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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-K/A

Amendment No. 1


|           |  |                                                                                         
|---------- |  | ----------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                         
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934    
|           |  |                                                                                         
|           |  | For the fiscal year ended June 29, 2002                                                 
|           |  |                                                                                         
|           |  | OR                                                                                      
|           |  |                                                                                         
|[   ]      |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|           |  |                                                                                         
|           |  | For the transition period from          to                                              

Commission File No. 0-30719

Handspring, Inc.

(Exact name of registrant as specified in its charter)


|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 77-0490705                             
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification Number)

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. YesþNo [   ]

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.þ

The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $93,100,000 as of August 31, 2002, 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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EXPLANATORY NOTE

We are
filing this Amendment No. 1 to our Annual Report on Form
10-K as filed with the Securities and Exchange Commission on September 27, 2002, to
restate the balance sheet for our fiscal year ended June 29, 2002 in order to
change the accounting treatment for two leases related to buildings
in Sunnyvale, California. The Sunnyvale leases will now be accounted
for as if we owned the buildings, rather than accounted for
as operating leases. This restatement has no impact to cash balances, net cash flow or the
income statement for any period either historically or going forward.
Accordingly, in this Form 10-K/A, we are restating the balance sheet
for our fiscal year ended June 29, 2002 to reflect these adjustments. The
specific items amended to reflect the impact of the restatement are Item 2 of
Part I, Items 6, 7 and 8 of Part II and Item 14 of Part IV. Note 3 of the
Consolidated Financial Statements contains a description of the restatement and
its effects on the financial statements for the year referenced above. This
Form 10-K/A does not reflect events occurring after the filing of the original
Form 10-K, or modify or update those disclosures in any way other than as
required to reflect the effects of the restatement.



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TABLE OF CONTENTS



|                       |                                                                                               |  |  |  |  |  |  | 
|---------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                
|                       | Item 2. Properties                                                                           
|PART II               
|                       | Item 6. Selected Financial Data                                                              
|                       | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                       | Item 8. Financial Statements and Supplementary Data                                          
|PART IV               
|                       | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES            
|OFFICER CERTIFICATIONS
|EXHIBIT INDEX         
|EXHIBIT 23.2          



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HANDSPRING, INC.

2002 ANNUAL REPORT ON FORM 10-K/A

TABLE OF CONTENTS

|                       |  |                                                                                       |    |  |    |  |  |      |  | 
|---------------------- |  | ------------------------------------------------------------------------------------- | -- |  | -- |  |  | ---- |  | 
|                       |  |                                                                                       |    |  |    |  |  | Page
|                       |  |                                                                                       |    |  |    |  |  |     
|PART I                
|Item 2.                |  | Properties                                                                            |    |  | 4  | 
|PART II               
|Item 6.                |  | Selected Financial Data                                                               |    |  | 5  | 
|Item 7.                |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |    |  | 5  | 
|Item 8.                |  | Financial Statements and Supplementary Data                                           |    |  | 23 | 
|PART IV               
|Item 14.               |  | Exhibits, Financial Statements, Financial Statement Schedule and Reports on Form 8-K  |    |  | 23 | 
|SIGNATURES             |  |                                                                                       | 46 | 
|OFFICER CERTIFICATIONS |  |                                                                                       | 47 | 
|EXHIBIT
INDEX          |  |                                                                                       | 51 | 

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PART I




Item 2.Properties

Our headquarters are located in two leased office spaces in Mountain View,
California. These buildings comprise an aggregate of approximately 86,500
square feet. The lease terms extend to August 2004 and June 2008. We also have
approximately 28,900 square feet of additional office space in Mountain View
subject to a lease that extends to May 2003 that we are currently seeking to
sublease. In addition, we currently lease office space in Singapore, the United
Kingdom, the Netherlands, Switzerland, France and Germany.

In
February 2001, we entered into two lease agreements
for a new corporate headquarters, consisting of approximately 340,000 square
feet, to be constructed in Sunnyvale, California. Both leases had initial
terms of twelve years with options to renew for an additional six years,
subject to certain conditions.

In
fiscal 2002, we determined that our existing office space was
adequate to meet our current requirements and that we no longer
needed additional office space. Accordingly, we entered into
negotiations with the landlord to buy-out or restructure the Sunnyvale leases.
In January 2003, we entered into an agreement with the landlord to
restructure these lease obligations.

In
February 2003, it was determined that there had been an error in the application of technical aspects
of lease accounting, specifically the application of EITF 97-10,
The Effect of
Lessee Involvement in Asset Construction. Specifically, although in the
original lease agreements we had no ownership of the buildings, the
application of EITF 97-10 was triggered because we paid for particular
tenant improvements, including air conditioning, wiring and elevators.

As a
result of the application of the provisions of EITF 97-10, we are considered to be the owner (for accounting purposes only) of the
buildings subject to the original Sunnyvale leases, during the construction
period. The application of the provisions of EITF 97-10 has resulted in the
recording of approximately $74.0 million as construction in progress, with a corresponding
obligation for construction in progress of $74.0 million as of June 29, 2002.

Pursuant
to the restructuring of the lease agreements, we have agreed to pay $61.2 million in total consideration to the landlord and building
contractor. We expect to record a charge against earnings of between
$75 and $80 million in the third quarter of fiscal 2003 to account for the
costs of the restructuring, the write-off of previously capitalized tenant
improvements and our advisor fees.

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PART II




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 for the years ended June 29, 2002,
June 30, 2001 and July 1, 2000, and the selected consolidated balance sheet
data at June 29, 2002 and June 30, 2001, are derived from our audited
consolidated financial statements that have been included elsewhere in this
annual report. The consolidated statement of operations data for the period
from July 29, 1998 (date of inception) to June 30, 1999 and the consolidated
balance sheet data as of July 1, 2000 and June 30, 1999 are derived from our
audited consolidated financial statements not included herein.

|                                                                |                                                             |                                    |         |                                       |         |            |          |            |         |                     |         |        |         |   |        |               |       | 
|--------------------------------------------------------------- | ----------------------------------------------------------- | ---------------------------------- | ------- | ------------------------------------- | ------- | ---------- | -------- | ---------- | ------- | ------------------- | ------- | ------ | ------- | - | ------ | ------------- | ----- | 
|                                                                |                                                             |                                    |         |                                       |         |            |          |            |         |                     |         |        |         |   |        | Period From  
|                                                                |                                                             |                                    |         |                                       |         |            |          |            |         |                     |         |        |         |   |        | July 29, 1998
|                                                                |                                                             |                                    |         | Year Ended                            |         | Year Ended |          | Year Ended |         | (Date of Inception)
|                                                                |                                                             |                                    |         | June 29,                              |         | June 30,   |          | July 1,    |         | to June 30,        
|                                                                |                                                             |                                    |         | 2002                                  |         | 2001       |          | 2000       |         | 1999               
|                                                                |                                                             |                                    |         |                                       |         |            |          |            |         |                    
|                                                                |                                                             |                                    |         | (In thousands, except per share data)
|Consolidated Statements of Operations Data:                     |                                                             |                                    |         |                                       |         |            |          |            |         |                     |         |        |         |   |        |              
|Revenue                                                         |                                                             | $                                  | 240,651 |                                       |         | $          | 370,943  |            |         | $                   | 101,937 |        |         | $ |       |              
|                                                                |                                                             |                                    |         |                                       |         |            |          |            |         |                     |         |        |         |   |        |              
|Costs and operating expenses:                                   |                                                             |                                    |         |                                       |         |            |          |            |         |                     |         |        |         |   |        |              
|                                                                | Costs of revenue                                            |                                    |         | 205,917                               |         |            |          | 292,311    |         |                     |         | 69,921 |         |   |        |              |      
|                                                                | Research and development                                    |                                    |         | 24,739                                |         |            |          | 23,603     |         |                     |         | 10,281 |         |   |        | 2,738         |      
|                                                                | Selling, general and administrative                         |                                    |         | 85,612                                |         |            |          | 145,132    |         |                     |         | 42,424 |         |   |        | 2,451         |      
|                                                                | In-process research and development                         |                                    |         |                                      |         |            |          | 12,225     |         |                     |         |       |         |   |        |              |      
|                                                                | Amortization of deferred stock
compensation and intangibles |                                    |         | 20,181                                |         |            |          | 32,830     |         |                     |         | 40,077 |         |   |        | 3,646         |      
|                                                                |                                                             |                                    |         |                                       |         |            |          |            |         |                     |         |        |         |   |        |              
|                                                                |                                                             | Total costs and operating expenses |         |                                       | 336,449 |            |          |            | 506,101 |                     |         |        | 162,703 |   |        |               | 8,835 | 
|                                                                |                                                             |                                    |         |                                       |         |            |          |            |         |                     |         |        |         |   |        |              
|Loss from operations                                            |                                                             |                                    | (95,798 | )                                     |         |            | (135,158 | )          |         |                     | (60,766 | )      |         |   | (8,835 | )            
|Interest and other income, net                                  |                                                             |                                    | 5,259   |                                       |         |            | 12,195   |            |         |                     | 675     |        |         |   | 446    |              
|                                                                |                                                             |                                    |         |                                       |         |            |          |            |         |                     |         |        |         |   |        |              
|Loss before taxes                                               |                                                             |                                    | (90,539 | )                                     |         |            | (122,963 | )          |         |                     | (60,091 | )      |         |   | (8,389 | )            
|Income tax provision                                            |                                                             |                                    | 1,050   |                                       |         |            | 3,000    |            |         |                     | 200     |        |         |   |       |              
|                                                                |                                                             |                                    |         |                                       |         |            |          |            |         |                     |         |        |         |   |        |              
|Net loss                                                        |                                                             | $                                  | (91,589 | )                                     |         | $          | (125,963 | )          |         | $                   | (60,291 | )      |         | $ | (8,389 | )            
|                                                                |                                                             |                                    |         |                                       |         |            |          |            |         |                     |         |        |         |   |        |              
|Basic and diluted net loss per share                            |                                                             | $                                  | (0.71   | )                                     |         | $          | (1.21    | )          |         | $                   | (1.77   | )      |         | $ | (0.71  | )            
|                                                                |                                                             |                                    |         |                                       |         |            |          |            |         |                     |         |        |         |   |        |              
|Shares used in calculating basic and
diluted net loss per share |                                                             |                                    | 128,221 |                                       |         |            | 103,896  |            |         |                     | 34,015  |        |         |   | 11,772 |              
|                                                                |                                                             |                                    |         |                                       |         |            |          |            |         |                     |         |        |         |   |        |              

|                                              |  |                |         |          |  |         |         |          |  |   |         |  |  |   |        |  
|--------------------------------------------- |  | -------------- | ------- | -------- |  | ------- | ------- | -------- |  | - | ------- |  |  | - | ------ | -
|                                              |  | June 29,       |         | June 30, |  | July 1, |         | June 30,
|                                              |  | 2002           |         | 2001     |  | 2000    |         | 1999    
|                                              |  |                |         |          |  |         |         |         
|                                              |  | Restated (1)   |         |          |  |         |         |          |  |   |         |  |  |  
|                                              |  |                |         |          |  |         |         |          |  |   |         |  |  |  
|                                              |  | (In thousands)
|Consolidated Balance Sheet Data:              |  |                |         |          |  |         |         |          |  |   |         |  |  |   |        |  
|Cash, cash equivalents and investments        |  | $              | 151,433 |          |  | $       | 201,760 |          |  | $ | 199,212 |  |  | $ | 13,917 |  
|Working capital                               |  |                | (22,217 | )        |  |         | 48,670  |          |  |   | 182,662 |  |  |   | 13,108 |  
|Total assets                                  |  |                | 290,154 |          |  |         | 253,235 |          |  |   | 230,472 |  |  |   | 15,631 |  
|Long-term liabilities, net of current portion |  |                |        |          |  |         |        |          |  |   | 57      |  |  |   |       |  
|Redeemable convertible preferred stock        |  |                |        |          |  |         |        |          |  |   |        |  |  |   | 17,972 |  
|Total stockholders equity (deficit)          |  |                | 122,906 |          |  |         | 145,202 |          |  |   | 194,229 |  |  |   | (3,616 | )



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|(1) |  | Restated to record
$74.0 million as construction in
progress-Sunnyvale property with
a corresponding obligation for construction in progress-Sunnyvale property as discussed
in Note 3 to the Consolidated Financial Statements.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




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

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. Except as required by
law, we undertake no obligation to update any forward-looking
statement, whether as a result of new information, future events or
otherwise.

Overview

We were incorporated in July 1998 to develop innovative handheld
computers. Our goal is to become a global market leader in the handheld
computing market, which includes the emerging market for integrated wireless
devices offering voice, data, email and personal information management
capabilities. Shipments of our first Visor organizer products began in October
1999.

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Beginning in the fourth quarter of fiscal 2001, we saw significant adverse
changes in the handheld organizer market due to the economic slowdown, excess
channel inventory, aggressive price reductions and increased competition from
both PocketPC and Palm OS handheld organizer manufacturers. These conditions
continued throughout fiscal 2002, and contributed in part to a 35% decrease in
revenue from fiscal 2001 to fiscal 2002.

Significant accomplishments during fiscal 2002 included the following:



| |  |  | We began shipping our Treo communicators for operation with GSM
networks: the monochrome Treo 180 and the color Treo 270. We also
released Treo Mail, our wireless email solution for Treo communicators.                                                                                                                                                                                                                           
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We added two new products to our Visor organizer family in September
2001, Visor Neo for the entry level market, and Visor Pro for the
professional market. In June 2002, we shipped the Treo 90, a color
organizer with the same form factor as our Treo communicators that
features an integrated, physical keyboard.                                                                                                             
|
| |  |  | We released a new version of Blazer, our Web browser, that supports
five languages: English, French, Italian, German and Spanish. Blazer
continues to be viewed as a leading Web browser for Palm OS devices, and
is a key component for Treo.                                                                                                                                                                                      
|
| |  |  | We completed an underwritten public offering of 7.0 million shares of
common stock at a price to the public of $5.50 per share, plus an
additional 36,000 shares pursuant to the underwriters over-allotment
option. In addition, QUALCOMM Incorporated made an investment of $10.0
million to purchase 1.8 million shares of our common stock. Net of
offering expenses, these transactions resulted in proceeds of $47.0
million.
|
| |  |  | We significantly reduced operating expenses. Excluding amortization
of deferred stock compensation and intangibles, operating expenses
declined by $58.4 million, or 35%, from fiscal 2001 to fiscal 2002.                                                                                                                                                                                                                          

We believe that integrated wireless devices will be the future of handheld
computing. As a result of this belief, we are in the process of transitioning
Handspring from a company focused on standalone handheld computers, to a
company aimed at becoming a leader in the emerging category of wireless
communicators. This transition may take some time as products are introduced
and advanced, as the networks mature their data offerings, and as customers
become more familiar with these new offerings. While we continue to sell
organizers, we have shifted much of our future product development towards
wireless communicators, which we believe represents a potentially large, new
category of computing and communications devices.

Significant Accounting Policies

The consolidated financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America, which
require management to make estimates and assumptions that affect the reported
amounts. Actual results could differ from these estimates.

Revenue
recognition.Revenue to date is comprised almost entirely of sales
of our organizers and communicators. Retail sales orders are placed in our
internal order processing system. Product orders placed by end user customers
are received via our Web site or over the telephone via our third-party
customer support partner. All orders are then transmitted to our logistics
partners. We recognize revenue when a purchase order has been received, the
product has been shipped, title has transferred to the customer, the sales
price is fixed or determinable and collection of the resulting receivable is
probable. Sales of our handheld communicators may also include subsidy revenue
from wireless carriers for new customer service contracts or the extension of
existing customer contracts. In these cases, the customer has a specified
period of time in which they may cancel their service. All revenue related to
these subsidies is deferred until this specified period of time has elapsed. No
significant post-delivery obligations exist with respect to revenue recognized.

Returns reserve.We offer limited return rights on our products and
accordingly, at the time the related sale is recorded, we reduce revenues for
estimated returns. The estimates for returns are adjusted periodically and are
based upon various factors including historical rates of returns and inventory
levels in the channel. We also estimate and reserve for rebates and price
protection based upon specific programs. Actual results may differ from these
estimates.

Warranty reserve.The cost of product warranties is estimated and accrued
at the time revenue is recognized. While we engage in extensive product quality
programs and processes, our warranty obligation is affected by product failures
rates, component costs and

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repair service costs incurred in correcting a product failure. Should
actual product failure rates, component costs or repair service costs differ
from our estimates, revisions to the estimated warranty costs would be
required.

Cash and cash equivalents, short-term investments and long-term
investments.We invest our excess cash in debt instruments of the U.S.
Government and its agencies, and in high-quality corporate issuers. All highly
liquid debt or equity instruments purchased with an original maturity of three
months or less from the date of purchase are considered to be cash equivalents.
Those with original maturities greater than three months and current maturities
less than twelve months from the balance sheet date are considered short-term
investments, and those with maturities greater than twelve months from the
balance sheet date are considered long-term investments.

All short-term and long-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.

Accounts receivable.Accounts receivable are recorded at face value, less
an allowance for doubtful accounts. The allowance for doubtful accounts is an
estimate calculated based on an analysis of current business and economic
risks, customer credit-worthiness, credit card fraud, specific identifiable
risks such as bankruptcies, terminations or discontinued customers, or other
factors that may indicate a potential loss. The allowance is reviewed on a
consistent basis to ensure that it adequately provides for all reasonably
expected losses in the receivable balances. An account may be determined to be
uncollectable if all collection efforts have been exhausted, the customer has
filed for bankruptcy and all recourse against the account is exhausted, or
disputes are unresolved and negotiations to settle are exhausted. This
uncollectable amount is written off as bad debt against the allowance.

Inventories.Inventories are stated at the lower of standard cost (which
approximates first-in, first-out cost) or market. Provisions for potentially
obsolete or slow moving inventories are made based on managements analysis of
inventory levels and future sales forecasts. These provisions are estimates,
which could vary significantly, either favorably or unfavorably, from actual
requirements if future economic conditions, customer inventory levels or
competitive conditions differ from our expectations.

Construction
in progress-Sunnyvale property. Emerging Issues
Task Force No. 97-10 (EITF 97-10), The Effect of Lessee Involvement in Asset
Construction,is applied to entities involved with certain structural elements
of the construction of an asset that will be leased when construction of the
asset is completed. EITF 97-10 requires us to be considered the owner
(for accounting purposes only) of these types of projects during the
construction period.
This is the case even though we are not obligated to guarantee the
non-recourse mortgage obligation, nor are we involved in the management of the
construction of the building or the management of the owner-lessor. Therefore,
we have recorded such building costs related to the Sunnyvale leases as
construction in progress with a corresponding obligation for
construction in progress.

Income taxes.We account 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.

Results of Operations

Revenue.Fiscal 2002 revenue was $240.7 million, a decline of $130.3
million from fiscal 2001 revenue of $370.9 million. The decrease was primarily
due to the following factors:



| |  |  | There was a decline in unit shipments of our Visor organizers. We
believe that unit sales decreased due to economic weakness, a
significant slowing in the growth rate of the organizer market, excess
inventories, increased competition, and our shift in focus from
organizer products to communicator products.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | There was a decline in the average selling price for our Visor
organizers, which was primarily attributable to pricing and promotion
actions that we initiated to reduce channel inventory, as well as a
general reduction in the market prices for handheld organizers.                                           

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| |  |  | The decrease in Visor organizer revenue was offset in part by revenue
generated from the first shipments of our Treo products, which began
shipping internationally at the end of the second quarter of fiscal
2002, and began shipping in North America during the third quarter of
fiscal 2002.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Fiscal 2001 revenue was $370.9 million, an increase of $269.0 million from
fiscal 2000 revenue of $101.9 million. This increase in revenue was primarily
due to the following factors:



| |  |  | We began shipping products during the second quarter of fiscal 2000.
Therefore, on a comparative basis, there was only a partial year of
product shipments during fiscal 2000 compared to a full year of product
shipments during fiscal 2001.                                                                                                                                
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We expanded our distribution channels. Our first product shipments
were only for orders received through our Web site. Toward the end of
the third quarter of fiscal 2000 we began selling our products through
select retailers. During the following five quarters we added additional
retailers, distributors and e-commerce partners throughout the United
States.        
|
| |  |  | We entered a number of international markets. During the fourth
quarter of fiscal 2000 and throughout fiscal 2001, we launched our
products in Asia Pacific, Canada, Europe, Japan and the Middle East. As
a result of this global expansion, revenue outside North America
represented 19.5% of revenue during fiscal 2001 as compared to 3.9% of
revenue during fiscal 2000.
|
| |  |  | We added several new products to our Visor family of handheld
computers during fiscal 2001, including Visor Prism, Visor Platinum and
Visor Edge, all with higher average selling prices than our initial
Visor and Visor Deluxe products that first shipped in fiscal 2000.                                                                                                  

Cost of revenue.Cost of revenue was $205.9 million during fiscal 2002, a
decline of $86.4 million from cost of revenue of $292.3 million during fiscal
2001. Excluding the amortization of deferred stock compensation, cost of
revenue resulted in gross margin declining from 21% in fiscal 2001 to 14% in
fiscal 2002. This decline was primarily attributable to aggressive pricing and
promotion actions taken in order to increase demand and reduce inventory of our
organizer products. The negative effect of the pricing and promotion actions on
gross margin was partially offset by higher margins on the sales of our Treo
line of products beginning in the second quarter of fiscal 2002. Also
offsetting the decrease in gross margin was a slightly higher percentage of our
products sold through our Web site during fiscal 2002 as compared with fiscal
2001. Sales through our Web site typically generate higher gross margins as
compared to retail sales.

Cost of revenue during fiscal 2001 was $292.3 million, an increase of
$222.4 million from fiscal 2000 cost of revenue of $69.9 million. Excluding
amortization of deferred stock compensation, cost of revenue resulted in gross
margin declining from 31% in fiscal 2000 to 21% in fiscal 2001. This decline
was primarily attributable to three factors. First, we incurred a $26.8 million
charge in the fourth fiscal quarter as a result of excess and obsolete
inventory and changes in our product development plans. Second, we took pricing
and product promotion actions in order to increase demand and reduce inventory.
Third, retail sales made up a larger percentage of fiscal 2001 revenue, which
generated lower gross margins, as compared to the prior fiscal year where we
experienced a higher percentage of direct sales through our Web site. These
factors that adversely affected gross margin were partially offset by our
introduction of new products with higher average sales prices and higher gross
margins during fiscal 2001.

We expect gross margin to improve as Treo becomes a larger percentage of
our product mix. However, future gross margins may be adversely affected by new
product introductions by our competitors, competitor pricing actions and higher
inventory balances. We also expect our gross margin to fluctuate in the future
due to channel mix, geographic mix, new product introductions, seasonal
effects, and timing and amount of carrier subsidies.

Research and development.Research and development expenses during fiscal
2002 were $24.7 million, an increase of $1.1 million, or 5%, from $23.6 million
during fiscal 2001. Research and development expenses during fiscal 2001
increased $13.3 million, or 130%, from $10.3 million during fiscal 2000. The
increases in both years were primarily due to the hiring of additional
personnel required for development of new products, including our Treo
communicator during fiscal 2002. We believe that continued investment in
research and development is critical to our plan to continue to develop
wireless communicator products.

Selling, general and administrative.Selling, general and administrative
expenses during fiscal 2002 were $85.6 million, a decline of $59.5 million, or
41%, from $145.1 million during fiscal 2001. This decrease was primarily due to
significant reductions in advertising and marketing activities, as well as the
restructuring of our customer support organization and general cost reductions
made company-wide. Selling, general and administrative expenses during fiscal
2001 increased $102.7 million, or 242%, from $42.4

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million during fiscal 2000. This increase reflected the additional costs
and expenses relating to the overall expansion in our level of operations
required to support our revenue growth during this period, including increased
sales and marketing activities for four new products introduced in fiscal 2001,
expenses related to our efforts to increase recognition of our brand name and
expenses related to putting in place the infrastructure required for a rapidly
growing public company.

In-process research and development.In February 2001, we completed our
acquisition of BlueLark Systems, a provider of client and server based software
designed to deliver content and services to wirelessly connected mobile
devices. Under the terms of the agreement related to this acquisition, we
issued 450,000 shares and options to purchase Handsprings common stock in
exchange for all of BlueLark Systems outstanding shares and options for a
total purchase price of $16.4 million. The acquisition was accounted for as a
purchase.

In connection with the acquisition of BlueLark Systems, we recorded a
$12.2 million charge for in-process research and development during fiscal 2001
for projects that had not reached technological feasibility and had no
alternative future use. An independent valuation was performed to assist us in
determining the fair value of the total purchase price to allocate to the
assets acquired and liabilities assumed from BlueLark Systems, including
in-process research and development. The amount allocated to in-process
research and development was determined by assessing the stage and expected
date of completion of the research and development efforts at the acquisition
date and calculating the net present value of cash flows expected to result
from the new technology. The estimated net present value of cash flows took
into account the characteristics and applications of the technologies, the size
and growth rate of existing and future markets and an evaluation of past and
anticipated technology and product life cycles. These cash flows included the
after-tax effects of future revenues, cost of revenues, operating expenses,
working capital charge and expenditures for capital and intangibles. Both the
estimated stage of completion and the discount rate used to calculate the net
present value factored into account the uncertainty surrounding the successful
deployment of the new technology resulting from the in-process research and
development effort.

Amortization of deferred stock compensation and intangibles.We
recognized $20.2 million, $32.8 million and $40.1 million of amortization of
deferred stock compensation and intangibles during fiscal 2002, 2001 and 2000,
respectively. This amount is primarily related to the stock options that we
granted to our officers and employees prior to our initial public offering on
June 20, 2000, 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. In addition, in February 2001, we
recorded $3.9 million of deferred stock compensation in relation to the
unvested stock options and restricted stock assumed in the acquisition of
BlueLark Systems. All of the deferred stock compensation is being amortized,
using the multiple option method, over the vesting period of the related
options and restricted stock. Accordingly, our results of operations will
include amortization of deferred stock compensation through fiscal 2004.

As part of the acquisition of BlueLark Systems, we also recorded
intangible assets consisting of goodwill and assembled workforce of $612,000.
These assets were amortized from the date of acquisition through fiscal 2002 on
a straight-line basis over three years. However, with the adoption of Statement
of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets,beginning in fiscal 2003, the value of assembled workforce will be
reclassified and recorded as goodwill, and the amortization will be
discontinued. Instead, the unamortized balance of $331,000 at June 29, 2002
will be subject to an impairment test at least annually.

Future amortization of deferred stock compensation is estimated to be $8.2
million and $1.3 million for fiscal years 2003 and 2004, respectively.

Interest and other income, net.Interest and other income, net was $5.3
million during fiscal 2002, a decline of $6.9 million from $12.2 million in
fiscal 2001. This decrease was a result of decreased interest income from lower
average cash and investment balances as well as lower interest rates during
fiscal 2002 compared to fiscal 2001. Interest and other income, net during
fiscal 2001 increased by $11.5 million from $675,000 in fiscal 2000. This
increase is a result of increased interest income from higher average cash and
investment balances primarily resulting from our financing activities,
including $184.9 million of net proceeds received from our initial public
offering on June 20, 2000, and $28.0 million of net proceeds received in July
2000, when our underwriters exercised their over-allotment option.

Also included within this line item are gains and losses from fluctuations
in foreign currency exchange rates, primarily caused from the movement between
the Euro and the U.S. dollar on our foreign subsidiaries U.S. dollar
liabilities. These fluctuations partially offset the decrease in interest and
other income, net during fiscal 2002 and partially offset the increase during
fiscal 2001. We have in the past entered into foreign exchange forward
contracts to minimize the impact of foreign currency fluctuations on assets and

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liabilities denominated in currencies other than the functional currency
of the reporting entity. We will continue to assess the need to utilize
financial instruments to hedge currency exposures.

During fiscal 2000, interest and other income, net also included 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.

Income tax provision.The provision for income taxes was $1.1 million,
$3.0 million and $200,000 during fiscal 2002, 2001 and 2000, respectively. The
provision for income taxes consists primarily of foreign taxes related to our
business outside of the United Sates of America. The fluctuations in the
provision for income taxes during fiscal 2000 through fiscal 2002 relate to the
increase during fiscal 2001 and the decrease during fiscal 2002 in the level of
our operations outside of the United States.

No provision for federal income taxes was recorded because we have
experienced significant net losses, which have resulted in deferred tax assets.
We provided a full valuation allowance for all deferred tax assets because, in
light of our history of operating losses, we are presently unable to conclude
that it is more likely than not that the deferred tax assets will be realized.

Liquidity and Capital Resources

As of June 29, 2002, we had cash, cash equivalents and short-term
investments of $100.8 million, down $20.7 million from $121.5 million as of
June 30, 2001. This decrease is primarily attributable to cash used in
operations, partially offset by the net proceeds received from the underwritten
public offering and private offering we completed during December 2001 as well
as the movement of investments from long-term to short-term.

Net cash used in operating activities was $89.0 million, $16.9 million and
$3.4 million during fiscal 2002, 2001 and 2000, respectively. Net cash used in
operating activities was primarily attributable to our net losses offset
partially by the non-cash charge for amortization of deferred stock
compensation and intangibles and, to a lesser extent, depreciation and
amortization. The losses during fiscal 2001 were also offset by the non-cash
charges for the write-off of excess and obsolete inventories as well as
in-process research and development associated with our acquisition of BlueLark
Systems. During fiscal 2002, additional contributors to the use of cash were an
increase in accounts receivable and a decrease in current liabilities. The
increase in accounts receivable was due to the timing of shipments in the last
quarter of fiscal 2002 compared with the previous year, and the decrease in
current liabilities was due to a general decrease in the level of operations
throughout the year as well as the payment for excess and obsolete inventories
reserved for in the previous year. Also, during fiscal 2002 we changed our
business practice with our logistics partners, whereby we now own all inventory
held at their facilities. This change in practice caused a decrease in prepaid
expenses and an increase in inventory on the balance sheet. During fiscal 2001,
an increase in prepaid expenses and other current assets and inventories
contributed to the net cash used in operating activities. These increases were
primarily a result of the prepayment of foreign taxes, prepayments made to our
suppliers for inventory that they held on our behalf and purchases of long
lead-time, Handspring-specific, product components. A decrease in accounts
receivable during fiscal 2001, due to the timing of shipments in the last
quarter of fiscal 2001 compared with fiscal 2000, and an increase in current
liabilities, due to a general increase in the level of operations during the
year, partially offset the cash used during fiscal 2001. During fiscal 2000, an
increase in accounts receivable contributed to the use of cash in operating
activities, reflecting the commencement of product sales, offset by a
significant increase in current liabilities due to a general increase in the
level of operations during that year.

Net cash provided by investing activities was $36.4 million during fiscal
2002, primarily attributable to proceeds received from maturities or sales of
available-for-sale securities, partially offset by purchases of
available-for-sale securities, and to a lesser extent, purchases of property
and equipment. Net cash used in investing activities was $123.6 million and
$6.0 million during fiscal 2001 and 2000, respectively. The uses of cash
primarily consisted of purchases of property and equipment, available-for-sale
securities and purchases of investments for collateral on our operating leases,
partially offset by proceeds received from maturities or sales of
available-for-sale securities.

Net cash provided by financing activities was $51.1 million, $31.0 million
and $198.4 million during fiscal 2002, 2001 and 2000, respectively. The net
cash provided by financing activities during fiscal 2002 resulted primarily
from the public sale of our common stock and a $10.0 million investment from
QUALCOMM Incorporated, for total net proceeds of $47.0 million. The $31.0
million provided by financing activities during fiscal 2001 resulted primarily
from the underwriters of our initial public offering exercising their
over-allotment to purchase 1,500,000 shares of common stock for net proceeds of
$28.0 million. During fiscal 2000, the most significant component of cash
provided by financing activities was $184.9 million received from our initial
public offering, as well as $10.0 million of net proceeds that we received from
the issuance of Series B preferred stock and $1.5 million when our subordinated

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debt lender exercised its option to purchase 198,965 shares of Series A
preferred stock at $7.539 per share. In addition, we received proceeds of $4.1
million, $3.1 million and $2.0 million during fiscal 2002, 2001 and 2000,
respectively, from the issuance of common stock under stock option plans and
stock purchase plans.

We have pledged a portion of our investment securities as collateral for
specified obligations under lease agreements for two buildings totaling
approximately 340,000 square feet that are being constructed in Sunnyvale,
California. As of June 29, 2002 there was $47.4 million pledged in relation to
these leases. Of the amount pledged $23.5 million is designated by the
agreements to be utilized for tenant improvements. The remaining portion of the
pledged investment represents a security deposit on the property. As of June
29, 2002 there was also a total of $3.3 million pledged as collateral for lease
payments for various other leases expiring between June 2002 and June 2008, as
well as foreign taxes.

As
discussed in Note 6, in February 2001, we entered into two
operating lease agreements for a new corporate headquarters, consisting of
approximately 340,000 square feet, to be constructed in Sunnyvale, California.
Both leases had initial terms of twelve years with options to renew for an
additional six years, subject to certain conditions.

In
fiscal 2002, we determined that our existing office space was
adequate to meet our current requirements and that we no longer
needed additional office space. Accordingly, we entered into
negotiations with the landlord to buy-out or restructure the Sunnyvale leases.
In January 2003, we entered into an agreement with
the landlord to
restructure these lease obligations.

In
February 2003, it was determined that there had been an error in the application of technical aspects
of lease accounting, specifically the application of EITF 97-10,
The Effect of
Lessee Involvement in Asset Construction. Specifically, although in the
original lease agreements we had no ownership of the buildings, the
application of EITF 97-10 was triggered because we paid for particular
tenant improvements, including air conditioning, wiring and elevators.

As a
result of the application of the provisions of EITF 97-10, we are considered to be the owner (for accounting purposes only) of the
buildings subject to the original Sunnyvale leases during the construction
period. The application of the provisions of EITF 97-10 has resulted in the
recording of approximately $74.0 million as construction in progress, with a corresponding obligation for construction in progress of $74.0 million as of June 29, 2002.

Pursuant
to the restructuring of the lease agreements, we have agreed to pay $61.2 million in total consideration to the landlord and building
contractor. We expect to record a charge against earnings of between
$75 and $80 million in the third quarter of fiscal 2003 to account for the
costs of the restructuring, the write-off of previously capitalized tenant
improvements and our advisor fees.

Our future capital requirements will depend on many factors, including the
level and timing of our revenue and expenses and the extent of our lease
obligations. We believe that our cash, cash equivalents and short-term
investments will be sufficient to meet our working capital needs for at least
the next twelve months. To the extent cash generated from operations is
insufficient to satisfy our liquidity requirements, including our lease
obligations, we may need additional cash to finance our operating and investing
needs. However, depending on market conditions, any additional financing we
need may not be available on terms acceptable to us, or at all. If adequate
funds are not available, we may be required to delay, scale back or eliminate
significant operating activities which may include certain research and
development or marketing programs. Accordingly, the inability to obtain needed
financing could adversely affect our business, financial condition and results
of operations. 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 August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets.SFAS 144 supercedes SFAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
and APB 30, Reporting the Results of Operations  Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual

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and Infrequently Occurring Events and Transactions.Under SFAS 144 a
single accounting model for long-lived assets to be disposed of is established.
The accounting model is based on the framework established in SFAS 121 and
resolves certain implementation issues. SFAS 144 is effective beginning in
fiscal 2003. The adoption is not expected to have a material impact on our
financial position and results of operations.

In November 2001, the Emerging Issues Task Force (EITF), issued EITF
Issue No. 01-09, Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendors Products),which codified and reconciled
EITF Issue No. 00-14, Accounting for Certain Sales Incentives,Issues 2 and 3
of Issue No. 00-22, Accounting for Points and Certain Other Time-Based or
Volume-Based Sales Incentive Offers and Offers for Free Products or Services to
be Delivered in the Future,and Issue No. 00-25, Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the Vendors Products.
EITF addresses the accounting for consideration given by a vendor to a customer
(including both a reseller of the vendors products and an entity that
purchases the vendors products from the reseller). Any consideration given by
a vendor to a customer (or a reseller, or a customer of a reseller) is
generally presumed to be a reduction of selling price, and therefore, a
reduction of revenue. That presumption can be overcome if the vendor receives
an identifiable benefit in return for the consideration paid that is
sufficiently separable from the sale to the recipient, and the vendor can
reasonably estimate the fair value of that benefit, in which case the
consideration is characterized as an expense. We adopted EITF during fiscal
2002. The adoption did not have a material impact on our financial position or
results of operations.

In July 2002, the FASB issued SFAS 146, Accounting for Costs Associated
With Exit or Disposal Activities.SFAS 146 requires that a liability for costs
associated with an exit or disposal activity be recognized and measured
initially at fair value only when the liability is incurred. SFAS 146 is
effective for exit or disposal activities that are initiated after December 31,
2002. The adoption is not expected to have a material impact on our financial
position and results of operations.

Factors Affecting Future Results

If we are not successful in the development and introduction of new products,
particularly new wireless communicator products and related services, our
business would be substantially harmed.

We depend on our ability to develop new or enhanced products and services
that achieve rapid and broad market acceptance. We may fail to identify new
product and service opportunities successfully or to develop and bring to
market new products and services in a timely manner. In addition, our new
products and services may not achieve the market penetration or price stability
necessary for profitability. If we are unsuccessful in developing and
introducing new products and services that are appealing to customers, our
business and operating results would be negatively impacted.

If we fail to anticipate our customers needs and technological trends
accurately or are otherwise unable to complete the development of products and
services in a timely fashion, we will be unable to introduce new products and
services into the market, which will affect our ability to successfully
compete. We cannot guarantee that we will be able to introduce new products on
a timely or cost-effective basis or that customer demand will meet our
expectations.

Successful new product introductions are particularly important given our
shift in development focus from organizers to wireless communicators. This
shift in focus requires that our limited resources be directed more towards the
development of communicators and less on traditional organizers where we have
more extensive engineering, production and marketing experience. VisorPhone,
which was our first attempt to offer a product combining wireless
communications features with an organizer, did not achieve significant
commercial success. Our new Treo family of wireless communicators is the next
step in our ongoing development effort focused on new wireless technologies.
Our business would be substantially harmed if we fail to successfully develop
and commercialize new communicators and other innovative wireless products and
services.

We depend on wireless carriers for the success of our Treo communicator
products.

The success of our Treo communicators is highly dependent on our ability
to establish appropriate relationships, and build on our existing
relationships, with wireless carriers. We cannot assure you that we will be
successful in advancing our relationships with wireless carriers or that these
wireless carriers will act in a manner that will promote the success of Treo.
Factors that are largely within the control of wireless carriers but which are
important to the success of our Treo communicators, include:



| |  |  | the wireless carriers interest in testing Treo on their networks;
| | - |  | ------------------------------------------------------------------

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| |  |  | the quality and coverage area of voice and data services offered by the wireless carriers for use with Treo;                                                                          
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the degree to which wireless carriers will facilitate the successful introduction of Treo and actively promote Treo;                                                                  
|
| |  |  | the extent to which wireless carriers will require specific hardware
and software features on Treo communicators to be used on their
networks;                                        
|
| |  |  | the extent to which carriers will sell and promote competitive
products over Treo and coverage area of voice and data services offered
by the wireless carriers for use with Treo; and
|
| |  |  | the pricing and terms of voice and data rate plans that the wireless
carriers will offer for use with Treo.                                                                           

The success of our Treo communicator products requires both network and
software upgrades

We also depend on wireless carriers to build out advanced wireless
networks in a timely manner. Advanced wireless networks such as General Packet
Radio Services (GPRS, also known as 2.5G) and 1xRTT (also know as 3G) are
expected to enhance the user experience for email and other services through
higher speed and always on functionality. We are working to develop products
that utilize these advanced wireless networks and recently shipped the Treo 300
designed to operate on Sprints CDMA 1xRTT network. We are now in the process
of releasing a firmware update that allows Treo 180 and Treo 270 users to
upgrade their devices to take advantage of new GPRS data services on select
carrier networks. Delays in the roll-out of GPRS networks, or our failure to
complete as scheduled the release of the Treo software upgrade that is needed
for Treo to effectively operate with GPRS networks, could adversely affect our
business.

Our Treo communicator products present many significant manufacturing,
marketing and other operational risks and uncertainties, many of which are
beyond our control.

The shift in focus of our business from traditional handheld computers to
our Treo wireless communicator products presents many significant
manufacturing, marketing and other operational risks and uncertainties, many of
which are beyond our control. Factors that could affect the success of Treo
include:



| |  |  | our dependence on third parties to supply components, such as Wavecom
and AirPrime which provide radios for our GSM and CDMA based Treo
communicators, respectively;                     
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to manufacture our Treo products in sufficient volumes on a timely basis;                                                                                                    
|
| |  |  | the type of distribution channels where Treo will be available;                                                                                                                          
|
| |  |  | our ability to forecast demand accurately, especially for products
such as Treo communicators which are in a new product category for which
relevant data is incomplete or not available;
|
| |  |  | the end user price of Treo; and                                                                                                                                                          
|
| |  |  | the extent of consumer acceptance of this new product category, which
combines multiple functions in a pocket sized device.                                                              

Our relationship with Sprint is particularly important to the success of our
business.

In March 2002, we announced an agreement to work with Sprint to develop a
new CDMA version of the Treo communicator that operates on Sprints 3G network.
This jointly labeled product, the Treo 300, became commercially available in
August 2002. The Treo 300 is principally sold and promoted by Sprint and sales
of this product are expected to constitute a significant portion of our
revenues for the remainder of the calendar year. Since the Treo 300 is
customized for the Sprint network, Handspring currently will manufacture the
product only in volumes that are supported by Sprint purchase orders or if
Sprint assumes financial liability for long lead time components. If Sprint
does not sell and promote the product to the extent we anticipate, future
purchase orders from Sprint may be deferred and our business will be harmed.

The amount of future carrier subsidies is uncertain and carriers are free to
lower or reduce their subsidies with little or no notice to Handspring.

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When we sell a Treo communicator on our own Web site, we sometimes have
the opportunity to earn subsidies from carriers if the Treo communicator
customer also purchases a voice or data plan from the carrier. Today the
wireless industry is generally decreasing subsidies on voice services.
Moreover, carriers that currently provide Handspring with subsidies may reduce
or discontinue such subsidies with little or no notice to Handspring. While we
believe carriers will continue to offer subsidies to Handspring, particularly
given their need to sign up new data service customers, if these subsidies were
reduced or eliminated the gross margins for Treo communicators would decline
and we would be more limited in our ability to sell Treo communicators at
prices that are attractive to cost sensitive consumers.

We face economic exposure with respect to our lease obligations as a result of
excess leased real estate.

In February 2001, we entered into lease agreements for two buildings
totaling approximately 340,000 square feet that are being constructed in
Sunnyvale, California. Both leases have initial terms of twelve years. Monthly
rent expense of $1.7 million and monthly operating expenses of approximately
$300,000 are expected to commence during the second quarter of fiscal 2003,
with annual rent increases determined in part by the Consumer Price Index.

Given that our existing office space is adequate to meet our current
requirements, our current plan is to sublease at least one, and possibly both,
of the two Sunnyvale buildings. We have engaged a real estate broker to market
the space but have not yet secured any subtenants. Subleasing is difficult
given the substantial decline in the commercial real estate market in Silicon
Valley. Accordingly, any space that we do sublease will be at a rental rate
significantly below our lease rate.

At the same time that we are attempting to sublease the buildings, we also
are in discussions with the developer to negotiate a potential buy-out or
restructuring of our leases. Today we cannot predict the outcome of those
discussions. However, as a result of either subleasing the buildings, or a
buy-out or restructuring of the leases, we anticipate taking a significant,
one-time, charge relating to these buildings in the December quarter of fiscal
2003. Moreover, in either case, the resulting expense will be substantial and
will adversely affect our cash resources.

Economic conditions could lead to reduced demand for our products.

The downturn in general economic conditions and the substantial decline in
the stock market have led to reduced demand for a variety of goods and
services, including many technology products. If conditions continue to
decline, or fail to improve, we could see a significant additional decrease in
the overall demand for our products that could harm our operating results. This
is particularly true with respect to our Treo communicators as they typically
carry a list price between $349 and $699 and therefore are expensive purchases
for many consumers.

Fluctuations in our quarterly revenues and operating results might lead to
reduced prices for our stock.

We began selling our Visor handheld computer and generating revenue in the
quarter ended January 1, 2000. We began volume shipments of our Treo
communicator products during the quarter ended March 30, 2002. While we
continue to manufacture and sell organizer products, we are transitioning from
a company primarily focused on organizers, to a company primarily focused on
the emerging market for handheld communicators. Given our limited operating
history and the shift in our focus from organizers to communicators, 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 common stock would likely decline.

We depend heavily on our license from PalmSource. Our failure to maintain this
license, a change in PalmSources business focus or an adverse outcome in any
of the lawsuits involving the Palm OS could seriously harm our business.

Our license of the Palm OS operating system is critical for the operation
of our products. If the license is not maintained or if PalmSource, the newly
established, wholly-owned subsidiary of Palm that owns and controls the Palm OS
platform, changes its business focus, it could seriously harm our business.
This could happen in several ways. First, we could breach the license
agreement, in which case PalmSource would be entitled to terminate the license.
Second, if PalmSource were to be acquired, the new licensor may not be as
strategically aligned with us as PalmSource even though it would be obligated
to honor our license agreement. Third, we are dependent on PalmSources OS
group to continuously upgrade the Palm OS to operate on faster processors and
otherwise remain competitive with other handheld operating systems.

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The Palm OS operating system license agreement, which was transferred from
Palm to PalmSource, was renewed in April 2001 and extends until April 2009.
Upon expiration or termination of the license agreement, other than due to our
breach, we may choose to keep the license granted under the agreement for two
years following its 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. In addition, there are limitations on our ability to assign
the PalmSource license to a third-party. The existence of these license
termination provisions and limitations on assignment may have an anti-takeover
effect in that it could discourage third parties from seeking to acquire us.

Suits against Palm and PalmSource involving the Palm OS operating system
could adversely affect us. Palm is a defendant in several intellectual property
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 lawsuits of
this type, we could still be adversely affected by a determination adverse to
Palm or PalmSource as a result of market uncertainty or product changes that
could arise from such a determination.

While we are not contractually precluded from licensing or developing an
alternative operating system, doing so could be less desirable and could be
costly in terms of cash and other resources.

We have a history of losses, we expect losses to continue and we might not
achieve or maintain profitability.

Our accumulated deficit as of June 29, 2002 was $286.2 million. We had net
losses of $91.6 million during fiscal 2002, $126.0 million during fiscal 2001,
$60.3 million during fiscal 2000 and $8.4 million during the period from July
29, 1998 (date of inception) to June 30, 1999. 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 June 29, 2002, we
had a total of $9.5 million of deferred compensation to be amortized. 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.

We might need additional capital in the future and additional financing might
not be available.

In December 2001, we completed an underwritten public offering as well as
a non-underwritten transaction with QUALCOMM Incorporated. Net of offering
expenses, these transactions resulted in proceeds of $47.0 million. We
currently anticipate that our available cash resources will be sufficient to
meet our anticipated working capital and capital expenditure requirements for
at least the next twelve months. However, our resources may prove to be
insufficient for 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;
| | - |  | --------------------------------------------------------------------------------------------------------------------
|
| |  |  | meet our lease obligations with respect to our Sunnyvale facilities;                                                
|
| |  |  | develop new products or services; or                                                                                
|
| |  |  | respond to competitive pressures.                                                                                   

Depending on market conditions, 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.

We are highly dependent on retailers and distributors to sell our products and
disruptions in these channels and other effects of selling through retailers
and distributors would harm our ability to sell our products.

We sell our products through numerous retailers and distributors as well
as online through our handspring.com Web site and e-commerce partners.
Currently, our largest retail partner is Best Buy. We also sell in
international markets and offer our products through distributors in Asia
Pacific, Canada, Europe and the Middle East. Disruptions to these channels
would adversely affect our ability to generate revenues from the sale of our
products.

We are subject to many risks relating to the distribution of our products
by retailers and distributors, including the following:

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| |  |  | product returns from retailers and distributors when Handspring
determines their inventories exceed appropriate levels;                                                                                                                                                     
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | retailers and distributors may not maintain inventory levels
sufficient to meet customer demand or may elect not to carry our new
wireless communicator products such as Treo;                                                                                              
|
| |  |  | retailers and distributors may emphasize our competitors products or
decline to carry our products;                                                                                                                                                                        
|
| |  |  | as the global information technology market weakens, the likelihood
of the erosion of the financial condition of these distributors and
retailers increases, which could cause a disruption in distribution as
well as a loss of any of our outstanding accounts receivable;
|
| |  |  | conflicts may develop between the retail and distribution channels
and direct sales of our products through our handspring.com Web site and
by our e-commerce partners; and                                                                                                 
|
| |  |  | if we reduce the prices of our products, as we have in the past, in
order to maintain good business relations, we may compensate retailers
and distributors for the difference between the higher price they paid
to buy their inventory and the new lower prices.          

A portion of our revenue 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.

A portion of our revenue is generated through our Web site. As a result,
we must maintain our computer systems in good operating order and protect them
against damage from fire, water, power loss, telecommunications failures,
computer viruses, vandalism and other malicious acts and similar unexpected
adverse events. Our Web servers currently are co-located with the Exodus
Service provided by Cable & Wireless plc. Any disruption in these services or
the failure of these services to handle current or higher volumes of use could
have a material adverse affect on our business. Despite precautions we have
taken and improvements we have made, unanticipated problems affecting our
systems have in the past and could in the future cause temporary interruptions
or delays in the services we provide. Sustained or repeated system failures or
delays would affect our reputation, which would harm our business. While we
carry business interruption insurance, it might not be sufficient to cover any
serious or prolonged emergencies.

Our production could be seriously harmed if we experience 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, connectors, memory chips and microprocessors, that are procured from a
variety of suppliers. We rely on our suppliers to deliver necessary components
to our contract manufacturer in a timely manner based on forecasts that we
provide. At various times, some of the key components for handheld computers
have been in short supply due to high industry demand. Shortages of components,
such as those that have occurred in the handheld computer industry, would harm
our ability to deliver our products on a timely basis.

Some components, such as power supply integrated circuits, radios,
microprocessors and certain discrete components, come from sole or single
source suppliers. For example, Wavecom is the sole supplier of certain wireless
technology components for our Treo 180 and 270 communicators. 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, we might not be able to maintain
timely and cost-effective production of our products. This problem is
compounded when the sole or single source supplier is facing financial
difficulties and the possibility of discontinuing its operations.

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 markets for handheld organizers and wireless communication products
are highly competitive and we expect competition to increase. 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.

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



| |  |  | the Palm Solutions Group, a subsidiary of Palm, Inc., which develops,
manufactures and markets handheld devices and which is now physically
separated from PalmSource, the licensor of Palm OS software.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Research In Motion Limited, a leading provider of wireless email, instant messaging and Internet connectivity;                                                                                          
|
| |  |  | personal computer companies such as Hewlett-Packard and Acer;                                                                                                                                           
|
| |  |  | mobile handset manufacturers such as Audiovox, Ericsson, Kyocera, LG, Motorola, Nokia, Sanyo and Samsung;                                                                                               
|
| |  |  | consumer electronics companies such as Casio, Sharp and Sony; and                                                                                                                                       
|
| |  |  | a variety of privately held start-up companies looking to compete in
our current and future markets, such as Danger and Good Technologies.                                                              

We expect our competitors to continue to improve the performance of their
current products and to introduce new products, services and technologies.
Successful new product introductions or enhancements by our competitors could
reduce the sales and market acceptance of our products, cause intense price
competition and result in reduced gross margins and lower our market share. We
cannot be sure that we will have sufficient resources or that we will be able
to make the technological advances necessary to be competitive.

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, intense
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; 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 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 fail to accurately anticipate demand for our products, we may have costly
excess production or not be able to secure sufficient quantities or
cost-effective production of our products.

The demand for our products depends on many factors and is difficult to
forecast, particularly given that we have multiple products, intense
competition and a difficult economic environment. Significant unanticipated
fluctuations in demand could cause problems in our operations.

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If demand does not develop as expected, we could have excess production
resulting in excess finished products and components and may be required to
incur excess and obsolete inventory charges. We have limited capability to
reduce manufacturing capacity once a purchase order has been placed and in some
circumstances we would incur cancellation charges or other liabilities to our
manufacturing partners if we cancel or reschedule purchase orders. Moreover, if
we reduce manufacturing capacity, we would incur higher per unit costs based on
smaller volume purchases.

If demand exceeds our expectations, we will need to rapidly increase
production at our third-party manufacturer. Our suppliers will also need to
provide additional volumes of components, which may not be possible within our
timeframes. Even if our third-party manufacturer is 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 manufacturer 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 Solectron fails to produce quality products on time and in sufficient
quantities, our reputation and results of operations would suffer.

We depend on a single third party manufacturer, Solectron, to produce
sufficient volume of our products in a timely fashion and at satisfactory
quality levels. The cost, quality and availability of Solectrons manufacturing
operations are essential to the successful production and sale of our products.
Under our manufacturing agreement with Solectron we order products on a
purchase order basis in accordance with a forecast. The absence of dedicated
capacity under our manufacturing agreement with Solectron means that, with
little or no notice, Solectron 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, such as our credit terms. 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 Solectron 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 Solectron exposes us to risks outside our control,
including the following:



| |  |  | unexpected increases in manufacturing and repair costs;                                                            
| | - |  | -------------------------------------------------------------------------------------------------------------------
|
| |  |  | interruptions in shipments if they are unable to complete production;                                              
|
| |  |  | inability to control quality of finished products;                                                                 
|
| |  |  | inability to control delivery schedules;                                                                           
|
| |  |  | the risks associated with international operations in Guadalajara, Mexico where Solectron maintains facilities; and
|
| |  |  | unpredictability of manufacturing yields.                                                                          

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.

We face seasonality in our sales, which could cause our quarterly operating
results to fluctuate.

Seasonal variations in our sales may lead to fluctuations in our quarterly
operating results. We have experienced seasonality in the sales of our products
with increased demand typically occurring in our second fiscal quarter. This
increase in demand is due in part to increased consumer spending on electronic
devices during the holiday season, in particular during the last few weeks of
December. In

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addition, demand for our products may decline after the holiday season,
particularly during the summer months because of typical decreased consumer
spending patterns during this period.

Our failure to develop brand recognition could limit or reduce the demand for
our products.

We believe that continuing to strengthen our brands is critical to
increasing demand for and achieving widespread acceptance of our products. Some
of our competitors and potential competitors have better name recognition and
more powerful brands, particularly those competitors in the wireless
communications industry. Promoting and positioning our brands will depend
largely on the success of our marketing efforts and our ability to produce well
received new products. However, currently we have limited our marketing
resources in response to reducing our overall costs. Moreover, 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 brands.

Our products may contain errors or defects that 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 products 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 markets. 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.
For example, any such undetected errors or defects in our Treo communicator
line of products could adversely impact market acceptance of this product line,
which would hurt our business. We may experience delays in releasing new
products or producing them in significant volumes 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 the products,
damage to our reputation, lost revenues, diverted development resources and
increased customer service and support costs and warranty claims. In addition,
we warrant that our hardware will be free of defects for one year after the
date of purchase. In Europe, we are required by law in some countries to
provide a two-year warranty for certain defects. Delays, costs and damage to
our reputation due to product defects could harm our business.

In July 2002, we discovered a defect in a component of the backlight
assembly in some Treo 90 and Treo 270 products, which can render the backlight
inoperable. While we believe most of our Treo 90 and Treo 270 products will not
experience this problem, we decided to screen all units in our inventory for
the defective component, and are building new products with verified
components. As a cautionary measure, we suspended shipments of Treo 90 and Treo
270 for a period of approximately two weeks.

Business interruptions could adversely affect our business.

Our facilities, information systems and general business operations, and
those of our partners and customers, are vulnerable to interruption by fire,
earthquake, power loss, telecommunications failure, terrorist attacks, wars and
other events beyond our control. The business interruption insurance we carry
may not be sufficient to compensate us fully for losses or damages that may
occur as a result of such events. Any such losses or damages incurred by us
could have a material adverse effect on our business.

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 Chief Operating Officer. The loss of the
services of any of these or any of our other senior level management, or other
key employees could harm our business.

Mr. Hawkins recently has formed a non-profit organization, the Redwood
Neuroscience Institute, to pursue his life-long interest in brain research. He
is now dividing his time between the Redwood Neuroscience Institute and
Handspring, where he will continue to serve as Chief Product Officer and as
Chairman of the Board of Directors. At Handspring, he will focus on strategic
product planning and new product directions. Should Mr. Hawkins increase the
allocation of his time to the Redwood Neuroscience Institute such that he
cannot participate in product planning at Handspring, our business could be
harmed.

If we fail to attract, retain and motivate qualified employees, our ability to
execute our business plan would be compromised.

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Our future success depends on our ability to attract, retain and motivate
highly skilled employees. Competition for highly skilled 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. If we fail to retain, hire and integrate
qualified employees and contractors, we will not be able to maintain and expand
our business.

In addition, when our common stock price is less than the exercise price
of stock options granted to employees, turnover may increase, which could harm
our results of operations or financial condition. In order to help retain
employees, we recently offered our employees the right to participate in an
option exchange program pursuant to which they were given the right to choose
to exchange unexercised stock options for new stock options with a new exercise
price to be granted at least six months and one day following the cancellation
of their existing stock options on. The terms of the replacement options will
be substantially the same as the cancelled options, except that in most
circumstances there will be an additional cliff period of up to six months
imposed on the vesting schedule of the option that will limit the ability of
the option holder to exercise the option. Of the 28,538,126 shares subject to
stock options that were eligible for the exchange program, a total of
11,677,415 such options shares were submitted and accepted for exchange on May
17, 2002. We currently anticipate that replacement options will be granted on
or soon after November 18, 2002.

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 numerous
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 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.

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. In
particular, as our focus has shifted to wireless communicators, we have
received, and expect to continue to receive, communications from holders of
patents related to GSM, GPRS, CDMA and other mobile communication standards.

Any litigation to determine the validity of intellectual property 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 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 and costs;                                                                                                                                  
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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.

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Handspring currently is a defendant in the three patent infringement
lawsuits described below, all of which we believe are without merit and intend
to vigorously defend. Our policy is to vigorously defend meritless lawsuits
while respecting the intellectual property rights of others.

On March 14, 2001, NCR Corporation filed suit against Handspring and Palm,
Inc. in the United States District Court for the District of Delaware. The
complaint alleges infringement of two U.S. patents. The complaint seeks
unspecified compensatory and treble damages and to permanently enjoin the
defendants from infringing the patents in the future. We filed an answer on
April 30, 2001, denying NCRs allegations and asserting counterclaims for
declaratory judgments that we do not infringe the patents in suit, that the
patents in suit are invalid, and that they are unenforceable. On June 14, 2002,
following the retirement of the judge hearing the case, the case was referred
to a magistrate. On July 11, 2002, the magistrate granted Handsprings motion
for summary judgment finding that Handspring did not infringe the patents. On
August 29, 2002, NCR filed an objection to the magistrates ruling and
Handspring currently is preparing a response to that objection.

On June 19, 2001, DataQuill Limited filed suit against Handspring and
Kyocera Wireless Corp. in the United States District Court for the Northern
District of Illinois. The complaint alleges infringement of one U.S. patent.
The complaint seeks unspecified compensatory and treble damages and to
permanently enjoin the defendants from infringing the patent in the future. We
filed an answer on August 1, 2001, denying DataQuills allegations and
asserting counterclaims for declaratory judgments that we do not infringe the
patent in suit, that the patent in suit is invalid, and that it is
unenforceable. Handspring has filed motions for summary judgment and expects a
ruling shortly. The case against the other defendant, Kyocera Wireless Corp.,
has been severed and transferred to the United States District Court for the
Southern District of California, where it pends separately.

On September 18, 2002, Research in Motion filed suit against Handspring in
the United States District Court for the District of Delaware. The complaint
alleges infringement of one U.S. patent. The complaint seeks unspecified
compensatory and treble damages and to permanently enjoin Handspring from
infringing the patents in the future. Handspring has not yet filed an answer to
the complaint.

Our future results could be harmed by economic, political, regulatory and other
risks associated with international sales and operations.

We sell our products in Asia Pacific, Canada, Europe and the Middle East
in addition to the United States. We expect to enter additional international
markets over time. If our revenue from international operations increases as a
percentage of our total revenue, we will be subject to increased exposure to
international risks. In addition, the facilities where our products are and
will be manufactured are located outside the United States. A substantial
number of our material suppliers also are based outside of the United States
and 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;                                                                  
| | - |  | -------------------------------------------------------------------------------------------------------------
|
| |  |  | development risks and expenses associated with customizing our product for local languages;                  
|
| |  |  | difficulty in managing widespread sales and manufacturing operations;                                        
|
| |  |  | potentially negative consequences from changes in tax laws;                                                  
|
| |  |  | trade protection measures and import or export licensing requirements;                                       
|
| |  |  | less effective protection of intellectual property; and                                                      
|
| |  |  | changes in a specific country or regions political or economic conditions, particularly in emerging markets.

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 industry expertise.
Integration of acquired companies may result in problems relating to
integrating technology and management teams. Managements attention may also be
diverted away from other business issues and opportunities while focusing on
the

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acquisitions. If we fail to integrate the operations, personnel or
products that we may acquire in the future, our business could be materially
harmed.

The price of our common stock has been and is likely to continue to be volatile
and subject to fluctuations.

The market price of our common stock has been and is likely to continue to
be subject to wide fluctuations, particularly given that securities of
technology-related companies are typically volatile and only a small portion of
our outstanding shares currently are publicly traded.

Among the factors that could affect our stock price are:



| |  |  | quarterly variations in our operating results, including the level of sales during the holiday season;                             
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the timing and success of the introduction of our Treo line of products;                                                           
|
| |  |  | changes in revenues or earnings estimates or publication of research reports by analysts;                                          
|
| |  |  | speculation in the press or investment community;                                                                                  
|
| |  |  | reactions to events that affect other companies in our industry,
particularly Palm, even if these events do not directly affect us;
|
| |  |  | actions by institutional stockholders;                                                                                             
|
| |  |  | negative developments in the market for technology related stock or the stock market in general; and                               
|
| |  |  | domestic and international economic factors unrelated to our performance.                                                          

In the past, companies that have experienced volatility in the market
price of their stock have been the subjects of securities class action
litigation. We have been named as a party in several purported securities class
action lawsuits that claim that the prospectus for Handsprings June 20, 2000
initial public offering failed to disclose certain alleged actions by the
underwriters for the offering. We have sought indemnification from the
underwriters pursuant to the underwriting agreement that we entered into with
them in connection with our initial public offering.

Communications we made to an investor could subject us to claims for return to
the investor of the purchase price it paid us for the shares purchased.

In November 2001, we provided a written communication to QUALCOMM
Incorporated, which subsequently agreed to purchase 1,838,945 shares of common
stock from us at a price of $5.4379 per share. It is possible that the
communication might be deemed to be a prospectus that did not meet the
requirements of the Securities Act and was therefore made in violation of the
Securities Act. If this communication were determined to violate the Securities
Act, then for a period of one year after the date QUALCOMM discovered this
violation, QUALCOMM might bring a claim against us. In any action of this kind,
QUALCOMM might seek recovery of the funds it paid for its shares or, if it had
already sold its shares, damages resulting from its purchase and sales of those
shares. We would contest any such claim vigorously.

Provisions in our charter documents might deter a company from acquiring us.

We have a classified board of directors. Our stockholders are unable to
call special meetings of stockholders, to act by written consent, or 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

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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. Many
of the shares eligible for sale in the public market 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 continue to become
eligible for sale in the public market to the extent permitted by the
provisions of various vesting agreements and the securities rules and
regulations applicable to these shares.




Item 8.Financial Statements and Supplementary Data

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




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/A:

|                                                                                                                                         |  |      |    | 
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                                         |  | Page
|                                                                                                                                         |  |     
|Report of Independent Accountants                                                                                                        |  |      | 26 | 
|Consolidated Balance Sheets at June 29, 2002 and June 30, 2001                                                                           |  |      | 27 | 
|Consolidated Statements of Operations for the Years Ended June 29, 2002, June 30, 2001 and July 1, 2000                                  |  |      | 28 | 
|Consolidated Statements of Stockholders Equity and Comprehensive Loss for the Years Ended June 29,
2002, June 30, 2001 and July 1, 2000 |  |      | 29 | 
|Consolidated Statements of Cash Flows for the Years Ended June 29, 2002, June 30, 2001 and July 1, 2000                                  |  |      | 30 | 
|Notes to Consolidated Financial Statements                                                                                               |  |      | 32 | 

(a)(2) Financial Statement Schedule.

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS
(In thousands)

|                                |  |              |        |                   |  |            |        |        |  |            |         |   |  |   |        | 
|------------------------------- |  | ------------ | ------ | ----------------- |  | ---------- | ------ | ------ |  | ---------- | ------- | - |  | - | ------ | 
|                                |  | Balance at   |        | Additions Charged |  |            |        |        |  | Balance at
|                                |  | Beginning of |        | to Costs and      |  |            |        |        |  | End of    
|Year Ended June 29, 2002:       |  | Period       |        | Expenses          |  | Deductions |        | Period
|                                |  |              |        |                   |  |            |        |       
|Allowance for doubtful accounts |  | $            | 2,239  |                   |  | $          | 1,667  |        |  | $          | (195    | ) |  | $ | 3,711  | 
|Product return reserve          |  |              | 4,552  |                   |  |            | 15,060 |        |  |            | (16,752 | ) |  |   | 2,860  | 
|Accrued product warranty        |  |              | 13,202 |                   |  |            | 19,801 |        |  |            | (18,567 | ) |  |   | 14,436 | 

|                                |  |              |       |                   |  |            |        |        |  |            |         |   |  |   |        | 
|------------------------------- |  | ------------ | ----- | ----------------- |  | ---------- | ------ | ------ |  | ---------- | ------- | - |  | - | ------ | 
|                                |  | Balance at   |       | Additions Charged |  |            |        |        |  | Balance at
|                                |  | Beginning of |       | to Costs and      |  |            |        |        |  | End of    
|Year Ended June 30, 2001:       |  | Period       |       | Expenses          |  | Deductions |        | Period
|                                |  |              |       |                   |  |            |        |       
|Allowance for doubtful accounts |  | $            | 50    |                   |  | $          | 3,017  |        |  | $          | (828    | ) |  | $ | 2,239  | 
|Product return reserve          |  |              | 2,364 |                   |  |            | 14,682 |        |  |            | (12,494 | ) |  |   | 4,552  | 
|Accrued product warranty        |  |              | 8,033 |                   |  |            | 28,287 |        |  |            | (23,118 | ) |  |   | 13,202 | 

|                                |  |        |              |          |                   |            |       |        |  |   |            |   |  |   |       |  | 
|------------------------------- |  | ------ | ------------ | -------- | ----------------- | ---------- | ----- | ------ |  | - | ---------- | - |  | - | ----- |  | 
|                                |  |        | Balance at   |          | Additions Charged |            |       |        |  |   | Balance at
|                                |  |        | Beginning of |          | to Costs and      |            |       |        |  |   | End of    
|Year Ended July 1, 2000:        |  | Period |              | Expenses |                   | Deductions |       | Period
|                                |  |        |              |          |                   |            |       |       
|Allowance for doubtful accounts |  |        |              |          |                   | $          | 138   |        |  | $ | (88        | ) |  | $ | 50    | 
|Product return reserve          |  |        |             |          |                   |            | 6,732 |        |  |   | (4,368     | ) |  |   | 2,364 | 

23



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##### Table of Contents



|                         |                  |  |   |  |  |  |        |  |  |  |        |   |  |  |       |  | 
|------------------------ | ---------------- |  | - |  |  |  | ------ |  |  |  | ------ | - |  |  | ----- |  | 
|Accrued product warranty |                  |  |  |  |  |  | 10,024 |  |  |  | (1,991 | ) |  |  | 8,033 | 
|                         | (a)(3) Exhibits. |  |   |  |  |  |        |  |  |  |        |   |  |  |       |  | 

|        |  |   |  |                                                                                                                                                                                                                                 
|------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  |                                                                                                                                                                                                                                 
|Number  |  |   |  | Exhibit Title                                                                                                                                                                                                                   
|        |  |   |  |                                                                                                                                                                                                                                 
|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 20, 2000 (the
Form S-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 April 10, 2001(2)                                                                                                                                
|10.8    |  |  |  | Standard Manufacturing Agreement between Registrant and Solectron (de Mexico), dated June 11, 2002                                                                                                                            
|10.9    |  |  |  | Offer Letter of
Employment between Registrant and William Slakey, dated July 26,
2002*(4)                                                                                                                                       
|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   |  |  |  | Reserved                                                                                                                                                                                                                        
|10.17   |  |  |  | Master Purchase
Agreement between Registrant and Wavecom Inc., dated June 12,
2001(4)                                                                                                                                         
|10.18   |  |  |  | Amendment 1 to
Master Purchase Agreement between Registrant and Wavecom Inc., dated
January 22, 2002(4)                                                                                                                       
|10.19   |  |  |  | Reserved                                                                                                                                                                                                                        
|10.20   |  |  |  | Lease Agreement (Building 2) between Registrant and M-F Downtown Sunnyvale, LLC, dated as of February 14,
2001(3)                                                                                                              
|10.21   |  |  |  | Lease Agreement (Building 3) between Registrant and M-F Downtown Sunnyvale, LLC, dated as of February 14,
2001(3)                                                                                                              
|10.22   |  |  |  | Standby Letter Of
Credit (Building 2, Security Deposit) Between Registrant And Wells Fargo Bank, National Association(3)                                                                                                        
|10.23   |  |  |  | Standby Letter of Credit (Building 2, Tenant Improvements) between Registrant and Wells Fargo Bank,
National Association(3)                                                                                                     
|10.24   |  |  |  | Standby Letter of Credit (Building 3, Security Deposit) between Registrant and Wells Fargo Bank, National
Association(3)                                                                                                        
|10.25   |  |  |  | Standby Letter of Credit (Building 3, Tenant Improvements) between Registrant and Wells Fargo Bank,
National Association(3)                                                                                                     
|10.26   |  |  |  | Form of Addendum to Standby Letter of Credit between Registrant and Wells Fargo Bank, National
Association(3)                                                                                                                   

24



---



##### Table of Contents



|        |  |   |  |                                                                                                                                                                                                                                                                     
|------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  |                                                                                                                                                                                                                                                                     
|Number  |  |   |  | Exhibit Title                                                                                                                                                                                                                                                       
|        |  |   |  |                                                                                                                                                                                                                                                                     
|10.27   |  |  |  | Securities Account Control Agreement among Registrant, Wells Fargo Bank, National Association, acting
through its Investment Group and Wells Fargo Bank, National Association, acting through its Peninsula
Technology RCBO Office, dated as of February 16, 2001(3)
|10.28   |  |  |  | Security Agreement between Registrant and Wells Fargo Bank, National Association, dated as of February 16,
2001(3)                                                                                                                                                  
|10.29   |  |  |  | Addendum to Security Agreement between Registrant and Wells Fargo Bank, National Association, dated as of
February 16, 2001(3)                                                                                                                                      
|10.30   |  |  |  | Amendment to Lease Agreement (Building 2) between Registrant and M-F Downtown Sunnyvale, LLC, dated as of
July 12, 2002(4)                                                                                                                                          
|10.31   |  |  |  | Amendment to Lease Agreement (Building 3) between Registrant and M-F Downtown Sunnyvale, LLC, dated as of
July 12, 2002(4)                                                                                                                                          
|21.1    |  |  |  | List of Subsidiaries
of Registrant(4)                                                                                                                                                                                                                               
|23.2    |  |  |  | Consent of
PricewaterhouseCoopers LLP(5)                                                                                                                                                                                                                            



---

|*   |  | 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 20, 2000.                                                                                                                                
|   
|(2) |  | Incorporated by reference to the exhibit with the same number to our
Report on Form 10-K, filed on September 28, 2001.                                                                                                                                                                                
|   
|(3) |  | Incorporated by reference to the exhibit with the same number to our
Report on Form 10-Q, filed on May 4, 2001.                                                                                                                                                                                       
|   
|(4) |  | Filed with the Form 10-K on
September 27, 2002 and incorporated herein by reference.                                                                                                                                                                                                                  
|   
|(5) |  | Filed with this Form 10-K/A.                                                                                                                                                                                                                                                                          

25



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##### Table of Contents



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 23 present fairly, in all material
respects, the financial position of Handspring, Inc. and its subsidiaries at
June 29, 2002 and June 30, 2001 and the results of their operations and their
cash flows for each of the three years ended June 29, 2002 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 14(a)(2) on page 23 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 the
financial statement schedule are the responsibility of the Companys
management; our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

As discussed in Note 3 to the accompanying consolidated financial
statements, the Company has restated its financial statements for the year ended
June 29, 2002.

/s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California
July 16, 2002, except as to Note 11, as to
which the date is September 18, 2002 and except
as to Notes 3, 5c, 6 and 10, as to which the date is February 11, 2003.

26



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##### Table of Contents



HANDSPRING, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)

|                                                                                                                                                                                     |                                                                                                                                      |                                                                                                                                                 |          |        |         |                 |          |          |         |  |  | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------- | -------- | ------ | ------- | --------------- | -------- | -------- | ------- |  |  | 
|                                                                                                                                                                                     |                                                                                                                                      |                                                                                                                                                 |          |        |         | June 29,        |          | June 30,
|                                                                                                                                                                                     |                                                                                                                                      |                                                                                                                                                 |          |        |         | 2002            |          | 2001    
|                                                                                                                                                                                     |                                                                                                                                      |                                                                                                                                                 |          |        |         |                 |          |         
|                                                                                                                                                                                     |                                                                                                                                      |                                                                                                                                                 |          |        |         | (Restated
 see |          |          |         | 
|                                                                                                                                                                                     |                                                                                                                                      |                                                                                                                                                 |          |        |         | Note 3)         |          |          |         | 
|                                                                                                                                                                                     |                                                                                                                                      |                                                                                                                                                 |          |        |         |                 |          |          |         | 
|ASSETS                                                                                                                                                                              
|Current assets:                                                                                                                                                                      |                                                                                                                                      |                                                                                                                                                 |          |        |         |                 |          |         
|                                                                                                                                                                                     | Cash and cash equivalents                                                                                                            |                                                                                                                                                 | $        | 85,554 |         |                 | $        | 87,580   |        
|                                                                                                                                                                                     | Short-term investments                                                                                                               |                                                                                                                                                 |          | 15,235 |         |                 |          | 33,943   |        
|                                                                                                                                                                                     | Accounts receivable, net of allowance for doubtful accounts of
$3,711 and $2,239 as of June 29, 2002 and June 30, 2001,
respectively |                                                                                                                                                 |          | 20,491 |         |                 |          | 12,850   |        
|                                                                                                                                                                                     | Prepaid expenses and other current assets                                                                                            |                                                                                                                                                 |          | 3,667  |         |                 |          | 19,473   |        
|                                                                                                                                                                                     | Inventories                                                                                                                          |                                                                                                                                                 |          | 20,084 |         |                 |          | 2,857    |        
|                                                                                                                                                                                     |                                                                                                                                      |                                                                                                                                                 |          |        |         |                 |          |         
|                                                                                                                                                                                     |                                                                                                                                      | Total current assets                                                                                                                            |          |        | 145,031 |                 |          |          | 156,703 | 
|Long-term investments                                                                                                                                                                |                                                                                                                                      |                                                                                                                                                 | 50,644   |        |         |                 | 80,237   |         
|Property and equipment, net                                                                                                                                                          |                                                                                                                                      |                                                                                                                                                 | 12,478   |        |         |                 | 15,041   |         
|Construction
in progress-Sunnyvale tenant improvements                                                                                                                               |                                                                                                                                      |                                                                                                                                                 | 6,614    |        |         |                 |         |         
|Construction
in progress-Sunnyvale property (Note 3)                                                                                                                                 |                                                                                                                                      |                                                                                                                                                 | 73,979   |        |         |                 |         |         
|Other assets                                                                                                                                                                         |                                                                                                                                      |                                                                                                                                                 | 1,408    |        |         |                 | 1,254    |         
|                                                                                                                                                                                     |                                                                                                                                      |                                                                                                                                                 |          |        |         |                 |          |         
|                                                                                                                                                                                     |                                                                                                                                      | Total assets                                                                                                                                    |          | $      | 290,154 |                 |          | $        | 253,235 | 
|                                                                                                                                                                                     |                                                                                                                                      |                                                                                                                                                 |          |        |         |                 |          |          |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                
|Current liabilities:                                                                                                                                                                 |                                                                                                                                      |                                                                                                                                                 |          |        |         |                 |          |         
|                                                                                                                                                                                     | Accounts payable                                                                                                                     |                                                                                                                                                 | $        | 44,490 |         |                 | $        | 37,881   |        
|                                                                                                                                                                                     | Accrued liabilities                                                                                                                  |                                                                                                                                                 |          | 48,779 |         |                 |          | 70,152   |        
|                                                                                                                                                                                     | Non-cash obligations for
construction in progress-Sunnyvale property (Note 3)                                                        |                                                                                                                                                 |          | 73,979 |         |                 |          |         |        
|                                                                                                                                                                                     |                                                                                                                                      |                                                                                                                                                 |          |        |         |                 |          |         
|Total current liabilities                                                                                                                                                            |                                                                                                                                      |                                                                                                                                                 | 167,248  |        |         |                 | 108,033  |         
|                                                                                                                                                                                     |                                                                                                                                      |                                                                                                                                                 |          |        |         |                 |          |         
|                                                                                                                                                                                     |                                                                                                                                      | Commitments and contingencies (Note 6)                                                                                                          |          |        |         |                 |          |          |         | 
|Stockholders equity:                                                                                                                                                                |                                                                                                                                      |                                                                                                                                                 |          |        |         |                 |          |         
|                                                                                                                                                                                     |                                                                                                                                      | Preferred stock, $0.001 par value per share, 10,000,000 shares
authorized; nil shares issued and outstanding at June 29, 2002
and June 30, 2001 |          |        |        |                 |          |          |        | 
|Common stock, $0.001 par value per share, 1,000,000,000 shares
authorized; 143,126,516 and 129,949,768 shares issued and
outstanding at June 29, 2002 and June 30, 2001 respectively |                                                                                                                                      |                                                                                                                                                 | 143      |        |         |                 | 130      |         
|                                                                                                                                                                                     |                                                                                                                                      | Additional paid-in capital                                                                                                                      |          |        | 419,256 |                 |          |          | 368,166 | 
|Deferred stock compensation                                                                                                                                                          |                                                                                                                                      |                                                                                                                                                 | (9,468   | )      |         |                 | (29,445  | )       
|                                                                                                                                                                                     |                                                                                                                                      | Accumulated other comprehensive income (loss)                                                                                                   |          |        | (793    | )               |          |          | 994     | 
|Accumulated deficit                                                                                                                                                                  |                                                                                                                                      |                                                                                                                                                 | (286,232 | )      |         |                 | (194,643 | )       
|                                                                                                                                                                                     |                                                                                                                                      |                                                                                                                                                 |          |        |         |                 |          |         
|                                                                                                                                                                                     |                                                                                                                                      | Total stockholders equity                                                                                                                      |          |        | 122,906 |                 |          |          | 145,202 | 
|                                                                                                                                                                                     |                                                                                                                                      |                                                                                                                                                 |          |        |         |                 |          |         
|Total liabilities and stockholders equity                                                                                                                                           |                                                                                                                                      | $                                                                                                                                               | 290,154  |        |         | $               | 253,235  |         
|                                                                                                                                                                                     |                                                                                                                                      |                                                                                                                                                 |          |        |         |                 |          |          |        

See accompanying notes to consolidated financial statements.

27



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HANDSPRING, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

|                                                                 |                                                                |                                    |                                     |         |            |        |            |         |            |        |         |        |         |        | 
|---------------------------------------------------------------- | -------------------------------------------------------------- | ---------------------------------- | ----------------------------------- | ------- | ---------- | ------ | ---------- | ------- | ---------- | ------ | ------- | ------ | ------- | ------ | 
|                                                                 |                                                                |                                    |                                     |         | Year Ended |        | Year Ended |         | Year Ended
|                                                                 |                                                                |                                    |                                     |         | June 29,   |        | June 30,   |         | July 1,   
|                                                                 |                                                                |                                    |                                     |         | 2002       |        | 2001       |         | 2000      
|                                                                 |                                                                |                                    |                                     |         |            |        |            |         |           
|Revenue                                                          |                                                                | $                                  | 240,651                             |         |            | $      | 370,943    |         |            | $      | 101,937 |       
|                                                                 |                                                                |                                    |                                     |         |            |        |            |         |            |        |         |       
|Costs and operating expenses:                                    |                                                                |                                    |                                     |         |            |        |            |         |            |        |         |       
|                                                                 | Cost of revenue                                                |                                    |                                     | 205,917 |            |        |            | 292,311 |            |        |         | 69,921 |        
|                                                                 | Research and development                                       |                                    |                                     | 24,739  |            |        |            | 23,603  |            |        |         | 10,281 |        
|                                                                 | Selling, general and administrative                            |                                    |                                     | 85,612  |            |        |            | 145,132 |            |        |         | 42,424 |        
|                                                                 | In-process research and development                            |                                    |                                     |        |            |        |            | 12,225  |            |        |         |       |        
|                                                                 | Amortization of deferred stock compensation and intangibles(*) |                                    |                                     | 20,181  |            |        |            | 32,830  |            |        |         | 40,077 |        
|                                                                 |                                                                |                                    |                                     |         |            |        |            |         |            |        |         |       
|                                                                 |                                                                | Total costs and operating expenses |                                     |         | 336,449    |        |            |         | 506,101    |        |         |        | 162,703 |       
|                                                                 |                                                                |                                    |                                     |         |            |        |            |         |            |        |         |       
|Loss from operations                                             |                                                                |                                    | (95,798                             | )       |            |        | (135,158   | )       |            |        | (60,766 | )     
|Interest and other income, net                                   |                                                                |                                    | 5,259                               |         |            |        | 12,195     |         |            |        | 675     |       
|                                                                 |                                                                |                                    |                                     |         |            |        |            |         |            |        |         |       
|Loss before taxes                                                |                                                                |                                    | (90,539                             | )       |            |        | (122,963   | )       |            |        | (60,091 | )     
|Income tax provision                                             |                                                                |                                    | 1,050                               |         |            |        | 3,000      |         |            |        | 200     |       
|                                                                 |                                                                |                                    |                                     |         |            |        |            |         |            |        |         |       
|Net loss                                                         |                                                                | $                                  | (91,589                             | )       |            | $      | (125,963   | )       |            | $      | (60,291 | )     
|                                                                 |                                                                |                                    |                                     |         |            |        |            |         |            |        |         |       
|Basic and diluted net loss per share                             |                                                                | $                                  | (0.71                               | )       |            | $      | (1.21      | )       |            | $      | (1.77   | )     
|                                                                 |                                                                |                                    |                                     |         |            |        |            |         |            |        |         |       
|Shares used in calculating basic and diluted net loss per share  |                                                                |                                    | 128,221                             |         |            |        | 103,896    |         |            |        | 34,015  |       
|                                                                 |                                                                |                                    |                                     |         |            |        |            |         |            |        |         |       
|(*) Amortization of deferred stock compensation and
intangibles: |                                                                |                                    |                                     |         |            |        |            |         |            |        |         |       
|                                                                 |                                                                |                                    | Cost of revenue                     |         | $          | 2,586  |            |         | $          | 4,521  |         |        | $       | 5,904  | 
|                                                                 |                                                                |                                    | Research and development            |         |            | 4,672  |            |         |            | 6,926  |         |        |         | 8,059  | 
|                                                                 |                                                                |                                    | Selling, general and administrative |         |            | 12,923 |            |         |            | 21,383 |         |        |         | 26,114 | 
|                                                                 |                                                                |                                    |                                     |         |            |        |            |         |            |        |         |       
|                                                                 |                                                                | $                                  | 20,181                              |         |            | $      | 32,830     |         |            | $      | 40,077  |       
|                                                                 |                                                                |                                    |                                     |         |            |        |            |         |            |        |         |       

See accompanying notes to consolidated financial statements.

28



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##### Table of Contents



HANDSPRING, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE LOSS
(In thousands)

|                                                                                                                                               |  |              |         |            |  |          |     |               |  |               |         |         |  |       |         |   |  |             |        |   |  |   |          |   |  |   |          |  
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | ---------- |  | -------- | --- | ------------- |  | ------------- | ------- | ------- |  | ----- | ------- | - |  | ----------- | ------ | - |  | - | -------- | - |  | - | -------- | -
|                                                                                                                                               |  |              |         |            |  |          |     |               |  |               |         |         |  |       |         |   |  | Accumulated |        |   |  |   |          |   |  |  
|                                                                                                                                               |  | Common Stock |         | Additional |  | Deferred |     | Other         |  |               |         |         |  |       |         |  
|                                                                                                                                               |  |              |         | Paid-In    |  | Stock    |     | Comprehensive |  | Accumulated   |         |         |  |      
|                                                                                                                                               |  | Shares       |         | Amount     |  | Capital  |     | Compensation  |  | Income (Loss) |         | Deficit |  | Total
|                                                                                                                                               |  |              |         |            |  |          |     |               |  |               |         |         |  |      
|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 under stock
option plans                                                                                              |  |              | 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  |  
|Net proceeds from issuance of common
stock upon exercise of underwriters
over-allotment                                                       |  |              | 1,500   |            |  |          | 2   |               |  |               | 27,967  |         |  |       |        |   |  |             |       |   |  |   |         |   |  |   | 27,969   |  
|Issuance of common stock under stock
option and stock purchase plans                                                                           |  |              | 2,796   |            |  |          | 3   |               |  |               | 3,106   |         |  |       |        |   |  |             |       |   |  |   |         |   |  |   | 3,109    |  
|Repurchase of common stock                                                                                                                     |  |              | (185    | )          |  |          |    |               |  |               | (41     | )       |  |       |        |   |  |             |       |   |  |   |         |   |  |   | (41      | )
|Issuance of common stock for
acquisition of BlueLark                                                                                           |  |              | 402     |            |  |          |    |               |  |               | 16,018  |         |  |       | (3,930  | ) |  |             |       |   |  |   |         |   |  |   | 12,088   |  
|Amortization of deferred stock
compensation                                                                                                    |  |              |        |            |  |          |    |               |  |               |        |         |  |       | 32,753  |   |  |             |       |   |  |   |         |   |  |   | 32,753   |  
|Unrealized gain on securities                                                                                                                  |  |              |        |            |  |          |    |               |  |               |        |         |  |       |        |   |  |             | 355    |   |  |   |         |   |  |   | 355      |  
|Foreign currency translation adjustments                                                                                                       |  |              |        |            |  |          |    |               |  |               |        |         |  |       |        |   |  |             | 703    |   |  |   |         |   |  |   | 703      |  
|Net loss                                                                                                                                       |  |              |        |            |  |          |    |               |  |               |        |         |  |       |        |   |  |             |       |   |  |   | (125,963 | ) |  |   | (125,963 | )
|                                                                                                                                               |  |              |         |            |  |          |     |               |  |               |         |         |  |       |         |   |  |             |        |   |  |   |          |   |  |   |          |  
|Balances, June 30, 2001                                                                                                                        |  |              | 129,950 |            |  |          | 130 |               |  |               | 368,166 |         |  |       | (29,445 | ) |  |             | 994    |   |  |   | (194,643 | ) |  |   | 145,202  |  
|Net proceeds from issuance of common
stock in private offering, underwritten
public offering and upon exercise of
underwriters over-allotment |  |              | 8,875   |            |  |          | 9   |               |  |               | 47,027  |         |  |       |        |   |  |             |       |   |  |   |         |   |  |   | 47,036   |  
|Issuance of common stock under stock
option and stock purchase plans                                                                           |  |              | 4,328   |            |  |          | 4   |               |  |               | 4,063   |         |  |       |        |   |  |             |       |   |  |   |         |   |  |   | 4,067    |  
|Repurchase of common stock                                                                                                                     |  |              | (26     | )          |  |          |    |               |  |               |        |         |  |       |        |   |  |             |       |   |  |   |         |   |  |   |         |  
|Amortization of deferred stock
compensation                                                                                                    |  |              |        |            |  |          |    |               |  |               |        |         |  |       | 19,977  |   |  |             |       |   |  |   |         |   |  |   | 19,977   |  
|Unrealized loss on securities                                                                                                                  |  |              |        |            |  |          |    |               |  |               |        |         |  |       |        |   |  |             | (203   | ) |  |   |         |   |  |   | (203     | )
|Foreign currency translation adjustments                                                                                                       |  |              |        |            |  |          |    |               |  |               |        |         |  |       |        |   |  |             | (1,584 | ) |  |   |         |   |  |   | (1,584   | )
|Net loss                                                                                                                                       |  |              |        |            |  |          |    |               |  |               |        |         |  |       |        |   |  |             |       |   |  |   | (91,589  | ) |  |   | (91,589  | )
|                                                                                                                                               |  |              |         |            |  |          |     |               |  |               |         |         |  |       |         |   |  |             |        |   |  |   |          |   |  |   |          |  
|Balances, June 29, 2002                                                                                                                        |  |              | 143,127 |            |  | $        | 143 |               |  | $             | 419,256 |         |  | $     | (9,468  | ) |  | $           | (793   | ) |  | $ | (286,232 | ) |  | $ | 122,906  |  
|                                                                                                                                               |  |              |         |            |  |          |     |               |  |               |         |         |  |       |         |   |  |             |        |   |  |   |          |   |  |   |          |  

See accompanying notes to consolidated financial statements.

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HANDSPRING, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

|                                                          |                                                                                                                                                |                                                                           |                                           |                                                     |        |                       |          |            |        |            |          |         |        |         |         |  
|--------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ----------------------------------------- | --------------------------------------------------- | ------ | --------------------- | -------- | ---------- | ------ | ---------- | -------- | ------- | ------ | ------- | ------- | -
|                                                          |                                                                                                                                                |                                                                           |                                           |                                                     |        | Year Ended            |          | Year Ended |        | Year Ended
|                                                          |                                                                                                                                                |                                                                           |                                           |                                                     |        | June 29,              |          | June 30,   |        | July 1,   
|                                                          |                                                                                                                                                |                                                                           |                                           |                                                     |        | 2002                  |          | 2001       |        | 2000      
|                                                          |                                                                                                                                                |                                                                           |                                           |                                                     |        |                       |          |            |        |           
|                                                          |                                                                                                                                                |                                                                           |                                           |                                                     |        | (Restated-
seeNote 3) |          |            |        |           
|Cash flows from operating activities:                     |                                                                                                                                                |                                                                           |                                           |                                                     |        |                       |          |            |        |            |          |        
|                                                          | Net loss                                                                                                                                       |                                                                           | $                                         | (91,589                                             | )      |                       | $        | (125,963   | )      |            | $        | (60,291 | )     
|                                                          | Adjustment to reconcile net loss to net cash used in
operating activities:                                                                     |                                                                           |                                           |                                                     |        |                       |          |            |        |            |          |         |       
|                                                          |                                                                                                                                                | Depreciation and amortization                                             |                                           |                                                     | 8,542  |                       |          |            | 7,104  |            |          |         | 2,668  |        
|                                                          |                                                                                                                                                | Amortization of deferred stock compensation and intangibles               |                                           |                                                     | 20,181 |                       |          |            | 32,830 |            |          |         | 40,077 |        
|                                                          |                                                                                                                                                | In-process research and development                                       |                                           |                                                     |       |                       |          |            | 12,225 |            |          |         |       |        
|                                                          |                                                                                                                                                | Write-off of excess and obsolete inventories                              |                                           |                                                     |       |                       |          |            | 26,811 |            |          |         |       |        
|                                                          |                                                                                                                                                | Charitable contribution of common stock                                   |                                           |                                                     |       |                       |          |            |       |            |          |         | 900    |        
|                                                          |                                                                                                                                                | Amortization of costs associated with financing agreement                 |                                           |                                                     |       |                       |          |            |       |            |          |         | 568    |        
|                                                          |                                                                                                                                                | Amortization of premium or discount on available-for-sale
securities, net |                                           |                                                     | 83     |                       |          |            | (1,313 | )          |          |         | (118   | )      
|                                                          |                                                                                                                                                | Gain on sale of available-for-sale securities                             |                                           |                                                     | (784   | )                     |          |            | (277   | )          |          |         |       |        
|                                                          |                                                                                                                                                | Stock compensation to non-employees                                       |                                           |                                                     |       |                       |          |            |       |            |          |         | 815    |        
|                                                          |                                                                                                                                                | Changes in assets and liabilities:                                        |                                           |                                                     |        |                       |          |            |        |            |          |         |        |        
|                                                          |                                                                                                                                                |                                                                           | Accounts receivable                       |                                                     |        | (7,438                | )        |            |        | 6,625      |          |         |        | (20,484 | )      
|                                                          |                                                                                                                                                |                                                                           | Prepaid expenses and other current assets |                                                     |        | 15,518                |          |            |        | (18,219    | )        |         |        | (1,751  | )      
|                                                          |                                                                                                                                                |                                                                           | Inventories                               |                                                     |        | (17,030               | )        |            |        | (10,011    | )        |         |        | (40     | )      
|                                                          |                                                                                                                                                |                                                                           | Other assets                              |                                                     |        | 175                   |          |            |        | (40        | )        |         |        | (616    | )      
|                                                          |                                                                                                                                                |                                                                           | Accounts payable                          |                                                     |        | 5,409                 |          |            |        | 18,701     |          |         |        | 18,944  |        
|                                                          |                                                                                                                                                |                                                                           | Accrued liabilities                       |                                                     |        | (22,094               | )        |            |        | 34,584     |          |         |        | 15,941  |        
|                                                          |                                                                                                                                                |                                                                           |                                           |                                                     |        |                       |          |            |        |            |          |        
|                                                          |                                                                                                                                                |                                                                           |                                           | Net cash used in operating activities               |        |                       | (89,027  | )          |        |            | (16,943  | )       |        |         | (3,387  | )
|                                                          |                                                                                                                                                |                                                                           |                                           |                                                     |        |                       |          |            |        |            |          |        
|Cash flows from investing activities:                     |                                                                                                                                                |                                                                           |                                           |                                                     |        |                       |          |            |        |            |          |        
|                                                          | Purchases of available-for-sale securities                                                                                                     |                                                                           |                                           | (69,989                                             | )      |                       |          | (244,972   | )      |            |          | (4,474  | )     
|                                                          | Sales and maturities of available-for-sale securities                                                                                          |                                                                           |                                           | 118,863                                             |        |                       |          | 186,866    |        |            |          | 10,424  |       
|                                                          | Purchases of investments for collateral on operating leases                                                                                    |                                                                           |                                           |                                                    |        |                       |          | (51,287    | )      |            |          | (2,106  | )     
|                                                          | Purchases
of property and equipment and construction in progress-Sunnyvale
tenant improvements                                                 |                                                                           |                                           | (12,501                                             | )      |                       |          | (14,283    | )      |            |          | (9,818  | )     
|                                                          | Cash acquired from acquisition                                                                                                                 |                                                                           |                                           |                                                    |        |                       |          | 29         |        |            |          |        |       
|                                                          |                                                                                                                                                |                                                                           |                                           |                                                     |        |                       |          |            |        |            |          |         |       
|                                                          |                                                                                                                                                |                                                                           |                                           | Net cash provided by (used in) investing activities |        |                       | 36,373   |            |        |            | (123,647 | )       |        |         | (5,974  | )
|                                                          |                                                                                                                                                |                                                                           |                                           |                                                     |        |                       |          |            |        |            |          |        
|Cash flows from financing activities:                     |                                                                                                                                                |                                                                           |                                           |                                                     |        |                       |          |            |        |            |          |        
|                                                          | Net proceeds from issuance of common stock in private
offering, underwritten public offering and upon exercise of
underwriters over-allotment |                                                                           |                                           | 47,036                                              |        |                       |          |           |        |            |          |        |       
|                                                          | Proceeds from issuance of common stock                                                                                                         |                                                                           |                                           | 4,067                                               |        |                       |          | 3,109      |        |            |          | 2,012   |       
|                                                          | Net proceeds from initial public offering and exercise of
underwriters over-allotment                                                         |                                                                           |                                           |                                                    |        |                       |          | 27,969     |        |            |          | 184,928 |       
|                                                          | Proceeds from borrowings                                                                                                                       |                                                                           |                                           |                                                    |        |                       |          |           |        |            |          | 6,000   |       
|                                                          | Principal payments on borrowings                                                                                                               |                                                                           |                                           |                                                    |        |                       |          | (83        | )      |            |          | (6,000  | )     
|                                                          | Issuance of redeemable convertible preferred stock, net                                                                                        |                                                                           |                                           |                                                    |        |                       |          |           |        |            |          | 11,490  |       
|                                                          | Repurchase of common stock                                                                                                                     |                                                                           |                                           |                                                    |        |                       |          | (41        | )      |            |          |        |       
|                                                          |                                                                                                                                                |                                                                           |                                           |                                                     |        |                       |          |            |        |            |          |         |       
|                                                          |                                                                                                                                                |                                                                           |                                           | Net cash provided by financing activities           |        |                       | 51,103   |            |        |            | 30,954   |         |        |         | 198,430 |  
|                                                          |                                                                                                                                                |                                                                           |                                           |                                                     |        |                       |          |            |        |            |          |        
|                                                          |                                                                                                                                                |                                                                           |                                           | Effect of exchange rate changes on cash             |        |                       | (475     | )          |        |            | 668      |         |        |         | (54     | )
|                                                          |                                                                                                                                                |                                                                           |                                           |                                                     |        |                       |          |            |        |            |          |        
|Net increase (decrease) in cash and cash equivalents      |                                                                                                                                                |                                                                           | (2,026                                    | )                                                   |        |                       | (108,968 | )          |        |            | 189,015  |        
|Cash and cash equivalents:                                |                                                                                                                                                |                                                                           |                                           |                                                     |        |                       |          |            |        |            |          |        
|                                                          | Beginning of year                                                                                                                              |                                                                           |                                           | 87,580                                              |        |                       |          | 196,548    |        |            |          | 7,533   |       
|                                                          |                                                                                                                                                |                                                                           |                                           |                                                     |        |                       |          |            |        |            |          |        
|                                                          | End of year                                                                                                                                    |                                                                           | $                                         | 85,554                                              |        |                       | $        | 87,580     |        |            | $        | 196,548 |       
|                                                          |                                                                                                                                                |                                                                           |                                           |                                                     |        |                       |          |            |        |            |          |        
|Supplemental disclosure of cash flow information:         |                                                                                                                                                |                                                                           |                                           |                                                     |        |                       |          |            |        |            |          |        
|                                                          | Cash paid for interest                                                                                                                         |                                                                           | $                                         | 1                                                   |        |                       | $        | 6          |        |            | $        | 37      |       
|                                                          |                                                                                                                                                |                                                                           |                                           |                                                     |        |                       |          |            |        |            |          |         |       
|                                                          | Cash paid for taxes                                                                                                                            |                                                                           | $                                         | 922                                                 |        |                       | $        | 236        |        |            | $        | 1       |       
|                                                          |                                                                                                                                                |                                                                           |                                           |                                                     |        |                       |          |            |        |            |          |         |       
|Supplemental
non-cash investing and financing activities: |                                                                                                                                                |                                                                           |                                           |                                                     |        |                       |          |            |        |            |          |        
|                                                          | Construction
in progress-Sunnyvale property                                                                                                    |                                                                           | $                                         | 73,979                                              |        |                       |          |           |        |            |          |        |       
|                                                          |                                                                                                                                                |                                                                           |                                           |                                                     |        |                       |          |            |        |            |          |        

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See accompanying notes to consolidated financial statements.

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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. In
November 1998, the Company changed its name to Handspring, Inc., and in May
2000, the Company reincorporated in Delaware.

The Company is a leading provider of handheld computing and communications
devices. The Company develops, manufactures and markets these products for a
broad range of markets and customers. Products are sold through select Internet
and retail partners, both domestically and internationally and over the
Companys Web site.

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.

Reclassifications. Certain reclassifications have been made to prior year
balances in order to conform to the current year presentation.

Liquidity. From inception through June 29, 2002, the Company has incurred
substantial losses and negative cash flows from operations and, as of June 29,
2002, the Company had an accumulated deficit of $286.2 million. For the year
ended June 29, 2002, the Company recorded a net loss of $91.6 million and cash
outflows for operating activities of $89.0 million.

The Company operates in a highly competitive market characterized by
rapidly changing technology together with competitors that have significantly
greater financial resources than the Company. In addition, the Company is
implementing a significant shift in the focus of its business from traditional
handheld organizers to wireless communicators. The Company intends to incur
significant expenses to continue to develop and promote new products as well as
to support existing product sales. Failure to generate sufficient revenues from
new and existing products may require the Company to delay, scale back or
eliminate certain research and development or marketing programs.

The Company believes that cash, cash equivalents and short-term
investments will be sufficient to meet working capital needs for at least the
next twelve months. To the extent that the Company does not generate sufficient
revenues from new and existing products or reduce discretionary expenditures
and, as a result, cash generated from operations is insufficient to satisfy
liquidity requirements, additional cash may be needed to finance operating and
investing needs. However, depending on market conditions, any additional
financing needed may not be available on acceptable terms, or at all. The
inability to obtain needed financing could adversely affect the Companys
ability to achieve its intended business objectives.

2. Summary of Significant Accounting Policies

Fiscal year. The Companys fiscal year is a 52-53 week fiscal year ending
on the Saturday nearest to June 30. Unless otherwise stated, all years and
dates refer to the fiscal year and fiscal periods.

Cash and cash equivalents, short-term investments, and long-term
investments. The Company invests its excess cash in debt instruments of the
U.S. Government and its agencies, and in high-quality corporate issuers. All
highly liquid debt or equity instruments purchased with an original maturity of
three months or less from the date of purchase are considered to be cash
equivalents. Those with original maturities greater than three months and
current maturities less than twelve months from the balance sheet date are
considered short-term investments, and those with maturities greater than
twelve months from the balance sheet date are considered long-term investments.

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All short-term and long-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.

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.

Concentration of credit risk.Financial instruments that potentially
subject the Company to concentrations of credit risk consist of cash and cash
equivalents, short-term and long-term investments, and accounts receivable. The
Companys accounts receivable are derived from revenue earned from customers in
North America, Europe and certain countries in Asia Pacific and the Middle
East.

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.

At June 29, 2002, four customers accounted for 12%, 10%, 10% and 10% of
net receivables and one customer accounted for 15% of revenue during fiscal
2002. At June 30, 2001, four customers accounted for 40%, 20%, 17%, and 11% of
net receivables and three customers accounted for 14%, 13% and 10% of revenue
during fiscal 2001. Three customers accounted for 15%, 14% and 11% of revenue
during fiscal 2000. No one geographic sub-region outside of the United States
accounted for more than 10% of revenue in any of the periods presented.

Accounts receivable. Accounts receivable are recorded at face value, less
an allowance for doubtful accounts. The allowance for doubtful accounts is an
estimate calculated based on an analysis of current business and economic
risks, customer credit-worthiness, credit card fraud, specific identifiable
risks such as bankruptcies, terminations or discontinued customers, or other
factors that may indicate a potential loss. The allowance is reviewed on a
consistent basis to ensure that it adequately provides for all reasonably
expected losses in the receivable balances. An account may be determined to be
uncollectable if all collection efforts have been exhausted, the customer has
filed for bankruptcy and all recourse against the account is exhausted, or
disputes are unresolved and negotiations to settle are exhausted. This
uncollectable amount is written off as bad debt against the allowance.

Inventories. Inventories are stated at the lower of standard cost (which
approximates first-in, first-out cost) or market. Provisions for potentially
obsolete or slow moving inventories are made based on managements analysis of
inventory levels and future sales forecasts. These provisions are estimates,
which could vary significantly, either favorably or unfavorably, from actual
requirements if future economic conditions, customer inventory levels or
competitive conditions differ from the Companys expectations.

Property and equipment.Property and equipment, including leasehold
improvements, are stated at cost less accumulated depreciation and
amortization. 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.

Construction
in progress-Sunnyvale property. Emerging Issues
Task Force No. 97-10 (EITF 97-10), The Effect of Lessee Involvement in Asset
Construction,is applied to entities involved with certain structural elements
of the construction of an asset that will be leased when construction of the
asset is completed. EITF 97-10 requires the Company to be considered the owner
(for accounting purposes only) of these types of projects during the
construction period.
This is the case even though the Company is not obligated to guarantee the
non-recourse mortgage obligation, nor is it involved in the management of the
construction of the building or the management of the owner-lessor. Therefore,
the Company has recorded such building costs related to the Sunnyvale lease as
construction in progress with a corresponding obligation for
construction in progress.

Other assets.Other assets include goodwill and other intangible assets
carried at cost less accumulated amortization. Amortization is computed using
the straight-line method over the expected useful life of three years.
Accumulated amortization of goodwill and intangibles totaled $280,000 and
$76,000 as of June 29, 2002 and June 30, 2001, respectively. In June 2001, the
Financial Accounting

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Standards Board (FASB) released Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other Intangible Assets,which will
become effective for the Company beginning in fiscal 2003, under which goodwill
will no longer be amortized but will be subject to impairment tests at least
annually.

Long-lived assets.The Company evaluates the recoverability of its
long-lived assets in accordance with 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 using 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 accumulated other comprehensive
income (loss).

Derivatives. The Company has entered into foreign exchange forward
contracts to minimize the impact of foreign currency fluctuations on assets and
liabilities denominated in currencies other than the functional currency of the
reporting entity. Gains and losses resulting from exchange rate fluctuations on
forward foreign exchange contracts are recorded in interest and other income,
net and are offset by the corresponding foreign exchange transaction gains and
losses from the foreign currency denominated assets and liabilities being
hedged. Fair values of foreign exchange forward contracts are determined using
quoted market forward rates.

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 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 FASB
Interpretation (FIN) No. 44, Accounting for Certain Transactions Involving
Stock Compensation (an Interpretation of APB No. 25),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.

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.

Revenue recognition. Revenue from sales is recognized when a purchase
order has been received, the product has been shipped, title has transferred to
the customer, the sales price is fixed or determinable and collection of the
resulting receivable is probable. Sales of our handheld communicators may also
include subsidy revenue from wireless carriers for new customer service
contracts or the extension of existing customer contracts. In these cases, the
customer has a specified period of time in which they may cancel their service.
All revenue related to these subsidies is deferred until this specified period
of time has elapsed. No significant post-delivery obligations exist with
respect to revenue recognized during fiscal 2002, 2001 or 2000.

Returns reserve.The Company offers limited return rights on its products
and accordingly, at the time the related sale is recorded, revenue is reduced
for estimated returns. The estimates for returns are adjusted periodically and
are based upon various factors including historical rates of returns and
inventory levels in the channel. The Company also estimates and reserves for
rebates and price protection based upon specific programs. Actual results may
differ from these estimates.

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Warranty reserve. The cost of product warranties is estimated and accrued
at the time revenue is recognized. While the Company engages in extensive
product quality programs and processes, its warranty obligation is affected by
product failure rates, component costs and repair service costs incurred in
correcting a product failure. Should actual product failure rates, component
costs or repair service costs differ from estimates, revisions to the estimated
warranty costs would be required.

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
PalmSource, 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 years 2002, 2001 and 2000 advertising costs totaled $3.0 million, $31.0
million and $3.9 million, respectively.

Net loss per share. Net loss per share is calculated in accordance with
SFAS No. 128, Earnings per Share.Under the provisions of SFAS No. 128, basic
net loss per share is computed by dividing the net loss applicable to common
stockholders for the period by the weighted average number of common shares
outstanding during the period (excluding shares subject to repurchase). Diluted
net loss per share is computed by dividing the net loss applicable to common
stockholders for the period by the weighted average number of common and
potential common shares outstanding during the period if their effect is
dilutive.

The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated (in thousands, except per share
amounts):

|                                                                                    |                                                      |   |            |         |            |   |            |         |   |   |         |         |  
|----------------------------------------------------------------------------------- | ---------------------------------------------------- | - | ---------- | ------- | ---------- | - | ---------- | ------- | - | - | ------- | ------- | -
|                                                                                    |                                                      |   | Year Ended |         | Year Ended |   | Year Ended
|                                                                                    |                                                      |   | June 29,   |         | June 30,   |   | July 1,   
|                                                                                    |                                                      |   | 2002       |         | 2001       |   | 2000      
|                                                                                    |                                                      |   |            |         |            |   |           
|Net loss                                                                            |                                                      | $ | (91,589    | )       |            | $ | (125,963   | )       |   | $ | (60,291 | )      
|                                                                                    |                                                      |   |            |         |            |   |            |         |   |   |         |        
|Basic and diluted:                                                                  |                                                      |   |            |         |            |   |            |         |   |   |         |        
|                                                                                    | Weighted average common shares outstanding           |   |            | 137,391 |            |   |            | 128,004 |   |   |         | 73,196  |  
|                                                                                    | Weighted average common shares subject to repurchase |   |            | (9,170  | )          |   |            | (24,108 | ) |   |         | (39,181 | )
|                                                                                    |                                                      |   |            |         |            |   |            |         |   |   |         |        
|Weighted average common shares used to compute basic
and diluted net loss per share |                                                      |   | 128,221    |         |            |   | 103,896    |         |   |   | 34,015  |        
|                                                                                    |                                                      |   |            |         |            |   |            |         |   |   |         |        
|Basic and diluted net loss per share                                                |                                                      | $ | (0.71      | )       |            | $ | (1.21      | )       |   | $ | (1.77   | )      
|                                                                                    |                                                      |   |            |         |            |   |            |         |   |   |         |        

Diluted net loss per share does not include the effect of the following
potential common shares at the dates indicated as their effect is anti-dilutive
(in thousands):

|                                    |  |          |        |          |  |         |        |  |  |  |        | 
|----------------------------------- |  | -------- | ------ | -------- |  | ------- | ------ |  |  |  | ------ | 
|                                    |  | June 29, |        | June 30, |  | July 1,
|                                    |  | 2002     |        | 2001     |  | 2000   
|                                    |  |          |        |          |  |        
|Common stock subject to repurchase  |  |          | 2,067  |          |  |         | 16,556 |  |  |  | 32,413 | 
|Shares issuable under stock options |  |          | 16,463 |          |  |         | 31,544 |  |  |  | 26,622 | 

The weighted average repurchase price of unvested stock was $0.17, $0.06,
and $0.07 as of June 29, 2002, June 30, 2001 and July 1, 2000, respectively.
The weighted-average exercise price of stock options outstanding was $1.47,
$11.30 and $4.68 as of June 29, 2002, June 30, 2001 and July 1, 2000,
respectively.

Recently issued accounting pronouncements. In August 2001, the FASB issued
SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS
144 supercedes SFAS 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of,and APB 30, Reporting the Results of
Operations  Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions.
Under SFAS 144 a single accounting model for long-lived assets to be disposed
of is established. The accounting model is based on the framework established
in SFAS 121 and resolves certain implementation issues. SFAS 144 is effective
beginning in fiscal 2003. The adoption is not expected to have a material
impact on the Companys financial position and results of operations.

In November 2001, the Emerging Issues Task Force (EITF), issued EITF
Issue No. 01-09, Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendors Products),which codified and reconciled
EITF Issue No. 00-14, Accounting for Certain Sales Incentives,Issues 2 and 3
of Issue No. 00-22, Accounting for Points and Certain Other Time-Based or
Volume-Based Sales Incentive Offers and Offers for Free Products or Services to
be Delivered in the Future,and Issue No. 00-25, Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the Vendors Products.
EITF addresses the

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accounting for consideration given by a vendor to a customer (including
both a reseller of the vendors products and an entity that purchases the
vendors products from the reseller). Any consideration given by a vendor to a
customer (or a reseller, or a customer of a reseller) is generally presumed to
be a reduction of selling price, and therefore, a reduction of revenue. That
presumption can be overcome if the vendor receives an identifiable benefit in
return for the consideration paid that is sufficiently separable from the sale
to the recipient, and the vendor can reasonably estimate the fair value of that
benefit, in which case the consideration is characterized as an expense. EITF
was adopted by the Company during fiscal 2002, and did not have a material
impact on the Companys financial position or results of operations.

In July 2002, the FASB issued SFAS 146, Accounting for Costs Associated
with Exit or Disposal Activities.SFAS 146 requires that a liability for costs
associated with an exit or disposal activity be recognized and measured
initially at fair value only when the liability is incurred. SFAS 146 is
effective for exit or disposal activities that are initiated after December 31,
2002. The adoption is not expected to have a material impact on the Companys
financial position and 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 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. Restatement to financial statements to account for EITF 97-10

As discussed in Note 6, in February 2001, the Company entered into two lease
agreements (the Sunnyvale leases) for its new corporate headquarters,
consisting of approximately 340,000 square feet, to be constructed in
Sunnyvale, California. Both leases had initial terms of twelve years with
options to renew for an additional six years, subject to certain conditions.
In fiscal 2002, the Company determined that its existing office space was
adequate to meet the Companys current requirements and that it no longer
needed additional office space.

Accordingly, the Company entered into negotiations with the landlord to buy out
or restructure the Sunnyvale leases. Pursuant to an agreement to restructure
the leases, the Company has agreed to pay $61.2 million in total consideration
to the landlord and building contractor. The Company expects to record a
charge against earnings of between $75 and $80 million in the third quarter of
fiscal 2003 to account for the costs of the restructuring, the write-off of
previously capitalized tenant improvements and advisor fees.

In February
2003, it was determined that
because the terms of the original lease agreements required the Companys
involvement in the construction of certain structural elements of the
buildings, under EITF 97-10 the Company is considered to be the owner (for
accounting purposes only) of the buildings subject to the Sunnyvale leases
during the construction period. The application of the provisions of EITF
97-10 has resulted in the financial statements being revised to include
approximately $74.0 million as construction in progress with a corresponding
 obligation for construction in progress of
$74.0 million as of June 29, 2002.

The impact of this revision is as follows:

|                                                                     |  |                       |         |          |  |   |         | 
|-------------------------------------------------------------------- |  | --------------------- | ------- | -------- |  | - | ------- | 
|                                                                     |  | June 29,
2002         |         |          |  |  
|                                                                     |  | As
previouslyreported |         | Restated
|                                                                     |  |                       |         |         
|Property and equipment, net                                          |  | $                     | 19,092  |          |  | $ | 12,478  | 
|Construction
in progress-Sunnyvale tenant improvements               |  |                       |        |          |  |   | 6,614   | 
|Construction in progress-Sunnyvale property                          |  |                       |        |          |  |   | 73,979  | 
|Total assets                                                         |  |                       | 216,175 |          |  |   | 290,154 | 
|Non-cash
obligations for construction in progress-Sunnyvale property |  |                       |        |          |  |   | 73,979  | 
|Total
current liabilities                                            |  |                       | 93,269  |          |  |   | 167,248 | 
|Total liabilities and stockholders equity                           |  |                       | 216,175 |          |  |   | 290,154 | 

4. Acquisition

In
February 2001, the Company completed its acquisition of BlueLark
Systems, Inc. (BlueLark), a provider of software designed
to power the delivery of content and services to mobile handheld
devices, notably a Palm OS proxy-based browser. Under the terms
of the agreement related to this acquisition, the Company issued
450,000 shares and options to purchase the Companys common
stock

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in exchange for all of BlueLarks outstanding shares and options for a
total purchase price of $16.4 million. The acquisition was accounted for as a
purchase in accordance with the provisions of APB Opinion No. 16, Business
Combinations.

An independent valuation was performed to assist the Company in
determining the fair value of the total purchase price to allocate to the
assets acquired and liabilities assumed from BlueLark, including in-process
research and development. The amount allocated to in-process research and
development was determined by assessing the stage and expected date of
completion of the research and development efforts at the acquisition date, and
calculating the net present value of cash flows expected to result from the new
technology. The estimated net present value of cash flows took into account the
characteristics and applications of the technologies, the size and growth rate
of existing and future markets and an evaluation of past and anticipated
technology and product life cycles. These cash flows included the after-tax
effects of future revenues, cost of revenues, operating expenses, working
capital charge, and expenditures for capital and intangibles. Both the
estimated stage of completion and the discount rate used to calculate the net
present value factored into account the uncertainty surrounding the successful
deployment of the new technology resulting from the in-process research and
development effort.

Of the total purchase price, $82,000 was allocated to the net tangible
assets acquired offset by $177,000 of liabilities assumed, $3.9 million was
recorded as deferred compensation, $300,000 was recorded as assembled
workforce, $312,000 was recorded as goodwill, and the remainder was allocated
to in-process research and development. The deferred compensation charge
relates to the intrinsic value of unvested stock options and restricted stock
assumed in the transaction. This amount is being amortized, using the multiple
option method, over the vesting period of the related options or restricted
stock. The total amount allocated to goodwill and assembled workforce has been
amortized on a straight-line basis over three years; however, the amortization
will cease in fiscal 2003 with the adoption of SFAS 142. In-process research
and development was immediately expensed as of the date of the acquisition. The
historical operations of BlueLark were not material to the Companys financial
position or results of operations and accordingly, proforma information has not
been presented. Results of operations for BlueLark have been included with
those of the Company subsequent to the acquisition date.

5. Balance Sheet Components

a.  Investments

Available-for-sale securities consists of the following:

|                         |  |                |         |               |  |                   |     |                   |  |   |     |   |  |   |         | 
|------------------------ |  | -------------- | ------- | ------------- |  | ----------------- | --- | ----------------- |  | - | --- | - |  | - | ------- | 
|                         |  |                |         |               |  | Gains in          |     | Losses in         |  |   |     |  
|                         |  |                |         |               |  | Accumulated Other |     | Accumulated Other |  |   |     |  
|                         |  |                |         |               |  | Comprehensive     |     | Comprehensive     |  |   |     |  
|                         |  | Amortized Cost |         | Income (Loss) |  | Income (Loss)     |     | Fair Value       
|                         |  |                |         |               |  |                   |     |                  
|                         |  | (In thousands)
|June 29, 2002            |  |                |         |               |  |                   |     |                   |  |   |     |   |  |   |         | 
|Corporate obligations    |  | $              | 14,955  |               |  | $                 | 168 |                   |  | $ | (39 | ) |  | $ | 15,084  | 
|Certificates of deposits |  |                | 550     |               |  |                   |    |                   |  |   |    |   |  |   | 550     | 
|Money market             |  |                | 50,245  |               |  |                   |    |                   |  |   |    |   |  |   | 50,245  | 
|                         |  |                |         |               |  |                   |     |                   |  |   |     |   |  |   |         | 
|                         |  | $              | 65,750  |               |  | $                 | 168 |                   |  | $ | (39 | ) |  | $ | 65,879  | 
|                         |  |                |         |               |  |                   |     |                   |  |   |     |   |  |   |         | 
|June 30, 2001            |  |                |         |               |  |                   |     |                   |  |   |     |   |  |   |         | 
|Corporate obligations    |  | $              | 46,109  |               |  | $                 | 274 |                   |  | $ | (35 | ) |  | $ | 46,348  | 
|Government obligations   |  |                | 38,297  |               |  |                   | 104 |                   |  |   | (20 | ) |  |   | 38,381  | 
|Commercial paper         |  |                | 15,664  |               |  |                   | 12  |                   |  |   | (3  | ) |  |   | 15,673  | 
|Certificates of deposits |  |                | 550     |               |  |                   |    |                   |  |   |    |   |  |   | 550     | 
|Money market             |  |                | 13,228  |               |  |                   |    |                   |  |   |    |   |  |   | 13,228  | 
|                         |  |                |         |               |  |                   |     |                   |  |   |     |   |  |   |         | 
|                         |  | $              | 113,848 |               |  | $                 | 390 |                   |  | $ | (58 | ) |  | $ | 114,180 | 
|                         |  |                |         |               |  |                   |     |                   |  |   |     |   |  |   |         | 

Contractual maturities of available-for-sale debt securities are as
follows:

|                      |  |                |        |          |  |   |         | 
|--------------------- |  | -------------- | ------ | -------- |  | - | ------- | 
|                      |  | June 29,       |        | June 30,
|                      |  | 2002           |        | 2001    
|                      |  |                |        |         
|                      |  | (In thousands)
|Due in 1 year or less |  | $              | 65,879 |          |  | $ | 64,665  | 
|Due in 1-2 years      |  |                |       |          |  |   | 49,515  | 
|                      |  |                |        |          |  |   |         | 
|                      |  | $              | 65,879 |          |  | $ | 114,180 | 
|                      |  |                |        |          |  |   |         | 

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Available-for-sale securities were sold for total proceeds of $73.9
million during fiscal 2002 with gross realized gains of $785,000 and gross
realized losses of $1,000 on these sales. During fiscal 2001 available-for-sale
securities were sold for proceeds of $82.1 million with gross realized gains of
$283,000 and gross realized losses of $6,000.

Of the amounts included in short-term investments on the consolidated
balance sheet, $150,000 is pledged as collateral for lease payments for both of
the periods presented. Of the amounts included in long-term investments on the
balance sheet, $50.6 million and $54.0 million is pledged as collateral as of
June 29, 2002 and June 30, 2001, respectively, relating almost entirely to
commitments under lease agreements. See further discussion in
Note 6.

b.  Inventories

The components of inventories are as follows:

|               |  |                |        |          |  |   |       | 
|-------------- |  | -------------- | ------ | -------- |  | - | ----- | 
|               |  | June 29,       |        | June 30,
|               |  | 2002           |        | 2001    
|               |  |                |        |         
|               |  | (In thousands)
|Raw materials  |  | $              | 380    |          |  | $ | 1,174 | 
|Finished goods |  |                | 19,704 |          |  |   | 1,683 | 
|               |  |                |        |          |  |   |       | 
|               |  | $              | 20,084 |          |  | $ | 2,857 | 
|               |  |                |        |          |  |   |       | 

c.  Property and Equipment

Property and equipment consists of the following:

|                               |                                                        |   |                         |        |          |   |        |        | 
|------------------------------ | ------------------------------------------------------ | - | ----------------------- | ------ | -------- | - | ------ | ------ | 
|                               |                                                        |   | June 29,                |        | June 30,
|                               |                                                        |   | 2002                    |        | 2001    
|                               |                                                        |   |                         |        |         
|                               |                                                        |   | (Restated
- see
Note 3) |        |         
|                               |                                                        |   | (In thousands)         
|Tooling                        |                                                        | $ | 8,577                   |        |          | $ | 6,863  |       
|Computer and office equipment  |                                                        |   | 9,111                   |        |          |   | 7,544  |       
|Furniture and fixtures         |                                                        |   | 3,036                   |        |          |   | 2,871  |       
|Software                       |                                                        |   | 7,107                   |        |          |   | 5,064  |       
|Leasehold improvements         |                                                        |   | 2,334                   |        |          |   | 2,182  |       
|                               |                                                        |   |                         |        |          |   |        |       
|                               | Total property and equipment                           |   |                         | 30,165 |          |   |        | 24,524 | 
|Less: Accumulated depreciation |                                                        |   | (17,687                 | )      |          |   | (9,483 | )     
|                               |                                                        |   |                         |        |          |   |        |       
|                               | Property and equipment, net                            |   | $                       | 12,478 |          |   | $      | 15,041 | 
|                               |                                                        |   |                         |        |          |   |        |       
|                               | Construction
in progressSunnyvale tenant improvements |   | $                       | 6,614  |          |   | $      |       | 
|                               |                                                        |   |                         |        |          |   |        |       
|                               | Construction
in progressSunnyvale property            |   | $                       | 73,979 |          |   | $      |       | 
|                               |                                                        |   |                         |        |          |   |        |       

Property and equipment does not include any assets acquired under capital
leases at June 29, 2002 or June 30, 2001. Also excluded
from property and equipment is construction in progressSunnyvale
tenant improvements of $6.6 million and construction in
progressSunnyvale property of $74.0 million as discussed in
Note 3. Included in construction in progressSunnyvale property
is capitalized interest of $1.5 million as of June 29, 2002.

d.  Accrued Liabilities

Accrued liabilities consist of the following:

|                                          |  |                |        |          |  |   |        | 
|----------------------------------------- |  | -------------- | ------ | -------- |  | - | ------ | 
|                                          |  | June 29,       |        | June 30,
|                                          |  | 2002           |        | 2001    
|                                          |  |                |        |         
|                                          |  | (In thousands)
|Accrued product warranty                  |  | $              | 14,436 |          |  | $ | 13,202 | 
|Provision for committed inventory         |  |                | 7,141  |          |  |   | 19,257 | 
|Accrued compensation and related benefits |  |                | 4,990  |          |  |   | 5,558  | 
|Other                                     |  |                | 22,212 |          |  |   | 32,135 | 
|                                          |  |                |        |          |  |   |        | 
|                                          |  | $              | 48,779 |          |  | $ | 70,152 | 
|                                          |  |                |        |          |  |   |        | 

6. Commitments and Contingencies

The Company leases its facilities under various leases which
expire through November 2014. 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 associated
with a lease expiring in June 2002, a $400,000 standby letter of credit
established on

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August 3, 1999, and a $2.1 million 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. The bond
certificate is included in short-term investments as of June 29, 2002 and June
30, 2001. Both of the letter of credits are included in long-term investments
at June 29, 2002 and June 30, 2001.

In February 2001, the Company entered into two lease agreements
for its new corporate headquarters, consisting of approximately 340,000 square
feet, to be constructed in Sunnyvale, California. Both leases have initial
terms of twelve years with options to renew for an additional six years,
subject to certain conditions. Monthly rent obligations of $1.7 million and
monthly operating expenses of approximately $300,000 are expected to commence
during the second quarter of fiscal 2003, with annual increases determined in
part by the Consumer Price Index. The minimum monthly rent payment in the
twelfth year is $2.4 million. There was $47.4 million and $51.5 million pledged
as collateral for specified obligations of the lessor in conjunction with these
lease transactions at June 29, 2002 and June 30, 2001, respectively. Both of
these amounts are classified as long-term investments in the accompanying
consolidated balance sheets. Of the amount pledged, $23.5 million is designated
by the agreements to be utilized for tenant improvements. The remaining portion
of the pledged investments represent a security deposit on the property.
According to the lease agreements, the pledged assets will be reduced as the
Company completes its build-out obligation for the new corporate headquarters
provided that the company is not in default of the lease agreements and meets
certain other conditions. In addition, the pledged assets may be further
reduced if certain financial criteria are met. However, given that the
Companys existing space is adequate to meet its current requirements, the
Company has entered into a lease restructuring agreement as discussed in Note
3.

As of June 29, 2002 the future minimum commitments under all
operating leases and obligations for construction in progress (as
described in Note 3) were as follows (in thousands):

|                             |  |   |         | 
|---------------------------- |  | - | ------- | 
|Fiscal Years Ending,         |  |   |         | 
|                             |  |   |         | 
|2003                         |  | $ | 17,539  | 
|2004                         |  |   | 24,599  | 
|2005                         |  |   | 23,973  | 
|2006                         |  |   | 24,304  | 
|2007                         |  |   | 24,867  | 
|Thereafter                   |  |   | 196,297 | 
|                             |  |   |         | 
|Total minimum lease payments |  | $ | 311,579 | 
|                             |  |   |         | 

Rent expense under operating leases, net of sublease income, was $4.0
million, $4.1 million and $1.5 million for fiscal 2002, 2001 and 2000,
respectively.

In June 1999 and July 2000, the Company entered into purchase agreements
with manufacturers in Malaysia and Mexico, respectively. Both agreements
provide for the manufacturers to supply certain levels of handheld computer
products according to rolling forecasts and purchase orders provided by the
Company. 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 after the date of cancellation. In
addition, the Company is liable for the actual cost of materials for orders
cancelled within 31-90 days before the date of scheduled delivery. The Company
may cancel orders with scheduled delivery more than 90 days after the date of
cancellation without liability. The initial term of the agreements with the
manufacturers in Malaysia and Mexico are both for one year, with automatic
renewal for separate but successive one-year terms subsequent to the expiration
of the initial term. The agreements with the manufacturers in Malaysia and
Mexico are cancelable upon 90 days and 180 days notice by either party,
respectively. Had the Company cancelled any such orders with the previously
stated manufacturers, its maximum liability at June 29, 2002 under the
cancellation provisions of the purchase agreements would have approximated
$39.0 million.

7. Stockholders Equity

Preferred Stock

The Company is authorized to issue 10,000,000 shares of preferred stock,
none of which was outstanding at June 29, 2002, June 30, 2001, or July 1, 2000.

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

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Company. There were 1,050,000, 13,650,000 and 26,247,690 shares of the
founders common stock subject to repurchase by the Company at June 29, 2002,
June 30, 2001 and July 1, 2000, respectively.

Common Stock Reserved for Issuance

The Company has 1,000,000,000 shares of common stock authorized, of which
143,126,516, 129,949,768 and 125,436,978 were issued and outstanding as of June
29, 2002, June 30, 2001 and July 1, 2000, respectively. Common stock reserved
for future issuances is as follows:

|                                            |                       |  |                |        |          |  |         |        |  |  |        |        | 
|------------------------------------------- | --------------------- |  | -------------- | ------ | -------- |  | ------- | ------ |  |  | ------ | ------ | 
|                                            |                       |  | June 29,       |        | June 30, |  | July 1,
|                                            |                       |  | 2002           |        | 2001     |  | 2000   
|                                            |                       |  |                |        |          |  |        
|                                            |                       |  | (In thousands)
|Issuance under stock options                |                       |  | 43,681         |        |          |  | 47,111  |        |  |  | 43,238 |       
|Issuance under employee stock purchase plan |                       |  | 2,461          |        |          |  | 1,943   |        |  |  | 750    |       
|                                            |                       |  |                |        |          |  |         |        |  |  |        |       
|                                            | Total shares reserved |  |                | 46,142 |          |  |         | 49,054 |  |  |        | 43,988 | 
|                                            |                       |  |                |        |          |  |         |        |  |  |        |       

Stock Option Exchange Program

During April 2002, the Company announced a voluntary stock option exchange
program for its employees. Under the program, employees were given the
opportunity, if they chose, to cancel outstanding stock options previously
granted to them in exchange for an equal number of replacement options to be
granted at a future date, at least six months and a day from the cancellation
day, which was May 17, 2002. Under the exchange program, options for 11,677,415
shares of the Companys common stock were tendered and cancelled. Each
participant employee who is still employed by the Company on the replacement
grant date will receive, for each option included in the exchange, a
one-for-one replacement option. The exercise price of each replacement option
will be equal to the current fair market value of the Companys common stock on
the day the replacement options are granted.

The terms of the replacement options will be substantially the same as the
cancelled options, except that in most circumstances, there will be an
additional cliff period of up to six months imposed on the vesting schedule of
the option that will limit the ability of the option holder to exercise the
option. The details of the vesting terms have been explained in the Companys
tender offer filed with the Securities and Exchange Commission on April 18,
2002 and amended on May 7, 2002.

The exchange program complies with FASB Interpretation No. 44, Accounting
for Certain Transactions Involving Stock Compensation,and did not result in
any additional compensation charges or variable plan accounting. Members of the
Companys Board of Directors were not eligible to participate in this program.

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 were
originally 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 was and 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 was scheduled to end on July 31, 2002.
Each offering period is comprised of four 6-month purchase periods, except for
the first purchase period which was from June 21, 2000 to January 31, 2001. An
offering period may end earlier than its scheduled term. The offering periods
that began on June 21, 2000, August 1, 2000, and February 1, 2001 all ended
early due to the fact that the purchase price on the first day of those
offering periods was higher than the purchase price on the first day of the
offering period which began on August 1, 2001; per the ESPP, the Company ended
the prior offering periods and automatically enrolled participants in the
offering period that began on August 1, 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. There were 898,000 shares sold through the ESPP in
fiscal 2002 for proceeds of $2.6 million and 78,000 shares sold through the
ESPP in fiscal 2001 for proceeds of $1.3 million. No shares were purchased
under the ESPP during fiscal 2000.

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Prior Stock Option Plans

The Companys 1998 Equity Incentive Plan (the 1998 Plan) and the 1999
Executive Equity Incentive Plan (the 1999 Plan) provided for the issuance of
options to acquire 28,707,693 and 10,350,000 shares of 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) after 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 724,866, 2,066,329 and 4,445,853 shares issued
under the 1998 Plan at June 29, 2002, June 30, 2001 and July 1, 2000 that were
subject to repurchase, respectively. There were 232,664, 685,939 and 1,719,373
shares issued under the 1999 Executive Equity Incentive Plan that were subject
to repurchase at June 29, 2002, June 30, 2001 and July 1, 2000, respectively.
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
Plan to the 2000 Plan.

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 Plan may be
either ISOs or NSOs. 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. An initial
15,000,000 shares of common stock were originally reserved for issuance under
the 2000 Plan. 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 2000 Plan will be increased
automatically by the number of shares equal to 5% of the total outstanding
shares of the Companys common stock on the immediately preceding December 31,
provided that no more than 20,000,000 shares shall be issued as ISOs. The Board
of Directors elected not to increase the shares reserved for issuances under
the 2000 Plan during fiscal 2002.

BlueLark 2000 Equity Incentive Plan

As part of the acquisition of BlueLark described in Note 3, the Company
assumed incentive stock options and restricted stock awards granted under
BlueLarks 2000 Equity Incentive Plan (the BlueLark Plan). The incentive
stock options generally vest 25% one year from the vest start date and ratably
over the next 36 months and expire 10 years after the date of grant. The
restricted stock awards were 16.67% vested at the date of grant, with the
remaining shares vesting ratably over 40 months. The Company has reserved
47,615 shares of its common stock for issuance upon exercise of the outstanding
options under the BlueLark Plan. No shares are available for future grants
under the BlueLark Plan. There were 59,697 and 153,899 shares of the Companys
common stock issued pursuant to the BlueLark Plan that were subject to
repurchase by the Company as of June 29, 2002 and June 30, 2001, respectively.

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

|                         |                 |  |           |             |        |  |                     |            |          |   |      |      | 
|------------------------ | --------------- |  | --------- | ----------- | ------ |  | ------------------- | ---------- | -------- | - | ---- | ---- | 
|                         |                 |  |           |             |        |  | Options Outstanding
|                         |                 |  |           |             |        |  |                    
|                         |                 |  | Options   |             |        |  |                     |            | Weighted
|                         |                 |  | Available |             |        |  |                     |            | Average 
|                         |                 |  | for Grant |             | Shares |  | Exercise Price     
|                         |                 |  |           |             |        |  |                    
|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 | 

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|                         |                             |  |            |            |        |  |                     |             |          |  |       |       | 
|------------------------ | --------------------------- |  | ---------- | ---------- | ------ |  | ------------------- | ----------- | -------- |  | ----- | ----- | 
|                         |                             |  |            |            |        |  | Options Outstanding
|                         |                             |  |            |            |        |  |                    
|                         |                             |  | Options    |            |        |  |                     |             | Weighted
|                         |                             |  | Available  |            |        |  |                     |             | Average 
|                         |                             |  | for Grant  |            | Shares |  | Exercise Price     
|                         |                             |  |            |            |        |  |                    
|                         | 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  |      
|                         | Authorized                  |  |            | 6,404,715  |        |  |                     |            |          |  |       |       | 
|                         | Options granted             |  |            | (7,990,382 | )      |  |                     | 7,990,382   |          |  |       | 30.67 | 
|                         | Options assumed             |  |            | (47,615    | )      |  |                     | 47,615      |          |  |       | 0.88  | 
|                         | Options exercised           |  |            |           |        |  |                     | (2,717,781  | )        |  |       | 0.65  | 
|                         | Options canceled            |  |            | 398,855    |        |  |                     | (398,855    | )        |  |       | 29.03 | 
|                         | Unvested shares repurchased |  |            | 185,625    |        |  |                     |            |          |  |       | 0.22  | 
|                         |                             |  |            |            |        |  |                     |             |          |  |       |      
|Balance at June 30, 2001 |                             |  | 15,567,010 |            |        |  | 31,543,541          |             |          |  | 11.30 |      
|                         | Options granted             |  |            | (2,699,442 | )      |  |                     | 2,699,442   |          |  |       | 2.44  | 
|                         | Options exercised           |  |            |           |        |  |                     | (3,429,157  | )        |  |       | 0.44  | 
|                         | Options canceled            |  |            | 14,350,974 |        |  |                     | (14,350,974 | )        |  |       | 23.50 | 
|                         |                             |  |            |            |        |  |                     |             |          |  |       |      
|Balance at June 29, 2002 |                             |  | 27,218,542 |            |        |  | 16,462,852          |             |          |  | 1.47  |      
|                         |                             |  |            |            |        |  |                     |             |          |  |       |      

The following table summarizes information concerning options outstanding
and exercisable at June 29, 2002:

|                         |  |                     |            |              |  |                |      |             |  |                |       |                     |  |          |            |  |  |   |       | 
|------------------------ |  | ------------------- | ---------- | ------------ |  | -------------- | ---- | ----------- |  | -------------- | ----- | ------------------- |  | -------- | ---------- |  |  | - | ----- | 
|                         |  | Options Outstanding |            |              |  |                |      |             |  |               
|                         |  |                     |            |              |  |                |      |             |  |               
|                         |  |                     |            |              |  | Weighted       |      |             |  |                |       | Options Exercisable
|                         |  |                     |            |              |  | Average        |      |             |  |                |       |                    
|                         |  |                     |            |              |  | Remaining      |      | Weighted    |  |                |       |                     |  | Weighted
|                         |  | Number              |            | Contractual  |  | Average        |      | Number      |  | Average       
|Range of Exercise Prices |  | Outstanding         |            | Life (Years) |  | Exercise Price |      | Exercisable |  | Exercise Price
|                         |  |                     |            |              |  |                |      |             |  |               
|$0.05                    |  |                     | 5,275,042  |              |  |                | 6.29 |             |  | $              | 0.05  |                     |  |          | 5,275,042  |  |  | $ | 0.05  | 
|$0.11 - $0.22            |  |                     | 1,503,279  |              |  |                | 6.91 |             |  |                | 0.16  |                     |  |          | 1,503,279  |  |  |   | 0.16  | 
|$0.44                    |  |                     | 1,621,626  |              |  |                | 7.19 |             |  |                | 0.44  |                     |  |          | 1,621,626  |  |  |   | 0.44  | 
|$0.67 - $0.89            |  |                     | 2,796,430  |              |  |                | 7.46 |             |  |                | 0.79  |                     |  |          | 2,340,958  |  |  |   | 0.77  | 
|$1.33 - $1.56            |  |                     | 1,563,795  |              |  |                | 7.65 |             |  |                | 1.43  |                     |  |          | 593,417    |  |  |   | 1.41  | 
|$2.11 - $2.73            |  |                     | 2,680,860  |              |  |                | 8.91 |             |  |                | 2.21  |                     |  |          | 695,340    |  |  |   | 2.18  | 
|$3.00 - $13.33           |  |                     | 898,173    |              |  |                | 8.72 |             |  |                | 10.42 |                     |  |          | 273,536    |  |  |   | 12.21 | 
|$15.23 - $77.56          |  |                     | 123,647    |              |  |                | 8.62 |             |  |                | 26.60 |                     |  |          | 58,447     |  |  |   | 30.07 | 
|                         |  |                     |            |              |  |                |      |             |  |                |       |                     |  |          |            |  |  |   |       | 
|$0.05 - $77.56           |  |                     | 16,462,852 |              |  |                | 7.34 |             |  |                | 1.47  |                     |  |          | 12,361,645 |  |  |   | 0.85  | 
|                         |  |                     |            |              |  |                |      |             |  |                |       |                     |  |          |            |  |  |   |       | 

Deferred Stock Compensation

During the period from July 29, 1998 (date of inception) to June 30, 1999
and during fiscal 2000, 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. The Company recorded deferred compensation
for the difference between the purchase price of the stock issued to employees
under stock options and the subsequently deemed fair value of the Companys
stock at the date of grant. The total amount of deferred stock compensation
recorded in relation to these stock options issued was $102.0 million, of which
$88.6 million was recorded during fiscal 2000. In addition, during fiscal 2001,
the Company recorded $3.9 million of deferred compensation in relation to the
unvested stock options and restricted stock assumed in the acquisition of
BlueLark Systems, Inc. Deferred compensation is amortized to expense over the
vesting period of the related options and restricted stock, generally four
years. The Company amortized $20.0 million, $32.8 million and $40.1 million of
deferred stock compensation during fiscal 2002, 2001, and 2000, respectively.

As discussed in Note 2, the Company accounts for its stock compensation
using the method prescribed by APB No. 25.Had the Company determined its stock
compensation cost based on the fair value at the grant dates for its employee
stock options (including shares granted under the ESPP) according to the method
prescribed by SFAS No. 123, the Companys net loss would have been increased to
the pro forma amounts indicated below:

|                                      |             |  |                                       |          |            |  |            |          |   |  |   |         |  
|------------------------------------- | ----------- |  | ------------------------------------- | -------- | ---------- |  | ---------- | -------- | - |  | - | ------- | -
|                                      |             |  | Year Ended                            |          | Year Ended |  | Year Ended
|                                      |             |  | June 29,                              |          | June 30,   |  | July 1,   
|                                      |             |  | 2002                                  |          | 2001       |  | 2000      
|                                      |             |  |                                       |          |            |  |           
|                                      |             |  | (In thousands, except per share data)
|Net loss:                             |             |  |                                       |          |            |  |            |          |   |  |   |        
|                                      | As reported |  | $                                     | (91,589  | )          |  | $          | (125,963 | ) |  | $ | (60,291 | )
|                                      | Pro forma   |  |                                       | (111,180 | )          |  |            | (212,799 | ) |  |   | (75,648 | )
|Basic and diluted net loss per share: |             |  |                                       |          |            |  |            |          |   |  |   |        
|                                      | As reported |  | $                                     | (0.71    | )          |  | $          | (1.21    | ) |  | $ | (1.77   | )
|                                      | Pro forma   |  |                                       | (0.87    | )          |  |            | (2.05    | ) |  |   | (2.22   | )

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The Company calculated the fair value of each award on the date of grant
using the Black-Scholes option pricing model and the following weighted average
assumptions:

|                         |  |                                       |      |                            |  |            |      |            |  |            |      |            |  |  |      |   |  |  |      |   |  |  |      |  
|------------------------ |  | ------------------------------------- | ---- | -------------------------- |  | ---------- | ---- | ---------- |  | ---------- | ---- | ---------- |  |  | ---- | - |  |  | ---- | - |  |  | ---- | -
|                         |  | Employee Stock Options Granted During |      | ESPP Shares Granted During
|                         |  |                                       |      |                           
|                         |  | Year Ended                            |      | Year Ended                 |  | Year Ended |      | Year Ended |  | Year Ended |      | Year Ended
|                         |  | June 29,                              |      | June 30,                   |  | July 1,    |      | June 29,   |  | June 30,   |      | July 1,   
|                         |  | 2002                                  |      | 2001                       |  | 2000       |      | 2002       |  | 2001       |      | 2000      
|                         |  |                                       |      |                            |  |            |      |            |  |            |      |           
|Expected life (in years) |  |                                       | 4    |                            |  |            | 4    |            |  |            | 4    |            |  |  | 1    |   |  |  | 1    |   |  |  | 1    |  
|Risk-free interest rate  |  |                                       | 4.22 | %                          |  |            | 5.06 | %          |  |            | 6.31 | %          |  |  | 2.85 | % |  |  | 4.81 | % |  |  | 6.17 | %
|Expected volatility      |  |                                       | 70   | %                          |  |            | 70   | %          |  |            | 70   | %          |  |  | 70   | % |  |  | 70   | % |  |  | 70   | %
|Dividends                |  |                                       |     |                            |  |            |     |            |  |            |     |            |  |  |     |   |  |  |     |   |  |  |     |  

The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected volatility of the stock
price. Because the Companys stock based awards have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimates, in
the opinion of management, the existing models do not necessarily provide a
reliable single measure of the fair value of its stock based awards. The
weighted average estimated fair value of options granted during fiscal 2002,
2001 and 2000 was $1.31, $17.30 and $7.99, respectively. The weighted average
estimated fair value of shares granted under the ESPP was $1.08 during fiscal
2002 and was $6.54 during 2001 and fiscal 2000.

8.Income Taxes

The provision for income taxes consists of the following:

|                   |         |                         |   |                |       |            |   |            |       |  |   |     |     | 
|------------------ | ------- | ----------------------- | - | -------------- | ----- | ---------- | - | ---------- | ----- |  | - | --- | --- | 
|                   |         |                         |   | Year Ended     |       | Year Ended |   | Year Ended
|                   |         |                         |   | June 29,       |       | June 30,   |   | July 1,   
|                   |         |                         |   | 2002           |       | 2001       |   | 2000      
|                   |         |                         |   |                |       |            |   |           
|                   |         |                         |   | (In thousands)
|Current provision: |         |                         |   |                |       |            |   |            |       |  |   |    
|                   | State   |                         | $ | 250            |       |            | $ | 250        |       |  | $ |    |    
|                   | Foreign |                         |   | 800            |       |            |   | 2,750      |       |  |   | 200 |    
|                   |         |                         |   |                |       |            |   |            |       |  |   |     |    
|                   |         | Total current provision |   | $              | 1,050 |            |   | $          | 3,000 |  |   | $   | 200 | 
|                   |         |                         |   |                |       |            |   |            |       |  |   |     |    

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

|                                                         |       |   |                |       |            |   |            |       |  |   |         |     | 
|-------------------------------------------------------- | ----- | - | -------------- | ----- | ---------- | - | ---------- | ----- |  | - | ------- | --- | 
|                                                         |       |   | Year Ended     |       | Year Ended |   | Year Ended
|                                                         |       |   | June 29,       |       | June 30,   |   | July 1,   
|                                                         |       |   | 2002           |       | 2001       |   | 2000      
|                                                         |       |   |                |       |            |   |           
|                                                         |       |   | (In thousands)
|Tax benefit at federal statutory rate                    |       | $ | (31,689        | )     |            | $ | (43,037    | )     |  | $ | (21,053 | )  
|Foreign taxes                                            |       |   | 800            |       |            |   | 2,750      |       |  |   | 200     |    
|State taxes                                              |       |   | 250            |       |            |   | 250        |       |  |   |        |    
|In-process research and development                      |       |   |               |       |            |   | 4,279      |       |  |   |        |    
|Unbenefitted net operating losses, reserves and
accruals |       |   | 31,689         |       |            |   | 38,758     |       |  |   | 21,053  |    
|                                                         |       |   |                |       |            |   |            |       |  |   |         |    
|                                                         | Total |   | $              | 1,050 |            |   | $          | 3,000 |  |   | $       | 200 | 
|                                                         |       |   |                |       |            |   |            |       |  |   |         |    

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

|                                               |  |   |                |  |          |   |        |  | 
|---------------------------------------------- |  | - | -------------- |  | -------- | - | ------ |  | 
|                                               |  |   | June 29,       |  | June 30,
|                                               |  |   | 2002           |  | 2001    
|                                               |  |   |                |  |         
|                                               |  |   | (In thousands)
|Net operating loss carryforwards               |  | $ | 54,359         |  |          | $ | 24,264 | 
|Reserves and accruals not currently deductible |  |   | 19,019         |  |          |   | 30,651 | 
|Deferred compensation                          |  |   |               |  |          |   | 7,908  | 
|Research credit carryforwards                  |  |   | 7,754          |  |          |   | 2,424  | 
|Other                                          |  |   | 4,309          |  |          |   | 1,091  | 
|                                               |  |   |                |  |          |   |        | 
|                                               |  |   | 85,441         |  |          |   | 66,338 | 

43



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|                    |                        |  |                |   |          |  |         |   | 
|------------------- | ---------------------- |  | -------------- | - | -------- |  | ------- | - | 
|                    |                        |  | June 29,       |   | June 30,
|                    |                        |  | 2002           |   | 2001    
|                    |                        |  |                |   |         
|                    |                        |  | (In thousands)
|Valuation allowance |                        |  | (85,441        | ) |          |  | (66,338 | )
|                    |                        |  |                |   |          |  |         |  
|                    | Net deferred tax asset |  | $              |  |          |  | $       |  | 
|                    |                        |  |                |   |          |  |         |  

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 $19.1 million, $39.4 million and
$24.9 million during fiscal 2002, fiscal 2001 and fiscal 2000, respectively.

As of June 29, 2002, the Company had net operating loss carryforwards for
federal and state purposes of $131.2 million and $147.0 million, respectively.
The Company also had federal and state research and development tax credit
carryforwards of $4.7 million and $4.6 million, respectively. 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.

9.401(k) 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 of up to 15% of their
annual eligible compensation subject to certain limitations prescribed by the
Internal Revenue Code. The Company does not make any matching contributions to
the Plan.

10.Business Segment Reporting

The Company operates in one operating segment, handheld computing, with
its headquarters and most of its operations located in the United States. The
Company also conducts sales, marketing and customer service activities
throughout the world. Geographic revenue information is based on the location
of the end customer. Geographic long-lived assets information is based on the
physical location of the assets at the end of each period. Revenue from
unaffiliated customers and long-lived assets by geographic region are as
follows (in thousands):

|         |                   |       |   |            |         |            |   |            |         |  |   |        |         | 
|-------- | ----------------- | ----- | - | ---------- | ------- | ---------- | - | ---------- | ------- |  | - | ------ | ------- | 
|         |                   |       |   | Year Ended |         | Year Ended |   | Year Ended
|         |                   |       |   | June 29,   |         | June 30,   |   | July 1,   
|         |                   |       |   | 2002       |         | 2001       |   | 2000      
|         |                   |       |   |            |         |            |   |           
|Revenue: |                   |       |   |            |         |            |   |            |         |  |   |       
|         | North America     |       | $ | 202,435    |         |            | $ | 298,688    |         |  | $ | 97,976 |        
|         | Rest of the world |       |   | 38,216     |         |            |   | 72,255     |         |  |   | 3,961  |        
|         |                   |       |   |            |         |            |   |            |         |  |   |       
|         |                   | Total |   | $          | 240,651 |            |   | $          | 370,943 |  |   | $      | 101,937 | 
|         |                   |       |   |            |         |            |   |            |         |  |   |        |        

|                   |                   |       |   |                       |        |          |   |        |        | 
|------------------ | ----------------- | ----- | - | --------------------- | ------ | -------- | - | ------ | ------ | 
|                   |                   |       |   | June 29,              |        | June 30,
|                   |                   |       |   | 2002                  |        | 2001    
|                   |                   |       |   |                       |        |         
|                   |                   |       |   | (Restatedsee
Note 3) |        |         
|Long-Lived Assets: |                   |       |   |                       |        |          |   |       
|                   | North America     |       | $ | 92,632                |        |          | $ | 14,307 |       
|                   | Rest of the world |       |   | 1,847                 |        |          |   | 1,988  |       
|                   |                   |       |   |                       |        |          |   |       
|                   |                   | Total |   | $                     | 94,479 |          |   | $      | 16,295 | 
|                   |                   |       |   |                       |        |          |   |        |       

During fiscal 2002 one customer accounted for 15% of revenue. The same
customer plus two others accounted for 14%, 13%, and 10% of revenue during
fiscal 2001 and 14%, 15% and 11% of revenue during fiscal 2000.

11.Litigation

The Company is subject to legal proceedings, claims, and litigation
arising in the ordinary course of business. While the outcome of these matters
is currently not determinable, management does not expect that the ultimate
costs to resolve these matters will have a material adverse effect on the
Companys financial position, results of operations, or cash flows.

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On March 14, 2001, NCR Corporation filed suit against Handspring and Palm,
Inc. in the United States District Court for the District of Delaware. The
complaint alleges infringement of two U.S. patents. The complaint seeks
unspecified compensatory and treble damages and to permanently enjoin the
defendants from infringing the patents in the future. The Company filed an
answer on April 30, 2001, denying NCRs allegations and asserting counterclaims
for declaratory judgments that the Company does not infringe the patents in
suit, that the patents in suit are invalid, and that they are unenforceable. On
June 14, 2002, following the retirement of the judge hearing the case, the case
was referred to a magistrate. On July 11, 2002, the magistrate granted the
Companys motion for summary judgment finding that the Company did not infringe
the patents. On August 29, 2002, NCR filed an objection to the magistrates
ruling and the Company is currently preparing a response to that objection.

On June 19, 2001, DataQuill Limited filed suit against Handspring and
Kyocera Wireless Corp. in the United States District Court for the Northern
District of Illinois. The complaint alleges infringement of one U.S. Patent.
The complaint seeks unspecified compensatory and treble damages and to
permanently enjoin the defendants from infringing the patent in the future. The
Company filed an answer on August 1, 2001, denying DataQuills allegations and
asserting counterclaims for declaratory judgments that the Company does not
infringe the patent in suit, that the patent in suit is invalid, and that it is
unenforceable. On August 7, 2002, the Company filed motions for summary
judgment and expects a ruling shortly. The case against the other defendant,
Kyocera Wireless Corp., has been severed and transferred to the United States
District Court for the Southern District of California, where it pends
separately.

On August 13, 2001, Handspring and two of its officers were named as
defendants in a purported securities class action lawsuit filed in United
States District Court for the Southern District of New York. On September 6,
2001, a substantially identical suit was filed. The complaints assert that the
prospectus for the Companys June 20, 2000 initial public offering failed to
disclose certain alleged actions by the underwriters for the offering. The
complaints allege claims against the Company and two of its officers under
Sections 11 and 15 of the Securities Act of 1933, as amended, and under Section
10(b) and Section 20(a) of the Securities Exchange Act of 1934, as amended. The
complaints also name as defendants the underwriters for the Handsprings
initial public offering. The Company has sought indemnification from its
underwriters pursuant to the Underwriting Agreement dated as of June 20, 2000
with the underwriters in connection with the Companys initial public offering.
These cases have been consolidated with many cases brought on similar grounds
against other parties in the United States District Court for the Southern
District of New York. A Motion to Dismiss has been filed by a number of
defendants, including Handspring and its named officers, but the court has not
yet ruled on the motion.

On September 18, 2002, Research in Motion filed suit against Handspring in
the United States District Court for the District of Delaware. The complaint
alleges infringement of one U.S. patent. The complaint seeks unspecified
compensatory and treble damages and to permanently enjoin Handspring from
infringing the patents in the future. Handspring has not yet filed an answer to
the complaint.

12.Selected Quarterly Financial Data (Unaudited)

The following table presents unaudited quarterly financial information for
each of the quarters of the fiscal years ended June 29, 2002 and June 30, 2001.
The Company believes this information reflects a fair presentation of such
interim information in accordance with generally accepted accounting principles
and the rules and regulations of the Securities and Exchange Commission. The
results of any quarter are not necessarily indicative of the operating results
for any future period. Selected unaudited quarterly results were as follows:

|                                                                                          |  |                                       |         |           |  |          |         |           |  |          |         |           |  |          |         |           |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|----------------------------------------------------------------------------------------- |  | ------------------------------------- | ------- | --------- |  | -------- | ------- | --------- |  | -------- | ------- | --------- |  | -------- | ------- | --------- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                                          |  | Three Months Ended                   
|                                                                                          |  |                                      
|                                                                                          |  | June 29,                              |         | March 30, |  | Dec. 29, |         | Sept. 29, |  | June 30, |         | March 31, |  | Dec. 30, |         | Sept. 30,
|                                                                                          |  | 2002                                  |         | 2002      |  | 2001     |         | 2001      |  | 2001     |         | 2001      |  | 2000     |         | 2000     
|                                                                                          |  |                                       |         |           |  |          |         |           |  |          |         |           |  |          |         |          
|                                                                                          |  | (In thousands, except per share data)
|Revenue                                                                                   |  | $                                     | 49,010  |           |  | $        | 59,715  |           |  | $        | 70,512  |           |  | $        | 61,414  |           |  | $ | 60,990  |   |  | $ | 123,820 |   |  | $ | 115,616 |   |  | $ | 70,517  |  
|Gross profit (loss) excluding
amortization of deferred
stock compensation and
intangibles |  |                                       | 12,027  |           |  |          | 5,474   |           |  |          | 11,921  |           |  |          | 5,312   |           |  |   | (19,114 | ) |  |   | 39,404  |   |  |   | 36,333  |   |  |   | 22,009  |  
|Net loss                                                                                  |  |                                       | (15,393 | )         |  |          | (23,660 | )         |  |          | (19,828 | )         |  |          | (32,708 | )         |  |   | (67,167 | ) |  |   | (27,229 | ) |  |   | (15,194 | ) |  |   | (16,373 | )
|Basic and diluted net loss per
share                                                      |  |                                       | (0.11   | )         |  |          | (0.18   | )         |  |          | (0.16   | )         |  |          | (0.28   | )         |  |   | (0.60   | ) |  |   | (0.26   | ) |  |   | (0.15   | ) |  |   | (0.17   | )

45



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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.

| |  |                  |  |                                         
| |  | ---------------- |  | ----------------------------------------
| |  | HANDSPRING, INC.
| |  |                  |  |                                         
| |  | By:              |  | /s/ DONNA L. DUBINSKY                   
| |  |                  |  | Donna L. DubinskyChief Executive Officer

Date: February 11, 2003

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CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Donna L. Dubinsky, certify that:



| |                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. I have reviewed the Annual Report on Form 10-K/A of Handspring, Inc.                                                                                                                                                                                                                                                  
|
| | 2. Based on my knowledge, the Annual Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
the Annual Report.
|
| | 3. Based on my knowledge, the financial statements, and other financial
information included in the Annual Report, fairly present in all material
respects, the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in the Annual Report.                  

| |  |                                         
| |  | ----------------------------------------
| |  | /s/ DONNA L. DUBINSKY                   
| |  | Donna L. DubinskyChief Executive Officer

Date: February 11, 2003

47



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CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, William R. Slakey, certify that:



| |                                                                        
| | -----------------------------------------------------------------------
| | 1. I have reviewed the Annual Report on Form 10-K/A of Handspring, Inc.



| |                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. Based on my knowledge, the Annual Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
the Annual Report.



| |                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3. Based on my knowledge, the financial statements, and other financial
information included in the Annual Report, fairly present in all material
respects, the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in the Annual Report.

| |  |                                                            
| |  | -----------------------------------------------------------
| |  | /s/ WILLIAM R. SLAKEY                                      
| |  | William R. SlakeyVice President and Chief Financial Officer

Date: February 11, 2003

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CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Donna L. Dubinsky, certify that the Annual Report on Form 10-K/A for
the fiscal year ended June 29, 2002 fully complies with the requirements in
Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, and that the
information contained in such Annual Report fairly presents, in all material
respects, the financial condition and results of operations of Handspring, Inc.
for the periods being presented.

|                                        
|----------------------------------------
|/s/ DONNA L. DUBINSKY                   
|Donna L. DubinskyChief Executive Officer

Date: February 11, 2003

49



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CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, William R. Slakey, certify that the Annual Report on Form 10-K/A for
the fiscal year ended June 29, 2002 fully complies with the requirements in
Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, and that the
information contained in such Annual Report fairly presents, in all material
respects, the financial condition and results of operations of Handspring, Inc.
for the periods being presented.

| |  |                                                            
| |  | -----------------------------------------------------------
| |  | /s/ WILLIAM R. SLAKEY                                      
| |  | William R. SlakeyVice President and Chief Financial Officer

Date: February 11, 2003

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EXHIBIT INDEX

|        |  |   |  |                                                                                                                                                                                                                                 
|------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  |                                                                                                                                                                                                                                 
|Number  |  |   |  | Exhibit Title                                                                                                                                                                                                                   
|        |  |   |  |                                                                                                                                                                                                                                 
|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 20, 2000 (the
Form S-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 April 10, 2001(2)                                                                                                                                
|10.8    |  |  |  | Standard Manufacturing Agreement between Registrant and Solectron (de Mexico), dated June 11, 2002 (4)                                                                                                                        
|10.9    |  |  |  | Offer Letter of Employment between Registrant and William Slakey, dated July 26, 2002* (4)                                                                                                                                      
|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   |  |  |  | Reserved                                                                                                                                                                                                                        
|10.17   |  |  |  | Master Purchase Agreement between Registrant and Wavecom Inc., dated June 12, 2001 (4)                                                                                                                                        
|10.18   |  |  |  | Amendment 1 to Master Purchase Agreement between Registrant and Wavecom Inc., dated January 22, 2002 (4)                                                                                                                      
|10.19   |  |  |  | Reserved                                                                                                                                                                                                                        
|10.20   |  |  |  | Lease Agreement (Building 2) between Registrant and M-F Downtown Sunnyvale, LLC, dated as of February 14,
2001(3)                                                                                                              
|10.21   |  |  |  | Lease Agreement (Building 3) between Registrant and M-F Downtown Sunnyvale, LLC, dated as of February 14,
2001(3)                                                                                                              
|10.22   |  |  |  | Standby Letter Of Credit (Building 2, Security Deposit) Between Registrant And Wells Fargo Bank, National
Association(3)                                                                                                        
|10.23   |  |  |  | Standby Letter of Credit (Building 2, Tenant Improvements) between Registrant and Wells Fargo Bank,
National Association(3)                                                                                                     
|10.24   |  |  |  | Standby Letter of Credit (Building 3, Security Deposit) between Registrant and Wells Fargo Bank, National
Association(3)                                                                                                        
|10.25   |  |  |  | Standby Letter of Credit (Building 3, Tenant Improvements) between Registrant and Wells Fargo Bank,
National Association(3)                                                                                                     
|10.26   |  |  |  | Form of Addendum to Standby Letter of Credit between Registrant and Wells Fargo Bank, National
Association(3)                                                                                                                   

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|        |  |   |  |                                                                                                                                                                                                                                                                     
|------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  |                                                                                                                                                                                                                                                                     
|Number  |  |   |  | Exhibit Title                                                                                                                                                                                                                                                       
|        |  |   |  |                                                                                                                                                                                                                                                                     
|10.27   |  |  |  | Securities Account Control Agreement among Registrant, Wells Fargo Bank, National Association, acting
through its Investment Group and Wells Fargo Bank, National Association, acting through its Peninsula
Technology RCBO Office, dated as of February 16, 2001(3)
|10.28   |  |  |  | Security Agreement between Registrant and Wells Fargo Bank, National Association, dated as of February 16,
2001(3)                                                                                                                                                  
|10.29   |  |  |  | Addendum to Security Agreement between Registrant and Wells Fargo Bank, National Association, dated as of
February 16, 2001(3)                                                                                                                                      
|10.30   |  |  |  | Amendment to Lease Agreement (Building 2) between Registrant and M-F Downtown Sunnyvale, LLC, dated as of
July 12, 2002 (4)                                                                                                                                         
|10.31   |  |  |  | Amendment to Lease Agreement (Building 3) between Registrant and M-F Downtown Sunnyvale, LLC, dated as of
July 12, 2002 (4)                                                                                                                                         
|21.1    |  |  |  | List of Subsidiaries of Registrant (4)                                                                                                                                                                                                                              
|23.2    |  |  |  | Consent of PricewaterhouseCoopers LLP (5)                                                                                                                                                                                                                           



---

|*   |  | 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 20, 2000.                                                                                                                                   
|   
|(2) |  | Incorporated by reference to the exhibit with the same number to our
Report on Form 10-K, filed on September 28, 2001.                                                                                                                                                                                   
|   
|(3) |  | Incorporated by reference to the exhibit with the same number to our
Report on Form 10-Q, filed on May 4, 2001.                                                                                                                                                                                          
|   
|(4) |  | Filed with the Form 10-K on
September 27, 2002 and incorporated herein by reference.                                                                                                                                                                                                                     
|   
|(5) |  | Filed with this Form 10-K/A.                                                                                                                                                                                                                                                                             

52