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                                  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, 2000.


[ ]  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


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. [ ]



<PAGE>   2

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on June 21,
2000 as reported on the Nasdaq National Market, was approximately $267,021,885.
We have excluded 2,183,762 shares of Common Stock held by any executive officer
or director or by certain persons who own five percent (5%) or more of the
outstanding Common Stock who may be deemed affiliates, but this does not mean
they would be deemed affiliated for other purposes.

As of June 21,2000, there were 18,615,878 shares of the Registrant's Common
Stock outstanding.


                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's definitive proxy statement (the "Proxy Statement") for
its 2000 Annual Meeting of Stockholders scheduled to be held on September 12,
2000 are incorporated by reference into Items 10, 11, 12 and 13 of Part III of
this annual report.


FORWARD LOOKING STATEMENTS

        This annual report on Form 10-K contains forward-looking statements
within the meaning of Section 27a of the Securities Act of 1933 and Section 21e
of the Securities Exchange Act of 1934. Our actual results could differ
materially from those projected in forward-looking statements as a result of a
number of risks and uncertainties, including the risks discussed in this Form
10-K. See "Risk Factors Affecting Future Operating Results" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" below.
Statements are made as of the date of the filing of this Form 10-K with the
Securities and Exchange Commission and you should not rely on them as of any
other date. We expressly disclaim any obligation to update any information
except as may be required by law.

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                              GEOWORKS CORPORATION

                                TABLE OF CONTENTS


<TABLE>
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                                                                                Page
                                                                                ----
<S>                                                                             <C>
                                     PART 1

Item 1.        Business                                                           1
Item 2.        Properties                                                        15
Item 3.        Legal Proceedings                                                 15
Item 4.        Submission of Matters to a Vote of Security Holders               16
Item 4A.       Directors and Executive Officers of the Registrant                16


                                     PART II

Item 5.        Market for the Registrant's Common Equity and Related
               Stockholder Matters                                               19
Item 6.        Selected Financial Data                                           20
Item 7.        Management's Discussion and Analysis of Financial Condition
               and Results of Operations                                         24
Item 7A.       Quantitative and Qualitative Disclosures About Market Risk        32
Item 8.        Financial Statements and Supplementary Data                       33
Item 9.        Changes in and Disagreements with Accountants on Accounting and
               Financial Disclosure                                              53


                                    PART III

Item 10.       Directors and Executive Officers of the Registrant                53
Item 11.       Executive Compensation                                            53
Item 12.       Security Ownership of Certain Beneficial Owners and Management    53
Item 13.       Certain Relationships and Related Transactions                    53


                                     PART IV

Item 14.       Exhibits, Financial Statement Schedules, and Reports on Form 8-K
               Signatures                                                        54
</TABLE>



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PART I


ITEM 1. BUSINESS

Geoworks is a pioneer in wireless software solutions and services. Our vision is
to enable mobile Internet access in the business-to-business and
business-to-consumer markets. We participate in these markets by offering
software products and services for mobile communications, technology licensing,
and professional consulting services. Our Mobile ASP(TM) and Mobile Site(TM)
solutions combine our proprietary Premion(TM) Server+ technology with our mobile
media expertise to enable businesses to reach their mobile customers with
relevant and timely information. By licensing our software platforms, our
proprietary server, and our intellectual property portfolio, Geoworks plays a
significant role in advancing the worldwide market for mobile devices. We also
support industry-leading device manufacturers, carriers, and service providers
with professional services in software engineering and development, project
management, and wireless applications. We believe that voice and data
communications through devices such as phones, pagers, and personal digital
assistants (PDA's) represent a powerful new medium allowing anyone to easily
access and interact with information and services. Our products and services are
designed to mobilize the power of information in the new mobile communications
medium.

Our company was incorporated in California in 1983, and reincorporated in
Delaware in 1997. We are based in Alameda, California and we have regional
offices in Japan and the United Kingdom. Our fiscal year is April 1 through
March 31. You can visit our website at http://www.geoworks.com.

OUR INDUSTRY

The market for mobile communication services, or value-added information, is
growing rapidly. Our products and services are designed for existing digital
phones and pagers as well as Wireless Application Protocol (WAP) enabled digital
mobile phones. Our products and services also support common personal digital
assistant (PDA) form factors that have a wireless connection. Our focus is on
wireless services that bring Internet content to these mobile devices. According
to The Cellular Telecommunications Industry Association, today there are
approximately 94 million mobile customers in the United States. Of these, more
than 52 million already have devices that may send and receive information and
data services. Mobile information services are becoming more popular and provide
a new way to communicate anytime and anywhere with a mobile device. Europe is
estimated at 152 million mobile customers and virtually all of those customers
have data capable devices. In Japan, NTT DoCoMo's iMODE service for wireless
Internet data access has already acquired over 7 million subscribers within 15
months of launch.




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We believe that more worldwide consumers will want to use mobile devices and
that there will be an increased demand for wireless Internet services. The
Yankee Group estimates that by the year 2001, worldwide mobile data service
revenues will exceed $9 billion. Mobile data communications represents a
substantial market opportunity, but we face severe competition. Companies in
telecommunications, software, Internet, messaging services, and device
manufacturing are all staking a claim.


OUR STRATEGY

We believe we can carve out a leadership position in the mobile Internet
information services marketplace. Geoworks has a long heritage in the wireless
industry and a proven track record for technical innovation. We believe that the
mobile device is a new information medium, just as the Internet was a new medium
five years ago.

This fiscal year we used our technical expertise to be one of the first
companies to offer free, advertising-sponsored services delivered to many types
of mobile devices through our consumer facing multi-channel information service,
Mobile Attitude(TM). Mobile Attitude(TM) was launched in June 1999 as
discopro.com (discounts and promotions on the go), then enhanced and re-launched
as Mobile Attitude(TM) in September 1999. Mobile Attitude(TM) is a free, opt-in
marketing service for consumers. Customers sign up for Mobile Attitude(TM)
through a web site and choose the promotions and services of personal interest
to them. They can further personalize the information by selecting the number of
messages, day(s) of the week, and time of day to receive the information direct
to their wireless device. Mobile Attitude(TM) also contains a reminder service
that allows the customer to program important messages and notifications for
future transmission to their cell phone or pager. This past winter, we also
enhanced Mobile Attitude(TM) with our SnowZone(TM) informational channel which
offers customers timely and relevant information about ski and snowboarding
conditions at resorts across North America.

In February 2000, we developed one of the first wireless application service
provider products, Mobile ASP(TM). Mobile ASP(TM) is a modular wireless hosting
solution for delivering Internet information and commerce services to mobile
devices. It is powered by our innovative proprietary server platform,
Premion(TM) Server+. Mobile ASP(TM) is targeted at consumer service companies,
network operators and Internet companies. The Mobile ASP(TM) modular solution
enables companies to offer mobile data services to their customers. The
available modules include Premion Server+, secure application hosting, wireless
network integration, systems integration, customer application development, and
24 by 7 customer support. The first announced customer for Mobile ASP(TM) is
United Airlines in the United Kingdom. We are developing an information service
that provides arrivals and departures updates for United Airlines' customers.
This service is hosted by Geoworks and sends messages directly to United's
customers. The application supports SMS and WAP-enabled mobile phones.




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We also make the delivery of information and mobile commerce services available
by licensing Premion(TM) Server+. Premion(TM) Server+ is a client/server
application that delivers content to mobile devices. Premion(TM) Server+ can
clearly format and deliver various data to many different devices. The delivery
is network, protocol and operating system independent. Premion(TM) Server+
supports a variety of existing protocols including Short Message Service (SMS),
Wireless Application Protocol (WAP), Palm, iMode (compact HTML), HTML and HDML,
among others and can be easily modified to support new protocols. We have
entered into a licensing agreement with the new iValue Creation division of
Toshiba Corporation to utilize our Premion Server+ as its platform for offering
mobile information services in Japan. Toshiba is using our server for its
Internet service provider (ISP) offering and its mobile application service
provider (ASP) offering.

We support our mobile information strategy by providing professional consulting
services to consumer device manufacturers, carriers, and service providers. We
target industry leaders including Mitsubishi, Nokia, Sonera SmartTrust, Seiko
Epson and Toshiba that offer leading-edge mobile phones, mobile data
applications, data transmission equipment, mobile security equipment, and
e-commerce services. Our engineers, quality assurance technicians, and project
managers have significant experience in wireless software, applications and
networks. These skills are in short supply and we are leveraging their
capabilities.

In addition to developing our own products and services, we look for acquisition
opportunities to strengthen our capabilities. On May 16, 2000 we announced an
agreement to acquire the AirBoss division of Telcordia Technologies, a wholly
owned Subsidiary of Science Applications International Corporation (SAIC). The
AirBoss division contains a number of wireless client/server software products,
several patents, and key customer contracts and relationships. We are scheduled
to close this acquisition in July 2000.


SALES AND MARKETING

Our direct sales staff and all members of our executive management team assist
with the sale and marketing of our professional consulting services to industry
leading companies such as Mitsubishi, Nokia, Sonera SmartTrust and Toshiba. We
market Mobile ASP(TM) through a world wide direct sales force. We arrange
licensing of our Premion Server+ through our direct sales force, and indirectly
in Japan through a value added reseller relationship with Toshiba. Our
engineering department provides continuous core development and maintenance
services to our customers.

We market our products and services through formal and informal alliance and
affiliate relationships with major Internet companies, active public relations,
and attendance and exhibition at industry events. Members of our executive
management speak at major industry events, and make presentations to industry
analysts and trade association meetings and exhibitions. We also attempt to
leverage the greater resources, experience




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and market presence of our long standing business partners to establish our
Internet-to-wireless solutions in the United States, the United Kingdom, Europe
and Japan.


PRODUCT DEVELOPMENT

We have a reputation as a fine technology company. We believe innovation drives
our industry and represents the source of compelling new products and services.
As such, we expect to continue our research and development in order to increase
product efficiency, to enhance and develop new and existing products and
services such as Mobile ASP(TM) and Mobile Site(TM), and to support new wireless
services functionality such as WAP as it becomes available for widespread
deployment in products and services focused on mobile devices. We believe we
possess the experience and technical expertise needed to participate in the
growth of the wireless commerce market; however, we cannot assure you that we
will continue to maintain and develop the required expertise or accomplish our
goals.

COMPETITION

Industry analysts are predicting that the revenue opportunities for mobile
e-mail, Web browsing and content services will grow substantially in the next
five years. Our competitors are in two distinct market segments: The first is
the server providers who sell servers and infrastructure products to wireless
carriers and, more recently, to Internet portal companies. This group includes
Nokia, Ericsson, Oracle, Phone.com, and others. Our Premion(TM) Server+
technology is similar to these offerings in that a carrier could use Premion(TM)
Server+ instead of various servers from these companies. We believe our
Premion(TM) Server+ contains more features and serves a wider variety of
subscriber devices and more types of content feeds than alternatives from
present competitors, but there is no guarantee that these companies will choose
Premion(TM) Server+. The second distinct segment involves providers of content,
transaction and e-commerce services. We view our competition in information
services as the Internet content and transaction providers, as opposed to
traditional wireless carriers. Companies such as Aether Technologies, Infospace,
i3Mobile and 724 Solutions are leading competitors in mobile information
services. Many of the Internet portals are also beginning to provide their
content and services to mobile device customers.

Competition in these market segments is intense and is expected to increase over
the next 12 months as more and 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 offer distinct
features, performance, and reliable mobile services to consumers through the
brand names of our customers such as Virgin




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Mobile, Toshiba and United Airlines. Most of our competitors are selling
directly to wireless carriers.

We offer consumers access to a cost-effective medium to receive relevant and
perishable information and access a limitless variety of data services. For
businesses we can target a highly desirable and specific demographic of mobile
device users. Mobile devices are personal devices, not shared devices like
wireline phones or computers. The mobile phone always travels with you, doubles
as a pager, and tends over time to become the main contact number. As a result,
we believe that information and services delivery to mobile devices could
represent an even more desirable platform than the desktop computer.


INTELLECTUAL PROPERTY

Like many technology companies, 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 and Japan, and patent
pending applications in the United States, the United Kingdom, other European
countries, and Japan.

We cannot guarantee that any of our intellectual property rights will be
successfully asserted in the future or be free from attack or challenges. In
addition, certain foreign countries may not protect our intellectual property
rights to the same extent as the laws of the United States. If our intellectual
property rights and proprietary information are not adequately protected, there
could be a material adverse effect on our business, operating results and
financial condition.

From time to time, third parties, including our competitors, may assert
exclusive patent, trademark, copyright and other intellectual property rights
over technologies or products that are important to our business. From time to
time, we may also receive communications from third parties asserting that our
products infringe their intellectual property rights. In addition, occasionally
we may need to assert our own intellectual property rights against third parties
we believe are infringing on our rights. The marked increase in the number of
software and business method patents being issued by the United States Patent
and Trademark Office can increase the risk of infringement claims. As the number
of patents, copyrights and other intellectual property rights in our industry
increases, products based on our technology may increasingly become subject to
infringement claims both by and against us.

In January 2000, we initiated a 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. Although it is too




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soon to reach conclusions about the licensing program, we are actively
negotiating with many companies, signing up licensees as appropriate, and
providing information about our licensing initiative to hundreds of potential
licensee companies who may wish to license the Flex UI technology. We can
license the technology only for the remaining life of the patent that expires in
July 2011.

On April 25, 2000, one industry participant, Phone.com, Inc., filed a
declaratory relief action against us in the United States District Court in San
Francisco, California claiming they do not infringe our Flex UI patent and
seeking to invalidate it. On June 15, 2000, we responded by filing an answer and
countersuit alleging infringement by Phone.com.

Other than the Phone.com dispute, there are no pending or threatened
infringement claims against us, but we cannot assure you that third parties will
not assert infringement claims against us, or that we will not be compelled to
assert infringement claims against others. Litigation, regardless of its
outcome, could result in significant expenses and be a diversion of
our resources and could have a material adverse effect on our business,
operating results and financial condition.



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EMPLOYEES

As of March 31, 2000, we had 110 full-time employees, of whom 64 were employed
in engineering, professional services and research and development, 20 in sales
and marketing, and 26 in legal, finance and administration. None of our
employees are 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. The competition for qualified personnel is
intense, and we cannot assure you that we will be successful in attracting and
retaining such personnel. We do not have employment contracts with most of our
key personnel. The loss of key employees could have a material adverse effect on
our business, operating results and financial condition.


RISK FACTORS AFFECTING FUTURE OPERATING RESULTS

History of Operating Losses; Anticipated Future Losses. Since Geoworks was
formed in 1983, our revenues have been limited, and we have incurred significant
losses, and suffered substantial negative operating cash flow. As of March 31,
2000, we had an accumulated deficit of $90.1 million, and had incurred operating
losses of approximately $5.2 million, $16.3 million and $16.0 million in the
fiscal years ended March 31, 2000, 1999 and 1998 respectively. Although we
limited this in our most recent fiscal year, we expect substantial annual
operating losses in the fiscal year ending March 31, 2001, and it is unclear
when, if ever, we will be profitable. We plan to achieve profitability by
managing operating expenses, maximizing professional consulting revenues, and
focusing our resources on the mobile e-commerce and information services
markets. We will also increase our focus on licensing our server technology,
selling our Mobile ASP(TM) and Mobile Site(TM) products, and licensing our
patent portfolio. However, we cannot assure you that our efforts will be
successful.

Our objective is to develop, market, sell and license products and services for
the mobile communications market. Our success will depend on the growth rate and
acceptance of new mobile communications products, our ability to establish
business relationships and alliances with leading industry partners, our ability
to introduce and sell successful products and services which generate net
revenues through mobile e-commerce and information services, and our ability to
stake out and maintain a competitive advantage in the midst of intense
competition, as well as other factors.

Ability to Capitalize on Intellectual Property Rights and Patent Portfolio. On
January 19, 2000, we announced to the WAP Forum and its members that we hold
essential Intellectual Property Rights (IPR) 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




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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. In February 2000 we
clarified our licensing program. We have an active program for communicating
with new WAP Forum members and non-member companies entering the wireless
Internet and data communications markets.

In connection with our licensing program, we have posted on our web site
(www.geoworks.com) a white paper entitled "The Geoworks Wireless Internet
Patent: Invention and Innovation in Flexible User Interface Technology." The
white paper details many issues of interest to WAP Forum members and
non-members, including licensing details, legal issues and technical
information. The WAP Forum is an industry association devoted to developing a de
facto world standard for wireless information and telephony services on digital
mobile phones and other wireless terminals. We are a member of the WAP Forum.
Other member companies include Ericsson Mobile Communications AB, Microsoft,
Motorola, Nokia Mobile Phones, Phone.com Inc., and QUALCOMM Inc., among more
than 500 leading companies around the world.

Prior to launching our licensing program, we met certain compliance protocols
outlined in the WAP Forum membership documents. In May of 1999, we were one of
the first WAP Forum members to register and declare that our patented flexible
user interface technology was essential IPR in the WAP Specification. During the
latter part of 1999, we obtained an independent analysis of our Flex UI patent
as well as the WAP Specification. We received multiple legal opinions indicating
that the WAP Specification infringed our patented technology. The infringement
analysis, and our licensing program, were prepared with the help of experts from
distinguished law firms recognized as leaders in patent law and licensing.

As indicated above, on April 25, 2000, Phone.com filed a declaratory relief
complaint alleging that our Flex UI patent is invalid and unenforceable. We
believe Phone.com's claims are without merit. Our patent was awarded in 1994
after a four-year interactive prosecution administered by the United States
Patent & Trademark Office. Under U.S. patent law the validity of a patent issued
by the United States Patent & Trademark Office is presumed valid. We do not
believe the Phone.com litigation will overcome this legal presumption.

We have licensed the Flex UI patent to a number of companies, including Toshiba.
However, because of the short time period since we announced the licensing
program, the Phone.com lawsuit, 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 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. The expenses required to pursue legal remedies could
be significant. Although we believe we have adequate resources to support our
IPR licensing program, we can not be certain of the outcome of related




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litigation. Litigation, regardless of its outcome, could result in significant
expenses and be a diversion of our resources and could have a material adverse
effect on our operating results and financial condition.

Adequacy of Capital Resources to Execute Business Plan. We believe our existing
capital resources will be adequate to satisfy our operating and capital
requirements for at least the next twelve months. We expect to incur additional
losses for the fiscal year ending March 31, 2001, and may require substantial
additional capital beyond that time to successfully execute our business plan.
The amount of capital that we will need in the long-term depends upon many
factors, such as the amount of revenue we receive from operations, working
capital requirements, investment in product development and sales and marketing
activities, our legal expenses, our capital expenditures, and potential
strategic investments or acquisitions. Historically, we have sold equity
securities, obtained advance payments of license revenue and professional fees,
and obtained short-term loans as sources of funding. If we need additional
financing to execute our business plan, there can be no assurance that it will
be available or that if available at all, the terms will be favorable to us or
our stockholders without substantial dilution of ownership and rights. If
adequate funds are not available to satisfy either short-term or long-term
requirements, we may be required to significantly curtail the scale of our
operations, forego market or research opportunities, obtain funds through
arrangements with strategic partners or others on unfavorable terms, or give up
rights to our proprietary technologies.

Competition in Mobile E-Commerce and Information Services. We have and expect
more competition in the mobile e-commerce and information services markets. Our
competitors include service providers, wireless ASP's and Internet content and
transaction providers. These companies have more cash available and greater
technical and marketing resources and name recognition and have or soon may have
mobile e-commerce and information services that may compete directly with our
products and services. These companies include Motorola, Phone.com, Infospace,
Aether Systems, Puma Technologies, i3 Mobile, 724 Solutions, Microsoft, Yahoo
and other Internet portals.

In February 2000, we introduced Mobile ASP(TM) (Application Service Provider),
as our first information service to businesses looking to reach their end user
customers through mobile devices. Mobile ASP(TM) is designed to provide
companies with a modular and scalable mobile communications platform they can
use to extend their operations, communications and customer service initiatives.
Mobile ASP(TM) clients select from modules that meet their customer requirements
for mobile data and service solutions. In Mobile ASP(TM), we offer six modules
including the Premion(TM) Server+ software, Secure Application Hosting, Wireless
Network Integration, Systems Integration, Application Development, and 7x24
Customer Care.




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In May 2000, we introduced Mobile Site(TM) to companies looking for a mobile
data solution with fewer features and quick implementation. The Mobile Site(TM)
service dynamically pulls data from any company's Web site and programs it in a
format suitable for transmission to WAP, HDML, SMS, Palm and HTML mobile
devices. Mobile Site(TM) allows any business to mobilize its existing Web
content for any mobile device affordably and quickly. With Mobile Site(TM), our
clients can rapidly deploy a mobile service to their customers in less than two
weeks.

We plan to offer additional mobile e-commerce and information services to
business and consumer end users, but we do not know whether we can market these
services fast enough or whether they will be accepted by the market. The mobile
e-commerce and information services marketplace is expected to evolve rapidly.
Our competitors may develop and market services that are superior to ours and
their offerings may achieve greater market acceptance.

Dependence on Development of Mobile Device Content and Services. We believe our
long-term financial success depends on our ability to profit from the delivery
of content and services for mobile communication devices. We plan to generate
revenue from sales of internally developed client and server software, mobile
information hosting and delivery services using the ASP revenue model (monthly
subscription fees), transaction revenue from mobile e-commerce services, and
professional services for technology consulting, systems integration and content
applications development. However, we cannot assure you that we will be able to
derive significant revenue from any of these sources. Many of our competitors
have more widely deployed wireless server technology, greater client development
resources, and a larger market presence. We cannot assure you that we will be
able to successfully develop better technology, market additional products and
services, or obtain greater distribution rights to third-party products or
content than our competitors, or that our services will achieve greater
acceptance in the market. Further, we have historically marketed operating
systems and applications, and we have limited experience marketing server and
mobile e-commerce and information services. Finally, practical and effective
distribution of content and services to mobile communication devices is an
unproven concept which depends on many factors for success, including the size
of the data and applications to be distributed and the presence of an
appropriate network infrastructure. We cannot assure you that mobile information
services will prove to be feasible or that our technology will be suitable for
the distribution infrastructure as it develops. If we cannot derive significant
revenue from one or more of the foregoing sources, there will be material
adverse impact to our long-term business, results of operations and financial
condition.

Risks of Software Product Development and Risk of Delays. Our future success
will depend on our ability to develop and release, on a timely basis, new
application software products and new mobile e-commerce and information
services. It is critical that our current and future products and services be
widely accepted in new markets. We have




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made progress toward these goals, but cannot guarantee that our products and
services will be widely accepted in the market.

Because of the short product life cycles and intense competition expected in the
mobile communicating device market, and the mobile e-commerce and information
services markets, the timeliness of new product and service introductions and
shipments can be critical. We cannot assure you that we will be able to develop,
introduce and ship new products or services fast enough. Furthermore, from time
to time, our competitors may announce new products, features, technologies or
services that have the potential to replace or shorten the life cycle of our
existing offerings. These announcements may cause our customers to defer
purchasing our products and services. 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.

Dependence on Limited Number of Revenue Generating Customers. We have a history
of dependence on a few key customers. In the fiscal year ended March 31, 2000,
three customers accounted for 88% of our total net revenues. In fiscal year
1999, one OEM customer accounted for more than half of our total net revenues,
and three OEM customers collectively accounted for 90%. During fiscal year 1998,
three customers accounted collectively for greater than half our total net
revenues, and four customers collectively accounted for 74% of our total net
revenues. Therefore, a termination or decline in our business relationship with
any of our existing customers could have a material adverse impact on our
business, financial condition, and results of operations, and we cannot assure
you that we will be able to sustain these relationships and derive comparable
revenues from them in the future. Our relationship with one of these customers
will wind down in the first quarter in fiscal year 2001 as the current project
reaches completion.

Our mobile information services revenue depends on signing up new customers with
a large installed base of users. Our royalty revenue is critically dependent
upon the timely introduction and successful marketing and sale by a limited
number of consumer product companies of smart devices based on our software. Our
professional services revenue depends on a limited number of customer contracts;
these revenues are also constrained by the number of chargeable current
employees and the rate at which new highly skilled technical employees can be
hired. We earn a substantial portion of our revenue from customers in Europe and
Japan, and we view these regions as strategic to our business objectives.
Economic difficulties within Europe and/or Japan could have a material adverse
effect on our ability to generate revenue from our customers in these regions
and from customers who market their products within Europe and Japan.

History of Disappointing Revenue from Previous Generation Products.
Historically, we emphasized the licensing of our operating system software to
manufacturers of smart phones and non-communicating mobile devices, such as
personal digital assistants and handheld electronic organizers. The smart phone
market has emerged slower than anticipated and there is increasing competition
for the operating systems used in smart




                                                                              11
<PAGE>   15

phones. Products that use our technology, such as the Nokia 9110, Nokia 9000,
Toshiba Dialo, Toshiba Genio, Seiko-Epson Locatio and Mitsubishi Moem-D, have
had only modest unit sales. The non-communicating devices -- in particular the
Hewlett-Packard OmniGo and Casio Z-7000 -- as well as those introduced by
competitors, such as the Apple Newton, Sony MagicLink and Motorola Envoy,
achieved only modest unit sales. With the exception of the Palm Pilot series
from 3COM (which does not incorporate our software), products in the
non-communicating device categories have experienced low adoption rates. We have
failed to generate significant royalty revenues in connection with our licensing
efforts to date, and our operating results have been adversely affected as a
result. Several of our previous licensees have canceled products prior to
introduction or discontinued them after experiencing disappointing sales.
Collectively, these third-party product cancellations, terminations and
disappointments have resulted in lower-than-expected recurring license revenues
in previous fiscal years. In part we depend on the marketing efforts of our
customers for their products to be accepted by the market.

Fluctuations in Operating Results. Our past operating results have been subject
to significant fluctuations on both a quarterly and annual basis. We expect that
our future operating results will also fluctuate as a result of all of the
following: the timing and success of the our efforts to introduce and sell the
Mobile ASP(TM) and Mobile Site(TM) products and services; the introduction and
acceptance of our mobile e-commerce and information services; the extent to
which we can negotiate and subsequently earn fees for professional services,
research and development and maintenance fees from our customers; our ability to
effectively manage our costs; legal costs associated with technology licensing
and defense of our patent portfolio; and actions by our competitors.

To obtain license and service revenue from Mobile ASP(TM) and Mobile Site(TM)
customers we will need to market and sell these new services and our customers
will need to successfully market these services to their end users. We must also
continue to develop new and compelling services. Revenue from mobile e-commerce
and information services will vary based on the market success of the
per-subscriber fee model and our ability to derive transaction fees from mobile
e-commerce services. Revenue from research and development fees can vary
considerably among periods, depending upon the specific terms of our contracts
with clients and the relative level of development effort devoted to projects
which generate research and development fees. Our results are also affected by
the timing and extent of our expenses for research and development, and sales
and marketing. We have traditionally devoted substantial resources to research
and development, which has constrained our investment and performance in other
activities and, in turn, affected reported operating results. While we have
taken recent measures to reduce research and development expenditures, our
investment in research and development remains significant relative to our
investment in other aspects of our operations. License revenue related to OEM
customer products which contain our software is contingent upon those OEM
customers' success in meeting anticipated shipment dates, obtaining market
acceptance for their products, and realizing significant sales volume of those
products. In addition, our results may be affected by seasonal and




                                                                              12
<PAGE>   16

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. We believe that the market for smart
phones and other mobile communicating devices could ultimately reflect
significant seasonal swings in demand similar to those in the consumer
electronics market, in which demand typically peaks in the fourth calendar
quarter of each calendar year.

International Operations. We have derived most of our revenue from international
operations in each of the last three fiscal years. We anticipate that
international revenue will continue to represent a significant portion of our
future revenue. Whether or not we receive revenue from international sources
depends on certain 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. In particular, we derive a substantial portion of our revenue from
customers in Europe and Japan, and we view these regions as strategic to our
business objectives. 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, and as a result could adversely affect our ability
to generate revenue from technology licensing, professional services, research
and development fees, and mobile e-commerce and information services. In
addition, we are obligated to withhold income tax from royalty income from
licensees in certain countries, such as Japan and Finland. The amount and mix of
our revenue derived from such licensees will impact our accruals for income
taxes. Our income tax rate may vary depending on the amount and mix of our
revenue actually derived from licensees subject to foreign withholding taxes as
compared to amounts forecast by us.

Non-Recurring Revenues. We may receive one-time technology license or
engineering fees or recognize revenue of paid but unamortized advance royalties
under OEM agreements (currently recorded as deferred revenue) if agreements are
terminated, amended or restructured or a product is discontinued. These charges
could impact our operating results. These amounts could be a material portion of
our revenue, as they have been in the past, and provide no corresponding cash
flow benefit in the period in which the revenue is recognized.

Dependence on Key Personnel. Our future 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. We have had a significant number of changes in the
senior leadership team over the last two years. 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.




                                                                              13
<PAGE>   17

Competition in Mobile Communication Device Operating Systems. We expect the
market among mobile communicating device operating systems to be highly
competitive. Although we believe there will be opportunities for more than one
operating system, it is possible that a single operating system supplier may
dominate in one or more market segments. Companies with significantly greater
financial, technical, and marketing resources and greater name recognition than
us, such as Symbian (a joint venture involving Psion, Ericsson, Motorola, and
Nokia), Microsoft, Sun Microsystems, and 3COM (through its Palm Computing
subsidiary), have each developed or are reported to be developing operating
systems which may compete directly with our current operating system software.
Further, developers of real-time operating systems and low-end operating system
software may attempt to adapt their products for the smart phone market, to
provide operating systems which compete with ours. Although we believe our GEOS
and GEOS-SC system software has features that give us an advantage over
competing operating systems, companies may develop similar or better features.
Moreover, a number of our current licensees have also established relationships
with certain of these competing companies, and future licensees may do the same.
In addition, manufacturers may choose to develop or acquire proprietary
operating systems for mobile devices and compete directly with us. Our
competitors may develop or market mobile communication device operating system
or application software products that are superior to ours, that are offered at
lower prices, or that are more rapidly accepted by the market.

In June 1998, Psion, Ericsson, Motorola, and Nokia announced a joint venture
named Symbian that will license Psion's EPOC operating system to smart phone
manufacturers. In May of 1999, Matsushita (Panasonic) also joined the joint
venture. Through Symbian, these companies are seeking to introduce an operating
system platform in the smart phone market that would directly compete with our
GEOS-SC system software, and together these companies have contributed over $150
million to capitalize the venture. Collectively, Ericsson, Motorola, Nokia and
Matsushita hold a dominant position as suppliers in the worldwide market for
mobile phones, of which smart phones represent a market segment. While Symbian
is in its early stages and its ultimate impact on us is difficult to assess, its
impact on the market could have a material adverse effect on our business,
operating results or financial condition.

Because of our transition away from the development of operating system
technology, we expect license fees and royalty revenues related to our operating
system technologies to decrease significantly in the future.

Volatility Of Stock Price. 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. In addition, our common stock price is volatile because it is
associated with internet, telecommunications and technology stocks, in general.
As a result, there are other factors that may affect our stock price unrelated
to our specific performance.




                                                                              14
<PAGE>   18

ITEM 2. PROPERTIES

Our corporate headquarters are located in Alameda, California, in approximately
40,000 square feet of office space under a lease that we may renew through 2005.
On March 31, 2000 we decided we no longer needed to lease 9,640 square feet of
office space in Berkeley, California, and we turned it back to the landlord
without penalty. We operate a subsidiary, Geoworks Kabushiki Kaisha, in Tokyo,
Japan, which leases office facilities from an independent agent, Aisys
Corporation. We operate a second subsidiary in Macclesfield, England, which
leases approximately 7,000 square feet of office space under a lease that
expires in 2006. Beginning in June 2000, we are scheduled to lease additional
office facilities in Macclesfield consisting of approximately 5,000 square feet
in an adjacent building under a lease that expires in 2005. We believe that our
existing facilities will be adequate to meet our needs in fiscal year 2001 and
that additional space will be available if needed. At the present time we have
expansion capacity at our Alameda facility which will satisfy space needs
associated with our growth plans.


ITEM 3. LEGAL PROCEEDINGS

On April 25, 2000, Phone.com, Inc., filed a declaratory relief action against us
in the United States District Court in San Francisco, California seeking to
invalidate our Flex UI patent. On June 15, 2000, we responded by filing an
answer and counterclaim alleging that Phone.com has infringed our patents.










                                                                              15
<PAGE>   19

permanent cease and desist orders directing Phone.com and Sanyo Corporation, and
their affiliates, subsidiaries, divisions, licensees, agents, contractors and
other related entities from selling, advertising, demonstrating, using,
maintaining, servicing or repairing any infringing WAP-enabled products and
services in the United States.

Under U.S. law, our Flex UI patent is presumed valid. The burden of invalidating
our patent is on Phone.com. We intend to vigorously defend and prosecute all
rights relating to our Flex UI patent. The expenses required to pursue legal
remedies could be significant. Although we believe we have adequate resources to
support our IPR licensing program, we can not be certain of the outcome of
related litigation. Litigation, regardless of its outcome, could result in
significant expenses and be a diversion of our resources and could have a
material adverse effect on our operating results and financial condition.

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, 2000.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

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

<TABLE>
<CAPTION>
      Name               Age                     Position
      ----               ---                     --------
<S>                      <C>    <C>
David Neylon             52     Chairman of the Board of Directors
John B. Balousek         55     Director
Kevin P. Fitzgerald      43     Director
Andrew Cole              33     Director
David L. Grannan         36     President and Chief Executive Officer, Director
Stephen T. Baker         42     Vice President, Chief Financial Officer, Director
Adam de Boor             33     Vice President and Chief Technology Officer
Rhonda Jobe              53     Vice President, Marketing
Christopher A. Waldo     42     Vice President, Sales
</TABLE>


                                                                              16
<PAGE>   20
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. He was Vice President of ImagiNation
Network, a subsidiary of AT&T and the predecessor of WorldPlay Entertainment
from 1993 to 1995. Mr Neylon held a variety of other positions with AT&T,
including 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.

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 FreeShop.com, Pets.com, and Micron Electronics Corp., all
publicly-held companies, and Encirq Corp., Magnifi.com, and EyeShop.com, all
privately held companies. Mr. Balousek holds a BA degree from Creighton
University and a Master's degree from Northwestern University.

Mr. Fitzgerald joined the Board of Directors in December 1999. Mr. Fitzgerald is
the Chairman of the Board of Latin Broadband Group, a South American wireless
broadband and paging services provider. 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. Mr. Fitzgerald holds
an BS in Electrical Engineering from Carnegie Mellon University, and a MBA from
Fordham University.

Mr. Cole joined the Board of Directors in April 2000. Mr. Cole is a Vice
President and is in charge of the Global Wireless Practice of Renaissance
Strategy, a leading international consulting firm specializing in wireless and
telecommunications markets. Mr. Cole has been with Renaissance since 1995. Mr.
Cole was the Director of Wireless Consulting Services at EMI Strategic, a Boston
based


                                                                              17
<PAGE>   21
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. Grannan joined the Company in March 1998 as Vice President, Marketing. 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. Baker joined the Company in October 1998 as Vice President and Chief
Financial Officer. He was appointed to the Board of Directors in October 1999.
From August 1996 to October 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 July 1995 to
August 1996, Mr. Baker was the CFO for the Software Systems Group of Bell
Communications Research. From June 1993 to July 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 February 1989
to June 1993. Mr. Baker has also held a number of financial management positions
with AT&T Corporation from August 1981 through February 1989. He holds a BA from
the University of Pennsylvania and an MBA from the Columbia University Graduate
School of Business.

Mr. de Boor joined the Company in May 1988, and became Vice President and Chief
Technology Officer in August 1998. Mr. de Boor has played a key role in the
design and implementation of Geoworks' GEOS operating system, focussing on
development tools, communication and device software, and served as Lead
Architect for release 3.0 of GEOS. In recent years Mr. de Boor has designed,
managed, and served as lead programmer for Geoworks' enhanced phone and
proprietary server technology projects. Prior to joining Geoworks, Mr. DeBorr
worked on the initial release of the X Window System, Version II, and Sprite
operating system project. Mr. de Boor holds a BA in Computer Science from the
University of California, Berkeley.

Ms. Jobe joined the Company in January 1998 as a product manager and was
promoted to Director of Marketing. Ms. Jobe became Vice President, Marketing in
January 1999. Before joining Geoworks, Ms. Jobe served as the Manager of the
Wireless Data Group for AirTouch Cellular from April 1994 to January 1998. From
August 1993 to April 1994 Ms. Jobe was with Dell Computer as Mobile Products
Communications Manager. Prior to that, Ms. Jobe acquired more than 25 years of
wireless industry experience in a variety of marketing management and software
development management positions at Motorola. Ms. Jobe attended Arizona State
University with a concentration in Computer Science and business management. Ms.
Jobe also attended the University of Michigan with a concentration on new
product development.

Mr. Waldo joined the Company in May 2000. 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 & BA in Economics from the
University of Missouri.


                                                                              18
<PAGE>   22

PART II


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

CHANGES IN COMMON STOCK MARKET VALUE

Geoworks Corporation's common stock trades on the Nasdaq 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 Market for the quarters
indicated:

<TABLE>
<CAPTION>
                             JUN 30            SEP 30            DEC 31            MAR 31
                             ------            ------            ------            ------
<S>                       <C>              <C>              <C>               <C>
FISCAL YEAR ENDED       ----------------------------------------------------------------------
MARCH 31, 2000            $2.25 - $3.69    $2.06 - $3.56    $2.38 - $16.75    $14.06 - $51.75
Common stock
price per share

FISCAL YEAR ENDED       ----------------------------------------------------------------------
MARCH 31, 1999            $3.31 - $7.38    $1.31 - $3.50    $1.00 - $ 5.69    $ 3.00 - $ 6.00
Common stock
price per share
</TABLE>


CHANGES IN EQUITY COMPOSITION

There were no material changes in equity composition in fiscal year ending March
31, 2000.

REGISTERED HOLDERS

There were 236 registered stockholders as of May 31, 2000, and approximately
25,000 beneficial holders as of May 31, 2000. We have not paid or declared cash
dividends and have no present plans to do so.




                                                                              19
<PAGE>   23

ITEM 6. SELECTED FINANCIAL DATA

The data set 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 Form 10-K.

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


<TABLE>
<CAPTION>
                                                          Quarter Ended
                                      30-Jun-99     30-Sep-99     31-Dec-99     31-Mar-00
<S>                                   <C>           <C>           <C>           <C>
Year Ended March 31, 2000

Net revenues
Professional services                  $ 1,149       $ 1,384       $ 1,975       $ 2,496
Research and development fees               --            --           248            72
License and other revenue                  484         1,556           906         1,869
                                    ----------------------------------------------------
  Total net revenues                     1,633         2,940         3,129         4,437

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

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

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

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

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




                                                                              20
<PAGE>   24

QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                     QUARTER ENDED
                                  30-JUN-98     30-SEP-98     31-DEC-98     31-MAR-99
<S>                               <C>           <C>           <C>           <C>
Year Ended March 31, 1999

Net revenues

Professional services              $    --       $   145       $   606       $   477
Research and development fees        1,285           746           954           330
License and other revenue              208           402           394         3,235
                                ----------------------------------------------------
  Total net revenues                 1,493         1,293         1,954         4,042

Operating Expenses:
Cost of services                        --           146           369           312
Cost of license revenue                 18            13             6             3
Sales and marketing                  1,243         1,403         1,312           993
Research and development             4,640         3,563         3,003         2,604
General and administrative             911           909           818           996
Restructuring charges                   --            --            --         1,790
                                ----------------------------------------------------
  Total operating expenses           6,812         6,034         5,508         6,698
                                ----------------------------------------------------

Operating loss                      (5,319)       (4,741)       (3,554)       (2,656)

Other income (expense):
Other income                            --            --            --            --
Interest income                        195           171           130           116
Interest expense                       (18)           (2)           (5)           (6)
                                ----------------------------------------------------
Loss before income taxes            (5,142)       (4,572)       (3,429)       (2,546)

Provision for income taxes              31            29            59            30
                                ----------------------------------------------------
Net loss                           $(5,173)      $(4,601)      $(3,488)      $(2,576)
                                ====================================================

Net loss per share -Basic          $ (0.32)      $ (0.29)      $ (0.22)      $ (0.15)
and diluted
</TABLE>




                                                                              21
<PAGE>   25

Consolidated Balance Sheet Summaries
(IN THOUSANDS)

<TABLE>
<CAPTION>

                                                         MARCH 31
                             2000           1999           1998           1997           1996
<S>                        <C>            <C>            <C>            <C>            <C>
Working Capital            $ 14,286       $ 12,379       $ 20,095       $ 33,626       $ 43,585

Total assets                 41,459         18,183         27,463         41,868         54,040

Deferred revenue              1,629          1,498            778          1,919          5,529

Long-term obligations            --             --            231            739          2,927

Accumulated deficit         (90,053)       (89,079)       (73,241)       (58,372)       (44,896)

Stockholders' equity         36,632         13,374         23,392         36,553         43,312
</TABLE>




                                                                              22
<PAGE>   26


Consolidated Statements of Operations Data
(IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>

                                                        YEAR ENDED MARCH 31
                                      2000         1999         1998         1997         1996
                                    --------     --------     --------     --------     --------
<S>                                 <C>          <C>          <C>          <C>          <C>
Total net revenues                  $ 12,139     $  8,782     $ 12,917     $ 11,096     $  6,279

Cost of services                       4,584          827           --           --           --
Cost of revenues                         335           40          155          624          122
Sales and marketing                    5,577        4,951        6,613        7,108        4,510
Research and development               4,100       13,810       18,543       13,698        9,109
General and administrative             3,338        3,634        3,596        3,708        3,254
Restructuring charges (reversal)        (589)       1,790           --           --           --
Cost of merger                            --           --           --        1,450           --
                                 ---------------------------------------------------------------

Total operating expenses              17,345       25,052       28,907       26,588       16,995
                                 ---------------------------------------------------------------

Operating loss                        (5,206)     (16,270)     (15,990)     (15,492)     (10,716)

Other income (expense)
Other income                           4,049           --           --           --           --
Interest income                          646          612        1,427        2,324        1,377
Interest expense                         (10)         (31)        (158)        (244)        (372)
                                 ---------------------------------------------------------------
Total other income                     4,685          581        1,269        2,080        1,005
                                 ---------------------------------------------------------------

Loss before income taxes                (521)     (15,869)     (14,721)     (13,412)      (9,711)
                                 ---------------------------------------------------------------

Provision for income taxes               452          149          148           64           --
                                 ---------------------------------------------------------------

Net loss                            $   (973)    $(15,838)    $(14,869)    $(13,476)    $ (9,711)
                                 ===============================================================

Net loss per share-
     basic and diluted              $  (0.05)    $  (0.97)    $  (0.95)    $  (0.88)    $  (0.75)

Shares used in per share
     computation                      17,866       16,260       15,687       15,234       13,032
</TABLE>




                                                                              23
<PAGE>   27

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


RESULTS OF OPERATIONS

Net Revenues

Our net revenues in fiscal year 2000 increased $3,357,000, or 38%, versus net
revenues in fiscal year 1999. We attribute the increase to increased
professional services revenues and license revenues which more than offset
reductions in research and development fees. The shift in revenues to
professional services from research and development fees is consistent with our
shift of focus to becoming a mobile e-commerce and information services
provider. In addition, we receive license revenues based on our technology
included in smartphones, our wireless Internet server and various software and
operating systems.

Professional services revenue increased $5,776,000, or 470%, in the year ended
March 31, 2000 as compared to the prior fiscal year. We changed the nature of
our contractual arrangements for engineering services provided and increased
growth in the volume of engineering consulting services provided to our
customers. In the second quarter of fiscal 1999, we began providing a portion of
our non-recurring engineering services on a professional services consulting
basis rather than as Original Equipment Manufacturer (OEM) funded research and
development. Such consulting services can be offered at relatively higher rates,
but do not generally have the additional revenue potential provided by a product
royalty agreement with the OEM. We are fulfilling contracts in this manner
because we are providing engineering services on different types of projects and
because we believe there are greater relative returns in consulting
opportunities compared to performing OEM funded research for lesser rates, and
taking on related risks inherent in collecting product royalty revenues based on
potential shipments of resulting products by the OEM. Professional services
revenues are generally billed and recognized based on time and materials
expended rather than based on the attainment of milestones specific to the OEM
contracts.

Our professional service projects involve consulting related to technology
previously developed by us, as well as development of new technologies
supporting mobile communications. During the fiscal year we extended our
agreement with Nokia to provide professional technology services and develop
application software for mobile phones, and we began collaborating with Sonera
SmartTrust in developing wireless e-commerce applications. We also continue to
provide operating system development and multi-media device development services
to Mitsubishi Electric Corporation. The professional services revenues
ultimately recognized depend upon our ability to hire and maintain the
engineering staff and resources necessary to meet our customers' desired scope
of work as well as our ability to attract additional customers for




                                                                              24
<PAGE>   28
these services. Our consulting relationship with Sonera SmartTrust will wind
down in the first quarter of fiscal year 2001 as the current project reaches
completion.

Research and development fees revenue decreased $2,995,000, or 90%, in the
fiscal year ended March 31, 2000 as compared to the prior fiscal year. The
revenues recognized in the latest fiscal year resulted from contracts that had
been in progress since fiscal 1999. We no longer have any active contracts of
this nature. As discussed above, our business model has changed and OEM funded
research and development contracts are not being actively pursued. Research and
development fees represent reimbursement for a portion of our development costs
related to specific products up to the amounts specified in our OEM licensee
contracts. The OEM licensee typically pays us as certain project milestones are
achieved. Revenue under these research and development arrangements is
recognized under the percentage-of-completion method. The amount of such revenue
can vary considerably among periods, depending upon the specific terms of our
contracts with OEM licensees and the relative level of development effort
devoted to projects in which research and development fees are charged.

License and other revenue increased $576,000, or 14% in the year ended March 31,
2000 as compared to the prior fiscal year. Such revenues include 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 by $2.6 million to $3.5 million in fiscal
2000 as compared to the prior year, primarily due to royalties received based on
increased shipments of units sold by a single OEM licensee. This increase was
partially offset because during fiscal year 1999, the termination of a license
agreement with another OEM customer had resulted in revenue of $2.0 million, but
no transactions of this nature were recorded in the year ended March 31, 2000.
Source code revenues increased $200,000 to $1.2 million in the fiscal year ended
March 31, 2000 as compared to the prior year. The termination agreement and
source code fees discussed above were one-time events based on the elements and
circumstances of particular contracts and as such are not expected to be
recurring. Service revenues decreased $200,000 to $100,000 in the year ended
March 31, 2000 as compared to the prior year, primarily due to a reduction in
support fees earned in connection with software licensed to OEM customers. This
decrease is consistent with the change in our business model discussed above.

Although royalty revenues increased in the most recent fiscal year, because we
have sold certain source code outright and terminated a number of license
agreements during recent years, the number of OEMs subject to license agreements
which could generate future royalty revenues has decreased. During the current
fiscal year we entered into new agreements to license our wireless internet
server technology and to license certain operating system technologies; however
we cannot assure you that the resulting revenues, or those from our program to
license our technology used in the WAP specification, will replace or be greater
than the license revenues historically generated from our OEM customers.




                                                                              25
<PAGE>   29

As discussed above, license and other revenue has historically included
non-recurring items such as one-time source code license fees, or fees received
due to changes in the terms of license agreements resulting from amendment,
restructuring, or termination of these agreements. Such revenues are
non-recurring and are therefore not indicative of revenues to be recognized in
future periods. Further, our realization of anticipated license and royalty
revenue from OEM customers is inherently uncertain due to potential delays and
risks in the commercial release and acceptance of new products.

Net revenues decreased $4,135,000, or 32%, in fiscal year 1999 compared to net
revenues in fiscal year 1998. The primary continuing revenue categories,
research and development fees and license and other revenue declined in fiscal
year 1999 relative to the preceding fiscal year. New revenues from professional
services partially offset these decreases.

Professional services revenues were $1,228,000 in the year ended March 31, 1999.
As discussed above, we began providing some of our non-recurring engineering
services on a consulting basis rather than as OEM funded research and
development in the second quarter of fiscal year 1999. Such consulting services
can be offered at relatively higher rates, but do not generally have the
additional revenue potential provided by a product royalty or license agreement
with the OEM.

Research and development fees revenue decreased $3,951,000, or 54%, in fiscal
year ended March 31, 1999 as compared to fiscal year 1998. This substantial
decrease occurred because we completed development work on several major OEM
projects. Despite our success in developing mobile communication device
operating systems for several major OEMs, because of the slower than anticipated
development of the smartphone market and the June 1998 announcement of the
Symbian joint venture (Psion, Ericsson, Motorola and Nokia) formed to license
and further develop a competing operating system platform, there were fewer
opportunities for us to provide such research and development services. As work
on our existing projects concluded, we assigned development staff to smaller
projects with reduced staffing requirements, (some of which had lower
reimbursement rates.) These reductions in contract requirements resulted in
staffing reductions achieved through attrition and restructure directives.
Additionally, we settled a contract dispute with an OEM customer during fiscal
1999 and under the percentage-of-completion method, the effect of this
settlement was to lower our revenue and the corresponding accounts receivable in
fiscal year 1999 by $740,000.

License and other revenue decreased $1,412,000, or 25%, in fiscal year ended
March 31, 1999 in comparison to fiscal year 1998. We recognized license revenue
from four primary types of transactions in each period. During fiscal 1999,
revenues from the restructure or termination of license agreements totaled
$2,000,000 as compared to $1,883,000 during the previous fiscal year. In fiscal
year 1999 this revenue resulted from an agreement with a single OEM customer
while agreements with three different OEM customers were restructured or
terminated in fiscal year 1998. At the time of these agreements, we either
agreed to accept one-time settlement payments in lieu of our right




                                                                              26
<PAGE>   30

to all or a portion of future royalties or we were able to recognize the
non-refundable portion of prepaid royalty deposits we had already received.
During fiscal 1999, revenues from the sale of source code developed by us were
$1,000,000 as compared to $650,000 for the previous fiscal year. Royalties, and
to a lesser extent, technology license fees, resulting from the use of our
technology in units sold by our OEM customers decreased to $874,000 in fiscal
year 1999 as compared to $2,664,000 in fiscal year 1998, primarily as a result
of the restructure and termination agreements discussed above which changed the
terms of our compensation agreements with those OEM customers. Service revenues,
$365,000 and $454,000 in fiscal years 1999 and 1998, respectively, decreased due
to reduced support fees earned in connection with software licensed to OEM
customers.

Operating Expenses

Cost of Services. Cost of services are those expenses incurred to provide
professional services consulting, including compensation, travel, related direct
costs and facilities overhead. In general, the employees providing these
services had previously been engaged in fulfilling our obligations under OEM
research and development contracts. Cost of services increased $3,757,000, or
454% in fiscal year ended March 31, 2000 as compared to the prior fiscal year.
Our gross margin percentages on professional services revenues were 35% and 33%
in the years ended March 31, 2000 and 1999, respectively. Costs of services
expenses and the related gross margin dollars were significantly greater in the
year ended March 31, 2000 because we offered and provided professional services
under consulting agreements for the entire year. We began to offer our
professional engineering services in this manner in the second quarter of fiscal
year 1999.

     The gross margin recognized on such services is may vary depending on the
average rates charged for these consulting services, our ability to hire and
retain engineering personnel at competitive rates, and the utilization rates of
these personnel. 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.

Cost of License Revenue. Cost of license revenues consists of license payments
to third parties for software that is incorporated into our software. Cost of
license revenues increased to $335,000 in fiscal year ended March 31, 2000, as
compared to $40,000 and $155,000 in the fiscal years ended March 31, 1999 and
1998, respectively. License payments increased in fiscal year 2000 due to the
increased volume of royalty revenue recognized as compared to the prior years.
Gross margin percentages on license and other revenue were 93%, 99% and 97% in
fiscal years 2000, 1999, and 1998, respectively. Gross margin percentage was
reduced in fiscal year 2000 because a greater proportion of the license and
other revenues were subject to third party software license agreements.

Sales and Marketing. Sales and marketing expense increased $626,000, or 13%,
during fiscal year ended March 31, 2000 in comparison to the prior fiscal year.
This increase is due primarily to increased spending on marketing and
advertising programs in support of our Mobile Attitude and Mobile ASP offerings
as well as increased business development




                                                                              27
<PAGE>   31
activities. These increased program costs were partially offset by reduced
personnel costs. Although our Sales and Marketing staff was now larger at fiscal
year end 2000 than at the end of the prior fiscal year, average sales and
marketing headcount was approximately 15% less in fiscal year 2000 as compared
to the prior year.

Sales and marketing expense decreased $1,662,000, or 25%, during fiscal year
1999 in comparison with fiscal year 1998. In fiscal year 1999 we narrowed the
scope of our product plans and marketing activities and therefore reduced our
staffing and achieved certain other cost reductions in our sales and marketing
programs. Additionally, there had been a non-recurring charge of approximately
$300,000 during fiscal year 1998 in connection with a reorganization of staff in
certain sales and marketing functions.

Research and Development. Research and development expense decreased $9,710,000,
or 70%, during fiscal year ended March 31, 2000 in comparison to the prior
fiscal year. We attribute this decrease principally to reductions in staffing
and related costs, including those resulting from the restructuring actions
taken in the fourth quarter of fiscal 1999. Such staff and expense reductions
were necessary as we stopped doing operating system development and reacted to
reduced levels of OEM funding. We have also narrowed the scope of our internal
research and development to focus on our mobile e-commerce and information
services business. Although the research and development staff grew by 30%
during the quarter ended March 31, 2000, average headcount for fiscal year 2000
was approximately 70% less than in the prior fiscal year. Approximately 15%
of the reduction in research and development headcount is due to the shift of
staff into professional services consulting.

Research and development expense decreased $4,733,000, or 26%, during fiscal
year 1999 in comparison to fiscal year 1998. As in fiscal year 2000, this
decrease was attributable principally to reductions in staffing and related
costs. Reductions in contract requirements resulted in staffing reductions
achieved through attrition and the restructure directives. Staff reductions
first became significant in the quarter ended September 30, 1999. As a result,
we also narrowed the scope of our internal research and development activities
and reduced amounts paid to outside developers for services and the license of
software to be incorporated into future products.

General and Administrative. General and administrative expense decreased
$296,000, or 8% during the fiscal year ended March 31, 2000 in comparison to the
prior fiscal year. The decrease is due primarily to reduced staffing costs and
reduced professional fees consistent with the reductions in staffing and
activity in other areas due to the restructuring actions taken in the fourth
quarter of fiscal 1999 and the change in our business focus. Although
professional fees decreased, legal expenses related to our intellectual property
licensing program increased versus prior years and are expected to continue to
increase as a result of the filing of a lawsuit by Phone.com challenging the
validity and enforceability of our Flex UI patent. See further discussion at
Item 3. Legal Proceedings and Risk Factors Affecting Future Operating Results;
"Ability to Capitalize on Intellectual Property Rights and Patent Portfolio."




                                                                              28
<PAGE>   32

General and administrative expense increased $38,000, or 1%, during fiscal year
1999 in comparison with fiscal year 1998. These expenses were essentially flat
for the year as increased professional fees were offset by decreases in a number
of other expenses.

Restructuring Charges. During the fourth quarter of fiscal 1999, we recorded
restructuring charges of $1,790,000 as a result of actions taken to better align
our cost structure with revenue projections as we shifted our resources to
support a business plan focused on opportunities in the mobile e-commerce and
information services market. During this quarter, we reduced our workforce by
27%, vacated one facility and consolidated those operations in a remaining
facility, which was also partially vacant. The restructure charges consisted of
$247,000 in severance costs, charges of $501,000 for the write-off of fixed
assets, and $1,042,000 for the accrual of lease commitment liabilities (net of
expected sublease income) as a result of these actions.

During the fourth quarter of fiscal 2000, we negotiated a release from the
remainder of the lease of the facility previously vacated in the fourth quarter
of fiscal 1999. Although we had not been able to arrange for a sublease of the
excess space in our primary facility, based on improved operating results and
improved business opportunities, we now intend to fully occupy this space. We
did not utilize this excess space in fiscal 2000. As a result of these actions,
the remaining lease commitment accrual of $589,000 was reversed.


OTHER INCOME (EXPENSE)

Other Income. The proceeds from sales of approximately 13% of our shares of
common stock of Wink Communications, Inc. ("Wink") resulted in other income of
$4,049,000 in the year ended March 31, 2000. These were the first shares
liquidated by us since Wink completed its initial public offering in August
1999. No such transactions were completed in the prior fiscal years. As
discussed below in "liquidity and capital resources," our strategy for
liquidating all or some portion of our long-term investments will 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 $34,000 or 6% in the fiscal year
ended March 31, 2000 as compared to the prior fiscal year. This increase is
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 $4.1 million from the sales of
Wink stock discussed above. We also received $3.3 million from the issuance of
common stock in fiscal year 2000 in addition to the $5.0 million raised in a
private placement from Amazon.com in the fourth quarter of fiscal year 1999.
Interest income declined $815,000, or 57%, during fiscal year 1999 in comparison
with fiscal year 1998. This decrease was attributable to reduced balances
available to us for short-term investment as result of the cash used to fund our
operations during each year.




                                                                              29
<PAGE>   33

Interest Expense. Interest expense was not significant in the fiscal years ended
March 31, 2000 or the prior fiscal year because we had only minimal levels of
capital lease and debt obligation liabilities outstanding in these periods.
Interest expense decreased $127,000, or 80%, during fiscal year 1999 in
comparison with fiscal year 1998. This decrease was primarily due to reduced
debt outstanding as a result of regularly scheduled payments of capital lease
obligations outstanding.


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, 2000, we had net operating loss carryforwards for U.S. income tax purposes
of approximately $90,277,000, and for U.K. income tax purposes of approximately
$5,326,000, and for state income tax purposes of approximately $19,405,000. We
also had research and development credit carryforwards for federal income tax
purposes of approximately $2,271,000 and for state income tax purposes of
approximately $809,000. 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

Our current sources of liquidity include cash, cash equivalents, and marketable
securities totaling $17.2 million at March 31, 2000. This balance has increased
from $13.7 million at March 31, 1999 and decreased from $20.0 million at March
31, 1998. This balance has increased at March 31, 2000 as compared to the prior
year end because we used significantly less net cash in operating activities,
generated cash from our working capital accounts, collected over $4.0 million
from the sales of Wink stock and collected over $3.0 million in proceeds from
the issuance of our common stock during fiscal year 2000. Our net loss was
significantly reduced as compared to the prior two years due to reduced
operating deficits and the other income recognized on the sale of a portion of
our investment in Wink. Operating deficits were reduced due to the increased
revenues discussed above and actions we took to better align our cost structure
with revenue projections, including restructuring moves made in the quarter
ended March 31, 1999. Cash and marketable securities had decreased over the past
two years primarily due to the operational deficits we incurred.

Additional sources of liquidity available to us include our long-term
investments in two publicly held companies: Wink Communications, Inc. ("Wink")
and MYTURN.com ("MYTN"). Wink completed its initial public offering of its
common stock in August 1999 and as result we recorded the fair value of our
shares in our consolidated balance sheet. The fair value of this investment will
fluctuate with the market price of Wink common shares. This investment had a
fair value of $16.4 million and $12.8 million as




                                                                              30
<PAGE>   34

of March 31, 2000 and June 21, 2000, respectively. In addition, in December
1999, we received warrants to purchase 250,000 shares of MYTURN.com in
connection with a license agreement. The exercise price per share is $4.50. The
warrants are exercisable beginning in April 2000 and expire in December 2004. We
have the right to have these shares included in registration statements filed on
behalf of MYTN and to require MYTN to file such a registration statement,
subject to certain restrictions, beginning May 15, 2000. The fair value of this
investment will fluctuate with the market price of MYTN common shares. The fair
value of our investment in MYTN ($4.8 million and $2.0 million as of March 31,
2000 and June 21, 2000, respectively) is included in long-term investments. Our
strategy for liquidating all or some portion of the Wink and MYTN investments
will depend on a number of factors. These factors include, but are not limited
to, the levels of cash used in our operations, our desire to diversify
investment risk, and the performance of Wink and MYTN stock versus the stock
market as a whole.

Purchases of property and equipment were $937,000, $216,000, and $1,269,000 in
the fiscal years 2000, 1999, and 1998, respectively. We have started to increase
capital spending to meet our operating objectives and we expect to continue to
do so in the future. Capital expenditures in the prior year were not
significant, consistent with reductions in personnel resulting from
restructuring moves and reduced levels of OEM funded research and development
activities. Sales of property and equipment were $16,000 and $483,000 in fiscal
years 2000 and 1999, respectively. Such sales were done to generate cash from
excess property and equipment.

Payments of capital lease and debt obligations were $30,000, $557,000, and
$340,000 in fiscal years 2000, 1999 and 1998 respectively, 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.

Proceeds from the issuance of common stock were approximately $3.3 million, $5.9
million, and $1.7 million in fiscal years 2000, 1999, and 1998, respectively. A
private placement with Amazon.com provided cash of $5.0 million in fiscal year
1999. The remainder of the proceeds have been generated from our stock option
and employee stock purchase plans.

We expect to increase our investment in the development of our mobile e-commerce
and information services business, including additional sales, marketing and
research and development spending, and we expect to incur additional operating
losses at least through the next fiscal year ending March 31, 2001. Although we
anticipate that our existing cash and capital resources will be adequate to
satisfy our operating and capital requirements for at least the next twelve
months, we cannot assure you that we will not require additional funding in that
time frame or that such additional funding, if needed, will be available on
acceptable terms.




                                                                              31
<PAGE>   35

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" ("SFAS No. 133"). SFAS 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" ("SFAS No. 137"). SFAS No. 133, as amended by SFAS No. 137,
is effective for all fiscal quarters of all fiscal years beginning after June
15, 2000, with earlier application encouraged. We do not currently, nor do we
currently intend in the future, to use derivative instruments and therefore do
not expect that the adoption of SFAS No. 133 will have any impact on our
financial position or results of operations.

In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements." ("SAB No. 101"). SAB No. 101, which was effective January 1, 2000,
requires that license and other up front fees received from research
collaborators be recognized over the term of the agreement, unless the fee is in
exchange for products delivered or services performed that represent the
culmination of a separate earnings process. Implementation of SAB No. 101 is not
anticipated to have a material change on our financial statements.

ITEM 7A.  QUANTITATIVE 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 and our marketable
securities consist of equity securities, principally mutual funds. 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 in MyTurn. The fair value of these assets ($16,380,000 for
Wink and $4,797,000 for MyTurn at March 31, 2000) is included in long-term
investments and 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 RATE

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 minimal levels necessary for operations. As the result of the above,
the Company is 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.


                                                                              32
<PAGE>   36

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, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended March 31, 2000. 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, 2000 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 2000, in conformity with accounting principles generally accepted in
the United States.



                                             /s/  Ernst & Young LLP
                                             --------------------------
                                                  Ernst & Young LLP

San Francisco, California
April 20, 2000




                                                                              33
<PAGE>   37

                              GEOWORKS CORPORATION

                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                       MARCH 31
                                                                  2000           1999
                                                             ---------------------------
<S>                                                            <C>             <C>
ASSETS

Current assets:
  Cash and cash equivalents                                    $   1,709       $   1,760
  Marketable securities                                           15,495          11,955
  Accounts receivable                                              1,492           3,102
  Prepaid expenses and other current assets                          417             371
                                                             ---------------------------
Total current assets                                              19,113          17,188

Property and equipment, net                                        1,155             973
Long-term investments                                             21,180              --
Other assets                                                          11              22
                                                             ---------------------------
Total assets                                                   $  41,459       $  18,183
                                                             ===========================


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                             $   1,173       $     504
  Accrued liabilities                                              2,025           2,807
  Deferred revenue                                                 1,629           1,498
                                                             ---------------------------
Total current liabilities                                          4,827           4,809

Stockholders' equity:
  Common stock, no par value; 40,000 shares authorized;
      18,485 shares issued and outstanding (1999 - 17,629
      shares)                                                    105,630         102,376

Accumulated deficit                                              (90,052)        (89,079)
Notes receivable from stockholders                                  (182)            (67)
Accumulated other comprehensive income                            21,236             144
                                                             ---------------------------
Total stockholders' equity                                        36,632          13,374
                                                             ---------------------------
Total liabilities and stockholders' equity                     $  41,459       $  18,183
                                                             ===========================
</TABLE>


See accompanying notes.




                                                                              34
<PAGE>   38

                              Geoworks Corporation

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


<TABLE>
<CAPTION>
                                                  YEAR ENDED MARCH 31
                                            2000         1999         1998
                                        ------------------------------------
<S>                                       <C>          <C>          <C>
Net revenues:
   Professional services                  $  7,004     $  1,228     $     --
   Research and development fees               320        3,315        7,266
   License and other revenue                 4,815        4,239        5,651
                                        ------------------------------------
Total net revenues                          12,139        8,782       12,917

Operating expenses:
   Cost of services                          4,584          827           --
   Cost of license revenue                     335           40          155
   Sales and marketing                       5,577        4,951        6,613
   Research and development                  4,100       13,810       18,543
   General and administrative                3,338        3,634        3,596
   Restructuring charges (reversal)           (589)       1,790           --
                                        ------------------------------------
Total operating expenses                    17,345       25,052       28,907
                                        ------------------------------------
Operating loss                              (5,206)     (16,270)     (15,990)

Other income (expense):
   Other income                              4,049           --           --
   Interest income                             646          612        1,427
   Interest expense                            (10)         (31)        (158)
                                        ------------------------------------
Total other income                           4,685          581        1,269
                                        ------------------------------------
Loss before income taxes                      (521)     (15,689)     (14,721)
Provision for income taxes                     452          149          148
                                        ------------------------------------
Net loss                                  $   (973)    $(15,838)    $(14,869)
                                        ====================================

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


See accompanying notes.




                                                                              35
<PAGE>   39

                              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, 1997                15,471     $ 94,851     $(58,372)     $ (68)        $ 32        $    174      $ 36,533
 Common stock issued under stock
 option and stock purchase plans              385        1,667           --         --           --              --         1,667
 Payments received from stockholders           --           --           --          1           --              --             1
 Amortization of deferred compensation         --           --           --         --           32              --            32
 Comprehensive income (loss):
   Foreign currency translation
   adjustment                                  --           --           --         --           --               8             8
   Net loss                                    --           --      (14,869)        --           --              --       (14,869)
                                                                                                                        -----------
 Comprehensive loss                            --           --           --         --           --              --       (14,861)
                                          -----------------------------------------------------------------------------------------
 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 net of offering costs            1,220        4,953           --         --           --              --         4,953
 Comprehensive income (loss):
   Foreign currency translation                --           --           --         --           --             (38)          (38)
   adjustment
   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
                                          =========================================================================================
</TABLE>


See accompanying notes




                                                                              36
<PAGE>   40

                              Geoworks Corporation

                      Consolidated Statements of Cash Flows
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                        YEAR ENDED MARCH 31
                                                                  2000         1999          1998
                                                               ------------------------------------
<S>                                                             <C>          <C>           <C>
OPERATING ACTIVITIES
Net loss                                                        $  (973)     $(15,838)     $(14,869)
  Adjustments to reconcile net loss to net cash provided by
   (used in) operating activities:
      Depreciation and amortization                                 721         1,559         1,415
      Non-cash restructuring charges (reversal)                    (589)        1,543            --
      Amortization of deferred compensation                          --            --            32
      Gain on sale of long-term investments                      (4,409)
      Changes in operating assets and liabilities:
         Accounts receivable                                      1,610           310        (2,937)
         Other assets                                               (20)          376           258
         Deferred revenues                                          131           720        (1,141)
         Accounts payable                                           669            --            --
         Other current liabilities                                 (163)         (466)          336
                                                               ------------------------------------
Net cash (used in) operating activities                          (2,663)      (11,796)      (16,906)

INVESTING ACTIVITIES
Purchases of property and equipment                                (937)         (216)       (1,269)
Sales of property and equipment                                      16           483            --
Purchases of marketable securities                               (4,540)      (10,712)      (13,449)
Sales of marketable securities and long-term investments          5,049        10,000        20,912
Maturities of marketable securities                                  --            --        11,795
                                                               ------------------------------------
Net cash (used in) provided by investing activities                (412)         (445)       17,989

FINANCING ACTIVITIES
Payment of capital lease and debt obligations                       (30)         (557)         (340)
Proceeds from issuance of common stock                            3,072         5,858         1,667
Payments received on notes receivable from stockholder               67            --             1
                                                               ------------------------------------
Net cash provided by financing activities                         3,109         5,301         1,328

Foreign currency translation adjustments                            (85)          (38)            8
                                                               ------------------------------------
Net (decrease) increase in cash and cash equivalents                (51)       (6,978)        2,419
Cash and cash equivalents, beginning of year                      1,760         8,738         6,319
                                                               ------------------------------------
Cash and cash equivalents, end of year                          $ 1,709      $  1,760      $  8,738
                                                               ====================================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest payments                                               $    10      $     31      $    158
                                                               ====================================
Income tax payments                                             $   452      $    149      $    148
                                                               ====================================
</TABLE>


See accompanying notes.




                                                                              37
<PAGE>   41

                              Geoworks Corporation

             Notes to Consolidated Financial Statements (continued)



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


COMPANY

Geoworks Corporation (the "Company") is a provider of mobile e-commerce and
information services, software and professional technical services. The Company
has previously developed and marketed operating system and application software
for the wireless device market and many of its current service offerings are
based on the technology it has developed.


PRINCIPLES OF CONSOLIDATION

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


RECLASSIFICATIONS

Certain fiscal year 1999 and 1998 balances have been reclassified to conform to
the fiscal year 2000 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.




                                                                              38
<PAGE>   42

                              Geoworks Corporation

             Notes to Consolidated Financial Statements (continued)



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


REVENUE RECOGNITION

Professional services revenues are generally billed and recognized based on time
and materials expended by the Company at contracted rates.

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.

License and other revenue includes revenue from hardware manufacturers that
incorporate the Company's software products into their systems and service
revenues resulting from support contracts provided in connection with the
Company's licensed technology. 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 products or technology licensed to OEMs and revenue sharing agreements are
recognized when the related products or technology is accepted by the OEM or
customer. Advance payments of license fees (prepaid royalties) are recorded as
deferred revenue and recognized as license revenue as products containing the
licensed software are sold and reported by the licensee. If an OEM license
agreement is terminated (through contract termination or as a result of product
discontinuation), any remaining deferred revenue related to unamortized prepaid
royalties is recognized as revenue, provided that the Company has no obligations
remaining under the agreement. Revenues from the license of technology,
intellectual property, and sale of source code are recognized when the Company
has performed under the terms of the related contract and such revenues can be
determined, if such amounts are based on revenue sharing or some other
calculation.


CASH AND CASH EQUIVALENTS

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




                                                                              39
<PAGE>   43

                              Geoworks Corporation

             Notes to Consolidated Financial Statements (continued)



MARKETABLE SECURITIES

In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("FAS No.
115"), the Company is required to determine the appropriate classification of
its debt and equity securities at the time of purchase and reevaluate such
designation as of each balance sheet date. The Company has classified all of its
marketable securities as available-for-sale.

Available-for-sale securities are carried at amounts which approximate fair
value. Realized gains and losses and declines in value judged to be other than
temporary on available-for-sale debt and equity securities are included in
interest and other income.

The Company's marketable securities consist of equity securities, principally
mutual funds, at March 31, 2000 and 1999. Unrealized gains and losses at March
31, 2000 and 1999, and realized gains and losses for the years then ended, were
not significant.


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.




                                                                              40
<PAGE>   44

                              Geoworks Corporation

             Notes to Consolidated Financial Statements (continued)



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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, $4,317,000, and
$7,590,000 for fiscal years 2000, 1999, and 1998, respectively, of which
$320,000, $3,315,000, and $7,266,000 was funded and recognized as revenue in
fiscal years 2000, 1999, and 1998, respectively.

MAJOR CUSTOMERS

Revenues from three major customers accounted for 39%, 31% and 18%, respectively
of net revenues for fiscal year 2000. Revenues from three major customers
accounted for 57%, 17%, and 16%, respectively of net revenues for fiscal year
1999. Revenues from four major customers accounted for 29%, 18%, 16% and 11%,
respectively of total revenues for fiscal year 1998.

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 2000, 1999 and 1998 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 5.

NET LOSS PER SHARE

Basic and diluted net loss per share information for all periods is presented
under the requirements of FASB Statement No. 128, "Earnings per Share" ("FAS
128"). Basic earnings per share has been computed using the weighted average
number of shares of common stock outstanding during the period and excludes any
dilutive effects of outstanding stock options. Potentially dilutive stock
options have been excluded from the computation of diluted net loss per share as
their inclusion would also be antidilutive. If the Company had reported net
income, the calculation of diluted earnings per share would have included the
effect of common equivalent shares related to outstanding stock options (Note
7).




                                                                              41
<PAGE>   45

                              Geoworks Corporation

             Notes to Consolidated Financial Statements (continued)



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


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 areas, and major customers (see Note 9). The
Company operates as one business segment.


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 does not currently,
nor do we currently intend in the future, to use derivative instruments and
therefore do not expect that the adoption of FAS No. 133 will have any impact
on our financial position or results of operations.

In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB No. 101"). SAB No. 101, which was effective January 1, 2000,
requires that license and other up front fees received from research
collaborators be recognized over the term of the agreement, unless the fee is in
exchange for products delivered or services performed that represent the
culmination of a separate earnings process. The implementation of SAB No. 101 is
not anticipated to have a material change on our financial statements.




                                                                              42
<PAGE>   46

                              Geoworks Corporation

             Notes to Consolidated Financial Statements (continued)



2. PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                                   MARCH 31
                                                              2000         1999
                                                           ---------------------
<S>                                                          <C>          <C>
Equipment                                                    $2,853       $1,980
Furniture and fixtures                                          986          987
Leasehold improvements                                          733          732
                                                           ---------------------
                                                              4,572        3,699
Less accumulated depreciation and amortization                3,417        2,726
                                                           ---------------------
Property and equipment, net                                  $1,155       $  973
                                                           =====================
</TABLE>


3.  LONG-TERM INVESTMENTS

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 equity interest in each of these
companies in previous fiscal years. These equity securities are classified as
available for sale. The costs of developing the related technologies were
previously charged to operations; accordingly no value had been attributed to
these interests in the consolidated financial statements reported for periods
prior to August 1999.

In August 1999, Wink completed an initial public offering of its common stock.
Therefore, the carrying value of the Company's investment in Wink ($16,380,000
at March 31, 2000) is determined based on the closing price of Wink common
shares at each balance sheet date. The fair value of this asset is included in
long-term investments and it will fluctuate with the market price of Wink common
shares. The unrealized gain on the Wink shares, which is equal to the fair value
of the investment, is included in stockholders' equity. Gains recognized on the
sale of Wink shares, which amounted to $4,049,000 in fiscal year 2000, are
reported as other income.

In December 1999, the assets of Global PC were acquired by MYTURN.com ("MYTN"),
a publicly traded company. In connection with the acquisition, the Company
signed a licensing agreement with MYTN. Per the terms of the agreement, the
Company has also been granted warrants to purchase 250,000 shares of MYTN common
stock at $4.50 per share. The warrants are exercisable beginning April 22, 2000
and expire in December 2004. The Company has the right to have the shares
underlying the warrants included in registration statements filed on behalf of
MYTN and to require MYTN to file such registration statements, subject to
certain




                                                                              43
<PAGE>   47

                              Geoworks Corporation

             Notes to Consolidated Financial Statements (continued)



3. LONG-TERM INVESTMENTS (CONTINUED)

restrictions, beginning May 15, 2000. The fair value of the Company's MYTN
warrants ($4,797,000 at March 31, 2000) is included in long-term investments.
The value of this investment will fluctuate with the market price of MYTN
shares. The unrealized gain on these warrants, which is equal to the investment
balance, is included in stockholders' equity.

4. ACCRUED LIABILITIES

Accrued liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                 MARCH 31
                                                           2000            1999
                                                        ------------------------
<S>                                                       <C>             <C>
Accrued compensation                                      $1,344          $  981
Accrued facility lease liabilities                            --           1,042
Other                                                        681             784
                                                        ------------------------
Total                                                     $2,025          $2,807
                                                        ------------------------
</TABLE>


5. 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.

The income tax provisions of $452,000, $149,000 and $148,000 for fiscal years
2000 and 1999 and 1998, respectively, consist primarily of foreign withholding
tax payments made with respect to royalties received from original equipment
manufacturers.




                                                                              44
<PAGE>   48

                              Geoworks Corporation

             Notes to Consolidated Financial Statements (continued)



5. INCOME TAXES (CONTINUED)

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

<TABLE>
<CAPTION>
                                                              MARCH 31
                                                        2000           1999
                                                    -------------------------
      <S>                                             <C>            <C>
      Operating loss carryforwards                    $ 34,625       $ 32,934
      Tax credit carryforwards                           3,080          2,903
      Purchased intangible assets                        9,633         10,441
      Capitalized research expenditures                  2,808          2,713
      Deferred revenue                                     668            614
      Other, net                                           157            874
                                                    -------------------------
      Total deferred tax assets                         50,971         50,479
      Unrealized gain on marketable securities          (8,683)            --
      Valuation allowance on deferred tax assets       (42,288)       (50,479)
                                                    -------------------------
      Net deferred tax assets                         $     --       $     --
                                                    =========================
</TABLE>

The changes in the valuation allowance for fiscal years 2000 and 1999 were
($8,191,000) and $7,302,000, respectively.

Deferred tax assets relating to net operating loss carryforwards as of March 31,
2000 include approximately $9,400,000 associated with stock option activity for
which any subsequently recognized tax benefits will be credited directly to
stockholders' equity.

As of March 31, 2000, the Company has net operating loss carryforwards for U.S.
federal income tax purposes of approximately $90,277,000, U.K. income tax
purposes of approximately $5,326,000, and state income tax purposes of
approximately $19,405,000. The Company also has federal and state research and
development credit carryforwards of approximately $2,271,000 and $809,000
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.




                                                                              45
<PAGE>   49

                              Geoworks Corporation

             Notes to Consolidated Financial Statements (continued)



6. COMMITMENTS

The Company leases its office facilities and certain computer equipment under
noncancelable lease agreements which require the Company to pay operating costs,
including property taxes, insurance and maintenance. Rent expense was $518,000,
$1,247,000, and $1,287,000 for fiscal years 2000, 1999, and 1998, respectively.

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

<TABLE>
<CAPTION>
                                                            OPERATING
FISCAL YEAR                                                   LEASES
-----------                                             --------------
<S>                                                       <C>
    2001                                                  $    950,000
    2002                                                       919,000
    2003                                                       168,000
    2004                                                       168,000
    2005 and thereafter                                        349,000
                                                        --------------
                                                          $  2,554,000
                                                        ==============
</TABLE>


7. 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.

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 6,944,000 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.




                                                                              46
<PAGE>   50

                              Geoworks Corporation

             Notes to Consolidated Financial Statements (continued)



7. STOCKHOLDERS' EQUITY (CONTINUED)

STOCK OPTION PLANS

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

<TABLE>
<CAPTION>
                                                      NUMBER     WEIGHTED-AVERAGE
                                                    OF SHARES     EXERCISE PRICE
                                                 ---------------------------------
<S>                                              <C>             <C>
Balance at March 31, 1997                           3,172,000       $   13.43
   Granted                                          1,767,000            7.77
   Exercised                                         (303,000)          11.10
   Forfeited                                       (1,603,000)          17.43
                                                 ---------------------------------
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
                                                 =================================

Outstanding options exercisable at March 31, 2000     650,000       $    5.61
                                                 =================================

Options available for grant at March 31, 2000       1,408,852
                                                 ==============
</TABLE>

The weighted average fair value at grant date of options granted during fiscal
years 2000, 1999, and 1998 was $5.88, $2.82, and $8.51 per share, respectively.




                                                                              47
<PAGE>   51

                              Geoworks Corporation

             Notes to Consolidated Financial Statements (continued)



7. 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          PRICE         SHARES        PRICE
------------------------------------------------------------------------------------------
<S>                    <C>            <C>        <C>              <C>         <C>
 $  0.53 - 2.06        514,000        8.63       $   1.90         128,000     $  1.77
    2.38 - 3.09        470,000        8.99           2.62          33,000        2.76
    3.13 - 3.41        445,000        7.53           3.29         124,000        3.28
    3.63 - 4.75        726,000        8.47           3.76         245,000        3.75
   5.94 - 47.25        436,000        8.54          19.98         120,000       16.71
                   -------------                                -----------
                     2,591,000                                    650,000
                   =============                                ===========
</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 600,000 shares have been reserved for issuance under the
plan. In fiscal years 2000, 1999, and 1998, 69,000 shares, 110,000 shares, and
83,000 shares, respectively, were issued under the plan at average prices of
$2.07, $1.81, and $6.32 per share, respectively. At March 31, 2000, a total of
312,000 shares were available for issuance under the plan.




                                                                              48
<PAGE>   52

                              Geoworks Corporation

             Notes to Consolidated Financial Statements (continued)



7. 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 2000, 1999, and 1998, 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
                                                    2000            1999            1998
                                               ---------------------------------------------
<S>                                              <C>             <C>             <C>
Net loss, as reported                            $    (973)      $  (15,838)     $   (14,869)
Net loss, pro forma                                 (4,561)         (19,911)         (17,697)

Net loss per share - basic and diluted, as
  reported                                           (0.05)           (0.97)           (0.95)
Net loss per share - basic and diluted, pro
  forma                                              (0.26)           (1.22)           (1.13)
</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 2000, 1999, and 1998: expected volatility calculations based on
historical data (1.086, 1.164, and 0.996, respectively) and risk free interest
rates based on U.S. government strip bonds on the date of grant (5.94%, 5.21%,
and 6.12% respectively) with maturities equal to the expected option lives of
five years. No dividends are assumed.

NOTES RECEIVABLE FROM STOCKHOLDERS

The notes receivable from stockholders arose from the exercise of 51,563 stock
options and the sale of 50,000 shares of the Company's common stock to officers,
which are secured by the shares of common stock issued as well as deeds of trust
on each such officer's principal residence. The notes accrue interest at 6.0%
and are due on February 8, 2005 and August 10, 2004.




                                                                              49
<PAGE>   53

                              Geoworks Corporation

             Notes to Consolidated Financial Statements (continued)



8. 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.

The Company may, at its discretion, contribute amounts to the 401(k) plan. No
employer contributions were made during fiscal years 2000, 1999, or 1998.

9. INFORMATION BY GEOGRAPHIC AREA

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

<TABLE>
<CAPTION>
                                                       YEAR ENDED MARCH 31
                                                  2000         1999         1998
                                              -----------------------------------
<S>                                             <C>          <C>          <C>
Revenues:
  U.S. operations:
    Domestic revenues                           $   716      $   517      $ 3,226
    Export revenues:
      Japan                                       5,542        6,771        3,603
      Europe                                      5,881        1,472        5,843
   Foreign operations (principally Europe)           --           22          245
                                              -----------------------------------
                                                $12,139      $ 8,782      $12,917
                                              ===================================
</TABLE>


<TABLE>
<CAPTION>
                                               YEAR ENDED MARCH 31
                                       2000             1999             1998
                                   --------------------------------------------
<S>                                  <C>              <C>              <C>
Operating loss:
  U.S. operations                    $ (2,078)        $(12,756)        $(12,562)
  Foreign operations                   (3,128)          (3,514)          (3,428)
                                   --------------------------------------------
                                     $ (5,206)        $(16,270)        $(15,990)
                                   ============================================
</TABLE>




                                                                              50
<PAGE>   54

                              Geoworks Corporation

             Notes to Consolidated Financial Statements (continued)



9. INFORMATION BY GEOGRAPHIC AREA (CONTINUED)

<TABLE>
<CAPTION>
                                                         MARCH 31
                                          2000             1999            1998
                                       -----------------------------------------
<S>                                      <C>             <C>             <C>
Identifiable assets:
  U.S. operations                        $40,673         $17,315         $26,034
  Foreign operations                         786             868           1,429
                                       -----------------------------------------
                                         $41,459         $18,183         $27,463
                                       =========================================
</TABLE>


10. 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.




                                                                              51
<PAGE>   55

                              Geoworks Corporation

             Notes to Consolidated Financial Statements (continued)



10. RESTRUCTURING CHARGES (CONTINUED)

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

<TABLE>
<CAPTION>
                                                   WRITE-OFF OF
                                         SEVERANCE   PROPERTY    ACCRUAL OF
                                        AND RELATED     AND         LEASE
                                          CHARGES    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>


11. SUBSEQUENT EVENT

LEGAL ACTIONS

In January 2000, the Company initiated a licensing program for its patented
flexible user interface technology (Flex UI) based on its belief that
WAP-compliant or WAP-enabled products use this technology. On April 25, 2000,
Phone.com, Inc., filed a declaratory relief action against the Company in the
United States District Court in San Francisco, California seeking to invalidate
the Flex UI patent. On June 15, 2000 the Company responded by filing an answer
and counterclaim alleging infringement by Phone.com. The expenses required to
pursue legal remedies could be significant. Although Company management believes
it has adequate resources to support the Company's position, the outcome of the
related litigation is uncertain. Litigation, regardless of its outcome, could
result in significant expenses and be a diversion of the Company's resources and
could have a material adverse effect on the Company's operating results and
financial condition.




                                                                              52
<PAGE>   56

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 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 directors and compliance with
the reporting requirements of Section 16(a) of the Securities Exchange Act of
1934 is incorporated herein by reference from our definitive proxy statement
filed in connection with its 2000 Annual Meeting of Stockholders.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference from
our definitive proxy statement filed in connection with its 2000 Annual Meeting
of Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is incorporated herein by reference from
our definitive our proxy statement filed in connection with our 2000 Annual
Meeting of Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Loans To Officers. During the fiscal year, we loaned Stephen T. Baker, Vice
President and Chief Financial Officer $94,337 and Don Ezzell, former General
Counsel and Secretary $87,678 to assist with the purchase of stock and stock
options. Each loan bears interest at 6% per annum, and is secured by the stock,
a security agreement, and by a deed of trust on real property.

Change of Control Arrangements. The stock option agreements governing stock
options granted to directors and officers provide for accelerated vesting of all
or a portion of the options thereto in the event of a change in control.

Additional information required by this Item is incorporated herein by reference
from our definitive proxy statement filed in connection with our 2000 Annual
Meeting of Stockholders.




                                                                              53
<PAGE>   57

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

                             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 for which provision is made in the applicable
                  accounting regulation of the Securities and Exchange
                  Commission are not required under the related instructions or
                  are inapplicable and have therefore been omitted.

         3.       Exhibits

                  Exhibit  Description of Document

                  2.1      Recommended Offer to Purchase the Entire Issued Share
                           Capital of Eden Group Ltd. (incorporated by reference
                           to Exhibit 2.1 to Registrant's report on Form 8-K
                           filed March 10, 1997)

                  2.2      Warranty and Covenant Agreement in relation to Eden
                           Group Limited (incorporated by reference to Exhibit
                           2.2 to Registrant's report on Form 8-K filed March
                           10, 1997)

                  2.3      Escrow Agreement (incorporated by reference to
                           Exhibit 2.3 to Registrant's report on Form 8-K filed
                           March 10, 1997)

                                                                              54
<PAGE>   58


                  2.4      Agreement of Merger dated October 7, 1997, between
                           Registrant and Registrant's predecessor corporation,
                           Geoworks, a California corporation (incorporated by
                           reference to Exhibit 2.01 to Registrant's report on
                           Form 8-K filed October 27, 1997)

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

                  3.2      Bylaws of Registrant (incorporated by reference to
                           Exhibit 3.02 to Registrant's report on Form 8-K filed
                           October 27, 1997)

                  10.1     Form of Indemnification Agreement (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)*

                  10.4     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)*

                  10.5     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)

                  10.6     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)

                  10.7     Lease dated September 30, 1994 for facilities located
                           at 2001 Center Street, Berkeley, California
                           (incorporated by


                                                                              55
<PAGE>   59

                           reference to Exhibit 10.22 to Registrant's original
                           Annual Report on Form 10-K or amendments thereto on
                           Form 10-KA for the year ended March 31, 1995)

                  10.8     Amendment Numbers One and Two to lease for facilities
                           located at 2001 Center Street, Berkeley, CA, dated
                           January 18, 1996 and February 29, 1996, respectively
                           (incorporated by reference to Exhibit 10.30 to
                           Registrant's report on Form 10-K for the year ended
                           March 31, 1996)

                  10.9     Master Lease Agreement between LINC Capital
                           Management Services, LTD. and Geoworks dated December
                           8, 1994 (incorporated by reference to Exhibit 10.24
                           to Registrant's original Annual Report on Form 10-K
                           or amendments thereto on Form 10-K/A for the year
                           ended March 31, 1995)

                  10.10    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)###

                  10.11    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)###

                  10.12    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)###

                  10.13    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)###

                  10.14    Geoworks - Brother Technology License Agreement,
                           effective as of September 30, 1994 (incorporated by
                           reference to Exhibit 10.18 to Registrant's report on
                           Form 10-Q for the quarter ended September 30,
                           1994)###


                                                                              56
<PAGE>   60

                  10.15    Addendum Number One to Technology License Agreement
                           between Geoworks and Brother, dated March 29, 1996
                           (incorporated by reference to Exhibit 10.31 to
                           Registrant's report on Form 10-K for the year ended
                           March 31, 1996)###

                  10.16    Addendum Number Two to Technology License Agreement
                           between Geoworks and Brother International
                           Corporation, dated June 28, 1996 (incorporated by
                           reference to Exhibit 10.34 to Registrant's report on
                           Form 10-Q for the quarter ended June 30, 1996)###

                  10.17    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)###

                  10.18    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)###

                  10.19    Supplemental Stock Option Plan (incorporated by
                           reference to Exhibit 10.35 to Registrant's report on
                           Form 10-Q for the quarter ended September 30, 1996)*

                  10.20    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)###

                  10.21    1997 Supplemental Stock Plan (incorporated by
                           reference to Exhibit 4.1 to Registrant's Registration
                           Statement on Form S-8 filed March 25, 1997)*

                  10.22    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)*

                                                                              57
<PAGE>   61

                  10.23    Separation Agreement and General Release between the
                           Registrant and David Edward John Crisp dated March
                           16, 1998 (incorporated by reference to Exhibit 10.23
                           to Registrant's report on Form 10-K for the year
                           ended March 31, 1998)*

                  10.24    Separation Agreement and General Release between
                           Registrant and Jordan J. Breslow, dated June 30, 1998
                           (incorporated by reference to Exhibit 10.24 to
                           Registrant's report on Form 10-Q for the quarter
                           ended June 30, 1998)*

                  10.25    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)*

                  10.26    Purchase Agreement between Geoworks Corporation and
                           Amazon.com, Inc. dated February 12, 1999

                  10.27    Amendment Number One to Geoworks Corporation -
                           Mitsubishi Electric Corporation Technology Agreement,
                           effective March 25, 1999###

                  10.28    Exhibit A-2 to the Geoworks Corporation-Mitsubishi
                           Electric Corporation Technology Agreement, effective
                           June 30, 1999 ####p (Incorporated by reference to
                           exhibit 10.28 to Registrants report on Form 10-Q for
                           the quarter ended June 30, 1999)

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

                  10.30    Geoworks-MyTurn Stock Transfer and Technology License
                           Agreement, effective December 22, 1999 ###p
                           (Incorporated by reference to exhibit 10.30 to
                           Registrants report on Form 10-Q for the quarter ended
                           December 31, 1999)

                  10.31    Executive Employment Agreement between Geoworks
                           Corporation and Donald. G. Ezzell, dated August 10,
                           1999 (incorporated by reference to Exhibit 99.03A-C
                           to Registrant's report on Form 8-K filed September
                           30, 1999)*

                                                                              58
<PAGE>   62

                  10.32    Amendment Number Five to Geoworks - Toshiba Corporate
                           Technology Agreement effective 31 January 2000 ###p

                  10.33    Security Agreement and Promissory Note between
                           Geoworks Corporation and Stephen T. Baker dated
                           February 8, 2000*

                  10.34    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
                           ###p

                  21.1     List of subsidiaries (incorporated by reference to
                           Exhibit 21.1 to Registrant's Form 10-K for the year
                           ended March 31, 1997)

                  23.1     Consent of Independent Auditors (see sequentially
                           numbered PAGE 63)


                  24.1     Power of Attorney (SEE PAGE 62)

                  27.1     Financial Data Schedule

                           ### 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, 2000:

         Form 8-K filed February 7, 2000 indicating the appointment of new
         members to the Board of Directors.

         Form 8-K filed January 28, 2000 indicating Registrant announced a
         licensing program concerning patented intellectual property rights.

                                                                              59
<PAGE>   63

(c)      EXHIBITS

         See Item 14 (a) 3 above.

(d)      FINANCIAL STATEMENT SCHEDULES

         See Item 14 (a) 2 above.

                                                                              60
<PAGE>   64

                                   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, 2000

                              GEOWORKS CORPORATION



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

                              David L. Grannan
                              President and Chief Executive Officer

                                                                              61
<PAGE>   65

                                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.
<TABLE>
<CAPTION>


           SIGNATURE                          TITLE                            DATE

<S>                               <C>                                     <C>
/s/ David L. Grannan              President and Chief  Executive          June 29, 2000
--------------------              Officer, and Director
David L. Grannan                  (Principal Executive Officer)

/s/ David Neylon                  Chairman of the Board                   June 29, 2000
 ---------------
David Neylon

/s/ John B. Balousek              Director                                June 29, 2000
--------------------
John B. Balousek

/s/ Kevin P. Fitzgerald           Director                                June 29, 2000
 ----------------------
Kevin P. Fitzgerald

/s/ Andrew Cole                   Director                                June 29, 2000
---------------
Andrew Cole

/s/ Stephen T.  Baker             Vice President, Chief                   June 29, 2000
---------------------             Financial Officer and
Stephen T. Baker                  Director (Principal Financial
                                  Officer)
</TABLE>

                                                                              62
<PAGE>   66

                                                                    Exhibit 23.1

                         CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements
pertaining to the 1994 Stock Plan (Form S-8 No. 333-39863), the Supplemental
Option Plan (Form S-8 No. 333-09569), the 1997 Supplemental Plan (Form S-8 No.
333-23901), and the Registration Statement, including Amendment No. 1 thereto
(Form S-3 No. 333-24097) and in the related prospectus of Geoworks Corporation
of our report dated April 20, 2000, with respect to the consolidated financial
statements of Geoworks included in the Annual Report on Form 10-K for the year
ended March 31, 2000.

                                              /s/ Ernst & Young LLP
                                              ---------------------
                                                   Ernst & Young LLP




San Francisco, California
June 29, 2000

                                                                              63
<PAGE>   67

                              GEOWORKS CORPORATION

                           ANNUAL REPORT ON FORM 10-K
                                INDEX OF EXHIBITS

<TABLE>
<CAPTION>


EXHIBIT NO.           DESCRIPTION                                          SEQUENTIAL PAGE NUMBER
-----------           -----------                                          ----------------------
<S>                   <C>                                                  <C>
Exhibit 10.32         Amendment Number Five to Geoworks -                            [65]
                      Toshiba Corporate Technology Agreement
                      effective 31 January 2000 ###p

Exhibit 10.33         Security Agreement and Promissory Note                         [67]
                      between Geoworks Corporation and
                      Stephen T. Baker dated February 8, 2000*

Exhibit 10.34         Exhibit A-3 to Amendment Number One to                         [71]
                      Geoworks Corporation - Mitsubishi
                      Electric Corporation Technology
                      License Agreement, MELCO V29170 Development
                      FY 2001 Project effective 1 April 2000
                      ###p


                      ###p Confidential Treatment has been requested
                           and is pending as to portions thereof

                         * Management contract and compensatory plan
                           or arrangement
</TABLE>


                                       64