United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549

                                    FORM 10-K

[x]       Annual  report  pursuant  to  Section  13 or 15(d)  of the  Securities
          Exchange Act of 1934 for the fiscal year ended March 31, 2001.

[ ]       Transition  report  pursuant to Section 13 or 15(d) of the  Securities
          Exchange Act of 1934 for the transition period from  ______________ to
          ______________.

                         Commission file number 0-23926

                              GEOWORKS CORPORATION
             (Exact name of registrant as specified in its charter)

                   Delaware                               94-2920371
        (State or other jurisdiction of                (I.R.S. Employer
        incorporation or organization)                Identification No.)

       960 Atlantic Avenue, Alameda, California              94501
       (Address of principal executive offices)            (Zip code)

                                  510-814-1660
              (Registrant's telephone number, including area code)

          Securities registered pursuant to Section 12 (b) of the Act:
                                      None

          Securities registered pursuant to Section 12 (g) of the Act:
                    Common Stock, par value $0.001 per share
                                (Title of Class)
                         Preferred Stock Purchase Rights
                                (Title of Class)

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  Registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ ]

The  aggregate   market  value  of  the   Registrant's   Common  Stock  held  by
non-affiliates,  based upon the closing  sale price of the Common  Stock on June
21,  2001  as  reported  on  the  Nasdaq  National  Market,   was  approximately
$30,089,104.  Shares of Common Stock held by each executive officer and director
and by each person who owns 10% or more of the outstanding  Common Stock,  based
on Schedule 13G  filings,  have been  excluded  since such persons may be deemed
affiliates.  This  determination  of  affiliate  status  is  not  necessarily  a
conclusive determination for other purposes.

As of June 21, 2001,  there were 23,423,996  shares of the  Registrant's  Common
Stock outstanding.

Documents Incorporated by Reference

Portions of Registrant's  definitive proxy statement (the "Proxy Statement") for
its 2001 Annual Meeting of  Stockholders,  which the Registrant  intends to file
within  120  days  of  the   Registrant's   fiscal  year-end  (the  "2001  Proxy
Statement"), are incorporated by reference into Part III of this Report.

<PAGE>

                              GEOWORKS CORPORATION

                                Table of Contents

                                                                            Page
                                                                            ----

                                     PART 1

Item 1.    Business                                                            3
           Risk Factors                                                       12
Item 2.    Properties                                                         18
Item 3.    Legal Proceedings                                                  18
Item 4.    Submission of Matters to a Vote of Security Holders                19
Item 4A.   Directors and Executive Officers of the Registrant                 19

                                     PART II

Item 5.    Market for the Registrant's Common Equity and Related
           Stockholder Matters                                                22
Item 6.    Selected Consolidated Financial Data                               23
Item 7.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations                                          25
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk         36
Item 8.    Financial Statements and Supplementary Data                        37
Item 9.    Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure                                           60

                                    PART III

Item 10.   Directors and Executive Officers of the Registrant                 60
Item 11.   Executive Compensation                                             60
Item 12.   Security Ownership of Certain Beneficial Owners and Management     60
Item 13.   Certain Relationships and Related Transactions                     60

                                     PART IV

Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K   61


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PART I

Forward-Looking Statements

This Report contains  forward-looking  statements  within the meaning of Section
27A of the  Securities  Act of 1933,  as amended  (the  "Securities  Act"),  and
Section 21E of the  Securities  Exchange Act of 1934, as amended (the  "Exchange
Act"),  regarding future events and our management's plans and expectations that
involve risks and uncertainties. When used in this Report, the words "estimate,"
"project,"  "intend,"  "expect" and  "anticipate"  and similar  expressions  are
intended  to identify  such  forward-looking  statements.  Such  statements  are
subject to certain risks and  uncertainties,  including those  discussed  below,
that could cause actual results to differ materially from those projected.

Factors that may cause actual  results to vary include,  but are not limited to:
(i) risks associated with our history of operating losses; (ii) risks associated
with our  ability to meet our  capital  needs in order to execute  our  business
plan;  (iii) risks  associated  with our  dependence on the  development  of the
market for  mobile  data  software;  (iv) risks of  competition  in mobile  data
software and services; and (v) risks associated with rapid technological change.
Other factors that may cause or contribute to such differences  include, but are
not limited to,  those  discussed  in the  section of this Report  titled  "Risk
Factors,"  beginning  on page 12, as well as those  discussed  elsewhere in this
Report. Consequently, the inclusion of forward-looking information herein should
not  be  regarded  as a  representation  by us or  any  other  person  that  our
objectives or plans will be achieved.  The reader is therefore  cautioned not to
place undue reliance on the forward-looking  statements  contained herein, which
speak only as of the date hereof. We undertake no obligation to publicly release
updates or revisions to these statements.

Item 1.  BUSINESS

Geoworks Strategic Summary

Geoworks  Corporation is a leading  provider of  carrier-class  mobile  Internet
infrastructure software enabling personalized, real-time access to corporate and
Internet  data.  Our  software  enables  easy  migration  of existing  corporate
Intranet  solutions  to the  wireless  Web  and  the  rapid  development  of new
applications  to support the mobile  enterprise.  We are focused on the wireless
carrier  market and  enabling  wireless  carriers  to deliver on the  promise of
always-on mobile applications over today's 2G and 2.5G networks. We also provide
professional  services  consulting related to the deployment of these solutions,
the development of new technologies  supporting  mobile  communications  and the
technologies we previously developed.

The Market Need:  Wireless  carriers  need  enabling  software in order to offer
enterprise-class  data and Internet  services that will increase  their revenue,
differentiate their service offerings,  reduce turnover and generate a return on
the capital they are investing in next generation wireless networks.

Our Products:  Geoworks  software,  when deployed in a wireless carrier network,
allows the carrier to reformat and extend corporate enterprise data and Internet
applications over the wireless network to mobile devices.

Our Strategy: We sell directly to the wireless carriers and through the wireless
carriers to the  enterprise.  We also partner with solution  providers to extend
our reach.  And, we are building a community of  developers  to  facilitate  the
adoption of our software.


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Our Business  Model:  We license our  software for mobile  solutions to wireless
carriers and  enterprises on a per server and per user basis.  Our revenues grow
as the carriers roll out, and their users adopt, enhanced data services.

Company Overview

Since our initial public offering ("IPO") in 1994, our business has been focused
on  enabling  mobile  access to  information.  How we  deliver on that focus has
changed  over the years with  developments  in both  technology  and the market.
Prior to early 1999, we developed and sold a wireless operating system for smart
phones and personal digital assistants (PDAs). In 1998, there were six different
models of  Geoworks-enabled  handsets and mobile data devices,  manufactured  by
five major original equipment manufacturers,  available for sale in more than 30
countries.  However,  this  market did not  develop as rapidly as  expected  and
product shipments were  disappointing.  Also, that year,  several of the world's
largest  handset  makers,  representing  more  than half of our  target  market,
created a joint  venture to  develop  their own mobile  operating  system.  As a
result,  we began to explore  alternative  opportunities  where our expertise in
mobile solutions could be applied.

In 1999, we introduced our first mobile data server  software,  Mobile  Server+,
and services  based on that software  platform.  In July 2000, we  significantly
strengthened  our product  and  service  offering  with the  acquisition  of the
AirBoss Application Platform from Telcordia  Technologies  (Telcordia).  And, in
June 2001, we announced a reorganization  intended to strengthen our competitive
position  by  accelerating  the  integration  of  our  two  software   products,
streamlining our  organization  and exiting the Mobile ASP (Application  Service
Provider) market.

Our products and market  targets have evolved over the last two years as we have
adapted to dramatic  changes in mobile data  technology and market demand,  but,
our focus has  remained  clear:  enabling  mobile  access  to  information.  Our
strategy  is to provide an  integrated,  enterprise-oriented  product  offering,
providing  innovative  mobile Internet  infrastructure  capabilities to wireless
carriers  worldwide  and to partner with solution  providers  and  developers to
facilitate the adoption of our software.

Our company was  incorporated  in  California  in 1983,  and  reincorporated  in
Delaware in 1997. Based in Alameda,  California, we have regional offices in New
Jersey,  Japan and the United Kingdom.  Our fiscal year commences on April 1 and
ends on March 31. You can visit our website at http://www.geoworks.com.

Our Market

The market for wireless data technology is growing rapidly,  fueled by growth in
both the  Internet  and  wireless  telecommunications  markets  and by the rapid
convergence of the two technologies.

People  are  becoming   increasingly   dependent  on  the  Internet  to  provide
information,   e-mail  and  remote   access  to   corporate   applications   and
Internet-based services. According to International Data Corporation (IDC) there
were  approximately 400 million Internet users worldwide at the end of 2000, and
that number is expected  to grow to almost 900 million  worldwide  by the end of
2004. Businesses are using the Internet/intranet to extend communications to and
conduct transactions with remote locations,  telecommuting  employees,  business
affiliates, suppliers, customers and other companies. Enterprises are also using
the Internet/intranet as a platform for

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traditional  enterprise  applications such as customer relationship  management,
direct  marketing,  inventory  control,  human  resources,  enterprise  resource
planning and manufacturing, to increase productivity,  widen accessibility,  and
build closer relationships along the entire supply and distribution chain.

At the same  time,  the use of mobile  communications  is growing  rapidly.  IDC
estimates  that the global number of wireless voice users was 450 million at the
end of 2000, and will grow to 1.1 billion in 2003.

These  technologies are rapidly  converging as consumers and enterprises  demand
the benefits of mobile  information  access.  According to a recent study by the
Gartner  Group, a leading market  researcher,  the North American  wireless data
market will grow to 137.5 million subscribers in 2005, from 7.3 million in 2000.
In a separate study, Gartner predicts 800 million world-wide wireless data users
by 2004. This growth is being driven by the global  deployment of 2.5G or packet
data  networks,  improvements  in the  capabilities  of  handheld  devices,  the
increased  overall use of wireless devices to receive  messages and e-mail,  the
availability  of  inexpensive  wireless data  devices,  and the  development  of
company-specific,   mobility-focused   applications   that  will   improve   the
productivity  of the  mobile  worker.  By many  estimates,  by 2004 more  people
worldwide will access the Internet via wireless devices than via PCs.

The two  primary  buyers of mobile  data  software  will be  wireless  carriers,
looking to provide services that will drive traffic through their networks,  and
enterprises,  looking to increase the  productivity  of an  increasingly  mobile
workforce  and to reach  their  customers  on the move.  Strategy  Analytics,  a
leading  market  researcher,  estimates  that wireless  service  providers  will
generate annual wireless data revenue of $48 billion in 2005, up from $5 billion
in 1999. Epoch Partners, an investment research firm, predicts that software and
content  providers will collect  approximately  $10 billion of this revenue,  up
from less than $100 million in 2000.  In addition,  Goldman  Sachs has estimated
that companies  worldwide will spend  approximately $38 billion on technology to
support mobile workers in 2005, $9 billion on software alone.

Product and Service Offering

     Mobile Data Software

We are currently integrating our AirBoss Application Platform and Mobile Server+
technology into a single, enterprise-focused infrastructure solution targeted at
wireless carriers and enterprises worldwide.  This integrated product will bring
together the complementary strengths of the two product lines. In short, AirBoss
provides an excellent  platform for providing wireless access to enterprise data
via Internet and other standard protocols.  It is a reliable,  scalable solution
that provides superior  authentication,  distribution,  session  maintenance and
management,  and administration  functions.  Mobile Server+ strengths lie in its
data access and  transformation  capabilities.  It is  specifically  designed to
handle complex data translation, customization and access services. When seeking
to mobilize a current application, enterprises would like to make as few changes
as possible to the underlying  infrastructure that supports that application and
to the  application  itself.  Our  combined  product  enables  the  enterprise's
original  application  to interact  with the AirBoss  Platform  through  simple,
standard Internet  application program interfaces (APIs). Then, for applications
or services that require additional translation or customized data delivery, the
enterprise can use the Mobile Server+ components.


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While providing  complementary  functionality,  both software products share key
attributes reflecting Geoworks' software development  strategy.  Both are highly
reliable,  scalable,  open,  standards-based  programs  that provide  innovative
capabilities  enabling  carriers and  enterprises  to provide  mobile  access to
information  easily.  We are  committed to  constantly  updating our products to
support the latest devices and wireless  networks.  In addition,  we work with a
number of technology  partners to ensure that our software  continues to provide
cutting-edge  functionality  and the flexibility to grow as users' needs change,
new devices proliferate and carrier networks evolve.

More  detailed  discussion  of the two  software  components  of our  integrated
product line is provided below.

AirBoss Application  Platform:  The AirBoss  Application  Platform is a suite of
patented software products that allow mobile users to access corporate Intranets
and the Internet  remotely,  via wireless data communication  networks.  AirBoss
products are based on unique proxy  technology and  client-server  architecture,
operating both on the wireless mobile device and on the AirBoss server connected
to the wireless carrier or corporate computer network.  The AirBoss  Application
Platform provides  wireless data  applications  with  compression,  reliability,
end-to-end security,  scalability,  and application  development support.  Using
AirBoss software,  wireless device users can seamlessly  connect with enterprise
applications, extending their corporate networks into mobile networks.

The  AirBoss  solution  operates  with  leading  commercial  wireless  networks,
including CDPD, GSM, CDMA/TDMA,  GPRS, Mobitex, ARDIS or satellite.  The AirBoss
products also support a full range of client device operating systems, including
Windows 95, Windows 98, Windows NT, Windows CE, Palm OS, RIM Inter@ctive 850/857
and 950/957 pagers/PDAs,  and embedded systems.  This flexibility allows AirBoss
users  to "mix  and  match"  network  components  utilizing  whichever  wireless
transmission  technology is most  appropriate  without  changes in wireless data
functionality or performance.

The AirBoss Application Platform also provides comprehensive tools for the rapid
development of wireless  applications.  Without the AirBoss  platform,  wireless
application  developers  need to create  custom  code for  multiple  devices and
enterprise  applications.   AirBoss  simplifies  this  process  by  using  open,
standards-based tools with common interfaces. The AirBoss client/server software
development kits (SDKs) for custom application  development  include the AirBoss
INET (ABInet)  application  program interfaces (APIs) that simplify  programming
for wireless  Web-based  applications.  ABInet is based on standard Windows APIs
and further simplifies the development of custom Web-based applications.

The AirBoss  Application  Platform was first  developed in the mid 1990s and has
been  commercially  deployed  at a  number  of  companies  including  GoAmerica,
e-Dispatch  and Telkom South  Africa.  In late 2000, it was selected by Cingular
Interactive  to be a key  component in  Cingular's  Wireless Web Access  product
offering.  In May 2001,  Cingular  launched a  developer  program  for  wireless
applications  based on the AirBoss  Application  Platform  to its 1,000+  strong
developer community. Commercial launch of Cingular's wireless Web access program
is expected in the second half of 2001.

Mobile Server+:  The Mobile Server+  platform  provides a single server solution
for  developing  and deploying  wireless  services that can support a variety of
mobile devices and formats. The Java-compliant open architecture interfaces with
back-end systems to retrieve content. Mobile


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Server+  then  formats the data and  properly  displays it on wireless  devices,
automatically  handling  different form factors,  screen displays and protocols.
Mobile  Server+  supports any markup  language,  any transport  protocol and any
mobile device.

Mobile  Server+  can be used to  support a wide  variety  of  wireless  services
including Web content (Internet and Intranet),  e-mail delivery, status, alerts,
news and information services,  two-way messaging,  m-commerce,  location ID and
directions,   and  animated   graphics  and  video.   It  enables   leading-edge
applications that include  interactive voice,  location/position  and multimedia
features.  iValue  Creation,  Toshiba's  wireless  application  service provider
company,  currently hosts wireless data  applications for  approximately a dozen
Japanese companies serving more than one million consumers on our Mobile Server+
software.  In  addition,  the  applications  currently  hosted by our Mobile ASP
operations  for United  Airlines  and Abbey  National are both run on the Mobile
Server+ software.

Mobile Server+ is markup-language  independent and supports WML, HDML, MML, Palm
Web Clipping,  Compact HTML,  HTML, and TTML. It is also transport  independent,
supporting HTTP, email (incoming and outgoing),  various SMS protocols, and FTP,
at this time.  Client devices can access a Mobile  Server+  service over various
wireless  protocols,  including  TDMA,  CDMA,  GSM,  GPRS,  PDC,  PHS,  Palm web
clipping, Mobitex and others.

     Professional Services

We support our mobile information strategy by providing professional  consulting
services  to mobile  device  manufacturers,  carriers,  and  service  providers.
Geoworks  has more than a decade of  experience  developing  wireless  operating
systems,  related  applications and wireless server  technology.  We have worked
with  industry  leaders  in  mobile  phones,  mobile  data  applications,   data
transmission  equipment,  mobile security  equipment,  and e-commerce  services,
including Casio,  Ericsson,  HP,  Mitsubishi,  NEC, Nokia,  Sharp,  Seiko Epson,
Sonera SmartTrust and Toshiba.

Our engineers,  quality  assurance  technicians,  and project managers have many
years of  experience  in the  wireless  industry  and a proven  track  record of
technical innovation.  Their skills are in short supply. We are leveraging their
capabilities to offer complete project  management and software  engineering for
complex  projects in wireless  software,  applications and networks that require
experienced  development  teams  who  can  ensure  completion  in a  timely  and
efficient manner.

Geoworks' Strategy

Our  objective is to be a leading  provider of mobile data software and services
that enable  personalized,  real-time access to corporate and Internet data from
mobile devices,  to both wireless carriers and enterprises.  Key elements of our
strategy include:

Providing  industry-leading,  scalable  products  based on open  standards.  Our
approach  to the  market for mobile  data  software  is based on a belief in the
importance of  scalability  and standards.  Our software  solutions are based on
open industry  standards  including HTML, XML, SSL and Java, and are designed to
scale to support  millions of users.  Scalability  is  critical to the  wireless
carriers integrating our products into their wireless data product offerings and
to wireless  application software providers (WASPs) like Toshiba, who need to be
able to serve  hundreds of companies and millions of consumers to be successful.
A commitment to supporting current and

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emerging industry  standards is also critical to support  enterprises facing the
complex task of developing  applications  across the variety of platforms,  data
protocols  and  mobile  devices  in  use  today.   In  addition,   by  providing
standards-based  platforms,  we enable application developers to create products
and services based on our software.

Focusing on the wireless carrier.  The core of our business model is selling our
software to wireless  carriers who can build their mobile data product offerings
on our platform.  Our goal is to develop  relationships with carriers,  like the
one with Cingular,  to use our software as the foundation for enterprise  mobile
application  development across the carriers' network.  Carriers need to be able
to provide their enterprise customers with compelling reasons to increase mobile
usage in  order to  increase  carrier  revenue.  Voice  is  quickly  becoming  a
commodity  sold on price.  To generate a return on the billions of dollars spent
to date on building 2.5 G networks,  mobile  carriers  must  develop  additional
revenue streams.  Enabling  cutting-edge data applications is a key component of
most carriers' growth plans.

With the  integration of Mobile Server+ and AirBoss  platforms,  we are uniquely
qualified  to enable  wireless  carriers to deliver on the promise of  always-on
mobile applications over today's 2G and 2.5G networks. Our software enables easy
migration of existing  corporate  Intranet solutions to the wireless Web and the
rapid  development of new  applications  to support the mobile  enterprise.  Our
relationship  with  Cingular  Interactive  is a  model  for our  business  going
forward: working with carriers to reach the enterprise, partnering with solution
providers and building  developer  communities to facilitate the adoption of our
software.

Building a scalable business model.  Carriers have millions of users. We license
our  software  to carriers  for a one-time  server  license  fee,  then  receive
additional  seat  license  fees for each  end-user  that is  enabled  to  access
applications based on our platform.  Our revenues grow as the carriers roll out,
and their users adopt,  enhanced data  services.  We also receive annual upgrade
and  maintenance  fees based on the  initial  and  additional  server and client
licenses.  Our model  can  scale  rapidly  with  only a few  successful  carrier
customers.

Building an "ecosystem" of technology partners,  resellers and developers. A key
corporate  initiative  in  fiscal  year  2001 was the  launching  of our  Mobile
Business  Alliance  program  targeting  industry-leading  technology  companies,
resellers and  developers to build a larger  "ecosystem' or network of companies
involved with Geoworks at many points in the value chain. The program is divided
into two parts, a Solution Partner program and a Developer program.

Solution Partners: By partnering with companies seeking to expand their existing
data solutions and offer their customers new wireless solutions by reselling our
products and/or  participating in co-marketing  programs,  we can  significantly
expand our reach. We intend to actively  pursue  additional  relationships  with
wireless carriers,  Independent  Software Vendors (ISVs),  Value Added Resellers
(VARs), Systems Integrators (SIs), consulting organizations, application service
providers (ASPs) and distributors to expand the distribution of our products and
services.  We believe that developing and maintaining these  relationships  will
encourage  wider  adoption of our  software and increase  brand  awareness.  Our
solution partners include SAIC, Telcordia Technologies and Toshiba. In addition,
we have relationships  with strategic  technology  companies  including Cingular
Wireless, Hewlett Packard, Maptuit, Nuance, Openwave and US. Wireless.

Developer  Program:  We are  committed  to  building  a  community  of  software
programmers  focused  on  developing   additional   applications  for  Geoworks'
integrated software solution. Such


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a community can provide users with both  ready-made  applications  and a base of
developers  with the knowledge to support custom  application  development.  The
rollout  of the  Cingular  Wireless  Developer  Program  based  on  the  AirBoss
Application  Platform was an important  early step in this  process.  Building a
critical mass of developers  focused on our platform will  encourage  additional
mobile  carriers  to adopt our  platform  (just as  additional  mobile  carriers
adopting our platform will encourage new  developers).  It will also  facilitate
enterprise adoption of our software.  Key components of our program to encourage
developers  to focus  on  Geoworks  products  include:  providing  comprehensive
development  tools which  include  product  documentation,  debugging  tools and
easy-to-use APIs based on industry standards;  and providing developers with the
infrastructure to evaluate, develop, deploy and support wireless applications.

Apply the  expertise we gain through  professional  services to ongoing  product
development.   We  provide  comprehensive  software  development  and  technical
services  for  wireless  projects  for  leading  electronics  and  mobile  phone
manufacturers and cellular carriers such as Nokia and Mitsubishi.  The expertise
we gain  working with next  generation  devices,  operating  systems and carrier
technology,  can be  applied  to the  ongoing  development  of our own  software
products.  In addition,  by working  closely with  industry  leaders,  we gain a
clearer understanding of the direction of both technology and market trends.

Operations

     Engineering and Product Development

One of our most important  resources is our engineering  staff of 81, as of June
20,  2001,   including  wireless  systems  engineers,   software  engineers  who
specialize in  developing  applications  for handheld  devices and engineers who
specialize  in  systems   integration,   quality  assurance  and  testing.   Our
engineering   department  provides  core  product  development,   customization,
deployment  and  maintenance  services  to our  current  customers,  engineering
support for our sales effort and professional  services  consulting.  Innovation
drives our industry and is the source of  compelling  new products and services.
We intend to continue our research and development in order to increase  product
efficiency,  to enhance and develop new and existing products and services,  and
to support new industry standards as they emerge.

     Sales and Marketing

As of June  20,  2001,  we had 28  sales,  marketing  and  business  development
professionals.  Our senior  executives also spend a considerable  amount of time
developing  potential  customer  relationships  and  selling and  promoting  our
products and services.

We focus on selling our software products to and through wireless carriers. Once
a carrier has decided to provide data services based on our software  platforms,
we then work  together to sell those  services  out into its base of  enterprise
customers.  We do this through joint selling  activities  with their sales teams
including  coordinated  lead generation and joint sales calls. We also establish
routine  training  programs  insuring that the carrier's sales  organization can
properly  communicate the capabilities and benefits the application  development
platform can provide.

Through  networking,   trade  shows  events  and  business  development  partner
relationships   we  also  have  access  to  enterprises   directly.   The  sales
organization  manages these leads through a  well-documented  qualification  and
sales  process.  Our goal is to  properly  evaluate  the  opportunity  and match
channel  partners that will ensure a successful  sale.  Our first priority is to
channel these

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enterprise accounts through our carrier relationships.  But, when the enterprise
has the need to host the software behind their firewall, the Geoworks sales team
will introduce  other  partners like System  Integrators,  Independent  Software
Vendors or Value Added Resellers.

We market our products and services through active public relations,  attendance
and exhibition at industry events, and some direct marketing  programs.  Members
of our executive  management speak at major industry events,  trade  association
meetings and exhibitions,  and make presentations to industry analysts.  We also
leverage the experience and market presence of our business partners.

     Intellectual Property

Our  intellectual  property assets are important to the success of our business.
We regard our software and  development  methods as proprietary  and rely upon a
combination of patent, copyright,  trademark and trade secret laws, employee and
third-party  non-disclosure agreements, and license agreements, to establish and
protect  proprietary rights in our products and methods.  We have patents issued
in the United  States,  Canada,  Japan,  Taiwan,  Korea,  Indonesia,  Singapore,
Germany,  France, and by the European Patent Office. We have patent applications
pending in the United States, the United Kingdom, other European countries,  and
Japan.

In January 2000, we initiated an  intellectual  property  rights (IPR) licensing
program for our patented  flexible user interface  technology (Flex UI) based on
our belief that  WAP-compliant  or WAP-enabled  products use the technology.  In
doing so, we followed industry  standards for technology  licensing and specific
protocols  required  by our  membership  in the WAP Forum.  We can  license  the
technology  only for the remaining life of the patent that expires in July 2011.
Our standard IPR licensing agreement lasts for three years.

Through  June 2001,  we have  licensed  the Flex UI patent to twenty  companies,
including Ericsson,  Matsushita,  Mitsubishi,  NEC, Openwave and Toshiba. We are
actively  negotiating  with a  number  of  other  companies  and  have  provided
information about our licensing  initiative to many potential licensee companies
who may wish to license the Flex UI technology.

License  revenues from  intellectual  property are not a significant part of our
business plan,  generating revenue of $529,000 in fiscal year 2001.  However, we
intend to continue to pursue our IPR licensing program, as it provides us with a
number of  benefits.  It opens  the door to  developing  relationships  with key
technology  providers and potential customers  worldwide.  It gains us access to
technology developed by others through cross-licensing.  It provides high-margin
revenue.  Finally, it provides the mechanism to license additional  intellectual
property we have developed as appropriate.

Competition

The market for our software and services is becoming  increasingly  competitive.
We  believe  our  software  platforms  provide  the  innovative   functionality,
compliance with industry standards, and robust and scalable architecture desired
by our target customers at a competitive price. However, the widespread adoption
of industry  standards may make it easier for new market  entrants to offer some
or all of the products we offer and may make it easier for existing  competitors
to introduce  products they do not now provide,  or improve the quality of their
products.  We expect that we will compete primarily on the basis of reliability,
functionality, scalability, ease of integration, quality, price and experience.


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<PAGE>

Our current and potential competitors include:

o    Wireless  Data  Software  and  Service  providers  such as Aether  Systems,
     Brience,  Broadbeam,  Everypath,  Openwave,  PumaTech,  7/24  Solutions and
     Wysdom;

o    Wireless content aggregators such as Avantgo, GoAmerica,  Infospace, and i3
     Mobile.  In addition,  several  Internet  portals are  beginning to provide
     their content and services to mobile device customers; and

o    Diversified  technology  companies  seeking to capitalize on the developing
     market for wireless applications  including IBM, Microsoft,  Oracle and Sun
     Microsystems.

Competition  in these market  segments is intense and is expected to increase as
more companies  enter  alliances and launch  products and services.  Many of our
competitors have greater financial, technical and marketing resources to address
the market.  Nevertheless,  we believe we offer distinct  features,  performance
levels, and superior,  reliable mobile software and services that will enable us
to compete in this market.  Further,  few companies can match the  experience we
have gained  through the  development,  implementation  and management of mobile
data networks for the most demanding types of applications.

Employees

As of June  20,  2001,  we had 158  employees,  of  whom  81  were  employed  in
engineering,  professional  services and research and development,  28 in sales,
marketing and business development, and 49 in legal, finance and administration.
None of our employees is represented by a labor union or subject to a collective
bargaining  agreement,  and we  have  not had a work  stoppage  from  any  labor
grievance  or strike.  We strive to attract and retain  qualified  personnel  by
offering  competitive  compensation,  benefits,  equity  participation  and good
working  conditions.  Our success  depends on the  continued  service of our key
management,  technical,  sales, and marketing  personnel,  and on our ability to
continue to attract and retain highly qualified employees.


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<PAGE>

Risk Factors Affecting Future Operating Results

History of Operating  Losses;  Anticipated  Future Losses:  We have a history of
losses and expect losses in the future.

Since we were formed in 1983, we have incurred  significant losses, and suffered
substantial  negative  operating  cash  flow.  As of March 31,  2001,  we had an
accumulated  deficit of  approximately  $111.1  million.  We incurred  operating
losses of  approximately  $21.8  million,  $5.2 million and $16.3 million in the
fiscal years ended March 31, 2001,  2000, and 1999,  respectively.  We expect to
continue to incur  losses for at least the next fiscal  year,  and it is unclear
when, if ever, we will be profitable.

Adequacy of Capital  Resources to Execute  Business  Plan:  We expect to require
future additional funding to execute our business plan.

Our future  liquidity and capital  requirements  will depend on numerous factors
including revenue from operations,  working capital requirements, our investment
in  product  development,  and  sales  and  marketing  activities,  our  capital
expenditures, and potential strategic investments or acquisitions. Historically,
we have  relied  on the sale of  stock to  finance  our  operations.  If we need
additional  financing  to execute our business  plan,  there can be no assurance
that it will be available or that, if available,  on terms  acceptable to us. If
we issue  additional  equity  securities,  the ownership  percentage of existing
stockholders  will be reduced.  If adequate funds are not  available,  we may be
required  to  significantly  scale  back our  operations  and  forego  market or
research opportunities. We expect that the cash we receive from revenues and our
cash and marketable  securities on hand will be sufficient to meet our operating
working  capital and capital  expenditures  needs through the end of fiscal year
2002.

Dependence  on the  Development  of the  Market for Mobile  Data  Software:  Our
long-term  success is dependent on the development of the market for mobile data
software and services.

The market for mobile data software is still  emerging and  continued  growth in
demand for mobile data applications remains uncertain. The successful, practical
and effective  distribution of content and services to mobile devices depends on
many factors  including the deployment and  availability of appropriate  network
infrastructure  and the  development  and  availability  of  appropriate  mobile
devices for data applications.  We cannot assure you that demand for mobile data
applications  will continue to grow, or that our technology will be suitable for
the distribution  infrastructure as it develops.  If the market for our products
and services does not grow,  or grows more slowly than we currently  anticipate,
our expected financial performance will be adversely affected.

Competition  in Mobile Data  Software  and  Services:  We are seeing  increasing
competition in the mobile data software and services  sector that could harm our
ability to increase sales or impact the prices we can charge.

We face growing  competition from both start-up companies designing software and
services similar to ours and established  companies seeking to capitalize on the
market for  mobile  data  software.  These  companies  include  Aether  Systems,
Avantgo, Brience,  Broadbeam,  Everypath,  GoAmerica, IBM, Infospace, i3 Mobile,
Microsoft,  Openwave,  Oracle,  PumaTech,  7/24 Solutions,  Sun Microsystems and
Wysdom.  Many of our current and potential  competitors have greater  financial,
technical,  marketing and distribution  resources than we do. In addition,  they
may  have a  larger  market  presence,  more  widely  deployed  wireless  server
technology and greater client development resources than Geoworks.  Our business
could be seriously impacted if

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<PAGE>

competitors  announce new  products,  features,  technologies  or services  that
contribute  to  customers  deferring  purchase  of our  software  or services or
competitors  introducing  products or services  that replace or shorten the life
cycle of our existing  offerings.  We cannot  assure you that we will be able to
compete  effectively  with current and future  competitors  or that  competitive
pressures will not cause our revenues or income to decline or otherwise harm our
business, operating results and financial condition.

Risks of Rapid  Technological  Change: If we do not respond effectively and on a
timely basis to rapid technological change, our products and services may become
obsolete.

The wireless,  software and data communications  industries are characterized by
rapidly changing technologies,  evolving industry standards, developing customer
needs and  increasing  competition.  New product and service  introductions  are
frequent.  To remain competitive,  we must continuously develop new products and
services and adapt our software to function on new devices and operating systems
designed by other  companies.  The  development of software and services such as
ours can be difficult, time-consuming and costly.

Because of the short  product  life cycles and intense  competition  expected in
wireless  data   applications,   the  timeliness  of  new  product  and  service
introductions  can be  critical.  We cannot  assure  you that we will be able to
develop,  introduce and ship new products or services rapidly enough.  Delays or
difficulties  associated with developing or introducing new products or services
could have a material  adverse  effect on our  business,  operating  results and
financial  condition.  Our business  could be  seriously  impacted if we fail to
anticipate  technological trends or evolving industry standards, or to adapt our
software and services to these trends and standards.

Dependence  on  Limited  Number of  Revenue  Generating  Customers:  Because  we
currently derive a significant  portion of our revenue from a few key customers,
the loss of any one of them would harm our business.

For the fiscal years 2001, 2000 and 1999, three customers in each year accounted
for 78%, 88% and 90% of our total net revenues, respectively. We expect that our
dependence  on a small number of customers  will continue as we focus on gaining
wireless  carriers as customers.  If any of our customers  discontinue or reduce
their  relationship  with us, it would  have a  material  adverse  impact on our
business,  operating results and financial condition.  We cannot assure you that
we will be able to sustain these  relationships and derive  comparable  revenues
from them in the future.

Need to Build a  Developer  Community:  Our success is  dependent  on building a
developer community around our software platforms.

To date,  we have  developed  almost all of the  applications  running on Mobile
Server+ and the AirBoss  Application  Platform.  We need to build a community of
software  programmers  focused on developing  additional  applications for these
platforms to encourage  mobile  carriers to adopt our  platform,  to  facilitate
enterprise adoption of our platforms and to drive future revenue growth. We have
taken  several  steps  to  build  a  developer  community  including:  providing
comprehensive  development tools which include product documentation,  debugging
tools and  easy-to-use  APIs based on industry  standards;  launching our Mobile
Business Alliance program which provides  developers with the  infrastructure to
evaluate, develop, deploy and support wireless applications; and rolling out our
developer  program to the Cingular  developer  community  in May 2001.  However,
there is no guarantee  that we will be successful in developing  this  community
and the development of this community may not result in increased  revenues.  If
we invest resources in


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<PAGE>
building a developer community and our revenues do not increase correspondingly,
our  financial  performance  and  condition  would be  materially  and adversely
affected.

Need to Expand  Indirect  Distribution:  Our  success is  dependent  on creating
indirect channel distribution partnerships.

To  date,  we have had a small  direct  sales  force  and few  indirect  channel
distribution  partners.  Future revenue growth will depend on the success of our
direct sales force in developing carrier and large enterprise  relationships and
in  building  relationships  with  Independent  Software  Vendors,  Value  Added
Resellers,  Systems Integrators,  consulting organizations,  Application Service
Providers and  distributors to expand our reach. We are focused on expanding our
indirect  channel  relationships  via  our  Mobile  Business  Alliance  program.
However,  there is no  guarantee  that we will be  successful.  And,  even if we
succeed in these endeavors,  it still may not increase our revenue. If we invest
resources in building our indirect  sales  capabilities  and our revenues do not
increase  correspondingly,  our financial  performance  and  condition  would be
materially and adversely affected.

The Importance of Carrier Relationships:  Much of our future success will depend
on the  acceptance  of our products and services by wireless  carriers and their
subscribers.

Developing  relationships with carriers is a key component of our business model
because  a  single  carrier  can  represent  millions  of  subscribers  with the
potential to generate  significant  license and maintenance  revenue.  There are
approximately  600 wireless  carriers  worldwide,  a relatively  small number of
potential  customers.  To date,  only one  carrier,  Cingular  Interactive,  has
purchased our AirBoss Application  Platform.  We cannot assure you that Cingular
Interactive  or  additional  carriers  will deploy our  technology or that large
number of  carrier-affiliated  subscribers  will use the  services  based on our
platform.

Future  Revenue  Uncertain  Because our  Historical  Revenue Came from Different
Products and  Non-recurring  Sources:  Because we recently  changed our business
model and product and service offerings,  it is difficult for us to forecast the
level or source of our revenues and earnings accurately.

Mobile data software,  the AirBoss Application  Platform and Mobile Server+, and
related services accounted for less than 40% of our total revenue in fiscal year
2001. Legacy product revenues,  including licensing and royalty revenue from our
handset  operating  system  and  other  products,   professional  services,  IPR
licensing,  and  non-recurring  revenue  accounted for the remainder.  We expect
revenue from legacy  royalties and  professional  services  revenue  relating to
customer-support  of our legacy  products to continue to decline over the course
of the next year.  Consequently,  period-to-period  comparisons of our operating
results  may  not be  meaningful,  and  you  should  not  rely  upon  them as an
indication of future performance.

Ability to Capitalize on Intellectual Property Rights and Patent Portfolio:  Our
intellectual  property could be misappropriated,  which could force us to become
involved in expensive and time-consuming litigation.

We seek to protect our  proprietary  software and written  materials under trade
secret,  patent and  copyright  laws,  which  afford  only  limited  protection.
Furthermore, others may develop technologies that are similar or superior to our
technology  or design  around any  patents.  Despite  our efforts to protect our
proprietary  rights,  unauthorized  parties may  attempt to copy  aspects of our
software  or to obtain and use  information  that we regard as  proprietary.  In
addition,  the laws

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<PAGE>

of some  foreign  countries  do not  ensure  that our  means of  protecting  our
proprietary rights in the United States or abroad will be adequate.

For example,  on January 19, 2000, we announced to the WAP Forum and its members
that we hold essential Intellectual Property Rights for the Wireless Application
Protocol and the Wireless Markup Language (WML) specification  (collectively the
"WAP Specification"). We also announced that we believe our patents for flexible
user interface  technology  (U.S.  Patent No.  5,327,529 and Japanese Patent No.
2,794,339) are potentially  implicated by products and services based on the WAP
Specification  and placed into the stream of  commerce in the United  States and
Japan. Simultaneously,  we announced our comprehensive licensing program to make
our technology available to WAP Forum members,  non-members,  and other industry
participants.

On  April  25,  2000,  Openwave,  formerly  Phone.com,  filed  a  complaint  for
declaratory  relief in the US District in San Francisco  alleging that Geoworks'
Flex UI patent was invalid and  unenforceable.  We replied to the  complaint and
filed a  counterclaim  for  infringement  of the  patent  on June 13,  2000.  On
September  8, 2000 we also filed a  complaint  with the US  International  Trade
Commission (ITC) against Openwave and two of its customers alleging infringement
of  its  patent;  on  September  29,  2000  Geoworks  supplemented  its  initial
complaint.  On October 4, 2000 the ITC issued a Notice of Investigation based on
the  complaint.  On December  28,  2000,  Geoworks  and  OpenWave  announced  an
agreement to settle the patent  dispute by entering into a  royalty-free  patent
cross-license.  The companies  requested dismissal of their patent litigation in
federal district court and the ITC investigation.

Through June,  2001,  we have  licensed the Flex UI patent to twenty  companies,
including Toshiba, Ericsson, NEC, Openwave, Mitsubishi Electric Corporation, and
Matsushita  Electric  Industrial Co. Ltd.  While IPR license  revenues are not a
significant  part of our  business  plan,  we intend to  continue  to pursue our
licensing  program.  Due to the  relative  immaturity  of the WAP market and the
complex legal and technical issues potential licensees must analyze in preparing
to enter a licensing  agreement  with us, we cannot  predict the future  revenue
impact. In addition,  we do not know whether  potential  licensees will agree to
sign  license  agreements  or  whether  it will be  necessary  for us to  pursue
appropriate  legal  remedies  and incur  significant  related  expenses,  as was
necessary in connection with Openwave Systems, Inc.

Our Products may Infringe the Intellectual  Property Rights of Others:  If third
parties claim we have infringed their  intellectual  property rights,  we may be
forced  to pay  for  expensive  licenses,  reengineer  our  product,  engage  in
expensive and time-consuming litigation, or stop marketing our products.

We attempt to avoid infringing known proprietary  rights of third parties in our
product development efforts.  However, we do not regularly conduct comprehensive
patent  searches.  There are a large  number of  patents  in many areas that may
apply to our software and we believe there are a large number of pending  patent
applications,  which are not disclosed until a patent is issued, which may apply
to our  software.  Therefore,  it is  possible  we may be  subject to a claim of
infringement in the future.  Any such claim,  regardless of merit, could be time
consuming to defend, result in costly litigation,  divert management's attention
and resources,  and/or cause product delays. In addition,  if any such claim was
successful,  we could be required to discontinue using or selling the infringing
software,  develop  alternative  technology  or obtain  licenses  to the alleged
infringing technology.  We may be unable to develop alternative technologies and
a licensing  agreement  may not be available  on  acceptable  terms,  if at all.
Moreover, we incorporate software licenses from third parties into our products,
and if we lose these licenses, our sales could be disrupted


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<PAGE>

Acquisitions  may Disrupt our Business:  Acquisitions  could result in dilution,
operating difficulties and other harmful consequences.

We may merge with or acquire  technologies  or  companies  in the future that we
believe complement or expand our business,  augment our market coverage, enhance
our technical  capabilities  or that may otherwise  offer growth  opportunities.
Entering into any business  combination  entails a number of risks, any of which
could be harmful to our business.  These include:  the  possibility  that we pay
more than the acquired  business is worth;  the  difficulty of  integrating  the
operations  and  personnel of the acquired  business  into ours;  the  potential
product liability  associated with the sale of the acquired business'  products;
the potential disruption of our ongoing business;  the distraction of management
from our  business;  the  inability of  management to maximize our financial and
strategic  position;  the difficulty of integrating  each company's  accounting,
management  information,  human  resource  and other  administrative  systems to
permit  effective  management,  and the lack of control if such  integration  is
delayed or not implemented;  and the impairment of relationships  with employees
and customers.

We have limited experience acquiring  businesses,  and we cannot assure you that
we will identify appropriate targets, will be able to acquire such businesses on
favorable  terms,  or will be able to  integrate  such  organizations  into  our
business  successfully.  Further, the financial consequences of our acquisitions
and investments may include potentially dilutive issuances of equity securities,
one-time  write-offs,  amortization  expenses  related  to  goodwill  and  other
intangible  assets and the  incurrence  of contingent  liabilities.  These risks
could have a material  adverse effect on our business,  financial  condition and
results of operations.

In July 2000, we acquired the AirBoss  business unit of Telcordia  Technologies,
Inc., a software and wireless  technology  services business.  We have completed
much of the  integration of the AirBoss  products,  services,  technologies  and
personnel.  However, if we are unable to complete the integration process and to
create new or enhanced  services  based on the integrated  product  offering and
operations,  we may not achieve the anticipated benefits from our acquisition of
AirBoss.

Fluctuations in Operating  Results:  Our quarterly and annual operating  results
are subject to significant  fluctuations,  and our stock price may decline if we
do not meet the expectations of investors and analysts.

Our quarterly and annual revenues and operating results are difficult to predict
and may fluctuate  significantly  due to a number of factors,  some of which are
outside of our control. Risks include, but are not limited to:

o    the success of the our  efforts to  integrate  the Mobile  Server + and the
     AirBoss Application products;

o    our ability to sign new carrier and enterprise customers;

o    our ability to continue to develop new and compelling services;

o    our concentrated target market;

o    the long sales cycle for our products;

o    the timing of revenue recognition based on financial accounting principles;

o    the substantial  effect on total revenues from the gain or loss of business
     from each incremental customer;


16
<PAGE>

o    the  extent  to which  we can  negotiate  and  subsequently  earn  fees for
     professional services;

o    the timing and extent of our expenses for  research  and  development,  and
     sales and marketing;

o    our ability to manage our costs effectively;

o    the development of attractive wireless applications by third parties; and

o    actions by our competitors.

Because our staffing and  operating  expenses are based on  anticipated  revenue
levels,  and because a high percentage of our costs are fixed,  small variations
in revenue levels can cause significant  variations in operating results quarter
to quarter. If we are unable to adjust spending in a timely manner to compensate
for an unexpected revenue shortfall,  we would expect our operating  performance
to be  negatively  affected.  If our  operating  results  will be  below  public
expectations, we would expect to experience an immediate and significant decline
in the market price of our common stock.

In addition,  our results may be affected by seasonal and other  fluctuations in
demand for mobile  communications  devices and for related software products and
services,  as well as by the general state of the domestic,  Japanese,  European
and  global  economies.  Because of the recent  economic  downturn,  many of our
current and prospective  customers may elect to delay or postpone  investment in
wireless data applications, which could materially impact our revenue, operating
performance and financial  condition.  Due to the foregoing factors,  we believe
period-to-period comparisons of our revenue levels and operating results are not
meaningful.  You should not rely on our quarterly revenues and operating results
to predict our future performance.

International Operations: We have derived most of our revenue from international
operations  in each of the last  three  fiscal  years and  there are many  risks
associated with these operations.

International  operations  accounted  for 78%, 94% and 94% of total  revenues in
fiscal years 2001, 2000 and 1999, respectively. We anticipate that international
revenue will continue to represent a significant  portion of our future revenue.
International  revenue is subject to inherent risks,  including changes in local
economic conditions,  changes in regulatory requirements and tariffs,  potential
difficulties  in the  collection of accounts  receivable,  and  unfavorable  tax
consequences.  We earn a  substantial  portion of our revenue from  customers in
Europe and Japan and view these regions as strategic to our business objectives.
Economic  difficulties within these regions could have a material adverse effect
on  our  ability  to  generate   revenue  from  our   international   customers.
Furthermore,  although our revenue is  generally  denominated  in U.S.  dollars,
fluctuations in currency exchange rates and changes in local economic conditions
could have  adverse  consequences  on our  ability to  execute  agreements  with
international customers.

Risk of Software Defects:  Our software may contain defects or errors that could
delay shipments, harm our reputation, or increase costs.

Our  software is complex and must  operate  across a broad  variety of operating
systems,  devices and  connectivity  options.  And,  it must meet the  stringent
requirements of our customers. We must develop our software and service products
quickly to keep pace with the  rapidly  evolving  mobile  data  market.  Despite
rigorous testing,  software this complex is likely to contain  undetected errors
or  defects,  particularly  when  first  introduced  or when  new  versions  are
released.  Such errors or defects may result in the  rejection  of our  product,
damage to our  reputation,  lost  revenue,  diverted  development  resources and
increased service and support costs, any of which could harm our business.


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<PAGE>

Dependence on Key Personnel:  Our success depends in large part on the continued
service of our key technical,  marketing,  sales,  administrative and management
personnel, and on our ability to attract and retain qualified employees.

The  competition  in  the  telecommunications,  Internet,  and  high  technology
industries for talented personnel is intense.  We cannot assure you that we will
succeed in  attracting  and  retaining  such  personnel.  With the  exception of
certain executive  positions,  we do not have employment  contracts with our key
employees.  The loss of key employees,  turnover, and our ability to attract and
retain members of our executive  team,  could have a material  adverse effect on
our business, operating results, and financial condition.

Volatility  of Stock Price:  Our stock price may be volatile,  like that of many
companies in the Internet and telecommunications  software industries,  exposing
us to expensive and time-consuming securities class action litigation.

Our stock price has experienced  significant  volatility to date. We expect that
the market price of our common stock will fluctuate in the future as a result of
variations in our quarterly operating performance. In addition, our common stock
price is volatile because it is associated with Internet, telecommunications and
technology  stocks,  in general,  and because  volume is usually  limited.  As a
result,  there are many factors that may affect our stock price unrelated to our
specific  performance,   including  substantial  sales  by  one  of  our  larger
shareholders.  Also if our  revenues  or results of  operations  do not meet the
levels  expected by securities  analysts,  the trading price of our common stock
could decrease significantly.

Item 2. PROPERTIES

Our corporate headquarters are located in Alameda,  California, in approximately
40,000  square feet of office space under a lease that expires in January  2005.
We have a facility  in  Macclesfield,  England,  in 7,000  square feet of office
space under a lease that expires in 2006.  We have also leased a small office in
Tokyo, Japan.

In connection with the AirBoss  acquisition we assumed a lease of  approximately
6,240  square  feet of office  space in the  Telcordia  facilities  in Red Bank,
Piscataway,  and Morristown,  New Jersey.  In July 2001, the existing New Jersey
leases will  terminate and we will move into a new  approximately  20,000 square
foot  facility in  Morganville,  New Jersey.  This lease will expire in 2011. We
believe  that our  existing  facilities  will be  adequate  to meet our needs in
fiscal year 2002 and that additional space will be available if needed.

Item 3. LEGAL PROCEEDINGS

We are not involved in any  material  litigation.  On April 25,  2000,  Openwave
Systems Inc.,  formally  Phone.com filed a declaratory relief complaint alleging
that our Flex UI patent is invalid and unenforceable. On June 15, 2000, we filed
a countersuit  in the United  States  District  Court in San  Francisco  against
Phone.com.  The lawsuit sought to demonstrate that the activity of Phone.com and
its licensees utilizing  Phone.com's UP Server Suite and UP Browser infringes on
our Flexible User  Interface  patent.  On September 8, 2000 we filed a complaint
with the U.S.  International  Trade  Commission  (the "ITC") against  Phone.com,
Sanyo  Electric Co.,  Ltd. of Japan and Sanyo North America  seeking an order to
block  importation  into  the  U.S.  of  WAP  cellular   telephones   containing
Phone.com's  microbrowsers.  One month later,  the ITC announced it had accepted
our complaint and initiated an investigation into this matter.


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<PAGE>

On December 28, 2000, we announced an agreement  between  Openwave Systems Inc.,
to  settle  our  patent   dispute  by  entering  into  a   royalty-free   patent
cross-license,  and the  companies  have  dismissed  their patent  litigation in
federal district court and in the ITC.

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

There were no matters submitted to a vote of security holders during the quarter
ended March 31, 2001.

Item 4A. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT

The members of the Board of Directors and executive  officers of the Company are
as follows:

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

David Neylon             53      Chairman of the Board of Directors
John B. Balousek         56      Director
Kevin P. Fitzgerald      44      Director
Andrew Cole              34      Director
Stephen T. Baker         43      Director
David L. Grannan         37      President and Chief Executive Officer, Director
Dave M. Pepe             44      Senior Vice President, Mobile Products and
                                 Services
Timothy J. Toppin        41      Vice President and Chief Financial Officer
Christopher A. Waldo     43      Vice President, Sales

Mr.  Neylon  joined the Board of Directors  in January  2000.  He was  appointed
Chairman of the Board of Directors in April 2000. Mr. Neylon was previously with
LookSmart,  Ltd., a leading  Internet  search and  directory  company,  where he
served as Chief  Operating  Officer from  November 1998 to September  1999.  Mr.
Neylon was Senior Vice President of WorldPlay  Entertainment  from 1995 to 1998.
Mr.  Neylon  was  with  AT&T  from  1987  to  1995 in a  variety  of  management
assignments.  He was Vice President of ImagiNation Network, a subsidiary of AT&T
and the predecessor of WorldPlay  Entertainment  from 1993 to 1995. Mr. Neylon's
other  positions  with AT&T included  product  management  assignments at AT&T's
Computer  Systems  Division,  strategic  planning for AT&T's  Consumer  Products
Division,  and in emerging technology ventures for AT&T's Easylink Systems.  Mr.
Neylon  holds  a BA  degree  from  Drew  University  and  an  MBA  from  Rutgers
University.

Mr.  Balousek  joined the Board of Directors in December 1998. Mr.  Balousek was
Executive Vice President and a Founder of PhotoAlley.com,  a San Francisco-based
start-up company providing  electronic commerce services from 1998 through 1999.
In 1996 Mr.  Balousek  was named  Chairman and Chief  Executive  Officer of True
North Technologies,  the digital and interactive services company of Foote, Cone
& Belding  Communications  (FCB), an agency network of parent company True North
Communications.  Mr. Balousek joined the San Francisco office of FCB, one of the
nation's leading advertising  agencies, in 1979 and was named general manager of
the office in 1986. Mr.  Balousek was named President of FCB West and a director
of the firm in 1989, and was named President and Chief Operating  Officer of the
$5 billion  agency in 1991.  Prior to joining  FCB,  Mr.  Balousek  was in brand
management at Procter & Gamble. In addition to Geoworks,  he currently serves as
a Director of Aptimus.com,  and Micron  Electronics  Corp.,  both  publicly-held
companies,  and Encirq Corp.,  Emmperative Inc , and EDB Holdings, all privately
held companies.  Mr. Balousek holds a BA degree from Creighton  University and a
Master's degree from Northwestern University.


19
<PAGE>

Mr. Fitzgerald joined the Board of Directors in December 1999. From Oct. 2000 to
May 2001,  Mr.  Fitzgerald  was the  President,  CEO &  Director  of  Globaltron
Communications.  From May 1995 to June 2000, Mr. Fitzgerald served as President,
Chief Executive  Officer,  and director of Neff Corporation,  one of the largest
equipment  rental  companies  in the  United  States.  Prior  to May  1995,  Mr.
Fitzgerald was a senior vice  president of Houlihan  Lokey,  Howard & Zukin,  an
investment-banking  firm.  Mr.  Fitzgerald  currently  serves as a  director  of
TeleServices  Group,  a  privately  held  company  and is a partner  with Apogee
Capital, an investment firm. Mr. Fitzgerald holds a BS in Electrical Engineering
from Carnegie Mellon University, and an MBA from Fordham University.

Mr.  Cole  joined  the Board of  Directors  in April  2000.  Mr.  Cole is a Vice
President and head of the Global  Wireless  Practice of ADVENTIS Corp, a leading
international  consulting firm  specializing in wireless and  telecommunications
markets.  Mr. Cole has been with ADVENTIS  since 1995. Mr. Cole was the Director
of Wireless  Consulting  Services at EMI  Strategic,  a Boston  based  strategic
marketing   firm  from  1993  to  1995.   From  1991  to  1993,  Mr.  Cole  held
cross-continental  positions at the LEK Partnership,  a strategy consulting firm
based in the United  Kingdom.  Mr. Cole holds a Masters  Degree in Business from
Oxford  University  and an  Undergraduate  Degree in  Geography,  Economics  and
Statistics from Bristol University in England.

Mr.  Baker  joined  the  Company  in October  1998 as Vice  President  and Chief
Financial  Officer and was promoted to President and Chief Operating  Officer in
September  2000.  In June 2001 he stepped down from a  management  role with the
Company while continuing to serve on the Board of Directors. He was appointed to
the  Board  of  Directors  in  October  1999.  From  1996 to  1998,  he was Vice
President,  Finance and Controller,  for the Service Provider Messaging Group at
Lucent  Technologies  having  started  with  Octel  Communications  prior to its
acquisition by Lucent. From 1995 to 1996, Mr. Baker was the CFO for the Software
Systems  Group  of  Bell  Communications  Research.  From  1993  to  1995 he was
Controller at Novell after the acquisition of Unix System Laboratories (USL). At
Unix System  Laboratories,  a worldwide software company, Mr. Baker was CFO from
1989 to 1993.  Mr.  Baker  has also held a number of  financial  management  and
operational  positions with AT&T  Corporation from 1981 through 1989. He holds a
BA from the University of Pennsylvania  and an MBA from the Columbia  University
Graduate School of Business.

Mr.  Grannan joined the Company in March 1998 as Vice  President,  Marketing and
Business Development. The Board of Directors appointed Mr. Grannan as President,
Chief Executive  Officer,  and a Director in January 1999.  Prior to joining the
Company,  Mr. Grannan was an Area Vice President at Sprint PCS from June 1997 to
March 1998.  Prior to his position at Sprint PCS, Mr. Grannan worked at Andersen
Consulting  in the  Communications  Industry  Group  from May 1994 to June 1997,
where he provided strategic services for many  organizations.  Mr. Grannan began
his career as a Data  Communications  Officer in the United States Marine Corps.
He holds a BA from Indiana  University  and received his MBA from the University
of California, Berkeley.

Mr. Pepe joined the Company in July 2000 after the  acquisition  of AirBoss from
Telcordia Technologies Inc. as Vice President,  Mobile Products. He was promoted
to Senior Vice  President,  Mobile  Products and Services in June 2001. Mr. Pepe
has more than 20 years of  telecommunications  industry  experience  within both
business and technical  disciplines at RCA,  Panasonic,  and Ericsson,  prior to
joining


20
<PAGE>

Telcordia  Technologies  in 1987.  Mr.  Pepe  has  spent 15 years in the area of
wireless communications,  beginning with the industry's pioneer in wireless data
communications  efforts in alphanumeric paging. While working for Ericsson Radio
Systems,  Mr.  Pepe was  responsible  for  establishing  Ericsson as the premier
supplier  of cellular  systems in the United  States.  In 1987,  Mr. Pepe joined
Telcordia Technologies providing market and business planning for wireless local
loop  technologies  for  voice  and data  communications  to the  Regional  Bell
Operating  Companies.  He established a Wireless  Business Unit  responsible for
software  solution  development of wireless  voice and data products  within the
evolving Wireless  Intelligent Network (WIN) infrastructure and has been awarded
three  patents in the area of  wireless  data and  messaging.  Mr.  Pepe holds a
B.S.E.E. from Fairleigh Dickinson University  (microprocessor and system design)
and pursued  graduate  studies at Wharton  and  Fairleigh  Dickinson  University
(finance and marketing).

Mr.Toppin  joined the Company in March 1999 as  Controller  and was  promoted to
Vice President and Chief  Financial  Officer in September 2000. He has served as
the Company's Secretary since June 2000. Prior to Geoworks,  Mr. Toppin was with
Digital Generation Systems,  Inc. as Controller from April 1996 to December 1998
and as Planning and  Accounting  Manager from  February 1995 through March 1996.
From 1987 to 1995, Mr. Toppin held a number of financial management positions at
BEI Electronics,  Inc., and it's subsidiary,  Zinnanti Surgical Instruments. Mr.
Toppin was with the public accounting firm of Deloitte Haskins & Sells from 1983
to 1987. He holds a B.S. degree in business  administration  from the University
of California at Berkeley,  and is a Certified Public Accountant in the state of
California.

Mr.  Waldo  joined the  Company  in May 2000 as Vice  President,  Sales.  Before
joining  Geoworks,  Mr. Waldo was the Area Director of National Sales for Sprint
PCS from January 1997 to May 2000.  Mr. Waldo  previously  was Director of Sales
for Cellular One in the San Francisco Bay Area from  September  1994 to December
1996.  From May 1992 to September  1994,  Waldo was Corporate  Sales Manager for
Cellular One. Mr. Waldo began his sales career with IBM in 1987 prior to joining
Responsive Software Solutions, an IBM Business Partner in 1989, and Cellular One
as a Key  Account  Executive  in  November  1990.  Mr.  Waldo has a BS and BA in
Economics from the University of Missouri.


21
<PAGE>

PART II

Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
                 RELATED STOCKHOLDER MATTERS

Changes in Common Stock Market Value

Our Common Stock trades on the Nasdaq  National  Market under the symbol "GWRX."
The following  table sets forth the high and low last reported  sales prices for
our Common  Stock as reported  by the Nasdaq  National  Market for the  quarters
indicated:

                                                   High             Low
             For the quarter ended:
             ----------------------
                  March 31, 2001                  $ 5.09          $ 1.17
                  December 31, 2000                 7.06            1.22
                  September 30, 2000               16.19            7.38
                  June 30, 2000                    25.75            9.00

             Fiscal 2000
             -----------
                  March 31, 2000                 $ 51.75         $ 14.06
                  December 31, 1999                16.75            2.38
                  September 30, 1999                3.56            2.06
                  June 30, 1999                     3.69            2.25


Registered Holders

As of June 4, 2001,  there were 240  registered  holders of record of our Common
Stock and approximately  19,830 beneficial  holders of our Common Stock. We have
never  declared  or paid  any  cash  dividends  on our  common  stock.  Since we
currently  intend to retain all future earnings to finance future growth,  we do
not anticipate paying any cash dividends in the foreseeable future.


22
<PAGE>

Item 6. SELECTED CONSOLIDATED FINANCIAL DATA

The data set forth  below is  qualified  in its  entirety by  reference  to, and
should be read in  conjunction  with,  "Management's  Discussion and Analysis of
Financial Condition and Results of Operations," and the "Consolidated  Financial
Statements" and notes thereto included elsewhere in this Report on Form 10-K.


Condensed Consolidated Statements of Operations Data:
(in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                    Year ended March 31
                                                                   2001         2000         1999         1998         1997
<S>                                                            <C>          <C>          <C>          <C>          <C>
Total net revenues                                             $ 16,565     $ 12,139     $  8,782     $ 12,917     $ 11,096

Operating expenses:
   Cost of services                                               6,735        4,919          867          155          624
   Sales and marketing                                            8,607        5,577        4,951        6,613        7,108
   Research and development                                       9,202        4,100       13,810       18,543       13,698
   General and administrative                                     7,079        3,338        3,634        3,596        3,708
   Amortization of goodwill and other intangible assets           5,410           --           --           --           --
   Purchased in-process research and development                  1,378           --           --           --           --
   Restructuring charges (reversal)                                  --         (589)       1,790           --           --
   Cost of merger                                                    --           --           --           --        1,450
                                                                                                                   --------
Total operating expenses                                         38,411       17,345       25,052       28,907       26,588
                                                                                                                   --------
Operating loss                                                  (21,846)      (5,206)     (16,270)     (15,990)     (15,492)

Other income (expense):
   Other income                                                     265        4,049           --           --           --
   Interest income                                                  840          646          612        1,427        2,324
   Interest expense                                                  (4)         (10)         (31)        (158)        (244)
                                                               ------------------------------------------------------------
Total other income, net                                           1,101        4,685          581        1,269        2,080
                                                               ------------------------------------------------------------
Loss before income taxes                                        (20,745)        (521)     (15,689)     (14,721)     (13,412)
Provision for income taxes                                          313          452          149          148           64
                                                               ------------------------------------------------------------
Net loss                                                       $(21,058)    $   (973)    $(15,838)    $(14,869)    $(13,476)
                                                               ============================================================

Net loss per share- basic and diluted                          $  (0.99)    $  (0.05)    $  (0.97)    $  (0.95)    $  (0.88)
                                                               ============================================================
Shares used per share computation                                21,190       17,866       16,260       15,687       15,234
                                                               ============================================================
</TABLE>


23
<PAGE>

Consolidated Balance Sheet Data:
(in thousands)

<TABLE>
<CAPTION>
                                                                            March 31
                                                 2001           2000           1999           1998           1997
<S>                                         <C>            <C>            <C>            <C>            <C>
Cash and cash equivalents                   $  13,713      $  17,204      $  13,715      $  19,981      $  36,820

Working capital                                10,616         14,286         12,379         20,095         33,626

Total assets                                   56,263         41,459         18,183         27,463         41,868

Deferred revenue                                1,128          1,629          1,498            778          1,919

Long-term obligations, net of
   current portion                                128             --             --            231            739

Accumulated deficit                          (111,110)       (90,052)       (89,079)       (73,241)       (58,372)

Stockholders' equity                           49,731         36,632         13,374         23,392         36,553
</TABLE>


24
<PAGE>

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

Overview

Our  company  is  a  leading   provider   of   carrier-class   mobile   Internet
infrastructure sofware, enabling personalized, real-time access to corporate and
Internet  data. Our business model is built around the licensing of our software
platforms for mobile solutions,  the Geoworks AirBoss  Application  Platform and
MobileServer+,  to wireless  carriers and enterprises  around the world. We also
provide  professional  services consulting related to technologies we previously
developed,  as well as the  development of new  technologies  supporting  mobile
communications.

Our financial  performance and financial  condition over the last few years have
been significantly affected by a number of strategic business decisions.

From our IPO in 1994  through  early 1999,  we were  focused on  developing  and
selling wireless operating systems for smart phones and PDAs. Our customers were
large mobile phone  manufacturers  who paid us research and development  fees to
develop  software and agreed to pay us  royalties  based on the number of phones
they shipped with our operating  system.  This market did not develop as rapidly
as expected and we did not generate significant royalty revenue.

In mid-1998,  several of the world's  largest  handset makers  including  Nokia,
Motorola, Ericsson and Matsushita,  representing over half of our target market,
created a joint venture to develop their own mobile operating system. Therefore,
in response to the slow growth in the market, the increased  competition and the
loss of key Original Equipment  Manufacturers,  ("OEM") targets,  we shifted our
focus  to  the   development  of  mobile  server  software  for  m-commerce  and
information services.

This refocusing of our business strategy  affected our reported  performance and
business  model in both  fiscal  years 1999 and 2000.  In the second  quarter of
fiscal year 1999, we began changing the nature of our  contractual  arrangements
with  customers  for  engineering   services  from  OEM  funded  research  to  a
professional  services  consulting  basis.  This is  reflected  in the growth in
professional  services  revenue  over the period,  and reduced both the risk and
reward of being dependent on the collection of product royalty revenues based on
potential shipments of our OEM customers.

In the fourth  quarter of fiscal year 1999, we  discontinued  development of our
smart phone operating system and sold the source code, on a non-exclusive basis,
to one of  our  major  OEM  customers  who we  continue  to  support  through  a
professional  service consulting  agreement.  In connection with that effort, we
significantly reduced headcount and recorded a restructuring charge to bring our
ongoing  expense  levels down  sharply to be in line with our  business  plan to
provide mobile software for e-commerce and information services.

The shift in revenue from research and development fees to professional services
continued in fiscal year 2000, as we grew the volume of  engineering  consulting
services provided to our customers during the year. Consistent with our business
plan, most of our research and development and sales and marketing  efforts were
targeted at our mobile software and services offerings.

In July 2000, we strengthened  our product and service offering by acquiring the
AirBoss  Application  Platform and the Airboss Business Unit from Telcordia , as
discussed below. This acquisition was important to fiscal year 2001 revenues, as
new mobile  software  revenues more than offset the expected  decline in royalty
and source code revenues from legacy products.


25
<PAGE>

In  June  2001,  we  announced  a  reorganization  intended  to  strengthen  our
competitive  position  by  accelerating  the  integration  of our  two  software
products, the AirBoss Application Platform and Mobile Server+,  streamlining our
organization and exiting the Mobile ASP market.  Given current market conditions
and our  available  resources,  we  believe  this is the best  way to focus  our
resources on the areas of greatest potential while reducing operating  expenses.
As a result of the  reorganization,  we reduced our  workforce by  approximately
22%, or 43  employees,  and will  implement  other cost  cutting  measures  that
management  anticipates  will save  approximately  $2.0  million in expenses per
quarter  going  forward.  We  expect  to incur  approximately  $3.0  million  in
restructuring and exit charges in our quarter ending June 30, 2001.

Acquisition of AirBoss

On July 24, 2000, we acquired substantially all of the assets of an established,
separate, and unincorporated division of Telcordia, considting of of Telcordia's
AirBoss  Business  Unit,  which  operated a  software  and  wireless  technology
services business ("AirBoss").

Effective as of the closing of the acquisition,  we established an office in New
Jersey to continue the research, development, and deployment of the AirBoss line
of patented mobile  communications  software products, as well as to service the
various third parties whose contractual  rights with Telcordia were assigned to,
and  assumed  by  us  as  part  of  the  acquisition.  In  connection  with  the
acquisition, Telcordia terminated the employment of twenty-five individuals, who
were then immediately hired by us.

Results of Operations

Net Revenues

<TABLE>
<CAPTION>
                                          Year Ended             Change              Year Ended             Change
                                       -----------------   ------------------     -----------------   ------------------
                                      March 31,  March 31,                       March 31,  March 31,
                                         2001      2000       $          %          2000      1999       $          %
                                       -------   -------   -------    -------     -------   -------   -------    -------
<S>                                    <C>       <C>       <C>             <C>    <C>       <C>       <C>             <C>
Net revenues (in thousands):
   Professional services               $ 8,343   $ 7,004   $ 1,339         19%    $ 7,004   $ 1,228   $ 5,776        470%
   Software and related services         8,222     4,815     3,407         71       4,815     4,239       576         14
   Research and development fees            --       320      (320)      (100)        320     3,315    (2,995)       (90)
                                       -------   -------   -------    -------     -------   -------   -------    -------
Total net revenues                     $16,565   $12,139   $ 4,426         36%    $12,139   $ 8,782   $ 3,357         38%
                                       =======   =======   =======    =======     =======   =======   =======    =======
</TABLE>

Fiscal year 2001 vs. 2000

Net revenues. Net revenues in fiscal year 2001 increased by $4,426,000,  or 36%,
in comparison with fiscal year 2000. During our continued  transition from being
a provider of operating systems and related research and development to becoming
a  provider  of  wireless   data   communication   services  and   technologies,
professional  services  revenues have been a primary source for revenue and cash
generation.  Software and related services  primarily include revenues generated
from AirBoss  products and  services as well as revenues  from legacy  operating
system products.

Professional services revenue. Professional services revenue in fiscal year 2001
increased  by  $1,339,000,   or  19%,  in  comparison  with  fiscal  year  2000.
Professional  services  revenue  increased based on both an increased  number of
hours worked and an increase in our rates as compared to the same periods of the
prior year.  We had two primary  customers  for these  services  for fiscal year
2001, as compared to three such customers for fiscal year 2000. Our professional
service projects involve consulting related to technology  previously  developed
by  us,  as  well  as  development  of  new   technologies   supporting   mobile
communications.


26
<PAGE>

Software and related services revenue.  Software and related services revenue in
fiscal year 2001 increased  $3,407,000,  or 71%, in comparison  with fiscal year
2000, and now accounts for almost 50% of our total revenue. This increase is due
primarily  to the  addition of Airboss  product  revenues.  In fiscal year 2000,
software and related services revenues included  $1,541,000 in one-time payments
for source  code  licenses  for  operating  systems.  Excluding  these  one-time
payments  from source code license  revenues,  software and related  services in
fiscal year 2001 increased  $4,948,000,  or 151%, in comparison with fiscal year
2000.

The  largest  element of  software  and related  services  revenue are  revenues
derived from the sale of our software  and the related  software  customization.
Customization  contracts also include the potential for additional  license fees
and maintenance services.  For fiscal year 2001, such software and customization
services  revenues were  approximately  $3,100,000.  Software and  customization
services revenues  included services provided to Telcordia,  a related party, to
support  an  installation  of  AirBoss  software  for Telkom  South  Africa.  In
addition,  AirBoss  software was customized for Cingular  Interactive,  formerly
BellSouth Wireless Data. No such revenues were recorded for fiscal year 2000.

Since our  acquisition  of the  AirBoss  business  unit,  AirBoss  products  and
customers  accounted for approximately  $3,500,000 of fiscal year 2001 revenues.
Included in the AirBoss revenues are $2,555,000 from Telcordia, a related party,
for fiscal year 2001. On March 16, 2001, we announced  that we will no longer be
providing  subcontracted  mobile data  services to  Telcordia  for Telkom  South
Africa ("TSA") as a result of the termination of the contract between  Telcordia
and TSA.  The TSA  contract  accounted  for 15% of  fiscal  year  2001  revenue.
Telcordia continues to be an active VAR for us and our largest  stockholder.  We
expect AirBoss product  revenues to continue to be a significant  portion of our
revenues in the future.

The remaining  fluctuations  in software and related  services  revenues are due
primarily to decreased  license fees, and royalty revenues for fiscal year 2001,
as compared to fiscal year 2000.  Historically,  our license and other  revenues
have been  generated  primarily  by  operating  system and  various  application
software we developed  that are included in smart  phones.  As the last of these
products containing the Geoworks operating systems reach the conclusion of their
life cycles,  the license  revenue from these legacy  products has  continued to
diminish.  In addition,  because we have sold  operating  system source code and
terminated a number of license  agreements over the past three fiscal years, the
number of OEM license  agreements  which could generate future royalty  revenues
has decreased.  Although our legacy license  revenues are decreasing,  we expect
new  license  and other  related  revenues  will be  generated  from our  mobile
software  offerings  based on the  growth of  revenues  and  subscribers  of our
existing  customers  such  as  Toshiba  and  Cingular  Interactive,  as  well as
additional AirBoss and Mobile Server+ software customers.

Software and related  services revenue also includes license fees generated from
our Flex UI  licensing  program.  For fiscal  year 2001,  the  Company  recorded
approximately $529,000 in Flex UI licensing revenues.

Research and development  fee revenue.  Research and development fee revenue for
fiscal  year 2000 was  related to an OEM  contract  with a single  customer.  As
discussed  above,  we have adopted a new business model and OEM funded  research
and development  contracts are not being actively  pursued.  No such revenue was
recorded for fiscal year 2001.

Fiscal year 2000 vs. 1999

Net revenues.  Net revenues in fiscal year 2000  increased  $3,357,000,  or 38%,
versus net  revenues  in fiscal year 1999.  The  increase  was due to  increased
professional  services  revenues  and  license  revenues  which more than offset
reductions  in  research  and   development   fees.  The  shift  in  revenue  to
professional


27

<PAGE>

services from research and  development  fees was consistent with our transition
from being a provider of operating  systems and related research and development
to becoming a provider of wireless data communication services and technologies.

Professional   services   revenue.   Professional   services  revenue  increased
$5,776,000,  or 470%, in fiscal year 2000, as compared to fiscal year 1999. This
increase was primarily due to a change in our contractual agreements we provided
for  engineering  services.  In the second quarter of fiscal year 1999, we began
providing a portion of our non-recurring  engineering services on a professional
services consulting basis rather than as OEM funded research and development.

Software and related services revenue.  Software and related services revenue in
fiscal year 2000  increased  $576,000,  or 14%, in  comparison  with fiscal year
1999. Such revenues  included royalty and license fees resulting from the use of
our  technology  in units sold by OEM  customers  as well as sales of our source
code and various service revenues.  Royalty and license fees increased $837,000,
or 22% due to royalties received based on increased shipments of units sold by a
single OEM licensee. Source code revenues, which are included in the royalty and
license fees,  increased  approximately  $200,000 due to one-time  non-recurring
events.  Service  revenues  decreased  $261,000,  or 72% due to a  reduction  in
support fees earned in connection with software  licensed to OEM customers.  The
service fee decrease was consistent with the change in our business model.

Research and development  fees revenue.  Research and  development  fees revenue
decreased  $2,995,000,  or 90%,  in fiscal  year 2000 as compared to fiscal year
1999.  The revenues  recognized in fiscal year 2000 resulted from contracts that
had been in progress since fiscal year 1999.

Operating Expenses

Cost of Professional Services.  Cost of professional services are those expenses
incurred to provide professional  services consulting,  including  compensation,
travel,  other direct  costs,  and  facilities  overhead.  Cost of  professional
services  increased  $184,000,  or 4%, to  $4,768,000  for  fiscal  year 2001 in
comparison  with  fiscal  year  2000.  The  increase  for  fiscal  year 2000 was
$3,757,000,  or 454% to  $4,584,000  as  compared  to fiscal  year  1999.  These
increases can be attributed to the  increased  volumes of  professional  service
activity  and  revenue as  compared  with the same  periods of the prior  fiscal
years.

Gross margin  percentages on professional  services  revenues were 43%, 35%, and
33% during  fiscal  years 2001,  2000 and 1999,  respectively.  The gross margin
percentages have improved in each year as compared to the prior years because we
have charged  increased  rates for such services and have  decreased our average
costs due to an improved mix of the engineering  resources used to provide these
services.  The gross margin  recognized  on such  services is subject to several
variables, particularly the average rates charged for these consulting services,
the  ability  of the  Company  to  hire  and  retain  engineering  personnel  at
competitive rates, and the utilization rates of those personnel.

Cost of Software and Related  Services.  Cost of software  and related  services
increased $1,632,000,  or 487%, to $1,967,000 for fiscal year 2001 in comparison
with fiscal year 2000. The increase in fiscal year 2001 is primarily  because we
began  providing   software  and  related   customization   services  after  our
acquisition of AirBoss in July 2000. Costs of these  customization  services and
other related  services are recorded based on labor and direct costs and related
overhead of these projects. For fiscal year 2001, cost of customization services
was approximately $1,900,000. No such cost was recorded in fiscal year 2000.

Also  included  in these  costs of software  and  related  services  are license
payments to third parties for software that is  incorporated  into our software.
Such costs decreased $288,000, or 86%, to $47,000 in


28

<PAGE>

fiscal year 2001, in comparison  with fiscal year 2000. The decrease is due to a
reduced  proportion of the related revenues being subject to such fees in fiscal
year 2001, as compared with fiscal year 2000.

Cost of software and related services increased  $295,000,  or 738%, to $335,000
for fiscal year 2000, as compared to fiscal year 1999. This was primarily due to
the  increased   license  payments  to  third  parties  for  software  that  was
incorporated into our software, as compared to fiscal year 1999.

To calculate the gross margin on software and related  services we have included
direct costs of software  and related  services as well as the  amortization  of
other  intangible  assets acquired in the AirBoss  acquisition of $1,369,000 for
fiscal year 2001. Such technology-related  expenses are included in amortization
of goodwill and other intangible  assets.  See Note 4 "Acquistion of Airboss" in
the consolidated  financial statements.  Including this additional  amortization
expense, the Company's gross margin percentages on software and related services
was  59%,  93% and 99% for  fiscal  years  2001,  2000 and  1999,  respectively.
Excluding these non-cash amortization  expenses, the gross margin percentages on
software and related  services was 76%, 93% and 99% for fiscal years 2001,  2000
and 1999,  respectively.  The gross  margins on these  revenues are lower in the
current fiscal year because of the addition of the revenues and associated costs
of  providing  customization  services.  The  gross  margin  recognized  on such
services is subject to several  variables,  particularly the mix of products and
services provided and the average rates charged for such services. Since we have
a limited  history in providing  such  services,  the gross  margin  percentages
achieved to date are not necessarily indicative of future operating results.

Sales and Marketing.  Sales and marketing  expenses include salaries,  benefits,
sales commissions,  travel and related facilities overhead expense for our sales
and marketing personnel.  Sales and marketing expense increased  $3,030,000,  or
54%, to  $8,607,000,  during fiscal year 2001,  in  comparison  with fiscal year
2000.  This  increase is due  primarily to an increase in personnel and business
activity,  including business development,  as we expanded our efforts to market
our new services, particularly the AirBoss Application Platform, Mobile Server+,
and Mobile ASP  offerings  and launched our Mobile  Business  Alliance  Program.
Sales and Marketing  headcount  grew by 115%, to 43 during fiscal year 2001. The
increased  personnel costs were partially offset by reduced consulting  expenses
because of the increased internal resources available.

Sales and marketing expense increased  $626,000,  or 13%, to $5,577,000,  during
fiscal year 2000,  in  comparison  to fiscal year 1999.  This  increase  was due
primarily to increased spending on marketing and advertising programs as well as
increased business  development  activities.  These increased program costs were
partially offset by reduced personnel costs.

Research and Development. Research and development expenses consist primarily of
salaries and benefits for software engineers, contract development fees, cost of
computer equipment used in software  development and related facilities overhead
expense.  Research and development  expense increased by $5,102,000,  or 124% to
$9,202,000,  during fiscal year 2001, in comparison  with fiscal year 2000. This
increase is  attributable  principally to increased  staffing and related costs,
including  recruiting  expenses,  as we expanded our  research  and  development
efforts. In particular,  the Company has focused on software development for the
AirBoss  Application  Platform and Mobile Server+.  The research and development
staff grew by 146% to 86 over fiscal year 2001.  In addition,  we have  utilized
consultants  and other outside  services at a greater level in fiscal year 2001,
as compared to the prior year.

Research and development  expense decreased  $9,710,000,  or 70%, to $4,100,000,
during fiscal year 2000,  in  comparison to fiscal year 1999.  This decrease was
principally  due to reductions in staffing and related  costs,  including  those
resulting from the  restructuring  actions taken in the fourth quarter of fiscal
year 1999. Such staff and expense  reductions were necessary as we stopped doing
operating system

29

<PAGE>

development  and reacted to reduced levels of OEM funding.  We also narrowed the
scope of our internal  research and development to focus on mobile data software
and services.

General and  Administrative.  General and administrative  expenses include costs
for our human resources,  finance, legal, general management functions,  and the
related facilities  overhead.  General and  administrative  expense increased by
$3,741,000  or 112%,  to  $7,079,000,  during fiscal year 2001, in comparison to
fiscal year 2000.  This  increase was due to increased  legal expense as well as
the   increased   personnel   costs   required   to  build  the   administrative
infrastructure to support the new business plan and the AirBoss acquisition. The
general and  administrative  staff grew 39% to 25 over  fiscal year 2001.  Legal
fees were $2,340,000,  or 33%, of total general and administrative  expense,  in
the  fiscal  year  2001,  primarily  due to the  Openwave  (formerly  Phone.com)
litigation.  In December 2000, we announced an agreement  with Openwave  Systems
Inc.  to settle  the patent  dispute  by  entering  into a  royalty-free  patent
cross-license and strategic business  relationship.  The companies dismissed the
patent litigation before the federal district court and the International  Trade
Commission.  See further discussion at Part 1. Item 1 Business, and Item 3 Legal
Proceedings.  Excluding  the  nonrecurring  litigation  expenses the general and
administrative  expenses  increase would have been  approximately  $1,909,000 or
57%, during fiscal year 2001, in comparison with fiscal year 1999.

General and  administrative  expense  decreased  $296,000,  or 8%, to $3,338,000
during fiscal year 2000 in comparison to fiscal year 1999.  The decrease was due
primarily to reduced  staffing  costs and reduced  professional  fees due to the
restructuring  actions  taken in the fourth  quarter of fiscal year 1999 and the
change in our business focus.

Amortization of goodwill and other intangible  assets.  Amortization of goodwill
and other  intangible  assets  was  $5,410,000  for fiscal  year 2001.  This was
attributable  to the  amortization  of goodwill and other  purchased  intangible
assets  resulting  from our July 2000  acquisition  of  AirBoss.  We expect  the
quarterly  amortization  expense  related  to  the  AirBoss  acquisition  to  be
approximately  $2,000,000 per quarter through fiscal year 2004 and approximately
$1,500,000 per quarter  through fiscal year 2005 and then the remaining  balance
will be amortized in the first and second quarters of fiscal year 2006. See Note
4 "Acquisition of AirBoss" in the consolidated financial statements.

We review  long-lived and intangible  assets for impairment  whenever  events or
circumstances  indicate the carrying  value of an asset may not be  recoverable.
For fiscal year 2001,  possible  impairment  indicators  included,  but were not
limited to,  cancellation of the Company's  largest  software and  customization
contract, declines in the Company's stock price, and continued operating losses.
Possible impairment of the Company's  intangible assets were determined based on
estimated  future  undiscounted  cash  flows  to  be  generated.  The  estimates
resulting from the Company's analysis indicated that no impairment was present.

Purchased   in-process   research  and  development.   In  connection  with  the
acquisition of AirBoss, we recorded a non-cash expense for purchased  in-process
research and  development  of  $1,378,000  in the second  quarter of fiscal year
2001.  The efforts  required  to complete  the  acquired  in-process  technology
included the completion of all planning,  designing and testing  activities that
are  necessary  to  establish  that the  products  can be produced to meet their
design  requirements,  including functions,  features and technical  performance
requirements. The value of the acquired in-process technology was computed using
a discounted cash flow analysis rate of 25% on the anticipated income streams of
the related  product  revenues.  The discounted  cash flow analysis was based on
managements'  forecast  of future  revenues,  cost of  revenues,  and  operating
expenses related to the products and technologies purchased from Telcordia.  The
calculation  of value was then  adjusted  to  reflect  only the  value  creation
efforts  of  AirBoss  prior  to the  close  of  the  acquisition.  The  acquired
in-process   technology  was  expensed  in  the  period  the   transaction   was
consummated.  See Note 4 "Acquisition of AirBoss" in the consolidated  financial
statements.

Other Income (Expense)

Other  Income.  The proceeds  from the sale of 10,800  shares,  a portion of the
Company's  investment in Wink  Communications,  Inc.  ("Wink") resulted in other
income of $265,000 in fiscal year 2001.  During fiscal year 2000,  75,000 shares
of Wink were sold which resulted in other income of  $4,049,000.  Wink completed
its initial public offering in August 1999. As discussed below in "liquidity and
capital  resources,"  our  strategy for  liquidating  all or some portion of our
long-term investments will

30

<PAGE>

depend on a number of factors. Such factors include, but are not limited to, the
levels of cash we use in  operations,  the desire to  diversify  our  investment
risk,  and the  performance  of these  investments  versus the stock market as a
whole.


Interest  Income.  Interest income  increased by $194,000,  or 30%, to $840,000,
during fiscal year 2001,  in  comparison  to fiscal year 2000.  This increase is
attributable   primarily  to  higher  cash  balances  available  for  short-term
investment.  In particular, we generated a total of $4,049,000 from the sales of
our investment in Wink in the third and fourth  quarters of fiscal year 2000. In
addition,  we have received  approximately  $11,100,000 from the issuance of our
common stock in the past twelve  months.  This includes  equity  proceeds  which
resulted from a September  2000 private  placement of  $5,000,000  with Integral
Capital  Partners,  a January 2001 private  placement of $5,000,000  with iValue
Creation  Company,  a subsidiary  of Toshiba  Corporation,  exercises  under our
employee  stock option plans,  and purchases  under our employee  stock purchase
plan.

Interest income  increased  $34,000,  or 6%, in fiscal year 2000, as compared to
fiscal year 1999. This increase was  attributable  to the increased  balances of
cash  available  for  short-term  investment.  Net cash used in  operations  was
significantly  reduced due to improved  operating  performance  and we generated
$4,100,000  from the sales of Wink stock.  In addition,  we received  $3,300,000
from the  issuance  of common  stock in  fiscal  year  2000 in  addition  to the
$5,000,000  raised in a private  placement from Amazon.com in the fourth quarter
of fiscal year 1999.

Interest Expense. Interest expense was not significant in fiscal years 2000, and
1999, as we have had minimal balances of capital lease and debt outstanding.  As
we increase our investment in the assets and  infrastructure  to support our new
business plans, we will consider  financing  alternatives,  which would increase
the amount of interest expense incurred in the future.

Provision for Income Taxes

We account for income taxes in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Income tax expense consists of
foreign income tax withholding on foreign source  royalties paid us. As of March
31, 2001, we had net operating loss  carryforwards  for U.S.  federal income tax
purposes of  approximately  $116,601,000,  and for U.K.  income tax  purposes of
approximately  $5,127,000,  and for state income tax  purposes of  approximately
$30,926,000.  We also had  research and  development  credit  carryforwards  for
federal income tax purposes of approximately $2,653,000 and for state income tax
purposes of approximately $1,039,000. Utilization of our U.S. net operating loss
and research credit carryforwards will be subject to annual limitations based on
the  "change of  ownership"  provisions  of the Tax  Reform  Act of 1986.  These
limitations  may result in the  expiration  of net  operating  loss and research
credit carryforwards before utilization.

Liquidity and Capital Resources

The Company's  total cash and cash  equivalents  were  $13,713,000  at March 31,
2001,  compared with  $17,204,000 at March 31, 2000. Net cash used by operations
in the  fiscal  year  2001 was  $11,997,000.  Net  cash  provided  by  financing
activities  for the same period was  $11,189,000  as a result of the issuance of
common stock and other  financing  activities.  The balance of our cash usage in
fiscal year 2001 has been due principally for purchases of equipment. This level
of cash usage is  significantly  larger than in fiscal year 2000 because we have
been  increasing  our  investment  in  research  and  development  and sales and
marketing  activities in order to execute our business plan. In addition,  legal
expenses  have been  significantly  higher in fiscal year 2001.  Although  legal
expenses are expected to decrease  significantly,  we expect to incur additional
substantial operating losses at least


31
<PAGE>

through the current  fiscal year 2002,  as we  increase  our  investment  in the
development of wireless data software and services and  technologies,  including
additional sales, marketing and research and development spending.

Purchases of property and equipment  were  $3,025,000,  $937,000 and $216,000 in
fiscal  years  2001,  2000,  and 1999,  respectively.  The  increase  in capital
spending is  consistent  with the increase in personnel in  connection  with the
execution  of our new  business  plan  and the  AirBoss  acquisition.  Sales  of
property and equipment  were $6,000,  $16,000 and $483,000 in fiscal years 2001,
2000 and 1999,  respectively.  Sales of property and  equipment  for fiscal year
2001 were done in the normal course of business. Sales of property and equipment
for fiscal years 2000 and 1999 were done to generate  cash from excess  property
due to the restructure.

Payments of capital lease and debt obligations were $5,000, $30,000 and $557,000
in fiscal years 2001, 2000 and 1999,  respectively.  During fiscal year 2001, we
entered into a capital lease obligation to finance our new phone system. Capital
lease and debt  payments for the fiscal years ended March 31, 2000 and 1999 were
primarily  due  to  regularly  scheduled  payments  of the  related  liabilities
incurred prior to fiscal year 1998. In fiscal year 1999, these payments included
$194,000 to retire the debt outstanding on the property we sold.

During  fiscal year 2001,  we entered into a series of  derivative  contracts to
hedge against a decline in the value of our investment in Wink. These derivative
instruments  will  mature or expire in  November  and  December  of 2001.  These
derivative instruments ensure that the minimum value of the Wink investment will
be at least  $4,036,000  at maturity  of the  instrument.  The maximum  value is
limited to  $7,397,000,  depending on the common share price of Wink at maturity
or expiration.

Proceeds from the issuance of our common stock were  approximately  $11,100,000,
$3,254,000 and $5,858,000,  in fiscal years 2001,  2000 and 1999,  respectively.
Proceeds  from the  issuance  of our  common  stock in  fiscal  year  2001  were
generated from a private  placement with Integral  Capital  Partners;  a private
placement with iValue  Creation  Company,  a subsidiary of Toshiba  Corporation;
exercises  under our  employee  stock  option  plans,  and  purchases  under our
employee stock purchase plan.

We expect to increase our  investment  in the  development  of our wireless data
software and services,  including  additional sales,  marketing and research and
development  spending,  and we expect to incur  additional  operating  losses at
least  through  the next  fiscal  year 2002.  Although  we  anticipate  that our
existing  cash and capital  resources  will be adequate to satisfy our operating
requirements  for fiscal year 2002,  we intend to seek  additional  funding this
year to  improve  operating  working  capital.  We cannot  assure  you that such
additional funding will be available on acceptable terms.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of  Financial   Accounting   Standards  No.  133,   "Accounting  for  Derivative
Instruments  and Hedging  Activities"  ("FAS No. 133").  FAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts  (collectively referred to as
derivatives),  and  for  hedging  activities.  In June  1999,  the  FASB  issued
Statement of Financial Accounting Standards No. 137, "Accounting for Derivatives
Instruments  and  Hedging  Activities  --  Deferral  of  Effective  Date of FASB
Statement No. 133" ("FAS No.  137").  FAS No. 133, as amended by FAS No. 137, is
effective for all fiscal  quarters of all fiscal years  beginning after June 15,
2000, with earlier application encouraged. The Company entered into an agreement
in November 2000 to hedge against a decline in value of its  investment  and has
accounted for its investments under FAS No. 133.


32

<PAGE>

See further discussion of the related assets in Item 8. Financial Statements and
Supplementary Data, Note 3 "Long-Term Investments."

In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), "Accounting for
Certain  Transactions  Involving Stock  Compensation,  an  interpretation of APB
Opinion No. 25". FIN 44 clarifies the  application of APB 25 for certain issues,
including the definition of an employee,  the treatment of the  acceleration  of
stock  options and the  accounting  treatment  for  options  assumed in business
combinations.  FIN 44 became  effective on July 1, 2000,  but is applicable  for
certain  transactions  dating back to December  1998. The adoption of FIN 44 has
not had any material effect on our financial condition or results of operations.


33
<PAGE>

Selected Consolidated Financial Data
Quarterly Financial Information (unaudited)
(in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                             Quarter Ended
                                                      31-Mar-01        31-Dec-00        30-Sep-00        30-Jun-00
<S>                                                  <C>              <C>              <C>              <C>
Net revenues:
  Professional services                              $    2,342       $    2,157       $    2,352       $    2,055
  Software and related services                           2,427            2,131            1,126            1,975
                                                     -------------------------------------------------------------
    Total net revenues                                    4,769            4,288            3,478            4,030

Operating expenses:
  Cost of professional services                           1,308            1,207            1,355            1,189
  Cost of software and related services                     725              913               20               18
  Sales and marketing                                     2,585            2,541            2,008            1,473
  Research and development                                2,702            2,537            2,317            1,646
  General and administrative                              1,704            2,393            1,669            1,313
  Amortization of goodwill and
    other intangible assets                               2,029            2,028            1,353
  Purchased in-process research and
    development                                              --               --            1,378               --
                                                     -------------------------------------------------------------
    Total operating expenses                             11,053           11,619           10,100            5,639
                                                     -------------------------------------------------------------

Operating loss                                           (6,284)          (7,331)          (6,622)          (1,609)

Other income (expense):
  Other income                                               --               --              265               --
  Interest income                                           164              221              227              228
  Interest expense                                           (4)              --               --               --
                                                     -------------------------------------------------------------
    Loss before income taxes                             (6,124)          (7,110)          (6,130)          (1,381)

Provision for income taxes                                   50               61               29              173
                                                     -------------------------------------------------------------
Net loss                                             $   (6,174)      $   (7,171)      $   (6,159)      $   (1,554)
                                                     =============================================================

Net loss per share - basic and diluted               $    (0.27)      $    (0.32)      $    (0.29)      $    (0.08)
                                                     =============================================================
</TABLE>


34
<PAGE>

Quarterly Financial Information (unaudited)
(in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                       Quarter Ended
                                                  31-Mar-00       31-Dec-99       30-Sep-99       30-Jun-99
<S>                                               <C>             <C>             <C>             <C>
Net revenues:
  Professional services                           $   2,496       $   1,975       $   1,384       $   1,149
  Research and development fees                          72             248              --              --
  Software and related services                       1,869             906           1,556             484
                                                  ---------------------------------------------------------
    Total net revenues                                4,437           3,129           2,940           1,633

Operating expenses:
  Cost of professional services                       1,564           1,291             934             795
  Cost of software and related services                  81              73             115              66
  Sales and marketing                                 1,961           1,577           1,109             930
  Research and development                            1,335             839             977             949
  General and administrative                            993             829             814             702
  Restructuring charges (reversal)                     (589)             --              --
                                                  ---------------------------------------------------------
    Total operating expenses                          5,345           4,609           3,949           3,442
                                                  ---------------------------------------------------------

Operating loss                                         (908)         (1,480)         (1,009)         (1,809)

Other income (expense):
  Other income                                        1,740           2,309              --              --
  Interest income                                       199             162             146             139
  Interest expense                                       --              (1)             --              (9)
                                                  ---------------------------------------------------------
    Income (loss) before income taxes                 1,031             990            (863)         (1,679)

Provision for income taxes                               97              59             131             165
                                                  ---------------------------------------------------------
Net income (loss)                                 $     934       $     931       $    (994)      $  (1,844)
                                                  =========================================================

Net income (loss) per share-
   Basis and diluted                              $    0.05       $    0.05       $   (0.06)      $   (0.10)
                                                  =========================================================
</TABLE>


35
<PAGE>

Item 7A.  QUANTITAVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Investment Risk

Our cash and cash  equivalents  consist of demand  deposits  and  highly  liquid
securities  with  original  maturities of three months or less. We believe these
investments are subject to minimal interest or market risks.

Our long-term investments consist of common shares in Wink Communications,  Inc.
("Wink") and warrants to acquire common shares of MyTurn.com,  Inc. (" MyTurn").
The Company entered into a series of derivative  instruments in November 2000 to
hedge  against a decline in value of its  investment in Wink.  These  derivative
instruments  will  mature or expire in  November  and  December  of 2001.  These
derivative  instruments  ensure  that the minimum  value of the Wink  investment
should be at least  $4,036,000  at maturity  or  expiration  of the  instrument.
However,  the maximum value of the Wink  investments  is limited to  $7,397,000,
depending  on the common  share price of Wink at maturity or  expiration.  As of
March  31,  2001,  the fair  value of the  investments  in Wink is  recorded  at
$4,036,000,  which  includes  the  fair  value  of the  common  shares  of  Wink
($2,400,000)   and  the  current  fair  value  of  the  derivative   instruments
($1,636,000).  On March 2, 2001,  MyTurn  filed a voluntary  petition for relief
under Chapter 11 of the  Bankruptcy  Code. Its stock is no longer trading on the
Nasdaq  National  Market.  As of March 31, 2001 the estimated  fair value of the
Company's investment in MyTurn has been reduced to zero because the market price
of MyTurn common stock is substantially  below the exercise price of the related
warrants.  The fair value of these  long-term  investments  will  fluctuate with
their  respective  market  prices.  As such  these  investments  are  subject to
fluctuations  of the stock market as a whole and the specific  business risks of
these companies.

Foreign Exchange Risk

We have derived most of our revenue from international operations in each of the
last three  fiscal  years.  Although our  invoices to  customers  are  generally
denominated  in U.S.  dollars,  our  international  subsidiaries  use the  local
currency as their functional  currency.  Our cash accounts in foreign  countries
are kept at the minimal levels  necessary for  operations.  As the result of the
above,  we are  exposed  to  foreign  exchange  rate  fluctuations  and as these
exchange rates vary, the subsidiaries  results,  when translated,  may vary from
expectations and adversely impact our results of operations.


36

<PAGE>

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                         Report of Independent Auditors

The Board of Directors and Stockholders
Geoworks Corporation


We have  audited  the  accompanying  consolidated  balance  sheets  of  Geoworks
Corporation  as of  March  31,  2001  and  2000,  and the  related  consolidated
statements of operations,  stockholders'  equity, and cash flows for each of the
three years in the period ended March 31, 2001.  These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,   the  consolidated   financial  position  of  Geoworks
Corporation  at March 31,  2001 and 2000,  and the  consolidated  results of its
operations  and its cash flows for each of the three  years in the period  ended
March 31, 2001, in conformity with accounting  principles  generally accepted in
the United States.

                                                  /s/ Ernst & Young LLP


San Francisco, California
April 18, 2001,
except for Note 13, as to which the date is
June 12, 2001


37

<PAGE>

                              Geoworks Corporation
                           Consolidated Balance Sheets
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                          March 31
                                                                                    2001             2000
                                                                                ----------------------------
<S>                                                                             <C>              <C>
Assets
Current assets:
  Cash and cash equivalents                                                     $    13,713      $    17,204
  Accounts receivable                                                                 2,769            1,492
  Prepaid expenses and other current assets                                             538              417
                                                                                ----------------------------
Total current assets                                                                 17,020           19,113

Property and equipment, net                                                           3,576            1,155
Long-term investments and derivative instruments                                      4,038           21,180
Goodwill and other intangible assets, net                                            31,556               --
Other assets                                                                             73               11
                                                                                ----------------------------
Total assets                                                                    $    56,263      $    41,459
                                                                                ============================

Liabilities and stockholders' equity Current liabilities:
  Accounts payable                                                              $     2,374      $     1,173
  Accrued liabilities                                                                 2,874            2,025
  Deferred revenue                                                                    1,128            1,629
  Current portion of capital lease obligations                                           28               --
                                                                                ----------------------------
Total current liabilities                                                             6,404            4,827

Capital lease obligations, net of current portion                                       128               --

Stockholders' equity:
     Preferred stock, no par value; 2,000 shares authorized;
        0 in 2001 and 0 in 2000 shares issued and outstanding                            --               --
     Common stock, no par value; 80,000 shares authorized;
        23,423 in 2001 and 18,485 in 2000 shares issued and outstanding             157,082          105,630
     Accumulated deficit                                                           (111,110)         (90,052)
     Notes receivable from stockholders                                                 (88)            (182)
     Deferred compensation, net                                                        (318)              --
     Accumulated other comprehensive income                                           4,165           21,236
                                                                                ----------------------------
Total stockholders' equity                                                           49,731           36,632
                                                                                ----------------------------
Total liabilities and stockholders' equity                                      $    56,263      $    41,459
                                                                                ============================
</TABLE>

See accompanying notes.


38

<PAGE>

                              Geoworks Corporation
                      Consolidated Statements of Operations
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                  Year ended March 31
                                                                          2001            2000            1999
                                                                    ------------------------------------------
<S>                                                                 <C>             <C>             <C>
Net revenues:
     Professional services                                          $    8,343      $    7,004      $    1,228
     Software and related services (1)                                   8,222           4,815           4,239
     Research and development fees                                          --             320           3,315
                                                                    ------------------------------------------
Total net revenues                                                      16,565          12,139           8,782

Operating expenses:
     Cost of professional services                                       4,768           4,584             827
     Cost of software and related services                               1,967             335              40
     Sales and marketing                                                 8,607           5,577           4,951
     Research and development                                            9,202           4,100          13,810
     General and administrative                                          7,079           3,338           3,634
     Amortization of goodwill and other intangible assets                5,410              --              --
     Purchased in-process research and development                       1,378              --              --
     Restructuring charges (reversal)                                       --            (589)          1,790
                                                                    ------------------------------------------
Total operating expenses                                                38,411          17,345          25,052
                                                                    ------------------------------------------
Operating loss                                                         (21,846)         (5,206)        (16,270)

Other income (expense):
     Other income                                                          265           4,049              --
     Interest income                                                       840             646             612
     Interest expense                                                       (4)            (10)            (31)
                                                                    ------------------------------------------
Total other income, net                                                  1,101           4,685             581
                                                                    ------------------------------------------
Loss before income taxes                                               (20,745)           (521)        (15,689)
Provision for income taxes                                                 313             452             149
                                                                    ------------------------------------------
Net loss                                                            $  (21,058)     $     (973)     $  (15,838)
                                                                    ==========================================

Net loss per share - basic and diluted                              $    (0.99)     $    (0.05)     $    (0.97)
                                                                    ==========================================
Shares used in per share computation                                    21,190          17,866          16,260
                                                                    ==========================================

   (1) Revenues from related party (Note 4)                         $    2,555              --              --
                                                                    ==========================================
</TABLE>

See accompanying notes.


39

<PAGE>

                              Geoworks Corporation
            Consolidated Statements of Stockholders' Equity (Deficit)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                Notes                   Accumulated
                                             Common Stock                     Receivable                   Other          Total
                                         -------------------     Accumulated     From        Deferred   Comprehensive  Stockholders'
                                          Shares      Amount       Deficit   Stockholders  Compensation    Income         Equity
                                         -------------------  ---------------------------------------------------------------------
<S>                                       <C>       <C>          <C>             <C>          <C>         <C>           <C>
Balances at March 31, 1998                15,856    $ 96,518     $ (73,241)      $ (67)       $  --       $    182      $ 23,392
Common stock issued under
   stock option and stock
   purchase plans                            553         905            --          --           --             --           905
Common stock issued in private
   placement                               1,220       4,953            --          --           --             --         4,953
Comprehensive income (loss):
     Foreign currency
       translation adjustment                 --          --            --          --           --            (38)          (38)
     Net loss                                 --          --       (15,838)         --           --             --       (15,838)
                                                                                                                       ---------
Comprehensive loss                            --          --            --          --           --             --       (15,876)
                                         -------------------  ------------------------------------------------------------------
Balances at March 31, 1999                17,629     102,376       (89,079)        (67)          --            144        13,374
Common stock issued under stock
   option and stock purchase plans           856       3,254            --        (182)          --             --         3,072
Payments received from stockholders           --          --            --          67           --             --            67
Comprehensive income (loss):
     Unrealized gains on investments          --          --            --          --           --         21,177        21,177
     Foreign currency
       translation adjustment                 --          --            --          --           --            (85)          (85)
     Net loss                                 --          --          (973)         --           --             --          (973)
                                                                                                                       ---------
Comprehensive income                          --          --            --          --           --             --        20,119
                                         -------------------  ------------------------------------------------------------------
Balances at March 31, 2000                18,485     105,630       (90,052)       (182)          --         21,236        36,632
Common stock issued under stock
   option and stock purchase plans           315       1,114            --          --           --             --         1,114
Common stock issued in
   private placements                      1,606       9,986            --          --           --             --         9,986
Common stock issued for acquisition
   of AirBoss                              3,017      39,949            --          --           --             --        39,949
Payments received from stockholders           --          --            --          94           --             --            94
Deferred compensation                         --         403            --          --         (403)            --            --
Amortization of deferred compensation         --          --            --          --           85             --            85
Comprehensive income (loss):
     Unrealized loss on investments           --          --            --          --           --        (18,778)      (18,778)
     Unrealized gain on derivative
       instruments                            --          --            --          --           --          1,636         1,636
     Foreign currency translation
       adjustment                             --          --            --          --           --             71            71
     Net loss                                 --          --       (21,058)         --           --             --       (21,058)
                                                                                                                       ---------
Comprehensive loss                            --          --            --          --           --             --       (38,129)
                                         -------------------  ------------------------------------------------------------------
Balances at March 31, 2001                23,423    $157,082     $(111,110)      $ (88)       $(318)      $  4,165      $ 49,731
                                         ===================  ==================================================================
</TABLE>

See accompanying notes.


40
<PAGE>

                              Geoworks Corporation
                      Consolidated Statements of Cash Flows
                                 (In thousands)
                               Year ended March 31

<TABLE>
<CAPTION>
                                                                                           2001          2000          1999
                                                                                     --------------------------------------
<S>                                                                                  <C>           <C>           <C>
Operating activities
Net loss                                                                             $  (21,058)   $     (973)   $  (15,838)
   Adjustments to reconcile net loss to net cash used in operating activities:
         Depreciation                                                                     1,059           721         1,559
         Amortization of goodwill and other intangible assets                             5,410            --            --
         Purchased in-process research and development                                    1,378            --            --
         Non-cash restructuring charges (reversal)                                           --          (589)        1,543
         Amortization of deferred compensation                                               85            --            --
         Gain on sale of long-term investments                                             (265)       (4,049)           --
         Gain on sale of property and equipment                                              (6)           --            --
         Changes in operating assets and liabilities, net of business
         combination:
              Accounts receivable                                                        (1,067)        1,610           310
              Other current assets                                                         (122)          (20)          376
              Other long-term assets                                                        (62)           --            --
              Deferred revenues                                                            (501)          131           720
              Accounts payable                                                            1,201           669            --
              Other current liabilities                                                     599          (163)         (466)
                                                                                     --------------------------------------
Net cash used in operating activities                                                   (13,349)       (2,663)      (11,796)

Investing activities
Purchases of property and equipment                                                      (3,025)         (937)         (216)
Proceeds from sales and disposals of property and equipment                                   6            16           483
Sales of long-term investments                                                              265         4,049            --
Purchase price adjustment on AirBoss acquisition                                          1,352            --            --
                                                                                     --------------------------------------
Net cash (used in) provided by investing activities                                      (1,402)        3,128           267

Financing activities
Payment of capital lease and debt obligations                                                (5)          (30)         (557)
Proceeds from issuance of common stock                                                   11,100         3,254         5,858
Payments received on notes receivable from stockholder                                       94            67            --
Issuance of stockholder notes                                                                --          (182)           --
                                                                                     --------------------------------------
Net cash provided by financing activities                                                11,189         3,109         5,301

Foreign currency translation adjustments                                                     71           (85)          (38)
                                                                                     --------------------------------------
Net increase (decrease) in cash and cash equivalents                                     (3,491)        3,489        (6,266)
Cash and cash equivalents, beginning of year                                             17,204        13,715        19,981
                                                                                     --------------------------------------
Cash and cash equivalents, end of year                                               $   13,713    $   17,204    $   13,715
                                                                                     ======================================

Supplemental disclosure of cash flow information
Cash paid for interest                                                               $        4    $       10    $       31
                                                                                     ======================================
Cash paid for income taxes                                                           $      313    $      452    $      149
                                                                                     ======================================

Supplemental disclosure of non-cash investing and financing activity
Acquisition of AirBoss                                                               $   40,150    $       --    $       --
                                                                                     ======================================
Property and equipment acquired under capital lease                                  $      161    $       --    $       --
                                                                                     ======================================
</TABLE>

See accompanying notes.


41
<PAGE>

                              Geoworks Corporation
                   Notes to Consolidated Financial Statements
                                 March 31, 2001

1. Summary of Significant Accounting Policies

Company

Geoworks  Corporation  ("the  Company")  is a provider of  carrier-class  mobile
Internet  infrastructure  software  enabling  personalized  real-time  access to
corporate and Internet data. Its business model is built around the licensing of
proprietary  software  platforms  for mobile  solutions,  the  Geoworks  AirBoss
Application  Platform and  MobileServer+,  to wireless  carriers and enterprises
around the world.  The Company also provides  professional  services  consulting
related to technologies  previously developed, as well as the development of new
technologies supporting mobile communications.

Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its  wholly-owned  subsidiaries  located in Japan,  New  Jersey,  and the United
Kingdom.  All  significant  intercompany  balances  and  transactions  have been
eliminated.

Reclassifications

Certain fiscal year 2000 and 1999 balances have been  reclassified to conform to
the fiscal year 2001 presentation.

Foreign Currency Translation

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

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial  statements and accompanying notes.
Actual results could differ from those estimates.

Revenue Recognition

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


42
<PAGE>

                              Geoworks Corporation
             Notes to Consolidated Financial Statements (continued)
                                 March 31, 2001

1. Summary of Significant Accounting Policies (continued)

Revenue Recognition (continued)

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

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

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

Research  and  development  fees are  primarily  amounts  received  pursuant  to
contracts with original equipment manufacturers ("OEMs") under which the Company
is  reimbursed  for a portion  of its  development  costs  related  to  specific
products up to the amounts specified in the contracts.  The Company is typically
paid by the OEM as it achieves certain project  milestones.  Revenue under these
research   and    development    arrangements    is    recognized    under   the
percentage-of-completion  method based on the  relationship of costs incurred to
date to total anticipated project costs.

Cash and Cash Equivalents

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


43
<PAGE>

                              Geoworks Corporation
             Notes to Consolidated Financial Statements (continued)
                                 March 31, 2001

1. Summary of Significant Accounting Policies (continued)

Concentrations of Credit Risk

The Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of cash, cash equivalents and trade accounts  receivable.
Cash and cash  equivalents  are held in  federally  insured or  well-established
financial  institutions.  The Company  sells its products  primarily to, and has
trade  accounts   receivable  with,   original   equipment   manufacturers   and
telecommunications  companies  in the  United  States and  abroad.  As a general
policy, collateral is not required for accounts receivable; however, the Company
periodically monitors the need for an allowance for doubtful accounts based upon
expected  collections  of accounts  receivable  and specific  identification  of
uncollectible  accounts.  The Company has not recorded an allowance for doubtful
accounts in any period presented.  Additionally,  customers' financial condition
and credit  worthiness are regularly  evaluated and  historical  losses have not
been material.

Derivative Financial Instruments

Derivative  financial  instruments are designated to hedge the fair value of the
Company's investment in Wink Communications common stock. Derivative instruments
are recorded at fair value as  determined by the  difference  between the market
value of the  underlying  hedged  securities and their stated selling prices per
the  derivative  contracts.  Any  unrealized  gain  or  loss  on the  derivative
instruments are recorded in accumulated other  comprehensive  income. The amount
of the ineffectiveness of the hedge is not material;  thus, no amounts have been
recorded in the  consolidated  statement of operations.  These  instruments  may
involve  elements of credit and market risk in excess of the amounts  recognized
in the financial  statements.  The Company monitors its positions and the credit
quality  of  counter   parties,   consisting   primarily   of  major   financial
institutions, and does not anticipate nonperformance by any counter-party.

Capitalized Software

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

Property and Equipment

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


44
<PAGE>

                              Geoworks Corporation
             Notes to Consolidated Financial Statements (continued)
                                 March 31, 2001

1. Summary of Significant Accounting Policies (continued)

Impairment of Long-Lived Assets

In accordance  with Statement of Financial  Accounting  Standards No. 121 ("SFAS
No.  121"),  "Accounting  for  the  Impairment  of  Long-Lived  Assets  and  for
Long-Lived  Assets to be Disposed Of," long-lived  assets  (primarily  property,
plant and equipment, goodwill, and other intangible assets) held and used by the
Company or to be disposed of are  reviewed  for  impairment  whenever  events or
changes in  circumstances  indicate that the net book value of the asset may not
be recoverable.  When such an event occurs,  management determines whether there
has been an impairment by comparing the anticipated undiscounted future net cash
flows to the related asset's carrying value. If an asset is considered impaired,
the asset is written  down to fair value,  which is  determined  based either on
discounted cash flows or appraised value, depending on the nature of the asset.

For fiscal year 2001 the Company identified such possible impairment  indicators
to include,  but were not  limited to,  cancellation  of the  Company's  largest
software and customization contract,  declines in the Company's stock price, and
continued  operating  losses.  Possible  impairment of the Company's  intangible
assets were determined based on estimated future  undiscounted  cash flows to be
generated. The estimates resulting from the Company's analysis indicated that no
impairment was present.

Research and Development Expense

Research and development expense includes both internally funded development and
projects funded in part by customers. Total research and development expenses on
projects for which OEM funding was received  were $182,000 and  $4,317,000,  for
fiscal years 2000 and 1999,  respectively,  of which $320,000 and $3,315,000 was
funded and recognized as revenue in fiscal years 2000 and 1999, respectively. No
such expenses were funded or recognized in fiscal year 2001.

Fair Value of Financial Instruments

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

Major Customers

Revenues from three major customers accounted for 32%, 31% and 15%, respectively
of net  revenues  for  fiscal  year  2001.  Revenues  from two of these  and one
additional major customers  accounted for 39%, 31% and 18%,  respectively of net
revenues  for fiscal year 2000.  Revenues  from two of these and one  additional
major customers accounted for 57%, 17% and 16%, respectively of net revenues for
fiscal year 1999.


45
<PAGE>

                              Geoworks Corporation
             Notes to Consolidated Financial Statements (continued)
                                 March 31, 2001

1. Summary of Significant Accounting Policies (continued)

Accounting for Stock-Based Compensation

In accordance with the provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based  Compensation" ("FAS 123"), the Company has
elected to apply the  intrinsic-value  method under Accounting  Principles Board
Opinion No. 25 ("APB Opinion 25") and related  Interpretations in accounting for
its stock option and stock purchase plans. A summary of the pro forma effects on
reported net loss and net loss per share for fiscal years 2001, 2000 and 1999 as
if the  Company  had elected to  recognize  compensation  cost based on the fair
value of the options granted at grant date as prescribed by FAS 123 is presented
in Note 8.

Net Loss Per Share

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

If the Company had reported net income for fiscal years 2001, 2000 and 1999, the
calculation of diluted  earnings per share for those periods would have included
the effect of dilutive  common stock options,  computed using the treasury stock
method.  For fiscal years ended 2001, 2000 and 1999, the calculation  would have
included the common stock equivalent effect of 1,569,000,  1,994,000 and 299,000
shares, respectively.

Segment Information

In accordance  with FAS 131,  "Disclosures  about  Segments of an Enterprise and
Related  Information,"  public  business  enterprises  are  required  to  report
financial and other information about operating segments of the entity for which
such  information is available and is utilized by the chief  operating  decision
maker. FAS 131 also establishes standards for related disclosures about products
and services,  geographic  area, and major  customers (see Note 10). The Company
operates as one business segment.

Income Taxes

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


46
<PAGE>

                              Geoworks Corporation
             Notes to Consolidated Financial Statements (continued)
                                 March 31, 2001

1. Summary of Significant Accounting Policies (continued)

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of  Financial   Accounting   Standards  No.  133,   "Accounting  for  Derivative
Instruments  and Hedging  Activities"  ("FAS No. 133").  FAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts  (collectively referred to as
derivatives),  and  for  hedging  activities.  In June  1999,  the  FASB  issued
Statement of Financial Accounting Standards No. 137, "Accounting for Derivatives
Instruments  and  Hedging  Activities  --  Deferral  of  Effective  Date of FASB
Statement No. 133" ("FAS No.  137").  FAS No. 133, as amended by FAS No. 137, is
effective for all fiscal  quarters of all fiscal years  beginning after June 15,
2000, with earlier application encouraged. The Company entered into an agreement
in November 2000 to hedge against a decline in value of its  investment  and has
accounted for its investments under FAS No. 133.

In March 2000, the FASB issued  Interpretation No. 44 (FIN 44),  "Accounting for
Certain  Transactions  Involving Stock  Compensation,  an  interpretation of APB
Opinion No. 25". FIN 44 clarifies the  application of APB 25 for certain issues,
including the definition of an employee,  the treatment of the  acceleration  of
stock  options and the  accounting  treatment  for  options  assumed in business
combinations.  FIN 44 became  effective on July 1, 2000,  but is applicable  for
certain  transactions  dating back to December  1998. The adoption of FIN 44 has
not had any material effect on our financial condition or results of operations.

2. Property and Equipment

Property and equipment consist of the following (in thousands):

                                                               March 31
                                                          2001            2000
                                                      ------------------------

Equipment                                             $  6,043        $  2,853
Furniture and fixtures                                   1,002             986
Leasehold improvements                                     850             733
                                                      ------------------------
                                                         7,895           4,572
Less accumulated depreciation and amortization           4,319           3,417
                                                      ------------------------
Property and equipment, net                           $  3,576        $  1,155
                                                      ========================

Property and equipment  includes  $161,000 for equipment  under capital lease at
March 31, 2001.


47
<PAGE>

                              Geoworks Corporation
             Notes to Consolidated Financial Statements (continued)
                                 March 31, 2001

3.  Long-Term Investments and Derivative Instruments

Long-term investments and derivative instruments were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                  March 31,      March 31,
                                                                    2001            2000
                                                                   -------        -------
<S>                                                                <C>            <C>
Wink Communications, Inc.                                          $ 2,400        $16,380
MyTurn.com, Inc.                                                        --          4,797
Other                                                                    2              3
                                                                   -------        -------
Total long-term investments                                          2,402         21,180
Derivative instruments related to investments                        1,636             --
                                                                   -------        -------
   Total long-term investments and derivative instruments          $ 4,038        $21,180
                                                                   =======        =======
</TABLE>

In  connection  with the  transfer  of  certain  technology  and  rights  to two
privately held companies,  Wink Communications Inc. ("Wink") and Global PC, Inc.
("Global  PC"),  the  Company  received  a  minority  interest  and  a  warrant,
respectively  in each of these  companies in previous  fiscal  years.  In August
1999, Wink completed an initial public offering of its common stock. In December
1999,  the assets of Global PC were acquired by  MyTurn.com,  Inc.  ("MyTurn") a
publicly traded company in exchange for a warrant for 250,000 common shares.

The Company's  marketable  equity  securities and its long-term  investments are
classified  as  available  for  sale.   The  carrying  value  of  the  Company's
investments  in Wink and MyTurn are  determined  based on the  closing  price of
these  companies'  common shares at each balance  sheet date.  The fair value of
these  assets will  fluctuate  with the market  price of Wink and MyTurn  common
shares as well as the value of a series of  derivative  instruments  the Company
entered  into in  November  2000 to  hedge  against  a  decline  in value of its
investment  in Wink.  These  derivative  instruments  will  mature  or expire in
November  and December of 2001.  These  derivative  instruments  ensure that the
minimum value of the Wink investment  should be at least  $4,036,000 at maturity
or  expiration  of the  instrument.  However,  the  maximum  value  of the  Wink
investments  is limited to  $7,397,000,  depending  on the common share price of
Wink at  maturity or  expiration.  As of March 31,  2001,  the fair value of the
investments in Wink is recorded at $4,036,000,  which includes the fair value of
the  common  shares  of Wink  ($2,400,000)  and the  current  fair  value of the
derivative  instruments  ($1,636,000).  As of March 31,  2001 the  Company  owns
480,000 common shares of Wink. These  derivative  instruments do not prevent the
Company from selling Wink shares, but such a sale would have to be preceded by a
settlement  of the  associated  derivative  instruments  at the stated  contract
price.  The unrealized  gain on these  investments is equal to the fair value of
each investment (including the fair value of the related derivative instruments)
and is included in stockholders' equity.

On March 2, 2001, MyTurn filed a voluntary  petition for relief under Chapter 11
of the  Bankruptcy  Code.  Its stock is no  longer  trading  on Nasdaq  National
Market.  As of  March  31,  2001  the  estimated  fair  value  of the  Company's
investment in MyTurn has been reduced to zero because the market price of MyTurn
common stock is substantially below the exercise price of the related warrants.

Gains recognized on the sale of these  investments are reported as other income.
For the year ended March 31, 2001,  10,800 shares of Wink were sold at a gain of
$265,000 and for the year ended March 31, 2000,  75,000 shares of Wink were sold
at a gain of $4,049,000.


48
<PAGE>

                              Geoworks Corporation
             Notes to Consolidated Financial Statements (continued)
                                 March 31, 2001

4.  Acquisition of AirBoss

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

Effective as of the closing of the acquisition,  Geoworks  established an office
in New Jersey to continue  the  research,  development,  and  deployment  of the
AirBoss line of patented mobile communications  software products, as well as to
service the various third parties whose  contractual  rights with Telcordia were
assigned  to,  and  assumed  by,  the  Company  as part of the  acquisition.  In
connection  with  the  acquisition,   Telcordia  terminated  the  employment  of
twenty-five individuals, who were then immediately hired by Geoworks.

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

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

The fair value of assets acquired was as follows (in thousands):

     Current assets                                               $    504

     Goodwill and other intangible assets:
        Developed technology                                         4,732
        Core technology                                              1,605
        Acquired workforce                                             616
        Patents                                                      1,048
        Goodwill                                                    30,316
                                                                  --------
                                                                    38,317
     Acquired in-process research and development                    1,378
                                                                  --------
                                                                    39,695
                                                                  --------
     Total purchase price                                           40,199
     Less:  Purchase price adjustment on AirBoss acquisition        (1,352)
                                                                  ========
                                                                  $ 38,847
                                                                  ========

The goodwill and other intangible  assets are being amortized over the following
periods:  developed  technology,  core technology,  and patents over four years,
acquired  workforce over three years, and goodwill over five years.  Accumulated
amortization of the acquired intangible assets was $5,410,000 at March 31, 2001.


49
<PAGE>

                              Geoworks Corporation
             Notes to Consolidated Financial Statements (continued)
                                 March 31, 2001

4. Acquisition of AirBoss (continued)

Acquired  in-process  research  and  development  of  $1,378,000  was charged to
operations during the quarter ended September 30, 2000.

Pro forma  results  of  operations  for fiscal  years  2001 and 2000,  as if the
business  combination  occurred  on the first day of each  fiscal  year,  are as
follows (in thousands, except per share amounts):

                                                       Year Ended
                                              ----------------------------
                                               March 31          March 31
                                                 2001              2000
                                              ----------        ----------
     Net revenues                             $   16,904        $   16,665
     Net loss                                 $  (24,206)       $  (10,661)
     Net loss per share                       $    (1.10)       $    (0.51)

The Company has entered into various contracts with Telcordia to provide AirBoss
software to various  customers of Telcordia.  Revenues from Telcordia for fiscal
year 2001 were approximately $ 2,555,000. At March 31, 2001, accounts receivable
from Telcordia was approximately $1,078,000, of which approximately $218,000 was
unbilled.  Accounts  payable to Telcordia  at March 31, 2001 were  approximately
$398,000.

5. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

                                                           March 31
                                                        2001            2000
                                                   -------------------------

Accrued compensation                               $   1,268       $   1,344
Other accrued liabilities                              1,606             681
                                                   -------------------------
Total                                              $   2,874       $   2,025
                                                   =========================

6. Income Taxes

The income tax  provisions  of $313,000,  $452,000 and $149,000 for fiscal years
2001, 2000 and 1999, respectively,  consist primarily of foreign withholding tax
payments  made with  respect  to  royalties  received  from  original  equipment
manufacturers.


50
<PAGE>

                              Geoworks Corporation
             Notes to Consolidated Financial Statements (continued)
                                 March 31, 2001


6. Income Taxes (continued)

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

                                                               March 31,
                                                             2001          2000
                                                       ------------------------

Operating loss carryforwards                           $   44,460    $   34,625
Tax credit carryforwards                                    3,692         3,080
Purchased intangible assets                                 8,824         9,633
Capitalized research expenditures                           2,844         2,808
Deferred revenue                                              463           668
Other, net                                                    295           157
                                                       ------------------------
Total deferred tax assets                                  60,578        50,971
Unrealized gain on marketable securities                   (1,654)       (8,683)
Valuation allowance on deferred tax assets                (58,924)      (42,288)
                                                       ------------------------
Net deferred tax assets                                $       --    $       --
                                                       ========================

The valuation allowance increased $16,636,000 for fiscal year 2001 and decreased
$8,191,000 for fiscal year 2000, respectively.

Deferred tax assets relating to net operating loss carryforwards as of March 31,
2001 include approximately  $4,900,000 associated with stock option activity for
which any  subsequently  recognized  tax benefits  will be credited  directly to
stockholders' equity.

As of March 31, 2001, the Company has net operating loss  carryforwards for U.S.
federal  income tax  purposes of  approximately  $116,601,000,  U.K.  income tax
purposes  of  approximately  $5,127,000,   and  state  income  tax  purposes  of
approximately  $30,926,000.  The Company also has federal and state research and
development  credit  carryforwards  of  approximately  $2,653,000 and $1,039,000
respectively. The net operating loss and the research and development tax credit
carryforwards expire in various years from 2001 through 2020.

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


51
<PAGE>

                              Geoworks Corporation
             Notes to Consolidated Financial Statements (continued)
                                 March 31, 2001

7. Commitments

The Company leases its office  facilities and certain  computer  equipment under
noncancelable  lease agreements that require the Company to pay operating costs,
including   property  taxes,   insurance  and  maintenance.   Rent  expense  was
$1,093,000,  $518,000,  and  $1,247,000  for fiscal  years 2001,  2000 and 1999,
respectively.

In November 2000, the Company  executed a new,  ten-year  operating  lease for a
20,000 square foot facility in Morganville,  New Jersey.  The lease commencement
is expected to occur in June 2001,  and will extend for a term of ten years from
the  commencement  date.  As part of this  agreement  the Company is required to
maintain on deposit with a major  financial  institution an irrevocable  standby
letter of credit as a form of security totaling  $500,000.  The letter of credit
expires on December 10, 2001 but will  automatically  extend to each  succeeding
calendar year, up to June 1, 2011, unless otherwise terminated in writing.

Future minimum  payments under  non-cancelable  operating leases having terms in
excess of one year and capital leases are due as follows (in thousands):

                                                           Capital     Operating
Fiscal Year                                                Leases       Leases
-----------                                                --------------------

     2002                                                  $     40    $  1,192
     2003                                                        41         585
     2004                                                        40         567
     2005                                                        41         576
     2006                                                        30         580
     Thereafter                                                  --       2,583
                                                           --------------------
          Total minimum lease payments                     $    192    $  6,083
                                                                       ========
     Less:  Amounts representing interest                        36
                                                           --------
     Present value of future minimum lease payments        $    156
     Less:  Current portion                                      28
                                                           --------
     Capital lease obligation, less current portion        $    128
                                                           ========

8. Stockholders' Equity

Preferred Stock

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


52
<PAGE>

                              Geoworks Corporation
             Notes to Consolidated Financial Statements (continued)
                                 March 31, 2001

8. Stockholders' Equity (continued)

Shareholder Rights Plan

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

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


53
<PAGE>

                              Geoworks Corporation
             Notes to Consolidated Financial Statements (continued)
                                 March 31, 2001

8. Stockholders' Equity (continued)

Stock Option Plans

Under the Company's stock option plans, incentive and nonqualified stock options
may be granted to employees,  consultants and outside  directors,  to purchase a
maximum of 8,380,000  common shares.  The exercise price of the stock options is
determined  by the  Company's  Board of Directors on the date of grant and is at
least equal to the fair market value of the stock on the grant date. Options for
new employees  generally vest 25% on the first  anniversary  of the  recipient's
hire  date and 1/48 per  month  thereafter.  Options  for  continuing  employees
generally  vest 1/48 per month from the date of grant.  Options expire ten years
from the date of grant.

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

                                                    Options Outstanding

                                                               Weighted-Average
                                                   Number       Exercise Price
                                                 of Shares
                                              ----------------------------------
Balance at March 31, 1998                         3,033,000      $     8.95
     Granted                                      4,174,000            3.38
     Exercised                                     (443,000)           1.59
     Forfeited                                   (3,450,000)           7.04
                                              ----------------------------------
Balance at March 31, 1999                         3,314,000            4.88
     Granted                                      1,235,000            7.30
     Exercised                                     (737,000)           4.08
     Forfeited                                   (1,221,000)           6.05
                                              ----------------------------------
Balance at March 31, 2000                         2,591,000            5.83
     Granted                                      4,157,000            9.68
     Exercised                                     (241,000)           3.02
     Forfeited                                     (666,000)           9.24
                                              ----------------------------------
Balance at March 31, 2001                         5,841,000      $     8.30
                                              ==================================

Options available for grant at March 31, 2001     2,539,000
                                              =============

The weighted  average fair value at grant date of options  granted during fiscal
years 2001, 2000 and 1999 was $8.87, $5.88 and $2.82, per share, respectively.


54
<PAGE>

                              Geoworks Corporation
             Notes to Consolidated Financial Statements (continued)
                                 March 31, 2001

8. Stockholders' Equity (continued)

Stock Option Plans (continued)

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

<TABLE>
<CAPTION>
                                  Options Outstanding                   Options Exercisable
                     ------------------------------------------------------------------------
                                        Weighted
                                         Average        Weighted                     Weighted
                                        Remaining       Average                       Average
     Exercisable                       Contractual      Exercise                     Exercise
       Prices            Shares        Life (years)       Price         Shares        Price
---------------------------------------------------------------------------------------------
<S>                      <C>               <C>          <C>           <C>            <C>
$   0.67  -   3.63       1,677,000         7.63         $  2.89         767,000      $  3.02
    3.69  -   9.00       1,814,000         8.81            5.00         280,000         5.38
    9.97  -  13.63         772,000         9.04           12.13         122,000        12.07
   13.75  -  15.19       1,224,000         8.88           14.38         119,000        14.86
   15.50  -  42.44         354,000         8.59           21.43          76,000        23.46
                                    ---------------------------------------------------------
                         5,841,000         8.50         $  8.30       1,364,000      $  6.48
                        =====================================================================
</TABLE>

Employee Stock Purchase Plan

Under the Company's  employee  stock purchase plan,  employees  meeting  certain
eligibility  criteria may purchase shares of the Company's common stock, subject
to certain limitations,  at not less than 85% of fair market value as defined in
the plan. A total of 950,000  shares have been  reserved for issuance  under the
plan.  In fiscal years 2001,  2000 and 1999,  71,000  shares,  69,000 shares and
110,000  shares,  respectively,  were issued under the plan at average prices of
$4.56, $2.07, and $1.81 per share,  respectively.  At March 31, 2001, a total of
533,000 shares were available for issuance under the plan.


55
<PAGE>

                              Geoworks Corporation
             Notes to Consolidated Financial Statements (continued)
                                 March 31, 2001

8. Stockholders' Equity (continued)

Stock Compensation

The Company has adopted the  disclosure-only  provisions  of FAS 123 and applies
APB Opinion 25 and related  interpretations  in accounting  for its stock option
and employee stock purchase plans. Had compensation cost for the Company's stock
plans  been  determined  based on the fair  value at the grant  date for  awards
during fiscal years 2001,  2000 and 1999 the Company's net loss and net loss per
share would have been  increased to the pro forma  amounts  indicated  below (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                               Year ended March 31
                                                           2001         2000         1999
                                                      ------------------------------------
<S>                                                   <C>          <C>          <C>
Net loss, as reported                                 $ (21,058)   $    (973)   $ (15,838)
Net loss, pro forma                                     (31,473)      (4,561)     (19,911)

Net loss per share - basic and diluted, as reported   $   (0.99)   $   (0.05)   $   (0.97)
Net loss per share - basic and diluted, pro forma         (1.49)       (0.26)       (1.22)
</TABLE>

The fair value of each option as of date of grant has been  estimated  using the
Black-Scholes  option-pricing  model  with the  following  assumptions  used for
fiscal years 2001, 2000, and 1999:  expected  volatility  calculations  based on
historical data (1.481,  1.086 and 1.164,  respectively)  and risk free interest
rates based on U.S.  government  strip bonds on the date of grant (6.41%,  5.94%
and 5.21%,  respectively)  with maturities equal to the expected option lives of
five years. No dividends are assumed.

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance as of March 31, 2001 is as follows:

     Employee stock option granted shares outstanding              5,841,000
     Employee stock options available for grant                    2,539,000
     Employee stock purchase plan shares available for grant         533,000
                                                                 -----------
     Total                                                         8,913,000
                                                                 ===========


56
<PAGE>

                              Geoworks Corporation
             Notes to Consolidated Financial Statements (continued)
                                 March 31, 2001

8. Stockholders' Equity (continued)

Private Placements

On September 1, 2000, the Company,  issued and sold, in a private placement,  an
aggregate of 355,556 shares of its common stock to two entities  affiliated with
Integral  Capital  Partners.  The  aggregate  purchase  price of the  shares was
$5,000,000.

On January 16,  2001 the Company  issued and sold,  in a private  placement,  an
aggregate of 1,250,000 shares of its common stock to iValue Creation Company,  a
subsidary of Toshiba Corporation. The aggregate purchase price of the shares was
$5,000,000.

The net  proceeds  for the two  private  placements,  net of  issuance  cost was
$9,986,000 for fiscal year 2001.

9. Retirement Plan

The Company has a deferred  compensation  plan for  substantially all employees.
Under this plan,  which qualifies  under Section 401(k) of the Internal  Revenue
Code,  eligible  employees  may  contribute  up to 15% of their  pretax  salary,
subject to certain limitations.

During  fiscal  year  2001,  the  Company  started  to  match  70% of the  basic
contribution  of 1% to 6% of  total  employee  compensation  and  such  matching
amounts  vest 20% per year over a  five-year  period.  The  Company  contributed
$149,000  during  fiscal year 2001. No employer  contributions  were made during
fiscal years 2000 or 1999.

10. Information by Geographic Area

Information   regarding   operating   information  and  identifiable  assets  by
geographic area is as follows (in thousands):

                                                   Year ended March 31
                                               2001          2000          1999
                                          -------------------------------------
Revenues:
 U.S. operations:
   Domestic revenues                      $   3,703     $     716     $     517
   Export revenues:
       Japan                                  7,788         5,542         6,771
       United Kingdom                         5,074         5,881         1,472
Foreign operations (principally Europe)          --            --            22
                                          -------------------------------------
                                          $  16,565     $  12,139     $   8,782
                                          =====================================


57
<PAGE>

                              Geoworks Corporation
             Notes to Consolidated Financial Statements (continued)
                                 March 31, 2001

10. Information by Geographic Area (continued)

                                              Year ended March 31
                                        2001             2000             1999
                                  --------------------------------------------
Operating loss:
    U.S. operations               $  (17,192)      $   (2,078)      $  (12,756)
    Foreign operations                (4,654)          (3,128)          (3,514)
                                  --------------------------------------------
                                  $  (21,846)      $   (5,206)      $  (16,270)
                                  ============================================

                                                 As of March 31
                                        2001             2000             1999
                                  --------------------------------------------
Identifiable assets:
     U.S. operations              $   55,390       $   40,673       $   17,315
     Foreign operations                  873              786              868
                                  --------------------------------------------
                                  $   56,263       $   41,459       $   18,183
                                  ============================================

11. Legal Actions-Litigation

The  Compnay is not  involved in any  material  litigation.  On April 25,  2000,
Openwave Systems Inc.,  formally  Phone.com filed a declaratory relief complaint
alleging that the Flex UI patent is invalid and unenforceable. On June 15, 2000,
the Company  filed a  countersuit  in the United  States  District  Court in San
Francisco against Phone.com. The lawsuit sought to demonstrate that the activity
of Phone.com  and its  licensees  utilizing  Phone.com's  UP Server Suite and UP
Browser  infringes on Geoworks  Flexible User Interface  patent. On September 8,
2000 the Compnay filed a complaint with the U.S.  International Trade Commission
(the "ITC") against Phone.com, Sanyo Electric Co., Ltd. of Japan and Sanyo North
America  seeking an order to block  importation  into the U.S.  of WAP  cellular
telephones  containing  Phone.com's  microbrowsers.  One  month  later,  the ITC
announced it had accepted the complaint and initiated an investigation into this
matter.  On December  28,  2000,  the Company  announced  an  agreement  between
Openwave  Systems  Inc.,  formally  Phone.com,  to settle the patent  dispute by
entering  into a  royalty-free  patent  cross-license,  and the  companies  have
dismissed their patent litigation in federal district court and in the ITC.


58
<PAGE>

                              Geoworks Corporation
             Notes to Consolidated Financial Statements (continued)
                                 March 31, 2001

12. Restructuring Charges

During the fourth  quarter of fiscal 1999,  the Company  recorded  restructuring
charges of  approximately  $1.8  million as a result of actions  taken to better
align its cost  structure with revenue  projections  as the Company  shifted its
resources  to support a business  plan  focused on  opportunities  in the mobile
e-commerce and  information  services  market.  During the quarter,  the Company
terminated  approximately  27%  of  its  workforce,  vacated  one  facility  and
consolidated those operations in a remaining  facility,  which is also partially
vacant.  The restructure  charges consist of severance costs for the termination
of 33 employees, 32 of which were terminated prior to March 31, 1999, as well as
related  charges for the  write-off of property and equipment and the accrual of
lease commitment  liabilities  (net of expected  sublease income) as a result of
these actions.

During the fourth quarter of fiscal 2000, the Company  negotiated a release from
the  remainder  of the lease of the  facility  previously  vacated in the fourth
quarter of fiscal 1999. Also, based on improved  operating  results and improved
business  opportunities,  the  Company  will now fully  occupy  the space in its
primary facility that it had previously  intended to vacate. The Company did not
utilize this space in fiscal 2000. As a result of these  actions,  the remaining
lease commitment accrual, $589,000, was reversed.

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

<TABLE>
<CAPTION>
                                                     Severance     Write-off of      Accrual of
                                                    and related      property           lease
                                                      charges      and equipment     commitments         Total
                                                   -------------------------------------------------------------
<S>                                                <C>              <C>              <C>              <C>
Total restructuring charges                        $      247       $      501       $    1,042       $    1,790
Amount paid                                               (59)              --               --              (59)
Write-off of property and equipment                        --             (501)              --             (501)
                                                   -------------------------------------------------------------
Accrued liabilities at March 31, 1999                     188               --            1,042            1,230
Amounts paid                                             (188)              --             (453)            (641)
Reversal of accrued lease commitments                      --               --             (589)            (589)
                                                   -------------------------------------------------------------
Accrued liabilities at March 31, 2000              $       --       $       --       $       --       $       --
                                                   =============================================================
</TABLE>

13. Subsequent Events

On June 12, 2001 the Company  announced that it was reorganizing its operations,
exiting the Mobile  Application  Service  Provider market and  accelerating  the
integration of its two software platforms. These actions were taken to focus the
Company's  efforts on the area of  greatest  current  potential  while  reducing
operating  expenses and conserving  resources.  In connection with these actions
the Company  announced  that it will reduce its  workforce by  approximately  22
percent.


59
<PAGE>

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

ACCOUNTING AND FINANCIAL DISCLOSURES

None.

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The  information  required by this Item with respect to  executive  officers and
directors is  incorporated  herein by  reference  from Item 4A of Part I of this
Form 10-K. The information required by this Item with respect to compliance with
the reporting  requirements  of Section 16(a) of the Securities  Exchange Act of
1934 is incorporated herein by reference to our 2001 Proxy Statement.

Item 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference to our
2001 Proxy Statement.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is incorporated herein by reference to our
2001 Proxy Statement.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated herein by reference to our
2001 Proxy Statement.


60
<PAGE>

PART IV

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

(a)  Financial Statements and Financial Statement Schedules

     1.   Financial Statements.

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

               Report of Independent Auditors

               Consolidated Balance Sheets

               Consolidated Statements of Operations

               Consolidated Statements of Stockholders' Equity

               Consolidated Statements of Cash Flows

               Notes to Consolidated Financial Statements

     2.   Financial Statement Schedules.

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

     3.   Exhibits.

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

          Exhibit Number/Description of Document
          --------------------------------------

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

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

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


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

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

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

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

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

          10.2   1987 Stock  Option Plan  (incorporated  by reference to Exhibit
                 10.2 to Registrant's  Registration  Statement on Form S-1 (File
                 No. 33-78104), effective June 22, 1994.)

          10.3   1994 Stock Plan, as amended through May 27, 1997  (incorporated
                 by  reference  to  Exhibit  4.03 to  Registrant's  Registration
                 Statement on Form S-8 (File No.  333-39863)  filed November 10,
                 1997.)*

          10.4   Form of Stock Option Agreement under the 1994 Stock Plan.

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

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

          10.7   Amendment  Number Five to lease for  facilities  located at 960
                 Atlantic   Avenue,   Alameda,   CA,   dated   March  15,   1996
                 (incorporated  by  reference to Exhibit  10.29 to  Registrant's
                 report on Form 10-K for the year ended March 31, 1996.)


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<PAGE>

          10.8   Corporate  Technology Agreement between Toshiba Corporation and
                 Geoworks  dated March 17, 1993  (incorporated  by  reference to
                 Exhibit 10.12 to  Registrant's  Registration  Statement on Form
                 S-1 (File No. 33-78104), effective June 22, 1994.) ###

          10.9   Amendment Number One to Corporate  Technology Agreement between
                 the  Company  and  Toshiba  Corporation  dated  June  30,  1994
                 (incorporated  by  reference to Exhibit  10.17 to  Registrant's
                 report on Form 10-Q for the quarter ended June 30, 1994.) ###

          10.10  Amendment  Number  Three  to  Corporate   Technology  Agreement
                 between the Company and Toshiba Corporation dated September 29,
                 1995   (incorporated   by   reference   to  Exhibit   10.27  to
                 Registrant's report on Form 10-Q for the quarter ended December
                 31, 1995.) ###

          10.11  Addendum to Corporate  Technology  Agreement  between  Geoworks
                 and Toshiba, dated December 16, 1996 (incorporated by reference
                 to Exhibit  10.39 to  Registrant's  report on Form 10-Q for the
                 quarter ended December 31, 1996.) ###

          10.12  Software  Development  and  Licensing  Agreement  between Nokia
                 Mobile  Phones  Ltd.  and  Geoworks   dated  December  2,  1994
                 (incorporated  by  reference to Exhibit  10.23 to  Registrant's
                 original  Annual Report on Form 10-K or  amendments  thereto on
                 Form 10-KA for the year ended March 31, 1995.) ###

          10.13  Technology  License  Agreement  dated  January 12, 1996 between
                 Geoworks and Ericsson Mobile  Communications  (incorporated  by
                 reference to Exhibit 10.28 to Registrant's  report on Form 10-K
                 for the year ended March 31, 1996.) ###

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

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

          10.16  Technology   License   Agreement   between   Geoworks  and  NEC
                 Corporation, dated April 26, 1996 (incorporated by reference to
                 Exhibit  10.36  to  Registrant's  report  on Form  10-Q for the
                 quarter ended September 30, 1996.) ###


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<PAGE>

          10.17  1997  Supplemental  Stock Plan  (incorporated  by  reference to
                 Exhibit 4.1 to Registrant's  Registration Statement on Form S-8
                 filed March 25, 1997.)

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

          10.19  Executive  Employment  Agreement  between Geoworks and David L.
                 Grannan,  dated January 10, 1999  (incorporated by reference to
                 Exhibit  10.25  to  Registrant's  report  on Form  10-Q for the
                 quarter ended December 31, 1998.)*

          10.20  Amendment to Executive  Employment  Agreement  between Geoworks
                 and David Grannan dated November 21, 2000.*

          10.21  Purchase    Agreement   between   Geoworks    Corporation   and
                 Amazon.com,  Inc.  dated  February  12, 1999  (incorporated  by
                 reference to Exhibit 10.26 to Registrant's  report on Form 10-K
                 for the year ended March 31, 1999 filed June 29, 1999.)

          10.22  Amendment  Number  One to  Geoworks  Corporation  -  Mitsubishi
                 Electric Corporation Technology Agreement,  effective March 25,
                 1999   (incorporated   by   reference   to  Exhibit   10.27  to
                 Registrant's  report on Form 10-K for the year ended  March 31,
                 1999 filed June 29, 1999.) ###

          10.23  Exhibit  A-2 to the  Geoworks  Corporation-Mitsubishi  Electric
                 Corporation  Technology  Agreement,  effective  June  30,  1999
                 (incorporated  by  reference to exhibit  10.28 to  Registrant's
                 report on Form10-Q for the quarter ended June 30, 1999.) ####p

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

          10.25  Exhibit A-3 to Amendment  Number One to Geoworks  Corporation -
                 Mitsubishi Electric Corporation Technology Licensing Agreement,
                 MELCO V29170 Development FY 2001 Project effective 1 April 2000
                 (incorporated  by  reference to exhibit  10.34 to  Registrant's
                 report on Form 10K for the  fiscal  year ended  March 31,  2000
                 filed June 29, 2000.) ###p

          10.26  Amendment   Number  Five  to   Geoworks  -  Toshiba   Corporate
                 Technology Agreement effective 31 January 2000 (incorporated by
                 reference  to  exhibit  10.32 to


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<PAGE>

                 Registrant's  report on Form  10-K for the year ended March 31,
                 2000 filed June 29, 2000.) ###p

          10.27  Geoworks-MyTurn   Stock   Transfer   and   Technology   License
                 Agreement,   effective   December  22,  1999  (Incorporated  by
                 reference to exhibit 10.30 to  Registrant's  report on Form10-Q
                 for the quarter ended December 31, 1999.) ###p

          10.28  Lease dated  November  21, 2000 between  Toubin  Realty II, LLC
                 and Geoworks.

          10.29  First  Amendment  to Lease  Agreement  dated  January  21, 2001
                 between Toubin Realty II, LLC and Geoworks.

          10.30  Employment  agreement  with Stephen T. Baker,  dated as of July
                 1, 2000 and  incorporated  by  reference  to  Exhibit  10.35 to
                 Registrant's   Report  on  Form  10-Q  for  the  quarter  ended
                 September 30, 2000 filed on November 14, 2000.*

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

          21.1   List of Subsidiaries

          23.1   Consent of Independent Auditors (see sequentially numbered Page
                 69)

          24.1   Power of Attorney (see Page 68)

          ###  Confidential treatment has been granted as to portions thereof
          ###p Confidential  treatment  has been  requested and is pending as to
               portions thereof
          *    Management contract or compensatory plan or arrangement

(b)  Reports on Form 8-K.

     The following reports on Form 8-K were filed during the quarter ended March
     31, 2001:

     (1) On January 26, 2001, the company  reported under Item 5. "Other Events"
that on January 16, 2001,  it issued and sold an  aggregate of one million,  two
hundred fifty thousand (1,250,000) shares of its common stock to iValue Creation
Company of Toshiba Corporation.

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<PAGE>
The  aggregate  purchase  price  of the  transaction  was five  million  dollars
($5,000,000), or $4.00 per share.


     (2) On March 12, 2001,  the company  reported  under Item 5. "Other Events"
that it had entered  into a Rights  Agreement  dated  March 9, 2001  between the
Registrant and Mellon Investor Services, LLC, as Rights Agent.

(c)  Exhibits.

     See Item 14 (a) 3 above.

(d)  Financial Statement Schedules.

     See Item 14 (a) 2 above


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<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.


Date: June 29, 2001

                                           GEOWORKS CORPORATION


                                           By: /s/David L. Grannan
                                           --------------------------------

                                           David L. Grannan
                                           President and Chief Executive Officer


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<PAGE>

                                POWER OF ATTORNEY

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

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

      Signature                       Title                            Date

/s/ David L. Grannan          President, Chief Executive           June 29, 2001
------------------------      Officer, and Director
David L. Grannan              (Principal Executive Officer)

/s/ David Neylon              Chairman of the Board                June 29, 2001
------------------------
David Neylon

/s/ John B. Balousek          Director                             June 29, 2001
------------------------
John B. Balousek

/s/ Kevin P. Fitzgerald       Director                             June 29, 2001
------------------------
Kevin P. Fitzgerald

/s/ Andrew Cole               Director                             June 29, 2001
------------------------
Andrew Cole

/s/ Stephen T.  Baker         Director                             June 29, 2001
------------------------
Stephen T. Baker

/s/ Timothy J.  Toppin        Vice President, Chief                June 29, 2001
------------------------      Financial Officer (Principal
Timothy J. Toppin             Financial Officer)


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