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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

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

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

                     FOR THE FISCAL YEAR ENDED JULY 1, 2000

                          COMMISSION FILE NO. 0-30719

                                HANDSPRING, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                   DELAWARE                                      77-0490705
       (STATE OR OTHER JURISDICTION OF            (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
        INCORPORATION OR ORGANIZATION)
</TABLE>

                              189 BERNARDO AVENUE
                            MOUNTAIN VIEW, CA 94043
          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)

                                 (650) 230-5000
              (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, $0.001 PAR VALUE 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.  Yes [X]  No [ ]

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

     The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $843,676,000 as of August 31, 2000, based upon the
closing price on the Nasdaq National Market reported for such date. The
Registrant has not issued any non-voting stock.

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                                HANDSPRING, INC.

                        2000 ANNUAL REPORT ON FORM 10-K

                               TABLE OF CONTENTS

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

PART II
Item 5.   Market for Registrant's Common Equity and Related
          Stockholder Matters.........................................   11
Item 6.   Selected Financial Data.....................................   12
Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations...................................   13
Item 7A.  Quantitative and Qualitative Disclosures About Market
          Risk........................................................   25
Item 8.   Financial Statements and Supplementary Data.................   25
Item 9.   Changes in and Disagreements With Accountants on Accounting
          and Financial Disclosure....................................   25

PART III
Item 10.  Directors and Executive Officers of the Registrant..........   26
Item 11.  Executive Compensation......................................   29
Item 12.  Security Ownership of Certain Beneficial Owners and
          Management..................................................   31
Item 13.  Certain Relationships and Related Transactions..............   32

PART IV
Item 14.  Exhibits, Financial Statements, Financial Statement Schedule
          and Reports on Form 8-K.....................................   33
SIGNATURES............................................................   51
</TABLE>

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                                     PART I

ITEM 1. BUSINESS

     We may make statements in this annual report, such as statements regarding
our plans, objectives, expectations and intentions that are forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. We may identify these statements by the use of words
such as "believe", "expect", "anticipate", "intend", "plan", and similar
expressions. These forward-looking statements involve risks and uncertainties.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of these risks and uncertainties,
including those we discuss in "Factors Affecting Future Results" and elsewhere
in this annual report. These forward-looking statements speak only as of the
date of this annual report, and we caution you not to rely on these statements
without also considering the risks and uncertainties associated with these
statements and our business as addressed in this annual report.

OVERVIEW

     We are a leading provider of handheld computers. Our first product, the
Visor handheld computer, is a personal organizer that is enhanced by an open
expansion slot, which we refer to as our Springboard platform. Since its
introduction in October 1999, our Visor has won numerous awards, including PC
Magazine's annual "Technical Excellence" award for handheld devices, first place
in CNET.com's Consumer Electronics "Top Ten Must-Haves" and inclusion in
Business Week's "Best Products of the Year." More than 5,300 developers have
registered with Handspring to receive technical and marketing information and
support, including information and support for developing modules that can be
easily snapped into the Springboard expansion slot. Examples of modules
commercially available or in development include content such as books and
games; consumer applications such as an MP3 player, a digital camera and a
global positioning system receiver; and communications applications such as a
mobile telephone based on the GSM standard, wireless modems and two-way pagers
offering Internet and intranet connectivity.

     Our product design team has extensive experience in handheld computing
design. Our Visor handheld computer combines the functionality of a handheld
organizer with the flexibility of our Springboard expansion slot. The result is
a flexible, open platform that enables users to customize their handheld device
to deliver a broad range of computing and communications applications. Key
elements of our solution include:

     EASY TO USE PRODUCTS. Our Visor handheld computers are designed to provide
our customers with a simple, intuitive solution for their computing,
communications, information and entertainment needs. Our products need little
technical knowledge to operate effectively. For example, users can simply insert
modules into our Springboard expansion slot without the need to separately
install or delete software. In addition, our customers can easily synchronize
their Visors' data with their desktop computers by pressing one button.

     FLEXIBLE PLATFORM. The Springboard expansion slot allows users to add and
remove modules to customize the functions of their Visor computers. To encourage
widespread module development, the Springboard expansion slot was designed to
provide developers with great flexibility in the size, form and functionality of
the modules they create.

     OPEN DEVELOPMENT ENVIRONMENT. Our Springboard technology provides an open
platform to developers, with all documentation available on our Web site,
allowing developers to create modules without paying royalties or license fees.
We offer a wide variety of marketing and support programs to help our developers
build successful businesses based on Springboard modules. To enable broad module
production and distribution, we assist developers in relationships with
suppliers and manufacturers and in marketing their modules.

     VALUE LEADERSHIP. Our products are designed to combine superior
functionality with competitive pricing in order to drive widespread adoption
within the broad consumer market. Our Springboard platform allows users to
achieve optimal price performance, by enabling users to pay only for the
features and functionality they will actually use.

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     COMPATIBILITY. The compatibility of our products with the Palm OS operating
system, which we have licensed from Palm, allows our Visor handheld computers to
run thousands of applications developed for the Palm OS operating system. These
applications can be installed through the docking cradle, over the Internet or
through infrared transmission from another device. In addition, our products can
be synchronized with many of the widely used desktop organizer software
packages, including Microsoft Outlook, and can easily import personal data from
another Palm OS operating system device.

PRODUCTS

     Our Visor is a sleek, compact and lightweight handheld computer, with
dimensions of 4.8" x 3.0" x 0.7", and a weight of 5.4 ounces. Each Visor
includes a Springboard expansion slot, stylus writing utensil, infrared
transceiver, backlight display and a hard cover. A microphone is included in
each Visor, which allows developers to create communications modules based on
this feature. Our Visor is compatible with thousands of software applications
developed for the Palm OS operating system. The Visor contains Microsoft Windows
and Macintosh desktop synchronization software, including the ability to
synchronize with Microsoft Outlook.

     Our Visor handheld also runs organizer applications, including an address
book, date book, to-do list, memo pad, calculator, expense system, email
compatibility and a world clock. The Visor's docking cradle, together with the
bundled HotSync software, allows customers to easily and quickly synchronize, or
exchange, data between the Visor and their desktop or laptop computer.

     Our Visor handheld computer is attractively priced and is currently
available in two different models: Visor and Visor Deluxe. The Visor features
two megabytes of RAM memory and a Universal Serial Bus (USB) docking cradle with
desktop software for a retail price of $179. Two megabytes of RAM memory stores
approximately 6,000 addresses, five years of appointments, 1,500 to do items,
1,500 memos and 200 email messages. The Visor Deluxe sells for $249 and includes
eight megabytes of RAM memory, a USB docking cradle with desktop software and a
case. The Visor Deluxe is available in five colors: ice, green, blue, orange and
graphite. In addition, we sell the Visor Solo, a Visor packaged without a
docking cradle and desktop software for an entry price of $149. Starting in May
2000, our Visor handheld computer became available in Europe, both in English
and in German language versions. In June 2000, we introduced the Japanese
language version of our Visor handheld computer in Japan, and in September 2000,
we announced a French language version to be distributed in France, Belgium and
Switzerland.

     Our Visor handheld computer's Springboard platform consists of an expansion
slot that offers an easy and elegant way to add hardware and software
applications. While other handheld computers can support a limited number of
peripheral devices attachable through cables or a docking cradle, the
Springboard expansion slot offers smooth integration and "plug and play"
operation:

     - the "open face" design of the slot provides an intuitive and robust
       mechanism for effortless insertion and removal of modules;

     - the software required to run a module is contained within the module
       itself, and can install and run automatically, relieving the user from
       the burden of installing special software in order to use a module; and

     - in most module designs, the software is automatically uninstalled when
       the module is removed, which reduces the opportunity for conflict with
       other software and frees up memory for other purposes.

     Handspring also entered into a Springboard licensing agreement in June 2000
with Symbol Technologies which will integrate the Springboard expansion slot
into the next-generation version of its handheld computing products targeted at
the enterprise and vertical markets.

     SPRINGBOARD MODULES. To offer customers a broad range of functionality and
content, we and third-party developers have developed and continue to develop
modules that snap into our Springboard expansion slot. Beginning in October
1999, when we launched our Visor handheld computer, we made tools and
documentation widely available for module developers. Since that time more than
5,300 developers have registered with Handspring.

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     Third party developers may sell their modules through their own marketing
and sales efforts and through our handspring.com Web site. We test modules
offered on our Web site and certify them as "Springboard compatible."

     The following table shows selected Springboard modules that are currently
available.

COMMERCIALLY AVAILABLE SPRINGBOARD MODULES

<TABLE>
<CAPTION>
         PRODUCT NAME                           DESCRIPTION                           DEVELOPER
         ------------                           -----------                           ---------
<S>                                <C>                                      <C>
@ctiveLink two-way wireless        Wireless access to the Internet and      Glenayre Electronics, Inc.
communications module              email
Backup Module                      Backs up data on the Visor handheld      Handspring
                                   computer without connecting to a
                                   desktop computer
Covey Reference Library            Reference library                        Franklin Covey Co.
EASports Tiger Woods PGA Tour      Golf game                                Electronic Arts Inc.
Golf                                                                        distributed by Handspring
Eyemodule Digital Camera           Enables users to capture color or        IDEO Product Development Inc.
                                   black and white digital images and
                                   beam them from Visor's infrared port
                                   to another Visor or synchronize them
                                   with a personal computer
8MB Flash Module                   Storage module for user applications     Handspring
                                   and data
InnoPak/2V                         A 2MB memory expansion with a            Innogear
                                   vibrating alarm
IntelliGolf                        Tracks and analyzes golf performance     Karrier Communications
MiniJam MP3 Player                 An MP3 player and voice recorder,        Innogear
                                   with memory and a headphone jack
Modem Module                       Module that enables users to connect     Handspring
                                   to their desktops via standard phone
                                   lines and synchronize their data from
                                   a remote location. With third party
                                   software, users can also check their
                                   email, surf the Web and send faxes
Momentum Bar Code Scanner          Bar code scanner                         PSC Inc.
OmniRemote Universal Remote        Universal remote control for home        Pacific Neo-Tek, Inc.
Control
2000 Physician's Desk Reference    Medical reference guide                  Franklin Electronic
                                                                            Publishers, Inc.
SoundsGood MP3 Player              MP3 music player                         Good Technology
SpringPort Modem 56 Global         56K bps modem                            Xircom, Inc.
Access
Star Trek BookPak                  Seven Star Trek books                    Peanut Press.com, Inc.
Thincom Portable Modem             Modem with e-mail and Web browsing       Card Access, Inc.
                                   applications
</TABLE>

     The following table shows selected Springboard modules that have been
announced by developers as being under development.

ANNOUNCED SPRINGBOARD MODULES IN DEVELOPMENT

<TABLE>
<CAPTION>
         PRODUCT NAME                           DESCRIPTION                           DEVELOPER
         ------------                           -----------                           ---------
<S>                                <C>                                      <C>
Blue-connect Bluetooth             A wireless communications module         Widcomm Inc.
communication module               designed to allow the Visor handheld
                                   computer to communicate with other
                                   Bluetooth-enabled devices, such as
                                   laptops or cell phones
Contactless Smart Cards % RFID     Contactless communication for the        Inside Technologies
read/write unit                    security and electronic
                                   identification markets
Cordless Phone module platform     Provides cordless telephone and          Zilog, Inc.
                                   remote control capabilities
</TABLE>

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<TABLE>
<CAPTION>
         PRODUCT NAME                           DESCRIPTION                           DEVELOPER
         ------------                           -----------                           ---------
<S>                                <C>                                      <C>
CUERadio                           Allows users to listen to music over     CUE Corporation
                                   the radio and receive traffic alerts
                                   and personal messages
CSM150 Bar Code Scanning Module    Bar code scanner                         Symbol Technologies, Inc.
The Geode                          Interactive travel guide                 GeoDiscovery
GSM/GPS module                     Navigation device                        Tel@markt GmbH
HandyGPS module                    Global positioning system receiver       Nexian, Inc.
InfoMitt one way pager             Receives alphanumeric pages, email       Remote Solution
                                   and electronic magazines
King James Bible                   Bible                                    Franklin Electronic
                                                                            Publishers, Inc.
Lonely Planet City Sync USA        City guides                              Lonely Planet Publications
Travel Guides
Merriam-Webster Dictionary         Dictionary                               Franklin Electronic
                                                                            Publishers, Inc.
Minstrel S                         Enables wireless access to email,        Novatel Wireless, Inc.
                                   corporate LANs and the Internet via
                                   the Cellular Digital Packet Data
                                   (CDPD) network
MyCorder Analog Data               Measures and records analog data such    Datastick Systems
Acquisition System                 as temperature, pressure, and 3D
                                   Acceleration
Parafone                           Cordless telephone                       Arkon Networks, Inc.
SB1000 Wireless module             CDMA based mobile telephone              AirPrime, Inc.
My-Vox Voice Recorder              Voice recorder                           Shinei
Sensor Modules for Education       Sensors for data collection,             ImagiWorks, Inc.
and Science                        including temperature and light
                                   measurements, and heart rate
                                   monitoring
SixPak Combo Card                  Combination of LED and vibrating         Innogear
                                   alarm, wireline modem, cellular
                                   capable modem, expanded memory and
                                   voice recorder
Springboard Adapter                CDPD wireless data and Internet          Sierra Wireless, Inc.
                                   access                                   Go America, Inc.
Springboard OMAP solution          3G wireless connectivity platform        Texas Instruments
                                                                            Incorporated
SpringPort Wired Ethernet          Ethernet module for connecting to        Xircom, Inc.
                                   corporate networks
SpringPort Wireless Data           Wireless data communications using       Xircom, Inc.
                                   GSM and PDC network standards
SpringPort Wireless Ethernet       Wireless module for connecting to        Xircom, Inc.
                                   corporate networks using the 802.1 1b
                                   standard
Total Recall Digital Recorder      Digital recorder and playback module     Digital 5, Inc.
VisorPhone                         GSM based mobile telephone               Handspring
WIPClip                            Wireless CDPD modem                      Tellus Technology Inc.
Wireless communications module     Wireless messaging platform              JP Systems, Inc.
</TABLE>

     VISORPHONE. In September 2000, we announced the VisorPhone, a module that
plugs into the Springboard slot allowing a Visor to be used as a mobile
telephone. VisorPhone offers customers the convenience of carrying one device
rather than a separate mobile phone and handheld computer. The VisorPhone user
interface is thoroughly integrated with the Visor. For example, users can dial
directly any number from their address book. VisorPhone also offers an improved
user interface for phone functions available on many phones today, such as
easily created speed dials, conference calling, and dialing from a call log.
Finally, VisorPhone supports SMS (Short Message Services) allowing users to send
short text messages using the Visor text entry methods.

     VisorPhone supports the GSM (global system for mobile communications)
standard, and initially will be sold only over the handspring.com Web site.
Service will be provided by four leading GSM carriers in the U.S.:

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Bell South DCS, Pacific Bell Wireless, Powertel and VoiceStream. We expect to
ship VisorPhone by the end of the year in the U.S. We plan to ship a European
version of VisorPhone in the European market, and to expand U.S. distribution to
retail partners, in the first half of 2001.

     ACCESSORIES. We offer a full line of accessories through our Web site. To
address a broad range of customer preferences, we offer a selection of over 150
cases, including leather, a variety of stylus packs, and a line of clothing and
travel bags displaying the Handspring name and logo. In addition, third parties
offer accessories for the Visor handheld computer, including the GoType!
keyboard from Landware and the Stowaway portable keyboard from Targus.

DEVELOPERS

     Our Springboard platform was designed to foster a large community of third
party developers. We seek to encourage developers to create new high value
modules with integrated applications for use with the Visor handheld computer,
which we believe will create new markets and expand existing ones for Handspring
devices.

     For developers, the Springboard expansion slot provides a well defined and
flexible power management structure for ease of designing and using modules. The
slot is open faced on two sides, which allows developers great freedom in
designing a module's form factor. This feature also provides a secure mechanism
for attaching the module to the Visor handheld computer so that the two devices
look cosmetically and physically integrated. Each Visor handheld computer also
includes a built-in microphone that developers can use for voice input products.

     We have a growing team of employees dedicated to serving the developer
community, both in technical support and co-marketing opportunities. Our
developer support program provides developers open access to underlying
technical information regarding our products and the Springboard platform,
including a thoroughly documented Handspring Development Kit available at our
Web site. We offer our Handspring Development Kit and a license to our
Springboard-related intellectual property on a royalty-free, non-exclusive
basis. We also offer an optional, paid support program to those developers that
require a more detailed level of support.

     To assist developers in the production of modules, we provide them with
access to our manufacturing partners and materials suppliers. We facilitate
distribution of modules over our Web site that we created in partnership with
PalmGear. We also provide introductions for our developers to our retail channel
partners. In the future we expect to host developers' conferences to further
promote our developer community.

     As of August 31, 2000, more than 5,300 developers have registered in our
developer program.

SALES AND MARKETING

     Our initial distribution strategy was to sell exclusively through our Web
site. This strategy enabled us to get to market quickly, and provided us with
detailed information about our initial purchasers. We intend to continue to
promote our Web site as a major site to buy our products on the Internet. With
this in mind, we have expanded our offerings at our site to include software
links and links to various third party module vendors, including a Web store run
by PalmGear H.Q., where Handspring customers can purchase Springboard expansion
modules and Visor accessories. We have provided customers the ability to
register for ongoing communications with us via an e-newsletter, and we enable
customers to register their product purchases on our Web site. We also offer a
broad array of accessories and cases on our Web site to continue to drive
traffic back to the site for incremental purchases.

     To expand our market presence, we extended our distribution strategy in
March 2000 to include initially three national retailers, Staples, Best Buy, and
CompUSA which accounted for 15%, 14% and 11% of revenue, respectively, during
fiscal 2000. These retailers serve three major segments of buyers, consisting of
consumer electronics purchasers, computer purchasers and office supply
purchasers with retail locations across the United States. In recent months, we
have expanded our distribution into international markets, and have added
additional retail and sales partners within the United States. We expect to add
additional retail and Internet sales partners throughout 2000. In June 2000, our
products became available at Amazon.com. We
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plan to work closely with our online and retail partners to enable an efficient
channel for broad consumer availability of our products.

     We have introduced Visor handheld computers in English, German, French and
Japanese. We also have developed partnerships in Europe and Japan to establish a
local e-commerce presence for customers in these markets that are interested in
purchasing Handspring products online. We plan to engage local value-added
distributors and e-commerce partners in all the major markets in Europe and Asia
where our localized language versions meet market needs.

     We believe there is an opportunity to expand our market presence through
strategic promotional efforts and through original equipment manufacturers or
private label partnerships. We have broad interest from major brand marketers,
who supply our target customers with various products or services, to co-promote
the Visor handheld computers along with their products or services. An example
is a recent promotion in which Virgin Atlantic Airlines provided first class and
business class passengers with a free Visor.

     We believe building brand awareness is important to our success. We use a
variety of marketing programs to build awareness of our products through
mass-media advertising, targeted advertising, end user promotions, public
relations campaigns, strategic promotional efforts and in-store retail
merchandising. We will work with our third party developers to promote their
Springboard modules as they are introduced to the market. This strategy should
provide us with several opportunities to build product and brand awareness.

CUSTOMER SERVICE AND SUPPORT

     We provide telephone-based customer support and technical support to our
customers through outsource partners. We also provide customer support and
technical support information to our customers through our Web site. Our retail
and reseller partners provide first-line customer and technical support to their
customers. We provide escalation service and support and technical training for
our outsource providers and reseller partners. We sell our products with a
one-year limited warranty.

     We currently outsource our repair services to Jabil's Louisville, Kentucky
facility. Jabil receives products from customers that need repair, provides
replacement or repaired units to customers and refurbishes devices for ongoing
service repair stock. We depend on Jabil to perform these services in a timely
fashion and at satisfactory quality levels.

PRODUCT DEVELOPMENT AND TECHNOLOGY

     Our products are conceived, designed and implemented through the
collaboration of our internal engineering, marketing and manufacturing
organizations. Our product design efforts are focused on improving our existing
products as well as developing new products. We intend to continue to employ a
customer focused design approach by providing innovative products that respond
to and anticipate customer needs for functionality, mobility, simplicity, style
and ease of use.

     Technologies required to support product development are either created
internally or licensed from outside providers. Our internal staff includes
engineers of many disciplines including software architects, electrical
engineers, mechanical engineers, quality engineers, manufacturing process
engineers and user interface design specialists. Once a project is initiated and
approved, a multi-disciplinary team is created to complete the design of the
product and transition it into manufacturing. In order to achieve our objective
of being a leader in innovation for handheld computing and communications, we
have parallel development teams working on multiple projects.

     We have a formal product release process in which products must pass
established quality benchmarks and manufacturing guidelines before they are
released into production. We use a quality assurance process that provides
feedback to our manufacturing and engineering organizations, as well as our
outsource manufacturing and materials partners, allowing them to take corrective
actions if defects are reported after a product has been released into
production.

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<PAGE>   9

     We expect to continue to invest aggressively to develop new products. To
this end, we expect to make material expenditures on research and development
during the 2001 fiscal year. Our research and development expenditures totaled
approximately $2.7 million in fiscal 1999 and approximately $10.3 million in
fiscal 2000. As of August 31, 2000, we had 50 people engaged in research and
development activities.

MANUFACTURERS AND SUPPLIERS

     All of our Visor handheld computers are currently manufactured on a
purchase order basis either by Flextronics at its facilities in Malaysia or by
Solectron at its facilities in Mexico. Flextronics and Solectron procure
components and other supplies, manufacture, assemble and test our products. By
outsourcing the entire manufacturing process, we are able to focus on our
strengths, including product development and design, minimize capital
expenditures, rely on a third party with more manufacturing expertise than
ourselves and avoid the need to find and maintain facilities for manufacturing
operations.

     We currently outsource the manufacturing of our Handspring labeled
Springboard modules to Smart Modular of Fremont, California. VisorPhone is built
in partnership with Option International of Leuven, Belgium. We outsource the
design and production of our accessory products to several outside partners.

     The components that make up our products are purchased from various
vendors, including key suppliers such as Motorola, which supplies
microprocessors and Acura Tech Ltd., which supplies connector systems. Some of
our components are currently supplied by sole or single source suppliers for
which alternative sources have not been readily available in sufficient
quantities or at an attractive cost. Power supply integrated circuits,
microprocessors and some discrete components are examples of key components that
are obtained from a sole or single source.

     We and our partners follow a formal manufacturing quality process that
includes qualification of material supplier sources, product-specific process
definition and qualification, daily measurement of key manufacturing processes
and test metrics, a closed-loop corrective action process and an outgoing
sampling audit of finished product. In addition, we have a supplier quality
manager position in each manufacturing region and conduct periodic on-site
audits of our manufacturing partners and key component suppliers.

     End-user customers place orders on our Web site or over the telephone.
Retail sales orders are placed in our internal order processing system. All
orders are transmitted to our fulfillment agent, Modus Media International,
Inc., which completes the pack-out process by assembling a finished goods box
consisting of the applicable product, software and other assorted materials.

COMPETITION

     The market for handheld computer products is highly competitive and we
expect competition to increase in the future. Some of our competitors or
potential competitors have significantly greater financial, technical and
marketing resources than we do. These competitors may be able to respond more
rapidly than we can to new or emerging technologies or changes in customer
requirements. They may also devote greater resources to the development,
promotion and sale of their products than we do.

     We believe that the principal competitive factors impacting the market for
our handheld computers are design, features, performance, price, brand and
availability. We believe that we compete favorably compared to many of our
current competitors with respect to some or all of these factors.

     Our handheld computers and Springboard modules compete with a variety of
handheld devices, including keyboard-based devices, sub-notebook computers,
smart phones and two-way pagers. Our principal competitors include:

     - Palm, from whom we license our operating system;

     - licensees of the Microsoft Windows CE operating system for devices such
       as the PocketPC, including Casio, Compaq and Hewlett-Packard;

     - members of the Symbian consortium, including Psion, Ericsson and
       Motorola;

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     - other Palm OS operating system licensees, including Nokia, Kyocera and
       Sony; and

     - Research In Motion Limited, a leading provider of wireless email, instant
       messaging and Internet connectivity.

     We expect our competitors to continue to improve the performance of their
current products and to introduce new products, services and technologies. For
example, in August 2000, both Palm and Sony introduced new handheld computers
based on the Palm OS operating system. Successful new product introductions or
enhancements by our competitors could reduce the sales and market acceptance of
our products, cause intense price competition or make our products obsolete. To
be competitive, we must continue to invest significant resources in research and
development, sales and marketing and customer support. We cannot be sure that we
will have sufficient resources to make these investments or that we will be able
to make the technological advances necessary to be competitive. Increased
competition could result in price reductions, fewer customer orders, reduced
margins and loss of market share. Our failure to compete successfully against
current or future competitors could seriously harm our business.

INTELLECTUAL PROPERTY

     Our success depends upon our ability to maintain the proprietary aspects of
our technology and operate without infringing the proprietary rights of others.
We rely on a combination of trade secret, trademark, copyright and patent laws
and contractual restrictions on disclosure to protect our intellectual property
rights. We do not have any issued U.S. or foreign patents, but we have applied
for U.S. patents and have filed foreign patent applications based on our U.S.
patent applications. We own a number of trademarks, including Handspring, the
Handspring logo, Springboard and Visor.

     We license various technologies from third parties that have been
integrated into our products. We believe that licensing complementary
technologies improves our products in an efficient manner, allowing us to focus
on our core competencies. Our most significant license is of the Palm OS
operating system from Palm. We also license both conduit software from Chapura,
Inc. that allows for synchronization with Microsoft Outlook as well as CDMA
technology from QUALCOMM for potential wireless solutions. Our Palm OS operating
system license requires the payment of royalties and maintenance and support
fees to Palm. The license is non-exclusive, and Palm has previously licensed and
could continue to license the Palm OS operating system to others, including our
competitors. The license agreement extends until September 2003 and may be
renewed for successive one-year terms if both parties agree. We have a close
working relationship with Palm. We have collaborated and continue to collaborate
with Palm in advancing the Palm OS operating system technology.

     It is possible that Palm will choose not to renew the license at the end of
its term for competitive or other reasons. Upon expiration or termination of the
Palm OS operating system license agreement, other than due to our breach, we may
choose to keep the license granted under this agreement for two years following
the expiration or termination. However, the license during this two-year period
is limited and does not entitle us to upgrades to the Palm OS operating system.
If we were not a licensee of the Palm OS operating system, we would be required
to license a substitute operating system, which could be less desirable and
could be costly in terms of cash and other resources. In the alternative, we
could develop our own operating system, which would take considerable time,
resources and expense, would divert our engineers' attention from product
innovations and would not have the advantage of Palm OS operating system
application compatibility. In addition, we may not assign that license agreement
to a third party without the written consent of Palm unless it is to a purchaser
of substantially all of our assets who is not a competitor of Palm. The
existence of these license provisions may have an anti-takeover effect in that
it could discourage competitors of Palm from making a bid to acquire us.

EMPLOYEES

     As of August 31, 2000, we had a total of 258 employees, of which 50 were in
research and development, 35 were in manufacturing services, 121 were in
marketing and sales and 52 were in general and administrative. We plan to hire
substantial numbers of additional personnel in all areas of our business,
particularly in sales
                                        9
<PAGE>   11

and marketing. We consider our relationships with employees to be good. None of
our employees is covered by collective bargaining agreements. Competition for
qualified personnel in our industry and geographical location is intense, and we
cannot assure you that we will be successful in attracting, integrating,
retaining and motivating a sufficient number of qualified personnel to conduct
our business in the future.

ITEM 2. PROPERTIES

     Our headquarters are located in approximately 58,400 square feet of leased
office space in Mountain View, California. The lease term extends to August
2004. We recently entered into another lease for approximately 28,000 square
feet of additional office space in Mountain View which extends to June 2008. In
addition, we currently lease office space in Singapore, Japan, the United
Kingdom, the Netherlands and Switzerland. We believe our current office space is
adequate for our current operations. While vacancy rates in the Silicon Valley
currently are extremely low, we believe that additional office space, if
required, can be obtained.

     Handspring U.K. Ltd., located in the United Kingdom, and Handspring B.V.,
located in the Netherlands, are engaged in customer service, support and
marketing activities. Handspring International Ltd., located in Switzerland, and
Handspring K.K., located in Japan, are engaged in sales as well as customer
service, support and marketing activities. Handspring Singapore Pte. Ltd.,
located in Singapore, is engaged in quality assurance and manufacturing support
services.

ITEM 3. LEGAL PROCEEDINGS

     From time to time, we may be involved in litigation relating to claims
arising out of our operations. As of the date of filing this annual report, we
are not subject to any material legal proceedings.

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

     On April 13, 2000, Handspring, Inc. ("Handspring California"), the
California predecessor of the Company, solicited the written consents of its
shareholders to approve the following matters: (1) an increase in the number of
shares reserved and available for issuance under the 1998 Equity Incentive Plan
by 2,400,000 shares to 28,707,693 shares, and (2) an increase in the number of
shares reserved and available for issuance under the 1999 Executive Equity
Incentive Plan by 1,350,000 shares to 10,350,000. These numbers reflect the
3-for-2 split that occurred at the end of May 2000. Each of the proposals was
approved by Handspring California's shareholders, with 87.93% of the outstanding
shares voting for each proposal, 0% of the outstanding shares voting against
each proposal and 12.07% of the outstanding shares abstaining from voting on
each proposal.

     On April 26, 2000, Handspring California solicited the written consents of
its shareholders to approve an amendment to the Articles of Incorporation to
allow for the issuance of up to 50,000 shares of common stock to charitable
organizations. The proposal was approved by Handspring California's
shareholders, with 87.93% of the outstanding shares voting for the proposal, 0%
of the outstanding shares voting against the proposal and 12.07% of the
outstanding shares abstaining from voting on each proposal.

     On April 27, 2000, the Company solicited the written consent of its then
sole stockholder, Handspring California, to approve the following matters: (1)
the reincorporation merger with Handspring (California), (2) the First Restated
Certificate of Incorporation, (3) the Second Restated Certificate of
Incorporation, (4) the Restated Bylaws, (5) the Indemnity Agreements, and (6)
adoption of the 2000 Equity Incentive Plan, the 2000 ESPP, and the assumption of
existing 1998 and 1999 equity incentive plans. Each of the proposals was
approved by the Company's sole stockholder, with 100% of the outstanding stock
voting for each proposal.

     On May 3, 2000, Handspring California solicited the written consents of its
shareholders to approve the following matters: (1) the reincorporation merger
with Handspring (Delaware), (2) the First Restated Certificate of Incorporation,
(3) the Second Restated Certificate of Incorporation, (4) the Restated Bylaws,
(5) the Indemnity Agreements, and (6) adoption of the 2000 Equity Incentive Plan
and the 2000 ESPP. Each of the proposals was approved by Handspring California's
shareholders, with 99.95% of the outstanding

                                       10
<PAGE>   12

shares voting for each proposal, 0% of the outstanding shares voting against
each proposal and 0.05% of the outstanding shares abstaining from voting on each
proposal.

     On May 24, 2000, the Company solicited the written consents of its
shareholders to approve a 3-for-2 split of the Common Stock of the Company. The
proposal was approved by the Company's stockholders, with 87.65% of the
outstanding shares voting for the proposal, 0% of the outstanding shares voting
against the proposal and 12.35% of the outstanding shares abstaining from voting
on each proposal.

                                    PART II

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

     MARKET FOR REGISTRANT'S COMMON EQUITY. Our Common Stock is traded on the
Nasdaq National Market under the symbol "HAND." The following table sets forth
the range of the high and low sales prices by quarter as reported on the Nasdaq
National Market since June 21, 2000, the date our Common Stock commenced
trading:

<TABLE>
<CAPTION>
                      FISCAL YEAR 2000                        HIGH    LOW
                      ----------------                        ----    ---
<S>                                                           <C>     <C>
Fourth Quarter (commencing June 21, 2000)...................  $28     $22 7/8
</TABLE>

     On August 31, 2000, the number of stockholders of record was 188.

     We currently intend to retain any earnings for use in our business and do
not anticipate paying any cash dividends in the foreseeable future.

     USE OF PROCEEDS FROM SALES OF REGISTERED SECURITIES. Our Registration
Statement on Form S-1 (File No. 333-33666) related to our initial public
offering was declared effective by the SEC on June 20, 2000. A total of
11,500,000 shares of our Common Stock was registered with the SEC with an
aggregate registered offering price of $230 million, all of which shares were
registered on our behalf. The offering commenced on June 20, 2000 and all shares
of Common Stock being offered were sold for the aggregate registered offering
price through a syndicate of underwriters managed by Credit Suisse First Boston
Corporation; Merrill Lynch, Pierce, Fenner & Smith Incorporated; Donaldson,
Lufkin & Jenrette Securities Corporation; and U.S. Bancorp Piper Jaffray Inc.

     We paid to the underwriters underwriting discounts and commissions totaling
$15.5 million in connection with the offering. In addition, we reasonably
estimate that we incurred additional expenses of approximately $1.6 million in
connection with the offering, which when added to the underwriting discounts and
commissions paid by us amounts to total estimated expenses of $17.1 million.
Thus the net offering proceeds to us (after deducting underwriting discounts and
commissions and offering expenses) were approximately $212.9 million. No
offering expenses were made directly or indirectly to any of our directors or
officers (or their associates), or persons owning ten percent (10%) or more of
any class of our equity securities or to any other affiliates.

     As of July 1, 2000, $3.0 million of the net proceeds received by us from
our initial public offering had been allocated to general working capital and
the remainder had been invested in short-term, interest-bearing,
investment-grade securities.

                                       11
<PAGE>   13

ITEM 6. SELECTED FINANCIAL DATA

     The following selected consolidated financial data should be read in
conjunction with our Consolidated Financial Statements and the related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this annual report. The selected consolidated
statement of operations data presented below for the years ended July 1, 2000
and June 30, 1999, and the selected consolidated balance sheet data as of July
1, 2000 and June 30, 1999, are derived from our consolidated financial
statements that have been included elsewhere in this annual report.

<TABLE>
<CAPTION>
                                                                                   PERIOD FROM
                                                                                  JULY 29, 1998
                                                                YEAR ENDED     (DATE OF INCEPTION)
                                                               JULY 1, 2000     TO JUNE 30, 1999
                                                              --------------   -------------------
                                                                         (IN THOUSANDS,
                                                                     EXCEPT PER SHARE DATA)
<S>                                                           <C>              <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue.....................................................     $101,937            $    --
                                                                 --------            -------
Costs and operating expenses:
  Cost of revenue...........................................       69,921                 --
  Research and development..................................       10,281              2,738
  Selling, general and administrative.......................       42,424              2,451
  Amortization of deferred stock compensation...............       40,077              3,646
                                                                 --------            -------
          Total costs and operating expenses................      162,703              8,835
                                                                 --------            -------
Loss from operations........................................      (60,766)            (8,835)
Interest and other income, net..............................          675                446
                                                                 --------            -------
Net loss before taxes.......................................      (60,091)            (8,389)
Income tax provision........................................          200                 --
                                                                 --------            -------
Net loss....................................................     $(60,291)           $(8,389)
                                                                 ========            =======
Basic and diluted net loss per share........................     $  (1.77)           $ (0.71)
                                                                 ========            =======
Shares used in calculating basic and diluted net loss per
  share.....................................................       34,015             11,772
                                                                 ========            =======
</TABLE>

<TABLE>
<CAPTION>
                                                              JULY 1, 2000    JUNE 30, 1999
                                                              ------------    -------------
                                                                     (IN THOUSANDS)
<S>                                                           <C>             <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...........    $196,548         $13,767
Working capital.............................................     182,662          13,108
Total assets................................................     230,472          15,631
Long-term liabilities, net of current portion...............          57              --
Redeemable convertible preferred stock......................          --          17,972
Total stockholders' equity..................................     194,229          (3,616)
</TABLE>

                                       12
<PAGE>   14

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

OVERVIEW

     We were incorporated in July 1998 to develop innovative handheld computers
that are fun, smart, approachable, compelling and personal. Our business is
focused on the sale of our Visor handheld computer, Springboard modules that we
have developed and related accessories. Shipments of these products began in
October 1999 for orders received through our Web site. In March 2000, we began
shipping our products to selected retailers. Starting in May 2000, our Visor
handheld computer became available in Europe, both in English and in German
language versions. In June 2000, we introduced the Japanese language version of
our Visor handheld computer in Japan, and in September 2000, we announced a
French language version to be distributed in France, Belgium, and Switzerland.

     During the period from inception to June 30, 1999, our operating activities
were focused on developing our products, obtaining license rights, establishing
third party manufacturing and distribution relationships, recruiting personnel
and raising capital. During that period, we incurred expenses and generated no
revenue. We first recognized revenue in the second quarter of fiscal 2000. The
following discussion compares the period from July 29, 1998 (date of inception)
to June 30, 1999 with fiscal 2000. For the purpose of this discussion, when we
refer to fiscal 1999, we are referring to the period from inception to June 30,
1999.

     During fiscal 1999 our fiscal months coincided with calendar month ends.
Effective July 1, 1999, we changed our fiscal year to a 52 - 53 week fiscal year
ending on the Saturday nearest to June 30. Unless otherwise stated, all years
and dates refer to our fiscal year and fiscal periods.

     We expect to experience seasonality in the sales of our products. We
anticipate sales to be higher in our second fiscal quarter due to increased
consumer spending patterns on electronic devices during the holiday season. We
also expect that sales may decline during the summer months because of typical
decreased consumer spending patterns during this period. These seasonal
variations in our sales may lead to fluctuations in our quarterly operating
results.

RESULTS OF OPERATIONS

     REVENUE. Revenue is comprised almost entirely of sales of our handheld
computer devices, modules and related accessories. We began shipping products in
October 1999 for orders received through our Web site. In March 2000, we
extended our distribution strategy to include select retailers. During the last
quarter of fiscal 2000, we launched our products in both Europe and Japan
through direct sales over our Web site as well as through leading retailers.
Revenue during fiscal 2000 was $101.9 million.

     Product orders placed by end user customers are received via our Web site
or over the telephone via our third party customer support partner. Retail sales
orders are placed in our internal order processing system. All orders are then
transmitted to our logistics partner. We take title at the point of transfer
from this logistics partner to the common carrier. Title generally then
transfers once the carrier has received the products. We recognize revenue when
a purchase order has been received, the product has been shipped, the sales
price is fixed and determinable and collection of the resulting receivable is
probable. No significant post-delivery obligations exist with respect to revenue
recognized during fiscal 2000. Provisions are made at the time the related
revenue is recognized for estimated product returns and warranty. Also included
in revenue are shipping and handling charges billed to our customers. These
charges amounted to $2.1 million during fiscal 2000.

     Three customers accounted for 15%, 14%, and 11% of revenue during fiscal
2000.

     COST OF REVENUE. Cost of revenue consists primarily of materials, labor,
royalty expenses, warranty expenses and shipping and handling. Cost of revenue
was $69.9 million during fiscal 2000, $2.9 million of which represented shipping
and handling costs.

     RESEARCH AND DEVELOPMENT. Research and development expenses consist
principally of salaries and related personnel expenses, consultant fees and the
cost of materials and software used in product development. Research and
development expenses increased from $2.7 million during fiscal 1999 to

                                       13
<PAGE>   15

$10.3 million during fiscal 2000. The increase was associated with the hiring of
personnel devoted to the development of new products. We believe that continued
investment in research and development is critical to attaining our strategic
objectives and we expect research and development expenses to increase in the
future.

     SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses consist primarily of Web site design and maintenance expenses, salaries
and related expenses, promotional and advertising costs, accounting and
administrative expenses, costs for legal and professional services and general
corporate expenses. Selling, general and administrative expenses increased from
$2.5 million during fiscal 1999 to $42.4 million during fiscal 2000 due to a
general increase in the level of operations, including more personnel and larger
facilities, as well as the launch of our products during fiscal 2000.

     AMORTIZATION OF DEFERRED STOCK COMPENSATION. We granted stock options to
our officers and employees at prices subsequently deemed to be below the fair
value of the underlying stock. The cumulative difference between the fair value
of the underlying stock at the date the options were granted and the exercise
price of the granted options was $102.0 million at July 1, 2000. This amount is
being amortized, using the multiple option method, over the four-year vesting
period of the granted options. Accordingly, our results of operations will
include amortization of deferred stock compensation through fiscal 2004. We
recognized $3.6 million of this expense during fiscal 1999 and $40.1 million
during fiscal 2000.

     Future compensation expense is estimated to be $31.2 million, $18.1
million, $7.7 million, and $1.2 million for the fiscal years ended 2001, 2002,
2003 and 2004, respectively.

     INTEREST AND OTHER INCOME, NET. Interest and other income, net increased
from $446,000 during fiscal 1999 to $675,000 during fiscal 2000. The increase
was primarily a result of increased interest income from higher average cash and
cash equivalents and short-term investments balances during fiscal 2000 as
compared with fiscal 1999.

     Also, included within interest and other income, net is the amortization of
costs associated with a subordinated debt facility agreement that we entered
into in June 1999. These costs relate to the inclusion of a right granted to our
lender to purchase 198,965 shares of Series A preferred stock. The total cost
was amortized over the 12 month term of the agreement.

LIQUIDITY AND CAPITAL RESOURCES

     Prior to our initial public offering on June 20, 2000, we funded our
operations primarily from the sale of preferred stock, through which we raised
net proceeds of $28.0 million. Net proceeds from the initial public offering
were $184.9 million. As of July 1, 2000, cash and cash equivalents were $196.5
million. Subsequent to our fiscal year end the underwriters of our initial
public offering exercised their over-allotment option, which resulted in an
additional $28.0 million of net proceeds to the Company.

     We also borrowed $6.0 million under a subordinated debt facility in June
2000. Borrowings under this facility bore interest at 10.0% per annum, and were
collateralized by substantially all of our assets. The entire outstanding
balance was repaid prior to the end of fiscal 2000. In addition, we have a
secured equipment lease facility that allows a maximum borrowing of $1.0
million, of which $904,000 was available as of July 1, 2000.

     Net cash used in operating activities was $5.9 million during fiscal 2000
and $4.0 million during fiscal 1999. Net cash used in operating activities was
primarily attributable to our net losses and, in fiscal 2000 due to an increase
in accounts receivable of $20.5 million, reflecting the commencement of product
sales. These increases were largely offset by the amortization of deferred stock
compensation and the increase in accounts payable and accrued liabilities due to
a general increase in the level of operations during each fiscal year.

     Net cash used in investing activities during fiscal 2000 was $3.5 million
compared with $6.9 million during fiscal 1999. The uses of cash primarily
consisted of purchases of property and equipment and short-term investments,
partially offset by proceeds received from maturities or sales of short-term
investments.

     Net cash provided by financing activities totaled $198.4 million during
fiscal 2000, primarily due to net proceeds received from our initial public
offering of $184.9 million. We also received $10.0 million from the issuance of
Series B preferred stock, and, in May 2000, we received $1.5 million when our
lender exercised
                                       14
<PAGE>   16

their option to purchase 198,965 shares of Series A preferred stock at $7.539
per share. We received an additional $2.0 million from the issuance of common
stock upon exercise of stock options by employees. Net cash provided by
financing activities was $18.5 million in fiscal year 1999, primarily
attributable to $18.0 million from the issuance of Series A preferred stock.

     Our future capital requirements will depend upon many factors, including
the timing of research and product development efforts and expansion of our
marketing efforts. We believe that our cash and cash equivalents will be
sufficient to meet our working capital needs for at least the next 12 months. To
the extent that we grow more rapidly than expected in the future, we may need
additional cash to finance our operating and investing needs. We intend to
invest the cash in excess of current operating requirements in interest-
bearing, investment-grade securities with maturities no greater than two years.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivatives and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative investments, including certain derivative
instruments embedded in other contracts, and for hedging activities. In July
1999, the FASB issued SFAS No. 137, Accounting for Derivative and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133. SFAS No.
137 deferred the effective date of SFAS No. 133 until fiscal years beginning
after June 15, 2000. The Company will adopt SFAS No. 133 during fiscal 2001. To
date, the Company has not engaged in derivative or hedging activities.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 provides guidance for revenue recognition under certain
circumstances. SAB 101 is effective beginning in the fourth quarter of fiscal
2001. Implementation of SAB 101 is not expected to require us to change existing
revenue recognition policies and therefore is not expected to have a material
effect on the Company's financial position or results of operations.

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

FACTORS AFFECTING FUTURE RESULTS

OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT FOR YOU TO EVALUATE OUR
BUSINESS AND PROSPECTS.

     We incorporated in July 1998. We did not start selling our Visor handheld
computer or generating revenue until the quarter ended January 1, 2000.
Accordingly, we have only a limited operating history upon which you can
evaluate our business. The revenue and income potential of our products and
business are unproven. Our chances of financial and operational success are
subject to the risks, uncertainties, expenses, delays and difficulties
associated with starting a new business in a highly competitive field, many of
which may be beyond our control. If we fail to address these risks,
uncertainties, expenses, delays and difficulties, our business will be harmed.

FLUCTUATIONS IN OUR QUARTERLY REVENUES AND OPERATING RESULTS MIGHT LEAD TO
REDUCED PRICES FOR OUR STOCK.

     Given our lack of operating history, you should not rely on
quarter-to-quarter comparisons of our results of operations as an indication of
our future performance. In some future periods, our results of operations could
be below the expectations of investors and public market analysts. In this
event, the price of our

                                       15
<PAGE>   17

common stock would likely decline. Factors that are likely to cause our results
to fluctuate include the following:

     - the announcement and timely introduction of new products by us and our
       competitors;

     - the timing and the availability of software programs and Springboard
       modules that are compatible with our products;

     - market acceptance of existing and future versions of our products and
       compatible Springboard modules;

     - fluctuations in the royalty rates and manufacturing costs we pay to
       produce our handheld computers;

     - the availability of components required to manufacture our products;

     - the seasonality of our product sales;

     - availability of components;

     - our ability to avoid potential system failures on our Web site;

     - the price of products that both we and our competitors offer; and

     - the mix of products that we offer.

WE HAVE A HISTORY OF LOSSES, WE EXPECT LOSSES TO CONTINUE AND WE MIGHT NOT
ACHIEVE OR MAINTAIN PROFITABILITY.

     Our accumulated deficit as of July 1, 2000 was approximately $68.7 million.
We had net losses of approximately $8.4 million for the period from July 29,
1998 (date of inception) to June 30, 1999 and $60.3 million in fiscal 2000. To
date we have funded our operations primarily through the sale of equity
securities. Moreover, we expect to incur significant operating expenses. We also
expect to continue to incur substantial non-cash costs relating to the
amortization of deferred compensation, which will contribute to our net losses.
As of July 1, 2000, we had a total of $58.3 million of deferred compensation to
be amortized. As a result, we expect to continue to incur losses into calendar
year 2001. Even if we ultimately do achieve profitability, we may not be able to
sustain or increase profitability on a quarterly or annual basis. If our revenue
grows more slowly than we anticipate, or if our operating expenses exceed our
expectations and cannot be adjusted accordingly, our business will be harmed.
See "Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for a more complete
description of our historical losses.

WE DEPEND HEAVILY UPON OUR LICENSE FROM PALM, INC. AND OUR FAILURE TO MAINTAIN
THIS LICENSE COULD SERIOUSLY HARM OUR BUSINESS.

     We rely on technologies that we license or acquire from third parties,
including Palm. Our failure to maintain these licenses could seriously harm our
business. The Palm OS operating system is integrated with our
internally-developed software and hardware, and is used to enhance the value of
our products. Our license of the Palm OS operating system is critical to our
Visor handheld computer. The license agreement extends until September 2003 and
may be renewed for successive one-year terms if both parties agree. It is
possible that Palm will choose not to renew the license at the end of its term
for competitive or other reasons. Upon expiration or termination of the Palm OS
operating system license agreement, other than due to our breach, we may choose
to keep the license granted under the agreement for two years following the
expiration or termination. However, the license during this two-year period is
limited and does not entitle us to upgrades to the Palm OS operating system. If
we were not a licensee of the Palm OS operating system, we would be required to
license a substitute operating system, which could be less desirable and could
be costly in terms of cash and other resources. In the alternative, we could
develop our own operating system, which would take considerable time, resources
and expense, would divert our engineers' attention from product innovations and
would not have the advantage of Palm OS operating system applications
compatibility. In addition, we may not assign that license agreement to a third
party without the written consent of Palm unless it is to a purchaser of
substantially all of our assets who is not a competitor of Palm. The existence
of these license
                                       16
<PAGE>   18

termination provisions may have an anti-takeover effect in that it could
discourage competitors of Palm from acquiring us.

OUR BUSINESS COULD BE HARMED BY LAWSUITS WHICH HAVE BEEN FILED OR MAY IN THE
FUTURE BE FILED AGAINST PALM INVOLVING THE PALM OS OPERATING SYSTEM.

     Suits against Palm involving the Palm OS operating system, which we license
from Palm, could adversely affect us. A disruption in Palm's business because of
these suits could disrupt our operations and cost us money. Palm is a defendant
in several patent infringement lawsuits involving the Palm OS operating system.
Although we are not a party to these cases and we are indemnified by Palm for
damages arising from lawsuit of this type, we could still be adversely affected
by a determination adverse to Palm as a result of market uncertainty or product
changes that could arise from such a determination.

A SIGNIFICANT PORTION OF OUR REVENUES HAS BEEN DERIVED FROM SALES ON OUR WEB
SITE AND SYSTEM FAILURES OR DELAYS HAVE IN THE PAST AND MIGHT IN THE FUTURE HARM
OUR BUSINESS.

     To date, we have generated a significant portion of our revenue through our
Web site. As a result, our business depends on our ability to maintain and
expand our computer systems. We must also protect our computer systems against
damage from fire, water, power loss, telecommunications failures, computer
viruses, vandalism and other malicious acts and similar unexpected adverse
events. During our initial product launch, we experienced system interruptions
and slowdowns due to an improper design and implementation of our Web site from
which consumers purchase our products. This caused long wait times on our Web
site, long delivery times, lost orders, lost revenues and harm to our
reputation. Despite precautions we have taken, unanticipated problems affecting
our systems could again in the future cause temporary interruptions or delays in
the services we provide. Our customers might become dissatisfied by any system
failure or delay that interrupts our ability to provide service to them or slows
our response time. Sustained or repeated system failures or delays would affect
our reputation, which would harm our business. Slow response time or system
failures could also result from straining the capacity of our systems due to an
increase in the volume of traffic on our Web site. While we carry business
interruption insurance, it might not be sufficient to cover any serious or
prolonged emergencies.

WE EXPECT TO INCREASE OUR RELIANCE ON RETAILERS TO SELL OUR PRODUCTS, AND
DISRUPTIONS IN THIS CHANNEL AND OTHER EFFECTS OF SELLING THROUGH RETAILERS WOULD
HARM OUR ABILITY TO GENERATE REVENUES FROM THE SALE OF OUR HANDHELD COMPUTERS.

     We sell our products both through our handspring.com Web site as well as
through retail partners. In March 2000, we entered into agreements with Best
Buy, CompUSA and Staples, currently our three largest retail partners, to resell
our products in their stores in the United States. Since that time we have
expanded our retail distribution into Canada, Germany, the United Kingdom,
France, Japan and other international markets. We have also added additional
retail and sales partners within the United States. We expect to add additional
retail partners worldwide as we continue to expand our business. We are subject
to many risks relating to the retail distribution of our products including the
following:

     - retailers may not maintain inventory levels sufficient to meet customer
       demand;

     - if we reduce the prices of our products, we may have to compensate
       retailers for the difference between the higher price they paid to buy
       their inventory and the new lower prices;

     - product returns could increase as a result of our strategic interest in
       assisting retailers in balancing inventories;

     - retailers may emphasize our competitors' products or decline to carry our
       products;

     - we may not be able to attract or retain a sufficient number of qualified
       retailers; and

     - as increased sales are made through our retail distribution channel, a
       conflict may develop between that channel and direct sales through our
       handspring.com Web site.

                                       17
<PAGE>   19

     In addition, to the extent our revenues through our retail distribution
channel continue to increase as a percentage of total revenues, our gross
margins may decrease because sales through retailers are made at lower margins
than sales through our Web site. A higher percentage of retail distribution
sales also would negatively impact our cash cycle.

OUR PRODUCTION COULD BE SERIOUSLY HARMED IF WE EXPERIENCE A COMPONENT SHORTAGES
OR IF OUR SUPPLIERS ARE NOT ABLE TO MEET OUR DEMAND AND ALTERNATIVE SOURCES ARE
NOT AVAILABLE.

     Our products contain components, including liquid crystal displays, touch
panels, memory chips and microprocessors, that are procured from a variety of
suppliers and that are in great demand. We do not carry any inventory of our
products or product components. We rely on our suppliers to deliver necessary
components to our contract manufacturers in a timely manner based on forecasts
that we provide. At various times, some of the key components for handheld
computers, including display components and flash memory, have been in short
supply, taking up to 180 days between ordering and delivery. In recent months a
number of our suppliers have been capacity constrained due to high industry
demand for their components and relatively long lead times required to expand
factory capacity. Due in part to these component shortages, some of our
competitors have been unable to meet demand for their products. Ongoing
shortages of components would harm our ability to deliver our products on a
timely basis. The cost, quality and availability of components are essential to
the successful production and timely sale of our products.

     Some components, such as power supply integrated circuits, microprocessors
and certain discrete components, come from sole or single source suppliers.
Alternative sources are not currently available for these sole and single source
components. If suppliers are unable to meet our demand for sole source
components and if we are unable to obtain an alternative source or if the price
for an alternative source is prohibitive, our ability to maintain timely and
cost-effective production of our handheld computer products would be seriously
harmed. In addition, because we rely on purchase orders rather than long-term
contracts with our suppliers, including our sole and single source suppliers, we
cannot predict with certainty our ability to procure components in the longer
term. If we receive a smaller allocation of components than is necessary to
manufacture products in quantities sufficient to meet customer demand, customers
could choose to purchase competing products.

IF WE FAIL TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY
STANDARDS, OUR PRODUCTS COULD BECOME LESS COMPETITIVE OR OBSOLETE.

     The market for our products is characterized by rapidly changing
technology, evolving industry standards, changes in customer needs, heavy
competition and frequent new product introductions. If we fail to modify or
improve our products in response to changes in technology or industry standards,
our products could rapidly become less competitive or obsolete. Our future
success will depend, in part, on our ability to:

     - use leading technologies effectively;

     - continue to develop our technical expertise;

     - enhance our current products and develop new products that meet changing
       customer needs;

     - time new product introductions in a way that minimizes the impact of
       customers delaying purchases of existing products in anticipation of new
       product releases;

     - adjust the prices of our existing products to increase customer demand;

     - successfully advertise and market our products; and

     - influence and respond to emerging industry standards and other
       technological changes.

     We must respond to changing technology and industry standards in a timely
and cost-effective manner. We may not be successful in effectively using new
technologies, developing new products or enhancing our existing products on a
timely basis. These new technologies or enhancements may not achieve market
acceptance. Our pursuit of necessary technology may require substantial time and
expense. We may need to

                                       18
<PAGE>   20

license new technologies to respond to technological change. These licenses may
not be available to us on terms that we can accept. Finally, we may not succeed
in adapting our products to new technologies as they emerge.

IF WE ARE NOT SUCCESSFUL IN THE DEVELOPMENT AND INTRODUCTION OF NEW PRODUCTS,
DEMAND FOR OUR PRODUCTS COULD DECREASE.

     We depend on our ability to develop new or enhanced products that achieve
rapid and broad market acceptance. We may fail to identify new product
opportunities successfully and develop and bring to market new products in a
timely manner. In addition, our product innovations may not achieve the market
penetration or price stability necessary for profitability.

     As the use of our Visor handheld computer and Springboard slot continue to
evolve, we plan to develop additional complementary products and services as
additional sources of revenue are available. Accordingly, we may change our
business model to take advantage of new business opportunities, including
business areas in which we do not have extensive experience. For example, we
have recently announced a GSM cell phone module that relies on a wireless
infrastructure. If we fail to develop these or other products successfully, our
business would be harmed.

IF POPULAR SPRINGBOARD MODULES ARE NOT DEVELOPED FOR OUR VISOR HANDHELD
COMPUTER, DEMAND FOR OUR PRODUCTS MAY BE LIMITED.

     To differentiate our products from competitors and attract large numbers of
consumer purchasers of our products, we and third parties need to develop
compelling Springboard modules for our Visor handheld computer. We may be unable
to attract a sufficient number of talented third-party Springboard module
developers because of our relatively small market share in the handheld computer
industry or for technological or other reasons. There is a limited number of
Springboard modules available for sale. If Springboard module developers fail to
anticipate market needs in a timely manner, or if there is not a successful
distribution outlet for the sale of Springboard modules, demand for our Visor
handheld computer may diminish.

OUR REPUTATION COULD BE HARMED IF THE SPRINGBOARD MODULES DEVELOPED BY THIRD
PARTIES ARE DEFECTIVE.

     Because we offer an open development environment, third party developers
are free to design, market and sell modules for our Springboard slot without our
consent, endorsement or certification. Nevertheless our reputation is
inextricably tied to the Springboard modules designed for our Visor handheld
computer. If modules sold by third parties are defective or are of poor quality,
our reputation could be harmed and the demand for our Visor handheld computer
and modules could decline.

IF THE EXPANDABLE DESIGN OF OUR PRODUCTS IS NOT ACCEPTED BY CONSUMERS, OUR
REVENUES WILL FAIL TO MEET OUR EXPECTATIONS.

     Much of the perceived value of our Visor handheld computer lies in the
Springboard expansion slot, which enables users to add functions by inserting
modules into the base device. Many of these modules will perform functions that
are today generally performed by a dedicated standalone device. While we believe
that the simple customization provided by the Springboard slot will be
attractive to users, the uniqueness of the feature combined with the recent
introduction of the product make it unclear whether consumers will prefer our
approach as compared either to multiple dedicated devices or to other designs
for multifunction devices.

IF WE FAIL TO ACCURATELY ANTICIPATE DEMAND FOR OUR PRODUCTS, WE MAY NOT BE ABLE
TO SECURE SUFFICIENT QUANTITIES OR COST-EFFECTIVE PRODUCTION OF OUR HANDHELD
COMPUTERS OR WE COULD HAVE COSTLY EXCESS PRODUCTION.

     Because we have a limited operating history and did not begin selling our
products until October 1999, we have very little information about demand for
our products. The demand for our products depends on many factors and is
difficult to forecast. We experienced product shortages when we introduced our
Visor handheld computer because we underestimated initial demand. We expect that
it will become even more difficult to

                                       19
<PAGE>   21

forecast demand as we introduce and support multiple products and as competition
in the market for our products intensifies. Significant unanticipated
fluctuations in demand could cause problems in our operations.

     If demand does not develop as expected, we could have excess production
resulting in excess inventories of finished products and components. We have
limited capability to reduce manufacturing capacity within a 90-day period. If
we have excess production, we could incur cancellation charges or other
liabilities to our manufacturing partners.

     If demand exceeds our expectations, we will need to rapidly increase
production at our third-party manufacturers. Our suppliers will also need to
provide additional volumes of components, which may not be possible within our
timeframes. Even if our third-party manufacturers are able to obtain enough
components, they might not be able to produce enough of our products as fast as
we need them. The inability of either our manufacturers or our suppliers to
increase production rapidly enough could cause us to fail to meet customer
demand. In addition, rapid increases in production levels to meet unanticipated
demand could result in higher costs for manufacturing and supply of components
and other expenses. These higher costs would lower our profit margins.

IF ANY OF OUR MANUFACTURING PARTNERS FAIL TO PRODUCE QUALITY PRODUCTS ON TIME
AND IN SUFFICIENT QUANTITIES, OUR REPUTATION AND RESULTS OF OPERATIONS WOULD
SUFFER.

     We depend on third-party manufacturers to produce sufficient volume of our
handheld devices, modules and accessories in a timely fashion and at
satisfactory quality levels. The cost, quality and availability of third-party
manufacturing operations are essential to the successful production and sale of
our products. We currently have manufacturing agreements with Flextronics and
Solectron under which we order products on a purchase order basis in accordance
with a forecast. The absence of dedicated capacity under our manufacturing
agreements means that, with little or no notice, our manufacturers could refuse
to continue to manufacture all or some of the units of our devices that we
require or change the terms under which they manufacture our devices. If they
were to stop manufacturing our devices, it could take from three to six months
to secure alternative manufacturing capacity and our results of operations could
be harmed. In addition, if our manufacturers were to change the terms under
which they manufacture for us, our manufacturing costs could increase and our
results of operations could suffer.

     Our reliance on third-party manufacturers exposes us to the following risks
outside our control:

     - unexpected increases in manufacturing and repair costs;

     - interruptions in shipments if one of our manufacturers is unable to
       complete production;

     - inability to control quality of finished products;

     - inability to control delivery schedules;

     - unpredictability of manufacturing yields; and

     - potential lack of adequate capacity to fill all or a part of the services
       we require.

WE RELY ON THIRD PARTIES FOR ORDER FULFILLMENT, REPAIR SERVICES AND TECHNICAL
SUPPORT. OUR REPUTATION AND RESULTS OF OPERATIONS COULD BE HARMED BY OUR
INABILITY TO CONTROL THEIR OPERATIONS.

     We rely on third parties to package and ship customer orders, repair units
and provide technical support. If our order fulfillment services, repair
services or technical support services are interrupted or experience quality
problems, our ability to meet customer demands would be harmed, causing a loss
of revenue and harm to our reputation. Although we have the ability to add new
service providers or replace existing ones, transition difficulties and lead
times involved in developing additional or new third party relationships could
cause interruptions in services and harm our business.

                                       20
<PAGE>   22

WE EXPECT TO FACE SEASONALITY IN OUR SALES, WHICH COULD CAUSE OUR QUARTERLY
OPERATING RESULTS TO FLUCTUATE.

     We expect to experience seasonality in the sales of our products. We
anticipate sales to be higher in our second fiscal quarter due to increased
consumer spending on electronic devices during the holiday season. We also
expect that sales may decline during the summer months because of typical slower
consumer spending in this period. These seasonal variations in our sales may
lead to fluctuations in our quarterly operating results.

OUR FAILURE TO DEVELOP BRAND RECOGNITION COULD LIMIT OR REDUCE THE DEMAND FOR
OUR PRODUCTS.

     We believe that continuing to strengthen our brand will be critical to
increasing demand for, and achieving widespread acceptance of, our handheld
computer products. Some of our competitors and potential competitors have better
name recognition and powerful brands. Promoting and positioning our brand will
depend largely on the success of our marketing efforts, our ability and the
ability of third party developers to deliver software and Springboard modules
that are engaging to our users and our ability to provide high quality support.
To promote our brand, we expect to increase our marketing expenditures and
otherwise increase our financial commitment to creating and maintaining brand
loyalty among users. Brand promotion activities may not yield increased revenues
or customer loyalty and, even if they do, any increased revenues may not offset
the expenses we incur in building and maintaining our brand.

IF WE ARE UNABLE TO COMPETE EFFECTIVELY WITH EXISTING OR NEW COMPETITORS, OUR
RESULTING LOSS OF COMPETITIVE POSITION COULD RESULT IN PRICE REDUCTIONS, FEWER
CUSTOMER ORDERS, REDUCED MARGINS AND LOSS OF MARKET SHARE.

     The market for handheld computing and communication products is highly
competitive and we expect competition to increase in the future. Some of our
competitors or potential competitors have significantly greater financial,
technical and marketing resources than we do. These competitors may be able to
respond more rapidly than we can to new or emerging technologies or changes in
customer requirements. They may also devote greater resources to the
development, promotion and sale of their products than we do.

     Our handheld computers compete with a variety of handheld devices,
including keyboard-based devices, sub-notebook computers, smart phones and
two-way pagers. Our principal competitors include:

     - Palm, from whom we license the Palm OS operating system;

     - licensees of the Microsoft Windows CE operating system for devices such
       as the PocketPC, including Casio, Compaq and Hewlett-Packard;

     - members of the Symbian consortium, including Psion, Ericsson and
       Motorola; and

     - other Palm OS operating system licensees, including Nokia, Kyocera and
       Sony.

     - Research In Motion Limited, a leading provider of wireless email, instant
       messaging and Internet connectivity

     We expect our competitors to continue to improve the performance of their
current products and to introduce new products, services and technologies. For
example, in August 2000, both Palm and Sony introduced new handheld computers
based on the Palm OS operating system. Successful new product introductions or
enhancements by our competitors could reduce sales and the market acceptance of
our products, cause intense price competition or make our products obsolete. To
be competitive, we must continue to invest significant resources in research and
development, sales and marketing and customer support. We cannot be sure that we
will have sufficient resources to make these investments or that we will be able
to make the technological advances necessary to be competitive. Increased
competition could result in price reductions, fewer customer orders, reduced
margins and loss of market share. Our failure to compete successfully against
current or future competitors could seriously harm our business.

OUR MANAGEMENT AND INTERNAL SYSTEMS MIGHT BE INADEQUATE TO HANDLE OUR POTENTIAL
GROWTH.

     We have experienced rapid growth and expansion since our inception. From
July 29, 1998 to August 31, 2000, we increased the number of our employees from
two to 258. This growth has placed, and will continue to

                                       21
<PAGE>   23

place, a significant strain on our management and information systems and
operational and financial resources. To manage future growth, our management
must continue to improve our operational and financial systems and expand,
train, retain and manage our employee base. Our management may not be able to
manage our growth effectively. If our systems, procedures and controls are
inadequate to support our operations, our expansion would be halted and we could
lose our opportunity to gain significant market share. Any inability to manage
growth effectively may harm our business.

OUR PRODUCTS MAY CONTAIN ERRORS OR DEFECTS, OR COULD BE SUBJECT TO VIRUSES,
WHICH COULD RESULT IN THE REJECTION OF OUR PRODUCTS AND DAMAGE TO OUR
REPUTATION, AS WELL AS LOST REVENUES, DIVERTED DEVELOPMENT RESOURCES AND
INCREASED SERVICE COSTS AND WARRANTY CLAIMS.

     Our Visor handheld computer and Springboard modules are complex and must
meet stringent user requirements. We must develop our products quickly to keep
pace with the rapidly changing handheld computing and communications market.
Products as sophisticated as ours are likely to contain detected and undetected
errors or defects, especially when first introduced or when new models or
versions are released. In the future, we may experience delays in releasing new
products as problems are corrected. From time to time, we have become aware of
problems with components and other defects. Errors or defects in our products
that are significant, or are perceived to be significant, could result in the
rejection of our products, damage to our reputation, lost revenues, diverted
development resources and increased customer service and support costs and
warranty claims. In addition, some undetected errors or defects may only become
apparent as new functions are added to our Visor handheld computer through the
use of future Springboard modules. Currently, consumers that purchase through
our Web site may return their Visor handheld computer for any reason within 30
days of purchase. In addition, we warrant that our hardware will be free of
defects for one year from date of purchase. Delays, costs and damage to our
reputation due to product defects could harm our business.

     Our products also could be affected by viruses. In September 2000, the
first-ever virus written to destroy programs based on the Palm OS was
discovered. While there have been few reports of users affected by this virus,
it is possible that viruses may become more prevalent, particularly as handheld
computers are more commonly used for wireless applications that facilitate the
sharing of files and other information. To the extent that antivirus software
was unable to protect users of our product from such viruses, our products could
be rejected and result in increased service costs.

IF WE LOSE OUR KEY PERSONNEL, WE MAY NOT BE ABLE TO MANAGE OUR BUSINESS
SUCCESSFULLY.

     Our future success depends to a significant extent on the continued service
of our key technical, sales and senior management personnel and their ability to
execute our growth strategy. In particular, we rely on Jeffrey C. Hawkins, our
Chief Product Officer, Donna L. Dubinsky, our Chief Executive Officer, and
Edward T. Colligan, our Senior Vice President, Marketing and Sales. The loss of
the services of any of our senior level management, or other key employees,
could harm our business. Our future performance will depend, in part, on the
ability of our executive officers to work together effectively. Our executive
officers may not be successful in carrying out their duties or running our
company. Any dissent among executive officers could impair our ability to make
strategic decisions quickly in a rapidly changing market.

IF WE FAIL TO ATTRACT, RETAIN AND MOTIVATE QUALIFIED EMPLOYEES, OUR ABILITY TO
EXECUTE OUR BUSINESS PLAN WOULD BE COMPROMISED.

     Our future success depends on our ability to attract, retain and motivate
highly skilled employees. Competition for employees in our industry is intense.
Although we provide compensation packages that include stock options, cash
incentives and other employee benefits, we may be unable to retain our key
employees or to attract, assimilate and retain other highly qualified employees
in the future. For example, fluctuations in the market price of our common stock
could lead potential and existing employees to believe that our equity
incentives are less attractive, which could adversely affect our ability to
attract and retain qualified employees. We expect to experience difficulty in
hiring and retaining highly skilled employees with appropriate qualifications.
                                       22
<PAGE>   24

WE DEPEND ON PROPRIETARY RIGHTS TO DEVELOP AND PROTECT OUR TECHNOLOGY.

     Our success and ability to compete substantially depends on our internally
developed proprietary technologies, which we protect through a combination of
trade secret, trademark, copyright and patent laws. While we have patent
applications pending, to date no U.S. or foreign patents have been granted to
us.

     Patent applications or trademark registrations may not be approved. Even if
they are approved, our patents or trademarks may be successfully challenged by
others or invalidated. In addition, any patents that may be granted to us may
not provide us a significant competitive advantage. If our trademark
registrations are not approved because third parties own these trademarks, our
use of these trademarks would be restricted unless we enter into arrangements
with the third-party owners, which might not be possible on commercially
reasonable terms or at all. If we fail to protect or enforce our intellectual
property rights successfully, our competitive position could suffer.

     We may be required to spend significant resources to protect, monitor and
police our intellectual property rights. We may not be able to detect
infringement and may lose competitive position in the market before we do so. In
addition, competitors may design around our technology or develop competing
technologies. Intellectual property rights may also be unavailable or limited in
some foreign countries, which could make it easier for competitors to capture
market share.

WE COULD BE SUBJECT TO CLAIMS OF INFRINGEMENT OF THIRD-PARTY INTELLECTUAL
PROPERTY, WHICH COULD RESULT IN SIGNIFICANT EXPENSE AND LOSS OF INTELLECTUAL
PROPERTY RIGHTS.

     Our industry is characterized by uncertain and conflicting intellectual
property claims and frequent intellectual property litigation, especially
regarding patent rights. From time to time, third parties have in the past and
may in the future assert patent, copyright, trademark or other intellectual
property rights to technologies that are important to our business. For example,
we have received a letter from NCR notifying us of potential infringement of its
patents, although we do not believe that resolution of the matter will have a
material impact on us. We may in the future receive other notices of claims that
our products infringe or may infringe intellectual property rights. Any
litigation to determine the validity of such claims, including claims arising
through our contractual indemnification of our business partners, regardless of
their merit or resolution, would likely be costly and time consuming and divert
the efforts and attention of our management and technical personnel. We cannot
assure you that we would prevail in such litigation given the complex technical
issues and inherent uncertainties in intellectual property litigation. If such
litigation resulted in an adverse ruling, we could be required to:

     - pay substantial damages;

     - cease the manufacture, use or sale of infringing products;

     - discontinue the use of certain technology; or

     - obtain a license under the intellectual property rights of the third
       party claiming infringement, which license may not be available on
       reasonable terms, or at all.

OUR FUTURE RESULTS COULD BE HARMED BY ECONOMIC, POLITICAL, REGULATORY AND OTHER
RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS.

     To date, we have generated substantially all of our revenue from sales in
the United States. In recent months, however, we have entered the European and
Asian markets. We expect to enter additional international markets over time. To
the extent that our revenue from international operations represents an
increasing portion of our total revenue, we will be subject to increased
exposure to international risks. In addition, the facilities where our Visor
handheld computers are, and will be, manufactured are located outside the United
States. A substantial number of our material suppliers are based outside of the
United States, and

                                       23
<PAGE>   25

are subject to a wide variety of international risks. Accordingly, our future
results could be harmed by a variety of factors, including:

     - changes in foreign currency exchange rates;

     - changes in a specific country's or region's political or economic
       conditions, particularly in emerging markets;

     - trade protection measures and import or export licensing requirements;

     - development risks and expenses associated with customizing our products
       for local languages;

     - potentially negative consequences from changes in tax laws;

     - impact of natural disasters with an inability of the local government to
       quickly provide recovery services;

     - difficulty in managing widespread sales and manufacturing operations; and

     - less effective protection of intellectual property.

WE MAY PURSUE STRATEGIC ACQUISITIONS AND WE COULD FAIL TO SUCCESSFULLY INTEGRATE
ACQUIRED BUSINESSES.

     We expect to evaluate acquisition opportunities that could provide us with
additional product or services offerings, technologies or additional industry
expertise. Any future acquisition could result in difficulties assimilating
acquired operations and products, diversion of capital and management's
attention away from other business issues and opportunities and amortization of
acquired intangible assets. Integration of acquired companies may result in
problems related to integration of technology and management teams. Our
management has had limited experience in assimilating acquired organizations and
products into our operations. We could fail to integrate the operations,
personnel or products that we may acquire in the future. If we fail to
successfully integrate acquisitions, our business could be materially harmed.

WE MIGHT NEED ADDITIONAL CAPITAL IN THE FUTURE AND ADDITIONAL FINANCING MIGHT
NOT BE AVAILABLE.

     We currently anticipate that our available cash resources will be
sufficient to meet our anticipated working capital and capital expenditure
requirements for the next 12 months. However, our resources may prove to be
insufficient for these working capital and capital expenditure requirements. We
may need to raise additional funds through public or private debt or equity
financing in order to:

     - take advantage of opportunities, including the purchase of technologies
       or acquisitions of complementary businesses;

     - develop new products or services; or

     - respond to competitive pressures.

     Any additional financing we need may not be available on terms acceptable
to us, or at all. If adequate funds are not available or are not available on
acceptable terms, we might not be able to take advantage of unanticipated
opportunities, develop new products or services or otherwise respond to
unanticipated competitive pressures, and our business could be harmed.

THE PRICE OF OUR COMMON STOCK HAS BEEN AND IS LIKELY TO CONTINUE TO BE VOLATILE
AND SUBJECT TO WIDE FLUCTUATIONS.

     The market price of the securities of technology-related companies has been
especially volatile. Thus, the market price of our common stock is likely to be
subject to wide fluctuations, particularly given that only a small portion of
our outstanding shares currently are publicly traded. If our revenues do not
grow or grow more slowly than we anticipate, or, if operating or capital
expenditures exceed our expectations and cannot be adjusted accordingly, or if
some other event adversely affects us, the market price of our common stock
could decline. In addition, if the market for technology-related stocks or the
stock market in general experiences a loss in investor confidence or otherwise
fails, the market price of our common stock could fall for reasons unrelated to
our business, results of operations and financial condition. The market price of
our stock also might decline in reaction to events that effect other companies
in our industry even if these events do not directly affect us. In the past,
companies that have experienced volatility in the market price of their stock

                                       24
<PAGE>   26

have been the subject of securities class action litigation. If we were to
become the subject of securities class action litigation, it could result in
substantial costs and a diversion of management's attention and resources.

PROVISIONS IN OUR CHARTER DOCUMENTS MIGHT DETER A COMPANY FROM ACQUIRING US.

     We have a classified board of directors. In addition, our stockholders are
unable to call special meetings of stockholders, to act by written consent, to
remove any director or the entire board of directors without a super majority
vote or to fill any vacancy on the board of directors. Our stockholders must
also meet advance notice requirements for stockholder proposals. Our board of
directors may also issue preferred stock without any vote or further action by
the stockholders. These provisions and other provisions under Delaware law could
make it more difficult for a third party to acquire us, even if doing so would
benefit our stockholders.

OUR OFFICERS AND DIRECTORS EXERT SUBSTANTIAL INFLUENCE OVER US.

     Our executive officers, our directors and entities affiliated with them
together beneficially own a substantial portion of our outstanding common stock.
As a result, these stockholders are able to exercise substantial influence over
all matters requiring approval by our stockholders, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership may also have the effect of delaying or preventing a change in our
control that may be viewed as beneficial by other stockholders.

FUTURE SALES OF SHARES BY EXISTING STOCKHOLDERS COULD AFFECT OUR STOCK PRICE.

     If our existing stockholders sell substantial amounts of our common stock
in the public market, the market price of our common stock could decline. After
the lockup agreements pertaining to our initial public offering expire in
December 2000, a large number of our shares will be eligible for sale in the
public market for the first time. Many of these shares are held by directors,
executive officers and other affiliates, and are subject to volume limitations
under Rule 144 of the Securities Act of 1933 and various vesting agreements. In
addition, shares subject to outstanding options and shares reserved for future
issuance under our stock option and purchase plans will become eligible for sale
in the public market to the extent permitted by the provisions of various
vesting agreements, the lock-up agreements and Rules 144 and 701 under the
Securities Act.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Interest Rate Sensitivity. We maintain an investment portfolio consisting
mainly of fixed income securities with an average maturity of less than one
year. Because all of the securities in our portfolio had original maturities of
three months or less at July 1, 2000, the balances have been recorded as cash
equivalents. These securities are subject to interest rate risk and will fall in
value if market interest rates increase. We have the ability to hold our fixed
income investment until maturity, and therefore we do not expect our operating
results or cash flows to be affected to any significant degree by the effect of
a sudden change in market interest rates. We do not hedge any interest rate
exposures.

     Foreign Currency Exchange Risk. Revenue and expenses of our international
operations are denominated in various foreign currencies and, accordingly, we
are subject to exposure from adverse movements in foreign currency exchange
rates. To date, the effect of changes in foreign currency exchange rates on
revenues and expenses have not been material. We currently do not hedge our
foreign currency exposure. We intend to assess the need to utilize financial
instruments to hedge currency exposures on an ongoing basis.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The index to our Consolidated Financial Statements and the Report of the
Independent Auditors appears in Part IV of this annual report.

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

     Not Applicable.

                                       25
<PAGE>   27

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

     The following table shows information concerning our executive officers,
directors and other key employees. Ages are as of August 31, 2000.

<TABLE>
<CAPTION>
                  NAME                    AGE                         POSITION
                  ----                    ---                         --------
<S>                                       <C>   <C>
Donna L. Dubinsky.......................  45    President and Chief Executive Officer and a Director
Jeffrey C. Hawkins......................  43    Chief Product Officer and a Director
Edward T. Colligan......................  39    Senior Vice President, Marketing and Sales
Bernard J. Whitney......................  44    Chief Financial Officer and Secretary
Michael Gallucci........................  44    Vice President, Worldwide Manufacturing
Celeste Baranski........................  42    Vice President, Engineering
David G. Pine...........................  41    Vice President and General Counsel
William Holtzman........................  48    Vice President, International
John Hartnett...........................  37    Vice President, Service and Support
Patricia A. Tomlinson...................  42    Vice President, Human Resources
Kim B. Clark(1).........................  51    Director
L. John Doerr(2)........................  49    Director
Bruce W. Dunlevie(1)(2).................  43    Director
Mitchell E. Kertzman(1).................  51    Director
</TABLE>

---------------
(1) Member of audit committee

(2) Member of compensation committee

     Ms. Dubinsky is a co-founder of Handspring. She has been the President and
Chief Executive Officer and a director since July 1998. She served as President
and Chief Executive Officer of Palm Computing, Inc. from June 1992 to July 1998.
From 1982 to 1991, she was with Claris Corporation, a subsidiary of Apple
Computer, Inc., and with Apple Computer, Inc., where she served in a number of
logistics, sales and marketing positions, most recently as Vice President
International of Claris from 1987 to January 1991. Ms. Dubinsky is also a
director of Intuit Inc. She holds a B.A. degree in history from Yale University
and an M.B.A. from the Harvard Graduate School of Business Administration.

     Mr. Hawkins is a co-founder of Handspring. He has been the Chief Product
Officer and a director since July 1998. He was a founder of Palm and served as
its Product Architect and one of its directors from 1992 to June 1998. From 1982
to 1992, Mr. Hawkins was Vice President of Research at GRiD Systems Corporation,
a laptop computer company. He holds a B.S. degree in electrical engineering from
Cornell University.

     Mr. Colligan is a co-founder of Handspring. He has served as Senior Vice
President, Marketing and Sales, of Handspring since October 1998. Before he
joined Handspring, he served as Vice President of Marketing of Palm Computing
from January 1993 to September 1998. From 1986 to 1993, Mr. Colligan was at
Radius Corporation, a provider of displays and graphics cards, most recently
serving as Vice President of Strategic and Product Marketing. He holds a B.A.
degree in political science from the University of Oregon.

     Mr. Whitney has served as Chief Financial Officer and Secretary of
Handspring since June 1999. From August 1997 to June 1999, he served as
Executive Vice President and Chief Financial Officer of Sanmina, Inc., an
electronics manufacturing company. From June 1995 to August 1997, Mr. Whitney
served as Vice President of Finance for Network General Corporation, a network
fault tolerance and performance management solutions company. From 1987 to June
1995, Mr. Whitney held a variety of corporate finance positions at Conner
Peripherals, a storage device manufacturer. He holds a B.S. degree in finance
from California State University at Chico and an M.B.A. from San Jose State
University.

     Mr. Gallucci has served as Vice President, Worldwide Manufacturing, for
Handspring since November 1998. From November 1996 to November 1998, he served
as Director, Worldwide Manufacturing and Logistics at Palm. From February 1992
to November 1996, Mr. Gallucci served as Director of Materials at

                                       26
<PAGE>   28

Bay Networks (now Nortel), a computer networking company. He holds a B.S. degree
in marketing and an M.B.A. from Arizona State University.

     Ms. Baranski has served as Vice President, Engineering, of Handspring since
September 1999. From January 1999 to August 1999, she served as a Product
Development Manager at Set Engineering, Inc., a product development consulting
company. She served as a Research and Development Manager for the Mobile
Computing Division at Hewlett Packard Company from March 1996 to November 1998.
Before that she served as Director of Product Development at Norand Corporation,
a supplier of handheld computers to vertical markets, from June 1994 to February
1996, and as Vice President of Engineering at EO, Inc., a start-up PDA company,
from 1990 to 1994. She holds B.S. and M.S. degrees in electrical engineering
from Stanford University.

     Mr. Pine has served as Vice President and General Counsel since May 2000.
From April 1996 to May 2000, Mr. Pine served with At Home Corporation, most
recently as Senior Vice President and General Counsel and Secretary. From 1990
to March 1996, he was Vice President, General Counsel and Secretary of Radius
Inc., a manufacturer of Macintosh computer peripherals. Mr. Pine also has served
as a state legislator in the New Hampshire House of Representatives. Mr. Pine
holds an A.B. degree in government from Dartmouth College and a J.D. degree from
the University of Michigan Law School.

     Mr. Holtzman has served as Vice President, International, of Handspring
since November 1999. From January 1998 to August 1999, he served as Vice
President of Strategic Channels and International at Beyond.com, an e-commerce
company. From July 1997 to January 1998, he served as an independent consultant
for companies including Netscape, Palm and NetObjects. Mr. Holtzman served as
Vice President of Asia -- Latin America at Macromedia, Inc., a multimedia
software company, from March 1995 to July 1997. He holds a B.S. degree in
journalism from Boston University.

     Mr. Hartnett has served as Vice President, Service and Support, of
Handspring since February 2000. From July 1999 to February 2000, he served as
Senior Vice President of Marketing, Support and Operations of MetaCreations, a
creative web software company. Mr. Hartnett also served as Vice President of
Worldwide Support and Operations for MetaCreations from December 1997 to July
1999 and Vice President of International Operations for MetaCreations from July
1996 to December 1997. Prior to joining MetaCreations, Mr. Hartnett was with
Claris Corporation from 1992 to July 1996 where he most recently held the
position of Director of International Operations. He holds a degree in marketing
from the Marketing Institute of Ireland and a Post Graduate degree in finance
through the ACCA and the University of Limerick.

     Ms. Tomlinson has served as Vice President, Human Resources, of Handspring
since January 2000. From April 1996 to November 1999, she was Vice President of
Human Resources at Edify Corporation, a self-service software company. From
March 1995 to April 1996, she was Vice President of Human Resources for the
Desktop Document Systems Division of Xerox Corporation. Ms. Tomlinson also
served as Director of Human Resources at Synopsys, Inc., an electronic design
automation software company, from June 1992 to March 1995. From July 1983 to
June 1992, she held human resources management positions with Apple Computer,
Inc. Ms. Tomlinson holds a B.A. degree in sociology from Pomona College.

     Dr. Clark has served as a director of Handspring since April 2000. Dr.
Clark is Dean of the Faculty and George F. Baker Professor of Administration at
Harvard Business School, where he has been a member of the faculty since 1978.
His current research focuses on modularity in design and the integration of
technology and competition in industry evolution, with a particular focus on the
computer industry. Earlier research has focused on the areas of technology,
productivity, product development and operations strategy. He serves as a
director of Guidant Corporation and Tower Automotive, Inc. Dr. Clark received
his B.A., M.A. and Ph.D. degrees in economics from Harvard University.

     Mr. Doerr has served as a director of Handspring since October 1998. He has
been a general partner of Kleiner Perkins Caufield & Byers since September 1980.
Before his tenure at Kleiner Perkins, Mr. Doerr was employed by Intel
Corporation for five years. He serves on the board of directors of Amazon.com,
Inc., At Home Corporation, Drugstore.com, Epicore, Healtheon/WebMD,
Homestore.com, Intuit Inc., Martha

                                       27
<PAGE>   29

Stewart Living Omnimedia and Sun Microsystems, Inc. Mr. Doerr holds B.S.E.E. and
M.E.E. degrees from Rice University and an M.B.A. from the Harvard Graduate
School of Business Administration.

     Mr. Dunlevie has served as a director of Handspring since October 1998. Mr.
Dunlevie has been a Managing Member of Benchmark Capital, a venture capital
firm, since its founding in May 1995. From 1989 to 1995, Mr. Dunlevie was a
general partner at Merrill, Pickard, Anderson & Eyre, a venture capital firm.
Mr. Dunlevie has also served as Vice President and General Manager of the
Personal Computer Division of Everex Systems, Inc., a personal computer
manufacturer, and as an investment banker with Goldman, Sachs & Co. He is also a
director of Wink Communications and Rambus, Inc. as well as several privately
held companies. Mr. Dunlevie holds a B.A. degree from Rice University and an
M.B.A. from the Stanford School of Business.

     Mr. Kertzman has served as a director of Handspring since April 2000. He
has been President, Chief Executive Officer and a director of Liberate
Technologies, an interactive TV software company, since November 1998. Prior to
joining Liberate, Mr. Kertzman was a member of the board of directors of Sybase,
Inc., a database company, from February 1995 to November 1998. He served as
Chairman of Sybase's board of directors from July 1997 to November 1998. Between
February 1998 and August 1998, he also served as Co-Chief Executive Officer of
Sybase. From July 1996 until February 1997, Mr. Kertzman served as Chief
Executive Officer of Sybase and, from July 1996 until July 1997, he also served
as President of Sybase. Between February 1995 and July 1996 he served as an
Executive Vice President of Sybase. In February 1995, Sybase merged with
Powersoft Corporation, a provider of application development tools. Mr. Kertzman
had served as Chief Executive Officer and a director of Powersoft since he
founded it in 1974. He also served as President of Powersoft from April 1974 to
June 1992. Mr. Kertzman also serves as a director of Chordiant Software, Inc.,
CNET Networks, Inc. and Extensity, Inc.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934 requires our executive
officers, directors and persons who beneficially own more than 10% of our Common
Stock during fiscal year 2000 to file initial reports of ownership and reports
of changes in ownership with the Securities and Exchange Commission. Such
persons are required by the Commission's regulations to furnish us with copies
of all Section 16(a) forms filed by such persons.

     Based solely on our review of such forms furnished to us for fiscal year
2000, we believe that all Section 16(a) filing requirements applicable to our
executive officers, directors and more than 10% stockholders were complied with.

                                       28
<PAGE>   30

ITEM 11. EXECUTIVE COMPENSATION

     The following table shows the total compensation received for services
rendered to us during fiscal 1999 and 2000 by our Chief Executive Officer and
the four other most highly compensated executive officers.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                      LONG-TERM
                                                                                 COMPENSATION AWARDS
                                                                                 -------------------
                                                                     ANNUAL           SHARES OF
                                                                  COMPENSATION      COMMON STOCK
                                                                  ------------       UNDERLYING
               NAME AND PRINCIPAL POSITION                 YEAR    SALARY($)         OPTIONS(#)
               ---------------------------                 ----   ------------   -------------------
<S>                                                        <C>    <C>            <C>
Donna L. Dubinsky........................................  2000     $150,000                 --
  President and Chief Executive Officer                    1999      111,442                 --
Bernard J. Whitney.......................................  2000      180,000             46,516
  Chief Financial Officer                                  1999        5,539          1,350,000
Jeffrey C. Hawkins.......................................  2000      150,000                 --
  Chief Product Officer                                    1999      111,442                 --
Edward T. Colligan.......................................  2000      150,000                 --
  Senior Vice President, Marketing and Sales               1999      109,712          6,057,693
Michael Gallucci.........................................  2000      150,000            100,000
  Vice President, Manufacturing and Logistics              1999       80,000            908,653
</TABLE>

OPTION GRANTS IN FISCAL 2000

     The following table provides certain information with respect to stock
options granted to those executive officers listed in the Summary Compensation
Table above for the fiscal year ended July 1, 2000. In addition, as required by
SEC rules, the table sets forth the hypothetical gains that would exist for the
shares subject to such options based on assumed annual compounded rates of stock
price appreciation during the option term.

     The potential realizable value is calculated based on the ten-year term of
the option and the market value at the time of grant. Stock price appreciation
of 5% and 10% is assumed under rules of the Securities and Exchange Commission
and does not represent our prediction of our stock price performance.

<TABLE>
<CAPTION>
                                              INDIVIDUAL GRANTS(1)
                             -------------------------------------------------------    {POTENTIAL REALIZABLE
                                           PERCENTAGE                                     VALUE AT ASSUMED
                             NUMBER OF      OF TOTAL                                    ANNUAL RATES OF STOCK
                               SHARES       OPTIONS                                      PRICE APPRECIATION
                             UNDERLYING    GRANTED TO    EXERCISE                        FOR OPTION TERM(2)
                              OPTIONS     EMPLOYEES IN     PRICE                       -----------------------
           NAME               GRANTED     FISCAL 2000    PER SHARE   EXPIRATION DATE       5%          10%
           ----              ----------   ------------   ---------   ---------------   ----------   ----------
<S>                          <C>          <C>            <C>         <C>               <C>          <C>
Donna L. Dubinsky..........        --          --%        $   --              --       $       --   $       --
Bernard J. Whitney(3)......    46,516         0.2           0.22          8/3/09        1,505,056    2,402,674
Jeffrey C. Hawkins.........        --          --             --              --               --           --
Edward T. Colligan.........        --          --             --              --               --           --
Michael Gallucci(3)........   100,000         0.5          20.00         6/19/10        1,257,789    3,187,485
</TABLE>

---------------
(1) Options vest 25% after the first year of service and ratably each month over
    the remaining thirty-six month period. The options have a ten-year term, but
    are subject to earlier termination in the event of the optionee's cessation
    of service with the Company.

(2) These calculations are based on certain assumed annual rates of appreciation
    as required by rules adopted by the Securities and Exchange Commission
    requiring additional disclosure regarding executive compensation. Under
    these rules, an assumption is made that the shares underlying the stock
    options shown in this table could appreciate at rates of 5% and 10% per
    annum on a compounded basis over the ten-year term of the stock options.
    Actual gains, if any, on stock option exercises are dependent on the future
    performance of the Company's common stock and overall stock market
    conditions. There can be no assurance that amounts reflected in this table
    will be achieved.

                                       29
<PAGE>   31

(3) Since there was no public market for our common stock on the date of grant
    to Bernard J. Whitney and Michael Gallucci the initial public offering price
    of $20.00 per share was used for purposes of the potential realizable value
    calculations.

AGGREGATED OPTION EXERCISES IN FISCAL 2000 AND FISCAL YEAR-END OPTION VALUES

     The table below shows information regarding shares acquired upon exercise
of options in fiscal 2000 and about options held as of July 1, 2000 by the
officers indicated below.

<TABLE>
<CAPTION>
                                                        NUMBER OF SECURITIES           VALUE OF UNEXERCISED
                                                       UNDERLYING UNEXERCISED          IN-THE-MONEY OPTIONS
                           SHARES                      OPTIONS AT JULY 1, 2000          AT JULY 1, 2000(2)
                         ACQUIRED ON      VALUE      ---------------------------   ----------------------------
         NAME             EXERCISE     REALIZED(1)   EXERCISABLE   UNEXERCISABLE   EXERCISABLE    UNEXERCISABLE
         ----            -----------   -----------   -----------   -------------   ------------   -------------
<S>                      <C>           <C>           <C>           <C>             <C>            <C>
Donna L. Dubinsky......         --     $        --           --            --      $         --     $     --
Bernard J. Whitney.....    675,000      18,112,498      721,516            --        19,358,093           --
Jeffrey C. Hawkins.....         --              --           --            --                --           --
Edward T. Colligan.....         --              --    5,157,693            --       138,994,101           --
Michael Gallucci.......    112,500       3,031,750      346,153       100,000         9,328,439      700,000
</TABLE>

---------------
(1) All shares exercised were exercised prior to the common stock having a
    public trading market. Accordingly, the values realized in the table have
    been calculated on the basis of the initial public offering price of $20.00
    per share less the applicable exercise price.

(2) Amounts were calculated using the closing price of the common stock on the
    last trading day of the year, which was $27.00 per share.

CHANGE OF CONTROL ARRANGEMENTS

     In August 1998, we entered into founder's restricted stock purchase
agreements with Donna L. Dubinsky and Jeffrey C. Hawkins. We sold Ms. Dubinsky
22,050,000 shares of our common stock subject to our right to repurchase 80% of
the shares upon termination of her employment. We sold Mr. Hawkins 40,950,000
shares of our common stock subject to our right to repurchase 80% of the shares
upon termination of his employment. Under these agreements, our right of
repurchase lapsed as to an additional 20% of the shares in July 1999 and lapses
as to the remainder in equal monthly installments until July 2002. If we are
acquired by or sell all or substantially all of our assets to another entity,
the vesting on the shares held by Ms. Dubinsky and Mr. Hawkins will accelerate
so that our right of repurchase will lapse on an additional 25% of the shares.

     In October 1998, we issued an option to Edward T. Colligan, our Vice
President, Marketing and Sales, to purchase 6,057,693 shares of our common
stock. The option was immediately exercisable in full. The option vested as to
25% of the shares in October 1999. The remaining shares vest in equal monthly
installments until October 2002. Unvested shares issued upon exercise of the
option are subject to our right of repurchase upon termination of Mr. Colligan's
employment. Under the option agreement, if we are acquired by or sell all or
substantially all of our assets to another entity, the vesting on the shares
held by Mr. Colligan will accelerate so that our right of repurchase will lapse
on an additional 25% of the shares.

     In June 1999, we issued an option to Bernard J. Whitney, our Chief
Financial Officer, to purchase 1,350,000 shares of our common stock. In August
1999, we issued an option to Mr. Whitney to purchase 46,516 shares of our common
stock. Both options were immediately exercisable in full, and vest as to 25% of
the shares on the first anniversary of the grant date. The remaining shares vest
in equal monthly installments over a period of three years. Unvested shares
issued upon exercise of the option are subject to our right of repurchase upon
termination of Mr. Whitney's employment. Under the option agreement, if we are
acquired by or sell all or substantially all of our assets to another entity,
the vesting on the shares held by Mr. Whitney will accelerate in full, so that
both options will be immediately exercisable in full and our right of repurchase
will lapse on all of the shares.

                                       30
<PAGE>   32

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     None of the members of our compensation committee has at any time since our
formation been an officer or employee of Handspring. None of our executive
officers currently serves, or in the past has served, as a member of the board
of directors or compensation committee of any entity that has one or more
executive officers serving on our board of directors or compensation committee.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth information regarding the beneficial
ownership of our common stock as of August 31, 2000 for:

     - each person known by us to own beneficially more than 5% of our of common
       stock;

     - each of our directors;

     - each executive officer listed in the Summary Compensation Table above;
       and

     - all directors and executive officers as a group.

     The percentage of beneficial ownership for the following table is based on
126,936,978 shares of common stock outstanding on August 31, 2000.

     Unless otherwise indicated below, to our knowledge, all persons and
entities listed below have sole voting and investment power over their shares of
common stock, except to the extent that individuals share authority with spouses
under applicable law. Unless otherwise indicated, each entity or person listed
below maintains a mailing address of c/o Handspring, Inc., 189 Bernardo Avenue,
Mountain View, California 94043.

     The number of shares beneficially owned by each stockholder is determined
in accordance with the rules of the Securities and Exchange Commission and does
not necessarily indicate beneficial ownership for any other purpose. Under these
rules, beneficial ownership includes those shares of common stock over which the
stockholder exercises sole or shared voting or investment power. It also
includes shares of common stock that the stockholder has a right to acquire
within 60 days after August 31, 2000 through the exercise of any option. The
percentage ownership of the outstanding common stock, however, is based on the
assumption, expressly required by the rules of the Securities and Exchange
Commission, that only the person or entity whose ownership is being reported has
converted options into shares of common stock.

<TABLE>
<CAPTION>
                                                               NUMBER OF SHARES         PERCENT
                  NAME OF BENEFICIAL OWNER                    BENEFICIALLY OWNED   BENEFICIALLY OWNED
                  ------------------------                    ------------------   ------------------
<S>                                                           <C>                  <C>
Jeffrey C. Hawkins(1).......................................      40,927,500              32.2%
Donna L. Dubinsky(2)........................................      22,025,000              17.4
L. John Doerr(3)............................................      18,799,821              14.8
Kleiner Perkins Caufield & Byers
  2750 Sand Hill Road
  Menlo Park, California 94205
Bruce W. Dunlevie(4)........................................      18,804,078              14.8
Benchmark Capital Partners II, L.P.
  2480 Sand Hill Road
  Menlo Park, California 94205
Edward T. Colligan(5).......................................       6,012,693               4.6
Bernard J. Whitney(6).......................................       1,396,516               1.1
Michael Gallucci(7).........................................         895,153               0.7
Kim B. Clark(8).............................................              --                --
Mitchell E. Kertzman(8).....................................              --                --
Executive officers and directors as a group (11
  persons)(9)...............................................     110,210,761              82.1
</TABLE>

---------------
(1) Includes 40,680,000 shares held of record by Mr. Hawkins and his spouse as
    trustees under the Strauss-Hawkins Trust Agreement dated April 17, 1991 of
    which 15,695,725 shares are subject to a lapsing

                                       31
<PAGE>   33

    repurchase right. Also includes 247,500 shares held of record by various
    charitable trusts for which Mr. Hawkins is the trustee.

(2) Represents shares held of record by Ms. Dubinsky as trustee under the
    Amended and Restated Dubinsky Trust Agreement dated May 23, 1995, of which
    8,451,544 shares are subject to a lapsing repurchase right.

(3) Represents 17,325,915 shares held by Kleiner Perkins Caufield & Byers VIII,
    L.P., 1,003,911 shares held by KPCB VIII Founders Fund, L.P. and 469,995
    shares held by KPCB Information Sciences Zaibatsu Fund II, L.P. Mr. Doerr is
    a general partner of KPCB VIII Associates, L.P., which is a general partner
    of Kleiner Perkins Caulfield & Byers VIII, L.P.

(4) Represents 4,257 shares held by Mr. Dunlevie and 18,799,821 shares held by
    Benchmark Capital Partners II, L.P. as nominee for Benchmark Capital
    Partners II, L.P., Benchmark Founders' Fund II, L.P., Benchmark Founders'
    Fund II-A, L.P. and Benchmark Members' Fund II, L.P. Mr. Dunlevie is a
    Managing Member of Benchmark Capital Management Co. II, LLC, the general
    partner of Benchmark Capital Partners II, L.P., Benchmark Founders' Fund II,
    L.P., Benchmark Founders' Fund II-A, L.P. and Benchmark Members' Fund II,
    L.P. Mr. Dunlevie disclaims beneficial ownership of these shares, except to
    the extent of his pecuniary interest in the Benchmark funds.

(5) Represents 885,000 shares held by Mr. Colligan and his spouse and 5,157,693
    shares subject to fully exercisable options held by Mr. Colligan.

(6) Represents 675,000 shares held by Mr. Whitney and his spouse, 269,622 of
    which are subject to a lapsing repurchase right, and 721,516 shares subject
    to fully exercisable options held by Mr. Whitney.

(7) Represents 549,000 shares held by Mr. Gallucci, 164,965 of which are subject
    to a lapsing repurchase right, and 346,153 shares subject to fully
    exercisable options held by Mr. Gallucci.

(8) Dr. Clark and Mr. Kertzman were appointed to the board of directors in April
    2000 and are not currently beneficial owners of any shares.

(9) Includes 337,500 shares held by our executive officers who were not
    individually listed in this table, all of which are subject to a lapsing
    repurchase right, and 7,237,862 shares subject to exercisable options held
    by the named executives above and the other executive officers who were not
    individually listed in this table.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Other than the transactions described in "Management" and the transaction
described below, since the beginning of fiscal 2000 there has not been nor is
there currently proposed any transaction or series of similar transactions to
which we were or will be a party in which the amount involved exceeded or will
exceed $60,000 and in which any director, executive officer, holder of more than
5% of our common stock or any member of his or her immediate family had or will
have a direct or indirect material interest.

     In July 1999, we sold a total of 928,506 shares of Series B preferred stock
at a price per share of $10.77 to the following investors:

     - QUALCOMM Incorporated purchased a total of 649,954 shares of Series B
       preferred stock, which was converted into 2,924,793 shares of common
       stock in connection with our public offering, for a total purchase price
       of $7.0 million. QUALCOMM licenses CDMA technology to us;

     - entities affiliated with Kleiner Perkins Caufield & Byers VIII, L.P.
       purchased a total of 139,276 shares of Series B preferred stock, which
       was converted into 626,742 shares of common stock in connection with our
       public offering, for a total purchase price of $1.5 million; and

     - Benchmark Capital Partners II, L.P. purchased a total of 139,276 shares
       of Series B preferred stock, which was converted into 626,742 shares of
       common stock in connection with our public offering, for a total purchase
       price of $1.5 million as nominee for several affiliated entities.

     In connection with our issuances of preferred stock, we have entered into
an investors rights agreement granting the holders of the preferred stock
registration rights with respect to the common stock issuable upon conversion of
their preferred stock.
                                       32
<PAGE>   34

                                    PART IV

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

(a)(1) Financial Statements. We have filed the following financial statements
with this Form 10-K:

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of PricewaterhouseCoopers LLP, Independent
  Accountants...............................................   35
Consolidated Balance Sheets at July 1, 2000 and June 30,
  1999......................................................   36
Consolidated Statements of Operations for the Year Ended
  July 1, 2000 and the Period from July 29, 1998 (date of
  inception) to June 30, 1999...............................   37
Consolidated Statements of Stockholders' Equity and
  Comprehensive Loss for the Year Ended July 1, 2000 and the
  Period from July 29, 1998 (date of inception) to June 30,
  1999......................................................   38
Consolidated Statements of Cash Flows for the Year Ended
  July 1, 2000 and the Period from July 29, 1998 (date of
  inception) to June 30, 1999...............................   39
Notes to Consolidated Financial Statements..................   40
</TABLE>

(a)(2) Financial Statement Schedule.

                                  SCHEDULE II

                       VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               ADDITIONS CHARGED
                                                BALANCE AT         TO COSTS                      BALANCE AT
                                               JUNE 30, 1999     AND EXPENSES      DEDUCTIONS   JULY 1, 2000
                                               -------------   -----------------   ----------   ------------
<S>                                            <C>             <C>                 <C>          <C>
Allowance for doubtful accounts..............       $--             $   138         $   (88)       $   50
Product return reserve.......................        --               6,732          (4,368)       $2,364
Accrued product warranty.....................        --              10,024          (1,991)       $8,033
</TABLE>

(a)(3) Exhibits.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                           EXHIBIT TITLE
-------                          -------------
<C>       <S>
 3.1      Second Amended and Restated Certificate of Incorporation
          (incorporated herein by reference to exhibit 3.3 to our
          Registration Statement on Form S-1 (File No. 333-33666)
          which became effective on June 21, 2000 (the Form S-1)(1)
 3.2      Restated Bylaws (incorporated by reference to Exhibit 3.5 to
          the Form S-1)
 4.1      Specimen Common Stock Certificate(1)
 4.2      Amended and Restated Investors' Rights Agreement dated July
          7, 1999(1)
10.1      Form of Indemnity Agreement entered into between Registrant
          and all executive officers and directors(1)
10.2      1998 Equity Incentive Plan*(1)
10.3      1999 Executive Equity Incentive Plan*(1)
10.4      Form of 2000 Equity Incentive Plan*(1)
10.5      Form of 2000 Employee Stock Purchase Plan*(1)
10.6      Single Tenant Absolute Net Lease between Registrant and
          Chan-Paul Partnership dated June 22, 1999(1)
10.7      Software License Agreement between Palm Computing, Inc. and
          Registrant dated September 24, 1998, as amended+(1)
10.8      Subordinated Loan and Security Agreement between Registrant
          and Comdisco, Inc. dated June 10, 1999(1)
10.9      International Manufacturing Contract between Registrant and
          Flextronics (Malaysia) SDN.BHD dated June 29, 1999+(1)
10.10     Founder's Restricted Stock Purchase Agreement between
          Registrant and Donna Dubinsky dated August 21, 1998*(1)
</TABLE>

                                       33
<PAGE>   35

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                           EXHIBIT TITLE
-------                          -------------
<C>       <S>
10.11     Founder's Restricted Stock Purchase Agreement between
          Registrant and Jeff Hawkins dated August 20, 1998*(1)
10.12     Offer Letter of Employment between Registrant and Bernard
          Whitney dated May 31, 1999*(1)
10.13     Stock Option Agreement between Registrant and Edward
          Colligan dated October 12, 1998*(1)
10.14     Lease between Registrant and Spieker Properties, L.P. dated
          April 24, 2000(1)
10.15     Form of Outside Director Stock Option Agreement*(1)
10.16     Attachments Nos. 5 and 6 to Amendment No. 2 and Amendment
          No. 5 to the Software License Agreement between Palm
          Computing, Inc. and Registrant dated September 24, 1998+(1)
10.17     Retail Distribution Agreement between Registrant and
          CompUSA, Inc. dated March 13, 2000++
10.18     Retail Distribution Agreement between Registrant and
          Staples, Inc. dated March 14, 2000, as amended++
10.19     Reseller Agreement between Registrant and Best Buy Co., Inc.
          dated March 21, 2000++
21.1      List of Subsidiaries of Registrant
23.2      Consent of PricewaterhouseCoopers LLP
27.1      Financial Data Schedule
</TABLE>

---------------
 *  Management contracts or compensatory plans required to be filed as an
    exhibit to Form 10-K.

 +  Confidential treatment has been granted with respect to certain information
    contained in this document. Confidential portions have been omitted from
    this public filing and have been filed separately with the Securities and
    Exchange Commission.

 ++  Confidential treatment has been requested for certain portions of this
     document pursuant to an application for confidential treatment sent to the
     Securities and Exchange Commission. Such portions are omitted from this
     filing and are filed separately with the Securities and Exchange
     Commission.

(1) Incorporated by reference to the exhibit with the same number to our
    Registration Statement on Form S-1 (File No. 333-33666), which became
    effective on June 21, 2000.

(b) Reports on Form 8-K.

     No such reports were filed in the fourth quarter of 2000.

(c) Exhibits -- See (a)(3) above.

                                       34
<PAGE>   36

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Handspring, Inc.

     In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 33 present fairly, in all material
respects, the financial position of Handspring, Inc. and its subsidiaries at
June 30, 1999 and July 1, 2000 and the results of their operations and their
cash flows for the period from July 29, 1998 (date of inception) to June 30,
1999 and for the year ended July 1, 2000, in conformity with accounting
principles generally accepted in the United States. In addition, in our opinion,
the financial statement schedule listed in the index appearing under Item
14(a)(2) on page 33 presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP

San Jose, California
July 18, 2000

                                       35
<PAGE>   37

                                HANDSPRING, INC.

                          CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                              JULY 1, 2000    JUNE 30, 1999
                                                              ------------    -------------
<S>                                                           <C>             <C>
Current assets:
  Cash and cash equivalents.................................    $196,548         $ 7,533
  Short-term investments....................................          --           6,234
  Accounts receivable, net..................................      20,484              --
  Prepaid expenses and other current assets.................       1,816             616
                                                                --------         -------
          Total current assets..............................     218,848          14,383
Property and equipment, net.................................       8,280           1,034
Other assets................................................       3,344             214
                                                                --------         -------
          Total assets......................................    $230,472         $15,631
                                                                ========         =======

                    LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
                                 AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................    $ 20,152         $ 1,208
  Accrued liabilities.......................................      16,034              67
                                                                --------         -------
          Total current liabilities.........................      36,186           1,275
                                                                --------         -------
Long-term liabilities.......................................          57              --
                                                                --------         -------
Redeemable convertible preferred stock, $0.001 par value per
  share, nil and 9,300,000 shares authorized at July 1, 2000
  and June 30, 1999, respectively; nil and 8,076,924 shares
  issued and outstanding at July 1, 2000 and June 30, 1999,
  respectively; (aggregate liquidation preference of nil and
  $17,972 at July 1, 2000 and June 30, 1999,
  respectively).............................................          --          17,972
                                                                --------         -------
Commitments and contingencies (Note 7)
Stockholders' equity:
  Preferred stock, $0.001 par value per share, 10,000,000
     and nil shares authorized at July 1, 2000 and June 30,
     1999, respectively; nil shares issued and outstanding
     at July 1, 2000 and June 30, 1999......................          --              --
  Common stock, $0.001 par value per share, 1,000,000,000
     and 157,500,000 shares authorized at July 1, 2000 and
     June 30, 1999, respectively; 125,436,978 and 69,365,078
     shares issued and outstanding at July 1, 2000 and June
     30, 1999 respectively..................................         125              69
  Additional paid-in capital................................     321,116          14,455
  Deferred stock compensation...............................     (58,268)         (9,745)
  Accumulated other comprehensive loss......................         (64)             (6)
  Accumulated deficit.......................................     (68,680)         (8,389)
                                                                --------         -------
          Total stockholders' equity........................     194,229          (3,616)
                                                                --------         -------
          Total liabilities, redeemable convertible
            preferred stock, and stockholders' equity.......    $230,472         $15,631
                                                                ========         =======
</TABLE>

          See accompanying notes to consolidated financial statements.
                                       36
<PAGE>   38

                                HANDSPRING, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                  PERIOD FROM
                                                                                 JULY 29, 1998
                                                               YEAR ENDED     (DATE OF INCEPTION)
                                                              JULY 1, 2000     TO JUNE 30, 1999
                                                              ------------    -------------------
<S>                                                           <C>             <C>
Revenue.....................................................    $101,937            $    --
                                                                --------            -------
Costs and operating expenses:
  Cost of revenue...........................................      69,921                 --
  Research and development..................................      10,281              2,738
  Selling, general and administrative.......................      42,424              2,451
  Amortization of deferred stock compensation (*)...........      40,077              3,646
                                                                --------            -------
          Total costs and operating expenses................     162,703              8,835
                                                                --------            -------
Loss from operations........................................     (60,766)            (8,835)
Interest and other income, net..............................         675                446
                                                                --------            -------
Net loss before taxes.......................................     (60,091)            (8,389)
Income tax provision........................................         200                 --
                                                                --------            -------
Net loss....................................................    $(60,291)           $(8,389)
                                                                ========            =======
Basic and diluted net loss per share........................    $  (1.77)           $ (0.71)
                                                                ========            =======
Shares used in calculating basic and diluted net loss per
  share.....................................................      34,015             11,772
                                                                ========            =======

(*) Amortization of deferred stock compensation:
     Cost of revenue........................................    $  5,904            $   526
     Research and development...............................       8,059              1,217
     Selling, general and administrative....................      26,114              1,903
                                                                --------            -------
                                                                $ 40,077            $ 3,646
                                                                ========            =======
</TABLE>

          See accompanying notes to consolidated financial statements.
                                       37
<PAGE>   39

                                HANDSPRING, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                             AND COMPREHENSIVE LOSS
PERIOD FROM JULY 29, 1998 (DATE OF INCEPTION) TO JUNE 30, 1999 AND FOR THE YEAR
                               ENDED JULY 1, 2000
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                         ACCUMULATED
                                           COMMON STOCK     ADDITIONAL     DEFERRED         OTHER
                                         ----------------    PAID-IN        STOCK       COMPREHENSIVE   ACCUMULATED
                                         SHARES    AMOUNT    CAPITAL     COMPENSATION       LOSS          DEFICIT      TOTAL
                                         -------   ------   ----------   ------------   -------------   -----------   --------
<S>                                      <C>       <C>      <C>          <C>            <C>             <C>           <C>
Issuance of common stock...............   63,000    $ 63     $      7      $     --         $ --         $     --     $     70
Issuance of common stock for
  services.............................       90      --           15            --           --               --           15
Issuance of common stock on exercise of
  stock options........................    6,275       6          443            --           --               --          449
Issuance of right to purchase Series A
  convertible preferred stock in
  connection with financing
  agreement............................       --      --          599            --           --               --          599
Deferred stock compensation............       --      --       13,391       (13,391)          --               --           --
Amortization of deferred stock
  compensation.........................       --      --           --         3,646           --               --        3,646
Unrealized loss on securities..........       --      --           --            --           (6)              --           (6)
Net loss...............................       --      --           --            --           --           (8,389)      (8,389)
                                         -------    ----     --------      --------         ----         --------     --------
Balances, June 30, 1999................   69,365      69       14,455        (9,745)          (6)          (8,389)      (3,616)
Issuance of common stock for
  services.............................       62      --          815            --           --               --          815
Issuance of common stock on exercise of
  stock options........................    4,545       5        2,007            --           --               --        2,012
Issuance of common stock in initial
  public offering......................   10,000      10      184,918            --           --               --      184,928
Conversion of redeemable convertible
  preferred stock to common in
  connection with initial public
  offering.............................   41,420      41       29,421            --           --               --       29,462
Charitable contribution of common
  stock................................       45      --          900            --           --               --          900
Deferred stock compensation............       --      --       88,600       (88,600)          --               --           --
Amortization of deferred stock
  compensation.........................       --      --           --        40,077           --               --       40,077
Unrealized loss on securities..........       --      --           --            --          (17)              --          (17)
Foreign currency translation
  adjustments..........................       --      --           --            --          (41)              --          (41)
Net loss...............................       --      --           --            --           --          (60,291)     (60,291)
                                         -------    ----     --------      --------         ----         --------     --------
Balances, July 1, 2000.................  125,437    $125     $321,116      $(58,268)        $(64)        $(68,680)    $194,229
                                         =======    ====     ========      ========         ====         ========     ========
</TABLE>

          See accompanying notes to consolidated financial statements.
                                       38
<PAGE>   40

                                HANDSPRING, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                  PERIOD FROM
                                                                                 JULY 29, 1998
                                                               YEAR ENDED     (DATE OF INCEPTION)
                                                              JULY 1, 2000     TO JUNE 30, 1999
                                                              ------------    -------------------
<S>                                                           <C>             <C>
Cash flows from operating activities:
  Net loss..................................................    $(60,291)           $(8,389)
  Adjustment to reconcile net loss to net cash used in
     operating activities:
     Depreciation and amortization..........................       2,668                 70
     Amortization of deferred stock compensation............      40,077              3,646
     Charitable contribution of common stock................         900                 --
     Amortization of costs associated with financing
      agreement.............................................         568                 31
     Amortization of premium or discount on short-term
      investments...........................................        (100)              (108)
     Stock compensation to non-employees....................         815                 15
     Changes in assets and liabilities:
       Accounts receivable..................................     (20,484)                --
       Prepaid expenses and other current assets............      (1,791)               (48)
       Other assets.........................................      (3,130)              (214)
       Accounts payable.....................................      18,944                884
       Accrued liabilities..................................      15,941                 67
                                                                --------            -------
          Net cash used in operating activities.............      (5,883)            (4,046)
                                                                --------            -------
Cash flows from investing activities:
  Purchases of short-term investments.......................      (1,968)           (10,965)
  Proceeds from maturities or sales of short-term
     investments............................................       8,308              4,833
  Purchases of property and equipment.......................      (9,818)              (780)
                                                                --------            -------
          Net cash used in investing activities.............      (3,478)            (6,912)
                                                                --------            -------
Cash flows from financing activities:
  Proceeds from borrowings..................................       6,000                 --
  Principal payments on borrowings..........................      (6,000)                --
  Issuance of Series A redeemable convertible preferred
     stock, net.............................................       1,500             17,972
  Issuance of Series B redeemable convertible preferred
     stock, net.............................................       9,990                 --
  Net proceeds from initial public offering.................     184,928                 --
  Proceeds from issuance of common stock....................       2,012                519
                                                                --------            -------
          Net cash provided by financing activities.........     198,430             18,491
                                                                --------            -------
          Effect of exchange rate changes on cash...........         (54)                --
                                                                --------            -------
Net increase in cash and cash equivalents...................     189,015              7,533
Cash and cash equivalents:
  Beginning of period.......................................       7,533                 --
                                                                --------            -------
  End of period.............................................    $196,548            $ 7,533
                                                                ========            =======

Supplemental disclosure of cash flow information:
  Cash paid for interest....................................    $     37            $     1
                                                                --------            -------
</TABLE>

          See accompanying notes to consolidated financial statements.
                                       39
<PAGE>   41

                                HANDSPRING, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

     Description of business -- Handspring, Inc. (the "Company") was
incorporated in California on July 29, 1998 under the name of JD Technology,
Inc. to develop innovative handheld computer devices and related accessories. In
November 1998, the Company changed its name to Handspring, Inc., and in May 2000
the Company reincorporated in Delaware. During fiscal 2000 the Company completed
the development of its first handheld computer device named the "Visor".
Shipments of the Visor began in October 1999 via the Company's Web site. In
March 2000, the Company began shipping its products to selected retailers. In
May 2000 and June 2000, product launches were announced in Europe and Japan,
respectively.

     Principles of consolidation and basis of presentation -- The consolidated
financial statements of Handspring, Inc. include the accounts of its
wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.

     Stock split -- On March 16, 2000, the Board of Directors authorized a
three-for-one stock split of the outstanding shares of common stock and on May
12, 2000, the Board of Directors authorized a three-for-two stock split of the
outstanding shares of common stock. All common share and per share information
included in these financial statements has been retroactively adjusted to
reflect these stock splits.

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Fiscal year -- During the period from July 29, 1998 (date of inception) to
June 30, 1999 our fiscal months coincided with calendar month ends. Effective
July 1, 1999, we changed our fiscal year to a 52-53 week fiscal year ending on
the Saturday nearest to June 30. Unless otherwise stated, all years and dates
refer to our fiscal year and fiscal periods.

     Cash and cash equivalents -- The Company considers all highly liquid debt
or equity instruments purchased with an original maturity at the date of
purchase of three months or less to be cash equivalents.

     Fair value of financial instruments -- Amounts reported for cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities are
considered to approximate fair value primarily due to their short maturities.

     Short-term investments -- Short-term investments consist primarily of
highly liquid debt securities and commercial paper purchased with an original
maturity at the date of purchase greater than three months. Short-term
investments are classified as available-for-sale securities and are stated at
market value with any temporary difference between an investment's amortized
cost and its market value recorded as a separate component of stockholders'
equity until such gains or losses are realized. Gains or losses on the sales of
securities are determined on a specific identification basis.

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

     The objective of the Company's investment policy is the preservation of
capital, the maximization of after-tax return, and the maintenance of liquidity
until funds are needed for use in business operations. Funds are diversified to
minimize risk and the inappropriate concentrations of investments. Under policy
guidelines, the following are considered eligible investments: obligations of
the U.S. government agencies, certain financial institutions and corporations,
as well as investments in money market funds. All investments are limited to
those highly rated by outside organizations.

     The Company performs periodic credit evaluations of its open account
customers' financial condition and, generally, requires no collateral. The
Company maintains an allowance for doubtful accounts receivable based upon the
expected collectibility of accounts receivable. At July 1, 2000, three customers
accounted for 35%,

                                       40
<PAGE>   42
                                HANDSPRING, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

23%, and 16% of net receivables. In addition, three customers accounted for 15%,
14%, and 11% of revenue during fiscal 2000.

     Property and equipment -- Property and equipment, including leasehold
improvements, are stated at cost less accumulated depreciation. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets, generally one to five years. Leasehold improvements and assets held
under capital leases are amortized over the term of the lease or estimated
useful lives, whichever is shorter. The Company capitalizes tooling costs to the
extent they relate to ongoing and routine costs of tools and molds used to
manufacture products that the Company markets. Capitalized tooling is amortized
over its estimated useful life of one year. Assets acquired under capital leases
are recorded at the present value of the related lease obligation.

     Long-lived assets -- The Company evaluates the recoverability of its
long-lived assets in accordance with Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("SFAS") No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of. SFAS No. 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets. The Company assesses the
impairment of its long-lived assets when events or changes in circumstances
indicate that the carrying value of the assets may not be recoverable.

     Foreign currency translation -- The majority of the Company's operations
are denominated in U.S. dollars. For foreign operations with the local currency
as the functional currency, assets and liabilities are translated at year-end
exchange rates, and statements of operations are translated at the average
exchange rates during the year. Gains or losses resulting from foreign currency
translation are included as a component of other comprehensive loss.

     Research and development -- Research and development costs are expensed as
incurred. The Company has not capitalized any costs to date pursuant to SFAS No.
86, Computer Software to be Sold, Leased or Otherwise Marketed.

     Income taxes -- The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes. This statement prescribes the use of
the liability method whereby deferred tax assets and liabilities are determined
based on the differences between financial reporting and tax bases of assets and
liabilities and measured at tax rates that will be in effect when the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets where it is more likely than not that
the deferred tax asset will not be realized.

     Stock-based compensation -- The Company accounts for stock compensation
arrangements in accordance with provisions of Accounting Principles Board
Opinion ("APB") No. 25, Accounting for Stock Issued to Employees, and complies
with the disclosure provisions of SFAS No. 123, Accounting for Stock-Based
Compensation. Under APB No. 25, unearned stock compensation is based on the
difference, if any, on the date of the grant, between the fair value of the
Company's common stock and the exercise price. Unearned stock compensation is
amortized and expensed in accordance with FASB Interpretation No. 28, Accounting
for Stock Appreciation Rights and Other Variable Stock Option or Award Plans.
The Company accounts for stock issued to non-employees in accordance with the
provisions of SFAS No. 123 and Emerging Issues Task Force No. 96-18, Accounting
for Equity Instruments that are Issued to Other than Employees for Acquiring, or
in Conjunction with Selling Goods and Services.

     Segment reporting -- The FASB issued SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information, which establishes annual and
interim reporting standards for an enterprise's business segments and related
disclosures about its products, services, geographic areas and major customers.
During each of the periods presented, the Company operated in one operating
segment with sales primarily in the United States.
                                       41
<PAGE>   43
                                HANDSPRING, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Comprehensive loss -- The FASB issued SFAS No. 130, Reporting Comprehensive
Income, which requires an enterprise to report by major components and as a
single total, the change in its net assets during the period from
non-stockholder sources. Statements of comprehensive loss have been included
within the statements of stockholders' equity.

     Net loss per share -- Basic net loss per share is computed by dividing net
loss applicable to common stockholders by the weighted average number of common
shares outstanding for the period (excluding shares subject to repurchase).
Diluted net loss per common share was the same as basic net loss per common
share for all periods presented since the effect of any potentially dilutive
securities is excluded as they are anti-dilutive because of the Company's net
losses.

     Revenue recognition -- Revenue from sales is recognized when a purchase
order has been received, the product has been shipped, the sales price is fixed
and determinable and collection of the resulting receivable is probable. No
significant post-delivery obligations exist with respect to revenue recognized
during fiscal 2000. Provisions are made at the time the related revenue is
recognized for estimated product returns and warranty.

     Shipping and handling fees and costs and royalty expenses -- The Company
classifies amounts billed to customers for shipping and handling as revenue.
Costs incurred by the Company for shipping and handling have been classified as
cost of revenue. Cost of revenue also includes royalty expenses (primarily to
Palm, Inc.) pursuant to software technology license agreements. In accordance
with those agreements, the Company sublicenses the software to its end-users.

     Advertising costs -- The cost of advertising is expensed as incurred. For
fiscal year 2000 and for the period from July 29, 1998 (date of inception) to
June 30, 1999 advertising costs totaled $3,928,000 and $114,000, respectively.

     Recently issued accounting pronouncements -- In June 1998, the FASB issued
SFAS No. 133, Accounting for Derivatives and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative investments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. In July 1999, the FASB issued SFAS No. 137, Accounting for
Derivative and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133. SFAS No. 137 deferred the effective date of SFAS No. 133
until fiscal years beginning after June 15, 2000. The Company will adopt SFAS
No. 133 during fiscal 2001. To date, the Company has not engaged in derivative
or hedging activities.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 provides guidance for revenue recognition under certain
circumstances. SAB 101 is effective beginning in the fourth quarter of fiscal
2001. Implementation of SAB 101 is not expected to require the Company to change
existing revenue recognition policies and therefore is not expected to have a
material effect on the Company's financial position or results of operations.

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

     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 reported

                                       42
<PAGE>   44
                                HANDSPRING, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.

 3. SHORT-TERM INVESTMENTS

     The fair value and the amortized cost of investments at June 30, 1999 are
presented below. There were no short-term investments at July 1, 2000. Fair
values are based on quoted market prices obtained from the Company's brokers.
All of the Company's investments are classified as available-for-sale, since the
Company intends to sell them as needed for operations. The following table
presents the unrealized holding gains and losses related to each category of
investment securities:

<TABLE>
<CAPTION>
                                                                          UNREALIZED   UNREALIZED
                                                                           HOLDING      HOLDING
                                          AMORTIZED COST   MARKET VALUE     GAINS        LOSSES
                                          --------------   ------------   ----------   ----------
                                                              (IN THOUSANDS)
<S>                                       <C>              <C>            <C>          <C>
JUNE 30, 1999
Corporate obligations...................      $5,248          $5,245         $--          $(3)
Government obligations..................         992             989          --           (3)
                                              ------          ------         ---          ---
                                              $6,240          $6,234         $--          $(6)
                                              ======          ======         ===          ===
</TABLE>

     There were no sales of available-for-sale investments during fiscal 2000.
The Company realized no gains or losses on the sale of securities during the
period from July 29, 1998 (date of inception) to June 30, 1999.

 4. PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                      JULY 1, 2000    JUNE 30, 1999
                                                      ------------    -------------
                                                             (IN THOUSANDS)
<S>                                                   <C>             <C>
Tooling.............................................    $ 3,411          $  633
Computer and office equipment.......................      3,245             304
Furniture and fixtures..............................      1,615              89
Software............................................      1,557              78
Leasehold improvements..............................      1,139              --
Vehicles............................................         23              --
                                                        -------          ------
          Total property and equipment..............     10,990           1,104
Less: Accumulated depreciation and amortization.....     (2,710)            (70)
                                                        -------          ------
          Property and equipment, net...............    $ 8,280          $1,034
                                                        =======          ======
</TABLE>

     At July 1, 2000 property and equipment includes $96,000 of computer and
office equipment acquired under capital leases. Accumulated amortization of
assets under capital leases totaled $21,000 at July 1, 2000. There were no
assets acquired under capital leases during the period from July 29, 1998 (date
of inception) to June 30, 1999.

                                       43
<PAGE>   45
                                HANDSPRING, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 5. ACCRUED LIABILITIES

     Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
                                                      JULY 1, 2000    JUNE 30, 1999
                                                      ------------    -------------
                                                             (IN THOUSANDS)
<S>                                                   <C>             <C>
Accrued product warranty............................    $ 8,392            $--
Accrued royalty expense.............................      2,961             --
Accrued compensation and related benefits...........        803             31
Other...............................................      3,878             36
                                                        -------            ---
                                                        $16,034            $67
                                                        =======            ===
</TABLE>

 6. SUBORDINATED DEBT AND EQUIPMENT LEASE FACILITY

     In June 1999, the Company obtained a subordinated debt facility of
$6,000,000, which expired in June 2000. Borrowings under this facility bore
interest at 10.0% per annum, and were collateralized by the Company's assets and
subordinated to senior indebtedness. As part of this debt facility agreement,
the lender, at its sole discretion, had the right to purchase 198,965 shares of
Series A redeemable convertible preferred stock at $7.539 per share. This right
was exercised during May 2000. The Company valued this right using the
Black-Scholes option pricing model, applying an actual life of 11 months, a
weighted average risk-free rate of 4.78%, an expected dividend yield of zero
percent, an expected volatility of 70% and a deemed fair value of common stock
of $1.96 per share. The fair value of the right of $599,000 was amortized over
the period of the agreement. There were no outstanding borrowings at July 1,
2000 or June 30, 1999.

     In connection with the above agreement, the Company also obtained an
equipment and software lease facility of $1,000,000, which is available until
September 2000. Equipment leases up to $600,000 under this facility have a 42
month term. Leases for software, tooling, tenant improvements and other costs up
to $400,000 under this facility have a 36 month term. All borrowings under this
agreement bear interest at 7.5% per annum. There was $83,000 outstanding as of
July 1, 2000, and no outstanding borrowings at June 30, 1999.

 7. COMMITMENTS AND CONTINGENCIES

     The Company leases its facilities under operating leases which expire
through June 2008. Under the terms of the leases, the Company is responsible for
its share of common area and operating expenses. Collateral for lease payments
consists of a payment bond certificate of $150,000, expiring July 7, 2002 and a
$400,000 standby letter of credit established on August 3, 1999 as well as a
$2,105,000 standby letter of credit established on May 9, 2000. The standby
letter of credits are required until the expiration of the related leases in
August 2004 and June 2008, respectively. Both the bond certificate and the
letter of credits are included in other assets at July 1, 2000. The payment bond
certificate was included in the other assets balance at June 30, 1999.

                                       44
<PAGE>   46
                                HANDSPRING, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     As of July 1, 2000, the future minimum lease commitments under all leases
were as follows:

<TABLE>
<CAPTION>
                                                            CAPITAL    OPERATING
                   FISCAL YEARS ENDING,                     LEASES      LEASES
                   --------------------                     -------    ---------
                                                               (IN THOUSANDS)
<S>                                                         <C>        <C>
2001......................................................    $31       $ 3,524
2002......................................................     31         3,486
2003......................................................     30         3,483
2004......................................................     --         3,614
2005......................................................     --         2,258
Thereafter................................................     --         6,396
                                                              ---       -------
Total minimum lease payments..............................     92       $22,761
                                                                        =======
Less: Amounts representing interest.......................     (9)
                                                              ---
Present value of minimum lease payments...................    $83
                                                              ===
</TABLE>

     Rent expense under operating leases, net of sublease income, for fiscal
2000 and for the period from July 29, 1998 (date of inception) to June 30, 1999
was $1,510,000 and $283,000, respectively.

     The Company has entered into a purchase agreement with a manufacturer in
Malaysia which provides for the manufacturer to supply certain levels of
handheld computer products according to rolling forecasts and purchase orders
provided by Handspring, Inc. The term of this agreement is for one year, and it
is cancellable upon 90 days notice by either party. The Company guarantees a
minimum production commitment based on this rolling forecast. The Company is
liable for the purchase price of products scheduled to be delivered within 30
days of the date of cancellation. In addition, the Company is liable for the
actual cost of materials plus a handling fee for orders cancelled within 31-90
days of the date of scheduled delivery. The Company may cancel orders with
scheduled delivery more than 90 days from the date of cancellation without
liability. The Company has not cancelled any orders pursuant to this purchase
agreement since the Company's inception. Had the Company cancelled any such
orders, its maximum liability at July 1, 2000 under the cancellation provisions
of this purchase agreement would have approximated $12,772,000. The handheld
computer products are to be purchased by a third-party subcontractor.
Handspring, Inc. has guaranteed prompt payment of all invoices and charges in
the event of default related to said charges by the third-party subcontractor.

     Subsequent to July 1, 2000 the Company entered into a second purchase
agreement with a manufacturer in Mexico. The purpose and terms of the agreement
are generally the same as the agreement described above, except that there are
no handling fees due in the event of an order cancellation.

     The Company has also entered into an agreement with an outsource provider
for telephone-based customer support and technical support. The contract
provides for the outsource provider to supply certain levels of support
according to a rolling 90-day forecast provided by the Company. The Company may
revise the forecast within fifteen days of each subsequent month. The Company is
liable for 80% of a given months forecast.

     The Company's commitments relating to the logistics provider and the
provider for repair services are based on individual purchase orders issued to
these providers on a regular basis. The Company's liability with respect to such
orders issued at July 1, 2000 aggregated $5,686,000, which is included in
current liabilities.

 8. STOCKHOLDERS' EQUITY

  Preferred Stock

     The Company is authorized to issue 10,000,000 shares of preferred stock,
none of which was outstanding at July 1, 2000 or June 30, 1999.

                                       45
<PAGE>   47
                                HANDSPRING, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

  Common Stock

     Common stock issued to the founders is subject to repurchase agreements
whereby the Company has the option to repurchase unvested shares upon
termination of employment at the original issue price. These shares vest 20% at
the date of the agreements, an additional 20% on July 13, 1999, 1.667% per month
thereafter and an additional 25% in the event of an acquisition or merger of the
Company. There were 26,247,690 and 50,400,000 shares of the founders' common
stock subject to repurchase by the Company at July 1, 2000 and June 30, 1999,
respectively. The Company has the right of first refusal should any of the
founders decide to sell shares.

     The Company issued 62,500 and 90,000 shares of common stock for services
during fiscal 2000 and during the period from July 29, 1998 (date of inception)
to June 30, 1999, respectively. The per share price of these shares was equal to
the fair value of the common stock, as determined by the Board of Directors, on
the date the Board of Directors approved the stock issuances.

  Common Stock Reserved for Issuance

     The Company has 1,000,000,000 shares of common stock authorized, of which
125,436,978 and 69,365,078 were issued and outstanding as of July 1, 2000 and
June 30, 1999, respectively. Common stock reserved for future issuances is as
follows:

<TABLE>
<CAPTION>
                                                      JULY 1, 2000    JUNE 30, 1999
                                                      ------------    -------------
                                                             (IN THOUSANDS)
<S>                                                   <C>             <C>
Issuance under stock options........................     43,238          15,533
Issuance under employee stock purchase plan.........        750              --
Conversion of redeemable convertible preferred
  stock.............................................         --          36,346
Exercise of right to purchase redeemable convertible
  preferred stock...................................         --             895
                                                         ------          ------
          Total shares reserved.....................     43,988          52,774
                                                         ======          ======
</TABLE>

  2000 Employee Stock Purchase Plan

     Effective June 21, 2000, the Company adopted the 2000 Employee Stock
Purchase Plan ("the ESPP"). An initial 750,000 shares of common stock have been
reserved for issuance under the ESPP. In addition, subject to the Board of
Director's discretion, on January 1, 2001 and on each anniversary thereafter,
the aggregate number of shares reserved for issuances under the ESPP will be
increased automatically by the numbers of shares equal to 1% of the total number
of outstanding shares of the Company's common stock on the immediately preceding
December 31; provided that the aggregate shares reserved under the ESPP shall
not exceed 22,500,000 shares.

     Under the ESPP, eligible employees may have up to 10% of their earnings
withheld, subject to certain limitations, to be used to purchase shares of the
Company's common stock. Unless the Board of Directors shall determine otherwise,
each offering period provides for consecutive 24 month periods commencing on
each February 1 and August 1, except that the first offering period commenced on
June 21, 2000 and will end on July 31, 2002. Each offering period is comprised
of four 6 month purchase periods, except for the first purchase period which
will be from June 21, 2000 to January 31, 2001. The price at which common stock
may be purchased under the ESPP is equal to 85% of the lower of the fair market
value of common stock on the commencement date of each offering period or the
specified purchase date. No shares have been purchased under the ESPP as of July
1, 2000.

  Prior Stock Option Plans

     The Company's 1998 Equity Incentive Plan (the "1998 Plan") and the 1999
Executive Equity Incentive Plan (the "1999 Plan") provide for the issuance of
options to acquire 28,707,693 and 10,350,000 shares of

                                       46
<PAGE>   48
                                HANDSPRING, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

common stock, respectively. Incentive stock options ("ISO") may be granted under
both the 1998 Plan and 1999 Plan only to Company employees (including officers
and directors who are also employees). Nonqualified stock options ("NSO") may be
granted to Company employees, officers, directors, and consultants. The options
may be granted at prices no less than 85% of the estimated fair value of the
shares at the date of grant, provided, however, that (i) the exercise price of
an ISO shall not be less than 100% of the fair value of the shares on the date
of grant, and (ii) the exercise price of any option granted to a 10% shareholder
shall not be less than 110% of the fair value of the shares on the date of
grant, respectively. Options generally vest 25% one year from the vest start
date and ratably over the next 36 months and expire 10 years (five years in
certain instances) from the date of grant.

     Options granted prior to December 1999 are immediately exercisable, and
options granted on or after December 1999 are generally exercisable only as the
shares underlying the option become vested. Shares issued upon exercise of
options that are unvested are subject to repurchase by the Company upon
termination of that option recipient's services to the Company. The Company is
not obligated to repurchase such unvested shares. The repurchase price is the
original exercise price, proportionately adjusted for any stock split or similar
change in the capital structure of the Company. A stockholder who holds unvested
shares is entitled to vote those shares and is entitled to receive dividends
declared on those shares, but may not freely sell the shares until they become
vested. There were 4,445,853 and 6,275,078 shares issued under the 1998 Plan
outstanding at July 1, 2000 and June 30, 1999 that were subject to repurchase,
respectively. There were 1,719,373 shares issued under the 1999 Executive Equity
Incentive Plan that were subject to repurchase at July 1, 2000. Upon adoption of
the 2000 Equity Incentive Plan (the "2000 Plan"), the Company transferred all
shares available for grant under the 1998 Plan and the 1999 Executive Equity
Incentive Plan to the 2000 Plan.

  2000 Equity Incentive Plan

     The 2000 Equity Incentive Plan (the "2000 Plan") was adopted by the Board
of Directors on April 26, 2000 and became effective on June 20, 2000. Options
granted under the 2000 Equity Incentive Plan may be either incentive stock
options or nonqualified stock options. ISOs may be granted only to Company
employees (including officers and directors who are also employees). NSOs may be
granted to Company employees, officers, directors, consultants, independent
contractors and advisors of the Company. All other terms of options issued are
generally the same as those that may be issued under the 1998 Plan and 1999
Plan. A total of 15,000,000 shares of common stock have been reserved for
issuance under the 2000 Plan. In addition, subject to the Board of Director's
discretion, the aggregate number of shares reserved under the 2000 Plan will be
increased automatically by the number of shares equal to 5% of the total
outstanding shares of the Company on the immediately preceding December 31,
provided that no more than 30,000,000 shares shall be issued as ISO's.

     Option activity under the Company's Equity Incentive Plans is as follows:

<TABLE>
<CAPTION>
                                                                  OPTIONS OUTSTANDING
                                                              ----------------------------
                                                 OPTIONS                       WEIGHTED
                                                AVAILABLE                      AVERAGE
                                                FOR GRANT       SHARES      EXERCISE PRICE
                                               -----------    ----------    --------------
<S>                                            <C>            <C>           <C>
  Authorized.................................   21,807,693            --
  Options granted............................  (18,050,884)   18,050,884        $0.08
  Options exercised..........................           --    (6,275,078)        0.07
                                               -----------    ----------
Balance at June 30, 1999.....................    3,756,809    11,775,806         0.08
  Authorized.................................   32,250,000            --
  Options granted............................  (19,527,497)   19,527,497         6.45
  Options exercised..........................           --    (4,544,623)        0.44
  Options canceled...........................      136,500      (136,500)        1.04
                                               -----------    ----------
Balance at July 1, 2000......................   16,615,812    26,622,180        $4.68
                                               ===========    ==========
</TABLE>

                                       47
<PAGE>   49
                                HANDSPRING, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The following table summarizes information concerning options outstanding
and exercisable at July 1, 2000:

<TABLE>
<CAPTION>
                                          OPTIONS OUTSTANDING                      OPTIONS EXERCISABLE
                             ---------------------------------------------    -----------------------------
                                              WEIGHTED
                                              AVERAGE
        RANGE OF                             REMAINING         WEIGHTED                         WEIGHTED
        EXERCISE               NUMBER       CONTRACTUAL        AVERAGE          NUMBER          AVERAGE
         PRICES              OUTSTANDING    LIFE (YEARS)    EXERCISE PRICE    EXERCISABLE    EXERCISE PRICE
        --------             -----------    ------------    --------------    -----------    --------------
<S>                          <C>            <C>             <C>               <C>            <C>
         $ 0.05..........     7,707,806         8.29            $ 0.05         7,707,806         $0.05
$ 0.11 - $ 0.17..........     2,149,875         8.86              0.15         2,149,875          0.15
$ 0.22 - $ 0.44..........     2,702,266         9.16              0.41         2,702,266          0.41
$ 0.67 - $ 0.89..........     3,877,501         9.44              0.80         2,491,501          0.75
         $ 1.33..........     1,223,998         9.55              1.33                --            --
$ 1.56 - $ 2.11..........     2,029,948         9.65              1.80                --            --
$13.33 - $16.00..........     4,418,536         9.82             14.54                --            --
         $20.00..........     2,512,250         9.97             20.00
                             ----------                                       ----------
$ 0.05 - $20.00..........    26,622,180         9.17            $ 4.68        15,051,448         $0.25
                             ==========                                       ==========
</TABLE>

  Deferred Stock Compensation

     During fiscal 2000 and during the period from July 29, 1998 (date of
inception) to June 30, 1999 the Company issued stock options under the 1998 Plan
and the 1999 Plan at exercise prices deemed by the Board of Directors at the
date of grant to be the fair value. For financial statement purposes, the
Company has recorded deferred compensation for the difference between the
purchase price of the stock issued to employees under stock options and the fair
value of the Company's stock at the date of grant. This deferred compensation is
amortized to expense over the period during which the Company's right to
repurchase the stock lapses, generally four years. At July 1, 2000 and June 30,
1999, the Company had recorded deferred stock compensation related to these
options of $101,991,000 and $13,391,000, respectively, of which $40,077,000 and
$3,646,000 has been amortized to expense during fiscal 2000 and during the
period from July 29, 1998 (date of inception) to June 30, 1999, respectively.

     As discussed in Note 2, the Company accounts for its stock-based
compensation using the method prescribed by APB No. 25, Accounting for Stock
Issued to Employees. Had the Company determined its stock-based compensation
cost based on the fair value at the grant dates for the awards under the method
prescribed by SFAS No. 123, the Company's net loss would have been increased to
the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                       PERIOD FROM
                                                                      JULY 29, 1998
                                                   YEAR ENDED      (DATE OF INCEPTION)
                                                  JULY 1, 2000       TO JUNE 30, 1999
                                                  -------------    --------------------
                                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                               <C>              <C>
Net loss:
  As reported...................................    $(60,291)            $(8,389)
  Pro forma.....................................     (75,648)             (8,483)
Basic and diluted net loss per share:
  As reported...................................    $  (1.77)            $ (0.71)
  Pro forma.....................................       (2.22)              (0.72)
</TABLE>

     The Company calculated the fair value of each option grant on the date of
grant using the Black-Scholes option pricing model and the following
assumptions: weighted average expected option term of four years; risk free
interest rates of 4.18% to 6.73%; expected dividend yield of zero percent, and a
volatility of 70% for the
                                       48
<PAGE>   50
                                HANDSPRING, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

periods above. The weighted average fair value of options granted during fiscal
2000 and during the period from July 29, 1998 (date of inception) to June 30,
1999 was $7.99 and $0.76, respectively.

 9. INCOME TAXES

     Due to operating losses and the inability to recognize the benefits
therefrom, there is no tax provision for the period from July 29, 1998 (date of
inception) to June 30, 1999. For the year ended July 1, 2000 the provision for
income taxes consists of the following (in thousands):

<TABLE>
<S>                                                           <C>
Current provision:
  Federal...................................................  $ --
  State.....................................................    --
  Foreign...................................................   200
                                                              ----
          Total current provision...........................  $200
                                                              ====
</TABLE>

     The difference between the provision for income taxes and the amount
computed by applying the federal statutory income tax rate (35 percent) to loss
before taxes is explained below:

<TABLE>
<CAPTION>
                                                                      PERIOD FROM
                                                                     JULY 29, 1998
                                                   YEAR ENDED     (DATE OF INCEPTION)
                                                  JULY 1, 2000     TO JUNE 30, 1999
                                                  ------------    -------------------
                                                            (IN THOUSANDS)
<S>                                               <C>             <C>
Tax benefit at federal statutory rate...........    $(21,053)           $(2,936)
Foreign taxes...................................         200                 --
Unbenefitted net operating losses, reserves
  and accruals..................................      20,853              2,936
                                                    --------            -------
          Total.................................    $     --            $    --
                                                    ========            =======
</TABLE>

     Significant components of the Company's deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                                      JULY 1, 2000    JUNE 30, 1999
                                                      ------------    -------------
                                                             (IN THOUSANDS)
<S>                                                   <C>             <C>
Deferred compensation...............................    $17,488          $    --
Net operating loss carryforwards....................      3,970            1,716
Research credit carryforwards.......................        952              223
Reserves and accruals not currently deductible......      4,416               --
Other...............................................        148               90
                                                        -------          -------
                                                         26,974            2,029
Valuation allowance.................................    (26,974)          (2,029)
                                                        -------          -------
Net deferred tax asset..............................    $    --          $    --
                                                        =======          =======
</TABLE>

     FASB Statement No. 109 provides for the recognition of deferred tax assets
if realization of such assets is more likely than not. Based upon the weight of
available evidence, which includes historical operating performance and the
reported cumulative net losses in prior years, the Company has provided a full
valuation allowance against its deferred tax assets.

     The net valuation allowance increased by $24,945,000 and $2,029,000, during
fiscal 2000 and during the period from July 29, 1998 (date of inception) to June
30, 1999, respectively.

     As of July 1, 2000 the Company had net operating loss carryforwards for
federal and state purposes of approximately $9,800,000 and $10,600,000,
respectfully. The Company also had federal and state research and

                                       49
<PAGE>   51
                                HANDSPRING, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

development tax credit carryforwards of approximately $600,000 and $475,000,
respectfully. The federal and state net operating loss carryforwards will expire
at various dates beginning in 2007 if not utilized.

     Utilization of the net operating losses and tax credits may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and tax credits
before utilization.

10. EMPLOYEE BENEFIT PLAN

     Effective January 1, 1999, the Company adopted a 401(k) tax-deferred
savings plan (the "Plan") for essentially all of its employees. Eligible
employees may make voluntary contributions to the Plan up to 15% of their annual
eligible compensation. The Company does not make any matching contributions to
the Plan.

11. BUSINESS SEGMENT REPORTING

     The Company operates in one operating segment, handheld computing, with
sales primarily in the United States. The Company's headquarters and most of its
operations are located in the United States. Geographic long-lived assets
information based on the physical location of the assets at the end of each
period is as follows:

<TABLE>
<CAPTION>
                                                      JULY 1, 2000    JUNE 30, 1999
                                                      ------------    -------------
<S>                                                   <C>             <C>
North America.......................................    $ 9,914          $1,248
Rest of the world...................................      1,710              --
                                                        -------          ------
          Total.....................................    $11,624          $1,248
                                                        =======          ======
</TABLE>

     During fiscal 2000, three customers accounted for 15%, 14%, and 11% of
revenue.

12. SUBSEQUENT EVENTS

     On July 5, 2000 the underwriters of our initial public offering exercised
their over-allotment option to purchase 1,500,000 shares of common stock which
resulted in net proceeds to the Company of $27,975,000.

                                       50
<PAGE>   52

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Date: September 29, 2000                  HANDSPRING, INC.

                                          By:     /s/ DONNA L. DUBINSKY
                                            ------------------------------------
                                            Donna L. Dubinsky
                                            President and Chief Executive
                                              Officer

     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
                      ---------                                   -----                     ----
<C>                                                    <C>                           <S>
            PRINCIPAL EXECUTIVE OFFICER:

                /s/ DONNA L. DUBINSKY                      President and Chief       September 29, 2000
-----------------------------------------------------       Executive Officer
                  Donna L. Dubinsky

     PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:

               /s/ BERNARD J. WHITNEY                    Vice President and Chief    September 29, 2000
-----------------------------------------------------       Financial Officer
                 Bernard J. Whitney

                ADDITIONAL DIRECTORS:

                /s/ BRUCE W. DUNLEVIE                            Director            September 29, 2000
-----------------------------------------------------
                  Bruce W. Dunlevie

                  /s/ KIM B. CLARK                               Director            September 29, 2000
-----------------------------------------------------
                    Kim B. Clark

                  /s/ L. JOHN DOERR                              Director            September 29, 2000
-----------------------------------------------------
                    L. John Doerr

               /s/ JEFFREY C. HAWKINS                            Director            September 29, 2000
-----------------------------------------------------
                 Jeffrey C. Hawkins

              /s/ MITCHELL E. KERTZMAN                           Director            September 29, 2000
-----------------------------------------------------
                Mitchell E. Kertzman
</TABLE>

                                       51
<PAGE>   53

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER                            EXHIBIT TITLE
    -------                           -------------
    <S>        <C>
    3.1        Second Amended and Restated Certificate of Incorporation
               (incorporated herein by reference to exhibit 3.3 to our
               Registration Statement on Form S-1 (File No. 333-33666)
               which became effective on June 21, 2000 (the Form S-1) (1)
    3.2        Restated Bylaws (incorporated by reference to Exhibit 3.5 to
               the Form S-1)
    4.1        Specimen Common Stock Certificate (1)
    4.2        Amended and Restated Investors' Rights Agreement dated July
               7, 1999 (1)
    10.1       Form of Indemnity Agreement entered into between Registrant
               and all executive officers and directors(1)
    10.2       1998 Equity Incentive Plan*(1)
    10.3       1999 Executive Equity Incentive Plan*(1)
    10.4       Form of 2000 Equity Incentive Plan*(1)
    10.5       Form of 2000 Employee Stock Purchase Plan*(1)
    10.6       Single Tenant Absolute Net Lease between Registrant and
               Chan-Paul Partnership dated June 22, 1999(1)
    10.7       Software License Agreement between Palm Computing, Inc. and
               Registrant dated September 24, 1998, as amended+(1)
    10.8       Subordinated Loan and Security Agreement between Registrant
               and Comdisco, Inc. dated June 10, 1999(1)
    10.9       International Manufacturing Contract between Registrant and
               Flextronics (Malaysia) SDN.BHD dated June 29, 1999+(1)
    10.10      Founder's Restricted Stock Purchase Agreement between
               Registrant and Donna Dubinsky dated August 21, 1998*(1)
    10.11      Founder's Restricted Stock Purchase Agreement between
               Registrant and Jeff Hawkins dated August 20, 1998*(1)
    10.12      Offer Letter of Employment between Registrant and Bernard
               Whitney dated May 31, 1999*(1)
    10.13      Stock Option Agreement between Registrant and Edward
               Colligan dated October 12, 1998*(1)
    10.14      Lease between Registrant and Spieker Properties, L.P. dated
               April 24, 2000(1)
    10.15      Form of Outside Director Stock Option Agreement*(1)
    10.16      Attachments Nos. 5 and 6 to Amendment No. 2 and Amendment
               No. 5 to the Software License Agreement between Palm
               Computing, Inc. and Registrant dated September 24, 1998+(1)
    10.17      Retail Distribution Agreement between Registrant and
               CompUSA, Inc. dated March 13, 2000++
    10.18      Retail Distribution Agreement between Registrant and
               Staples, Inc. dated March 14, 2000, as amended++
    10.19      Reseller Agreement between Registrant and Best Buy Co., Inc.
               dated March 21, 2000++
    21.1       List of Subsidiaries of Registrant
    23.2       Consent of PricewaterhouseCoopers LLP
    27.1       Financial Data Schedule
</TABLE>

---------------
 *  Management contracts or compensatory plans required to be filed as an
    exhibit to Form 10-K.

 +  Confidential treatment has been granted with respect to certain information
    contained in this document. Confidential portions have been omitted from
    this public filing and have been filed separately with the Securities and
    Exchange Commission.

 ++ Confidential treatment has been requested for certain portions of this
    document pursuant to an application for confidential treatment sent to the
    Securities and Exchange Commission. Such portions are omitted from this
    filing and are filed separately with the Securities and Exchange Commission.

(1) Incorporated by reference to the exhibit with the same number to our
    Registration Statement on Form S-1 (File No. 333-33666), which became
    effective on June 21, 2000.