Company
(Telco) Network  Feature  adjunct units which connect to subscribers'  telephone
lines,  receive network signaling from Telco central office switching  equipment
and display call information on a liquid crystal display  ("LCD").  In 1999, the
Company introduced a new adjunct that handles voice mail Services offered by the
Telco's.  CIDCO also  re-engineered  one of their top selling  Type II Caller ID
adjuncts to be more  competitive in the market.  Since the  introduction  of its
first  Caller ID unit in 1989,  the  Company  has become a leading  provider  of
Network Feature Service equipment,  having sold more than thirty million adjunct
units.

 Network Feature Phones

         The Company  offers an extended line of Network  Feature phones capable
of supporting a wide variety of Telco Network Services including Caller ID, Call
Return,  Call  Forwarding and central office Voice Mail in a single device.  The
Company  focused  the  majority  of its  recent  development  in  this  area  on
900-megahertz  (MHz)  cordless  feature  phones.  At the beginning of 1999,  the
Company  released  the CL980  900MHz  digital  spread  spectrum  (DSS)  cordless
speakerphone,  and followed with the CL940 and CL990, which were released during
the third  quarter.  These three offer  state-of-the-art  radio  technology  and
feature  variety to coincide  with the  Telephone  Company's  "Good",  "Better",
"Best" marketing  strategy.  In addition to these the Company has developed some
lower  cost  900MHz  analog  cordless   telephones   ideally  suited  for  Telco
promotional efforts.

Industry Background

         Prior to its  court-mandated  break-up  in 1984,  American  Telephone &
Telegraph  ("AT&T")  was a  regulated  monopoly  that  provided  local  and long
distance services,  and customer  telephone  equipment to over two-thirds of the
telephone    subscribers   in   the   United   States.    Today's    competitive
telecommunications  industry  has  evolved  principally  as a result  of  AT&T's
divestiture of the RBOCs. The RBOCs,  which currently  account for approximately
77% of local telephone access lines in the United States,  provide standard dial
tone service and local telephone access lines.  Interexchange  carriers, such as
AT&T, MCI WorldCom and Sprint,  provide long distance and other services.  Since
the  divestiture,  Lucent  Technology  (former  equipment  entity  of AT&T)  has
continued to sell switching equipment and telephone  equipment,  while the RBOCs
have been prohibited from  manufacturing any type of telephony  equipment.  This
prohibition has been eliminated by the Telecommunications Act of 1996. The RBOCs
have been permitted to sell telephony  equipment  manufactured by others bearing
the RBOCs tradename and may purchase  Network  equipment from vendors other than
AT&T.  Consumers are no longer  required to lease  telephones  from AT&T and now
purchase  telephone  equipment from numerous  suppliers.  The AT&T  divestiture,
therefore, resulted in a more deregulated telephone service industry, and a more
dynamic and competitive telephony equipment industry in the United States.

         The Telcos have approached  saturation  levels for the  installation of
local  telephone  access  lines,  thus  limiting  future  growth  of their  core
business.  In order to  supplement  growth in revenues  from  standard dial tone
service within their  respective  service areas,  the Telcos have offered second
lines and  Services  for which  they can  charge  their  subscribers  additional
monthly  fees.  In addition,  the Telcos have used these  Services to respond to
increased  competition  from  alternative  service  providers  such as  cellular
companies,  cable companies,  data transmission companies and competitive access
providers by differentiating  their Services and creating consumer awareness and
customer loyalty.

         Although  Services  such as call  waiting,  call  forwarding  and speed
dialing have been available for over ten years,  more recent  investments by the
Telcos to upgrade their Networks and to accommodate  new signaling  technologies
have enabled the rapid  introduction  of Services  known as CLASS  (custom local
area signaling services). These include:

     o  Caller ID, which displays  information about an incoming call (including
        the  number and name of the caller and the time and date of the call) on
        a display  screen built into the  telephone  or a separate  display unit
        connected to the telephone;

     o  Repeat Dialing, which continues to dial a busy number until the
        connection is made;

     o  Selective  Call Forward,  which lets the  subscriber  pre-select certain
        numbers to be forwarded to another number;

     o  Automatic Call Back, which automatically dials the number of the last
        incoming call;

     o  Selective Call Block, which lets the subscriber select certain telephone
        numbers to be blocked;

     o  Distinctive Ringing, which lets the subscriber pre-select numbers to
        ring with a distinctive sounding ring;

     o  Call Trace, which allows a subscriber to have a call traced by the
        telephone company; and

     o  Caller ID on Call Waiting, which allows the subscriber to utilize Caller
        ID Service to  identify  an  incoming  call while  already  engaged in a
        telephone conversation.

         The ability of Telcos to achieve high  penetration  levels for Services
is dependent,  in part, upon the  availability of a new generation of subscriber
telephone  equipment.  Most existing telephones  discourage use of these current
and future  Services  because  they  require  subscribers  to remember  and dial
sequences of symbols and numbers to access the  Services.  Such  telephones  are
also incapable of receiving the complex Network signaling required for Caller ID
Service and other future  Services and do not have a display screen and controls
for  viewing  and  managing  call  information.  Therefore,  a market  for a new
generation  of   user-friendly,   intelligent,   Network-compatible   subscriber
telephone equipment emerged.

         This new  generation of  subscriber  telephone  equipment  must operate
reliably over a wide range of telephone  Network  conditions.  Although  general
specifications exist for Caller ID and other Services,  Network variations among
Telcos often  require  manufacturers  to debug and field test their  products on
various  telephone  Networks  in order to ensure that their  equipment  operates
properly  throughout  these Networks and meets the high standards of reliability
and compatibility required by the Telcos.

         Traditional consumer telephone suppliers,  which sell primarily through
Retailers, have focused on the types of high volume "generic" equipment that are
most  suitable  for  such  a  distribution  channel.  However,  the  market  for
intelligent   Network  subscriber   telephone   equipment  currently  relies  in
significant  part on specialized  distribution  arrangements  and requires close
working   relationships  with  the  RBOCs  and  independent  Telcos  to  address
compatibility  issues  promptly as they arise.  This created an opportunity  for
entrants in the market for intelligent Network subscriber equipment.

Strategy

         CIDCO's  mission  is to provide  the  world's  easiest-to-use  personal
communication  products and services.  The  Company's  objective is to envision,
produce  and  distribute  a range of  products  that  will  become  the  primary
telephony  and  communication  appliances  utilized by  customers  of Telcos and
non-computer  Internet  users.  To  achieve  this  objective,  the  Company  has
developed the following strategy:

 Diversify Product Line

         The Company has  expanded  its product  offerings  into a number of new
business areas, including its new E-mail appliance, MailStation, a mid-level and
lower-end cordless telephone and a Network voice mail product.  Additionally the
Company is seeking to continue to expand its product offering including adding a
high-end 2.4 GHz cordless  phone and a second  Internet  appliance.  The Company
added such new  products  to broaden  its  product  line and the  markets it can
address while continuing to leverage CIDCO's experience and core competencies.

 Diversify Channels of Distribution

         The Company is seeking to diversify its  distribution  channels  toward
direct-to-end-user,  Retail and other alternate  distribution  channels in areas
that do not conflict with its Telco  partners,  with the goals of broadening the
Company's  market  opportunities  and  adding  predictability  to the  Company's
quarter-to-quarter revenues. In particular, the company believes the MailStation
and future Internet  appliances will primarily be distributed through Retail and
other alternate distribution channels.

 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 1998, the Company implemented a state-of-the-art,  enterprise-wide accounting
and resource  planning system which has improved the Company's ability to better
manage  business  processes and systems which,  in turn,  will improve  customer
retention  and new  customer  acquisition.  In  1999,  the  Company  established
Internet E-mail service  provider  capabilities in support of its entry into the
Internet  a`ppliance and service  market.  The Company  partnered with an E-mail
hosting  company and two ISP's to provide the backbone  for its E-mail  service.
These partners have been integrated  with the Company's high volume  fulfillment
and  customer  care system to manage the new E-mail  customers.  Development  of
content,  information  and commerce on the  Company's  Internet  appliance  will
necessitate  continued  investment in these systems and may require  significant
investment in E-mail and Internet infrastructure or significant new partnerships
arrangements.

 Leverage Relationships with Telcos

         The  Company   believes   that  it  has   established   close   working
relationships  with  certain  Telcos,  which  enable  the  Company to design its
products to be compatible with the existing and evolving Telco  Networks.  These
relationships allow the Company to understand variations between Networks and to
design its products to operate reliably over a wide range of Network conditions.
The Company has developed  marketing and fulfillment  relationships with certain
Telcos,  which  expand its ability to market its  equipment  to those Telcos and
leverage the efforts of the Telcos to market these Services.  These arrangements
differ by Telco,  but  typically  allow  subscribers  to purchase  both  Network
equipment and Services  through one phone call to a Telco sales  representative.
In general,  the sales  representative  takes the  customer's  order for a CIDCO
product and relays the  information  to the  Company  for  product  fulfillment.
Collectively,  these relationships permit the Company to design products to meet
emerging  standards and to respond to new  intelligent  Network  Services  being
introduced.  The Company  intends to continue  to leverage  existing  and future
marketing relationships as it introduces new products.

 Continued Cooperative Marketing Efforts

         The Company has ongoing Direct Marketing  Services programs with Telcos
to  attract  new  subscribers  and  sell  new  product  and  Services  to  those
subscribers.  Direct Marketing  Services programs are sales campaigns run by the
Company  involving  the  use of  consumer  mailings  and  telemarketing  to sell
Services  for the  Telcos,  which  Services,  in  turn,  utilize  the  Company's
products. As part of these programs, the Company, acting as the Telco's "agent,"
generates an order for  Services,  such as Caller ID, and then, on behalf of the
Telco,  ships an adjunct product or a phone product to each customer  "acquired"
through the  campaign.  The Company  intends to  leverage  its Direct  Marketing
Services programs as it introduces new products.

 Design High Quality, Innovative Products

         CIDCO's  customers  demand  high-quality  products that are innovative,
easy to use and have consumer appeal.  The design,  functionality  and aesthetic
characteristics of advanced telephone and Internet appliance products can impact
E-mail  service  revenue and  acceptance of Telco Services by customers and have
become  important  criteria  to the Telcos in choosing  companies  with which to
develop  relationships.  The Company  intends to continue to emphasize  quality,
innovation and ease of use in its product design.

 Provide High Quality Support and Service

         The Company  believes its ability to provide  high-quality  support and
service  is  beneficial  to its  success in  developing  and  retaining  certain
customer  relationships.  Telco subscribers expect the same level of support and
service that they receive from the Telcos.  Telcos have become particularly more
demanding in this regard over the past two years.

 Be a Low Cost Producer of Intelligent Network Subscriber Telephone Equipment

         The Company intends to benefit from its ability to reduce manufacturing
costs by engineering products for 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.

Products

         The Company  introduced  its first Caller ID unit in 1989.  Since then,
the Company  has  broadened  its  product  family to include a variety of models
including  stand-alone  Caller ID display units and Network  Feature Phones with
Caller ID capability built in. Additionally, the Company has introduced a simple
Internet  appliance which it currently markets through both the Telco and Retail
channel.  Through 1999,  substantially all of the Company's sales were generated
from its Caller ID based and Network Feature phone products and Direct Marketing
Services to Telcos.

         CIDCO's  Caller ID and  Network  Feature  phone  products  display  all
transmitted  information  before the incoming  phone call is answered and stores
the call  information in memory.  Among the features  available on the Company's
products are backlit  screens for easy  viewing,  memory  capacity for up to 100
calls, a "blocked call/new call" light,  bilingual  display,  a "message waiting
alert" light that  indicates to a Network voice mail  subscriber  that new voice
mail  messages have been received and call  disposition.  The Company  pioneered
OTV(R)3 (one-time  viewing),  which allows the screen on the Company's Caller ID
units to display all Caller ID  information at one time.  Additionally,  some of
the Company's  latest  products  include  Caller ID on Call Waiting or Caller ID
Deluxe  (Caller ID on Call  Waiting  with call  disposition).  Caller ID on Call
Waiting  allows the caller to utilize  Caller ID Service to identify an incoming
call while already engaged in another telephone  conversation.  Call disposition
allows the user to make use of the following  functions while already engaged in
a telephone conversation: put the original call on hold and answer the new call,
conference  in the new call,  play a short message and put the new call on hold,
send the caller to voice mail or let the caller  know the call will be  returned
later.  The  Company's  Caller ID units are intended to be  compatible  with the
major  switches  currently  in  use  in  the  United  States,   including  those
manufactured  by Lucent  Technology,  Northern  Telecom,  Siemens  A.G. and L.M.
Ericsson.





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

             Memory                                                 Typical
 Model No.  Capacity              Product Features                Retail Price
----------- -------- ------------------------------------------- ---------------
MailStation 400      Standard  Internet E-mail (POP3 & SMTP) For  $99.00-$179.00
            Typical  Up To 5 Separate Users; Graphical Display
            Messages Uses Simple Intuitive Screens, 6"x2.5" Display;
                     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.

PA-25       25 Call  OTV (One-Time Viewing); Type I Caller ID       $9.95-$19.99
            Records  Adjunct. New CallLight; LCD Contrast
                     Adjustment; Bilingual.

CW-99/DB99  99 Call  OTV; Type II Caller ID(Caller ID on Call      $29.95-$39.99
            Records  Waiting); New Call Light; Bilingual English/
                     Spanish; Message Waiting Alert Light.

VM-100      Voice    Voice Mail Acquisition and Retention Adjunct. $29.95-$39.95
            Mail     Pre-programmed Voice Mail Navigation Keys for
            Adjunct  Telco Network Voice Mail Functions; Message
                     Waiting Alert Light.

DM-80       80 Call  OTV; Type II Caller ID; Voice Mail; Trilight  $49.95-$69.99
            Records  Alert; Bilingual English/Spanish; Message
                     Waiting Alert Light; Pre-programmed Call
                     Waiting Deluxe (Call Disposition) and Central
                     Office Voice Mail Keys; 60 Number Directory;
                     One-Touch Dialback Key.

CT-5        50 Call  Type I Caller ID;Message Waiting Alert Light; $39.95-$49.95
            Records  Call Hold; Dedicated Central Office Voice Mail
                     Access Key; Redial Key; Nine Programmable Class
                     Feature Keys.

CT-15       40 Call  Type II Caller ID; Message Waiting Alert      $69.95-$79.95
            Records  Light; Dedicated Central Office Voice Mail
                     Access Key; Backlit Display; Speakerphone;
                     Nine Programmable Class Feature Keys.

CL-910      40 Call  900 MHz Analog Type II Caller ID;            $89.95-$119.95
            Records  Cordless Phone

CL-940      50 Call  900 MHz Digital Spread Spectrum Type II     $149.00-$169.00
            Records  Caller ID; One-touch Access to Central
                     Office Voice Mail; Type II Caller ID;
                     50 Number Personal Directory; Visual Message
                     Waiting Indicator.

CL-980      50 Call  900 MHz Digital Spread Spectrum Type II     $169.00-$199.00
            Records  Caller ID; Dial-in-Base Speakerphone;
                     One-touch Access to Central Office Voice
                     Mail; Type II Caller ID; 50 Number Personal
                     Directory; Visual Message Waiting Indicator;
                     Network Voicemail Navigation Keys.

CL-990      50 Call  900 MHz Digital Spread Spectrum Type II     $199.00-$229.00
            Records  Caller ID; Dial-in-Base Speakerphone;
                     Dual Backlit Caller ID Display in Base;
                     One-touch Access to Central Office Voice Mail;
                     Type II Caller ID; 50 Number Personal Directory;
                     Visual Message Waiting Indicator; Network
                     Voicemail Navigation Keys.



   3 OTV (One-time viewing) is a registered trademark of CIDCO Corporation



Distribution

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

 Direct Marketing Services Arrangements

         In 1999, the Company  continued its cooperative  marketing efforts with
Bell Atlantic, Pacific Bell, Sprint, Southwestern Bell, and U S WEST. With these
efforts,  the Company  coordinates sales campaigns involving the use of consumer
mailings and  telemarketing  to sell Telco  Services  that utilize the Company's
products.

 Fulfillment Arrangements

         In 1999, the Company had Fulfillment  arrangements  with Bell Atlantic,
Cincinnati Bell, Southwestern Bell and SNET. In most instances,  the Telco sales
representatives  sell both Network Services and CIDCO equipment to customers and
transmit equipment orders to CIDCO  electronically on a daily basis. The Company
then ships its equipment directly to the customers and bills the Telco, which in
turn bills its  customers.  As part of these  Fulfillment  relationships,  CIDCO
provides  toll  free  after-sales  service  and  support  to help  the  customer
understand how to utilize the Feature Service and equipment.

         The Company continually seeks to strengthen its current Telco marketing
alliances and to develop new alliances. The Company has found through experience
that  sales of  Feature  Service  and  equipment  are more  successful  when the
customer can purchase both Feature  Service and equipment  from a single source,
especially  when  payment  for  equipment  can be made on an  installment  basis
through  the  customer's  phone  bill.  The  Company  has  found  that  customer
satisfaction  with Feature  Service is enhanced  when the customer  receives the
equipment promptly after ordering the Service and is provided a toll free number
for after-sales service and support.

 Direct Sales to Telcos

         Through its direct  sales  force,  the Company  sells  Network  Feature
Service products in quantity to a number of Telcos,  either under the CIDCO name
or the respective  Telcos' logo. The Company sells its products directly to most
of the major  independent  Telcos in the  United  States;  as well as to certain
Canadian and international telephone companies.

 Direct Marketing Sales

         In 1997,  the Company  developed  direct  marketing  programs for CIDCO
branded Network Feature Phones.  These programs  involve  catalog,  direct mail,
telemarketing,  web commerce  and direct  response  advertising  directly to end
users.  In 1999 and 1998  respectively,  sales  from  these  programs  were $6.9
million  and  $10.1  million.  However,  the cost of  acquisition  continues  to
increase as penetration rates increase. Consequently, the Company has decided to
pursue  this avenue of selling  its  products  only to the extent that it can be
done profitably and does not compete with its Telco partners.

 Retail Sales

         Having sharply curtailed Retail efforts in recent years, the Company is
re-launching  its retail efforts and capabilities for the MailStation and future
Internet  appliances.  At the end of 1999 Good Guys was selling the MailStation.
CompUSA and Staples have increased the number of  storefronts  to  approximately
1,000 by the end of February  2000.  The Company hopes to increase the number of
retail store fronts during year 2000.

 Significant Customers

         For  the  year  ended  December  31,  1999,  sales  to  Bell  Atlantic,
Southwestern  Bell  and  Pacific  Bell  represented   28.5%,   17.7%  and  19.5%
respectively,  of the Company's sales. In 1998, sales to Southwestern Bell, Bell
Atlantic, and U S West represented 21.6%, 18.1%, and 11.6% respectively,  of the
Company's sales.

Product Development

         The Company's product  development  efforts are focused on new products
that  support  additional  Services,   Internet/electronic   messaging,  product
enhancements,  international  standards compliance 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 Telco equipment
market does today.  Furthermore,  the Company believes that its future operating
results will depend on its ability to continue to enhance  existing  products as
well as to develop  and bring new  products to market in a timely  manner,  that
meet market and customer requirements.

         In 1999, the Company  organized  product  development  into two primary
product categories:

 Internet Appliances

         In  July,  1999 the  Company  introduced  the  MailStation,  a  simple,
inexpensive,  single-use  E-mail  device that will  finally  bring E-mail to the
masses, especially to those who do not have access to or the need for a personal
computer in their homes. The MailStation uses the Internet/telephony networks to
enable consumers to handle interpersonal  communication in a non-PC environment.
The MailStation is the first in a series of Internet appliances that the Company
plans on offering over the next couple of years,  specifically the Company plans
to introduce a second product during the second half of year 2000.  This product
will have a higher screen quality,  be able to handle attachments to E-mails and
have expanded  capabilities to obtain information from and perform commerce with
the Internet.

 Accessory Products and Network Feature Phones

         The Company's Accessory Products include a full line of Network Feature
Service products aimed at the consumer  residential market. In 1999, the Company
focused its  engineering  efforts on expanding  its offering of 900 MHz cordless
Network Feature phones and a Network voicemail adjunct. At the beginning of 1999
the  Company  introduced  its  CL980 900 MHz DSS  cordless  speaker  phone,  and
followed with the CL940 and CL990, which were released during the third quarter.
These three  phones  offer  state-of-the-are  900 MHz DSS radio  technology  and
feature  variety to coincide  with the  Telephone  Company's  "Good",  "Better",
"Best"  marketing  strategy.  In addition to these new  products the Company has
developed some lower cost 900 MHz analog cordless  telephones ideally suited for
Telco promotional efforts.

         The Company's product development groups are experienced in engineering
products in the  telecommunications  industry.  The Company's  products  utilize
proprietary  electrical,  mechanical and software designs. The Company's ability
to emulate various telephone switch-signaling  characteristics through specially
designed test  equipment in its  development  facility,  together with its field
test program, enable it to develop products that are compatible with the various
telephone and Internet networks.

         In  1999,  1998  and  1997  the  Company's   research  and  development
expenditures were $9.1 million,  $10.8 million and $16.9 million,  respectively.
Research  and  development  expenses  primarily  have  represented  salaries for
research and development  personnel,  associated  personnel  benefits,  tooling,
contracted  engineering  services,  and supplies  for  research and  development
activities.

         At December 31, 1999, 34 employees were engaged in product development.
There can be no assurance that the Company's  product  development  efforts will
result in commercially  successful products, or that the Company's products will
not be rendered obsolete by changing technology or new product  introductions by
others.

Manufacturing

         The  Company's  products  are  manufactured  for the  Company  by third
parties  that are  primarily  located  in  Malaysia,  China  and  Thailand.  The
Company's manufacturing  operations are limited to the testing,  quality control
and shipping of finished products.  All of the Company's contract  manufacturers
have been certified  pursuant to ISO 9002. The Company's  manufacturers  perform
comprehensive  inspection,  testing and  statistical  process  control  testing,
utilizing the Company's  internally  designed  automated testing  equipment.  To
date, the Company has not experienced significant product warranty returns.

         Many of the key components used in the Company's 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 the
Company cannot quickly obtain additional  supply without  incurring  significant
incremental  costs. In general,  the Company does not have supply contracts with
its  suppliers  and  orders  parts on a  purchase  order  basis.  The  Company's
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 the Company's  business,  results of operations  and financial
condition.

Competition

         The market for the Company's products is highly competitive and subject
to rapid technological  change. At present, the Company's principal  competitors
for display  units are Bell South  Products,  Northern  Telecom  and  GE/Thomson
("GE"). The Company's Network Feature telephones compete with those manufactured
by Lucent/Phillips,  Northern Telecom,  Panasonic, Sony, GE/Thomson,  V-Tech and
others. The MailStation  presently competes with devices  manufactured by Landel
Technologies  and V-Tech.  Certain of these  companies have  significantly  more
financial and technical  resources than the Company.  The Company's  competitors
also  include  in-house   divisions  of  the  Company's  current  and  potential
customers,  as well as companies such as, Innotrac,  offering specific services.
In addition,  competitors  for the Company's  phone products  include both large
Asian and European consumer electronics companies and smaller Asian and European
manufacturers. If the Company's existing customers elect to perform the customer
acquisition  services  currently  undertaken  by the Company  through its Direct
Marketing  Services  programs,  or if  potential  customers  retain or  increase
internal capabilities to provide such services, the Company's business,  results
of operation and financial condition could be adversely affected.

         The  introduction of new  competitive  products into one or more of the
Company's  various 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,
possibly  including current  customers.  The Company believes that the principal
competitive  factors in its  market are  knowledge  of the  requirements  of the
various  Telcos,  product  reliability,  product  design,  customer  service and
support,  and product price  relative to  performance.  The Company  believes it
presently competes favorably with respect to each of these factors.

Government Regulation

         The sale of Network Feature Services by Telcos is subject to regulation
by state public utilities commissions and other regulatory authorities. Protests
from  special  interest  groups that object to Caller ID on the basis of privacy
concerns have been effective in slowing down the regulatory approval process. To
facilitate the  implementation  of Caller ID Service,  many telephone  companies
already offer or plan to offer a "call blocking"  Service.  Under call blocking,
callers can block the display of their numbers on a per-line or per-call  basis.
To  date,  all  50  states  and  Washington  D.C.  have  implemented  Caller  ID
regulations with per-call blocking, per-line blocking or both.

Patents, Proprietary Rights and Licenses

         The  Company has  acquired  one U.S.  patent  related to core Caller ID
technology,  has two U.S.  patents  issued  on its new  Caller  ID/Call  Waiting
extension protocol, and has a number of additional patents which address certain
features and functions of the Company's  products.  The Company  currently has a
number  of  patent  applications  on file  with the  United  States  Patent  and
Trademark Office.

         A portion of the messaging technology used in the Company's products is
based on a patent licensed from Lucent on a non-exclusive basis. Lucent reserved
the right to use the  technology  for all  purposes  relating to  businesses  of
Lucent and its subsidiaries,  and receives royalties from sales of the Company's
products  other than to itself or the RBOCs.  The Company paid royalties of $0.6
million,  $0.9  million  and $2.0  million  to  Lucent  in 1999,  1998 and 1997,
respectively.  The  Lucent  license  agreement  has no  expiration  date  but is
terminable by either party for breach.  If the Lucent license was terminated and
the Company was unable to negotiate a new patent license agreement,  the Company
would no longer be  authorized  to  manufacture  or sell  products in the United
States which fall within the scope of the Lucent patent,  other than to RBOCs or
Lucent.

         The Company has a  non-transferable,  non-exclusive  license  agreement
with Northern  Telecom to utilize  Northern  Telecom's  patents for Caller ID on
Call Waiting  technology.  Under the  agreement,  the Company pays  royalties to
Northern Telecom for each licensed  product sold,  leased or put into use by the
Company other than direct sales to Northern Telecom  beginning  January 1, 1997.
The  agreement  also  provided for a one-time  payment in full  satisfaction  of
royalties on all units incorporating Northern Telecom's patents, which were sold
by the Company  prior to January 1, 1997.  Royalties  incurred  after January 1,
1997 are  payable at a variable  rate based on product  type and number of units
sold. Total Northern Telecom royalty expense incurred in 1999, 1998 and 1997 was
$2.0 million, $1.8 million and $0.6 million, respectively.

         The  Company  relies  to a  certain  extent  on  trade  secret  laws to
establish  and  maintain  those  proprietary  rights  which it believes  are not
reverse  engineerable  by third  parties.  Although  the  Company  has  obtained
confidentiality agreements from its employees,  including its key executives and
engineers in its product development group, there can be no assurance that third
parties will not independently  develop the same or similar  technology,  obtain
unauthorized  access to the  Company's  proprietary  technology  or  misuse  the
technology  to which the Company has granted  access.  It is for this reason the
Company  has an  internal  legal  department  and is  actively  pursuing  patent
protection for its Research and Development efforts.

         The Company has patent  protection  on certain  aspects of its existing
technology  and  also  relies  on  trade  secrets,  copyrights,  trademarks  and
contractual  provisions  to  protect  its  proprietary  rights.  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 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 telecommunications industry, like many technology-based industries,
is  characterized  by frequent 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 owned or licensed patents or other 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, 1999, the Company  employed 242 full-time  persons,  of
whom 34 were engaged in product development,  26 in sales and marketing,  108 in
customer  service/call center, 29 in operations,  16 in information services and
29 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, 2000, the executive officers of the Company are as follows:

 Name              Age   Position
 ----------------- ---   ------------------------------------------------------
 Paul G. Locklin    54   President, Chief Executive Officer and Chairman of the
                               Board of Directors
 Richard D. Kent    43   Chief Financial Officer, Chief Operating Officer and
                               Corporate Secretary
 William A. Sole    42   Executive Vice President, Worldwide Sales and Marketing
 Ian G. A. Laing    42   Executive Vice President, Network Phones and Accessory
                               Products
 Timothy J. Dooley  44   Executive Vice President, Strategic Business
                               Development

 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.

 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 a MBA from Pepperdine
University.

 Ian G.A. Laing, Executive Vice President, Network Phones and Accessory Products
         Ian G. A. Laing joined  CIDCO in July 1996 and serves as the  Executive
Vice President,  Network Phones and Accessory Products.  Prior to joining CIDCO,
Mr.  Laing  spent  over  16  years  at  AT&T in R & D,  and  general  management
assignments.  He served as Director of Product  Development  for AT&T's consumer
products,  after  holding  the  position  of General  Manager  of AT&T's  corded
telephone  business unit. Mr. Laing received a Bachelor of Science in Electrical
Engineering  from  Rutgers  University,  a  Masters  of  Science  in  Electrical
Engineering from Stanford  University and a Masters degree in Management Science
from Stanford University.

 Timothy J. Dooley, Executive Vice President, Strategic Business Development
     Timothy J. Dooley joined CIDCO  initially in September  1994, and served as
Vice  President,  Sales,  and later as Vice President and General Manager of the
Accessory  Products  Division.  Mr.  Dooley now serves CIDCO as  Executive  Vice
President of Strategic Business  Development.  Previously,  he served in various
capacities at GTE. Mr.  Dooley  received a B. A. in Business with an emphasis in
Marketing from Washington State University.


Item   2.     Properties

         The Company's principal administrative,  development,  distribution and
support  facility is located in Morgan Hill,  California  and consists of a four
building  campus of  approximately  111,000 square feet under leases that expire
between  June 2000 and 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. In addition,  the Company  retains  storage space in Salinas,
California  based  on  square  footage  used  during  the  month  payable  on  a
month-to-month basis.

Item   3.   Legal Proceedings

     On April 1, 1999,  the  Company  filed a  complaint  against  Active  Voice
Corporation in U.S. District Court primarily  seeking a Declaratory  Judgment of
non-infringement and invalidity of U.S. Patent No. 5,327,493 involving detection
of tones, and secondarily for patent misuse and unfair competition. Active Voice
counter-claimed  for infringement of U.S. Patent No. 5,327,493,  and the Company
amended its complaint to include  infringement  by Active Voice of the Company's
U.S. Patent No.  4,366,348  involving  Caller ID technology.  The case is in the
discovery stage. The Company's  management  believes that it will prevail in any
litigation,  and that the costs and risks of this litigation are not material to
its operations.

         In the  ordinary  course of  business,  the  Company may be involved in
other legal  proceedings.  As of the date hereof,  the Company is not a party to
any other 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

         Not applicable.






                                    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:

1999                                            High           Low
----                                         -------       -------
1st Quarter ..............................   $  4.88       $  2.75
2nd Quarter...............................   $  7.75       $  3.88
3rd Quarter...............................   $ 16.13       $  7.25
4th Quarter...............................   $ 14.25       $  3.88

1998
----
1st Quarter...............................   $ 20.25       $  9.25
2nd Quarter...............................   $  9.44       $  4.63
3rd Quarter...............................   $  5.00       $  1.78
4th Quarter...............................   $  3.50       $  1.38

         As of  December  31,  1999,  there  were 147  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's loan agreements prohibit the payment of dividends without
the lender's  consent.  The  Company's  policy is to utilize  available  cash in
operations and accordingly does not expect to pay dividends.

         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.


<PAGE>


Item   6.     Selected Financial Data
                     (in thousands, except per share data)
                                            Year ended December 31,
                               ------------------------------------------------
                                   1999      1998      1997      1996      1995
                               --------  --------  --------  --------  --------
Statement of Operations Data:

Sales ........................ $158,593  $174,703  $257,033  $215,197  $193,668
Research and development .....    9,107    10,821    16,859    13,170     9,709
Income(loss)from operations(1)   (1,235)  (62,052)   18,363    27,236    36,491
Net income(loss)(1) ..........      (30)  (51,439)   12,910    18,523    22,613
Basic earnings(loss)per
   share(2) .................. $     --  $  (3.66) $   0.93  $   1.30  $   1.60
Diluted earnings(loss)per
   share(2) .................. $     --  $  (3.66) $   0.90  $   1.21  $   1.51
Common shares outstanding(2) .   13,608    14,049    13,948    14,284    14,135
Common shares assuming
   dilution(2) ...............   13,608    14,049    14,340    16,893    14,979
Dividends .................... $     --  $     --  $     --  $     --  $     --

                                              As of December 31,
                               ------------------------------------------------
                                   1999      1998      1997      1996      1995
                               --------  --------  --------  --------  --------
Balance Sheet Data:

  Cash and cash equivalents .. $ 29,323  $ 12,349  $ 48,253  $ 26,509  $ 19,290
  Short-term investments .....   10,546    13,975    26,486    38,560    21,342
  Working capital ............   70,815    70,238   112,980   110,469    91,355
  Total assets ...............   96,331   107,667   173,428   152,613   127,151
  Stockholders' equity ....... $ 78,181  $ 80,402  $130,730  $128,846  $106,214


QUARTERLY DATA:
(in thousands, except per share data; unaudited)
                                             Year ended December 31, 1999
                                         --------------------------------------
                                            First    Second     Third    Fourth
                                          Quarter   Quarter   Quarter   Quarter
                                         --------  --------  --------  --------
  Sales ..............................   $ 47,202  $ 47,101  $ 36,862  $ 27,428
  Gross margin .......................     12,164    12,593    10,666     8,266
  Loss from operations................      1,377     1,819        41    (4,472)
  Net income(loss)....................      1,542     2,048       514    (4,134)
  Basic earnings(loss)per share(2) ...   $   0.11  $   0.15  $   0.04  $  (0.30)
  Diluted earnings(loss)per share(2) .   $   0.11  $   0.14  $   0.03  $  (0.28)

                                              Year ended December 31, 1998
                                         --------------------------------------
                                            First    Second     Third    Fourth
                                          Quarter   Quarter   Quarter   Quarter
                                         --------  --------  --------  --------
  Sales ..............................   $ 69,354  $ 43,387  $ 31,338  $ 30,624
  Gross margin .......................     17,299    10,397    (3,481)    6,712
  Loss from operations (1)............    (10,094)  (10,639)  (36,339)   (4,980)
  Net loss (1) .......................     (5,361)   (5,987)  (35,333)   (4,758)
  Basic loss per share (2) ...........   $  (0.38) $  (0.43) $  (2.51) $  (0.34)
  Diluted loss per share (2) .........   $  (0.38) $  (0.43) $  (2.51) $  (0.34)

(1)  1998 Operating Loss includes  charges of $29.2 million  primarily for
     restructuring  and obsolete  inventory  write-offs.  First quarter 1998
     loss includes  charges of $2.7  million.  Third quarter 1998 loss includes
     charges of $26.5 million.

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


<PAGE>


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 and other  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  primary sales and  distribution  channels
have been Direct Marketing  Services,  Fulfillment,  Direct to Telco,  and, to a
lesser  extent,  international  accounts,  Retail,  and  OEM  customers.  Direct
Marketing Services programs are sales campaigns run by the Company involving the
use of consumer mailings and telemarketing to sell Services for the Telcos which
utilize the Company's products. As part of these programs the Company, acting as
the Telco's  "agent,"  generates an order for  Services,  such as Caller ID, and
then ships on the Telco's  behalf an adjunct  product or a phone product to each
customer  "acquired"  through  the  campaign.  Fulfillment  sales occur when the
Company  receives  an order and  ships the  requested  product  directly  to the
customer.  In the case of  Fulfillment  sales,  the  Telcos  generate  orders by
performing the marketing activities themselves rather than retaining the Company
to perform such  services,  as in Direct  Marketing  Services  programs.  Direct
Marketing  Services  sales totaled 24%, 32%, and 49% of sales in 1999,  1998 and
1997,  respectively.  Fulfillment sales accounted for 24%, 34%, and 35% of sales
in 1999, 1998 and 1997, respectively.

         As a result of  operating  losses  incurred  in the first six months of
1998, the Company adopted a new business strategy focusing on its core telephony
products and  services.  The Company  decided that its core  business  could not
successfully fund the level of market development expense required over time for
success in  marketing  the i-Phone  and  discontinued  operation  of its i-Phone
division,  taking a restructuring  charge in the third quarter of $19.9 million.
As part of the  Company's  change in direction,  Co-Founder  and Chairman of the
Board of Directors,  Paul G.  Locklin,  returned to the Company as its President
and Chief Executive Officer in the third quarter of 1998.

         As a result of lower level of Telco promotional  activity in the fourth
quarter of 1999 and the anticipation  that Telco demand will remain soft through
the third quarter of 2000,  the Company is resizing its Telco  business to match
an estimated quarterly  break-even point of approximately $20 million in revenue
which the Company may or may not  achieve.  This will result in a  restructuring
charge in the first  quarter  of 2000.  The  expense  reduction  related  to the
restructuring will be fully effective in the second quarter of 2000.

         This  Report  contains  forward-looking  statements  that  reflect  the
Company's  current  views  with  respect  to future  events  that may impact the
Company's  results of operations and financial  condition.  In this report,  the
words  "anticipates,"  "believes,"  "expects,"  "intends," "future," and similar
expressions   identify   forward-looking   statements.   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.  Readers are cautioned  not to place undue  reliance on
these forward-looking statements, which speak only as of the date hereof.





Results of Operations

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

                                                  Year ended December 31,
                                             --------------------------------
                                               1999        1998        1997
                                             --------    --------    --------
 Sales ................................         100.0%      100.0%      100.0%
 Cost of sales ........................          72.4        82.3        55.1
                                             --------    --------    --------
 Gross margin .........................          27.6        17.7        44.9
                                             --------    --------    --------
 Operating expenses:
   Research and development ...........           5.7         6.2         6.6
   Selling and marketing ..............          19.4        30.6        27.6
   General and administrative .........           3.5         5.0         3.6
   Restructuring ......................          (0.2)       11.4          --
                                             --------    --------    --------
                                                 28.4        53.2        37.8
                                             --------    --------    --------
 Income (loss) from operations ........          (0.8)      (35.5)        7.1
                                             --------    --------    --------
 Other income
 Interest income ......................           0.8         2.1         1.1
                                             --------    --------    --------
                                                  0.8         2.1         1.1
                                             --------    --------    --------
 Income (loss) before income taxes ....           0.0       (33.4)        8.2
 Provision (benefit) for income taxes .            --        (4.0)        3.2
                                             --------    --------    --------

 Net income (loss) ....................           0.0%      (29.4)%       5.0%
                                             ========    ========    ========


1999 Compared to 1998

 Sales

         Sales are recognized  upon shipment of the product to the customer less
reserves for anticipated  returns or, in the case of Direct Marketing  Services,
less reserves for non-retention of certain Services provided by the Telcos,  and
customer  credit  worthiness.  Sales decreased 9% to $158.6 million in 1999 from
$174.7  million in 1998,  primarily due a drop in unit volume of 29%,  which was
partially  offset by an increase in the  average  unit price of 27%.  The volume
decline was  principally  due to a drop in lower priced  adjunct units while the
average  price  increase  was due to a shift in product  mix from  lower  priced
adjuncts to higher priced Network Featured, cordless phones.  Additionally,  the
Company's  adjunct  sales  decreased  31% to 3.7 million  units in 1999 from 5.4
million units in 1998,  primarily  arising from the decline in Fulfillment sales
and the Telco  customers  shifting  focus from  adjuncts to  integrated  Network
Feature phones.  Direct Marketing Services programs decreased to 24% of sales in
1999 from 32% in 1998.  This  decline  in  Direct  Marketing  Services  business
resulted  from  increased  penetration  levels in  feature  Services  in various
marketing areas making new subscribers  increasingly  difficult and expensive to
acquire.  Also,  the Company chose not to participate in risky low margin agency
programs.  The Company  expects  that the Agency and Direct  Marketing  Services
business will continue to decline as the high cost to acquire new customers will
make this  business  very  risky  and low  margin.  Additionally,  due to merger
activity  in the US Telco  market,  the Company  expects a general  slow down in
demand during the first three quarters of 2000.

 Gross Margin

         Cost of sales  includes the cost of finished  goods  purchased from the
Company's offshore contract  manufacturers,  all costs associated with procuring
and  warehousing  the Company's  inventory,  and  royalties  payable on licensed
technology used in the Company's products. Gross margin as a percentage of sales
increased  to 27.5% in 1999 from 17.7% in 1998 due to the  overall  increase  in
average sales  resulting  from product mix changes in addition to the absence of
discontinued product related expenses experienced in 1998. Expenses attributable
to inventory  liquidation  were $9.3 million in 1998 or 5.3% as a percentage  of
sales. Royalties payable to other patent holders remained approximately the same
in 1999 as in 1998.  Although  gross margins vary due to changes in sales mix by
distribution  channel and product  mix, the Company  expects that gross  margins
will range from 20% to 30% in 2000.

 Research and Development Expenses

         Research and  development  expenses  include  salaries  for  personnel,
associated benefits,  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.  Research and development  expenses decreased 16% to $9.1 million in
1999 from $10.8  million in 1998 due  primarily  to  decreased  spending  on new
development projects. Research and development expenses as a percentage of sales
decreased to 5.7% in 1999 from 6.2% in 1998.  The Company  expects  research and
development  expenses will be in the same absolute  dollar range as the past two
years,  however,  the Company  expects the  percentage of sales to rise as sales
decline.

 Selling and Marketing Expenses

         Selling and marketing  expenses include  acquisition  costs,  personnel
costs,  telephone and electronic data exchange  expenses,  promotional costs and
travel expenses.  Selling and marketing  expenses  decreased to $30.6 million in
1999 from $53.6 million in 1998 and as a percentage of sales  decreased to 19.4%
in 1999 from 30.6% in 1998. The absolute dollar decrease in selling expenses was
due  principally to the lower levels of advertising and  telemarketing  expenses
associated with the decrease in the Company's Direct  Marketing  Services sales.
The Company  anticipates that selling and marketing  expenses as a percentage of
sales will increase  significantly  as the Company  invests heavily in marketing
programs to grow MailStation subscribers.  This increase will be slightly offset
by planned reductions in Telco acquisition sales programs.

 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 to $5.5 million in 1999
from $8.7 million in 1998 and as a percentage of sales decreased to 3.5% in 1999
from 5.0% in 1998. The absolute dollar decrease reflects  decreased  accounting,
legal  and  human  resources  costs.  The  Company  believes  that  general  and
administrative  expenses  will  decrease  slightly in absolute  dollars in 2000,
however, may increase as a percentage of sales as sales decline.

 Other Income

         Other  income in 1999  primarily  comprises  interest  income  from the
investment  of available  cash  balances  and  royalties  from the  licensing of
technology.

 Provision for (benefit from)Income Taxes

         The provision for (benefit from) income taxes reflects an effective tax
rate of 0.0% in 1999 and (11.9)% in 1998.  The Company  expects no tax provision
in 2000 due to a loss carry-forward from 1998.

1998 Compared to 1997

 Sales

         Sales  decreased 32% to $174.7  million in 1998 from $257.0  million in
1997, primarily due to the 33% decrease in average sales price per adjunct unit.
This pricing decrease was due to competitive  pricing  pressures from both Asian
suppliers to the United States market and certain domestic  suppliers as well as
a decline in Direct  Marketing  programs.  Prices  have  stabilized  since Asian
currencies  stopped  their  decline  against the US Dollar.  It is expected that
future  price  declines  will be dependant  on currency  exchange  rates and the
health of the Asian  economy.  Additionally,  the  Company's  adjunct unit sales
decreased  25% to 5.4  million  units in 1998  from 7.2  million  units in 1997,
primarily  arising from the decline in Fulfillment sales and the Telco customers
shifting  focus from  adjuncts  to  integrated  Network  Service  phones.  These
declines  were  partially  offset by the  increase  in phone  unit  sales to 0.9
million units in 1998 from 0.4 million units in 1997. Direct Marketing  Services
programs  decreased  to 32% of sales in 1998 from 49% in 1997.  This  decline in
Direct Marketing Services business results from increased  penetration levels in
feature Services in various marketing areas making new subscribers  increasingly
difficult and expensive to acquire.  Also,  the Company chose not to participate
in risky low margin agency programs.

 Gross Margin

         Gross margin as a percentage  of sales  decreased to 17.7% in 1998 from
44.9% in 1997 due to the  overall  decrease  in  average  sales  prices  and the
extensive liquidation of discontinued products. One-time charges attributable to
inventory  liquidation  were $9.3  million  in 1998 or 5.3% as a  percentage  of
sales.  These were  offset by royalty  expense,  which  declined in 1998 to $2.9
million  compared  with $3.9  million in 1997,  due to the  re-negotiation  of a
component  licensing  agreement such that there was no royalty  payable in 1998.
Royalties  payable to other patent holders  remained  approximately  the same in
1998 as in 1997.

 Research and Development Expenses

         Research and  development  expenses  decreased  36% to $10.8 million in
1998 from $16.9  million in 1997 due  primarily  to  decreased  spending  on new
development  projects  and the  decline  of  equity  losses  in  InfoGear,  Inc.
Additionally,  the Company discontinued the i-Phone division in the last quarter
of 1998,  resulting in research and  development  personnel  reductions  and the
writing-off  of  substantially  all related  assets.  Research  and  development
expenses as a percentage of sales decreased to 6.2% in 1998 from 6.6% in 1997.

 Selling and Marketing Expenses

         Selling and marketing  expenses decreased to $53.6 million in 1998 from
$70.9  million in 1997 and as a percentage  of sales  increased to 30.6% in 1998
from 27.6% in 1997.  The absolute  dollar  decrease in selling  expenses was due
principally  to the  lower  levels of  advertising  and  telemarketing  expenses
associated with the decrease in the Company's Direct Marketing Services sales.

 General and Administrative Expenses

         General and  administrative  expenses decreased to $8.7 million in 1998
from $9.3 million in 1997 and as a percentage of sales increased to 5.0% in 1998
from 3.6% in 1997. The absolute  dollar  decrease  reflects  decreased legal and
human resources costs.

 Restructuring

     The Company incurred a pretax  restructuring  charge of $2.7 million in the
first quarter of 1998 as it implemented several streamlining programs, including
combining certain marketing and operations functions, restructuring research and
development  activities and discontinuing  certain products,  resulting in asset
write-downs  and the  elimination of  approximately  100 positions.  On July 22,
1998, the Company implemented a new business strategy focusing on core telephony
products  and  services,  and a  restructuring  plan that  resulted  in one-time
charges  of  $17.2  million  in  the  third  quarter  of  1998.   The  Company's
restructuring  plan  significantly  reduced its  personnel  and  resource  costs
throughout the core business.  As part of this strategy and restructuring  plan,
during the second half of 1998, the Company explored strategic alternatives with
regard  to its  i-Phone  Division,  including  the  possible  spin-out,  sale or
wind-down  of  the  division  in  significant  part  due to the  high  level  of
marketing,  sales and research and development expense that would be required to
develop the market for these products and services. As of December 31, 1998, the
Company  sold a  relatively  minor  amount  of  these  assets  and  discontinued
operation  of  the  Division,  including  laying-off  substantially  all  of the
Division's employees. The restructuring has reduced permanent headcount from the
prior  year's  level by  approximately  41% as the  Company  focused on its core
telephony products and services business.

 Other Income

         Other income in 1998 includes  interest  income from the  investment of
available cash balances, royalties from the licensing of technology and proceeds
from the sale of future production rights to a next development model i-Phone.

 Provision for (benefit from) Income Taxes

         The provision for (benefit from) income taxes reflects an effective tax
rate of (11.9)% in 1998 and 39% in 1997.

Liquidity and Capital Resources

The Company's  cash and cash  equivalents  increased  $17.0 million  during 1999
primarily from cash generated by operations of $18.1 million,  the sale of short
term  investments  of $3.3 million and proceeds from issuance of common stock of
$1.1  million.  Offsets  include the purchase of property and  equipment of $2.4
million and the purchase of treasury  stock of $3.2 million.  Cash  generated by
operations  of  $18.1  million  was  attributable  to a  collection  of the  tax
receivable of $18.4 million, a decrease in accounts  receivable of $5.3 million,
a decrease in deferred  taxes of $1.5 million and  depreciation  of $5.4 million
which was offset by an  increase in  inventory  of $3.6  million,  a decrease in
accounts payable of $3.0 million,  and a decrease in accrued liabilities of $6.0
million.

The Company's working capital as of December 31, 1999 was $70.8 million compared
to $70.2 million as of December 31, 1998. The improvement in working capital was
due to an increase  in cash and  short-term  investments  of $13.5  million,  an
increase in  inventory  of $3.6  million and a decrease in accounts  payable and
accrued liabilities of $9.1 million. Offsetting the above changes was a decrease
in accounts  receivable of $5.3 million,  a decrease in income tax receivable of
$18.4  million,  a decrease in deferred tax asset of $1.5 million and a decrease
in other current assets of $0.5 million.

         The  Company  has a line of credit  for up to $15  million.  Borrowings
under the line bear interest at the bank's base rate and the interest is payable
monthly.  The  bank's  base  rate was  8.50% per  annum at  December  31,  1999.
Borrowings  under  the line are  secured  by the  assets of the  Company.  As of
December  31, 1999,  the Company had not borrowed any funds under the line.  The
line is  primarily  used as  security  for  letters of credit  used to  purchase
inventory from international  suppliers.  Letters of credit secured by this line
totaled $4 million as of December 31, 1999.  As of the end of 1999,  the Company
was in compliance with the line of credit covenants.

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

         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 2000 capital  expenditures will
be approximately $3.0 million.  The 2000 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 MailStation and subsequent products. The company may spend as much as $20
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
for the next twelve months.

Factors That May Affect Future Results

 Dependence on Caller ID and Maturation of Market

         Approximately  48%, 65% and 84% of the Company's  revenues during 1999,
1998 and 1997,  respectively,  came from the Company's Direct Marketing Services
and  Fulfillment  programs  for Caller ID adjunct  and  telephone  products  and
customer acquisition services through Telcos. The size of the overall market for
Caller ID products  and  Services is a function of the total number of potential
subscribers with Caller  ID-enabled  telephone lines and the rate of adoption of
Caller ID Services,  or the "penetration  rate," among those subscribers.  Based
upon the Company's  projections of penetration  rates, the Company believes that
the annual  market for new Caller ID  subscribers  in the United States may have
peaked  in  1997,  with a  resulting  leveling  off in  Caller  ID  sales to new
subscribers expected in 1999 and beyond. Customer adoption of Caller ID Services
has been in the past,  and likely will be in the future,  dependent on a variety
of  factors,  including  the rate at which  Telcos  from  time-to-time  elect to
promote Caller ID, the perceived  value of the Services to end users,  including
the extent to which other end users have also adopted  and/or not blocked Caller
ID Services, and the end user cost for the Services.  There can be no assurances
that Telcos will  continue  to promote  Caller ID, that Caller ID Services  will
gain market acceptance or that, in areas where the Services are accepted,  those
markets will not become saturated.  In addition, even if peak market penetration
for Caller ID Service  has not been  achieved  for the  entire  domestic  United
States market, one or more regional markets may become saturated.  Further,  the
market for Caller ID adjunct  products may be eroded as Caller ID  functionality
is designed  into  competitively  priced phone  products as a standard  feature.
Declines  in demand  for or  revenues  from  Caller ID,  whether  due to reduced
promotion of such  Services by Telcos,  competition,  market  saturation,  price
reduction,  technological  change or  otherwise,  could have a material  adverse
affect on the Company's business,  operating results or financial condition.  In
addition,  as  penetration  rates for  adoption of Caller ID  Services  increase
towards  projected  saturation  levels,  the expenses,  or "cost per order," the
Company  must  incur in its Direct  Marketing  Services  arrangements  to obtain
incremental end user adoption of Caller ID Services increases,  which may result
in pressures on the Company's profitability.

 Dependence on Telcos; Concentrated Customer Base

         A significant portion of the Company's revenues is derived from a small
number of Telcos.  During 1999,  1998 and 1997  respectively,  the percentage of
revenue derived by the Company from its  significant  (greater than 10% of total
sales) customers was 66% (three  customers),  62% (four customers) and 77% (four
customers).  There can be no assurance  that the Company will retain its current
Telco  customers or that it will be able to attract  additional  customers.  The
Company  generally  does not enter into  long-term  contracts  with its Telco or
other customers and no on-going minimum  purchases are required.  Moreover,  the
arrangements are typically both  nonexclusive and terminable at will following a
specified  notice  period,  generally 20 to 60 days.  In  addition,  these Telco
customers may have  significant  leverage over the Company and may try to obtain
terms relatively favorable to the customer and/or subsequently change the terms,
including pricing,  on which the Company and such customers do business.  If the
Company is forced to accept  such  terms  and/or  change  the  terms,  including
pricing, on which it does business,  the Company's operating margins may decline
and such decline may have a material  adverse effect on the Company's  business,
results of operations or financial condition.

         The Company's sales and operating results are  substantially  dependent
on the extent of, and the timing of,  this  relatively  small  number of Telcos'
respective  decisions  to implement  and from  time-to-time  promote  Caller ID,
Caller ID on Call Waiting and other Services on a system-wide or regional basis.
The extent to which the Telcos determine to implement  and/or from  time-to-time
promote  Services  may be  affected  by a wide  variety  of  factors,  including
regulatory  approvals,  technical  requirements,  budgetary  constraints  at the
Telcos,  consolidation  among Telcos,  market  saturation for the Services,  the
profitability of the Services to the Telcos,  market acceptance for the Services
and other  factors.  The Company  typically has little control over any of these
factors.  There can be no assurances  that the Telcos will continue to implement
and/or promote Caller ID or other  Services,  or that the Company's  product and
program offerings will be selected by the Telcos. Moreover, the Company believes
that  certain   Telcos  have  begun  to  perform  for  themselves  the  customer
acquisition  services  currently  undertaken  by the Company  through its Direct
Marketing programs,  rather than through third parties such as the Company.  The
continuation of this trend among the Telcos could have a material adverse effect
on the Company's business,  results of operations and financial  condition.  The
Company  operates  with  little or no  backlog  and its  quarterly  results  are
substantially  dependent  on the  Telcos'  implementation  and/or  promotion  of
Services on a system wide or regional  basis during each quarter.  The Company's
operating  expenses are based on anticipated sales levels, and a high percentage
of such expenses are relatively  fixed. As result, to the extent that the Telcos
delay  the  implementation   and/or  promotion  of  these  Services  which  were
anticipated for a particular quarter,  the Company's sales and operating results
in that quarter may be materially and adversely affected.

 New Product Introduction; Technological Change

         The  telecommunications  industry  is  subject  to rapid  technological
change,  changing customer requirements,  frequent new product introductions and
changing  industry  standards  which may render  existing  products and Services
obsolete.  The Company's future success will depend in large part on its ability
to timely  develop and introduce new products and services which keep pace with,
and  correctly  anticipate,  these changes and which meet new,  evolving  market
standards and changing customer requirements,  as well as its ability to enhance
and improve  existing  products and services.  Product  introductions  and short
product  life cycles  necessitate  high levels of  expenditure  for research and
development.  There can be no assurance that the Company's existing markets will
not be eroded or that the Company  will be able to correctly  anticipate  and/or
timely develop and introduce  products and services which meet the  requirements
of the changing  marketplace or which achieve market acceptance.  If the Company
is unable to develop and introduce  products and services  which timely meet the
changing  requirements  of the marketplace  and achieve market  acceptance,  the
Company's  business,  results  of  operations  or  financial  condition  may  be
materially and adversely affected.

         In particular, the Company is seeking to further expand its product and
service  offerings  in a new  business  area,  Internet/E-mail  appliances,  and
expects  to  devote  a  significant  portion  of its  research  and  development
resources on developing and selling 2nd and 3rd generation  Internet  appliances
which  would  allow  electronic   messaging  and  other   functionality  via  an
easy-to-use  device. In this regard,  the Company has introduced the MailStation
Internet  E-mail  appliance  and  intends to  introduce  follow-on  products.  A
significant  aspect of this product and services  offering will be the provision
of  Internet  services,  yielding a recurring  revenue  stream from users of the
products or "subscribers". These are significantly new areas for the Company and
its existing research and development,  sales and marketing personnel. There can
be no assurances  that the Company will be successful in timely  developing such
products  or that,  if  developed,  there  will be a market  for such  products.
Moreover,  there can be no assurances that the Company's existing personnel will
have the skills  necessary to timely develop,  market and sell products for this
market or that,  if it becomes  necessary  to do so, the Company will be able to
hire the necessary skilled personnel to develop,  market and/or sell products in
these new areas.  Products  of this  nature  rely to a great  extent upon retail
distribution and brand  recognition.  There can be no assurance that the Company
will be successful in  implementing a successful  national  retail  distribution
channel,  and a brand marketing  campaign.  More over, there can be no assurance
that the Company will achieve the  significant  subscriber  growth  required for
success in this offering.

         Significant undetected errors or delays in new products or releases may
affect market  acceptance  of the  Company's  products and could have a material
adverse  effect on the  Company's  business,  results of operations or financial
condition.  There can be no assurances  that,  despite testing by the Company or
its  customers,  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 the  Company's  business,  results of operations or financial
condition.   Further,   if  the  Company  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,  this  could have a
material  adverse  effect on the  Company's  business,  results of operations or
financial condition.

 Fluctuations in Quarterly Revenues and Operating Results

         The Company has  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
the  Company's  products  from  Telcos and other  customers;  the success of the
Company's own direct marketing programs, in particular,  deriving adequate sales
volumes while  controlling  related costs;  the addition or loss of distribution
channels or outlets; the impact on adoption rates of changes in monthly end-user
charges  for  Services;   the  timing  and  market  acceptance  of  new  product
introductions  by the  Company  or its  competitors;  increases  in the  cost of
acquiring end-user customers for Services and the resulting effects on operating
expenses;  technical difficulties with Telco Networks;  changes in the Company's
product mix or sales mix by  distribution  channel that may affect sales prices,
margins or both; technological difficulties and resource constraints encountered
in developing,  testing and introducing new products;  uncertainties involved in
the  Company's  entry into markets for new  Services;  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,  the Company's  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,  the  Company  believes  that
period-to-period  comparisons of its results of operations  are not  necessarily
meaningful and that such comparisons should not be relied upon as indications of
future  performance.  Due to all of the foregoing factors,  it is likely that in
some  future  quarter  the  Company's   operating  results  will  be  below  the
expectations of public market analysts and investors.  In such event,  the price
of the Company's Common Stock would likely be materially adversely affected.

 Need to Develop Alternative Distribution Channels

         Historically,  the  Company's  Telco  customers  have been the  primary
distribution channel for the Company's products. However, the Company is seeking
to diversify its  distribution  channels toward  direct-to-end-user,  retail and
other  alternate  distribution  channels  to the  extent  such  channels  do not
conflict  with current  Telco  partnerships,  with the goals of  broadening  the
Company's  market  opportunities  and  adding  predictability  to the  Company's
quarter-by-quarter  revenues.  The Company  believes its MailStation  business's
success  depends on the successful  development of a strong retail  distribution
channel.  Moving  into  these  new  channels  may  involve  a number  of  risks,
including,  among other things,  the establishment of new channel  relationships
and presence,  the cost of creating brand  awareness and end-user  demand in the
new  channels,  the  viability  of the  Company's  product  offerings in the new
channels and managing  conflicts among different channels offering the Company's
products.  There can be no  assurance  that the Company  will be  successful  in
identifying and exploiting alternate  distribution channels or in addressing any
one or more of  these  risks.  If the  Company  is not  successful,  it may lose
significant  sales  opportunities,  will continue to be substantially  dependent
upon the Telco channel for sales of its products and may not be able to grow the
Internet business.

 Risks Related to Contract Manufacturing; Limited Sources of Supply

         The  Company's  products  are  manufactured  for the  Company  by third
parties that are primarily located in Malaysia,  China and Thailand.  The use of
third  parties to  manufacture  products  involves a number of risks,  including
limited control over  production  facilities and schedules and the management of
supply  chains for the  manufactured  products.  Moreover,  reliance on contract
manufacturers  in foreign  countries  subjects the Company to risks of political
instability,  financial  instability,   expropriation,   currency  controls  and
exchange  fluctuations,  and changes in tax laws,  tariffs and rules. See "Risks
Relating  to  International  Sales."  Many  of the  key  components  used in the
Company's  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 the Company cannot quickly obtain  additional  supply
without incurring  significant  incremental costs. In general,  the Company does
not have supply  contracts  with its  suppliers  and orders  parts on a purchase
order  basis.  The  Company's  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 the Company's  business,
results of operations and financial condition.

 Dependence on Key Personnel; Hiring and Retention of Employees

         The  Company's  continued  growth and success  depend to a  significant
extent  on the  continued  services  of its  senior  management  and  other  key
employees  and its  ability to  attract  and retain  highly  skilled  technical,
managerial,  sales and marketing  personnel.  Competition  for such personnel is
intense.  There can be no  assurance  that the  Company  will be  successful  in
continuously  recruiting new personnel or in retaining existing personnel.  None
of the Company's employees is subject to a long-term employment  agreement.  The
loss  of one or  more  key  employees  or the  Company's  inability  to  attract
additional  qualified  employees or retain other employees could have a material
adverse  effect on the Company's  business,  results of operations and financial
condition.  In addition, the Company may experience increased compensation costs
in order to attract and retain skilled employees.

 Risks Relating to International Sales

         The Company has had  relatively  limited  international  sales to date.
However,  the Company believes that international  sales,  particularly in Latin
America,  Asia-Pacific and Europe, may represent an increasing percentage of the
Company's sales in the future.  The Company's future success will depend in part
on its  ability  to  compete  in  Latin  America,  Japan  and  elsewhere  in the
Asia-Pacific  region, and in Europe, and this will depend on the continuation of
favorable trading  relationships  between the region and the United States.  The
Company's  entry into  international  markets  will likely  require  significant
management  attention and may require  significant  engineering efforts to adapt
the Company's products to such countries' telephone systems.  Moreover, the rate
of customer  acceptance  of Network  Feature  Services  in areas  outside of the
United States is highly uncertain.  There can be no assurance that the Company's
Network  Feature  products will gain  meaningful  market  penetration  in target
foreign  jurisdictions,   whether  due  to  local  consumer  preferences,  local
regulatory  requirements,  technological  constraints in the local Networks, the
extent to which the local Telcos determine to promote Network Feature  Services,
or other  factors.  Dependence on revenues from  international  sales involves a
number of inherent  risks,  including  new or  different  regulations,  economic
slowdown  and/or  downturn in the general  economy in one or more local markets,
international  currency  fluctuations,  general strikes or other  disruptions in
working  conditions,  political  instability,  trade  restrictions,  changes  in
tariffs,  the difficulties  associated with staffing and managing  international
operations,  generally longer receivables collection periods, unexpected changes
in or impositions of legislative or regulatory requirements,  reduced protection
for intellectual  property rights in some countries,  potentially adverse taxes,
delays  resulting  from  difficulty  in  obtaining  export  licenses for certain
technology and other trade barriers.  International  sales will also be impacted
by the specific economic conditions in each country.

 Management of Infrastructure

         The Company's future success will require, among other things, that the
Company  continue to improve its  operating  Internet  services and  information
systems. In particular, the Company must seek to refine and improve its Internet
service  provider  and mail hosting  capabilities  and systems in support of its
1999 entry into the Internet  appliances and services  market.  The Company must
constantly seek to improve its order entry and tracking and product  fulfillment
service  capabilities  and  systems  in  order to  retain  and/or  obtain  Telco
customers.  The  failure of the Company to  successfully  manage and improve its
operating,  Internet services, and information systems may adversely affect both
the Company's  ability to obtain and/or retain its Internet  appliance  services
subscribers  and its Telco  customers  and  accordingly,  could  have a material
adverse  effect on the  Company's  business,  results of operations or financial
condition.

 Competition

         The  telecommunications  industry is an intensely  competitive industry
with several large  vendors that develop and market  Network  Feature  products.
Certain  of these  vendors  have  significantly  more  financial  and  technical
resources than the Company. The Company's competitors include in-house divisions
of the Company's current and potential customers,  as well as companies offering
specific  services and large firms. In addition to U.S.  companies,  competitors
for the Company's phone products include both large Asian and European  consumer
electronics  companies  and smaller  Asian and  European  manufacturers.  If the
Company's existing customers perform directly the customer  acquisition services
currently  undertaken  by the  Company  through  its Direct  Marketing  Services
programs,  or if potential customers retain or increase internal capabilities to
provide  such  services,  the  Company's  business,  results  of  operation  and
financial  condition  could  be  adversely  affected.  The  introduction  of new
competitive  products  into one or more of the Company's  various  markets could
have a material adverse effect on the Company's business,  results of operations
or financial condition.

 Limited Protection of Intellectual Property;
                    Risk of Third-Party Claims of Infringement

         The Company has patent  protection  on certain  aspects of its existing
technology and also relies on trade secret  protection,  copyrights,  trademarks
and contractual  provisions to protect its proprietary  rights.  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 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 telecommunications industry, like many technology-based industries,
is  characterized  by frequent claims and litigation  involving patent and other
intellectual  property rights.  The Company from time to time may be notified by
third parties that the Company may be infringing patents owned by or 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 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  owned or licensed
patents or other 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.

 Possible Volatility of Stock Price

         The  market  price  of  the  Company's  Common  Stock  has  experienced
significant fluctuations and may continue to fluctuate significantly. The market
price of the Common Stock may be  significantly  affected by factors such as the
announcement  of new  products  or product  enhancements  by the  Company or its
competitors,  technological  innovation  by  the  Company  or  its  competitors,
quarterly variations in the Company's or its competitors' products and services,
changes in revenue  and revenue  growth  rates for the Company 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  telecommunications  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 the  Company's  Common
Stock.

Year 2000 Compliance

During 1998 and 1999, the Company performed a comprehensive Year 2000 Compliance
Program focused on preparing for issues  potentially  created through the switch
over to the year 2000. The Company's  program was a success,  and no significant
Year 2000 issues have been  observed  or  experienced  as a result of the change
over to the year 2000.  There is a small risk that problems  associated with the
Year 2000 change over may yet occur,  however, the Company's management believes
that the probability of any significant problems is very low.

Item 7A       Quantitative and Qualitative Disclosure About Market Risk

         Management  believes that the market risk associated with the Company's
market risk sensitive  instruments as of December 31, 1999 is not material due
to the short-term nature of the investments, and therefore, disclosure is not
required.






Item   8.     Financial Statements and Supplementary Data

Index to Financial Statements:

Financial Statements:                                                       Page
                                                                            ----

   Report of Independent Accountants ........................................26
   Balance Sheets at December 31, 1999 and 1998 .............................27
   Statements of Operations for the three years
     ended December 31, 1999.................................................28
   Statements of Stockholders' Equity for
     the three years ended December 31, 1999 ................................29
   Statements of Cash Flows for

     the three years ended December 31, 1999 ................................30
   Notes to Financial Statements ............................................31

Financial Statement Schedule:

    Schedule II - Valuation and Qualifying Accounts .........................42

          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.

                        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, 1999 and 1998 and the results of its  operations and its cash flows for each
of the three years in the period ended December 31, 1999 are in conformity  with
accounting  principles generally accepted in the United States. In addition,  in
our opinion, the financial statement schedule listed in the above index present
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,  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 the opinion expressed above.

PricewaterhouseCoopers LLP
San Jose, California

January 21, 2000





                               CIDCO INCORPORATED
                                 BALANCE SHEETS
                      (in thousands, except per share data)

                                                                December 31,
                                                           --------------------
                                                                1999       1998
                                                           ---------  ---------
ASSETS
Current assets:

Cash and cash equivalents ...............................  $  29,323  $  12,349
Short-term investments ..................................     10,546     13,975
Accounts receivable, net of allowances
   for doubtful accounts of $1,127 and $1,885
   at December 31, 1999 and 1998, respectively ..........     22,407     27,689
  .......................................................     25,688     22,086
Inventories .............................................         --      1,490
Deferred tax asset ......................................         --     18,367
Income tax refund receivable ............................      1,002      1,547
                                                           ---------  ---------
Other current assets ....................................

   Total current assets .................................     88,966     97,503
Property and equipment, net .............................      6,653      9,691
Other assets ............................................        712        473
                                                           ---------  ---------

                                                           $  96,331  $ 107,667
                                                           =========  =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................  $   9,412  $  12,446
Accrued liabilities .....................................      8,622     14,585
Accrued taxes payable ...................................        116        234
                                                           ---------  ---------

   Total current liabilities ............................     18,150     27,265
                                                           ---------  ---------

Commitments and contingencies (Note 8) Stockholders' equity:

Common stock, $.01 par value; 35,000 shares
   authorized, 14,418 and 14,418 shares issued
   and outstanding at December 31, 1999 & 1998 ..........        144       144
Treasury Stock, at cost (675 and 339 shares) ............     (2,988)    (4,600)
Additional paid-in capital ..............................     88,916     88,916
Accumulated deficit .....................................     (7,891)    (4,058)
                                                           ---------  ---------

   Total stockholders' equity ...........................     78,181     80,402
                                                           ---------  ---------

                                                           $  96,331  $ 107,667
                                                           =========  =========


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



                            Statements of Operations
                      (in thousands, except per share data)

                                                     Year ended December 31
                                                -------------------------------
                                                   1999       1998       1997
                                                ---------  ---------  ---------

Sales ........................................  $ 158,593  $ 174,703  $ 257,033
Cost of sales ................................    114,904    143,776    141,672
                                                ---------  ---------  ---------
Gross margin .................................     43,689     30,927    115,361
                                                ---------  ---------  ---------
Operating expenses:
    Research and development .................      9,107     10,821     16,859
    Selling and marketing ....................     30,692     53,577     70,851
    General and administrative ...............      5,504      8,723      9,288
    Restructuring ............................       (379)    19,858         --
                                                ---------  ---------  ---------
                                                   44,924     92,979     96,998
                                                ---------  ---------  ---------
Income(loss) from operations .................     (1,235)   (62,052)    18,363
Other income .................................      1,205      3,658      2,793
                                                ---------  ---------  ---------
Income(loss) before income taxes .............        (30)   (58,394)    21,156
Provision for (benefit from) for income taxes          --     (6,955)     8,246
                                                ---------  ---------  ---------

Net income(loss) .............................  $     (30) $ (51,439) $  12,910
                                                =========  =========  =========

Net earnings(loss) per share-basic ...........  $    0.00  $   (3.66) $    0.93
                                                =========  =========  =========
Net earnings(loss) per common share-diluted ..  $    0.00  $   (3.66) $    0.90
                                                =========  =========  =========
Shares used in per share calculation-basic ...     13,608     14,049     13,948
                                                =========  =========  =========
Shares used in per share calculation-diluted .     13,608     14,049     14,340
                                                =========  =========  =========


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

<TABLE>
<CAPTION>
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (in thousands)

<S>                          <C>   <C>      <C>   <C>     <C>      <C>     <C>       <C>

                                                              Retained Total     Total
                          Common Stock Treasury Stock  Add'l. Earnings Stock-    Compre-
                         ------------- -------------- Paid-in (Accum.  holders'  hensive
                         Shares Amount Shares  Amount Capital Deficit) Equity    Income
                         ------ ------ ------ ------- ------- -------- -------- --------
Balance at
   December 31, 1996 ... 14,399 $  144     -- $    -- $87,725 $ 40,977 $128,846 $

Unrealized gains
   from investments ....                                            28       28      28
Tax benefit from
   exercise of
   stock options .......                                  787               787
Treasury stock
   purchased ...........               (1,000)(12,942)                  (12,942)
Employee stock
   options exercised ...      3           521   6,577      21   (5,914)     684
Employee stock
   purchase plan .......     16            16     202     230      (15)     417
Net income .............                                        12,910   12,910   12,910
                         ------ ------ ------ ------- ------- -------- -------- --------
Balance at
   December 31, 1997 ... 14,418    144   (463) (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)
                         ====== ====== ====== ======= ======= ======== ======== ========
</TABLE>


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




                               CIDCO INCORPORATED
                            STATEMENTS OF CASH FLOWS
                                 (in thousands)

                                                     Year ended December 31,
                                                 ------------------------------
                                                     1999       1998       1997
                                                 --------   --------   --------
Cash flows from operating activities:

   Net income (loss) ........................    $    (30)  $(51,439)  $ 12,910
   Adjustments to reconcile net income
      to net cash flow from operating
      activities:
   Depreciation and amortization ............       5,446      2,880      5,933
   Equity in losses of affiliate ............          --      1,605      2,369
   Property and equipment retirements .......          --     10,300         --
   Deferred income taxes ....................       1,490     11,100     (6,477)
   Changes in assets and liabilities:
      Accounts receivable ...................       5,282     30,393     (9,840)
      Inventories ...........................      (3,602)    (9,182)     1,651
      Income tax refund receivable ..........      18,367    (18,367)        --
      Other current assets ..................         545       (241)       (22)
      Other assets ..........................        (239)      (862)      (353)
      Accounts payable ......................      (3,034)   (17,422)    12,988
      Accrued liabilities ...................      (5,963)     3,630      4,744
      Accrued taxes payable .................        (118)    (1,641)     1,199
                                                 --------   --------   --------
        Net cash provided by
           (used in) operating activities ...      18,144    (39,246)    25,102
                                                 --------   --------   --------
Cash flows from investing activities:
   Acquisition of property and equipment ....      (2,408)   (10,280)    (4,406)
   Sale of short-term investments, net.......       3,337     12,480     12,102
                                                 --------   --------   --------
        Net cash provided by
            investing activities ............         929      2,200      7,696
                                                 --------   --------   --------
Cash flows from financing activities:
   Issuance of Common Stock,
      net of issuance costs .................       1,055        989      1,101
   Purchase of Treasury Stock ...............      (3,154)        --    (12,942)
   Tax benefit from exercise
      of stock options ......................          --        153        787
                                                 --------   --------     -------
        Net cash provided by
           (used in) financing activities ...      (2,099)     1,142    (11,054)
                                                 --------   --------   --------
Net increase (decrease) in cash
           and cash equivalents .............      16,974    (35,904)    21,744
Cash and cash equivalents
           at beginning of year .............      12,349     48,253     26,509
                                                 --------   --------   --------
Cash and cash equivalents
           at end of year ...................    $ 29,323   $ 12,349   $ 48,253
                                                 ========   ========   ========
Supplemental disclosure of
           cash flow information:
   Cash paid during the year
           for income taxes .................    $     --   $  1,855   $ 10,973
                                                 ========   ========   ========


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



                               CIDCO INCORPORATED
                          NOTES TO FINANCIAL STATEMENTS

NOTE 1.         THE COMPANY

     CIDCO  Incorporated  (the  "Company"),  a  Delaware  corporation,  designs,
develops and markets  advanced  telephony  products  from  subscriber  telephone
equipment for use with intelligent  Network Services to Internet  appliances and
services. The Company started its operations in June 1989. The Company sells its
products to individual  customers  through its Direct  Marketing and Fulfillment
relationships with certain Regional Bell Operating Companies ("RBOC"), to Telcos
directly,  to Internet  Service  Providers  and to major  national  and regional
Retail chains.

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 period. Actual results could differ from those estimates.

Cash Equivalents

     The Company  considers  all highly  liquid  instruments  with a maturity of
three months or less when purchased 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  are  recorded
directly in 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,  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 stated at cost.
Amortization is computed using the  straight-line  method and the shorter of the
remaining lease term or the estimated useful lives of the improvements.

Investments in Affiliates

     Investments in affiliates,  where the Company owns more than 20 percent but
not in excess of 50 percent and does not otherwise exercise control, are
accounted for using the equity method.

Recent accounting pronouncements

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting  for  Derivative   Instruments  and  Hedging  Activities.   SFAS  133
establishes new standards of accounting and reporting for derivative instruments
and 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 137 deferred the  effective  date of SFAS
133 until fiscal  years  beginning  after June 15, 2000.  The Company will adopt
SFAS No. 133 during its year ended  December 31, 2001. To date,  the Company has
not engaged in derivative or hedging activities.

Warranty Costs

     Anticipated  costs related to product  warranties  are charged to income as
sales are  recognized.  The Company  has not  experienced  significant  warranty
claims to date.

Revenue Recognition

     Direct sales and sales through Fulfillment arrangements are recognized upon
shipment of the product to the customer. Allowances are established to recognize
any risk related to the creditworthiness of customers and for estimated returns.
Sales through certain promotions aimed at Fulfillment customers are dependent on
the customer's  retention of certain Services provided by the Telco. The Company
reserves for estimated non-retention of such Services by these customers. Retail
sales of  MailStation  are  recognized  upon  mail  service  activation  or sell
through.   Bundled  hardware  and  service  revenues  are  recognized  over  the
contracted service period which is typically 12 months.

Advertising Costs

     Advertising  costs are  expensed as incurred.  Advertising  costs for 1999,
1998  and  1997  were  $12.5  million,   $32.5   million,   and  $32.4  million,
respectively.

Income Taxes

     The Company accounts for income taxes using the liability method.  Deferred
income taxes are provided for expected tax consequences of temporary differences
between the financial  reporting basis and the tax basis of the Company's assets
and liabilities.

Earnings per Share

     Basic  Earnings  Per Share  ("EPS")  is  computed  by  dividing  net income
available to common  stockholders  (numerator - computed as net income  adjusted
for any accretion of dividends paid on preferred  stock) 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:

                                                     Year ended December 31,
                                                  ------------------------------
                                                      1999       1998       1997
                                                  --------   --------   --------
Net income (loss) ..............................  $    (30)  $(51,439)  $ 12,910
                                                  ========   ========   ========

Weighted average shares - basic ................    13,608     14,049     13,948
     Effect of dilutive securities -
            employee stock options..............        --         --        392
                                                  --------   --------   --------
Weighted average shares - diluted ..............    13,608     14,049     14,340
                                                  ========   ========   ========
Net earnings (loss) per common share - basic ...  $   0.00   $  (3.66)  $   0.93
                                                  ========   ========   ========
Net earnings (loss) per common share - diluted .  $   0.00   $  (3.66)  $   0.90
                                                  ========   ========   ========
   Potential shares of common stock issuable upon the exercise of 1,144,961 and
   232,256 options as at December 31, 1999 and 1998 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  primarily of cash and cash  equivalents,
short-term investments and accounts receivable. The Company limits the amount of
credit exposure to any one financial institution and financial  instrument.  The
Company's  trade  accounts  receivable  are derived  primarily from sales in the
United States and South America.  The Company  maintains  reserves for potential
credit  losses;   historically,   such  losses  have  been  within  management's
expectations.

NOTE 3.         BALANCE SHEET COMPONENTS
                     (in thousands)
                                                               December 31,
                                                           -------------------
                                                               1999       1998
                                                           --------   --------
      Inventories, net of reserves:
        Finished goods ..................................  $ 22,283   $ 14,005
        Raw materials (1)  ..............................     3,405      8,081
                                                           --------   --------
                                                           $ 25,688   $ 22,086
                                                           ========   ========
     Property and equipment, net:
        Land ............................................  $    866   $    866
        Computers and office equipment ..................    16,884     16,868
        Tooling .........................................     8,619      6,187
        Furniture and fixtures ..........................     2,134      2,134
        Leasehold improvements ..........................     2,607      2,648
                                                           --------   --------
                                                             31,110     28,703
        Less accumulated depreciation and amortization ..   (24,457)   (19,012)
                                                           --------   --------
                                                           $  6,653   $  9,691
                                                           ========   ========
     Accrued liabilities:
        Accrued compensation ............................  $  1,447   $  1,619
        Accrued restructuring ...........................       150      3,883
        Sales taxes payable .............................     1,676      2,004
        Other ...........................................     5,349      7,079
                                                           --------   --------
                                                           $  8,622   $ 14,585
                                                           ========   ========

(1)  For  December  31,  1998  balances,  an  additional  reserve  of $3,935 (in
     thousands)   related  to  i-Phone  raw   materials  has  been  included  in
     resturcturing. See Note 6.

NOTE 4.         INVESTMENTS

     The Company's short-term  investments consist primarily of municipal bonds.
As of December 31, 1999,  approximately  $5.5  million of such  investments  had
maturities of greater than one year. However,  all such securities mature within
three years. The cost and fair value of the Company's short-term investments are
as follows (in thousands):

                                                                December 31,
                                                            --------------------
                                                                1999       1998
                                                            --------   --------
Fair value ..............................................   $ 10,546   $ 13,975
Cost ....................................................     10,536     13,873
                                                            --------   --------
Unrealized gains ........................................   $     10  $     102
                                                            ========   ========




NOTE 5.         INVESTMENT IN AFFILIATE

     During 1996, the Company  acquired for $3 million in cash a 33% interest in
the outstanding stock of InfoGear Technology Corporation ("InfoGear"), a company
involved in the  development  of software for  Internet  phones.  The  Company's
equity in losses of InfoGear  has been  included as a component  of research and
development expense for the years ended December 31, 1998 and 1997, $0.6 million
and $2.4 million, respectively. In 1998, the Company invested an additional $1.4
million in  Infogear  that the  Company  wrote off as  worthless  as part of the
restructuring costs. See Note 6 below.

NOTE 6.         RESTRUCTURING

     The Company incurred a pretax  restructuring  charge of $2.7 million in the
first  quarter of 1998 as it  announced  and  implemented  several  streamlining
programs,  including  combining  certain  marketing  and  operations  functions,
restructuring  research and  development  activities and  discontinuing  certain
products,  resulting in asset  write-downs and the elimination of  approximately
100 positions.  Approximately $0.6 million of the restructuring  charge required
cash outlays.  The remaining $2.1 million  represents asset  write-downs of $1.1
million and  leasehold  improvements  of $1.0  million  related to  discontinued
products and relocation of the Company's  distribution center from California to
Texas.  The  Company  determined  that  moving the  distribution  center has not
produced  the  cost  savings  and  relocated  the  distribution  center  back to
California where the distribution function can be fully integrated with the rest
of the Company.

     On July 22, 1998, the Company announced a new business strategy focusing on
core telephony  products and services,  and a restructuring  plan implemented in
the second half of 1998, which resulted in charges of $17.2 million in the third
quarter of 1998.  The Company's  restructuring  plan  significantly  reduced its
personnel  and resource  costs  throughout  the core  business.  As part of this
strategy and  restructuring  plan, the Company explored  strategic  alternatives
with  regard  to  its  Internet  Appliances  Division,  including  the  possible
spin-out,  sale or wind-down of the division in significant part due to the high
level of  marketing,  sales and research and  development  expense that would be
required to develop the market for these  products and services.  As of December
31,  1999,  the  Company  sold a  relatively  minor  amount of these  assets and
discontinued operation of the Division,  including laying-off  substantially all
of the  Division's  employees.  The  restructuring  required  a cash  outlay  of
approximately  $5.9 million.  The  remaining  $11.3  million  represented  asset
write-downs of $5.9 million and  write-offs of investments in intangible  assets
including  a Sun  Microsystems  license of $3.0  million  and equity in InfoGear
Technologies Corporation of $1.4 million.

     The following table lists the components of the  restructuring  accrual for
the two years ended December 31, 1999:
                                                        Asset
                                             Employee   Write-
(in thousands):                                Costs    downs   Leases    Total
                                             --------  -------  ------  ------
Reserve initially provided in Q1 1998 .....  $    437  $ 2,080  $  155  $ 2,672
Additional reserve provided in Q3 1998.....     3,616   13,506      65   17,187
Reserve utilized in 1998 ..................    (3,993) (11,651)   (336) (15,976)
Reserve utilized in 1999 ..................        --   (3,354)     --   (3,354)
Reserve returned to profit in 1999 ........        --     (379)     --     (379)
                                             --------  -------  ------  -------
Balance at December 31, 1999 ..............  $     60  $   202  $ (112) $   150
                                             ========  =======  ======  =======



NOTE 7          LINE OF CREDIT

     The Company has a line of credit for up to $15  million.  Borrowings  under
the line bear interest the bank's base rate and the interest is payable monthly.
The bank's base rate was 8.50% per annum at December 31, 1999.  Borrowings under
the line are secured by the assets of the Company.  As of December 31, 1999, the
Company had not borrowed any funds under the line. The line is primarily used as
security  for letters of credit used to purchase  inventory  from  international
suppliers.  Letters  of credit  secured  by this line  totaled  $4 million as of
December 31, 1999.

NOTE 8.         COMMITMENTS AND CONTINGENCIES

Leases

     The  Company  leases  its   headquarters,   call  center  and  distribution
facilities in Morgan Hill, California,  under operating leases which expire from
2000 through 2006. The Company also leases office space in Palo Alto, California
under an operating lease that expires in 2002.

     Future minimum lease payments under  non-cancelable  leases at December 31,
1999 were as follows (in thousands):

Year ending December 31,
2000 ...........................................................      $  1,268
2001 ...........................................................         1,244
2002 ...........................................................         1,236
2003 ...........................................................         1,268
Thereafter .....................................................         2,576
                                                                      --------
Total minimum lease payments ...................................      $  7,592
                                                                      ========

     Rent expense for 1999,  1998 and 1997 was $1.2 million,  $0.9 million,  and
$1.4 million, respectively.

Licenses

     The Company has a  nontransferable,  nonexclusive  license  agreement  with
Lucent to utilize Lucent's patent related to data display  devices.  The Company
pays royalties to Lucent for each licensed product sold,  leased or put into use
by the Company other than direct sales to Lucent,  the Regional  Bell  Operating
Companies and other Lucent licensees under the patent.  Royalties are payable at
a rate of one dollar per unit.  Total Lucent royalty  expense  incurred in 1999,
1998 and 1997 was $0.6 million,  $0.9 million,  and $2.0 million,  respectively.
The patent and license agreement expire in 2003.

     The Company has a  nontransferable,  nonexclusive  license  agreement  with
Northern  Telecom to utilize  Northern  Telecom's  patents for Caller ID on Call
Waiting technology.  Under the agreement, the Company pays royalties to Northern
Telecom for each licensed  product  sold,  leased or put into use by the Company
other than  direct  sales to Northern  Telecom  beginning  January 1, 1997.  The
agreement also provided for a one-time payment in full satisfaction of royalties
on all units  incorporating  Northern  Telecom's  patents  that were sold by the
Company prior to January 1, 1997. Royalties are payable at a variable rate based
on product type and number of units sold. Total Northern Telecom royalty expense
incurred in 1999 and 1998 was $2.0 million and $1.8 million, respectively.

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. Effective July
1, 1997, the Company  contributed 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  maximum per plan  participant.  Prior to July 1, 1997,
the Company  contributed for each participant a matching  contribution  equal to
25% of the participant's  before-tax contributions for the year not to exceed 1%
of his or her compensation. 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  $305,344,  $526,000  and  $298,000 to the 401(k) Plan for the
years ended December 31, 1999, 1998, and 1997, respectively.

Pending Litigation

     On April 1, 1999,  the  Company  filed a  complaint  against  Active  Voice
Corporation in U.S. District Court primarily  seeking a Declaratory  Judgment of
non-infringement and invalidity of U.S. Patent No. 5,327,493 involving detection
of tones and secondarily for patent misuse and unfair competition.  Active Voice
counter-claimed  for infringement of U.S. Patent No. 5,327,493,  and the Company
amended its complaint to include  infringement  by Active Voice of the Company's
U.S. Patent No.  4,366,348  involving  Caller ID technology.  The case is in the
discovery stage. The Company's  management  believes that it will prevail in any
litigation,  and that the costs and risks of this litigation are not material to
its operations.

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

NOTE 9.         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. 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.

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' Stock
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 for 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 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:
                                                      Options Outstanding
                                         Shares    ---------------------------
                                       Available              Weighted Average
                                       for Grant    Shares     Exercise Price
                                      -----------  ---------- ----------------
  Balance at December 31, 1996 .....      102,550   1,638,906     $  16.69
     Additional shares authorized...      750,000          --           --
     Options granted ...............   (1,660,082)  1,660,082     $  14.21
     Options exercised .............           --    (525,421)    $   1.30
     Options canceled ..............    1,207,807  (1,207,807)    $  23.98
                                      -----------  ----------
  Balance at December 31, 1997 .....      400,275   1,565,760     $  14.57
     Additional shares authorized,
        April 1998 .................      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
                                      ===========  ==========     ========






     The following table summarizes  information  concerning all outstanding and
exercisable stock options as of December 31, 1999, including outstanding options
to the former  Executive  Officer of 270,000 shares and Directors Option Plan of
180,000 shares:
                                                                     Options
                             Options Outstanding                  Exercisable
                 ----------------------------------------------   -----------
                              Wtd. Average Weighted                Weighted
                               Remaining   Average                  Average
Range of Exercise   Number    Contractual  Exercise    Number      Exercise
     Prices       Outstanding     Life       Price  Exercisable      Price
----------------- ----------- ------------ -------- -----------   -----------
$ 1.00 - $ 1.00      103,704       3.35    $   1.00     103,704    $   1.00
$ 1.88 - $ 3.00    1,475,152       8.64    $   2.67     561,352    $   2.78
$ 3.50 - $ 3.50      273,925       7.47    $   5.72      33,063    $   7.27
$ 9.75 - $19.82      312,084       6.78    $  13.99     202,396    $  14.36
                  ----------                        -----------
$ 1.00 - $19.82    2,164,865       7.97    $   4.61     900,515    $   5.34
                  ==========                        ===========

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 123, the Company's results for the
years  ended  December  31,  1999,  1998 and 1997 would have been as follows (in
thousands):

                                                       1999                1997
                                                   --------  --------  --------

Net income (loss) as reported .................... $    (30) $(51,439) $ 12,910
Pro forma net income (loss) ...................... $ (2,798) $(56,794) $  9,725
Basic earnings (loss) per share as reported ...... $   0.00  $  (3.66) $   0.93
Diluted earnings (loss) per share as reported .... $   0.00  $  (3.66) $   0.90
Pro forma basic earnings (loss) per share ........ $  (0.21) $  (4.04) $   0.70
Pro forma diluted earnings (loss) per share ...... $  (0.21) $  (4.04) $   0.67

     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:

                                                    1999       1998      1997
                                                  ------     ------    ------
Stock option plan:
   Expected dividend yield ....................     0.0%       0.0%       0.0%
   Expected stock price volatility ............     115%       118%        65%
   Risk free interest rate ....................    5.46%      5.27%      6.11%
   Expected life of options (years) ...........     3.7        3.1        2.7
Stock purchase plan:
   Expected dividend yield ....................     0.0%       0.0%        0.0%
   Expected stock price volatility ............     103%       227%        65%
   Risk free interest rate ....................    4.92%      4.87%      5.37%
   Expected life of option (years) ............     0.5        0.5        0.5

     The weighted  average  estimated  grant date fair value, as defined by SFAS
123, for options  granted under the Stock Option Plan during 1999, 1998 and 1997
was $4.64, $2.91 and $5.64,  respectively.  The weighted average estimated grant
date fair value,  as defined by SFAS 123, for purchase  rights granted under the
Stock  Purchase  Plan  during  1999,  1998 and 1997 was $1.29,  $5.60 and $5.23,
respectively.


<PAGE>


NOTE 10.    PROVISION FOR (BENEFIT FROM) INCOME TAXES

     The provision for income taxes consists of the following (in thousands):

                                   Year ended December 31,
                          ------------------------------------------
                               1999             1998            1997
                          ---------        ---------       ---------
 Current:
   Federal ...........    $  (1,501)       $ (18,230)      $  11,767
   State .............           11              175           2,956
                          ---------        ---------       ---------
                             (1,490)         (18,055)         14,723
                          ---------        ---------       ---------
 Deferred:
   Federal ...........        1,490            8,750          (5,206)
   State .............           --            2,350          (1,271)
                          ---------        ---------       ---------
                              1,490           11,100          (6,477)
                          ---------        ---------       ---------
                          $      --        $  (6,955)      $   8,246
                          =========        =========       =========

At December  31,  1999,  the Company had  approximately  $12,700,000  of federal
operating  loss  carryforward  available to offset future  taxable  income which
expires in 2019. At December 31, 1999, the Company had approximately $304,000 of
state research and development  credit  carryforward  available to offset future
taxable income, available indefinitely.

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

                                                      Year ended December 31,
                                                   ---------------------------
                                                      1997      1997     1997
                                                   -------      ----     ----
 Federal statutory tax rate ....................     (34.0)%   (35.0)%   35.0%
 State income taxes, net of federal benefit ....      22.0       2.8      5.1
 Research and development tax credits ..........       0.0       0.0     (2.4)
 Permanent differences .........................  (1,543.0)      0.2       --
 Valuation allowance ...........................   1,554.0      25.0       --
 Other .........................................       1.0      (4.9)     1.3
                                                   -------      ----     ----
                                                       0.0%    (11.9)%   39.0%
                                                   =======      ====     ====


     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):

                                                     As of December 31,
                                                  ---------------------------
                                                      1999             1998
                                                  ----------       ----------
  Deferred Tax Assets:
      Non-deductible reserves .................   $    6,247       $   13,131
      Inventory basis difference ..............          152              113
      Depreciation ............................        3,819            2,373
      Other ...................................          361              563
      Net operating loss ......................        4,470               --
                                                  ----------       ----------
  Gross deferred tax asset ....................       15,049           16,180
  Deferred tax liabilities ....................           --             (104)
                                                  ----------       ----------
  Net deferred tax assets .....................       15,049           16,076
  Less valuation allowance ....................      (15,049)         (14,586)
                                                  ----------       ----------
                                                  $       --       $    1,490
                                                  ==========       ==========


<PAGE>



NOTE 11.        SIGNIFICANT CUSTOMERS

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

                                             Year ended December 31,
                                         ------------------------------
   Customer                               1999        1998         1997
                                         -----        ----         ----
   A ..............................       17.7%       21.6%        25.5%
   B ..............................       28.5%       28.9%        14.0%
   C ..............................         *         11.6%        14.6%
   D ..............................         *          *           23.3%
   E ..............................       19.5%        *            *


     The  Company's  accounts  receivable  from  significant  customers  are  as
follows:

                                                       December 31,

Customer                                          1999               1998
                                                 -----               ----
A ...................................              *                 37.8%
B ...................................            23.3%               17.4%
C ...................................            12.2%                *


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





sCHEDULE II:  Valuation and Qualifying Accounts

                                   Balance at                          Balance
                                   beginning                            at end
(in thousands)                      of year    Additions  Deductions   of year
                                   ----------  ---------  ----------  --------
Year ended December 31, 1997
     Allowance for
            doubtful accounts ...  $   2,966   $   9,490  $  (9,155)  $  3,301
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



Item   9.       Changes in and Disagreements with Accountants
                      on Accounting and Financial Disclosure

         Not applicable.

                                    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 2000 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

         The information under the captions "Executive  Compensation" and "Stock
Options and Bonuses" in the Proxy Statement is incorporated herein by reference.

Item 12.        Security 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  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.





                                    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
Exhibits                                                                    Page
--------                                                                    ----
 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)                                         --
 4.1   Amended and Restated Loan and Security Agreement dated March 29,
          1999 between Registrant and Comerica Bank-California. (7)           --
 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 Registrant
          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 Registrant
          and Paul G. Locklin. (6)                                            --
10.35  Employment Agreement dated Sept. 30, 1994 between Registrant
          and Timothy J. Dooley. (6)                                          --
10.36  Separation Agreement dated Sept. 20, 1998 between Registrant
          and Marv Tseu.                                                      --
10.37  Separation Agreement dated Sept. 20, 1998 between Registrant
          and Jim Hindmarch. (6)                                              --
10.38  Separation Agreement dated Nov. 20, 1998 between Registrant
          and Ho Leung Cheung(6)                                              --
10.39  Employment Agreement dated June 5, 1998 between Registrant
          and William A. Sole. (7)                                            --
10.40  Registrant's 1999 Employee Stock Purchase Plan                         47

(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.

         (b)  Reports on Form 8-K.
              None.


<PAGE>


                                   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 26th day of March
2000.

                             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 26th day of March 2000.

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


/s/      Daniel L. Eilers        Director
-----------------------------
Daniel L. Eilers

/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







                                                                    Exhibit 23

                       CONSENT OF INDEPENDENT ACCOUNTANTS

         We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (No.  333-71649 and No. 333-95379) of CIDCO Incorporated
of our report dated January 21, 2000 relating to the financial statements and
financial statement schedule which appear in this Form 10-K.

/s/
PricewaterhouseCoopers LLP
San Jose, California

March 28, 2000